Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the kind of your investment Corporation third quarter 2019 earnings conference call him with cash.
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It is now my pleasure to the four became really more of Investor Relations. Please go ahead.
Thank you Randy Thank you everyone for participating hi, merits third quarter earnings conference call.
Before we begin I'd like to read the Safe Harbor statement.
During this call he will be making forward looking statement.
Our prediction.
Jackson or other statements about future events.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which are outline the risk factors that.
And our most recent annual and quarterly Sep filing.
Actual events and results may differ materially on these forward looking statement.
We encourage you to read the forward looking statement disclaimer in our earnings release in addition to our quarterly and annual filing.
During the cold today, you May also [laughter] non-GAAP financial measures.
Please refer to our C E filing.
Earnings supplement reconciliation to the most comparable GAAP measures.
Additionally, the content.
That's cool may contain time sensitive information that is accurate only as of the date of this earnings call.
You know undertake [laughter].
Any obligation to update or revise this information.
I will now turn the conference over to our President and Chief Executive Officer, Matthew Lambiase.
Good morning, and welcome to the third quarter 2019 America earnings call. Joining me on the call I have Mohit Marria, our Chief investment Officer, Rob Colligan, Our Chief Financial Officer, Chaudhry or a Lotta go our chief operating officer, and Vic Salvo tremors head of capital markets.
I'll make a few brief comments Mohit will then discuss what changes in the portfolio and Rob will review the financial results. Afterwards, we'll open up the call for questions.
I remember recorded a 3.9% total economic return for the third quarter and a 12.5% economic returns for the first nine months of 2019.
I believe these results were solid given the continued volatility in the fixed income mortgage.
In the third quarter the tenure U.S. Treasury fell 35 basis points.
And ended the year ended the quarter at 1.66%, while one month LIBOR closed the quarter with a 2.02%.
Negative interest rates in Europe , and Japan continued distort reality and drive money into the U.S. bond market in search of return.
The latest example, craziness Republican Greece.
Issuing three month bills at a negative yield.
Result that would have been thinkable, just a few years ago.
The U.S. repo funding markets also exhibited significant volatility in the quarter.
In September overnight repo rate spike higher due to several technical reasons.
And the secured overnight financing rate ended the quarter at 2.35%.
The elevated rates and unusual market action resulted in the federal reserve, adding substantial liquidity to the repo Mark.
There are action was well received.
And it largely club.
Our computers.
Hi, mirrors funding costs remain elevated in the period.
In fact, our cost of agency repo borrowing at the ended the third quarter of 2019 strikingly similar to our cost of borrowing the third quarter of 2018, and that's surprising considering that we've had to federal funds rate cuts over the course of the year.
Residential agency mortgage backed securities experience faster prepayments due to the lower interest rate environment.
Faster prepayment speeds lowered our yields due to increased amortization of premium.
The combination of higher borrowing costs and lower agency asset yields put pressure on our earnings in the quarter.
However, since quarter end, we've seen some pull back and yields and a steepening in the yield curve, which if it continues may offer some relief for prepayments on our agency portfolio.
Also after quarter end, we started to see our funding cost trend lower.
And we remain hopeful that one or two additional fed rate cuts will further reduce our funding costs.
On a bright note.
The current low unemployment rate and positive home appreciation.
You need to boost the fundamentals for residential mortgage credit.
Loss expectations on legacy credit have been decreasing.
And prices on loans have been strong due to a from bid in the securitization market from senior bond investors.
We believe that investing in residential mortgage loans is one of the few spots in a very difficult fixed income market at offers both yield an upside.
We've been actively redeploying our agency mortgage backed security paydowns into this asset class.
So far this year, we purchased unsettled over $1.5 billion of residential loans and post quarter end, we have a pipeline of future purchase commitments of over $1.7 billion.
It does take time to purchase diligence and securitized loans, we expect to be busy with our pipeline well into next year.
In summary.
We're hopeful that fed rate cuts will translate into lower borrowing costs, which should be beneficial for our spread income going forward.
We think residential.
Credit offers more long term value than agency mortgage backed securities and we've been successful in finding meaningful lose loan investments to add to our portfolio.
