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Cherry Hill Mortgage Investment (CHMI) 8 Aug 24 2024 Q2 Earnings call transcript

AInvestFriday, Aug 9, 2024 7:01 pm ET
2min read

The second quarter of 2024 was a tale of two halves for Cherry Hill Mortgage Investment Corporation, reflecting the broader market trends and the impact of shifting central bank policies. In a volatile market, marked by economic uncertainties and geopolitical tensions, the company's leadership team outlined their strategic approach to managing risk, optimizing portfolio performance, and moving towards internalization.

Strategic Portfolio Management and Market Outlook

Cherry Hill's executive team provided a nuanced analysis of the market environment, highlighting the impact of shifting monetary policy and the potential for economic normalization. The Fed's shift from hawkish to dovish language in response to economic data and rising unemployment rates set the stage for a potential interest rate cut in September, a move that could significantly impact the company's investment strategy.

Despite challenges posed by wider spreads and special committee expenses, the team remains optimistic about the economy's resilience and the potential for a steepening yield curve. The company's strategic focus on pairing MSR with Agency RMBS, along with a prudent hedging strategy, has positioned them well to navigate the volatility and adapt to the changing market dynamics.

Internalization and Operational Efficiency

A key highlight of the call was the announcement of Cherry Hill's plans to internalize management, a significant milestone that aims to reduce expenses, enhance earnings, and better align management with the investment community. The company has been working diligently to complete the transition to self-management, with a focus on maintaining financial strength and liquidity.

Financial Performance and Outlook

The second quarter saw a GAAP net loss applicable to common stockholders of $0.06 per diluted share, while EAD generated $2.3 million or $0.08 per share. The company's strategic sale of over $1 billion of UPB and low loan balance MSRs, aimed at improving portfolio efficiency and reducing servicing costs, had a noticeable impact on book value per common share, which finished the quarter at $4.15.

Looking ahead, Cherry Hill is closely monitoring the macro environment and preparing to deploy capital into Agency RMBS, a move driven by their confidence in the asset class's risk-adjusted returns. The company is also considering reducing the portion of preferred equity in its capital structure to enhance equity profile and further stabilize its positioning.

Navigating Forward

As Cherry Hill Mortgage Investment Corporation moves towards internalization and positions itself for the potential impact of interest rate cuts, it is clear that the company is focused on maximizing shareholder value through strategic portfolio management and operational efficiency. With a resilient team and a keen understanding of the market trends, Cherry Hill is well-positioned to navigate the challenges and opportunities ahead.

As the company embarks on this new chapter, investors and stakeholders will be watching closely to see how it navigates the evolving market landscape and continues to adapt to the changing financial environment.

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