AG Mortgage Investment Trust Inc (MITT) 2014 Q4 法說會逐字稿

Welcome to the AG Mortgage Investment Trust fourth quarter 2014 earnings call. My name is Laura and I will be your operator for today's call. At this time, I'll participants are in a listen-only mode. Later we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Ms. Karen Werbel. Karen, you may begin.

Thanks, Laura. Good morning, everyone. We appreciate you joining us for today's conference call to review AG Mortgage Investment Trust's fourth quarter 2014 results and recent developments.

Joining me on today's call are David Roberts, our Chief Executive Officer; Jonathan Lieberman, our Chief Investment Officer; and Brian Sigman, our Chief Financial Officer. Before we begin, I would like to review our Safe Harbor statement. Today's conference call and corresponding slide presentation contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are intended to be subject to the protection provided by the Reform Act.

Statements regarding the following subjects are forward-looking statements by their nature: our business and investment strategy, market trends and risks, assumptions regarding interest rates and prepayments, changes in the yield curve, and changes in government programs or regulations affecting our business. The Company's actual results may differ materially from those projected due to the impact of many factors beyond his control. All forward-looking statements included in this conference call and the slide presentation are based on our beliefs and expectations as of today, February 27, 2015. Please note that information reported on today's call speaks only as of today and, therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.

Additional information concerning the factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the risk factors section of the Company's periodic reports filed with the Securities and Exchange Commission. Copies of the report are available on the SEC's website at www.SEC.gov. Finally, we disclaim any obligation to update our forward-looking statements unless required by law.

With that, I will turn the call over to David Roberts.

Thanks, Karen, and good morning, everyone. The fourth quarter and full year 2014 had solid and positive performance. Our core earnings exceeded our dividend for both the quarter and the year. This was our sixth consecutive quarter issuing a $0.60 per share dividend.

We continue our focus on increasing over the long term the portfolio's allocation to value-added assets, both in nonagency securities and assets that are not themselves securities, such as whole loans. MITT's investment team is working hard at sourcing attractive investment opportunities in these sectors. We maintain what we can consider to be appropriately conservative leverage and interest rate positioning in a volatile interest rate environment.

With that, I will turn things over to Jonathan Lieberman, our President and Chief Investment Officer.

Thank you, David. Good morning, all. For the first nine months of 2014, our MBS and ABS markets delivered strong and solid investment recurrence across all strategies and sectors. This trend continued during the fourth quarter, but with less strength and bigger.

Although structured credit in the agency MBS performance during the quarter was subdued, we would characterize it as quite respectable in light of the collapse of commodity prices, the sharp decline in global interest rates, and the stunning failure of several crowded idiosyncratic trades; for example, Fannie and Freddie common and preferred stocks, the Shire merger and arbitrage transaction.

Within the structured credit markets, RMBS and ABS credit spreads tightened earlier in the quarter, softened, and then staged a modest recovery in December as security prices appreciated in response to favorable supply technicals, low interest rates, and stable investor demand for superior yield products. Agency mortgaged backed securities performed well through November, then struggled in December in reaction to lower long-term interest rates, which prompted fears about potentially higher future prepayment speeds.

We adjusted our hedges accordingly to reflect weaker, worldwide growth, greater central bank intervention, and falling oil prices during the quarter. As I look back to 2014, we are pleased the investment team had success sourcing many unique and attractive investment opportunities that have considerable upside optionality and continue to generate strong cash on cash investment returns. We believe our diversified asset allocation mix sets our portfolio up to continue to deliver strong, superior, risk-adjusted return in 2015.

So the overall market landscape remains positive for investing in residential and mortgage loans and non-agency RMBS. Housing fundamentals remain in line with our forecast and consumer health is steadily improving. We believe that tight mortgage credit and should loosen by the spring of 2015, and older housing stock along with legacy mortgage loans will benefit from considerable credit expansion in the future.

Greater credit availability should increase prepayment activity in legacy nonagency mortgages and translate into higher prepayment pay downs for our nonagency RMBS book. With respect to MITT's asset and financial performance, we distributed our sixth consecutive quarterly dividend, as David mentioned. MITT has paid cumulative dividends of $2.40 for our shareholders over the past 12 months, while continuing to retain $1.75 of undistributable taxable income for future potential distribution.

