Cherry Hill Mortgage Investment (US:CHMI)2022-05-10 00:21Financial Data and Key Metrics Changes - For Q1 2022, the company reported GAAP net income applicable to common stockholders of $25.6 million, or $1.40 per share, and earnings available for distribution (EAD) of $6.2 million, or $0.34 per share, exceeding the quarterly dividend level of $0.27 per share [9][32] - The book value per common share decreased to $7.27 as of March 31, down from $8.56 at the end of the previous quarter [33] - The annualized dividend yield was reported at 16% based on the recent average closing price of the common stock [10] Business Line Data and Key Metrics Changes - The MSR portfolio had a UPB of $20.4 billion and a market value of approximately $246 million at the end of the quarter [21] - The MSR portfolio represented approximately 45% of equity capital and 21% of investable assets, while the RMBS portfolio accounted for approximately 40% of equity and 79% of investable assets [22] - The net CPR for the MSR portfolio averaged approximately 15% for Q1, down from approximately 19% in the previous quarter, driven by rising interest rates [23] Market Data and Key Metrics Changes - The US 10-year treasury finished the quarter at 2.34%, an increase of 83 basis points from year-end [7] - The RMBS portfolio's weighted average three-month CPR reduced to approximately 11% in Q1, compared to approximately 12% in the fourth quarter [25] - The RMBS portfolio, inclusive of TBA, stood at approximately $940 million at the end of Q1, down from $1.4 billion at the previous quarter end [26] Company Strategy and Development Direction - The company is actively adjusting its investment portfolio in response to the Fed's anticipated rate hikes and balance sheet reduction [8] - The strategy of pairing RMBS with agency MSRs is believed to provide attractive risk-adjusted returns and mitigate the impact of current coupon spread widening [15] - The company aims to stabilize and grow its NAV and book value while remaining disciplined in investing in MSRs due to rising rates and competition [14] Management's Comments on Operating Environment and Future Outlook - Management noted that the first quarter was eventful due to significant market changes, including inflation and geopolitical tensions [6] - The Fed's tightening measures are expected to stabilize the mortgage basis later in the year, with plans to raise leverage back to historical levels when opportunities arise [17] - Management expressed confidence in the ability to maintain dividend levels if the Fed's tightening cycle remains stable [65] Other Important Information - The company ended the quarter with $52 million of unrestricted cash, maintaining a solid liquidity profile [16] - Operating expenses for the quarter were reported at $3.5 million [36] Q&A Session Summary Question: What contributed to the slight increase in book value in April? - Management attributed the performance to coupon positioning, effective hedging strategies, and an increase in the value of MSRs [38][40] Question: How much spread widening is still possible in MBS? - Management indicated that if the Fed continues to raise rates, there could be an additional 15 to 20 basis points of widening in mortgages [43] Question: What is the current status of the DTA level? - The DTA level decreased to approximately $16 million at the end of Q1 [45] Question: How aggressive is the company willing to be in acquiring MSRs? - Management expressed interest in acquiring servicing assets but does not plan to significantly increase the MSR portfolio at this time [53] Question: What is the outlook for net CPR on MSRs? - Management suggested that gross CPR could be in the mid-singles, with recapture rates expected to decline [60] Question: How does the company view the current mortgage industry? - Management noted that origination volumes are down, and companies are focused on cutting costs and margins [70]