INVESCO MORTGAGE CAPITAL INC

Welcome to Invesco Mortgage Capital Inc's first quarter 2023 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, please press 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 Greg Seals in investor relations. Mr. Seals, you may begin the call.

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 posted on our website. Again, welcome and thank you for joining us today. I'll now turn the call over to John Anzalone.

All right. Well, good morning, and welcome to Invesco Mortgage Capital's first 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 Begley, and our COO, Dave Lyle. As we enter 2023, agency mortgages continue the strong performance we saw during the fourth quarter of 2022. as industry volatility eased in anticipation of the end of the Fed's tightening cycle. However, favorable market conditions quickly deteriorated as several regional banks failed and concerns around the health of the banking system grew. These concerns impacted mortgage valuations as interest rate volatility spiked and investors became concerned about the potential liquidation of mortgage assets seized by regulators. Swift actions by both the Federal Reserve and the FDIC were effective in reducing fears of further contagion, and mortgage spreads ended the quarter only modestly wider. Since quarter end, regional banking troubles reignited, and mortgage spreads continue to be pressured as volatility remains heightened. Despite heightened market volatility, IVR's earnings available for distribution remained strong, increasing to $1.50 per share versus $1.46 last quarter. Our focus on higher yielding, higher coupon mortgages in combination with the hedging strategy benefiting from low-cost pay-fix swaps drove the increase in EAD. Over the coming quarters, we expect EAD to remain well supported as our repo hedge ratio remains elevated and forward starting swaps come online. Importantly, these hedges provide benefit for the long term. as the weighted average maturity of our paid fixed swap portfolio, including the forward starting swaps, is over seven years. ROEs on new investments have also been a positive contributor to EAD, as wider spreads on new purchases are attractive and we enjoy the benefit of having retained low coupon legacy swaps. Given the underperformance of mortgages, our book value ended the quarter at $12.61, down 1.4% from last quarter. Combining the change in book value with our $0.40 dividend produced an economic return of 1.7% for the quarter. With continued pressure on mortgage spreads, our book value has fallen by approximately 3% since quarter end through last Friday, May 5th. Our economic leverage increased modestly during the quarter, moving from 5.3 times to 5.8 times. At quarter end, substantially all of our $5.4 billion investment portfolio was invested in agency RMBS, and we maintained a sizable balance of unrestricted cash and unencumbered investments totaling $464 million. During the quarter, we reduced our dividend from $0.65 to $0.40 per share. Importantly, this dividend reduction was not in response to downward pressure on EAD, as EAD has increased the past two quarters. Rather, reducing the dividend enables us to retain excess earnings to enhance book value and improve our capital structure while continuing to pay a competitive dividend. This also allows us to further invest capital into what we see as an increasingly positive environment for the agency mortgage market. The widespreads currently available on agency mortgages and the potential for reduced bank demand should continue to provide good opportunities to invest new capital. Finally, we expect that the conclusion of the Fed's tightening cycle will bring about a reduction in volatility, providing a tailwind for agency mortgages. So I'll stop here, and Brian can go through the portfolio.