The investment team continues to execute on several key metrics such as a yield on interest-earning assets, net interest, rate spread, debt to equity ratio, asset liability gap, diversification, duration management, and the ratio of credit assets relative to agency RMBS. During the fourth quarter, Angelo, Gordon sourced or made new investments on behalf of MITT in residential loans, nonagency RMBS, consumer ABS, CMBS and agency TBA. Our asset manager, Angelo, Gordon, continues to add talented professionals to its investment team, which will benefit MITT's shareholder in the future.

Accordingly, we are very pleased with MITT's portfolio performance as well as the investment team's continued execution on several strategic initiatives.

So, as I noted in prior earnings calls, we have specific investment and return objectives for 2014. The key observable metrics were a measured rotation of capital into credit assets, new investments in residential real estate loans, the restoration of optimal risk-adjusted earnings capacity for the Company. The investment team accomplished several key objectives for MITT, including core earnings covering our quarterly dividend once again, new residential investments, and continued our ongoing migration into credit assets.

Among the quarter's highlights were several investments in residential loan pools, nonagency RMBS, small balance commercial MBS, and execution of a re-REMIC for a legacy RMBS position within the portfolio. We continue to see a robust pipeline of accretive future opportunities that materially exceed both our equity capital and the capital generated from asset pay downs in the ordinary course.

So now, getting a little bit more specific, MITT earned $0.40 of net income and core earnings of $0.65 during the quarter. The decrease in net income from last quarter was primarily due to losses on interest rate swaps and underperformance in the mortgage basis in late December. Core earnings were subject to a $0.06 retrospective adjustment for potential future agency prepayments. Book value declined modestly to $20.13, netted for the impact of our dividend paid to shareholders on January 27.

Our undistributable taxable income was $1.75 at quarter end. The aggregate portfolio size increased modestly from the prior quarter at approximately $3.7 billion as a result of our continued rotation into new credit assets. For the year, we had a 17.7% economic return on equity as well as a 34.1% total stock return including reinvestment of our dividends.

Our hedge ratio stood at 79% of our agency RMBS repo notional amount, and 47% of our total financed amount. The hedge ratio was modestly lower at quarter end, due to the removal of shorter duration hedges. Prepayments fees for our agency book remain well-channeled for our seasoned portfolio and contained an 8.8% CPR levered it at 4.17 turns, inclusive of our net TBA mortgage position, and was higher than last quarter due to an increase in TBAs as well as from the execution of a re-REMIC of an existing nonagency MBS investment position.

Net interest margin, excluding the net TBA position declined slightly to 2.89% due to slightly higher cost of funds on new credit investments we entered during the quarter and typical year-end cost of funds pressures. During the quarter, we invested approximately $12 million to purchase legacy residential mortgage loans in concert with Angelo, Gordon.

So now, before turning in more detail to the portfolio, I would like to share a few brief thoughts on our 2015 outlook, which we outline on slide 6. So, two important sectors continue to confound market participants in the fourth quarter -- oil prices and interest rates. Crude oil declined 42% during the fourth quarter and the negative effects of this price decline should dampen near-term US economic activity.

However, after a period of transition, these negative effects should be offset by longer-term gains in consumer spending and favorable deflationary effects of lower transportation and energy costs. Now, in short, we view energy deflation as a positive for the US consumer, housing markets, mortgage investors, and the overall US economy.

With respect to US interest rates, many market participants were positioned for rising rates, given the stronger US economic data and the expectation that the Federal Reserve would normalize monetary policy. Instead, US interest rates declined sharply in response to deteriorating global economic conditions, widening geopolitical conflicts, and looser monetary policies. Global QE, effectively central bank easing masquerading as currency depreciation, pervades and is pervasive, and manifests itself in the US in the form of a stronger US dollar and lower treasury yields.

Recent talk of US economic strength has now given way to concerns regarding structural stagnation, currency wars, and global deflation. These global conditions and headwinds continue to confound US policymakers and the Fed. Notwithstanding these headwinds, we remain positive but cautious on US growth prospects in 2015, and believe that once the benefits of lower oil prices reach consumers, the US economy could muster growth of up to 2.5%.

We do, however, expect this year to be potentially -- be more volatile as policies, politics, and conflicts will pull in sharply opposite directions. So even with below-target inflation, a declining labor force participation rate and a slack -- and slack in the US economy, we do expect the Fed to raise short-term interest rates by the middle of 2015.

So why would the Fed hike rates with little inflation and falling labor force participation? Well, in sharp contrast to new QE programs announced by many central banks around the globe, Chairperson Yellen is seeking to engineer a smooth shift away from zero cost of funds to a more normalized price for money.

