Q4 2019 Earnings Call
Ladies and gentlemen.
Thank you for standing by and welcome to the new residential fourth quarter and full year 2019 earnings call.
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Thank you Jackie and good morning, everyone I'd like to welcome each day to new residential its fourth quarter and full year 2019 earnings call and thank you for titanium.
You mean here today on Michael Nierenberg or.
<unk>, CEO and president, Nick Central or Chief Financial Officer.
The call. This morning, we are going to reference to earning supplement that was considered the new residential website. This morning, you do not have you done I encourage you download the presentation now.
Before I turn the call looking like all I'd like to point out that certain statements made today it will be forward looking statement Easter.
By their nature uncertain may differ materially from actual.
I encourage you to review disclaimers in our press release and earning supplement regarding forward looking statements contributing factors contained in our annual and quarterly reports filed with yes easy.
But you won't be discussing some non-GAAP financial measures during today's call.
Reconciliation of these.
<unk>.
The most directly comparable GAAP measures can be found in our earnings supplement with that depend obviously its cage good morning, everyone and thanks for joining our.
Fourth quarter earnings call.
I'm proud to say that are talking at a very good year, providing our shareholders would actually results. Despite the extreme levels of volatility we saw in the.
Last year.
Any year tenure treasury rates began 2019 a 2.68%.
Celtra loads of 1.35% and ended the year at approximately 1.92.
Mortgage rates began the year at 4.55% fell to a lower almost 3.5% and ended the or Threed.
0.75%.
As treasury yields plummeted, we saw mortgage spreads widen to levels, we had not seen since the financial crisis I mentioned that extends our rich models and our team managed our book tried to be essentially flat on a year or dividend remained unchanged. Despite the volatility we saw in the markets highlighting the earnings power of our.
Right.
One of the goal.
This is stabilized book value pay our dividends and mitigate any and all rich because we could control we did that and I'm really proud of our team.
I think portfolio the foundation for everything we do performed well throughout the year.
If we turn to new investments in the single digits we.
Entry door gets a plane targeting certain asset classes for investment.
The pointing lets capital in areas, where we felt it did not generate enough outflow for shareholders.
Well I Miss our business loan business and bond business continued to be the our core assets.
And we also continue to work gets more could participate.
The clean up the legacy mortgage markets work whole strategy.
Both of non QM and if it's actually see Fannie Mae Freddie Mac, we entered in public markets should only provide more opportunity for us overtime.
In 2019, we did $11 billion securitizations locking in long term funding and lowering our cost of fun <unk>.
<unk>.
Funding dropped and the beginning of the year at 3.5% to 8% to 2.7 <unk> percent due to the drop in life for as long as you see deficiency in the capital market.
Our mortgage company do read had its first full year under erected actually under the new residential umbrella we saw earnings grow from 34 million.
In 2018 to 225 million in 2019.
I've been very vocal around our need to capture the whole party and provide long term book value for shareholders.
During the year, we acquired Guardian, which is a property preservation goodness, we made an investment in Kodiak and ancillary services business.
When we acquired the assets have died tag along with a counter to the mortgage professional which enabled us to expand our footprint to the west Coast building a great team in Arizona quite frankly, we've just begun and I'm really excited to see a student measured growth continuing down this path of growing book value earnings are we captured business for MSR.
Portfolio, and our and our other operating business lines as we look forward, we're very optimistic on our business model and look forward to providing further value for shareholders.
That's.
Oh parts, and we're going to be getting on the supplement which has been posted online and I'll start on page three.
[noise] or company.
Today is a very very much a diversified but I would think of financial services indefinitely company or portfolios are balanced we have a very robots mortgage platform and since the company was created in 2013 for my highlight perspective, we paid 3.3 billion in dividends.
Our book value per common share growth since inception at 65% or shareholder returns have been 170%.
And we continue to look for opportunistic investments that gets you need to broaden the scope of what we do.
Before.
Our earnings through financial results GAAP net income of 211.
$8 million were 51 cents per diluted share our core earnings of $255.4 million worth 61 cents per diluted share fourth quarter common dividends remain the same as they see it all throughout the course of 2019 at 50 cents per common share.
Probably used 16 21.
That was down from 16 26 at the end of September 2019 on the year. It did quite a total of five cents.
So overall you know again.
You should stabilize book value with the team did a great job.
Total economic return at 12.1% and that comprised about four cents decreasing.
Book value per common share at $2 in dividends that we paid.
It'll assets today $45 billion market cap at the end at 12, 31, 6.7 total shareholder return for 2019, 27.4% and again economic return at 4.1%.
Page five it's really.
Hi, like real if some of the corporate activities and some of the things that we did that are a little bit different I think other than the securitizations and the the excellent performance we had during the year.
