Cherry Hill Mortgage Investment Corporation (NYSE: CHMI)
(“Cherry Hill” or the “Company”) today reported results for the
second quarter of 2019.
Second Quarter 2019 Highlights
- GAAP net loss applicable to common stockholders of $29.3
million, or $1.75 per diluted share
- Core earnings attributable to common stockholders of $8.7
million, or $0.52 per share
- Book value of $16.80 per share at June 30, 2019, a 4.2% decline
from March 31, 2019, net of the Company’s second quarter
dividend
- Declared regular common dividend of $0.49 per share; annualized
common dividend yield at market close was 13.4% at August 7,
2019
- Aggregate portfolio leverage stood at 5.2x at June 30,
2019
“Notably, we saw prepayments rapidly accelerating in the latter
part of the second quarter, which impacted the value of our MSR
portfolio,” said Jay Lown, President and Chief Executive Officer of
Cherry Hill Mortgage Investment Corporation. “With prepayment
speeds remaining elevated well into the third quarter, and in light
of current and expected market conditions, we expect that our Board
in September will set the common dividend for the third quarter
between 15% and 20% lower than the current dividend of $0.49 per
share.”
Operating Results
Cherry Hill reported GAAP net loss applicable to common
stockholders for the second quarter of 2019 of $29.3 million, or
$1.75 per basic and diluted weighted average common share
outstanding. The reported GAAP net loss was determined based
primarily on the following: $5.5 million of net interest income,
$14.3 million of net servicing income, a net realized loss of $0.4
million on derivatives, a net unrealized loss of $3.8 million on
derivatives, a net unrealized loss of $44.0 million on the MSR
portfolio and general and administrative expenses and management
fees paid to Cherry Hill’s external manager in the aggregate amount
of $3.1 million.
Core earnings attributable to common stockholders for the second
quarter of 2019 were $8.7 million, or $0.52 per basic and diluted
weighted average common share outstanding. For a reconciliation of
GAAP net loss to non-GAAP core earnings, please refer to the
reconciliation table accompanying this release.
Three Months Ended June
30,
2019
2018
(unaudited)
(unaudited)
Income
Interest income
$
17,216
$
12,019
Interest expense
11,707
7,324
Net interest income
5,509
4,695
Servicing fee income
18,362
11,535
Servicing costs
4,103
2,394
Net servicing income
14,259
9,141
Other income (loss)
Realized loss on RMBS, net
-
(121)
Realized loss on derivatives, net
(365)
(2,033)
Unrealized gain (loss) on derivatives,
net
(3,819)
6,009
Unrealized loss on investments in MSRs
(44,042)
(365)
Total Income (Loss)
(28,458)
17,326
Expenses
General and administrative expense
1,138
937
Management fee to affiliate
1,934
1,383
Total Expenses
3,072
2,320
Income (Loss) Before Income
Taxes
(31,530)
15,006
Provision for (Benefit from) corporate
business taxes
(4,372)
1,161
Net Income (Loss)
(27,158)
13,845
Net (income) loss allocated to
noncontrolling interests in Operating Partnership
438
(173)
Dividends on preferred stock
2,593
1,317
Net Income (Loss) Applicable to Common
Stockholders
$
(29,313)
$
12,355
Net Income (Loss) Per Share of Common
Stock
Basic
$
(1.75)
$
0.91
Diluted
$
(1.75)
$
0.91
Weighted Average Number of Shares of
Common Stock Outstanding
Basic
16,776,472
13,616,461
Diluted
16,789,261
13,624,676
_______________
Dollar amounts in thousands, except per share amounts. Certain
prior period amounts have been reclassified to conform to current
period presentation.
Net unrealized gain on the Company’s RMBS portfolio for the
second quarter 2019 was approximately $25.5 million.
Three Months Ended June
30,
2019
2018
(unaudited)
(unaudited)
Net Income (Loss)
$
(27,158)
$
13,845
Other comprehensive income:
Net unrealized gain (loss) on RMBS
25,536
(8,102)
Reclassification of net realized gain on
RMBS included in earnings
-
121
Other comprehensive income (loss)
25,536
(7,981)
Comprehensive income (loss)
$
(1,622)
$
5,864
Comprehensive income (loss) attributable
to noncontrolling interests in Operating Partnership
(29)
75
Dividends on preferred stock
2,593
1,317
Comprehensive income (loss) attributable
to common stockholders
$
(4,186)
$
4,472
_______________
Dollar amounts in thousands. Certain prior period amounts have
been reclassified to conform to current period presentation.
Portfolio Highlights for the Quarter Ended June 30,
2019
The Company realized servicing fee income of $18.4 million from
its MSR portfolio, interest income of $17.2 million from its RMBS
portfolio and other loss of $48.2 million primarily related to
unrealized losses on investments in MSRs. The unpaid principal
balance for the MSR portfolio stood at $27.8 billion as of June 30,
2019 and the carrying value of the MSR portfolio ended the quarter
at $273.7 million. Net interest spread for the RMBS portfolio stood
at 0.84% and the debt-to-equity ratio on the aggregate portfolio
ended the quarter at 5.2x.