Wow. This is an abnormal in challenging fixed income market I remember continues to be well positioned to deliver solid returns to our shareholders.
Last night, our board of directors announced the fourth quarter dividend to 50 cents per common share, which will result in $2 of dividends for the calendar year 2019, and now I'll turn the call over the movie.
Thank you Matt.
Due to the rate volatility and lower interest rates agency RMBS underperformed this quarter.
Spreads widened and duration to shorten impacting or hedged liability.
This quarter, we terminated 3.3 billion notional.
Interest rate swaps to adjust our portfolio duration and better position that portfolio for further rate movements.
The construction of our total portfolio such that nearly 70% of our investments have either explicit prepayment protection or exhibit low sensitivity to interest rate movements.
These investments include 3 billion an agency CMBS.
12.7 billion of seasoned low loan balance securitized loans.
And 2.9 billion of legacy non agency RMBS.
The agency CMBS Kerry explicit prepayment penalties, which provide call protection and portfolio durability and lower rate environments.
While our seasoned loan portfolio benefits from implicit prepay protection due to their age low loan balances in general Nonprime mortgage characteristics.
And prepayments on our legacy non agency RMBS portfolio continues to perform very well.
The remainder our portfolio 7.8 billion in agency RMBS Asics experienced an increase in prepayment rates due to low interest rate environment.
As we have received Paydowns and our agency pass throughs, we have been reinvesting the rather than we have been reinvesting in residential mortgage credit through both loan purchases and non agency RMBS.
Overall, we had a very productive quarter when our portfolio.
We reduced our agency MBS holdings by 670 million, mostly due to pay downs.
We increased our capital allocation to credit by purchasing 1.1 billion and re performing mortgage loans for our warehouse.
And finally, we added 67 million in residential construction loans, sometimes referred to as fixed and flip loans.
Chimeric close three loan Securitizations this quarter.
We securitized and consolidated 372 million of C. I am 2019 dash are one.
But the re performing loans previously purchased and held in our warehouse.
The underlying loans had 160000 average loan size.
For the weighted average coupon of 4.55%.
Alone.
Were 153 months season.
America issued 297 million, it's fair to that in this transaction with a cost of 3.5%.
We securitize, our first prime Jumbo deal. This year 307 million of C. I am 2019 does pay one.
The underlying loans had an average loan balances of 740000, but an average coupon of 4.32%.
The prime loans were on average six months old with an average LTV of 66%.
And lastly, we securitize, our third investor loan yield for 2019.
353 million see I am 2019 dish I nvthree.
The underlying investor loans had an average loan balance of 251000 with an average coupon of 5.1%.
The retro loans were on average five months old with an average LTV of 68%.
Both the prime Jumbo and Investor loan deals do not consolidate on temerous balance sheet.
Securitization activity continued post quarter end.
We securitize 464 million of C., I am 2019 data or too.
With loans from our warehouse.
We called J M 2016, dashboard, which was our last callable deal in 2019 and re lever that loans into 343 million of C. I M 2019 dash our three.
We will give more details on these transactions on our fourth quarter earnings call.
Yes, Matt stated we have been busy in reallocating our agency portfolio paid out into mortgage credit investments.
We continue to favor mortgage credit as an attractive long term portfolio investment.
Our pipeline pipeline of loans is robust with 1.7 billion in future commitments made post quarter went.
2020 is full of opportunities with eight callable some deals totaling 5.4 billion of unpaid principal balance.
I will now turn the call over to Rob to discuss our quarterly financials.
Thanks, Mike.
We've been financial highlights for the third quarter 2019.
GAAP book value at the end of the third quarter was $16 in 38 cents per share.
And our economic return on GAAP book value is 3.9% based on the quarterly change in book value in the third quarter given per common share.
GAAP net income for the third quarter was 88 million or 47 cents per share.
On a core basis net income for the third quarter was 94 million.
50 cents per share.
Economic net interest income for the third quarter was 138 million.
For the third quarter the yield on average interest, earning assets was 5.3%.
Our average cost of funds was 3.4%.
And our net interest spread was 1.9%.
Total leverage for the third quarter was 5.7 to one well recourse leverage ended the quarter at 3.8 to one.
