Adamas Trust (ADAM) 2026年第三季度业绩电话会议：随着RMBS波动加剧，账面价值下降

核心要点

• Adamas Trust报告称，受利率上升及抵押贷款利差扩大拖累投资组合公允价值影响，2026年第三季度归属于普通股股东的GAAP净亏损为1.71亿美元，即每股亏损1.89美元。
• 本季度调整后每股账面价值下降19.6%至8.88美元。每股普通股GAAP账面价值为7.93美元；计入股息后，按调整后账面价值计算的经济回报率为-16.9%，按GAAP账面价值计算的经济回报率为-19.0%。
• 可供分配收益（EAD）保持在每股0.30美元，同比增长25%，与季度股息持平。这也是EAD连续第七个季度完全覆盖普通股股息。
• 该公司录得约4.72亿美元的投资组合未实现损失，主要来自机构RMBS和住宅贷款。其衍生品投资组合产生了约2.99亿美元的收益，抵消了部分降幅。
• 尽管市场出现波动，流动性状况依然有所增强。可用现金环比增长42%至2.59亿美元，而总超额流动性能力达到4.47亿美元。
• 管理层表示，随着利率波动趋缓以及公司平仓了大部分战术性TBA空头头寸，从季末到10月26日，调整后账面价值已回升约4%。

关键财务数据

业务与运营业绩

Adamas Trust在本季度投资了近16亿美元，其中包括12亿美元的机构资产和3.95亿美元的单户住宅信贷资产。在单户住宅信贷采购中，有3.35亿美元分配给BPL租赁资产。

机构RMBS投资组合产生3930万美元的调整后净利息收入，较第二季度增长7%。单户住宅信贷调整后净利息收入增长4%至2130万美元。然而，机构投资组合占调整后账面价值下降额的78%，其中大部分影响源于按市值计价损失。

管理层将机构策略多头头寸降幅的36%归因于凸性，32%归因于久期缺口。本季度，机构现券票息对国债的利差从107个基点扩大至125个基点。

为了限制利差和凸性损失的进一步扩大，Adamas建立了29亿美元的TBA空头头寸，约占季末总投资组合的23%和机构多头头寸的37%。该对冲为每股账面价值贡献了0.29美元。公司未出售其核心现货债券，其特定池余额从64亿美元增加至69亿美元。

信贷表现保持稳定。在BPL租赁业务中，60天逾期率下降10个基点至1.4%。随着公司继续有序缩减，BPL过桥贷款投资组合今年迄今缩减了46%，而多户住宅夹层投资在本季度的年化偿付率达到了55%。

Constructive发放了4.06亿美元的贷款，其中BPL租赁占总产量的84%。Adamas购买了其中57%的份额。Constructive录得1090万美元的抵押贷款银行收入，低于第二季度的1620万美元，独立亏损约170万美元。

管理层展望

管理层表示，目前机构RMBS和住宅信贷领域的投资机会有望提供15%至19%左右的潜在回报率，且无需依赖激进的杠杆或资产价格的快速复苏。公司预计机构资产将成为资本部署的初始渠道，因为随着TBA空头的平仓，风险敞口可以快速增加。

随着时间的推移，管理层预计资金分配将在机构策略和信贷策略之间变得更加平衡。由于较高的抵押贷款利率可能会限制第四季度的市场交易量，因此对BPL租赁资产的投入可能需要更长时间。

季末后，Adamas将其TBA空头头寸削减了约76%，截至10月26日从29亿美元降至6.8亿美元。它还将机构投资组合的久期缺口从季末的0.3年扩大至约0.6年。管理层表示，打算随着市场状况的发展动态调整TBA空头。

