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Cherry Hill Mortgage Investment Corp (NYSE:CHMI)
Q2 2020 Earnings Call
Aug 10, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the Cherry Hill Mortgage Investment Corporation Second Quarter 2020 Earnings Call. [Operator Instructions]

I will now turn the conference over to your host, Rory Rumore. You may begin.

Rory Rumore -- Investor Relations

We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's second quarter 2020 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.

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 filings with the SEC and the definitions contained in the financial presentations available on the company's website.

Today's conference call is hosted by Jay Lown, President and CEO; Julian Evans, the Chief Investment Officer; and Michael Hutchby, the Chief Financial Officer.

Now I will turn the call over to Jay.

Jay Lown -- President and Chief Executive Officer

Thanks, Rory, and welcome to today's call. We hope you and your families are remaining safe and healthy, and we appreciate you joining us this afternoon. I'd like to begin the call by thanking our entire team for their continued efforts to manage through what has been a most challenging environment these last five months. Their hard work and dedication impresses me every day. The team continues to work remotely with no disruption in productivity.

The second quarter could be described as a rebuilding period, where we work to stabilize our portfolios and closely monitor our risk as the pandemic continued to greatly impact the economy in the country. The US experienced record high unemployment numbers paired with record low GDP, keeping rates near historic lows throughout the second quarter, yet equities pushed higher in anticipation of COVID vaccines and better economic times. As we noted on our prior call, liquidity was of paramount importance as we navigated through these challenges, and we stayed focused on our core strategies and competencies throughout the second quarter. We remain committed to our portfolio as constructed with both RMBS and MSRs, and believe the two asset classes provide investors with compelling returns, and together, effectively hedge book value across multiple interest rate scenarios.

In the midst of the pandemic, we overcame many challenges, and I am pleased with our performance for the second quarter. We reduced the leverage on our aggregate portfolio from 5 times at the end of March to 4.4 times at the end of June, and ended the quarter with $94 million in unrestricted cash on the balance sheet. For the second quarter, we earned core income of $0.47 per share. From a book value per common share perspective, we finished the quarter at $13.41 as of June 30, a 2.3% reduction from where it stood on March 31. However, I want to emphasize that the large majority of the reduction was the result of paying 50% of our first quarter common dividend in stock, during the worst of the crisis. Absent the stock dividend, book value for the second quarter was essentially flat. We accomplished all of this without having to dilute shareholders by taking on any additional financing. Year-to-date, our book value per common share is down a little less than 23%. As a hybrid REIT that invests in MSRs, which have been significantly affected by falling rates, along with the unprecedented macroeconomic environment in recent months, we believe our overall book value performance, thus far, in 2020 stands up very well relative to other hybrid REITs that have seen greater deterioration in value since the outset of COVID.

During the quarter, we made the decision to sell our Ginnie Mae MSRs. We had not grown that portfolio since the initial purchase several years ago. And given the current collateral characteristics and expected future performance, the sale was strategically appealing. We recognized a small gain versus the portfolio's fair value at June 30. Our remaining Fannie and Freddie MSRs continue to experience highly elevated prepayment fees, as expected, given their current interest rate environment. As of the end of July, active forbearance remained just shy of 8% with approximately 30% of borrowers having made all payments due through July. Going forward, we believe our bolstered liquidity position is sufficient to satisfy all of our servicing advance obligations over the foreseeable future.

As we move into the second half of 2020, interest rates remain near historic lows as markets await of the vaccine. We are three months from a presidential election, which will undoubtedly heat up, and there is still double-digit unemployment. The Fed has communicated that they are prepared to do whatever it takes to keep the economy strong. Housing remains a bright light despite high forbearance statistics. We are content to keep our powder relatively dry as we seek further clarity on the pace of the recovery. We continue to believe MSRs look compelling at current levels and if they meet our measured risk reward criteria, we will selectively invest through our flow program. All in all, our team's efforts remain squarely focused on proactively managing our portfolio, keeping our balance sheet strong and preserving our book value to enable us to emerge from the pandemic to take advantage of the opportunities we believe will be present once the economy rebounds.

With that, I'll turn the call over to Julian, who will cover more details regarding our investment portfolio and its performance over the second quarter.

