Cherry Hill Mortgage Investment Corporation Announces First Quarter 2024 Results

Rhea-AI Summary

Cherry Hill Mortgage Investment reported first quarter 2024 results with GAAP net income of $9.7 million, EAD of $4.0 million, common book value per share of $4.49, and a regular dividend of $0.15 per share. The company repurchased $9.3 million of preferred stock shares and had $47.5 million of unrestricted cash. Aggregate portfolio leverage was 4.5x, with a strategic investment portfolio positioning to offset market impacts. Operating results showed positive net income and earnings for the quarter. Portfolio highlights included net servicing fee income of $10.3 million, with a focus on optimizing portfolio performance and managing risks.

Positive

• The company reported a GAAP net income of $9.7 million for the first quarter of 2024.

• Earnings available for distribution (EAD) were $4.0 million, or $0.13 per diluted share.

• The common book value per share was $4.49 as of March 31, 2024.

• Cherry Hill repurchased approximately 372,000 shares of 8.250% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, totaling $9.3 million.

• The company had unrestricted cash of $47.5 million as of May 3, 2024.

• Aggregate portfolio leverage stood at 4.5x at the end of the first quarter 2024.

• The strategic investment portfolio positioning helped offset the impact of widening spreads and higher rates during the quarter.

• The company's operating results showed positive net income and earnings for the quarter.

• The portfolio had strategic mitigation strategies in place to manage duration and interest rate risks associated with RMBS and MSRs.

Negative

• Net unrealized loss on RMBS classified as available-for-sale was approximately $6.6 million.

• The weighted average coupon on the RMBS portfolio was 4.71%, with a weighted average maturity of 28 years.

• Interest rate swaps, TBAs, and Treasury futures were used to mitigate duration and interest rate risks associated with the RMBS and MSRs.

• The company's Earnings available for distribution (EAD) were $6.4 million for the first quarter of 2024.

• EAD attributable to common stockholders per diluted share was $0.13 for the quarter.

• EAD is a non-GAAP financial measure used to provide insight into the company's ongoing operational performance.

• The company's net income per share of common stock was $0.32 for the quarter.

• Cherry Hill used various financial instruments to manage risks and optimize portfolio performance.

Insights

Financial Analyst

Cherry Hill Mortgage Investment Corporation's first quarter 2024 GAAP net income of $9.7 million, equating to $0.32 per share and an earnings available for distribution (EAD) of $4.0 million, or $0.13 per diluted share, reflects a significant rebound from the prior quarter's loss of $35.48 million. One aspect of note is the declared common dividend of $0.15 per share, with a considerable annualized yield of 17.1%. This high yield could be interpreted as an incentive to attract investors amidst a potentially risky investment environment, but it warrants caution due to sustainability concerns. The repurchase of preferred stock signals management's confidence in the equity profile and offers a slight boost to common shareholders' value. The reported aggregate portfolio leverage ratio of 4.5x is within a tolerable range, indicating moderate risk. However, the unrealized losses on RMBS and Servicing Related Assets, coupled with fluctuating derivative gains and losses, show exposure to market volatility, which could unsettle investors with a low-risk tolerance. The unrestricted cash position of $47.5 million suggests adequate liquidity for short-term operations. Overall, the company's capacity to navigate interest rate fluctuations will be important to sustaining its performance.

Real Estate Investment Trust (REIT) Analyst

From a REIT perspective, the net interest spread of 3.42% on Cherry Hill's RMBS portfolio is a critical figure, indicative of the net return on their investments. This spread is relatively healthy, providing a buffer against potential interest rate hikes. The unpaid principal balance of the MSR portfolio at $19.6 billion with a carrying value of $250.4 million demonstrates a sizeable investment in mortgage servicing rights, which can be a stable source of income if managed effectively. The strategic use of interest rate swaps and TBAs to hedge duration and interest rate risk shows an active approach to risk management, which is reassuring. However, the book value per share of $4.49, after accounting for dividends, suggests a potential decline in asset values that will need to be monitored. As an investor, it's essential to understand that shifts in the interest rate environment and real estate market dynamics can lead to significant impacts on a mortgage REIT's portfolio value and income stability.

FARMINGDALE, N.J.--(BUSINESS WIRE)-- Cherry Hill Mortgage Investment Corporation (NYSE: CHMI) (“Cherry Hill” or the “Company”) today reported results for the first quarter 2024.