For the quarter, our economic net interest return on equity was 13.9% our GAAP return on average equity was 10.7%.
Expenses for the third quarter, excluding servicing fees and transaction expenses were 19 million inline with last quarter.
That concludes our remarks, and we'll now open the call for questions.
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Your first question comes the line of Doug Harter of Credit Suisse.
Oh, sorry.
We're active in both kind of new production and legacy loans kind of in the quarter and post quarter end can you just talk about the relative attractiveness of each of those types of assets.
Sure and good morning, Doug This is mohit I'll start with the RPL transaction.
That we did in July of this year.
As stated on prior calls we continue to find a.
Attractive loans that fit the credit, but there were comfortable with and we're able to term financing industrialization market.
That was what we did it in July we did a 300 and now 40 million our deal and issued debt of 3.05%.
And now have a termed it out and we've embedded a three year call in it.
To the extent they know the deal delivers over the next three years and.
Either export the performance improves and our rates continue to remain low we could you finance out again, but the levered returns on our retained pieces off of that investment with some leverage our double digits.
On the on the new issue side as it relates to the investor loans in the jumbo loans.
Again, the investments they are much smaller given sort of the blended leveraging the credit profile of that collateral type, but again levered returns there on the retain piece of their also double digits. Other both attractive keep us on the mix on both the re performing season side on the loan purchases. In addition to acquiring newly originated collateral.
Oh, and then well he would like the pace of activity in the third quarter post third quarter. Hence no has materially picked up on a re performing side can you talk about what what has changed or is it just more product team to the market.
Led to this pickup in activity.
Sure I I think we.
The loan activities throughout the year GFC. So the primary seller lot of activity has been focused on ethylene non GRC sources, we've acquired loans from multiple different counterparties. So the aggregation risk or the aggregation amount is taken just a longer but a time and a lot of that as culminated in Q3 and in Q4.
Oh Gee, if he is there going to be a continued source for us in the future, but I guess that some of the other bank sellers and dealer balance sheet that needed to be around we were the beneficiary of those sales.
And like I said from the time, we commit to the trade till the time at funds between the diligence and stuff we have to do there's a four to eight week period. That's all that take so on our Q2 earnings call. We've mentioned our commitments for Q3 and a lot of that happened late in the quarter. So you'll see the full effect in Q4, and then the acquisitions we've committed.
To post quarter end here, we'll probably settle Beano wouldn't know early DS and you will see the full impact in Q1, and then as we build these warehouse lines. We have securitization activity that we will do on the heels of that which will reduce our borrowing costs and improve the returns on the retained pieces.
[laughter].
[laughter].
Your next question comes line of Cana sleeves, RBC capital markets.
Hi, Thanks for taking my question.
I'm, just curious and you touched upon this within the prepared remarks, but wondering whether there was any impact from the from the volatility within the people markets in the quarter on whether there's an impact there for you guys.
No we didn't have much of an impact the the disruption or the volatility picked up late in September we had roles most of our balances over quarter went by that time, but that volatility was only exhibited for a few days and as the subsequently stabilized and the fed has made announcements in the purchase of T bills providing.
Reverse repo that they haven't done in a decade to stabilize that especially as we head into Q4 and year end as you recall last year, we had seen a similar spike in Q4 for the tired and like I think they want to make sure that doesn't repeat a flood swisher, yeah, and I would just say that we don't just as a matter of fact, we don't.
Role.
Our paper over overnight and it was Jordan generally an overnight phenomenon and were very short term funding, we usually put the paper our weibos out longer than overnight.
I would say that in the period.
Repo rates were elevated.
In general and and have started to come down.
After the quarter.
Got you are very helpful and just one quick follow up if I can.
And you touched upon this within the prepared remark in terms of adjusting that hedging relative to just seem to be a the duration wonder if you could to share with us what kind of assumptions you have regarding either at the fed policy or or interest rates in terms of your hedging positions. Thanks.
Sure I mean, as Matt said in his prepared remarks, you know, we expect one potentially to rate cuts between now and year end, we'll find out about one of them later this afternoon.
I think we've we've taken a proactive approach this year and reducing our hedges to bat better balance the duration of the agency holdings as well as our credit holdings.
