INVESCO MORTGAGE CAPITAL INC

Welcome to Invesco Mortgage Capital Inc. second quarter 2022 investor conference call. All participants will be in a listen only mode until the question and answer session. At that time to ask a question, press the star followed by the one on your telephone. As a reminder, this call is being recorded. Now I would like to turn the call over to Jack Bateman in investor relations. Mr. Bateman, you may now begin the call.

Thank you, and to all of you joining us on Invesco Mortgage Capital's quarterly earnings call. In addition to today's press release, we've provided a presentation that covers the topics we plan to address today. The press release and presentation are available on our website, Invescomortgagecapital.com. This information can be found by going to the investor relations section of the website. Our presentation today, which will include forward-looking statements and certain non-GAAP financial measures, Please review the disclosures on slide two of the presentation regarding these statements and measures, as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized 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?

Good morning and welcome to Invesco Mortgage Capital's second quarter earnings call. I will give some brief comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss the current portfolio in more detail. Also joining us on the call to participate in the Q&A are our President, Kevin Collins, our CFO, Lee Fedley, and our COO, Dave Lyle. The challenging environment that characterized the first quarter of 2022 continued into the second quarter. as the Federal Reserve responded to worsening inflation data by raising the Fed funds rate by 125 basis points, which was followed by an additional 75 basis point hike in late July. Risk assets broadly underperformed during the quarter in response to tightened financial conditions. The S&P 500 index declined approximately 17% over the quarter, and the Bloomberg U.S. Aggregate Bond Index declined roughly 4.4% over the same period. Mortgages were no exception, given increasing interest rate volatility and heightened expectations of a more aggressive balance sheet reduction. As we communicated on June 27th, our book value declined during the quarter, ending June at $16.16. Since the beginning of the third quarter, agency mortgage performance has stabilized as wider spreads have attracted investors, and our book value is up high single digits through the end of July. Over the course of the quarter, we've continued to reduce risk through active portfolio management. Given the elevated market volatility, we decreased our overall exposure to agency mortgages by reducing economic leverage from 6.5 times to 3.9 times. We also reduced our exposure to lower coupons, which are predominantly owned by the Federal Reserve, and increased our exposure to higher yielding current coupons. Our liquidity position remains strong with $677 million of unrestricted cash in unencumbered assets at quarter end. Despite our reduction in risk, our earnings available for distribution remains well supported. Our net interest margin has expanded due to the wider spread available on new investments in higher coupon mortgages, continued favorable funding rates, and our low-cost legacy slots. We also made significant progress in improving our capital structure. as we have purchased approximately 30% of our preferred shares outstanding since the beginning of the second quarter. The bulk of these accretive purchases occurred in early July and accounted for about 3% of our quarter-to-date book value increase. Going forward, we see conditions in the agency RMBS market as becoming more favorable. Elevated interest rate volatility and the potential for mortgage sales from the Fed remain headwinds. But we expect the environment for mortgages to improve given wider spreads on higher coupon mortgages, attractive funding, and reduced supply resulting from lower origination volume. I'll stop here and let Brian go through the portfolio.