First Quarter 2024 Highlights

• GAAP net income applicable to common stockholders of $9.7 million, or $0.32 per share.
• Earnings available for distribution (“EAD”) attributable to common stockholders of $4.0 million, or $0.13 per diluted share.
• Common book value per share of $4.49 at March 31, 2024.
• Declared regular common dividend of $0.15 per share, annualized common dividend yield was 17.1% based on the closing sale price of the Company’s common stock as reported by the NYSE on May 3, 2024.
• As of May 3, 2024, approximately 372,000 shares of 8.250% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock had been repurchased, totaling $9.3 million. There is $41.2 million of availability left in the program.
• Aggregate portfolio leverage stood at 4.5x at March 31, 2024.
• As of March 31, 2024, the Company had unrestricted cash of $47.5 million.

“Our investment portfolio’s positioning considerably offset the impact of widening spreads and higher rates during the quarter,” said Jay Lown, President and CEO of Cherry Hill Mortgage Investment Corporation. “We continue to closely monitor the consistently shifting environment to optimally position our portfolio, while we continue to make steady progress in stabilizing our equity profile.”

Operating Results

Cherry Hill reported GAAP net income applicable to common stockholders for the first quarter of 2024 of $9.7 million, or $0.32 per basic and diluted weighted average common share outstanding. Reported GAAP net income was determined based primarily on the following: $0.9 million of net interest expense, $10.3 million of net servicing income, a net realized gain of $6.3 million on derivatives, a net unrealized loss of $8.3 million on RMBS measured at fair value through earnings, a net unrealized gain of $12.3 million on derivatives, a net unrealized loss of $3.3 million on investments in Servicing Related Assets, and general and administrative expenses and management fees paid to Cherry Hill’s external manager in the aggregate amount of $3.6 million.

Earnings available for distribution attributable to common stockholders for the first quarter of 2024 were $4.0 million, or $0.13 per basic and diluted weighted average common share outstanding. For a reconciliation of GAAP net income to non-GAAP earnings available for distribution, please refer to the reconciliation table accompanying this release.

		Three Months Ended
		March 31, 2024			December 31, 2023
		(unaudited)			(unaudited)
Income
Interest income		$	12,741		$	12,792
Interest expense			13,648			13,182
Net interest expense			(907)			(390)
Servicing fee income			12,891			12,892
Servicing costs			2,634			3,150
Net servicing income			10,257			9,742
Other income (loss)
Realized loss on RMBS, net			-			(14,851)
Realized gain on derivatives, net			6,252			7,106
Realized gain on acquired assets, net			-			11
Unrealized gain (loss) on RMBS, measured at fair value through earnings, net			(8,321)			36,321
Unrealized gain (loss) on derivatives, net			12,324			(55,995)
Unrealized loss on investments in Servicing Related Assets			(3,257)			(12,837)
Total Income (Loss)			16,348			(30,893)
Expenses
General and administrative expense			1,841			1,756
Management fee to affiliate			1,748			1,716
Total Expenses			3,589			3,472
Income (Loss) Before Income Taxes			12,759			(34,365)
Provision for (Benefit from) corporate business taxes			703			(721)
Net Income (Loss)			12,056			(33,644)
Net (income) loss allocated to noncontrolling interests in Operating Partnership			(235)			627
Dividends on preferred stock			(2,307)			(2,463)
Gain on repurchase and retirement of preferred stock			152			-
Net Income (Loss) Applicable to Common Stockholders		$	9,666		$	(35,480)
Net Income (Loss) Per Share of Common Stock
Basic		$	0.32		$	(1.29)
Diluted		$	0.32		$	(1.29)
Weighted Average Number of Shares of Common Stock Outstanding
Basic			29,978,134			27,398,266
Diluted			30,019,969			27,440,101
_______________
Dollar amounts in thousands, except per share amounts.

Net unrealized loss on the Company’s RMBS portfolio classified as available-for-sale that are reported in accumulated other comprehensive income was approximately $6.6 million.

		Three Months Ended
		March 31, 2024			December 31, 2023
		(unaudited)			(unaudited)
Net Income (Loss)		$	12,056		$	(33,644)
Other comprehensive income (loss):
Unrealized gain (loss) on RMBS, available-for-sale, net			(6,596)			29,527
Net other comprehensive income (loss)			(6,596)			29,527
Comprehensive income (loss)		$	5,460		$	(4,117)
Comprehensive (income) loss attributable to noncontrolling interests in Operating Partnership			(106)			76
Dividends on preferred stock			(2,307)			(2,463)
Gain on repurchase and retirement of preferred stock			152			-
Comprehensive income (loss) attributable to common stockholders		$	3,199		$	(6,504)
_____________
Dollar amounts in thousands.

