Invesco Mortgage Capital Inc (IVR) 2013 Q1 法說會逐字稿

This presentation and comments made in the associated conference call today may include forward-looking statements. Forward-looking statements include statements regarding our views on the economy, the positioning of our portfolio to meet current or future economic conditions, the stability of our earnings, dividend and book value, our ability to continue performance trends, the stability of our portfolio yield and our views on leverage and equity allocation.

In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts and future or conditional verbs such as will, may, could, should and would, as well as any other statement 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 caption Risk Factors, Forward-Looking Statements and Management's Discussion and Analysis of Financial Conditions 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, expressly disclaim any obligation to update the information at any public disclosure if any forward-looking statement later turns out to be inaccurate.

Good morning, ladies and gentlemen, Welcome to Invesco Mortgage Capital Inc.'s investor conference call May 2, 2013. All participants will be on a listen-only mode until the question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded. Now I would like to turn the call over to the speakers for today, Mr. Richard King, Chief Executive Officer; Mr. John Anzalone, Chief Investment Officer; and Mr. Don Raymond, Chief Financial Officer. Mr. King, you may begin.

Thank you. Good morning and welcome to IVR's first-quarter earnings call. This morning, I plan to discuss first-quarter results, the current positioning of the Company and then we will present our strategy going forward. Essentially then we are going to talk about where we have been, where we are today and where we are headed.

The first quarter was one in which the economy looked like it was picking up some momentum and rates rose about 30 basis points in the 10-year. Then Cyprus reminded investors of the issues in peripheral Europe. March employment disappointed and China showed signs of slowing. So we saw a partial retracement of the upmove in rates in the quarter. When rates were rising mid-quarter, mortgages underperformed because the market started pricing in an end to QE3, as well as extension risk.

During that period of rising rates, specified pool payups, that being the additional price we pay over generic TBA of the same coupon, went down as investors were less interested in prepayment protection. We took the opportunity to raise capital and put half the money to work in specified agency pools at higher rates and lower payouts. The other half was invested in credit, RMBS, CMBS and loan securitizations consolidated on our balance sheet.

As for the financials, Q1 earnings were $0.65 per share. We paid a $0.65 dividend for the sixth straight quarter. Our book value, we saw a decline of $0.41 per share or just under 2% in Q1, again, due to agency payups and since quarter-end, our book value gained back the 2% because mortgages have outperformed swaps, payups on specifieds have improved, credits improved. We are bullish in the near term on continued improvement in our book value. After healthy supply of CMBS issuance caused spread softness recently, credit spreads have since retraced and in some cases, they have tightened inside levels seen before the wave of new issuance.

On a related note, after some recent weakness in the new issue RMBS AAAs, we now think that they offer attractive relative value, will perform well over the intermediate to long term. With a dearth of yield available in high-quality assets, and improvement in housing, we expect investor sponsorship should return to AAA RMBS.

NIM compression is a fact of life in the agency mortgage market since rates have rallied back to year-end levels and all repo rates are essentially floored, we expect that our dividend will be somewhat lower as a result of lower available reinvestment yields and our move to diversified funding and reduce rate risk.

Topic 2 is our current positioning. IVR is well-positioned for the current environment. We are seeing opportunities in our target asset classes, in an environment I would characterize as follows -- low rate, low volatility, strong liquidity, constrained pre-payments, improving housing markets and improving credit fundamentals.

In an environment like this where the Fed is providing ample liquidity, assets can tend to get overpriced. We have seen comments to that effect in the press about the effect of easy monetary policies and included in that has been mentioned the mortgage REITs. And it is wise to be concerned about overexuberance and we certainly pay close attention to risk, but two comments along those lines.

First, everything is not all rosy as a result of low rates and second, IVR has the benefit of finding value in many places, making us less at risk of asset bubbles and interest rate volatility. We have offsets in the portfolio that will benefit from an environment where a stronger economy would cause rates to increase.

As for my comment about everything isn't all rosy, the mortgage credit environment is still tight, not easy. There are global risks, fiscal drag and continued deleveraging of the financial system. So there may be prices that are too high in some of the financial markets, but certainly not all. Many qualified borrowers are unable to get loans due to many factors, including uncertainty, regulatory pressures, origination pipeline that is running at full capacity with both organic refi and HARP refi business.

