Q2 2025 Cherry Hill Mortgage Investment Corp Earnings Call

Good afternoon and welcome to the Cherry Hill. Mortgage Investment corporation, second quarter, 2025 earnings call. I am France and I'll be the operator. Assisting you today.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad, if you would like to redraw your question, press star 1 again, thank you.

I would now like to turn the call over to Jeffrey Lown.

Peter Susa, with icr.

Please go ahead.

We'd like to thank you for joining us today for Cherry Hill mortgage. Investing Corporation second quarter 2025 conference call. In addition to this call, we have issued a press release. That was distributed earlier this afternoon and posted that press release and second quarter of 2025 investor presentation to the investor relations section of our website at www.cmm.com on today's call management for better remarks and answers to your questions. May contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Examples of forward looking statements include those related to interest income Financial guidance. IRS future expected cash flows as well as prepayment, recapture rates, delinquencies, and non-gaap financial measures such as earning the available for distribution or EAD and comprehensive income for booking statements. Represent Management's, current estimates and carry. Hella seems no obligation to update. Any forward-looking statements in the future. We encourage listeners to review. The more detailed discussions related to these 4 looking statements contained, in the company's files at the

DC the definitions contained in the financial presentations available on the company's website. Today's conference call is hosted by Jay Latin president CEO, Julian Evans. The chief investment officer and a texture. Patel the interim Chief Financial Officer. Now, I would turn the call over to Jay.

Thanks Peter and Welcome to our second quarter 2025 earnings call.

The second quarter started out with an intense storm.

But by the end of the quarter, skies were considerably clear.

the initial tariff announcements on April, 2nd spoof markets, resulting in an instinctive flight to Quality

And causing the administration to quickly, pause the majority of tariffs for 90 days to reach new agreements.

as the quarter, progressed investors began, discounting the worst case scenarios initially feared,

In fact.

Inflation. Remained low.

The economy resilient.

And tariff deals continue to be negotiated as we embark on a new normal.

Despite the significant inch or quarter of volatility.

The tenure ended, the quarter at 4.23%. Marginally higher quarter over quarter.

The negative performance for those in the agency. MBS sector was primarily driven by the mortgage basis. Underperforming both Swap and treasury hedges.

Which Julian will elaborate on shortly.

With the macro environment still in. Wait and see mode.

All eyes are on the FED to provide any signal to the end of their pause and return to the long-awaited rate cut cycle in September.

We believe We Are properly positioned for this event.

For the second quarter, we generated gaap, net loss, applicable to Common stockholders of 3 cents per diluted share.

Book value per common, share, finished the quarter at $3.34.

Compared to $3.58 on March 31st.

On N nav basis, which includes preferred stock and prior to any ATM Capital raised in the quarter.

6.2 million or 2.7% relative to March 31st.

The financial leverage at the end of the quarter remained relatively consistent at 5.3 times.

As we continue to stay, prudently levered.

During the quarter, we raised approximately 9 million of capital through our common ATM program.

And ended the quarter with 58 million of unrestricted, cash on the balance sheet.

Maintaining a solid liquidity profile.

During the quarter, we were pleased to enter into a strategic partnership and investment, which will genius LLC.

A florida-based digital mortgage technology company.

Real Genius has developed a proprietary direct to Consumer platform.

Offering an efficient fully online mortgage experience.

Including instant pre-qualification.

automated document process and real-time loan tracking

all of which is supported by their custom-built point of sale system,

Partnering with, and investing in Real Genius is 1 of the clear benefits of our internalization.

Which allows us the flexibility to explore unique investment opportunities. We Believe are accredited to strategic growth.

We're excited to support Real Genius, as they look to accelerate their growth moving forward.

looking ahead, we continue to also monitor the economic environment closely and as it further stabilizes, we will look to evaluate a more risk-on approach to our investment strategy, while maintaining strong liquidity and prudent Leverage

With that, I'll turn the call over to Julian who will cover more details regarding our Investment Portfolio and its performance over the second quarter.

Thank you. Jay.

The second quarter was divided into 2 distinct periods. The first period primarily April was dominated by market anticipation surrounding Liberation day

April set, the tone for the quarter.

Introducing heightened. Volatility increased hedging costs, wider mortgage spreads and a significant swap spread tightening.

The remainder of the quarter encompassing May and June was spent attempting to recover from April's, dislocations.

While volatility subsided and mortgage spreads tightened in the latter months, the improvements were insufficient to fully offset April's impact.

At quarter end, our MSR portfolio. Had a upb of 16.6 billion and a market value of approximately 225 million.