To the extent there is another change we'll adjust the hedges accordingly, but I think we're in a good spot currently.
Gotcha. Thank you very much.
Thank you.
Your next question guys line of Eric Hagen of KBW.
Hey, good morning, guys. Thanks, any agency segment can you just tease apart for us the amount of leverage you run on the pass through portfolio versus the commercial segment.
[noise], Hey, Eric Yeah, I think the leverage we run against both the somewhere or they're both agency products with similar financing terms I think the leverage there just looking at that on an isolation is about 10 10 to 11 to one.
Okay.
So just to be clear, it's the same anvil.
Okay got it in the aggregate not sort of broken up given they have similar financing terms are both fungible and former capacity.
Yeah, Eric I'll just add.
When you look at whats available in the market the haircuts for agency CMBS, an agency pass throughs are very similar.
The one thing if you're taking into the balance sheet on the agency MBS or construction side, we do have the commitments on the balance sheet and they do fund overtime. So in that payable for securities purchased a it's not as if we put them all the balance sheet. We are in carry right away, there's a little bit of a timing compare.
Got it where the assets around the balance sheet not yet on repo until we find them over a period of time, that's right on an absolute dollar terms, obviously the agency pass through portfolio is much larger but from a percentage basis and on the leverage basis. If you looked at them individually I think there would be both tend to 11 times.
Got it okay. Great. That's helpful color. Thank you and can you remind us on the prepared counting on the agency RMBS. If you guys amortize premium through core earnings.
As it comes in or do you make a lifetime speed assumption and back out to catch up out of core I'm just trying to gauge if there's a direction of core if and when prepay speeds slowdown. Thanks.
Sure we don't make.
An adjustment for what some color retrospective model. So you have a material picked up or slowdown and speeds.
We don't make an adjustment for that the only other things I'll mention though is a the majority of our agencies are now carried at fair value through earnings. So the majority of our agency pass throughs, you know don't have that catch up.
ER attribute to it so I would say roughly 10% of our agencies that we bought a before 2017 still have that.
Retrospective catch up but the majority of them as rates move and speeds picked up.
You know those adjustments would just be prospective overtime and we don't make just to get back to your original question, we don't make any adjustments to core for that change in speed.
Okay. Great. That's helpful. Thank you and then the lower yields quarter over quarter in the credit segment as I think 6.8% from 7.1 was that because of credit sensitive assumptions that were changed during the quarter.
Is it just new investments that are coming into the portfolio at a lower yield than what.
And what was rolling off.
Yes, just it's doesn't newer investments the 1.1 billion of loans being fired at lower yields us where the market as and obviously with some of the paydowns on the higher yielding assets that are rolling off.
Great. Okay, and then the swaps that you guys terminated in the quarter.
When did you take those off and what was the pay rate on those and it looks like you basically replaced everything that you virtually took off so what's the pay rate on the overall swap book now.
A period of what we took off I don't have I could get that number for you.
The portfolio currently stands at and total about 4.4 billion of notional swaps.
The pay rate is to 60 in the resi read as to 22.
As of the and then order.
Just judging by your book value performance I sense that you guys took off those swaps relatively early in the third the third quarter is a fair.
Yeah, well, we took some up in July and we took them off in early out.
Super. Thank you guys. Thanks for the comments. Thank you. Thank you.
Your next question comes the line of Stephen laws of Raymond James.
Hi, good morning.
You know taking about the repo balance trying to quantify that I think you had 9 billion resetting within 30 days I'm clearly were 30 days past the court around and I think wide words dropped around.
25 basis points is it fair to so we'll look at that and expect that entire amounts rolled down by about 25 basis points or how should we think about the.
Repo cost resetting your and this is the first month or two of this quarter.
Yes, I mean, I I think again as we ended Q3 September as we mentioned it was an uptick in sort of financing rates overnight.
As we mentioned we enrolled most of it into October already but yes, given the downtick in LIBOR or we're seeing that been over collect and the repo rates for getting.
I would say.
Dollar maybe I don't think it's a base advanced or basis point, but I would say financing on on agency product the stuff that we're rolling short is probably in the very low twos.
