NYSE:IVR Invesco Mortgage Capital Q3 2024 Earnings Report $7.61 +0.01 (+0.13%) Closing price 08/8/2025 03:59 PM EasternExtended Trading$7.60 -0.01 (-0.13%) As of 08/8/2025 07:55 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Invesco Mortgage Capital EPS ResultsActual EPS$0.68Consensus EPS $0.79Beat/MissMissed by -$0.11One Year Ago EPS$1.51Invesco Mortgage Capital Revenue ResultsActual Revenue$73.83 millionExpected Revenue$12.38 millionBeat/MissBeat by +$61.45 millionYoY Revenue GrowthN/AInvesco Mortgage Capital Announcement DetailsQuarterQ3 2024Date11/5/2024TimeAfter Market ClosesConference Call DateWednesday, November 6, 2024Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Invesco Mortgage Capital Q3 2024 Earnings Call TranscriptProvided by QuartrNovember 6, 2024 ShareLink copied to clipboard.Key Takeaways During Q3, agency mortgages outperformed Treasuries as interest rates fell, driving book value per share up 1.1% to $9.37 and yielding a 5.4% economic return including the $0.40 dividend. As of early Q4, rising Treasury yields and heightened volatility have pressured mortgage valuations, with estimated book value down ~5.8% since quarter‐end amid election and funding uncertainties. Invesco Mortgage Capital’s $5.9 billion portfolio comprises roughly 88% Agency RMBS and 12% Agency CMBS, supported by $520 million of liquidity, and operates at 6.1x economic leverage while planning to redeem Series B preferred shares to optimize its capital structure. The company is rotating into higher‐coupon Agency RMBS and Agency CMBS to capture prepayment protection and fixed maturities, targeting mid-to-high-teens gross ROEs on RMBS and low-double-digit ROEs on CMBS, and favoring specified pools over TBAs. Management expects Fed rate cuts, a steeper yield curve and lower volatility to support agency mortgage demand, but notes near‐term risks from the U.S. election, monetary policy shifts and year-end funding pressures. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallInvesco Mortgage Capital Q3 202400:00 / 00:00Speed:1x1.25x1.5x2xThere are 9 speakers on the call. Operator00:00:00Welcome to the Invesco Mortgage Capital Third Quarter 2024 Earnings Call. All participants will be in a listen only mode until the question and answer session. Also as a reminder, this call is being recorded. Now I would like to turn the call over to Greg Seals in Investor Relations. Mr. Operator00:00:21Seals, you may begin. Speaker 100:00:24Thanks, operator, and to all of you joining us on Invesco Mortgage Capital's quarterly earnings call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address today. The press release and presentation are available on our website, invescomortgagecapital.com. This information Speaker 200:00:44can be found by going to Speaker 100:00:44the Investor Relations section of the website. Our presentation today will include forward looking statements and certain non GAAP financial measures. Please review the disclosures on Slide 2 of the presentation regarding these statements and measures as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference and transcripts provided by third parties. The only authorized webcast are located on our website. Speaker 100:01:11Again, welcome. Thank you for joining us today. I'll now turn Speaker 200:01:15the call over to IVR's CEO, John Anselin. Thanks, Greg. Good morning, and welcome to Invesco Mortgage Capital's 3rd quarter earnings call. I'll provide some brief comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss our portfolio in more detail. Also joining us on the call this morning for Q and A is our President, Kevin Collins our COO, Dave Lyle and our recently appointed Interim CFO, Mark Gregson. Speaker 200:01:40So welcome, Mark. During the quarter, interest rates dropped sharply across the curve as investors reacted to cooling inflation and the potential for slower economic activity signaled by a weakening labor market. These factors also led to repricing of the market's expectations of future monetary policy. Following the FOMC's initial 50 basis point reduction in its benchmark rate in September, the federal funds futures market reflected an expectation that the target rate would be reduced by an additional 50 to 75 basis points during the balance of 2024 with another 100 to 125 basis points worth of cuts priced into 2025. Against this backdrop, agency mortgages outperformed treasuries during the Q3. Speaker 200:02:26Moderating industry volatility and the steepening of the yield curve spurred demand for agency mortgages with lower coupons performing better than higher coupons as a sharp decline in interest rates mitigated demand for coupons trading at a premium to par. Overall, prepayment speeds remained at very low levels given limited housing activity and elevated mortgage rates. The speeds increased notably on higher coupons in September as the decline in mortgage rates over the summer led to a surge in refinancings in more recent originations. Given the decline in mortgage rates and upward pressure on prepayments, premiums on higher coupon specified for collateral increased modestly, while implied volatility via the dollar roll market or implied financing via the dollar roll market for TBA Investments remained relatively unattractive throughout the quarter. Agency CMBS risk premiums moved modestly wider, increasing their relative value versus Agency mortgages. Speaker 200:03:21The positive environment for mortgages contributed to a 1.1% increase in book value per common share to $9.37 Combined with our $0.40 common stock dividend, this resulted in an economic return of 5.4% for the quarter. As we enter the Q4, uncertainty around the U. S. Elections and the future path of monetary policy has caused a sharp increase in both treasury yields and interest rate volatility, which has put heavy pressure on mortgage valuations. As of last night, our estimated book value is down approximately 5.8% since ninethirty. Speaker 200:03:58Our debt to equity ratio ended the 2nd quarter at 6.1 times, up from 5.6 as of June 30, while our economic debt to equity ratio increased from 5.9 times to 6.1 times quarter over quarter. As of the end of the quarter, our $5,900,000,000 investment portfolio primarily consisted of $5,200,000,000 of Agency mortgages and $700,000,000 of Agency CMBS and we continue to maintain a sizable balance of unrestricted cash and unencumbered investments totaling $520,000,000 For the quarter, earnings available for distribution per common share was $0.68 compared to $0.86 in the 2nd quarter. This decrease primarily reflects reduction in our effective net interest income related to changes in the size and composition of our hedging portfolio. Yesterday, we announced our intention to redeem our Series B preferred shares on December 27, which will help optimize our capital structure and reduce our dividend obligations going