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Invesco Mortgage Capital Inc. (NYSE:IVR)

Q1 2010 Earnings Call Transcript

May 11, 2010 8:00 am ET

Executives

Richard King – President and CEO

Don Ramon – CFO

John Anzalone – Chief Investment Officer

Robson Kuster – Head of Research

Analysts

Bose George – KBW

Mike Widner – Stifel Nicolaus

Douglas Harter – Credit Suisse

Dean Choksi – Barclays Capital

James Young – West Family Investments

Mike Widner – Stifel Nicolaus

Unidentified Participant

This presentation, and comments made in the associated conference call today, may include statements and information that constitute forward-looking statements within the meaning of the US securities laws. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance.

Forward-looking statements also include statements regarding the scale and our ability to quickly invest the proceeds of our May 2010 follow-on offering, the reduction of our expense ratio, improved stock liquidity, interest rates and their effect on prepayment risk and premium agency positions, the ability of our investment strategy to protect against prepayment and margin call risk, the impact of government-sponsored entities loan buyouts on our second quarter 2010 results, low loan balance pools vulnerability to government-sponsored entity loan buyouts, the PPIP Fund, our flexibility to successfully invest in various market cycles, economic and mortgage market recovery and its impact on our assets, commercial loan opportunities and our potential performance in a rising rate environment, shareholder benefit from our diversified investment strategy and manager's experience, and investment opportunities in the mortgage market.

In addition, words such as anticipate, believe, will, expects and plans, as well as other statements that necessarily depends on future events, are intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations.

We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks identified under the captions Risk Factors, Forward- Looking Statements, and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the Securities and Exchange Commission’s website at www.sec.gov.

All written or oral forward-looking statements that we make, or that are attributable to us, are expressly qualified by this cautionary notice. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.

Operator

Good morning, ladies and gentlemen. Welcome to Invesco Mortgage Capital Inc.’s investors conference call. All participants will be in a listen-only mode until the question-and-answer session. (Operator instructions) As a reminder, this call is being recorded. Now I’d like to turn the call over to the speakers for today, Richard King, Chief Executive Officer; John Anzalone, Chief Investment Officer; and Don Ramon, Chief Financial Officer. Mr. King, you may now begin.

Richard King

Thank you. Good morning, everyone, and welcome to Invesco Mortgage Capital’s first quarter 2010 earnings call. Early in the first quarter this year, IVR completed a follow-on common share offering netting $163 million in proceeds. We deployed the capital quickly and strategically in line with the plan we presented to our investors, as we did after our IPO.

Our goal is to offer our investors a very attractive return primarily through dividends while maintaining or improving our book value. We’ve paid $2.44 per share since the IPO, and we have managed risk and kept the book value stable somewhat above our IPO price. We are excited by what we see in the markets in our target assets, and the volatility allows our hybrid strategy to create value. We benefit from the Invesco platform, experiencing scale across the breadth of the US mortgage market.

On slide three, we’ve showed the benefit of our flexible business model. In January, we told investors we could generate a 16% to 20% ROE with moderate leverage and tight management of our interest rate risk by deploying the capital, as shown in the pie chart on the left. The pie chart on the right depicts how we deployed the capital raised in January. We bought a bit more non-agencies than planned because prices dropped 3 to 5 points due to global concerns and financial reform concerns familiar to what we are seeing today.

We also took advantage of two government programs before they expired. The CMBS TALF program offered low-to-mid teens ROE and locked up three to five times leverage, with no risk of margin cost. We’ve put about the planned amount of capital in CMBS. The PPIP program offers unparallel financing, and we target 20% to 25% returns there. We’ve committed up to $100 million of our capital to Invesco’s Mortgage Recovery Fund, which invest in PPIP.

During quarter one, we deployed close to $25 million of that $100 million commitment and we are happy with the returns there. We deployed less capital than planned into agency MBS because we were avoiding GSE buyouts and thinking spreads could widen a bit around the end of the Fed’s purchase program.

