Cherry Hill Mortgage Investment Corporation

Greetings and welcome to the Cherry Hill Mortgage Investment Corporation fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rory Rumer. Thank you, Rory. You may begin.

We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's fourth quarter and full year 2020 conference call. In addition to this call, we have filed a press release that was distributed earlier this afternoon and posted to the investor relations section of our website at www.chmireet.com. On today's call, management's prepared 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, IRRs, future expected cash flows, as well as prepayment and recapture rates delinquencies, and non-GAAP financial measures such as core and comprehensive income. Forward-looking statements represent management's current estimates, and Cherry Hill assumes no obligation to update any forward-looking statements in the future. 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 the definitions contained in the financial presentations available on the company's website. 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.

Thanks, Rory, and welcome to today's call. 2020 was validation that we have the right team in place to handle the most challenging conditions and succeed longer term. I want to thank our team for all of their hard work and dedication to navigate our company through this unprecedented environment. we're very much looking forward to putting last year behind us. Almost exactly one year ago, the world completely changed as COVID-19 hit our shores and caused massive sharp volatility in the worldwide economy. Mortgage REITs across the board were forced to act expediently to save their companies as liquidity greatly tightened and asset valuations dropped precipitously. We have always proactively managed our portfolio, which enabled us to generate solid core earnings and preserve our book value in multiple interest rate environments. However, the events that began last March proved to be our greatest challenge yet, as we worked to deliver our portfolio and stabilize our company. By executing efficiently and effectively, we positioned ourselves to maintain a stable liquidity profile, which proved to be a significant catalyst in recovering from the crisis. By the third quarter, we had largely stabilized book value and our focus was squarely on rebuilding value despite a record low interest rate environment and significantly elevated prepayment speeds in our portfolio. For the full year, our book value performance compared to the broader hybrid REIT sector was very much in line with the group. As we sit here today, I'm proud to say that our team rose to the occasion, and while we enter 2021 bruised, the worst should be firmly behind us. Rates have moved off their historic lows and continue to rise as the economic recovery progresses. This should enable us to benefit as we move forward with respect to our core RMBS and MSR portfolio strategies. In the fourth quarter, we generated core earnings well above our distribution level while maintaining a strong liquidity position. For the quarter, we produced core income of 37 cents per share while maintaining a dividend yield of 11%. We ended 2020 at four times leverage, over half a turn lower than where we stood as of September 30th. We also ended the year with $84 million in unrestricted cash on the balance sheet. We believe our portfolio is well positioned relative to the current environment, allowing us to take advantage of investment opportunities that offer attractive risk-adjusted rates of return. As the economy has continued to rebound, forbearance statistics have also improved further. As of the end of December 2020, borrowers in active forbearance remained just shy of 5.9%, with approximately 28% of borrowers having made all payments due through December. Forbearance statistics are stable post-year and despite regulatory efforts to extend policies on foreclosures and forbearances. We continue to believe our bolstered liquidity position is sufficient to satisfy all our servicing advance obligations for the foreseeable future. Book value per common share finished at $11.16 as of December 31st. Broadly speaking, as others have noted, spread tightening benefited agency RMBS at the expense of MSRs. While agency REITs hedge with rate instruments, we rely on the MBS to partially hedge out our MSR portfolio, and this quarter the correlation was negatively impacted. The performance of our RMBS and hedge portfolios did not compensate for the weakness in the MSR portfolio. This was due in part to higher rates of prepayment in the portfolio as well as our positioning in both the coupon stack and story selection in RMBS pools. Significant adjustments were made at year end and into the current quarter, which we believe should improve performance. Our hybrid strategy of investing in RMBS combined with MSRs remains intact. with the majority of our invested capital still deployed in RMBS. Julian will provide some additional highlights on the portfolio shortly. While highly elevated prepayment speeds in the fourth quarter for our Fannie and Freddie MSR portfolio weighed on performance, we have seen a steady rise in interest rates subsequent to year end, which should have a favorable effect on prepayment speeds post-first quarter. Although the fourth quarter numbers do not reflect the progress in recapture efforts, due to servicing transfer delays, we have seen significant improvement in recapture efforts from our Round Point portfolio in the first quarter and expect those results will further improve over the next few quarters. Currently, that portfolio is experiencing high teens recapture rates. In addition, during the fourth quarter, we acquired approximately $3 billion in Fannie and Freddie MSRs utilizing our flow purchase program, which largely offset the runoff for the quarter. We expect to remain on offense this year when we see attractive yield levels. Longer term, our focus remains resolute on proactively managing our portfolio to ensure that we are in a position to take advantage of attractive investment opportunities when presented. We believe there is a solid opportunity to invest further in MSRs in 2021 to generate attractive returns, and I look forward to sharing our progress with you in the quarters ahead. With that, I'll turn the call over to Julian who will cover more details regarding our investment portfolio and its performance in the fourth quarter.