Two Harbors Investment (TWO) 2 May 232023 Q1 Earnings call transcript

Good morning. My name is Diego and I will be your conference facilitator. At this time, I would like to welcome everyone to Two Harbors' First Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session.

to the like Karr. to now would turn call over Maggie I

on morning morning, our and Investment XXXX and first me to and Chief financial Financial Officer. Mary call to With Good Letica, welcome Officer; Harbors' Executive call Officer; everyone, our our Bill are Greenberg, discuss Nick Two results. Riskey, the President Chief this Chief quarter our

the have SEC's website press and as have with our are presentation been call filed release today's to and conjunction of with at twoharborsinvestment.com. In review financial our to earnings you earnings the The in release information available as today's with and call. provided on website, presentation, of well measures, we this page Investor urge reconciliation and SEC the we associated non-GAAP GAAP Relations

reminder, Form our of forward-looking our cause statements reports required that to Harbors uncertainties which expectations. update not These in as on will filed does risks by disclaims include are law, and any be Except differ from today may SEC. XX-K do to and subject comments obligation materially may the presentation forward-looking described are the Two with subsequent so. and X As statements, and our to results a Page

I will the to over Bill. now turn call

and Nick results market positioning. and environments. Maggie. Mary financial Good our our quarter you, This the and our will to call. discuss morning, around and earnings will Thank I morning, portfolio welcome everyone, performance first our information on provide quarterly will color activity provide

overview Please quarterly results. turn our of an for X to Slide

X.X% total return. XX was $XX.XX book share, March a per Our quarterly value negative representing economic at

quarter in slight with call. banking as was bias into short impacted our disclosed fourth by portfolio earnings consistent lower rates from arising the a value crisis we our March, Our duration heading in had what the violent book move

regional which the spread increased continued bank elevated, widening. headlines tapes, and caused be more costs hit volatility to rate hedging mortgage As

$X.XX EAD per share. available for was or distribution earnings Our

does EAD earnings prior portfolio. As of earnings our we've not calls, potential the necessarily discussed on reflect

driven our value should our was earnings introduced For a last This about compares first we the $X.XX representing reason, return believe IXM quarter. this investors for or equity. quarter, fourth when assist on annualized changes income share market average per and thinking quarter analysts potential. IXM XX.X% to which excluding per $X.XX in we the common share metric the better

realized is change mainly timing the in be of This of in meant viewed to forward-looking our XX, flows. differences return is with cash quarter-over-quarter conjunction of potential IXM slide. realized which return result The backward and looking MSR is metric Slide

to campaign of the with markets Fed's of relative Please quickly of banking After X. to and XXXX The Signature early the turn rates Slide send beginning the question banking called two was seizure March in the financial system. roiled Silicon throughout which banks, by Valley undercurrent the Bank regional information. into of regulators, calm, Bank raising extremely and reacted sensitive by two months new which were was market, tremors already the

by with the the culminating XXX end a day Interest two rates period yield move March treasury on points on declining yield over curve in basis front year plunged one of ever day three XX. the the largest

by year, of blue figure level had the X% funds prior, the fed be a few since rate cycle yield over of days hike a year its the At X.XX%, These X. hit the one in clearly just light rate a two rate seen of high X.X% Just peak more as the can highest effects XXXX. with was interest shown line. pricing a of terminal just market and in beginning

by cuts. to in all X rate replaced rate Despite broke snap target more were hike rate rate hikes the market the drive basis after became and SVB X%. term benchmark expectations effort annual Fed March, By back XX, XX pricing only down long economy to the inflation the with on early the and their a raised March of slow towards market's bearish points its continued news down in expectations,

occurred. why late had our however, year, predicting the they a point curve. activity expectations rate If in trip almost by again slept of April, interest through investor December market basis are exposures interest path the of good on maturities exactly as low XXX been forward that known one Fed had breathtaking fed an rate of was volatility, of Interestingly, and have round even inside we had keep This wouldn't for XX. especially are across kind it, it a reminder

income a figure gears to is those to to refers underappreciated may float that investors. income on is Float which earned be interest relevant before the insurance interest monies like the need component X, the subject change and and of Moving principal upon the I’d and in to be taxes MSR. that remitted market, and expand to

