Q1 2024 Cherry Hill Mortgage Investment Corp Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the Cherry Hill Mortgage Investment Corporation first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 once again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Peter Sceusa, Investor Relations. Please go ahead.
Speaker Change: Good day and thank you for standing by welcome to the Cherry Hill Mortgage investment Corporation first quarter 'twenty 'twenty four earnings conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: I'll ask a question during the session you will need to press star one on your telephone.
Speaker Change: And then here an automated message advising your hand is raised.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to your Speaker today, Peter <unk> Investor Relations. Please go ahead.
Peter Sceusa: We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's first quarter 2024 conference call. In addition to this call, we have followed a press release that was distributed earlier this afternoon and posted to the investor relations section of our website at www.chmiread.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today.
Peter: We'd like to thank you for joining us today for Cherry Hill mortgage investment corporations first quarter 2020 for a conference call. In addition to this call. We have filed a press release that was distributed earlier this afternoon and posted to the Investor Relations section of our website at Www Dot C. H M I read Dot com.
Peter: Today's call management's prepared remarks and answers to your questions may contain forward looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Examples of forward. Looking statements include those related to interest income financial guidance Irr's future expected cash flows as well as prepayment and recapture rates delinquencies.
Peter: non-GAAP financial measures such as earnings available for distribution or a D and comprehensive income Forwardlooking statements represent management's current estimates and Cherry Hill assumes no obligation to update any forward looking statements in the future.
Peter: Listeners to review the more detailed discussions related to these forward looking statements contained in the company's filings with the SEC and the definitions contained in the financial presentations available on the company's website at Comscore shows like Jay Lown, President and CEO Julian Evans, the Chief investment Officer, and Michael Heartbeat, The Chief Financial Officer, now I will turn the call over it.
Peter Sceusa: Examples of forward-looking statements include those related to interest income, financial guidance, IRRs, future expected cash flows, as well as prepayment and recapture rates, delinquencies, and non-GAAP financial measures, such as earnings available for distribution, or EAD, and comprehensive income. Forward-looking statements represent management's current estimates, and Cherry Hill assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC and the definitions contained in the financial presentations available on the company's website. Today's conference call is hosted by Jay Lown, President and CEO, Julian Evans, the Chief Investment Officer, and Michael Hutchby, the Chief Financial Officer. Now, I will turn the call over to Jay. Thank you.
Jeffrey B. Lown: Peter, and welcome to our first quarter 2024 earnings call. On the fourth quarter call, we noted that towards the end of 2023, markets were expecting multiple rate cuts from the Fed in 2024, only to see that forecast evaporate over the first four months of 2024. As the first quarter progressed, and inflation remained elevated, the Fed walked back considerably near the end of the quarter on its prior rhetoric around rate cuts. Markets reacted significantly to any economic data believed to be important to the Fed's strategy, and increased volatility impacted our sector during the quarter.
Peter: Jay.
Jeffrey B. Lown: Thanks Peter.
Jeffrey B. Lown: And welcome to our first quarter 2024 earnings call.
Jeffrey B. Lown: On our fourth quarter call, we noted that towards the end of 2023.
Jeffrey B. Lown: Markets were expecting multiple rate cuts from the fed in 2024.
Jeffrey B. Lown: You can see that forecast evaporate over the first four months of 2024.
Jeffrey B. Lown: As the first quarter progressed and inflation remained elevated.
Jeffrey B. Lown: Walk back considerably near the end of the quarter its prior rhetoric around rig types.
Markets reacted significantly to any economic data believed to be important to the fed's strategy.
Jeffrey B. Lown: The increased volatility impacted our sector during the quarter.
Jeffrey B. Lown: Early in the quarter, spreads widened as inflation remained sticky. However, as the quarter progressed, spreads tightened as the Fed reconfirmed its likelihood to ease monetary policy later in the year. Our positioning with respect to MSRs and investing in higher coupon RMBs played a pivotal role in our favor, helping to offset the impact of the flattening yield curve as we look out towards the remainder of the year. We believe that the Fed will need to maintain its current posture longer than markets expect due to persistent inflationary data along with strong employment numbers. We do expect a twist in the yield curve eventually and are positioned for shorter maturity rates to move lower, resulting in a positively sloped curve, given that the Fed is primarily driving market sentiment.
Jeffrey B. Lown: Early in the quarter spreads widened as an equation remains sticky.
Jeffrey B. Lown: However, as the quarter progressed.
