Cherry Hill Mortgage Investment (CHMI) 12 Nov 242024 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cherry Hill Mortgage Investment Corporation Third Quarter 2024 Conference Call. [Operator Instructions] I would now like to turn the conference over to Garrett Edson of ICR.

You may begin.

Desiree. you, Thank thank Hill to Call. joining today us We'd Investment you Corporation's Cherry Mortgage Conference Third for like for Quarter XXXX

In Investor this we that addition third www.chmireit.com. quarter press call, a presentation the of to release to our investor press at the release have and was section and afternoon issued earlier XXXX posted Relations that distributed this website

rates, uncertainties prepared may subject of call, related management's discussed remarks of could and contain to statements IRRs, such measures today's and earnings ability to flows non-GAAP to those questions available our and as cash to as internalization EAD, results or On your forward-looking actual for are interest recapture forward-looking that risks from income, well those income. to that our cause answers future planned statements and differ delinquencies expected include financial comprehensive guidance, Examples complete financial as the today. distribution, and management, prepayment

current contained Hill the more Forward-looking in these encourage presentations and filings review to represent with any the assumes listeners in on the discussions website. financial definitions future. the and related statements company's contained update to management's the forward-looking detailed to forward-looking statements in company's obligation the We no estimates, statements available SEC Cherry the

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

Jay. to Now over I will the turn call

our third welcome XXXX Thanks, to Garrett, call. and quarter earnings

ahead The September. cycle begin cut third utilized the in the Fed inflation indicators quarter somewhat and to go as went as expected rate

time July X-year, spread Rates pushed the for broadly market curve, turning While troubles. positively lower international specifically persist, sloped geopolitical yield unrest the to since past continued with XXXX. XX-year the the looked first

exuberance the reduced have aggressively for That The quarter those quarter-over-quarter next since the economic data and XX rate as X.XX%, markets faded since market persisted points has XX strong significant cuts positioned months. the has as at U.S. down over basis ended XX-year bets.

the presidential we the U.S. closely basis and and second the additional on economy cut monitoring the rearview presidency the both mirror, and election the a XX point in are Trump of impact its from With week last Fed inflation. impact

XXXX, As gain volatility additional environment moderate. will that expect confidence macro we approach to we

remained quarter market as performance. drove spreads the with bull relatively mixed selection consistent curve portfolio coupon and RMBS Our the in mortgage performance improving the compressed steepened. and was

Our note rate MSR loans, well of portfolio, discuss Julian the in digits. in detail this consisting low speeds prepayment with mid-single performed shortly. more primarily hovering will

as developments forward, to to political Looking continue we Fed expect with RMBS. Agency globally continue to and watch pair as well MSRs closely the

For the distribution, third earnings quarter, $X.XX net special share. we financial diluted measure, share, EAD, and generated the a committee's for per loss impacted quarter for the approximately by stockholders EAD applicable million was common per of $X.XX $X.XXX or per non-GAAP we generated to of share $X.X GAAP related to or of available efforts. expenses

return mentioned primary is other of degree sustainably near one the can in potential, cover is while considered certainty dividend is including we remain considering portfolio dividend level our our market to whether and forward dividend. investment existing impacts, we factor. may we've considers in EAD gain the return Directors the continue economics. term, Thus, it under believe our when Also are of of Board As and regarding the important income, policy, factors EAD our factor not previously, environment, level taxable setting hedge the just

to $X.X which June special an $X.XX issuance, the million on book when XX. was share preferred at per change Similarly, was down ATM and value NAV approximately relative includes attributable of committee issuance. XX. and ATM stock, the to value in quarter the compared Approximately common excluding to June $X.XX Book NAV special or finished on the X.X% basis, $X.XX expenses committee

wider to We peer tightens basis group hedge outperform our a the when lag into to we basis portion and our with TBA, and continue spreads. risk expect of

ended the of stay solid cash sheet, Financial with end We to at $XX profile. quarter as liquidity quarter of leverage balance the unrestricted the we on rose the to million maintaining levered. prudently X.Xx a continued

