Cherry Hill Mortgage Investment Corporation

Good day and thank you for standing by. Welcome to the Cherry Hill Mortgage Investment Corporation second quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Garrett Edson. Please go ahead.

We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's second quarter 2023 conference call. In addition to this call, we have filed a press release that was distributed earlier this afternoon and posted the investor relations section of our website at www.chmiread.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 different 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 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 Hodgeby, the Chief Financial Officer. Now, I will turn the call over to Jay.

Thanks, Garrett. and welcome to our second quarter 2023 earnings call. Markets in the second quarter were again largely driven by the Fed and economic data as regional bank pressures eased and markets absorbed the MBS asset sales from the FDIC. At a macro level, while rates ended the quarter higher at 3.84 percent, the U.S. 10-year treasury fell as low as 3.3 percent early in the quarter when the banking crisis was still top of mind. Spreads tightened slightly toward the end of the quarter, creating some tailwinds for agency MBS investors, and the worst-case scenario of a significant recession seemed to wane. In light of the uncertainty around Fed policy and the direction of rates during the quarter, we continue to maintain a disciplined, neutral posture, avoiding significant rate bets in either direction, working to protect and enhance value. Inflation, while stabilized, has remained elevated above the Fed's 2% target, giving the Fed enough justification to raise rates 25 basis points in May and again last week. We believe we are near the end of the tightening cycle, and as others have noted, this should be a positive catalyst for agency MBS securities and potentially drive more attractive returns. Assuming that remains the case in quarters ahead, we are positioned well to deploy capital into new RMBS opportunities as we move through the back half of the year. For the second quarter, we generated a GAAP net loss applicable to common stockholders of $0.03 per diluted share, and we generated earnings available for distribution, or EAD, a non-GAAP financial measure, of $4.2 million, or $0.16 per share. As we've noted before, EAD is only one of several factors considered in setting our dividend policy. Additionally, factors such as the existing market environment and portfolio return potential, our level of taxable income, including hedge gain impacts, and the degree of certainty regarding forward investment return economics all contribute to determining what we believe is the appropriate dividend level. Book value per common share finished at $5.19 as of June 30th, down 6% from March 31st. 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 3% relative to March 31st. As noted in our prior quarter, Our existing mix of common to preferred equity amplifies the impacts of changes in our total equity or common book value. Creating a more stable equity profile is in our shareholders' best interest and remains a top priority for us. During the second quarter, we continued to stand firm on our MSR portfolio, as we believe agency RMBS presented a better return profile in the current environment. Prepayment speeds on our MSR portfolio remain low, and thus the pace of reinvestment required to maintain the allocation of capital to the asset class is low. Recapture rates on MSRs remain minimal, given the higher interest rate levels. Our portfolio of MSRs has a weighted average note rate slightly less than 3.5%, providing us with plenty of room to weather potential rate cuts down the road before impacting our prepay speeds in a meaningful manner. We continue to believe our strategy of pairing MSRs with agency MBS, along with proactive portfolio management and hedging, is the right long-term strategy to steer through the current challenging environment. At the end of the quarter, financial leverage stayed consistent at 4.4 times as we opportunistically deployed additional capital through the quarter. We remain prudently levered and assuming the economy slowly continues its march towards stabilization, we expect to remain opportunistic in the deployment of capital. We ended the quarter with $53 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile. Looking ahead, we are maintaining our conservative yet proactive approach to portfolio management for the near term. As the volatility around the Fed further diminishes, and we begin to return to an environment where mortgages typically perform better, we believe there is an opportunity to deploy capital into additional agency MBS, which currently presents a strong risk-adjusted return profile. Our priority remains to protect book value, and we remain 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 second quarter.