CHMI - Earnings call transcript Q3 2020 | Cherry Hill Mortgage Investment Corporation

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Operator

Greetings and welcome to the Cherry Hill Mortgage Investment Corporation Third Quarter 2020 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, Rory Rumore, Vice President of ICR. proceed. Please

Rory Rumore

thank Corporation's us Call. Third to Hill for for Investment Mortgage Quarter you like 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 company's We no to to statements estimates assumes detailed discussions the statements obligation represent these future. the with Hill in related forward-looking update and contained to encourage the statements more in current management's filings review Forward-looking listeners forward-looking hosted Chief and Jay CEO; Hutchby, in the definitions is presentations President Officer. financial on Lown, the company's Investment the Officer; SEC Financial website. and conference Julian Chief call the Evans, the and Today's the available contained by Michael

Now, call to I the turn will Jay. over

Jay Lown

continues today's through remotely want work we team hope and for and you dedication with productivity. continued ongoing We your to disruption and to their entire remaining work afternoon. Team call. you to we appreciate healthy, hard to no and safe joining are thank face. manage challenges welcome and Thanks, us to Rory, families this the our I

but rebound COVID officials together will third create forthcoming higher macroeconomic continue record portfolio liquidity economy during the there great the at/or focused on remain a the reopen. GDP U.S. MSR remain The rates begin back economic elected the nation near pandemic, and vaccine with quarter record volatility quarter. the be and quarter as we from quarter lows to but eventually to third and work that certainty, stable had more factors push respect continue to prioritize bounce of political to continue our core throughout equities In quickly during We the the environment. saw economy a our hopeful absence considerable quarter. RMBS a to strategies remains and rebuild and and competencies. remain this will to and

while to liquidity proactive Given core our earnings continue a our strong we ongoing maintaining position. strong approach portfolio generate to managing

we yield our For at our cash aggregate on earned approximately the $X.XX and X.X $XX ended leverage, per the our third with quarter, portfolio share, ending million sheet. in core is current and level balance the dividend lower maintained leverage above We also times the income we quarter, XX%. quarter of quarter on this distribution well unrestricted

the current lower portfolio. So in take the servicing poised investment our opportunities to themselves. navigate We selected that environment our year-end will of meet speeds and quarter believe portfolio we navigate as the prepay higher cash expectation, and our fourth be advances remains investment advantage present in

on Our deployed strategy capital will in invested MBS. with MSRs MBS with the some of provide majority remains of investing intact combined highlights Julian portfolio our that shortly.

to least at year. current prepayment anticipate interest this MSR rate be Fannie case experience the into elevated XXXX, historic given of environment. mortgage highly We Freddie given speeds to Our expected, as refinances and continues level portfolio this the

regular life expect flow new market program to our at partners to we off-late, efforts the shown rates levels believe working prevail continue basis. acquire on with lower and rely we MSR our over to grow coming we assets recapture has a market months. year That closely major to are improve as of share be are on Recapture We attractive. signs our and focus results to

over the and quarter. fourth improved statistics the into quarter Forbearance

October remained end of As payments active with X%, forbearance all of through just of borrowers approximately shy due October. the having XX% made of

believe to to over book liquidity satisfy core per value common due [ph] bolstered decline servicing strengthened our Apart liquidity in large advance XX. September deferred of and at the share XX obligations of reduction is our our the sufficient $XX.XX is position finished all future. quarter from earnings our continue as the asset. the a We value the June strong tax majority position, to A of from foreseeable

the composition adjustment and have The adjusted in sale that evaluate versus of of effort on the we correction. value our book of this the impact to the in related our we an our second of any no core asset. Mae error identification quarter and be clear there reflect to portfolio. to deferred numbers RMBS financial core earnings had, historical the was size adjustment very Following period financial in Ginnie our began but of in the us error certain our subsequent tax MSR value tax way it single dividend. To presented deferred correct of not to required the at material not resulted of is calculation prior the our quarter, previously the end asset will any or to statements in expectations; the to portfolio our our MSR our update error our in or book or valuation Thus sustainability the

will investment our economy it's keep some but close fluid who cover remain ensure third environment, Julian, bound we position as content we and rates await is turn further commitment markets all, we powder to the over worldwide. regarding remain and quarter. interest recently spikes results remain over I'll we on in range are squarely proactively it on once COVID clarity. our we details All to performance liquidity the the and digest necessary of very more assisting it's past the pandemic. as a portfolio, take With news keeping call we focused dry managing is as strong, can advantage out election reiterated balance opportunities Fed remains the XXXX As that, in the to sheet portfolio

