Q1 2024 Invesco Mortgage Capital Inc Earnings Call

Welcome to in VESCO mortgage capital incorporated first quarter of 2024 Investor Conference call. All participants will be in a listen only mode until the question and answer session at that time to ask a question press. The star followed by one on your telephone as a reminder, this call is being recorded.

Operator: Welcome to Invesco Mortgage Capital Incorporated's first quarter 2024 investor conference call. All participants will be in a listen-only mode until the question and answer session. At that time, to ask a question, press the star followed by one on your telephone. As a reminder, this call is being recorded. Now, I would like to turn the call over to Greg Seals in Investor Relations. Mr. Seals, you may begin.

Operator: Now I would like to turn the call over to Greg Seals, and Investor Relations Mister Seals, you may begin.

Greg Seals: Thanks, Operator, and to all of you joining us on Invesco Mortgage Capital's quarterly earnings call.

Greg Seals: Thanks, operator, and so all of you joining us I'd invest for a mortgage capitals quarterly earnings call. In addition to today's press release, we have provided a presentation that covers the topics. We plan to address today. The press release and presentation are available on our website invesco mortgage capital Dot com.

Greg Seals: Quarterly Earnings Call. In addition to today's press release, we have

Greg Seals: today. The press release and presentation are available on our website, InvescoMortgageCapital.com. This information can be found by going to the investor relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slide two of the presentation regarding these statements and measures as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. Again, welcome and thank you for joining us today. I'll now turn the call over to Joe.

Joe: This information can be found by going to the Investor Relations section of the website. Our presentation. Today. It will include forward looking statements the certain non-GAAP financial measures.

Joe: Please review the disclosures on slide two of the presentation regarding the state pension ventures, as well as the appendix to the appropriate reconciliations to tap.

Joe: Finally, invesco mortgage capitalist five responsible for and does not added nor guarantee the accuracy of our earnings teleconference. Transcript provided by third parties. The older. You authorized webcast are located on our website again welcome and thank you for joining US today I'll know I'll turn the call over to John Angela Alright.

Greg Seals: over to John Anzalone. All right.

John M. Anzalone: Well, good morning, and welcome to Invesco Mortgage Capital's first quarter earnings call. I'll provide some brief comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss our portfolio in more detail. Also joining us on the call this morning are our President, Kevin Collins, our CFO, Lee Begley, and our COO, Dave Lyle. The first quarter was characterized by sharply higher interest rates across the yield curve, as persistent inflation and strong economic data led to a repricing of the market's expectations of future monetary policy.

John M. Anzalone: Alright, well good morning, and welcome to Invesco mortgage capital first quarter earnings call I will provide some brief comments before turning the call over to our Chief investment Officer, Brian and discuss our portfolio in more detail also joining us on the call. This morning, our president Kevin Collins R. CFO, the begley and our C O O day while.

John M. Anzalone: These expectations, as reflected in the federal funds futures market, adjusted from projecting over six cuts in the Federal Reserve's benchmark interest rate during the balance of 2024 to less than two cuts today. Despite the sharp increase in interest rates, interest rate volatility fell as market expectations for monetary policy converged with official projections by the FOMC. In addition, organic mortgage supply remains at very low levels while demand from money managers, commercial banks, and overseas investors broadly outpaces expectations.

John M. Anzalone: Against this backdrop, higher coupon agency mortgages outperformed treasuries given the decline in interest rate volatility and improvement in supply and demand dynamics in the quarter. These factors led to a positive economic return of 4.8% for the quarter, consisting of an 8 tenths of a percent increase in our book value combined with a 40 cents a share common stock dividend. Our debt-to-equity ratio ended the quarter at 5.6 times, down modestly from 5.7 at year-end.

John M. Anzalone: The first quarter was characterized by sharply higher interest rates across the yield curve as persistent inflation and strong economic data led to a repricing of the mortgage expectations of future monetary policy.