As everybody knows we acquired the assets.
In the high quality people die taxis are the forward assets, we acquired origination and servicing.
About foreign mortgage servicing rights and some other assets.
Made a strategic investment in Colombia.
Which which was a technology evil enabled solutions company for the financial services sector.
Which we hope to see that grow overtime. So very excited about that and it provides support services to the mortgage.
Industry Gordy any property preservation business was acquired in audits in 2019 journey here, we did 21 securitizations as we pointed out earlier for 11.1 billion or not I in total balance we did three capital raises last year, including our first inaugural fixed to floating preferred stock deal and then <unk>.
We get a follow on and we did one in July and one in August total capital raise their about 430 $440 million. The idea there is lower our cost of funds and provide lifting wishing for our shareholders over time.
Page six is really just to break out of our portfolio net equity on the left.
Side origination and servicing business today, it's about $510 million, a mortgage servicing rights business $3.4 billion keep in mind servicer advances see equity in that business will continue to decrease as homeowners in the board's continue to.
We have less delinquencies.
And pay down overtime on a residential securities and call rights, we have $2 billion. Its capital invested and then on our loan business at the end of 12 $31.2 billion today, it's about it's about seven or $800 million after all our securitization.
Page seven is really fits our platform is what we tried to highlight here.
Here is we already investment manager, we have not deviated from our initial Michigan of focusing on mortgage servicing rights loans securities or consumer portfolio in call right and then over time, we've added complementary or operating companies the idea around mortgage servicing and origination is to provide elsewhere.
Additional capacity on the servicing side. It's why is that bring is much of our servicing in house and reducing our counterparty risk, while making money in your origination business.
On page.
Hey are we talking about from failure I think this is an important slides today our.
I'm sorry, the 16 21, what we're trying to show here is as we made strategic investments in our operating businesses looking at those comped to where we think market.
Like market companies are what we want to do we show, where we think our book value. It essentially could go overtime. So today at 16 20.
And if you assume a multiple of six and a half times on some of our mortgage company activities.
We believe that your book value is understated and the actual book, how you could be something between 18 and $20 to share.
Page nine are focused on driving shareholder value.
Vincent.
Dividends in the fourth quarter again, 50 cents dividend yield 12.4% since inception, we paid $3.3 billion in total dividend returned 4.1 economic return in 1900, 85% since inception and overall we.
We have outperformed our peers by 20% in 2019.
Our M&A calendar.
We began with each other says we have quite a large portfolio from Citi required show point partners. This year, we see a dissect everything strategic everything is focused around mortgage and continuing to acquire the entire.
Hi.
Ancillary services business East you didn't Avenue team would show point Colby I think already and we made investments in this year.
On page 10 book value and economically a return over time I'm not going to spend a lot of time on that I would just have a look at the bottom part of the Oh God the right side of the page book values since 2000.
Team, we started to 10 Bucks now at 16, 21, and our book value performance from Q4 to acute or 2018 to 19 is essentially unchanged now spend a few minutes talking about the portfolio and then we'll open it up for questions.
Origination and servicing business keep in mind, which we didn't have.
Good.
This was our first full year.
Again made $225 million, so the fourth quarter origination volumes $10.6 billion, that's up 85% quarter over quarter were 412% year over year servicing book $219 billion.
19% quarter over quarter.
Well, 100% year over year.
During the quarter, we settled on 73 billion damage source for 660 million of equity from nine different counterparties or mortgage servicing rights portfolio totaled $630 billion at the end of 12, 31 2019 compared to 590 593 at the end of said.
We also issued to capital markets notes back nice service or advances totaling $700 million with the idea of reducing our costs to funds, there, which we get by about 70 or 80 basis points.
Not agency Securities Me, So 286 million of securities that we're not a creative to our car right strategy, we purchase a little into $900 million in securities that were.
We executed on our car ride strategy, calling 43 deals worth about 1.2 billion and collateral and we completed two securitizations.
Through the exercise of recall rates for like $3 billion, a total collateral on a residential loan portfolio. We continue to prove re performing loan pay performance, resulting with our partnerships in a special service or including show point say and other special Servicers during the quarter, we acquired 2.7 billion alone.
That includes a little under a billion dollar to re performing loans 500 million of Nonqm loans, and 1.2 billion through our collapse strategy and then again, we completed a non security nonqm securitization for 300 million and an R.P.L. securitization from $1.7 billion.
Post queue for we priced at 1.2 billion dollar deal re performing loan securitization I pointed out or or equity in our loom. This. This is now from 1.2 billion to roughly seven or $800 million. We completed two securitizations for $823 million. One Nonqm went through our hall rights and then we eliminated.
