Cherry Hill Mortgage Investment Corporation (CHMI) Q2 2019 Earnings Call Transcript

Cherry Hill Mortgage Investment Corporation (CHMI -1.43%)
Q2 2019 Earnings Call
Aug. 8, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Cherry Hill Mortgage Investment Corporation's second quarter 2019 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press *0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Rory Rumore, Vice President, ICR. Mrs. Rumore, you may begin.

Rory Rumore -- Vice President, ICR

We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's second quarter 2019 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.chmireit.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.

Examples of forward-looking statements include those related to interest income, financial guidance, IRR, future expected cash flows, as well as prepayment and recapture rates, delinquencies, and non-GAAP financial measures such as core 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 filing 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, our Chief Investment Officer, and Michael Hutchby, our Chief Financial Officer. Now, I will turn the call over to Jay.

Jay Lown -- President & Chief Executive Officer

Thanks, Rory. And welcome to today's call. As we've noted in past calls, geopolitical and macroeconomic concerns are largely in control of the market. And great volatility in 2019 is starting to look a lot like 2016. The sharp rise in yields following the surprise Trump election in late 2016 has reversed the 10-year yields. Now, we visit the fourth quarter 2016 lows preceding the Trump election.

The 2018 fiscal boost to the economy from the tax cuts seems to have run its course. And the markets are now driven by anticipated actions of the world's central bankers. This theme also applies to our two assets classes. Prepayment rates on our MBS portfolio have increased quarter over quarter, going from 5.5% in Q1 to 8.9% in Q2. While prepayment fees on our MSRs have increased from 6.4% for Q1 to 12.5% for Q2. We are certainly not alone in experiencing the impact from prepayments. It unfortunately has been widely felt within the sector. Furthermore, given the size of our MSR portfolio, prepayments naturally have a greater bearing on our results.

Prepayments of the underlying loans permanently terminate the related service and fee income, thereby, reducing the earning capacity going forward. The sequential reduction in core earnings per share to $0.52 is indicative of the initial effects of faster prepayment speeds. We expect that the challenging conditions of Q2 are likely to persist until at least some time in the fourth quarter, when seasonal factors should have a stabilizing effect on prepayment speeds. However, should interest rates continue to decline, the seasonal benefit may not have the same impact as is customary in a more stable market environment.

In light of the market conditions, we continue to hedge the MSR portfolio in order to maintain our duration gap as close to neutral as our model allows. Those changes help moderate the impact in book value from $17.54 to $16.80, or a 4.2% decline net of the dividend from the end of Q1. That strategy remains intact in the third quarter as well.

We have also seen the pace that prepayment speeds carry through into July and now into the first weeks of August. We slowed the growth of our MSR portfolio in the second quarter given the ongoing push to lower rates. As a result, at the end of the second quarter, the MSR portfolio remained at approximately 39% of our equity capital. Additionally, we continue to be selective in adding to our non-agency MBS investments. Comprised predominantly of CRT a non-agency jump of securities that meet our risk-return hurdles.

Given our expectation that market conditions will further deteriorate in Q3 and should persist for the remainder of 2019. We expect that at its meeting in September, our board will set a common dividend policy for the third quarter that is 15% to 20% lower than the second quarter dividend of $0.49 per share, subject to any changes in our outlook. While we expect our funding costs to improve somewhat as lower interest rates work through the expense side of the equation. We believe that a reduced dividend will better reflect our anticipated earnings capacity given current market conditions. We will remain disciplined in our portfolio construction. Our management team will continue to utilize our collective investment experience, proactively manage our portfolio, with the goal of preserving our book value and continuing to generate attractive returns for shareholders.

This is a proven and cycle-tested team. And we believe that longer term we are positioned to create additional shareholder value over time. With that, I will turn the call over to Julian, who will cover more detailed highlights of our investment portfolio and it's performance over the quarter.

Julian Evans -- Chief Investment Officer

Thank you, Jay. During the second quarter, global interest rates rallied on global manufacturing weakness, geopolitical concerns, and continued rising US-China trade tensions. These concerns increased volatility and lowered global interest rates. Despite increased volatility, a majority of credit sector spreads moved tighter and equity indexes moved higher as the expectations of greater global, central bank intervention grew. Not only was the Fed expected to intervene, but a majority of global central banks are expected to implement some form of policy easing as well as asset purchase programs in the future.