公司还预计，随着TBA空头的减少，杠杆率将回落至最近几个季度的水平。管理层强调，第三季度账面价值的下降并未影响财务契约或可用现金。

风险与关注领域

• 10年期美国国债收益率在第三季度上涨82个基点至约5.29%，而MOVE指数季末接近110。利率或波动率的进一步上升可能会再次对机构RMBS估值造成压力。
• 管理层表示，9月份抛售的若干推动因素仍未解决，包括伊朗冲突、高企的油价以及围绕中期选举的潜在波动。
• 负凸性和久期拉长是机构投资组合价值下降的主要原因。尽管管理层认为大多数拉长风险目前已在定价中得到体现，但与第三季度中期相比，其在运营中仍保持着更紧密的久期缺口。
• Constructive另外计提了260万美元的准备金，该准备金与Adamas收购该平台之前发放的贷款所涉及的独立历史借款人关系有关。相关收购赔偿保留金中仍留存约100万美元。
• Constructive的盈利能力对贷款发放量、锁定利率估值、持有待售贷款以及平台高效规模化的能力依然十分敏感。

分析师问答环节要点

分析师关注的焦点是TBA对冲的时间安排和平仓情况。管理层表示，大部分空头头寸是在9月份利率抛售和波动加剧后建立的。由于国债收益率趋缓、MOVE指数回落以及机构MBS的强制抛售似乎有所缓解，公司随后平掉了大部分头寸。

关于杠杆能力，管理层表示，机构追索权杠杆率从第二季度末的8.3倍降至第三季度末的5.9倍是有意为之。较高的现金余额和超额流动性为恢复机构敞口以及继续投资机构和信贷资产提供了空间。

关于10月份的BPL租赁证券化，管理层表示，融资成本增加的大部分反映了基准利率的上升。该交易的净融资利差为159个基点，管理层表示证券化市场仍然保持正常运转。

关于Constructive的回购准备金，管理层认为该问题仅针对特定的单个历史借款人关系，而非当前业务出现更广泛恶化的证据。公司表示已根据目前掌握的信息对该风险敞口计提了准备金。

业绩电话会议完整文字记录

完整财报电话会议逐字稿

管理层陈述

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Adamas Trust Third Quarter 2026 Results Conference Call. [Operator Instructions] This conference is being recorded on Thursday, October 29, 2026. I would now like to turn the call over to Kristi Mussallem, Investor Relations. Please go ahead.

Kristi Mussallem

Good morning, and welcome to the Third Quarter 2026 Earnings Call for Adamas Trust. A press release and supplemental financial presentation with Adamas Trust Third Quarter 2026 results was released yesterday. Both the press release and supplemental financial presentation are available on the company's website at www.adamasreit.com. Additionally, we are hosting a live webcast of today's call, which you can access in the Events and Presentations section of the company's website. At this time, management would like me to inform you that certain statements made during this conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although Adamas Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the Securities and Exchange Commission. Now at this time, I would like to introduce Jason Serrano, Chief Executive Officer. Jason, please go ahead.

Jason Serrano

Good morning. Thank you for joining our third quarter earnings call. Joining me today for comments is President, Nick Mah, and CFO, Kristine Nario. The third quarter, particularly September, was marked by a sharp increase in interest rate volatility and widening mortgage spreads, creating one of the most challenging environments for agency mortgages in years. I want to briefly discuss the factors driving this quarter's market volatility, the actions we took, and why we believe Adamas Trust is well positioned to capitalize on the opportunities this environment has created.

Economic growth was strong in the quarter with employment staying firm and significant AI infrastructure investment adding to demand. Elevated energy prices from prolonged Iran conflict pushed inflation data higher, quickly changing the expected path of monetary policy. In September, the Fed raised the federal funds rate by 25 basis points, its first increase since 2023. And by quarter end, markets were pricing several more hikes into 2027. Rates moved accordingly.

The 10-year Treasury rose 82 basis points in the quarter, more than half of that in September alone, and ended at approximately 5.29%, the first time the 10-year closed above 5% since 2007. Rate volatility rose sharply as well with the MOVE Index ending the quarter at approximately 110, with commensurate widening of agency spreads. Against this backdrop and given how our portfolio was positioned, our adjusted book value ended at $8.88 per share in the third quarter, a decline of 19.6%. These are significant mark-to-market declines we witnessed in the quarter, albeit largely on an unrealized basis.

The declines were primarily related to price reductions on our Agency RMBS holdings. Despite a period of acute rate volatility, we did not liquidate any of these core assets. We preserved the potential for unrealized losses to be recaptured as the market normalizes. Let me walk through our activities. We ended the third quarter positioned to earn attractive income. We adjusted as conditions changed, and I want to highlight four main points. First, our liquidity got stronger while preserving our portfolio growth. We ended the quarter with $259 million of available cash, up 42% from the second quarter. Total excess liquidity capacity increased to $447 million.