<unk> to acquire 40 billion of Emma sorry that we expect to settled in the first quarter.
Page 13 origination businesslike pointed out on the condition volumes.
85 per cent quarter over a quarter 400 per cent you're over a year the volume, 30% purchase 62% refinance recapture volume is up 67% quarter over a quarter, we have <unk> them for the for the fourth quarter 13, $24 billion and a fourth quarter pre tax net income of 86 million.
Dollars is up 130%.
I know servicing business page 14, again 219 billion total servicing third party businesses up 34% that's in our show point business.
Quarter of a quarter or 57 per cent year over year.
What's he rates remain low, 5% or 60, plus days and we continue to demonstrate improved efficiency and profitability lowering our costs to service by nine per cent quarter of a quarter and 57% year over year.
Or fourth quarter segment pretax income a $27 million is up 26% quarter of a quarter.
Under M.S.R. business again 630 billion U.P.B.
Settled on 73 billion in the fourth quarter, we had at 62 billion of assets from detect during the fourth quarter, we load across the funds on our financing facilities.
And in 2019th we settled on the total 200 billion of M.S. ours.
For 2.2 billion of equity from 16 different counting parties.
[noise] page 16, we like show and that's why we believe <unk> portfolios are a little difference in the industry.
Take a look at the right side of the page, we believe 21% of our portfolios refinance a bowl add at the end up the queue for based on where mortgage rates were versus an industry at 41% or fight goes a little bit lower you have a much more seasoned portfolio and our loan balances a smaller oh, they shouldn't be too slower speeds.
What we saw at the end of the fourth quarter is that our speech or about four to five C.P.R. slower dendy industry from a recapture perspective that also it helps with our with our smell or the call right. The page 17, because 140 deals. During two died 2019 for four and a half a million dollars keep in mind. These.
They're all these legacy deals that way shoot in the mid 2000 early two thousands I should say as I pointed out on this call at an earlier cause we continue to work with other market participants to figure out the best way to clean up these legacy deals.
And we hope to have a big year and make a lot more progress around our call strategies.
Current call population about $40 billion to $45 billion based on factors and we believe we control about $100 billion set of collateral, which is very different than anybody else in the market.
Not agencies quite frankly.
Less imply tighter spread will for us when I pointed out our ability to generate out for for shareholders less likely to add in front of nine agency securities here, because <unk> never returns or something between five and 6% overall will continue to focus on adding bonds, where we were there.
Or a call strategy.
A year or bonds, our market value or a bond book is down about a billion dollars.
Face 19, our loan business I think on the last call somebody has wherever acquiring re performing loans during the quarter required 2.7 billion alone cannot includes I believe something around a billion of re performing loans.
Yeah, there as well, but improved performance on on the re performing loans give the bar is a better experience keep them in their homes see better pay histories and that and as a result for saying higher pricing in that sector. So that's been a great return for us on the loan friend again, very very competitive will continue to focus on where we think we create out.
The shareholders, but continued focus more importantly on our legacy business [noise] around the call strategy, and and and having homeowners have a better experience around their pay history.
Page 20 is this a snapshot I'm not going to go through this whole thing. It's it's talks about our strategy on on our loans the rights of bottom right side of the page a couple of tombstones that afford deals that we'd get in late 2019 and the deals we did in January 2020.
Securitization [noise] again, we get 11 billion of different Securitizations 21 different deals that those include service or advances mortgage servicing right financing called called deals three performing loans details. So overall and then we refinanced our springcastle deal very very active year and.
Securitization business.
Yeah, there, it's again improving capital structure locking him long term financing and lowering our cost of fun page 20 to the last page and number open up for questions, our focus creating value for shareholders, we want to generate.
Outside attractive risk adjusted returns across all interest rate environment. I think we showed that last year again, I pointed out Kenya rates started the or 268 limited to 135 140 ended the year when 92, and we maintained book value while continue to pay our $2 and dividends engineering very good returns for our shareholders.
Opportunistic event thing.
Growing or recapture origination and servicing business protecting the value her assets and then overall risk management, which I think is very key and important to where we are today in the in the marketplace has risk adjusted returns continue to drop.
Was that I'll turn it over to the operator and they'll open up the question.
Certainly not this time, if you'd like to ask a question. Please press start one twin throwing question press the pound key duck harder with credit Suisse Your line or something.
Morning, Michael can you talk about kind of where where's receive relative returns that across you know emus ours loans.
She's in front of husband thinking about deploying deploying capitalists as it comes back to.
Sure. So on the let's let's go through each sector real quick on on the <unk>. The legacy non agency Securities markets, which continues to pay down we see <unk> there is something around 5% to 6% depending upon the type of asset class.