<unk> tightened as the fed reconfirmed its likelihood to ease monetary policy later in the year.
Jeffrey B. Lown: Our positioning with respect to MSR and investing in higher coupon RMB.
Jeffrey B. Lown: Played a pivotal role in our favour pumping.
Jeffrey B. Lown: Helping to offset the impact of a flattening yield curve.
Jeffrey B. Lown: As we look out towards the remainder of the year.
Jeffrey B. Lown: We believe that that will need to maintain its current posture longer than markets expect due to persistent inflationary data along with strong employment numbers.
Jeffrey B. Lown: We do expect the twist in the yield curve eventually.
And our position for shorter maturity rates to move lower resulting in a positively sloped Kurt.
Jeffrey B. Lown: Given that the fed is primarily driving market sentiment.
Jeffrey B. Lown: We will continue to watch Economic Indicators in Temple and believe our overall strategy of pairing MSRs with agency RMDFs works well in the current environment. For the first quarter, we generated gap net income applicable to common stockholders of $0.32 per diluted share, and we generated earnings available for distribution, or EAD, a non-GAAP financial measure, of $4 million or $0.13 per share. EAD is just one factor we consider in setting our dividend policy. We also consider the existing market environment and portfolio return potential. Our level of taxable income, including hedge gain impact, and a degree of certainty regarding forward investment return economics.
Jeffrey B. Lown: We will continue to watch economic indicators and tackling.
Jeffrey B. Lown: And believe our overall strategy of pairing MSR with agency MBS works well in the current environment.
Jeffrey B. Lown: For the first quarter, we generated GAAP net income applicable to common stockholders of 32 cents per diluted share.
Jeffrey B. Lown: And we generated earnings available for distribution or AAD.
Jeffrey B. Lown: non-GAAP financial measure.
Jeffrey B. Lown: A $4 million or.
Jeffrey B. Lown: Or <unk> 13 per share.
Jeffrey B. Lown: AAD is just one factor we consider in setting our dividend policy. We also consider the existing market environment portfolio.
Jeffrey B. Lown: Portfolio return potential.
Jeffrey B. Lown: Our level of taxable income, including hedge gain impacts and.
Jeffrey B. Lown: And a degree of certainty regarding forward investment return economics.
Jeffrey B. Lown: Thus, while EAD may continue to remain under our given level in the near future, we believe other factors are important when considering whether we can sustainably cover our dividends. Book value per common share finished the quarter at $4.49, down modestly from December 31st, as our portfolio positioning, particularly with respect to MSRs and higher coupon RMBs, helped offset the impact of the flattening yield curve, on an NAV basis, which includes preferred stock in the calculation. NAV was down approximately 0.5% relative to December 31st.
Jeffrey B. Lown: Thus, while AAD and May continue to remain under our dividend level in the near term.
Jeffrey B. Lown: We believe other factors are important when considering whether we can sustainably cover our dividend.
Jeffrey B. Lown: Book value per common share finished the quarter at $4 49.
Jeffrey B. Lown: Down modestly from December 31.
Jeffrey B. Lown: As our portfolio positioning, particularly with respect to MSR and higher coupon RBS.
Jeffrey B. Lown: <unk> offset the impact of the flattening yield curve.
Jeffrey B. Lown: On an NAV basis, which includes preferred stock in the calculation.
Jeffrey B. Lown: <unk> was down approximately 0.5% relative to December 31.
Jeffrey B. Lown: Financial leverage at the end of the quarter rose slightly to 4.5 times, as we continue to stay prudently levered given that volatile market dynamics persist. We ended the quarter with $48 million of unrestricted cash on the balance, maintaining a solid liquidity profile. As we discussed previously, while our financial leverage has stayed relatively low, our capital structure leverage, consisting of our mix of common and preferred equity, amplifies how changes in our NAV or total equity impact our common book value per share.
Jeffrey B. Lown: Financial leverage at the end of the quarter rose slightly to four five times as we continue to stay prudently levered given that volatile market dynamics persist.
We ended the quarter with $48 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile.
As we discussed previously while our financial leverage has stayed relatively low our capital structure leveraged consisting of our mix of common to preferred equity amplifies how changes in our NAV.
Jeffrey B. Lown: Our total equity impacts our common book value per share.
