Cherry Hill Mortgage Investment Corporation

Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the Cherry Hill Mortgage Investment Corporation third quarter 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star 1. I would now like to turn the conference over to Garrett Edson of ICR. You may begin.

Thank you, Desiree. We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's third quarter 2024 conference call. In addition to this call, we have issued a press release that was distributed earlier this afternoon and posted that press release in a third quarter 2024 investor presentation 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 our ability to complete the planned internalization of our management, 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 2024 earnings call. The third quarter went somewhat as expected, as the Fed utilized inflation indicators to go ahead and begin the rate cut cycle in September. While geopolitical unrest continued to persist, the market broadly looked past international troubles. Rates pushed lower with the yield curve, specifically the two-year, 10-year spread, turning positively sloped for the first time since July 2022. The U.S. 10-year ended the quarter at 3.78 percent, down 62 basis points quarter over quarter, as the market aggressively positioned for significant rate cuts over the next 18 months. That exuberance has since faded as strong economic data has persisted, and markets have since reduced those bets. With the U.S. presidential election, and the additional 25 basis point cut from the Fed last week in the rear view mirror, we are closely monitoring the impact of a second Trump presidency and its impact on both the economy and inflation. As we approach 2025, we expect to gain additional confidence that macro environment volatility will moderate. Our portfolio remained relatively consistent in the quarter. With the mortgage market improving, as spreads compressed and the curve both steepened. RMBS performance was mixed, and coupon selection drove performance. Our MSR portfolio, consisting primarily of low note rate loans, performed well, with prepayment speeds hovering in the mid single digits. Julian will discuss this in more detail shortly. Looking forward, we continue to watch the Fed closely as well as political developments globally, and expect to continue to pair MSRs with agency RMBS. For the third quarter, we generated GAAP net loss applicable to common stockholders of 49 cents per diluted share, and we generated Earnings Available Per Distribution, or EAD, a non-GAAP financial measure, of 2.5 million, or 8 cents, per share. EAD for the quarter was impacted by approximately 4.5 cents per share of expenses related to the Special Committee's efforts. As we've mentioned previously, EAD is just one factor the Board of Directors considers in setting our dividend policy, and it is not the primary factor. Also considered is the existing market environment, portfolio return potential, our level of taxable income including hedge gain impacts, and the 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 $4.02. compared to $4.15 on June 30th. Approximately $0.06 of the change in book value was attributable to the special committee and ATM issuance. Similarly, on an NAV basis, which includes preferred stock, when excluding special committee expenses and the ATM issuance, NAV was down approximately $2.1 million, or 0.9% relative to June 30th. We continue to hedge a portion of our basis risk with TBA, and we expect to lag our peer group when the basis tightens and outperform into wider spreads. Financial leverage at the end of the quarter rose to 5.3 times as we continue to stay prudently levered. We ended the quarter with $50 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile. With respect to our previously announced internalization and strategic process more generally, we cannot comment at this time. And on today's call, we will not discuss any information or developments or answer any questions relating to the internalization, the special committee, or its strategic process. Looking ahead, we will continue to monitor the macro environment and are positioning our portfolio for further rate cuts. In the near term, That means continuing to deploy capital into agency RMBS, which still presents a strong risk-adjusted return profile, and adjusting our hedge composition in order to take advantage of expected ongoing Fed easing while maintaining strong liquidity and prudent 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 third quarter.