Operator:

Good day, and welcome to the Cherry Hill Mortgage Investment Corporation First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Garrett Edson with ICR. Please go ahead. Garrett Edson: We would like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's first quarter 2025 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 our first quarter 2025 investor presentation to the Investor Relations section of our website www.chmireit.com. On today's call, management's prepared remarks and your questions may contain forward-looking statements that are subject to risks and 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, 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 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, Chief Investment Officer, and Michael Hutchby, the Chief Financial Officer. Now I will turn the call over to Jay. Jay Lown: Thanks, Garrett. And welcome to our first quarter 2025 earnings call. The first quarter of 2025 was anything but calm. The reaction from markets domestically has been very aggressive during the first hundred days of the new administration. Amidst a backdrop of increased uncertainty, disruption, and meaningful policy changes coming out of DC, rates pushed lower in March, partly driven by rhetoric from Washington. And the ten-year ended the quarter at 4.25%, approximately 30 basis points lower quarter over quarter. That, however, was quickly overshadowed by the run-up to the Liberation Day tariff announcements on April 2. Suddenly, rates spiked on fears of a broader economic recession and stagflation. While the administration put a pause on the majority of the reciprocal tariffs, in ninety days, to reach new agreements, investors are in wait-and-see mode to determine whether the administration can negotiate trade deals or if we will return to potentially unprecedented volatility. Going forward, we expect rates will continue to be highly reactive to both global political agendas and domestic economic data. This uncertainty has pushed us to position the portfolio more neutral to rates to withstand the daily volatility. For the first quarter, we generated GAAP net loss applicable to common stockholders of $0.29 per diluted share. Book value per common share finished the quarter at $3.58, compared to $3.82 on December 31. On an NAV basis, which includes preferred stock, and prior to any ATM capital raised in the quarter, NAV was down approximately $7.5 million or 3.2% relative to December 31. Financial leverage at the end of the quarter remained consistent, at 5.2 times, as we continue to stay prudently levered. We ended the quarter with $47 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile. We were pleased to complete our first full quarter as an integrated internally managed mortgage REIT. In line with our prior quarter comments, operating expenses declined quarter over quarter due to the elimination of the management fee. As we proceed through 2025, we will continue to closely manage our operating expenses as we look to responsibly grow Cherry Hill, which will ultimately improve both our expense ratio and our capital structure over time. Looking ahead, we are watching the macro environment and the tariff situation very closely and are stressing our portfolio for numerous scenarios in light of the forthcoming tariff deadline. In the near term, we plan to deploy capital as appropriate into Agency RMBS and select MSRs, which still present strong risk-adjusted return profiles while maintaining strong liquidity and prudent leverage. With that, I will turn the call over to Julian, who will cover more details regarding our investment portfolio and its performance over the first quarter. Julian Evans: Thank you, Jay. Mortgages started the quarter well, tightening for the first two months only to end the quarter marginally wider as pending tariffs increased volatility, into the administration's announcement on Liberation Day. Overall, rates ended the quarter lower, and mortgage performance was mixed. Despite the rally in interest rates, higher coupon mortgages outperformed lower coupon mortgages. While our coupon positioning for the quarter was good, our portfolio needed to be longer in duration, and the lower coupon portion of our portfolio simply did not keep pace with our hedges in the interest rate routing. As we look ahead, like everyone else, we are watching the macro environment very closely as we weigh tariff deals, to be hopefully announced in the weeks and months ahead. In the near term, volatility will likely continue, and we will expect rates to remain elevated until there is some clear certainty with respect to go-forward macro policy. At quarter-end, our MSR portfolio had a UPB of $17 billion and a market value of approximately $227 million. The MSR and related net assets represented approximately 44% of our equity capital, and approximately 24% of our investable assets excluding cash, at quarter-end. Meanwhile, our RMBS portfolio accounted for approximately 39% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented 76% excluding