Even as the Fed tries to raise short-term interest rates, it is important to remember that they will continue to support mortgage rates, and therefore the housing market, by continuing reinvestment for some period of time of the QE3 portfolio paydowns back into agency MBS. Accordingly, we believe the US economic growth is capable of tolerating a modest rise in short-term interest rates, provided that long-term rates remained anchored below 3%.

So, now, digressing from MITT's performance for a moment, the CEO of Annaly Capital recently commented on the central bank's efforts to revitalize their economies through quantitative easing -- so-called QE policy. Annaly's chief executive officer analogized that QE's repression of interest rates may someday be seen as the 21st century equivalent of the medical belief of the benefits of bloodletting.

Well, AG Mortgage Investment Trust board member, University of Pennsylvania professor Peter Linneman, discussed with me a slightly different interpretation. Perhaps QE policies are the modern equivalent of human sacrifice by the Mayans to improve harvest. No one has really explained exactly how QE stimulates; empirical evidence is tenuous and stretched to prove it really drives real growth rather than simply inflates asset values.

But then, there was no evidence that human sacrifice improved harvests or brought rain. But the sacrificing continued because the economic high priest said it works.

Well, now, back to our markets, returning to the housing market, home prices remain firm in most markets and appraisals for stressed legacy loans have thus far proven in line with our investment expectations. Distressed homes now represent less than 10% of all home sale activity. In most housing markets, supply and demand have reached normalized equilibrium levels and home prices recovered to levels last seen in late 2004 or early 2005.

Moving on to our portfolio, slide 7 details some of our top level sector metrics from quarter to quarter. The fair value of our agency and credit book was approximately $2 billion and $1.65 billion, respectively.

Focusing first on our agency security book, our agency portfolio remained fairly constant, with the main difference between -- being a slight reduction in agency mortgage pools and a slight increase in agency TBA positions. The TBA positions permit us greater flexibility to adjust the portfolio to changes in interest rate conditions and have superior economics at this time to pools.

During the fourth quarter, we proactively exited selected inverse IO positions that we thought might underperform if mortgage refinancing activity accelerated or long-term interest rates continued to decline. From a prepayment perspective, our pools continue to perform in line or better than our expectations, with Q4 CPR of 8.8% and January CPR of approximately 7.4%.

Moving over to our credit book, our aggregate credit book was approximately $1.65 billion, based upon amortized cost at quarter end. We are pleased to have participated in the acquisition of two pools of nonperforming residential mortgage loans, along with other Angelo, Gordon funds. In the prior quarter, we had acquired $113 million of residential mortgage loans.

New investments were also made in small balance commercial, mortgage securities, floating rate CRE securitizations. We also completed, as I mentioned, a re-REMIC securitization of a legacy non-agency position in which the senior tranche was sold to a third party while the Company retained a junior piece. This transaction reduced short-term recourse financing and simultaneously freed up equity capital.

As we have noted on many of our prior calls, we believe Angelo, Gordon is well-positioned to source and originate attractive investment opportunities in the loan space, both commercial and residential for the Company. So now, turning to slide 10, we provide an update on our financing and duration gap.

We currently have 35 financing counterparties. Funding continues to be plentiful and stable for the Company. Our funding counterparties actively compete for and seek more financing business from MITT. MITT's duration gap, inclusive of our net TBA position, decreased modestly from a quarter-year to 0.17 years, quarter over quarter, in response to a lower interest rate environment.

During the fourth quarter, we reduced hedges, added duration to counter professional potentially faster future prepayments speeds and had the duration on the asset side shrink a little bit. Additionally, in January, we further reduced our interest rate swap hedges and increased our overall interest rate gap in response to a lower interest rate environment going forward. We believe this adjustment will protect the portfolio from a potential decline in interest rates, faster prepayments, or the flattening of the interest rate curve.

In the event that rates do rise due to an uptick in economic activity, our credit portfolio should, over time, more than offset any negative impact from the incremental interest rate risk. Overall, portfolio and liquidity positioning should help us navigate a wider range of interest rates, agency credit spreads, and credit market movements.

So now, moving over to our hedging and interest rate sensitivity tables on the next slide, my primary regret for 2014 was the cautiousness we exhibited towards the interest rate markets, especially in light of my views that global growth prospects were weak, and that central bank monetary policy would likely remain accommodative. In the fourth quarter, as I previously mentioned, we did unwind a limited amount of our interest rate swaps to maintain a relatively neutral interest rate stance.

