Q1 2025 Cherry Hill Mortgage Investment Corp Earnings Call
Thank you for watching!
Speaker Change: Matthew Howlett, Julian Evans, Michael Hutchby
Speaker Change: Good day, and welcome to the Cherry Hill Mortgage Investment Corp. 1st quarter of 2025 earnings call.
At this time, all participants are in listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question in the intercession and instructions will be given at that time As a reminder, this call may be recorded I would like to turn the call over to Garrett Edson with ICR Please go ahead
Thank you. Thank you. Thank you.
Garrett Edson: We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporations for this quarter 2025 conference call. In addition to this call, we have issued a press release that was distributed earlier this afternoon.
Garrett Edson: and Postive Express Released in a first quarter 2025 Investor Presentation to the Investor Relations Section of our website at www.chmireet.com
Garrett Edson: Today's call mentions prepared remarks and answers to your questions may contain bold looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Examples of bold looking statements include those related to interest income financial guidance IRRs.
Garrett Edson: Future Spectacash flows, as well as prepayment and recapture rates, joint-quencies, and non-GAAP financial measures, such as earnings available for distribution or EAD, and comprehensive income, for looking statements for represent management's current estimates, and Cherry Hill assumes no obligation to update any for looking statements in the future.
Garrett Edson: We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC and definitions contained in the financial presentations available on the company's website.
Garrett Edson: Today's conference call is hosted by Jay Lown, President and CEO , Julian Evans, the Chief Investment Officer, and Michael Hutchby, the Chief Financial Officer. Now I will turn the call over to Jay.
and many more. Thank you. Thank you.
Jay Lown: Thanks, Garrett, and welcome to our first quarter, 2025 Courting School.
The first quarter of 2025 was anything that come.
The reaction from markets domestically
Jay Lown: has been very aggressive during the first hundred days of the new administration.
Jay Lown: Amidst a backdrop of increased uncertainty, disruption, and meaningful policy changes coming out of DC.
Raids push lower in March
Partly driven by rhetoric from Washington
Jay Lown: and a 10 year end of the quarter at 4.25% [inaudible]
Approximately 30 basis points slower, quarter over quarter
Jay Lown: That, however, was quickly overshadowed by the run-up to the Liberation Day Carrick Announcements on April 2nd.
Jay Lown: Suddenly, rates spiked on fears of a broader economic recession and stagnation.
Jay Lown: while the administration put a pause on the majority of the reciprocal tariffs from 90 days to reach new agreements.
Jay Lown: Investors are in wait-and-see mode to determine whether the administration can negotiate trade deals.
or if we will return to potentially unprecedented volatility.
Jay Lown: Going forward, we expect rates will continue to be highly reactive to both global political genders and domestic economic data.
Jay Lown: This uncertainty has pushed us to position the portfolio more neutral to rates to withstand the daily volatility.
for the first quarter.
Jay Lown: We generated gap, net loss, applicable to common stockholders of 29 cents per diluted share.
Jay Lown: Book value per common share finished the quarter at $3.58 compared to $3.82 on December 31st.
Jay Lown: on an NAV basis, which includes preferred stock and prior to any ATM capital raised in the quarter. NAV was down approximately $7.5 million or 3.2% relative to December 31st.
Jay Lown: Financial leverage at the end of the quarter remain consistent at 5.2 times as we continue to stay crudently levered.
Jay Lown: We ended the quarter with 47 million of unrestricted cash on the balance sheet.
maintaining a solid liquidity profile
Jay Lown: We were pleased to complete our first full quarter as an integrated, internally-managed mortgage
in line with our prior quarter comments.
Jay Lown: Operating expenses decline, court over quarter due to the elimination of the management fee.
Jay Lown: As we proceeded through 2025, we will continue to closely manage our operating expenses as we look to responsibly grow Cherry Hill which will ultimately improve both our expense ratio and our capital structure over time We will continue to look to responsibly grow Cherry Hill which will improve both our expense ratio and our capital structure
Looking ahead, we are watching the macro-environment [inaudible]
and the tariff situation very closely
Jay Lown: and are stressing our portfolio for numerous scenarios and light of the forthcoming tariff deadline.
Jay Lown: In the near term, we plan to deploy capital as appropriate into agency RBS and select MSRs which still presents strong, risk-adjusted return profiles.
while maintaining strong liquidity and prudent leverage
Jay Lown: With that, I'll turn the call over to Julian, who will cover more details regarding our investment portfolio and its performance over the first quarter.
Thank you, Jay.
Jay Lown: Mortgage has started the quarter well, tightening for the first two months only to end the quarter of Marching Wire, as pending tariffs increase volatility into the administration's announcement on Liberation Day.
