IVR - Earnings call transcript Q4 2018 | Invesco Mortgage Capital Inc.

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Operator

Welcome to the Invesco Mortgage Capital Inc. Fourth Quarter 2018 Investor Conference Call. All participants will be in listen-only mode until the question-and-answer session. [Operator Instructions] Now I would like to turn your call over to Brandon Burke, Investor Relations. Mr. the begin may you call. Burke

Brandon Burke

as welcome Thank concluding prepared fourth are remarks Invesco to with us, Capital during the minutes question-and-answer the XXXX you, delighted with earnings before our joined I the and quarter and call. Mortgage team session. forward several to The you look we next you've sharing management

Chief Brian Chief Joining our President; Collins, our Executive Officer; Financial Dave Officer. me Officer; Kevin today and are John Anzalone, Operating Lyle, Investment Chief our Phegley, Norris, our our Officer; Chief Lee

we to Private forward-looking Mortgage Before Invesco earnings direct attention within statements Litigation to in statements begin, Securities discusses in made of of Act Reform are regarding which call Capital our the meaning of that XXXX. your this I would conference Statements detail. are like slide not the presentation, forward-looking facts two historical

Financial and attributable We consider annual not be not that risks, and Forward-looking which identified and or or by forward-looking urge Analysis Results Again, site the expectations. are and at out our presentation All no of in invescomortgagecapital.com site link, guarantees carefully not also forward-looking disclosure on make may any Forward-Looking over today. There expressly www.sec.gov. and slides the our available us presentation CEO, you statements webcast on on inaccurate. we welcome thank statements John are and written to or our under that and are view to risks of oral Management's reports We any And and expressly Operations on John? report Discussion of QX, XX-K Form XX-Q, can differ forward-looking joining actual may select at the Web Statements, disclaim that assurance on statements Condition statement quarterly and to Form the our the they Risk call the audio. click qualified SEC you Web results at slide Relations update will Factors, information to turn home rely captions, caution options any top assumptions. from There the unduly the on involve are investors in materially public tab the turns for for earnings notice. the the if to the you our the can you cautionary Investor XXXX be presentation page. you will To access later find both today presentation any obligation Anzalone. this to I and us uncertainties,

John Anzalone

as Capital's well a to everyone to as from fourth capital quarter. go fourth through the spreads and over quarter portfolio, had during on the Brian deployment recent particularly The sharply in during This some results like earnings morning, fourth our outlook provide recap the who detail, of the Norris, a call. to call a Mortgage little update Invesco would Good successful and more I turning I'll to in before color our welcome an on We portfolio will of providing volatility rough financial mortgage nearly that our our the raise. a across investments no experienced X.X% saw our and of agency assets, treasuries. risk quarter exception. were wider underperforming decline entire book impacted our all quarter, the value led markets mortgages the proceeds

across others. Brexit, host a the assets in reflected underlying amongst turmoil fundamental our markets action by government the caused of Importantly, macro uncertainties factors, fed investments policy, due or credit of any was this shutdown, quality deterioration trade price to surrounding not policy, the

quarter half since the to these book of As the concern factors over fourth decline. our we a has recovered weeks, meaningful saw recede recovery recent and began in about value

we $X.XX with dividend. executed we by during to our easily The an hybrid portfolio repositioning $X.XX approximately agency quarter basis core $X.XX buying of XX-year yielding to agency out and covering mortgages the interest attractive reflects On increase and per increased share, second-half more increase hedging coupon our arm of the the costs. ROEs. for XXXX, allowed our moving positive net the side, strategy lower despite earnings mortgages, portfolio XX current margin active in points rotation agency by and CMBS funding interest and rate This our

outlook of Our and remain positive, fundamentals for our is residential portfolio -- seasoned estate credit both housing for credit the supportive real quarter quite the commercial as assets. in

be February, and by a to capitalize on assets. which a extent executed of to end, the rate lesser a offering on To in early in decreased million us Additionally, attractive should opportunities mortgages, agency allowed in mortgages. agency supportive more credit volatility we brought [indiscernible] $XXX that CMBS, equity agency

accretive expect this the been offering to and earnings we've momentum earnings be to positive solidly maintain experiencing. us to help We [ph]

Given money putting this on work into focus capital new been this in the to we minimal securities, have very deploying agency drag to earnings. successful future with

value extremely believe book are sector, in we a we positioned performance environment. was current this for well While our that quarter for the difficult

diversification well returns the across risk-adjusted to within both and Our commercial as best the allowed mortgage investments the agency credit us seek has residential as market.

our Looking risk-adjusted will identify help ahead, continue us returns, to which shareholders. to should beneficial attractive we strategy our prove believe