Despite global central banks' policy being supportive for spread sector assets and equity indexes, the mortgage sector, specifically RMBS, struggled to keep pace given increased volatility, the rally in interest rates, the pronounced inversion of the funding curve versus long-term interest rates, and the expected increase in prepayment speeds. As a result, RMBS failed to keep pace with treasuries and swaps during the quarter. The mortgage base is widening, limited the performance of our book value as investment assets could not keep pace with the treasury and swap hedges. Over the quarter swap hedges outperformed agency MBS as well as non-agency MBS mortgage securities. On a positive note, the price premiums of spec portfolio increased as rates rallied. But it too struggled against a deep decline in interest rates.

The rally in interest rates also had a negative impact on the market value of our servicing assets. As shown on slide five, servicing related investment comprised of full MSRs represented approximately 39% of our equity capital and approximately 10% of our investable assets, excluding cash at quarter end. Servicing assets were flat as a percentage of equity from the previous quarter, as the MSR valuations declined alongside interest rates. Meanwhile, our RMBS portfolio accounted for approximately 57% of our equity, 5% higher than the previous quarter due to a combination of additional purchases and rising market value during the quarter. As a percentage of investable assets, RMBS represented approximately 90%, excluding cash at quarter end.

As of June 30th, we held MSRs with a UPB of approximately $28 billion and a market value of approximately $274 million. Given the falling interest rate environment, we made the decision to slow the rate of additional MSR purchases during the quarter. As we had expected, prepayment speeds accelerated considerably during the quarter and have remained high in July and early August, driven by seasonality and lower mortgage rates. Our conventional MSR and government MSR averaged approximately 12% CPR and 14% for CPR, respectively, for the second quarter. Conventional MSR speeds were up from 6% CPR in the prior quarter, while the government MSR speeds rose from 9.1% CPR posted during the same timeframe.

As of June 30th, the RMBS portfolio, stood at approximately $2.3 billion, approximately 9% higher from the previous quarter, as shown on slide seven. Quarter over quarter, the RMBS portfolio's composition shifted as capital was deployed. The 30-year securities position grew to 80%, up from 78% as of March 31st. And the remaining assets represented 20%. In the second quarter, the collateral composition of the RMBS portfolio goes to the weighted average three-month CPR of approximately 8.9%, an increase from the previous quarter, as prepayment speeds rose based on seasonality and the lower interest and mortgage rate environment. On a positive note, the RMBS portfolio's prepayment speeds continue to best Fannie Mae aggregate prepayment speeds. As Jay noted, we expect speeds to remain elevated in the third quarter based upon the persistent, lower interest and mortgage rate environment.

For the second quarter, we posted a 0.84 RMBS NIM versus a 1.25 NIM for the first quarter. The NIM's decline was driven by faster prepayment speeds and elevated financing costs versus lower asset yields. Near term, we expect the NIM to fluctuate based upon lower mortgage rates, the seasonality of the housing market, some of which will be offset by lower financing costs, and by the receive portion of our swap portfolio. To improve the NIM, we continue to purchase collateral stories for the RMBS portfolio as well as resetting some of our payer swaps to lower rates.

At quarter end, the aggregate portfolio operated with leverage of approximately 5.2 times and a positive duration gap. We ended the quarter with an aggregate portfolio duration gap of a positive 0.49 years. We maintain a positive duration gap given continued global trade tension, weaker global growth, as well as limited clarity from the Fed. The continuous rally in interest and mortgage rates has shortened mortgage durations and, thus, made the RMBS portfolio only a partial hedge for MSR portfolio. As we move forward, we will continue to evaluate and alter the portfolio as necessary.

I will now turn the call over to Mike for our second quarter financial discussion.

Michael Hutchby -- Chief Financial Officer

Thank you, Julian. Our GAAP net loss applicable to common stockholders for the second quarter was $29.3 million, or a $1.75 per weighted average share outstanding during the quarter. While comprehensive loss attributable to common stockholder, which includes the market-to-market of our held for sale RMBS. This $4.2 million, or $0.25. Our core earnings were $8.7 million or $0.52 per share. As Jay mentioned, our book value as of June 30th, 2019, was $16.80, a decrease of $74 per share from March 31st, 2019, or 4.2% net of the second quarter dividend.

We use a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future with purchased borrowings. At the end of the second quarter, we held interest swaps, swaptions, TBAs, and treasury futures. All of which had a combined notional amount of $2.2 billion. For GAAP purposes, we have 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.