cash at quarter-end. Prepayment speeds for our MSR and RMBS portfolios remain relatively steady compared to the prior quarter, despite rates rallying in the first quarter. The MSR portfolio's net CPR averaged approximately 4.1% for the first quarter, down modestly from the previous quarter. The portfolio's recapture rate was de minimis, as the incentive to refinance continues to be minimal for this portfolio given the portfolio's loan rate. Going forward, with rates remaining elevated amid the macro uncertainty, we continue to expect a lower capture rate and a relatively low net CPR in the near term given our portfolio's characteristics. Meanwhile, the RMBS portfolio's prepayment speeds remain low, with mortgage rates fluctuating between 6.5% and 7% the past few months. If mortgage rates stabilize within this range, we would expect prepayment speeds to remain moderate in the second quarter. For the first quarter, the RMBS portfolio's weighted average three-month CPR was approximately 5.8% compared to 5.7% in the fourth quarter. As of March 31, the RMBS portfolio inclusive of TBA stood at approximately $733 million, compared to $723 million at the previous quarter-end. As we modestly shifted our RMBS positioning during the quarter, the portfolio remained higher coupon mortgage-focused. For the first quarter, our RMBS net interest spread was 3.55%, higher than the prior quarter, driven by improved dollar roll income and repo expenses, which were partially offset by reduced income from swaps. Overall, our hedge strategy remains largely intact, and we will continue to use a combination of swaps, TBA securities, and treasury futures to hedge the portfolio. Treasury futures have become a larger portion of hedges especially given the recent tightening of swap spreads. As the year progresses, we would expect the RMBS portfolio NIM to normalize towards historical levels in the next quarter, as dollar roll income is less special, and swap income is reduced as swaps mature. Moving forward, we will continue to proactively manage our portfolio while continuing to shift our overall capital structure to add value for shareholders through improved performance and earnings. I will now turn the call over to Mike for our first quarter financial discussion. Michael Hutchby: Thank you, Julian. GAAP net loss applicable to common stockholders for the first quarter was $9.3 million or $0.29 per weighted average diluted share outstanding during the quarter. While comprehensive loss attributable to common stockholders, which includes the mark to market of our available for sale RMBS, was $2.6 million or $0.08 per weighted average diluted share. Our earnings available for distribution or EAD attributable to common stockholders were $5.4 million or $0.17 per share. EAD in the quarter benefited from outsized dollar roll income, and income received from one of our larger hedges, before it matured at the end of the quarter. Operator: To that end, Michael Hutchby: because that larger hedge has matured and we will no longer receive income from it, we would expect EAD to be lower moving forward. However, as we have stated consistently, EAD is not the sole barometer for setting our common dividend. And that our board also considers factors such as the prevailing market environment, portfolio return potential, our level of taxable income, including potential hedge gain impact, and the degree of certainty regarding forward investment return economics. Our book value per common share as of March 31 was $3.58 compared to a book value of $3.82 at the end of December. We use a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowings. At the end of the first quarter, held interest rate swaps, TBAs, and treasury futures, all of which had a combined notional amount of approximately $489 million. You can see more details with respect to our hedging strategy in our 10-Q, as well as in our first quarter presentation. For GAAP purposes, we have not elected to apply hedge accounting for our interest rate derivatives. And as a result, we record the change in estimated fair value as a component of the net gain or loss on those interest rate derivatives. Our operating expenses were $3.8 million for the quarter. On March 13, 2025, our Board of Directors declared a dividend of $0.15 per common share for the first quarter of the year, which was paid in cash on April 30. We also declared a dividend of $0.5125 per share on our 8.2% Series A cumulative redeemable preferred stock, and a dividend of $0.6372, on our 8.25% Series B fixed to floating rate cumulative redeemable preferred stock. Both of which were paid on April 15, 2025. At this time, we will open up the call for questions. Operator? Operator: Thank you. Star one one. If your question has been answered and you would like to remove yourself from the queue, please press 11 again. Our first question comes from Randy Binner with B. Riley Securities. Your line is open. Randy Binner: Yeah. I thought you know, it was, like, a hopeful commentary there. I think the question I have is and and and