Cherry Hill Mortgage Investment (CHMI) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a GAAP net loss applicable to common stockholders of $1.9 million or $0.06 per diluted share for Q2 2024, while comprehensive loss attributable to common stockholders was $5.5 million or $0.18 per diluted share [16] - Earnings available for distribution (EAD) were $2.3 million or $0.08 per share, impacted by $1.7 million in expenses related to the Special Committee's efforts [6][16] - Book value per common share decreased to $4.15 from $4.49 as of March 31, 2024 [7][16] - Net asset value (NAV) declined by approximately $12.4 million or 5% relative to March 31, 2024 [8] Business Line Data and Key Metrics Changes - The mortgage servicing rights (MSR) portfolio had a UPB of $18 billion and a market value of approximately $234 million at quarter-end [11] - The company strategically sold over $1 billion of UPB and low loan balance MSRs to improve portfolio efficiency and reduce servicing costs [7][12] - The RMBS portfolio accounted for approximately 40% of equity capital, with a weighted average 3-month CPR of approximately 4.6% [12][14] Market Data and Key Metrics Changes - The Federal Reserve maintained a hawkish stance initially, but shifted to a dovish tone as economic data softened, leading to expectations of rate cuts starting in September [4][11] - The company noted that prepayment speeds for both MSR and RMBS portfolios remained steady, with the MSR portfolio's net CPR averaging approximately 5.5% for the quarter [12][13] Company Strategy and Development Direction - The company plans to internalize management to reduce expenses, enhance earnings, and better align management with the investment community [5][6] - The strategy involves pairing MSR with Agency RMBS to take advantage of the steepening yield curve [5] - The company is focused on opportunistically repurchasing Class B preferred shares to stabilize its equity profile [8] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the economy's resilience but acknowledged the potential for cooling economic conditions [5] - The company is closely monitoring economic indicators and the Fed's actions, anticipating a normalization of the macro environment [11] - Management expects prepayments to rise as interest rates decline, with a potential increase in refinancing activities [14] Other Important Information - The company ended the quarter with $52 million of unrestricted cash, maintaining a solid liquidity profile [8] - Financial leverage at the end of the quarter rose to 4.9x, reflecting prudent leverage given market volatility [8][15] Q&A Session Summary Question: Will the $0.06 expenses related to the Special Committee continue? - Management indicated that some expenses related to the committee's efforts are anticipated in the current quarter [19] Question: How will the interplay between Agency MBS and MSRs change in a lower rate environment? - Management sees RMBS as a favorable investment currently, with expected cash flows likely directed towards RMBS [20] Question: What is the current status of book value? - Management noted that book value remained flat at the end of July, prior to any third-quarter dividend accrual [24] Question: Can you elaborate on the internalization process? - Management stated that the internalization aims to improve operational efficiency and flexibility in responding to market changes [28] Question: What are the expectations for Fed rate cuts? - Management anticipates the Fed may implement around 6 rate cuts by the end of 2025, depending on economic conditions [34]