Q4 2023 Invesco Mortgage Capital Inc Earnings Call
Operator: Transcribed by https://otter.ai Welcome to Invesco Mortgage Capital Incorporated's 4th Quarter 2023 Investor Conference Call. All participants will be in a listen-only mode until the question and answer session.
Welcome to Invesco mortgage capital incorporated fourth quarter 2023, Investor Conference call. All participants will be in a listen only mode until the question and answer session at that time I'd like if you'd like to ask a question press star followed by one on your telephone.
Operator: At that time, if you'd like to ask a question, press star followed by 1 on your telephone. As a reminder, this call is being recorded. Now, I would like to turn the call over to Greg Seals in Investor Relations.
A reminder, this call is being recorded now I would like to turn the call over to Greg Seals, and Investor Relations. Mr. Steels, you may begin the call.
Greg Seals: Seals, you may begin the call. Thank you, 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, Invescomortagecapital.com. This information can be found by going to the Investor Relations section of the website.
Thank you operator into all of you joining us on Invesco mortgage capitals 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 at Invesco mortgage capital dock.
Information can be found by going to the Investor Relations section of the website.
Greg Seals: Our presentation today will include full and written statements and certain non-GAAP financial measures. Please review the disclosures on slide two of the presentation regarding the 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 or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website.
Our presentation today will include forward looking statements and certain non-GAAP financial measures.
Reviewing disclosures on slide two of the presentation regarding your statements and measures as well as the appendix.
Appropriate reconciliations to GAAP finally, invesco mortgage capital is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties.
I'll summarize webcasts are located on our website again welcome and thank you for joining US today I'll now turn the call over to John Anzalone John.
Greg Seals: Again, welcome and thank you for joining us today. I'll now turn the call over to John Anzalone. John?
John M. Anzalone: Good morning, and welcome to Invesco Mortgage Capital's fourth-quarter earnings call. I will give some brief comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss the portfolio in more detail. Also joining us on the call are President Kevin Collins and our COO Dave Weill.
Morning, and welcome to Invesco mortgage Capital's fourth quarter earnings call I will give some brief comments before turning the call over to our Chief investment officer, Brian doors to this portfolio in more detail.
Joining us on the call are president Kevin Collins, our C O Gabriel.
John M. Anzalone: As we enter the fourth quarter, interest rate volatility accelerated as changes in investor expectations for the supply of U.S. Treasuries and the path of monetary policy led to substantial adjustments to both the level of interest rates and the shape of the yield curve. The heightened volatility drove notable underperformance in ABC mortgages as investors reduced exposure to the asset class. During this period, we sought to maintain appropriate levels of cash and unencumbered assets, reducing risk by decreasing leverage as volatility increased. As market sentiment improves, bolstered by incoming data supporting a soft landing narrative and market expectations for a quicker pace of interest rate cuts by the Federal Reserve, we will return to our target range. Despite the volatility we experienced during the quarter, our book value for common shares ended the quarter at $10, representing an increase of 0.7% from September 30th.
We entered the fourth quarter interest rate volatility accelerated as changes in investor expectations for the supply of U S treasuries in the past.
Monetary policy.
Substantial adjustments to both the level of interest rates and the shape of the yogurt.
The volatility drove notable underperformance in agency mortgages as investors reduced exposure to the asset class.
Yes, Terry we sought to maintain appropriate levels of cash and assets.
See risk weight decreasing leverage as volatility increased.
As market sentiment improved bolstered by incoming data supporting a softball landing narrative and market expectations for a quicker pace of interest rate cuts by the federal reserve.
Turning to our target range.
Despite the volatility we experienced during the quarter our book value per common share ended the quarter at $10, representing an increase of <unk>.
One 7% from September 30.
John M. Anzalone: When combined with our $0.40 common stock dividend, this produced an economic return of 4.7% for the quarter. Our debt-to-equity ratio ended the quarter at 5.7 times, down from 6.4 as of September 30th. As of the end of the quarter, nearly all of our $5.1 billion investment portfolio was invested in agency mortgages, and we've maintained a sizable balance of unrestricted cash in an unpredictable investment totaling $422 million. Earnings available for distribution for the period benefited from attractive interest rates, interest income on our target assets, favorable funding, and low-cost paycheck swaps. For the quarter, BAB for the common share was $0.95 compared to $1.51 for the third quarter, reflecting declines in interest income on investments in interest-based swaps in connection with our reduction in leverage and adjustments to our swap portfolio.