With respect generally, developments information questions cannot this to not strategic we call, its committee the And process. comment announced relating our or answer previously special and at internalization, discuss process internalization any the any time. will today's strategic to on or more we or

in and still to to that, hedge near risk-adjusted With which performance positioning In strong profile continue more cuts. regarding ongoing portfolio environment into who the strong our Agency return deploy Looking further of the over call and leverage. liquidity and capital monitor investment ahead, rate advantage will that easing take expected continuing I'll portfolio quarter. presents for prudent cover maintaining to are details Fed its Julian, a composition we third over order the our to and our will the RMBS, term, turn while macro means adjusting

initiate warranted point many easing Inflation it were rate third intent on was points Fed the Jay. the the market Thank when was Perhaps that, believed not widely that met with Fed surprise surprises There market a cycle. that basis and expected would a macroeconomic expectations the XX you, quarter. in the the ease. basis easing was data XX only

community The being FOMC the tightened by quarter, from fact The monetary tightening was to and easing mortgage belief. the policy stance. policy on certain as change more rate driven on bull curve would basis investor the hold that spreads that an its the volatility became interest that nominal tightened steepened During declined. the

However, within the mortgage sector, were equal. not all mortgages created

mortgages and current the lowered, rates As changed performance diverged. coupon

refinanceable. interest in lower rates pace higher need the keep Higher and with not a as as refinanceability duration lower the quarter, rally coupon mortgages lagged curve had differential for between of and XX-year loans mortgages and coupon potential could aided mortgage mortgage The interest lower more increased the for to be investors performance. the best and rates as bull performed steepened rallied. During rate the coupon mortgages

of rates reversed have third the widened the points new the increased. interest Changes volatility Fed. but quarter of on last the risen policy as and have only has fourth an Fed in changes subsequently quarter end, quarter the eased Post not potential have that XX in and spreads week, occurred has additional administration basis as

the closely expect the of that continue to well at actively monitor as the as cut as manage Fed will XXXX, one rapidly least rate we in more we our potential and portfolio. We environment overall changing

quarter. and investable excluding our of cash approximately assets MSR quarter value a capital billion end, XX% net at The $XX.X our XX% represented the of the end related and and market our At assets, portfolio $XXX UPB of had approximately MSR of million. equity a approximately of

for XX% equity our approximately of Meanwhile, capital. our accounted RMBS portfolio also

relatively percentage experienced represented Prepayment compared at prior quarter. XX%, MSR assets, speeds portfolio RMBS throughout investable continue of the excluding a the portfolios our despite As quarter cash lower the that to and the remain for approximately RMBS to was mortgage interest environment quarter stable and rate end.

X.X% to net comparable rate. the as Our be approximately for third averaged continues refinance remained minimal the portfolio's MSR at the The approximately for to the CPR previous X.X% quarter. loan portfolio's portfolio's this rate given to incentive quarter low recapture portfolio

and a the portfolio's Going net forward, our low to term CPR near a recapture low relatively characteristics. will given we in rate continue expect

are but portfolio's relatively RMBS low, The speeds to starting remain prepayment rise.

as portfolio CPR expect to the the that portfolio Over rise lower few digests months, next the the we the rates occurred mortgage would quarter. during

of Fed expectation the ease, with refinanceable. lower were more moved a mortgages rates As

in would the the based and see to We started we mortgage then few interest September, expect a mortgage rates. we mortgage have rise of rates effects of of lower speeds the more impact, subsequent the quarter. would on expect decrease lower post months third prepayment As rates and to to

was modestly in average For the quarter, to quarter. the up approximately the CPR compared portfolio's RMBS to X.X% approximately X-month weighted second X.X%

RMBS million, quarter from well TBA purchases million end. inclusive investing TBAs, cash were Quarter-over-quarter, additional the on coupons. to previous increase of at As at was of September approximately hedges. XX, as additional some removing the $XXX as focused higher $XXX portfolio, due The up stood RMBS

quarter, increased For securities the portfolio net to more quarter repo our costs interest prior the the by third due unchanged spread offset financing X.XX%, were purchases. was effectively from slightly income higher RMBS from as RMBS

earnings. manage financial for proactively quarter while to discussion. we shareholders call portfolio over our to performance third for shift the and continuing value will turn Mike continue our forward, add through I improved capital overall Moving will our structure to to now

share. GAAP to million per Julian. the our third which quarter, comprehensive while for attributable quarter available-for-sale $X.XX million weighted was stockholders, average of includes stockholders loss you, or average $XX.X the common income outstanding common $X.X RMBS, during or Thank to per diluted net share applicable weighted $X.XX mark-to-market was the diluted

to were for $X.X available common or attributable $X.XX expenses per distribution earnings $X.XXX of work. stockholders of EAD special per approximately is million $X.X committee inclusive share. to share Our million related or