To summarize, we took advantage of our flexible strategy, the breadth of the platform, price dislocations due to market conditions, and limited recourse funding from the government. On page four, let’s talk about the ways we recently completed in quarter two. We netted proceeds of about $178 million, which represents about a third of our capital. We see great investment opportunities.

And as shown on the pie chart on the bottom, we plan to deploy about half in agency and about 10% in PPIP, with the remaining 40% in non-agency RMBS. Obviously, market condition since the raise afford us a somewhat better than expected buyers’ market. We will again look to deploy relatively quickly to minimize drag on ROE. Our larger capital base does improve IVR scale and our buying power. And this raise is also expected to reduce our expense ratio by about 40 basis points and improve the liquidity of our stock.

Let me now introduce once again our CFO, Don Ramon.

Don Ramon

Thank you, Rich. The January capital raise was the key driver of our performance in the first quarter. As you can see on page five, net income was $13.2 million, which was an increase of approximately $3 million from Q4. Now let’s take a look at the key components. Interest income for Q1 was $18 million, which was an increase of $5.4 million from Q4. This represented an average portfolio yield of 5.88%, which was an increase of 6 basis points from Q4.

We are very pleased with the portfolio yield as it came during the quarter when we were investing the proceeds from the January offering and absorbed the impact of the increased GSE buyouts. John is going to talk about this in a little more detail later on, but we estimate that the increased buyouts had less than $1 million impact on our net interest income for the quarter.

Interest expense increased $1 million quarter-over-quarter, and again, this was primarily due to the increase in borrowings from our January capital raise. Our average cost of funds was 1.6% and was 4 basis points higher than Q4, as borrowing rates continued to be contained.

Another key change in the quarter can be seen in other income. As you may recall, we recognized $2 million in gains in the fourth quarter as we rebalanced our portfolio in anticipation of the GSE buyouts. In Q1, we realized approximately $700,000 in gains from asset sales. This decline of $1.3 million was offset by an increase in our income from the PPIP investment of approximately $500,000.

G&A continues to be a good story for us. As you can see, while the management fee increased with the increase in our equity base, our other G&A remained consistent with the fourth quarter. As a result, our G&A expense as a percentage of equity declined 32 basis points in the quarter to 2.65%. As Rich indicated earlier, we anticipate this percent of decline even further after the offering we just completed.

For the quarter, earnings per share were $0.77 compared to $1.02 for the fourth quarter. The decrease was due to approximately a $0.14 per share in lower gain on sale of assets and approximately $0.14 per share lower net interest income primarily due to the time period necessary to ramp the portfolio after the January capital raise. This was offset by an improvement in G&A expense of approximately $0.03 per share.

Turning to page six, we can look at the balance sheet. As you can see, we increased our portfolio of MBS by $634 million after the capital raise. In addition, we increased the PPIP investment to $29 million as we increased our commitment to $100 million during the quarter. This was recorded in other assets, and the increase primarily accounts for the change from Q4.

On the funding side, we increased our repurchase agreement by $415 million, of which $170 million was to finance non-agencies. This was the first quarter from non-agency repo and we continued to see improved financing opportunities in this area. In fact, we’ve recently entered into an agreement in which we can extend our repo on these assets after one year.

The first quarter also saw the end of the legacy TALF program offered by the New York Fed. As you can see, we successfully funded an additional $70 million on to this program. We are pleased we were able to walk in this favorable financing and believe it will provide steady net interest income for our CMBS portfolio during the next several years.

Our book value per share declined $0.13 to $20.26, as we saw significant pressure on asset values at the end of the quarter related to concerns over the GSE buyouts and the Fed exiting the purchase of agency RMBS on $3.31.

Now let me turn it over to our CIO, John Anzalone, to get into some more details about the portfolio.

