Q1 2021 AG Mortgage Investment Trust Inc Earnings Call
For the year ended December 31 2020.
Except as required by law, we are not obligated and do not intend to update or to review or revise any forward looking statements, whether as a result of new information future events or otherwise.
During the call today, we will refer to certain non-GAAP financial measures. Please refer to our SEC filings for reconciliations to the most comparable GAAP measures. We will also reference the earnings presentation that was posted to our website. This morning to view the slide presentation turn to our website Www Dot AG <unk>.
Dot com and click on the link for the first quarter 2021 earnings presentation on the homepage in the Investor presentation section again welcome to the call and thank you for joining us today with that I'd like to turn the call over to David.
Thank you Jenny good morning, everyone and thank you for joining us I'd like to welcome Jenny Netherlands from whom you just heard.
Jenny recently joined Angelo Gordon, who was appointed as our general counsel.
We can drive more value for our shareholders with our differentiated whole loans strategy.
We call our strategy differentiated not because we are unique but because only a subset of mortgage reetz have our combination of skills experience and infrastructure to execute the strategy, which we will discuss in further detail later on the call.
Now turning to our first quarter financial performance I am pleased to report that hour adjusted book value per common share increased to $4.76 per share has a march quarter and compared to $3.94 per share as of December 31st 2020.
That's an increase of 82 per cent 82 cents per share or 21%.
As a reminder, adjusted book value excludes as an asset the capitalized issuance costs of our preferred stock and therefore is 60 is 16 cents lower per share than our gap book value.
The increase in a book value quarter over quarter was driven primarily by a rise in the value of a residential whole loans and R. C. M. B S. As well as continued strong performance from our mortgage affiliate Ark home.
And the fourth quarter, we reinstated the dividend on the company's common in preferred stock.
Building off this momentum the company declared an increase dividend on our common stock for the first quarter of six cents per share. In addition, we have returned to normal course dividend payments on a preferred stock with the first quarter dividend paid on March 17th.
Now I am pleased to turn the call over to T. J durkin to cover our operational highlights for the quarter.
Thank you David and good morning, everyone.
During the quarter, we executed another accretive opportunity to strengthen our capital base by redeeming approximately 500000 shares of preferred stock and a slight discount in exchange for 2.8 million shares of common stock.
We also successfully utilized our a T M program during the quarter to raise net proceeds are approximately $10 million do the issuance of 2.2 million shares of common stock at a weighted average price of $4.53 per share.
We reinvested that capital during the quarter into residential asset classes, including both non QM loans and agency whole pools.
Turning to our presentation on page five we present day first quarter portfolio update.
You can see our CRE and see MBS exposure continues to shrink given the two CRE loans sales mentioned earlier, along with other <unk> sales during the quarter.
Subsequent to quarter end, we exited all remaining Freddie K multifamily securities.
At this point, our commercial exposure is less than 5% of our overall investment portfolio with two commercial real estate loans left and <unk> single asset single borrower Securities remaining.
We believe there is further book value upside remaining in these assets and we will prudently continue to manage this exposure down while being disciplined on the exit prices.
Now turning to slide 10, we want to again highlight the strong performance of our home.
Our license mortgage origination affiliate during the first quarter.
During the quarter the team at our continued to take advantage of the talent and the mortgage banking sector with another strong quarter in both volume and margins within the agency channels.
And as we stated on previous earnings calls Arc home was one of the first originators to reenter the non QM business post COVID-19.
Coincides with a very exciting environment for residential mortgage finance.
Recently regulatory structural on market changes have set the backdrop for what likely will be the most dynamic period for investing in the new origination non ANC residential space in decades.
As origination community begin to grapple with margin pressure and capacity remains of historic highs. We anticipate a quick return by originators into the non emergency market as TJ mentioned in the <unk> in anticipation of this week.
Have been early and re entry.
And expanding our presence in the non QM space.
As they return there'll be pleasantly surprised by the new QM rules released by the CFPB. We expect these new rules to allow originators to embrace the past decades technological gains in underwriting to streamline originators originations, while simultaneously, reducing manufacturing risks and the associated costs.
In addition to underwrite inefficiencies these new rules better align the risk retention requirements with the actual credit risk.
Although there is some uncertainty around exactly what credits will qualify as QM, we are adapting our product offerings to maximize anticipated capitalist efficiencies with mortgage credit availability at levels last seen almost a decade ago. We strongly believe these expanded product offerings will deliver attractive risk it.