Combined with our 46 common stock dividend is produced an economic return of four points.
7% this quarter.
Our debt to equity ratio ended the quarter at five seven times down from 6.4 as at September 30th.
As at the end of the quarter nearly all of our $5 1 billion investment portfolio was invested in agency mortgages and we've maintained a sizable balance of unrestricted cash and unencumbered investments totaling $422 million.
Earnings available for distribution for the period benefited from attractive interest rate interest income on our target assets.
Both funding and low cost paid fixed swaps.
Quarter for.
Per common share was 95 compared to $1 51, the third quarter, reflecting declines in interest income on investments and interest rate swaps in connection with our reduction in leverage and adjustments to our swap portfolio.
John M. Anzalone: Over the first six weeks of 2024, mortgage valuations have been challenged, with lower coupons underperforming higher coupons. As of February 16th, our book value for the Common Share is down moderately, estimated to be between $9.50 and $9.88. As we enter 2024, both the FOMC and the Federal Funds Futures Market forecast the next policy move by the FOMC will be a rate cut, although they have differing expectations regarding the timing and quantity of. While evolving expectations around the timing of changes in monetary policy may bring challenges in the coming months, we believe that a potential reduction in interest rate volatility, combined with compelling valuations and favorable funding conditions, will support an attractive investment environment for agency mortgages in I'll stop here.
Over the first six weeks of 2024 mortgage valuations have been challenged with lower coupons underperformed in higher coupons as at February 16th our book value per common share is down moderately estimated to be between $9 50 and 98.
As we enter 2024, Oh, yeah, what I'm seeing in the federal funds futures market forecast the next policy move.
M C will be a rate cut.
Although they had differing expectations regarding the timing and quantity of these cuts.
While evolving expectations around the timing of changes in monetary policy may bring challenges in the coming months, we believe the potential reduction in interest rate volatility combined with compelling valuations favorable funding issues will support an attractive investment environment for agency mortgages 2024, I'll stop here Brian.
Brian Paul Norris: Brian will go through the portfolio. Thanks, John, and good morning to everyone listening to the call. I'll begin with slide four, which provides an overview of interest rates in agency mortgage markets since the beginning of last year. As shown on the chart in the upper left, U.S. Treasury yields fell sharply across the yield curve in a parallel fashion during the fourth quarter. Yields on maturities from two years to 30 years declined between 65 and 80 basis points as a disinflationary trend in economic data persisted while estimates of future Treasury funding needs declined. By the end of the fourth quarter, pricing in the Fed Funds Futures Market reflected expectations for a 25 basis point cut in the target rate in the first quarter of 2024 and nearly seven cuts in total by the end of January 2025.
Thanks, John and good morning to everyone listening to the call.
On slide four which provides an overview of the interest rates the agency mortgage market since the beginning of last year.
As shown on the chart in the upper left U S. Treasury yields fell sharply across the yield curve in a parallel fashion during the fourth quarter yields on maturities from two years to 30 years declined between 65 and 80 basis points.
Inflationary trend in economic data persistent well estimates of future Treasury funding needs declined.
By the end of the fourth quarter pricing in the fed funds futures market reflected expectations for a 25 basis point cut in the target rate in the first quarter of 2024 and nearly seven cuts in total by the end of January 2025.
Brian Paul Norris: Despite further runoff of the Federal Reserve's balance sheet during the quarter, the decline in interest rate volatility and expectations for the easing of monetary policy led to an improvement in domestic bank holdings of agency mortgages for the first time in nearly two years. 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 over the course of 2023, highlighting the fourth quarter in gray. Despite notable underperformance to start the quarter, production coupon agency mortgage mortgage valuations rebounded into year-end as interest rates and interest rate volatility declined.
Despite further run off the federal reserve balance sheet during the quarter the decline in interest rate volatility and expectations for the easing of monetary policy led to an improvement in domestic bank holdings of agency mortgages for the first time in nearly two years.
Slide five provides more detail on the agency mortgage market and the Upper left chart. We show 30 year current coupon performance versus U S. Treasuries over the course of 2023, highlighting the fourth quarter and Greg.
