Earnings call transcript Q1 2023

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Operator

Good day, and thank you all for standing by. Welcome to the Cherry Hill Mortgage Investment Corporation's First Quarter 2023 Conference. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Garrett Edson. ahead. go Please

Garrett Edson

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

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

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

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

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

the I Jay. Now turn call will to over

Jeffrey Lown

first as book quarter the well Thanks, hikes environment and rate as last first and when that Garrett, holding navigate our quarter. value the welcome On tightening positioned to from were up efforts the end, for additional and we Fed XXXX our we the call. earnings to our protect cycle in call, to word remain we would noted awaited

XXXX. suddenly sending crisis call, Signature banking our into the collapsed, since had with it, significant right Just a Bank couple of after we seen a Silicon sector not U.S. behind that Valley days Bank

second in the more priced cycle not we both rates post for combined than given were rate rate conditions steepened We most meaningfully news, negatively Subsequently, significantly this cuts was spread curve with economic end the overnight impacted the anticipation in believe poised where we sharply exposed. Nearly of as performance was mid-March, in sooner XXXX as for expected half fell for of interest hike and the fell immediate markets short-dated reaction. additional than That, deteriorating. the rates SVB yield to after bank the dis the rates. And were scenario positioned were higher quarter. violent longer-dated rates, positioned failures our widening much

mortgage to continued of recent a sector rates Republic, and have in is and half despite second during banking the believe banking and In crisis the the of RMBS failure Fed rate terminal posture funds interest we light basis. maintained the the our rate, the opportunities the see largely XXXX. conservative contained, both turmoil, approaching We exposure the First towards is

a we measure, the per we For share, for loss net diluted financial GAAP $X.X per $X.XX shareholders non-GAAP applicable distribution, quarter, while generated share. available EAD, first a to $X.XX or or common generated million of of earnings

current the several one policy, pressured consider EAD continue be While expect will factors EAD near to our considered the setting when environment, uncertain only dividend of in we term. we is that in

our that portion overall $X.XX is a value March outlook. our profile. Book line year-end because more yield significant backdrop XXXX. current ensure to preferred in level We decline, expect is down that to Board equity of dividend we makes June believe at current Given A portion share per of that of XX, with our X.X% value. to to subject in stock always, this as of from up book macro the and realign closer will dividend finished earnings approval, a common XX% a to as our of XX% change

issuances the our of in which best calculation, is this NAV interest we We includes us. an common which ATM were a a this top in account down profile stock stock in and presentation year-end. remains relative any equity X.X% added basis, describes before We shareholders' to through into preferred book a On investor and program, quarter's priority impact detail. more believe creating for our stable in slide more taking value

challenging are We navigate through this to continuing on focused dynamic very macro environment. and

reinvestment During remain not Prepayment the time. MSR to quarter, portfolio, additional asset rate of low capital to allocation we interest pace on on our higher the choosing the and were our given expected, class make at has minimal as levels. the first thus, essentially on MSRs Recapture portfolio this MSR pat stood speeds the to purchases of decelerated. rates maintain

MSRs less the speeds road rate prepay down weather Our us before has to cuts providing X.X%, significant in note portfolio of our way. than meaningful rate a a with impacting weighted room average

to right portfolio with believe strategy continue our of pairing and proactive is RMBS, the long-term We Agency steer with hedging, strategy MSR management through this environment. along challenging to

rose during opportunistically leverage capital as to additional of we quarter. modestly end the the At X.Xx deployed quarter, financial the

ahead. believe market the Given the be unrestricted in ongoing quarter cash we maintaining profile. sheet, balance deploying a further we the prudently levered the ended $XX capital expect with and We months in on remain solid opportunistic of to liquidity volatility, million

for risk-adjusted monetary to Looking markets are digest deploy Where capital, forecast ahead, prior and selectively policy data we to quarter. will the we advantage in did and opportunities Bank proactive actions. the there Central our approach foreseeable will as future we continue to conservative take macroeconomic management maintain portfolio as

liquidity we to our profile. Our value, priority book of protect to continue mindful and be and leverage remains

I'll over over and turn call quarter. first more that, the Julian, investment portfolio performance who to our will the cover With details its regarding

Julian Evans

you, Thank Jay.

by the that struggles The continued The subsequently, Signature That note January, was Republic In moving of twin described marked mortgage by need crisis, continue and early mortgages, realized investment with positive other failures first to and inflation regional lower year would as for and be lasted spreads wider persistent can interest a markets as of volatile. marred Bank, end March, the rate-hiking of was tightening. on rates a more and First experienced mortgage of SVB was U.S. best spreads the the began the banking amongst until its banks. the Fed XXXX Bank, quarter and path.