forward. Looking ahead, the recent disinflationary trend in economic data suggests that the Federal Reserve can continue to use monetary policy in the coming months as the need for restrictive monetary policy declines. Speaker 200:05:10This easing combined with the end of the U. S. Election cycle should lead to a steeper yield curve and lower interest rate volatility, creating a favorable environment for agency mortgage investments. However, if the disinflationary trend reverses the labor market and economic growth improve, expectations for monetary policy could shift, posing a near term risk. Additionally, short term funding pressures into year end could impact demand for the sector. Speaker 200:05:35Despite these near term risks, we are constructive on the sector as agency mortgage performance stands to benefit from normalization of monetary policy given attractive valuations and supportive supply and demand technicals. We also remain constructive on Agency CMBS as we expect a gradual increase in new issuance being met with adequate investor demand as the sector offers value relative to other fixed income investments given its attractive prepayment protection and return profiles. Now I'll turn the call over to Brian to go through the portfolio. Thanks, John, and Speaker 300:06:06good morning to everyone listening to the call. I'll begin on Slide 4, which provides an overview of the interest rate and Agency Mortgage Markets. As shown on the chart in the upper left, U. S. Treasury yields declined across the yield curve during the Q3 as 2 year yields were 111 basis points lower, while 10 year 30 year yields declined 61 and 44 basis points respectively. Speaker 300:06:29The chart on the bottom left provides Fed Funds futures market pricing since year end. Due to ongoing disinflation and a weakening labor market, investors priced in 2 more 25 basis point cuts in the Fed Funds rate for 2024 2025 by the end of the Q3 compared to the end of the second quarter. By the end of October, investor expectations moderated due to a stronger than expected September employment report, raising concerns that monetary policy may remain tighter for longer. Elevated monetary policy uncertainty and the strength of the economy has caused interest rate volatility to rise sharply, leading to Agency mortgage underperformance in October. The chart in the upper right reflects changes in short term funding rates since year end. Speaker 300:07:17During the Q3, funding rates declined in line with expectations for near term monetary policy easing, but repo rates exhibited substantial volatility at quarter end given heavy U. S. Treasury supply and increased demand for repo. Positively, the repo market normalized in October, although spreads have remained modestly wider given concerns regarding future treasury supply, election and monetary policy uncertainty and the risk of renewed funding pressures into year end. Lastly, the bottom right chart details agency mortgage holdings by the Federal Reserve and U. Speaker 300:07:51S. Banks. Run off of the Fed's balance sheet continues with agency mortgages declining by approximately $15,000,000,000 to $20,000,000,000 per month, while U. S. Banks added modestly to their balance sheets. Speaker 300:08:04We expect bank demand for agency MBS to rise and as monetary policy eases and the finalization of the Basel III guidelines, likely about late 2024 or early 2025 provides banks with greater regulatory clarity. Slide 5 provides more detail on the Agency mortgage market. In the upper left chart, we show 30 year current coupon performance versus U. S. Treasuries since year end, highlighting the Q3 in gray. Speaker 300:08:31Current coupons outperformed during the quarter as interest rate volatility declined and the yield curve steepened, improving investor demand. Since the end of the quarter, however, increased interest rate volatility and a bear flattening yield curve led to sharp underperformance in the sector. Nominal spreads on current coupons returned to year to date wides and remained historically attractive as ongoing interest rate volatility is limiting demand. Specified pool payouts improved in the Q3 due to the decline in mortgage rates, but have partially reversed as the abrupt increase in interest rates has led to less demand for prepayment protection. Lastly, as shown in the lower right chart, the dollar roll market for TBA securities became relatively unattractive again with implied funding rates higher than SOVR for most coupons. Speaker 300:09:19We continue to prefer specified pools over TBA, given their more predictable prepayment behavior and favorable funding yield levels. Slide 6 details our Agency RMBS investments and summarizes investment portfolio changes during the quarter. Our Agency RMBS portfolio increased 12% quarter over quarter as we invested proceeds from ATM issuance into higher coupons. We continue to rotate a portion of our lower coupons into Agency CMBS as the relative value improved given tighter spreads and discount Agency RMBS. Overall, we remain focused in higher coupon Agency RMBS, which should see greater benefit from a decline in interest rate volatility and are largely insulated from direct exposure to assets held by commercial banks and on the Federal Reserve's balance sheet. Speaker 300:10:08We focused our specified pool allocation on prepayment characteristics that are expected to perform well in both premium and discount environments with our largest concentration in lower loan balance collateral given more predictable prepayments. In addition, during the quarter, we rotated our $200,000,000 notional TBA position into higher coupon specified pools as implied funding levels in the dollar roll market deteriorate. Although we anticipate interest rate volatility to remain moderately elevated in the near term, we believe current valuations on production coupon Agency RMBS largely reflect this risk Speaker 200:10:44and Speaker 300:10:45represent attractive investment opportunities with current gross ROEs in the mid to high teens. Slide 7 provides detail on our Agency CMBS portfolio. We purchased $214,000,000 in the 3rd quarter, bringing our exposure to approximately 12% of our total investment portfolio. We believe Agency CMBS offers many benefits, mainly through its prepayment protection and fixed maturities, which reduce our sensitivity to interest rate volatility. Gross ROEs on our new purchases were in the low double digits ROEs, and we have been disciplined on adding exposure only when the relative value between Agency CMBS and Agency RMBS accurately reflects their different risks. Speaker 300:11:29Financing capacity has been robust as we have been able to finance our purchases with multiple counterparties at attractive levels. We will continue to monitor the sector for opportunities to increase our allocation as they become available, recognizing the