Cherry Hill Mortgage Investment Corporation

Good day and thank you all for standing by. Welcome to the Cherry Hill Mortgage Investment Corporation's first quarter 2023 conference. At this time, all participants are in a listen-only mode. At this speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Garrett Edson. Please go ahead.

I'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's first quarter 2023 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.chmires.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 earnings available for distribution or EAD 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 of 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, Garrett, and welcome to our first quarter 2023 earnings call. On our last call, we noted that we remained positioned for additional rate hikes as we awaited word from the Fed as to when the tightening cycle would end. And our efforts to navigate the environment and protect book value were holding up well in the first quarter. Just a couple days after our call, Silicon Valley Bank suddenly collapsed to a signature bank right behind it. sending the U.S. banking sector into a significant crisis that we had not seen since 2008. Nearly overnight after the SDB news, interest rates fell sharply as the markets believed the rate-height cycle was poised to end much sooner than expected and priced in rate cuts in the second half of 2023 in anticipation of economic conditions deteriorating. Subsequently, the yield curve both deepened meaningfully as short-dated rates fell significantly more than longer-dated rates. We were not positioned for this immediate violent reaction, and given we were positioned for higher rates, this scenario was where we were most exposed. That, combined with additional spread widening post the bank failures mid-March, negatively impacted our performance for the quarter. In light of the continued banking turmoil, we have maintained a conservative posture towards both our exposure to interest rates and the mortgage basis. We believe the Fed funds rate is approaching the terminal rate, and the banking crisis is largely contained, despite the recent failure of First Republic, and see opportunities in the RMBS sector during the second half of 2023. For the first quarter, while we generated a GAAP net loss applicable to common shareholders of 87 cents per diluted share, we generated earnings available for distribution or EAD, a non-GAAP financial measure of 5.2 million or 21 cents per share. While EAD is only one of several factors considering and setting our dividend policy, when we consider the current uncertain environment we expect that EAD will continue to be pressured in the near term. Given that macro backdrop and subject to board approval, we expect to realign our dividend in June to a level closer to a yield of 13% to 15% of our current book value. We believe this change will ensure that the dividend is more in line with our current earnings power. Book value per common share finished at $5.52 as of March 31st. down 8.9% from year-end 2022. A portion of that decline, as always, is because preferred stock makes up a significant portion of our overall equity profile. On an NAV basis, which includes preferred stock in the calculation and before taking into account any issuances of equity through our common stock ATM program, we were down 5.3% relative to year-end. We added a slide in this quarter's investor presentation which describes this impact in more detail. We believe creating a more stable book value profile is in our shareholders' best interest and remains a top priority for us. We are focused on continuing to navigate through this very challenging and dynamic macro environment. During the first quarter, we essentially stood pat on our MSR portfolio, choosing not to make additional purchases at this time. Prepayment speeds on our MSR portfolio remain low, and thus the pace of reinvestment to maintain the allocation of capital to the asset class has decelerated. Recapture rates on MSRs were minimal as expected, given the higher interest rate levels. Our portfolio of MSRs has a weighted average note rate less than 3.5%, providing us with significant room to weather rate cuts down the road before impacting our prepay speeds in a meaningful way. We continue to believe our strategy of pairing MSR with agency RMBS along with proactive portfolio management and hedging is the right long-term strategy to steer through this challenging environment. At the end of the quarter, financial leverage rose modestly to 4.4 times as we opportunistically deployed additional capital during the quarter. Given the ongoing market volatility, We believe we remain prudently levered and expect to be further opportunistic in deploying capital in the months ahead. We ended the quarter with $55 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile. Looking ahead, we will continue to maintain our conservative and proactive approach to portfolio management for the foreseeable future as markets digest macroeconomic data and forecast central bank monetary policy actions. With our risk-adjusted opportunities to selectively deploy capital, we will take advantage as we did in the prior quarter. Our priority remains to protect book value, and we continue to be mindful of our liquidity and leverage profile. 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.