UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to ________
Commission file number 001-36099


CHERRY HILL MORTGAGE INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)



N/A
(Former name, former address and former fiscal year, if changed since last report)

Maryland
 
46-1315605
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)

1451 Route 34, Suite 303
 
 
Farmingdale, New Jersey
 
07727
(Address of Principal Executive Offices)
 
(Zip Code)

(877) 870 – 7005
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
CHMI
New York Stock Exchange
8.20% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share
CHMI-PRA
New York Stock Exchange
8.250% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share
CHMI-PRB
New York Stock Exchange



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
 
Emerging growth company
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.         

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 

As of August 10, 2020, there were 17,076,858 outstanding shares of common stock, $0.01 par value per share, of Cherry Hill Mortgage Investment Corporation.
graphic




CHERRY HILL MORTGAGE INVESTMENT CORPORATION

TABLE OF CONTENTS

 
 
Page
 
 
3
 
 
 
PART I.
5
 
 
 
Item 1.
5
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
 
 
 
8
 
 
 
 
9
 
 
 
 
10
 
 
 
Item 2.
45
 
 
 
Item 3.
70
 
 
 
Item 4.
75
 
 
PART II.
76
 
 
Item 1.
76
 
 
Item 1A.
76
 
 
 
Item 2.
77
 
 
 
Item 3.
77
 
 
 
Item 4.
77
 
 
 
Item 5.
77
 
 
 
Item 6.
78

2

Table of Contents
FORWARD-LOOKING INFORMATION

Cherry Hill Mortgage Investment Corporation (together with its consolidated subsidiaries, the “Company,” “we,” “our” or “us”) makes forward-looking statements in this Quarterly Report on Form 10-Q within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For these statements, the Company claims the protections of the safe harbor for forward-looking statements contained in such Sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company’s control. These forward-looking statements include information about possible or assumed future results of the Company’s business, financial condition, liquidity, results of operations, plans and objectives. When the Company uses the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “could,” “would,” “may,” “potential” or the negative of these terms or other comparable terminology, the Company intends to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking:

the Company’s investment objectives and business strategy;
the Company’s ability to raise capital through the sale of its equity and debt securities and to invest the net proceeds of any such offering in the target assets, if any, identified at the time of the offering;
the Company’s ability to obtain future financing arrangements and refinance existing financing arrangements as they mature;
the Company’s expected leverage;
the Company’s expected investments and the timing thereof;
the Company’s ability to acquire servicing-related assets and mortgage and real estate-related securities;
estimates and statements relating to, and the Company’s ability to make, future distributions to holders of the Company’s securities;
the Company’s ability to compete in the marketplace;
market, industry and economic trends;
recent market developments and actions taken and to be taken by the U.S. Government, the U.S. Treasury and the Board of Governors of the Federal Reserve System, the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the Government National Mortgage Association (“Ginnie Mae”) and the U.S. Securities and Exchange Commission (“SEC”);
mortgage loan modification programs and future legislative actions;
the Company’s ability to maintain its qualification as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), and limitations on the Company’s business due to compliance with requirements for maintaining its qualification as a REIT under the Code;
the Company’s ability to maintain its exclusion from regulation as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”);
projected capital and operating expenditures;
availability of qualified personnel; and
projected prepayment and/or default rates.

The Company’s beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to it or are within its control. If any such change occurs, the Company’s business, financial condition, liquidity and results of operations may vary materially from those expressed in, or implied by, the Company’s forward-looking statements. These risks, along with, among others, the following factors, could cause actual results to vary from the Company’s forward-looking statements:

the factors discussed under “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and “Part I, Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019;
general volatility of the capital markets;
changes in the Company’s investment objectives and business strategy;

3


availability, terms and deployment of capital;
availability of suitable investment opportunities;
the Company’s dependence on its external manager, Cherry Hill Mortgage Management, LLC (the “Manager”), and the Company’s ability to find a suitable replacement if the Company or the Manager were to terminate the management agreement the Company has entered into with the Manager;
changes in the Company’s assets, interest rates or the general economy;
increased rates of default and/or decreased recovery rates on the Company’s investments, including as a result of the effects of more severe weather and changes in traditional weather patterns;
the ultimate geographic spread, severity and duration of pandemics such as the recent outbreak of the novel coronavirus (“COVID-19”), actions that may be taken by governmental authorities to contain or address the impact of such pandemics, and the potential negative impacts of such pandemics on the global economy and our financial condition and results of operations;
changes in interest rates, interest rate spreads, the yield curve, prepayment rates or recapture rates;
limitations on the Company’s business due to compliance with requirements for maintaining its qualification as a REIT under the Code and its exclusion from regulation as an investment company under the Investment Company Act;
the degree and nature of the Company’s competition, including competition for the residential mortgage assets in which the Company invests; and
other risks associated with acquiring, investing in and managing residential mortgage assets.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievements. These forward-looking statements apply only as of the date of this Quarterly Report on Form 10-Q. The Company is not obligated, and does not intend, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