on of end our rate swaps, of the of $X.X XX. June notional $X.XX was book third which instruments share of the as rates futures, TBAs of had to of billion. a portion in all treasury a we of Our book We the variety of repurchase $X.XX combined At XX value a common value interest increases future as use mitigate per quarter, effects amount compared held derivative of borrowings. to a approximately and interest September

with our quarter in XX-Q our as as can presentation. You see third well strategy respect more to details hedging our in

the Operating loss apply rate change purposes, fair elected derivatives. hedge $X.X as the a million quarter, expenses included we a or $X.X the component million our result, value And GAAP gain interest of as which committee-related not to for of accounting estimated we've For were expenses. for interest in rate record derivatives. net the special on

of XX, XXXX, paid third quarter share declared XX. of for which our of dividend Directors $X.XX XXXX, Board a on was the On in October cash common September per

$X.XXXX of Operator? Series Preferred Cumulative declared of At will time, October and were paid $X.XXXX share our XX. Preferred X.XX% per call Stock, up dividend of Redeemable a also B Cumulative X.X% Rate on this we Stock Fixed-to-Floating on Series a open questions. Redeemable for We on both dividend which the our A

comes line with [Operator Instructions] Citizens JMP. Goberman from question first of Our Mikhail the

a capital the outlook MBS of and between to guys going you capital, you're asset sort maybe MSR. about Agency How you continuing guys terms start the and how forward, you going MSR. to given segments If I rate long XX% that about you're also trade mentioned both you the where question each rates thinking think know how to that? on between with off do you short to in versus MBS composition to allocation the allocate I And twist in going is going rates. balance be think Agency investment are of could the of continue direction

as your towards an running strategy MSR recently of Agency rebranded of competitors towards the kind One more and side. MSR well --

you guys are wondering forward? X that So going between thinking about just classes I'm the asset how trade-off

our problems one no of Mikhail, competitors. with

basis, returns. should of presents a broadly speaking, to yield move currently the return expected better at are I short-dated So total us, and which on return think the that while look, levered we we prospects on And primarily MSR lower, portfolio least rates profile levered MSR the accept a still that MBS look MSRs due priced with a for we fact the is at associated to basis. the And think than improve it. it's where

so on opinion around that maybe of the impacts levered and is return. a asset how difference yield a And there the

to and in someone continuing today near return current classes, profiles means MSR we the to that or the in remain invest like But asset agree just still stretch not returns in would we the who's you that better static. the we all least a the that interested think here don't that company MBS. term, things looking It in we're it should any a as find return we prefer today, doesn't of would mean presents think as environment, profile. That asset by MBS I constantly risk-adjusted X sit relative or that that to small at maximize it

the of And Some of bit I I've X.X X.X group. I your are at little moving tick leverage, more room in for Is end your up printed. it -- peers there of from to think terms you're a noticed think peer up lower the further?

is any higher? So there room it to move

Yes.

off sold reason calls fourth And doesn't leverage of always good why in and side. you prudent the fully and that's as came a know, a on The good start that is portfolio. the the extending a come RMBS quarter So happen exactly on your meaningfully idea not on margin MSR in margin the MBS meaningfully calls as is rates question. daily,

you mindful we because we're happened leverage we to So cash ago mindful like cash, we're perspective, on and management approximately where expect. sit years from not of that today things relative X of what a might

but on leverage or materially room And we're think so MBS widens sense? MSR make available really on further not were I there rates bit, side. in could to the that MBS that maintain here. the up looking from would the it potentially lever, that maximize necessarily the that little fully in the to large We not liquidity take Does rise if a to the part basis because event be

could And does. of far our I with fourth it in Yes, book guess value question ubiquitous performance just if quarter. I thus close

That's a new question.

Mikhail, it's Mike.

our of we before accrual value to X% X% end. dividend is, estimating yet are of not book the Friday, quarter As quarter. met And has Board per dividend last down the fourth any for from a share course, that to quarter about approve as

Instructions] Our Riley from next question the Securities. [Operator Howlett Matthew B. of comes line with

EAD, when going things. look forward, about I Jay, it when I X I about or at think your think X

are to to going is going down. rate pick the that going pick preferred think I up to you're have then my some from you to floating to, And first -- reprice pick that's down. going go something going MSR few that probably you'll I you're I'll facilities -- it's don't guess with to savings. cost down up but up cents And internalization on savings then and reset or interest say, your a is mean,

And you am if I I'm you around way? if let's way? am $X.XX beyond mean, for talking some leverage today if of even it expenses, up what at mean, I say, I So the could things right that guess pro thinking your onetime I the EAD go also other about I look I forma EAD, the you it's thinking right about. take happen, or then

to on part. the that you the But mentioned, have So X other you things relative internalization think comment I won't right. I

to fall, time, pickup AD on way ]. go-forward the cost current over supports at a environment, and its look the asset, I portfolio our in as basis, think the definitely see rates finance curve, to you're at will the through the -- And presenting. relative as benefit sort a MSR of for short-dated should that should from financial that we that models work forward [ looking company thesis which we EAD the that

Got you.

since I repo was then the the rolling last was what And are Okay. repo? you're what rates now, you repo rolling where at. are What just curious cut?

rate in the of So X.XX%. post the Fed neighborhood cut

Yes.