Operating expenses were $3.1 million for the quarter, of which approximately $561,000 was related to our taxable REIT subsidiary. On June 13th, we declared a dividend of $0.49 per common share for the second quarter of 2019, which was paid on July 30th 2019. We also declared a dividend of $0.5125 per share on our 8.2%, series A, cumulative, redeemable preferred stock and a dividend of $0.515625 on our 8.25%, series B, fixed-to-floating rate cumulative, redeemable preferred stock, both of which were paid on July 15th. Now, I'd like to turn the call back over to Jay.

Jay Lown -- President & Chief Executive Officer

Thanks, Mike. At this time, we'll open up the call for questions. Operator.

Questions and Answers:

Operator

At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Tim Hayes from B. Riley FBR. Please proceed with your question.

Tim Hayes -- B. Riley FBR -- Analyst

Hey, good evening, guys. My first question around the dividend cut, just wondering what exactly this new dividend level reflects. Core earnings has been the proxy for the dividend. And is it your expectation that core earnings will also decline by 15% to 20% as soon as 3Q? Or are we setting the dividend at a level that reflects a longer-term view? I know this is a board decision, but just wondering if there's any insight there and then maybe what payout ratio you'd be targeting.

Jay Lown -- President & Chief Executive Officer

Hey, Tim. How are you? So, I think it reflects what we think we can sustainably earn going forward. And I think as we noted in the second of the second quarter we saw prepay speeds elevate meaningfully. And what we're trying to do is not get behind that event. And I think here what we believe is that faster speeds are here for the foreseeable future relative to where rates are. And it's our expectation that what the board decides relative to that dividend level is a reflection of what we think we can earn on a go-forward basis in the near term.

Tim Hayes -- B. Riley FBR -- Analyst

Okay. Understood. And you noted that prepayment speeds remain elevated, but are they -- through July and the first week of August, are they in line with your expectations heading into the quarter? Or they been -- or have they been even faster? Just wondering kinda what is factored into current MSR market, if you expect it to be written down given -- even more in the third quarter given what you've seen. And I guess this would be a good time to ask for a quarter-to-date book value update if possible.

Jay Lown -- President & Chief Executive Officer

So, I think that relative to what we modeled for speeds for the third quarter, at least where we see it today, speeds are in line to slightly higher than where we modeled. I think if you pay attention to things like the JP Morgan Prepayment Report, you'll see that speeds are picking up pretty quickly. If you take a look at what we bought in the MSR portfolio, a lot of the growth in the MSR portfolio was 2018 vintage, relative to originations. And our view is that that population has -- is susceptible to being refinanced. Does that answer that part of the question?

Tim Hayes -- B. Riley FBR -- Analyst

It -- yes. That's -- it did.

Jay Lown -- President & Chief Executive Officer

The second part of the question is, as of July -- and remember, the 10-year was clearly a slightly different place than it is now, probably closer to 2%. We saw book value up in the 1% to 2% range.

Tim Hayes -- B. Riley FBR -- Analyst

Okay. Got it. Thanks for that update. Appreciate that. And then, your view for lower earnings, is that more a reflection of lower asset yields, given the pick up in prepays? Or how much of that is maybe reinvestment in yields, given how you're trying to position the portfolio?

Jay Lown -- President & Chief Executive Officer

I think it's a combination of the two. But with respect to MSRs, as you can imagine, we can hedge -- we can do a good job hedging the value. I think us and anybody else invested in this sector would say that it's much harder to hedge the cash flows. And with a pick up in speeds as quickly as we've seen them quarter after quarter, our expectation is that income as it relates to the degradation around that asset class is -- has led us to kinda rethink the dividend policy.

Tim Hayes -- B. Riley FBR -- Analyst

Okay. Makes sense. And then, I'll ask more of a high level question -- excuse me -- and then hop back in the queue. But a lot of things are going on that could enhance the role of private capital in the mortgage market. GSC reform QM patch expiration, among others. What type of opportunity did that potentially present for you guys given your strategy?

Jay Lown -- President & Chief Executive Officer

So, if you're referring to are we looking to make an investment an originator or something like that, today, that is has not -- that's not something I can tell that we're far along on. I think -- it 's a tough discussion. Clearly, somebody like Fannie Mac has an advantage having an established program. But you need to have a fairly robust origination platform to offset some of the prepayments that we think can come down the pike. And for some of our peers who have originators, I don't think they're counting on that part of their operation to protect them more than they are their subservicing partners.