Nearly year and end overnight, hiking over, that the that experiencing would before markets to tough the the spring Fed be continue investor of but believe above is the X%. rates shifted minimize elevated possible to cuts this its Inflation summer. the a into through investment would remains Fed rate in decisions summer. to of Fed to No cycle raise The lower, sentiment great the was recession. is and have make and the difficult target will headed situation longer

conditions of tightening contained, reducing credit has growth. spreading and and potential thus, While the banking somewhat crisis, the

the Fed ending lead hiking previously may hold may issues issues greater on the than its longer These as the and initially cycle anticipated Fed anticipated clarity seeks steady to mentioned. rate sooner than rates

impacted And a first of March result, continued employ best thoughtful believe the managing rates possible. value, As we as we to in quarter. as while in environment through are strategy volatility we a the book hedging the

investment Our second quarter. over has the carried into strategy

At our value $XX.X of and of MSR end, UPB $XXX had a portfolio approximately million. quarter billion to a market

of assets, of the XX% At for Meanwhile, capital. investable and and through purchases assets new approximately of MSRs our XX% our MSRs XX% capital end, equity we programs. excluding approximately quarter of During approximately RMBS made cash. our our related and equity minimal the flow portfolio our represented bulk quarter, only accounted

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

the in portfolios. to MSR During our continued both and experience quarter, we CPR improvements RMBS

and speeds by MSR for was seasonality portfolio X% quarter. quarter. previous X.X% CPR The mortgage mainly coupons, lowered CPR decline driven approximately X% net X.X% the Our fourth approximately for net down from prepayment averaged portfolio's production which in the was approximately slower The the quarter, recapture the the drove in versus quarter. in change

mortgage is levels, minimal. refinance to the with rate incentive expected, As current

rates. we of forward, future the continue and to a the CPR net recapture stable in for rates interest Moving levels expect given current low foreseeable mortgage

the new portfolio's well system prepayment current compressing environment asset RMBS speeds as combination by remained the fact of CPRs, rate purchases higher proposed. new that is driven low, mortgage the as The

of today, to as remain levels interest of remain of these expect the as universe low refinancing. the would long prepayments stay As model majority higher. or in of terms We mortgage levels out at the rate

approximately average in reduced X.X% RMBS the For to approximately to the compared portfolio's fourth quarter, weighted quarter. X% the X-month CPR

XX, RMBS million inclusive quarter. compared portfolio, $XXX TBAs, previous of approximately in the $XXX million stood As the to of March

opportunistically Quarter-over-quarter, as pools the spec new pool cash converting to we work continued weaken put into to a as further. portion well as as of grow the rolls portfolio dollar dollar few rolls

quarter, change We At also XX-year securities the of continue portfolio's portfolio. the XXX% first the represented RMBS position of to proactively end the composition.

quarter, portfolio's At stood in X.XX%, was spread portfolio having quarter having leverage more RMBS by For first the by the X.Xx. a net part approximately at interest financial larger securities on repo. our and end, driven

the the continuing of regarding clarity mindful Fed await terminal Looking the environment forward, remain further we rate. uncertain from and

over call first to the for quarter financial turn now Mike discussion. our will I

Michael Hutchby

Thank you, Julian.

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

attributable loss to share. of which sale average the March includes weighted available $X.X was common $X.XX million or stockholders, RMBS, our comprehensive market for diluted While per

for stockholders were attributable share. distribution million available $X.X earnings Our to or common $X.XX per

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

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

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

A on our XXXX. $X.XXXX preferred XX, to a were on X.XX% our stock rate We redeemable Series floating of dividend April also cumulative and declared B cumulative of of paid X.X% share redeemable $X.XXXXXX stock, per which dividend fixed both a on preferred Series

time, will up At the for we this Operator? questions. open call

Operator

[Operator Instructions].

of Our first Securities. JMP Goberman the from line question comes of Mikhail

Mikhail Goberman

dividend the you. on the A quick for color question forward. going appreciate I

and get purchases reports have going up to wanted in MBS your to portfolios, as hypothetic its severe scenario. industry on banking marginal buyer. effect having on decrease coming a duration your end strongly Just pretty the of out Lots that could is a that to thoughts

and MSRs get if that, guys that of on in out how were environment? with And spreads? about that piggyback develop, the relationship your think to see between do kind wanted forward you thoughts to potentially MBS you going playing on Just how that also

Julian Evans

Mikhail, it's Julian.

