IVR - Earnings call transcript Q1 2019 | Invesco Mortgage Capital Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the Invesco Mortgage Capital Incorporated First Quarter 2019 Investor Conference Call. All participants will be in a listen-only mode until the question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded.

Now, I would like to turn the call over to Brandon Burke, Investor Relations. Mr. the begin may you call. Burke,

Brandon Burke

and welcome Thank concluding prepared first 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

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

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

involve and not Exchange the our on presentation to statements at QX to at by materially make, and assurance actual turns annual any if Form update results Factors, on consider they Forward-looking All you We Results invescomortgagecapital.com www.sec.gov. and will may be qualified and carefully the and earnings Risk website We disclaim be notice. access statements the public written forward-looking forward-looking website Commission’s of are captions information disclosure investors Condition There the are that today obligation Discussion Statements or any inaccurate. we expressly Securities attributable statements cautionary and to XXXX in expectations. oral no differ risks, any are are view forward-looking that To can available unduly presentation to our later on out caution on that uncertainties, this slide link. of and not any the identified expressly XX-Q, urge guarantees click assumptions. or statement us, Management’s rely Operations from which our under in to the and XX-K and on risks Form Analysis you quarterly Forward-Looking reports Financial report not

Investor the or tab us may of webcast and and select over to homepage. You the our There presentation our slides option joining the Relations I’ll for John? presentation now you top thank the at welcome Again for the audio. can under today the turn find you both the John and it CEO, either Anzalone. call

John Anzalone

over results Brian you. And quarter before Capital’s Invesco update earnings portfolio outlook to Norris, a to CIO, I as our call more an provide like everyone go will our our welcome first through in to Thank as I’d on call. to brief recap Mortgage our well the handing of detail. activity

a pleased book an to our We economic dividend start to IVR increase result leading that X.X% valuations was for driven across strong a quarter. per increase asset value, our delivering had $X.XX XXXX portfolio are to combined with the a This higher of return share. to by in X% announce X.X% in

financial our during despite the common share earnings core strong markets Our in our seasoned February. January the experienced volatility heightened stock to credit dividend in per portfolio The count offering enjoyed with December comfortably connection assets covering in increase new an in our of and successful quarter. of during subsided agency appreciation $X.XX and share increased

pool Our entirely positions. paper consists Agency protected as CMBS Agency almost prepayment did CMBS portfolio specified notable which our saw gains

on benefit seasoned our also side, from in fundamental credit positions quarter. the rebounded nicely CRT to CMBS these and during spreads On trends bonds the positive continue

factors and this run of $X.XX dividend to core rate. this are of increased support Our help rate several increased there recently earnings our topped $X.XX

These risk. was agencies bonds net while to helping well Our convexity into a interest timed. particularly and Agency to recent lower XX led out margin securities rotation Hybrid of mitigate in have yielding higher also pool ARM CMBS year specified

run invested wides rate, [ph]. higher Our capital those were fully to from while spreads proceeds raised in as February not December’s contributed we our has recovered also

While prepayment have speeds. both specified been pools reducing rates. factors, the impact effective seasonal broadly with at have that The CMBS as we of allocation lower well as our increased to faster Agency increased due to rates own along

our hedging in interest help was value, Finally, only net strategy protecting effective margin. book our protect not also but

impacts one are repo more in insulated of concentration month in one our track swaps, We our well from the which funding between given the basis closely volatility LIBOR three changes LIBOR in and costs. month

the the past One the of very was model. that of is value hybrid the few things during clear quarters

Our best the stream. consistent opportunities across producing been high mortgage in ability to quality the to allocate instrumental earning capital entire space has

some past to us capitalize had the our risk to take have but storm, on it – weather the management we was it volatility book to two not only allowed quarters, over. once during value While discipline but

of course, us is costs platform, market to our Of center our the access as breadth this shareholders. which flexibility the allows without to mortgage elevated incurring of

the that into In manager. tap fact and our a lowest value it – global our considering leading expense of our to ratio among tremendous asset shareholders peers low proposition is of resources expertise enables a the

to Looking to for ahead, our deliver and about continue future we our shareholders. results are strong the ability enthusiastic