Jay Lown: Overall, rate tended to quarter lower and mortgage performance was mixed. Despite the rally
Higher Coupon Mortgage Outperformed Lower Coupon Mortgage [inaudible]
Jay Lown: While our coupon positioning for the quarter was good, our portfolio needed to be longer
Jay Lown: and the lower coupon portion of our portfolio simply did not keep pace with our hedges in the interest rate rally.
Jay Lown: As we look ahead, like everyone else, we are watching the macro environment very closely, as we weight tariff deals to be hopefully announced in the weeks and months ahead.
In the near term, volatility will likely continue.
Jay Lown: and we will expect rates to remain elevated until there is some clear certainty with respect to go forward macro policy.
Jay Lown: At quarter end, our MSR portfolio had a UPB of 17 billion and a market value of approximately 227 million.
Jay Lown: The MSR-related net assets represented approximately 44% of our equity capital and approximately 24% of our investible assets, excluding cash at quarter-end.
Jay Lown: Meanwhile, RMBS portfolio counted for approximately 39% of our equity capital. As a percentage of uninvestable assets, the RMBS portfolio represented 76% excluding cash at quarter-end.
Jay Lown: Prepayment speeds for our MSR and R&B S4 folos remain relatively steady compared to the prior quarter despite rates rallying in the first quarter.
Jay Lown: Our MSR portfolio is net CPR averaged approximately 4.1% for the first quarter, down modestly from the previous quarter. The portfolio's recapture rate was diminished as the incentive to refinance continues to be minimal for this portfolio given the portfolio's long rate.
Going forward with rates remaining elevated amid the macro uncertainty,
Jay Lown: We continue to expect a lower capture rate and a relatively low net CPR in the near term given our portfolio's characteristics.
Jay Lown: Meanwhile, the R&BX portfolios' procurement speeds remain low, with mortgage rates fluctuating between 6.5% and 7% the past few months.
Jay Lown: If Mortgage rate stabilized within this range, we would expect containment speeds to remain moderate in the second quarter.
Jay Lown: For the first quarter, the RMBS portfolio is weighted average 3 month CPR, was approximately 5.8% compared to 5.7 in the fourth quarter.
Jay Lown: As of March 31st, the RNBS portfolio includes a TVA suited approximately $733 million.
compared to $723 million at the previous quarter end.
Jay Lown: as we modestly shifted our arms as positioning during the quarter and the portfolio remained higher coupon mortgage focused.
Jay Lown: For the first quarter, our R&B net interest spread was 3.55%, higher than the prior quarter.
Jeffrey by improved dollar roll income and repo expenses.
which were partially offset by reduced income from swaps
Jay Lown: Overall, our head strategy remains largely intact and we will continue to use a combination of swapped TBA securities and treasury futures to hedge the portfolio.
Jay Lown: Treasury futures have become a larger portion of hedges, especially given the recent tightening of swamp spreads.
Jay Lown: As the year progresses, we would expect the RNBS portfolio's name to normalize towards historical levels in the next quarter, as dollaral income is less special and swap income is reduced to swaps mature.
Jay Lown: Moving forward, we will continue to proactively manage our portfolio while continuing to shift our overall capital structure that value for shareholders through improved performance
Jay Lown: and will now turn the call over to Mike for our first quarter financial discussion.
Thank you Julian [inaudible]
Jay Lown: Gavnet loss applicable to common stockholders for the first quarter was $9.3 million or $29 cents per weighted average delivered share outstanding during the quarter. While comprehensive loss attributable to common stockholders, which includes the market market of our available for sale R&B S.
was $2.6 million or 8 cents per weighted average diluted share.
Jay Lown: EAD in the quarter benefited from outsized dollar roll income and income received from one of our larger hedges before it matured at the end of the quarter to that end because that larger hedge has matured and will no longer receive income from it we would expect EAD to be lower moving forward
However
Jay Lown: As we have stated consistently, EAD is not the sole barometer for setting our common dividend, and that our board also considers factors such as the prevailing market environment, portfolio over term potential.
Jay Lown: Power level of taxable income, including potential hedge gain impacts, and the degree of certainty regarding forward investment return economics.
Jay Lown: Our book value per common share as of March 31st was $3.58, compared to a book value of $3.82 at the end of December
Jay Lown: We use a variety of derivative instruments to mitigate the effects of increases and interest rates on a portion of our future repurchase borrowings.
Jay Lown: At the end of the first quarter, we held interest rates swaps, TBAs, and Treasury futures, all of which had a combined notional amount of approximately $489 million. You can see more details with respect to our hedging strategy in our 10Q, as well as in our first quarter presentation.
Jay Lown: For Gap purposes, we have not elected to apply hedge accounting for our interest rate derivatives, and as a result we record the change in estimate of fair value as the component of the net gain or loss on those interest rate derivatives. [inaudible]
Our operating expenses were $3.8 million for the quarter.