Julian Evans -- Chief Investment Officer

Thank you, Jay. During the second quarter, spread sector markets improved as liquidity returned, and spreads tightened on the heels of Fed policy. Those policy actions allowed us to continue to adjust our positioning to reduce leverage and maintain a high cash position. As the third quarter begins, continued Fed policy is the one constant. US growth and unemployment remain uncertain as the coronavirus weighs on the US and global economies. A viable vaccine would aid consumer sentiment and confidence and would comfortably allow employees to return to work and improve growth prospects. The timing of such is unknown, but we are hopeful that something materializes in the latter part of the year.

Servicing related investments comprised of full MSRs at a UPB of approximately $24 billion and a market value of approximately $177 million at quarter end. MSR investments represented approximately 37% of our equity capital and approximately 10% of our investable assets, excluding cash. Meanwhile, our RMBS portfolio accounted for approximately 39% of our equity, a slight decline from the previous quarter. As a percentage of investable assets, RMBS represented approximately 90%, excluding cash at quarter end. Our conventional and government MSRs CPRs averaged approximately 38% and 28% respectively for the second quarter. Speeds were elevated from the first quarter, given historically low interest rates and mortgage rates.

Similar to MSR speeds, the RMBS portfolio posted a weighted average three month CPR of approximately 13.7%, elevated from the prior quarter. Despite the decreased prepayments, the RMBS speeds remain better than Fannie Mae aggregate speeds for the quarter. As of June 30, the RMBS portfolio stood at approximately $1.5 billion. During the second quarter, we further repositioned and delevered our portfolio to maintain our liquidity position. Quarter-over-quarter, the 30 year securities position of the RMBS portfolio grew to 95%, a slight increase from 93% as of March 31, and the remaining assets represented 5%. For the second quarter, we posted a 1.64% RMBS net interest spread versus a 1.25% net interest spread reported for the first quarter. The improvement in spread was due to significantly lower REPO cost in the quarter and resetting our swap hedges to lower rates.

During the quarter, our REPO cost improved from 1.62% [Phonetic] to 0.39% as interest and mortgage rates remained at historically low levels. Mortgage prepayments will be the main driver of the net interest spread going forward. At quarter end, the aggregate portfolio operated with leverage of approximately 4.4 times down from 5 times the prior quarter. We ended the quarter with an aggregate portfolio duration gap of positive 0.19 years. We continue to evaluate loans to the portfolio as necessary as we move forward.

I'll 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 $12.4 million or $0.73 per weighted average share outstanding during the quarter, while comprehensive income attributable to common stockholders, which includes the mark-to-market of our held-for-sale RMBS was $3.1 million or $0.18 per share. Our core earnings attributable to common stockholders were $7.9 million or $0.47 per share. As Jay mentioned, our book value per common share as of June 30, 2020, was $13.41, a reduction of $0.32 per share from March 31, 2020, net of the second quarter 2020 dividend.

As we noted on our prior call, the accounting impact of paying half of our first quarter common dividend in shares of common stock was recognized in the second quarter, and that encompassed the large majority of our book value reduction from March 31. Excluding that impact, book value was relatively comparable with the prior quarter. We use a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowings. At the end of the second quarter, we held interest rate swaps, swaptions, TBAs and treasury futures, all of which had a combined notional amount of $2.1 billion.

Beginning with this quarter, we're providing more granularity with respect to our hedging strategy, which you can see in our 10-Q as well as in our second quarter presentation. For GAAP purposes, we've not elected to apply hedge accounting for our interest rate derivatives. And as a result, we record the change in estimated fair value as a component of the net gain or loss on interest rate derivatives.

Operating expenses were $3.4 million for the quarter. On June 18, we declared a dividend of $0.27 per common share for the second quarter of 2020, which was paid in cash on July 28, 2020. 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 15, 2020.

At this time, we will open up the call for questions. Operator?

Questions and Answers:

Operator

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Tim Hayes with B. Riley FBR. Please proceed with your question.

Michael Smyth -- B. Riley FBR -- Analyst

Hey, guys. This is actually Mike on for Tim. Congrats on a good quarter. So my first question is that core EPS is well ahead of the dividend again. I guess just first question, would you expect core earnings to exceed the dividend again in 3Q, assuming there's no other major economic deterioration?