Justin returns.
If as anticipated the new risk retention requirements better align capital requirements with actual credit risk.
Deployment of structural versus financial leverage can more prudently be managed to live to deliver returns said differently no longer will additional turns of leverage be required to deliver market returns since we will be able to sell these lower returning securities to the market.
Additionally, the increase liquidity in these credits will allow us to optimize the risk and return profile throughout each investments respective horizon.
If these changes were not encouraging enough the treasury department and the FHFA recently announced an amended preferred stock purchase agreement with the Gsc's.
This agreement commits to further GSC return reform, while introducing limits on acquisitions of mortgage loans secured by second homes and investment properties as well as single family mortgage loans with multiple higher risk characteristics.
Although subsets of these loans have been included private labels and private label securitization. Previously. These changes are good steps towards leveling the playing field for private capital does.
Despite recent trade groups reservations about the potential disruptive nature of these policies, we believe that ultimately originators consumers and investors will benefit.
Agency <unk> portfolio through economic hedges, we put in place.
On slide 14, we've provided a reconciliation of book value per common share, which increased by 79 during the quarter.
This increase reflects our current quarter earnings offset by the preferred and common dividends declared during the first quarter.
And you will also see increases related to the preferred stock exchange transaction entered into during the quarter as well as the net proceeds raised from issuing common stock through our ATM program, which approximated $10 million.
As discussed on our previous earnings calls, we also disclose adjusted book value per common share of $4 76.
Which is computed based on total equity less the entire liquidation preference of our preferred stock.
Turning to slide 15, we disclosed a reconciliation of GAAP net income to core earnings for the first quarter. We will you will see we recognized core earnings of <unk> <unk> per common share.
When compared to core earnings in the fourth quarter of <unk> 22 per common share the.
The decline is representative of our core earnings record earnings achieved at arc home in response to the elevated origination and gain on sale market conditions experienced during 2020.
Despite normalizing margins arc home continued to contribute to core earnings through its origination business. While also recognizing mark to market gains on its MSR portfolio, which is not included in core earnings.
Lastly.
We ended the quarter with total liquidity of $52 million, which is after paying down the remaining secured note we had outstanding with our manager for $10 6 million.
And subsequent to quarter end <unk> sales in our non QM securitization that we transacted also generated additional liquidity for reinvestment.
This concludes our prepared remarks, and we would now like to open the call for questions operator.
If you have a question. Please press Star then one on your Touchtone phone, which being loose from the queue. Please Mr. Thompson.
There will be dilutive for the first question is announced any from using a speakerphone you may need to pick up the handset fresher from persimmon numbers. Once again, if you have a question. Please press Star then one on your Touchtone phone I assume you buy for audio questions.
And we do have our first question from Bose George with <unk>. Your line is open.
Hey, guys good morning.
Thank you the first question was.
Curious, where you see sort of incremental.
ROE on the capital you're putting to work, especially on the whole loan side.
And then just how we should think about kind of run rate returns for the business model.
Yes, hi, guys. It's T J.
Thank you.
Breaking it down I think on the agency side, we see.
Probably very very low double digit ROE is when were hedging out.
The rate risk on the whole loans side I think it's.
<unk>.
Probably closer to the lower to mid teens ROE is per.
<unk> securitization.
And then I think as you think about the run rate.
Where we're still kind of in the.
The transition mode of rotating the capital and I think in a few quarters.
Once we get the position the portfolio.
In the place we want it to be it'll be a more consistent.
Kind of run rate that I think we'll be able to better.
Forecast here.
So we're not quite there yet, but I think we're getting close.
Okay, No that makes sense and then actually just at arc home.
And it seems like there is the I guess the handoff from.
The agency market to more of a QM.
Market as debt debt.
Volume ramps up.
But what do we think about sort of the earnings outlook should we think there is potentially yet.
On the agency market slows in before.
Sort of picks up a little more.
Yes, so we.
We intend to maintain.
Our agency business at our call I think I think we're just cognizant of the fact that one volumes are coming down in two margins are coming down, but we still are fully in that business.
At the same time.
Historically speaking credit products typically have wider margins and so we continue to look to grow and gain market share there given sort of the proprietary relationships that we have in.
We hope that will somewhat even out some of the probably earnings headwinds on agencies with more volume.
