IVR - Earnings call transcript Q1 2020 | Invesco Mortgage Capital Inc.

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Operator

Welcome to the Invesco Mortgage Capital Inc. first quarter 2020 investors conference call. All participants will be in a listen-only mode until the question and answer session. At that time, to ask a question, please press star followed by the one on your phone.

As a reminder, this call is being recorded.

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

Brandon Burke

and you’ve Thank you, forward and earnings team conducting XXXX Capital’s to first are and welcome our and to call. Invesco sharing with a The prepared we question us, and joined Mortgage you quarter I look delighted remarks management session. answer

plans the a this call John forward-looking reflect actual Anzalone, not to and statements provide CEO, are guarantees. conference results include materially from over will overall be in assumptions, made are risks, I made our performance. involve can reminder and presentation to the and statements statements turning management’s not uncertainties differ Before future today that our These may expectations. They expectations and related our and call events wanted that as assurance which forward-looking there of about and no

discussion XXXX over you and be turn now to Presentation To access welcome presentation QX us today, click our any measures the link financial call our these the makes today’s and We our and Again, of found you filings under joining during with obligation uncertainties, SEC. For John? annual Relations. thank website risks earnings the Earnings also John of discuss view financial XX-K may of subsequent statement. measures today. at call. see may Form the update to the on may end recent non-GAAP on most no Reconciliations please these and Investor presentation. a in forward-looking the Invesco slide for at Anzalone. described non-GAAP risks I’ll report invescomortgagecapital.com

John Anzalone

expand Head some Brian turning Capital’s our welcome will of Chief Officer, to greater Commercial earnings Norris, Collins, comments Investment will will our Kevin and to our provide Invesco portfolio, detail the go-forward before Good on strategy. brief quarter who current our I first who President on and over morning Credit, and Mortgage call. call give

their to getting without countless position at There the I’d to who I’d the of have the be and both the our support entire put so have that to Invesco of all is in entire managing to the we started, remotely. at this today hours this of with way like team. the no crisis thank team crisis. would Before resources we also are senior you the get working difficulty through acknowledge efforts, it in Board necessary acknowledge through Directors added and Invesco like management provided of who doing

assets as COVID-XX throughout market prepaid settle significantly, sold our improving sold calls Even cash at late into negotiations as was we the forbearance mortgage-backed of into the first of was quarter, to as financial shutdown our below securities unprecedented volatility protected and than structured pandemic relatively a an caused paper with were Ultimately end In prices. asset able market pool specified severely agency underperformed being IVR’s payments our margin repo to agreement. holdings classes. valuations selling distressed margin Towards of the for on The comprehensive calls, decided entered rather we and economic meet and suspended into we onset onerous so left and were to entering to counterparties conditions forbearance the with agency levels margin distressed. particularly rates capitalize across coming we our Despite off the securities liquidity accelerated hard liquidity became markets. dislocation position discontinue its crisis, deeply impacted strong all March, markets lenders. pay the and TBA in credit significantly hit the wake rallying

the of in our portfolio informational XX. for X/XX are the gives as X as was X of information the purposes, picture Slide we on Slides X taken does and not de-levering a May of providing that middle today. portfolio and reflect of While snapshot

As non-agency of the have million total only quality you $X.X and can see positions. are advances from predominantly by CMBS loan collateralized of left consists double-A pie rated The million that federal $XXX credit is residential unencumbered. portfolio and chart, are borrowings bank home billion triple-A our securities we which secured $XXX of high CMBS.

credit quarter are as we book reflecting modest leverage end. a recover. As value book credit that holding to believe potential the continue $X.XX to portfolio upside place we share, that Currently, drive estimate and our that per value of took continued $X.XX we is markets de-levering between with X/XX, post has

of reinvest strategy for the Going outlook strong portfolio. agency new with credit become market and the are pandemic the non-agency to the Fed that an attractive on be portfolio. credit We quite mortgages coming we and an environment. believe to details to the from contrast will what into forward, here short-term strategy. revealed as support sales mark-to-market to into agency-focused funding strategy not ROEs This stop funding our Currently, I’ll redeploy is attractive let the able credit the future generate and is some stability we is proceeds attractive these has from give in agency risks attractive. cost and where will in increasingly the quarters Kevin

