CHMI - Earnings call transcript Q3 2018 | Cherry Hill Mortgage Investment Corporation

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Operator

Welcome to the Cherry Hill Mortgage Third Quarter 2018 Earnings Conference Call.

As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Michael Hutchby, Controller. Please go ahead.

Michael Hutchby

you Corporation's us call. third thank Hill for to Investment Mortgage quarter like for today joining Cherry We'd XXXX conference

addition to results risks call, to this differ those uncertainties may that guidance, income. we that recapture actual that call, and and financial of your statements our the as related cause Examples to rates, questions today. a those www.chmireit.com. IRRs, flows section remarks In non-GAAP release On are comprehensive forward-looking and and at measures press interest to today's from Investor have of Relations as cash statements was prepared could discussed financial prepayment and such well delinquencies subject and contain afternoon filed future as include earlier forward-looking website to expected posted management's to income, distributed this core answers

Cherry any the website. Company's We contained our Lown, no to to Chief financial call call Financial Officer. statements the estimates, Cherry the Levine, assumes Today's detailed discussions the statements obligation over represent these the hosted now, by future. the and Julian SEC Jay. the with Hill is in in call related forward-looking update and contained Evans, to turn encourage Jay the to are today statements presentations on more Also in current management's present filings available review Forward-looking definitions listeners Officer; Investment President Marty forward-looking and Company's of CEO the and conference Hill. on our I'll Chief And

Jay Lown

call. today's to welcome and Mike, Thanks,

efforts rising in our long-term environment the environments quarter blocking interest a performance. further involve while to to five day-to-day to preserving strategy. on of In our ago, strategy the face long-term required when vast noted capital our resolve in and third across overall the We are shine of our view, rates IPO our quarter was team's volatility She of positioning very stable rate performance years majority multiple report. we've and pleased earnings marketplace The as begin diversified Since this predicated consistently tackling Steady validates grind ourselves ongoing our and Goes in rate the with rise. succeed

than history. shifted. the to Fed quarterly $X.XX now to we managing common Today we dividend While have our for believe longer focused quarters. our experienced and advantage ourselves it Including on anticipated third straight we the team took when strongest our our in quarter, for portfolio tide the tighten, are in XX earned positioning take our position in out actively

has portfolio to Our is a in Hill and MSR I'm as proud grown one proven success we've rate tied of than best believe to days are continue we by almost our entire years. And ahead span any team environment. our XXX% of us. our less of Cherry two not

For quarter, $X.XX. of per the third we share generated earnings core

a driven Our $X.XX prepayments stands was successful per and Cherry were all both quarter by as across strong value speeds our quarter-over-quarter results the Book share performances at $XX.XX. as on improved MSR RMBS grew currently Hill board. well and for portfolios, fronts. It from

to committed seemingly future, its continue us well. position should Fed monetary policy the diversified our With for strategy the foreseeable to tight

our representing MSR portfolio flow $X.X XX% the at quarter, quarter, MSR's of During the third the billion capital. and billion equity we of additional end third our purchased through By the stood arrangement. $XX.X

That during of facility to the was million and into drawn $XX less revolving Mac credit we been $XX full the facility current existing all has attractive. upsized by previously million secured on future Freddie we've stated, all bulk Also down. MSR entered of which our subsequently MSR's. our larger is MSR's As acquisition offerings focus quarter, through as our a agreement of remain

common and ATM our tapped approximately preferred us with to $X.X shares million. and the issued proceeds also We provide programs net of during quarter

remain additional As strong to that portfolio can close, produce while results our tightening. further we Fed confident XXXX a withstanding comes

team appropriate to best value. capital to shareholder highlights which over will and return of portfolio and its to continues management book positioning in ultimately use portfolio Julian turn investment what who continue our be strengthen will the as detail Our to each risk performance quarter With our will the experience believe of preserving create actively levels, over I'll we manage the cover mindful quarter. that, our long-term to further value. call and our Meanwhile, remain deploy we our more