Within the non agency space.
As a tailwind.
But I mean, we're obviously subject to that.
The mortgage industry volumes sure okay, great well, thanks a lot.
And your next question comes from Trevor Cranston with JMP Securities. Your line is open.
Alright. Thanks.
A couple of more questions on arc home.
On the non QM side volumes, obviously started to pick up nicely there.
Could you guys share any thoughts on sort of your targets or chrome and how much you think they might be able to originate in the non QM space.
On a quarterly basis over the next few quarters.
I mean, we continue to arc home I should say continues to.
Invest in that in that space, and obviously people technology and equity capital.
We're getting to I think pretty good run rate volumes, you can see on page 10.
Crossing nine digits and that hopefully that will be.
You know a fairly consistent run rate is it's less.
Cyclical to rates and refinancing.
So we would hope to be able to continue to produce.
Excess of $100 million of months going forward and I think as Nick alluded to.
Having him on board will hopefully be able to also add some complementary product set.
Arc home isn't currently offering.
To further expand the product mix and then.
By default the volumes.
Got it okay.
And on the.
On the agency portfolio I think you mentioned sort of a low double digit return opportunity.
Are you guys currently investing in <unk> and as part of that return coming from dollar rolls or is that more just on the pool side.
And I guess, a second question on the agency book.
Your your prepay speeds look like they've been exceptionally low relative to the market relative to peers I was wondering if you just from.
Some more detail on the kind of.
The type of spec pools, you guys have any debt.
How are you be true such such low prepay speeds.
Yeah. So so we're.
We're invested in spec pools on in a cash format, we're not really participating in the TBA.
Rolled trade if you will the spec pools that we're buying we give you a little bit of a breakout on page eight of the.
Of the types of spec pools, it's going to be what you would expect in terms of loan balance our investor paper or Geo concentrations, New York, Florida pools et cetera.
And again, where we have about $1 billion as of $3 31 of our $900 million of fair value.
That size of spec pools allows us to be very selective.
And again, we're sort of positioning probably lower coupon.
Twos or two in a haves versus being up in coupon, which I think maybe has more yield, but obviously a different return profile on the convexity profile.
Got it okay.
And then <unk>.
Last question.
We're seeing some M&A activity in the mortgage originator space. So I was curious if you guys already have our chrome obviously, but.
Are there any other opportunities you're looking at to maybe make investments in.
Non agency type focused originators.
Or are you sort of content to source loans to what you've been doing them for the last couple of quarters.
Yeah.
Yes, so I think just in terms of sourcing loans away from our call we've been buying from a small stable consistently over the past few years that we've obviously developed good relationships with.
We obviously always do take inbound calls from bankers about other opportunities to the extent they make sense in conjunction with our call them I don't think that we would be looking to.
Stand up a competitor so if there was something differential about the opportunity we would look to pursue it but we're not looking to have two different operating companies.
As part of that debt.
We are doing.
It's David Roberts, I would just add that.
The management team that runs arc home has experience across a wide range of of product types and.
And channel so.
It's more as T. J said we.
Hum.
I never but it's much more likely that we would do something organically in terms of expansion through arc.
Okay makes sense I appreciate the comments thank you.
And we have another question in queue from Eric Hagen with BPH. Your line is open.
Hey, good morning, how are you guys. Just a couple from me can you just share how much excess liquidity you estimate you have between cash and unencumbered assets.
And then on the non QM side, I mean, there's lots of different types of non QM out there can you share which types you're focused on buying.
In terms of the excess liquidity Eric like.
Like we said, we we had a couple of sales subsequent to quarter end on the <unk> side and we also generated some liquidity.
From the non QM securitizations that we have and when you think about liquidity. There is also.
A few other <unk> sales that we have in the portfolio.
Debt that we would look to.
Opportunistically exit which.
When you think about that at least just from the commercial side, we have probably an additional.
$12 million of liquidity on the <unk> side, and I would say generation of probably $10 million on the securitization that we just entered into on the non QM side.
This is Nick Smith, addressing specifically the product mix and sort of forward looking or what we're looking to potentially rollout current product mix. It looks a lot like the rest of the market a good mix of DSR bank statements small amounts of asset depletion.
Sort of the sort of standard what the market has grown comfortable with over the years from sort of some of the pure securitizers.
And originators.