overall benefits of the portfolio as the sector diversifies risks associated within our agency RMBS portfolio. Our Agency CMO allocation is detailed alongside our remaining credit investments on Slide 8. Our allocation to both Agency interest only and credit securities remain unchanged with $73,000,000 allocated to Agency IO and 18,000,000 dollars allocated to credit at quarter end. Although we anticipate limited near term price appreciation in these investments, we believe they provide attractive yields for unlevered holdings with returns in the high single digits. Speaker 300:12:20Slide 9 details our funding and hedge book at quarter end. Repurchase agreements collateralized by HCMBS increased from $4,300,000,000 to $5,200,000,000 reflecting the increase in our equity base and assets and our notional pay fixed interest rate swaps increased as well from $3,900,000,000 to $4,300,000,000 Given the smaller increase in our hedge notional, the ratio of our hedge notional to borrowings decreased quarter over quarter to 83% from 92% as we increased our position in longer duration treasury futures. In addition, the sharp decline in interest rates led to further repositioning of the swap book as interest rate sensitivity of our assets decreased, warranting a similar decrease in the weighted average maturity of our hedges. Reflecting this change, the weighted average maturity of our swaps declined from 7.5 years at the end of the 2nd quarter to 5.4 years, resulting in an increase in the weighted average coupon on our paid fixed swaps from 1.22% to 1.37%. Economic leverage ended the quarter at 6.1x debt to total equity, up from 5.9x at the end of June, while our debt to common equity declined from nearly 9.5x to 9.1x@quarterend. Speaker 300:13:42The increase in our total equity leverage and decline in common equity leverage highlights the positive impact of our improving capital structure. Subsequent to quarter end, we announced our intention to call our Series B preferred equity in late December, which will further improve our capital structure as we enter 2025. To conclude our prepared remarks, despite strong results in the Q3, financial markets have been quite volatile in recent weeks as investors become increasingly concerned about the outcome of the election and its impact on near term fiscal policy, while also continuing to debate the path and magnitude of monetary policy easing. The sharp decline in interest rates reversed notably in October, increasing interest rate volatility and negatively impacting Agency RMBS valuations. We believe IVR is well positioned to navigate current mortgage market volatility given our moderate leverage and robust liquidity as well as our increased allocation to Agency CMBS. Speaker 300:14:42We continue to selectively capitalize on historically attractive Agency RMBS spreads and believe the sector is poised to perform well as the currently volatile election cycle type passes. Our liquidity position provides substantial cushion for further potential market stress, while also providing capital to deploy into our target assets as the investment environment improves. In addition, we believe further easing of monetary policy will lead to a steeper yield curve and decline in interest rate volatility, both of which provide a supportive backdrop for H2 Mortgages as they improve demand from commercial banks, overseas investors, money managers and REITs. Thank you for your continued support for Invesco Mortgage Capital. And now we will open the line for Q and A. Operator00:15:50It looks like our first question comes from Jason Weaver with Jones Trading. You may ask your question. Speaker 400:15:57Hi, good morning. Thanks for taking my question. I want to bridge to your comments about the addition of the agency CMBS. I appreciate the fact that that might dampen book value volatility. But does that change your approach to how you set leverage targets there, I. Speaker 400:16:14E. Could you support higher leverage going forward? Speaker 300:16:18Hey, Jason, it's Brian. Yes, thanks for the question. Yes, I think to the extent that our exposure to rate falls declines that that would allow us to increase leverage. I think clearly the month of October has been pretty challenging, but I think puts us in a pretty good position where spreads are attractive. And as that volatility declines, it gives us more room to be Speaker 200:16:47able to add in the future. Yes. I'll point out also, this is John. Agency CMBS has basically the same borrowing cost and haircuts as Agency mortgages. So that doesn't impact leverage from that perspective either. Speaker 400:17:06Got it. Thank you. That's helpful. And then, I was curious about any sort of perspective change in positioning quarter to date, noting that you've raised quite a bit on your ATN in the Q3? Speaker 300:17:20Yes, quarter to date, nothing too significant changes wise. I think, like I said, October was pretty volatile and we came into it with a strong liquidity position and moderate leverage. And so our ability to kind of withstand that volatility allowed us to not have to make significant changes since quarter end. Speaker 400:17:44Okay. That's helpful. Thank you. Operator00:17:47Thank you. Our next question comes from Trevor Cranston with Citizens JMP. You may ask your question. Speaker 500:17:58Hey, thanks. You guys have historically mostly used swaps for hedging purposes and those have kind of underperformed relative to using treasury hedges over the last several months. I was just curious if you guys have any kind of general thoughts about swaps versus treasuries, Why swap spreads have become so negative? And if there's any sort of change in your thinking in terms of using either as a hedge instruments going forward? Thanks. Speaker 300:18:33Yes. Hey, Trevor, it's Brian. Yes. No, we certainly started in the Q3 to using treasury futures more prominently. You're right. Speaker 300:18:44I mean, swap spreads have been moving tighter for quite a while now. And I think it's the move from LIBOR to SOFR kind of removed the credit component of swap spreads. And it's mostly more just about treasury supply at this point. And the expectation is that treasury supply has been robust and it's likely to continue to be robust. So we're a bit concerned that swap spreads won't be mean reverting. Speaker 300:19:15And so this tightening that we've seen could be relatively persistent. And so our idea is to increase our exposure, our hedge book in treasury futures that will help mitigate our exposure to swap spreads. Speaker 400:19:33Okay, got it. That's helpful. Thank you. Operator00:19:37Thank you. Our next question comes from Jason Stewart with Janney. Your line is open. You may ask your question. Speaker 600:19:43Hi, thanks. Good morning. Just a quick clarification on the down 5.8% through 11.5%, is that including a dividend accrual? Speaker 