To re tooled up another that's helpful.
That's helpful color. Thank you.
Following up on the loan side on the low sourcing no can you talk about the sourcing agreements you have in place for whole loans and business purpose loans. Some others have looked at acquisitions would you bring in house.
Would you do something like that to create your own pipeline or maybe you.
You know any additional color you can ride on on the sourcing agreements on the whole loan side. So you have in place.
Sure. So on the new issue side on the Investor in Jumbo stuff, we have partnerships with.
You know some conduits that that originate and then we just haven't agreements instead of acquire those loans and term financing through securitizations.
We have some are business relationships on the fixed and flip residential transition loans, where we you know we're comfortable with the origination and underwriting guidelines and the performance of the loans that we've acquired.
Like I said I think that pipeline is growing as those businesses are growing.
And have those need to acquire an originator again, if it becomes necessary or more capital as needed to for the originator grow their business, we'd be happy that sort of look at that but I think we're sourcing collateral it pretty attractively apparently yeah I just add to that I think we're pretty happy with the amount of as a matter product that we're seeing that.
You can put through our securitization process and the quality of it and the pricing that we're seeing a is pretty good.
And I don't think there's a reason for us in the in the short term.
To do anything different than we're currently doing I think we're we're seeing a quite a bit of product and we think a and we think the markets are open for securitization right now.
And and I think we're at a good spot.
Great and finally, maybe if you touched on the commercial agency Securities Basket again, I know, there's limited volume there, but looks like that portfolio was basically flat sequentially are you seeing new investment opportunities there or is it just not as attractive relative to other opportunities you're seeing or maybe touch on how we should think that how we should.
Think about that basket as we move forward either growing or remaining the same size.
You know I would say that you know it's interesting idiosyncratic market, it's relatively small and and you see originations come.
Since spurts, basically and I think last quarter, we really didn't see a tremendous amount of paper that we wanted visit to bid on and to add to the portfolio and I think we think the current level. It's it's a it's a good position for us and I don't think we'd have a big acts to drive is good.
Good up the marketer and by a lot more.
Yeah, that's right and like I said, they think given the opportunities test we found on the credit side and our belief in the housing and sort of macro economic conditions. I think the returns there are very compelling to deploy capital.
Great. Appreciate your comments this morning. Thank you.
Your next question comes the line of Matthew Howlett of Nomura.
Thanks for taking my question.
I think guys. You mentioned 5.4 billion of securitization debt is callable in 2020, I just want to get a sense.
What's what's the financing right is on those deals on where you think the market is today.
Yes.
Sure So I'll start with where the market is today.
As we mentioned we completed three Securitizations. This year are this year in the in Q3.
The one that will make what's being callable in 2020 as the 2019, our one deal which is our traditional re performing deal that deal was non rated and as I mentioned in the opening remarks, we were able to finance the debt at a cost bases of 3.05%.
I think again, depending on where rates are.
They have exhibited a lot of volatility year over year different room rates remain here I think there's plenty of cash from a senior investor side that needs to be deployed.
And so there's going to be grab for assets and we think that financing cost term financing costs should be in a similar context.
We also obviously have the ability to go down the rate at path.
And that could bring financing cost in a little bit more so it's just a balance between cost and cost benefit analysis on what the best where the terms of Securitizations out.
As far as where those are currently being financed.
On the aggregate and this is not exclusively just to the 5.4 billion. That's callable next year, but our entire secured debt portfolio into loan side, how they you know financing cost around a 449 coupon so it'll be a material picked up too.
If the economics, if the economics on the rates remain where they are to refinance those assets.
Right, so trended down reported.
4.2 came down from 4.4 last question on that on that funding classes that that should coming down as you call re securitizes steels of is that does that the trend that sort of we should expect out of order is that correct.
Those are the things, we evaluate whether theres, an equity to have component at or reducing the financing component and you know that's given there's sort of change in the rate sentiment and what the fed is doing I think you know and if all else remains equal we would expect financing costs are becoming death.
Great. Okay get will look for that and then let me just get back to the pipeline you mentioned and looking into 2020, I mean, you're doing the sort of a mixture today of re performing and the new issue Jumbo investor loans. We look at you look out some 20 I mean does a comment by one of your competitors that the RPL markets is shrinking from the disease.