Julian Evans

Thank you, Jay.

continue During the Those policy proactively to reopened. sector quarter, remain positioning actions our the mostly cash to position. to third adjusting accommodated steadily Fed our strong allowed improve continue maintain spreads and policy us as economy assets

viable $XXX comprised As eagerly quarter-end. MSR early UPB of we end approximately move we and past at seems with certainty equity. by to election, equity of news the as to investments uncertainty the fact this of and of Coronavirus continued billion, year the cases a be assets of approximately of XXXX. $XX of related approximately capital portfolio Meanwhile, investments XX% the a for the only XX% increase, that investable represented at MSRs respect cash. full Servicing a of or our approximately vaccine accounted approximately await our RMBS excluding our X% market and value million our positive

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

Mae Despite the weighted Our conventional posted prepayment XX%, period. better lightly the remained elevated aggregate remarkably Fannie approximately third for low the in speeds above remained RMBS quarter. so and the interest averaged speeds increased up average second CPR a CPRs the approximately MSR given The in XX% the three-month quarter historically quarter. mortgage slightly than we're of for the RMBS portfolio the environment. speeds, Speeds rate prior

billion. inclusive the RMBS portfolio TBA, As $X.X of at approximately September of stood the XX,

portfolio maintain securities remaining quarter, grew liquidity XX%, the Quarter-over-quarter, third delever position continue we the from to reposition of and to our to position. represented XX; our X%. up as of assets the the During June XX-year portfolio XX%, and

second X.XX% to quarter. RMBS spread posted interest we a the of a costs roll net quarter, the income improvement For hedges The lower repo third payment. in net X.XX% spread for versus swap lower reported with resetting the combination interest and dollar spread

as been as with forward. duration an portfolio X.X the At the improved end well we've be in our quarter quarter gap net mortgage quarter costs, X.XX% portfolio the remain from the of speeds rates leverage to historically driver interest prepayment low interest with X.X years. repo spread we aggregate aggregate as a will operated dollar levels. approximately income X.XX%, ended positive During at Mortgage as time of of roll

will and third the discussion. to financial for necessary. continue the quarter call portfolio now over also We as turn to evaluate Mike I'll our

Michael Hutchby

Julian. you, Thank

$X.X to share. of our stockholders share Our attributable during or Well GAAP the net sale the comprehensive $X.XX common quarter. quarter for loss $X.XX mark-to-market average per outstanding loss $X.X million weighted was for includes per or was third held the which to applicable RMBS stockholders, common million

of Our core million common as per of earnings $XX.XX of for compared was or book XX, $X.X XX share. attributable September value value to $X.XX to XXXX. revised Book as the share $XX.XX June common per stockholders

the repurchase or of asset the of Jay at core the $X.X to of said, on quarter instruments the book the billion. swaptions rate effects interest in no end borrowings amount of our mitigate a impact futures, increases our earnings - on variety most interest a notional future treasury all due reduction a value use we of was dividend. TVA's of recalculation our the to tax third of swaps held of in As of has quarter, which had which and combined rates deferred the We portion derivative sustainability our

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

cash rate Operating $X.XX were for loss component quarter. fair for which we as a a per expenses on derivatives. not September derivatives net value share record common of quarter the elected XX, declared result, dividend purposes, to gain paid XXXX On in interest and rate GAAP our have we we XX of third the the for XXXX interest of - XXXX. as or estimated accounting million in For $X.X was October a on hedge apply our change as the

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

Operator

Your question. Instructions] Henry first you. with the Coffey your from with proceed question Please [Operator Thank line Wedbush. comes of