The pipeline remains full. When rates rise and refis decline, we anticipate underwriting will normalize, purchase volumes will increase. That is going to be good for the economy, for home prices and for the industry. What I would characterize as rearview mirror type fears are creating opportunities for us. Investors have a tendency to guard against what happened recently, i.e. loose lending and overleveraging, falling home prices. We underwrite those risks at the loan borrower and property level to find opportunities across the entire mortgage market.

Being a hybrid really helps us in that we can allocate capital specifically where we are finding value. That diversifies our risk and increases the likelihood we can pay a strong dividend and protect our capital. We think agency MBS are likely to outperform on a spread basis and prepays are still well-contained. So while we will be reducing our allocations to agency MBS, we are going to do that on strength. In the meantime, we are taking a disciplined approach to our duration gap and using longer swaps to hedge because when rates do rise, it will be in the form of a steepening curve most likely.

Non-agency RMBS fundamentals continue to improve and our portfolio is largely backed by more predictable prime jumbo. CRE fundamentals are improving and we like buying subordinate tranches of new CMBS deals with better collateral. John will speak in a moment about the segments of the market and what we like.

We have also participated in two prime residential loan securitizations using a Credit Suisse shelf. We are able to essentially own the credit risk of new well underwritten jumbo prime loans and use the securitization for permanent financing. We like the loan assets and the ability to diversify our funding in this manner where we don't have a duration gap, no margin risk, the assets and liabilities amortize and prepay at the same rate eliminating the need for hedging.

The third and most important topic here is the future. That is where are we taking this Company. Underlying our strategy for the future is a belief that the mortgage market is reforming. We, the mortgage REIT industry, are essentially an important link of the chain of intermediate areas in the mortgage business.

On the front end of the residential mortgage market, there are originators and servicers touching consumers and those are very much scale-oriented operating type businesses. The end of the chain are the ultimate holders of most of the loans and that is the high quality securities investors, which is a big list, including pension, central banks, mutual funds, etc.

But there has to be somebody to supply the risk capital for those loans, somebody who has the credit and structuring expertise and entities set up to get rewarded to retain credit risk. That used to be the GSEs primarily in banks to some degree. For somewhat different reasons, neither of those two large participants will be playing that role to the same degree going forward.

FHFA, government policymakers and legislators on both sides of the aisle want the government role in the mortgage market to be neither a portfolio nor the ultimate pricemaker of mortgage credit risk, but rather a facilitator and infrastructure provider. As for banks, the combination of regulations, capital efficiency, consolidation and the idea of too big to fail means banks are not the best holder of securitized mortgage credit risk at this point.

Filling that void is the role that we believe will be played primarily by mortgage REITs. We believe that we are the most efficient holder of mortgage credit risk. We are a REIT. We specialize in mortgage credit risk, we have permanent capital and we are looking to retain risk making us a symbiotic partner to both banks and the government. We can fill that role in the residential and commercial space.

Our current strategy of buying securities financed with collateralized borrowings, earning an attractive spread and hedging rate risk is still a good one and we will continue to do that in the current environment, but our investors will increasingly see loan assets on our balance sheet. The pace at which we change will depend on how quickly the markets progress past the crisis and how quickly the final regulations are put in place. We will grow in that role thoughtfully and methodically.

Much of the same is true in the CRE space, commercial real estate. There is a wall of maturities approaching in 2015 and we believe we can be a significant player helping to refinance loans. There are large institutions like insurance companies and conduits willing to make senior loans. We see an opportunity to provide mezzanine or GAAP financing, essentially allowing stronger property borrowers to achieve greater loan proceeds and creating for IVR a loan asset with attractive collateral at attractive loan-to-value and yield. We have strong sourcing, underwriting diligence, acquisition and management teams that set us apart and make us an attractive partner to lenders and borrowers.

Along with the evolution of the asset side of our balance sheet, the liabilities on the right side are already showing more diversity with securitization financing and the corporate exchangeable notes along with other borrowings, including repurchase agreements. As a result, we have meaningfully reduced our repo financing. We will continue to increase longer-term financing and diversify funding types.

John Anzalone, our Chief Investment Officer, will now talk about the portfolio and then open it up for questions.

Thank you, Rich. I will start on slide 4 with the portfolio update. The total portfolio increased by 15% to over $21 billion as our January capital raise was deployed. We kept our allocations roughly the same as we invested half of the capital in agencies and half in credit. To that end, our non-agency RMBS holdings increased by $476 million and our CMBS holdings increased by $324 million.

