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Cherry Hill Mortgage Investment Corp (CHMI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 delivered a return to GAAP profitability amid volatile rates: GAAP net income to common was $9.1M ($0.29/share) vs a Q3 loss of $(14.8)M (−$0.49/share), with gains on derivatives offsetting RMBS fair‑value losses; book value fell to $3.82 (−5% q/q) as AFS marks were −$10.8M .
  • EAD improved to $3.3M ($0.10/share) from $2.5M ($0.08/share) in Q3 despite ~$0.02/share of special committee expenses; management reiterated EAD is not the sole dividend determinant; quarterly common dividend maintained at $0.15 .
  • Internalization of management was completed in November; 2025 operating expenses are expected to fall by $1.1–$1.6M ($0.03–$0.05/share), enhancing alignment and decision speed; Q4 operating expenses totaled $4.5M including special committee costs .
  • Portfolio positioned for “higher for longer”: leverage steady at 5.3x, liquidity strong ($46.3M cash), continued tilt toward Agency RMBS where risk‑adjusted returns are currently superior; potential to raise leverage when policy and inflation visibility improves .
  • Estimates context: S&P Global consensus data was unavailable due to access limits during retrieval; we cannot assess beats/misses this quarter via SPGI. Values were unavailable from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Derivative hedges and servicing assets cushioned spread widening: Q4 recorded a $13.6M realized gain and $21.8M unrealized gain on derivatives, and a $6.9M unrealized gain on servicing‑related assets, offsetting RMBS losses and supporting GAAP profitability .
  • EAD and EAD/share improved q/q (to $3.3M; $0.10), aided by stable net servicing income ($8.5M) and modestly higher net interest income, despite elevated year‑end funding costs .
  • Internalization completed; management expects $1.1–$1.6M ($0.03–$0.05/share) 2025 opex savings: “the right decision for shareholders… more streamlined and efficient decision‑making” .

What Went Wrong

  • Book value pressure from AFS marks: AFS RMBS produced $(10.8)M OCI, with comprehensive income attributable to common of $(1.5)M despite positive net income .
  • RMBS fair‑value headwinds in a volatile rate backdrop: Q4 recorded $(31.7)M unrealized loss on FV‑through‑earnings RMBS amid higher rates/volatility and spread widening .
  • Funding costs spiked around year‑end: repo costs were elevated due to Street balance‑sheet dynamics into 2025, though management noted normalization in early Q1 .

Financial Results

Core P&L, Per‑Share, Book Value, Dividend (Oldest → Newest)

MetricQ3 2024Q4 2024
GAAP Net Income (Loss) to Common ($MM)$(14.792) $9.069
Diluted EPS ($)$(0.49) $0.29
EAD to Common ($MM)$2.547 $3.292
EAD per Share ($)$0.08 $0.10
Comprehensive Income (Loss) to Common ($MM)$1.283 $(1.513)
Book Value per Share ($)$4.02 $3.82
Common Dividend per Share ($)$0.15 $0.15

Revenue Proxies and Margins (Mortgage REIT context)

MetricQ3 2024Q4 2024
Net Interest Income ($MM)$0.109 $0.660
Net Servicing Income ($MM)$8.475 $8.483
RMBS Net Interest Spread (%)3.22% 2.90%
Unrestricted Cash ($MM)$50.2 $46.3
Aggregate Leverage (x)5.3x 5.3x

Portfolio Breakdown and Mix

MetricQ3 2024Q4 2024
RMBS Portfolio (incl. TBA, $MM)~$866 ~$723
MSR UPB ($BN)$17.6 $17.3
MSR Market Value ($MM)$226.8 $233.7
Equity Allocation – RMBS (%)~42% ~38%
Equity Allocation – MSR (%)~42% ~46%

KPIs and Risk Management

KPIQ3 2024Q4 2024
RMBS 3‑mo CPR (%)~5.4% ~5.7%
MSR Net CPR (%)~5.5% ~4.7%
MSR Recapture Rate (%)~0.9% ~0.6%
Swaps Notional ($BN)~$1.2 ~$1.2
TBA Notional ($MM)(~$354.6) (~$435.6)
Treasury Futures Notional ($MM)$278.4 $73.1

Why the q/q move:

  • Positive GAAP swing driven by derivative gains and servicing‑related gains exceeding RMBS fair‑value losses; OCI losses from AFS RMBS weighed on comprehensive income and book value .
  • EAD uplift reflects stable servicing earnings, modestly higher net interest income, and hedging carry, partially offset by ~$0.02/share of special committee costs .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating Expenses (Internalization Savings)FY 2025 run‑rateNone disclosedReduce opex by $1.1–$1.6M ($0.03–$0.05/share)Introduced; positive
Capital Allocation MixNear‑termFavor RMBS over MSR when levered returns are superiorContinue favoring Agency RMBS near‑term; remain selective on MSRsMaintained
LeverageMedium‑termPrudent ~5x; cautious on MBS spread/liq riskPotentially increase leverage over time with greater clarity on Fed/policy/inflationQualitative upward bias
DividendQ4 2024$0.15/share$0.15/share (paid 1/31/25)Maintained
Book Value Update (intra‑Q1)Feb 2025N/A“About flat” vs year‑end (pre any Q1 dividend accrual)New intra‑quarter color