Jeffrey B. Lown: During the quarter, we began to act on one of our top priorities of creating a more stable equity profile by repurchasing a portion of our Series B preferred shares. As of May 3rd, we have repurchased approximately $9.3 million of Series B Preferred Shares, and we expect that to continue in the days and months ahead. The repurchase of Series B preferred shares benefits common shareholders by ultimately reducing the amount we pay for preferred dividends now that Series B has transitioned to a floating rate, as well as right-sizing our capital structure and putting it more in line with peers.
Jeffrey B. Lown: During the quarter, we began to act on one of our top priorities are creating a more stable equity profile.
By repurchasing a portion of our series B preferred shares.
Jeffrey B. Lown: As of May 3rd we have repurchased approximately $9 3 million.
Jeffrey B. Lown: Of series B preferred shares and.
Jeffrey B. Lown: And we expect that will continue in the days and months ahead.
Jeffrey B. Lown: The repurchase of series B preferred shares benefits common shareholders by ultimately reducing the amount we pay for preferred dividends now that the series B has transitioned to a floating rate.
Jeffrey B. Lown: As well as right sizing, our capital structure and putting it more in line with peers.
Jeffrey B. Lown: We will continue to work towards stabilizing our equity profile while remaining mindful of our balance sheet strength and our investment portfolio. I did want to take a moment to share that recently we announced that our board of directors established a special committee to explore strategic alternatives to maximize stockholder value. We do not intend to discuss on this quarterly earnings call or any subsequent call any information or developments relating to the special committee or its process until the evaluation of strategic alternatives has been completed, or the special committee determines disclosure is appropriate or legally required.
Jeffrey B. Lown: We will continue to work towards stabilizing our equity profile, while remaining mindful of our balance sheet strength and our investment portfolio.
Jeffrey B. Lown: I gave wants to take a moment to share that recently, we announced that our board of directors established a special committee to explore strategic alternatives to maximize stockholder value.
We do not intend to discuss on this quarterly earnings call or any subsequent call any information or developments relating to the special committee or its process until the evaluation of strategic alternatives has been completed.
Jeffrey B. Lown: For the special committee determines disclosure is appropriate or legally required.
Jeffrey B. Lown: Looking ahead, we will continue to pay close attention to the ever-evolving macro environment and further focus on risk management. We will continue to selectively deploy capital into additional agency RMBs, which still present a strong risk-adjusted return profile, and we will continue to reduce the portion of preferred equity in our capital structure to provide greater stability of our equity profile for the ultimate benefit of common shareholders, while not sacrificing our strong liquidity and leverage. With that, I'll turn the call over to Julian, who will give more details regarding our investment portfolio and its performance during the first quarter.
Jeffrey B. Lown: Looking ahead, we continue to pay close attention to the ever evolving macro environment and.
Jeffrey B. Lown: And further focus on risk management.
We will continue to selectively deploy capital into additional agency RBS.
Jeffrey B. Lown: It still presents a strong risk adjusted return profile.
Jeffrey B. Lown: We'll continue to reduce the portion of preferred equity in our capital structure.
Jeffrey B. Lown: Provide greater stability of our equity profile for the ultimate benefit of common shareholders, while not sacrificing our strong liquidity and leverage.
Jeffrey B. Lown: With that I'll turn the call over to Julian who will cover more details regarding our investment portfolio and its performance over the first quarter.
Julian B. Evans: We have been positioned for a higher for longer environment for some time. While the interest rate rally at the end of 2023 impacted our book value, we have held relatively firm in that position given the economic and inflationary data we were seeing that supported our fees. Throughout the first quarter, inflation remained elevated, and just as quickly as the Fed shifted its tone towards rate cuts, recent data have compelled the Fed to begin dialing back from that aggressive language.
Julian B. Evans: Thank you Jay.
Julian B. Evans: We have been positioned for higher for longer environment for some time now.
Julian B. Evans: While the interest rate rally at the end of 2023 impacted our book value. We have held relatively firm in that position given the economic and inflationary data we were seeing that supported our thesis.
Julian B. Evans: Throughout the first quarter inflation remained elevated.
Julian B. Evans: And just as quickly as the fed shifted its tone towards rate cuts. The recent data has compelled a bit to begin dialing back from that aggressive language.
Julian B. Evans: In the quarter, rates rose, spreads fluctuated, and our positioning with respect to the MSR and higher coupon RMDS enabled us to preserve book value. We continue to watch how the Fed reacts to macro data as ongoing volatility requires us to pay significantly close attention to ensure that the portfolio is optimally positioned.
