Q2 2019 Earnings Call
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This conference is being recorded on Tuesday August six 2019.
A press release with New York Mortgage Trust second quarter 2018 results was released yesterday.
The press release is available on the company's website at Www Dot and White and trust Dot com.
Additionally, we are hosting a live webcast of today's call, which you can access in the events and presentations section of the company's website.
At this time management would like me to inform you that certain statements made during the conference call, which are not historical maybe deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, Although New York Mortgage Trust believes the expectations reflected in any forward looking statements are based on reasonable assumptions. It can give no assurance that its expectations will be attained.
Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterdays press release and from time to time in the Companys filings with the Securities and Exchange Commission.
Now at this time as they can to Keith Steve Mumma, Chairman and CEO , Steve. Please go ahead.
Thank you everyone. Thank you operator, good morning, everyone and thank you for being on the call. Jason Serrano are president wealth movie speaking this morning with me.
The company continued to deliver solid results generating GAAP earnings per share of eight cents and comprehensive earnings per share of 18 cents for the second quarter.
The play for common share at June Thirtyth, 2019 was $5.75 unchanged from March 31st 2019, resulting in a total economic return of 3.5% for the quarter.
When combining financial results for the first two quarters of 2019, the company generated a total economic return of 8.8%, which represents an annualized return of 17.7%.
For the six months ended June Thirtyth 2019, we had comprehensive earnings per share or 47 cents exceeding our common dividend paid today by 17.5%.
Our investment team remained active during the second quarter sourcing and closing on more than $500 million in credit sensitive assets.
Our total investment portfolio to $4.2 billion at June Thirtyth 2019.
To fund a portion of this investment activity. The company continue to opera do Opportunistically access the capital markets during the second quarter, raising a total of $136.7 million in common equity see both a follow on offering and utilizing our at the market equity offering program.
All of which were executed at levels that were accretive to our book value.
In addition on July 22nd we completed our fourth overnight offering of the year.
Issuing 23 million shares raising approximately $137.5 million, bringing our total capitalization to $1.7 billion.
Scalpel growth benefits the company by increasing your option to access the capital markets. It lowers overall cost of credit and reduces our fixed expense on a relative basis.
Okay have Jason now speak to the market conditions and some thoughts around our current portfolio strategies, Jason Thanks, Steve.
We are pleased with the strong performance.
While also maintaining book value quarter over quarter in the second quarter. We were in this general spread tightening, particularly in more liquid strategies within our credit portfolio. Our investment teams were busy in the quarter with approximately $500 million of exposure added between multi family single family credit.
On the MBS side of the business, we continue to rotate out of agency exposure to optimize the portfolio in a slower growth lower rate environment performance of agency MBS was challenged with lower mortgage rates, causing increased prepayment speeds with premium agency MBS generally higher prepayment speeds decreased the value of the bonds hedging the premium value due to duration shortening proved difficult for us and generally the broader market.
At the beginning of the year, our total agency exposure was 30% of our investment portfolio today represents 24% looking at our active pipeline of opportunities. We do expect our planned rotation out of agency MBS to accelerate in the third quarter allocations away from agency MBS is not definite. However, we do feel the agency MBS thesis is difficult to pursue without incurring excessive risk over the near and likely mid term.
In the multifamily space, we continue to focus on two strategies for capital allocation to generate attractive returns for shareholders first we focus on direct mezzanine type origination that is generally structured as a medium term bridge loan to the property sponsor our team continues to source private transactions away from the broader markets through our proprietary network a multifamily property management developers.
With our experienced management team, we can offer unique structures to fit the needs of our borrowers I'm glad to point out we had a record amount of that investment activity with our direct loan program and look to build off this effort.
With opportunities to deliver excellent risk adjusted returns.
Another area of focus in multifamily credit investments in the equity portion of secured Freddie Mac multifamily loan securitizations.
As the background multifamily loans to securitize the term structured.
Vehicles, typically 10 year deals our multifamily asset management team conducted a detailed analysis of each underlying property, including site visits to high risk properties to determine overall dive of the portfolio.