or interest is share many MSR only coupon similarities a and risks, MSR bond. not fixed bonds While IO and

well to servicing. fees has flows It that and In different recapture. these cash interest, cash to income the components and and which more cost ancillary flow, additional service additive overall add flows compensating the as environments, as from float like include detract value cash important interest or will of income, less rate late

prepayment in IO price can't the which ultimately rate light an X, extends differently. in MSR any high float rates to price very rising Looking can in line environment, decreasing at component behaves IO which and as increase. slow, speeds prepayment In contrast, in the figure positive the slower, go a duration acquiring of see rates, blue you causes the as speeds increase. an in the At that chart results

blue charts on You see line the navy in the in figure this can X.

reasons two rates rise. for up goes as price The

rates rise. like an rise extends and price MSR as slow, causing IO, First, to prepayment the

anymore, of slow the of can't income continue causes rates, cash Second, in custodial flow At effective the as component balances. rate this rates to the earnings coupon since rise, component on rise, price even short-term to the the to prepayment based very effective coupon also which is this float the increase. on increases those when high speeds continues

In MSR IO. see, to of these caused environments, you the the in can value X, figure higher outperform additional as flows rate cash

in While of when of of is the asset, components environment, about asset. the of the duration MSR are can components MSR the can the MSR rate deeply duration a out XX% float higher contribute closer MSR of XX% money, the rates of and entire float the the to contribute normal

the Main further in sell money reason point could income, to and the why here which off. uncapped, materially of primary that multiples duration out essentially of is now a rise float is the MSR somewhat MSR adds to continue negative

from rate debate. cautiously selling larger the FDIC are With of with interest attractive follow-on crisis from we Moving in the the Nevertheless, ceiling banking the political levels. forward, bonds, are volatility environment. and optimistic the uncertainties about to the on effects amounts RMBS spreads investing uncertainty debt historically potential market related remain high at to

in might As expect more overweight position mortgages is the an posture technical neutral that is result, think backdrop. fundamentally, We a we a justified. prudent, given

likely generation. and those available banks MBS the and ongoing time just the in of the for for attractive time. persist our should the can portfolio are with for we sidelines Wider wide market longer with earnings spreads fine, think Fed being the be suits the us market believe GSEs that of supportive spreads and Furthermore, on of for as market, we out some our

with our current with from construction portfolio we than and of that that environment. of committed said, well the very paired we in and our MSR mortgage positioned spread portfolios to confident all MSR to RMBS duration are without less Agency With believe portfolio is benefit

to discuss to Mary I turn will detail. more our over it Now, results in financial

X. and to you, Thank good Bill, morning, Please Slide everyone. turn

the quarter, incurred of first $X.XX company comprehensive average per the For weighted million or loss negative $XX.X a share.

increased XX, $X.XX economic to dividend, of mortgage in common value share per $XX.XX the a return March Our December at X.X%, including XX negative book spread primarily widening hedging costs. was quarterly March compared in results results reflect at and $XX.XX

like to Moving detail to IXM. quarter, XX.X%. an In first representing X, share, the some return $X.XX around IXM Slide was of annualized per add I'd

the when quarter the change structure we to for forwards calculation IXM term methodology, use the price which unchanged determining of we changes expected a refined QX from This is use methodology. realized

either structure. term and on that realized of structure that, forwards expected forwards. for curve methodology the based unchanged may unchanged the price that yield scenarios, methodology structure two methodology assumes term assumes term rates assumed forwards the be day over one-day The on of computed is the Standing realized unchanged The determining follow changes commonly day.

insurance QX timing realization differences IXM that be $X.XX. under are year. The almost as twice both of their depends taxes precise fee component to month average IXM MSR mortgage methods the remitted seasonality be cash custodial of from was day entirely to can $X.XX, and like flows. a return the $X.XX times borrowers collected also a the per share to that or payments. on per make weighted is attributed balances X income in of to service some decreased of the float certain once, which due Quarter-over-quarter, There's

certain fluctuate period-to-period, IXM takes and costs advances into interest Finally, on non-recoverable natural servicing variations. escrows. such also flow account as cash timing these from

