Financial Data and Key Metrics Changes - The company reported GAAP net income of $0.29 per share and adjusted distributable earnings (ADE) of $0.53 per share, marking a new quarterly high for ADE since its introduction in 2022, significantly exceeding the $0.39 per share dividends for the quarter [5][11][20] - Total portfolio holdings grew by 12% during the quarter, driven by non-QM, proprietary reverse mortgage, and commercial mortgage bridge loans [7][20] - The economic return for the third quarter was 9.2% annualized, with book value per share at $13.40 [20] Business Line Data and Key Metrics Changes - In the credit portfolio, net interest income grew sequentially, with $0.42 per share from credit, $0.04 from agency, and $0.09 from Longbridge [11][12] - The Longbridge segment had strong contributions from both originations and servicing, with origination profits driven by higher volumes of proprietary reverse mortgage loans [14][15] - The adjusted long credit portfolio increased by 11% to 3.56% quarter over quarter, while the Longbridge portfolio increased by 37% to $750 million [15][17] Market Data and Key Metrics Changes - The company noted a favorable environment for agency RMBS due to lower interest rates and reduced volatility, which supported portfolio performance [13] - The securitization market has become more liquid and commoditized, attracting a larger universe of investor-grade bond buyers, which has tightened spreads [70] Company Strategy and Development Direction - The company is focusing on diversifying its funding sources and reducing reliance on short-term repo financing, as evidenced by the successful pricing of $400 million in senior unsecured notes [10][21] - There is an emphasis on technology investments to enhance loan origination efficiency and expand the range of products offered by affiliate loan originators [23][25] - The company plans to expand its footprint in the securitization markets and is optimistic about purchasing seasoned mortgage loan portfolios from banks [25][27] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about potential economic cracks, including recent corporate bankruptcies and weakened job formation, but remains focused on maintaining credit quality [21][22] - The company anticipates continued strong performance in the fourth quarter, with robust securitization activity and origination volume [29][30] - Management highlighted the importance of maintaining a disciplined risk management approach while pursuing high returns [32] Other Important Information - The company has seen a significant increase in securitization volumes, with 20 securitizations priced year to date, more than triple last year's pace [6][9] - The percentage of borrowings subject to mark-to-market margining declined to 61% from 74% month over month, indicating improved financing terms [19] Q&A Session Summary Question: Discussion on loan originator platforms and valuations - Management noted that strong earnings performance has driven higher book values and liquidity for loan originator platforms, leading to improved valuations [35][36] Question: Opportunities in buying loans from banks - Management confirmed that recent transactions involved residential mortgage loans from smaller banks, indicating a trend of banks restructuring portfolios due to lower yields [40][41] Question: Credit performance and allocation of capital - Management highlighted that credit performance remains strong, particularly among higher-end borrowers, while being cautious about potential impacts from layoffs in the labor market [46][47] Question: Longbridge portfolio and leverage - Management stated that Longbridge does not require more leverage to achieve target returns, as most equity is in high-yielding servicing [75] Question: Non-QM market and convexity risk - Management emphasized the importance of understanding prepayment risks and noted that the Non-QM market has become more liquid and attractive due to tighter spreads [77][81]

Summary of Key Points from the Conference Call Industry Overview - **Focus on Global Asset Allocation**: The report discusses the outlook for various asset classes, including equities, bonds, commodities, and foreign exchange, with a particular emphasis on the US and China markets. Core Insights and Arguments - **US Economic Outlook**: Despite a lack of recent economic data due to the US government shutdown, investors remain optimistic about the US economy for 2026, with GDP consensus estimates rising to 1.8% for the US, 1.1% for Europe, and 4.2% for China [8][10] - **Equity Strategy**: The company maintains an overweight position in US and Chinese equities, driven by the AI theme and expected Fed cuts. The UK market is underweighted due to its defensive nature and lack of AI exposure [10][33] - **Sector Preferences**: Upgrades in consumer discretionary to neutral, with overweights in communications, financials, technology, and utilities, while underweighting consumer staples, materials, and real estate [2][39] - **Bond Market Positioning**: The company remains neutral on duration, favoring EM local bonds over Japanese government bonds (JGBs) due to the latter's expansionary fiscal risks [9][57] - **Credit Market Concerns**: The company is underweight in both US and EU investment-grade credit, viewing it as less likely to benefit from the AI boom and as a hedge against potential economic downturns [11][62] - **Commodity Strategy**: A shift from overweight precious metals to neutral, while increasing exposure to base metals, is noted. The expectation is for gold prices to consolidate around $4,000 [12][80] - **Foreign Exchange Positioning**: The company remains long on emerging market foreign exchange (EMFX) carry trades, indicating a preference for high-yielding currencies [3][13] Additional Important Insights - **Geopolitical Risks**: The report highlights ongoing geopolitical tensions, particularly between the US and China, which could impact market dynamics. The potential for negotiations around tariffs and export controls is discussed [18] - **Earnings Season Expectations**: High expectations for the upcoming earnings season are noted, with the potential for a year-end rally if results meet or exceed these expectations [20][23] - **Healthcare Sector**: The healthcare sector is under observation due to recent positive developments, although it remains neutral due to its defensive nature and lagging performance this year [46] - **Japan's Political Landscape**: The new leadership in Japan may lead to increased fiscal spending, which could positively impact Japanese equities, although the company remains cautious [27][57] This summary encapsulates the key points from the conference call, providing a comprehensive overview of the company's investment outlook and strategic positioning across various asset classes and sectors.