John M. Anzalone: These expectations as reflected in the federal funds futures market adjusted from projecting over six cuts in the federal reserve's benchmark rate during the balance of 2024. So that's.

John M. Anzalone: And two types of today.

John M. Anzalone: Despite the sharp increase your interest rates interest rate volatility L as market expectations for monetary policy converge with official projections by the <unk>.

John M. Anzalone: In addition, organic mortgage supply remains at very low levels, while demand for money managers commercial banks and overseas investors broadly outpaced expectations.

John M. Anzalone: Against this backdrop higher coupon agency mortgages outperformed treasuries given the decline in interest rate volatility an improvement in supply and dynamic and supply and demand dynamics and a quarter.

John M. Anzalone: These factors wait to a positive economic return of 4.8% for the quarter consisting of an eight.

John M. Anzalone: Eight tenths of a percent increase in our book value combined with a 40 cent common stock dividend.

John M. Anzalone: Our debt to equity ratio. It ended the quarter at five six times down modestly from five seven as of year end.

John M. Anzalone: It didn't even quarter, 94% of our 5 billion dollar investment portfolio is invested in the agency mortgages.

John M. Anzalone: At the end of the quarter, 94% of our $5 billion investment portfolio was invested in agency mortgages, and 5% invested in agency CMBS with the balancing credit assets. Our liquidity position remains strong as we've maintained a sizable balance of unrestricted cash and unencumbered investments totaling $451 million at quarter end. We began to build an allocation to agency CNDS during the quarter, and we believe this position will benefit the portfolio in a number of ways, most notably by providing stable cash flows with minimal risk, attractive returns, and favorable funding.

John M. Anzalone: 5% invested in ACC MBS with your balance sheet credit assets.

John M. Anzalone: Liquidity position remains strong as we've maintained a sizeable balance of unrestricted cash and unencumbered investments totaling $451 million at quarter end.

John M. Anzalone: We began to build an allocation to agencies C. M. D. S. During the quarter. We believe this position will benefit the portfolio and a number of ways, most notably by providing stable cash flows with minimal prepayment risk attractive returns and favorable funding.

John M. Anzalone: During the quarter agencies C. MBS spreads tightened his new issuance volumes remains relatively low funding improved and higher yields drove an investor demand for fixed rate bonds.

John M. Anzalone: During the quarter, agency CNDS spreads tightened as new issuance volumes remain relatively low, funding improved with higher yields driving investor demand for fixed-rate bonds. Earnings available for distribution was supported by attractive interest income on our target assets, favorable funding, and low-cost pay-fix swaps. For the quarter, EAD per common share was $0.86, down from $0.95 last quarter, primarily due to adjustments to our hedge portfolio that's still comfortably above our $0.40 dividend.

John M. Anzalone: Earnings available for distribution was supported by attracted interest income on our target assets favorable funding and low cost pay six swaps.

John M. Anzalone: For the quarter deep for common share was 86 cents down from 95 last quarter, primarily due to adjustments to our hedge portfolio is still comfortably above our 40 cent dividend.

John M. Anzalone: In terms of higher inflation readings combined with positive economic growth has continued into the second quarter.

John M. Anzalone: The trends of higher inflation readings combined with positive economic growth have continued into the second quarter. Interest rates have continued to move higher as expectations of the timing and magnitude of rate cuts adjust. This has led to an increase in interest rate volatility and has put pressure on mortgage valuation. To that end, as of May 3rd, our book value is down approximately 2.5%.

John M. Anzalone: To reach and continues to move higher expectations of the timing and magnitude of rate cuts adjust.

John M. Anzalone: It's as much of an increase in interest rate volatility in his blood pressure on mortgage evaluations.

John M. Anzalone: To that end as of May 3rd or book five is down approximately 2.5%.

John M. Anzalone: Given to increase their market volatility <unk> Porter and we remain cautious on the near near term outlook for the agency mortgage sector.

