Earnings call transcript Q2 2023

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Cherry Hill Mortgage Investment Corporation Second Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Garrett Edson. Please go ahead.

Garrett Edson

thank Investment joining conference Corporation’s to Cherry today call. like Mortgage Hill second would you us for for We quarter XXXX

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

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

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

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

to over Now turn the I will call Jay.

Jay Lown

pressures higher end FDIC. the quarter from case ended to and rates at MBS top and and wane. driven slightly sales seemed the quarter bank macro for tailwinds XX-year Markets were quarter data as quarter, banking was recession markets quarter a X.XX%, creating of scenario Garrett X.X% by economic asset investors XXXX still of again treasury absorb a MBS the the to the some the Thanks, significant early and eased low our tightened worst in as level, Spreads welcome toward regional mind. the of the the second U.S crisis fell agency as largely call. the earnings the second At Fed while and in

rates the the positive week. either bets last direction XX stabilized value. quarter, Fed’s of end maintain tightening Fed MBS believe giving protect catalyst cycle. neutral rate enhance of agency policy to continue has of working again to points to discipline May uncertainty and raise potentially the near in attractive we justification Fed and the elevated returns. basis for in we We the should And direction, target, rates while this have remained drive more X% significant above the others the light In around a be Inflation, enough and are securities and the noted, during as avoiding posture,

we the Assuming case that to half quarters as the we opportunities capital in new back move ahead, remains deploy year. through the are into of positioned well RMBS

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

As is one dividend we our factors setting have several noted EAD considered in only of policy. before,

certainty Additionally, share common of Book XX, March of gain market regarding and the finished X% at to determining level. foreign XX. value return believe income, what taxable factors the the environment portfolio $X.XX of as return including appropriate dividend and contribute hedge level from degree June potential, such as per all impacts investment is economics existing we our down

account to into ATM relative X% stock we were common through includes preferred basis, an program, NAV and XX. any our calculation equity issuances which stock of the On before March taking down

our a the us. profile preferred and As is Creating changes equity our our of for best total a mix top or impacts amplifies common interest equity more in to prior shareholders’ existing equity remains quarter, value. noted common in of in our book priority stable

stand second our continue we the firm on portfolio. MSR quarter, to During

on profile remain asset class our return better pace the allocation a presented low to thus RMBS of capital rates minimal reinvestment is Prepayment and agency rate Recapture interest levels. the the to speeds believe MSR of required the portfolio maintain environment. low. we As on higher in given the remain current MSRs

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

We through along the is to pairing portfolio the MSRs believe continue MBS, strategy current to and proactive our challenging agency strategy steer long-term hedging with of right with environment. management

of as slowly leverage remain financial continues stayed We opportunistically to remain the we profile. the stabilization, of assuming million capital $XX the on liquidity maintaining deployment end solid cash levered At a unrestricted X.Xx ended its economy march the opportunistic additional deployed we the consistent sheet the quarter. We quarter, the at in expect prudently capital. towards of through and quarter with balance

environment believe presents Looking we adjusted around the volatility return are Fed an return proactive currently opportunity additional where perform we typically strong yet profile. conservative for which to our into If ahead, the portfolio diminishes risk to management there an the deploy maintaining MBS, approach a and better, we mortgages to near-term. begin capital is to agency further

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

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

Julian Evans

Jay. you, Thank

rates. Fed overhang the that stop the with quarter market the the banking to of as XXXX need The seemed crisis would to raising second believe of began

close As week. again during June, Fed to or the if continuous Funds, is backdrop possibility X%. and resilient war the a the to basis the the as rate posting Fed end a Fed with of that as the inflation and the the higher fade seems in to crisis two terminal rebound of in to rising XX quarter, inflation rate in back target concerns CPI getting hikes rate get last one X% Fed attempts left, for it to to Notably, with more to headline the May economy used once began related banking rates rates points began

that to achieve while growing longer. able maybe for landing, the soft rates be of market higher a this appears the signs Optimistically, to holding amid Fed giving stabilization a belief

impacted long book value. to our in the employ continue which quarter, We hedging thoughtful second strategy duration, remaining

properly positioned we from possible. the environment the believe as and best we macro managing However, hedging perspective through current given environment a as are

