Cherry Hill Mortgage Investment Corporation (NYSE: CHMI)
(“Cherry Hill” or the “Company”) today reported results for the
second quarter 2020.
Second Quarter 2020 Highlights
- GAAP net loss applicable to common stockholders of $12.4
million, or $0.73 per share
- Core earnings attributable to common stockholders of $7.9
million, or $0.47 per share
- Book value of $13.41 per share at June 30, 2020, a 2.3%
reduction from $13.73 at March 31, 2020, net of the Company’s
second quarter dividend. Approximately 70% of the reduction was due
to paying half of the first quarter common dividend in stock
- Declared regular common dividend of $0.27 per share, annualized
common dividend yield at market close was 10.8% at August 7,
2020
- Aggregate portfolio leverage stood at 4.4x at June 30,
2020
- As of June 30, the Company had unrestricted cash of
approximately $94.5 million
“We are pleased with our earnings performance this quarter. Our
second quarter results are reflective of our decisive efforts to
minimize the negative impact to our portfolio from the market
dislocation due to COVID 19,” said Jay Lown, President and Chief
Executive Officer of Cherry Hill Mortgage Investment Corporation.
“We continue to be measured in our approach given the challenging
environment and seek assets that we believe will deliver attractive
risk-adjusted returns.”
Operating Results
Cherry Hill reported GAAP net loss applicable to common
stockholders for the second quarter of 2020 of $12.4 million, or
$0.73 per basic weighted average common share outstanding and $0.73
per 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, $11.4 million of net servicing
income, a net realized loss of $1.8 million on RMBS, a net realized
loss of $11.3 million on investments in MSRs, a net realized gain
of $4.6 million on derivatives, a net realized loss on acquired
assets of $0.5 million, a net unrealized loss of $4.6 million on
derivatives, a net unrealized loss of $17.0 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 $3.4 million.
Core earnings attributable to common stockholders for the second
quarter of 2020 were $7.9 million, or $0.47 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,
2020
2019
(unaudited)
(unaudited)
Income
Interest income
$
10,132
$
17,216
Interest expense
3,425
11,707
Net interest income
6,707
5,509
Servicing fee income
18,032
18,362
Servicing costs
6,594
4,103
Net servicing income
11,438
14,259
Other income (loss)
Realized loss on RMBS, net
(1,769
)
-
Realized loss on investments in MSRs,
net
(11,347
)
-
Realized gain (loss) on derivatives,
net
4,558
(365
)
Realized loss on acquired assets, net
(548
)
-
Unrealized loss on derivatives, net
(4,581
)
(3,819
)
Unrealized gain on investments in Excess
MSRs
-
-
Unrealized loss on investments in MSRs
(17,025
)
(44,042
)
Total Loss
(12,567
)
(28,458
)
Expenses
General and administrative expense
1,420
1,138
Management fee to affiliate
1,974
1,934
Total Expenses
3,394
3,072
Loss Before Income Taxes
(15,961
)
(31,530
)
Benefit from corporate business taxes
(5,837
)
(4,372
)
Net Loss
(10,124
)
(27,158
)
Net income loss allocated to
noncontrolling interests in Operating Partnership
180
438
Dividends on preferred stock
2,461
2,593
Net Loss Applicable to Common
Stockholders
$
(12,405
)
$
(29,313
)
Net Loss Per Share of Common
Stock
Basic
$
(0.73
)
$
(1.75
)
Diluted
$
(0.73
)
$
(1.75
)
Weighted Average Number of Shares of
Common Stock Outstanding
Basic
16,881,987
16,776,472
Diluted
16,895,408
16,789,261
_________ 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 2020 was approximately $14.0 million.
Three Months Ended June
30,
2020
2019
(unaudited)
(unaudited)
Net Loss
$
(10,124)
$
(27,158)
Other comprehensive income:
Net unrealized gain on RMBS
14,017
25,536
Reclassification of net realized gain on
RMBS included in earnings
1,769
-
Other comprehensive income
15,786
25,536
Comprehensive income (loss)
$
5,662
$
(1,622)
Comprehensive income (loss) attributable
to noncontrolling interests in Operating Partnership
113
(29)
Dividends on preferred stock
2,461
2,593
Comprehensive income (loss) attributable
to common stockholders
$
3,088
$
(4,186)
_________ 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,
2020
The Company realized servicing fee income of $18.0 million,
interest income of $10.1 million and other loss of $30.7 million,
primarily related to realized losses in MSRs and RMBS, as well as
unrealized losses on investments in Servicing Related Assets and
derivatives, and partially offset by realized gains on derivatives.