Quite notable underperformance to start the quarter production coupon agency mortgages mortgage valuations rebounded into yearend as interest rates and interest rate volatility declined ultimately current coupons outperformed treasuries during the quarter with nominal spreads tightening approximately 30 basis points in.
Brian Paul Norris: Ultimately, current coupons outperformed Treasuries during the quarter, with the nominal spread tightening approximately 30 basis points. In addition, specified pool payouts improved as interest rates fell, as illustrated in the chart on the top right. As shown in the lower right chart, the dollar oil market for TBA securities remained unattractive as more recent issuance with higher loan balances had a worse prepayment profile, and the lack of consistent bank demand has negatively impacted technology.
In addition specified pool pay ups improved as interest rates fell.
And the chart on the top right.
Shown in the lower right chart. The dollar roll market for TBA Securities remained unattractive, that's more recent issuance with higher loan balances have a worse prepayment profile and the lack of consistent bank demand is negatively impacted technicals.
Brian Paul Norris: Slide 6 provides detail on our agency mortgage investments and summarizes changes during the quarter. Our portfolio decreased by 7% quarter over quarter as the sharp increase in interest rate volatility in October warranted a reduction in risk. We net sold approximately $1.7 billion of specified pools in October across our coupon holdings to reduce the risk of further declines in book value before adding nearly $1.2 billion of exposure, predominantly in 30 or 6% specified pools in November and December as interest rate volatility declined. We remained focused on more attractively priced higher coupons, which are largely insulated from direct exposure to assets held by commercial banks and on the Federal Reserve's balance sheet. In addition, we remain exclusively invested in specified pools, which means we have no exposure to the deterioration in the dollar oil market for TBA security.
Slide six provides detail on our agency mortgage investments and summarizes changes during the quarter.
Our portfolio decreased by 7% quarter over quarter as the sharp increase in interest rate volatility in October warranted the reduction in risk. We net sold approximately $1 7 billion of specified pools in October across our coupon holdings to reduce the risk of further declines in book value before adding nearly one.
$1 2 billion of exposure predominantly in 30 year, 6% specified pools in November and December as interest rate volatility declined we remained focused in our and more attractively priced higher coupons, which are largely insulated from direct exposure to assets held by commercial banks and on the federal reserve's balance sheet.
In addition, we remain exclusively invested in specified pools, which means we have no exposure to the deterioration in the dollar roll market for TBA Securities.
Brian Paul Norris: We focused our specified pool allocation on prepayment characteristics that are expected to perform well in both premium and discount environments and modestly improved the quality of our specified pool holdings by increasing our allocations to lower loan balance stories. Although we anticipate interest rate volatility to remain moderately elevated in the near term, we believe current valuations on production coupon agency mortgages largely price in this risk and represent attractive investment opportunities with current gross ROEs in the mid to high teens. Our agency's CMO allocation is detailed alongside our remaining credit investments on slide 7. Our allocation to agency interest-only securities remains largely unchanged, pulling in $75 million a quarter. A modest decline from $78 million at the end of the third quarter to $75 million this quarter, primarily due to paydowns and a modest decline in the weighted average dollar price given the rally in interest rates during the quarter. Our credit allocation declined during the quarter to $19 million as a result of paydowns.
We focused our specified pool allocation on prepayment characteristics that are expected to perform well in both premium and discount environments and modestly improve the quality of our specified pool holdings by increasing our allocation to lower loan balance stories.
Although we anticipate interest rate volatility to remain moderately elevated in the near term. We believe current valuations on production coupon agency mortgages largely price in this risk represent attractive investment opportunities with current gross <unk> in the mid to high teens.
Our agency CMO allocation as detailed alongside our remaining credit investments on slide seven our.
Our allocation to agency interest only securities remained largely unchanged totaling 75 million at quarter end.
Modest decline from $78 million at the end of the third quarter to 70 $175 million this quarter, primarily due to pay downs and a modest decline in the weighted average dollar price given the rally in interest rates during the quarter.
Our credit allocation declined during the quarter to $19 million as a result of paydowns or credit investments remained high quality with 68% rated double a or higher.
Brian Paul Norris: Our credit investments remain high quality, with 68% rated AA or higher. Although we anticipate limited near-term price appreciation in our credit and agency I.O. investments, we believe these assets provide attractive yields for unlettered holdings.
