Financial Data and Key Metrics Changes - The book value per share decreased by 3% from the prior quarter to $18.45, while earnings available for distribution per share increased by $0.01 to $0.73, exceeding the dividend for the quarter [19][20] - The economic return for Q2 was 0.7%, bringing the year-to-date economic return to 3.7% [7][20] - The net interest spread excluding PAA increased to 1.47% in Q2 compared to 1.24% a year ago, and the net interest margin excluding PAA was 1.71% in Q2 compared to 1.58% in Q2 2024 [21] Business Line Data and Key Metrics Changes - The Agency portfolio ended the quarter at nearly $80 billion in market value, up 6% quarter over quarter, with a growth of approximately $4.5 billion in notional terms [9][10] - The residential credit portfolio remained relatively unchanged at $6.6 billion in market value, with Onslow Bay achieving its highest quarterly securitization activity to date, closing $3.6 billion across seven transactions [12][13] - The MSR portfolio ended the quarter unchanged at $3.3 billion in market value, with solid fundamental performance and a three-month CPR of 4.6% [15][16] Market Data and Key Metrics Changes - The U.S. economy is expected to grow around 1% annualized for the first half of the year, with an unemployment rate marginally lowered to 4.1% [5][6] - Inflation is likely to have run at the slowest level in the past three quarters, with the Fed expected to deliver two interest rate cuts in 2025 [6][7] - Agency MBS spreads widened by 5 to 10 basis points on the quarter, despite a positive reversal in sentiment towards risk assets [7][9] Company Strategy and Development Direction - The company remains optimistic about the agency sector, citing sound fundamentals and potential catalysts for improvement in Agency MBS technicals [11] - The focus is on further building out flow servicing relationships and expanding subservicing and recapture partnerships to capitalize on MSR opportunities [17] - The company plans to strategically grow its residential credit and MSR portfolios while maintaining a flexible investment approach with low leverage and ample liquidity [17] Management's Comments on Operating Environment and Future Outlook - Management noted that the macroeconomic environment has shown resilience, with a balanced labor market and muted layoffs, affirming the Fed's wait-and-see stance [5][6] - The company expects to be overweight in agency investments due to historically attractive spread levels, while also anticipating growth in residential credit and MSR portfolios [17] - Management expressed confidence in covering and potentially out-earning the dividend for the remainder of the year, given the current economic return [27][28] Other Important Information - The company raised over $750 million of accretive capital in Q2, predominantly deployed in the agency sector, with leverage increasing modestly to 5.8 turns [8] - The company has diversified its funding sources significantly, with non-mark-to-market capacity growing from $150 million to $1.9 billion [22][23] Q&A Session Summary Question: Update on book value quarter to date - The book value was up about 0.5% pre-dividend accrual, indicating a 1.5% economic return [26] Question: Comfort level with the dividend - Management expressed confidence in covering the dividend, expecting to out-earn it for the remainder of the year [27][28] Question: Managing the portfolio through volatility - Management was comfortable allowing leverage to rise due to a strong liquidity position and focused on managing rate exposure [32][34] Question: Dynamics of the credit portfolio - The quality of the credit portfolio is high, with proactive measures taken to tighten credit standards [45][46] Question: Expectations for GSE reform - Management expects GSE reform to be prioritized now that the tax bill is completed, which could create opportunities for the company [56] Question: Demand for Agency MBS - Demand from fixed income funds has been strong, and the company expects MBS spreads to tighten even without additional demand from banks [76][77]