Brian Now, turn call let our the Officer, Chief over to me Norris. Investment

Brian Norris

total start broad a portfolio, asset I'll slide allocations and the provides breakdown on our of an both equity sector John. on basis. Thanks, in which six,

pledged to that have effective increased levels fourth rotation net higher attractive continue in started the investment $X X.X RMBS to portfolio our to we indicated widening for company. quarter assets. from costs, can upper-left-hand chart increase and in of to borrowing rotation modestly agency within to remains the long-term of the shifts the able improving led assets pie and earnings as as CMBS allocation in were CMBS, the financing. portfolio the agency spread our both power the an quarter-over-quarter seen accretive our margin, our we the we the leverage repo remained The improved credit of corner, billion benefits balance agency third and equity quarter, have amount allocation to even ROEs total agency on earnings. increased into portfolio balanced, times Overall, buckets in during As despite X.X which both interest as by the yield of well agencies be and

on the slide then was slide XX-year the production newer portfolio specified in portfolio. close This second-half of XX% the agency repositioning of in pools. pools comprise duration now our specified to corner reflected Moving to to and within out-of-seasoned RMBS during the and as agency XXXX our collateral, RMBS pie shorter mostly the upper-left-hand seven, chart XX-year hybrid XX-year is of

of remain attractive favor XXXX, remain priced balance, Valuations forward class, hedged given attractive stories to out on With geographic-specific continue the low widening ROEs agency now, in to further are to an policy spread volatility and as loan for of curve. LTV, We we the impact and fed RMBS approximately as expect hold asset remains XX%. help are hikes mitigate prepayments. monetary

with add sector at to of of quarter add it anticipate allowing benefits for the substantial given a XX/XX, brief the RMBS given slide securities prepaid during total hedged form our agency flows eight, predominately sector levels CMBS $XXX as near to attractive agency or exposure embedded agency purchased financing in and agency fourth nature to penalties brought and Turning terms. attractive us the the levels at its to prepayment first continuing CMBS to billion few quarter, in remained We assets on of we the and provisions. our during provides book, the our protection CMBS stable we a which close attractive ROEs in the exposure comments lock-out of as complements $X Spreads exposure XX-year XXXX million these the XX%. widened believe portfolio cash quarter the to

on combination bonds well-seasoned triple A financed nine, Loan CMBS A via repo, triple double bounds Home B at our and Moving consists the on to of commercial Bank. credit a and A single slide Federal financed of portfolio and

secondary quarter fourth able limited we teens the the through subordinate volatility were higher $XXX While with approximately new market, quarter the issue during low-to-mid the to largely in in CMBS of add add million during market. to ROEs opportunities the

particularly and million of real at supportive credit average is the LTV the weighted portfolio less embedded quarter price our property as portfolio. since CMBS end on Fundamentals years. balance maturity issuance commercial seasoned remained left average appreciation remained our the commercial down Our with of the a quarter commercial than during the loan highlights given leverage XX of reduces which unchanged our our portfolio a shows assets improve Slide on estate of quality $XX approximately nature has in two and of XX%. of holdings. our to assets, The chart continued to

with on benefiting seasoned price CMBS of nature seasoned the property to due over loan portfolio. subordinate our spread or increased Slide upgrades, earlier. right pay to allocation participation Re-REMIC, well-diversified XX% a assets secured in loan XXXX a bonds X% in GSE of remains and in in the during Prime in XX% $XX provided purchased paper, new legacy residential some rating with appreciation, de-leveraging in approximately chart paper the CRT. are covers vintage new CRT Prime XX% and interest agency embedded the million from by quarter While cases opportunities XX% highlights widening accretive book downs. issue the $XX from in Positively, portfolio add This million spreads at assets on fourth Spread the XXXX bonds MSRs. and our levels demand and we post to as duration, XX contracting credit issue investor

low some one sheets growth our costs. offset are of against protected provides low at the upgraded vintage across the remained agency due residential a healthy portfolio. coupon, since slide, to portfolio. bottom in the largely by of Fundamentals as And majority left. balance affordability see price the rising at accelerating our investments detail Slide lower the the The borrower sector with and rating this right percent Seventy CRT credit our helping default with are are The can prices. and home as rates. chart changes As significant investments. earnings chart of least the rates the our a on shown underlying five in you credit of on here issuance mortgage reflects appreciation supportive to home of holdings durations upgrades very from wage the around on of have XX well floating distribution rate quality declining paying been are result funding chart the as the combined

in high legacy yields. Our paper consists that recovery we the early Prime at book of purchased positions Alt-A relatively and

quality earlier newly vintages in concentrated are post-crisis than spread positions CRT issued credit securities. which higher lower have and our While volatility

and quarter end, billion $X.X Moving by and to billion Bank. of funding of risk of and $XX.X with billion outstanding secured during on funding summarizes which associated At $X.X slide we interest strategies. $XX.X had due parties the we repo quarter. held repo To increased reduce Loan changes cost, notional the Home which of swaps with in XX counter our Federal XX, to financing financing we hedging billion rate