Actually because they're there they are doing to books are running off.
Coming down and then you look at all sheet UQM patch, which is non until 21, but we're getting set up here Bgs you reform does a lot of top that you're just going to price himself said, the investor loan market and we're doing something like 60 billion a year.
I mean, what can you tell any in terms of judgment quantities that to be an equal mix to those who you think you'll start moving more towards.
These non QM type GRC loans that are going to come out anything you can give on on sort of how to look at in terms of acquisitions next year on the credit side.
Sure again I'll start with the RPL.
Outside of the the 5.4 billion that we have already own that we can refinance and grow earnings I think and speaking to the gses, although shrinking they're still going to have north of 20 plus billion of RPL loans that are going to come out for bid next year.
So that's still an ample supply of loan to be absorbed by the market.
And in addition to that over the last two years Weve built this relationship network of doing newly originated a soft whether its jumbo whether its investor even other non QM side, even though we haven't been active we've looked at loan packages for you and I was just the numbers didn't make sense was or where we would have cared but you know whether it's the QM patch going away and.
Getting more.
Opportunity for private capital will be deployed in the mortgage market. We have those relationships, we see those assets and if the if the numbers work, we would do that I think what you've seen from 2018 to 2019, we've done three investor deals. We did two last year. We did one jumbo deals. We've completed one this year. So I think on the new issue. So.
New origination side, we would continue to hopefully that upticks and the lower the GRC footprint the better it is the better opportunity set for cleaner.
And so just thinking at me lifted on a great job and capital allocation capital management should just think about it as you that agency book could continue to be a source of capital or clearly you have a b of a very strong balance sheet. We should go access more term debt or more preferred denim had just just thinking about it at these opportunities do arise and there are more than you thought it would you look.
Get sort of that agency book as well as a source.
Matt I think that's exactly right I think well that will definitely look to our agency portfolio into runoff, there and redeployed and I guess the issue really is that the agencies run off and it takes time to put so you always have this timing differential between the capital coming in through new normal run off and thus putting it out into securitized.
Residential mortgage credit and so thats, what were really managing to and I think most on an we really good job managing that over the course of the quarter and I think when when you look at our our our pipeline of residential mortgage credit that we have to securitize and you think about our agency paydowns over the next say four months.
I think we're doing a pretty good job trying to match trying to match the two of them I mean, let me be perfect, but we're we're actively thinking about the agencies as the source of capital slipped to the to the credit.
Great. Thanks, a lot guys.
Your next question comes from Steve Delaney of JMP Securities.
Good morning, and thanks, Matt just beat me to the 2020 loan mix question. So those are good for him.
I won't make you repeat that guys, but maybe closer in I believe you mentioned, a 1.7 billion whole loan sort of credit pipeline that you're looking at could you just roughly talk about you know the mix with within that 1.7 sort of the near term [laughter] deployment. Thank you.
Yeah, So hey, Steve.
Hi, it's a credit profile of the asset or the loans were bringing then it'll be very similar to the assets and loans. We currently have in the pipeline.
Actually wrote down some numbers here so.
The average whack of these loans is gonna be.
In the.
Around the five area. The LTV is there going to be in the mid high Eightys.
Average loan balances going to be.
And the 150000 and this is all season re performing south of 1.7 billion committed if not all yeah. It's not that's not jumbo that's not our our investor loan programs. That's all 1.7 billion of Rpls last season re performing loans.
Got it that's it that's the product do you guys really know well in a big concentrating on you know here for the last couple of years and the product that's really been performing really well for us here.
So what do you know just to follow up real quick you know on your conversation with Matt When you look at the whole sort of BPL I mean, I think we can split this there's so many acronyms whether its fnfs that far you know you can go crazy, but we've got what I would call the whole in QM thing on the residential owner occupied and I'm just throwing everything else.
A bucket called BPL business purpose I don't know how are you all see that but you know.
There's so many subtleties kinda, but go ahead I'm, sorry, I cut you off.
I don't know grant I'm sorry.