Henry Coffey

where still saw evening. refinance see are this sense - in still market increase sell-off alter with of sensitive it know you all is could think like MSR the and our values living Today, we the case payment view or there been a What we really credit rate freights seems, you then we us saw has that mortgage and of always much been things Good kind Do rally here and a and your name activity. with. refinance - that could has a you market have changed. etcetera, in names red-hot everything how going with It etcetera. on can own we durable of speeds the give we've something

Jay Lown

rate economy meaningful a you happy We've to impact relative question we It's, Ray, I'm think is are sitting might the that. How that are respect stimulus results to could vaccine the would current environment you? definitely to through Jay. valid take, of Henry. the also we to what tell the next trigger going what absolute address that year. think, that happy around higher have over rates. credible felt to election that Hey, also around will Look, just think come the But level the with rate I given SME. around and that

would you he X.X% no but rates on the rates same our could, tell no we paying and much our MSR are X.X% portfolio. speeds that pretty So

go see here impact have that public of off mortgage that would because to rate could they X companies the we So thought sell from was to say and on end speeds [ph] XXXX. because I need bid to this didn't December meaningful of a decide a

cautiously So in before believe margins go that there levels a themselves understanding - we're about originators optimistic ways that is decrease profit speeds us lead originations around still to we're the will happen. and to meaningful but optimistic around

Henry Coffey

or What mortgage change be or need is coupon it - higher? - does X% things to that

Jay Lown

That Clearly, absolutely. yes. would

Henry Coffey

talk the paying market. three your getting refinancing threes. year you say, is better X.X that are a is super a low today low, low low, X I [indiscernible] fix. you going that credit, mortgage or a on - what than much it really low, as Like, you're well. to who it do high have house alters LTV if Then for The depending XX - you to,

Jay Lown

side Clearly X of X.X somewhere we a does, with between would but X.X respect the higher and that. [indiscernible] has decent impact, to X on

our Just origination on to margins on secondary spreads, cetera. relative based view et primary,

Henry Coffey

thank you. Great,

Operator

of Sandler. with from comes question. line Please question Barker next proceed Kevin your Your Piper with the

Kevin Barker

that much write related you was the detail on how offsetting with more could a Thanks. down what of deferred that assets, hoping little the happened much else asset. I and How Thanks. differently. to what the liabilities something - was calculated certain give servicing - that tax or was was

Jay Lown

take that Mike let Kevin. So, I'll

Michael Hutchby

In [indiscernible]. therapy the due to Arora MSRs between and the the QRS intercompany

Kevin Barker

taxes, you're any Okay. the paying And to future? then does now in this right the on pay going or you're have impact

Michael Hutchby

is deferred to do tax doesn't, no purely taxes. nothing is it with this item. No, a There current

Kevin Barker

was no... much write-down And how the

Michael Hutchby

total Kevin DTA. A of related about it drop to the about speaking, and broadly the was drop third a was book related of X/X the performance value was

Kevin Barker

the higher CPR together. much or is attempt then running than in closer And portfolio the those there any to more get this portfolio match to to the RMBS servicing is desire try

economic given hedges Just they the provide? that naturally

Michael Hutchby

definitely to There of former desire I my we're share the I you a will looking that side comment is I the on to But my bigger said house. notes this as to tell think in again the market Henry. MSR

profitability. market for that public to aren't these is with public of a them last the statement the with are All to year to XXXX guys go looking that go

about about just rate X% have saw and the been we've been careful of think MSRs we around area. MSRs the we later added very probably So how

In terms to that's of us rate no and compelling.

an here portfolio the you MBS don't in So but go you and side. sits do your just specific where of of kind there it a that, is level MSR portion and interest on offer if out

Kevin Barker

my Taking question. Thanks. Okay.

