CHMI.NYSECherry Hill Mortgage Investment CORP
10-Q: Cherry Hill Mortgage Investment Corp Reports Q1 2025 Results
Sentiment:
Quarterly Report
Cherry Hill Mortgage Investment Corporation reports a net loss for Q1 2025, impacted by unrealized losses on derivatives, but sees gains in RMBS.
Capital raiseThe company issued 1,005,846 shares of common stock under the Common Stock ATM Program, generating gross proceeds of approximately $3.6 million.
Worse than expectedThe company reported a net loss of $6.992 million for Q1 2025, compared to a net income of $12.056 million in Q1 2024.
Summary
- Cherry Hill Mortgage Investment Corporation reported a net loss of $6.992 million for the quarter ended March 31, 2025.
- This compares to a net income of $12.056 million for the same period in 2024.
- The loss was primarily driven by unrealized losses on derivatives, which amounted to $22.741 million.
- However, the company experienced unrealized gains on RMBS, measured at fair value through earnings, of $14.780 million.
- Net interest income was $2.166 million, compared to a net interest expense of $0.907 million in the prior year.
- Servicing fee income was $10.973 million, while servicing costs were $2.545 million.
- The company's RMBS portfolio had a fair value of $1,119.441 million, and investments in Servicing Related Assets were valued at $227.333 million.
- As of March 31, 2025, the company had $1,049.867 million in outstanding repurchase agreements.
- The company issued 1,005,846 shares of common stock under the Common Stock ATM Program, generating gross proceeds of approximately $3.6 million.
- The company did not repurchase any shares of its common or preferred stock during the quarter.
- The company's comprehensive loss attributable to common stockholders was $2.593 million.
- The company's earnings available for distribution (EAD) attributable to common stockholders was $5.376 million, or $0.17 per diluted share.
Sentiment
Score: 5
Explanation: The document presents mixed signals. While there are positive aspects such as gains in RMBS and a net interest income, the overall net loss and unrealized losses on derivatives temper the positive sentiment. The company's ability to raise capital through the ATM program is a positive sign, but the negative impact of interest rate fluctuations and prepayment speeds remains a concern.
Positives
- The company experienced unrealized gains on RMBS, measured at fair value through earnings, of $14.780 million.
- Net interest income was $2.166 million, compared to a net interest expense of $0.907 million in the prior year.
- The company issued 1,005,846 shares of common stock under the Common Stock ATM Program, generating gross proceeds of approximately $3.6 million.
- Earnings available for distribution (EAD) attributable to common stockholders was $5.376 million, or $0.17 per diluted share.
Negatives
- Cherry Hill Mortgage Investment Corporation reported a net loss of $6.992 million for Q1 2025, compared to a net income of $12.056 million in Q1 2024.
- Unrealized losses on derivatives significantly impacted the results, totaling $22.741 million.
Risks
- Changes in interest rates could negatively impact the value of the company's assets and its net interest income.
- Prepayment speeds on mortgage loans could affect the expected yield on the company's assets.
- Credit losses on mortgage loans underlying the MSRs could adversely impact the company's operating results.
- Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition and results of operations.
Future Outlook
The company aims to generate attractive current yields and risk-adjusted total returns for its stockholders over the long term, primarily through dividend distributions and secondarily through capital appreciation. The company expects that its cash on hand combined with the cash flow provided by its operations will be sufficient to satisfy its anticipated liquidity needs with respect to its current investment portfolio, including related financings, potential margin calls and operating expenses.
Industry Context
The company operates in the residential real estate finance industry, which is subject to risks associated with changes in the general economic climate, the mortgage market, tax laws, interest rate levels, and the availability of financing. The company's performance is also affected by the actions of the Federal Reserve and other government agencies.
Comparison to Industry Standards
- It is difficult to compare Cherry Hill Mortgage Investment Corporation directly to industry standards without detailed information on its specific investment strategies and risk profile.
- However, some comparable companies in the mortgage REIT sector include Annaly Capital Management (NLY), AGNC Investment Corp. (AGNC), and MFA Financial (MFA).
- These companies also invest in RMBS and other mortgage-related assets and are subject to similar risks, such as interest rate risk, prepayment risk, and credit risk.
- Investors should compare Cherry Hill's financial metrics, such as net interest margin, leverage ratio, and dividend yield, to those of its peers to assess its relative performance.
Stakeholder Impact
- Shareholders: The net loss and unrealized losses on derivatives may negatively impact shareholder returns.
- Employees: The company's performance may affect employee compensation and job security.
- Customers: The company's investments in MSRs may affect the servicing of mortgage loans for borrowers.
- Creditors: The company's ability to repay its debts depends on its financial performance and access to capital.
Next Steps
- The company will continue to monitor market conditions and adjust its investment strategies accordingly.
- The company will continue to evaluate opportunities to acquire Servicing Related Assets and RMBS.