In January, we took an incremental step. We took off additional swaps to optimize our hedge book for the current portfolio, economic conditions, potential normalization of US monetary policy, and we have accordingly opened up a bigger duration gap. With the unwind of additional interest rate hedges, the portfolio will perform better in a declining interest rate environment and may generate higher potential future core earnings going forward in 2015.

I would like to wrap up by saying that we believe the portfolio is well-positioned for today's market environment and should generate attractive future returns for our shareholders. The investment team is very excited by the flow of investment opportunities we are seeing in both the bond and the loan markets. And with that, I will turn the call over to Brian to continue to review our financial results.

Thanks, Jonathan. In the fourth quarter we reported core earnings of $18.4 million or $0.65 per diluted share versus $17.8 million or $0.63 per share in the prior quarter. At December 31, we had a negative $0.06 retrospective adjustment to our premium amortization on our agency portfolio. We are pleased with this result and it marks the fifth quarter in a row we are where our core has met or exceeded our common dividend.

Overall for the quarter, we reported net income available to common stockholders of $11.3 million or $0.40 per diluted share. The $0.65 of core earnings was offset by realized and unrealized losses of $0.25 per share. The $0.25 loss was primarily due to $0.20 of net realized losses on our securities and derivative portfolio, and $0.02 of net realized and unrealized losses on our linked transaction, as well as $0.03 of net unrealized losses on the securities and derivative portfolio.

At 12/31, our book value was $20.13, a decrease of $0.20 or 1% from last quarter. To give you a better sense of our current $3.7 billion portfolio, I would like to highlight a few more statistics. As described on pages 3 to 5 of our presentation, the portfolio at 12/31/2014 had a net interest margin of 2.89%. This was composed of an asset yield of 4.67%, offset by [rebound] swap costs of 1.07% and 0.71%, respectively, for a total cost of funds of 1.78%.

We are pleased that our yield on the investment portfolio continues to trend higher, as the increase was driven by increase in our weighted average yield with the rotation into higher-yielding credit investments from lower-yielding agency securities, as well as the improved underlying performance of our securities and loans. Our cost of funds increased 7 basis points this quarter with the majority of the increase due to new credit investments we entered into during the quarter.

On the derivative side, we do not have any forward starting swaps, and therefore our swap costs reflected the true cost of our swaps. On the funding side, we continue to be active. On the revenue side, we financed a loan pool purchase of $28.4 million with loan level financing of $21.3 million. Additionally, we entered into a repurchase agreement with a one-year initial term in two, six-month extensions for $14.2 million, to finance the residential loans we purchased in security format during the quarter.

As Jonathan mentioned, we executed on our first re-REMIC transaction in the quarter. This reduced our short-term recourse debt and freed up capital. Our liquidity remains strong and at quarter end we had total liquidity of $181 million, composed of $64 million of cash, $53 million of unlevered agency (technical difficulty) securities, and $64 million of unlevered agency IO securities.

That concludes our prepared remarks and we would now like to open the call for questions.

(Operator Instructions) Douglas Harter.

You had mentioned in your prepared remarks that the investment opportunities kind of exceed the available capital, even through paydowns. How are you prioritizing, and what kind of a portfolio shifts might you make in order to take advantage of those opportunities?

Thank you for the question. We do generally see good opportunities. Starting with the agency side, we saw a lot of volatility in January on the agency derivative side. And there was opportunities to step in there and buy very, very high-yielding derivatives that would carry exceptionally well off a good side protection.

On the non-agency side, we have seen selling out of the GSEs of non-agency legacy securities. We have seen a serious series of PE funds liquidating. We saw a series of funds that got hurt in the fourth quarter, away from our markets, taking profits or creating liquidity through the sale of non-agency securities; similar trend in CMBS in October/November, and then excess supply in CMBS [and once] in November/December.

So we have been participating in all of those areas, and then we were active in whole loans in the fourth quarter. So we are taking a look at both intrinsic value, relative value, liquidity, and we have been putting capital into each of those different sectors and trying to, once again, have a balanced portfolio that we think will perform well, even if there is volatility due to central bank activity.

And then, also in your comments, you mentioned that you had taken some hedges off during January. If you could just give us a sense of kind of when in the month, just to help us kind of frame the benefit you might have received from removing those hedges?

We removed them fairly early in January.

Herbert (sic) Cranston.

This is Trevor. To follow up on that last question about the hedges, could you also maybe give us a sense of what the notional and the term and rate of the swaps that you removed was?