As it relates to financing, the agency repo market continues to function efficiently with strong counterparty engagement and multiple attractive financing options available to the company. We own today the same high-quality prepayment protected collateral at lower prices across our Agency RMBS holdings. Entering the fourth quarter with elevated liquidity, we are well positioned to recover book value and increase earnings. Second, we added new risk management positions to protect book value. As volatility built through September, we established a strategic $2.9 billion short TBA position, primarily in coupons where we saw higher sensitivity to duration extension with incremental rate increases.

We ended the quarter with company economic recourse leverage of 4.8x and agency recourse leverage of 5.9x, giving us room to add risk exposure. With significant volatility, establishing TBA shorts was by design as volatility intensified in the back half of September and through early October. With tail risk receding, we significantly reduced our TBA short position since quarter end, consistent with our intended approach to manage that exposure. Third, our EAD continued to cover our dividend. Earnings available for distribution was $0.30 per share, up 25% year-over-year and in line with our quarterly dividend, which increased 11% this quarter. This marks the seventh consecutive quarter in which EAD per share has equaled or exceeded our common dividend.

Fourth, the book value decline was a valuation event, not a result of distress in our credit book. Credit performance in our residential loan portfolio remains solid. In BPL rental, our largest sector of credit exposure, 60-day delinquencies declined 10 basis points to a low level of 1.4%. Throughout the year, we have been focused on maintaining higher credit quality across our investments, including our origination channels. We have avoided niche and challenged sectors. The positive performance is a direct result of this deliberate action.

However, in the agency sector, as volatility increased in September, we saw a strong feedback loop forming where high rate volatility pushed spreads wider, wider spreads reduced demand, and this reduced demand pushed spreads even wider. Through September, we continued to add liquid TBA shorts with high average negative convexity risk profiles to protect value against future spread widening of agency bonds. By quarter end, the TBA short overlay totaled $2.9 billion. The larger overlay was tactical for short-term protection.

As we look for the market to normalize, our commitment to the agency business and its earnings power is unchanged as we see the underlying pools continue to generate attractive cash flows quarter-over-quarter. Thus, our goal was to restore our agency exposure by removing the TBA shorts on our balance sheet as we saw the relationship between valuations, volatility, and prospective returns improve. As such, early in October, we closed out of most of the TBA shorts. We believe this is a disciplined and economically rational way to manage shareholder capital.

The actions we took during and after the quarter have already started to see some retracement of third quarter book value decline. So far in the fourth quarter, company adjusted book value is up approximately 4% as of Monday, October 26, showing early indications of the portfolio's ability to recapture the third quarter declines as the markets normalize. We see the outlook for Agency RMBS and our portfolio to be positive. September repricing has created one of the most attractive entry levels we have seen in recent quarters.

Most of the extension risk that drove our third quarter marks lower has already been reflected in current pricing, improving the stability of our agency cash flows. Also, higher rate environments improved the technical picture of the agency bond somewhat. As an example, mortgage applications in October were down approximately 21% year-to-date through the third quarter according to the MBA, pointing to lower new issuance and a better supply-demand balance for agency securities. Combined with today's discounted valuations, we see real potential for spread stabilization.

Turning to earnings. Despite significant market volatility, EAD was $0.30 per share, consistent with the prior quarter and equal to our recently increased dividend. Importantly, agency adjusted net interest income grew to $39.3 million, up 7%, and single-family credit adjusted net interest income grew to $21.3 million, up 4% from the second quarter. The company's strong EAD profile speaks to the strength of our earnings base. That brings me to what I believe is an important development for Adamas.

The repricing of mortgage assets has meaningfully improved our investment opportunity set. Our $1.20 per share annual dividend represents approximately 13.5% of our September 30 adjusted book value. We see compelling investments exceeding this level in our core strategies with mid- to high-teens returns in the market today. This is without relying on aggressive leverage assumptions or a rapid recovery in asset prices. The pace at which they contribute to earnings and book value growth will depend on our capital allocation decisions and risk limits.

