INVESCO MORTGAGE CAPITAL INC

Welcome to Invesco Mortgage Capital Inc's second 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 one on your telephone. As a reminder, this call is being recorded. Now I'd like to turn the call over to Greg Seals in investor relations. Mr. Seals, you may begin.

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. 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. The 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. Thank you for joining us today. I'll now turn the call over to John Anzalone. John?

Good morning and welcome to Investor 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 are President Kevin Collins, our CFO, Lee Bedley, and our COO, Dave Lyle. Financial conditions improved throughout the second quarter as equity markets rallied and credit spreads tightened given the swift resolution of the U.S. debt ceiling negotiations increased market expectations of a soft landing for the u.s economy the positive environment across most risk assets was further spurred by continued moderation in most inflation measures led by the decrease in the headline consumer price index to three percent interest rates were sharply higher during the quarter largely reversing the rally spurred by the uncertainty surrounding the regional banking system that we saw during q1 Agency mortgage performance generally improved during the second quarter as lower coupon valuations recovered the majority of their underperformance in the first quarter, while high coupon valuations improved modestly as short-dated interest rate volatility remained relatively elevated. In addition, premiums on specified pool collateral declined as a result of higher mortgage rates as prepayment protection became less valuable. Increased demand for risk assets by mortgage investors is largely offset by faster-than-anticipated sales of failed bank assets, particularly specified pool collateral by the FDIC and the increased supply caused by stronger housing seasonals. Against this backdrop, our book value per common share ended the quarter at $11.98, representing a decline of 5% from March 31st, and when combined with our $0.40 40 cent per share common dividend produced an economic return of negative 1.8% for the quarter. Despite the negative impact on book value, IVR's earnings available for distribution was resilient, increasing slightly to $1.45 from $1.50 last quarter. Our focus on higher yielding, higher coupon mortgages, in combination with the hedging strategy that continues to benefit from low-cost pay-fix swaps drove the strength of the ADE. Over the coming quarters, we expect EAD to remain well supported as we continue to hedge nearly all of our original borrowings. Importantly, these hedges provide benefits for long term as the weighted average maturity of our pay fixed swap portfolio is approximately seven years. ROEs on new investments have also been a positive contributor to EAD, benefiting from attractive spreads, favorable funding, and our legacy swaps. Our debt-to-equity ratio ended the second quarter at 5.9 times, up marginally from 5.8 as of March 31st. As of the end of the quarter, substantially all of our $5.5 billion investment portfolio is invested in agency mortgages, and we maintain a sizable balance of unrestricted cash and unencumbered investments totaling $492 million. The FOMC's monetary policy tightening cycle is expected to conclude by the end of the year, with perhaps one more 25 basis point increase in the federal funds rate reflected in the futures market. While the timing remains uncertain, the potential decline in interest rate volatility, in conjunction with the end of the monetary policy's tightening cycle, should be supportive for higher coupon agency mortgage valuations. Further, agency mortgage supply and demand technicals are expected to improve in the second half of the year, as the liquidation of assets from the FDIC nears its conclusion and high mortgage rates limit supply. Commercial banks should also gain greater clarity on the regulatory environment as capital requirements are finalized. This could encourage further deployment of capital away from loans and into lower risk-weighted assets such as agency mortgages. Finally, valuations and production coupon mortgages remain historically attractive and funding capacity is robust. Taken together, we believe that the decline in industry volatility and improving technical environment combined with compelling valuations and favorable funding conditions should represent an attractive investment opportunity in agency mortgages for the remainder of 2023. I'll stop here, and Brian will look through the portfolio.