I know this is covered. Operator: Jay and team, in the opening commentary, but Garrett Edson: is Randy Binner: I guess, what what would it take for you to to allocate more to to the RMBS portfolio? I mean, I think we have seen a little bit more growth from some others so far this quarter. Not that that is right or wrong, but you know, there is this period of uncertainty. But it you know, the core you know, the core EAD is lower as as you said. You know, go forward basis if if if that portfolio does not grow. And so maybe just a little more color on the kind of what it takes to turn to a point where you are able to acquire more and grow the portfolio? Hey, Randy. How are you? Are you did you say MSR or MBS? MBS. Operator: I mean, Jay Lown: I but I guess my question was more on MBS, but but but, you know, hearing about both would be helpful. Garrett Edson: Yeah. So all of the reinvestment amortization income that we get in has has been reinvested in MBS. I I can tell you we have not purchased an MSR in quite some time. So Randy Binner: while it may not look like the portfolio Garrett Edson: composition has changed a lot, the only true way to change that materially is for us to sell a portion of the MS in favor of MBS. So you know, definitively, I can say for the past several quarters, plus, we have primarily, if not exclusively, been reinvesting income reinvesting amortization into MBS. Operator: Okay. That is helpful. Jay Lown: And then just on GSE reform, if I can get this one in, there you know, this is just something we have been gathering information on from and kind of throughout the industry. And so you know, pretty clear movement at FHFA as far as, you know, de-risk staffing, etcetera. You know, do you do you see you know, movement there being priced into the market? Do you do you have a view of of what you are looking for? And and how that might affect you know, how how you you allocate capital in the portfolio and how you run the business? Or it too early to tell? Garrett Edson: Hey, Randy. This is Julian. I think it is a little too early to tell. There is obviously as you have noted, there has been some definitive movement going around the GSEs. Julian Evans: I think they have been primarily focused on you know, expense deduction and everything reduction and things like that. As we move forward, I think the the biggest thing we would like to see is obviously, is you want a complete revolution to what they really want to do with the GS whenever they enter a package on out. You do not want it just be notes on a on a particular piece of paper. You would like something in terms of a complete and well thought out idea. In terms of what they want to do to the GSEs given the impact that they will have on housing. In terms of it really kind of being priced into the market, I I would have to say, no. I do not really think it is priced into the market because at at some point, we have to find out if they move towards privatization what they are going to do with government guarantee on the security Right. And how they are going to treat that. And I do not I think the market is making an assumption that that that government guarantee is is safe and sound at the moment. But we have not seen any specific any detailed plans on that at all. So I think we are kind of would be cautious on it. My estimation is that they will put out something complete in terms of GSE reform. But in terms of the government guarantee, that has not been well defined yet. Operator: Alright. Appreciate the comments. Thanks. Julian Evans: Bye. Operator: Thank you. Our next question comes from Jason Stewart with Janney Montgomery Scott. Your line is open. Jason Stewart: Hey, good evening. Thanks. Garrett Edson: If I missed it, I apologize, but could you give us a book value update quarter to date in 2Q? Jay Lown: Oh, man. You are stealing thunder from JMP. Jason Stewart: Oh, sorry. My bad. That is that is just wrong. Michael? Or Mikael. Michael Hutchby: Yeah. Garrett Edson: Hey, Jason. It is Mike. So at the April, we see our NAV down about 3.7%, which then when you layer on the preferred multiple, you get to about a 7%, book value per share. And that is, before any, dividends for the quarter as the board has not yet met to approve one. Operator: Okay. Jay Lown: Usually, I am last in the queue, so I I I have to clean up the question. So, Mikaela, I apologize. Jason Stewart: Thank you. Thank you. All good. Garrett Edson: Then in terms of the swap portfolio, could you remind us how much rolled off in 1Q and then this one less than one year bucket? I mean it is pretty small, $15 million that is left. Does that roll when does that roll off? So yes, in the first quarter, and you can go back and you can see that same page 11 in the first in the prior quarter deck. So you can see that we had about $250 million of payer swaps that were rolling off in the quarter, it was about 0.2 years. And so if you see that same page 11 in the in this quarter's deck, you will see that we have got about $15 million left. In that one-year bucket. And it