John Anzalone

Thanks, Don. And thanks, everyone, for calling in. I’ll start off by giving some portfolio level highlights. Our agency book is 45% 30-year collateral, 38% 15-year collateral, with the remainder 17% in hybrid ARMs. We continue to favor higher coupons with all of our 30-year paper in five-and-a-halfs [ph] and higher. Because of the premiums in those coupons, we strongly favor collateral that has prepayment protection. Right now, that includes loan balance paper, investor property paper, as well as seasoned pools.

In non-agencies, we are still playing exclusively in senior or super-senior cash flows. Credit performance has been within expectations, but we have seen voluntary prepayment speeds come in faster than our projections, which has been a positive. In CMBS, as in non-agencies, all of our positions are at the top of the capital structure. We continue to take advantage of the TALF program through the first quarter. Unfortunately, that program concluded in March. We are also continuing to explore opportunities in the commercial loan space with our colleagues at Invesco Real Estate.

Moving to slide eight and over the next two slides, I want to focus a little bit on interest rate and prepayment risk. I’ll start with the interest rates. Given the low level of rates, we feel that it’s important to construct a portfolio that will perform well on a rising rate environment. As I just mentioned, our agency mortgages are largely concentrated in higher coupons, which will benefit from slower prepays as rates rise.

Our target duration gap is half a year, as we have taken advantage of very low rates and tight swap spreads to put on longer dated swaps. Insurance is cheap. Perhaps most importantly, our hybrid model contains natural hedges, as the prices of our credit positions in both RMBS and CMBS will benefit greatly as the economy recovers.

The boxes at the bottom of the slide show how higher interest rates will impact our portfolio and our net interest margins. On the left, you can see that 100 basis point increase in rates will cause our portfolio value to decrease less than our non-agency peers and fractionally more than our agency, non-agency combined. However, as we are looking at how our net interest margin fares in a plus-100 environment that we really stand out, our net interest income increases as rates go up.

There are number of things going on here. First, a concentration in higher coupons will perform well as rates rise and prepay slow, reducing our premium amortization. Second, one of the advantages of our hybrid structure is the greater convexity profile we attained through our exposure to CMBS and deep discount non-agencies. And finally, our decision to maintain a tight duration gap using longer dated swaps will really pay off if rates rise.

Next, let’s move on to prepayment risk. Obviously, prepayment risk is always going to be one of the most important risks that the mortgage portfolio is going to face, and that was never more apparent than over the past few months as the GSEs moved about their delinquent lines. We are proactive in mitigating the negative impact of the buyouts. As we sold our higher coupon high LTV loans as well as our higher coupon hybrids during December and January, when it became clear to us the wide-scale buyouts were likely. We moved into loan balance pools as well as 15-year paper, which proved to be impacted less.

As you can see from the graphs, our pools performed quite well through the Freddie buyouts in March and through the Fannie buyouts in April and May. In fact, because we are concentrated in higher coupons, we feel that the impact of the buyouts is largely behind us at this point. The buyouts had limited impact on our results during the first quarter, and we expect that the impact in the second quarter will also be limited.

Finally, on page 10, I want to touch on our PPIP opportunity and why we are so excited about it. Over the first quarter, we increased our commitment to the PPIP from $25 million to $100 million. The same team that manages IVR also selected bonds purchase into PPIP, and Rich sits on the PPIP Investment Committee along with Wilbur Ross.

The reason we are so positive on this opportunity is because it is simply the most efficient way to fund our target asset classes. The churns for our PPIP funds were recently released, and you can see from our performance that the combination of attractive limited recourse financing in superior credit selection could be quite powerful.

So getting to the numbers, our three-month return ended March 31st was 7.5%. Since inception, our return has been 11.5%, which puts us squarely on track to achieve our expected returns of 20% to 25%. So keep in mind, IVR does not pay any additional management fees in this investment. Finally, our PPIP fund can also invest in residential and commercial loan opportunities, and this is where we intend to get exposure to those asset classes.

