CHMI - Earnings call transcript Q1 2019 | Cherry Hill Mortgage Investment Corporation

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Operator

Greetings and welcome to the Cherry Hill Mortgage Investment Corporation First 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. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Michael Hutchby, Controller. sir. ahead go Please

Michael Hutchby

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

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

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

Jay Lown

quarter quarter month by XXXX, performance Despite [Indiscernible] Cherry shift drove the reaction XX future the meeting Hill their a for to stance hikes which another a call. double-stead market's Thanks, Mike, the Treasury in turned Overall, yields lows. volatile highlighted to and a led welcome XX surprise rate on end. U.S. in post posture year today's solid of first to

quarterly held. value our our portfolios and we and strong RMBS and remain Both book persisted MSR our within prepayment earnings Our dividend. out-earned fees again once

the share of $X.XX. XXXX, first generated Specifically, core quarter we for of earnings per

Although first quarters ahead elaborate seasonal to global to in by environment composition protect but X.X% hikes down we the quarters. remain potential it economic is portfolio and Book this was our committed his positioned lower of our We portfolio our to we remarks reduction. the in believe the our MSR equity norm, expect of closely will but constructive XX% Julian the the and macro in larger end rise proven to book is to to repositioned quarter XXXX. the evaluate value value RMBS rate we succeed we per against MSR approximately first watch MSR XX% end dividend. a quarter, and on the proactively capital, velocity the throughout well rate will over quarter, prepayments approximately we the the of at acquisitions. compared as flow the surprised portfolio strategy the portfolio today at of of continue marginally shortly, of order the coming At grew Like our portfolio both through reversal by common as in quarter $XX.XX bulk the that by we of we and March, the represented XX% environment. and remain end the in were Fed's many net future share nimble during

risk investments in continue we return to meet Additionally, be our to that adding non-Agency hurdles. our selective RMBS

related deployed and to second both assets we offering front, capital that RMBS. the raising quarter the completed preferred in during net proceeds On equity approximately million servicing our XX we

remain XXXX, construction. of remainder disciplined the for in portfolio ahead we Looking will our

create book portfolio to believe value with utilize will returns our for preserving our remain to proactively over to we and performance multiple cover across team goal manage and to environments shareholder more investment our additional succeed investment term, over generate and our of Longer continue over value rate shareholders. who our continuing time. well-positioned we portfolio detail With turn experience management interest collective highlights the Julian its to will compelling ultimately of Our quarter. the the that, call I'll

Julian Evans

Thank you, Jay.

from XX by performance outperformed During spreads Mortgage and the the the performed in stance, followed move supply tightening and benefiting as nominal spread premiums lower interest rates. patient additionally interest combination in mortgage bringing tighter demand well month cleared sector and Mortgages equity rates improved mortgages policy banks first the by lows. assets despite and quarter, for stance indices to central towards global price aided closely solid and other other and was of volatility. as well specified away lower quarter, from technical the pool policy

For first into the composition offering to After securities. MSR were deployed deployment changes the RMBS and quarter, the quarter-over-quarter. the equity preferred we proceeds both slight portfolio there

lower the asset interest the our purchase. MSR previous a despite investments related XX% were as RMBS our full MSRs, our of of quarter XX% cash than rates, as equity assets Meanwhile, servicing X, additional represented equity, capital lower approximately approximately XX% slide portfolio approximately assets accounted of from and previous our valuations equity percentage quarter. alongside investable quarter of on of few Servicing shown end. comprised percentage for declined a points excluding As at