As alluded to in the statements earlier, we do see the recent amendments or framework with the CFPB rolled out for QM.
Creating a good amount of opportunity to rethink what these product mix is it.
It should look like.
And that's something we're working on as we speak certainly I would not.
I would not count out any sort of products outside of sort of what people have been familiar with over the past.
A few years.
Certainly if the you certainly have capital requirements are more attractive, meaning you have to hold less capital on with the new QM rules.
That sort of expands a wide range of new.
Products.
To make returns work where returns just had not historically worked.
Thanks, that's helpful. I appreciate it.
Yeah.
Can we have another question in queue from Doug Harter with credit Suisse. Your line is open.
Hey, guys. This is Josh Bolton on for Doug.
In your comments you talked about.
Has increased whereas you know conventional products in <unk>.
Mortgage originations gets pressured on.
On the margin that you expect more competition in the non QM space curious if you've seen that.
Competition picking up.
<unk>.
When that happened and kind of your expectations for how that might pressure margins in the coming quarters. Thanks.
I think it's all starting to happen I think april's rate move.
Sort of pulled.
People forward in terms of thinking about this so I think it's I think it's sort of in the lab and we will start seeing it kind of materialize in the coming months.
But we haven't really seen it in the market yet, but we know it's coming.
Got it makes sense alright, I appreciate that.
And there are no more questions in queue at this time.
Okay.
Okay, well, thank you very much for joining our call and we look forward to.
Reporting to you next quarter.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Okay.
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[music].
Welcome to the H, a mortgage investment trust price quite a 2021 earnings call. My name is Erin and I'll be your operator for today's call. At this time all participants are in a listen only mode. We don't we will conduct a question and answer session. During the question and answer session. If you have a question. Please press star than one on you touched on.
Please note that this conference is being recorded and knocks on the call for two Jenny Nelson Jenny you may begin.
Thank you and good morning, everyone and welcome to the first quarter of 2021 earnings call for a G mortgage investment Trust with me on the call today or David Roberts R. Chairman and C. E O T J darken, our President next Smith, our Chief investment Officer, and Anthony Rough Cielo, our Chief Financial Officer before.
We begin please note that the information discussing today's call may contain forward looking statements.
Any forward looking statements made during the day call our subject to certain risks and uncertainties, which are outlined in our SEC filings, including under the heading cautionary statement regarding forward looking statements risk factors and management's discussion on analysis.
The company's actual results may differ materially from these statements.
We encourage you to read the disclosure regarding forward looking statements contained in our SEC filings, including on most recently filed form 10-K for the year ended December 31st 2020.
Except as required by law, we are not obligated and do not intend to update or to review or revised any forward looking statement, whether as a as a result of new information future events or otherwise.
During the call today, we will refer certain non-GAAP financial measures. Please refer to our SEC filing for reconciliation comparable got measures. We will also reference the earnings presentation that was posted to our website. This morning to view the slide presentation turn to our website Www Dot E. G M I T dot com.
And click on the link for the first quarter of 2021 earnings presentation on the homepage and the Investor presentation section again welcome to the call and thank you for joining us today with that I'd like to turn the call over to David.
Thank you Jenny good morning, everyone and thank you for joining us I'd like to welcome Jenny Netherlands from whom you just heard.
Jenny recently joined Angelo Gordon and was appointed as our General Counsel.
She has served as both in house and outside counsel to a number of companies in our industry. She brings valuable legal oversight public company reporting and governance experience commit and we are extremely happy to have her on our team.
Our company remains focused on our previously stated plan to increase the company's long term earnings power, while maintaining adequate liquidity and increasing book value.
A key component of our plan is to play tour strength.
And residential whole loans, specifically are significant investment in our home and our experience and expertise and the non agency space to help us execute that plan. We were delighted to have Nick Smith join us as our Chief investment Officer, Nick will work closely with.
T J darken, who is you heard is now and you've seen is now and its president.
Nick N T. Nick will work with T J to accelerate our company's emphasis on hold loans and you'll hear from Nick later on the call.
We believe that over the long term, we can drive more value for our shareholders with our differentiated whole loans strategy.
We call our strategy differentiated not because we are unique but because only a subset of mortgage reach half hour combination of skills experience and infrastructure to execute the strategy, which we will discuss in further detail later on the call.