4



PART I. FINANCIAL INFORMATION

Item 1.
Consolidated Financial Statements

Cherry Hill Mortgage Investment Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands — except share and par value data)

 
 
(unaudited)
June 30, 2020
   
December 31, 2019
 
Assets
           
RMBS, available-for-sale (including pledged assets of $1,444,649 and $2,419,539, respectively)
 
$
1,548,144
   
$
2,508,360
 
Investments in Servicing Related Assets at fair value (including pledged assets of $177,261 and $291,111, respectively)
   
177,261
     
291,111
 
Cash and cash equivalents
   
94,473
     
24,671
 
Restricted cash
   
33,371
     
67,037
 
Derivative assets
   
33,411
     
18,289
 
Receivables and other assets
   
61,503
     
47,084
 
Total Assets
 
$
1,948,163
   
$
2,956,552
 
Liabilities and Stockholders’ Equity
               
Liabilities
               
Repurchase agreements
 
$
1,395,317
   
$
2,337,638
 
Derivative liabilities
   
19,313
     
12,337
 
Notes payable
   
131,780
     
166,989
 
Dividends payable
   
6,720
     
8,768
 
Due to affiliates
   
3,469
     
3,589
 
Payables for unsettled trades
   
35,898
     
-
 
Accrued expenses and other liabilities
   
4,835
     
15,588
 
Total Liabilities
 
$
1,597,332
   
$
2,544,909
 
Stockholders’ Equity
               
Series A Preferred stock, $0.01 par value per share, 100,000,000 shares authorized and 2,781,635 shares issued and outstanding as of June 30, 2020 and 100,000,000 shares authorized and 2,781,635 shares issued and outstanding as of December 31, 2019, liquidation preference of $69,541 as of June 30, 2020 and liquidation preference of $69,541 as of December 31, 2019
 
$
67,213
   
$
67,213
 
Series B Preferred stock, $0.01 par value per share, 100,000,000 shares authorized and 2,000,000 shares issued and outstanding as of June 30, 2020 and 100,000,000 shares authorized and 2,000,000 shares issued and outstanding as of December 31, 2019, liquidation preference of $50,000 as of June 30, 2020 and liquidation preference of $50,000 as of December 31, 2019
   
48,068
     
48,068
 
Common stock, $0.01 par value per share,500,000,000 shares authorized and 17,076,858 shares issued and outstanding as of June 30, 2020 and 500,000,000 shares authorized and 16,660,655 shares issued and outstanding as of December 31, 2019
   
175
     
170
 
Additional paid-in capital
   
306,198
     
302,723
 
Accumulated Deficit
   
(117,377
)
   
(47,367
)
Treasury stock at cost, 378,481 shares at $13.98 as of June 30, 2020 and 235,950 shares at $14.59 as of December 31, 2019
   
(5,291
)
   
(3,543
)
Accumulated other comprehensive income
   
49,569
     
41,414
 
Total Cherry Hill Mortgage Investment Corporation Stockholders’ Equity
 
$
348,555
   
$
408,678
 
Non-controlling interests in Operating Partnership
   
2,276
     
2,965
 
Total Stockholders’ Equity
 
$
350,831
   
$
411,643
 
Total Liabilities and Stockholders’ Equity
 
$
1,948,163
   
$
2,956,552
 

See accompanying notes to consolidated financial statements.

