Financial Data and Key Metrics Changes - For Q3 2025, the company reported net income of $0.53 per share, a significant improvement from a loss of $0.29 in Q2 2025 [5] - Book value increased to $7.33 as of September 30, 2025, compared to $7.21 on June 30, 2025 [5] - Total return for Q3 was 6.7%, a recovery from -4.7% in Q2 [5] - Average portfolio balance rose to $7.7 billion in Q3 from $6.9 billion in Q2 [5] - Liquidity improved to 57.1% at September 30, 2025, up from 54% at June 30, 2025 [5] Business Line Data and Key Metrics Changes - The average coupon of the portfolio increased from 5.45% to 5.53%, and the effective yield rose from 5.38% to 5.51% [30] - The net interest spread expanded from 2.43% to 2.59% [30] - The portfolio remains 100% agency RMBS, with a focus on call-protected specified pools [30] Market Data and Key Metrics Changes - The cash Treasury curve and SOFR swap curve showed a slight steepening, reflecting market expectations of Fed rate cuts due to labor market deterioration [7][8] - The long end of the Treasury curve performed well, with strong demand in the investment-grade corporate market despite tight credit spreads [10] Company Strategy and Development Direction - The company is focused on maintaining a conservative leverage posture while enhancing the carry and prepayment stability of its portfolio [30][39] - The strategy includes investing in high coupon specified pools to insulate against adverse payment behavior and stabilize income streams [30][43] - The company anticipates potential tailwinds from continued Fed rate cuts and the end of quantitative tightening, which could support the agency RMBS market [44] Management's Comments on Operating Environment and Future Outlook - Management noted a potential crossroads for the economy, with labor market weakness prompting Fed rate cuts, while also observing strong consumer resilience and government stimulus [46][47] - The company expects to adjust hedges to lock in lower funding costs and prepare for potential rate hikes following anticipated Fed cuts [48] Other Important Information - The company raised $152 million in equity capital during the quarter, which was fully deployed into high-quality specified pools [29][43] - The weighted average price of the portfolio increased to over $101, indicating a premium position [72] Q&A Session Summary Question: Any macro factors that might change overall risk positioning? - Management indicated that if the Fed continues to cut rates and the economy rebounds, they might consider increasing leverage [51][52] Question: View on payouts upside potential with refi momentum? - Management noted that payouts have increased sharply recently, but they do not expect to return to the high levels seen in 2020 or 2021 [54][55] Question: Scenarios for dollar roll specialness returning? - Management expressed skepticism about the return of dollar roll specialness, citing the Fed's focus on buying Treasuries and bills rather than mortgages [61][62] Question: Supply and availability for longer-dated repo? - Management mentioned that spreads for longer-dated repo are currently too wide, but they are opportunistically looking to lock in funding [63][64] Question: Percentage of portfolio covered with call protection? - Almost 100% of the portfolio has some form of call protection, which is expected to mitigate risks in a declining rate environment [72]

Financial Data and Key Metrics Changes - The company raised $270 million of new capital year-to-date, achieving this at a premium to book value, which is accretive to shareholders [33] - Net interest income continues to trend up as new investments with attractive yields are added to the portfolio while financing costs trend down [32] - The leverage ratio increased from 7.4% to 7.8% due to a decline in book value [72] Business Line Data and Key Metrics Changes - The portfolio generated a total return of 2.6% during a quarter with significant swings in rates, validating the investment strategy [36] - Agency RMBS spreads widened sharply, ranging from 145 to 160 basis points over treasuries by the end of the quarter [42] - The company maintained a disciplined liquidity-focused risk management process, allowing it to navigate market volatility without crystallizing losses [43] Market Data and Key Metrics Changes - Long-end treasury yields unexpectedly rose, reflecting selling pressure, while the dollar experienced weakness against major currencies [15] - The market saw a classic risk-off reaction following the April 2nd tariff announcement, leading to declines in equity prices and sharp drops in interest rates [40] - The availability of repo funding remained strong, with costs stable between 15 and 17 basis points over SOFR [63] Company Strategy and Development Direction - The company continues to see compelling opportunities in agency residential mortgage-backed securities while managing through a rapidly changing landscape [55] - A focus on disciplined risk management and real-time adjustments is emphasized as the regulatory and political landscape evolves [27] - The company is preparing for potential changes in the GSEs and is evaluating outlier scenarios for market reactions [24] Management's Comments on Operating Environment and Future Outlook - Management views the current environment as favorable, with a steeper yield curve and lower financing costs supporting the business model [8] - The company is prepared for continued volatility in the financial and economic environments, expecting surprises in the future [28] - The dividend is set based on long-term returns, capital availability, and overall risk, with a recent increase reflecting confidence in generating attractive returns [30] Other Important Information - The company has operated with generally lower leverage and a robust liquidity position, allowing it to remain agile amid external shifts [21] - Management emphasizes the importance of transparency in investments, with all assets marked and reflected in earnings and book value [57] - The executive team collectively owns nearly 2% of the company, aligning their interests with those of shareholders [58] Q&A Session Summary Question: Repo funding costs and availability - Repo funding costs have been stable between 15 and 17 basis points over SOFR, with strong availability in financing markets [63] Question: Hedging strategy amidst volatility - The company is comfortable with its current hedge composition, primarily using swaps as a natural hedge for the mortgage portfolio [65] Question: Investing opportunities in the current environment - The steeper curve and wider spreads present significant ROE potential, with diversification across the coupon stack providing duration certainty [70] Question: Book value and dividend implications - The book value includes the dividend accrued, and leverage is at 7.8 times, reflecting a cautious approach to adding risk [76][78] Question: Preparing for GSE changes and potential spread widening - The company is focused on maintaining liquidity to withstand price shocks and is conducting scenario analysis for potential GSE changes [122][91]