But the improvement is significant, and the same volatility that pressured the value of existing investments has raised the return available on our investment pipeline. We have deliberately maintained a liquid portfolio and substantial excess liquidity for several quarters. So Adamas Trust has financial flexibility to take advantage of market dislocations like this to drive future earnings. With that, I'll turn the call over to Nick.

Nicholas Mah

Thanks, Jason. The majority of the book value decline came from the agency portfolio and the positioning decisions we made there over several quarters. Ultimately, September's price action was unfavorable to those positions with a severity that we did not anticipate. In July and August, we executed on our plan of growing recurring income through portfolio expansion. We invested almost $1.6 billion in the quarter, our most active acquisition quarter of the year. This was split between $1.2 billion in agencies and $395 million in single-family credit. The majority of the single-family credit purchases at $335 million, was in BPL rental.

Our agency positioning heading into September rested on 2 intentional choices. The first was the coupon mix of our portfolio, and the second was duration. On coupon, our spec pool portfolio had an average coupon of approximately 5.5%. The agency portfolio was primarily concentrated within the higher coupons of the stack, where carry and net interest margin were attractive relative to the higher convexity risk. We also sought to mitigate this exposure through the prepayment protection embedded in our pools.

Second, on duration. The agency book, which represented 62% of the investment portfolio at the beginning of the third quarter, carried a duration gap of approximately 1.4 years midway through the third quarter, positioned to benefit from a decline in rates. September was a turning point in the market. We saw the convergence of 3 factors over a short period of time: a sharp move higher in rates, a surge in volatility, and spread widening. Over the quarter, agency current coupon spreads to Treasuries widened from 107 basis points to 125 basis points, nearly 3/4 of it in September.

September was the Bloomberg U.S. MBS Index's worst month and worst quarter since September of 2022. The agency portfolio accounted for 78% of the decline in adjusted book value, nearly all of it mark-to-market. Drilling into the performance of our agency strategy long positions, we estimate that convexity was the largest contributor to the decline, accounting for 36%, followed by the duration gap at 32%, with the remainder attributable to spread and portfolio changes.

Rising rates amplified the impact of negative convexity in our pools, while interest rate hedges offset only part of the move. Our credit and macro hedges also provided less book value protection this quarter than before when they helped offset first quarter volatility. As we went through the quarter, we took 2 actions to limit the portfolio's exposure to tail outcomes. The first was to reduce the agency duration gap, which was brought down to 0.3 years by quarter end. The second was establishing a TBA short to address the risk of more drastic spread and convexity losses.

We gradually put on the TBA short position in the quarter as we believed agency spreads still had room to widen while rates remained volatile. The TBA shorts also helped reduce the duration gap and tempered the negative convexity in the portfolio. The position performed as intended, contributing a positive $0.29 per share to book value in the quarter. At quarter end, the TBA short at $2.9 billion was sized at approximately 23% of our gross investment portfolio and 37% of our agency long portfolio. With an average coupon of 6.09%, it was meant to protect the book in the event of a further rate sell-off by concentrating exposure to the higher coupon agencies with greater convexity risk.

The short position helped manage our exposure through the most severe phase of the market move, which allowed us to remain fully invested on the long side. The TBA short was also structured to be a flexible and liquid risk management tool to allow us to adjust our position quickly as market risks evolve. It is important to highlight again that we did not sell any cash bonds, which kept the book value decline predominantly as unrealized. In fact, our spec pool balance grew from $6.4 billion to $6.9 billion. Since quarter end, we have been equally deliberate with the TBA short position being reduced almost 76% to $680 million as of October 26.

We have also widened the duration gap of the agency portfolio to around 0.6 years since quarter end. As rate volatility eased and the 10-year started retracing from its highs, we covered the majority of the TBA short, increasing the risk exposure in the pools that we own. The portfolio we own today is the one that we want to own for a recovery, now carried at more attractive prices. In residential credit, pricing reflected higher rates, while credit fundamentals remained stable. Non-QM AAA spreads widened from 130 to 150 basis points. We see a benign housing market with low transaction volumes with virtually all outstanding borrowers being out of the money to refinance at mortgage rates above 7%.