Operator

B line [Operator Instructions] Your Smith comes from your with question. Riley, question FBR. Please of proceed with next Mike the

Mike Smith

Hey, guys.

flow purchase billion of production kind So the acquisition it this to bulk $X.X it all is or talk on little sale at? a the of just new the MSRs? Can MSRs. you purchase multiples what then And and you about

Michael Hutchby

right. All

we then around we within to to be to size things election. all purchase are to off, are more clearly, and I comfortable that That of think prior decisions So want our view to behaves where our it majority relative all like considered and relative run-off to but our with number sourcing it's as today - make context to smart wanted pretty to understanding and rates on the relative or because size pools again running the the high. know, specified want TBA it's continue we of with. good we Historically speeds you the TBA what's was

first So that's part. the

The second but part three-month in three less, conversation. the is, months, think of about it around slightly think

Mike Smith

how to That's or helpful that the third then billion quarter, you. much is during subsequent that end? $X.X and Got quarter of so in

Michael Hutchby

all That's quarter. Yes. third tell can you... just I

Mike Smith

And…

Michael Hutchby

Yes. been good Fourth far. so quarter has pretty

Mike Smith

intra-quarter of value that. Got going update? Can helpful. you. That's And you of provide an just kind off book

Michael Hutchby

X% of between I the would somewhere think value down and X%.

Mike Smith

outlook question, just balance speed investing for Yes, capital? value? in trading outlook your speeds environment, sure. your book about for you you're And of in because how Just the another not given cash of of kind think given where do your necessarily the on use

Jay Lown

Right.

make our paid had that. largest - So We've to a going may the relative to think desire desire about to strong balance year-end to we things it's a always cash position have related or to that forbearance, we relative the to sheet that may and and is most into quarter as where in to really the that sure required strong cash. escrows into we given going a our is advances maintained not fourth related we know, sourcing MSR the maintain

of implications will of Biden what kind in Year. on get flow As using my an result cash do the said of on but understand MBS better you I think factor on et about Plus down, be position a to we all portfolio, in what to remarks Presidency a is come in calls, expect the of I quarter, think early to the for through answer doing would we as cash also, I fourth want and New with give cetera that of cash the

Mike Smith

for my taking Got questions. you. you Thank

Operator

Please comes your proceed Your with the Cranston with from of Trevor JMP question. next Securities. line question

Trevor Cranston

you size To the thanks. write question on up what the write-down, down? deferred the the tax after the about can asset follow say areas, Great, remaining of GTA

Michael Hutchby

Sure, it's right about $XX million.

Trevor Cranston

And over portfolio how And then, you about forward. curious Okay, activity you MSR just think as guess or to offset of think the bulk that got or portfolio term are think questions size about Thank going follow could you. previous shrinking run-off, to near expecting full continue that some about up size MSR the of the the volume forward. it. do going EBITDA, you I the the acquisitions guys as higher maybe prepaid you we're on

Jay Lown

So our goal.

amount basis. would, would I that, acquisitions, be stem new to go-forward think there on And opportunities forward that find to our be a I that. going we to would above compelling extent at of buy MSRs is a that - we goal the level have some

a in we do to once the that would we think, be I get position through year.

Trevor Cranston

Okay. - you coupons on the returns new the see can are levered of story pool in of agency what kind as making on comment like spec reinvestments then, or kind you And where investments. investments in and or market book, guys new you agency you what

Julian Evans

Trevor. Thanks. Hi,

we In buying. terms that have been the of coupon

the roll I been, other think, like we've REITs dollar some playing of income.

and in teams to say roll would So this as and of like pools low I the we've the probably been well X income, terms TBA X.X of mid-teens dollar return probably at portfolio. that rein in point would is that are mid-teens. spec portfolio buying the that X.X all would in in of I that the the say majority as combination our

Trevor Cranston

you. Okay, I appreciate. Thank

Operator

gentlemen, and I session. Lown of would have the the like to back question-and-answer we call turn end for the to And reached Jay closing Ladies remarks.

Jay Lown

great everyone forward our to much us we very end year. updating the for of this call next and you call quarter a Thank on operator. you you, fourth year. Thank joining on look Have

Operator

conference. concludes This today's

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

Cherry Hill Mortgage Investment (CHMI) 9 Nov 202020 Q3 Earnings call transcript