Our strength comes from the fact that we are hands on and the diligence process and take an active role in the workout. The problem loan historically, we have been able to minimize the few instances of losses that occurred in these portfolios to better protect our investment.
We are very active in this space and routinely participate in transactions from Freddie Mac.
Subject to our satisfactory outcome of diligence result, K series Freddie Mac deal volume is expect to remain strong with anticipated issuance of 70 billion per year.
We do expect to continue to allocate capital to strategy, given our capability and strong track record.
Solid funding solid trends in multifamily credit continue to underpin fundamental value of our exposure national vacancy rates now hover around a two decade low or approximately 5%.
With the demographic shift ways to keep demand for rental units, albeit over the next decade, particularly from millennials, who are now the largest generation the United States with 73 million people.
Footwear financial capacity for homeownership, as lacking and baby Boomer farmers now the second largest was 772 million people, who face downward pressure to downsize in their homes, we expect the trend of cap rate compression to persist.
One of the key risk in multifamily space the supply side with new units brought to the market through construction.
In the U.S. a perfect completion of supply growth is currently tracking around 400000 units annually or two times higher than the completions brought the market five years ago.
Apartment construction was disproportionately disproportionately built in primary markets, where developers could obtain higher market rents. Despite sustained low vacancy rates coupled with rent growth. We seats, we seek to avoid exposure and primary markets with significant supply expansion or where large development projects are seen on the horizon.
Now switching over the single family mortgage market.
The single largest fixed income asset class in the world with 11 trillion of assets.
Our focus on the mortgage credit is on the mortgage credit side of the equation.
Here. We also have two primary investment strategies first in performing and credit impaired residential mortgage loans and second an esoteric mortgage credit bonds.
And this effort is important to note that we have not followed the poplar strategy vertical integration into a mortgage origination platform, which is a side there's been no shortage of willing sellers. We believe it is imperative to maintain the flexibility to move in and out of the markets, where we can locate compelling opportunities with a captive originator, we may face pressure to be consistent buyers of loan production in various environments and cycles simply we believe no mortgage sector can offer an indefinite period of attractive risk.
We prefer to maintain the flexibility investment investing where attractive risk can be sourced from a large selection of sellers. As an example, we purchased loan packages from over 80 unique sellers. Thus far this year, we offer the market liquidity was certain niche mortgage characteristics, where we can move quickly with a deep credit understanding each sub sector, such as scratching, then fix and flip where credit impaired loans.
Better known as sub performing loans.
In these markets we Alex.
$230 million or 67% of the Companys investor activity in the second quarter.
On average we believe we purchased assets at attractive discounts to par value, we're exposure to lower mortgage rates may increase loan prepayments.
In this case, which is quite the opposite of certain agency MBS prepayments monetize the discount paid all alone providing for higher investment return.
Much like with our multifamily effort, our single family securitization investment strategies continue to offer various types of esoteric where securitization asset classes that were created after financial crisis.
As the aggregate outstanding supply the U.S. securitized product credit has declined for several years.
Demand for large asset managers insurance companies from mortgage credit investments increased spreads continue to grind tighter the second quarter alongside of a stable housing fundamentals.
Given we are in the flow of the underlying loan trades, we price the risk of underlying assets each securitization.
With enhanced liquidity of this sector, we tend to be more active traders of the securitization market, we typically seek to monetize value for one to two year time horizon.
A factor that keeps us busy in this market is that trade is rarely price risk efficiency efficiently between whole loans markets and bonds.
There are secured by some of our loans implied fundamental value differences between the two creates opportunity. We believe our platform uniquely situated to take advantage of this this dislocation.
Cynically inverted curve and core inflation falling below 2000.
2012 highs various developed countries.
Very much growth very much looks fatigue across the globe admittedly it has been harder for us to find opportunities as credit spreads, especially in securitized products.
Have tightened over the course of the year.
However, the market in which we traffic traffic or vote or large relative to the capital we're putting to work in each quarter.
As the.
As the managers here would like to point out each passing quarter adds more incremental work to meet the same return objectives.
Unfortunately, this is where we are today there are no free lunch is out there we are canvassing the market with our network and chasing down proprietary leads with increased vigor to create healthy investment pipelines across the multifamily single family credit.