Securitization markets stayed open through the bond selloff with year-to-date non-agency issuance reaching approximately $203 billion by the end of September and over $210 billion by late October, albeit at wider spreads and the structure shifting in investors' favor. In this market, we remain highly confident in our credit strategy, which continues to emphasize high-quality borrowers and collateral. This is supported by the strong performance we see across our assets.

In BPL bridge, we continue to manage the orderly runoff of the portfolio, which has declined 46% year-to-date, while delinquent loan balances have remained roughly unchanged. Our multifamily mezzanine portfolio performance has been stable, while payoffs continue to occur at an annualized rate of 55% in the quarter. Capital released through the runoff of these noncore strategies will be redeployed into what we see as an even more attractive risk-adjusted return in the current market environment.

Also, the investor demand for our securitization program of BPL rental is clear evidence that our focus on high-quality credit and prepayment protection is attractive to institutional investors. Constructive demonstrated the strength of its origination model in a challenging quarter. It originated $406 million of loans with 84% of those originations in BPL rental. Adamas purchased 57% of Constructive's production in the quarter, giving us a proprietary source of assets. Importantly, though, all of Constructive's third quarter originations were subject to investor purchase arrangements within only a few days of the borrower rate lock, a loan sale strategy designed to help limit interest rate and pricing risk.

When rates rose sharply in September, Constructive continued to distribute its production efficiently. Because Constructive has continued to lend at competitive pricing while still steadily moving up its coupons alongside prevailing mortgage rates, we believe Constructive is well positioned to capture additional market share in BPL rental. I will now pass it over to Kristine to discuss our financials.

Kristine Nario

Thank you, Nick, and good morning, everyone. Jason and Nick have already discussed the market environment and the actions we took during the quarter. So I'll focus on the key drivers behind our third quarter financial results. For the third quarter, we reported GAAP net loss attributable to common stockholders of $171 million or $1.89 per share, primarily reflecting the impact of higher interest rates and wider spreads on the fair value of our investment portfolio. Supported by our recurring earnings, our Board increased the quarterly dividend to $0.30 per share, marking the seventh consecutive quarter that EAD has covered our dividend.

Adjusted book value per share was $8.88 and GAAP book value per common share was $7.93 as of September 30. Including the dividend, we generated a negative 19% economic return on GAAP book value and a negative 16.9% economic return on adjusted book value. Despite the significant market movements during the quarter, our investments continued to generate recurring income with adjusted net interest income increasing to $51.5 million from $50.3 million in the prior quarter. This was primarily driven by continued expansion of our Agency RMBS and BPL rental portfolios, partially offset by the runoff of higher-yielding BPL bridge and multifamily investments and additional interest expense from our corporate debt issuance.

Net interest spread was 140 basis points compared to 148 basis points in the second quarter, reflecting the continued shift in the composition of our portfolio. While these portfolio changes have moderated our overall asset yields, the growth in average interest-earning assets has continued to support higher adjusted net interest income. From a mark-to-market perspective, we recognized approximately $472 million of unrealized losses on our investment portfolio, primarily from Agency RMBS and residential loans. Our derivative portfolio partially offset these losses, generating approximately $299 million of gains, including $306 million of unrealized gains, primarily from interest rate swaps and short treasury future positions that benefited from higher interest rates.

Turning to Constructive. Mortgage banking income was $10.9 million compared to $16.2 million in the prior quarter. Direct loan origination costs declined to $4.2 million and direct G&A declined to $8.8 million, resulting in a stand-alone entity loss of approximately $1.7 million. Results were primarily impacted by lower origination volumes and changes in the fair value of interest rate lock commitments and loans held for sale due to higher quarter end rates, as well as an increase in reserves amounting to $2.6 million associated with an isolated legacy borrower relationship involving loans originated before our acquisition of Constructive.

The impact of these additional reserves was partially offset by approximately $1.5 million of income released from the indemnification holdback established at acquisition. We continue to focus on financing and operating efficiencies we discussed last quarter, which we believe will improve profitability as the platform scales. Total consolidated G&A declined to $24.3 million from $25.6 million in the second quarter, primarily reflecting lower compensation-related accruals and lower commission and profit sharing expenses at Constructive.