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

XX, approximately of as XX% MSR equity approximately value As our $XXX we We by million. were December with approximately $XX proceeds the of MSRs put work. and billion quarter-over-quarter portfolio grew market held of to a UPB

remain well quarter, as the speeds low. continued to During our MSR perform portfolio prepayment

summer As and months seasonality rates. mortgage the pickup given and lower speeds a prepayment approach, in see the to expect we would spring

speeds, for from composition. CPRs prior prepayment from the MSR the were government portfolios same MSR approximately which X% and government the Conventional by speeds MSR, first the respectively the the down Our driven X.X% MSR averaged collateral XX.X% while conventional quarter, RMBS speeds posted in and from timeframe. rose were quarter. MSR during and benefited X.X% Both portfolio's

approximately XX, the at assets RMBS rates value from stood March $X.X previous billion as As $X.X billion, as up portfolio declined. RMBS the in in quarter interest increased of

deployed we of as as from year XX%, a Quarter-over-quarter, proceeds the rose shifted stood offering assets on preferred December represented RMBS as securities up composition XX from XX% portfolio's The and XX, addition, as position X. deployed. XX%. slide In remaining at RMBS was capital shown the assets

and During meetings, and spread XXXX. the policy course posting the to a specified as of three-month Fannie a tightened continue over the third quarter, neutral the moved in of from two price the In quarter previous well, RMBS collateral any the a premiums improved perform rate stance pool tightenings CPR quarter increase speeds. and best average the potential FOMC Fed aggregate RMBS prepayment the removed portfolio approximately continue X.XX%, Mae to weighted composition slight of of towards

remain rates faster were we to rates. low result of As mortgage see as speeds XXXX, in starting lower for a interest

mortgage rise months, the Over are and low rates expected to speeds based on few the next seasonality.

housing to the X.XX% positive upon term, a moved interest mortgage NIM leverage durations, rates slightly portfolio, to A payer first received positive receiver X.XX% the continuous the the Near only swaps limited clarity speeds. of of durations by lower thus to a and the MSR added years decline portfolio and gap receiver mortgage impact which geopolitical in an plus ended for close rates, X.XX To gap portfolios hedge driven quarter, mortgage income mortgage we NIM of change reduced market, risk We was year shorten the a Portfolio versus positions the NIM fluctuating swaps. were from the the improved the rally, prepayment global seasonality To previous to aggregate swap financing reduced fee X.X swap expect XX gap. significant due For from partially RMBS by fourth hedges costs, offset quarter. a portion of our based And we quarter posted Fed. be based costs uncertainties, portfolio offset make and operated well approximately receiver NIM trade and zero portfolio. times quarters. to were portfolio we namely offset partial costs in portfolio. and the and The of end, rising duration shift the aggregate as for added our by upon portfolio. which some RMBS with the our financing duration swap duration We will the with quarter of portfolio aggregate the the amortization move these as composition

for will discussion. a to As first forward turn Marty financial evaluate we call continue necessary. now I'll and the as quarter move to over portfolio we the alter

Marty Levine

Thank you, Julian.

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

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

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

on $X.X As value December dividend. March $XX.XX, of decrease of to a Jay a we mitigate futures on per We mentioned, notional of from rate derivative XXXX Treasury billion. quarter, options in variety our XXXX end quarter negative TBAs XX, and a all have a or book had effects interest X.X% swaptions, in instruments XXXX which XX, share use the rates of future first increases amount of the was third our portion borrowings. interest first of the repurchase $X.X combined At of of Treasury and the swaps, our futures,

the record And approximately of declared have April for quarter, For hedge X, derivatives. paid REIT apply for which rate of $X.X to the Operating elected to we quarter, value common result, the were related which not dividend gain derivatives. for as was the we March first a in on subsidiaries. loss share of component expenses XXXX, net or per XXX,XXX million interest XXth. On would accounting GAAP $X.XX we taxable our was estimated on change interest purposes, our a as rate

we XXXX, fixed-to-floating X.X% cumulative In Series Stock. on were cumulative April XXXX. dividend declared March A B our Series addition, XX, Both our Preferred a of of X.XX% dividend on and on Preferred paid per Stock, of $X.XXXX a on which share Redeemable Redeemable XX, rate $X.XXXX