Now turning to our first quarter financial performance I am pleased to report that hour adjusted book value per common share increased to $4.76 per share has a march quarter and compared to $3.94 per share as of December 31st 2020.
That's an increase of 82 per cent 82 cents per share or 21%.
As a reminder, adjusted book value excludes as an asset the capitalized issuance costs of our preferred stock and therefore is 60 is 16 cents lower per share than our GAAP book value.
The increase in a book value quarter over quarter was driven primarily by a rise in the value of a residential whole loans and R. C. M. B S. As well as continued strong performance from our mortgage affiliate Ark home.
And the fourth quarter, we reinstated the dividend on the company's common in preferred stock.
Building off this momentum the company declared an increase dividend on our common stock for the first quarter of six cents per share. In addition, we have returned to normal course dividend payments on a preferred stock with the first quarter dividend paid on March 17th Nah.
Now I am pleased to turn the call over to T. J durkin to cover our operational highlights for the quarter.
Thank you David and good morning, everyone.
During the quarter, we executed another accretive opportunity to strengthen our capital base by redeeming approximately 500000 shares of preferred stock and a slight discount in exchange for a 2.8 million shares of common stock.
We also successfully utilized our a T M program during the quarter to raise net proceeds are approximately $10 million through the issuance of 2.2 million shares of common stock at a weighted average price of $4.53 per share.
We reinvested that capital during the quarter into residential asked that classes, including boats non QM loans and agency hopefuls.
Turning to our presentation on page five we present day first quarter portfolio update.
As previously mentioned on our last quarter's earnings call. We sold two O four of our four remaining commercial real estate whole loans at price.
Price is slightly above our year end marks.
During the quarter, we increase the size of the portfolio from 1.4 billion to 1.9 billion, mainly through agency purchases of approximately 443 million and non QM hold on purchases of a.
Approximately 209 million.
Across the bottom table you can see we continue to prudently increase the earnings power of the portfolio, while maintaining adequate liquidity.
Turning to slide six you can see the allocation of equity among residential credit investment agency M B S and commercial investments.
During the quarter, we made continued progress shifting the portfolio into residential loans.
Which now represent over 60 per cent of the portfolio and deploying excess liquidity into agency M. B S to keep the liquid name in the portfolio as we continue to build out on a pipeline a residential loads.
Moving aside. So then we took advantage of strong credit markets within the first quarter to sell securities, which weird passive owners in and not related to our securitisations or hold on activity.
Along with other Angela Gordon funds, we also completed and on QM securitization subsequent to quarter and and have increased our borrowing capacity on warehouse lines for further acquisitions.
On site eight you can see we continue to be able to create an agency M. B S book with better prepayment performance too.
The market due to our size and selecting this when purchasing expect pools.
On slide nine.
You can see our CRE and C N b as exposure continues to shrink, giving it to Siri loans sales mentioned earlier, along with other C N b ourselves during the quarter.
Subsequent to quarter and we exited at all the remaining Freddy K multifamily securities.
At this point or commercial exposures less than five per cent of our overall investment portfolio with two commercial real estate loans left and three C. N B a single act that single borrower securities remaining.
We believe there's further book value upside it remaining in these assets and will prudently continue to manage this exposure down wellbeing discipline on the exit prices.
They're turning to slide 10, we wanted to again highlight the strong performance of our home.
Your license mortgage origination affiliate during the first quarter.
During the quarter the team at our continued to take advantage of the tailwind in the mortgage banking sector.
With another strong quarter in both volume and margins within the agency channels.
And as we stated on previous earnings calls are calm was one of the first originators to re enter the non QM business post COVID-19.
And you can see clearly how this product represented an increasing percentage of arcs fundings cents.
We believe this early reentry.
[noise] into non QM build strong brand awareness and recognition for our home in the non agency correspond it in wholesale markets as the agency refined way it begins to recede over the near to medium term.
We've provided additional detail on ARX funding volumes by channel product, an overall gain on until margin for reference in the chart here on slide 10.
A point out post quarter, and we have seen margins in the agency space continued to narrow to boat due to both interest rates and some GSE implementation affecting certain forms of delivery into the cash window.
And just as a reminder, made on approximately 45 per cent of our calm and the remainder is owned by other Angela Gordon manage funds.
So from me wrapping up we're pleased with the progress we made over the last year, simplifying our asset mix and balance sheet to be focused on growing a residential whole loans from concert with the growth from our home, while maintaining a prudent balance of agency mortgages for both earnings power and liquidity.