Portfolio Highlights for the Quarter Ended March 31, 2024

The Company realized net servicing fee income of $10.3 million, net interest expense of $0.9 million and other income of $7.0 million, primarily related to realized and unrealized gains on derivatives, partially offset by unrealized losses on the RMBS portfolio and an unrealized loss on investments in Servicing Related Assets. The unpaid principal balance for the MSR portfolio stood at $19.6 billion as of March 31, 2024 and the carrying value of the MSR portfolio ended the quarter at $250.4 million. Net interest spread for the RMBS portfolio stood at 3.42% and the debt-to-equity ratio on the aggregate portfolio ended the quarter at 4.5x.

The RMBS portfolio had a book value of approximately $1.1 billion and carrying value of approximately $1.0 billion at quarter-end March 31, 2024. The portfolio had a weighted average coupon of 4.71% and weighted average maturity of 28 years.

In order to mitigate duration risk and interest rate risk associated with the Company’s RMBS and MSRs, Cherry Hill used interest rate swaps, TBAs and Treasury futures. At quarter end March 31, 2024, the Company held interest rate swaps with a notional amount of $1.1 billion, TBAs with a notional amount of ($418.2) million, and Treasury futures with a notional amount of $256.6 million.

As of March 31, 2024, Cherry Hill’s GAAP book value was $4.49 per diluted share, net of the first quarter dividend.

Dividends

On March 14, 2024, the Board of Directors declared a quarterly dividend of $0.15 per share of common stock for the first quarter of 2024. The dividend was paid in cash on April 30, 2024 to common stockholders of record as of the close of business on March 28, 2024. Additionally, the Board of Directors declared a dividend of $0.5125 per share on the Company’s 8.20% Series A Cumulative Redeemable Preferred Stock and a dividend of $0.515625 per share on the Company’s 8.250% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock for the first quarter 2024. The dividends were paid in cash on April 15, 2024 to Series A and B Preferred stockholders of record as of the close of business on March 28, 2024.

Earnings Available for Distribution

Earnings available for distribution (“EAD”) is a non-GAAP financial measure that we define as GAAP net income (loss), excluding realized gain (loss) on RMBS, unrealized gain (loss) on RMBS measured at fair value through earnings, realized and unrealized gain (loss) on derivatives, realized gain (loss) on acquired assets, realized and unrealized gain (loss) on investments in MSRs (net of any estimated MSR amortization) and any tax expense (benefit) on realized and unrealized gain (loss) on MSRs. MSR amortization refers to the portion of the change in fair value of the MSR that is primarily due to the realization of cashflows, runoff resulting from prepayments and an adjustment for any gain or loss on the capital used to purchase the MSR. EAD also includes interest rate swap periodic interest income (expense) and drop income on TBA dollar roll transactions, which are included in “Realized gain (loss) on derivatives, net” on the consolidated statements of income (loss). EAD is adjusted to exclude outstanding LTIP-OP Units in our Operating Partnership and dividends paid on our preferred stock.

EAD is provided for purposes of potential comparability to other issuers that invest in residential mortgage-related assets. The Company believes providing investors with EAD, in addition to related GAAP financial measures, may provide investors some insight into the Company’s ongoing operational performance. However, the concept of EAD does have significant limitations, including the exclusion of realized and unrealized gains (losses), and given the apparent lack of a consistent methodology among issuers for defining EAD, it may not be comparable to similarly titled measures of other issuers, which define EAD differently from us and each other. As a result, EAD should not be considered a substitute for the Company’s GAAP net income (loss) or as a measure of the Company’s liquidity. While EAD is one indicia of the Company’s earnings capacity, it is not the only factor considered in setting a dividend and is not the same as REIT taxable income which is calculated in accordance with the rules of the IRS.