I want to point out two other transactions that we completed during the quarter. We participated in our first residential loan securitization and we have just recently closed our second similar transaction where we retained subordinate credit exposure in interest-only tranches. This allows us to take advantage of the strong underwriting environment while locking in structural financing by consolidating senior tranches on our balance sheet. We also issued our first exchangeable note, which has longer-term funding while reducing our exposure to repo financing.

I'm going to spend a little bit of time walking through the table at the bottom of slide 4. Since we have added two new sources of funding, we thought it made sense to give a little more detail on our equity allocation and leverage. The first three columns are fairly straightforward. They show the amount of repo financing that is collateralized by agencies, non-agencies and CMBS.

You can see the amount of equity allocated to each sector and the debt to equity ratio of each sector. Our agency allocation represents 51.2% of our equity and has a debt to equity ratio of 9.1 times, down slightly from 9.3 last quarter. Non-agencies represent 39.1% of our equity and have a debt to equity ratio of 2.2 times compared to 3.3 at year-end. And CMBS represents 21.1% of our equity and has a debt to equity ratio of 2.9 times, which was unchanged from last quarter.

The unconsolidated ventures, which represents our investment in the Invesco Mortgage Recovery Fund, is not levered and represents 1.2% of equity. The residential loans column shows our investment of $31.2 million in subordinated bonds and IOs and also shows the $374 million of senior asset-backed securities that were consolidated on our balance sheet. This represents 1.1% of equity and a debt to equity ratio of 12 times. But keep in mind the important distinction that this is structural leverage and not repo financing. Thus the assets and liabilities are matched and there is no margin call risk.

Finally, the corporate liability column represents our exchangeable note. We isolate this financing because it represents funding at the corporate level and is not subject to margin call risk. So putting all the pieces together, our overall debt to equity ratio is at 6.4 times. This is up slightly from last month, but the financing mix has changed and our exposure to repo financing has been reduced.

Moving to slide 5 in agencies, we continue to focus on prepayment protected 30-year collateral, which represents almost 80% of our agency book. These bonds continue to exhibit stellar prepayment protection as our 30s paid at 9.5% CPR for the quarter. Net yields increased by 16 basis points as borrowing costs were lower on new purchases due to forward-starting swaps. That cost-of-funds number will increase as we begin to pay on those swaps.

Moving to slide 6 and non-agencies, as I mentioned earlier, we increased our non-agency portfolio by $476 million. These purchases were concentrated entirely in the prime and Alt-A sectors, which reduced the Re-REMIC portion of our portfolio to just under 50%. Non-agencies had a strong quarter with prices on our legacy securities up over $2 on average for the quarter and another $0.75 on average since quarter-end. We are still positive on non-agencies as housing fundamentals continue to improve and technicals remain very supportive.

Also, we like the fact that these bonds have a favorable return profile in a rising rate environment. As coupons would reset higher on hybrid ARM collateral, we would expect higher rates to be associated with a continued recovery in housing corresponding to lower expected losses on the securities.

Finally, slide 7 and CMBS. Our CMBS book grew by $324 million during the quarter with our purchases focused on new issued 2.0 subordinates. CMBS, likewise, had a very strong first quarter with our prices up nearly a point on average and they have even done better to start off the second quarter with our more recent 2.0 positions up 2.5 points on average and legacy bonds up over a point. We continue to like the CMBS sector as supportive technicals, like non-agency, there is negative net supply here and continued improvement in CRE fundamentals have led investors to seek yield in the sector. So with that, that concludes our prepared remarks and I will open the floor for questions.

(Operator Instructions). Mike Widner, KBW.

Hey, guys. Thanks for all the comments on the strategy. Let me just ask one thing. In the non-agency RMBS that you guys are putting capital in today, you tend to be sticking very high in the credit stack and that has kind of been your model. And at the same time, you are talking about mezz financing and going forward retaining subordinates on new issues. So just wondering if you could talk about why the difference there. Why not moving deeper into credit on existing legacy RMBS and getting into subprime and mezz and junior tranches and that sort of thing?

