Oct 30, 2026 earnings call — Portfolio shift to specified pools and earnings
Reported an economic return of -11.6%, with monthly dividends of $0.12 per share and a 16.1% decline in book value per share.
Revenue $0.0B (est $0.1B) · EPS $0.47 (est $0.46)
Key quotes
"As a result of this portfolio activity, our allocation to specified pools increased from 73% of our total investment portfolio to 83% during the quarter, notably improving the convexity profile at attractive entry points."
"We saw two-year yields rise more than 70 basis points, 10-year yields rise more than 80 basis points, all during the quarter."
"As of quarter end, we hedged 99% of our borrowing costs with interest rate swaps and U.S. Treasury futures."
Analyst Q&A 5
Dividend level; TBA vs specified pools
Q (Marissa Lobo · UBS): Analyst asked how management thinks about the appropriate dividend level now given the payout is roughly 20% of book value. She also asked how they weigh Agency TBA financing against the convexity benefits of specified pools.
A: Kevin said current ROEs for their target assets are 18%-20% and they will discuss the dividend with the board, focusing on market conditions and available investment opportunities relative to the current payout of book value. Brian said Agency TBA ROEs are attractive and at about 8% they are comfortable with their TBA allocation, but they still prefer to own the majority in specified pools for convexity benefits, attractive ROEs, and durability.
"I guess I'd start by saying that current ROEs, as was mentioned, for our target assets are 18%-20%." — Kevin Collins (CEO)
Leverage and cash risk positioning
Q (Doug Harter · BTIG): Analyst asked how management is thinking about risk positioning in leverage and unencumbered cash and what levels they are comfortable holding if volatility returns. He also asked how willing they would be to increase leverage to take advantage of current opportunities.
A: Brian said they are comfortable with the current level of leverage and cash and they monitor these daily using risk models and metrics. He said leverage has come down since the end of the quarter given improvement in book value and mortgage spreads, they had let leverage drift higher during the quarter, and they would not be uncomfortable taking leverage higher if spreads widen but are not actively seeking to add assets now.
"Leverage has come down since the end of the quarter, just given the improvement in book value and mortgage spreads as well." — Brian Norris (CIO)
Drivers of MBS valuation normalization
Q (Trevor Cranston · Citizens JMP): Analyst asked what is the most likely driver of normalization of MBS valuations — reduced interest rate volatility or other factors. He asked what could bring down interest rate volatility.
A: Brian said interest rate volatility is the number one driver and as volatility normalizes mortgage spreads should normalize along with it. He added that a clearer near-term monetary policy path and progress on the Middle East front could help, while recent stresses in credit markets are not helpful.
"As that continues to normalize, we should see mortgage spreads normalize along with that." — Brian Norris (CIO)
Share buybacks and pay-up floor
Q (Jason Weaver · JonesTrading): Analyst asked whether the company would pursue share repurchases given the discount to book and if there is a discount level that makes buybacks urgent. He also asked where the floor on specified pool pay-ups sits given mortgage rates north of seven.
A: Kevin said they raised approximately $50 million of capital in Q3, have not raised capital in Q4, and they have a repurchase program; if shares trade at a meaningful sustained discount to book they stand ready to buy back shares but will weigh that against deploying capital into new Agency mortgage investments. Brian said most of the specified pool universe is in discount price area and they are probably very close to the floor; extension risk is largely out of the market and pay-ups can fall in stress but typically bounce back quickly.
"If our shares trade at a meaningful discount to book value for what I would consider a sustained period of time, it's certainly something that we stand ready to do, and we'll reevaluate repurchases." — Kevin Collins (CEO)
Dividend decision factors and GSE buying impact
Q (Jason Stewart · Compass Point): Analyst asked which factors matter most when the board discusses the dividend — incremental returns, how the stock is credited for the dividend, repurchases, or others. He also asked how GSE buying activity factors into leverage and comfort with current spreads.
A: Kevin listed the factors they consider: market conditions, current earnings, portfolio composition, and available investment opportunities relative to the current payout; he said they want the dividend to be supported by earnings power and to provide stability and competitiveness. Brian said Fannie has been more active, the combined entities have about $135 billion of capacity under their caps while they have only added about $45 billion year-to-date, and they added about $15 billion to retained portfolios over the third quarter — which gives more comfort on leverage at modestly higher levels and that mortgage spreads near the 160 area are a level the market has seen in stress.
"Just in terms of factors that are considered, I would certainly say market conditions, which have changed quite meaningfully recently and are still somewhat kind of settling into new ranges." — Kevin Collins (CEO)