Good day, and thank you for standing by. Welcome to the Cherry Hill Mortgage Investment Corporation Fourth Quarter 2023 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. [Operator Instructions] 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 fourth quarter 2023 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.chmireit.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 fourth quarter 2023 earnings call. On our prior call, we talked about how we were laser focused on risk management as the 10-year crossed 5% and agency mortgage spreads significantly widened. To that end, we proactively positioned our portfolio for flat to higher rates and to mitigate the spread widening we were seeing in the summer and early fall by hedging out a portion of our basis risk in our RMBS portfolio with TBAs. By doing this, we had a strong third quarter and successfully preserved the vast majority of our shareholders' equity, while others such as Agency REITs were considerably impacted by the spread widening. Through our positioning, we were aware that should mortgage spreads compress, we would also not participate as much in any upside. Shortly after our Q3 call, the Fed unexpectedly pivoted towards a much more accommodative tone, all but signaling that it would consider cutting rates beginning in early to mid-2024. The Fed further reinforced their tone in December despite the data continuing to support a higher for longer strategy. As a result, rates plummeted in the final two months of 2023. Lower coupon MBS outperformed higher coupon MBS and spreads tightened. As a result, our book value was impacted by this near-term movement. That said, we've seen a reversal thus far in 2024 as the data continues to track and align with how we initially positioned our portfolio. Inflation remains hot with the PCE still elevated, which has compelled the Fed to telegraph a more patient posture around future rate cuts. The market has gradually followed, and rates have risen in the first two months of this year. We are watching the Fed and economic indicators closely as we position our portfolio moving forward and believe our overall…

Thank you, Jay. As Jay noted, we had appropriately positioned our portfolio for the higher for longer rate environment. That economic and inflation data continued to support, and we benefited in the third quarter as well as in the October from that positioning. In November, despite the data still supporting our position, we were surprised by the Fed's sudden shift in policy away from higher for longer and clearly intimating that they would be looking to cut interest rates multiple times in 2024. Interest rates rallied, the yield curve flattened and mortgage spreads tightened over the next two months. Ultimately, lower coupon RMBS outperformed the higher coupon RMBS, where we were primarily invested. Our MSRs were impacted, and our portfolio's negative duration was not positioned for the rate rally, leading to our book value performance. Thus far, in 2024, we've seen another pivot in the Fed's policy, partially stepping back from their aggressive language as the economic and inflation data further boost our thesis that our portfolio was appropriately positioned. We are prevailing thus far in the first quarter, but continue to closely watch the Fed and will further proactively adjust our portfolio as necessary given the ongoing volatility. At year end, our MSR portfolio had a UPB of $20 billion and a market value of approximately $254 million dollars The MSR and related net assets represented approximately 44% of our equity capital and approximately 28% of our investable assets, excluding cash, at the end of the quarter. Meanwhile, our RMBS portfolio accounted for approximately 39% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented approximately 72%, excluding cash at year end. Prepayment speeds for our MSR and RMES portfolios continue to remain relatively steady compared to the prior quarter given the elevated mortgage rate…

Thank you, Julian. Our GAAP net loss applicable to common stockholders for the fourth quarter was $35.5 million or $1.29 per weighted average diluted share outstanding during the quarter. While comprehensive loss applicable to common stockholders, which includes the mark-to-market of our available for sale RMBS, was $6.5 million or $0.24 per weighted average diluted share. Our earnings available for distribution attributable to common stockholders were $4.5 million or $0.17 per share. Our book value for common share as of December 31 was $4.53 compared to a book value of $4.99 as of September 30th. 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 fourth quarter, we held interest rate swaps, TBAs and treasury futures, all of which had a combined notional amount of approximately $955 million. You can see more details with respect to our hedging strategy in our 10K as well as in the fourth 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 interest rate derivatives. Operating expenses were $3.5 million for the quarter. On December 8, 2023, our Board of Directors declared a dividend of $0.15 per common share for the fourth quarter of 2023, which was paid in cash on January 31, 2024. We also declared a dividend of $0.5125 per share on our 8.2% Series A cumulative redeemable preferred stock and a dividend of $0.515625 on our 8.25% percent Series B fixed to floating rate cumulative redeemable preferred stock, both of which were paid on January 16, 2024. At this time, we will open up the call for questions. Operator?

Thank you [Operator Instructions]. Our first question comes from Mikhail Goberman with JMP Securities. Your line is open.

I guess the first one I have is, what are you guys’ thoughts on appetite for leverage going forward, given it's kind of in the lowest level of recent memory, I guess, I could say? And I guess the second question would be perhaps an update on book value thus far in the first quarter? Thanks.

In terms of leverage, I think we will adjust that over time. Right now, we feel as if the market is still very volatile spreads in terms of RMBS are still attractive, but they're on the lower side of where they've been over the last year, like the average has been about 150 basis points and right now we're trading a little bit through that probably have some further downside to go, but could easily see given the headlines and what the Fed actually decides to do with the next couple of meetings to still see the markets be very volatile. Longer term, we do think that the Fed will ease later this year. They've moved obviously from a tightening bias to more of a neutral bias. And at some point, they will get to an easing bias once they feel that inflation has gotten to the level that they feel comfortable with.

To touch on book value for you, we see our February 29th book value per share at about flat versus year end quarter end, and that's prior to any first quarter dividend accrual as the board has not yet met to approve it.

Great. Thank you, Julien, Michael. And as far as the preferred stock repurchases of $6.1 million in the last quarter. Can we expect sort of a similar pace going forward quarterly or maybe something else?

I think that's I can't give you a definitive answer there, but it's clear that we're trying to right size the leverage calculation here. And that Series B becomes floating in April. So it is our strong desire to do that. I think the hard part about answering their question about the pace of that is around trying to be mindful about the dilution impact, and we're trying to do it with this minimal impact as we can. So, the pace, I think, depends on a few things, but it's definitely our desire to keep going.

Got you. Thank you. And if I can squeeze in one more, Any sort of thoughts on this potential MSR sales from NYCB?

I don't have any color on that. We've been our conversations with Flagstar have been pretty high level and macro relative to our relationship on the servicing front. But I can't imagine that if they do that, it would be in a small block. So, I imagine that others who have the ability to purchase something $10 billion or higher are probably going to get a better look at that than us. But today, we have no color relative to whether or not that's just a rumor or what. I think the capital they got was a huge step towards stabilizing things. And I just have no insight into what they're thinking relative to future moves to either appease the regulators or prop up their balance sheet.

[Operator Instructions]. And I'm showing no further questions at this time. I would now like to turn the conference back to Jay for closing remarks.

Thank you, operator. Thank you for joining us on our fourth quarter 2023 call. We look forward to updating you in a few months on our first quarter 2024 call. Have a good evening, everyone.

This concludes today's conference call. [Operator Closing Remarks].