We think there's a lot happening within the mortgage origination ecosystem, which meant will be well positioned to take advantage of.
Now as I look ahead I'm very excited to have Nick Smith on our team to help us execute on the strategy as a C. I O men.
With that I'll turn the call over to Nick.
Good morning, everyone and thank you for that introduction after nearly two decades working in different capacities on the sell side and most recently running the non N C. R V S and hold on trading business at BFA Securities I couldn't be happier joining the management team.
My career coincides with a very exciting environment for residential mortgage finance.
Recently regulatory structural on market changes have set the backed up from what likely will be the most dynamic period for investing in the new origination non ANC residential space in decades.
As origination community begin to grapple with margin pressure and capacity remains of historic highs. We anticipate a quick return by originators into the non emergency market.
As T J mentioned and it hit in anticipation of this we.
Had been early and re entry.
And expanding our presence in the non here on space.
As they return they would be pleasantly surprised by the new QM rules released by the CFPB. We expect these new rules to allow Virginia is to embrace the past decades technological gains in underwriting to streamline originators originations, while simultaneously, reducing manufacturing risks and the associated costs.
In addition to underwrite inefficiencies these new rules better line the risk retention requirements with the actual credit risk.
Although there is some uncertainty around exactly what credits will qualify as QM, where daphne on our product offerings to maximize anticipated capitalist efficiencies with mortgage credit availability at levels last seen almost a decade ago. We strongly believe these expanded product offerings will deliver attractive risk it.
Justin returns.
If as anticipated the new risk retention requirements, better lying capital requirements with actual credit risk.
The appointment of structural versus financial leverage can more prudently be managed to live to deliver returns set differently no longer will additional turns of leverage be required to deliver market returns since we will be able to sell these lower returning securities to the market.
Additionally, the increase liquidity in these credits will allow us to optimize the risk and return profile throughout each investments respective horizon.
If these changes were not encouraging and up the Treasury Department and the FHFA recently announced an amended preferred stock purchase agreement with the Gsc's.
Disagreement commits to further GSC reaffirm reform on introducing limits on acquisitions of mortgage loans secured by second homes and investment properties as well as single family mortgage loans with multiple higher risk characteristics.
Although subsets of these loans have been included private labels and private label securitization. Previously. These changes are good steps towards leveling the playing field for private capital.
Despite recent trade groups reservations about the potential disruptive nature of these policies, we believe that ultimately originators consumers and investors will benefit.
We are confident that we will be able to prudently grow are non M. C loan portfolio by delivering origination partners attractive product offerings.
Long side are proven track record of sourcing assets is our vertically integrated mortgage originator arc homes and an affiliate affiliated loan asset management service provider the ability to a grant organically grow originations with our call them combined with access to in house that asset management service services sets us apart from me.
Any of our peers.
While many other markets may struggle with sourcing attractive acids, we expect non agency loans volumes to grow while simultaneously benefiting from near historic clothes on risk free yields and credit spreads the current market conditions and proprietary capabilities already in place along with knowing T J and many from the investment too.
Here at Angela Gordon for over a decade made this career move to make an easy decision.
Again, I'm excited to be on board and look forward to updating you on a continued progress over the coming quarters.
Can't be altered it to you for an overview of our financial performance.
Thank you Nick and good morning, everybody.
During the first quarter, we reported net income available to come and stockholders of approximately $39 million from 91 cents per fully diluted share.
Earnings were driven by several positive factors, including acid appreciation across both residential and commercial credit investments improve.
Improvement in medicine net interest margin on our non QM, an agency rmb's portfolios and $6 million of earnings from our 45 per cent equity method investment in our home, which is held within attacks will read subsidiary.
Net interest margin expanded it as a result of improved asset yields as well as reduced financing rates within the non QM an agency portfolios.
We also were able to mitigate much of the interest rate risk within our agency rmb's portfolio through economic hedges, we put in place.
On slide 14, we provided a reconciliation of book value per common share, which increased by 79 cents during the quarter.
This increase reflects our current quarter earnings all set by the preferred in common dividend declared during the first quarter.
And you'll also see increases related to the preferred stock exchange transaction entered into during the quarter as well as the net proceeds raise from issuing common stock through our a T M program, which approximated $10 million.