Our variable provide of investors. $X.X to net swaps degree of and a our the ultimately provides interest to in addition to rate rate earnings large margin billion stability stream investments our our we interest of

would were I equity equity to year. million with our provide and proceeds issue sectors. approximately fully were brief specified assets February $XX.X XX-year update equity on able the commercial we We The common our our Including earnings. deployment of of to agency pools common to million Approximately raise of allocated levels proceeds across accretive like this at for which successful. residential exercise within timeframe credit the assets. target assets sold both full was a and of a remainder target RMBS XX% deployment the closed the of CMBS within invest Xth the new Lastly, $XXX on of raising into the allocated to agency reasonable the to proceeds

to increased borrowing hedge help our to costs. in billion $X.X our addition our portfolio have we In protect asset NIM purchases, from changes by

of attractive long-term company and achieve attractive With ends the company goals power given stability. book target of believe stated assets, and in ROE well the is our equity That positioned remarks. value additional hedge we my prepared earnings raise our the the to income

Now, we will Q&A. open for line the

Operator

from Instructions] first And our comes [Operator Harter of Doug question Credit Suisse.

open. Your line is

Doug Harter

most has you of just in whether for Thanks. asset XQ thinking that more improvement been of portfolio might be terms rotation, about just there's results? Can where talk of yield you the kind reflected in about or room

Brian Norris

mostly think fell through and a lot thanks, of this rotate Yes, quarter fallen the produces -- as made I or the and point, exposures is Doug. in worked and XX-year fourth book opportunities We've at see the we've there that lower at to the Brian, kind of yielding point. that rotation mostly are slides the out as in low rotation our it hybrid this pretty have fewer this arm of assets rates through so you

Doug Harter

the about quarter, accretively you the of about earnings thinking deployed. tell the how had you're you kind us Great. commentary your was And the this plus then the dividend? dividend just capital strong given just thinking Can for core that

John Anzalone

thinking of Board there core I so long the have as we're sets John. pretty be I'll mean that. Right. so we're between positively a thinking all, first Yes, point. this we dividend first. next positively this and the out earnings There's now time so put -- at I Yes, where But favorably is we'd pretty that just our about think as towards trends trajectory continue some declaration,

Doug Harter

Great. Thank you, John.

John Anzalone

Yes.

Operator

you. Thank

comes Our Eric next from of question Hagan KBW.

line open. is Your

Eric Hagen

kind I comments, just you Oh, great. for that as where little of the based just of the provide about reverse a you Thanks, at raised, can guess hopefully having end the result tell Thanks. morning. a can good sort can color comments of us. I on maybe but the Thanks the leverage deployment of engineer on capital deployment. stands made

Brian Norris

again. Brian It's Thanks. Eric. Sure,

As function our asset the number we've in past, noted mostly of of our leverage kind mix. a is

as into to so CMBS bit at more transition point, we will RBMS and higher. a tick leverage agency our little And this tend

fourth tick higher bit the quarter, would which the had During little But modestly widening. leverage a we the And fallen. bit, to raise, our have in and spread that leverage given reverse we've leverage higher. little spreads composition of number a did as agency tightened due certainly to anticipate seen recovered securities, predominantly was equity go

Eric Hagen

agency then higher, remarks in know buying seldom grows volatility Modestly as And in by and you you volatility know hedged your thanks. portfolio guys be bit I volatility, great, actually like a agency if just you to have that the swaptions. more, would, an maybe forward, But prepared that risk the expectation Thanks. things the I you low, what increase? portfolio besides for volatility in hedging consider would expect you to portfolio volatility but going expect higher said guys the your

John Anzalone

we you it Sure. typically been is can But have often. certainly not that something quite consider use, Yes, it's we doing. swaptions we and noted, as that something

mitigate is, do asset side, to to prepayment is help characteristics prefer we impact volatility convexity select of assets. the with or what So, pools specified on our to the favorable on characteristics

Eric Hagen

Okay, great. piece that's provide first buying color. you point they low the CRT then they you some a are do can on maybe that? the above high little or Are side, loss just LTV have LTV And or And Thanks. attachment loans?

Dave Lyle

is this hey, Lyle. Yes, Dave

lowest structures have Freddie and all It's any have in the between any credit over which or added standard LTV amount have sort and on high And -- We LTVs, done significant classes at. first back the or feel the what CRT it's that's M it's risk issuing -- we has we been so and high with we've our MXs, profile over time the exposure all don't class, as years they've LTV balanced additional we both. time mostly and of what -- portfolio, a own But LTV that MXs enhancement B of few But depends it's don't pretty portfolio. and changed. deals. Our enhancement credit really essentially a risk with in seen go Fannie looking you're grow on and mezzanine to have if it's that it the as shelf you delevered.