John M. Anzalone: Given the increase in market volatility in receipts at this quarter's end, we remain cautious on the near-term outlook for the agency mortgage sector. Our recent allocation to fixed-rate agency CMBS reduces our exposure to near-term interest rate volatility while providing attractive returns with favorable funding. Over the longer term, however, the potential normalization of monetary policy and a steeper yield curve should be supportive of agency mortgages. We believe agency mortgage investors stand to benefit from attractive valuations, favorable funding, and robust liquidity as their macro environment evolves. I'll stop here, and Brian will go through the portfolio.

John M. Anzalone: Recent application to fixed rate ACC mbas reduces our exposure to near term interest rate volatility, while providing attractive returns with favorable funding.

John M. Anzalone: Over the longer term however, the potential normalization of monetary policy and a senior Yorker she'd be supportive of agency mortgages.

John M. Anzalone: We believe agency mortgage investors stand to benefit from attractive valuations favorable funding and robust liquidity is the macro environment involves.

John M. Anzalone: I'll stop here and Brian was going through the portfolio.

Brian P. Norris: Thanks, John, and good morning to everyone listening to the call. I'll begin with slide four, which provides an overview of the interest rate and agency mortgage markets since the beginning of last year. As shown on the chart in the upper left, U.S. Treasury yields increased across the yield curve in largely parallel fashion during the first quarter. Yields on maturities from two years to 30 years rose between 25 and 40 basis points, given a pause in the disinflationary trend in the U.S. amidst resilient economic growth.

Brian: Thanks, John and good morning to everyone listening to the call I'll begin on slides for which provides an overview of the interest rates and agency mortgage markets since the beginning of last year.

Brian P. Norris: As shown on the chart in the upper left U S. Treasury yields increased across the yield curve largely in parallel fashion during the first quarter yields on maturities from two years to 30 years rose between 25, and 40 basis points, given a pause and a disinflationary trend in the US is resilient economic growth.

Brian P. Norris: The chart on the bottom left details pricing in the Fed Funds futures market over the past year. At the end of the first quarter, market pricing reflected expectations for just three 25-basis point cuts in the target rate in 2024, after beginning the year pricing at more than six. Since the end of the first quarter, this has declined to less than two cuts in 2024 as first quarter inflation data remained elevated.

Brian P. Norris: On the bottom left details pricing and the fed funds futures market over the past year at the end of the first quarter market pricing reflected expectations for just 325 basis point cut some the target rate in 2024 after beginning the your pricing at more than six.

Brian P. Norris: Since the end of the first quarter.

Brian P. Norris: Declined to less than two cuts in 2024 first quarter inflation data remained elevated.

Brian P. Norris: Given the Fed's dot plots indicate 2-3 cuts this year, the market has moved from pricing in more accommodation than the Fed's projections to largely being in line, leading to a decline in interest rate volatility despite the increase in interest rates. The decline in interest rate volatility, combined with the increase in interest rates, provided a supportive backdrop for higher coupon agency mortgages. While a runoff of the Federal Reserve's holdings of agency mortgages continues to increase net supply to the market, domestic bank holdings of agency NBS have also increased, supporting the supply and demand dynamics of the sector.

Brian P. Norris: Given the fed's dot plots indicate two to three cuts. This year. The market has moved from pricing and more accommodation in defense projections to largely being in line.

Brian P. Norris: Leading to a decline in interest rate volatility despite the increase in interest rates the.

Brian P. Norris: The decline in interest rate volatility combined with the increase in interest rates provided us supportive backdrop for higher coupon agency mortgages.

Brian P. Norris: All run out of the Federal Reserve Holdings of agency mortgages continues to increase net supplies of the market domestic bank holding for the agency in the us.

Brian P. Norris: Also increased.

Brian P. Norris: According to supply and demand dynamics of the sector.

Brian P. Norris: Slide five provides more detail on the agency mortgage market in the Upper left chart shows 30 year current coupon performance versus you best treasuries over the past 12 months, highlighting the first quarter and gray.