The MSR and related net assets represented, approximately 43% of our Equity capital and approximately 23% of our investable assets, excluding cash at quarter end.

Meanwhile, our rmds portfolio accounted for approximately 36% of our Equity capital.

As a percentage of investable assets, the rmvs portfolio represented approximately 77% excluding cash at quarter end.

Our MSR portfolio's net CPR average approximately 6% for the second quarter.

Up modestly from the previous quarter.

The portfolio's were captured 8, Romaine diminished as the incentive to refinance continues to be minimal for this portfolio given the portfolio's loan rate.

In the near term, we continue to expect the lower recapture rate and a relatively low net CPR, given our portfolio's characteristics.

Should the Fed shift towards a rate easing stance, we could see both of these metrics begin to rise as the incentive to refinance returns.

Meanwhile, the rmbs portfolios prepayment fees continue to remain low. It's 6.1 CPR with mortgage rates, holding relatively steady between 6 and 1/2 and 7% for the past 9 months.

As long as the FED holds rates firm, we would expect prepayment speeds to remain moderate.

However, should the FED begin to cut rates in September prepayment speeds. Could begin to rise in the latter part of the third quarter, and into the fourth quarter.

if long end Treasury and mortgage rates, move lower following the FED easing,

As of June 30th, the rmbs portfolio inclusive of pbas, stood at approximately 756 million, compared to 733 million at the previous quarter, end as we continue to modestly shift our rmds positioning during the quarter towards higher coupon mortgages.

For the second quarter, our rmds, net interest spread was 2 spot 61 lower than the previous quarter primarily driven by large swap position that matured in the first quarter, but impacted the Nim in the second quarter as we had previously indicated.

Lower dollar rule income, also led to lower Nim in the quarter.

During the quarter, we reduced a portion of our longer maturity sofa, swap, Hedges, and replace them with treasury Futures. And so, for spreads fluctuated and tightened during the quarter.

Overall, our head strategy remains largely intact, and we will continue to use a combination of Sofer swaps, TVA Securities, and treasury futures to hedge the portfolio.

Treasury Futures have become a larger portion of Hedges especially given the recent tightening of the swap spreads.

Going forward. So for swaps will primarily represent front end short and intermediate maturity Hedges to the portfolio. While treasury Futures and the MSR will represent longer maturity hedges.

Looking into the back, half of the year, we will continue to proactively manage our portfolio.

And adjust our overall capital structure to add value for shareholders through improved performance and earnings.

I will now turn the call over to a pressure for our second quarter Financial discussion.

Thank you, Julian.

GAAP net loss applicable to common stockholders for the second quarter was $0.9 million, or 3 cents per rated average diluted share outstanding during the quarter.

While comprehensive loss attributable to Common stockholders which includes the mark to Market of our available for sale rmds was 0.6 million or 2 cents per rated average diluted share.

Our earnings available for distribution or EAD attributable. To Common stockholders were 3.2 million or 10 cents per share.

As we mentioned on our prior call 1 of our larger Hedges matured at the end of the first quarter. And thus, we no longer receive income from it, which caused the reduction in EAD.

However, as we have stated consistently, EAD is not the sole barometer for setting, our common dividend.

Our board also considers factors such as the prevailing market environment, portfolio return potential, our level of taxable income, including potential hedge gain impacts, and the degree of certainty regarding forward investment return economics.

our book value for common share, as of June 30th, 2025 was $3.34, compared to book value of $3.58, as of March, 31st 2025

We use a variety of derivative instruments to mitigate the effects of increases in interest rates, on a portion of our future repurchase borrowing.

At the end of the second quarter, we held interest rate, swaps, tbas, and treasury Futures. All of which had a combined notional amount of approximately 446 million

You can see more details regarding our hedging strategy in our 10q as well as our second quarter presentation.

For GAAP purposes, we have not elected to apply hedge accounting for our interest rate derivatives, and as a result, we record the change in estimated fair value as a component of the net gain or loss on interest rate derivatives.

Operating expenses were 3.4 million for the quarter.

On June 13, 2025, our board of directors declared a dividend of $0.15 per common share for the second quarter of 2025, which was paid in cash on July 31, 2025.

We also declared a dividend of 51.25 cents per share on our 8.2% series. A cumulative redeemable preferred stock and a dividend of 64.13 cents on our 8.25% series, B fixed to floating rate, cumulative, redeemable, preferred stock, both of which were paid on July 15th 2025,

At this time, we will open up the call for questions.

Operator.