Mike, thanks for the question. The answer really has to do with the underlying loans. I mean essentially we like to lend against good assets and when you look at the subprime market, there are a lot of unpredictable factors like servicer behavior, among other things and so you have the cliff risk there versus underwriting strong borrowers below 70% loan-to-value who are just strong borrowers and good loans where we believe we can predict the likelihood of a default. So we have a lot more confidence that buying subordinate bonds back by strong loans rather than backed by really questionable loans.

Yes, that certainly makes sense to me. And then just wondering if you could maybe state again or elaborate a little bit on some of the comments you made or implications you made regarding the dividend. As I was listening to the call, it seems like you were talking about spread compression on agencies and moving a fair amount of your funding base into permanent financing and that having an impact on -- both of those having negative impacts on net interest spreads. And so just wondering if you could elaborate a little bit on what you see as the dividend implications for that.

Yes, we recognize the value of a stable dividend and we have managed to keep it steady for six quarters and we have been able to keep it steady by moving the most attractive assets and putting new capital to work at advantageous times. But as we sit here today, yields are lower across all sectors and the longer yields stay down, NIM compression kind of becomes a fact of life. And we were seeing rates begin to go up and get better reinvestment yields, but since, rates rallied back to lower levels, could see prepays pick up a little bit as a result.

And I mentioned that repo rates are essentially floored, so I think everybody has seen that over the last number of quarters. What people tell us, they believe our core is in the lower than 65, right? So if we see opportunities to put on assets at better yields than the existing portfolio, obviously, we are going to take care of -- do that. But I think given that we have seen some consistency in earnings taken out, gain on sale lower than 65, I think it is reasonable to assume that the dividend could be lower.

And despite current return profiles, we like the strategy we have. We think we are going to reduce risks. So in other words, we are not going to generate a lower return at the same level of risk. We are going to maybe have a slightly lower dividend with less risk and less reliance on short-term financing and some of these opportunities that really we think are going to be present for a long time, that being like risksharing, CRE loan opportunities and certainly residential securitization.

Well, that certainly makes a lot of sense to me. And then I guess just one real quick one. As you mentioned, the kind of core earnings power kind of being below $0.65, but kind of right around $0.60, the last couple quarters, would you envision, given the moving pieces that you are talking about, sort of that to be indicative of the run rate or are you sort of hinting toward maybe even drifting from there?

Yes, Mike, it's Don. We really don't want to get into forecasting that. I mean, as you know, we generally target paying out all of our earnings -- taxable earnings on an annual basis. So that is what we will look at is what we think the earnings are going to be throughout the rest of the year and certainly dividend will always reflect that number. But, again, I think it is indicative. We are not far off of where we have been from -- if you extract the gain on sale from the earnings and I think that, on a go-forward basis, it is still going to be a very competitive dividend; it just might come down a little bit just like others have had to do over time.

Yes, well, certainly we have seen them come down across the group and you guys are above most of the group. So I appreciate the comments and it's unfortunate you won't do my job for me, but I guess I can take that and run with it.

All right. Thanks, Mike.

Douglas Harter, Credit Suisse.

Thanks. I was hoping you guys could talk a little bit about the returns that you see on the new issue securitizations that you are doing and sort of how you compare those to other credit assets that are out there?

Sure. Yes, I mean I would say on the securitizations, really the return profile is not all that different than what we are seeing in the securities space. So it is really just a way to get -- we view it more as a way to get exposure to newly underwritten credit that we like quite a bit. So I wouldn't say it is all that different than where we are purchasing bonds.

Great. And you guys talked a little bit about putting on some direct commercial real estate loans. I guess when is that -- when should we start to see those become a meaningful part of the balance sheet?

Actually, we closed our first one in late April and we are really optimistic about that market. We spoke about the kind of wall of maturities. And I think it is one that is going to go on for quite a while and it will build as a percentage of our capital over time, but the first one was very attractive.

And do you plan to use the corporate note, corporate debt to finance that?

Yes, exactly. I think it makes a lot of sense to kind of leverage the returns that we can get there and create kind of double-digit returns through the issuance of some type of notes. And again, it's another way to reduce interest rate risk and repo, margin call and all those risks.

Great. Thank you, guys.

Trevor Cranston, JMP Securities.

All right, thanks. Just following up a little bit more on some of the new opportunities I guess. Can you guys share your current thoughts on kind of where you think we are in the process of the GSEs selling some credit bonds and any implications that there might be to that program or the timing of that from a change in the FHFA director? Thanks.