Our and well CMBS would replicate credit portfolio that to is nearly be diversified the seasoned portfolio today. balanced with with impossible CMBS Agency

market will advantage continue further the they a us allowing the core of while support believe take opportunities earnings to progress mortgage we exist. in may our credit As wherever to cycle, into stream that we strong strategy

and the the here, over call activity detail. stop more portfolio I’ll over to Brian So go in turn to

Brian Norris

Slide portfolio the on our start broad the allocations equity provide asset sector which I’ll and breakdown on X, on of an total basis. both John. Thanks,

from allocation a total to agency a corner, With increase As XX% to pie balanced. in the agency allocation modest from quarter-over-quarter. On to increased indicated agencies XX% asset basis, credit XX% by and upper hand to assets chart our equity the assets XX%. in left well remains our

February CMBS. fourth attractive attractive a quarter Agency into Agency agency on as the common As and entry quarter deployment wider points. spreads the during the equity during both going of sectors produced raise from result RMBS capital ROEs predominantly were the

XXXX or roughly billion $X Our Agency our to XX% quarter CMBS total approximately the of end. quarter as assets of second have grown assets of since

XX% XX% year credit assets As and RMBS down reduced asset total to XX% a to from to allocation from XX%. agency ago one

agency the in With quarter-over-quarter asset X.X to times. modestly times allocation our increase increased from leverage X.X the

CMBS increase be both to continues reducing risk interest an the to rate leverage. volatility comfortable our in modest an assets RMBS complement spread attractive We credit agency to with increase Agency and in Given remain and widening.

we on power half a significant Slide the the our improved to first from The holdings year did and we to in XX benefited specified on pool pool timed, second pay-up collateral from X.X repositioning increase quarter. agency during XXXX prepaid the value quarter. specified RMBS the year of agency but into shifted pools. earnings proved over average only nearly increase the repositioning hybrid well a year TBA portfolio and our the Moving specified also as XX company, agency X, the within our Not the during be of of XX protection during holdings weighted point the

and company last significantly pools in to has This generic increase agency relatives on As interest increased environment prepay well, rates over two due our collateral. substantially technical weakening demand TBA. in as served to dampened the months for specified speeds protection hasn’t lower the the prepayment protected focus prepay

this upper favor the Slide Agency vast can of to to the hand makes loan help as X, impact up you our And majority continue prepayments. in left balance, mitigate from corner and pie We of specific of holdings. CMBS geographic the the see LTV stories chart,

for Although, volatility we monetary modestly class, valuations we lower, and Agency remains now, as policy XX%. attractive ROEs are hold environment fed to the low believe sector given are remains expect an forward out further hedged curve. higher and on as hikes of priced With the RMBS asset the volatility returns near low RMBS remain Agency are attractive

in the at in remain attractive low-double of We an Fannie led our hand the to nature levels ROEs to Mae the provisions. lower of Agency stable the financing fourth purchased believe sector spreads we see approximately to widened environment provides penalties DUS us exposure securities in CMBS as to the Spreads has CMBS Agency add in opportunities CMBS and billion. wider Agency program, form these attractive $XXX prepaid given Turning during allowing in the assets financing that million exposure hedged you and with protection and complements quarter RMBS quarter cash portfolio add and that first agency digits. increase prepayment to in in given continuing allocation levels, in lockout embedded during flows an the Slide table that at the as our sector. X, $X quarter to our its improving can attractive to the substantial of We the anticipate benefits to left the grown terms. predominately

Moving commercial credit Slide to X. on on

AA and single seasoned bonds Loan of Federal and Bank. combination BBB Our AAA the bonds repo CMBS well consists financed a financed portfolio A Home via and at of

a led to in to increased credit quarter from perspective fundamentals strong value gains. the perform Our holdings book continued very and the sector well during demand