Brian P. Norris: Slide five provides more detail on the agency mortgage market. In the upper left chart, we show 30-year current coupon performance versus U.S. Treasuries over the past 12 months, highlighting the first quarter in gray. Despite underperformance to start the quarter, production coupon agency mortgage valuations rebounded in March as interest rate volatility declined. Ultimately, higher production coupons modestly outperformed Treasuries during the quarter, with nominal spreads relatively unchanged. Specified pool payoffs were largely unchanged during the quarter as well, as illustrated in the chart on the top right.

Brian P. Norris: Spite underperformers to start the quarter production coupon agency mortgage valuations rebounded in March.

Brian P. Norris: Interest rate volatility to call. It ultimately higher production coupons modestly outperform treasuries during the quarter abdominal spreads relatively unchanged specify pool payouts were largely unchanged during the quarter as well as illustrated in the charge on the top right.

Brian P. Norris: Lastly, as shown in the lower right chart, the dollar-oil market for TBA securities remained unattractive as implied financing rates continued to exceed short-term funding. Slide 6 details our agency mortgage investments and summarizes investment portfolio changes during the quarter. Our agency R&BS portfolio decreased by 6% quarter over quarter, given a modest rotation into agency CMBS through a combination of sales and paydowns during the quarter. We remain focused on more attractively priced higher coupons, which benefit from a decline in interest rate volatility and are largely insulated from direct exposure to assets held by commercial banks and on the Federal Reserve's balance sheet. In addition, we remain exclusively invested in specified pools, where funding remains more attractive than what is available in the dollar roll market for TPAs.

Brian P. Norris: Lastly, as shown in the lower right chart. The dollar all market for TBH Securities remained unattractive.

Brian P. Norris: <unk> financing rates continue to exceed short term funding.

Brian P. Norris: Slide six details are <unk> mortgage investments and summarizes investment portfolio changes during the quarter.

Brian P. Norris: Our agency Rmb's portfolio decreased by 6% quarter over quarter, given a modest rotation into HTC MBS through a combination of sales and paydowns during the quarter.

Brian P. Norris: Remained focused and more attractively priced higher coupons, which benefit from a decline in interest rate volatility and are largely insulated from direct exposure to assets held back commercial banks and on the federal reserve balance sheet.

Brian P. Norris: In addition, we remain exclusively invested in specify pools are funding remains more attractive than what is available in the market for TVA securities. We focused our specify pool allocation on prepayment characteristics that are expected to perform well in both premium and discount environments and modestly improved the quality of our specify pull holdings by <unk>.

Brian P. Norris: We focused our specified pool allocation on prepayment characteristics that are expected to perform well in both premium and discount environments and modestly improved the quality of our specified pool holdings by increasing our allocation to lower loan balances. Although we anticipate interest rate volatility to remain moderately elevated in the near-term, we believe current valuations on production coupon agency RMBS largely price in this risk and represent attractive investment opportunities.

Brian P. Norris: <unk>, our allocation to lower loan balance stories.

Brian P. Norris: Although we anticipate interest rate volatility to remain moderately elevated in the near term. We believe current valuations on production coupon agency rvs, largely price and this risk and represent attracted investment opportunities.

Brian P. Norris: Rose Aruiz, and the Mid to High Team. Slide 7 provides detail on our agency's CMVS purchases as well as an overview of the benefits of the sector. We purchased $264 million in the first quarter, which represents approximately 5% of our investment portfolio. We believe agency CMBS provides numerous benefits to the portfolio, primarily through its prepayment protection and bullet-like maturities, which reduces our sensitivity to interest rate volatility. Gross ROEs on new purchases were in the low double digits in the first quarter, but given the strong performance in the sector so far in the second quarter, that has declined to the high single digits.

Brian P. Norris: Gross roe's in the mid to high teens.

Brian P. Norris: <unk> seven provides detailed our agency <unk> purchases as well as an overview of the benefits of the sector.