Jay Lown -- President and Chief Executive Officer

Hey, it's Jay. It's possible. But I think others -- as others have noted this quarter, we use a variety of metrics to evaluate the earnings power of the company and core is one, it's a big one, but we do look at other methods or things that we use to think about the true earnings power of the company. And today, we're comfortable with where we are. But it's possible that core could exceed.

Michael Smyth -- B. Riley FBR -- Analyst

Got you. That's helpful. Then another question is that given where MBS spreads are and just the fact that it's become cheaper to hedge and your current amount of liquidity, I know you mentioned in your prepared remarks, Jay, that you intend to maintain dry powder. I'm just wondering what would need to change for you guys to decide to get a little more offensive?

Jay Lown -- President and Chief Executive Officer

Yes. Broadly speaking, I think hybrid REITs are holding on to more cash than agency REITs, in light of some of the investments that they hold. So I would say that our desire to hold more cash is not a reflection of our view on any one specific asset, but a reflection of our ability to maintain a strong balance sheet still, just a few months after what happened last time. Again, I would also emphasize that we've significantly reduced the size of our non-agency position. So today, the position really comprises of agency RMBS, which is very liquid and very transparent pricing-wise than MSRs. Given where we are with forbearance, we think our forbearance statistics are very good, relative to what we thought might happen. So as we get more clarity into what we think might happen going into the fall, I would expect that we could pare down that cash position. But it really isn't a function of a lack of desire anywhere to invest, just more a function of trying to maintain a strong balance sheet.

Michael Smyth -- B. Riley FBR -- Analyst

That's helpful. Thank you. And then one more just on speeds. So I guess, high level what's the outlook for the back half of this year? And then what would you expect to see in terms of speeds if the primary saw another 30 basis points or 40 basis points to 2.5%? How do you think -- how sensitive do you think speeds would be to that decline?

Julian Evans -- Chief Investment Officer

Hi. This is Julian. I mean we're already pretty sensitive to that decline. We're already seeing things that were created three to four months ago already being refinanceable. Things that came out with a -- that were at 3% coupon mortgage with like a 3.75% to 3.9% [Phonetic] GWAC are refinanceable. So I would say the current mortgage rate that we're kind of seeing out there right now is like 3%, 3.8% [Phonetic] right now. I mean you're talking about another potential 25 basis points to 60 basis points. We easily -- the market would clearly be much more refinanceable. And on the RMBS side, I mean, we've had good speeds, but I could easily see those increasing by 50%.

Michael Smyth -- B. Riley FBR -- Analyst

That's helpful. And then just one more from me. Could you provide an inter-quarter book value update, if there's anything as of, I guess, at the end of July?

Jay Lown -- President and Chief Executive Officer

Sure. I would characterize it as down approximately 1% to 2%.

Michael Smyth -- B. Riley FBR -- Analyst

Thank you for taking my questions.

Operator

Our next question is from Steve Delaney from JMP securities. Please proceed with your question.

Steven Delaney -- JMP Securities -- Analyst

Hey, good evening everyone.

Jay Lown -- President and Chief Executive Officer

Hey, Steve. How are you?

Steven Delaney -- JMP Securities -- Analyst

I'm good Jay. Hope you are?

Jay Lown -- President and Chief Executive Officer

Yes.

Steven Delaney -- JMP Securities -- Analyst

So look, I mean, all in all, a lot to be thankful for, both company-wise, personally, everything else, considering what we've been through this year so far. So congrats on that as well. You mentioned liquidity about a dozen times in your remarks. And just thinking about the decision the Board made in June to cut the div from $0.40 to $0.27, pretty meaningful cut. And that decision, mid-June, you had to know that you were going to make something north of $0.40 in core at that point. And all of us -- I didn't adjust my numbers until, I guess, after that. So I was below at $0.25, but the high estimate before was $0.32. So we all -- I don't know whether we got head faked or we were just assuming more deleveraging or whatever. But, was a decision made just to protect liquidity in that -- I assume that was largely related to servicing advances as opposed to REPO or anything like that. Could you just comment on kind of the -- why such a large cut in the dividend relative to what core came out to be? Thank you.