And that's on the on the legacy side on some of the new deals you may see a tad higher but in general you're talking about you know again, 5% to 6% loan business on re performing loans and recall strategies. We believe we continue to see in the double digits around then around that part of our business or results have been very good I do think there's going to be.
Scarcity of assets for sale as banks in the in our friends in D.C. continue to clean up their balance sheets. So if you look like last year. For example, I think supply was down.
Probably something between 30 and 40% from the prior year overall in the re performing a nonperforming loans business. So that clause prices to go up you know on a relative basis. If you look at the mortgage market and compare it to I.D. and high yield.
We are and I think you've seen some research out there the mortgage market itself I think kind of relative value basis is cheap to those sectors. So I think we'll continue to see better performance, there's a lot of capital chasing the same assets.
So risk risk adjusted returns that going to continue to Titan as long as we have a normalized you know kind of geopolitical world and.
And economy on the <unk>, we've been pretty active I mean, obviously, we did the died tech deal or M.S. Our team is inactive working with differing third party originators to acquire M.S. ours, what we think Leverich returns or you know kind of mid teens at this point no the discipline around hedging in.
In protecting books value. There is something that is extremely important but overall returns have been terrific in that sector. So I think because we go forward or continued growth will be around her emus or a business are loan business or call business and and growing or operating businesses all of these.
Continue to be you know pretty much the same mission that we had since we began to accompany in 2013. So we really haven't deviated from there on the opportunistic side, you know things come our way we look at a lot of deals we look at a lot of different companies will continue to deploy capital as we as we see fit but overall I think we're happy.
You know working on or qual strategies investing in M.S. ours investing in loans, where we think of returns are good probably less than the bonds side, and then see where we go from there.
Good Thanks, Michael thing stuff.
Oh George was KBW your line is open.
[noise] say good morning, I'm actually let me just ask about the mortgage banking business to notice. He the results there have been very impressive just curious how you're thinking about that this is going forward do you want to just sort of think about replacing a certain percentage it'd be run off with origination or you know or is it more sort of opportunity against <unk> look into.
And ways to grow that.
You know will grow it's Opportunistically I think where we are now and I mean again going back when we did the deal in 2018.
In July of 2018, I think origination volumes at that point, we're about $3 billion ish last year, we get 22 billion of origination. This year. We we project 50 plus billion I want to just be clear. This is not about volume this is about making money for shareholders.
So when you look at our results of you know in that segment of $225 million for the year.
I personally believe when you look at some of our peers out there that you know I think to a great job in that business. We've only scratched the surface I actually I mean really excited about it and I think we can truly grow earnings I think the big thing to point out there dug as well as I'm sorry bows is that one is we have a lot of room.
Growing or recaptured business I pointed out that are recapturing numbers quarter of a quarter up a lot. We have a 630 billion dollar portfolio. So.
Being good at recapture is only going to add earnings for our company. So that's one two growing origination volumes from a profitability standpoint, you know if he looked at what Cooper and some of the other folks doing on the origination side. They do a great job and make a lot of money. We made a hunt you know we made I think 130 odd million dollars and origination sector.
That will grow so part of our whole thing is it's really quarter, a business to get to rural recapture replace or M.S.R. is where we see fit as long as we think you could achieve doubles major risk adjusted returns and and most importantly, when you look at the rate of retreating grow or books value, we put in that slide tape tape to give everyone.
And illustration about how we think about books value, but by all means we're not going invest Capitol you know and I think going back to Ducks question at a five per cent leverage return just to do that what we're going to do is be smart about how we invest capital Roar operating businesses that trade multiples of where a financial services asset trades.
And I think our books out you should continue to grow and that's really or a goal.
Okay that makes sense and then actually just in terms of the grill their own so <unk> more organic or do you feel like there's some acquisition opportunities that you're up there as well.
We always look at every like I pointed out earlier, we look at everything that comes across the transom for US where you know whatever and you know all kinds of financial services companies as we all know it's very difficult to do deals that are creative for shareholders. So we typically don't do a lot of deals probably Ceylon.
I think right now where in a good place to continue with our organic growth in work on or organization. You know the deitrick acquisition away from acquiring pools of of assets has been a really good one because when we look at where we are in or footprint. You know, we got to the west coast. So we have a large presence in Tempe real good group and talented folks there.
That came for the most part from the die tick acquisition.
So there's still a lot of work to do on that and we have a lot of room to get better on origination and recapture and as well as on the technology side and I think if we do that there's plenty plenty of stuff for us to do at this point.
Okay, great. Thanks, a lot.
<unk>.
Airline is open.
Am I think you're taking my question just just to follow on on the agenda 20 outlook.