GSE deleveraging post the X% paper downs. and XX% assets covers the residential In XX% we benefiting around helping rates are in our the the the our secured borrower home and quarter continue we than holdings levels, Slide $XX credit from detail issue price five remains by in at legacy of holdings. paper, in in is paid of declining portfolio. of able since to the of the loan Positively from the allocation spreads chart million now CMBS Fundamentals chart led in our to our result CRT portfolio combined accelerating are portfolio. The bonds rating credit upgrades assets. on benefit loan healthy CRT were Split the quality our opportunities. cases non-Agency more estate purchased wider purchase. loan between given Side a credit ROEs million issuance portfolio vintage spread demand growth underlying originated diversified strong two the our some quarter-over-quarter of a maturity balance right interest due with on residential seasoned as and with the least to upgrades and of loan million in supportive chart particularly low to down over fourth of of highlights issuance loan agency or GSE assets, appreciation, at in on affordability teens supportive our due our and credit as the of to Slide shown wage add XX% of reduces remaining default investor the appreciation from of as have assets reducing subordinate less the rating here our XX pay quality commercial performance Prime. provide Prime rates. in on the the our MSRs. $XXX distribution of years rating our in right left. CMBS fourth one XXXX and provided sheets to agency with Re-REMICs, our in low-to-mid from left million contracting quarter $XXX nature This real with upgrades, XX% indicating remains well widening portfolio. years. bonds lower by new property The The reflects since during significant credit $XX commercial XX during on XX duration, been holdings commercial approximately assets, embedded ago, rise spreads property during on were attractive investments. the offset million remain add seasoned two-thirds to price quarter mortgage the Spread while addition, opportunities as participation home agency embedded increased to holding investments and $XXX accretive Fundamentals prices. some to highlights price One portfolio CRT appreciation on leverage chart our as seasoning since the shows upgraded

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

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

hedging $X.X with our and Finally, billion through on XX, secured $XX.X Loan Slide outstanding Home XX counterparties billion summarizes the of Federal and Repo quarter At had strategy. Bank. financing financing of end, we

rate assets credit the risk reduce margin our $XX.X we portion for book. we the To by on terms Repo in swaps, net interest financing cost, with interest our during of changes increased held quarter. the which improved funding $XXX improving seen of have associated We million billion that notional

rates locking quarter of advantage swap in took the also longer during hedges. We by dated lower

assets our of of changes portion by mitigated month shifting between spread maturities one our and hedges impact in month have the while three swap portfolio accommodative in produces also LIBOR We along book, monetary the extending predictable Repo from the stream a more increase raise equity repositioning month positive in to receiving spread from the company’s prepared between month The rather ends of to one a our income LIBOR, to We and a three adjustments earnings LIBOR. to That this in reliable one dividend month shifts these stance. combination the power accretive and three quarter tightening than my as protects us XXXX our and month from increased February earnings in on of reliance an stream the with $X.XX. and policy $X.XX allowed to first believe remarks. a due

the line open Q&A. for we’ll Now,

Operator

Thank Instructions] comes you. from Credit [Operator question first with Doug Our Harter Suisse.

may go ahead. You

Doug Harter

Thanks. available your given that of portfolio When today ago. returns targeting do look given you at, kind how said I you – you’re first view off, of kind versus across guess the of months kind you three assets

Brian Norris

as I digits, would you assets. RMBS, I to Agency Dave there Kevin are is come or kind Brian. don’t teens during know, XX%, of of commentary. CMBS, the XX%. mentioned kind say low credit want ROEs is low-double Agency I say on please, if could This Doug. Thanks, Yes.

Kevin Collins

Yes. about to call a focusing well what on seeing happy and terms This anywhere in lesser XX%. issue to as extent. is we’re season as to it to there jump credit XX% new Kevin. low-double in in digits well, as I’m BBB lands. talk Mostly Really of CMBS

Dave Lyle

certainly, Yes. recovery for continued then mid some credit MXs we’ve to from non-QM, months The the our late lower three resi we see non-QM not a CRT, CRTBXs this I’d would of part very our about credit In not as SFR high-single to lot are of Dave value is other is rest market in digits attractive the But that relatively universe target type they levered this especially provide spread our see the double-digits point, resi the there, newer where kind last saw side, Non-rated really legacies think digits. continue And increasingly are opportunity upside to with tied high-single on attractive very the say right ROEs market least Legacies now, And time, book in to quality probably important we of vehicle. favorite the credit in of single be to jumbo of are a attractive going borderline widening pretty ROEs assets bit ago is we like subsectors and forward. those ROE. going at that view. year. digits especially it’s the than not mid-teens prime of versus maybe there. our are assets assets,