The RMBS portfolio had a book value of $2.1 billion and carrying
value of approximately $2.2 billion at quarter-end June 30, 2019.
The portfolio had a weighted average coupon of 3.97% and weighted
average maturity of 25 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, swaptions, TBAs and Treasury futures. At
quarter end June 30, 2019, the Company held interest rate swaps
with a notional amount of $1.5 billion, swaptions with a notional
amount of $50.0 million, TBAs with a notional amount of $185.0
million and Treasury futures with a notional amount of $396.7
million.
As of June 30, 2019, Cherry Hill’s GAAP book value was $16.80
per diluted share, a decrease of 4.2%, net of the first quarter
dividend, from book value per share of $17.54 as of March 31,
2019.
Dividends
On June 13, 2019, the Board of Directors declared a quarterly
dividend of $0.49 per share of common stock for the second quarter
of 2019. The dividends were paid in cash on July 30, 2019 to common
stockholders of record as of the close of business on June 28,
2019. Additionally, on July 15, 2019, 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 $0.515625 per
share on the Company’s 8.250% Series B Fixed-to-Floating Rate
Cumulative Redeemable Preferred Stock for the second quarter of
2019. The dividends were paid in cash on July 15, 2019 to Series A
and B Preferred stockholders of record as of the close of business
on June 28, 2019.
Core Earnings
Core earnings is a non-GAAP financial measure and is currently
defined by the Company as GAAP net income (loss), excluding
realized gain (loss) on RMBS, realized and unrealized (gain) loss
on investments in MSRs, realized and unrealized gain (loss) on
derivatives and realized (gain) loss on acquired assets. Core
earnings is adjusted to exclude outstanding LTIP-OP Units in our
Operating Partnership and dividends paid on preferred stock.
Additionally, core earnings excludes (i) any tax (benefit) expense
on unrealized (gain) loss on MSRs and (ii) any estimated catch up
premium amortization (benefit) cost due to the use of current
rather than historical estimates of constant prepayment rates for
amortization of the excess servicing portion of the MSRs. Core
earnings are provided for purposes of potential comparability to
other issuers that invest in residential mortgage-related assets.
The Company believes providing investors with core earnings, in
addition to related GAAP financial measures, may provide investors
some insight into the Company’s ongoing operational performance.
However, the concept of core earnings 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 core earnings, it may not be
comparable to similarly-titled measures of other issuers, which
define core earnings differently from the Company and each other.
As a result, core earnings should not be considered a substitute
for the Company’s GAAP net income (loss) or as a measure of the
Company’s liquidity.
The following table provides a reconciliation of net income
(loss) to core earnings for the three months ended June 30, 2019
and 2018:
Three Months Ended June
30,
2019
2018
(unaudited)
(unaudited)
Net Income (Loss)
$
(27,158)
$
13,845
Realized loss on RMBS, net
-
121
Realized loss on derivatives, net
365
2,033
Unrealized loss (gain) on derivatives,
net
3,819
(6,009)
Unrealized loss on investments in MSRs
44,042
365
Tax (benefit) expense on unrealized (loss)
gain on MSRs
(4,249)
1,085
Changes due to realization of expected
cash flows
(5,309)
(3,263)
Total core earnings:
$
11,510
$
8,177
Core earnings attributable to
noncontrolling interests in Operating Partnership
(185)
(104)
Dividends on preferred stock
2,593
1,317
Core Earnings Attributable to Common
Stockholders
$
8,731
$
6,756
Core Earnings Attributable to Common
Stockholders, per Share
$
0.52
$
0.50
GAAP Net Income (Loss) Per Share of
Common Stock
$
(1.75)
$
0.91
__________
Dollar amounts in thousands, except per share amounts. Certain
prior period amounts have been reclassified to conform to current
period presentation.
Additional Information
Additional information regarding Cherry Hill’s financial
condition and results of operations can be found in its Quarterly
Report on Form 10-Q for the quarter ended June 30, 2019 filed with
the Securities and Exchange Commission on August 8, 2019. In
addition, an investor presentation with supplemental information
regarding Cherry Hill, its business and its financial condition as
of June 30, 2019 and its results of operations for the second
quarter of 2019 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 P.M. 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 simultaneous webcast of the conference call
will be available to the public on a listen-only basis at
www.chmireit.com. Please allow extra time prior to the call to
visit the site and download any necessary software required to
listen to the webcast.
The conference call may be accessed by dialing 1-877-407-9716
(from within the U.S.) or 1-201-493-6779 (from outside of the U.S.)
ten minutes prior to the scheduled start of the call; please
reference “Cherry Hill Second Quarter 2019 Earnings Call.”
A telephonic replay of the conference call will also be
available two hours following the completion of the call through
11:59 P.M. Eastern Time on September 8, 2019 by dialing
1-844-512-2921 (from within the U.S.) or 1-412-317-6671 (from
outside of the U.S.); please enter replay pin number
“13692891.”
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, 2018, and other documents filed by the Company with the
Securities and Exchange Commission.
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version on businesswire.com: https://www.businesswire.com/news/home/20190808005821/en/
Cherry Hill Mortgage Investment Corporation Investor Relations
(877) 870-7005 InvestorRelations@chmireit.com
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