Cherry Hill Mortgage Investment Corporation

Good day and thank you for standing by. Welcome to the Cherry Hill Mortgage Investment Corporation first quarter 2024 earnings conference call. At this time, all participants are in the 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 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 your speaker today, Peter Skusa, Investor Relations. Please go ahead.

We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's first quarter 2024 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.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 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, Peter, and welcome to our first quarter 2024 earnings call. On the fourth quarter call, We noted that towards the end of 2023, markets were expecting multiple rate cuts from the Fed in 2024, only to see that forecast evaporate over the first four months of 2024. As the first quarter progressed and inflation remained elevated, the Fed walked back considerably near the end of the quarter, its prior rhetoric around rate cuts. Markets reacted significantly to any economic data believed to be important to the Fed's strategy, and the increased volatility impacted our sector during the quarter. Early in the quarter, spreads widened as inflation remained sticky. However, as the quarter progressed, spreads tightened as the Fed reconfirmed its likelihood to ease monetary policy later in the year. Our positioning with respect to MSRs and investing in higher coupon RMBS played a pivotal role in our favor, helping to offset the impact of the flattening yield curve. As we look out towards the remainder of the year, we believe that the Fed will need to maintain its current posture longer than markets expect due to persistent inflationary data, along with strong employment numbers. We do expect a twist in the yield curve eventually, and our position for shorter maturity rates to move lower resulting in a positively sloped curve. Given that the Fed is primarily driving market sentiment, we will continue to watch economic indicators intently and believe our overall strategy of pairing MSRs with agency RMDFs works well in the current environment. For the first quarter, we generated GAAP net income applicable to common stockholders of 32 cents per diluted share. and we generated earnings available for distribution, or EAD, a non-GAAP financial measure of $4 million, or 13 cents per share. EAD is just one factor we consider in setting our dividend policy. We also consider the existing market environment, portfolio return potential, our level of taxable income, including hedge gain impacts, and a degree of certainty regarding forward investment return economics. Thus, while EAD may continue to remain under our dividend level in the near term, we believe other factors are important when considering whether we can sustainably cover our dividend. Book value per common share finished the quarter at $4.49, down modestly from December 31st. As our portfolio positioning, particularly with respect to MSRs and higher coupon RMBS, helped offset the impact of the flattening yield curve. On an NAV basis, which includes preferred stock in the calculation, NAV was down approximately 0.5% relative to December 31st. Financial leverage at the end of the quarter rose slightly to 4.5 times as we continue to stay prudently levered given that volatile market dynamics persist. we ended the quarter with $48 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile. As we've discussed previously, while our financial leverage has stayed relatively low, our capital structure leverage consisting of our mix of common to preferred equity amplifies how changes in our NAD or total equity impacts our common book value per share. During the quarter, we began to act on one of our top priorities of creating a more stable equity profile by repurchasing a portion of our Series B preferred shares. As of May 3rd, we have repurchased approximately $9.3 million of Series B preferred shares, and we expect that will continue in the days and months ahead. The repurchase of Series B preferred shares benefits common shareholders by ultimately reducing the amount we pay for preferred dividends now that the Series B has transitioned to a floating rate, as well as right-sizing our capital structure and putting it more in line with peers. We will continue to work towards stabilizing our equity profile while remaining mindful of our balance sheet strength and our investment portfolio. I did want to take a moment to share that recently, we announced that our board of directors established a special committee to explore strategic alternatives to maximize stockholder value. We do not intend to discuss on this quarterly earnings call or any subsequent call any information or developments relating to the special committee or its process until the evaluation of strategic alternatives has been completed or the special committee determines disclosure is appropriate or legally required. Looking ahead, we continue to pay close attention to the ever-evolving macro environment and further focus on risk management. We will continue to selectively deploy capital into additional agency RMBS, which still presents a strong risk-adjusted return profile, and will continue to reduce the portion of preferred equity in our capital structure to provide greater stability of our equity profile for the ultimate benefit of common shareholders. while not sacrificing our strong liquidity and 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 first quarter.