Julian Evans

Thank you, Jay.

composition For the portfolio equity of quarter, third to quarter-over-quarter. the changes there our subtle are very

slight versus Similarly X, as RMBS our we MSR slide solely RMBS at quarter the Servicing comprised our of as approximately the grow cash. investible on utilize excluding servicing portfolio. our and as assets remained of more assets uptick capital MSR's previous shown represented the previous the at accounted related servicing our the full from XX% a of well equity of investments quarter-end percentage financing flat As quarter. equity approximately to XX% for approximately of pay-downs equity, XX% portfolio of

excluding represented of a approximately assets As investable cash quarter-end. percentage at XX% RMBS

September with approximately slide the with billion highlighted of value we XX, $XX.X MSR's of market and X. approximately as $XXX on held As the of million UPB

to UPB continue during expect fourth the previously and of the Jay mentioned, purchased to in additional As the we MSR an grow portfolio billion quarter. $X.X quarter

also only during CPR's XX.X% MSR not and and Our during from rates averaged approximately to as the Conventional due posted previous X.X% and interest housing period. declined that rose but government respectively down speeds US X.X% MSR XX.X% prepayment quarter. slowing and MSR portfolio market mortgage

month XX end, down were approximately the CPR XX% servicing once assets composition. RMBS in and percent cash from the similar Fannie portfolio stood XX% again September our of is three better. $X.X and previous In flows At average the third continued of prepayment approximately the slightly from X.X% portfolio speeds. its the continues portfolio. as years of portfolio previous improvement assets slide the shown Mae at to the to securities benefit X% in a stood As remaining quarter composition XX represented outperforming posting redeployed and collateral portfolios the XX, well quarter of weighted the aggregate majority was at June quarter. quarter, from positions Overall perform as the the RMBS and RMBS to RMBS billion

portion financing NIM For costs. In at X.XX% rising quarter, fluctuate which reset portfolio's legal we the improved some based continue a and be received the versus three our which our swap than better will second [ph]. The of to term, a expect portfolio the was for third the costs LIBOR composition the to offset offset NIM a of costs month by increase upon upon RMBS based X.XX% more by rising quarter. it near posted we prepayment speeds in NIM driven amortization

gap. the We the the leverage portfolio the quarter portfolio quarter negative gap a During aggregate duration in an of times aggregate X.X X.X ended operated minus years. of with duration

I'll over the Going and as the forward, the we necessary. Marty to now expect turn discussion. call alter portfolio third evaluate for quarter financial to to continue

Marty Levine

Thank you, Julian.

Our weighted GAAP net share income was the the average outstanding applicable quarter million to quarter. $X.XX for common per third during $XX.X or stockholders

held comprehensive our $XX.X the $X.XX to or includes While sale our attributable share. income per million common for which mark-to-market was RMBS stockholders of

or $X.XX core were per Our $X.X share. earnings million

rate of of third the our notional We $X.XX interest of June and increases as derivative Jay to of our portion the a short XX quarter, XX. repurchased use of mitigate instruments an interest As swaptions share a was of end At value TBAs in September X.X% $X.XX per or variety had a amount borrowings. the on swaps held increase combined effects future book $XX.XX, of which we mentioned, rates from or all of billion.

of result purposes, GAAP interest to declared quarter rate the net X, have Operating our paid as in expenses a XXXX. XX, we on $X.X For to XX, per per cumulative a third for estimated our share On we not dividend which hedge apply change on X.X% accounting XXXX the derivatives. well were was elected REIT for quote redeemable which October gain share dividend paid million loss quarter as our fair September on $X.XXXX component value Series we stock XXXX, for was the was which October common as $X.XX derivatives A approximately or on taxable related of a preferred $XXX,XXX the of subsidiary. as a and rate interest of

regular and or of of to of Our holders common substantially our income of all distribute to quarterly all the stock extent goal directors. dividends board of to authorized our taxable remains our by

the back Jay. turn call to to like I'd Now,

Jay Lown

Marty. Thanks call we'll open time up for the At you. Thank this questions. Operator?

