Dan Perotti: Sure. With respect to the dividend and sort of the trade-off that you mentioned, Matt, so where we’ve seen the price to book in recent periods where we’ve been moving closer to price to book, we have not seen the repurchase of shares as attractive as we obviously have historically made share repurchases where we see that disconnect become meaningful. But I think in order for us to look at repurchasing more shares in a significant way we want – that we would want to see, but we wouldn’t do that unless we saw the share price to book or the price to book ratio drop from where it is today. We believe for PMT and we’ve stated this before that having a stable dividend is sort important and meaningful. We do see a path consistent with what I was discussing earlier and what we’ve discussed before for our run rate to move back toward the current dividend level.
At this point, we don’t think that it warrants a change in the dividend. And so we expect to, at least in the near-term, have our dividend level remain consistent. If we do see – if we don’t see a path for the run rate back to that $0.40 per share, then that would precipitate us reevaluating that. But given what sort of the market expects and how that would impact the earnings potential of our portfolio, we do see that path as a likely potential in the future.
Operator: Your next question is from the line of Kevin Barker with Piper Sandler.
Kevin Barker: Hello, again. Just wanted to follow up on, you sold some CRT this quarter. Do you see any opportunities to make some structural changes that could potentially enhance the ROE of the business to bring it closer to the $0.40 dividend run rate, particularly with you have a couple of debt maturities coming due here in 2024. Could you potentially move some assets, pay down that debt and maybe shift the balance sheet a bit? Just additional color there on what you’re considering? Thanks.
David Spector: So with respect to the maturities in 2024, so we have a couple of secured maturities, specifically a CRT maturity that’s upcoming. That we expect to look to probably put some of the securities on repo for a period of time and then look to refinance that. The market has improved a bit for the financing of our credit risk transfer securities into the types of structures that we’ve had previously. And so view – we see that as an opportunity there. And that could somewhat improve the return profile, but that’s for a limited part of the portfolio. As we look out further into the maturities, we do have a maturity of our convertible debt later in 2024. We’ve partially addressed that last year with our baby bond issuance.
We have seen the baby bond market be somewhat active in terms of issuance in the mortgage REIT space. That’s a potential there or additional – or another convertible debt issuance. Or potentially if neither of those is attractive to your point with respect to the overall earnings of the portfolio, then it could look to be lever and we do have the ability to do that without really significantly repositioning the portfolio. At this point in time, I don’t think we’re considering a significant shift in terms of the overall makeup of the portfolio. We think what we have in both cases, like I said, on the credit sensitive side generates meaningful returns even at the tighter spreads. And we’ve repositioned or rotated out of the assets where we didn’t think that the risk adjusted returns were commensurate with where we want it to be invested.
On the interest rate sensitive side, I think that’s really again a matter of the shape of the yield curve at this point in time, which is really expected to normalize. And that’s where we expect to drive up the return profile in that case. So, no significant shift in terms of the makeup of the portfolio, I wouldn’t say we’re contemplating currently.
Kevin Barker: I realize you’ve made comments around the shape of the curve, but is there any way you can quantify the impact of Fed rate cuts relative to your earnings? Now, obviously it could shift quite a bit, but is there any way to simply look at it from a Fed rate cut perspective?
Dan Perotti: Yes. The – I mean, the way that you would generally look at it, if you assume that the Fed rate cuts are baked in more or less, and that the longer term in the current period, and that the longer-term yields wouldn’t move significantly to the extent that the Fed follows the path that’s sort of currently contemplated. If there’s six rate cuts or something along those lines baked in toward – through the year, that’s a point and a half that would come off of our floating rate debt on MSRs, which is a several $100 million. So it adds a meaningful amount. So the other assets, the interest rate sensitive assets, the returns, our expected returns wouldn’t change, or the amount that they’re earning, our cost on the debt would decline meaningfully in terms of several million dollars just from those interest rate cuts. I think that’s the way to think about it.
Kevin Barker: Thank you, Dan.
Dan Perotti: Yes.
Operator: [Operator Instructions] Your next question is from the line of Kevin Barker with Piper Sandler. I do apologize. Your next question is from Eric Hagen with BTIG.
Eric Hagen: Okay. Thanks for taking my question. Hey, looking at Slide 19, with around 240 odd-million of liquidity buffer relative to the FHFA requirement, can you share how much you’ve seen that liquidity buffer fluctuate, especially when rates are volatile? And how close maybe you got to that threshold during periods of higher volatility like we saw last fall?
Dan Perotti: Yes. No, our liquidity has been pretty stable. Part of what we look at in terms of our hedge profile is the impact that interest rate shifts can have on liquidity. And we keep a reserve as part of our liquidity forecasting, and our amounts of required liquidity in terms of managing the business that accounts for interest rate volatility and the impacts that could have on our liquidity available. But if you look at our liquidity that’s been on the balance sheet in the last couple of quarters, I believe we’ve kept it at a pretty stable level there, which is 2x what the requirement is. So that really has not been an issue even given the interest rate volatility that we’ve seen over the past couple of quarters.
Eric Hagen: Right. Okay. And then on Slide 12, it looks like you have about $1.3 billion of capital in the interest rate sensitive strategies. Can you split apart how much is in the MSR versus the MBS and hedges and maybe how much capital you see yourselves allocating to MBS and hedges going forward?
David Spector: Yes. So the vast majority of the capital in there is allocated to the MSRs. It’s the most capital intensive asset. I think that we stated earlier in the presentation that 56% of the shareholders’ equity is in the MSRs and so that’s over $1 billion of that $1.2 billion. The agency MBS, if we just look at them on their face, even though it’s a significant portfolio the haircut on that is relatively low. So it doesn’t take nearly as much equity. And there’s also, that’s similar for the rest of the assets that are in this section. So it’s really predominantly the MSRs. And even if we add significantly to the agency MBS portfolio on a standalone basis in terms of the equity allocated, although we may have to increase our reserves depending on the interest rate sensitivity and how much we would want to hold for margin calls on its face wouldn’t increase the equity allocation that much to hold additional MBS there.
