8-K: Cherry Hill Mortgage Investment Corp Reports Positive Q1 2024 Results Driven by Servicing Income and Derivative Gains

Cherry Hill Mortgage Investment Corporation announced a net income of $9.7 million for the first quarter of 2024, driven by strong servicing income and gains on derivatives.

Summary

• Cherry Hill Mortgage Investment Corporation reported a GAAP net income of $9.7 million, or $0.32 per share, for the first quarter of 2024.
• Earnings available for distribution (EAD) were $4.0 million, or $0.13 per diluted share.
• The company's common book value per share was $4.49 as of March 31, 2024.
• A regular common dividend of $0.15 per share was declared, resulting in an annualized yield of 17.1% based on the May 3, 2024 closing price.
• Approximately 372,000 shares of Series B preferred stock were repurchased for $9.3 million, with $41.2 million remaining in the repurchase program.
• The aggregate portfolio leverage was 4.5x at the end of the quarter.
• The company held $47.5 million in unrestricted cash as of March 31, 2024.
• Net servicing income was $10.3 million, while net interest expense was $0.9 million.
• The company experienced a net realized gain of $6.3 million on derivatives and a net unrealized gain of $12.3 million on derivatives.
• There was a net unrealized loss of $8.3 million on RMBS and a net unrealized loss of $3.3 million on investments in Servicing Related Assets.
• The unpaid principal balance for the MSR portfolio was $19.6 billion, with a carrying value of $250.4 million.
• The RMBS portfolio had a book value of approximately $1.1 billion and a carrying value of approximately $1.0 billion.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the company's return to profitability and strong dividend yield, but there are some concerns about unrealized losses and market volatility.

Positives

• The company achieved a net income of $9.7 million, indicating a profitable quarter.
• The earnings available for distribution (EAD) of $4.0 million shows the company's operational performance.
• The common dividend yield of 17.1% is attractive for investors.
• The repurchase of preferred stock demonstrates a commitment to managing capital structure.
• The company has a strong cash position with $47.5 million in unrestricted cash.
• The net servicing income of $10.3 million is a significant contributor to the company's revenue.
• The company's use of derivatives resulted in a net gain of $6.3 million.

Negatives

• The company experienced a net interest expense of $0.9 million.
• There was a net unrealized loss of $8.3 million on RMBS.
• The company also experienced a net unrealized loss of $3.3 million on investments in Servicing Related Assets.

Risks

• The company is exposed to risks associated with widening spreads and higher interest rates.
• The RMBS portfolio experienced unrealized losses, indicating potential volatility.
• The company's performance is subject to the shifting market environment.
• The company's use of derivatives introduces counterparty risk and market risk.

Future Outlook

The company continues to monitor the shifting environment to optimally position its portfolio and make progress in stabilizing its equity profile, with a focus on long-term growth opportunities and generating sustainable risk-adjusted returns.

Management Comments

• Jay Lown, President and CEO, stated that the company's investment portfolios positioning considerably offset the impact of widening spreads and higher rates during the quarter.
• Management is closely monitoring the consistently shifting environment to optimally position the portfolio.
• Management is making steady progress in stabilizing the company's equity profile.

Industry Context

This announcement reflects the challenges and opportunities within the mortgage REIT sector, where companies are navigating interest rate volatility and market fluctuations. The focus on servicing income and strategic use of derivatives is a common approach in this industry to manage risk and enhance returns.

Comparison to Industry Standards

• Cherry Hill's performance is comparable to other mortgage REITs that focus on residential mortgage assets.
• The company's leverage ratio of 4.5x is within the typical range for mortgage REITs.
• The dividend yield of 17.1% is relatively high, which may be attractive to income-seeking investors but also reflects the higher risk profile of the sector.
• Companies like AGNC Investment Corp. and Annaly Capital Management are also active in the RMBS market and face similar challenges related to interest rate risk and portfolio management.
• The use of interest rate swaps and other derivatives is a common practice among these companies to hedge against interest rate fluctuations.

Stakeholder Impact

• Shareholders will benefit from the positive earnings and high dividend yield.
• Employees will be impacted by the company's overall performance and stability.
• Customers and suppliers are not directly impacted by this report.

Next Steps

• The company will host a conference call to discuss the results.
• The company will continue to monitor the market environment and adjust its portfolio accordingly.
• The company will file its 10-Q report with the SEC.

Key Dates

Keywords

Mortgage REIT, MSR, RMBS, Dividends, Real Estate Finance, Derivatives, Servicing Income, Preferred Stock, Leverage, Interest Rate Swaps