300:19:55Correct. Yes, yes, that includes I'm sorry. Well, it excludes the impact of the dividend. Speaker 600:20:04Excludes the dividend. Okay. Yes. And then obviously some big moves this morning with 10 sort of approaching 450. Just wondering what your macro take was on where you think 10s as a benchmark for mortgages are headed in terms of the news we got overnight and maybe how that coincides with your view of Speaker 300:20:29rate fall? Yes, certainly pretty fresh moves so far this morning. I think the move in treasury rates was largely expected based on the outcome of the election. And so that's not a surprise from that perspective. I think actually implied vol has come down. Speaker 300:20:51So that's been a positive for HST Mortgages, at least here initially. I haven't looked in the last 30 minutes or so. So clearly, there have been, on the day after the election, some pretty big swings in markets historically. But I do think that it's a question of implied volatility versus realized volatility. I think, like I said, I think implied has come down now that we're kind of past this event. Speaker 300:21:26So that's a positive. As far as where treasury yields kind of end up, that's a tough question. I think the expectation is kind of in that 4.5 to 4.75 range here in the near term, so we could continue to see some pressure higher. But the steeper curve and lower implied vol should both be relatively positive, particularly for higher coupon agency mortgages. Speaker 600:21:57Yes. Okay. That's helpful color. And then on the short end of the curve, I mean, the forwards has taken out about one rate cut so far. Is the house view or your view and sort of the way you construct the portfolio take forwards at their word? Speaker 600:22:13Or do you feel like when you look at underlying inflation trends that the Fed might be off sides on some of these moves and we'll see more forwards come out? And I guess net net to that is how important is 3.50% versus a 4% Fed funds rate if the curve remains steep to the strategy and the structure of the portfolio? Speaker 300:22:34Yes. I think to your point, the overall level may be less important as opposed to the steepness of the curve and what it means for volatility going forward. Clearly, we prefer a steeper curve and lower fall. Yes, our house view has been in that 5% to 6% cut range between now and the end of 2025. So I think based on last night again, I think that probably moves to the lower end of that range. Speaker 300:23:08But I think clearly there's been a lot of talk about tariffs and tax cuts and so we'll have to just kind of see how that plays out here over the near term before we kind of settle in on a specific number. Speaker 600:23:25Okay. Thanks for the color. Operator00:23:29Thank you. Our next question comes from Eric Hagen with BTIG. Your line is open. You may ask your question. Speaker 700:23:36Thanks. Good morning. Maybe a couple of follow ups here. I mean, does retiring the preferred stock change the way that you think about your overall debt to equity leverage? And does the range for your leverage that you might explore change because of that at different spread levels? Speaker 300:23:53Yes. I think our overall debt to the common, it doesn't change our view on that. But the total debt to equity will move higher as the capital structure kind of normalizes. Speaker 700:24:11Okay. Is there a target range for your leverage that you envision running with over the near term? Speaker 300:24:19Yes. Debt to common, we've been pretty comfortable around that 9 area. I think we'll continue to kind of monitor how the market evolves here over the near term. But I think 9 has generally been a pretty kind of conservativemoderate comfortable level, where it gives us a lot of liquidity. And it allows us to maybe pick that up a notch higher if we see that ball come down. Speaker 700:24:56Yes. Okay. Another follow-up on the kind of spread conversation. I mean, do you basically see more risk that spreads would widen at this point in a rate rally or a sell off? And as the yield curve steepens, I mean, how much appetite do you have to maybe extend your duration gap? Speaker 700:25:12I mean are there any constraints that you see to extending your duration gap? Speaker 300:25:19As far as duration goes, we intend to keep that pretty close to 0. Mortgages have been trading pretty long versus rates over well really since the curve has been inverted. And so what that means is they tend to outperform as rates rally and underperformance as rates sell off. And I think at least in the near term, we don't expect that to change too dramatically. But like I said, it is dependent upon where implied volatility kind of moves from here. Speaker 300:25:54So sorry, I'm trying to remember what the first question was. Speaker 700:25:58No, I think you got it. I mean it was just gauging the sensitivity to spreads in a rally or a sell off. Thanks for the comments. I appreciate it. Speaker 300:26:07All right. Yes, sure. Operator00:26:11Thank you. Our next question comes from Doug Harter with UBS. You may ask your question. Your line is open. Speaker 800:26:22Thanks. Wondering if you could just touch on how you're thinking about the dividend and especially kind of in light of kind of the more challenging start to 4Q? Speaker 200:26:35Yes. Hey, Doug, it's John. Yes. So as always, our Board recommends the dividend or determines the dividend based on recommendations. So that said, what we're generally looking at is where available ROEs on our target assets are. Speaker 200:26:53I mean, that's the biggest driver of where we set dividend policy. So we'll kind of see where that goes. I mean, we have a month and a half until we have to make that decision. So a lot can happen between now and then. And then we balance that with, do you want to stay competitive within the space and in line with investor expectations? Speaker 200:27:15So it's kind of the things we look at. So yes, I mean that's kind of where we're at right now. So a little early for that though. Speaker 800:27:28Understood. I get that the markets are moving around fair bit, but appreciate that answer, John. Operator00:27:36Thank you. And at this time, I'm showing no further questions. Speaker 200:27:41Okay. Well, thanks everybody for joining us and we look forward to speaking to you next time. Thanks. Operator00:27:52Thank you. That does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.Read morePowered by Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Invesco Mortgage Capital Earnings HeadlinesInvesco Mortgage Enters New Equity Distribution AgreementAugust 8 at 6:13 PM | tipranks.comInvesco Mortgage Capital’s Mixed Earnings Call InsightsJuly 28, 2025 | tipranks.comTrump set to Boost Social Security Checks by 400%?If you're collecting or planning to collect social security... You should see this presentation about President Trump's Executive Order #14196. Legendary investor Louis Navellier believes it could soon not only save Social Security from collapse... But BOOST benefits for millions of retirees by up to 400%. No wonder the financial times called this new initiative... | InvestorPlace (Ad)Invesco Mortgage Capital Inc (IVR) Q2 2025 Earnings Call Highlights: Navigating Market ...July 26, 2025 | gurufocus.comQ2 2025 Invesco Mortgage Capital Inc Earnings Call TranscriptJuly 25, 2025 | gurufocus.comInvesco Mortgage Capital Reports Q2 2025 LossJuly 25, 2025 | tipranks.comSee More Invesco Mortgage Capital Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Invesco Mortgage Capital? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Invesco Mortgage Capital and other key companies, straight to your email. Email Address About Invesco Mortgage CapitalInvesco Mortgage Capital (NYSE:IVR). operates as a real estate investment trust (REIT) that invests, finances, and manages mortgage-backed securities and other mortgage-related assets in the United States. It invests in residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) that are guaranteed by a U.S. government agency or federally chartered corporation; RMBS and CMBS that are not issued or guaranteed by the United States government agency or federally chartered corporation; the United States treasury securities; real estate-related financing arrangements; to-be-announced securities forward contracts to purchase RMBS; and commercial mortgage loans. It has elected to be taxed as a REIT and would be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was incorporated in 2008 and is headquartered in Atlanta, Georgia.View Invesco Mortgage Capital ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Airbnb Beats Earnings, But the Growth Story Is Losing AltitudeDutch Bros Just Flipped the Script With a Massive Earnings BeatIs Eli Lilly’s 14% Post-Earnings Slide a Buy-the-Dip Opportunity?Constellation Energy’s Earnings Beat Signals a New EraRealty Income Rallies Post-Earnings Miss—Here’s What Drove ItDon't Mix the Signal for Noise in Super Micro Computer's EarningsWhy Monolithic Power's Earnings and Guidance Ignited a Rally Upcoming Earnings SEA (8/12/2025)Cisco Systems (8/13/2025)Alibaba Group (8/13/2025)Applied Materials (8/14/2025)NetEase (8/14/2025)Deere & Company (8/14/2025)NU (8/14/2025)Petroleo Brasileiro S.A.- Petrobras (8/14/2025)Palo Alto Networks (8/18/2025)Home Depot (8/19/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 9 speakers on the call. Operator00:00:00Welcome to the Invesco Mortgage Capital Third Quarter 2024 Earnings Call. All participants will be in a listen only mode until the question and answer session. Also as a reminder, this call is being recorded. Now I would like to turn the call over to Greg Seals in Investor Relations. Mr. Operator00:00:21Seals, you may begin. Speaker 100:00:24Thanks, operator, and to all of you joining us on Invesco Mortgage Capital's quarterly earnings call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address today. The press release and presentation are available on our website, invescomortgagecapital.com. This information Speaker 200:00:44can be found by going to Speaker 100:00:44the Investor Relations section of the website. Our presentation today will include forward looking statements and certain non GAAP financial measures. Please review the disclosures on Slide 2 of the presentation regarding these statements and measures as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference and transcripts provided by third parties. The only authorized webcast are located on our website. Speaker 100:01:11Again, welcome. Thank you for joining us today. I'll now turn Speaker 200:01:15the call over to IVR's CEO, John Anselin. Thanks, Greg. Good morning, and welcome to Invesco Mortgage Capital's 3rd quarter earnings call. I'll provide some brief comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss our portfolio in more detail. Also joining us on the call this morning for Q and A is our President, Kevin Collins our COO, Dave Lyle and our recently appointed Interim CFO, Mark Gregson. Speaker 200:01:40So welcome, Mark. During the quarter, interest rates dropped sharply across the curve as investors reacted to cooling inflation and the potential for slower economic activity signaled by a weakening labor market. These factors also led to repricing of the market's expectations of future monetary policy. Following the FOMC's initial 50 basis point reduction in its benchmark rate in September, the federal funds futures market reflected an expectation that the target rate would be reduced by an additional 50 to 75 basis points during the balance of 2024 with another 100 to 125 basis points worth of cuts priced into 2025. Against this backdrop, agency mortgages outperformed treasuries during the Q3. Speaker 200:02:26Moderating industry volatility and the steepening of the yield curve spurred demand for agency mortgages with lower coupons performing better than higher coupons as a sharp decline in interest rates mitigated demand for coupons trading at a premium to par. Overall, prepayment speeds remained at very low levels given limited housing activity and elevated mortgage rates. The speeds increased notably on higher coupons in September as the decline in mortgage rates over the summer led to a surge in refinancings in more recent originations. Given the decline in mortgage rates and upward pressure on prepayments, premiums on higher coupon specified for collateral increased modestly, while implied volatility via the dollar roll market or implied financing via the dollar roll market for TBA Investments remained relatively unattractive throughout the quarter. Agency CMBS risk premiums moved modestly wider, increasing their relative value versus Agency mortgages. Speaker 200:03:21The positive environment for mortgages contributed to a 1.1% increase in book value per common share to $9.37 Combined with our $0.40 common stock dividend, this resulted in an economic return of 5.4% for the quarter. As we enter the Q4, uncertainty around the U. S. Elections and the future path of monetary policy has caused a sharp increase in both treasury yields and interest rate volatility, which has put heavy pressure on mortgage valuations. As of last night, our estimated book value is down approximately 5.8% since ninethirty. Speaker 200:03:58Our debt to equity ratio ended the 2nd quarter at 6.1 times, up from 5.6 as of June 30, while our economic debt to equity ratio increased from 5.9 times to 6.1 times quarter over quarter. As of the end of the quarter, our $5,900,000,000 investment portfolio primarily consisted of $5,200,000,000 of Agency mortgages and $700,000,000 of Agency CMBS and we continue to maintain a sizable balance of unrestricted cash and unencumbered investments totaling $520,000,000 For the quarter, earnings