Cherry Hill Mortgage Investment Corp Q1 FY2024 earnings call

• Macro Environment: Markets initially expected multiple Fed rate cuts in 2024 but shifted due to elevated inflation; spreads fluctuated, but positioning in MSRs and higher coupon RMBS helped offset flattening yield curve.
• Financial Results: GAAP net income applicable to common stockholders was $0.32 per diluted share; EAD was $4 million or $0.13 per share. Book value per common share finished the quarter at $4.49, down modestly from December 31; NAV was down approximately 0.5% relative to December 31.
• Capital Structure: Repurchased approximately $9.3 million of Series B preferred shares; Board established a special committee to explore strategic alternatives to maximize stockholder value.
• Portfolio Management: Continue to selectively deploy capital into additional Agency RMBS; focus on risk management; work to reduce the portion of preferred equity in the capital structure.

For the first quarter, the MSR portfolio had a UPB of $19.6 billion and a market value of approximately $250 million. The MSR and related assets represented approximately 44% of equity capital and approximately 28% of investable assets, excluding cash at quarter end. The RMBS portfolio, inclusive of TBA, stood at approximately $654 million, relatively flat compared to the previous quarter end. The RMBS portfolio's weighted average 3-month CPR edged slightly higher to approximately 5.2% compared to approximately 4.9% in the fourth quarter. The RMBS net interest spread was 3.42% for the quarter.

• Expect the Fed to maintain current posture longer than markets expect due to persistent inflationary data and strong employment numbers; expect the yield curve to eventually twist with shorter maturity rates moving lower.
• Will selectively deploy capital into Agency RMBS, which presents a strong risk-adjusted return profile; continue to reduce the portion of preferred equity in the capital structure.

• Volatile market dynamics impacting the sector.
• Uncertainty around the Fed's monetary policy and its impact on market sentiment.
• Persistent inflationary data affecting the Fed's rate cut plans.

Q: Thoughts on how you're seeing the servicing market as we head deeper into the spring selling season from a bulk and flow perspective and if UPB will continue to drift downward?

A: Jay mentions deploying amortization of excess capital into MBS due to better risk-return profile vs MSRs; Ray adds volumes remain pretty strong but it's a relative value play between MBS and MSRs.

Q: Is there any appetite for maybe driving leverage a little bit higher to protect EAD and dividend coverage?

A: Jay states they don't have current plans to dramatically take leverage up but may consider it as Fed outlook becomes clearer.

Q: Given the mini bond rally, any update on book value thus far this quarter?

A: Mike estimates book value per share was down about 3% from 3/31 as of Friday, before second quarter dividend approval.

Q: You expect near-term volatility followed by yield curve twist and steepening; can you elaborate on the CHMI playbook?

A: Julian talks about being positioned for a steeper yield curve, long on front end and short on back end of treasury curve via derivatives or coupon stack; would consider increasing leverage with more certainty on Fed outlook.

Q: Why did the company appoint a special committee to explore strategic alternatives?

A: Jay mentions the Board is evaluating avenues to maximize stockholder value, including possible internalization, and will share when evaluation is complete or appropriate.

Q: Update on Series B preferred share repurchase; is it below par?

A: Jeffrey confirms they have repurchased approximately $9.3 million of Series B preferred shares and it's below par.