Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Earnings available for distribution (EAD) per common share remained stable at $0.86, comfortably above the $0.40 dividend.
- The company maintains a sizable balance of unrestricted cash and unencumbered investments totaling $446 million.
- Invesco Mortgage Capital Inc (IVR, Financial) has a positive outlook for agency mortgages, expecting benefits from attractive valuations, favorable funding, and strong liquidity.
- The company has strategically rotated a portion of lower coupon specified pools into agency CMBS, enhancing portfolio diversification.
- Financing capacity for agency CMBS has been robust, with attractive funding levels from numerous counterparties.
Negative Points
- The second quarter saw a negative economic return of 4.1%, driven by an 8% decline in book value.
- Interest rate volatility led to the underperformance of agency mortgages compared to treasury hedges.
- Debt to equity ratio increased to 5.9 times from 5.6 times at the end of March, indicating higher leverage.
- The market remains volatile with increased uncertainty about monetary policy and the economy, affecting interest rate volatility.
- Specified pool pay-ups fell in the second quarter due to rising interest rates, although there was partial recovery later.
Q & A Highlights
Q: Brian, can you comment on your comfort zone regarding leverage going forward? It seems like with the comments around easier monetary policy leading to tighter spreads, it might be appropriate to get more aggressive at some point in the near future.
A: Right now, we consider our leverage to be in the middle of our range. If we start to see a decline in interest rate volatility and a steeper yield curve, it might warrant an increase in leverage. However, given the current volatile environment, we believe remaining in the middle of that range is prudent. - Brian Norris, Chief Investment Officer
Q: When you made the comments on agency CMBS, is that not likely to become a much growing portion of your portfolio going forward?
A: We certainly like the benefits that agency CMBS brings to the portfolio. If we see some compression between agency CMBS and agency RMBS, we would likely look to increase the allocation there. - Brian Norris, Chief Investment Officer
Q: Can you give us an update on where taxable income stands relative to the dividend, and how you see that evolving going forward?
A: Taxable income is challenging to predict as it is driven by derivatives pricing, which can be volatile. However, our Earnings Available for Distribution (EAD) is comfortably above the dividend. - Brian Norris, Chief Investment Officer
Q: Are we in a position of being over-distributed or under-distributed relative to taxable income?
A: We have operating loss carryforwards that allow us to sustain the delta between taxable income and the dividend we are paying. This provides flexibility and does not necessitate an increase in the dividend based on taxable income. - Richard Phegley, Chief Financial Officer
Q: Where do you see marginal economic returns on the existing book today, and what do you think is the best path forward given your view of the basis and the macro environment?
A: The current book has been mostly added at wider spreads than where we are now, with yields or ROEs in the high-teens to 20 area. Given our current capital structure, raising capital and deploying in new assets becomes quite accretive, given where spreads are right now. - Brian Norris, Chief Investment Officer
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