Although we anticipate limited near term price appreciation in our credit and agency Io investments. We believe these assets provide attractive yields for Unlevered holdings.
Brian Paul Norris: Slide 8 details our funding and hedge book at quarter end. Repurchase agreements collateralized by HCRMDS declined from $5 billion to $4.5 billion, and our net notional of pay six interest rate swaps declined from $5 billion to $4.1 billion, both commensurate with our reduction in specified pool holdings during the quarter. We continue to reposition the hedge book, unwinding our remaining received fixed interest rate swaps and a portion of our legacy paid fixed swaps as the reduction in leverage during October warranted a proportionate decline in hedges. As we added specified pool exposure back to the portfolio in November and December, we also added new payfix swaps to hedge the additional borrowing. We ended the quarter with a hedge ratio of 91%. These changes resulted in a modest increase in the weighted average coupon on our pay-fix swaps, which negatively impacted earnings available for distribution.
Slide eight details our funding and hedge book at quarter end.
Purchase agreements collateralized by AC R&D declined from $5 billion to $4 5 billion and our net notional pay fixed interest rate swaps declined from $5 billion to $4 1 billion, both commensurate with our reduction in specified pool holdings during the quarter.
We continue to reposition the hedge book Unwinding, our remaining received fixed interest rate swaps and a portion of our legacy pay fixed swaps as a reduction in leverage during October October oriented a proportionate decline in hedges.
As we added specified pool exposure back to the portfolio in November and December. We also added new pay fix swaps to hedge the additional borrowings.
We ended the quarter with a hedge ratio of 91%.
These changes resulted in a modest increase in the weighted average coupon on our pay fixed swaps, which negatively impacted earnings available for distribution.
Brian Paul Norris: Positively, we retain much of the benefit of our low-cost pay pick swaps with an attractive weighted average coupon on our hedging portfolio of 1.1% and weighted average maturity of 6.6 years. We were leveraged at the end of the quarter at 5.7 times debt-to-equity, down from 6.4 times at the end of September, given the net sales and specified pools and modest improvement in book value. Slide 9 provides further detail on our Interest rates on our repurchase agreements increased modestly from 5.4% to 5.5% at quarter end, largely offset by a similar increase in the receive rate on our interest rate swap.
Positively we retain much of the benefit of our low cost pay fix swaps with an attractive weighted average coupon on our hedging portfolio a one 1%.
Weighted average maturity of six six years.
Leverage ended the quarter at five point in top five seven times debt to equity down from six four times at the end of September given the net sales in specified pools and modest improvement in book value.
Slide nine provides further detail on our asset yields and funding costs.
First rates on our repurchase agreements increased modestly from five 4% to five 5% at quarter end largely offset by a similar increase in the receive rate on our interest rate swaps yields.
Brian Paul Norris: Yields on our HCRMDS portfolio increased approximately 20 basis points to 5.3%, while the pay rate on our interest rate swaps increased 30 basis points to 1.1%. Overall, our expected interest rate margin remains very attractive at just over 5%, which includes the benefit of our remaining legacy SWOT portfolio. To conclude our prepared remarks, the fourth quarter of 2023 began as another very challenging quarter for H2RMES investors, as uncertainty regarding the path of monetary policy led to another sharp increase in interest rate volatility. Valuations rebounded, however, as the disinflationary trend persisted despite the notable strength in the economy, resulting in a pivot for expectations of monetary policy from further tightening to potential easing in the first half of 2024
Yields on our HCR <unk> portfolio increased approximately 20 basis points to five 3%, while the pay rate on our interest rate swaps increased 30 basis points to one 1% overall.
Overall, our effective interest rate margin remains very attractive at just over 5%.
The benefit of our remaining legacy swap portfolio.
To conclude our prepared remarks, the fourth quarter of 2023 began another very challenging quarter for agency MBS investors and uncertainty regarding the path of monetary policy led to another sharp increase in interest rate volatility valley.
Evaluations rebounded. However, this employers disinflationary trend persisted despite the notable strength in the economy, resulting in a bid for expectations of monetary policy from further tightening.
You'll easing in the first half of 2024.