Earnings Call Themes & Trends

TopicPrevious Mentions (Q‑2 and Q‑1)Current Period (Q4 2024)Trend
Macro rates/Fed pathQ2: Anticipated Sept ease; preparing for curve steepening . Q3: Cuts expected but later reduced; monitoring impact of election and Trump policy .“Higher for longer”; fewer 2025 cuts than expected; 10‑yr up q/q; stance data‑dependent .Cuts expectations moderated; higher‑for‑longer bias.
Portfolio mix (RMBS vs MSR)Q2/Q3: Prefer Agency RMBS near‑term on levered ROE vs rich MSRs .Continue to deploy to Agency RMBS; selective on MSRs .Stable preference for RMBS.
InternalizationQ2: Board authorized internalization; process ongoing . Q3: No updates; special committee expenses persisted .Completed in Nov; 2025 opex −$1.1–$1.6M ($0.03–$0.05/share) .Completed; cost savings ahead.
Leverage postureQ2: 4.9x; cautious . Q3: 5.3x; mindful of cash/margin calls .5.3x; potential to add leverage with more policy/inflation clarity .Slight upward bias, still prudent.
Prepayment dynamicsQ2: RMBS CPR 4.6%; MSR net CPR 5.5% . Q3: RMBS CPR ~5.4%; MSR ~5.5% .RMBS CPR ~5.7%; MSR net CPR ~4.7%; expect moderation if mortgage rates ~7% .CPRs rose into Q4; likely moderate in Q1.
Funding & hedgingQ2: Swaps/TBA/futures used; swaps ~$1.1B . Q3: swaps $1.2B; TBAs ($355M); futures $278M .swaps $1.2B; TBAs ($436M); futures $73M; repo costs high at year‑end but easing in Q1 .Hedging mix stable; repo costs easing post year‑end.
Return profile—New color: new RMBS ROE ~14–17%; MSR low‑teens .Attractive RMBS ROE supports allocation.

Management Commentary

  • “We are pleased to have successfully completed the internalization of our management structure… will reduce our operating expenses… focus on growing our business and delivering compelling returns to shareholders in 2025 and beyond” — Jay Lown, CEO .
  • “We expect the internalization will reduce our operating expenses in 2025 by $1.1 million to $1.6 million or $0.03 to $0.05 per common share” — Jay Lown .
  • “In the near term, we expect volatility to continue and expect rates to remain higher until there are clear signs that either inflation is moderating or that the economy falters” — Julian Evans, CIO .
  • “EAD is not the sole barometer for setting our common dividend… the Board also considers… market environment, portfolio return potential, taxable income, and certainty around forward investment returns” — Michael Hutchby, CFO .

Q&A Highlights

  • Special committee costs and internalization savings geography: costs flowed through SG&A; forward benefits will show across SG&A and comp/benefits as management fees roll off .
  • Funding costs: elevated year‑end repo usage inflated Q4 costs; levels have come down with benefits visible in Q1 .
  • Leverage and growth: ability and intent to increase leverage over time as Fed/policy clarity improves; capital raises could grow balance sheet without increasing leverage .
  • Allocation RMBS vs MSR: MSR equity share up partly from valuation; near‑term capital deployment favors RMBS given better levered returns; would reconsider if MSR returns improve with rate cuts .
  • Intra‑quarter BV: at end‑February, book value “about flat” vs year‑end (pre any Q1 dividend accrual) .

Estimates Context

  • We attempted to pull Wall Street consensus (S&P Global, Q4 2024 “Primary EPS Consensus Mean,” “Revenue Consensus Mean”), but S&P Global returned a request‑limit error during retrieval; therefore we cannot provide an estimates comparison for this quarter. Values were unavailable from S&P Global.

Where estimates may adjust:

  • Given EAD/share improved to $0.10, stable servicing income, repo normalization early Q1, and internalization savings slated for 2025, EAD trajectories could bias modestly higher near‑term if spreads stabilize and funding costs ease further .

Key Takeaways for Investors

  • Positive GAAP inflection despite spread volatility: hedges worked as designed; watch for continued basis/rate volatility impacts on RMBS marks and OCI/BV .
  • Dividend sustainability leans on multiple levers (EAD, taxable income, hedge gains, return certainty), not EAD alone; EAD improved to $0.10 vs $0.08 q/q .
  • Internalization is a tangible 2025 catalyst: $1.1–$1.6M ($0.03–$0.05/share) opex tailwind improves operating leverage and alignment; model lower SG&A/management fee line items .
  • Allocation remains RMBS‑centric with attractive levered ROEs (14–17% on new RMBS); MSR adds diversification/hedge but is deployed selectively at current pricing .
  • Leverage optionality: steady at 5.3x, with a stated willingness to increase on improved macro clarity; this is a potential earnings/BV torque point if spreads/rates cooperate .
  • Near‑term watch items: repo and funding normalization (post year‑end), CPR moderation, and intra‑Q1 book value trajectory (management indicated flat through Feb) .
  • Trading lens: stock‑moving narrative hinges on internalization savings realization, evidence of EAD progression, and BV stabilization amid rate/spread volatility; monitoring hedging efficacy remains critical .