The unpaid principal balance for the MSR portfolio stood at $24.1
billion as of June 30, 2020 and the carrying value of the MSR
portfolio ended the quarter at $177.3 million. Net interest spread
for the RMBS portfolio stood at 1.64% and the debt-to-equity ratio
on the aggregate portfolio ended the quarter at 4.4x.
The RMBS portfolio had both a book and carrying value of
approximately $1.5 billion at quarter-end June 30, 2020. The
portfolio had a weighted average coupon of 3.46% and weighted
average maturity of 27 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, 2020, the Company held interest rate swaps
with a notional amount of $1.6 billion, swaptions with a notional
amount of $60.0 million, TBAs with a notional amount of ($33.0)
million and Treasury futures with a notional amount of $483.5
million.
As of June 30, 2020, Cherry Hill’s GAAP book value was $13.41
per diluted share, net of the second quarter dividend, a 2.3%
reduction from book value per share of $13.73 as of March 31,
2020.
Dividends
On June 18, 2020, the Board of Directors declared a quarterly
dividend of $0.27 per share of common stock for the second quarter
of 2020. The dividend was paid in cash on July 28, 2020 to common
stockholders of record as of the close of business on June 30,
2020. 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 $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 2020. The dividends were
paid in cash on July 15, 2020 to Series A and B Preferred
stockholders of record as of the close of business on June 30,
2020.
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. 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 and includes an
adjustment for any gain or loss on the capital used to purchase the
MSR. Additionally, core earnings excludes any tax (benefit) expense
on realized and 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 June 30, 2020
and 2019:
Three Months Ended June
30,
2020
2019
(unaudited)
(unaudited)
Net Loss
$
(10,124)
$
(27,158)
Realized loss on RMBS, net
1,769
-
Realized loss (gain) on derivatives,
net
(4,558)
365
Realized loss on investments in MSRs,
net
11,347
-
Realized loss on acquired assets, net
548
-
Unrealized loss on derivatives, net
4,581
3,819
Unrealized loss (gain) on investments in
MSRs, net of estimated MSR
amortization
11,801
38,733
(1)
Tax expense on unrealized gain on MSRs
(4,832)
(4,249)
Total core earnings:
$
10,532
$
11,510
Core earnings attributable to
noncontrolling interests in Operating Partnership
(193)
(185)
Dividends on preferred stock
2,461
2,593
Core Earnings Attributable to Common
Stockholders
$
7,878
$
8,732
Core Earnings Attributable to Common
Stockholders, per Diluted Share
$
0.47
$
0.52
GAAP Net Loss Per Share of Common
Stock, per Diluted Share
$
(0.73)
$
(1.75)
_________ Dollar amounts in thousands, except per share amounts.
Certain prior period amounts have been reclassified to conform to
current period presentation.
1 MSR amortization for periods that ended prior to September 30,
2019 have not been adjusted to reflect the Company’s refined MSR
amortization method.
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, 2020 filed with
the Securities and Exchange Commission on August 10, 2020. In
addition, an investor presentation with supplemental information
regarding Cherry Hill, its business and its financial condition as
of June 30, 2020 and its results of operations for the second
quarter 2020 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 2020 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 10, 2020 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
“13707938.”
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, 2019, and other documents filed by the Company with the
Securities and Exchange Commission.
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Cherry Hill Mortgage Investment Corporation Investor Relations
(877) 870-7005 InvestorRelations@chmireit.com
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