This effort has afforded us to raise accretive capital in each of that each of the quarters.
Our 4.2 billion asset portfolio is under Levered with recourse Burns at only 1.8 times as of 630. We believe this is a conservative strategy, eliminating risk borne by financial leverage which will enable us to better preserve book value over the coming quarters and to take advantage of market dislocations as mentioned earlier, our strength comes from our corporate liquidity, which has never been stronger.
Underdeveloped diverse approach, we are focused on providing attractive dividends definitive generated by deep fundamental credit experience flexibility endeavors diversification offered by our platform lack of operational entanglements and a strong balance sheet.
This is the formula of how we expect to provide real alpha to our shareholders. We look forward to discussing our financial performance in subsequent quarters as we expect the strength of our earnings to improve with reallocation of the MBS exposure and seasoning of our credit portfolio with that I'll pass it back to Steve.
Thank you.
Jason will be available for questions at the end of this presentation.
Now, let's go through the earnings performance for the second quarter.
We had $16.5 million in GAAP net income and $36.6 million in comprehensive net income.
We generated net interest income of $25.7 million in portfolio net margin of 216 basis points for the quarter.
Our mid March our net margin decreased by 24 basis points, which was primarily related to the timing of cash flows received in the distressed loan portfolio as many of our loans are accounted for on a cash basis for GAAP purposes.
Our average, earning assets totaled $3.5 billion for the quarter, an increase of 251 million from the previous quarter.
Are you, bringing the total increase for the year to $822 million or 30% increase from the beginning of the year.
We expect our average earning assets in the third quarter to continue to grow as their own.
As our investment pipeline continues to build.
Our investment portfolio totaled 4.2 billion as of 632019, including $1 billion in agency RMBS Securities.
$150 million in equity allocated the strategy or 9.8% of the total capital.
As Jason mentioned earlier this investment is not a core focus to our investment strategy and will continue to represent a smaller percentage of our portfolio.
We had $1.8 billion in residential credit as we continue to see opportunities, including sub performing and re performing loans as well as non agency securities backed by varying types of residential credit loans.
These investments are currently funded with repo lines, but we continue to evaluate both the rated unrated markets were possible securitizations in the coming quarters.
We had $1.4 billion in multifamily investments, representing 33% of total assets and 40% of our invested capital.
In the third quarter the company expense expects to fund another Freddie Mac first loss investment.
For the for totaling $48 million.
Im altering our multifamily strategy continues to be a major contributor to the company's performance.
Recognized other income of $8.6 million during the quarter and given the nature of our business in our current accounting requirements. This will continue to be a significant part of our annual earnings.
Included in this quarter and the $8.6 million was a total net gain of $12.3 million from our distress in other residential mortgage loans held at fair value.
Which was comprised of $9.9 million of unrealized gains and $2.4 million of realized gains.
We also had $2.1 million the realized gains from sales during the quarter related to our distress in other residential loans, which were accounted for it carrying value.
Yes, an unrealized losses of $50 million from interest rate swaps accounted for as trading instruments, which were offset by unrealized gains on our available for sale securities of $20.1 million reported as a component of other comprehensive income.
We also had unrealized gains of $5.2 million on our consolidated K series investments or Freddie Mac first loss securities driven primarily by tightening credit spreads.
We had an additional $2.7 million in other income comprised primarily of $1.7 million in unrealized gains on joint venture equity investments $1.7 million in income from preferred equity investments accounted for investments in unconsolidated entities, which otherwise would have been included in that margin, but for accounting purposes must be reflected in other income.
And point $5 million of gain on the early redemption of preferred equity investment.
The company also recognized the point $8 million net loss from our interest in a real estate development property after giving effect to non controlling interest share of the losses.
For the quarter ended June Thirtyth 2019, the company at $9.8 million in DNA expenses as compared to $8.9 million in the previous quarter.
Majority of the increase or $600000 was related to non employee equity board compensation.
Vested issuance following our annual meeting which was held in June 2019.
During the quarter, we finalize our exit of our third party management at our final third Party management agreement and do not expect any more management or incentive fees in future quarters.
