Q2 2020 Orchid Island Capital Inc Earnings Call
[music].
We recorded today July 31st 2020.
At this time the company would like to remind the listeners that statements made during today's conference call relating to matters that are not historical facts are forward looking statements subject to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Listeners are cautioned such forward looking statements are based on information currently available on the management's good faith belief with respect to future events that are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in such forward looking statements important factors that could cause such differences are.
Right and the company's filings with the Securities and Exchange Commission, including the company's most recent annual report on form 10-K.
The company assumes no obligation to update such forward looking statements to reflect actual results changes in assumptions or changes and other factors affecting forward looking statements now I would like to turn the conference over to the company's Chairman and Chief Executive Officer Mr., Bob <unk>. Please go ahead Sir.
Thank you operator, and good morning, everyone I just want to mention that door slide deck was not put up last night was put up this morning, I hope everybody has had a chance to.
Well the copy also that you can participate with us as we go through all the presentation today.
As usual I will follow the same kind of format the starting on page three table contents.
First I will be just discussed our results for the quarter high level.
I'll spend a few moments describing the market in which we operated in during the second quarter.
Through our financial results, a little deeper detail and that spend the rest of the time talking about the portfolio positioning changes we made.
How we see all the market evolving in the future how we want to be position put out and of course scratching, a bar hedging strategy and leverage neutral ports or whatnot.
Turning to slide four.
Oh financial highlights for the quarter. The first thing I would imagine is it working at a very strong quarter Oh, we generated a net economic return of 15.8% for the quarter led is on an annualized.
Oh, it's a result.
Our performance versus our peer group, which I'll describe a little more detail in a moment or using a our total rate of return based on stock price and dividends sucks up extremely well against our peers going back to all our history, our existence and finally, we find ourselves finally in a very favorable environment.
Well that is not always been the case and ER and we've had two slugs through a series of fed rate hikes and the like but that is not the case now.
The environment that we find ourselves in this very attractive for our business model. We recently raised our dividend, we feel very comfortable with the dividend at that level and as long as speech dawn accelerate meaningfully to the upside we actually see room for earnings expansion going forward are the key of course is going to be speeds and how we match.
There's no speed, so with that I'll dive into the results.
The generated a net income per share of 74 cents. This just 31 cents, excluding realized and unrealized gains or losses on RMBS assets in derivatives.
Net interest income on interest rate swaps generated gains a 43 cents per share on these realized and unrealized gains and derivatives recruiting swaps.
Our book value per share it was $5 in 22, such a June thirtyth, that's up 57 cents or 12.3% come the end of March.
Oh Wrestlemania booked already for sure. So July 20 night was between five to 23 and 533, an increase of 0.1% to 2.1% from quarter ended June.
This also gives effect to the payment of the dividend in August to quit off with a record date of July 31st so that is above and beyond the dividend.
In the second quarter, we declare themselves we paid 16 enough sense of dividends since our initial public offering we have to Curt $11.33 of dividends, which includes that most recent 676 on dividend occurred in July as I mentioned, our total economic return for the quarter was 74 cents or 15.8%.
Annualized.
And our third quarter year to date results are between 1.3, and 3.3% comprised about six cents dividend I don't want to 11% increase in book value.
On page five we show our results versus our peer group. The peer groups are described at the bottom of the page.
And I want to point out that or good was founded in February of 2013, well not long before the taper tantrum the summer that year and essentially since that period, we've raised albeit operating in a new rising interest rate environment. All the fed first raise rates in December 15 in December of 16, a throughout 17 and 18.
We only had excuse me about a one year period, where rates were actually falling we kinda have the wind at our back before the Pandemics dropped earlier, this year and kind of through the markets into turmoil, but.
And in spite of all that if you look on this slide you see the first call and our total rate of return versus the pure averaging in the final column shows our relative performance and as you can see we've done very well against our peer group over these periods for all look backs odd year to date 123, all the way back conception, we're very proud about.
On the next slide show the same kind of adult by this is with book value. Unfortunately, we don't have all of our peer groups book values for Q2, so as always this table tends to lag I want to point out that.