Okay.

X% was -- and That X%, -- what, Okay. over it well right?

somewhere between Yes, X.X%. and X%, Yes, X.X%. X%

At end quarter. the the of

Yes, rate prior right? cut, to the Fed

Okay. All Good. right.

about I'm those thinking So right.

on really you dynamic, to hear to and appreciate thinking are and when you So therefore, be all think comments, debt I like averse about the about deficit the always okay, going issuance, guys this I -- -- the you're want risk yields is there's your spike. grow could thoughts the going to

kind think I what saying. that's you're of

obviously to do next kind You're ends then that yields spending. because is -- curve. the both go on thought that. and of thinking are deficit how under of of much much What going And of higher your they Trump comments thought I'd could of train cut year? you It's the a think love to big other hear

max the just to We say, of to going they're that to it's going the But We unknown. the this the or know to a in really Matt, policies chatting Julian. finance of stimulative I stimulative. be could are and time, know look, an hour going just policies extent We don't fund this. lot spend about they're is the how be policies. would

of evidence I very think get would yes, stimulative, budget. of don't the of gets put we'll have but what type it I that conclusive it be that some So through, into to promises actually expect until

ease the to thinking obviously year look, them And then eases. In data. of possibly be up in Fed terms they I Previously, doing were a expect going the think of I I X to next do the will on to board here. things One, December. Fed, is think of couple be to

X% will December currently of of the to something the year. thinking X% different. X%. plot where I even move show It maybe dot think show I think may will in instead don't or possibly X% it terms next are investors

moving administration out the promises, of that ease. will campaign But to to the can they the end of policies continuing ease much the all or will either to come up at inflation tie don't and for I period long But I more policies how live during of the the potential day, the go is give would to promises, If room then kind Fed's right If new -- ahead. Fed one an of do cannot what think pause the the potentially the not, as in ease hands of as lower. expect the direction, move extended not quarters forward. going Fed that's

you No, ahead -- called you Fed now. while the you've this, has have been guys for of I'll you done what say guys, a -- guys certainly

what -- you I to to my certainly have listen So say.

just thing. guess is it? a it's to really the and about continue get good could if steepening way the for thing if Is continues I curve, we I steepening continues summary, in even this strategy. this in happen, to So widening and RMBS that widening, a Cherry to MSR the a the -- strategy the great short Hill mean this right think

and I and up Obviously, we for respect and fairly with to think set twist. volatile last be continue dynamic that how curves that that's a the up weeks X-plus Matt, moved that have level we're long-dated for twist, the that set to been curve rate shape be rates we and at should course could fall. to the believe -- of time frame. that of the over continue short-dated or the But slightly rates higher this

up. ends changed so. table our is the the that over and But where that in basis we're president. a or monetary or relative go-forward of There's to And quarter to to the finally thesis last curves who's fiscal the to long-term think X last a of weeks trying on election, what relative noise X of lot and related policy things kind seat the over the stick to we noise hasn't

still right basis, we to on a committed remain always but day-to-day not that thesis. You're

look performance to really type of in We environment. forward that seeing

And internalization, didn't light event question. over? You this Any sense but talk loss have you and I the cycle timing, when on I last this be the this you'll the so when about us at I'd is -- cigar when this guys know managed ask want will company. -- for give don't transformational -- through can a that's a to well. if the be you

of that's can going You're when REITs be over? few to mortgage on investors the to internalized. sense Any expect this one be

the anything on related prepared don't, really answer call and to I Yes. that I'm tonight. to not

No. appreciate to look results, come. what's solid Look, to I the I and figured we forward I ask.

the turn And Mr. back concludes Jay that session. to question-and-answer you. call Lown, I the over

Thank you, third operator. Thanks, a Have XXXX great to you everybody, joining quarter on our for us soon. evening. call. Talk

gentlemen, this concludes conference and today's call. Ladies

You may disconnect. now