Julian B. Evans: In the quarter rates rose spread fluctuated and our positioning with respect to the MSR and higher coupon rvs enabled us to preserve book value.
Julian B. Evans: We continue to watch how the fed reacts to macro data.
Julian B. Evans: Ongoing volatility requires us to pay significantly close attention to ensure that the portfolio is optimally positioned.
Julian B. Evans: We will further proactively adjust our portfolio as necessary as we move forward. At quarter end, our MSR portfolio had an UPD of $19.6 billion and a market value of approximately $250 million. The MSR and related assets represented approximately 44% of our equity capital and approximately 28% of our investable assets, excluding cash at the end of the quarter. Meanwhile, our RMBS portfolio accounted for approximately 41% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented approximately 72%, excluding cash, at year end.
We will further proactively adjust our portfolio as necessary.
Julian B. Evans: As we move forward.
Julian B. Evans: At quarter end, our MSR portfolio at a UTV of $19 6 billion and a market value of approximately $250 million.
Julian B. Evans: The MSR related assets represented approximately 44% of our equity capital and approximately 28% of our investable assets, excluding cash at the end of the quarter.
Meanwhile, our RMB as portfolio accounted for approximately 41% of our equity capital as a percentage of investable assets. The RMB is portfolio represented approximately 72% excluding cash at year end.
Julian B. Evans: Repayment speeds for MSR and RMBS portfolios continue to remain relatively steady compared to the prior quarter, given the elevated mortgage rate environment. Our MSR portfolio's net CPR averaged approximately 3.9% for the first quarter, modestly down from 4.2% net CPR in the previous quarter. The portfolios recapture rate remained consistent but low at approximately 1%, as the incentive to refinance continues to be minimal. Moving forward, we continue to expect low recapture rates and a stable net CPR, at least in the near term.
Julian B. Evans: Prepayment speeds for MSR in our MBS portfolios continue to remain relatively steady compared to the prior quarter given the elevated mortgage rate environment.
Julian B. Evans: Our MSR portfolios net CPR averaged approximately three 9% for the first quarter modestly down from four 2% net CPR in the previous quarter.
Julian B. Evans: The portfolio is your capture rate remain consistent but low at approximately 1%.
Julian B. Evans: Is the incentive to refinance continues to be minimal moving forward. We continue to expect low recapture rates and a stable net CPR at least the near term.
Julian B. Evans: The RMBS portfolio's prepayment speeds remained low, as expected, driven by the combination of new asset purchases, as well as the current higher mortgage rate environment continuing to compress CPRs for the existing portfolio. As of today, the majority of the mortgage universe remains out of the money in terms of refinancing. We would expect prepays to remain low, as long as interest rates remain at these levels.
Speaker Change: Yeah, our MBS portfolio as prepayment speeds remained low as expected driven by the combination of new asset purchases as well as the current higher mortgage rate environment, continuing to compress CPR for the existing portfolio.
Speaker Change: As of today, the majority of the mortgage universe remains out of the money in terms of refinancing.
Speaker Change: We expect prepays to remain low.
Speaker Change: As long as interest rates remain at these levels.
Michael Andrew Hutchby: For the quarter, the RMBS portfolio's weighted average three-month CPR edged slightly higher to approximately 5.2 percent, compared to approximately 4.9 percent in the fourth quarter. As of March 31st, the RMBS portfolio, inclusive of TBA, stood at approximately $654 million, relatively flat compared to the previous quarter end. Quarter over quarter, we acquired additional RNVS RA coupon mortgages and increased some of our PBA hedges in the portfolio as we remain positioned to protect against additional spread widening.
Speaker Change: For the quarter, the Rvs portfolio's weighted average three month, CPR and slightly higher to approximately five 2% compared to approximately four 9% in the fourth quarter.
Speaker Change: As of March 31, the <unk> portfolio inclusive of TBA stood at approximately $654 million.
Speaker Change: Typically flat compared to the previous quarter end.
Speaker Change: Quarter over quarter, we acquired additional Rds alright.
Speaker Change: Cooper on mortgages and increase some of our TBA hedges in the portfolio as we remain positioned to protect against additional spread widening.
Michael Andrew Hutchby: For the first quarter, our RMDF net interest spread was 3.42%. The reduction from the prior quarter was driven by a reduction in dollar roll income and higher repo costs due to a higher repo balance. As Shane mentioned, the portfolio's financial leverage stood at approximately 4.5 times, and the 30-year securities position continues to represent 100% of the RBS portfolio at quarter end. Moving forward, we expect investment markets to remain volatile in the near term, with upcoming Fed decisions being driven by persistent inflation.