From a financing perspective, we continue to diversify our funding sources and strengthen our liquidity position. During the quarter, we issued $90 million of 9.6% senior unsecured notes due 2031, a $341 million BPL rental securitization, and a $115 million non-agency RMBS securitization. Subsequent to quarter end, we completed another BPL rental securitization, bringing approximately 98% of our BPL rental portfolio into longer-term nonrecourse financing that is not subject to mark-to-market margin calls.

We also ended the quarter with a stronger liquidity position. Available cash increased to $259 million from $182 million in the prior quarter, while total excess liquidity capacity increased to $447 million, including financing available on unencumbered and underlevered assets. Company and portfolio economic recourse leverage ratio ended the quarter at 4.8x and 4.4x, respectively, reflecting the impact of our TBA positioning during the quarter. This reduction in leverage provided additional capacity to increase investments, which we have begun to do since quarter end.

On the capital markets front, we utilized a renewed ATM program, issuing approximately 429,000 common shares at an average price of $10.18 per share, generating $4.3 million in net proceeds. The issuance was accretive to GAAP book value per share at the time of issuance and represents progress in our objective of accessing common equity at accretive valuations. We believe GAAP book value provides the appropriate reference point for evaluating equity issuance as capital raised above that level increases both GAAP and adjusted book value on an aggregate dollar basis as the adjustments between the 2 measures are unaffected by capital raising.

We will continue to use the ATM selectively as an additional source of flexibility to support long-term earnings growth and disciplined capital deployment. Overall, despite the significant market volatility during the quarter, we maintained EAD of $0.30 per share, continued to grow interest-earning assets and adjusted net interest income, and strengthened our liquidity and financing position. We remain focused on managing our portfolio through the current market environment while positioning the company to take advantage of attractive investment opportunities over time. That concludes our prepared remarks. Operator, please open the line for questions.

Operator

[Operator Instructions] Your first question comes from the line of Bose George with KBW.

分析师问答

Francesco Labetti

This is Frank Labetti on for Bose. Helpful color on the book value decline in the prepared remarks, but I want to touch on maybe the timing on the decline. And can you quantify any decline happened before the TBA shorts were added? And then given that most of the shorts are now removed, how are you positioning the hedge book going forward to manage current rate and spread volatility?

Nicholas Mah

Sure. This is Nick. So third quarter was a volatile quarter. If you remember, there were periods of time in August. So July, there was somewhat of a sell-off. August, there was a little bit of reprieve. And then September was when a lot of things started moving. In terms of the timing of the TBA shorts, the majority of the TBA shorts were put on in the September time frame. However, through the third quarter, there was obviously rehedging of duration throughout that period of time. But we still -- as I mentioned earlier, we still maintain somewhat more of a duration gap going into September because we thought that a lot of the rate moves were going to be short-lived.

And surprisingly, a lot of technical forces also created what happened in September. Relating to the second part of your question, one of the reasons why we took off the TBA shorts is because we believe that the tail risk of outcomes in spread and convexity has significantly declined. We have seen the 10-year Treasuries moderate into this new trading range from the highs of 5.35%. Now we're trading around 5%. The MOVE Index showing volatility has also come down since quarter end, and forced selling by leveraged players in Agency MBS, which anecdotally has been more from the hedge fund community than REITs, have also dissipated since Q3.

The duration extensions are mostly behind us at this point, which should dampen pressure to sell or rehedge. And we're also on the supply side, also entering into a new phase of higher mortgage rates, which may keep originations low for the rest of the year. So several reasons why we took that off. However, we are still running a tighter duration gap than we were in the middle of Q3 for several reasons. There's been no real resolution to the Iran conflict. Oil is meaningfully higher today than it was at the end of Q3.

A lot of the factors that started the initial rate sell-off are still in play or unresolved at this point in time. And also, we have midterms on the horizon, which may introduce positive volatility. So we are still managing a lot of the risks using a combination of TBAs, as well as some of our macro and credit hedges. TBA shorts are still part of the portfolio today. They may increase or decrease depending on what the market gives us, but we intend to be dynamic in that respect.

Francesco Labetti

Okay. That's very helpful. And then just on capital deployment, given where spreads are today, how do you think of -- yes, where are you looking to deploy capital today? And how do you think about total leverage on the portfolio?