When we put together working in Bucketed business. That's an agency only model that was around the time when we were coming out of the frozen financial crisis and credit was starting to turn around and a number of our peers talk on credit and lead times, especially in 2017 and 18 when the economy is very very strong they accept.
Well, we lag, but now that the cycle, it's kind of come full we've gone through the full wonderful this cycle in Colorado, a point where credit is lagging.
Shows that the strategy has paid off well, we've mentioned before and our calls I'll mention again at some point, we may expand our investment strategy to include some credit.
Although we think it's premature to do so now given the evolution of covered this year, what we're saying with the re emergence in the summer a were not starting at the age were completely out of the woods and in which case, if we're not any credit could still have some more downside. So we're not going to dive into credit in the immediate term and off we missed the absolute bottom.
That's not going to hurt us because we're not we don't want to jump ball getting philosophy before jumps off the cliff.
With respect to the markets and the environment, we have to operate in I'll. Just go through this relatively quickly on slide eight or the first thing that stands out as the rates market well essentially unchanged. All we did not experienced meaningful movement in rates throughout the quarter, whether it's in ball or the nominal treasury curve Orange swaps Oh. This is in pretty sharp contrast, you risk out.
That's generally which while they were off were quite volatile throughout the quarter.
The rates Mark is going very very stable in fact, if you turn to slide slide nine.
The left you see a 10 year treasury and swap over the last quarter and really with the exception of that brief period in early June when we have to surprise nonfarm payroll number of plus 10 million versus expectations and we had a short lived bump up in rates, but otherwise we've been in a very very stable rate environment.
In which you know as that people are familiar with the mortgage strategy. You know that's generally a good thing for mortgages.
Slide 10, just gives you a picture with this is our proxy for the slope of the curve and after years of us flattening curve. We finally, starting to get some relief, but five sturdy spread it get over 100 since the last few weeks, it's dip below a 100.
I mean 90 to 100 and so.
We may see continued downward pressure will see but generally speaking with funding as where it is a this environment is very advantageous for our business strategy.
Slide 11 won't say few words about the mortgage market the left side is.
Hey market, if you will rightsides, where we look at specs and a few things to point out if you noticed on the top left this is just the performance of TB age. The Blue line is that Fannie two and a half 30 year.
The Red line as a Fannie three and then three in house and fours and whats very obvious and let's fix out for instance indicates a fannie two and a house they were up 23 chicks and twice with rates unchanged.
Fannie Threes were up 14 checks, but the higher coupons were actually down meaningfully in price.
And saying what the roll market. If you look at the lower coupons you can see rolls are very very strong in a lower coupons very very weak in the higher coupons. In the question is why is that you got your very obvious. It's the fed we all know fed got into the market through Q, we both buying outright can be investing their pay downs and there as well it changed.
Over time, and eventually bought all coupons knowledge is very much focused in production coupons only so when a case of 30 years, they're buying choose to wouldn't have some threes as a result, those coupons going very well and also very importantly, there rather indiscriminate buyer. So they buy the kind of cheapest to deliver collateral. If you will send it works it securities that have the worst convex.
He had prepayment characteristics, which means what's left for the market is very desirable since they don't by the higher coupons that means the market is left to bear all of the sheep collateral or for quality collateral and as a results TV Asian, those coupons have done very very poorly.
As a result of that if you look to the right in the spec market in these higher coupon does spec pools become very desirable and given the extremely poor performance of the TV a the payoffs for those securities are much higher than they would be even otherwise self interest on the top right. We show a 85000 Max loan balance three and a half.
And a for the Red and Blue line.
I apologize an occasion the three enough there was some breaks in the line that's simply because those securities weren't produced in those periods.
Look at where these pay ups are versus say 2016, shortly after Brexit win rates at their then all time lows tenure got to about 130 as you can see we are meaningfully higher than that level now and that is given that we're at low rates and even though the economy is somewhat weak the housing market as the exception and doing.
