Welcome to Invesco Mortgage Capital Inc.'s Third Quarter 2023 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 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 Web site at invescomortgagecapital.com. This information can be found by going to the Investor Relations section of the Web site. 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 Web site. 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 make some brief comments before turning the call over to our Chief Investment Officer, Brian Norris, who will discuss the current portfolio in more detail. Also joining us on the call are President, Kevin Collins; our CFO, Lee Phegley; and our COO, David Lyle. The market environment was extremely challenging during the third quarter given shifting expectations for fiscal and monetary policy. Interest rate volatility remained elevated, while treasury yields increased to their highest level since 2007. This backdrop was particularly difficult for agency mortgages, as [trends reached] (ph) multiyear wides across the coupon stack, and specified pool payouts declined. These conditions contributed to a 17% decline in our book value per share for the quarter. Elevated volatility and rising interest rates continued into the first few weeks of the fourth quarter, accelerating agency mortgage underperformance. [Sentiment] (ph) turned more positive last week fueled by investors' growing confidence that the FOMC's tightening cycle has ended. Positively, investors seeking to capitalize on historically cheap agency mortgage valuations have recently allowed the sector to recover a portion of the early fourth quarter losses. We estimate that, as of November 3, our book value has declined to a range of $9.07 to $9.45 per share. Despite the extreme volatility, earnings available for distribution remained strong during the quarter, coming in at $1.51 per share as we continue to benefit from our low-cost hedges as well as very attractive ROEs on new investments. Our debt to equity ratio ended the quarter at 6.4 times, with substantially all of our $5.4 billion investment portfolio invested in agency mortgages. And we maintained a sizable balance of unrestricted cash and unencumbered investments totaling $392 million. Post quarter-end, we responded to elevated interest rate volatility,…

Thanks, John, and good morning to everyone listening to the call. And I'll begin on slide four, which provides an overview of the interest rate and agency mortgage markets year-to-date. As John mentioned, and as shown in the chart in the upper-left, yields on longer maturity U.S. treasuries rose sharply in the third quarter in a bear-flattening move. Short-term rates rose modestly as the slowdown in inflation data signaled an impending pause in monetary policy tightening, while yields on treasuries maturing between five and 30 years increased between 45 and 85 basis points, as investors price the risk that a resilient economy and substantial treasury issuance would impact the longer-term path of rates. By the end of the third quarter, pricing in the Fed funds futures market reflected a higher for longer stance by the Federal Reserve, pushing the expectations for cuts into the second-half of 2024. These trends intensified into October as the interest rates and interest rate volatility moved higher post quarter end. As shown in the lower-right chart, U.S. commercial banks further reduced their holdings of agency RMBS during the quarter, concurrent with run-off of the Federal Reserve's balance sheet, resulting in an increased reliance on money manager and overseas investment to support Agency RMBS valuations. While overseas investment in the asset class has been robust in recent months, mutual fund outflows dampened demand from our money manager community that was already overweight the sector with little room to add exposure. In addition, organic net supply of agency mortgages to the market increased during the quarter housing seasonals strengthened. While the remaining specified pools held by FDIC were liquidated by the end of the quarter, taken together supply and demand technicals worsened during the quarter, providing a tenuous environment as interest rate volatility increased. Slide five provides…

The phone lines are now open for questions. [Operator Instructions] The first question in the queue is from Trevor Cranston with JMP Securities. Your line is open.

Hey, thanks. Good morning. I think you took leverage down to a pretty conservative level as of the end of October. Can you talk about if that level is one you're comfortable for the near-term? And given the negative earnings impact of the asset sales you mentioned, can you maybe talk a little bit about how you're thinking about the dividend in that context? Thanks.

Yes, hey, Trevor, it's Brian. Good morning. And I'll start with the leverage comment before turning it over to John for the dividend. Leverage, yes, it's certainly well below our longer-term average here as an agency mortgage-only REIT. We do think that given the level of volatility currently in the market, that a conservative approach is warranted. And so, while probably -- if we were to be in a modestly lower interest rate [volatile] (ph) environment, leverage would probably look a little closer to where we were at the end of June. Given where we are right now, we think a more conservative approach is warranted.

Yes, and hi, Trevor, it's John. And you mention the the dividend. First of all, the dividend is driven by our Board, and I can't comment directly on interaction through these turbulent wait next month. But I can say the earnings power has declined along with our leverage, but keep in mind that EAD had been covering its dividend by a fairly significant margin in the recent quarters. And then there are several factors that we consider when setting the dividend. Among them, EAD obviously one of them, along with historical and prospective return profile of our target assets, and then dividend yields available in the sector. So, there's a bunch that goes into it, but that will be determined later by our Board.

Okay, that's it. Thank you.

And the next question in the queue is from Matthew Erdner with JonesTrading. Your line is open.

Hey, good morning, guys. Thanks for taking the question. So, you mentioned as part of the portfolio going to the lower loan balance production coupon, I believe at the end of the quarter the distribution amongst coupons was pretty balanced. So, going forward, should we expect a higher percentage of the portfolio to be concentrated in those new production and higher coupons?

Yes, Matt. Hey, it's Brian, good morning. Yes, it's likely that as we move forward here, we would look to add in higher coupons. You'll notice on the October 31 slide that we did add a modest amount of 6% coupon, which was in addition relative to where we had been along the coupon stack. So, I think that's a pretty good estimate of where new purchases would occur going forward.

Got it, thank you.

And I'm showing no further questions at this time.

Okay. Well, I'd like to thank everybody for joining us on the call. And we look forward to speaking, I guess, in February. Thanks.

Thank you.

This concludes today's call. Thank you for your participation. You may disconnect at this time.