Speaker Change: For the first quarter, our RMB net interest spread was 314%.
Speaker Change: Doug <unk> from the prior quarter was driven by a reduction in dollar roll income and higher repo cost due to higher repo balances.
Speaker Change: As Shane mentioned, the portfolio's financial leverage stood at approximately four five times and the 30 year Securities position continues to represent 100% of the RBS portfolio at quarter end.
Speaker Change: Moving forward, we expect investment market to remain volatile in the near term.
With upcoming fed decisions being driven by persistent inflation.
Michael Andrew Hutchby: In this volatile environment, we will proactively manage our portfolio through the volatility while continuing to shift our overall capital structure to add value for shareholders to improve performance and earnings. I will now turn the call over to Mike for our first quarter financial discussion.
Speaker Change: In this volatile environment, we will proactively manage our portfolio through the volatility while continuing to shift our overall capital structure to add value for shareholders through improved performance and earnings.
Michael Andrew Hutchby: Gap net income applicable to common stockholders for the first quarter was $9.7 million, or $0.32 per weighted average diluted share outstanding during the quarter, while comprehensive income attributable to common stockholders, which includes the mark-to-market of our available-for-sale RMBS, was $3.2 million, or $0.11 per weighted average diluted share. Our earnings available for distribution, attributable to common stockholders EAD is inclusive of approximately $400,000 or about a penny a share of expenses related to special committee work.
I will now turn the call over to Mike for <unk>.
Mike: First quarter financial discussion.
Mike: Thank you Julien.
Mike: GAAP net income applicable to common stockholders for the first quarter was $9 7 million or <unk> 32 per weighted average diluted share outstanding during the quarter.
Mike: While comprehensive income attributable to common stockholders, which includes the mark to market of our available for sale RMB, Yes was $3 2 million or <unk> 11 per weighted average diluted share.
Mike: Our earnings available for distribution attributable to common stockholders were $4 million or <unk> 13 per share.
Mike: AAD is inclusive of approximately $400000 or about a penny a share of expenses related to special Committee work.
Michael Andrew Hutchby: Our book value per common share as of March 31st was $4.49 compared to a book value of $4.53 at December 31st, 2023. We use a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowing. At the end of the first quarter, we held interest rate swaps, PBAs, and treasury futures, all of which had a combined notional amount of approximately $968 million.
Mike: Our book value per common share as of March 31 was $4 49, compared to a book value of $4 53.
Mike: At December 31, 2023.
Mike: We use a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowings.
Mike: At the end of the first quarter, we held interest rate swaps TBA and Treasury futures all of which had a combined notional amount of approximately $968 million you can see more details with respect to our hedging strategy and our 10-Q as well as in our first quarter presentation.
Michael Andrew Hutchby: You can see more details with respect to our hedging strategy in our 10Q, as well as in our first quarter presentation. For GAAP purposes, we've not elected to apply hedge accounting for our interest rate derivatives. And as a result, we record the change in estimated fair value as a component of the net gain or loss on interest rate derivatives. Our operating expenses were $3.6 million for the year. On March 14, 2024, the Board of Directors declared a dividend of 15 cents per common share for the first quarter of the year, which was paid in cash on April 30th, 2024.
Mike: For GAAP purposes, we've not elected to apply hedge accounting for our interest rate derivatives and as a result, we record the change in estimated fair value as a component of the net gain or loss on interest rate derivatives.
Mike: Our operating expenses were $3 6 million for the quarter.
Mike: On March 14th 2024, the board of directors declared a dividend of <unk> 15 per common share for the first quarter of the year, which.
Mike: Which was paid in cash on April 32024.
Michael Andrew Hutchby: We also declared a dividend of 51.25 cents per share on our 8.2% Series A Cumulative Redeemable Preferred Stock and a dividend of 51.5625 cents on our 8.25% Series B Fixed to Floating Rate Cumulative Redeemable Preferred Stock, both of which were paid on April 15, 2024. At this time, we will open up the call for questions. Operator?
Mike: We also declared a dividend of <unk> 51 to five.
Mike: Per share on our eight 2% series, a cumulative redeemable preferred stock and a dividend of <unk> 50, 156 to five on our 825% series B fixed to floating rate cumulative redeemable preferred stock both of which were paid on April 15 2024.
Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And our first question will come from Mikhail Goberman from Citizens JMP. Your line is open.
Speaker Change: At this time, we will open up the call for questions operator.
Speaker Change: Thank you.
Speaker Change: A reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: And our first question will come from Mikhail Guberman from citizens JMP. Your line is open.
Mikhail Goberman: Hey, good afternoon, gentlemen. Hope everybody's doing well. Just wanted to get your thoughts on how you're seeing the servicing market as we head deeper into the sort of spring selling season from a bulk and flow perspective. And can we sort of expect UPB to continue to drift downwards at the pace that it has been over the last few quarters?
Mikhail Goberman: Hey, good afternoon, gentlemen, hope everybody is doing well.
Mikhail Goberman: Just wanted to get your thoughts on how youre seeing the servicing market as we and deeper into the spring selling season from a bulk and flow perspective, Ken.
Mikhail Goberman: Can we sort of expect that <unk> to continue to drift downwards at the pace that it has been over the last few quarters. Thanks.
Jeffrey B. Lown: Hey, Mikhail, how are you? It's Jay.
Ken: Hey, Kevin how are you.
Ken: Greg.
Ken: I'll, let Brian answer that.
Speaker Change: Some other question relative to what the market looks like because he's in the.
Brian: In the midst of a day to day, but broadly speaking I think the biggest reason we've let it drift down as we saw a more compelling risk return.
Jeffrey B. Lown: I'll let Ray answer some of the questions relative to what the market looks like because he's in the midst of it day to day. But broadly speaking, I think the biggest reason we've let it drift down is we saw a more compelling risk return profile from the RMBS versus the MSR. And so we've deployed amortization or excess capital into MBS for that reason relative to the potential returns on the MSRs given current pricing.
Brian: Profile from the RMB versus the MSR and so we've deployed amortization excess capital into MBS.
Brian: For that reason relative to.
Brian: The potential returns on the MSR is given current pricing, but it's.
Jeffrey B. Lown: But it's not because of a lack of interest in the product. It's just a function of getting the best return we can for shareholders in the near term. With respect to volumes and, you know, the strength of the market, etc., I'll let Ray chime in on some of that.
Brian: It's not because of a lack of interest.
Brian: Okay.
Brian: And the product, it's just a function of getting the best return we can.
Brian: For shareholders in the near term.
Brian: With respect to volumes.
Brian: The strength of the market et cetera, I'll, let ray chime in on some of that great.
Raymond Slater: Sure. I mean, volumes have been relatively high still going into Q1 of this year. It's a little off from last year, but essentially, volumes remain pretty strong. To Jay's point, it's essentially just a relative value play between MBS and where we see MSRs tick.
Ray: Great. Thanks.
Ray: Sure.
Ray: I mean volumes have been relatively high still going into Q1.
Ray: This year I mean, it's a little off from last year, but essentially volumes remained pretty strong to Jay's point.
Ray: Essentially just a relative value play between MBS, and where we see MSR is tech.
Jeffrey B. Lown: Gotcha. Thank you, guys. And is there any appetite for maybe driving leverage a little bit, a little bit higher in order to protect the PAD and the dividend coverage?
Speaker Change: Got you. Thank you guys and is there any appetite for maybe driving leverage a little bit.
Speaker Change: A little bit higher.
Speaker Change: To protect the AAD and the dividend coverage.
Jeffrey B. Lown: It's definitely something we talk about; we don't have any current plans to dramatically take it up, but as we get closer to some, I think it's possible that we could definitely consider that.
Speaker Change: It's definitely something we talked about we don't have any current plans to dramatically take it up but as we get closer to some.
Speaker Change: Sense of where the fed is going and where the shape of the curve might end up towards the end of the year I think it is possible that we could definitely.
Michael Andrew Hutchby: And if I can squeeze in one more, given the nice little mini bond rally, I'd say, of recent days. Any update on book value so far?
Speaker Change: Consider that.
Speaker Change: Got you and if I can squeeze in one more given the.
Speaker Change: Nice little mini bond rally I'd say.
Speaker Change: In recent days.
Any update on book value, thus far in this quarter. Thanks.
Michael Andrew Hutchby: I mean, it wouldn't have been a conference call if we didn't get that question. Mike? That's a fair point. As of Friday, we estimate that our book value per share was down about 3 percent from 331, and that is before any common dividend accrual, as the board has not yet met to approve the second quarter dividend.