Nicholas Mah

Sure. As Jason mentioned, we see returns across our core strategies, whether it's in resi credit or in agencies, in the mid- to high-teens. So very attractive return profile overall. I think in terms of guidance in terms of allocation, I think one of the fastest ways the portfolio will grow initially will be through the agency channel. We have TBA shorts on. As we take them off, as we have been, the capital allocation to agencies will increase back to more normal levels. After that point, we see it roughly balanced through time. Obviously, some things I've mentioned earlier where the mortgage volumes may be challenged.

We're seeing that potentially in the broader BPL rental space happening in Q4. So it will take more time to deploy into BPL rental, even though we do see more attractive returns. So agencies is usually the first lever that we can pull in terms of allocation, but we do expect that to become more roughly balanced as we get into Q4.

Operator

Your next question comes from the line of Timothy D'Agostino with B. Riley Securities.

Jack Biggs

This is Jack Biggs filling in for Tim. The October BPL rental securitization was priced 67 bps wider than Q3. Is that primarily due to spread widening? Or did deal mix play any part in that widening?

Nicholas Mah

Yes. The supermajority of the differential is really with baseline rates. If you look at the average execution of that deal on a net financing spread perspective, it was 159 basis points, which is wider, but the bigger differential is really on the rate side. And the one thing I will say is that the securitization markets continue to be well functioning. The Adamas Trust shelf and issuance continues to execute more efficiently than the average deal. And we still get some benefit in terms of spread because of investor recognition of our program, our historical performance, and the prepayment protection that our loans offer.

Operator

Your next question comes from the line of Doug Harter with BTIG.

Douglas Harter

If you could just help us think through leverage and capacity on leverage. Clearly, 3Q and partial 4Q recovery, book value is down. Just how should we think about the capacity to maintain this size investment portfolio given that decline in book value?

Jason Serrano

This is Jason Serrano. We purposely took down our economic leverage in the quarter. As you see on the agency side, we left the second quarter at 8.3x. We ended the third quarter at 5.9x. And that was a purposeful reduction of risk that we saw going into that last week in September, where that feedback loop I described on my prepared remarks was intensifying. With the -- as Nick mentioned, with the pairing off of our TBA shorts, we do expect to take leverage back to levels we've been running for the last few quarters. And with that, normalizing the total size of our agency assets as well.

We have flexibility in our available cash, as I mentioned earlier as well, with the total cash balances increasing and total excess liquidity increasing in the quarter. We can continue on our path of allocating appropriately between the 2 asset classes. Nick mentioned, looking at credit with higher rates, we think our originator will pick up market share through some of the financial conditions that we're seeing with potentially other originators in the market.

So while the market shrinks slightly with higher rates, we think we can pick up a larger share of that over time, which is where we'll be focused on dedicating our capital on the credit side perspective. Overall, the reduction of book value was an unrealized event for the company, didn't affect any financial covenants or any cash balances that we have on our balance sheet that we can use to go forward and invest as we saw through our plan in the third quarter.

Douglas Harter

All right. I appreciate that. And then moving to the repurchase reserve that you took on legacy Constructive. You mentioned that was a one-off. Can you just help us understand what kind of what happened and what gives you comfort that that's truly a one-off?

Kristine Nario

Yes. It's Kristine. The increase in that repurchase reserve was really tied to a specific borrower relationship, legacy relationship, and these are loans originated before we acquired Constructive. And we really view this as an isolated legacy issue and not something that reflects the performance of Constructive's current production. And as part of that acquisition, we had established about a $2.5 million of indemnification holdback to cover these type of exposures.

And so we applied approximately, I guess, $1.5 million against that holdback during the quarter, leaving about $1 million remaining. So while repurchase obligations are a normal part of the origination business, we believe we've appropriately reserved for this particular exposure based on what we know today and what we're seeing, we're not seeing anything that suggests there's a broader issue with the business.

Operator

I'm showing no further questions at this time. And I would now like to turn it back to Jason Serrano for closing remarks.

Jason Serrano

Thank you for joining the call today. We look forward to sharing our Q4 results in the new year. Have a great day.

Operator

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.