Slide between the IXM cash earnings prior return but side wider of version the those not QX degradation does the albeit and our are with QX the a and flows. is return difference power realization As significant MSR a the XX, reflection outlook of the rather prospective of result, consistent reflect ranges portfolio, in quarter. of forward-looking

and this provide compared In losses and We IXM. to appendix X. analysts to be investors turn to comparison included the and few quarter. quarters, a excluding thought and comprehensive expenses be like GAAP this Slide would we comparison measures. non-GAAP realized would GAAP and things future to in unrealized a Please it non-recurring that EAD slide, gains highlight as income but will of and helpful

measures the are see in the actual expense you As with this exceptions. same and for a page, flows few all cash income three on minor

generally MSR and expense income, to ancillary, we the and you income what three. This same primary amortization The for price expenses. if measures differences example, the and from changes. the float funding RMBS look across is lines funding refer as servicing the expenses at true are in coupon are result also section, all For servicing

based market GAAP and return, EAD different RMBS MSR amortization. and for is is IXM and expected on value from which

For is cost amortized RMBS, amortization to EAD and maturity on yield based purchase. GAAP at and

reconcile For percentage the based beginning disclosure hope our on and EAD, on amortized and helps for value. original of We amortization pricing amortization MSR, the GAAP based this is multiplied the that non-GAAP paid measures. between is differences And market GAAP principal the yield. cost by

to for available X. Please the fourth $X.XX Slide quarter. share was distribution turn per to for Earnings compared $X.XX

from expect continue reminder, a expected EAD this quarter in income driven was As diverge expense. changes decline interest ongoing by we to The power. earnings to EAD primarily in and

by higher of size our increase the on on due lower million RMBS and repo reverse slower things: prepayment in borrowing on rates and rotation partly $XX.X increased four higher financing an interest expense RMBS, income holdings increased to $XX.X MSR offset yielding Likewise, million, borrowing portfolio, RMBS, by higher net on and cash rates primarily speeds. balances Interest higher to balances, by balances financing.

XX portfolio Turning invested higher X. CPR due rotation net Slide points to The assets. portfolio of and yield proportion a the increased basis to yielding higher to the to RMBS, agency lower higher in yielding X.XX%

Our basis in to to net from spread due narrowed the financing. higher by rates primarily points XX quarter X.XX%, on realized X.XX%

EAD this As calculations are a table measures. reminder, based not the and market portfolio yields in based

turn Please XX. Slide to

improved in February in bank spend RMBS talking Despite supported. following liquid remains repurchase end, crisis, what we seeing but Spreads news funding on financing agreement banking increased market year the a about in news the and while and the repo extreme in Let's volatility of the and repo moment and from failures. markets. March financing about for January the are

five-year billion financing At of of $XXX We to at points unused plus and MSR for $X.X far facilities basis notes. funding across diverse approximately outstanding $XXX quarter sources so under and with basis coming outstanding million spreads MSR borrowings in with finance maintained points XX MSR four bilateral end. access XX quarter, with signs million of lenders term at of on total asset a balance agreements capacity back MSR were financing the the sheet of The stress. we’re end no repurchase to MSR

to over Nick. I will now call turn the

as XX. Thank market. in demand for and like current in the our my on I'd spreads our Please to turn supply respectively with XXnd opening comments since Mary. low the OAS term to in long of you, beginning Slide last our and spreads backed coupon return mid-teens returns slides securities, wide minds focus shown unquestionably the few a mortgage attractive are primary shows [indiscernible] the levered in generating percentile is the forward. history XXnd Spreads dynamics which year. narrative of in and to the nominal potential

will period belief that and these this viewed entry be point. horizon, Despite longer a over strong signals a as positive time great a

potentially mortgage tempered term is already likely wider the keep averages, the to spreads than Our generous enthusiasm supply them by medium-term, and to is could levels. that over wider belief their long short than push

spreads of In beginning into fact, the widen have seen we this quarter.