question We and from Riley the session. will question now begin Tim first FBR. Our of Instructions] Hayes comes answer B. [Operator

Tim Hayes

will around for continue Thanks And the this my first bit non-agency of the can give us then progressed guys. taking one that over portfolio Good much of has how update on you point? coming little security quarters? and it at color how is My an strategy questions. to a RMBS progress maybe evening just

Julian Evans

that the cash some think securities we over did has the we within about portfolio progressed capital that perspective had some additional from argue the that hurdles the we're that actually we I put side. return MSRs the chose it buying some had non-agency Currently would of We quarter, didn't of of that I additional on quarter. we the a buy much just need third the wasn't so X% thought securities in is to into and slower

So asset an we made allocation decision.

well RMBS collateral MSRs we better non-agency move whether to making alternative or will a securities find like figuring than as we XX be far. whether year allocation out that perspective. as decision as non-agency as do may do that a think so kind continue year we however to asset agency think an collateral to decent than I like around evolve play forward, than them be XX RMBS from like better well of we it We we the collateral; better

Tim Hayes

the in could Okay. collateral the on versus little us size maybe expect returns that of non-agency And you'd versus MSRs? terms for just year XX bit you

Julian Evans

say it looking say taking let's and Repo collateral XX% is year for XX% agency and would let's XX% between I would the adjusting financing. say non-agency at call you're adjusting on something collateral terms to out somewhere on In probably I about XX for that's XX%

we call double-digits there as In terms somewhere the of are seeing that double-digits. between well MSR

Tim Hayes

believe I to just I confirm really helpful. all the were the early That's sale then Okay. with flow from acquisition quarter it And MSR want but said RoundPoint? you this agreement just

Julian Evans

Yes.

Tim Hayes

call MSR acquisitions were I last think on Got on think said in last that had came flat. they to your pace And but level, quarter it. you I exceed then

much maybe up end changed has grid pricing to or the if why wondering coming didn't that fruition? just So

Julian Evans

getting over that did Yes. That They in got spend in and allocation the were flow they allocating some is we that. round capital of our months. additional At partner. we an previous additional from question, time had us fair to say to a money were an they

would forward So, to say to rate, $X run good a a $X.X X think probably go I basis is on billion I X.X billion.

Tim Hayes

Okay.

Julian Evans

And partners so to behave again try we partners. look like we're

Tim Hayes

the in ask and back Okay jump let anyone questions. queue else think understood. And I I'll just some

thanks taking mine. for So

Julian Evans

Sure.

Operator

Trevor Our of question Securities comes next Cranston from JMP

Trevor Cranston

and a thanks Hi on on the congratulations Follow-up question MSRs. nice quarter.

in So as increase their three sort acquisitions the seen originators it like the last we've assets. bulk agreement of looking in sounds it of to some two that market from an from all struggled new in to came guess heard I might be XQ. your or peers the return over sell the of they've supply flow have weeks some profitability some

Just new curious seeing flow acquisitions? caused versus and change at the for guys are has that any if you guys you bulk in if are market looking Thanks. how that the

Jay Lown

Sure.

have pace out uptick, are bid. they seen the we not of have portfolios risk managing relative in I'm believe but more that extremely very the to market some definitely the just some portfolios more feel so bulk definitely I yields I talking were to statement friends and shortly portfolios you're comfortable seen the say wouldn't flow going a sector we but been think word there point that your be around technical to So you're well it's and large bidding huge it's but we've there's And have your a that I there's bulk have space. a around about you're that that supply, do. understand those there's and disciplined general few a yields bulk coming said we markets to buyers to difference an Even might I they between and playing on that I and to ours when volume in the of don't seen uptick though levels imbalance today believe think the between tough uptick bulk a but an of guys we traded about based. agree meaningful we in the coming bidding very say model imbalance as the clearly sellers a see kind technical space in close when