Well the last 12 months the company have been filled with new hires an increase in capital base over $1.7 million in the acquisition of more than $2 billion in new credit investments in why empty continues to remain focused on fulfilling its objective.
To deliver long term stable distributions to our stockholders over changing economic conditions.
To that end the company has delivered a total economic return of 13.7% over the trailing 12 months ended June 32019, well, maintaining a dividend payment rate of 20 cents per share our 10th straight quarter at this level.
We appreciate your continued support and look forward to speaking about our third quarter results in November in early November .
Our 10-Q will be filed on or about Friday August 9th with the FCC and will be will be available on our website thereafter.
Operator, if you can please open for questions for Jay sort of myself.
Thank you.
Hi, Karen.
Ask your question.
Star then the number one.
Keypad well pause.
Comparing any question.
Your first question is from Doug Harter with Credit Suisse. Please go ahead.
Thanks.
Just hoping you could talk a little bit about the returns.
Youre seeing on that incremental capital deployed I know in your prepared remarks, you said, that's kind of more challenging.
You know kind of the returns youre seeing on that incremental capital how it compares to.
Yeah, the existing portfolio and therefore, your appetite to continue to raise capital if the markets remain open to you.
Yes look I think the the way we feel about raising capital is we would not raise capital we didn't think we could deploy.
That capital into investments that are going to reach our targeted investment.
And our targeted investment right now is 12% to 13% ROI.
That our OE is going to be supported both by the acid in the financing on that asset.
There's no question one of the things that we look at is our agency portfolio and given the volatility of rates recently, especially.
That investment is difficult to Maine difficult to reach that target was that extreme amount of leverage on that investment strategy. So if you look at some of our credit strategies.
Jason talked about one of that.
Distressed residential loans in our multifamily when coupled with the sources of.
Leverage that we can put on those trades, we do believe over a two to three to four year horizon those investments will return to that kind of.
We will give us that kind of return.
And then just just curious that 12 to 13, how much of that is.
Kind of current spread income and how much of that is kind of the expected kind of credit roll down you know kind of as a.
Those season.
Yes look I think I mean, you can get a sense of our financials over the last three to four years, which has generally been succeed as 70% will probably 55% to 70% of net margin in the balances in other income and many components of that other income is realized and unrealized gains and losses on both residential multifamily when we get in were not a core net margin driving business only we don't think.
Which has to generally reliable.
A lot of that return on leverage and so if you look at our leverage at 1.8 times I think one of the reasons why we can deliver a more stable book value across these environments is that we don't have we don't depend on leverage to generate a substantial part of our return. So I think that's really the strategy and when you have a lower leverage you're going to have to get some of your return from improved credit asset performance, which is what we're targeting.
And then just just one more on that I mean, they got in your book value performance has been exceptional but you know if we go through a period of volatility.
You know I guess, how how could we think about that that credit.
Credit improvement.
Piece of it you know over you know.
You know a recession or you know just a period of kind of moderate to to kind of widening spreads.
Yes look the there's very little we can do general market credit spread widening, especially when the market gets a shock.
Right. So I mean, we look at two things from the company's standpoint, one the fundamental credit worthiness of the asset.
And so you know those too when we look at a credit assets, there's two components.
Fundamentals and technicals technicals will be the market reaction to the events outside of our world that impact us and then fundamentals of the underlying assets. So we think the combination of lower leverage and the underwriting due diligence we put on the credit assets.
Puts us in a position to better withstand credit events that come in the future. If we get into 2000 invent 2008 event.
You know it becomes difficult for everyone, but we still we still manage the portfolio, where we believe that we can sustain those kind of market reactions, but the reality of it is we don't think were going to see a 2008 event. We do think credit spreads could widen the future, but we think where we sit from a credit standpoint. It of exposure our assets were performed very well, especially relative to other asset classes.
What I think.
Sorry, one other way to protect yourself on credit performance is to seek assets, where you have downside protection in the asset itself. So typically when we are looking at for example.
On the SPL market, an area, where we're expecting improved credit performance from the borrowers were buying assets that are basically below and 80% LTV and were buying that asset at a more than a 10% discount so in those cases.
