This presentation and comments made in the associated conference call may include statements and information that constitutes forward-looking statements within the meaning of the U.S. securities laws, as defined in the Private Securities Litigation Reform Act of 1995. And such statements are intended to be covered by the Safe Harbor provided by the same. Forward-looking statements include our views on the risk positioning of our portfolio, domestic and global market conditions, including the residential and commercial real estate market. The market for our target assets, mortgage reform programs, our financial performance, including our core earnings, economic return, comprehensive income and changes in our book value. Our ability to continue performance trends, the stability of portfolio yields, interest rates, credit spreads, pre-prepayment trends, financing sources, cost of funds, our 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 captions Risk Factors, Forward-Looking Statements and Management’s Discussion and Analysis of Financial Conditions and Results of Operations in our report on Form 10-K, and quarterly reports on Form 10-Q which are available on the Securities and Exchange Commission’s Web site 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. We expressly disclaim any obligation to update the information in 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 Third Quarter 2016 Investor Conference Call. All participants will be in 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 Mr. Richard King. Sir, you may begin.

Thank you. Good morning to all and thanks for joining today. We’re pleased to announce the third quarter Invesco Mortgage Capital core income of $0.41. Core earnings well above the dividend of $0.40, down $0.01 relative to the second quarter $0.42, due to a more conservative portfolio mix and somewhat faster prepayment speeds. Prepay speeds were higher due to both lower interest rates earlier in the summer and higher seasonal housing turnover. Book value improved $1 per share or 5.9% in Q3, due to narrowing or improving credit spreads. I mentioned on our second quarter call that we expected credit spreads to contract in this low volatility, low interest rate environment, and that is what occurred. In Q3, our comprehensive income was $1.40 per share. Our economic return, the change in book value plus dividends paid divided by the beginning book value, was 8.2% for the quarter. Economic return has been 12.5% year-to-date through September. Our portfolio is positioned relatively conservatively with 44% of our equity invested in primarily shorter maturity Agency RMBS. In the third quarter, we used cash flow from principal and interest payments and increased capital due to appreciation in our portfolio to expand our investment in 15-year Agency RMBS. We also reduced leverage in the portfolio. Our Agency RMBS debt to equity leverage was reduced to 7.9 times from 8.6 times last quarter and 9.7 times at March 31. Our total debt to equity has been reduced to 6 times from 6.3 times at year-end 2015 and that’s despite moving our equity allocation from 33% to 44% Agency RMBS. Agency RMBS obviously have higher leverage relative to our credit positions. Importantly, due to the repositioning of our Agency RMBS portfolio, we have much less maturity extension risks, less book value risk and better investment flexibility if…

Thanks, Rich, and thanks again to everyone joining us on the call this morning. I’ll start on Slide 6 with the portfolio review. Over the past few quarters, we have focused on maintaining a high quality credit book while improving our liquidity position. This will be important if the market faces a number of potential sources of volatility over the balance of the year; Elections, Fed meetings and Brexit negotiations to name just a few. Having redeployed recent cash flows into 15-year Agency paper allows us to keep some powder dry to redeploy into credit assets when spreads widen. In the meantime, 15-year Agency provide great liquidity, have better convexity characteristics and have a shorter duration profile. Often, this should be valuable over the coming months. Currently, we have 44% of our equity allocated to Agencies with 56% allocated to credit. As I’ll discuss shortly, while we are still favorable on credit fundamentals we are simply waiting for an opportunity to purchase credit at wider spreads in the future. Let’s move to Slide 7 on Agency mortgages. With the recent purchases of call protected 15-year collateral, our Agency portfolio is well balanced between high coupons specified for 30s, 15s and seasoned hybrid ARMs. This gives us an Agency book that is relatively defensive in nature with less exposure to interest rate risk and convexity risk. Speeds have ticked up recently but we expect to see those moderate due to higher rates as well as seasonal factors. Moving to Slide 8 on residential credit. Our residential credit book continues to maintain a good mixture of legacy positions, more recent securitizations as well as CRT bonds. Overall, the housing market remains strong supported by favorable trends in employment and demographics along with limited supply in low mortgage rates. Our credit performance is…

Thank you. [Operator Instructions]. Our first question is from Doug Harter from Credit Suisse. Your line is open.

Thanks. First off, Rich, congratulations on the retirement. I guess, John, when you're looking at the CRT assets given how much those spreads have tightened, can you talk about the relative attractiveness of those today and whether you would look to sort of scale back that position sort of ahead of the volatility events that you've highlighted?

We like what we own now. I think the key is that what we own is basically pretty well seasoned from 2013, 2014. So we like those positions still. We’ve been cautious about adding more at current levels, certainly in new production type paper. So I think we’re kind of waiting around for spreads to widen a little bit before we add more. But fundamentally, we still really like the paper. It’s just a matter of the price level.

Okay. And I guess what have CRT spreads done so far or what did they do in October?

I think in October, things have been relatively flat to a little bit wider. Generally speaking, since quarter end, we’ve seen credit spreads across most of the structured securities base flat to slightly wider [indiscernible].

Not the B tranches but in the unrated tranches like we --

And I guess with Fitch rating that one tranche over that one group of securities, is that something that is it likely to continue and is that something where you could expect further benefits from that, or is that kind of a one-off situation where Fitch rated those securities?