Tim Hayes -- B. Riley FBR -- Analyst

Okay. Appreciate the comments there, Jay. I'll hop back in the queue and potentially follow up with some more.

Jay Lown -- President & Chief Executive Officer

Sure. No problem.

Operator

Our next question comes from the line of Steve DeLaney from JMP Securities. Please proceed with your question.

Steve DeLaney -- JMP Securities -- Analyst

Thanks. Good evening, everyone. Jay, I know it's been a tough quarter for everybody. We've seen all the big guys cut their dividend 15% to 20%. I think we'll see more of those, so keep your chin up. It's a tough business. Just a couple -- one question and then maybe just a couple comments that kinda reflect on where you are today.

One, when Julian gave the NIM compression in your opening comments about the CPR increases obviously -- but I wanted to know to get down to 84 from 125 bips, wasn't the relationship of three-month LIBOR to repo 30 also a factor? We tend to believe that when Annaly and AGNC preannounced second quarter dividends that it was not about speed, but it was about the relate -- that relationship and their cost of funds, which -- and they modeled that so much, maybe more. But it's hard to predict -- other than seasonal it was hard to predict this 10-year level. So, just curious if that was, in fact, also a component of that decline.

Julian Evans -- Chief Investment Officer

I think it's a big component of it. Hi, Steve. This is Julian.

Steve DeLaney -- JMP Securities -- Analyst

Hi. Hi, Julian.

Julian Evans -- Chief Investment Officer

Look, if you just look at where funding was during the quarter versus where the 10-year treasury or 10-year swaps declined anywhere between 50 to 45 basis points. We saw a decline in the 10-year and 10-year swaps. Funding probably only dropped about 10 basis points over that time -- same time frame. So, you're definitely purchasing assets on I would kind of call an inverted curve, between your funding and where your asset levels -- you're putting money to work. That's a very difficult situation.

Steve DeLaney -- JMP Securities -- Analyst

Yeah. It was probably, what, a negative 20-some, 25 basis points maybe at the worse. And 8 times leverage -- it adds up. But has that not reversed almost completely? Not to the point where it's...

Julian Evans -- Chief Investment Officer

I think in reverse for maybe a day or two in the new quarter as the Fed obviously did its first ease in a while. But then, the recent tweets that have been coming out have obviously pushed 10-year yield levels down again. So, we have a very similar inversion that we had toward the end of the second quarter, beginning here in the third quarter. So a very similar situation. But, overall, I can tell you that the funding costs are coming down. They're slowly coming down, not to the same level that we had seen in the past. So, I would definitely say that three-month LIBOR, for example, we were putting that on it, probably 260 in the second quarter. We have been able to execute around 230, 235 into the third quarter.

Steve DeLaney -- JMP Securities -- Analyst

Okay. Thank you. Yeah. We were hearing some 230 handle. So -- and then, just switch to the new dividend. I think it's important to kinda put it in perspective. I can do -- you guys can't necessarily be objective about it. I'm gonna try to be. So, let's assume the new dividend rounds off to $0.40, just a nice round number, $1.60 a year. Your current share price is $16.84. That is a 9.5% dividend yield. There are not many investment opportunities out there that offer anything like that, especially where we are with everything else in the market down below 2%. My thought is -- and you guys are trying to compete in terms of -- probably between the agency and hybrid guys, there's 22 companies. There's some big ones. When everybody's talking leverage up -- and it seemed that everybody was trying to work toward an 11% ROE. I don't -- I'm not gonna say people were forcing to a yield, but if you wanna be competitive, trade well and have access to capital.

I do believe people have been operating with far too much leverage for this business model. Okay. Just generally speaking. And I think we're gonna get a lot more vocal about it because, if we look back over the last two years, even at the largest companies and with all the manpower, they'll pay you 10% or 11%, but every year they're losing 5% to 7% or 6% or more consistently. And that's happened for last two or three years. So any of that -- my hope for the business is that people operate with 7 to 8 times leverage normally and they're happy to pay 9% dividend yields with more stable book values, and I think we'd have a much healthy mortgage REIT industry. And, yeah, that's just a thought.

But the final thought I wanna through out to you is --

Jay Lown -- President & Chief Executive Officer

Hey, Steve, real quick, real quick. Just a quick --

Steve DeLaney -- JMP Securities -- Analyst

Certainly, Jay.