And with that, let me hand it back to Rich to wrap things up.

Richard King

Thanks, John. Let me take a couple of minutes to summarize the first quarter and talk about how that set IVR up for the future. And let’s look at this in the context of our overall business model and goals. Our ultimate goals are to pay shareholders an attractive dividend and maintain or improve our book value per share. To accomplish the first part, we reduced the flexibility in our business model to take advantage of market opportunities. We have been opportunistic in raising capital when we see opportunity deploy, as we did in Q1, and we benefit from reducing our expense drag on the dividend and we hope to improve the liquidity of the stock.

In Q1, some key decisions have and will continue to help us reach our goals of an attractive risk-adjusted return through the dividend. First, we repositioned the agency MBS portfolio and largely avoided the GSE buyouts. Second, we also bought RMBS as prices fell and we locked in nice spreads with non-recourse financing, the MBS TALF and the PPIP program.

Looking ahead, we see more great opportunity. We continue to see the Fed holding rates low for all of 2010. At the same time, the housing environment is showing improvement, and we do expect the government to continue to promote policies that are supportive of housing. We recently raised capital, which gives us liquidity at a time when that is important.

On the second part of our key goals, maintaining book value, risk management is front and center, and as such, let’s think about the three main risks we manage; interest rate risk, leverage risk, and credit risk. First, interest rate risk. We tightly managed the duration gap. We do so by hedging a lot percentage of our repo and do so with longer swaps. We match fund CMBS, and we see credit RMBS as an offset because rates tend to be negatively correlated with credit.

The second risk, leverage risk. We’ve kept leverage modest, three times overall. We’ve grown our repo relationships and capacity, and recently we’ve signed an RMBS credit facility. We maintain a large margin of safety on agency and the non-agency portfolio. Invesco is a large repo lender, much larger than we are a borrower, and we remind our counterparties of that.

And third, credit risk. Our credit profile is conservative. We buy senior top-of-the-capital structure bonds where we’ve studied the underlying collateral at the loan level and are comfortable with preservation of our capital in stress scenarios. Our RMBS portfolio collateral is prime in all take collateral, most senior bonds, no subordinate bonds, no re-remit [ph] subs, no option ARMs. We also have a huge team of credit people watching our counterparties, a commercial real estate team supplying us with property information, and through WL Ross, a large resi loans are sort of supplying us with information.

Finally, we have the flexibility to move our asset allocation to benefit from market dislocation. Controlling risk and playing from a position of strength is key to maintaining book value and also having the wherewithal to be opportunistic.

That ends our prepared remarks, and we would like to open up for questions.

Question-and-Answer Session

Operator

(Operator instructions) And our first question comes from Bose George from KBW. Please proceed with your question.

Bose George – KBW

Hey, guys, good morning.

Richard King

Good morning.

Bose George – KBW

Just wanted – a couple of things I wanted to go through. The first was just the net interest income sensitivity, I mean, that’s definitely quite different from the peers, and I would just like a little more detail on the different components, how the agencies move with the non-agencies et cetera to just get more comfort with that number.

Richard King

Sure. Really the big drivers of that are – one is our premium agency mortgage-backed portfolio. And the fact that in a higher rate environment, we’re going to see slower prepays, and those slower prepays will essentially increase our income and less premium amortization. And the other thing that I think it shows through that we do hedge a large portion of our repo. I think that differentiates us from competitors.

Bose George – KBW

And then just on the non-agency side, just wondering what assumption changes go into with that rate increases. Is that driving any of the difference here?

Richard King

No, we don’t assume a negative duration on the non-agencies.

Bose George – KBW

Okay, great. And the second thing I had was just on the PPIP investment. You guys have this number up to $100 million, the commitment number. I was wondering what the time permits for deploying that. And is there a deadline in terms of having to deploy that capital by a certain period of time?