to supply totaled $XXX us. the with billion. supply. has net the which from CMO for for FDIC sales, Valley Silicon lower positions commenced will the form million and organic of other and the and In XXXX, other projected which RMBS Fed Agency $XXX The approximately bulk addition persist these pay is up for auction months. supply of are $XX the in coupon, Bank ahead next Agency total likely projected bank downs, XXXX Inclusive RMBS net selling of of to effectively supply through million of for of of the Bank, discount, Sales Signature seeds asset deep six BlackRock

the environment accounts where managers, like group it investors to of This funds relative be selling, institutions. or premium than hedge will higher bulk banks an sidelines the on REITs depository demands money supply. either to a risk perhaps absorb the of In value are up and many typically

wider averages. As to is spreads such, it long than assume term will that remain reasonable

bars X between the is who the blue or of and Figure option spreads are GFCs, context buying is the selling. and banks, adjusted historical (ph). like provides who Fed, institutional relationship accounts some The

of value gray quarter. MBS the Bloomberg bars for adjusted the line are accounts by end as relative money index measured and at of year first spread REITs. XXXX of the managers and the at is While option the like, The the each end

stepped several the Then In we which could when the spreads sellers the and to from the for basis tightening tighter drove and XXXX buying, Fed are demand to, periods Conversely, spreads aren't tend XXXX most Fed back institutional of points XXXX, with what periods buying. to over in to relative point buyers accounts XX Bank period value levels. or be accounts periods in dominates, the recent to tightened. spreads but attractive institutional historically XXXX strong widen. that the experience to was into by which now bank and wider There

coupon up, still sum the strategy. we the excess of related of thick coupon have bank priced anticipation market base the reacted the our FDIC present The levels ahead. exposure lower these the dry to powder of our opportunities supply more as some trade valuation this spread attractive. to shift selling supportive remains present and mortgage supply the spreads end, said, more do coming To Post has down in quarter buyer be That moved of made and/or at and have the into increase of MBS exposure in themselves effects are in seen our already that plenty but whether it fully months. to of as have are is

quarter. billion, At to the turn portfolio end up $XX.X our our Slide the March first and from let's of billion Now fourth was the portfolio at XX discuss quarter. in $XX.X XX,

the perspective, slide, futures about opportunistically of and take of negative to of positioning can our we from leverage. to spreads risk our risk swap about bullet From top hedges points you few quarter. XX% On a swaps right deeply in treasury the moved the see a advantage

the uncertainty, low current interest across wide range are we Given exposures rate macroeconomic keeping and a of scenarios.

XX, see our on by in more the can looking risk at XX, appendix. detail XX and Slide XX You positioning

nominal maintaining times historically supply increased a available the slightly as dynamics market the the neutral Our we to high X.X discussed. debt-to-equity spreads that position were balancing just volatility ratio versus we wide demand and leverage in

UPB completed MSR that stated with settled purchase portfolio $XXX additional activity, at paired objective net in of $X of a common billion time, an our coupon for raise with we a of of capital $XX current through bulk In million. we terms stock In billion line proceeds February, TBA.

second committed additional have billion MSR the We quarter. $XX to to of acquire UPB an settle in

Given right this spreads, be widening the proved mortgage the capital to subsequent of one. allocation

the as some geo We X. loan bullets into prepayment In specified and specified we TBAs in of spread mitigate highlighted then fully future active capture coupon pools, into activity. moved moving believe in higher X were moved pools, $X TBA. risk. balance, and quarter, the X pickup we pools We credit (ph) positions and relative valued between TBA billion to and under portfolio which were

Finally, sharp after covered lower TBAs we short X of Fannie March. Mae coupons the of the position a underperformance in

X the their Moving by quarter, TBAs wind roughly related can the the coupon the pool predominantly pools sales. across given to unchanged X.X% pool XX, was about you of X.X, similar X. supply as lower also persistent supply. from X. coupon, in balance widening by concerns X see had figure see portfolio specified Current FDIC coupon pressures CPR, quarter our loan In remains magnitude primarily to and without line coupons. at quarter Slide by low felt pools end. speeds geo in in coupons positioned modestly X, coupon supply higher Mortgages stack you performance the a X. RMBS The point outperformed in driven can as higher figure belly X.X to and with Specified and specified prepayment declined mixed

