Cherry Hill Mortgage Investment Corporation (NYSE:CHMI) (“Cherry
Hill” or the “Company”) today reported results for the third
quarter of 2019.
Third Quarter 2019 and Subsequent Highlights
- GAAP net loss applicable to common stockholders of $5.4
million, or $0.32 per share
- Core earnings attributable to common stockholders of $7.0
million, or $0.41 per share
- Book value of $17.01 per share at September 30, 2019, a 1.3%
increase from June 30, 2019, net of the Company’s third quarter
dividend
- Declared regular common dividend of $0.40 per share; annualized
common dividend yield at market close was 11.4% at November 11,
2019
- Aggregate portfolio leverage stood at 5.9x at September 30,
2019
- Added $100 million of uncommitted MSR financing capacity in the
third quarter
- Amended Ginnie Mae MSR Term Facility subsequent to quarter end
to provide an additional $10 million of borrowing capacity to fund
advances on the pledged Ginnie Mae MSRs
“We were very active in managing our portfolio to appropriately
mitigate risk and protect book value during another volatile
quarter,” said Jay Lown, President and Chief Executive Officer of
Cherry Hill Mortgage Investment Corporation. “Given the ongoing
lower interest rate environment, we remain nimble in our overall
approach to preserve our book value while working to grow the
Company longer term in our efforts to drive shareholder value.”
Operating Results
Cherry Hill reported GAAP net loss applicable to common
stockholders for the third quarter of 2019 of $5.4 million, or
$0.32 per basic and diluted weighted average common share
outstanding. The reported GAAP net loss was determined based
primarily on the following: $6.7 million of net interest income,
$14.6 million of net servicing income, a net realized gain of $0.3
million on RMBS, a net realized gain of $12.6 million on
derivatives, a net unrealized loss of $2.1 million on derivatives,
a net unrealized loss of $37.5 million on Servicing Related Assets,
and general and administrative expenses and management fees paid to
Cherry Hill’s external manager in the aggregate amount of $3.2
million.
With the evolving composition of the portfolio over the past few
years, Cherry Hill updated its core earnings methodology to provide
a more accurate reflection of the earnings power of the business.
Core earnings attributable to common stockholders for the third
quarter of 2019 were $7.0 million, or $0.41 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 September
30,
2019
2018
(unaudited)
(unaudited)
Income
Interest income
$
19,383
$
15,323
Interest expense
12,635
9,257
Net interest income
6,748
6,066
Servicing fee income
18,687
14,017
Servicing costs
4,102
2,981
Net servicing income
14,585
11,036
Other income (loss)
Realized gain (loss) on RMBS, net
275
(428
)
Realized gain (loss) on derivatives,
net
12,627
(707
)
Realized gain on acquired assets, net
54
-
Unrealized gain (loss) on derivatives,
net
(2,133
)
8,807
Unrealized gain (loss) on investments in
MSRs
(37,514
)
6,218
Total Income (Loss)
(5,358
)
30,992
Expenses
General and administrative expense
1,194
1,165
Management fee to affiliate
2,042
1,599
Total Expenses
3,236
2,764
Income (Loss) Before Income
Taxes
(8,594
)
28,228
Provision for (Benefit from) corporate
business taxes
(5,643
)
729
Net Income (Loss)
(2,951
)
27,499
Net (income) loss allocated to
noncontrolling interests in Operating Partnership
43
(364
)
Dividends on preferred stock
2,459
1,372
Net Income (Loss) Applicable to Common
Stockholders
$
(5,367
)
$
25,763
Net Income (Loss) Per Share of Common
Stock
Basic
$
(0.32
)
$
1.62
Diluted
$
(0.32
)
$
1.62
Weighted Average Number of Shares of
Common Stock Outstanding
Basic
16,883,816
15,864,774
Diluted
16,896,605
15,873,030
_______________ 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
third quarter 2019 was approximately $15.8 million.
Three Months Ended September
30,
2019
2018
(unaudited)
(unaudited)
Net Income (Loss)
$
(2,951
)
$
27,499
Other comprehensive income:
Net unrealized gain (loss) on RMBS
15,826
(13,656
)
Reclassification of net realized gain
(loss) on RMBS included in earnings
(275
)
428
Other comprehensive income (loss)
15,551
(13,228
)
Comprehensive income
$
12,600
$
14,271
Comprehensive income attributable to
noncontrolling interests in Operating Partnership
203
187
Dividends on preferred stock
2,459
1,372
Comprehensive income attributable to
common stockholders
$
9,938
$
12,712
_______________ Dollar amounts in thousands. Certain prior
period amounts have been reclassified to conform to current period
presentation.