Don Ramon

That fund has a three-year investment period. So it’s – we have quite a bit of time. And capital can be reinvested. So we can take cash flows from that portfolio and reinvest.

Bose George – KBW

Okay, great. And then just finally, just any color on asset prices since quarter-end would be great just on non-agencies and CMBS that you guys have.

John Anzalone

Sure. This is John. We’ve seen – since the end of March, we’ve seen prices through the first few weeks of April rebounded pretty strongly, and especially in non-agencies I would say anywhere from 2 to 5 points perhaps in the beginning of the quarter. Obviously the last week has been a little bit – things have been a little bit volatile. On Friday, I think we saw offerings get dropped a couple points. I don’t think a lot really traded in non-agencies at the end of last week. And then again, yesterday I think not a lot that traded also. So we were kind of looking for opportunity in this latest round of volatility. We continue to think we will be able to see some – or take advantage of some of the volatility that we’ve seen. But I think broadly prices are higher since, and it’s a little tougher to tell over the last couple days.

Bose George – KBW

Okay, good. Thanks for the color, and good quarter.

John Anzalone

Thanks, Bose.

Richard King

Thank you.

Operator

Our next question comes from the line of Mike Widner with Stifel Nicolaus. Please proceed with your question.

Mike Widner – Stifel Nicolaus

Hi, good morning, guys.

Richard King

Good morning, Mike.

Mike Widner – Stifel Nicolaus

If I could just follow up on a couple of things that Bose asked. Actually on the PPIP investment, just wondering if you could give us a little more indication on how we should think about the timing of when that gets invested. Should we assume it’s front loaded, for example? And as of this month, the whole $100 million is invested generating the kind of returns you are targeting or is it more spread out over, say, the rest of the year or longer period?

Richard King

Mike, I think the latter. We are not thinking that we are going to get the whole thing invested in the short run. And that’s why when we kind of talked about our deployment of the new equity, we assumed about 10%. And really – just to back up a second, let me talk about that PPIP investment. It’s made in the Invesco Mortgage Recovery Fund. That fund has an asset allocation. It’s about 60% legacy securities through the PPIP program and 40% loan opportunities that I was referring to WL Ross, Invesco Real Estate are searching opportunities, for instance, to buy loans through the FDIC programs or other credit sellers, again, targeting 20% to 25% returns. So it’s a little bit harder to forecast when those opportunities come about and how that capital gets deployed maybe a bit more chunky.

On the securities side, it’s – what we’ve been doing is a fairly constant deployment where – in the first quarter, I mentioned we’ve got $25 million put to work, but some of that was because we increased our commitment to fund a great deal at the end of the quarter. So we think that’s going to be great for our second quarter, and then again I would assume that money gets deployed about like we said, which is about 10% of the new equity.

Don Ramon

But Mike, keep in mind that while we are waiting to deploy that into that opportunity as it comes along, we have plenty of cash flows to fund that as it goes forward. So again, we would invest in other securities and so forth to keep the money put to work in that time period.

Richard King

Right.

Don Ramon

So it’s a target that’s out there, but again, we get similar returns off of the agency and non-agency on a levered basis. So we deploy it there and then use the cash flow going forward to invest in PPIP as the time comes.

Mike Widner – Stifel Nicolaus

Got it. That makes sense. And then just if you could give us just maybe one more point of color on the non-agency market you are seeing right now. I recognize there is a lot of turbulence in the last week or so especially, but I know there has been a lot of volatility on prices there. And for the stuff that you are investing in, I take it’s still mostly the super-senior tranches. What kind of unlevered yields are you seeing there, roughly speaking, today for new investment? And what’s your thoughts on potentially the kind of leverage you might apply to that going forward?

Don Ramon

Yes. I think the bonds that we’ve been able to purchase recently have ranged, I would say, unlevered loss adjusted yields of between 7% to 9%. So it’s still very attractive compared to most of everything else we see although they have come in – obviously come in from the low-teens over the last few months.