The the protection is built on the extra credit protection have and the underlying asset and at the discount initially with lower pre with lower rates you expect that these borrowers now we'll have better opportunity to refinance away.
And basically prepare alone when their credit improves in the short term so in those areas, we look forward to lower rates with.
A better ability to actually monetize the bar faster.
And with the downside credit protection have and the only selling asset across just about everything that we do.
We're looking for Ltvs north of 20% lower than than par value. So that's been a huge help and part of the reason why we've been able to keep stability on our asset portfolio pricing.
I appreciate the insights there guys. Thank you.
Thank you.
Your next question.
Eric Hagen KBW. Please go ahead.
Thanks, John and good morning.
I'm hearing you say just from the opening remarks that both multifamily and Reggie credit are both attractive so of the two.
Which are you more favourably bias to in this environment and when I say this environment.
Really kind of zeroing in on the.
Volatility that we've seen over the last even just last week.
You know I mean, the last week's volatility is something that we have to digest and see how it plays out I mean, thats is something that the.
The fed eases rates by 25 basis points we.
Almost immediately we get to talk about increased tariffs and now we have a possible currency board the markets are down.
Rates have rallied massively none of that has really been reflected in the credit markets, yet either technically or or empirically so or fundamentally.
Eric in terms of allocation between the two really I mean, we've been fortunate enough to have access to the capital markets. As we continue to trade above book value and so we've been able to not really restrict one investment thesis versus the other we're in asset growing mode right now and so as long as those yields are both attractive we will continue to add them until we have to make a choice, but I think right now we continue to trying to seek investments that reached the goal of.
What we said earlier of 12% to 13% and.
That's what will drive the decision making.
Okay.
And then on the on the on leverage just kind of generally I can see that you're clearly under Levered on the agency segment, but where.
Where are you under Levered.
In the other two segments of the portfolio.
Yes look I think if you look at our loans I mean, we have we have we have available funding capacity on loans, we have some of the loans that aren't finance we have a we have securities that around finance. We have we have additional leverage we could add at various asset classes. So we may have borrowings against certain asset classes to just not up to the maximum level. So we could safely run the company at two and a half times to three X leverage in our opinion.
So that gives us some flexibility of leverage if needed.
In the resi credit segment, specifically like is there I'm looking at you know you guys running maybe a little over.
One times record recourse leverage what would be the Max leverage that you think you can get based on the makeup of the portfolio today.
I mean, it obviously different asset classes, such as performing loans versus sub performing loans have different leverage ratios, but we are seeing advance rates offered to the market anywhere from 95% on performing.
To the 85% kind of market standard on on sub performing.
And on both of those were basically 10% below.
Leverage ratios and we also have assets, where we have not levered, where we think we can generate a double digit return based on the different causes that asset and prepayments or monetization of the asset itself.
On Securitizations, we can go to roughly 90% of leverage and Thats an area, we have not taken full leverage and again some assets. We do not have levered because of our trading kind of methodology and looking at dislocations and taking advantage of dislocation to the trade. So a lot of the return in that asset class comes from.
A thesis of of.
Biscuit credit spread tightening on that particular asset for various reason and thats, where the returns generated versus holding the asset to maturity with it with leverage that provides net income.
Double equal to double digit returns so yes.
I think the reason why we're on the leverage because our thesis is basically and being able to monetize the discount that we bought the asset versus holding it to a maturity with with high leverage.
Got it and then just on the distressed residential side, specifically what is the supply picture look like over the next call. It 12 months I mean who's.
Who's selling paper and how much do you think will come to market.
Again, just over the next call it year.
Thanks, right so.
Different one area of the market that has seen supply shrink quite dramatically isn't that in the nonperforming loan side fortunate for us that's not where we're focused on loans. There are 24 month delinquent type type of.
Yes, there's been only about 4 billion of supply there on our RPL side of the equation. We're looking at 17 billion of supply thus far.
This year and we expect that to be continue to grow. This portfolio is available out there in the billions of dollars typically what we've seen is that.