Trevor Cranston

generally the helpful quarter. rates you there's the MSRs? guys you're the into the Can it. side, or new in the in very if financing Got obviously improvement terms what meaningful on so you are entered a talk financing guys in market That's Thanks. color. agreement Then of in that third getting you financing seeing terms about for any

Jay Lown

I think yes. is the short answer to that

the their that street liquidity are hair are cuts Rates providing the advance dropping. up and creeping think think I lower. that more I is rates are

agree general statement of in the a I think to encouraging see finance being that. our it's as to with able the more liquidity peers and space to So, would relative some asset

we continue a portfolio. the the available where a tapping we can dealers are with yet We but that grow us feel size with broker structured that regional both between contemplated the not we to transaction, have and banks financing the options to

Trevor Cranston

it. Got

for during of thing performed me give rates update some quarter the we've on Can how quarter. last fourth third volatility you value book seen very your in the held you in spread to-date the given up in the sort well markets? And an the Okay. of

Jay Lown

that. but why Marty I'll unique touch don't Yes, quickly you Marty given to base? We're talk let little we the classes a asset have, just briefly

Marty Levine

portfolio tell It's value this believe book rising We for in the point quarter. environment. protect rate the at us really constructed too to through to that early is

way last and five it has that the continue. it performed we in expect So to years

Trevor Cranston

sort in obviously to Okay. rates quantify the you guess have agency meaningful gap think a could so in terms guys duration of on agency now. I you much you you of maybe little - spreads just negative a of bit spreads guys have net seen how of exposure and independent widening Have because you the MSRs? widening

Julian Evans

combination at our that it. quarter Julian. hedge widened would shorts I definitely of you TBAs through as say us if of it's on mean our XX agency from you This as I would spreads the use hedges comment look kind swaptions perspective the in at if XX% the the X% X%. it kind look some when and but have I have is exposure, we we're probably well about of about by basis say I'll Basically Yes, swaps, that you affected probably out points or portfolio

Trevor Cranston

you. Got you. perfect. That's Thank

Operator

question Henry next Our comes Wedbush. of from Coffey

Henry Coffey

to your how obviously issue about and lower earnings wondering are market is results stock Yes, good they are notably earnings call. the and than my just maybe given is obviously your no you increase because way GAAP to was upward and earnings? evening taking that should you is quantify think but thank not on of the dividend around choose there What your whatever the the dividend but for of you the or core taxable easy taxable the that reason governor because have valuing the on we results sort I pressure taxable to

Jay Lown

that earnings. we and Well, of up tell in pay percent you XX out can our past year the have until last I to

Henry Coffey

your… Of your earnings not taxable

Jay Lown

taxable ballparks the not we out they at quarter-to-quarter are year that and the least equal through exactly but not yes earnings, close. core the taxable overall coming it's and our on earnings pretty although do From -

Henry Coffey

core if level So, this to you continue excise bump would to would book of you or impressive earnings pay level this the you opt taxes of up?

Jay Lown

No.

be under pay going because out sure. our will taxes. years give $X.XX ago we We out extra We to I the think gave an for we were would two XX%. That's

Henry Coffey

an way manage a it you'd intelligent sounds as it. special, that but like do So to

Jay Lown

to we that. Henry, Yes, manage it special would to it yes if to were comes If a come dividend. that

Henry Coffey

you. Thank Excellent.

Operator

conference would and like question answer turn session. for to remarks. This Lown the over closing back concludes Jay to I the

Jay Lown

We our quarter on fourth a Have updating to night. us you you thank and great everyone. on today's for look results. soon forward Thanks call joining

Operator

today's call. concludes conference This

day. for may lines. You participating you and have a your disconnect Thank pleasant

Cherry Hill Mortgage Investment (CHMI) 7 Nov 182018 Q3 Earnings call transcript