In This Article:
Release Date: November 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
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Cherry Hill Mortgage Investment Corp (NYSE:CHMI) reported a relatively consistent portfolio performance in the third quarter, with improvements in the mortgage market as spreads compressed.
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The company's MSR portfolio, consisting primarily of low note rate loans, performed well with prepayment speeds hovering in the mid-single digits.
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Cherry Hill Mortgage Investment Corp (NYSE:CHMI) maintained a solid liquidity profile, ending the quarter with $50 million of unrestricted cash on the balance sheet.
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The company continues to hedge a portion of its basis risk with TBA, expecting to outperform into wider spreads.
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Cherry Hill Mortgage Investment Corp (NYSE:CHMI) is strategically positioning its portfolio for further rate cuts, deploying capital into agency RMBS for strong risk-adjusted returns.
Negative Points
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Cherry Hill Mortgage Investment Corp (NYSE:CHMI) reported a GAAP net loss applicable to common stockholders of 49 per diluted share for the third quarter.
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Earnings available for distribution (EAD) were impacted by approximately 4.5 per share of expenses related to the Special Committee's efforts.
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Book value per common share decreased to $4.02 from $4.15 as of June 30th, with a portion of the decline attributable to special committee expenses.
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Financial leverage increased to 5.3 times, which may pose risks if market conditions worsen.
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The company is facing uncertainties related to geopolitical unrest and potential impacts from the US Presidential election, which could affect economic and inflationary conditions.
Q & A Highlights
Q: How is Cherry Hill Mortgage Investment Corp (NYSE:CHMI) balancing its investment between agency MBS and MSR, and what is the strategy for capital allocation given the current rate outlook? A: Jay Lown, President and CEO, explained that while short-dated rates are expected to move lower, improving the return prospects of the MSR portfolio, MBS still presents a better risk-adjusted return profile. This preference is due to the current pricing and yield of MSRs. CHMI will continue to invest in both asset classes but sees MBS as more favorable in the current environment.
Q: Is there room for Cherry Hill to increase its leverage, given the current market conditions? A: Jay Lown noted that while there is potential to increase leverage slightly, particularly on the MBS side, the company prefers to maintain its current leverage level to ensure liquidity and manage cash effectively, especially in volatile market conditions.