Thanks, Trevor. Yes, the government clearly wants to reduce their role. We talked about that. And really there are two ways that they can do it. One is by essentially not guaranteeing loans and the other is by guaranteeing fewer loans. So they are going to guarantee fewer loans and the loans that they do guarantee, they plan to riskshare on. And so we think that -- obviously, this year, the FHFA has put out a goal of essentially $60 billion, $30 billion in each agency of risksharing transactions and then moving to a percentage of production next year from what we understand. And I am sure it will be a measured and careful pace.

But we would expect that there will be transactions done as soon as the third quarter and I think they are going to look at multiple forms of risksharing at the loan level and at the pool level in various forms, senior subordinate and credit-linked. So I think that is going to be a huge opportunity. I think it will start in the third quarter. It could get pushed back, but all indications are it will definitely be this year and we really have seen progress there.

I mean the agencies each have come out and announced loan level details that help in underwriting that risk and we think that there are a lot of benefits for us. It is another form that we can use to essentially get structural leverage that is not subject to interest rate risk and margin call and all those things. There are a lot of details to be worked out and I am sure there will be many different versions of it.

Okay, that's helpful. And just on the potential for a new director of the FHFA, do you guys foresee any changes to HARP or any new refi programs coming down the pipeline that you are concerned about at all?

Yes, hey, this is John. A couple of things on the possible DeMarco replacement. First, it is a bit hard to handicap the likelihood of confirmation. I mean it is likely to be a pretty contentious process. So, obviously, us and everyone else is going to look at that really closely over the next couple months.

We don't anticipate any huge impact to our book. We think that from what we have seen, there hasn't been a lot of indication that moving the HARP date would probably be the biggest risk. But even there, I mean we have been much more focused on prepayment protection regardless of HARP dates and it has worked out well, so I would expect a huge impact there. But I mean it kind of remains to be seen as we go forward. I think there might be more focus on kind of modifications, things like that, which would obviously have a little bit less impact on our portfolio.

Yes, makes sense. Okay, thanks, guys.

Joel Houck, Wells Fargo.

Thanks and good morning. Just a couple questions on this residential loan securitization. Can you talk who you sourced the loans from, which originator? Was it multiple originators or was it one source?

It was multiple, multiple originators.

Was there a predominant originator in the deal?

Yes, Joel, this is Don. The [charge] we have, again, it is a private deal; we can't give a whole lot of information about the structure of that. You will probably -- so getting into the details on who is sourcing it and so forth, again, we don't have reps and warrants risk associated with that, so it is really not anything to be concerned about from our standpoint and what investors should be looking at from our standpoint or when they look at IVR.

Okay. Can you say whether it was bulk or flow purchases?

It's bulk.

Okay. And in terms of -- it looks like, based on the balance sheet disclosure, you kept about 8% of the deal. I am just subtracting off the securities issued versus the asset. Is that math right?

Yes, that's probably about right.

Okay. And is there any -- in terms of the gain on sale of investments of $6.7 million, what is the contribution to this securitization this quarter?

Yes, there is none. The gain on sale, that is the normal flow of when we move in and out of our MBS securities and so it had nothing to do with the securitization transaction.

Okay. So there was no gain on sale generated from this securitization?

That is correct.

Okay. All right, good, thanks. I guess a follow-up or not a follow-up, an unrelated question, can you talk about the swaps you added in the quarter? Dollar amount, [tenor], things like that and then what did it do to the net duration at the end of March versus the end of December?

Well, Joel, let me -- I will touch on what is there. If you look at the press release, we have got a table of what swaps are there and you can see which ones were additive at the bottom. And you can see that they are generally longer-dated swaps going out as far as 10 years and forward-starting, some of them not even starting until 2015. But all of that -- if you look at the press release, you can see those things outlined there. John, do you want to talk about the duration?

Yes, so the goal of putting the swaps on was to keep the duration gap in line with where it has been, so we are still, in terms of where we are targeting our duration -- our model duration gap of about a year to a little bit more than a year. But as you can see, our book value has been pretty stable, so empirical durations of our portfolio have been closer to zero. We have seen a little bit of movement in book value, but it has been pretty stable over the course of the year.

Okay. And then, Don, to your point, I mean I am looking at the table, there is 7 footnotes. Are those the ones that were added?