Slide Please XX. turn to

businesses. MSR and in was market. This step as to the XX% comprised earnings their reasons selling large We billion companies have is risen, MSR the discussed same supply MSR to as at their quarter a MSR portfolio have MSR MSR. slowed intentions from originations announced March mortgage last call, rates increase saw our of occurring on are $X.X fund back ongoing holders Our we XX, several time the at for Agency the in of entirely

take we of purchases selling the market. bulk opportunistically four As added the previously in discussed, advantage

purchase. bulk of multiple price X.X to times, settled decreased the modestly Our incorporates which effect the

continued coming X.X% first providing CPR the quarter. MSR, tailwind and slow to in prepayments at for in a anticipated As our

share. of The show is to to projection of to XX% meant in that to hedged estimate of per with We XX% portfolio equity estimated portfolio this are market to to The outlook allocation about slide XX%. our return common to section The capital half our this and allocated on specific our common a XX%. remaining a returns focus lower of shown portfolio. turn the is return structure believe top of any the estimate table potential after slide. XX% portfolio available RMBS what our Slide table our MSR, return XX.X% before a XX, static in static static please is to leverage allocated and with with is hedged the half for returns return XX.X% capital estimate capital and market. the expenses, we is top Finally, between of to the applying With

After giving standing on per to we prospective and range common were believe of $X.XX. equity share convertible notes our stock, the the quarterly preferred $X.XX return falls potential static effect of XX.X% in XX.X% to that return static to a

Thank you now, take joining happy be any much today we for us very might and you will have. to questions

our you. first session. this question-and-answer question. we Thank at question and Please will Instructions] gentlemen, Ladies Doug comes conducting Harter with Credit [Operator be from time, Suisse. your Our state

Thanks bit kind exposure might how you'd increase Hoping at? wider be and kind your about and to little are good the given basis about thinking a time comments what you're side of you mortgage to want the factors be the are of that spreads talk looking when morning. towards could your

the question. Good much morning, Doug. Thanks for very

there just is Republic. tempers still out we on basis, resolution but the there certainly As so Nick even a prepared crisis ongoing enthusiasm, said attractive see there. his stuff that They spreads there's wide that First with our banking are out are levels, historical at in of the the much fundamental remarks

ceiling little sign to it's a up bunch So of resolved have stuff going and and course, there's how the that to there not that, giving all of be there's in we coming this the a seems clear how lot we're to wait see and bit unfolds. month some so uncertainty market like, whole of stuff debt a that

GSEs here. or not with as at stay the that these said than there time spreads think banks with out. likely it's that the said I with, quite As Nick can and out We more levels some for is, with

of sort outlook suits that what for that's so think And looking we're us that's fine. our we and and

further uncertainty, kind those that's market. widening of of that versus characterize given how how guess, of priced the kind just I would much you guess risk the are risks I into for

Hey, Doug. This is Nick. question. Yeah, very good

not now very, high as comments these to Something supportive with very on that it our and grapple we right see spreads are generate day-out we though, when and It's of day-in of said income. strategy where days. level as you our return in is the return honestly potential

all So, us. increase ahead as we Bill said, leverage are I -- don't feel pressed don't the given to uncertainties exposure or of

I have said my we And quarter technical’s that's in some and the same have direction. not spreads moved end amidst as seen comments, widen that in since

volatility to concerns longer-term the then example, had much we those fairly sideways. March with the has correlation given seen between environment. a and, (ph) of For the pretty Prior but flat spreads in things. in out think We moved strong kind widen volatility event supply have a banks since

things it's a So we're watching but it. very where We'll right now. go, see predict to hard thing

Okay. Thank you.

next Our RBC your Please Capital Markets. with Kenneth from comes question. state question Lee

Good morning. taking Thanks question. for my

just get Just the could returns terms I be volatility wondering could static key just one there? volatility that you bit static of term near more thoughts Thanks. in drivers around of that of returns and potential over sort that drive could the what little the the think some on if a there prospectively,

you great, of results see, assumption our if to That's question. our our quarter can Ken. And of this you as the compare compared -- versus Hi, last. range range --

volatility have just of in level seeing that see a spread big is the of actually can in market, we're a You reflective and course, market we time, analysis we range the right. it is wider this go the assumptions and into of and a that the that component last did

like part underlying $X.XX wide see to big in this a these but a assumptions into wider we're return are $X.XX of the So we the assumptions a volatile, a these levels mortgage are that that it range numbers, would the range numbers. are and levered prepayments of extent in this does giving account quarter funding all to variation incorporate that you and could takes more going expect spreads as obviously to that variation have it, a part that it, drive wider feel a of all things we those you're

