Cherry Hill Mortgage Investment (US:CHMI)2023-03-08 00:02Financial Data and Key Metrics Changes - For the fourth quarter, the company reported a GAAP net loss applicable to common stockholders of $34.5 million or $1.59 per diluted share, while earnings available for distribution (EAD) were $5.3 million or $0.24 per share [4][9] - The book value per common share as of December 31, 2022, was $6.06, a slight increase from $6.05 as of September 30, 2022 [9][56] - Financial leverage improved modestly to 3.8 times, reflecting a disciplined approach to capital deployment [5][8] Business Line Data and Key Metrics Changes - The RMBS portfolio, including TBAs, decreased to approximately $646 million from $759 million in the previous quarter, with a focus on higher coupon mortgages [25][44] - The RMBS net interest spread increased to 3.77% from 3.49% in the third quarter, driven by wider mortgage spreads and higher yield levels [80] - The portfolio's recapture rate was lower at approximately 2% compared to approximately 7% in the third quarter, influenced by rising mortgage rates [7][95] Market Data and Key Metrics Changes - The investment markets experienced heightened volatility and a weakening equity market, influenced by the Fed's actions to reduce inflation [3][6] - The market is currently expecting a terminal Fed's fund rate level between 5.25% and 5.75%, which has implications for future investment strategies [24][21] Company Strategy and Development Direction - The company aims to maintain a conservative and proactive approach to portfolio management, focusing on protecting book value and being opportunistic in capital deployment [57][76] - A thoughtful hedging strategy is employed to mitigate risks associated with interest rate increases, with a focus on maintaining liquidity and leverage profiles [61][76] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's performance despite economic challenges, noting that prepayment speeds remain low due to high mortgage rates [59][93] - The company anticipates continued market volatility until there is clarity on the Fed's terminal rate, which will influence future investment decisions [60][57] Other Important Information - The company declared a dividend of $0.27 per common share for the fourth quarter, reflecting ongoing evaluations of earnings power and market conditions [82][84] - The MSR portfolio had a UPB of $21.7 billion and a market value of approximately $280 million, representing a significant portion of the company's equity capital [79] Q&A Session Summary Question: Could you expand on the viability of the dividend and sustainable core earnings? - Management indicated that the Board continuously evaluates the strength of the dividend relative to earnings power and market requirements [84] Question: How do you characterize the risk profile of the company today? - Management noted that leverage is low compared to historical levels and emphasized the importance of clarity from the Fed regarding interest rates for future leverage decisions [32][14] Question: How do you view the trade-off between agency RMBS and MSRs in the current interest rate environment? - Management acknowledged the potential for reallocating more towards agency RMBS if interest rates rise significantly, while also considering the performance of servicing assets [64][68]