Kevin Collins

everyone interest to thanks in and line on your the Invesco for Mortgage Capital. John, Thanks

property that’s been has well now credit credit. related difficult residential travel the is restrictions, activity. and made slowdown in for of to as credit most and the have economic largely COVID-XX their The borrowers XX% about X% our activity comprised due to commercial just about mortgage-backed it as portfolio financial and so not of retail decline in so investments, many noted, pandemic of pretty John comprised that’s As mortgage impacted obligations, comprised retail lodging meet surprisingly markets

of capital many at Nearly help expected that double-A portfolio collateral the rated Slide XX% look credit rated chart of a or rated the ratings structure of underwriting. embedded Looking York the or take as had We I’ll right, ultimately they’ve ahead, presentation regarding have our I’d a have should value, you’ll COVID-XX. To that do seek don’t Roughly heightened of given also which offer and originated points that on just portion our positively TALF, we to as as these credit those believe future if non excess fundamental you bonds, continue the global loans Fed single-A for collateral to the crisis to the facility, benefit believe attractive that makes positioned to and our known to roughly significant expectations purchased weakness, indirectly losses to well subordination your as were as top to illustrated these was to larger from not levels XX% investments or ask however, a as strategic or worth sit turn do think, X% capital New notable we about subordination much our of CMBS do the subordination any of our now in credit surprisingly, think investments payments the creating that’s the outlook higher in assist continue were impacted losses. for note XX% to but from Slide X, X/XX increase bonds credit structure to available of rent losses. I more would portfolio lack [indiscernible] financial ’XX mark-to-market the in expect to chart about relief, loan really by they’ve very the liquidity they many bonds forego financing beneath XX mortgage they term near On in levels interest program asset-backed single-A cumulative despite absorb higher. CMBS and benefits bonds. eligible that the are of tenants of we over CMBS financing by experienced commercial recently in or via our investor or endure higher. cumulative TALF in at and just our of see our we’ve been because, benefit quantify, which from over we concerns term bonds improved curve of Brian of We flattening. our XX% just that renewed Further, XX% them, X expect be top much noting is the securities for was portfolio. discuss today; want benefit

Brian Norris

good Thanks Kevin, listening morning and to everyone call. to the

quarter As first John the second latter into to be and half well for extending proved mentioned, challenging tremendously the company. environment of quarter the the a

our a Our of we portfolio With equity, returns assets company credit leverage the below May X.X on reliance reduced are by and with as positioned we goal for debt can to overall well To team that as worked income. of the mark-to-market end, reconstruct extremely hard zero $X overall investors to well credit over offer to believe on dividend we billion company compelling company’s financing short-term leverage. repo early current that equity. our reducing towards times successfully reliance

We sell-off have quarter. from counterparties repo the our capacity in assets continue credit reengaged build invest and further agency interest rate recover exposure in proceeds to the RMBS the a credit to as prudently to necessary reduction from swap liquidity-induced first

addition forward in past Given company’s financial Fed can ROEs moving mixture reliably of of RMBS attractive book securities. of goals to primary the we double-digit dividend availability the pools believe markets, longstanding agency and anticipate investment allocation in intervention asset a agency RMBS current providing We through multiple attractive a repo to an of environment. use fostered modest the and will and income has we specified TBA value class capital to the crises support the Fed stability. achieve enduring achieve with low

is will to credit reliance to agency-focused returns the targeted current we to the from short-term achieve evaluate opportunities portfolio strategy in almost plan which we investments quarters, coming transition without While investments exclusively on to on credit funding. continue mark-to-market an

team cycles XX through billion RMBS assets ends line to have remains external Invesco agency Q&A. in history long June the of management the IPO manager, team the Invesco and asset prepared IVR of trading experience our $XX the managing agency resources management members class asset agency in and with crises allocation we as remarks, necessary XX/XX/XXXX. open the for and committed of market years over and our enjoys of RMBS have since under the over supported our of managing many company. the That of devoting will the RMBS members XXXX. our to a Lastly, class now Combined, multiple

Operator

KBW. first Our question from come Eric will from Hagen instructions] [Operator

Your line open. is now

Eric Hagen

Thanks, good doing guys. well. morning Hope you’re

rated that unlevered the what’s are yield portfolio, the what’s the are Then that? portfolio unrealized remaining, sales lower of positions the you to you that? of accomplish the line, order FHLB or assets in the come something more from in they might the to the Would category, portfolio, sitting in than level wind sell the now? and On that’s that which stuff do that on losses CMBS think double-A in asset down triple-A, CMBS

John Anzalone

of with line. start home starts triple-A as capital double-A soon. part. the I’ll underlying Again, and as the improving I’ll would underway, be sold get top the relatively to we advances are home bonds to structure the answer predominantly, the The loan down be the that those loan. TALF to so are expect the ones we Kevin that that second let pay anticipate

Kevin Collins

in Yes and give for CMBS CMBS. putting of triple-A. about and to so XX% of on own junior around where it’s XXX as and like largely basis positions, I paper, seeing level, looks the in are Those to it around double-A XXX into portfolio structure paper to context transactions, start over XXX where our in XXX very I’d triple-A anywhere as today spread of points, of XX% trading, triple-A to sense a basis trade more points rated you is rated I’d triple-B the in believe, are--excuse dependent is, points, Eric, yields. us, on that’s terms me, Those call XXX for but of single-A I wide which anywhere guess capital currently things currently basis top we’re our from current terms again they’re X,XXX our we at portfolio, what portfolio a

Eric Hagen

end ask then, the sales the are but much can question just taken We on that sitting where the my what the mark unrealized was based see the press second that of that’s you the color. place Great, the portfolio that losses Maybe in since helpful portfolio just and today. of unrealized is it in on overall I’ll today. quarter, on can loss have how at is I position.

the Just in how as you strategy? you transition agency do that much run you to portfolio RMBS leverage back might think

Kevin Collins

in X% a what about more rated front are junior you but Yes, as so I positions, through triple-A looks junior don’t so is I is, tell numbers X/XX, have [indiscernible], specific kind the Eric, those those what on can what around those today. But through, me, basis I more like go you were points if spread level. triple-As, to of back of walked think you I be XXX positions. XXX largely senior That mentioned, would at to

positions double-A was points, more at XXX the it For basis looks that like X/XX, XXX.