So I guess, what I'm trying to say if you look at those two unless just split it kinda between more the investor loans and more the in QM do you have a sense for which one of those that you're likely going to find the most opportunity if as we look out over the next year or two.
Sure I mean, I think that that nonqm sector and again, depending on how you define it has had tremendous growth over the last two years and is projected to grow even more with the QM patch going away on the business purpose side again that has had growth.
The durations on that product or significantly shorter than the non QM, which is already and GE to begin with Oh, you know the average maturity on a business purpose loan. It ranges between 12 to 24 months, Oh, we think given the rate environment and the volatility.
Creative we wanted to just have short duration assets.
And we aggregated to portfolio now through Q3 of 144 million.
Very attractive coupon the net whacked on that portfolio was seven on a quarter.
Right.
That's very attractive and the cash surrogate for us.
The non QM side to like I said has seen tremendous growth I think you know.
The pricing there is is a little challenged but you know as.
The rates stabilize and prepayments stabilize on that product, we would continue to look at it and we have sources to buy a fine data shows like the pricing has been a little bit challenge for us.
Got it yeah, probably a bigger probably a more eyes on that product and then on the BPL listened very helpful. Thank you for the color guys.
Thanks, Dave.
Again as a reminder, checking audio question. Please press star one on your telephone keypad.
Your next question comes the line of Lee Cooperman as I'll make a family office.
Hi, Thanks, I don't have the technical knowledge at some of these folks and the cool have so let me just gives you some simple top down questions how much dry powder do we have a which we have not employed.
We could earn spreads where we fully employed and secondly, as you look at this 50 cent number in the quarter, which matched the dividend.
I think that represents normalized earnings were below normalized earnings.
How do you see or the quarter being [noise] representative of a recurring or any power blower recurring earning power above recurring earnings that were.
And third question I'd ask is the effect in rising rates. One of these days now lifetime rates really go up I assume is going be sooner than most people think but.
What's your exposure to rising rate.
Hi.
Well I think leave you know where a levered company. So we don't keep an awful lot of dry powder around but I wouldn't I would I would frame. It like this we have quite a bit of agency mortgage backed securities on our balance sheet.
And we look at them as as an asset class that that.
We would go to if we found good credit investments I think right now the way we feel about the of the mortgage residential mortgage credit market is that there's there's still good upside I think with so many people working and went home price appreciation still going on I think that you can we can buy these re performing seasoned loan packages and we.
Can finance them, then calls into this into the Securitizations and and if the collateral continues to improve we'll have I think upside in the future and yield today and upside in the future and for US. It's it's finding those investments is the hard part that's why most has done such a great job in the teams on such great job to find residential mortgage Chris.
It investments and what we're doing is we're taking I guess, our dry powder is our agency portfolio and I'd say, there I think we've got plenty of dry powder.
To to to deploy into residential mortgage credit when we find it so I think from a from a credit.
From a from a dry powder or.
Money that we need to make investments for for the foreseeable future is going to come from that agency book and I don't think and I think where we've got plenty of capacity in our in our balance sheet to do that yeah, well you guys have done a terrific job you know in running the company. So I I interpret what you said is you don't see the two dollar run rate of earnings that we have now.
Now represents peak, earning power you'd hoped due in large upon that over the coming years, well I mean, yeah I think it let let's just say this is an abnormal market and am I think anybody that sits here and tells you that this is a a very easy.
Fixed income market to operate a levered mortgage strategy and they'd be just not.
Frank.
This is a very tough market and we're very focused on maintaining and making sure that our book value stays.
Stays constant you know, we we don't want to that the ranch to make a few pennies and then lose a dollar in book value. So it's it's it's always trying to balance those two risks and and I think we feel like we're in a good spot right now.
With with the earnings good. Thank you very much but every time I on this call I congratulate you guys and doing a very fine job and I continue to have their view. Thank you. Thank you. Thank you appreciate your support.
There are no further questions. This time on option if for whatever demand for any closing or additional comments.
I just like to thank everybody for joining us on the third quarter 2019 timer earnings call.
We're hoping for less volatility and looking forward to speaking to you in the new year. Thank you.
Thank you that does conclude today's conference call you may now disconnect.