It can continue. We can’t really predict what Fitch is going to do. But certainly from when those securities were issued, there’s been tremendous amount of home price appreciation and so the subordination required is much less. So it could continue.

All right. Thank you.

Thank you. Our next question is from Joel Houck from Wells Fargo. Your line is open.

Thanks. Good morning, and Rich, congratulations on the retirement as well. So just to kind of continue along the theme on the credit side. When you look at your overall opportunities between commercial CRT and kind of legacy paper, obviously they’ve all been performing well this year. But on the margin, if you had to handicap where to put new capital, how would you kind of rank order the investment opportunities set on the credit book?

Right now the legacy stuff is probably the most attractive given that it’s at this point pretty low volatility, pretty short and given that we kind of think credit spreads are relatively narrow, had the least volatility.

Great.

And also in CMBS, we’re kind of at the cusp of risk retention happening in another six weeks or seven weeks I guess. So it’s a little bit hard to tell what opportunity is going to be there, because we haven’t seen exactly how that’s going to play out yet. So that one is a little bit harder to handicap. We do expect to see pretty good opportunities in CMBS once those rules take place and once we kind of see what the leveling [ph] looks like.

Okay. Thanks, guys.

Thank you. Our next question is from Bose George from KBW. Your line is open.

Thanks. Good morning, guys. Derek [ph] on for Bose. And Rich, congratulations on your retirement. I want to talk about leverage. It looked like it did tick down and I’m curious if that’s just due to the appreciation in book value and where you see that trending and where you’re kind of comfortable with the portfolio, especially as you rotated a little bit more into Agency?

We took leverage down on purpose for sure and it’s been over several quarters and really for the reasons we’ve talked about just to reduce book value volatility and wait to put capital to work at better levels. In front of the Fed meeting it makes sense to reduce kind of our duration risk and convexity risk, so we liked the 15-year space. So that’s really it. And I think you have seen our leverage drop a lot more on a holistic basis. If we had kept the same mix but – because the mix moved from non-Agency and CMBS which are at 3 times to Agency which we’ve had between 8 or up 10 times at times. We’ve really reduced leverage quite a bit given that it came down just by increasing the Agency component.

And to your point on volatility in the curve and the Fed raising rates, would you think about putting some hedges onto the longer end of the curve? How do you think about restructuring the hedge portfolio potentially heading into next year?

We’re probably more inclined to hedge like the belly of the curve rather than the long end. And most of our duration is more in the belly rather than long.

Okay. And I wanted to just quickly ask on the Dodd-Frank risk retention stuff. And maybe you can elaborate just a little bit. In an ideal world once that takes effect, what would the environment have to look like again sort of in an ideal state to get you a little more excited about the market?

As far as the risk retention rules?

Yes. I think you – if I heard your statements correctly, you’re taking a sort of defensive posture until those rules go into effect. So what would the environment have to kind of shape up to look like, or what would have to happen in order for you to get a little more excited about that?

Well, that I maybe I misstated that a bit. I think we’re looking at that as an opportunity that’s likely to present opportunities for private capital to be able to put money to work in the space where it didn’t exist prior. We’re not nervous about how those rules come out. The credit spreads in front of the Election and Fed meetings and Brexit is really more what could increase volatility and actually we’ve just seen that in the last few days in the BEX Index [ph] is pretty much the highest since Brexit was announced. So we are seeing a little bit in that and hopefully there won’t be any and that’s fine. I think we just think it’s prudent and that we hold a bit of more unencumbered assets and so forth in front of year end and look for opportunity in the beginning of the year probably.

I would add on the CMBS and I think what we’re looking for is with risk retention rules, part of the idea there is that there would be better alignment of interest between issuers. And we think that that should present better opportunities to invest at lower levels down the capital stack with better underwritten properties. So I think that’s like the main takeaway. Whether we get an opportunity to partner with issuers in actually taking down those retention pieces where we need to hold them for five years, that remains to be seen on how that’s going to play out. But certainly we think there’s going to be opportunities regardless of how it shapes out to invest in better underwritten properties and potentially down the capital stack, which should provide better spread levels.

That makes sense. Thanks, John. I appreciate it. Thanks, guys.

Yes.

Thank you. [Operator Instructions]. Our next question is from Trevor Cranston from JMP Securities. Your line is open.

Hi. Thanks. And I’ll add my congratulations to Rich. Given the kind of conservative stance you guys are taking ahead of some potential volatility, can you talk about maybe how you were thinking about potentially buying back shares where they’re trading today versus continuing to build liquidity for potential investment opportunities over the next few months? Thanks.

Sure. We look at constantly where our stock’s trading and the relative opportunities between buying back shares and investing. I think the current focus was to increase liquidity and decrease leverage, which are both kind of uses of our liquidity and current uses of our capital, if you will. So buying back shares is not on the front of our mind right now, because we use that space in the portfolio and that opportunity set that you just opened up and take it away. So that’s a short answer but basically what we’re looking at is let’s get through the next couple of months and then assess the best opportunities, whether that be share buybacks or putting money to work in risk retention or wider spreads on credit, et cetera.

Okay. Thank you.

Thank you. At this time, we have no further questions.

Well, thank you, everybody. I appreciate your interest and we will talk to you next quarter.