Doug Harter

have All right. earnings? help as of kind prepay the quarter. And magnitude then is increased that the size in second yields or of would Can you impact on kind

Dave Lyle

Yes.

significantly month’s was just So, The about we similar for XX%, prepayment XX-year next would Xs our I X.Xs next for days broadly just up anticipate believe report the and ago, speeds generic were received speeds XX%. and portfolio April in up were We market report. but up pretty month-over-month. few increase – month a a

$X.XX, that’s a so So, dividend of in our we and at believe was we repeatable. first our core set quarter earnings $X.XX the that

Doug Harter

you. Thank Great.

Operator

Thank you.

next from with comes Eric question Our KBW. Hagan

ahead. go may You

Eric Hagan

Good Thank morning. you, gentlemen.

with of that I leverage, be you commentary kind any portfolio face, the mortgage against on views guess right just around agency just comfortable guess comfort helpful? level in question how imply basis of that you. of with in it the basis gauging its with leverage backdrop would on guess kind sort you’re I again the two-fold. seems One on and mortgage Just portfolio the the is of I agency and their leverage your would basis is, the now. comfortable like Thank are

John Anzalone

John. is This Yes.

true. always we’ve agency always and with function as even that’s a the leverage mix is an think said, asset I of

of Agency increased. So, Brian mentioned little towards bit our like we’ve actually a XX-year book has the whereas portion down portion agency CMBS quarter, this moving CMBS went the more been as

no So, comfortable a all things volatility. a will levering risk more spread equal little Agency CMBS there’s bit slightly be because lot and more, less convexity

what function leverage that’s much we a – I more kind anticipate of so be just mix. think other So, But where than don’t asset of we are. might

Brian Norris

keep our we to for hybrid looking value we it’s and a the this think that way REIT to are best mind fact important managing financing I across in find that – portfolio. we Eric, the are

the cost agency looking for think focusing leverage I the are itself. on of while, So We book cheapest funds. on you’re really

So, – really but of that post collateral put we of we overall and leverage levering the change. the agencies, turns we very it’s may is book on leverage and the are of terms in minute

think went X.X%. we I from X.X% to

on don’t leverage credit. assets versus we on focused agencies what’s So, the the individual on. what’s that it view are we important leverage the It’s total on as that portfolio are leverage

Eric Hagan

go Fair enough. ahead. please, No

John Anzalone

on of you Eric, are think Yes. kind valuations fair mortgages about space. of and asked comment I’ll pretty valuations spreads and agency we Sure. that just in briefly kind there

think are now. valuations not potential, tightening for a still are ROEs kind there’s I lot but where room attractive, right of of

market withdrawal prepayment fed accepting market months over of and off the the we next largely the I that of from So have of lows priced is the the the speeds bounced think rates. although couple in is increasing fairly

that activity there. we’re mitigated a has seeing refinancing the So, bit

we’re So, the agency I with mortgages are spreads now. comfortable right pretty on think where

Eric Hagan

addressing Thanks Yes. follow-up. it. for Got that – that

So, of unencumbered much or you sticking guess the point? have theme, powder at assets just I kind leverage on dry do guys this how

Brian Norris

changes a that That’s basis. a daily number on

hard risk this run number, from but very pinpoint I we us management to a think it’s that standpoint. for

of our manage to way need through what the cash so on the our that And to VaR we of scenarios. which excess any see well in we measure what we unencumbered is keep in risk, is order as

Eric Hagan

I��m the it. sorry. Yes, ahead. commercial. And go Got

John Anzalone

All right.

credit and the has As over of been we mentioned, our exposure quarters. reduced RMBS to last assets couple agency to

our been. is than less whole, as a risky has portfolio, So, it

leverage. increasing pretty So, comfortable the we feel with

Eric Hagan

the on AAA it’s commercial credit, What XX%. kind credit. are how more Bank commercial I’m position you is the over-collateralized Loan it looks to just the FHLB I guess, position credit, you haircuts Federal the kind – at of on the of what around that if Home lever what but offers could that then much And Okay. by asking? wanted the like

