INVESCO MORTGAGE CAPITAL INC

Welcome to Invesco Mortgage Capital Inc's third 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 Matt Seitz and Investor Relations. Mr. Seitz, you may now begin the call. Thank you.

Thanks, 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, Invescomortgagecapital.com. This information can be found by going to the investor relations section of the website. Our presentation today 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 nor 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 third quarter earnings call. I'll 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 Fegley, and our COO, Dave Lyle. Financial conditions tightened during the third quarter of 2022. as the FOMC increased the Fed funds rate on two separate occasions by a total of 150 basis points and then subsequently added a further 75 basis point hike yesterday in response to inflation levels that persist at multi-decade highs. Equity markets declined, credit spreads widened, and volatility increased from already elevated levels as recession fears mounted and the market priced at a more aggressive pace of tightening by the Fed. The challenging environment for agency mortgages persisted during the third quarter as the sector recorded its worst quarterly performance in over a decade. Mortgages have now performed poorly for four consecutive quarters, and the drivers have largely remained the same. Persistent inflation, rapidly tightening monetary policy, elevated volatility, reduced liquidity, and a general risk-off tone in financial markets. Given this challenging backdrop, our book value declined during the quarter, ending September at $12.80. Since the beginning of the fourth quarter, agency mortgage performance has remained volatile, leading to a further decline in our book value of approximately 4.5%. On a positive note, earnings available for distribution for the third quarter remain strong at $1.39 per common share, given our rotation into higher-yielding agency mortgages, along with favorable funding and a relatively low-cost legacy swap portfolio. Further, wider spreads on our target assets have created an attractive reinvestment environment that continues to be supportive of the earnings power of the portfolio. We remain focused on improving our capital structure, and during the third quarter, we made progress on that front by repurchasing preferred stock and issuing common stock through our at-the-market program. Since the inception of the repurchase program in May of 22, we have repurchased 5.3 million shares of our Series B and Series C preferred stock, representing approximately 30% of our preferred stock outstanding prior to the start of the program. Given the decrease in book value and repurchases of preferred stock, our economic leverage increased to 5.3 times. At quarter end, substantially all of our $4.5 billion investment portfolio, including TBAs, was invested in agency mortgages, and we maintained a sizable balance of unrestricted cash and unencumbered investments, totaling $504.3 million. Because of the drivers I mentioned earlier, we remain relatively cautious on mortgages in the near term. However, we are starting to see some potential tailwinds. Mortgage spreads are now at levels not seen since the great financial crisis and have been highly correlated to volatility. As the Fed's path for future policy action becomes clearer, we should see interest rate volatility subside over the next few quarters, which would be very positive for mortgages. The technical outlook for mortgages is also improving, as sharply higher borrowing rates limit the issuance of new agency mortgages, which helps reduce the pace of runoff in the Fed's portfolio while also reducing the impact of prepayments. I'll stop here, and Brian will look through the portfolio.