The following table provides a reconciliation of net income to EAD for the three months ended March 31, 2024 and December 31, 2023:

		Three Months Ended
		March 31, 2024			December 31, 2023
		(unaudited)			(unaudited)
Net Income (Loss)		$	12,056		$	(33,644)
Realized loss on RMBS, net			-			14,851
Realized loss on derivatives, net ¹			3,109			2,804
Realized gain on acquired assets, net			-			(11)
Unrealized loss (gain) on RMBS, measured at fair value through earnings, net			8,321			(36,321)
Unrealized loss (gain) on derivatives, net			(12,324)			55,995
Unrealized loss (gain) on investments in MSRs, net of estimated MSR amortization			(5,937)			3,777
Tax (benefit) expense on realized and unrealized (loss) gain on MSRs			1,199			(332)
Total EAD:		$	6,424		$	7,119
EAD attributable to noncontrolling interests in Operating Partnership			(125)			(127)
Dividends on preferred stock			(2,307)			(2,463)
EAD Attributable to Common Stockholders		$	3,992		$	4,529
EAD Attributable to Common Stockholders, per Diluted Share		$	0.13		$	0.17
GAAP Net Income (Loss) Per Share of Common Stock, per Diluted Share		$	0.32		$	(1.29)
_________
Dollar amounts in thousands, except per share amounts.
Excludes drop income on TBA dollar rolls of $682,000 and $924,000 and interest rate swap periodic interest income of $8.7 million and $9.0 million for the three-month periods ended March 31, 2024 and December 31, 2023, respectively.

Additional Information

Additional information regarding Cherry Hill’s financial condition and results of operations can be found in its Annual Report on Form 10-Q for the quarter ended March 31, 2024 filed with the Securities and Exchange Commission on May 6, 2024. In addition, an investor presentation with supplemental information regarding Cherry Hill, its business and its financial condition as of March 31, 2024 and its results of operations for the first quarter 2024 has been posted to the Investor Relations section of Cherry Hill’s website, www.chmireit.com. Cherry Hill will discuss the investor presentation on the conference call referenced below.

Webcast and Conference Call

The Company’s management will host a conference call today at 5:00 pm Eastern Time. A copy of this earnings release and the investor presentation referenced above will be posted to the Investor Relations section of Cherry Hill’s website, www.chmireit.com. All interested parties are welcome to participate on the live call.

A live webcast of the conference call will be available in the investor relations section of the Company’s website at www.chmireit.com. To listen to the live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. An online archive of the webcast will be available on the Company’s website for one year following the call.

Participants may register for the conference call here. Once registered, dial-in information for the call will be made available.

About Cherry Hill Mortgage Investment Corporation

Cherry Hill Mortgage Investment Corporation is a real estate finance company that acquires, invests in and manages residential mortgage assets in the United States. For additional information, visit www.chmireit.com.

Forward-Looking Statements

This press release contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws, including, among others, statements relating to the Company’s long-term growth opportunities and strategies, expand its market opportunities and create its own Excess MSRs and its ability to generate sustainable and attractive risk-adjusted returns for stockholders. These forward-looking statements are based upon the Company’s present expectations, but these statements are not guaranteed to occur. For a description of factors that may cause the Company's actual results or performance to differ from its forward-looking statements, please review the information under the heading “Risk Factors” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, and other documents filed by the Company with the Securities and Exchange Commission.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240506687204/en/

Cherry Hill Mortgage Investment Corporation

Investor Relations

(877) 870-7005

InvestorRelations@chmireit.com

Source: Cherry Hill Mortgage Investment Corporation

FAQ

What was Cherry Hill Mortgage Investment 's GAAP net income for the first quarter of 2024?

Cherry Hill Mortgage Investment reported a GAAP net income of $9.7 million for the first quarter of 2024.

What was the common book value per share of Cherry Hill Mortgage Investment as of March 31, 2024?

The common book value per share of Cherry Hill Mortgage Investment was $4.49 as of March 31, 2024.

What was Cherry Hill Mortgage Investment 's Earnings available for distribution (EAD) for the first quarter of 2024?

Cherry Hill Mortgage Investment 's Earnings available for distribution (EAD) were $4.0 million for the first quarter of 2024.

What was the aggregate portfolio leverage of Cherry Hill Mortgage Investment at the end of the first quarter 2024?

The aggregate portfolio leverage of Cherry Hill Mortgage Investment stood at 4.5x at the end of the first quarter 2024.

What financial instruments did Cherry Hill Mortgage Investment use to manage risks associated with RMBS and MSRs?

Cherry Hill Mortgage Investment used interest rate swaps, TBAs, and Treasury futures to mitigate duration and interest rate risks associated with RMBS and MSRs.