As in of of experience a of for securities pull the we expecting basis, several over be whether in in out tightened some the sales sales I'm that in moment, such, At kind couple then not for as to move tightening not securities. to selling year, started but MBS, have those through bit SVB's days, them the back themselves forward. FDIC. buyer would week. yes, of that pretty some And were have days volatile obviously, big be gone banks rest me have several could terms a on a of On kind and as of it of that of the see RMBS widening surprise little portfolio. we them week a being past going-forward the a purchases we days mortgage the spreads well

market, GSEs the And And just The lower our buying. buyers I going the standpoint, the of will purchases Fed mentioned, be on the limited as mentioned, a had expect, side The not mortgages trying that technical banks are our not I buying. to that the we terms think the keep keeping be in from we've they of are hand in result, powder buyers as is not past. to also and also as we're This are leverage a things. of dry doing.

on comments And I'll Jay wants RMBS. some to he if as turn as to well MSR it over make

Jeffrey Lown

protecting MSR our a is from in perspective, of is that in years coupon So -- mid-Xs. note coupon. it our rate as I pointed we've with the thing noted think the on important job portfolio And mortgages on or the current the does the definitely note speech, the to a out I spread over better

MBS. the were definition, some so relative large holds will MSRs by And But on think a And less that less. protect pre-XXXX. that's for to it true I widening anybody extent, to clearly, who originated portfolio spread just of a

Mikhail Goberman

value book And far thus you color. update an that give Appreciate it. Got guys could this on quarter.

Michael Hutchby

yet any Mikhail, to our X%, and that before it's about for XX, has not approve dividend down April Mike. the per Yes. we Board accrual dividend that's as is value At the estimate book a share quarter. met

Operator

from of Our Matthew next Riley. B. comes Howlett question

Matthew Howlett

First, noticed through the a obviously, Is little of the on the March sort bias higher the higher coupons everybody. I coupons. the I today? I towards mean, still MBS you mean, yield on mentioned, to and bit side. prepayment be, impact came Was higher you stack down here an surprised on quarter basis? me sort Just first the the walk where because of the want of that what rates of assumptions? was in NII

Julian Evans

again. Julian it's Matt,

Let's the terms like portfolio in XX-year The is primary in of coupon portfolio just we in with start portfolio. selection. like coupon Xs the that

a coupons of of bit, kind we've been the that kind on discounted the frame. below get basis as buying time X.Xs, surround X.Xs a those portfolio over as well the slightly kind particular So you little of can that And coupon. that for par

if lower slowly coupons. it and coming that I within Fed a changing the some shift the there be perhaps a thinks to clearly, think into be year, needs Now posture its is shift will -- lower rates suddenly that

knew were have were terms by going seen bank powder the that out coupons pretty actually the all cheap. and some to be security be partially that to coming keeping gone They dry. that driven are -- by well. We of the well, sales sales going in FDIC there were of pretty portfolios. trade Those we've lower They've fact we

this of If terms think will that not to going We it here the what own think of think But looked changing, rates We persistent portfolio. kind -- still Fed the a X.Xs are to in investors begin has some still a as its towards Fed were of at we accomplish of into be lot time. take changing more we of change, well securities. inflation. We to particular valuations that the I that the point year, than would thinking. that goal got the up Fed in believe, that to as or end We to year. is cut if as have Xs lower-coupon size our in be may in the posture prior

fact repo overall our part the to of the that securities of additional a was And repo. that NIM, the of had kind for yet As be there the some put that quarter-over-quarter, went NIM were driven by quarter. on and couple in on decreased securities NIM

Matthew Howlett

color you just Makes Got at the a I a quick lot How the debt second guess you is, can how on there question I a of I default just going event how are follow sort that? on. or of into event question guess positioning guess you. June? for mean of some sense. is could unlikely I -- do is look -- mean, for -- we you ceiling. us you any I position give an

