Cherry Hill Mortgage Investment Corp Q3 FY2024 earnings call

• The Fed began the rate cut cycle in September, with the U.S. 10-year ending the quarter at 3.78% down 62 basis points QoQ. Geopolitical unrest persisted but market looked past it. - Portfolio remained consistent with mortgage market improving, spreads compressing, curve steepening. RMBS performance mixed, MSR portfolio (low note rate loans) performed well with prepayment speeds in mid-single digits. - GAAP net loss applicable to common stockholders was $0.49 per diluted share, EAD was $2.5 million or $0.08 per share. Book value per common share finished at $4.02 vs $4.15 on June 30. - Continues to hedge basis risk with TBA, expects to lag peer group when basis tightens and outperform in wider spreads. Financial leverage rose to 5.3 times at quarter-end, ended with $50 million unrestricted cash. - MSR portfolio had UPB of $17.6 billion, market value ~$227 million. RMBS portfolio UPB ~$866 million, prepayment speeds relatively stable, net interest spread 3.22% for Q3.

The MSR portfolio had a UPB of $17.6 billion and a market value of approximately $227 million. The MSR and related net assets represented approximately 42% of equity capital and approximately 21% of investable assets, excluding cash, at the end of the quarter. The RMBS portfolio accounted for approximately 42% of equity capital and approximately 79% of investable assets, excluding cash, at quarter-end. The RMBS portfolio had a UPB of approximately $866 million as of September 30, up from $674 million in the prior quarter-end. The RMBS portfolio net interest spread was 3.22% for the third quarter, effectively unchanged from the prior quarter.

• Continue to monitor the Fed closely as well as political developments globally. - Expect to gain additional confidence that macro environment volatility will moderate as 2025 approaches. - Position portfolio for further rate cuts, continuing to deploy capital into agency RMBS which presents strong risk-adjusted return profile. - Expect potential of at least one more cut in 2024, will continue to monitor Fed and rate environment actively.

• Basis risk hedging: continues to hedge a portion of basis risk with TBA, but basis risk remains a factor. - Market volatility: geopolitical unrest and changing rate environments pose volatility risks. - Political impact: impact of second Trump presidency on economy and inflation is a risk. - Economic data: strong economic data persisting can impact rate cut bets and market expectations.

Q: How to think about the trade-off between agency MBS and MSR?

A: Look at total returns. MBS still presents better return profile than MSRs on a levered basis currently. But don't mean we don't like MSR asset.

Q: Is there room to move leverage higher?

A: Start of Q4 is reason not to fully extend leverage as rates sold off and margin calls came on RMBS portfolio. Mindful of cash and past events, not looking to fully maximize leverage on MBS.

Q: Book value performance thus far in Q4?

A: Estimating book value per share down about 4% to 5% from quarter-end before Q4 dividend accrual.

Q: Thoughts on EAD going forward?

A: As short dated rates fall, MSR portfolio should benefit from cost to finance, expect pickup in EAD over time.

Q: REPO rates and rolling since last cut?

A: Post Fed rate cut, REPO rates were somewhere between 5% to 5.05% at end of prior quarter.

Q: Thoughts on yield spikes due to debt issuance and Fed cuts?

A: Policies are stimulative but unknown extent. Expect Fed to ease in December, next year up to data. December dot plot may show different easing than expected.

Q: Impact of curve steepening?

A: Set up for twist, continue to believe long dated rates could be at current level or slightly higher, short dated rates should fall.

Q: Timing on internalization?

A: Not prepared to answer related to internalization on the call tonight