Brian P. Norris: We purchased $264 million in the first quarter, which represents approximately 5% of our investment portfolio.

Brian P. Norris: We believe agency CBS provides numerous benefits for the portfolio, primarily through its prepayments protection and bold light maturities, which reduces our sensitivity to interest rate volatility.

Brian P. Norris: Most roe's on new purchases were in the low double digits in the first quarter.

Brian P. Norris: Strong performance on the sector, so far in the second quarter <unk> declined to the high single digits.

Brian P. Norris: Funding has been robust, as we have been able to finance our purchases with numerous counterparties at attractive funding levels. We will continue to monitor the sector for opportunities to increase our allocation as they become available, recognizing the overall benefits to the portfolio as the sector diversifies risks associated with an agency or RMDS portfolio. Our agency's CMO allocation is detailed alongside our remaining credit investments on slide 8. Our allocation to both agency interest-only and credit securities remains largely unchanged. $75 million allocated to agency I.O.

Brian P. Norris: Financing has been robust as we have been able to finance our purchases with numerous counterparties that attracted funding levels. We will continue to monitor sector for opportunities to increase our allocation as they become available to recognizing the overall benefits to the portfolio as a sector diversified risks associated with an agent orange portfolio.

Brian P. Norris: Our agency CMO allocation of this detailed alongside our remaining credit investments on slide eight.

Brian P. Norris: Our allocation to both agency interest only and credit Securities remained largely unchanged $75 million allocated the agency I have an $18 million allocated to credit at quarter end.

Brian P. Norris: and $18 million allocated to credit at quarter end. Although we anticipate limited near-term price appreciation in these investments. We believe they provide attractive yields for unlevered holding, returns in the high single-ditch. Slide 9 details our funding and hedge book at quarter end. Repurchase agreements collateralized by agency MBS declined modestly from $4.5 billion to $4.4 billion, while our net notional pay fixed interest rate swaps increased from $4.1 billion to $4.3 billion, as the ratio of our hedges to borrowings increased to 97% from 91% last. We continue to maintain a high hedge ratio as monetary policy remains.

Brian P. Norris: Although we anticipate limited near term price appreciation and these investments we believe they provide attracted yields for Unlevered holdings with returns in the high single digits.

Brian P. Norris: Slide nine details are funding and hedge book a quarter at Reaper.

Brian P. Norris: Repurchase agreements collateralized by agency MBS declined modestly from $4 5 billion to four 4 billion Barnett notion of basic interest rate swaps increased from $4.1 billion $4 $3 billion as the ratio of our hedges borrowings increased to 97% from 91% last.

Brian P. Norris: <unk>.

Brian P. Norris: We continue to maintain a high hedge ratio is monetary policy remains restrictive.

Brian P. Norris: The increase in interest rates led to further repositioning of the hedge book as the interest rate sensitivity of our assets increased, warranting a similar increase in the weighted average maturity of our interest rate swap as. Reflecting this change, the weighted average maturity of our hedges increased from 6.6 years at the end of 2023 to 7.2 years, resulting in a modest increase in the weighted average coupon on our paycheck swaps, negatively impact However, we retained much of the benefit of our low-cost pay-fix swaps with an attractive, weighted average coupon on our hedge portfolio of 1.17%. Leverage ended the quarter at 5.6 times debt-to-equity, down from 5.7 times at the end of December, given the modest improvement in book value.

Brian P. Norris: The increase in interest rates slides further repositioning of the hedge book at the interest rates sensitivity of our assets increased warranting a similar increase in the weighted average maturity of our interest rate swap houses.

Brian P. Norris: Collecting this change the weighted average maturity of our hedges increased from $6 six years at the end of 2023 to seven two years, resulting in a modest increase in the weighted average coupon on our paychecks swaps negatively impacting earnings available for distribution.

Brian P. Norris: The Tivoli, we retained much of the benefit of our low cost paycheck swaps.

Brian P. Norris: Attractive weighted average coupon on our hedge portfolio of 1.7%.