Well, not all of them were added. You would have to compare to -- I don't have it broken down. Just compare it to the last quarter, you can see (multiple speakers).

Oh, okay. We will go back and do that. All right, thanks a lot.

Generally the ones at the bottom, I think if you looked at items, if I remember correctly, it is the last four on that list. The forward-starting are the ones that we added during the quarter.

Okay, outstanding. Thank you.

Cheryl Pate, Morgan Stanley.

Hi, good morning. I think a bunch of my questions have already been answered, but maybe we can get some more color on the type of loans that have gone into the residential loan securitizations. Are they more jumbo-oriented or sort of conventional?

They are all jumbo 30-year fixed loans.

Okay, great. And then on the non-agency side, can you just give us a sense on sort of what the current yields are on sort of the new issue stuff that you are putting on versus the legacy portfolio and how much more of the hybrid ARM resets should we expect over the next couple of quarters?

Yes, so on -- I will start with the current legacy non-agency yields right now that we are seeing. So if we were to buy say a new prime secondary deal, we are talking yields in the 3.5% to maybe 4.25% type range. Alt-A yields are maybe 50 basis points higher than that in that space. In terms of the securitization, I mean it's --.

Much more of an IRR type calculation where we are looking at what we are paying for the pool and then where we are selling AAAs. And so it's -- we are looking at each of those opportunities on a levered gross ROE kind of basis. And I think as John said earlier, we get -- we are seeing it -- the return profiles are similar, but we prefer the loan securitization from an overall risk adjusted return standpoint because there is no margin call. It is locked-up financing, there is no gap, as we said. So we think it is a very attractive space.

Great. And then just on the non-agency portfolio, what percentage of that would be sort of hybrid ARMs and what is sort of the forward look on resets on the next (inaudible)?

Yes, I think in our legacy book, it is primarily -- the vast majority is hybrid ARMs and I would say the resets on those -- a lot of those are going to be already having resets, so they are going to reset every year in terms of that. A lot of those loans aren't in their fixed part of the hybrid ARM portion right now. So I mean they are already indexed to a large degree.

Great. Thank you.

Dan Furtado, Jefferies.

Good morning, everybody. I have just a couple of relatively minor questions. The first is why did you execute the deal in the private market? It feels like you would have gotten or potentially could have gotten better pricing if you would've gone public on the public market with the securitization.

I think that is just not what we see. I think the levels really aren't much different between private deals and public deals.

And if they are not that much different, why go one path versus the other?

It's just a simpler process.

Okay. And then did you disclose what the spread -- what the AAAs price to to benchmark swaps on that deal?

No, we didn't disclose that.

Okay. And then my last question is just to understand the process a little bit better, was this a transaction in which you brought the loans to the bank, the investment bank or was this a transaction where you showed up to the bank and they had the loans ready for packaging?

Yes, it was the latter.

Okay, okay. Great, congratulations on getting the deal done and thanks for taking my questions.

Dan Altscher, FBR.

Thanks, good morning, everyone. I just wanted to ask about the CPRs, in particular in the non-agency side. I saw them tick down a bit to about 15.5. Was that a result of lower actual voluntary prepays or is it maybe just a sign of lower realized credit losses there?

I think it was more a reduction of voluntary prepays I would say. But keep in mind, like our legacy book now has moved up in price enough that it is much closer to par now. So the impact of CPR on that book is reduced in terms of its impact on returns.

Got it. Okay. And then also kind of vice versa on the 15 years, those ticked up a bit to 18.5, which I guess is a little bit contrary to some of the other indications that we have seen that prepays were generally down across fixed rate. Is that just the predominance of higher coupon bonds that are remaining?

Yes, the 15s are a couple things. One, the 15s that we own -- like we haven't been very active in 15s lately. These are mostly older bonds that were prepay-protected, but they are definitely higher coupon than say just the universe of 15s. So they ticked up a little bit. But they are only about 17% of our agency book at this point. So overall the impact on the portfolio wasn't that great from those.

Right, got you. And then just a quick one if I may. Now that we are through the first month of the quarter, can you give us a sense on where you think the book value might be marking to?

Oh, I think Rich mentioned on the call, I mean we are basically back to year-end levels.

Okay, sorry. I must have missed that part. Thanks, I appreciate it.

At this time, I show no further questions.

Thanks, everybody. Appreciate it.

Thank you. Today's conference has ended. All participants may disconnect at this time.