Invesco Mortgage Capital (US:IVR)2024-02-23 20:18Financial Data and Key Metrics Changes - The book value per common share at the end of the quarter was $10, representing an increase of 0.7% from September 30th [24] - Earnings available for distribution (EAD) per common share was $0.95 compared to $1.51 for the third quarter, reflecting declines in interest income on investments and interest rate swaps [52] - The debt-to-equity ratio ended the quarter at 5.7 times, down from 6.4 times as of September 30th [51] Business Line Data and Key Metrics Changes - The agency mortgage portfolio decreased by 7% quarter-over-quarter due to increased interest rate volatility [11] - The credit allocation declined to $19 million as a result of paydowns, with 68% of credit investments rated AA or higher [3] - The yield on the HC RMBS portfolio increased approximately 20 basis points to 5.3% [12] Market Data and Key Metrics Changes - U.S. treasury yields fell sharply across the yield curve, with maturities from two to 30 years declining between 65 and 80 basis points [2] - Mortgage valuations have been challenged with lower coupons underperforming higher coupons in early 2024 [10] - The dollar roll market for TBA securities remained unattractive due to higher loan balances having a worse prepayment profile [57] Company Strategy and Development Direction - The company is focused on higher coupon specified pools, which are insulated from direct exposure to assets held by commercial banks [58] - The strategy includes repositioning the hedge book and unwinding received fixed interest rate swaps as leverage is reduced [34] - The company believes that current valuations on production coupon agency mortgages represent attractive investment opportunities [59] Management's Comments on Operating Environment and Future Outlook - Management anticipates a potential reduction in interest rate volatility and favorable funding conditions to support an attractive investment environment for agency mortgages in 2024 [53] - The market sentiment improved due to data supporting a soft landing narrative and expectations for quicker interest rate cuts by the Federal Reserve [50] - Despite challenges, management believes that Agency RMBS valuations remain attractive for long-term investors [37] Other Important Information - The company maintained a sizable balance of unrestricted cash and unencumbered investments totaling $422 million [51] - The weighted average coupon on the hedging portfolio was 1.1%, with a weighted average maturity of 6.6 years [35] Q&A Session Summary Question: Changes in yield curve exposures and hedging approach - Management indicated no significant changes to yield curve exposures and is positioned slightly for a steeper curve [40] Question: Dividend considerations relative to common book value - Management stated that the dividend is determined by the Board and is supported by EAD, which is currently comfortable despite trending lower [72] Question: Thoughts on capital structure and preferred equity - Management is looking to reduce preferred equity percentage and is considering raising money through ATM when market conditions are appropriate [74]