Brian P. Norris: Leverage ended the quarter at five six times debt to equity down from 5.7 times at the end of December given the modest improvement in book value.

Brian P. Norris: <unk> 10 provides further detailed or acid yielded funding costs <unk>.

Brian P. Norris: Slide 10 provides further detail on our asset yields and funding costs. Interest rates on our repurchase agreements were largely unchanged at 5.5% at quarter end, and yields on our agency RMBS portfolio increased modestly to 5.4%, while the pay rate on our interest rate swaps increased from 1.1 to 1.17. Overall, our effective interest rate margin declined, but remains very attractive at just over 4%, highlighting the benefit of our remaining legacy swap portfolio.

Brian P. Norris: Interest rates on a repurchase agreements largely unchanged five 5% at quarter end and yields on our agency Rmb's portfolio increased modestly to five 4%, while the pay rate on our interest rate swaps increased from 1.1% to 1.17%.

Brian P. Norris: Overall are affected the interest rate margins declined but remains very attractive just over 4% highlighting the benefit of our remaining <unk> spot portfolio.

Brian P. Norris: To conclude our prepared remarks, we continue to believe IVR is well-positioned to navigate future mortgage market volatility and selectively capitalize on historically attractive agency RMBF spreads, which provide a supportive backdrop for long-term investment. Additionally, our recent allocation to agency CMBS mitigates our exposure to further bouts of heightened interest rate volatility, such as what was experienced in April of this year. Our remaining agency mortgage holdings should benefit from a potential normalization of the yield curve, interest rate volatility, and agency mortgage valuation.

Brian P. Norris: To conclude our prepared remarks, we continue to believe Ivy are as well positioned to navigate future mortgage market volatility and selectively capitalized on historically attractive agency Rps spreads, which provide a supportive backdrop for long term investments are.

Brian P. Norris: A recent application to agencies C. MBS mitigates our exposure to further bouts of heightened interest rate volatility such as what was experienced in April of this year.

Brian P. Norris: The remaining agency mortgage holding should benefit from a potential normalization of the yield curve interest rate volatility and agency mortgage calculations.

Brian P. Norris: Further, our liquidity position remains robust and provides more than adequate cushion for further stresses in the market while also providing ample resources to deploy into our target assets as the investment environment demands. Thank you for your continued support for Invesco Mortgage Capital. Now, we will open the last. Thank you.

Brian P. Norris: Further our liquidity position remains robust and provide more than adequate cushion for further stresses in the market, while also providing ample resources to deploy into our target assets at the investment environment improves. Thank.

Brian P. Norris: Thank you for your continued support for his <unk>.

Speaker Change: Tesco mortgage capital and now we will open the lines for Q&A.

Speaker Change: Thank you we will not be getting a question and answer session. If you'd like to ask a question. Please press star one again that is star one if you would like to ask a question and start to if you would like to withdraw your question. Our first question comes from Jason River with Jones trading your line is open.

Operator: Thank you. We will now begin our question and answer session. If you'd like to ask a question, please press star 1. Again, that is star 1 if you would like to ask a question and star 2 if you would like to withdraw your question.

Operator: Our first question will come from Jason Weaver with Jones Trading. Your line is open. Jason, your line is open. You may need to unmute yourself. Our next question will come from Trevor Cranston with Citizens JMP. Your line is open.

Trevor John Cranston: Jason Your line is open you may need to I need yourself.

Operator: Our next question will come from Trevor Cranston, what citizens J M. P. Your line is open.

Trevor John Cranston: Alright. Thanks.

Trevor John Cranston: You know, on the new allocation to agency CMBS, looking at the spread tightening that's happened in that asset class over the last several months, would you look to be continuing to add that to the portfolio where spreads sit today? Or is that something where you'd like to see spreads widen out further before increasing the allocation further there? Thanks.

Operator: On the new allocation to agencies T M B S.