Operator: Despite significant tightening of spreads in the asset class in the fourth quarter, we believe agency RMDS valuations remain attractive for long-term investors, given our expectation of a potential reduction in interest rate volatility over the course of 2024, as easing monetary policy likely results in a steeper yield curve. Our preference for higher coupon specified pools should perform well in that environment. Furthermore, our liquidity position remains robust. As a result, we believe IVR is well-positioned to navigate future mortgage market volatility and selectively capitalize on historically wide agency RMES spreads, which provides a supportive backdrop for long-term investment. Thank you for your continued support for Invesco Mortgage Capital, and now we will open the line for Q&A. Thank you. We will now begin our question and answer session. If you would like to ask a question, please press star 1.
It's quite significant tightening of spreads in the asset class in the fourth quarter. We believe the agency Rguest valuations remain attractive for long term investors given our expectation for the potential reduction in interest rate volatility over the course of 2024.
Using monetary policy likely resulted in a steeper yield curve.
Our preference for higher coupon specified pools should perform well in that environment.
Further our liquidity position remains robust as a result, we believe <unk> is well positioned to navigate future mortgage market volatility and selectively capitalized on historically wide agency MBS spreads, which provides a supportive backdrop for long term investors and investment.
Thank you for your continued support for Invesco mortgage capital and now we will open the line for Q&A.
Thank you we will now begin our question and answer session. If you'd like to ask a question. Please press star one our first question comes from Trevor Cranston with JMP Securities. Your line is open.
Trevor Cranston: Our first question comes from Trevor Cranston with JMP Securities. Your line is open. Hey, thanks. Good morning, um, question on the hedging side. You know, it looks like the net swap portfolio declined by more than the MBS portfolio did in the quarter. Can you elaborate a little bit on, you know, if you guys have made any changes to sort of your net duration exposure along any part of the yield curve given the shifting? Outlook for what the Fed's going to be doing going forward and just generally how you're approaching hedging across the old curve right now. Yeah, hey, good morning, Trevor. It's Brian.
Hey, Thanks, good morning.
Question on the on the hedging side, you know it looks like the.
So isn't that swap portfolio declined right.
More than the MBS portfolio did on the quarter.
I guess can you elaborate a little bit on what you guys have made any changes to sort of your debt duration exposure along with any any part of the yield curve given the cause there.
Shifting.
Outlook for.
What the fed is going to be doing going forward and kind of just generally how you're how you're approaching hedging across the yield curve right now.
Yeah, Hey, good morning driver it's Brian.
Brian Paul Norris: Yeah, we haven't really made any significant changes to our yield curve exposures. You know, we're positioned slightly for a steeper curve, given our expectations for Fed policy in 2024. You know, the sharp rally that we saw in interest rates during the fourth quarter didn't shorten our mortgage investments. So you saw a shortening in our hedges as well. But really, the changes that we made to the swap portfolio were, you know, pretty consistent across the curve. So there weren't any significant changes.
We haven't really made any significant changes to our yield curve exposures.
We're positioned slightly for a steeper curve.
Given our expectations for fed policy in 2024.
The sharp rally that we saw in interest rates during the fourth quarter did shorten our mortgage investments.
So you saw that.
Shortening and our and our hedges as well.
But really the changes that we made to the swap portfolio were.
Pretty consistent across the curve so there werent any significant changes.
Brian Paul Norris: As far as our duration gap goes, we're still just modestly positive, but very slight. Okay, got it. Appreciate the comments. Thank you. Thank you. Our next question comes from Jason Weaver with Jones Trading. Your line is open.
As far as our duration gap goes we still just modestly positive.
But very slight.
Okay got it I appreciate the color. Thank you.
Thank you. Our next question comes from Jason Weaver with Jones trading your line is open.
Jason Weaver: Hi guys, thanks for taking my question. I'm sort of a two parter here.
Hi, guys. Thanks for taking my question I have a sort of a two parter here.
Jason Weaver: I've seen over the last three, four quarters that you've been migrating higher in the coupon stack. Obviously, that's in response to the available ROE in the market. But what do you think of the convexity profile here, given your remarks on the timing of monetary easing? I assume you're still migrating up to quarter to date. Yeah, hey, Jason, it's Brian.
I've seen over the last three four quarters have been migrating higher and the coupon stack.
Obviously, that's in response to the available ROE in the market, but what what do you think of the convexity profile here given your remarks on the timing of monetary easing easing I assume youre still migrating up to quarter to date.