Terms of prioritizing do the the operational outlook on any seen it stands out do you want it can integrate do on a cut costs meeting to just stands out from you know first or second to last.
How about Matt how about A.N.B., we want to integrate more and we want to cut costs and we want to grow earnings.
So [laughter] the integration stuff has been really good I mean, we've worked very closely with the dissect team from the from the day. We started this and I think the integration at this point it for the most part is done you always need to get better quite frankly, we have facilities and the number of locations. We continue to evaluate that and what is best for our company.
And how to continue with you know going back to both questions with organic growth.
Which we think we can do around costs I think we're going to get stayed some of the technology site and they know every financial services company talks about technology initiatives. It's hard we all know that the mortgage market itself is still pretty antiquated. There's a couple of folks out there that we think do.
Pretty good job there, but we got a lot of room to grow around probably those three areas.
Got it Okay and then just on the on the corn number strong you know up up a lot sequentially.
You know the a drunken on sales speech, you look like they've come down a little bit and anything that could swing that I mean going for it tells you well above dividend looks like speed or down in the first quarter <unk>. The volume of you know she's only going to be little one q., but it looks like a needle were 2 billion dollar more to clean our market. This year, just I guess, how vulnerable to that point number.
Going forward you know based on just diverse macro variable.
It could be ball until but I I think a couple of things why I think we're different you know and and this is one of the things I tried to lead with we're in investment company. So when you think about our portfolio. We have a 45 billion dollar balance sheet.
630 billion dollar Emus our portfolio. So if you think about the 630 billion dollar Emus our portfolio, let's say rates went up 100 basis points.
You have that Emus, our portfolio would go up quite a bit which would help in our core earnings relative to the offset they had that you'd likely loose on the origination inside the idea of getting into the origination and servicing visits was one again to stabilize started counterparty risk and and give us a little bit more scaling couple.
City too is suddenly origination site to work harder on recapture so even if rates are up we take our recapture business could continue to do better because we have a lot of room to grow there, but the overall investment portfolio in a higher rate environment shouldn't do really really well and I think we demonstrated that before we even.
<unk> new Reds so.
There's a lot of things in a in our business when I look at our portfolio, whether it be loans that are going to do better or worse bonds that will do better or worse origination businesses will do better or worse, depending upon where every on the radio rate environment that but the bottom line. If there's some of all those parts should continue to provide very good returns for shareholders.
Good thanks. Thanks.
<unk>.
Henry coffee with them.
<unk>.
Yeah, it's good morning, and the progress and a great quarter everyone.
You talk to extensively on the last call about the importance of stabilizing book value and the number show that you did a great job.
There was even some concern like you know where do you put the dividend as a priority in that discussion, but with gap numbers, where they are pretty good.
Thinking about where the environment is today versus where it was in December.
That is it easier to hold book stable.
Day versus December R. conditions more challenging what is what is your thought kind of on the overall tone of the market as as it applies to books value.
A couple of things one is 40 basis, playing rally in 10 year rate in 30 days or whatever it was you know as a result of the virus, it's not easy to for any one of us that have been doing this a long time to hedge. So overall you know as you think about that that that creates a little.
Out of a challenge theoretically it could create a little bit of an opportunity, but as I pointed out and some of my earlier remarks, there's a lot of Capitol you know being invested in not only in the mortgage market and fixed income asset. So when you look at the high yield index, which you know close <unk> I mean, the investment grade index close last week at 45 basis points, but the ended.
December it was 45 basis points, so you'd had a whole round trip from a spread standpoint, where we were at the end of December to where we are now so assets continue to remain well bid we have that we've been pretty strategic into month in acquiring some more a mortgage servicing rights, but I think overall, we feel pretty good about are <unk> pretty good about our design.
Went around hedging or book you know when you look at the the balance sheet growth year over year, a lot of our agency growth is due to the or need to hedge our our mortgage servicing right portfolio. Overall, we feel good about protecting book value, where we are now.
But it's not you know looking we have a dedicated risk team. We have a lot of folks that are part of our company today that a good folk is 100% on risk so and they do a great job.
And then on the Tech side, you know <unk> you know you you tell us as much as you can or you want in terms of how that plays out as both an investment opportunity.
And what it's doing for you and and I don't know if you'll <unk> comment on this or not but you know give us some insight into who you think is really doing a good job.
Terms of developing products for companies like yourself.
Good question on the Tech side, we have a lot of room to Grill, you know on our on our mortgage company we have.
You ever really sort of really good team leading that effort. You know, we we will not skimp on budget as it relates to our development, there and becoming as efficient as we possibly can.
I don't you know the I don't know that there's much more I can say about that but when I think about you know some of the.