Jay Lown -- President & Chief Executive Officer

You used -- to get to 9.8, you used our book value. But if you look at our share price, I believe the dividend yield today would be 10.8.

Steve DeLaney -- JMP Securities -- Analyst

Okay. Apologies. Yes. I did intentionally do it off book, just to kind of reflect the return because the stock price can move all around. But thank you.

Jay Lown -- President & Chief Executive Officer

True.

Steve DeLaney -- JMP Securities -- Analyst

So, frankly, the even makes -- you're still over 10%, right? I mean, 13% is crazy in the first place. But I think it just gets to the question of these -- yields were being -- were driven up because of expectations for cuts. I think they were -- cuts were being priced in when something's trading to 12 or 13. So, the last thing is --

Jay Lown -- President & Chief Executive Officer

[Inaudible].

Steve DeLaney -- JMP Securities -- Analyst

Right. So, the last thing that I would just throw out. And this has to do with we don't know -- what we have going on right now in the Fed, and the trade wars, and everything else -- I was with a client in Boston yesterday who was absolutely convinced that rates are going to zero. And he will not touch credit now. So, he is very interested in the most defensive investments he get. I thought it was a little extreme. But he's a smarter guy than I am. And he made a lot more, so I have to listen to him.

So, my question to you guys as you sit today -- complexity is not necessarily a benefit to anybody's model, and I don't think you really do have a complex model. But my -- I'm gonna pose the question -- is are you an agency REIT or are you a hybrid mortgage REIT? And when you came public just because you had this odd thing called MSRs, we -- not just we -- throw you in the hybrid comp table because there -- you were not -- would not have been considered a pure plain vanilla agency REIT.

Let me say out of the seven -- right now we have seven agency REITs and 15 hybrid REITs. There're only one or two quote pure. Everyone is doing something different. I would say that in the agency space five or seven have less than 500 market caps and the hybrid space only two of 15 have less than 500. I guess what I'm saying is I think you guys have strong management. You've operated very well since your IPO, generally speaking. And I'm just wondering if presenting your story -- whether it's agency MBS or agency MSRs, you're in the agency security type of business. And I wonder if positioning yourself as such, limiting the complexity or other -- possibly other strategies at this point in time when we're going into to a high volatility, risk-off mode, if that might serve you better.

So, if you wish to comment on that, fine. If not, I'll just hang up and leave it on the table. But I just -- I had to share it with you because it's fresh after my meeting yesterday afternoon in Boston.

Jay Lown -- President & Chief Executive Officer

I think it's insightful, relative to just how you think about our sector. Clearly, if you look at the assets that we're invested in, they're all agency-esque, aside from a small portion of the portfolio that is jumbo-A securities, but even the CRTs are sort of agency based. I think we do think ourselves -- of ourselves as a hybrid relative to just agency MBS, given that 40% of the equity is invested in something else. And we have a lot of discussions here about what's the right investment mix relative to exactly what you're discussing, relative to when is the next recession coming? When do I have to worry about credit? Is the administration gonna push us into a recession? And so, personally, I think we have some time. So, people who are invested in credit today are definitely benefiting from that relative to all --

Steve DeLaney -- JMP Securities -- Analyst

No question.

Jay Lown -- President & Chief Executive Officer

-- [inaudible] related to rates. But I do believe that credit will become an issue at some point, and they will have some stress on their business as well. To date, we don't have a meaningful direction toward the credit space.

Steve DeLaney -- JMP Securities -- Analyst

Understood. It's not something you do lightly without the infrastructure, right, and the personnel. And you're not really in the position to underwrite that additional venture at the current time.

Jay Lown -- President & Chief Executive Officer

I think it is more about infrastructure. There was an enormous amount of non-agency and credit experience here. And at the right time, I think we could. But to your point, can we get ramped up, and will it be enough time to for those returns to be interesting compelling and enough time to get out when credit becomes a problem. And those are the things that we think.

Steve DeLaney -- JMP Securities -- Analyst

Well, appreciate your comments and wish you all the best. Have a good rest of the summer. And hang in there.

Jay Lown -- President & Chief Executive Officer

Thanks.

Steve DeLaney -- JMP Securities -- Analyst

We'll all make it through. Thanks.

Jay Lown -- President & Chief Executive Officer

Oh, yeah.

Operator

Our next questions comes from the line of Henry Coffey from Wedbush.