Jay Lown -- President and Chief Executive Officer

Yes, sure. So I'm happy to. So a couple of things. One, we definitely wanted to concentrate on a strong balance sheet given everything around forbearance. And at that time, we were in the very early stages of understanding how many people would go into forbearance, how long they would stay there and how that would impact our ability to support that. And as a servicer, obviously, you have an obligation to support those borrowers. So that was definitely a consideration. And as one of our peers mentioned on -- in their presentation, we do look at a few metrics. We look at core, we look at comprehensive, we look at taxable, and we look at the true earnings power of the company. And so core income is one component of that, and we had a feeling that core might exceed the dividend in the short-term. But as we looked at other components of thinking about our income, those other metrics came into play, and that was a consideration.

The last thing I would mention is, as Julian mentioned, speeds are high. And at the time in June, we -- you don't know how long. How long are these speeds going to persist? Is the 10 year really supposed to be at 50 points or 50 basis points when the S&P and the Dow are approaching all-time highs? Where's the disconnect? Is the disconnect in rates? Is the disconnect in equities? And so within the context of that, if we're in this lower interest rate for longer environment, we do expect speeds to continue to be high, and that should also have an -- or have a meaningful input to the core calculation as well. And my guess is that would be to the negative. So what we discussed with the Board was, look, what's sustainable? What are we sure that's sustainable? The last thing we want to do is to mess with the dividend to offer. So that number...

Steven Delaney -- JMP Securities -- Analyst

Sure. You don't want to miss it.

Jay Lown -- President and Chief Executive Officer

That's right. And so given what happened in March, that is exactly true.

Steven Delaney -- JMP Securities -- Analyst

So I would -- yes, go ahead. Go ahead. I'm sorry, I didn't mean to cut you off, Jay.

Jay Lown -- President and Chief Executive Officer

Could we revisit it? Sure. But we're still in the middle innings of all this. So we do have the ability to raise it. But generically speaking, or broadly speaking, I think what the Board decided was appropriate.

Steven Delaney -- JMP Securities -- Analyst

Yes. And you still have plenty of time to deal with any REIT minimum distribution requirements between now and end of the year, so that can be dealt with separately.

Jay Lown -- President and Chief Executive Officer

Yes.

Steven Delaney -- JMP Securities -- Analyst

So look...

Jay Lown -- President and Chief Executive Officer

You'll see that in our -- you'll see that once you go through the financials. That's not an issue.

Steven Delaney -- JMP Securities -- Analyst

So look, first, the correlation between stocks and bonds are completely broken. I mean we have to throw out all our textbooks, I guess, or our notes from economics and everything else. I mean it is -- it just does feel broken. But won't -- that's not relevant. What is interesting for a company that is focused on Agency MBS and Agency MSRs, given where we are today, is there anywhere, Julian, that you go? Where can you -- I mean, pay-ups is the obvious answer, but they've got run-up so much. So where -- if that's your investment menu, where do you go right now and get any -- some kind of protection from speeds?

Jay Lown -- President and Chief Executive Officer

Disney World.

Steven Delaney -- JMP Securities -- Analyst

Disney? Yes, OK.

Julian Evans -- Chief Investment Officer

I might get a little bit more detailed of an answer. Look, I think you can buy securities that -- where you don't have to pay an exorbitant price premium on those bonds and still get some type of protection. You may not hold them until -- you may not hold them as long as you would like to hold the better quality type of product that you are paying a higher price premium for, but you can still get some protection.

I mean on the RMBS side, we still are seeing low to double-digit type of returns, even with paying for a higher price premium. And even on MSR, on the leverage side, we're still seeing on the low double-digit type side. So we do think the combination does offer an attractive return. Currently, we, like some of our peers, are rolling a portion of our bonds. So we are taking advantage of the dollar roll market that's out there. It's never been a major strategy for us. We have been a firm that likes to pick bonds, go to the collateral and try to have collateralized stories. But we also will take advantage of the specialists when it's that attractive. So we are doing that, coupled with picking selectively, picking some bonds as well.

Steven Delaney -- JMP Securities -- Analyst

Got it.

Jay Lown -- President and Chief Executive Officer

And I would add to that, Steve, that -- look, the Fed has indicated that they are going to continue to be involved in buying MBS. And as long as that holds true, prepays and mortgage bond pricing will be -- remain elevated. And we remain very in tune, in touch with that as a determinant in how we think about deploying capital. And for those who are highly invested in lower coupon MBS today, which have done well from a price perspective, the day the Fed decides that they're no longer going to support that market and size, you're going to see some meaningful hits. And so we're very in tune to that and try to maintain a balanced mortgage backed securities portfolio relative to coupon.