Kevin Collins

guess is have Yes. I basically terms $X.XX Sure. in we advances. billion of things This how were, looking Kevin. there at we’re of

the going the with portfolio that us the the utilize look rates about margin funding as amount is to just stay is can nice So healthy interest And we and given we’ll is that leverage thing that there. fact to much very as attractive. are net

portfolio. way I think that So, really at look that the that’s we

Eric Hagan

like, there I from But Kevin. looks room? could is XX%. is leverage of position there? by Thanks, wiggle kind more go is mean, that tapped Is you it itself, around the that over-collateralized release, the or on standpoint a press out there

Kevin Collins

we unencumbered really on So, in look what things of as at is. we’ve terms holistically before cash our said

So, with. terms entity unencumbered it level, certain cash or what it’s we focused is of focused associated we’re what at an more of on that kind line where be set on our irrespective have and less in might lines company of aside

So, there. lot a to not focus

John Anzalone

The our intent cost is to of optimize funds.

Eric Hagan

Got it.

quarter And on update value book Okay. to-date? any

John Anzalone

think, I you but we not up slightly were. the third where it’s above at were so about So we’re can material, quarter, as above end it where of think we the

Eric Hagan

for Yes. comments. Appreciate you guys. the Great. it. Thank Thanks

Operator

you. Thank

Our final question comes from Trevor Cranston with JMP Securities.

You go may ahead.

Trevor Cranston

declined. Hi. the yield morning. I I a was Thanks. see cost effective Question funds asset both the the improve and on to surprised net guess interest margin, of Good little

this a I components So, color could quarter? wondering provide maybe little around what guys the bit for of drivers of those each of was Thanks. if you

Brian Norris

we quarter. swap first This the a hedge that were is saw. swap Brian. inversion the reposition We of side. the take the did Sure. advantage the we to kind in bit during on curve And I’ll cover book

in we continues paying result deploy still as from interest And maturities, yield repositioning bit a latter half capital kind lower did XXXX that levels which hedges. that be of a were were asset we quarter raise little of extend to the those the then the we on an in to did as and in of So, the that rate helped perspective well the really accretive that we the first more able February.

Dave Lyle

note tightened I’ll also points on on financing repo quarter on the that, spreads the Dave. basis one by more about credit average. first on add is our in XX This assets

a I so we well, until as so full little of out later some point them would benefit quarter, the that helping that tightening the bit in that realize won’t was of So QX.

Trevor Cranston

it. Got

be you to opportunities leaning Okay. That’s helpful. seeing. other in sounded you’re you asset how are Thanks. willing time still sort though classes. commentary within It the the continuing even agencies were the sort as maybe the be take relatively portfolio? allocation allocation on to the Then trending like overall towards today I opportunities Can asset attractive of guess there about given guys some you listening markets are are over how and of talk mix you’d where agency to seeing high

Brian Norris

– of where agencies, right that we’ll We volatility or as But in CMBS, that’s Trevor. searching to hybrid we that better a opportunities those not now, Thanks, but then around asset of something both we’re to flexibility they available. but Yes. at from with for spread and RMBS see obviously the from as kind prefer assets model, some to the about opportunities, end we be a to be come allocation higher still as tend maintain agencies of kind are certainly certainly for add as bit look last those continue past. tended They’ve been able some perspective two the And fewer we accretive assets. overly continue little far total be perspective, over a opportunities to there. assets lower necessarily or risk we’ll to a quarter credit and to we’re the in concerned monitoring we’ve and

Trevor Cranston

Great.

you. Appreciate Okay. color. Thank the

Operator

questions. Thank for this I John closing there time, will to now Anzalone the no further you. over are At back call turn Mr. remarks.

John Anzalone

everybody quarter All your forward and Thanks. call. for second thanks we right. will the time, to look Well,

Operator

does participation. That today’s for conference. Thank Thank All you. may participants your you disconnect. conclude

Invesco Mortgage Capital (IVR) 9 May 192019 Q1 Earnings call transcript