Quite well and in spite of the effects of cold they didn't social distancing and sheltered place refinancing activities extremely robust and as a result. These securities command very hard pay offs. That's even reflected in the price of just new securities. The logic. There is that securities don't tend to refinance right away after their produce.
There's usually a spike for a few months and you can see that the pay ups there approaching a point, which is very hard on historical basis.
Slide 12, it's just a picture of volatility in this case, it's a swaption a three month in the tenure and as you can see after the spike early in the areas drop.
Mandatorily add for us that represents an opportunity in terms of our hedging strategy, which I'll discuss more later, we've been using wall related products for our hedging more so than in the past.
On slide 13, I won't dwell on there. So just basing shows like we're only half isn't as you can see the lower coupons are lower reflecting what I, just said about the fed and on the right. We show the pay ups sauce for specified pools for this case, a threed have coupon or you can see there quite elevated.
Turning to slide 14, these returns across them.
Aggregate index.
The top these are Q to Q2 results. If you can see a risk had a very strong quarter. So if you look to the far right you see high yield emerging market high yield and the S&P 500 did extremely well this quarter, whereas safe Haven assets like treasuries and mortgage backs agency mortgage backs had more modest returns.
However, when you put this in the context of the whole year, which captures what happened in March.
You can see that risk assets, so on the far right high yield and emerging still have negative year to date returns, whereas mortgages in treasuries have very strong returns.
Now turning to slide 15. This is really the crux of the matter in terms of what we face going forward and what we view is the most critical variable for performance throughout the balance of the year on into 2021 and that of course is refinancing activity.
As you see in the top left the Red line here just represents mortgage rates and as you can see they continue to decline steadily the blue line is the refinancing index and while it spiked in is elevated it really hasn't remains elevated is once was earlier in the year and the driver that is what you see in the top right and that was just this primary secondary spreads.
In other words, what originators are charging for mortgages versus a theoretical current coupon mortgage and you can see that spreads elevated it it's coming down.
We anticipate over the course of the balance of the year that that number that spread will normalize maybe not quite all the way that where it was at the end of last year, but it will come down and as a result that will drive the primary mortgage rates below 3% and refinancing activity will remain quite robust and could could accelerate.
Names to be seen.
The bottom of the charger shows the percent of the universe, that's refinancing will by at least 50 basis points and you can see we're pushing 80% and could go higher.
So that's the market backdrop, and I'll talk about our results.
On slide 17, just wanted to point out a few things here.
Slide 10, charters, where we'd decompose our return for the quarter between Mark to market related and just kind of net interest model related. So we generated 31 cents and net interest income.
That all and then we also had 43 cents of net mark to market gains. So in other words, our assets meaningfully outperformed our hedges a 43% return for a quarter is extremely strong. This is of course in contrast to Q1 on the opposite was true but it reflects just how strongly the asset classes recovered in the second quarter.
And so it's obviously with the effect of the health of the fed the market is completely recovered in fact, if you look on the right hand side.
We were show our returns by strategy and the cases the pass through portfolio, we generated a 16.4% return that's on your annualized so obviously an extremely strong return.
Slide 18, it's just a picture of our net interest margin in dividends.
Couple of points, so the obvious ones in the far right the blue light as the yield on the assets you can see it dropped reflecting a decline in rates, but importantly, the red line, our funding costs dropped even more as a result, our net interest margin has expanded and makes sense that there's room for even further expansion going forward the dividends on the bottom just shows is different.
The end of the second quarter as you know in July we decreased our dividend modestly to six cents and as I said.
If we see a speeds if we're able to control speeds, we see room for expansion there.
Slide 19 is similar picture just presented slightly differently you can see the red line there.
Is the core earnings and it's starting to hit bottom in starting to recover.
Slide 20 few items here about our capital allocation in activity in the portfolio.
The capital allocation continues to shift towards pass throughs as we continue to de emphasized structured securities.
The returns in the past through strategy are extremely attractive and while we still use structured securities in iOS as hedging instrument.
Using them lessons and income component. So we all know inverse iOS and the moment we just.