Banks have basically modified a large portion of their portfolio that were delinquent from 2010 to 2009 to today and those loans not all of them have made it to a full performance ratio a lot of those loans still continued to pay and then default after a period of time. So with the banks are doing as we are trying to basically cleanup that those portfolios through sales, which are in the billions Fannie Freddie also sell these loans in the billions on a quarter over quarter, but quarter over quarter basis. This is really a consequence of bad modifications that didn't get completed or didn't get make didn't meet the borrower's needs as it relates to either payment reduction or LTV reduction and those loans were seeing in the market to be purchased.
And that's why we're looking at more.
Directed modification programs that are fitting the need for that bar.
Case by case basis with.
You know higher touch servicing efforts is what our goal is and what we've been doing so.
There is still safe amount of supply out there and it keeps the market busy.
But there is it.
The we talk about rpls or the big spectrum of bars that are 24 month current abarth are delinquent the only a couple of months and we're generally focused and in that case, where borrowers have either recently paid or recently defaulted, where we think we can keep the borrower on paying over period of time through more intense servicing efforts.
Interesting. Thank you very much for the comments.
Thanks, Eric.
Your next question is from Matthew.
Please go ahead.
Oh, Hey, guys. Thanks for taking my question just getting back to the margin I appreciate the complexities with what the GAAP financials, and then I hear you with the the Residentially not performance against some of the cash accrual yields you have to recognize that as they kind of.
Analysts or myself, we look at the margin, we sort of focus in on that net interest spread anything can you.
The margin was 240 the reported margin was two for you last quarter take it on a 216 with the top line compression anything that's normalize that you can point us to and will we continue to see.
Good progress on that net interest spread which has been going up consistently the last few quarters.
Yes look I think when you one correlation you could definitely look at it is to the extent that the leverage increases in the overall company you would expect the net margin to decrease right. So right as we add securities and put financing on that of four to five times. Those securities are going to have a lower yield than than some of our some of our multifamily assets. The multifamily ansys tend to have a much higher yield. So when you look at that to 40 year to 16, it's really a barbell strategy of of lower yielding residential assets relative to higher yielding multifamily.
But the the leverage ratio relative in multifamily versus.
Resi is four to five times difference so it's hard to pinpoint exactly where the margins are going to go I think over the last six quarter, we've tended to gyrate between probably a low of 2% in a high of 260% to 75% and I think if you look in those periods.
Of the higher yielding assets, its probably periods, where we've added much more multifamily versus residential.
I think this quarter, we added 63% residential so while the net margin drop part of that drop was really related to the increase in leverage is some of the lower yielding residential assets, but.
In General Man I would say, it's going to be between two and 2.5%.
Another factor that comes the plays that we have a $1 billion of.
Distressed mortgage loans, which generally have some J curve attached to it meaning that the borrowers.
The extent, we're buying delinquent loans. They are just delinquent do not provide for payment and then over time as we work with the borrower more consistent payment ducommun that drives higher net interest margin.
Just to give you a sense two thirds alone that we purchase were delinquent at a purchase.
After servicing transfer in working with the borrower.
Today, we have.
The inverse two thirds of those bars actually are paying.
On a consistent basis so that.
As we board loans that are.
That are in the SPL spectrum I think those the assets, where we have the most J curve effect, where net interest margin would be delayed because of the the the bars payment performance.
Got you Directionally, though the overall net the gross net interest spread income that's going to continue to go up as you as you deploy capital minimum increasing at a at a.
Very fast rate, but you expect expectations for that to continue increase as you grow the portfolio.
That's right dollar net margin Youve been <unk> dollar debt market.
Yes, absolutely.
No absolutely.
Great and then moving just want to.
For US you know, we're not you were sort of a first mover in the multifamily K series.
The program and you mentioned get you're going to target a deal in Threeq you and then we've also known the real pickup in your direct preferred Mezz lending business can you just go over.
What's the sort of return characteristic profile of each each one and.
The K series, you've always had this consistent.
Market.
Right up in these on these gains the sub debt second it can continue even in todays credit spread to market environment.
Look we the market the market the increase in value in the K series Bond. If you think about when we got into that investment in 2011, we entered into those trades. We were in we were earning high double digit yields on those investments 18% to 19%.