Our carried over into third thus investment the far quarter. strategies

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

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

rates RMBS quarter. the modestly our much as for of portfolios rose fluctuated and for speeds prepayment quarter, the During MSR

Our minimal. mainly incentives continues up MSR net portfolio’s quarter. for CPR by from CPR to in the remain rise was averaged portfolios rate X.X% recapture net consistent previous be as The low seasonality. refinance The driven approximately was the to at second X% the quarter, approximately X.X%

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

portfolio CPRs driven rate well RMBS existing combination compressing by prepayment low that mortgage speeds current is new environment as The the remain for of the the higher portfolio. fact as asset the purchases

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

CPR approximately X.X% portfolio’s the moved a RMBS quarter, weighted to compared to in quarter. the X-month bit average For higher approximately X% the first

portfolio of coupon higher the inclusive Quarter-over-quarter, the composition offset. TBA stood the moved compared of remained cash pool and same quarter work. approximately new materially million the changed portfolio of we into $XXX TBA to spec mortgages we portion increased constant, during the RMBS previous at XX, our opportunistically end. put time, as the an as the As million hedges At June portfolio the $XXX but of at to quarter

For from At of at by as XXX% with portfolio’s net represented the costs. which repo quarter, second change offset driven quarter portfolio’s helped in both new well remained the as and position our was end, XX-year yields increase securities the interest financial RMBS X.Xx higher a portfolio. the to The RMBS purchases approximately leverage resulting composition, of higher asset our X.XX%. spread

maybe encouraging Looking rate remain we challenging environment, that of mindful terminal ongoing close data. a given but we getting optimistic forward, inflation are the to

the turn quarter discussion. second for a to now financial over will I Mike call

Michael Hutchby

you, Thank Julian.

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

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

in interest as derivative our use mitigate share was of June on of book future portion a to a as March value a borrowings. per Our of to of of $X.XX book the effects increases compared value repurchase instruments $X.XX XXXX. We XX, common variety of rates XX

of the of had a rate quarter, second swaps, held futures, TBAs At million. notional we and all interest which end $XXX amount approximately the of combined treasury

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

hedge a gain For a we our interest And not derivatives. the on rate as apply or of elected GAAP component interest result, fair in loss to change accounting for have purposes, net the we as rate record estimated derivatives. value

Our for were operating expenses the quarter. $X.X million

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

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

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

Operator

first with comes you. question Thank Our Securities. from Goberman Instructions] [Operator Mikhail JMP

Your line open. is

Mikhail Goberman

good everybody is Hey, guys. well. Hope doing afternoon

kind the rate how in of MSRs and are get a about should firmly continue to guys sell-off just environment? mind, you thinking continuation thinking agency rising of of the rates kind With recent about the sell-off we and of mix RMBS bonds

Julian Evans

are you? How Mikhail. Hi,

Mikhail Goberman

Good. Thank you.

Julian Evans

This is Julian.

Mikhail Goberman

Julian. Hi,

Julian Evans

been very volatile. it’s a interesting Look, week, very

MSR, longer updating the a and given truly think perspective, in. From sound on mortgages, as agency portfolio we a is are well a changing very term, of the I constantly strategy I or combination should say, believe we as that day.

found the we at bit moment what is that MSR what a is little standpoint. valuation current I the RMBs than short-term, yielding yields think a better the in from

liability as side. go up, we well the as portfolio. the continue we’d more holding And in continuing to we’re as RMBS, to risk effectively rates side, the asset move agency to minimize so the manage trying portfolio, the And for be around probably