Portfolio Highlights for the Quarter Ended September 30,
2019
The Company realized servicing fee income of $18.7 million,
interest income of $19.4 million and other loss of $26.7 million
primarily related to unrealized losses on investments in Servicing
Related Assets. The unpaid principal balance for the MSR portfolio
stood at $27.9 billion as of September 30, 2019 and the carrying
value of the MSR portfolio ended the quarter at $255.8 million. Net
interest spread for the RMBS portfolio stood at 0.87% and the
debt-to-equity ratio on the aggregate portfolio ended the quarter
at 5.9x.
The RMBS portfolio had a book value of $2.4 billion and carrying
value of approximately $2.5 billion at quarter-end September 30,
2019. The portfolio had a weighted average coupon of 3.89% and
weighted average maturity of 26 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 September 30, 2019, the Company held interest rate
swaps with a notional amount of $2.4 billion, swaptions with a
notional amount of $35.0 million, TBAs with a notional amount of
$244.7 million and Treasury futures with a notional amount of
$411.0 million.
As of September 30, 2019, Cherry Hill’s GAAP book value was
$17.01 per diluted share, an increase of 1.3%, net of the third
quarter dividend, from book value per share of $16.80 as of June
30, 2019.
Dividends
On September 4, 2019, the Board of Directors declared a
quarterly dividend of $0.40 per share of common stock for the third
quarter of 2019. The dividends were paid in cash on October 29,
2019 to common stockholders of record as of the close of business
on September 30, 2019. Additionally, on September 13, 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 third quarter of 2019. The dividends were paid in cash on
October 15, 2019 to Series A and B Preferred stockholders of record
as of the close of business on September 30, 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 (net of any estimated MSR amortization),
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 any tax (benefit) expense on unrealized gain (loss) on
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 September 30,
2019 and 2018:
Three Months Ended September
30,
2019
2018
(unaudited)
(unaudited)
Net Income (Loss)
$
(2,951
)
$
27,499
Realized loss (gain) on RMBS, net
(275
)
428
Realized loss (gain) on derivatives,
net
(12,627
)
707
Realized gain on acquired assets, net
(54
)
-
Unrealized loss (gain) on derivatives,
net
2,133
(8,807
)
Unrealized loss (gain) on investments in
MSRs, net of estimated MSR amortization
29,105
(1)
(10,260
)
Tax (benefit) expense on unrealized (loss)
gain on MSRs
(5,722
)
725
Total core earnings:
$
9,609
$
10,292
Core earnings attributable to
noncontrolling interests in Operating Partnership
(153
)
(136
)
Dividends on preferred stock
2,459
1,372
Core Earnings Attributable to Common
Stockholders
$
6,997
$
8,784
Core Earnings Attributable to Common
Stockholders, per Diluted Share
$
0.41
$
0.55
GAAP Net Income (Loss) Per Share of
Common Stock, per Diluted Share
$
(0.32
)
$
1.62
_________ Dollar amounts in thousands, except per share amounts.
Certain prior period amounts have been reclassified to conform to
current period presentation.
1 Beginning with this reporting period, the Company has refined
the MSR amortization method utilized in determining the amount of
realized and unrealized gain (loss) on investments in MSRs, used by
the Company to calculate core earnings. MSR amortization refers to
the portion of the change in fair value of the MSRs that is
primarily due to the realization of cashflows or runoff. The new
method increases the MSR amortization amount taken into account for
the reporting period to better reflect current and expected market
conditions and includes an adjustment for any gain or loss on the
capital used to purchase the MSR. MSR amortization for periods that
ended prior to September 30, 2019 have not been adjusted to reflect
the Company’s refined MSR amortization method. If the refined MSR
amortization method was applied retroactively to the three-month
periods ended March 31, 2019 and June 30, 2019, the Company would
have reported core earnings attributable to common stockholders per
share of $0.50 and $0.38, respectively.
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 September 30, 2019 filed
with the Securities and Exchange Commission on November 12, 2019.
In addition, an investor presentation with supplemental information
regarding Cherry Hill, its business and its financial condition as
of September 30, 2019 and its results of operations for the third
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 Third 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 December 12, 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
“13695859.”
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/20191112005975/en/
Cherry Hill Mortgage Investment Corporation Investor Relations
(877) 870-7005 InvestorRelations@chmireit.com
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