- The company will continue to manage its interest rate risk through the use of hedging instruments.
- The company will continue to evaluate its capital structure and may issue additional equity or debt securities in the future.
Key Dates
| Date | Description |
|---|---|
| October 31, 2012 | Cherry Hill Mortgage Investment Corporation was incorporated in Maryland. |
| September 24, 2013 | Amended and Restated Management Agreement was dated. |
| October 9, 2013 | The Company completed an initial public offering (the IPO) and a concurrent private placement of its common stock. |
| December 31, 2013 | The Company elected to be taxed as a real estate investment trust (REIT). |
| January 1, 2014 | CHMI Solutions elected to be taxed as a corporation for U.S. federal income tax purposes. |
| August 2018 | The Company instituted an at-the-market offering program for its common stock (the Common Stock ATM Program). |
| July 2018 | The Company, Aurora and QRS V entered into a $ 25.0 million revolving credit facility (the Freddie Mac MSR Revolver). |
| April 2, 2019 | Aurora and QRS V entered into an amendment that increased the maximum amount of the Freddie Mac MSR Revolver to $ 100.0 million. |
| September 2019 | The Company instituted a common stock repurchase program. |
| June 2020 | Following the sale of the Ginnie Mae MSRs to Freedom Mortgage, Freedom Mortgage continued to subservice certain loans that had been purchased from Ginnie Mae pools due to delinquency or default. |
| August 2020 | Freedom Mortgage acquired RoundPoint and it became a wholly-owned subsidiary of Freedom Mortgage. |
| December 31, 2020 | The Sub-REIT has elected to be taxed as a REIT under the Code commencing with its taxable year ended December 31, 2020. |
| October 2021 | Aurora and QRS III entered into a loan and security agreement (the Fannie Mae MSR Revolving Facility). |
| December 2021 | The Internal Revenue Service issued a revenue procedure that temporarily reduced the minimum amount of the total distribution that must be paid in cash to 10% for distributions declared on or after November 1, 2021, and on or before June 30, 2022. |
| August 17, 2022 | Beginning on August 17, 2022, the Company may, at its option, redeem any or all of the shares of Series A Preferred Stock. |
| November 2022 | The Company entered into amendments to the existing At Market Issuance Sales Agreements, increasing the aggregate offering price to up to an aggregate of $150.0 million of its common stock. |
| April 2023 | The Companys board of directors adopted the Cherry Hill Mortgage Investment Corporation 2023 Equity Incentive Plan (the 2023 Plan). |
| June 2023 | At the Companys annual meeting of stockholders, the 2023 Plan was approved. |
| September 30, 2023 | RoundPoint ceased being a wholly owned subsidiary of Freedom Mortgage when it was acquired by an unaffiliated entity, Matrix Financial Services Corporation. |
| October 2023 | Aurora and QRS III entered into an amendment to the Fannie Mae MSR Revolving Facility that extended the revolving period for an additional 24 months. |
| December 2023 | The Company initiated a preferred stock repurchase program. |
| January 29, 2024 | The Company terminated the Preferred Series A ATM Program effective as of January 29, 2024. |
| April 15, 2024 | Since April 15, 2024, the Company may, at its option, redeem the Series B Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $25.00 per share. |
| July 2024 | The Borrowers entered into an amendment that extended the revolving period for an additional 364 days with the Borrowers option for two renewals for similar terms followed by a one-year term out feature with a 24 -month amortization schedule. |
| May 30, 2024 | The Company granted certain eligible participants of the 2023 Plan other equity-based awards in the form of a total of 181,942 restricted stock units (RSUs) under the 2023 Plan. |
| June 14, 2024 | The Company granted an aggregate of 55,704 shares of restricted common stock to the Companys independent directors (18,568 shares each) subject to the terms and conditions of a restricted stock award agreement and the 2023 Plan. |
| June 26, 2024 | The Company granted 7,712 shares of common stock to the Companys Chief Financial Officer, Treasurer and Secretary (CFO), subject to the terms and conditions of a stock award agreement and the 2023 Plan. |
| August 2024 | The Company entered into amendments to the existing At Market Issuance Sales Agreements, increasing the aggregate offering price to up to an aggregate of $150.0 million of its common stock. |
| November 14, 2024 | The Company completed an Internalization Event within the meaning of the management agreement with CHMM. |
| December 18, 2024 | Since December 18, 2024, the federal funds rate target has remained steady at 4.25% to 4.5%. |
| April 1, 2025 | On April 1, 2025, the monthly redemption cap on U.S. Treasury Securities was reduced from $25 billion to $5 billion. |
| May 6, 2025 | Date of report. |
Keywords
RMBS, MSR, REIT, Mortgage Investment, Derivatives, Interest Rates, Prepayment Speeds, Servicing Rights, Cherry Hill Mortgage
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