Thank you, and we will now begin the question and answer session.

at this time, if you would like to ask a question press star followed by the number 1 on your telephone keypad,

And your first question comes from the line of Randy binner from B Riley Securities. Please go ahead.

Hey, Randy.

Hey Randy, are you there?

Can you check your microphone if you're on mute? Okay. Hi. Sorry this is Tim Dino on for Randy Benner. Um,

In terms of servicing costs. Uh, it came in lower than our estimates. We were just kind of wondering, uh, what went through that, and why servicing costs were lower in the quarter.

Sure. Uh, essentially we had some Deb boarding fees that, um, we had taken on in Prior quarter and uh, we're able to work out of um, related to uh, the whole Mr. Cooper, uh,

Acquisition from Flagstar. So, uh, that was a component of it and then, you know, as as the quarter has gone down, we've not added to the portfolio. So, you know, the total amount of loan count has continued to drop

Okay, great, thank you. And then, uh, second quick question, as we look throughout, uh, the end of 2025. Um, where should we expect leverage to go from here? Uh, should we expect it to kind of remain flat, or will it change? Thank you.

Um, hi ran. Well, actually it's Tim right, sorry? Um, this is Julian, you know, I would expect, um, simply just say that I would expect leverage to kind of creep up as we, um, for the remainder of the year. I would say we've been running the portfolio, you know, kind of in a conservative pattern mainly uh neutral on duration and we've maintained The Leverage pretty consistent over the last uh 3 quarters.

I think it's increased kind of marginally, obviously, you know the second quarter going in. Uh, we were expecting inflation to rise in volatility to remain, uh, at an elevated level. I would say that hasn't really changed as we've entered into, uh, the third and the fourth quarter. But there are some changes that that have happened. Um, primarily uh, the weaker non-farm. Payroll number probably brings the FED into place sooner, uh, than we would have expected. We were expecting somewhere between 1 or 2 eases. Um, this into the second half of the Year. This, probably pulls those eases from, let's say, October and December into know into September. Um, so if the FED is going to be accommodative and steepen out the yield curve that does make, um, mortgages and other spread assets, very attractive, um, it will

Depend on where inflation is going obviously. But I would say, most likely, um, leverage should creep a little bit higher as we, uh, enter into the fall.

Okay, great. Thank you so much. That's all from us.

And your next question comes from Mikail government from citizens JMT. Please go ahead.

Hey, good afternoon, guys. Hope everybody is doing well. Um, regarding this um, partnership with Real Genius. Um, are there any, um, numbers attached to it any sort of projections for a creation and timeline on that?

And um, you guys mentioned, I believe a risk on investment strategy going forward. Um, if I could maybe pick your brain as to what kind of stuff you could potentially be looking at going forward. Thanks.

Hey, dude. Uh

So the the Real Genius, there's an expectation for them to be profitable.

Uh, within the first 6 or 7 months. So I would expect you know, within the first year of the investment that

you know, we should be, uh, receiving dividends off of that investment and

You know, I think it's just a testament to our ability to sort of be more as a part of the sausage making and to be able to make an investment.

Uh, around things other than just, uh,

Msrs.

In the form of either co- issue or bulk. So we're we're excited to to work with these guys. We think it's a good solid team.

Um, they're getting back on their feet, we're giving them time to get everything going and we expect them to be, uh, profitable in the short term.

On the other front. What was the? What was the other question?

Uh just uh you going past Real Genius. You guys mentioned maybe continuing a sort of risk on investment strategy and looking at other sort of alternative alternative Investments. Um sure. Yeah, thanks. So

Right now. No, I I think that um it there's a desire to

Assets outside of the the current investment strategy we have but to date, we don't have anything definitive and um, if we do we would obviously, uh, you know, tell you guys at the right time, but today we have nothing to report on that.

Got you. Thank you. And of course, if I may squeeze in 1, more

About question, mark.

Gee, there are so many to ask, but the one that I'm really looking at right now is this one about current book value?

It's a new 1.

Um hey Michael. It's a pexa. Um we see our July, 31st book, value per share at about flat versus June 30th and um that obviously is prior to any third quarter dividend to cool um, as the board hasn't met yet to approve it.

Great. Thank you guys, and best of luck going forward and second half of the year.

Thanks, dude.

All right, before we proceed again. If you want to join the queue simply press star 1

And there are no further questions at this time, I would now like to turn the call back over to Jay lawn for closing remarks, please go ahead.

Thank you all for joining us on our second quarter earnings call. We look forward to updating you in a few months to give you progress on our third quarter, have a great day.