Hi allows for hedged purposes on the right hand side. This shows our activity I will point outage. This excludes TV gay so we do own little over 200 million and TB Ace inclusive of those the portfolio expanded by about $600 billion or 19%. This quarter. So we've gotten back a meaningful mark.
Portion of what we had to shed in the first quarter. So the portfolio is not far below where it was at the end of year.
Now, we'll get into the portfolio characteristics.
Two points I want to make here and this is really kind of the key.
As we position ourselves going forward and while we continue to migrate down in coupon.
In this chart on the passion component, which is a top of the page right in the middle there's a column labeled CPN or coupon.
The pass through coupon is 3.62% that was 3.89%. If you ended the first quarter and we suspect that could continue to drop slightly over as we move forward. The age of the portfolios 11 months. That's unchanged. So we've been able to maintain engaged through trades.
One thing we have done since quarter end is proved a lot of faster page securities. So within these buckets, we've been able to shed.
Some of the worst come back surpass are paying poles, and we've been able to add slurping pools, the higher coupon sturdier force for Nason fives, those are all down 3% to 4% from quarter end or from the end of Q1 and I suspect will continue to drop.
We've since added some in July of this year Awesome 20 year, two and a house and a position shown in this page as a 30 year two and half.
Thats since been converted to a TV a position from a pool.
With respect to hedges on the bottom, we're still running at about 50% of our repo balance.
We are likely to continue to do so although we are adding more in swaptions I mentioned, how low volatility it's been in the rates market and we're taking advantage of that by adding too.
Our hedges.
Mostly payer spreads strategy.
So we have a better Perry and given.
Benefit from both a raising rates and volatility they tend to occur at the same time.
So to the event in the event that ever does happen. We make these investments will be pay very very well at some point, we may add more swap so fighter swap rates are getting done in the mid twentys at some point, we may add to that just trying to lock in long term funding.
Page 23, it's one of our newer slides, where we show the Blue line is just the Rifai index and the Red lines as our concentration of very high quality spec pools, so lower loan balance 85, 110 up to 150 K.
You can see it dropped slightly in the current quarter, that's simply because we added that large position in 15 year to EUR 30 or to announce those were not high quality specs knows more about credit story there since quarter end, we've actually brought that percentage back up to 86.5%.
And that's likely where it's going to remain for the foreseeable future.
The benefit of these strategies and when the positioning the portfolio are reflected in slide 24.
This is what it's all about we think going forward. This is our results. If you will from the perspective of fees versus speeds versus returns what we show here and these respective charts. The red largest represents the speed of the given cohorts. So whether its 15 years or 30 year region Threed half the blue lines.
Our securities and it shows you how we pre pay versus the cohort for the month of June may in April.
Bottom right and show that same kind of information slightly differently. In this case, if the rolling last four quarters.
So the fourth four quarters would beat you to 20 back to Q3 of 19, and what we're showing here that the percent of the cohort speed that our securities pre paid out and as you can see it's quite low with the exception of 30 year fives are very small allocation of ours, but more importantly, the blue line. The most recent quarter is quite low.
This is going to be critical in terms of security selection and how we position the portfolio for the balance of the year since speeds are obviously going to be the primary driver performance.
Slide 25, just showed you have something we'd like to present. It shows you. The Orange line here, which is just rates that proxy for rates. The 10 year and this is how another way we I guess, we look at speeds and that's just simply the absolute dollar amount of prepayments, we realized versus the unpaid principal balance of the portfolio, we'd like to see that around 1%.
In this environment Thats quite hard to accomplish but it is interesting that where we are now is actually lower than we were in late 2019, So we've actually even with rates much lower behave better and that's really what's driving our performance.
Slide 26, we show our repo positioned by Counterparties, but also leverage on the right side as you can see we're at 9.7.
So the high end of our range and given where returns are in the market.
We expect to stay at the high end of the leverage range to the extent returns drop.
Average would probably come down.
And then finally slide 27, Oh. This is very key to what we've been discussing and this just shows you our interest expense.
Per share and as you can see going back to January of 19. When it was 13 cents per share. It peaked in may of that your 15.