Jay Lown: On March 13, 2025, our Board of Directors declared a dividend of 15 cents per common share for the first quarter of the year, which was paid in cash on April 30th.
Jay Lown: We also declared a dividend of 51.25 cents per share on our 8.2% Series A, cumulative redeemable preferred stock.
Jay Lown: and a dividend of $63.72 on our 8.25% Series B fixed a floating rate cumulative redeemable preferred stock, both of which were paid on April 15, 2025.
Speaker Change: At this time, we will open up the call for questions. Operator
Speaker Change: Thank you. If you'd like to ask a question, please press star 1-1
Speaker Change: If your question has an answer, then you'd like to remove yourself from the queue, please press star one one again.
Randy Benner: Our first question comes from Randy Binner with B. Rowley Securities. Your line is open.
Randy Benner: Hey, thanks. Good evening. Yeah, I thought, you know, it was like the hopeful commentary there, I think
Randy Benner: I think the question I have is and I know this is covered in team in the opening commentary, but is
Randy Benner: I guess what would it take for you to allocate Mortgage to the R&B-S portfolio? I think we've seen a little bit more growth from...
Randy Benner: Some others so far this quarter, not that that's right or wrong but there is this period of uncertainty but it you know the core
Randy Benner: You have the core EADs lower. As you said, you got to go for a basis if that portfolio doesn't grow. And so maybe just a little more color on the count what it takes to turn to a point where you're able to acquire more and grow the portfolio.
and Micah.
Micah: Are you Randy? How are you? Did you say MSR or MBS?
Randy Benner: I mean, I guess my question was more on MBS, but hearing about though it would be helpful.
Yes, hope.
Randy Benner: All of the re-investment memorization income that we get in has been re-invested in MBS.
I can tell you we haven't [inaudible]
Randy Benner: Purchased an MSR in quite some time. So while it may not look like the portfolio composition has changed a lot. The only true way to change that material is for us to sell a portion of the MSR in favor of MBS.
Randy Benner: You know, definitively, I can say, for the past several quarters, plus we have primarily, if not exclusively, been reinvesting income or reinvesting amortization into MBS.
Randy Benner: Okay, that's helpful. And then just on GSE reform, if I can get this one in
There's this is just something we've been gathering information on from
Randy Benner: and cats throughout the industry. And so, a pretty clear movement at FHFA as far as, you know, do you risking staffing, et cetera? You know, do you, do you see it?
Speaker Change: You know, movement there, being priced into the market, do you have a view of what you're looking for and how that might affect?
Speaker Change: You know how you allocate capital on the portfolio and how you run the business or is it too early to tell?
Julian Evans: Hey, Randy, this is Julian. I think it's a little too early to tell. Obviously, as you've noticed, there has been some definitive movements going around the GFCs.
I think they've been primarily focused on-
Julian Evans: You know expense deduction and everything reduction and things like that as we move forward. I think the the biggest thing we'd like to see is obviously is you want a complete
Julian Evans: Revolutions of what they really want to do with the GSEs whenever they enter a package on out. You don't want it to just be notes on a particular piece of paper. You'd like something in terms of a complete well thought out idea in terms of what they want to do to the GSEs given the impact that they'll have on housing.
Julian Evans: In terms of it really kind of being priced into the market
Speaker Change: I'd have to say no, I don't really think it's priced into the market because at some point we have to find out if they move towards privatization, what they're going to do with the government guarantee on the security. [inaudible]
Speaker Change: and how they're going to treat that. And I don't that currently I think the market is making an assumption that that government guarantee is safe and sound at the moment. But we haven't seen any specific and detailed plans on that at all.
Speaker Change: So I think we're kind of would be cautious on it. My estimation is that they will put out something complete in terms of GSC reform but in terms of the government guarantee that hasn't been well defined yet.
All right, appreciate the comment. Thanks.
Speaker Change: Thank you. Our next question comes from Jason Stewart with Janie Montgomery Scott. Your line is open.
Jason Stewart: Thank you. Good evening. Thanks. If I missed it, I apologize, but could you give us a book I update quarter to date in 2Q?
Mike: Oh, man, you're stealing thunder and JMP. Oh, sorry. Oh, my bad. Yes, that's just wrong. Michael. Or Mikhail. Hey, Jason, it's Mike.
Speaker Change: So at the end of April , we see our NAV down about 3.7 percent which then when you layer on the preferred multiple you get to about a 7 percent book five per share.
Mike: and that's before any dividends for the quarter as the board is not yet met to approve one.
Okay.
Speaker Change: I usually I'm laughing at you, so I have to clean up the question, so Mikhail, I apologize. Thank you. Thank you.