Jay Lown

one thing some of mitigates is that And is with note decent portfolio week. our a TBAs, RMBS seen widening to Mikhail, this hedged portion of spread the which other that we’ve

not So, about benefit others that doing feel do. we what obviously, have widening a spread definitely spreads we more the when widening But protection great we’re same you tightened, in and environment get a when don’t may have done in an there’s be Fed some higher we where definitely widening for in of we think risky, and potential we rates, spread the further the and if widening. environment the are

Mikhail Goberman

Got it. you for Thank that.

through XX% thinking of the the the for buybacks versus going issuing at trade of How thinking both? more kind of are about stock you the about forward? there mix Just guys offs stock ATM about possibly

Jay Lown

that bit haven’t the we we book. think really, we we tangible in It’s think haven’t a definitely we to so relative respect about Board referencing decision gets that we are that stock I about definitely you’re preferred. well, the ATM about think think to capital the but thought make program. – So the to that his to ATM are raising thing support respect with we to about where little I a what the currently, Board, with with something have same through do internally And as we relative but not parameters similarly, we that consider tapping if level buybacks today, then how would the the would think some

Mikhail Goberman

Got it.

stock straight about you the thinking at on value do or a buybacks, So book tangible you’re basis? on look basis when a up

Jay Lown

tangible. candid, perfectly be To

Mikhail Goberman

quarter Okay. update this mind, one book Thank any you, third guys. And thus just may, with quarter? if on far – I – in update just in that any more, value

Jay Lown

Yes, sure.

hands-on the we’re So we into month. know report and been as Honestly, is to X MSR have this deck yet. what And that the just be it’s at point don’t and you days to I all you. to do able we for it don’t into that to I be will have and time did, but don’t just call done get on have just I wish we that the in able yet. race

Mikhail Goberman

guys. Thanks, forward. going luck of Best problem. No

Jay Lown

Thanks.

Operator

[Operator Matthew from with Instructions] Our question Howlett B.Riley. next comes

line Your open. is

Matthew Howlett

good Hi, Jay. Hello. Hi, Hi, afternoon. everybody.

Jay Lown

Matt. Hi,

Matthew Howlett

Thanks my question. for taking

do widening time is read needs book things and said spread is it’s spreads. it’s think their Fed just of and to you treasuries value, comments a look spreads you to signs a to you it the don’t the you hear corporates value where done the look is RMBS the Fed go hearing and signal, the huge I for where came supply, just of look to see I lot here – needs address And we like RMBS there you how of cheap to Fannie’s in the sort a down love that’s in value. everything how on not to short-term, going just they’re spreads in Just the you see stop you And and why going look to or book. of is to least heard it’s – off running a tighten here. kind cut need other year. at I at because And the in is back do correctly value RMBS and half of rates the at this you space? sort of lot I how are at want you – tighten at catalysts Do on the what in

Julian Evans

is Hi, at past, this versus look RMBS when swaps. in think Yes, looked Julian. Look, we’ve at we I so. agency Matt, them the

the of gone OAS treasuries, them you has curve want we’re nominal that looking versus kind at do of Now versus away a are. mortgages basis, run SOFR them see say swap or to question still I’d on look at treasuries. kind we where the to is,

I think to of out the figure effective tools in those are terms valuation. two trying

spreads. terms In of

are we’ve looked a the spreads a And timeframe, on all look, over at I I look them from standpoint. attractive if historical historical you think, from a X-year a think, basis. nominal at standpoint take very they

over average XXX. our had over I as high we’re think last right late, going the and it around by time. I it volatility from XXX other about couple continuing that Fed at bit, days, can widening now, mind, think at it’s has the timeframe, given a X-year from like seems and given I it’s XXX globally look time, And comes statements the to spread. you that if think In either of chops anywhere in all been of in our point probably as chop around we’ve banks central little own the that goes of this come it’s as or terms the

tightening we what of when think so see some you’re you type asking that’s I finally what continuous experienced will And is, far. have more for then