And Got to but wanted What then think one hedging sensitivity get about what's just higher current to the for? value kind strategy? of helpful positioning hedging in the changes there you. Thanks. there. were scenarios the strategy, level, to a your just way rates, some Very on you yourself are best book

We're be really balanced now. to right trying very

We curve of – be trying to agnostic shape. with or are not we to rates are pretty regard direction

effects Just that a given all bit are in banking is we variabilities the the think as work probably market judge. -- crisis it that a to much I right actually are of and think very now will do the, in than to Fed to for the all I the economy path, the was more things of bank the had the crisis March going how very, right little now, are do and that's ahead hard what predictable

neutral trying we're curve. the across to stay pretty So

in curve our at the you as they exposures said, we're are view across to or a trying various curve balanced other. take in, and on strong one way if I think scenarios, pretty the look I not

Thanks Gotcha. helpful. again. Very

Thank you.

Thank you.

comes KBW. your question next George Our from with state Please question. Bose

Good return hedged percentage increases? just Slide MSR increases, go your that as that prospective does XX, guys. just sticking to range to morning. Actually on MSR the Hey of allocation up as

the Yeah. for thanks -- from just think I Bose. Good morning. Well, question, Yeah.

the given now the the that. I return right MSR higher if than that the top would from the you RMBS that estimates of the MSR at fact the static Slide than to that percentage increase is more did we think higher for results, that look XX, the

MSR And how that high year? percentage, the go percentage potentially hedged could this

We mind, show here it see go we opportunities things, as than here, we Well, unlikely higher it XXX%. such a market think balance RMBS. in depends and see we a even RMBS set don't RMBS but have value higher, and aside as from there's do to value potential some it on you're can in a so do having it return be and portfolio being, static number

book to value. just an you just book actually us And Okay. Can about wanted on give Great. switching, value then quarter-to-date? update ask

Yeah.

You bet, Bose.

Q&A So as been as here Nick his of month during well They've April. as wider been have the volatile. said the comments in in spreads

were First about as XX, the between in FDIC X%. but down X%, For through week been pretty, the with Republic and of rocky here last month the month first down the rolling Friday, pretty noise of we we the and half spreads X% have sales of were and

Great. update. Thanks for Okay. the

Thank you.

Trevor comes Cranston JMP next question your Our Securities. Please state question. with from

on have float quarter. Hey. you of was the couple do about guess. things there question average custodial Thanks. you the first guys The the funds income, in presentation, talked one, earlier I balance of the in a Number And could, any of wondering the if of was impact seasonal wondering Mary also, for on was I if first about you estimated Thanks. float the talked numbers you seasonal provide impact I income. payments tax the could around sort quarter?

what good those can circle numbers we balances have morning. handy the average So, thank that. back We to as and for the question on don't you

how faster the shape and haven't for, and be in it. states slower between need hold long when summer, some that prepayments natural winter seasonality than were you some states grab question, between and states. if that seasonality were detailed a you not to the states the states so like annually, simple forth escrows in onto be the provides things done and some don’t, more complex that, semi-annually, In that some are And it's the remitted require seasonality monthly and so can to as require so it remittances do it's that's a it terms exist mentioned some interest of very balances Mary among (ph), to dried a we

Got Thank Okay. it. you.

Yeah. Thank you.

