Cherry Hill Mortgage Investment (CHMI) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2020, the company reported core income of $0.48 per share, significantly above the distribution level, with a current dividend yield of approximately 11% [8] - The GAAP net loss applicable to common stockholders was $3.2 million, or $0.19 per share, while the comprehensive loss was $5.3 million, or $0.31 per share [19] - Book value per common share decreased to $11.74 as of September 30, down from a revised $12.32 as of June 30, primarily due to a recalculation of the deferred tax asset [19][11] Business Line Data and Key Metrics Changes - The servicing-related investments comprised full MSRs with a UPB of $22 billion and a market value of approximately $163 million, representing about 29% of equity capital [15] - The RMBS portfolio accounted for approximately 45% of equity, with RMBS representing about 90% of investable assets excluding cash [15] - The average conventional MSR CPR was approximately 41% for Q3, while the RMBS portfolio posted a weighted average three-month CPR of approximately 14% [15] Market Data and Key Metrics Changes - Active forbearance rates improved to just shy of 6% by the end of October, with about 20% of borrowers having made all payments due [10] - The company maintained lower leverage on its aggregate portfolio, ending the quarter at 4.6 times leverage [8] Company Strategy and Development Direction - The company continues to prioritize liquidity and focus on core RMBS and MSR portfolio strategies, aiming to navigate the current environment and capitalize on selected investment opportunities [8][12] - The strategy of investing in MBS combined with MSRs remains intact, with a focus on acquiring new MSR assets at attractive levels [9] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the economic recovery and the potential impact of a COVID vaccine on interest rates [7][12] - The company plans to maintain a strong cash position to meet servicing advances and navigate higher prepay speeds in the investment portfolio [8][36] Other Important Information - The company declared a dividend of $0.27 per common share for Q3 2020, paid on October 27, 2020 [21] - The company identified an error in the calculation of its deferred tax asset, which required adjustments but did not impact core earnings or dividend sustainability [11][19] Q&A Session Summary Question: Impact of market changes on payment speeds and MSR values - Management believes a credible vaccine could significantly impact rates, and the election results may also trigger a higher rate environment [24] Question: Details on the deferred tax asset write-down - The write-down was approximately one-third performance-related and two-thirds related to the deferred tax asset [30] Question: Acquisition details of MSRs - The company acquired $1.1 billion of MSRs during Q3, with a focus on making smart sourcing decisions [34][35] Question: Future size of the MSR portfolio - The goal is to stem the amount of new acquisitions while being open to compelling opportunities [41] Question: Coupon preferences for new agency investments - The company has been buying 2% and 2.5% coupons, with expected returns in the low to mid-teens [43]