available for distribution per common share was $0.68 compared to $0.86 in the 2nd quarter. This decrease primarily reflects reduction in our effective net interest income related to changes in the size and composition of our hedging portfolio. Yesterday, we announced our intention to redeem our Series B preferred shares on December 27, which will help optimize our capital structure and reduce our dividend obligations going forward. Looking ahead, the recent disinflationary trend in economic data suggests that the Federal Reserve can continue to use monetary policy in the coming months as the need for restrictive monetary policy declines. Speaker 200:05:10This easing combined with the end of the U. S. Election cycle should lead to a steeper yield curve and lower interest rate volatility, creating a favorable environment for agency mortgage investments. However, if the disinflationary trend reverses the labor market and economic growth improve, expectations for monetary policy could shift, posing a near term risk. Additionally, short term funding pressures into year end could impact demand for the sector. Speaker 200:05:35Despite these near term risks, we are constructive on the sector as agency mortgage performance stands to benefit from normalization of monetary policy given attractive valuations and supportive supply and demand technicals. We also remain constructive on Agency CMBS as we expect a gradual increase in new issuance being met with adequate investor demand as the sector offers value relative to other fixed income investments given its attractive prepayment protection and return profiles. Now I'll turn the call over to Brian to go through the portfolio. Thanks, John, and Speaker 300:06:06good morning to everyone listening to the call. I'll begin on Slide 4, which provides an overview of the interest rate and Agency Mortgage Markets. As shown on the chart in the upper left, U. S. Treasury yields declined across the yield curve during the Q3 as 2 year yields were 111 basis points lower, while 10 year 30 year yields declined 61 and 44 basis points respectively. Speaker 300:06:29The chart on the bottom left provides Fed Funds futures market pricing since year end. Due to ongoing disinflation and a weakening labor market, investors priced in 2 more 25 basis point cuts in the Fed Funds rate for 2024 2025 by the end of the Q3 compared to the end of the second quarter. By the end of October, investor expectations moderated due to a stronger than expected September employment report, raising concerns that monetary policy may remain tighter for longer. Elevated monetary policy uncertainty and the strength of the economy has caused interest rate volatility to rise sharply, leading to Agency mortgage underperformance in October. The chart in the upper right reflects changes in short term funding rates since year end. Speaker 300:07:17During the Q3, funding rates declined in line with expectations for near term monetary policy easing, but repo rates exhibited substantial volatility at quarter end given heavy U. S. Treasury supply and increased demand for repo. Positively, the repo market normalized in October, although spreads have remained modestly wider given concerns regarding future treasury supply, election and monetary policy uncertainty and the risk of renewed funding pressures into year end. Lastly, the bottom right chart details agency mortgage holdings by the Federal Reserve and U. Speaker 300:07:51S. Banks. Run off of the Fed's balance sheet continues with agency mortgages declining by approximately $15,000,000,000 to $20,000,000,000 per month, while U. S. Banks added modestly to their balance sheets. Speaker 300:08:04We expect bank demand for agency MBS to rise and as monetary policy eases and the finalization of the Basel III guidelines, likely about late 2024 or early 2025 provides banks with greater regulatory clarity. Slide 5 provides more detail on the Agency mortgage market. In the upper left chart, we show 30 year current coupon performance versus U. S. Treasuries since year end, highlighting the Q3 in gray. Speaker 300:08:31Current coupons outperformed during the quarter as interest rate volatility declined and the yield curve steepened, improving investor demand. Since the end of the quarter, however, increased interest rate volatility and a bear flattening yield curve led to sharp underperformance in the sector. Nominal spreads on current coupons returned to year to date wides and remained historically attractive as ongoing interest rate volatility is limiting demand. Specified pool payouts improved in the Q3 due to the decline in mortgage rates, but have partially reversed as the abrupt increase in interest rates has led to less demand for prepayment protection. Lastly, as shown in the lower right chart, the dollar roll market for TBA securities became relatively unattractive again with implied funding rates higher than SOVR for most coupons. Speaker 300:09:19We continue to prefer specified pools over TBA, given their more predictable prepayment behavior and favorable funding yield levels. Slide 6 details our Agency RMBS investments and summarizes investment portfolio changes during the quarter. Our Agency RMBS portfolio increased 12% quarter over quarter as we invested proceeds from ATM issuance into higher coupons. We continue to rotate a portion of our lower coupons into Agency CMBS as the relative value improved given tighter spreads and discount Agency RMBS. Overall, we remain focused in higher coupon Agency RMBS, which should see greater benefit from a decline in interest rate volatility and are largely insulated from direct exposure to assets held by commercial banks and on the Federal Reserve's balance sheet. Speaker 300:10:08We focused our specified pool allocation on prepayment characteristics that are expected to perform well in both premium and discount environments with our largest concentration in lower loan balance collateral given more predictable prepayments. In addition, during the quarter, we rotated our $200,000,000 notional TBA position into higher coupon specified pools as implied funding levels in the dollar roll market deteriorate. Although we anticipate interest rate volatility to remain moderately elevated in the near term, we believe current valuations on production coupon Agency RMBS largely reflect this risk Speaker 200:10:44and Speaker 300:10:45represent attractive investment opportunities with current gross ROEs in the mid to high teens. Slide 7 provides detail on our Agency CMBS portfolio. We purchased $214,000,000 in the 3rd quarter, bringing our exposure to approximately 12% of our total investment portfolio. We believe Agency CMBS offers many benefits, mainly through its prepayment protection and fixed maturities, which reduce our sensitivity to interest rate volatility. Gross ROEs on our new purchases were in the low double digits ROEs, and