Cherry Hill Mortgage Investment (US:CHMI)2023-11-03 02:04Financial Data and Key Metrics Changes - For the third quarter, the company generated a GAAP net gain applicable to common stockholders of $0.49 per diluted share, with earnings available for distribution (EAD) of $4.4 million or $0.16 per share, exceeding the quarterly distribution [20][42] - Book value per common share finished at $4.99 as of September 30, down 3.9% from June 30, while on a NAV basis, it was down 1.9% relative to June 30 [21][22] - Financial leverage remained consistent at 4.4x, with $45 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile [25] Business Line Data and Key Metrics Changes - The MSR portfolio had a UPB of $20.3 billion and a market value of approximately $266 million, representing about 45% of equity capital and 31% of investable assets [32] - The RMBS net interest spread was 3.6%, a decrease from the prior quarter due to higher repo costs and larger net interest expenses, partially offset by higher asset yields [33] - Prepayment speeds for the MSR portfolio averaged approximately 5.6% for the third quarter, down from 6.2% in the previous quarter, with a recapture rate of approximately 1% [35] Market Data and Key Metrics Changes - The 10-year treasury yield rose to nearly 4.6%, with agency mortgage spreads widening considerably during the quarter [15][16] - The 10-year crossed the 5% threshold at one point in October, with further widening of mortgage spreads noted [18] Company Strategy and Development Direction - The company is focused on risk management to reduce exposure to mortgage spreads in the near term, selectively deploying capital into agency MBS that present strong risk-adjusted returns [26] - The strategy of pairing MSRs with agency RMBS is viewed as appropriate for the current environment [19] Management's Comments on Operating Environment and Future Outlook - Management noted that the economic environment remains volatile, with macroeconomic data and geopolitical events impacting market conditions [17][30] - The company expects to maintain a conservative approach until there are clear signs of market stabilization [31][39] Other Important Information - The company declared a dividend of $0.15 per common share for the third quarter, paid on October 31, 2023 [46] - The company has not elected to apply hedge accounting for interest rate derivatives, recording changes in estimated fair value as part of net gain or loss [44] Q&A Session Summary Question: Tradeoff between MSRs and agency MBS going forward - Management finds RMBS more attractive than MSR currently, hedging additional dollars with TBAs [49] Question: Update on book value one month into the quarter - Book value per share is down approximately 5% from quarter-end as of October 31 [57] Question: Drivers of EAD or core income going forward - EAD can be increased by taking off some hedges and increasing leverage, while shifting the portfolio to higher yielding assets [63] Question: Willingness to move up coupon - Management is cautious about moving to higher coupons due to concerns about prepayment speeds, preferring to stay around 3.5% to 4% [67] Question: Catalyst for basis to tighten - Management believes that the basis may tighten if there is stabilization by the Fed, but historical context suggests spreads may be wide relative to historical levels [73]