Our your next question. question comes from Arren Citi. Cyganovich Please state with

Thanks.

guess likely of earlier spreads it are the question What spreads. Would kind would about on back following when generally up enter they folks slower for potentially of kind and I Just get. tighten. we and wanting to growth have to more rates into demand a kind and that lead Doug's assets. recession of bring to to lower tighter overall could be, scenarios RMBS see would to

curve you that mortgage lack and for a little period with those averages a bit to for given different in what steeper drivers portfolios was mean lower comments that duration on Arren. elements that's In and really are bank Yeah. we're drive Very belief mean historically volatility bank spreads response and then the the and long yield tighter. time. community then this portfolios spreads from buying wider traditional for interesting potentially focus that generally term this, long past, the market of in the been seen. had to that than question. Hey, a of right our now than and the tighter are what's going I banking the Look Thank spreads rally. speaking, in see bank driving we've we're of

to from answer Fed market. spreads path and nature in movement of with which without some should get buying but on the rates, that's time higher especially inorganic in of coupon are just your we the us little predictability the dual numbers, not both large, and current usual, of -- then, but coupon as slug the that the like tighter But supply production front this of enough here think a and the mortgage lower I banks bit drive the coming of the large the question, into passage of as the – think overwhelmingly effect big market, of supply I more is through of that

one retail would flow we amount that's the supportive were been I earlier the and has has flowing in and has channel. fixed that what money very year that all in income of been mortgage spreads the through come mortgage What that's held optimistic say and of fixed into about reasons is, manager spreads income mortgages just the of

coming supply money ways the much can market. the into community of is the that's the how many So, spreads state absorb here and of in with management they sitting

And of and path guide kind as tightening guide tighter the Fed you instead that inverted away to likely provide be a, of, that lead on do lower curve. you of path a get think of loosening does with rates. this kind yield whenever Okay. from pivot enough to Would kind to them spreads short-term

prices an some potentially and is acceleration turnaround kind that that if rates could of would that's set There to point bit BlackRock. it I agree I were scenario. think mean, which see I with sensitivity positive (ph) temper be overall, should little might Fed the from the and it levels and in mortgage coming up, But thing that mortgage market that one agree predictability, helpful. an a cause that I and we more alley would your of those is be market, sale with interesting FDIC and those if a The that go these sales is through assertion potentially sales performance been spreads. -- should the for

non-GAAP is, of one earnings, like you of kind listed understand have dividend I of last my and IXM X, then And these setting Slide which the policy. GAAP the various question is your the kind little more with is go to and illustrative power Mike relative -- your you're to potential struggling earnings trying earnings dividend figure of can we're but be, bit where and what actual out that power earnings we're producing? the fully

is This Arren. Hi, Mary.

most XX, we is significant So and that consider is I to and probably obviously potential set dividend. we think in factor is point the Slide several where measures we what would where return the that you determining think I

that to going are going I you have terms to to distribution. mean you end versus or are this be returning relative actual be like earnings But a of you if in did the you quarter, you capital relative actual up produce earnings like that quarter

of different of characterization point measures, dividend the depends these I information the but of which than the and to potential you believe on Page X, reflective all think again on flow dividend income, While I cash is the the we return the is portfolio. would taxable

Okay. Thank you.

question next Eric comes with Hagen state from question. your Please Our BTIG.

all Hope morning. going Good well. Thanks. is Hey.

I from much how you the How stock your you that does drive you current comfortable with term of that do you're running, like, and near longer where think on at could trade leverage and a your do when scenarios the can think you risk more valuation one amount me, trade and basis. think about valuation higher leverage? what higher could valuation you think maybe you it take just

existing of high that say our morning. we Good stock input Eric. risk really to -- the we performance have I not really always think and having question. is. of the trying is would with for run thanks assets a We're the that's those question. and That risk value the an into any on we're price decisions making rather so the existing are returns so way. price acceptable don't your leverage portfolio quality returns the trying the level and to existing at two stock based what looking link of that question, Well, answers amount book We're in that the an than

helpful. Okay. Thanks. That's

And JP Thank question. next Please question your our you. Morgan. with Rick from state Shane comes

I swaptions. which swaps Nick. questions interest the and and good morning. Hey, Slide everybody, rate on XX, have is some Thanks,

think like bit You netting me had help I again, you looks there much strategy on more trades, than the slide. but your but the going talked can lot I little going hedging It on a what's there's understand. something sophisticated comments, understand during about a of

just net understand the and you rate out? If interest help both swaps notional to swaptions can largely the us because the seem

you Hey. Yeah. for that Thank doing? you How question. are

that actually a it's you you think don't inferring as may I complicated may, slide. as from So be

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