Speaker Change: I mean, it wouldn't be a conference call.
Speaker Change: Chris.
Speaker Change: Mike.
Chris: That's a fair point.
Chris: As of Friday, we estimate that our book value per share was down about 3%.
Chris: $3 31, and that is before any common dividend accrual as the board has not yet met to approve the second quarter dividend.
Mikhail Goberman: Thank you very much, gentlemen. Best of luck going forward.
Speaker Change: Got you.
Speaker Change: You very much gentlemen, best of luck going forward.
Speaker Change: Thanks Jade.
Thank you.
Operator: And our next question will come from Matt Howlett from B-Riley Securities. Your line is open.
Speaker Change: And our next question will come from Matt Howlett from B Riley Securities. Your line is open.
Matthew Philip Howlett: Hey, good afternoon, everybody. Hi Jay.
Matthew Philip Howlett: Hey, good afternoon, everybody Hi, Jay Thanks for taking my question.
Matthew Philip Howlett: Thanks for taking my question. No problem. Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host.
Matthew Philip Howlett: No problem Matt.
Matthew Philip Howlett: Hey, you guys like you guys seem to own the playbook here Rod MBS spreads and interest rates. So I got to ask you I think Gary.
Speaker Change: So you expect near term volatility.
Speaker Change: By at some point Youll curve twists Steepening I just.
Speaker Change: Just love to hear the playbook the <unk> playbook cause you seem it seems you guys have nailed it really the last year, maybe two years.
Julian B. Evans: Hi Matt, it's Julian. Look, I think when we look at the portfolio, we're trying to look at it over a longer timeframe, not just maybe one quarter, but perhaps two quarters. We are currently positioned for kind of a yield curve steepener in the portfolio. We are along the front end and, you know, are short on the back end of the treasury curve at this point in time, whether that be through some type of derivatives play in terms of futures or via kind of how we're positioned on the coupon stack. So we're playing it from both ends.
Speaker Change: Yeah.
Julien: Hi, Matt its Julien.
Julien: Look I think when we look at the portfolio. We are trying to look at it over a longer timeframe.
Julien: Not just maybe one quarter, but perhaps two quarters. We are currently positioned for.
Julien: Yield curve steeper in the portfolio.
We are along the front end to end.
Julien: Our short on the backend.
Julien: Treasury curve at this point in time, whether that be through some type of derivatives play in terms of futures or kind of how we're positioned on the coupon stack. So we're playing it from both fronts. We do believe that at some point in time, the fed will shift a kind of parallel I think at the last meeting.
Julian B. Evans: We do believe that at some point in time, the Fed will shift. They've kind of, Paul, I think at the last meeting was pretty adamant that he would like to cut rates at some point in time. He perceives that there will be a cut more so than a hike, but he's highly data dependent, and I think the data will play out in terms of how the curve will play out as well as how the next steps forward.
Julien: Was pretty adamant that he would like to cut rates at some point in time.
Julien: He perceived that there will be a cut more so than a hike, but he's highly data dependent and I think the data will play out in terms of how the curve will play out as well as how the.
Julian B. Evans: We were asked if we would increase leverage. I think if we got some bit of certainty, as Jay mentioned, or a little something that we would like to see that really affirms that this, we're going to be here, but steeper over a longer timeframe, we probably would increase our leverage.
Julien: The next steps forward, we were asked if we would increase leverage I think if we got some bit of certainty as kind of Jay mentioned.
Julien: Or a little something that we would like to see that really affirms that this we're going to be here, but steeper over a longer timeframe, we'd probably do bring up our leverage.
Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.
Julien: Yes.
Julien: Guys have a lot of room here to take up the leverage.
Julien: When I look at the Army I thought you said youre up in coupon right now mainly specified pools did I hear you correctly in what Youre focused on just.
Julian B. Evans: We have a combination of specified pools as well as TBA. Some of the positioning has shifted, I would say, in terms of our specified pools, they're mainly in fives and five-and-a-half. And in TBAs, we own long positions in sixes and six-and-a-half, and we're kind of short on TBAs in the lower class.
Julien: We have a combination of specified pools as well as TBA.
Julien: Some of the positioning has shifted I would say in terms of our specified pools, there mainly in <unk> and five <unk> and then TBA as you know we own long positions in.
Julien: Six six and a half.
Julien: We're we're kind of short on TBA is at a lower lower coupons.