As discussed on our previous earnings calls, we also disclosed adjusted book value per common share of $4.76, which is computed based on total equity less the entire liquidation preference of our preferred stock.
Turning to slide 15, we disclose a reconciliation of GAAP net income two core earnings for the first quarter well you will see we recognize core earnings of eight cents per common share.
When compared to core earnings on the fourth quarter of 22 cents per common share the.
The decline is representative of core earnings record earnings achieve that Ark home and respond to the elevated origination and gain on sale market conditions experienced during 2020.
Despite normalizing margins are comb continue to contribute to core earnings through its origination business. While also recognizing mark to market gains on its MSR portfolio, which is not included in core earnings.
Lastly.
We ended the quarter with total liquidity of $52 million, which is after paying down the remaining secured note we had outstanding with our manager per $10.6 million.
And subsequent quarter and C N B S sales in a non QM securitization that we transacted also generate additional liquidity for reinvestment.
This concludes our prepared remarks, and we would now like to open the call for questions operating.
If you have a question. Please press one on your Touchtone phone, if you'd like to be links in the queue. Please press the pound sign on in a husky and will be donated the first question is announced any for using a speaker phone you may need to pick up the handset furniture from persimmon on base. Once again, if you have a question on please press start on one on your touch on phone.
I've seen anybody for on your questions.
And we do have our first question in $10 charge was keeping W. A line is okay.
Okay. Good morning Uhm.
First question was.
<unk>, where do you see incremental are we on the capital's you're putting to work, especially on the whole loans side and then just how we should think about kind of run rate you know returns for the for the business model.
Yeah, Hi, those it's two day I think yeah.
Breaking it down I think on the agency side, we see you know probably very very low double digit are always when we're hedging out.
The right risk on the hold on side I think it's.
Closer to the lower to mid teens row is post securitization.
And then I think as you think about the run rate, where you know we're still kind of in the the transition mode of of rotating the capital and I think in a few quarters. Once we get the position the portfolio sort of in the place we want it to be it'll be a more consistent.
Kind of run right that that I think we'll be able to better forecast to ya.
So we're not quite there yet, but I think we're getting close.
Okay now that makes sense and then actually just make it at home.
Seems like they're the that day.
Get the handoff from.
The agency market to more of a <unk>.
Market is that is that volume decorative ramps up uhm. So it wouldn't be thinking about through the earnings outlook. It should we think there's but then see it you know the agency market slows and.
<unk> on to them.
Really sort of picks up a little more.
Yeah. So we we intend intend to maintain you know our our agency business at our call them I think I think we're just cognizant of the fact that one volumes are coming down into margins are coming down, but but we still are fully in that business at the same time.
You know historically speaking you know credit products typically have wider margins and so we continue to look to grow and gain market share. There uhm given you know sort of the proprietary relationship that we had and.
We hope that all somewhat even out some of the probably earnings per.
Edwards on agencies with more volume within the non agency space as a tailwind but.
But I mean, well, obviously subject to that you know the mortgage industries volumes.
Okay, great well, thanks a lot.
And your next question comes from traveling a grandstand like JMP security is an angel.
Alright. Thanks.
A couple more questions on Arco.
On the non QM side volume soldiers, who started to pick up nicely. There Uhm did you guys share on your thoughts on sort of your targets for our Coleman how much you think they might be able to originate and then on cue them space.
On a quarterly basis over the next few quarters.
I mean, we we continue to you know our call them I should say continues to.
<unk>.
Invest in that in that space, and you know, obviously people technology and and and equity capital.
We're getting too I think pretty good run raid volumes you can see on on page 10.
You know crossing you know nine digits in that hopefully that'll be you know a fairly consistent run right as it's it's less sick.
Cyclical to rates in refinancing so we would hope to be able to continue to produce in excess of 100 million a month going forward and I think it's Nick alerted to having him on board will hopefully be able to also add some complimentary products that are.
Our home isn't currently offering to further expand the product mix and then by by default the volumes.
Got it okay.
<unk> on.
On the agency portfolio. Thank you mentioned sort of a low double digit return opportunity.
Are you guys currently investing on T b as in as part of that return coming from dollar rules or is that more just on the pool side and I got the second question on the agency book.
Your your previous Bill look like they've been exceptionally low relative to the market relative to appear. So I was wondering if you could just.
Provide some more detail on to kind of.