Folks out there you know there's always different names that are that are thrown out there that are really good we're not really good for us I can't you know I don't I don't think it's truly my expertise to tell you that somebody has been best technology company in the world has to be honest, but I will tell you this from from where I.
The mortgage market was is and where it's going to go it's going to change a lot. So to these then we have the opportunity to make investments in mortgage technology businesses that already appropriate evaluations and I use that word carefully because we see as I pointed out we see a lot of deals will make those investments.
Some of our peers that have been doing this longer you know I use a couple of names have done a great job around some of that stuff I believe but the industry itself is still you know probably 20 years behind.
10 years behind from a technology standpoint, so I think there's a lot of room room to grow and just adults me on this one you know G.S.C. reform big gigantic.
Maybe never maybe question Mark what should opportunities has that created for you and what kind of opportunities do you think it will create in the future you know everybody keeps talking about the patch in you know I I I pointed out of my earlier remarks about you know Fannie and Freddie you know they hired houlihan's located.
I can't R.S.H.A.I.F.H.F. eight again.
Hide who and to work with them on.
I I would gather then coming back to the private markets at some point I do think is going to be an opportunity I think it's very hard for any of us to sit here and a handicap, what that's going to look like.
Middle of an election year, whether they stay as part of the government or not I think depends upon you know who gets elected.
I just think there's gonna be some opportunities for us overtime I, just I think it's very hard for any of us to handicap. If the patch goes away. We think that can be to create roughly an extra $200 billion of of origination in the private market. So I think the growth of Nonqm, assuming that everybody does it prudently.
Patch going away I think all that stuff will lead to more capital investments in the private sector.
Thanks in <unk> recorder, Thanks Henry.
I don't have a cranston with G.M.P. Securities. Your line is open.
[noise] alright, thanks, good morning.
One more question on the operating businesses and then the growth you're hoping to achieve and and 2020.
Look at those platforms can you talk about you know how much operating leverage you think you have their versus you know how much spending you might need to do on the expense side in order to achieve your group turrets going forward. Thanks.
I think from an operating leverage stamp, where we stand in a pretty good place when when we think about spending I don't I don't see as having to spend a lot I do think we're going to be able but.
Will become more efficient I mean, you're taking a couple of different companies, you're putting it together you're seeing extreme growth. The one thing that we will one or two per cent be careful of is to make sure whether it be on the servicing site and we're on the origination side that we continue to offer the best possible customer service.
You know to to the mortgage worse or homeowners that week that we continue to touch I think efficiencies will lead to higher earnings.
I do believe in this goes back to her you know Henry's question about the environment you know if that tenure treasury and mortgage rates remain in this range and call it something between.
One and a half into and a half or one in 2% I do think you're going to continue to have it very robust origination market as a homeowner has plenty of equity in their homes at this point, assuming the economy's fine. So I don't see a huge capital spend woolens, we'll spend money on technology will make strategic investments around that if that's going to make her.
Business better, but I you know, we don't anticipate alerts been there.
Okay, Great and then second question I was just curious you know there's a headline few days ago about J.P. Morgan considering getting back into.
One thing in a more significant way. It was curious if you don't have any thoughts around you know how that might have pack the market. If some some players who've been.
<unk> start coming could push buttons or thanks.
You would think if if J.P. or some of the other large things really make a big push to get back into that space and I don't know, what's real or or what's not it will drive it will lead to 'em compression on me origination side from from a gain standpoint.
While saying that it's you know, it's a pretty big market and I, you know coming from one of the large moneycenter banks I think the idea of lending money is very capable of bank, but it's also cord to make sure. It's there so called core customers. So when you think about it it's really more of it retail type product than it is.
You know some of the traffic in other areas of the origination spectrum. So I think of the lead to tighter spreads to the extent that they're back in in a big way, but keep in mind the banks want to focus on their core customers. So I still think is plenty of opportunity for everybody else.
Okay <unk>. Thank you.
Thank you.
[noise] hangs with the rally around is open.
[noise] Hey, the morning, My God. Thanks for taking my questions. My My first one I just wanted to follow up on map. These question earlier around earnings you know so we understand that core earnings backs out one time died tack related expenses and fair value adjustments on those assets and there's going to be some some volatility in season.
<unk> that moves earnings around but Oh equal you know how do you think about the 61 centres runrate going forward and maybe understanding that.
Somebody assets, you're putting on today might be at <unk>, rolling off and and what you're doing on the expense side to lower funding costs. Just I'm just trying to check if there's anything else that we should be thinking about as some one time in nature this quarter or any other adjustments that should be made.
I don't see my I don't think so I I think from an earnings perspective, we pay 50 cents in dividends, where we focused on you know not next quarter of the multiple quarters out from the poor perspective, and it had to achieve those targets I think you know we've been doing all weekend to make sure that we we have already.