Today, that's a high single digit yield investment and so if you think about that roll down the curve on a 10 year asset that has no prepayment capabilities is a tremendous amount of duration in that asset class. So as you generate.
No incremental improvements in yield of 25 basis points, a huge dollars price pickup across of six to 700 remained arm portfolio. So.
What's driving the credit spread in is supply and demand in my opinion and fundamentals on the multifamily but is this is the last year and a half is probably as much technical factors in terms of supply and demand as opposed to fundamental credit I mean, our assets are performing outstanding across all of our exposure, which is over $14 billion of loans.
I think we've had three loans go bad of which we've had minimal losses on those loans that weve been able to work out with the special servicer. So.
It's a great performing asset class and I think to the credit of the agencies they've been able to increase the market. The market knowledge of these asset classes, which is improved spread tightening I mean, it to our detriment, but from a liquidity standpoint and availability standpoint those assets.
Outstanding performance.
Great then just a last one from me on just on you know there's some moving parts on the operating expense line. It sounds like you had some one time.
Comp issues going forward and you're adding people to grade at Nic you said that you've you've paid your sort of less external management fee.
Just overall I mean is that operating expense ratio that should that continue to decline as you grow into or what's the outlook. Overall I know you provided some guidance earlier, thanks a lot.
Okay.
From an expense standpoint, Matt the.
We have hired the majority of our senior asset managers. If you want if you will in the company May we'll we'll continue to add support staff, but not significant expense increase.
So I would I would say that if you take out the $600000 onetime shot that happens every year.
It's a 150 a quarter if you want to annualize it.
The runway, where we are is approximately where we are going to be.
In the near future.
Great appreciate it thanks guys. Thanks. Thank you.
Okay.
Chuck a question.
Star one on your telephone keypad at this time.
Your next question.
Christopher Nolan.
Ladenburg Thalmann. Please go ahead.
What is the effect on your cost of funds for this most recent oh.
Great cut.
Look the majority well all of our repos are going to be our go to trade off of LIBOR with some kind of base either implicit or explicit implicit would be the repos on a securities.
So that's an immediate 25 basis points drop and then on our bank borrowings that are funding. The loans. It's also an immediate 25 basis point drop as well as.
Any kind of LIBOR or indications of forward easing so it's definitely beneficial to the company.
For sure in that regard.
But and that's why we would look at possibly as rates continue to trend lower we'll obviously look at securitization execution to lock in some longer term funding.
So the intermediate impact.
Also you mentioned earlier that you can take the leverage to two and a half to three times, which is consistent with your comments on past calls would you or just given the changing economic environment.
For.
Tending towards a lower targeting a lower ratio leverage ratio to achieve your OE.
Yes, I mean look if you're asking us to digest. The last two days event, something obviously, we would be more hesitant to put more leverage on the books I think we always run the company and we always look at the company's risk to leverage as the key fundamental issues that we have to manage on a day in and day out business historically companies that have come under financial distress. It's not really been the assets is how you finance assets and that sort of a mantra.
And so we spend a lot of time thinking about how we financed the assets, but I mean, given the last two days of advance clearly we will be hesitant to increase leverage. However, fundamentally we will look at the actual assets that were putting on leverage would also dictate that decisioning.
Final question.
Given your stock is only trading about 3% above.
NAV.
I mean, you can utilize the ATM is the intent to continue to raise equity capital while the markets open.
Look I think when we when we raise capital it's twofold, one we want to make sure weakening the creatively added to our capital base and two we have in that we believe that we have investments in the pipeline is strong enough to support our current dividend yield.
And so those are the two things that we're trying to do.
And we would always optimistically look to use it and if we don't have the ATM program is one source to add capital to the marketplace. The overnight program as a way to generate more capital in a shorter period of time as generally related to an investment that we see in a rising that's coming that's larger in size.
Yes, as long as we are able to raise accretive capital we will continue to evaluate it.
Great. Thanks, taking my question.
Thanks.
There are no further questions at this time.
Thank you Mr. Steve.
Thank you operator, and thank you everyone for being on the call Jason I look forward to speaking.
Next November about our third quarter results. Thank you want to have a good day.
This concludes today's call you may now disconnect.
Okay.