we have been disciplined on adding exposure only when the relative value between Agency CMBS and Agency RMBS accurately reflects their different risks. Speaker 300:11:29Financing capacity has been robust as we have been able to finance our purchases with multiple counterparties at attractive levels. We will continue to monitor the sector for opportunities to increase our allocation as they become available, recognizing the overall benefits of the portfolio as the sector diversifies risks associated within our agency RMBS portfolio. Our Agency CMO allocation is detailed alongside our remaining credit investments on Slide 8. Our allocation to both Agency interest only and credit securities remain unchanged with $73,000,000 allocated to Agency IO and 18,000,000 dollars allocated to credit at quarter end. Although we anticipate limited near term price appreciation in these investments, we believe they provide attractive yields for unlevered holdings with returns in the high single digits. Speaker 300:12:20Slide 9 details our funding and hedge book at quarter end. Repurchase agreements collateralized by HCMBS increased from $4,300,000,000 to $5,200,000,000 reflecting the increase in our equity base and assets and our notional pay fixed interest rate swaps increased as well from $3,900,000,000 to $4,300,000,000 Given the smaller increase in our hedge notional, the ratio of our hedge notional to borrowings decreased quarter over quarter to 83% from 92% as we increased our position in longer duration treasury futures. In addition, the sharp decline in interest rates led to further repositioning of the swap book as interest rate sensitivity of our assets decreased, warranting a similar decrease in the weighted average maturity of our hedges. Reflecting this change, the weighted average maturity of our swaps declined from 7.5 years at the end of the 2nd quarter to 5.4 years, resulting in an increase in the weighted average coupon on our paid fixed swaps from 1.22% to 1.37%. Economic leverage ended the quarter at 6.1x debt to total equity, up from 5.9x at the end of June, while our debt to common equity declined from nearly 9.5x to 9.1x@quarterend. Speaker 300:13:42The increase in our total equity leverage and decline in common equity leverage highlights the positive impact of our improving capital structure. Subsequent to quarter end, we announced our intention to call our Series B preferred equity in late December, which will further improve our capital structure as we enter 2025. To conclude our prepared remarks, despite strong results in the Q3, financial markets have been quite volatile in recent weeks as investors become increasingly concerned about the outcome of the election and its impact on near term fiscal policy, while also continuing to debate the path and magnitude of monetary policy easing. The sharp decline in interest rates reversed notably in October, increasing interest rate volatility and negatively impacting Agency RMBS valuations. We believe IVR is well positioned to navigate current mortgage market volatility given our moderate leverage and robust liquidity as well as our increased allocation to Agency CMBS. Speaker 300:14:42We continue to selectively capitalize on historically attractive Agency RMBS spreads and believe the sector is poised to perform well as the currently volatile election cycle type passes. Our liquidity position provides substantial cushion for further potential market stress, while also providing capital to deploy into our target assets as the investment environment improves. In addition, we believe further easing of monetary policy will lead to a steeper yield curve and decline in interest rate volatility, both of which provide a supportive backdrop for H2 Mortgages as they improve demand from commercial banks, overseas investors, money managers and REITs. Thank you for your continued support for Invesco Mortgage Capital. And now we will open the line for Q and A. Operator00:15:50It looks like our first question comes from Jason Weaver with Jones Trading. You may ask your question. Speaker 400:15:57Hi, good morning. Thanks for taking my question. I want to bridge to your comments about the addition of the agency CMBS. I appreciate the fact that that might dampen book value volatility. But does that change your approach to how you set leverage targets there, I. Speaker 400:16:14E. Could you support higher leverage going forward? Speaker 300:16:18Hey, Jason, it's Brian. Yes, thanks for the question. Yes, I think to the extent that our exposure to rate falls declines that that would allow us to increase leverage. I think clearly the month of October has been pretty challenging, but I think puts us in a pretty good position where spreads are attractive. And as that volatility declines, it gives us more room to be Speaker 200:16:47able to add in the future. Yes. I'll point out also, this is John. Agency CMBS has basically the same borrowing cost and haircuts as Agency mortgages. So that doesn't impact leverage from that perspective either. Speaker 400:17:06Got it. Thank you. That's helpful. And then, I was curious about any sort of perspective change in positioning quarter to date, noting that you've raised quite a bit on your ATN in the Q3? Speaker 300:17:20Yes, quarter to date, nothing too significant changes wise. I think, like I said, October was pretty volatile and we came into it with a strong liquidity position and moderate leverage. And so our ability to kind of withstand that volatility allowed us to not have to make significant changes since quarter end. Speaker 400:17:44Okay. That's helpful. Thank you. Operator00:17:47Thank you. Our next question comes from Trevor Cranston with Citizens JMP. You may ask your question. Speaker 500:17:58Hey, thanks. You guys have historically mostly used swaps for hedging purposes and those have kind of underperformed relative to using treasury hedges over the last several months. I was just curious if you guys have any kind of general thoughts about swaps versus treasuries, Why swap spreads have become so negative? And if there's any sort of change in your thinking in terms of using either as a hedge instruments going forward? Thanks. Speaker 300:18:33Yes. Hey, Trevor, it's Brian. Yes. No, we certainly started in the Q3 to using treasury futures more prominently. You're right. Speaker 300:18:44I mean, swap spreads have been moving tighter for quite a while now. And I think it's the move from LIBOR to SOFR kind of removed the credit component of swap spreads. And it's mostly more just about treasury supply at this point. And the expectation is that treasury supply has been robust and it's likely to continue to be robust. So we're a bit concerned that swap spreads won't be mean reverting. Speaker 300:19:15And so this tightening that we've seen could be relatively persistent. And so our idea is to increase our exposure, our