XXX rated, X/XX, the at B, X/XX XXX, X,XXX, looks in and improvement. in some more should what way that triple so provide single-A of for looks like of For see XXX more today, context we like terms

some as to that’s has the come sector I see demand helped restart helped, the in begins space TALF into entrants investors, slowly increasing continue that’s and the crossover new here, Just online CMBS - to as since think we’ve seen certainly economy or slowly well. so

Brian Norris

it’s will so likely likely the going current in investments. transition take take the this one from be to to eight seven build I’ll us on up predominantly our two while portfolio agency a to or a agency but question. to Eric, to anticipate--you quarters, number, debt it’s only take to times to the portfolio We equity leverage know,

Eric Hagen

Got thank right, it. you All very much.

Operator

question next come Harter with Suisse. from Our Credit will Doug

now line open. Your is

Doug Harter

you know, your preferreds and part equity a you Can your are capital around big just total you’re structure that? about thinking thoughts base, talk how of - Thanks. the of very

John Anzalone

Doug. thanks Yes,

of raise over common preferred post line, this looking are to path ratio realize yes, more think was, get to capital for in is of to start and we and not We get forward to we evaluating common But filing our we’re we so I ratio in clearly Q, preferred terms historical are to looking back structure. it to the at opportunities makes going the the obviously it that best that prefer would with post where back in the to capital sense time call, averages. line shareholders,

Doug Harter

anything do would to REIT there cause or and you Is that? transition rules you have flexibility back pool agency, the tests to hold accelerate the Okay. around to need that around

John Anzalone

some back into up of relatively there to XX% But quarters agencies, number around get getting do given quickly. There’s take have pools, back anticipate long flexibility a on leverage timing, so that the compliance. so pool get wouldn’t we it to to we hold hold

Doug Harter

Great, thank you.

Operator

from Cranston Our Securities. from question next come will JMP Trevor

Your open. line now is

Trevor Cranston

of place. termination with question A costs are payments on or the in you that in Great, if off, to thank that follow-up financing when say FHLB there you. which choose associated remains you pay Can frictional terms make-whole any fees?

John Anzalone

no. No,

those penalties so prepay no that. or to anything as free assets, are like We we sell there’s

Trevor Cranston

any at A follow-up on question relative you. got book sounded of were Is unrealized it pretty your can estimate to in was suggesting sort about tightened It losses. meaningfully the value in May you of Okay, you what like there means terms that spreads have chance estimate, where June. that XX?

John Anzalone

up, book I is say would Yes, since modestly. X/XX value

bit. have increases. We up valuation seen a some It’s

Trevor Cranston

G&A everything line to where level extraordinary it have were some relative Then the been quarter in that like first Okay. sounded expect forward? to you the there costs G&A in might going say that you Can the in March. happened run

John Anzalone

you Yes that? estimate on do have an Dave,

David Lyle

incurred and beyond change that it come some association we’ll are Yes dramatically. change additional do--there in from that expect see COVID-XX but dramatic don’t costs really the band. We QX, reasonable navigating G&A a with crisis in a Trevor, historical expect within we in levels through we QX don’t to

Lee Phegley

management second associated see down. this were fee there on costs that based the but portfolio. since Phegley. - be of will some will you’ll were correct Lee fees with this work But in With Dave’s see is you the material and The it’s fee management coming not the of numbers. come quarter advisory the exception down quarter, management those the the mat the -

Trevor Cranston

ROEs everything? net Then ROE is agency that on was Okay, the to mentioned the or and just estimate when expenses you low gross that strategy, of a got double-digit clarify, it.

Brian Norris

That was gross.

Trevor Cranston

Okay, appreciate you. it. Thank

Operator

Our with next Trading. question Jones Stewart will come from Jason

Your now line open. is

Jason Stewart

been good answered. Hey, a have morning. All questions my lot. Thanks

Operator

that to showing over. our turn today. like currently I’d for back I’m question was last now it

John Anzalone

and to Capital, you. in Okay, forward next well everybody Thank your again, talking look to quarter. thank Invesco interest for I’d like to you Mortgage we

Operator

for today’s participants this at on disconnect call. time. concludes conference. All Thank your This today’s may participation you

Invesco Mortgage Capital (IVR) 23 Jun 202020 Q1 Earnings call transcript