Steven Delaney -- JMP Securities -- Analyst

Right, right. I'll never forget June of 2013, that Wednesday and the taper tantrum. I'm sure you guys remember that, too. Listen, thanks very much for the comments. It was helpful. Thanks and stay well.

Jay Lown -- President and Chief Executive Officer

Sure. Thanks Steve.

Operator

And our next question is from Kevin Barker with Piper Sandler. Please proceed with your question.

Kevin Barker -- Piper Sandler -- Analyst

Thank you. I just wanted to follow-up on the Ginnie Mae MSR sale. Could you just walk through some of the rationale behind the sale and then some of the direct impacts you may see? I'm assuming it's going to cause a significant decline in servicing costs, especially with elevated forbearance that's going on right now?

Jay Lown -- President and Chief Executive Officer

Well, remember, it was only -- hey, Kevin, how are you? It's good to hear from you. Remember, it was only 10% of our overall servicing portfolio. So relative to the overall portfolio of servicing, the impacts aren't going to be significantly meaningful. But I think, as you pointed out, the delinquencies on the portfolio were getting high and we weren't adding to the portfolio. So it's a static portfolio that's only getting worse. And so obviously, when you think about how the regulators might think about that, that's probably not a positive discussion.

So given our current short-term views on that part of the sector, and given that our strategic partner is much better at handling that recapturing refinancing that we are, they were interested in the portfolio. They saw, based on recent recapture results, that a lot of that portfolio had potential for them. They had an interest in the portfolio. And we both looked at it together, and we said to ourselves, look, if we're not planning on making any investments in the short term in this portfolio, and we think that forbearance, etc, might increase or grow relative to composition of that portfolio, tonight -- today might be the right time to kind of divest to that. And you should never be married to any specific portfolio, right? I think it was -- it's a great fact pattern that we can actually trade that asset instead of held for investment or held to maturity. So from my perspective, it's always good to be able to show transactions on both sides of the coin. And given that we haven't added any assets that, and in the short-term, hadn't planned on growing that part of the portfolio, it made sense to us. So hopefully, that helps with respect to your question.

Kevin Barker -- Piper Sandler -- Analyst

Yes. It makes sense. Totally understandable, just given the size of it and the fact that you weren't adding to it. And then also, can you just talk about like some other opportunities that you may see out there, just maybe in other asset classes? Maybe you still have a significant amount of cash, and obviously, you're being conservative with it. But I was thinking like there has been quite a bit of market disruption and continues to be the case. But are you seeing any other ideas or maybe some other diversification or possibilities?

Jay Lown -- President and Chief Executive Officer

That's actually a great question. Yes. Right after March, I think a lot of us wanted to focus on the strategies that were kind of within your DNA. And for us at that time, that was Agency MBS and servicing. What happened in credit, look, everybody was down on rates going into this. But rates aren't going to kill you, credit is going to kill you. Just -- I can tell you firsthand. And from that perspective, over the last three months, we've really just kind of stuck to our core competencies.

And to your point, in the back of my mind, I'm thinking, OK, what's the next leg of the stool supposed to be given that, to your point, there's been a fair amount of dislocation. Are there any opportunities in the market relative to our core competencies and when and where should we invest in those. And those are great discussions that we have here with the Board. But over the last couple of months, my personal view was, look, as we exit out of this, our view is we did a good job coming out of this. Don't get too crazy getting into an asset class that you may have wanted to get into going into the crisis just because you think it might look cheap. And I think that there are some asset classes that continue to look interesting and appealing in the loan space to us. And given the recent opening of credit relative to kind of non-agency/non-QM, that could be something. But I would say that, that is probably more of a fourth quarter question than a third quarter question or second quarter question.

Kevin Barker -- Piper Sandler -- Analyst

Yes. Okay. That's fair. I mean there's still a lot of things that needed to be figured out here over the next several months or even years. Okay. And then your -- you've guys held up relatively well compared to your peers on book value holding up and your portfolio is fairly stable, leverage is low, cash is high. But your stock is not reflecting the strength of the balance sheet. Would you consider being a little bit more aggressive in buying back stock? Obviously, liquidity concerns there. But would you look at that? You have had a history of doing that here and there. So I was just wondering if you're looking at it just given where the stock is trading today.