Eric Hagen

expect forward on upgrades then And bonds as going point upgrade, the after upgraded? -- -- issues the are when they on seasoning mean upgraded, maybe think ratings as we typically do to should those a individual potentially can I about how certain those get typically we or Great. when done get far see

Dave Lyle

run reports how and the own at at information have kind they been little look approach often see get of on a -- and monthly can points enhancement which upgrades We But the of trends of continued led of ratings. they going we seasoning we loan are the upgrades we rating bonds you when levels, there's the the on you the line, a us kind terms delinquencies at to their are that a of it's which continue down upgrades of if think in delevering, of agencies still indicators given do strong it's curve, to but happen. leading to collateral, have lot anticipate I Each kind room behind idea bonds, the in sort has review Frankly, so of unpredictable. rolling of you of necessarily because to an certain get amount don't fair know -- but coming on do -- next can of and look the performance. can kind

Eric Hagen

color, you. really That's helpful thank

Dave Lyle

Sure.

Operator

Cranston from Trevor Our next Securities. comes question JMP of

is open. Your line

Trevor Cranston

thanks. Hi,

portfolio. buckets portfolio you the comment accretive, Thanks. seeing the be you're is sound you given across the completed first another being attractiveness like comments rotation the lower on your investments and Given to largely that much new out one of continue of new raise could assets, the of all your pretty about potentially Can complete would for potential yielding deploy? and opportunities investment appetite capital they the if

John Anzalone

This is John.

we've I -- equity think approached equity to shareholders. do back always buying it both best we approach issuing what's frankly for and

it nature good. felt So, we accretive of very case, this the was buying we what -- was like in were

seeing on the think different all this just the the sectors So, all if I of we pretty you for we're most one, environment this of think securities. structured make bit the obviously sectors, certainly I we to likely opportunities about good decision those we but got for conditions we're of a to take the different if if pretty would same the breather, given pretty going sort a persist across. -- is with same little see outlook opportunity. and so And are listen the volatility good mean we positive then done just But,

Trevor Cranston

it. Got

the Thanks. purchased a guys little Okay, if Can issue $XX on opportunities and seeing quarter deals And the then side, -- or that says or that's currently? maybe you new resi color like on million it what add jumbo credit credit post-XXXX. some elaborate in around exactly that's so of in you're that helpful. fourth resi you the market

Dave Lyle

Yes, purchased again. the is investments did that's are The wide the that continued new bonds improve. many Dave they And repo AAAs, have we fourth leverage got on in there so available senior tranche target on there, correct. for the our pretty This prime to those spreads the jumbo as quarter terms of issue assets.

to is we border ROEs So, quarter. able firmed at a have yield a materially add hedge, so think there's asset, little materially because probably bit little we the pick agency those are more and a particular very, has very easy seen light. here than these a agencies credit credit there liquid -- we were theoretically first they in and bit less sort accretive market our a portfolio adding take are whereas good exposure. There investment it's with seniors nice that pretty more so agency a bit to to bonds. is think liquid to credit credit one and very, -- that Jumbo of I we is less small line it's because much That is is Prime profiles in risk clean CRT more of LIBOR profile CRT very about and floater components the obviously complement MBS our there month

be don't diversification Prime point the ROEs on risk portfolio they going it's to continue to the of to add pretty adding. Jumbo being so So, lot healthy a

if we probably are we adding. continue So

those CRT a obviously Jumbo are So amount expect and have Jumbo, non-QM Prime us but to most and of single they do that's classes. the spreads of risk asset perspective. deals do a we market to resi only the wouldn't terms, given add like we portfolio I to from in the where see We if Prime into significant accretive talks the credit our tighten so those the manage high But away continue securitizations. There fundamental overall kind the RPL opportunities. digits. REIT, of continue been are to lever well, assets relative funding the We unlevered from and like

REIT that the for other opportunities have. compelling very not So we to compared

Trevor Cranston

Got it.

last one then, And Okay. question.

to of guys duration the raise, capital can approximate you that you on the swaps added subsequent put detail on? hedges give that you a mentioned just the Thanks. Just the us

Dave Lyle

year we to seven XX duration of of added of to our kind from some swaps two the I in fourth Yes, year shorter years, longer kind mixed reflected book believe five the shorter ranges swaps. the quarter with to three one and hedges -- range mixture a swap like that in

Trevor Cranston

you. Okay, that helps. Thank

Operator

we line. questions And no the phone you. have Thank other from

Brandon Burke

would talk and to we'll I time. to Well, for you Thanks. Okay. us like everybody next thank joining

Operator

participation your conference. for you today's Thank in

wonderful disconnect may at time. You this a day. Have now

Invesco Mortgage Capital (IVR) 21 Feb 192018 Q4 Earnings call transcript