5



Cherry Hill Mortgage Investment Corporation and Subsidiaries
Consolidated Statements of Income (Loss)
(Unaudited)
(in thousands — except share and per share data)

 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2020
   
2019
   
2020
   
2019
 
Income
                       
Interest income
 
$
10,132
   
$
17,216
   
$
30,381
   
$
34,185
 
Interest expense
   
3,425
     
11,707
     
15,716
     
22,451
 
Net interest income
   
6,707
     
5,509
     
14,665
     
11,734
 
Servicing fee income
   
18,032
     
18,362
     
37,551
     
35,550
 
Servicing costs
   
6,594
     
4,103
     
12,716
     
7,924
 
Net servicing income
   
11,438
     
14,259
     
24,835
     
27,626
 
Other income (loss)
                               
Realized loss on RMBS, available-for-sale, net
   
(1,769
)
   
-
     
(19,312
)
   
-
 
Realized loss on investments in MSRs, net
   
(11,347
)
   
-
     
(11,347
)
   
-
 
Realized gain (loss) on derivatives, net
   
4,558
     
(365
)
   
(14,198
)
   
(7,841
)
Realized loss on acquired assets, net
   
(548
)
   
-
     
(502
)
   
-
 
Unrealized gain (loss) on derivatives, net
   
(4,581
)
   
(3,819
)
   
47,619
     
(12,091
)
Unrealized loss on investments in Servicing Related Assets
   
(17,025
)
   
(44,042
)
   
(110,878
)
   
(71,217
)
Total Loss
   
(12,567
)
   
(28,458
)
   
(69,118
)
   
(51,789
)
Expenses
                               
General and administrative expense
   
1,420
     
1,138
     
4,176
     
2,101
 
Management fee to affiliate
   
1,974
     
1,934
     
3,939
     
3,743
 
Total Expenses
   
3,394
     
3,072
     
8,115
     
5,844
 
Loss Before Income Taxes
   
(15,961
)
   
(31,530
)
   
(77,233
)
   
(57,633
)
Benefit from corporate business taxes
   
(5,837
)
   
(4,372
)
   
(22,349
)
   
(9,337
)
Net Loss
   
(10,124
)
   
(27,158
)
   
(54,884
)
   
(48,296
)
Net loss allocated to noncontrolling interests in Operating Partnership
   
180
     
438
     
1,014
     
787
 
Dividends on preferred stock
   
2,461
     
2,593
     
4,920
     
4,434
 
Net Loss Applicable to Common Stockholders
 
$
(12,405
)
 
$
(29,313
)
 
$
(58,790
)
 
$
(51,943
)
Net Loss Per Share of Common Stock
                               
Basic
 
$
(0.73
)
 
$
(1.75
)
 
$
(3.51
)
 
$
(3.11
)
Diluted
 
$
(0.73
)
 
$
(1.75
)
 
$
(3.51
)
 
$
(3.11
)
Weighted Average Number of Shares of Common Stock Outstanding
                               
Basic
   
16,881,987
     
16,776,472
     
16,746,668
     
16,708,471
 
Diluted
   
16,895,408
     
16,789,261
     
16,759,818
     
16,721,260
 

See accompanying notes to consolidated financial statements.

6


Cherry Hill Mortgage Investment Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands)

 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2020
   
2019
   
2020
   
2019
 
Net loss
 
$
(10,124
)
 
$
(27,158
)
 
$
(54,884
)
 
$
(48,296
)
Other comprehensive income (loss):
                               
Net unrealized gain (loss) on RMBS
   
14,017
     
25,536
     
(11,157
)
   
57,517
 
Reclassification of net realized loss on RMBS included in earnings
   
1,769
     
-
     
19,312
     
-
 
Other comprehensive income
   
15,786
     
25,536
     
8,155
     
57,517
 
Comprehensive income (loss)
 
$
5,662
   
$
(1,622
)
 
$
(46,729
)
 
$
9,221
 
Comprehensive income (loss) attributable to noncontrolling interests in Operating Partnership
   
113
     
(29
)
   
(863
)
   
150
 
Dividends on preferred stock
   
2,461
     
2,593
     
4,920
     
4,434
 
Comprehensive income (loss) attributable to common stockholders
 
$
3,088
   
$
(4,186
)
 
$
(50,786
)
 
$
4,637
 

See accompanying notes to consolidated financial statements.

7


Cherry Hill Mortgage Investment Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(in thousands — except share and per share data)

 
 
Common
Stock
Shares
   
Common
Stock
Amount
   
Preferred
Stock
Shares
   
Preferred
Stock
Amount
   
Additional
Paid-in
Capital
   
Treasury
Stock at
Cost
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Retained
Earnings
(Deficit)
   
Non-
Controlling
Interest in
Operating
Partnership
   
Total
Stockholders’
Equity
 
 
                                                           
Balance, December 31, 2018
   
16,652,170
   
$
167
     
2,718,206
   
$
65,639
   
$
298,614
   
$
-
   
$
(38,400
)
 