Jay Lown -- President and Chief Executive Officer

So that's definitely a conversation we would have with the Board. And should the Board decide that, that would be appropriate, I would tell you that we would act on that.

Kevin Barker -- Piper Sandler -- Analyst

Okay. All right. Thanks for taking my questions.

Jay Lown -- President and Chief Executive Officer

Thanks Kevin.

Operator

[Operator Instructions] Our next question is from Henry Coffey with Wedbush. Please proceed with your question.

Henry Coffey -- Wedbush Securities -- Analyst

Yes. Good afternoon and thanks for taking my question. In listening to the conversation that there are small pockets, it sounds like there are small pockets where you'd like to deploy capital, but there aren't any large places to put the money. Is that a fair...

Jay Lown -- President and Chief Executive Officer

I think that's right. Yes, I think that's right, Henry.

Henry Coffey -- Wedbush Securities -- Analyst

And now your servicing costs, I'm just looking at my model really quickly, I mean, they're still around $6 million. Do they start to come down now that you've sold these assets? Or is this $6.6 million that we're looking at a more likely number for the rest of the year?

Jay Lown -- President and Chief Executive Officer

So broadly speaking, I would say, Ginnie's were the most expensive service, especially given level of delinquencies and the high touch of the nature of the product versus conventional. So on a pure relative basis, definitely. On an absolute basis, given the small percentage of the portfolio in that asset class, maybe not as much as you would think. But I'm happy to kind of get that out with you on the side.

Henry Coffey -- Wedbush Securities -- Analyst

So everyone we talked to was looking at a $3 trillion mortgage market or so, and some people brought that up in February. And the expectations for next year are pretty rich. Your forecast...

Jay Lown -- President and Chief Executive Officer

I would say -- sure...

Henry Coffey -- Wedbush Securities -- Analyst

The forecast aren't there yet. But every company we talk to thinks this spills over. So that means speeds stay high, and the attraction of your two primary asset classes remains low. You can talk to the Board about buying back stock. Or just sitting here, generating the kind of returns that you are, growing book value, is that the worst possible thing you could do with the next nine months?

Jay Lown -- President and Chief Executive Officer

After what we just witnessed over the last five months, no.

Henry Coffey -- Wedbush Securities -- Analyst

I mean just -- I know it's a lot more conservative than my colleagues are talking about. But from a point of view of a current investor, if I bought this -- I'm not talking about the person who bought the stock six months ago. But in terms of writing checks today, that's the best profile for just buying the stock and letting things kind of chill.

Jay Lown -- President and Chief Executive Officer

Yes. Look, I would say, Henry, we're looking to play offense, and we're looking to figure out where we're supposed to play offense. And within the context of what would another round of an increase in COVID cases do to the market, our sectors, specifically, and the equity markets relative to the REIT sector, we think that there is room to play offense, but do it in a responsible way. We're not a straight agency route. We're not going back to 10 times leverage. We're going to let those guys do that. And if they do a good job, great. And we're a hybrid REIT. We haven't been shy about that. And to the extent that we find something -- and I think you're right, to your point, it's probably on a smaller scale than the other two asset classes we own, then we'll think about investing in it, but the last four months would best be described as back to basics.

Henry Coffey -- Wedbush Securities -- Analyst

Great. Thank you.

Jay Lown -- President and Chief Executive Officer

Sure.

Operator

And we have reached the end of the question-and-answer session. And I will now turn the call over to Jay Lown for closing remarks.

Jay Lown -- President and Chief Executive Officer

Thanks so much. Everybody, thank you for joining us in today's call, and we look forward to updating you soon on our third quarter results, and we hope you remain safe and healthy. Have a great night.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Rory Rumore -- Investor Relations

Jay Lown -- President and Chief Executive Officer

Julian Evans -- Chief Investment Officer

Michael Hutchby -- Chief Financial Officer

Michael Smyth -- B. Riley FBR -- Analyst

Steven Delaney -- JMP Securities -- Analyst

Kevin Barker -- Piper Sandler -- Analyst

Henry Coffey -- Wedbush Securities -- Analyst

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