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

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

Jay Lown

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

Operator

this Instructions] your Riley At be with question. first question with Our FBR. we'll proceed [Operator Tim the question-and-answer Hayes time, Please B session a from conducting line of comes

Tim Hayes

just revolves taking writing MSR by before like guys. after the that. about good mark. the down the basis evening, job Hey, you around down MSR this X first my Looks growing My the one points it wrote questions MSR X Thanks portfolio. quarter and quarter for nice

value at was you play can recognized talk this MSR quarter but last you the As the about CPRs and hit remain parts around the escrow of also if mentioned the have moving low, quarter? you just

Ray Slater

is Yes, Ray. sure. This

quarter. really hit, the factor it a far wasn't escrow as As this

all summer but the a This quarter are really it's where note -- picked quarter XXXX, Obviously, was was from suggestive we around are the realized of models origination speeds. particularly behaved, time. the today. which around our to were the prepayment of up And fees compared actual lot higher being rates well

So into that's market kind of factored values. the

Tim Hayes

I see.

helpful. Ray. there, the That's And were bulk the MSR much acquisitions Thanks flow? Okay. of for then, versus clarification how

Ray Slater

was and in billion bulk X the was It remainder flow.

Tim Hayes

Okay. I'm executed X correct you've -- And been I billion since bulk believe believe on if quarters don't wrong, I bulk. a several me it's transaction.

the are months look more are coming versus Just in you're opportunities where from? ago these seeing if wondering there today bids opportunities six how and maybe market

Ray Slater

bulk Sure. portfolios out on been coming definitely them it been bid. lot In a well side. There's have of maintains market larger the the have still that

XX them call billion So plus.

as X much time a year. there's in as market did supply seen coming of billion definitely it haven't million to lot typical coming as same to just it’s last We call XXX But blocks. of frequently the big we

Tim Hayes

really much despite that kind rally still bid you so know out seeing well rates mentioned there? that more I not and are the of opportunities attractive of Okay. assets remain

Ray Slater

Yeah, their we out I on what you do think setting now, portfolios in back so prints this level with come know QX the maybe a after folks right before has actual they see experienced holding to -- rally. once QX, pricing putting

up short think I that's have the amount of been eager pick supply. to factor a So large and buyers

Tim Hayes

quantify spec can Ray versus or you on or a rule might question maybe you be would returns of but today -- then MSR? seeing you're the Julian, kind And Understood. for just the Jay put Okay.

Jay Lown

Yes, sure. let I take Julian that.

Julian Evans

to you're agencies spec is In return of your I that say and also want to in seeing I type CRT throw in depending XX% they're terms say around mean, of that basis leverage X% some rules, levered think X between I basis to XX%, on we're on X% the kind of seeing all if about XX$ upon XX% XX% there. financing anywhere, you

Jay Lown

one, To I answer will that Ray. let

Ray Slater

to you and I mean, you're the your Yeah to mid-teens. depending that mid low leverage into on basis high levered can talking single-digits get then

Tim Hayes

Okay. one? you Can program remind that would valuation in have now. a Got more what from outstanding and have be you you helpful. interested it. That's And guys then do just at buyback me one using for me if potentially you

Julian Evans

one do have No, we currently not in place.

that So for have place, I and a we how with you but the we specific put a that's don't on something thinking discussing board. would have have it's good something that when we in about. that been number been answer

Tim Hayes

guys. appreciate Okay. comments the Fair enough. I

Jay Lown

No problem.

Operator

Ladies Instructions] reached the we end to the call session. [Operator back I closing question-and-answer and of to management for gentlemen, like have would remarks. turn And the

Jay Lown

very you to results. our today's evening. updating on on us soon We today forward much nice Thank second for joining you Have quarter look call. a

Operator

conference. today's concludes This

this time. your disconnect at you may You lines participation. Thank your for

Cherry Hill Mortgage Investment (CHMI) 10 May 192019 Q1 Earnings call transcript