In in and pay that 50 cents quarter after quarter.
Knock wood, we've we've done a pretty good job there I do think the growth in or a mortgage company stuff will continue to provide excellent support for our.
Earnings in or run rate.
We're looking at some numbers around our our earnings and and I will say when from a diversification standpoint it'd be on the mortgage company standpoint.
Servicing right portfolio.
None agency and agencies businesses and on the loans side is very very you know each one of those sectors contributes pretty significantly to our cornings. So to the extent that one part of our business you know falls off whether it be for rate or any other reason, there's another part of our business that'll continue to contribute earnings.
<unk>, you know I'm not going to sit here and the call and tell you were going to be 60 cents or 70 cents or 50 cents every quarter because I you know quite frankly, very hard but I do think as we look forward you know we feel pretty good about at this point anyway about being able to cover a dividend mhm.
Okay. That's helpful. Appreciate the commentary there and then <unk> did the book value some of the parts slide I know you've talked about it before but it appreciate seeing it on paper you know the sensitivity is based around expected earnings. This year for those companies that you've made strategic investments and I'm just wondering what it.
You can disclose what fiscal year I guess 19 earnings were for those companies are using a range of 250 to 450 million for this year you know <unk>, what does that look like last year.
The these numbers are or for the most part everything that we've done whether it be Kobe is whether we've done guardian, whether the the new Red dye tick acquisition. These numbers are really predicated around the mortgage company stuff not cool vs, which is carried AD you know book.
The nearest stuff is carried up above those businesses.
We think that the mortgage company stuff will do and I don't want to just get forward guidance, but you know we we think that 250 plus number is something that's very achievable after doing two and a quarter last year. They give you a sense. So what we tried to illustrate here as if that company does this based on where we are from an acquisition perspective.
Where we acquired the the company and the assets and where we think we're going we think the implied book value of our company significantly higher when we look at the ancillary services business in Tobi is and I think that success, there will be driven not only by n. or is he quite frankly by doing by taking copious I'm working with other third.
<unk> on an ancillary services business. So it's not specific to new raise the mortgage company that was type type of companies traded a significant multiple not a six or seven times. If you think about like a like a black knight or one of those type of company. They could create a 15 or 20 times. So the idea about building book value around.
And the core assets that we have working with other industry participates to try to get them involved in that and have ownership there too I'm quite frankly, I think could provide a significant live to our books value. So really decided it specific around the mortgage company itself not necessarily the co vs Guardian and some of the other things ever <unk>.
Completed.
Right. Yeah. That's helpful. And then I guess another thing that I don't think is beginning to call right strategy. I'm. Just wondering if you were to add that to this slide how much more valued thing that could bring.
100 billion times, a couple of points is 2 billion divided by 400 million shares is five bucks this year, but I don't want.
[laughter].
That's you know we didn't put that in here I I think it's all this stuff moves around a fair amount it depends on it depends on the market how quickly these loans gay cleaned up how much the amortize and this other node.
Around that strategy of course, yeah, no, but it's still helpful is just get some framework there. So appreciated and then my just my last question. The the core earnings contribution from call writes this quarter.
Two cents a share of 9 million now.
And then I got it I. Thanks again, the congrats on a quarter.
Giuliano belong with B.P.I.D. Your line is open.
Good morning in congratulations on the recorder.
<unk>.
Just just to give them a little bit further on the the operating company, earning side.
Do you know sort of sounds of how much of your services you've already transitioned over to one of those companies were there'd be Guardian, <unk> or you know how would you 365 and what the opportunities to continue expanding not.
So an avenue 365, and E. Street, it's for the most part that is captive to our own origination business at this point, 100% of it doesn't go there just because you can't.
So there's been nothing you know Oh wait from that there's still some portion of our origination versus.
That flow to other third parties there as we think about Guardian Guardian assist growing they they have contract not only with us quite frankly, they haven't contracts with HUD and and and other you know third parties, there's still a lot of work to do to transfer services from into our into our company.
When they want to be clear as you know we want to work with other third parties as well. So it's not only about you know this specific companies that we have.
But you know there's still a fair amount of work to do around this stuff.
That sounds good.
And it looks like a on me origination. So you guys are looking at 50 million plus and volume.
Oh that would be on to them. Oh, you marked you know a higher number a dollar basis, but you probably have the ability to replenish <unk> you know the majority of your run off in the book going forward is there any thought process around mix would do so any of those originated emus ours or would you just allow that to kind of continue to mix and and I'm mixing.
Or or more.
You know more we're government product.
I think as long as we you know we continue with our sort of you know providing or shareholders with our dividend covering or give it and and from the capital perspective make sure. We're running the company with with the right mix and products and then ample amount of capital I don't anticipate that selling any any.