Matthew Philip Howlett: In the servicing book, it's such a low coupon that they're so far out of the money that it's got a cash flow, even if we get some lower rates. Do I see that right?
Julien: And the servicing book it at such a low coupon.
Julien: So far out of the money.
Julien: Cash flow, even if we get some lower rates, so do I see that right, but it would take just a massive rally in mortgage rates right to put it anywhere close to being refinanced Apple.
Matthew Philip Howlett: It would take them just a massive rally in mortgage rates to put them anywhere close to being refinanced.
Julian B. Evans: You have that right, Matt. I mean, that portfolio is performing like a rock star right now.
Speaker Change: You have that right, Matt I mean that portfolio is performing like a rock star right now.
Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host.
Speaker Change: So Jay I could ask a question I don't want to add any specifics about the special committee, but why now I mean, what why the company is so well positioned here for the next phase of the fed you really got it well the preferreds coming down the capital structure is improving everything you said here the earnings power looked like terrific, but what's the.
Jeffrey B. Lown: So why run when I look at.
Jeffrey B. Lown: Appoint a special committee of why even look at one at this point given how well positioned the company is.
Matthew Philip Howlett: Well, Matt, broadly speaking, we're always looking to maximize shareholder value on any given day. I think, from the perspective of the committee, you'd have to talk to them directly. Thank you.
Jeffrey B. Lown: Yes.
Jeffrey B. Lown: Well America broadly.
Jeffrey B. Lown: Broadly speaking we're always looking.
Jeffrey B. Lown: To maximize shareholder value on any given day.
Speaker Change: I think from the perspective of the committee you'd have to.
Speaker Change: Talk to them directly but.
Jeffrey B. Lown: I can tell you that, you know, it's our job to evaluate. What we can do in the best interest of shareholders on any given day and the path going forward. But, you know, as the as the press release, suggest that there are multiple avenues that the board might pursue, and some of those avenues, you know, result in something like an internalization. So I would think that.
Speaker Change: I can tell you that it's our job to.
Speaker Change: Evaluate.
Speaker Change: While we can do in the best interest of shareholders on any given day.
Speaker Change: The path going forward, but.
Speaker Change: As the as the.
Speaker Change: The press release.
Speaker Change: Sure.
Speaker Change: Suggested there are multiple avenues that the board might consider might pursue.
Speaker Change: And some of those avenues.
Speaker Change: Result in.
Speaker Change: Something like an internalization, so I would think that.
Jeffrey B. Lown: The board's got a lot to consider. They're taking their time. They're being diligent. And at the right time, I'm sure they'll feel compelled to share that with the market.
Speaker Change: And the board has got a lot to consider they are taking their time, they're being dose.
Speaker Change: At the right time, I'm sure, though feel compelled to.
Douglas Goldstein: Douglas Goldstein, financial planner & investment advisor, interviewed Howlett on Arutz Sheva Radio.
Speaker Change: To share that with the markets.
Speaker Change: Perhaps I will write them a letter, but look I appreciate the good job you're doing.
Speaker Change: And by the way Youre getting that series B, you're buying that below par correct am I looking at it youre, taking some of that envelope par.
Matthew Philip Howlett: That's correct, yeah. Yep, that's right. Great. Well, look...
Speaker Change: That's correct, Yeah, that's right.
Matthew Philip Howlett: Great. Well, look, keep up the good work, and, you know, I will. We're certainly supportive of what you're doing there, and we'll certainly voice our opinion to the special committee. We appreciate it. All right, thanks.
Speaker Change: Well keep up the good work.
Speaker Change: We are certainly supportive of what Youre doing there and we'll certainly voice are paid into the special Committee I appreciate it.
Speaker Change: All right. Thanks, Matt.
Operator: Thank you. And I am showing no further questions from our phone lines, and I'd like to turn the conference back over to Jay Lown for any closing remarks.
Speaker Change: Thank you and I am showing no further questions from our phone lines I'd now like to turn the conference back over to Jay Lown for any closing remarks.
Jeffrey B. Lown: Thanks for joining us on our first quarter 2024 earnings call, and we look forward to updating you on our second quarter performance in a few months. Have a great evening.
Jeffrey B. Lown: Thank you.
Jeffrey B. Lown: Thanks for joining us on our first quarter 2024 earnings call. We look forward to updating you on our second quarter performance in a few months.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Jeffrey B. Lown: Great.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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