Trevor John Cranston: Looking at the spread tightening that's happened.

Trevor John Cranston: But not as a class over the last several months.

Trevor John Cranston: Would you would you look to be continuing to add that to the portfolio were spread so today or is that something where.

Trevor John Cranston: You would like to see spreads wiped out further before.

Trevor John Cranston: Increasingly location for bigger thanks.

Speaker Change: Church over our heads Brian, Yes, like I said spreads had tightened.

Brian P. Norris: Karen, Trevor, hey, it's Brian. Yeah, you know, like I said, spreads have tightened really throughout the first quarter and through April as well, to where ROEs are kind of in the high single digits at this point. So we've certainly slowed down our purchase activity at this point. You know, it continues to be a relative value play between the two sectors. And right now, we think agency RMBS is a little bit more attractive. So, you know, certainly there are benefits to the agency's CMBS portfolio and to our overall portfolio. But at this point, we think that

Brian P. Norris: Really throughout the first quarter rant and through April as well.

Brian P. Norris: <unk> got it in the high single digits at this point, so we certainly slowdown or purchase activity at this point.

Brian P. Norris: It continues to be a relative value play between between the two sectors.

Brian P. Norris: And right now we think agency RBS is a little bit more attractive. So certainly there are benefits to the agency Cvs portfolio.

Brian P. Norris: To our overall portfolio.

Brian P. Norris: At this point, we think that spreads there it's gotten pretty stuck here. So we've we've.

Operator: So we've slowed down. Okay, next up. Thank you.

Operator: Photo.

Speaker Change: Okay that makes sense. Thank you.

Operator: Thank you as a reminder, if you'd like to ask a question. Please press star one. Our next question comes from Eric Hagen with B T. I G. Your line is open.

Eric J. Hagen: Thank you. As a reminder, if you'd like to ask a question, please press star one. Our next question comes from Eric Hagen with BTIG. Your line is open.

Eric J. Hagen: Hey, thanks. Good morning. Hope you guys are well. Can you share any perspectives on the supply of prepaid protected specified pools in the higher coupons and how active you guys have been there? And then, you know, just kind of separately, we're talking about the higher coupon product in your portfolio just in general, but how much prepayment variability do you maybe see, like, developing within the coupon stack at different levels of interest rates? Thank you, guys.

Eric J. Hagen: Hey, Thanks, Good morning, I hope he goes well can you share any perspectives on the supply of prepaid prepay protected specified pools and the higher coupons and how active you guys have been there and then you know just kind of separately, we're talking about the higher coupon products in your portfolio just in general, but how much prepayment variability maybe see like developing within the coupon.

Eric J. Hagen: Jack.

Eric J. Hagen: Ah different levels of interest rates. Thank you guys.

Eric J. Hagen: Yeah, sure Hey, Eric It's Bryan Yeah, I mean I think.

Brian P. Norris: Yeah, sure. Hey Eric, it's Brian.

Brian: At our sides, assuming the supply of Spice I'll pull says.

Brian P. Norris: Yeah, I mean, I think, at our size, the supply of specific goals is certainly not prohibitive. But, I wouldn't necessarily say we've been active. You know, we haven't really been increasing the size of the portfolio, given where volatility is and, [inaudible] I guess, hesitant to increase leverage at these levels. So, you know, we're pretty, pretty pleased with the allocation that we have currently split between the various stories that you see in the presentation there. So I wouldn't say that we've been too active.

Brian P. Norris: Certainly not prohibitive.

Brian P. Norris: I wouldn't necessarily say we've been active.

Brian P. Norris: We haven't really.

Brian P. Norris: Really been increasing the size of the portfolio.

Brian P. Norris: Given given where volatility as in.

Brian P. Norris:

Brian P. Norris: And are so.

Brian P. Norris: I guess hesitant to increase leverage at this level so.

Brian P. Norris: We're pretty pretty pleased with the application that we have currently.

Brian P. Norris: But between the <unk>.

