Cherry Hill Mortgage Investment Corp (CHMI) - Q2 2024 Filing Summary
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the period ended June 30, 2024. Cherry Hill Mortgage Investment Corporation (CHMI) is a Maryland corporation operating as a Real Estate Investment Trust (REIT) focused on acquiring, investing in, and managing residential mortgage assets, specifically Agency Residential Mortgage-Backed Securities (RMBS) and Mortgage Servicing Rights (MSRs). The Company is externally managed by Cherry Hill Mortgage Management, LLC (the "Manager").
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|
| Net Interest Income | $167,000 | ($740,000) | ($794,000) |
| Net Servicing Income | $8,894,000 | $19,151,000 | $22,081,000 |
| Total Income (Loss) | $6,579,000 | $22,927,000 | ($10,836,000) |
| Net Income (Loss) | $784,000 | $12,840,000 | ($17,696,000) |
| Net Income Applicable to Common Stockholders | ($1,864,000) | $7,802,000 | ($22,284,000) |
| EPS (Basic/Diluted) | ($0.06) | $0.26 | ($0.88) |
| Total Assets | $1,416.5 million | - | - |
| Total Liabilities | $1,178.8 million | - | - |
| Stockholders' Equity | $237.8 million | - | - |
| Cash and Cash Equivalents | $52.4 million | - | - |
| Repurchase Agreements (Debt) | $994.8 million | - | - |
Material Changes vs. Prior Period
- Profitability Improvement: The Company reported a Net Income of $784,000 for Q2 2024, a significant improvement from the Net Loss of $17.7 million for the same period in 2023. This turnaround is largely driven by a reduction in unrealized losses on RMBS and Servicing Related Assets compared to the prior year.
- Asset Portfolio: RMBS assets increased to $1.067 billion (from $1.012 billion at year-end 2023), while Servicing Related Assets (MSRs) decreased to $234.3 million (from $253.6 million) due to sales and fair value adjustments.
- Debt Levels: Borrowings under repurchase agreements increased to $994.8 million from $903.5 million at December 31, 2023, reflecting the purchase of new RMBS securities.
- Preferred Stock Repurchases: The Company repurchased 395,897 shares of Series B Preferred Stock during the first six months of 2024, resulting in a net gain of $78,000 attributable to common stockholders for the period.
- Unrealized Losses: Unrealized losses on RMBS measured at fair value through earnings were $4.4 million in Q2 2024, compared to $6.6 million in Q2 2023. Unrealized losses on MSRs were $3.3 million in Q2 2024, compared to $6.0 million in Q2 2023.
Guidance, Outlook, and Material Events
- Management Internalization: On July 9, 2024, the Board of Directors approved a plan to internalize management, terminating the Management Agreement with the external Manager. The Company intends to operate as a fully integrated, internally managed mortgage REIT.
- Dispute Over Termination Fee: Following the announcement, the Manager's counsel asserted that a termination fee of approximately $18.4 million is due. The Company's counsel has denied this claim, stating the Internalization Event does not trigger a fee under the agreement. The Company intends to vigorously contest this matter if it results in litigation.
- Interest Rate Environment: Management notes that the Federal Reserve has signaled potential rate cuts as soon as September 2024. Lower rates could reduce funding costs but may increase prepayment speeds, potentially reducing the value of MSRs and accelerating premium amortization on RMBS.
- Non-GAAP Measure: Earnings Available for Distribution (EAD) attributable to common stockholders was $2.3 million ($0.08 per share) for Q2 2024, down from $4.0 million ($0.13 per share) in Q1 2024, primarily due to changes in interest rates and increased expenses.
Investor Verification Checklist
- Termination Fee Liability: Verify the status of the dispute regarding the $18.4 million termination fee and the likelihood of litigation or settlement.
- Internalization Timeline: Confirm the expected timeline for the transition to self-management and the retention of key personnel currently provided by the Manager.
- Interest Rate Sensitivity: Review the impact of potential Federal Reserve rate cuts on the Company's MSR portfolio value and RMBS prepayment speeds.
- Liquidity Position: Assess the Company's ability to meet margin calls and debt obligations given the current leverage ratio and cash reserves of $52.4 million.
- Preferred Stock Status: Monitor the remaining capacity under the preferred stock repurchase program ($40.6 million remaining) and the impact of the floating rate on Series B dividends post-April 2024.