Maybe just a different way of approaching it is, we roughly -- under a quarter-year duration gap in the fourth quarter, we sought to open up a duration gap greater than a half of a year for the portfolio. The tenor of many of the swaps that we elected to take off were really on the longer end, once again consistent with longer-term interest rates remaining depressed, and also consistent with potentially protecting the book in case there was a curve flattening, would occur. Once again, consistent with basically the expectation that the Fed may raise interest rates in midyear, so that -- really outlining what we would suspect was a flatter curve going forward.

Okay. Got it. And the re-REMIC transaction you did, can you give some details about what the collateral in there was, and whether or not you would expect to have the ability to do some more of those similar transactions in the future?

So the collateral was, I think, 10/1, 10-year fixed, then adjustable nonagency MBS. It was either prime or all day, so I am a little -- my recollection there was a while ago. But it was probably an all day hybrid and I think it was 10/1. Worst case, it was a 7/1. And we did sell off the front end cash flow at --

Is that LIBOR plus 1.75-ish?

Yes, and retain that backend piece. And where we have sizable pieces, sizable positions, we will engage in more of those transactions going forward.

Mike Widner.

Let me just ask a quick follow-up on Herbert's (sic) first question. You had indicated taking off of swaps and going from sort of under a quarter-year to a little bit more than a half-year. Is that -- so when you talk about sort of expanding the duration by, I don't know, a quarter-year, 1/3-year, whatever it is, is that purely by taking off the swaps? Or is that incorporating some view of kind of shortening of the asset side as well? And, obviously, what we are all trying to get at is how do we model the size of the swap portfolio.

It was purely on the swap side. As I said, it was just -- we would expect -- once again, if interest rates remain relatively stable, we would expect that to be positive for core going forward.

Yes. Okay. I think I get that piece. One other, just to just follow up -- I think Doug asked the question. You made reference to sort of having more -- seeing more opportunities than having available capital, basically. I mean, is there -- in a lot of occasions when we hear that, it is sort of suggests that you are contemplating a capital raise and that you would like to raise capital because you see such great opportunities out there.

I mean, given the environment, is that a fair interpretation of that? Or how do you think about that?

I think, first of all, we would never comment if we were going to raise capital. We would make that decision at the time, and with the Board of Directors and other senior managers here.

But, I think the emphasis is that we like the fact that the investment team and myself are stressed and that we have to sell assets in order to rotate, and that we like that challenge. We like the tension between our equity base and the investment opportunity at this time, and that we are not in a situation where we have raised excessive capital and we are struggling to put the capital to work.

I would also say that, historically, I think we have a track record of being fairly disciplined with our capital raises. Once again, you can look back at even when the capital markets have been open to us, where we have found it to be accretive for our shareholders, we have been very, very disciplined as only taking capital when we think it beats the opportunity set. And, here, I said, we are not trying to imply that we are going to do a capital raise. We are simply implying that we are not struggling with where to basically put capital.

So I mean, on that latter point, that is really -- I would say, a fairly material difference between what I hear from you -- you guys versus a number of other REITs, which would characterize the investment environment as a little less appealing -- certainly less appealing that it has been in recent years, and both on the credit and the agency side.

And so I guess I am curious -- I guess two pieces. I mean, what specifically are you seeing that you find so appealing, particularly on the credit side? And why do you think your view is different than what we hear from a lot of your peers that are -- you know, some of them are selling credit assets at this point, just because spreads have tightened and they feel like I said prices have grown (multiple speakers)

Hi. It's David Roberts. I will take that -- those questions. When we think about the world, we think about -- we have our agency book and then we have what we have often referred to as our non-agency or our credit side. And, within that, what Jonathan is saying and what we are seeing, we see a lot of varied attractive opportunities across the spectrum of the markets that we are active in. And that is the healthy tension that we are seeing.

And I think that really comes from two sources that may be different from some of the other companies you are hearing from. One is that we have been very disciplined terms of our capital base and keeping that tight, and not having excessive equity. And the other is the strategy of AG Mortgage Investment Trust has always been to take advantage of all the different opportunities that flow into Angelo, Gordon. And we are seeing a lot of interesting opportunities that are appropriate for the REIT that perhaps others wouldn't see if they were really just focused solely on the securities side. So that is really what we are saying.

Okay. And as far as specific things, maybe there is commercial assets, there is CMBS as well as commercial loans. There is residential nonperforming or re-performing loans. There is new non-QM originations. You guys have some excess mortgage servicing rights. So I guess I am just curious. Which of those areas seem a little more appealing than others right now? Or is it just kind of everything looks good to you?

