Financial Data and Key Metrics Changes - The company reported a loss of $0.29 per share in Q2 2025, compared to income of $0.18 per share in Q1 2025. Excluding realized and unrealized losses, net income was $0.16 per share, unchanged from Q1 [5] - Book value decreased from $7.94 per share at the end of Q1 to $7.21 at the end of Q2. Total return for the quarter was negative 4.66%, compared to positive 2.6% in Q1 [5] - The company maintained dividends of $0.36 in both quarters [5] Business Line Data and Key Metrics Changes - Average mortgage-backed securities (MBS) during the quarter increased to $6.9 billion from just under $6 billion in Q1. The leverage ratio decreased from $7.8 billion at the end of Q1 to $7.3 billion at the end of Q2 [6] - Prepayment speeds increased to 10.1% in Q2 from 7.8% in Q1, while liquidity rose to 54% from 52% [6] Market Data and Key Metrics Changes - The market experienced significant volatility due to reciprocal tariffs and the passage of a major bill, impacting the overall market outlook [8][9] - The U.S. Treasury curve has been steepening, which is significant for levered MBS investors as it makes hedging positions using swaps more attractive [13][20] Company Strategy and Development Direction - The company is shifting its portfolio strategy towards a more concentrated production coupon bias, moving away from a barbell approach. This strategy has been beneficial in the current steepening yield curve environment [36] - The company expects the investment environment for Agency RMBS to remain attractive, with production coupon spreads at historically wide levels [45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the economy despite challenges such as tariffs and high mortgage rates. They anticipate continued strong economic performance driven by government deficits and spending [26][99] - The company expects refinancing activity to remain low due to high mortgage rates and affordability issues, which could make higher coupon assets attractive [24][70] Other Important Information - The company raised $140 million in new equity during the quarter, which was deployed into higher coupon specified pools [45] - The funding environment remains stable, with ample liquidity and no issues in adding repo counterparties [47] Q&A Session Summary Question: Increase in shares and capital raising strategy - Management confirmed an increase in shares due to a capital raise and indicated that future capital raising would depend on stock price and market conditions [54][56] Question: Premium risk in high coupon pools - Management acknowledged the premium risk but noted that the prepayment experience on lower pay-up pools has been favorable, suggesting a cautious but optimistic approach [57][59] Question: Updated book value - Management provided an estimate of a 3-cent decline in book value quarter-to-date, indicating ongoing market fluctuations [65] Question: Outlook for prepayment speeds - Management expects prepayment speeds to remain muted in the third quarter, with seasonal factors influencing the outlook [68][70] Question: MBS spreads and interest rate expectations - Management discussed the potential for MBS spreads to widen or tighten based on economic conditions and emphasized the resilience of the mortgage market despite challenges [91][96]

Financial Data and Key Metrics Changes - The economic return for Q1 2025 was 3%, consistent with the previous quarter, with earnings available for distribution per share at $0.72 [18][19] - Book value per share slightly declined to $19.02, a decrease of less than 1% quarter over quarter [19][22] - The common stock dividend was increased from $0.65 to $0.70 per share, reflecting earnings momentum [7][19] Business Line Data and Key Metrics Changes - The Agency portfolio saw a notional growth of $3.5 billion, driven by purchases of intermediate coupon TBAs [10][11] - The Residential Credit portfolio decreased by $340 million quarter over quarter, ending at $6.6 billion in market value [12][13] - The Mortgage Servicing Rights (MSR) portfolio remained relatively unchanged at $3.3 billion in market value [15][16] Market Data and Key Metrics Changes - Economic leverage increased modestly to 5.7 turns, remaining at the low end of the historical range [9][19] - The housing market showed signs of regional disparity, with home price appreciation slowing down due to increased inventory and affordability issues [13][60] - Inventory levels increased by 18% year over year, impacting existing home sales, which were at their lowest since February [57][58] Company Strategy and Development Direction - The company aims to maintain a conservative leverage approach amidst market volatility while focusing on agency investments due to attractive returns [17][37] - The strategic alignment with industry-leading sub-servicing partners is expected to create competitive advantages in the MSR business [15][16] - The company is optimistic about the potential for regulatory reforms that could positively impact the market dynamics [32][71] Management's Comments on Operating Environment and Future Outlook - Management noted that the macroeconomic environment remains uncertain, with volatility expected to persist [9][17] - The outlook for the housing market is stable in the long term, supported by low delinquencies and tight underwriting standards, despite short-term pullbacks [60][61] - The company is prepared for potential market fluctuations with a diversified and actively managed portfolio [17][22] Other Important Information - The company has approximately $7.5 billion in assets available for financing, reflecting a $600 million increase compared to the previous quarter [22] - The weighted average repo days extended to 50 days, indicating a strategic shift in financing [21] Q&A Session Summary Question: Update on book value quarter to date - The book value was off roughly 3.5% as of the latest update, improving from a 4.5% decline post-Easter [25] Question: Outlook for spreads and regulatory impacts - Swap spreads have tightened due to volatility, and regulatory reforms are anticipated to positively influence market conditions [26][32] Question: Thoughts on leverage amidst spread widening - The company is balancing the opportunity to increase leverage against the risks posed by high volatility [36][37] Question: Housing price moderation and systemic risks - Housing price increases are regional, with some areas experiencing declines, but overall, the market remains stable due to strong borrower equity [60][61] Question: Agency portfolio supply-demand dynamics - Demand from fixed income funds was strong before recent volatility, with banks and REITs also showing reasonable demand [85] Question: Impact of rate and spread volatility on loan acquisitions - The company is adopting a more defensive posture in response to increased spreads, but lock volumes remain stable [90]