Brian P. Norris: Various stories that you see in the presentation there so.

Brian P. Norris: I wouldn't say that we've been too active and like I said, we were mostly in the first quarter reinvesting paydowns tend to the agency fee MBS.

Brian P. Norris: And like I said, we were mostly in the first quarter reinvesting paydowns into the agency's DMV allocation, so there haven't been any additional purchases there. As far as you know, variability of prepayments, you know, I think we've been hesitant, obviously, to add significantly higher coupons, six and a half and sevens. You know, those prepayments have been fairly well contained at this point, just given what we've seen in rates.

Brian P. Norris: Allocation, so there hasn't been any additional purchases there.

Brian P. Norris: As far as.

Brian P. Norris: Variability prepayments I think.

Brian P. Norris: We've been hesitant obviously to add.

Brian P. Norris: Higher coupons six of ads and sevens.

Brian P. Norris: Yeah.

Brian P. Norris: Those those prepayments have been fairly well contained at this point just given what we've seen in rates.

Brian P. Norris: But our our overall.

Brian P. Norris: But, you know, our overall belief is that, you know, the Fed will be cutting rates at some point, rates should be moving lower, and that those very high coupons could come under some pressure in that scenario. So we're pretty comfortable continuing to own kind of four,

Brian P. Norris: Belief is that.

Brian P. Norris: The fed will be at some point cutting rates rates should be moving lower and that those very high coupons.

Brian P. Norris: Come under some pressure in that scenario, so we're pretty comfortable continuing to kind of force through <unk> at this point.

Speaker Change: Okay, Great that's helpful.

Brian P. Norris: Yeah, okay, great. That's helpful. Hey, I mean, when you set the dividend and you see the yield in the stock kind of trading, you know, near the highest in the sector right now, I mean, how do you think the stock could trade at higher levels of leverage from here? I mean, do you feel like there's support for the dividend if the Fed leaves rates higher for longer and you need to... and maybe raise your leverage at some point?

Brian P. Norris: When you set the dividend yield.

Brian P. Norris: <unk> kind of trade in you know near the highest in the sector right now I mean, how do you think the stock could trade it higher levels of leverage from here I mean do you do you feel like there is support for the dividend if the fed leaves rates higher for longer than any of the.

Brian P. Norris: Maybe raise your level of it at some point.

Speaker Change: Yeah I think.

Brian P. Norris: Yeah, you know, I think, you know, it's mostly about interest rate risk for us. You know, I think, you know, we certainly have the capacity to add to leverage if we deem that it's, you know, if we're comfortable doing so. But at this, at this level, at the current dividend, we feel pretty comfortable with where we are, so we don't feel the need to.

Brian P. Norris: It's mostly about interest rate golf for us.

Brian P. Norris: I think we certainly have the capacity to add to leverage if we if we deem that it's you know if we're comfortable doing so.

Brian P. Norris: But at this at this level at the current dividend, we feel pretty comfortable with where we are so that we don't feel the need to we need to increase leverage.

Speaker Change: Okay. Thank.

Operator: Okay. Thank you, guys. Thank you. As another reminder, if you would like to ask a question, please press

Speaker Change: Thank you guys.

Speaker Change: Thank you.

Operator: As another reminder, if you would like to ask a question, please press star 1. Again, that's star 1 if you would like to ask a question. One moment, please. And at this time, we have no further questions.

Operator: As another reminder, if you would like to ask a question. Please press star one again, that's star one if you would like to ask a question one moment. Please.

Operator: And at this time, we have no further questions.

Speaker Change: Okay, well, thank you everybody for joining us and we look forward to meeting again next quarter.

John M. Anzalone: Okay, well, thank you everybody for joining us, and we look forward to meeting again next quarter.

John M. Anzalone: Thanks.

Speaker Change: Thank you that concludes today's conference. Thank you for participating you may disconnect at this time.

Operator: Thank you. That concludes today's conference. Thank you for participating. You may disconnect at this time.