Well, look, I think once again, we are little bit talking about what we saw in the past. But in the fourth quarter we were not overweight in many of the sectors. We were very, very well diversified. We have a de minimis exposure to MSR. We have a de minimis exposure to -- I am not even sure we had exposure to GSE risk transfer trades.

We really had the ability in the fourth quarter to increase size in several different sectors when there was stress and credit spread widening in GSE risk transfer trades, in commercial CMBS issuance, in whole loans, once again. And we took advantage of that.

And once again, we -- our capital base, and you can see our available capital, is quite tight. And so we have a team of 21 investment professionals on the residential side; a team of six on the CMBS side. We have quite a bit of sourcing capabilities.

Okay. Well, I certainly appreciate that. I was just trying to get a little bit of flavor for, again, your commentary on the market just seems more much enthusiastic than what we hear out of a lot of the other MREITs. And so I was just trying to get a little bit more of a sense of what specific segments you are more enthused about. But it sounds like you are kind of -- I don't want to overstate it, but almost universally enthused about the credit opportunities today.

I wouldn't characterize it as enthused about all sectors. I would just simply say that we are out there with a rifle taking specific shots at individual assets that we like. And we are not having to -- once again, I am not having to redeploy very material paydowns. I am not having to redeploy a lot of capital out of the agency MBSs.

We have already rotated a pretty material portion of our book into credit assets over the last nine months. And so we are really in a position to harvest attractive returns for the next several quarters, while we continue to source replacement opportunities.

It's David Roberts. I would just add that we wouldn't want anyone to come away thinking that we were generally enthused -- enthused about the investment environment. We all know how tough it is. But, having said that, again, I point back to both our capital base, our existing portfolio with which we are very happy, and then the volume of opportunities we get to look at and pick from. And I think that is important to keep that in context.

All those things together really form our enthusiasm for the investment opportunities we see. It is not a general everything is just great out there.

No, that makes more sense. I mean, like you said, you have a smaller equity base to put to work than a lot of your peers and, as you said, you are not facing $1 billion a month of runoff. So I think I understand that perspective, and it certainly makes sense. And thanks for the color and clarity, as always.

I think, just our runoff, our average runoff is somewhere between $15 million and $25 million a month, just to give you perspective.

Yes. And that's a lot easier to put to work than --

Which once again creates a very healthy tension, and then I think, you know -- once again, I am not trying to quibble with you. But if you look at page 7 of our deck and we have -- we probably get criticized for this, but we think it is a net benefit. The diversity of the portfolio is very helpful in a period of time like today, which we think is transitory. And it is challenging to many other firms in the marketplace.

I appreciate that. And I don't feel like I -- hopefully, it didn't feel like I was quibbling. I was just trying to understand, again, what sounded like a very enthusiastic sentiment, and I think you clarified that it is not [involved] with the investment environment in general. We can put $25 million to work across eight different asset classes without a whole lot of trouble, given the view of assets we get by being part of Angelo, Gordon. So it makes perfect sense to me.

Charles.

This is [Charles Navien]. I was wondering if you could comment on the CMBS environment during the fourth quarter and into 2015, specifically if you are able to capitalize on some of the spread widening in December, and any impact that may have had on book value during the fourth quarter and into January.

Yes. I think what we have said is we definitely did take advantage of some of the spread widening. There was quite a bit of conduit issuance; quite a bit of CRE, CDO, CLO type of issuance. A lot of it is floating rate. And we did -- there was -- we did take advantage of it. We did add exposure in the fourth quarter and we would believe that will come through.

We were underweight and probably are still underweight in the CMBS market today, and would like to once again be in a position to take advantage of it if there is additional weakness. We have seen some recovery in January and February in those markets. And so we will be faced with the decision whether we monetize and just crystallize those gains.

Great. And, as a follow-up, you have been covering the dividend comfortably for several quarters now. There appears to be some earnings tailwinds in place and you have a decent amount of UTI as well. I was wondering if you could comment on how -- or give us a little help thinking about the dividend going forward into 2015 -- how we should think about that.

It is David Roberts. I think that we are -- we look at it every quarter with the Board and we don't really like to give dividend guidance, just repeat that we have been steady at $0.50 for six quarters. And we will just continue to look at it as we go. I know that is not the most satisfying of answers, but we really do look -- we really do take a fresh look at the world every three months, and we think that is the appropriate way to run the business.

Okay great, I appreciate the color guys. Thank you.

(Operator Instructions) I am seeing no further questions at this time.

Thank you very much for joining the call, and thank you again.

Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.