Speaker Change: And then in terms of the swap portfolio, could you remind us how much rolled off in one queue? And then it's less than one year bucket, it's pretty small, 15 million that's left. Does that roll? What does that roll off?
Speaker Change: So yeah, in the first quarter, and you can go back and you can see, you know, that same page 11 in the first in the prior quarter deck. So you can see that we had about 250 million of pair swaps that were rolling off in the quarter, it was about 0.2 years.
Speaker Change: and so if you see that same page 11 in this quarter's deck you'll see that we've got about 15 million left in that one-year bucket and it's about 0.9 years left on that.
There were a couple of receiver swaps that also...
Speaker Change: paid off or ended in the quarter, but Julian has also been actively managing the swaps throughout the quarter as well.
Speaker Change: Okay, so that's just a $1.50 million dollar notional that'll mature sometime in 2026, first to have a 2026. There's nothing else rolling off this year.
Speaker Change: No, that's right. That's right. If you look at that first row on page 11, the very top, everything in that first row is within 12 months of the report date. So this page is all essentially relative to March 31st, 2025.
Speaker Change: Got it. And then one question on mortgages, you know, there's been more talk and it applies to spec pools, I guess, about how builder buy-downs are impacting the convexity of mortgages. Are you seeing that? Are you seeing opportunities, you know, in spec pools within the builder?
Speaker Change: bydown space or with regard to Rocket Coop. You know, how is this? Some people are looking at the same Rocket Coop. There's now price too fast and some models. Is this creating opportunities and loan pools for you? Or is this? How are you looking at this?
Julian Evans: Hi, Jason. It's Julian. In terms of the builder by-downs, look, we've seen builder by-downs in the portfolios before. I guess it's become more of a noted type of trade is people are like looking for some story to pick a particularly type of trade.
Julian Evans: We've noticed it when we run our Miss models and things like that. It hasn't been anything that we have tried to focus in on the portfolio. I think we've tried to, you know, keep the pay-ups in the portfolio modest at this point. In addition to that, I think, you know,
Julian Evans: If we are getting into some type of refinance wave tried and true has always been some type of loan balance story
Julian Evans: You know, typically those get bit up as rates go down and prepayment speeds get get faster. What doesn't have, you know, really translate it often are some of these one off stories and, you know, that really haven't been around for a while.
Julian Evans: You know, I think the big things seems to fade on those [inaudible]
Julian Evans: Okay. So the spike pool is keeping it pretty straightforward. Okay.
Got it. That's it for me. Thank you
Speaker Change: Thank you. As a reminder to ask a question, please press star 11.
Speaker Change: Our next question comes from Mikhail Goberman with Citizens' JMP. Your line is open.
Speaker Change: Hey guys, hope everybody's doing well. I guess I lost a question there.
Speaker Change: No worries. No worries. Appreciate the apology Jason, totally unnecessary. We can have a battle who gets that question first going forward.
Speaker Change: Congrats on your own liberation day guys and the first full quarter of that and I guess if I have anything to ask
Speaker Change: Obviously, we had the big rocket Cooper deal. I was wondering if you're seeing any effect.
Speaker Change: Post that deal on more MSR pricing and supply and just your general thoughts on the servicing space. I know you said you're not really adding at the margin to MSR at the moment, but just your general thoughts post that massive deal. Thanks.
Thank you.
Sure great, can you handle that?
Speaker Change: Yeah, sure. Right now, I mean, it's been still pretty quiet, I think, with the...
Speaker Change: quarter as a whole, you've probably seen that volumes have been lower than they had been prior year.
Speaker Change: Going forward, assuming the completion of that, the combination of rocket and Cooper, the buying impact won't really be all that different than it was before but we haven't really seen any substantial changes in pricing dynamics in the market right now.
The roll-off of those expenses associated with internalization [inaudible]
Um, um
Speaker Change: With internalization and the GNA savings, we see at about two cents.
in the first quarter.
Speaker Change: Okay, and forgive me if you mentioned this in your prepared remarks, but going for it you said EAD was going to trend a little bit lower because of what exactly?
Speaker Change: because of the large swaps that matured that we were chatting about earlier. So that large swalters was contributing to EAD each quarter as well and since that one matured in the middle of March, that one is no longer in the portfolio.
Speaker Change: Got a great thank you guys and of course, best of luck going forward in this interesting time
Thank you. Thank you. Thank you.
Yeah, thank you. Thanks, Mikhail.
Speaker Change: Thank you. There are no further questions at this time. I'd like to turn the call back over to Jay Lown for closing remarks.
Jay Lown: Thanks, operator. Thank you for joining us on our first quarter of 2025 earnings column report to updating you on our second quarter results soon.
Jay Lown: Thank you for your participation. This does conclude the program and you may now disconnect. Everyone, have a great day.