Mike Widner – Stifel Nicolaus

And the spark [ph] leverage?

Richard King

In terms of leverage, what we are thinking –

Don Ramon

With the new capital we are targeting one to two times on the new money. And so we’re targeting for overall book to be between 1.0 and 1.5 times. And we’ve seen terms just continue to improve on the funding side of non-agencies.

Richard King

And the new non-agencies, we’re looking to use a facility to put those bonds into.

Mike Widner – Stifel Nicolaus

Got you. And then just one final question. Any idea when we might see the Q – the 10-Q?

Don Ramon

Yes. We’ll have it filed by the end of this week.

Mike Widner – Stifel Nicolaus

Okay, great. Well, congrats on the quarter and good job on the recent capital raise, and then thanks for the color.

Richard King

Thank you.

Don Ramon

Thanks, Mike.

Operator

(Operator instructions) And our next question comes from the line of Douglas Harter from Credit Suisse. Please proceed with your question.

Douglas Harter – Credit Suisse

Hi, thanks. With some of the short-term indicators showing some more stress in sort of the money market funds – money market areas, just wondering if you could what you’ve seen in sort of the repo over the last week or so.

Robson Kuster

We haven’t – Doug, this is Rob. We haven’t seen – we've had the rules in repo here through this turbulence in the last week or so, and we haven’t had any problem doing so and actually the rules were agency, but we didn’t see any change in levels.

Don Ramon

And also, Doug, as we talked about before too, we did add a new credit facility for the non-agency that we did add some non-agency. And again, the terms on that go out to a year. And we just added that – started using that this past week. So again we are seeing that – right now, no constraints on our ability to borrow. Actually I’d go further and say, we’ve been in close contact with our money market back in Houston through this, and they haven’t seen any impacts on the repo market either. There has been some tightening of it in Europe, but to this point, the US banks are doing just fine.

Douglas Harter – Credit Suisse

Great. Thank you very much.

Operator

Our next question comes from the line of Dean Choksi from Barclays Capital. Please proceed with your question.

Dean Choksi – Barclays Capital

Good morning, gentlemen. You talked about the opportunities in commercial real estate loans. Are you doing that on balance sheet or is that within the PPIP fund?

Richard King

That’s within the PPIP fund. I mean, we could in the future at some point do that directly, but we think it makes the most sense to do it through the PPIP fund at this time.

Dean Choksi – Barclays Capital

Are there opportunities there or that you’re buying from the FDIC or is that things that you are originating through Invesco Real Estate and then putting their loans in the fund?

Richard King

No, we are not originating anything. It’s just buying – really distressed opportunities, and it’s Wilbur Ross along with Invesco Real Estate and with frank [ph] organizations also involved in. So we’re seeing opportunities there for us.

Dean Choksi – Barclays Capital

And then on the non-agency credit facility you signed, what are the haircuts that you are seeing there?

Richard King

In the non-agency space? They really –

John Anzalone

They vary from (inaudible). So anywhere from 20% to call it 35% depending on the – generally speaking, the higher price bonds are going to get lower haircuts obviously.

Dean Choksi – Barclays Capital

Great, thank you.

Operator

Our next question comes from the line of James Young from West Family Investments. Please proceed with your question.

James Young – West Family Investments

Yes, hi. Back to the PPIP area for a minute, could you kind of clarify how you were able to generate the 20% to 25% expected rates of return? Because it would seem that given the current CMBS marketplace is, that would be at the high end of the range. So if you are targeting 50% legacy CMBS, 40% in the loan opportunities, are you moving down the capital, stacking into higher risk assets in order to generate these returns?