Yeah, Hey, Jason It's Brian Good morning, good to hear from you yeah.
Brian Paul Norris: Good morning. It's good to hear from you. Yeah, you know, we have moved slightly up in coupon. Obviously, we did buy some sixes in the board quarter that do have, you know, a slightly worse convexity profile. But just given our expectations for interest rate volatility, you know, we don't exactly mind taking a little bit of additional convexity risk from that perspective. And, you know, given our continued holdings and fours through five and adds that are still at, you know, decent discounts, we certainly have a fair amount of protections from that perspective as well. And on that subject, the new high coupons and the sixes, what is the typical type of specified pool those guys are in? Yeah, it's pretty consistent with the rest of our portfolio, you know, leaning a little bit heavier into loan balance, but also, you know, higher loan balance cuts call them, you know, 225-250k, but also a fair amount in the lower payoff stories like LTV and FICO and GEO I got it.
We have moved slightly up in coupon obviously, we did buy some fixes in the fourth quarter that do have slightly worse convexity profile.
But just given our expectations for interest rate volatility.
Exactly mind, taking a little bit of additional convexity risk from that perspective.
And given our continued holdings and enforced through five and adds that are still at decent discounts.
We certainly have a fair amount of protection from that perspective as well.
And on that subject to the new coupon new high coupons in the sixes. Our what is the typical type of specialty specified pool those guys are at.
Yeah.
Yes, it's pretty consistent with the rest of our portfolio leaning a little bit heavier in loan balance but also.
Higher loan balance cause column 225 P J.
But also a fair amount in the lower pay up stories like LTV and FICO NGL stories.
Brian Paul Norris: All right, that's helpful. And finally, I see cash, you know, right now at around $77 million. I know you have some unencumbered as well for enhanced liquidity, but does that imply you're inclined to raise leverage going forward? Uh, I wouldn't necessarily say we're inclined to raise leverage. We do have the ability to do that if we, if the market, you know, volatility declines and we see improvement in valuations, you know, but I wouldn't say we're necessarily inclined to do that in the near term. You know, I think we still, you know, certainly there's still some uncertainty about the timing of Fed policy. And, um, you know, we would expect there to continue to be some great ball games around that, um, until that kind of comes to fruition.
Got it alright, that's helpful and finally, I I see cash you know right now at around 77 million I know you have some unencumbered as well.
For enhanced liquidity, but does that imply you're inclined to raise leverage going forward.
I wouldn't necessarily say, we're inclined to raise leverage we do have the ability to do that if we if the market volatility declines and we see improvement.
Valuation, but I wouldn't say, we're necessarily inclined to do that in the near term I think we still certainly there is still some uncertainty about the timing of fed policy and.
We would expect there continue to be some some great ball around that until that kind of comes to fruition. So.
Jason Weaver: So, you know, at the moment, I think we're pretty comfortable with where we are, but we do have the ability to increase leverage if, if conditions warrant that. All right, thank you for that color.
The moment I think we're pretty comfortable with where we are but we do have the ability to increase library, just if conditions warrant that.
Alright, thank you for that color.
Doug Harder: And congratulations, guys. Thank you. Thank you. Our next question comes from Doug Harder with UBS. Your line is open.
Congrats guys.
Okay.
Thank you. Our next question comes from Doug Harter with UBS. Your line is open.
Hi, Thanks, I was hoping to get your thoughts around the dividend. If you look at it relative to the common book value it kind of screens higher but yeah. If you look at it relative to the total equity.
Doug Harder: Hoping to get your thoughts around the dividend. You know, if you look at it relative to the common book value, it kind of screens higher. But, you know, if you look at it relative to total equity, factoring in the preferred, it seems, you know, kind of more in line. I'm just curious as to how you think about the dividend. Yeah, hey, Doug. It's John.
Factoring in the preferred it seems.
You know kind of more in line and I'm, just curious as to how you're thinking about the dividend.
Yeah, Thanks, Hey, Doug it's John.