It's come all the way down to one cents, so obviously a big drop.
And so this really gets that what we've talked about when we say, we see earnings as being very strong going forward.
Oh, we're paying that six cents dividend.
Which equates to a low double digit yield there's probably.
The ability to go slightly above that so we see return potential in the low to mid teens.
So to put some numbers around that.
Spreads and 125 basis points, sometimes you can get higher than that with.
Numerous securities to prepay slowly as they ramp up.
And so generating returns in the low to mid yields are mid teens is very strong in this environment and we think if we can maintain speeds that we have the ability to achieve those returns and as you can see from what we just described so far we're having very good success in that regard. The final slide is just our hedge positions.
And I'll just point out as I said in the bottom right, we've been adding to the.
Swaption book, using payer spreads, where we're long and short term.
Two different instruments, usually with similar structures.
I tried to take advantage of differences in four ball. So that we can reduce the upfront cost of entering into the position.
On these trades a few times now and so we like this kind of positioning.
We get a steepener or movement in the long end meaningful movement.
You would see both an uptick in rates and vol and these strategies will do very well so I.
Just to summarize we think we've had a very strong quarter, we're very very proud of our performance versus our peers. Both from a book value and the stock price performance and we see the environment is very attractive from a return perspective.
And to the extent, we continued to peak speeds under control, we do see some upside for our dividends so with that I will turn the call over to the operator and questions go ahead operator.
Thank you Sir as a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the county roster.
I show our first question comes from the line of Jason Stewart from Jones trading. Please go ahead.
Hey, good morning, guys.
Jason.
Yeah.
All right.
So I was wondering if you could opine or share your thoughts on how credit availability may impact speed that you're thinking about versus models and how that puts you in a position in the portfolio that you have today.
Going forward.
So when you say credit availability you mean.
Just borrowers generally.
Hi, how are you thinking in terms of restrictive requirements for whether you're seeing.
Got into just see world.
You know, we're currently outside of the Juicy roads happening, but whether that's impacting your view on speeds in the GRC road or.
There's no change.
We had.
It was 100, Jason we have really hope to see and thought we were going to see a benefit.
In the wake of the.
The crisis and pandemic.
In terms of.
Job losses, equating to slower speeds and the forbearance programs that were.
Rolled out to run the time carriers that came out.
We haven't really seen that.
Show up much at all.
Looks like.
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Borrowers are barb quite able to refine into this new environment and would expect that that they will continue to do so in the coming months says.
Our expectation is primary secondary spreads are going to narrow.
We could see mortgage rates drop into the well into the twos and that just opens up.
Enormous bucket of borrowers who have really never had the potential to refine and so I guess the short answer is no. We don't really expect to see it slow speeds down and in fact.
We would expect there to be continued.
Robust speeds going into the next several months, yes, I would add to that.
Chia seeds of anything have become more accommodative, one thing that was really never seen meaningfully. So before was what is known as a property inspection waiver.
Waving at appraisal and they're becoming prevalent the gses are really bending over backwards to accommodate.
The origination of mortgages, it's all part of the.
Government, whether it's the fed or Congress or the Gsvs efforts to just revive and maintain the economy. So.
Borrower's ability to get loans, especially in the non bank space in the women wealth on that but banks are non banks our share of the market has grown substantially that was a concern with respect to servicing earlier because people are afraid that non banks wouldn't have the financial wherewithal to service delinquent loans.
Peabody assumed as Hunter alluded to that Forbearances would grow and how these services going to able to make these advances while the gses accommodated again basically said that you only have to advance for four months.
Which point the gses themselves will take over the advancing we've seen an uptick in agency debt issuance to fund that and for the most part they don't expect it pulls will be bought out or delinquent loans will be bought out during the forbearance period, which is initially six months, but in all likelihood 12, and even then the most.
Likely outcome is probably going to be a payment deferral, whereby the unpaid interest and principal is just refer to the end of the mortgage so it doesnt even necessarily mean, the longest bought out then and even within that the forbearance. Many instances from what we hear the borrowers that enter into forbearance often continue to stay current so.