I in think rates. you need stability

think forward. to the I comfortable the buy do kind banks think volatility lower into able stabilize, not to that maintain of need back levels and if continue mortgages. need feel you coming to truly market I be you the to

think a be is, I levels indexers if the that we but continue it’s of doubt in kind hold over the at of to point for kind the mortgages. hard are move attractive to the I think had bought a and neutral people no a stay have going are on I to is sidelines, lot that in we’ve shorts long-term, that range, or why And you’ll mortgages, there There this particular wider in timeframe, the portfolio. to they short-term of of way find them their volatility XXX to of overweight the it from TBA to continuously. investors think think terms lot been continues tighten it’s I reason XXX

Matthew Howlett

a lot And did spreads here this Makes soften… – with week spreads sense. did a you as of say past widen

Julian Evans

Yes, looks wide. they have

Matthew Howlett

all we short it, look, excess question makes much across next to REITs to good. has, hard you’re take it is no and up this. of where figure TBA could I saying how holistically kind Okay, try the sense, and the where keeping position. each it’s leverage and mean, out My do they Well, what space. capital to

take RMBS turns you at and just you I mean, when some to take say X know asset over – add want how your think portfolio servicing, could where with how some say when where to, how MSRs, XX% sheet full what should at you decide you when you or but balance of I we I and mix could leverage XX finally to should there how talk about mean So in deployment look your let’s I about REITs you your excess XX% – much ask I the could to we leverage think RMBS? do mean, we times, mean, I some have look capital be X, you

Jay Lown

question. great a it’s No,

is don’t specific pointed I I more think think normal value. in in us down, to but ball been X there is think that think week that as end when than there stabilize I as the the opportunity time, you when that up an will leverage doesn’t today. we yet, turns Fed try news think etcetera, or do think a data, and currently we And is is I are geopolitical house. you it as points closer it as But whether have see in there it stable at like Julian’s to still get is start and widen well, that in have spreads spread the holding markets out, of to widening get that the this again slowly point, would to to feel market coming to take the I of closer X, to REITs volatility in other does starting economic whatever, is as do we have create that to reactions nibble think the we margin things leverage up cash given environment. the to take in dialed example that to of we to as year enough do is cycle I of I a side going be the we that perfect around still you end just why calls going the – weakening the that’s Julian

take I market you you how, think able I says really dependent. the economic It’s leverage the – we would and dependent the where it’s I but federal get over and a time, can’t that’s somewhat. exactly to stabilize. intention, up to absorb our to to upon the can really to and information tell is news like So, data point ability data tell

think XX next months? And in to so X I Absolutely. the that’s

Matthew Howlett

significant. power great waiting all it’s of Look, you know, me been a doing Yes. I think managing up we I earnings gives mean, I I company and and is I think that – that’s through was incredibly that – you clearly volatile dry turn hear you been it’s clear, there the something a are lot and to have just is time the mean, if say comfort a take job But I you for, have you power it. the right? – powder ability significant think have that to obviously in you earnings when are just the

Jay Lown

Yes, come that’s to going on all RMBS remember, the in too.

We are When the XX% that given front. have we are levered a we on speaking, run of with MSRs. comfortable leverage about we over etcetera, etcetera, are things think time on, level we where about the comfortable happened Broadly with pretty MSRs that LTV. on the and the some MSR for

So you from could it likely, would us. this most come think the if come level side of RMBS from about additional where

Matthew Howlett

the and to great look story of Thanks, Well, quarter it. the Jay. next we Got that forward growth company everybody. Thanks, with

Jay Lown

care, Sure. Take Matt.

Operator

closing this like further no to conference at Jay to for turn the now time, remarks. questions back Showing would I

Jay Lown

joining Have for a earnings quarter’s performance. quarter Thank you, call. on you, operator. our look everybody, second good updating evening. XXXX our you forward third on to soon We Thank us

Operator

Thank for you conference today’s call. concludes participating. This

now disconnect. You may

Cherry Hill Mortgage Investment (CHMI) 3 Aug 232023 Q2 Earnings call transcript