hedge book in treasury futures that will help mitigate our exposure to swap spreads. Speaker 400:19:33Okay, got it. That's helpful. Thank you. Operator00:19:37Thank you. Our next question comes from Jason Stewart with Janney. Your line is open. You may ask your question. Speaker 600:19:43Hi, thanks. Good morning. Just a quick clarification on the down 5.8% through 11.5%, is that including a dividend accrual? Speaker 300:19:55Correct. Yes, yes, that includes I'm sorry. Well, it excludes the impact of the dividend. Speaker 600:20:04Excludes the dividend. Okay. Yes. And then obviously some big moves this morning with 10 sort of approaching 450. Just wondering what your macro take was on where you think 10s as a benchmark for mortgages are headed in terms of the news we got overnight and maybe how that coincides with your view of Speaker 300:20:29rate fall? Yes, certainly pretty fresh moves so far this morning. I think the move in treasury rates was largely expected based on the outcome of the election. And so that's not a surprise from that perspective. I think actually implied vol has come down. Speaker 300:20:51So that's been a positive for HST Mortgages, at least here initially. I haven't looked in the last 30 minutes or so. So clearly, there have been, on the day after the election, some pretty big swings in markets historically. But I do think that it's a question of implied volatility versus realized volatility. I think, like I said, I think implied has come down now that we're kind of past this event. Speaker 300:21:26So that's a positive. As far as where treasury yields kind of end up, that's a tough question. I think the expectation is kind of in that 4.5 to 4.75 range here in the near term, so we could continue to see some pressure higher. But the steeper curve and lower implied vol should both be relatively positive, particularly for higher coupon agency mortgages. Speaker 600:21:57Yes. Okay. That's helpful color. And then on the short end of the curve, I mean, the forwards has taken out about one rate cut so far. Is the house view or your view and sort of the way you construct the portfolio take forwards at their word? Speaker 600:22:13Or do you feel like when you look at underlying inflation trends that the Fed might be off sides on some of these moves and we'll see more forwards come out? And I guess net net to that is how important is 3.50% versus a 4% Fed funds rate if the curve remains steep to the strategy and the structure of the portfolio? Speaker 300:22:34Yes. I think to your point, the overall level may be less important as opposed to the steepness of the curve and what it means for volatility going forward. Clearly, we prefer a steeper curve and lower fall. Yes, our house view has been in that 5% to 6% cut range between now and the end of 2025. So I think based on last night again, I think that probably moves to the lower end of that range. Speaker 300:23:08But I think clearly there's been a lot of talk about tariffs and tax cuts and so we'll have to just kind of see how that plays out here over the near term before we kind of settle in on a specific number. Speaker 600:23:25Okay. Thanks for the color. Operator00:23:29Thank you. Our next question comes from Eric Hagen with BTIG. Your line is open. You may ask your question. Speaker 700:23:36Thanks. Good morning. Maybe a couple of follow ups here. I mean, does retiring the preferred stock change the way that you think about your overall debt to equity leverage? And does the range for your leverage that you might explore change because of that at different spread levels? Speaker 300:23:53Yes. I think our overall debt to the common, it doesn't change our view on that. But the total debt to equity will move higher as the capital structure kind of normalizes. Speaker 700:24:11Okay. Is there a target range for your leverage that you envision running with over the near term? Speaker 300:24:19Yes. Debt to common, we've been pretty comfortable around that 9 area. I think we'll continue to kind of monitor how the market evolves here over the near term. But I think 9 has generally been a pretty kind of conservativemoderate comfortable level, where it gives us a lot of liquidity. And it allows us to maybe pick that up a notch higher if we see that ball come down. Speaker 700:24:56Yes. Okay. Another follow-up on the kind of spread conversation. I mean, do you basically see more risk that spreads would widen at this point in a rate rally or a sell off? And as the yield curve steepens, I mean, how much appetite do you have to maybe extend your duration gap? Speaker 700:25:12I mean are there any constraints that you see to extending your duration gap? Speaker 300:25:19As far as duration goes, we intend to keep that pretty close to 0. Mortgages have been trading pretty long versus rates over well really since the curve has been inverted. And so what that means is they tend to outperform as rates rally and underperformance as rates sell off. And I think at least in the near term, we don't expect that to change too dramatically. But like I said, it is dependent upon where implied volatility kind of moves from here. Speaker 300:25:54So sorry, I'm trying to remember what the first question was. Speaker 700:25:58No, I think you got it. I mean it was just gauging the sensitivity to spreads in a rally or a sell off. Thanks for the comments. I appreciate it. Speaker 300:26:07All right. Yes, sure. Operator00:26:11Thank you. Our next question comes from Doug Harter with UBS. You may ask your question. Your line is open. Speaker 800:26:22Thanks. Wondering if you could just touch on how you're thinking about the dividend and especially kind of in light of kind of the more challenging start to 4Q? Speaker 200:26:35Yes. Hey, Doug, it's John. Yes. So as always, our Board recommends the dividend or determines the dividend based on recommendations. So that said, what we're generally looking at is where available ROEs on our target assets are. Speaker 200:26:53I mean, that's the biggest driver of where we set dividend policy. So we'll kind of see where that goes. I mean, we have a month and a half until we have to make that decision. So a lot can happen between now and then. And then we balance that with, do you want to stay competitive within the space and in line with investor expectations? Speaker 200:27:15So it's kind of the things we look at. So yes, I mean that's kind of where we're at right now. So a little early for that though. Speaker 800:27:28Understood. I get that the markets are moving around fair bit, but appreciate that answer, John. Operator00:27:36Thank you. And at this time, I'm showing no further questions. Speaker 200:27:41Okay. Well, thanks everybody for joining us and we look forward to speaking to you next time. Thanks. Operator00:27:52Thank you. That does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.Read morePowered by