The credit element of all of the coal that pandemic outbreak has been much much less than anticipated and prepayment speeds every month since April has surprised us and the street to the upside. So we kind of view that is likely to continue.
At least the prepayment waivers in particular are something that our cause for concern with the way, we manage our assets and Bob alluded to the fact in his prepared remarks that we are.
Migrating down and coupon, but so theres been a proliferation of say two or perhaps that have hit the market over the course of the last few months since rates have come down and but those those loans still have gross wax often into the low to mid threes and so.
Particularly skeptical about those in the coming months, if and when we do see that primary secondary spread decrease that could just be very low hanging fruit for the mortgage here, especially like to non bank lenders, who are getting more and more aggressive everyday I would expect this we just at his point just reemphasize as we move through the.
Balance of the year and let's say the.
Primary mortgage rate moves below threex. The paint is going to be felt in the more recently originated to change into an apps.
Because its hunter said they have high gross last fresh stocks, they're very low hanging fruit.
Firstly, the higher coupons the more seasoned pools. They just go from 200 into money to 250, and they will start to exhibit some burn out. So I would expect a lot of the higher coupons and especially season bonds would do commensurately better in that environment.
One thing, we Didnt mentioned, which I mentioned that pay upsilon spec pools had risen will I didnt say was that you've seen a huge gap between new issue and season and the reason is very well initially was well founded in that is that seasoned loan balance and the like pulls pay quite fast and therefore much faster the new until the payout change.
Dramatically actually probably got too big and I would expect going forward. If what we just said is true and you start to see more and more burn out amongst those pools that gap with narrow.
And therefore, those securities would be behaving quite well. So if you did on the season loan balance you could see some pay up appreciation and speed decline until the returns there. We do you all are very attractive.
And were more leery of the lower coupons absent the role of course as long as the feds buying the role should be strong, but if you on those and pull forms I think those are very vulnerable pools.
We've been focusing on purchasing what we have purchased and lower coupons have than those that are either.
Stories that are have such a low dollar price that we could quickly delivered them into a TV eight.
If and when they.
Start paying fast or.
Loans that are not would not qualified for a.
For the inspection waiver like Investor properties and.
Different.
You need collateral types that that would not qualify for that type of refined.
Correct.
I don't think who does a nice view on positioning and agency book took a very convicted viewing and they paid off so kudos on that but if we pull if we pull way up and then I'll jump out of here do you ever thought on yield curve control and what that means for mortgage.
Well I think if they do.
There's a large variance of opinion out if they do I think it's probably this can be in the front end the curve maybe out to the through your point.
I think the market to a large extent is behaving as if they already are the two years I checked data to your is about to be up solar fed funds.
Three years not much more I wouldn't expect even whether they do it has not it to have a meaningful impact it's more the long end.
And what you're seeing now with this flattening from when I hear the dollars than weakening and Asian investors view the long into the curve is very attractive they've been investing in the long into the treasury curve on an unhedged basis. So when those kind of dynamics that are at play.
That's really outside the fed per se, it's just driven by more market dynamics and that may persist for some time yield curve control is probably just if it does come it's probably this could be on the fund in the curve and I would argue that the market's almost acting as if it were in place already.
Appreciate the questions. Thanks, guys.
Yes.
Thank you.
As a reminder to ask a question do we need to press star one on your telephone to which are your question. Please press the pound key.
I sure next question comes from Christopher Nolan from Ladenburg Thalmann. Please go ahead.
Hey, Bob Hunter.
Chris.
On the are we talking about low to mid turn returns is that for the second half of the year was that for full year.
Oh I didn't have a specific Korea I would just say that's what's available today.
While the high rate of that range is going to be predicated on better speed performance.
We just mentioned on the last.
Jason's question.
We think lower coupons in pull form or little more vulnerable sold returns there are going to be on the low into that range and some of the higher coupon, especially season pulls colleague and be more on the the high into that range, unless we're wrong and speeds do accelerate across the board meaningfully in which case those returns.