You know the the type of Sparkles you guys have any bad how <unk> how are you free cheap such such low frequencies.
Yeah, So so where.
We're invested inspect wasn't on in a cash format, we're not really participating in the the T V. A roll trade. If you will the spec pools that were by we we give you a little bit of a break on on page eight of the.
Of the you know type suspect cause it's gonna be what you'd expect in terms of loan balance or investor paper or or G. O concentrations, New York, Florida pools et cetera.
And again, where we have about 1 billion as of 331, four 900 million a fair value you.
You know that size of spectacles allows us to be very selective.
And again, we're sort of position and probably lower coupon.
Two or two and a half versus you know being up and coupon, which I think maybe has more yield, but obviously a difference returned profiling cause actually profile.
Got it Okay and then last.
Last question you know we've seen some M&A activity in the mortgage originator space. So I was curious if you guys already have arkoma, obviously, but.
Are there any other opportunities you're looking at to maybe make investments and like non agency type focused originators.
Or you sort of consent to search loans the way you've been doing them from the last couple of quarters.
Yeah. So I think just in terms of sourcing loans, you know away from our call, but you've been buying from a small stable consistently over the past few years that we've obviously developed good relationships with uhm.
We obviously, we always do taken down calls from bankers about other opportunities to the extent day makes sense in conjunction with our home I don't think that we would be looking to.
You know standup a competitor so if there was some day just got a wrench on about the opportunity we would like to pursue it but but we're not looking too you'll have two different operating companies as as part of that that day.
It's David Roberts, I would just add that.
The management team that runs Ark home has experience across a wide range of of product types since and and channel. So it's more as T. J said, we we wouldn't.
Say never but it's much more likely that we would do something organically in terms of expansion through work.
Okay makes sense appreciate that come so cute.
And we have another question came from a I've taken with P. T. H E R. I N G.
Hi, Good morning, how are you guys. Just a couple of from me can you just share how much excess liquidity you estimate you have between cash and unencumbered assets Uhm.
And then on the <unk> on the side I mean, there's lots of different types of non Q I'm out there can you share which types you're focused on buying.
In terms of the excess liquidity, Eric like we said, we we had a couple of sales substance quarter and on the C. M. B S side, and we also generated some liquidity from the non QM securitizations that we have and when you think about liquidity. There's also you know a few other <unk>.
M. B S sales that we have in the portfolio that we would that we would look too opportunistically exit which.
When do you think about that at least just from the commercial side, we have probably an additional yep $12 million of liquidity on the C. M. B S side, and I would say generation of probably $10 million on the the securitization that we just entered into on the non QM side.
This next fifth addressing specifically the product mix and sort of.
<unk> looking or what were looking to potentially rollout current product mix. It looks a lot like the rest of the market a good mix of D. C. R. A statement small amounts of acid depletion.
Sort of the sort of standard what the market has grown comfortable with over the years from sort of some of the pure securitizers.
And originators Uhm is alluded to in the statements earlier, we do see the recent amendments or framework with the CFPB rolled out for QM, creating.
Creating a good amount of opportunity to rethink what these product mix is should look like.
And that's something we're working on as we speak.
Certainly I would not.
I would not count out any sort of products outside of sort of what people have been familiar with over the past.
A few years.
Certainly if the certainly a capital requirements are more attractive, meaning you know you have to hold less capital on with a new QM rules, that's sort of expands a wide range of new products to make returns work, where it returns just had not historically worked.
Thanks, that's helpful. I appreciate it.
Can I have another question on queue from my card on that credit Sushi on line is open.
Hey, guys. This is Josh bold on for Doug and.
And your comments you've talked about you know as increased whereas you know conventional product in mortgages originations gets pressured on.
The margin that you expect more competition on the non Kim space curious, if you've seen that competition picking up.
You know.
When that happened and kind of your expectations for how that my pressure margins in the coming quarters. Thanks.
I think I think it's all starting to happen I think april's rate move on.
Sort of pole.
People forward in terms of thinking about this so I think it's I think it's sort of in the lab and we'll start seeing it kinda materialize in the coming months.
But we haven't really seen it in the market yet, but we know it's coming.
Got it makes sense alright, I appreciate that.
And their name on my questions and came at this time.
Okay, well, thank you very much for joining our call and we look forward to.
Reporting to you next quarter.
Thank you ladies and gentlemen, this concludes today's conference.