is about 0.9 years left on that. There were, a couple of receiver swaps that also you know, paid off or or ended in the quarter. But Julian's also been actively managing the swaps throughout the quarter as well. Julian Evans: Okay. So that is just the $150 million note Jay Lown: notional that will mature sometime in 2026. First half of 2026. There is nothing else rolling off this year. Garrett Edson: No. That is right. That is right. Okay. Yeah. If you look at that first row on page 11, the very top Yep. Everything in that first row is is within twelve months of the, of the report date. So this this page is all essentially relative to March 31, 2025. Jay Lown: Got it. And then one question on mortgages. Garrett Edson: You know, there has been more talk and it applies to spec pools, I guess. About how builder buy downs are impacting the complexity of mortgages. Are you seeing that? Are you seeing opportunities you know, inspect pools within the builder buy down space, or with regard to rocking Coupe. You know, how is it? Some people are are looking at the same Rocket Coupe that is now priced too fast. In some models. Is this creating opportunities in in loan pools for you, or is this and how are you looking at this? Julian Evans: Hi, Jason. It is Julian. In in terms of the builder buy downs, look, we we have we have seen builder buy downs in the portfolios before. I guess it is become, you know, more of an a a noted type of traded. If people are, like, looking for some story to pick with particularly typed type of trade. We have noticed it when we run our Mist models things like that. It has not been anything that we have tried to focus in on the portfolio. I think we have tried to you know, keep the pay ups in the portfolio modest at this point. In addition to that, I think, you know, if we are getting into some type of refinance wave, tried and true has always been some type of loan balance. Story. Know, typically, those get bid up as rates go down and prepayment speeds get get faster. What does not have you know, really translate often are some of these one-off stories and, you know, that really have not been around for a while. You know, I think the the the bid seems seems to fade on those. Jay Lown: Okay. So the spec pool's keeping it pretty straightforward. Jason Stewart: Mhmm. Okay. Julian Evans: Got it. That is it for me. Thank you. Operator: Thank you. As a reminder, task Our next question comes from Mikhail Goberman with Citizens JMP. Your line is open. Mikhail Goberman: Hey, guys. Hope everybody is doing well. I guess I lost a question there. No worries. No worries. Appreciate the apology, Jason. Totally unnecessary. We will we can we can have a battle who who gets to that question first going forward. Congrats on your own liberation day, guys, and the first full quarter of that. And I guess if I have anything to ask, obviously, we had the big Rocket Cooper deal. I was wondering if you are seeing any effect post that deal on more MSR pricing and and some Garrett Edson: supply and just your general thoughts on on the servicing space. I know you you said you are not really adding at the margin to MSRs at the moment, but just your general thoughts post that that mass deal. Thanks. Sure. Ray, can you handle that? Mikhail Goberman: Yeah. Sure. Raymond Slater: Right now, I mean, it is it is been still pretty quiet. I think with the quarter as a whole, you have probably seen that volumes have been lower than they had been prior year. You know, I I suspect that you know, going forward, assuming the completion of that, you know, the combination of Rocket and Cooper the buying impact will not really be all that different than it was before. But Mikhail Goberman: you know, we have not really seen any Garrett Edson: substantial changes in in pricing dynamics in the market right now. Okay. I appreciate that. Mikhail Goberman: And as far as EAD goes, you said it might trend a little bit lower going forward. How much of the EAD in the first quarter was due to the roll off of those expenses associated with Garrett Edson: internalization. With internalization and the G and A savings, we see it at about $0.02 the first quarter. Mikhail Goberman: Okay. And Michael Hutchby: forgive me if you mentioned this in your prepared remarks, but going forward, you said EAD was gonna trend a little bit lower because of what exactly? Garrett Edson: Because of the the large swap that that we were chatting about earlier. That large swap is contributing to EAD each quarter as well. And since that one matured in the March, that one is no longer, in the portfolio. Mikhail Goberman: Got it. Great. Thank you, guys. And of course, best of luck going forward in this interesting times. Yeah. Thank you. Thanks, Miguel. Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to Jay Lown for closing remarks. Jay Lown: Thanks, operator. Thank you for joining us on our first quarter 2025 earnings call, and we look forward to updating you on our second quarter results soon. Operator: Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.