Cherry Hill Mortgage Investment (CHMI) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a GAAP net loss applicable to common stockholders of $6.2 million, or $0.36 per weighted average share for Q3 2021, while comprehensive loss attributable to common stockholders was $4.6 million or $0.27 per share [29] - Earnings available for distribution (EAD) were $4.2 million or $0.25 per share after accounting for a one-time regulatory settlement payment of approximately $0.03 per share [29][11] - Book value per common share decreased to $9.07 as of September 30 from $9.63 as of June 30, representing a decline of approximately 5.5% [30][44] Business Line Data and Key Metrics Changes - The MSR portfolio had an unpaid principal balance (UPB) of approximately $21 billion and a market value of approximately $211 million at quarter-end [21] - The company purchased $720 million UPB of new MSRs during the quarter, with the MSR portfolio representing approximately 43% of equity capital and 13% of investable assets excluding cash [22] - The average net CPR for the MSR portfolio was approximately 22% for Q3, down from 27% in the previous quarter, indicating slower prepayment speeds [23] Market Data and Key Metrics Changes - The 10-year Treasury yield experienced significant volatility, dropping to a low of 1.17% in August before ending the quarter slightly higher than June 30 levels [7][20] - The RMBS portfolio accounted for approximately 39% of equity, with a weighted average three-month CPR improving slightly to approximately 17% compared to 18% in the previous quarter [22][24] - The company noted that mortgage volumes are expected to taper off as interest rates rise, which could lead to improved prepayment speeds in the future [27] Company Strategy and Development Direction - The company is positioning its portfolio for a rising rate environment while maintaining a strong balance sheet, expecting persistent inflationary pressures to support this strategy [6][8] - The management emphasized a disciplined approach to investing in MSRs amid a competitive market, believing their ability to manage these assets effectively exceeds that of speculative entrants [12] - The company aims to improve net asset value (NAV) and book value over time, with a focus on retaining borrowers as a key investment strategy [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the near-term sustainability of dividends despite the challenges posed by inflation and supply chain issues [11] - The company remains constructive on the U.S. economy and anticipates further investments in MSRs, expecting favorable conditions from potential Fed policy changes [17] - Management acknowledged the impact of inflation on consumer behavior and the overall economy, indicating a cautious but optimistic outlook for future interest rate movements [19] Other Important Information - Operating expenses for the quarter were reported at $3.7 million [32] - The company declared a dividend of $0.27 per common share for Q3 2021, which was paid in cash on October 26 [32] Q&A Session Summary Question: Clarification on the new metric for dividend basis - Management confirmed that EAD is a name change from core earnings and follows the same formula as before [34] Question: Inquiry about regulatory charges and state aggressiveness - Management indicated that while some states are more aggressive, they are actively managing relationships and compliance to mitigate risks [35] Question: Impact of delinquencies and foreclosures on portfolio performance - Management expressed confidence that the forbearance issue is manageable and that most cases will resolve through normal means [39] Question: Sequential drop in book value and future DTA - Management explained that the drop in book value was influenced by the yield curve shape and the fair value adjustments of MSRs [45]