Richard King

The asset allocation in the PPIP fund is – we actually don’t have any CMBS in there. It’s primarily RMBS prime and I’ll say, really not a lot different than what we are doing directly. The difference is that the PPIP fund, it’s a private equity stock fund, and so we have a return target that’s 20% to 25%. To the extent that we can generate that, we draw and invest. And that is going to flow through our income. It’s not an OCI-type investment. So as we see price appreciation on non-agencies, that will hit our income. So we expect higher near-term returns to the extent at some point that we don’t think we are going to see our target returns. We could sell the assets and move on. But essentially, it’s really just a different animal in terms of – it's not like necessarily buy-and-hold and generate income. It’s generate 20% to 25% in terms of rates of return on average.

James Young – West Family Investments

Okay. And then secondly, with respect to the most recent capital raise, how much of those proceeds have been deployed? And have they been deployed at the higher end of your expected rates of return that you’ve discussed during the road show or at the lower end of the range?

Richard King

I think – well, I’ll talk about the ramp real briefly. We’ve been really pleased with the progress so far. I think it’s been right within expectations, maybe even a little bit faster. I would say the rate or the yields that we’ve been getting were pretty much right in line with what we thought when we talked about on the road show. And then we paused a little bit at the end of last week as the market became unsettled although we do think the volatility is going to provide opportunity both in sourcing assets and in our ability to fund and hedge those at good levels. So we’ve been very pleased with the ramp so far.

Operator

And the next is a follow-up question from the line of Mike Widner with Stifel Nicolaus. Please proceed with your question.

Mike Widner – Stifel Nicolaus

Hi, thanks, guys. Just want to ask a quick follow-up. Maybe you talked about repo a little bit, and what we’ve heard from everybody, repo availability is great. But what we’ve seen in the past week or so, and really I should be going back several weeks, it’s a pretty steep ramp-up in short-term LIBOR, 30-day LIBOR. I’m just wondering how that may or may not affect – what kind of repo you are rolling over kind of today or yesterday or in the very short-term?

Robson Kuster

Sure, Mike. This is Rob. We’ve obviously seen LIBOR spike here, one-month LIBOR from 25 to it was 34 last Friday. We did a couple repo roles through LIBOR at that point. They were still in the mid-20s on the agency side.

Mike Widner – Stifel Nicolaus

Okay. So I mean, this is a little forward-looking and I know your speculation is probably as good as mine. But back in the day, we used to see repo tend to trade between Fed funds and LIBOR, and we’re seeing a bigger gap there now than we historically have. But – I mean, is your feeling at this point that being in the US market rather than being a US-based company that you are probably tracking closer to where you’ve been for the past few months or probably starting to trend up?

Robson Kuster

Obviously it’s trended up, but it’s in terms of basis points, not anything greater than that at this point.

Richard King

I think the best repo roles we have done were like in the high-teens, and so now you’re talking in the mid-20s on recent ones. But I don’t think we didn’t average in the high-teens there for very long.

Don Ramon

And keep in mind, that’s also – part of this concern is why we are hedging such a large portion of our book. I mean, that’s what we are thinking.

Mike Widner – Stifel Nicolaus

And on that front, I didn’t see if you – I apologize if I missed it. But did you mention what the notional amount as well too at this point?

Don Ramon

Yes, at the end of the quarter, we had $675 million. So we are about 87% hedged on our repo – our agency repo.

Mike Widner – Stifel Nicolaus

That’s – and what’s the duration on those?

Don Ramon

We were on the long end of most of them, three to five years on all of that.

Mike Widner – Stifel Nicolaus

Okay. And did you give us a weighted average pay rate?

Don Ramon

Mike, give me one second. I think we – Mike, I don’t have it right in front of me, but it will be in the Q, which will be out shortly.

Mike Widner – Stifel Nicolaus

That’s great. Sounds good. Thanks, guys.

Operator

Mr. King, there are no further questions from the phone lines at this time.

Richard King

Very good. Well, thanks, everybody. We feel very good about our opportunities we are seeing, and we will talk to you soon.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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Source: Invesco Mortgage Capital Inc. Q1 2010 Earnings Call Transcript
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