$
34,653
   
$
3,258
   
$
363,931
 
Issuance of common stock
   
6,000
     
-
     
-
     
-
     
132
     
-
     
-
     
-
     
-
     
132
 
Issuance of preferred stock
   
-
     
-
     
2,049,480
     
49,360
     
-
     
-
     
-
     
-
     
-
     
49,360
 
Conversion of OP units
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(103
)
   
(103
)
Net Loss before dividends on preferred stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(20,789
)
   
(349
)
   
(21,138
)
Other Comprehensive Income
   
-
     
-
     
-
     
-
     
-
     
-
     
31,981
     
-
     
-
     
31,981
 
LTIP-OP Unit awards
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
266
     
266
 
Distribution paid on LTIP-OP Units
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(134
)
   
(134
)
Common dividends declared, $0.49 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(8,156
)
   
-
     
(8,156
)
Preferred Series A dividends declared, $0.5125 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,419
)
   
-
     
(1,419
)
Preferred Series B dividends declared, $0.3667 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(422
)
   
-
     
(422
)
Balance, March 31, 2019
   
16,658,170
   
$
167
     
4,767,686
   
$
114,999
   
$
298,746
   
$
-
   
$
(6,419
)
 
$
3,867
   
$
2,938
   
$
414,298
 
Issuance of common stock
   
238,435
     
3
     
-
     
-
     
3,885
     
-
     
-
     
-
     
-
     
3,888
 
Issuance of preferred stock
   
-
     
-
     
13,949
     
282
     
-
     
-
     
-
     
-
     
-
     
282
 
Net Loss before dividends on preferred stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(26,720
)
   
(438
)
   
(27,158
)
Other Comprehensive Income
   
-
     
-
     
-
     
-
     
-
     
-
     
25,536
     
-
     
-
     
25,536
 
LTIP-OP Unit awards
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
250
     
250
 
Distribution paid on LTIP-OP Units
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(135
)
   
(135
)
Common dividends declared, $0.49 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(8,289
)
   
-
     
(8,289
)
Preferred Series A dividends declared, $0.5125 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,428
)
   
-
     
(1,428
)
Preferred Series B dividends declared, $0.5156 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,164
)
   
-
     
(1,164
)
Balance, June 30, 2019
   
16,896,605
   
$
170
     
4,781,635
   
$
115,281
   
$
302,631
   
$
-
   
$
19,117
   
$
(33,734
)
 
$
2,615
   
$
406,080
 
                                                                                 
Balance, December 31, 2019
   
16,660,655
   
$
170
     
4,781,635
   
$
115,281
   
$
302,723
   
$
(3,543
)
 
$
41,414
   
$
(47,367
)
 
$
2,965
   
$
411,643
 
Issuance of common stock
   
9,500
     
-
     
-
     
-
     
124
     
-
     
-
     
-
     
-
     
124
 
Repurchase of common stock
   
(142,531
)
   
-
     
-
     
-
     
-
     
(1,748
)
   
-
     
-
     
-
     
(1,748
)
Issuance of preferred stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Conversion of OP units
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(76
)
   
(76
)
Net Loss before dividends on preferred stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(43,926
)
   
(834
)
   
(44,760
)
Other Comprehensive Income
   
-
     
-
     
-
     
-
     
-
     
-
     
(7,631
)
   
-
     
-
     
(7,631
)
LTIP-OP Unit awards
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
264
     
264
 
Distribution paid on LTIP-OP Units
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(109
)
   
(109
)
Common dividends declared, $0.40 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(6,612
)
   
-
     
(6,612
)
Preferred Series A dividends declared, $0.5125 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,428
)
   
-
     
(1,428
)
Preferred Series B dividends declared, $0.5156 per share
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,031
)
   
-
     
(1,031
)
Balance, March 31, 2020
   
16,527,624
   
$
170
     
4,781,635
   
$
115,281
   
$
302,847
   
$
(5,291
)
 
$
33,783
   
$
(100,364
)
 
$
2,210
   
$
348,636
 
Issuance of common stock
   
549,234
     
5
     
-
     
-
     
3,351
     
-
     
-
     
-
     
-
     
3,356
 
Repurchase of common stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Issuance of preferred stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Conversion of OP units
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Net Loss before dividends on preferred stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(9,944
)
   
(180
)
   
(10,124
)
Other Comprehensive Income
   
-
     
-
     
-
     
-
     
-
     
-
     
15,786
     
-
     
-
     
15,786
 
LTIP-OP Unit awards
   
-
     
-
     
-