Cherry Hill Mortgage Investment Corporation

Good day, and thank you for standing by. Welcome to the Cherry Hill Mortgage Investment Corporation third 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 with investor relations please go ahead we'd like to thank you for joining us today for cherry hill mortgage investment corporation's third quarter 2023 conference call in addition to this call we have filed the press release that was distributed earlier this afternoon and posted to the investor relations section of our website at www.phmiread.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 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 Garrett and welcome to our third quarter 2023 earnings call. While the third quarter initially seemed as if we were headed to a soft landing and an end of the rate height cycle, hotter than expected inflation and an overheated economy led to a significant rise in the 10-year treasury to nearly 4.6% as it became clear that higher for longer was likely going to persist for some time. Along with the rise in the 10-year, agency mortgage spreads widen considerably during the quarter. While agency REITs have been feeling the pain of the spread widening for the past few months, given our capital structure, we proactively positioned our portfolio to mitigate the spread widening by hedging out a portion of our basis risk in our RMBS portfolio with TBAs. We believe this positioning, along with our portfolio of MSRs, worked to our shareholders' advantage in the quarter as we successfully preserved the vast majority of our shareholder equity. We have maintained this positioning through October given the elevated volatility as markets digested macroeconomic data globally and reacted to the events in the Middle East. The 10-year crossed the 5% threshold at one point in October and mortgage spreads have widened further as others have noted. In these volatile and turbulent times, we believe that it remains prudent to minimize our exposure to mortgage basis risk and the potential for any additional widening, such as what we have seen impacting much of the REIT space over the past few months. As a result, we believe we remain positioned well to take advantage of select RMBS opportunities that offer attractive risk-adjusted returns and that the overall strategy of pairing MSRs with agency RMBS remains the proper strategy for the current environment. For the third quarter, we generated a GAAP net gain applicable to common stockholders of $0.49 per diluted share, and we generated earnings available for distribution, or EAD, a non-GAAP financial measure of $4.4 million, or $0.16 per share, which exceeded our quarterly distribution. 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 $4.99 as of September 30th, down 3.9% from June 30th. On an NAV basis, which includes preferred stock in the calculation, we were down 1.9% relative to June 30th. As we've previously noted, 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 third quarter, we remained firm on our MSR portfolio, as we believe agency RMBS continues to present 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 MSR remain minimal, given the higher interest rate levels. Our portfolio of MSRs weighted average note rate of approximately 3.5% provides us with plenty of room to weather potential rate cuts down the road before impacting our prepay speeds in a meaningful manner. At the end of the quarter, financial leverage again stayed consistent at 4.4 times as we opportunistically deployed additional capital during the quarter while remaining prudently levered as the volatile market dynamics persist. We ended the quarter with $45 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile. Looking ahead, we maintain a concerted focus on risk management to reduce our exposure to mortgage spreads in the near term, which we believe is the prudent approach in the current environment. We will continue to selectively deploy capital into additional agency MBS, which currently presents a strong risk adjusted return profile while awaiting signs of market stabilization and lessening volatility. 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 third quarter.