John M. Anzalone: Yeah, I mean, as always, the dividend is decided by the board. So, you know that that's the first thing it is, but you know I think given where EAD is, even though it's trended lower with the adjustments in the swap book, EAD supports the level of the dividend pretty comfortably at this point. So, you know, we do look, if we, you know, if our level of dividend is really an outlier versus peers, that's one consideration we think about. For, you know, the other consideration is really where we see cash flows and where we see EAD, and we're forecasting that over the next several quarters. So, you know, from that perspective, it's been, it's been well supported. So, you know, you know, I think as long as things stay relatively around here, you know, I don't see any catalysts to change things. But then again, it's pretty early.
Yeah I mean.
Always the dividend as chairman by the board.
Yes.
But I think.
Given where.
Even though it's trended lower with the adjustments in the swap book.
Yeah. He supports.
Of course, the level of dividend.
Comfortably at this point.
So you know we do look at it.
Yeah.
If our level of dividend is really an outlier versus curious that's one consideration we think about for you.
You have acceleration is really where we will be see cash flows and where we see we're forecasting that over there.
The next several quarters so from that perspective.
We simply assume well support it so.
I think as long as things stay.
Relatively around here.
I don't see any any catalysts.
Since the change them, but then again, it's pretty early.
John M. Anzalone: So, yeah, that's what I said. Thanks, John. And then around the capital structure, you know, I guess, how are you thinking about, you know, you know, kind of plan to kind of bring the preferred equity as a percentage down, and then sort of along those lines, you know, how do you think about leverage as more leverage to common or leverage to total equity? Um, we look at it both ways, you know, in terms of leverage, how we think about it, you know, leverage to common equity is And, you know, as far as capital structure is concerned, we've been... Buying back forage in the open market, it's been a very slow process given the amount of activity and those issues out there. You know, I think B, you know, we have two preferreds out there are Series B is callable at the end of this year. So we have, we'll have a decision to make come the fourth quarter.
Yeah, Yeah, that's what I say.
Thanks, Sean and then around the capital structure, you know I guess, how are you thinking about.
Hum.
<unk> plant and two to kind of bring the preferred.
Preferred equity as a percentage down and then sort of along those lines.
How do you think about do you think about leverage has more leverage to comment or our leverage to total equity.
But when we look at it both ways in terms of leverage how we think about it you know leverage the common equity is probably the way we think about risk yeah.
More often.
So that's that.
That's how we think about it.
And as far as capital structure, we have been.
Buying back preferred market, it's been very slow process given.
Given the amount of activity in those issues out there.
<unk>.
You know I think.
We had two two preferreds out there our series a is callable at the end of this year. So we will have a decision to make.
Fourth quarter.
John M. Anzalone: And, you know, we're looking, you know, we'll be starting and are starting to look at options around, you know, whether we call that or not, and you know, how we kind of handle that coming event. So, you know, but we do continue to attempt to buy the firms back, and then, when the market is, Uh, when market conditions are appropriate, we are also, you know, looking to raise money through the ATM, which would also help balance the capital structure. So both of those two things to do throughout the year.
And we're looking we'll be starting there are starting to look at options around.
Yeah.
We call that are not in.
How do we kind of handle handle that coming.
Economic event.
So, but we do continue to attempt to buy.
Preferreds back and then when the market is.
Willing.
When market conditions are appropriate we are also looking to raise money through the ATM, which would also help balance the capital structure. So both of those two things.
Throughout the year.
Doug Harder: Great, I appreciate that. Thank you, and if you would like to ask a question, please press star 1. Our next question comes from Eric Hagen with BTIG. Your line is open.
Great I appreciate that.
Okay.
Thank you and if you would like to ask a question. Please press star one. Our next question comes from Eric Hagen with BT AIG. Your line is open.
Eric Hagen: Hey, good morning; how are we doing? Hey, on the specified pools, can you give a sense for how much payoffs are right now for the bonds that you're focused on buying, you know, relative to where those payoffs have been historically? And do you feel like there's a good way to think about how much relative strength those bonds can show in different, you know, interest rate rallies? Hey, Eric. Good to hear from you. It's Brian.
Hey, good morning, how are we doing pay almost specified pools can you give a sense for how much pay ups are right now for the bonds that you're focused on buying <unk>.
As to where those pay ups have been historically and do you feel like there's a good way to think about how much relative strength.
Bonds can shell in different interest rate rally.
Hey, Eric good to hear from me its Brian.
