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01/11 03:18
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reflects several negative aspects: a decline in book value, lower earnings available for distribution, and challenges in hedging strategies. Despite a new partnership with Real Genius, the lack of definitive plans and unclear management responses in the Q&A section contribute to uncertainties. The market volatility, high leverage, and economic uncertainties further worsen the outlook. Dividend declarations provide some support, but the overall sentiment is negative, likely leading to a stock price decline in the short term.
GAAP net loss applicable to common stockholders $0.03 per diluted share, compared to a book value per common share of $3.34, down from $3.58 on March 31. The decrease in book value was attributed to market conditions and portfolio adjustments.
NAV (Net Asset Value) Down approximately $6.2 million or 2.7% relative to March 31. This decline was due to market volatility and adjustments in the investment portfolio.
Capital raised through common ATM program Approximately $9 million raised during the quarter, contributing to $58 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile.
MSR portfolio UPB of $16.6 billion and a market value of approximately $225 million. The net CPR averaged approximately 6% for the second quarter, up modestly from the previous quarter, with a low recapture rate due to minimal refinancing incentives.
RMBS portfolio Stood at approximately $756 million as of June 30, compared to $733 million at the previous quarter end. The net interest spread was 2.61%, lower than the previous quarter due to a matured swap position and lower dollar roll income.
Earnings available for distribution (EAD) $3.2 million or $0.10 per share. The reduction in EAD was caused by the maturity of a large hedge at the end of the first quarter.
Operating expenses $3.4 million for the quarter.
Strategic Partnership with Real Genius LLC: Entered into a partnership and investment with Real Genius LLC, a Florida-based digital mortgage technology company. Real Genius offers a fully online mortgage experience with features like instant prequalification, automated document processing, and real-time loan tracking.
RMBS Portfolio Expansion: The RMBS portfolio increased to approximately $756 million as of June 30, 2025, compared to $733 million at the previous quarter end. The company shifted towards higher coupon mortgages.
Liquidity and Capital Management: Raised approximately $9 million through the common ATM program, ending the quarter with $58 million in unrestricted cash. Maintained financial leverage at 5.3x.
Hedging Strategy Adjustments: Reduced longer maturity SOFR swap hedges and replaced them with treasury futures. Treasury futures now represent a larger portion of hedges.
Investment Strategy: Monitoring economic conditions to evaluate a more risk-on investment approach while maintaining strong liquidity and prudent leverage.
Market Volatility: The second quarter experienced significant intra-quarter volatility, particularly in April, driven by market anticipation and tariff announcements. This led to increased hedging costs, wider mortgage spreads, and swap spread tightening, which negatively impacted performance.
Interest Rate Risks: The macro environment remains uncertain with the Federal Reserve's potential rate cuts in September. Changes in interest rates could impact prepayment speeds, net interest margins, and overall portfolio performance.
Book Value Decline: The book value per common share decreased from $3.58 to $3.34 during the quarter, reflecting a decline in NAV and overall financial performance.
Hedging Challenges: The maturity of a large hedge at the end of Q1 reduced earnings available for distribution (EAD) in Q2. Additionally, fluctuations in SOFR spreads and the need to adjust hedging strategies added complexity and costs.
Economic Uncertainty: Ongoing economic uncertainties, including inflation and tariff negotiations, create a challenging environment for strategic planning and investment decisions.
Liquidity and Leverage Risks: While the company maintained a solid liquidity profile, financial leverage remained high at 5.3x, which could pose risks in a volatile market environment.
Interest Rate and Prepayment Expectations: The company expects a low recapture rate and a relatively low net CPR in the near term, given the portfolio's characteristics. However, if the Federal Reserve shifts towards a rate easing stance, both metrics could rise as the incentive to refinance returns. Prepayment speeds are expected to remain moderate as long as the Fed holds rates firm, but could increase in the latter part of the third quarter and into the fourth quarter if the Fed begins to cut rates in September.
RMBS Portfolio Strategy: The company plans to continue modestly shifting its RMBS positioning towards higher coupon mortgages. The RMBS portfolio, inclusive of TBAs, stood at approximately $756 million as of June 30, 2025, compared to $733 million at the previous quarter end.
Hedging Strategy: The company will continue to use a combination of SOFR swaps, TBA securities, and treasury futures to hedge the portfolio. Treasury futures have become a larger portion of hedges due to recent tightening of swap spreads. SOFR swaps will primarily represent front-end, short, and intermediate maturity hedges, while treasury futures and the MSR will represent longer maturity hedges.
Capital Structure and Portfolio Management: The company plans to proactively manage its portfolio and adjust its overall capital structure to add value for shareholders through improved performance and earnings in the back half of the year.
Dividend Declaration for Common Shares: On June 13, 2025, the Board of Directors declared a dividend of $0.15 per common share for the second quarter of 2025, which was paid in cash on July 31, 2025.
Dividend Declaration for Preferred Shares: The Board declared a dividend of $0.5125 per share on the 8.2% Series A Cumulative Redeemable Preferred Stock and a dividend of $0.6413 on the 8.25% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, both paid on July 15, 2025.
The earnings call presents a mixed outlook. Financial performance shows modest improvement, with a slight increase in book value per share and comprehensive income. However, concerns about rising prepayment speeds, economic uncertainties, and vague guidance on future partnerships temper optimism. Dividend adjustments indicate a cautious approach, and unclear management responses in the Q&A add uncertainty. The digital mortgage technology partnership introduces potential execution risks. These factors balance out to a neutral sentiment, suggesting limited stock price movement.
The earnings call reflects several negative aspects: a decline in book value, lower earnings available for distribution, and challenges in hedging strategies. Despite a new partnership with Real Genius, the lack of definitive plans and unclear management responses in the Q&A section contribute to uncertainties. The market volatility, high leverage, and economic uncertainties further worsen the outlook. Dividend declarations provide some support, but the overall sentiment is negative, likely leading to a stock price decline in the short term.
The earnings call summary reveals mixed financial performance, with a GAAP net loss and a decline in book value per share. Despite a steady dividend, the lack of a share repurchase program and the expectation of declining EAD due to maturing hedges are concerning. The Q&A section highlights management's uncertainty about GSE reform and future earnings, further dampening sentiment. Although there are some positive aspects, such as improved RMBS net interest spread, the overall sentiment leans negative due to financial challenges and uncertainties.
The earnings call presents a mixed outlook: the internalization of management and share repurchase program are positive, but there are concerns about inflation, interest rate volatility, and economic growth uncertainty. The RMBS portfolio faced challenges, though gains in MSR provided some balance. The Q&A session revealed unclear responses on growth expectations and interest rate management, adding uncertainty. Overall, these factors suggest a neutral sentiment, with no strong catalysts for significant stock price movement in either direction.
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