Julian Evans

U.S. ironically, going they the more and as to kind debt funds Well, is the say position can't more have the Fed for they the the a under at but debt, end let's the say, year, hikes started of a somewhat to and get year. the the was terminal we this not that, possibly was of of a possible hike can't obviously, expectation debt. rate people path The more that concern X X, of March possibly its hold in that's least saying, just of the to out to fact continue X buy Prior We're that ceiling to tend the and you're belief pay year X getting Fed not rate conservatively. much X%. let's post portfolio at

as the to real out smooth We're our trying duration. So to on trying as our curve take positioning positioning. we're well not any

Matthew Howlett

sense. lot expecting -- you're look repo that repo in in that put still a makes you And mean you're not expecting Look, that or any I'm disruption -- obviously of your the and the then flat market haircuts good market? of kind

Julian Evans

in We repo have the very liquidity good be market. to found

do facility, to to have you've People trillion cash got $X.X you Fed's that look would all the they put at had like there. think I work. sitting is to and repo

has not access We repo, changed. that have to

Matthew Howlett

the guys of the had working showing and greater you that last terms rate impact, you then slide MSRs the preferred that the of question, getting other I look and guys, a have on really common, the with hikes the leverage these job in And now and it it's you've starts the through like and really really commendable well, impact done it you Great. on the defended hopefully, at guys, I end.

rightsizing when stage dividend, you these spreads. the begin let's MBS at and some point, out get the the the say Fed does in or you of With cutting coming the here look of stop at growth, all company next

And at a was grow look them, I environment. much company, more, that at it. Would that a into the rate you over leg during the in RMBS the you to a time even -- the you to really moving lot cycle. run MSRs rising could could of want on great know balance MSRs of dry powder. sell portfolio look sort bigger if hedge towards let If sheet and we even you bigger you a have have even of have next off going But you this

close where with going, company I part of do about Jay, see the of talk assuming this dividend one. where you to next Just to this cycle, the the the mean, that reset, we're end me --

Jeffrey Lown

that, to Yes, do I'm Matt. happy

conversation rates. continue And this for should relative a I there's is just fairly Wells value far. amount that time. so So out some year significant others of put and servicing Fargo think to a have expectation the

And you so pricing will, servicing. relief, if seen around we in some have

yield. and pricing you about much as So about as think you rates, think

out, the that in we want scenario so we it, as a pointed scenario. of allocate to is to a space especially capital look that MSR growth you And which at and amount the

at be one mix between from yield think optimal few looking from we a X perspective equity strategies perspective, makes then capital and the which things, a we'll think what's also is sense that well. I the an as

our a of over end will. I on front that of think the might side you the and back less the any end near primarily if there's relief the from rates view be the term, come volatile will in curve curve

continues the that investment and to conversation perspective, pretty you'd and us. represent amount think capital for alternative becomes a It like And to MSR returns absolute about that deploy the from into a good the so that we of sector. present

So we curve won't front starts should the phenomenon, some the we MSR MBS is cutting, from of returns, think that to which but the provide once that a end predominantly Fed relief take the returns. away

And way, I runway on really because of we much one the are out portfolio in this I relative note speeds. by left the just the point to what that and matters, the we was mentioned reasons have to want with script so the rate that --

it And Does so manage we through perspective, speeds to a we from the help? that the extent perform a perspective. from managed, can the rates confident pricing of about the ability that to aspect but feel really for prepayment are portfolio

Matthew Howlett

you'd do rates, mean I of to the mean in It have you mean, money and mean to I refinance. helps below X to even met mortgage any tremendously. put I I have level, some pre-COVID go see the CEO right, those

Jeffrey Lown

Right.

them. kids optimistic happen, my very I'm hopeful might are for While that less

Operator

Jay I'd back it you. to to for Thank closing remarks. like now turn

Jeffrey Lown

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

Operator

program, you your you, disconnect. now and you Thank does participation may conference. for everyone. This Thank conclude the in today's

I conference. appreciate wish Sorry but that great about with I and evening. and grace the We recording. end patience a in the did will at hiccup you now the recover, your

Cherry Hill Mortgage Investment (CHMI) 8 May 232023 Q1 Earnings call transcript