Brian Paul Norris: Yeah, you know, as I mentioned, the payouts did improve in the fourth quarter, given what we saw happening in the rates market. You know, those have come off a little bit. And so far in the first quarter, we have rates that are now up 45 to 50 basis points since year end. So you'd expect some softening in payouts. And so we've seen that.
Yes, I think first off.
As I mentioned, the payoffs did improve in the fourth quarter, given given what we saw happening in the rates market.
Those have come off a little bit.
So far in the first quarter, we had rates are now up 45 to 50 basis points. Since yearend. So you would expect some softening in payouts and so we've seen that.
Brian Paul Norris: But you know, our weighted average payoff, I think is what 0.4 points. So you know, I think our exposure to those changes is fairly limited. You know, I think the FICO and LTV stories and even the GEO stories are, you know, pretty low payouts. And so there's not a lot of change that goes on in those. It's really kind of driven by the changes in the loan valve that are a little bit higher payouts. So call it, you know, half a point to three quarters of a point.
But our weighted average pay up I think is what 0.4 points.
So I think.
You know our exposure to those changes is fairly limited.
The FICO and LTV stories, and even the G O stories are.
Pretty low payoffs and so theres not a lot of change that goes on in those it's really kind of driven by the changes in loan Bal.
That are a little bit higher payout so call it half a point to three quarters of a point so.
Brian Paul Norris: So, you know, those will change as the interest rate markets kind of adjust around that. But we're still, you know, it hasn't changed the kind of what we're targeting as far as, you know, attractive additions at this point. You know, we still think that the TBA market will continue to have, you know, issues, and the implied financing will continue to be higher there than it is in specified pools. So, you know, to the extent that we're looking to add, you know, at this point, it would certainly be in specified pools. Do you feel like there's anything that would catalyze dollar roll specialness aside from the Fed? Shutting off QT or making adjustments to QT. Yeah, I think, you know, if we were to see a significant return from banks, we've seen some encouraging signs from them over the last few months, and they've, you know, at least stopped running off their portfolio as significantly as they had been. But I do think that, you know, banks are really the primary driver of demand for, you know, those generic type securities.
Those will change as the interest rate markets kind of adjust around that but we're still that hasnt changed kind of what we're targeting as far as attractive additions at this point, we still think that the TBA market will continue to have.
Issues and that implied financing will continue to be higher.
There than it is and so that's our goal so to the.
Extent that we are looking to add.
At this point it would certainly be in specified pools.
Do you feel like there's anything that would catalyze dollar roll specialness aside from the fed.
Setting off Q2, youre, making adjustments to Q T.
Yeah I think.
To see a significant return from banks.
We have seen some encouraging signs from now over the last few months and days.
You know at least stopped running off the portfolio as significantly as they had had been.
But I do think that.
Banks are really the primary driver of demand for those.
Generic type securities and so.
Brian Paul Norris: And so, you know, that TBA market is really driven by supply and demand dynamics. And until that starts to improve, it's hard to imagine the dollar market improving all that much. Quite frankly, the other aspect of that is, you know, the convexity profile of the deliverables. And that is not appearing to get any better as loan balances continue to increase.
TBA market is really driven by supply and demand dynamics and until that starts to improve its hard to envision that the dollar roll market, improving all that much because quite frankly, the other aspect of that is.
The convexity profile of the of the deliverables.
That is not appearing to get any better that's loan balance continued to loan balances continued to increase.
Brian Paul Norris: Right, I know it's helpful. The book value range that you gave quarter to date, is that inclusive of the accrued dividend, or are you netting out the accrued dividend? The net childhood dividend, and that's it.
Right, Okay that was helpful.
Book value range that you gave quarter to date is that inclusive of the accrued dividend or are you netting out the accrued dividends.
That nets out the dividend.
Brian Paul Norris: Okay, thank you guys so much. Yeah. Thank you. And at this time, we have no further questions. Greg, I'll hand it back to you. Okay, thank you very much. Thank you everyone for your participation and look forward to speaking to you next quarter. Thank you. That concludes today's conference. Thank you for participating. You may disconnect at this time.
And netted out okay. Thank you guys so much.
Yes.
Thank you and at this time, we have no further questions, Greg I'll hand, it back to you.
Okay. Thank you very much thanks, everyone for your participation and look forward to speaking to you next quarter.
Thank you that concludes today's conference. Thank you for participating you may disconnect at this time.