Henry Cofey -- Wedbush -- Analyst

Oh, beauty and the beast. It's always fun to listen to my colleague because I think understands this space as well or better than anyone else.

Jay Lown -- President & Chief Executive Officer

He's been singing your song for lower leverage.

Henry Cofey -- Wedbush -- Analyst

No, I think you're building a better business. I don't think that -- you're building a good business. You're focused keenly on two asset classes. And if I can join the editorial thinking, taking the dividend down but still offering an acceptable return to investors is -- should not be an issue. And I'll go on for a couple hours on that subject if you'd like because -- but we'll leave it at that. It does make for a better business by lowering the dividend and lowering leverage. And then, the question is, as the business evolves, do you want to dive deeper into where you are? Or when -- at what point in the equation do we wake up and find that there's something else going on? Because you team knows the broader equation fairly well.

And to join some of the other questioners, there is one theory afoot -- it's a very bizarre one -- that the republicans keep the White House, and then when they go into mortgage -- reforming the mortgage market, they put more capital requirements out there. And, again, that's something that the REITs can do very well.

Jay Lown -- President & Chief Executive Officer

Yeah. I think one thing I think we can agree is volatility is here to stay for the foreseeable future. And --

Henry Cofey -- Wedbush -- Analyst

Well, I'm -- if you keep politics out of it, you don't have any explanation for why. But, yeah. There are some political issues that are certainly scrambling that.

Jay Lown -- President & Chief Executive Officer

So that keeps it interesting. But -- and I'm trying to be politically correct there. But we agree at some point continuing to diversify makes sense. And to Steve's early point, one thing you don't wanna do is get into something where you might be at the end of a very long, good cycle. So, we try to be thoughtful about how we think about growing or diversifying what we do. Meanwhile, making sure that we're paying close attention to the assets that we own.

Henry Cofey -- Wedbush -- Analyst

Would you start nibbling at alternative asset classes? If you take on a very small position, it's the best education.

Jay Lown -- President & Chief Executive Officer

Yeah. That's very possible. Likely? I don't know. But possible. We look at diversifying every week when we meet as a group. And the returns have to be compelling. You have to have the expertise in-house to do it. You have to be able to finance it at attractive levels. But -- so, on a risk-adjusted return basis, which is how I look at life, it has to make sense.

Henry Cofey -- Wedbush -- Analyst

The -- you did, to your credit -- you did talk about this in the last two couple of calls about expectations, that the seasonality of CPRs would go the wrong way. You just forgot to mention it would be in a 1.7% 10-year market.

Jay Lown -- President & Chief Executive Officer

Look. We've been out perform -- given our size and given everybody knows our expense ratios, etc., we've clearly been outperforming relative to our peers on a consistent basis, but you can't do that forever. And, yeah, we were pretty clear that we expected speeds to normalize in the portfolio.

Henry Cofey -- Wedbush -- Analyst

And if you build around that and you take your dividend -- I'd encourage you to take it down even a little further just because there's no point in paying people some ridiculous yield when the -- we're in a sub-2%, 10-year kind of environment.

Jay Lown -- President & Chief Executive Officer

We're counting on you getting the word out to investors, Henry.

Henry Cofey -- Wedbush -- Analyst

Well, they don't listen to me as much as they listen to Steve. So have them talk to Steve.

Jay Lown -- President & Chief Executive Officer

Oh, OK. We'll get Steve to do it.

Henry Cofey -- Wedbush -- Analyst

Get Steve to go out there and put out those tough messages. Well, no, I think it was a great move. So, that's all I have to say.

Jay Lown -- President & Chief Executive Officer

Well, appreciate the confidence, Henry. Thank you.

Operator

Well, we have reached the end of the question and answer session. And I will now turn the call back over to management for closing remarks.

Jay Lown -- President & Chief Executive Officer

Great. Thank you. Thank you for joining us in today's call, everyone. We look forward to updating you soon on our third quarter results. Have a great evening.

Operator

This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.

Duration: 36 minutes

Call participants:

Rory Rumore -- Vice President -- ICR

Jay Lown -- President & Chief Executive Officer

Julian Evans -- Chief Investment Officer

Michael Hutchby -- Chief Financial Officer

Tim Hayes -- B. Riley FBR -- Analyst

Steve DeLaney -- JMP Securities -- Analyst

Henry Cofey -- Wedbush -- Analyst

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