Probably won't be there, but if we can manage speeds I think those returns are very doable TV hey, the TV is a great alternative as well if we you know for us if we become overly concerned with the.
You know potential performance of the pools the TV.
By antibiotic is a great option.
Rolls are great.
The feds going to continue to buy.
Production coupons, and they're going to trade special for the foreseeable future in our opinion.
Okay, and Im just sort of doing back at the envelope.
On the new dividend of six cents per month.
Equates to roughly a 14%.
Book values. So that's sort of falls within that range is that fair way to look as you say dividend.
Consistent with your view in terms of are we.
Yes, okay.
Okay great.
And then I guess.
The other thing is really.
Everything just sort of turns on speeds by the way very nice quarter, but.
That is the key question here I just want to make sure that's the key takeaway.
Absolutely and I think we've tried to make that point as strong as we could.
You saw hollyoaks, so far weve behaved versus the cohorts and if so how you position in terms of what spec pull to you on our vintage you own GBA of course always offers attractive returns you see that especially one of our peers use the TV market more than we traditionally do but in those coupons the feds.
Well I implied financing costs is very very low.
No if you listen to the fed.
So I think they're going to back away from the market anytime soon but it does create opportunities for everybody.
Just go back to that slide 23, we're sitting at over 80% of our portfolio and what we would consider to be very high quality specified pools. That's.
Especially true of the higher coupon that we own so the three and a half the three three to have scores for perhaps Paul just about used called threes I coupon stride yet but.
It's all 85 one.
Hey, Max one 10-K Max.
Q1, 25, and one Fiftys and then some New York.
Predominantly in 3003, and a half space so.
Well, we feel pretty good about the quality of the portfolio.
Weve.
We sat on these assets and watch their pay ups go through the moon, but we have a good cost basis and them and so while we could grab quick profits by selling them, we'd just be.
Left with a replacement problem and so I think we're going to sit on them for a little while and as they pay down we'll venture into lower coupon space and make sure that were in safe territory. There as well yeah. We did also on some 15 year Tvs as well too.
That's right, we've actually got in and out of that treat a few times has done very very well so.
There's a lot of opportunities in the marketplace today, that's for sure and funding looks like it's.
Readily available we didn't really well in this.
We're in the mid Twentys, then we can even term that out if we like in most cases out around the same level are very very modest increase.
Right.
And we don't have any issues and some of our credit peers do.
We didn't have to get to the forbearance or anything else maintain adequate liquidity through out.
So that allows us to be nimble to the extent, we want or need to be and we've got the leverage ratio back up to the high end of the range that was not a challenge to do so we're not going to go higher but we see were very comfortable maintaining it at that level lungs image returns are available I guess I've a question of leverage Bob is.
I guess the your lenders are assuming that the fed backstop will not.
Allow another liquidity trap like we saw in March.
I think that's safe to say.
In the fed is.
Go ahead, yes.
That's the case and if you're really dealing with a one dimensional risk here, which is mainly prepayments.
I'll take the Leverages compare.
Oh.
You need a lot of conviction to do that and it would be very costly if you go wrong.
No I guess, the one thing that would drive me away from that is that on a lot of people have the view that we do.
Rates are going to be low for longer and Theres. No reason to think they want it just it whenever you get the market so off side on one view.
It can be very painful when the market goes the other way and it doesn't have to be a meaningful move just has to be enough to trip a few people to shift and that in of itself can drive the market higher so that would keep us from doing that.
Fair enough okay. Thanks, guys.
Sure.
Thank you.
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I show no further questions in the queue at this time I'd like to turn the call over to Mr., Bob Cawley, Chairman and Chief Executive Officer for closing remarks.
Thank you operator, and thank you everybody for joining us as always we appreciate you spending time with us to the extent you weren't able to you want to listen to the replay of the color you just want to calling with questions where more than happy to take your calls the office phone number is 772 to three one 1400, otherwise we look forward it.
Talking to next quarter in Darla next dividend announcement will be out in mid August.
I hope everybody stay safe and look forward to talking to you next time. Thank you.
Thank you ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
Yes.
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