Assets, you know around the M. and stores now you know one thing we did in in Q4 as we did sell some nine agency bonds that we're not quarter of our strategy.
But in general I I think you know, we'll we'll continue to see these assets remain on or Balanchine, because we need them for things.
That sounds good been kind of a two part question, obviously have a big integration expenses quarter for died tech.
And then going forward is there any more the Tonight I started flowing through because I really.
At least from attach earnings perspective, and then do stress any costs related with B. 40 billion dollar no central acquisition of them as ours.
In the first quarter.
So he in in the fourth quarter, we incurred approximately $20 million a transition slash acquisition expenses going forward from 2024 hours. The expectation is the number will probably.
15 to 20 million dollar range that'll span across a couple of years.
That is great I really appreciate the amount of central take my question.
Q.
Stephen laws with Raymond James Your line is open.
Like morning, I've seen and.
Appreciate the time here follow up on the macro question I think you're going on just the U.M. patch some commentary to earlier question, but you know earlier. This week sought some some news about potentially that they'll be network financing opening backed up I didn't cover you guys in 13 to 15, so I'm not sure. If you have a copy of it I'm sure.
Place or a would love to see you know to get your thoughts on on that opportunity did open back off and whether that's something you guys would pursue.
We did have a captive ensure we went down the path and becoming part of the system.
And then they went away.
So.
At that point, we got rid of our captive insured just because it's to the expense. If if if there were by all means we would like to be part of it because we think is something that importing from the funding perspective, and I won't say from the funding perspective, we probably do finding transactions with about 40 different counting parties at this point.
I don't know that.
It's going to happen quite frankly, if you think about what's happening today in our in our World you know the government's talking about taking Fannie and Freddie add up conservatorship, and making them private companies. So I wouldn't find it hard to believe that all the sudden they're going to be financing all of us. However, if they do.
You know, we'd love to be part of it.
Great. Appreciate the teller. There you know wanted to touch base I guess on earnings and distribution. So you know can you provide a mix and I haven't had a chance just wanting to go through you know all the filings information they're out but a mix of you know taxable income versus income from operating businesses that maybe in a taxable.
Subsidiary so.
Just trying to think about what the mixes of that and obviously what flexibility that could give you. If you decided you know it'd be more attractive to retain some earnings to get to enhance book value growth are kind of your thoughts around derivative distribution obligations versus total income.
So for for for 2019, we satisfied they are our obligation winter in terms of paying out our taxable earnings.
We had approximately 90% of our earnings we're paid out with respect to the.
The core earnings that we reported for the year.
That mix.
To remain about the same going into 2020.
Right and then lastly, Ah you know I appreciate the color and build out on the book value.
You know pro forma you know how do you think about you know how does that come into play like when you think about stock repurchases.
Looking primarily a gap book is there is there's some other value wannabes columns. For example that you think about more relative to repurchasing stock.
Maybe you know some some comments on your thoughts around stock buyback and and what you look at his book value.
Yeah, I think a good question, if you know and we've been pretty vocal about that what our stock takes ahead. You know, we typically up conversations with our board I won't be trading well below book value to say actually we think about this and try to put a stock buyback in place a lot of times. These you know, we'll put a stock buyback in place and they don't.
You know this stock will rebound.
If the investing environment got to a place where you couldn't to play capital that what we thought <unk> attractive risk adjusted returns.
Means I think we'd buy back some stock because it'd be more creative for shareholders. Then you know than investing in at that that where we think the risk adjusted returns don't make sense. It's always open to that the flip side of that is you know there's always you know we believe there's always things to do we just got to maintain that proper discipline.
Around it and I think now that we're in the operating business. If in fact you thought.
You know yields <unk> are going to remain around these kind of levels the amount of capital that will put into origination and servicing and but since we're likely grow over time, because we think of return on equity there and the gains for it and and the earning for the company will far out pace anything we can do if we went out to a repurchase her stock.
Right appreciate the comments around that Michael and thanks for taking my questions. Thank you.
We have time for one final question.
T.B.W. your line.
Hi.
Eric on for bows, thanks for the follow up just.
In the morning did you must take a mark on the dissect M.S.R. after the acquisition close.
The we we actually took a slight positive mark on the site check on the phone [noise].
It wasn't materials that can you.
Okay.
Thanks.
<unk>.
[noise] I went back.
Back over to Michael.
[noise], so safe everybody's support.
And all of your questions. If you have any follow up give us a buzz we we look forward to continuing down this mission in path to try to provide good returns for for <unk> for shareholders have a great say that great weekend. Thanks.
<unk>.
Huh.
You think you San Francisco patient.
Yeah.