Release Date: March 06, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cherry Hill Mortgage Investment Corp (CHMI, Financial) successfully completed the internalization of management, which is expected to reduce operating expenses by $1.1 million to $1.6 million in 2025.
- The MSR portfolio saw gains quarter over quarter, contributing positively to the company's financial performance.
- The company maintained a solid liquidity profile with $46 million of unrestricted cash on the balance sheet.
- Cherry Hill Mortgage Investment Corp (CHMI) generated GAAP net income of $0.29 per diluted share for the fourth quarter.
- The RMBS portfolio's prepayment speeds remained relatively steady, indicating stability in the portfolio's performance.
Negative Points
- The company's book value per common share decreased from $4.02 to $3.82 by the end of the year.
- Higher interest rates and increased volatility negatively impacted the RMBS portfolio.
- The comprehensive loss attributable to common stockholders was $1.5 million for the fourth quarter.
- The company's financial leverage remained high at 5.3 times, indicating potential risk in a volatile market.
- Operating expenses were elevated due to special committee-related expenses, impacting earnings available for distribution.
Q & A Highlights
Q: Can you clarify where the special committee expenses and the benefits from internalization will appear in the financial statements?
A: Michael Hutchby, CFO: The special committee expenses are included in the SG&A line item on the income statement. Going forward, the benefits from internalization will be reflected in reduced management fees and increased compensation and benefits, which will also be part of SG&A.
Q: How are elevated interest rates affecting the cost of repurchase agreements, and is there a strategy to mitigate these costs?
A: Julian Evans, CIO: Some of the higher costs were due to year-end expenses as we used the Street's balance sheet. These costs have decreased in the first quarter, and we are seeing some benefits.
Q: What is the strategy for growth in the RMBS portfolio, and how does leverage play into this?
A: Jeffrey Lown, CEO: We aim to grow through capital raising, which won't impact leverage. We may increase leverage over time as we gain clarity on the Fed's intentions and administrative policies. Julian Evans, CIO, added that they have the ability to increase leverage and will do so once there is greater clarity on economic factors.
Q: How does the expectation of a higher interest rate environment affect capital allocation between RMBS and MSR investments?
A: Jeffrey Lown, CEO: The change in MSR percentage was due to an increase in value, not additional purchases. RMBS currently offers better returns, so we are focusing on that. Julian Evans, CIO, noted that if MSR returns become more favorable, they will consider investing more in MSRs.
Q: How would expectations for Fed rate cuts impact your investment strategy?
A: Jeffrey Lown, CEO: Rate cuts could impact our strategy, especially in the MSR portfolio, where financing costs are higher. We are monitoring the situation closely and will adjust our portfolio as needed. Julian Evans, CIO, mentioned that market expectations for rate cuts have increased, and they will adjust the portfolio based on policy changes and economic data.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
