Cherry Hill Mortgage Investment Corporation (CHMI) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: a slight increase in book value and income, but concerns over liquidity, leverage, and market risks. The dividend declaration is stable, but no increase was announced. The Q&A highlights uncertainties in market conditions and a lack of clear strategic direction on share buybacks. The company's financial health appears stable, but market sensitivity and economic uncertainties temper optimism. Without a clear market cap, the stock's reaction is likely neutral, reflecting cautious investor sentiment amid stable but unexciting financial performance.
Key Financial Performance
GAAP Net Income $5.3 million or $0.14 per diluted share for the fourth quarter of 2025. This represents an increase in book value per common share to $3.44 from $3.36 as of September 30, 2025. The improvement was driven by tighter mortgage spreads and a steeper yield curve.
Comprehensive Income $6.5 million or $0.18 per diluted share for the fourth quarter of 2025. This includes the mark-to-market of available-for-sale RMBS.
Earnings Available for Distribution (EAD) $3.9 million or $0.11 per share for the fourth quarter of 2025. This reflects the company's performance excluding certain non-cash items.
Book Value Per Common Share $3.44 as of December 31, 2025, compared to $3.36 as of September 30, 2025. The increase was attributed to improved portfolio performance and favorable market conditions.
RMBS Portfolio $805 million as of December 31, 2025, compared to $782 million at the previous quarter end. The increase was due to repositioning towards the middle of the coupon stack.
MSR Portfolio UPB of $15.9 billion and a market value of approximately $215 million as of December 31, 2025. The portfolio's net CPR averaged approximately 5.1%, down modestly from the previous quarter, due to minimal refinancing incentives.
Net Interest Spread (RMBS Portfolio) 2.52% for the fourth quarter of 2025, lower than the previous quarter due to a reduction in dollar roll income and interest earned on payer swaps.
Financial Leverage 5.4x at the end of the fourth quarter of 2025, consistent with the previous quarter, reflecting prudent leverage management.
Unrestricted Cash $55 million as of December 31, 2025, maintaining a solid liquidity profile.
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Operating Highlights
Real Genius LLC partnership: Cherry Hill's strategic partnership with Real Genius LLC, a Florida-based digital mortgage technology company, continues to grow steadily. Real Genius offers a proprietary direct-to-consumer platform for an efficient online mortgage experience, including instant prequalification, automated document processing, and real-time loan tracking.
Market positioning: Cherry Hill's portfolio performance benefited from tighter mortgage spreads and a steeper yield curve. The RMBS portfolio and MSR portfolio were key contributors, with the RMBS portfolio accounting for 79% of investable assets and the MSR portfolio representing 21%.
Financial performance: GAAP net income for Q4 2025 was $5.3 million ($0.14 per diluted share). Comprehensive income was $6.5 million ($0.18 per diluted share). Book value per common share increased to $3.44 from $3.36 in Q3 2025. Financial leverage remained consistent at 5.4x, with $55 million in unrestricted cash.
Portfolio adjustments: The RMBS portfolio was repositioned towards the middle of the coupon stack, and the hedge portfolio was adjusted with a small position in ARRIS SOFR futures. The MSR portfolio's net CPR averaged 5.1%, while the RMBS portfolio's prepayment speeds rose to 8.5%.
Future growth strategy: Cherry Hill plans to seek accretive investment opportunities and maintain strong liquidity and prudent leverage. The company is optimistic about Real Genius' growth potential, especially with the possibility of reduced mortgage rates facilitating home purchases and refinancing.
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Risk or Challenges
Interest Rate Volatility: The company faces risks from fluctuating interest rates, which can impact the performance of its RMBS and MSR portfolios. Changes in interest rates also affect prepayment speeds and refinancing incentives, potentially reducing portfolio returns.
Economic Conditions: Economic uncertainties, such as employment trends and potential government actions, could adversely impact the company's performance. A weaker employment picture and limited government shutdowns were noted as factors influencing market conditions.
Portfolio Performance Sensitivity: The company's portfolio performance is highly sensitive to changes in mortgage spreads, yield curves, and interest rate environments. Misalignment with these factors could negatively impact returns.
Hedging Strategy Risks: The company relies on derivative instruments like swaps, TBAs, and futures to hedge against interest rate risks. Ineffectiveness in these hedging strategies could lead to financial losses.
Liquidity and Leverage: While the company maintains a solid liquidity profile, its financial leverage at 5.4x poses a risk if market conditions deteriorate, potentially impacting its ability to meet financial obligations.
Regulatory and Market Risks: The company operates in a highly regulated environment, and changes in regulations or market conditions could adversely affect its operations and strategic objectives.
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Guidance & Outlook
Reduction in mortgage rates: The company remains optimistic that the reduction in mortgage rates, currently around 6%, may facilitate an acceleration in the growth of Real Genius, their digital mortgage technology platform, as more homebuyers and homeowners look to purchase homes or refinance.
Investment opportunities: The company plans to seek out investment opportunities that are accretive to their business as they progress through 2026.
Portfolio management: The company will continue to proactively manage their portfolio and adjust their overall capital structure to add value for shareholders through improved performance and earnings.
RMBS portfolio: The RMBS portfolio's prepayment speeds are expected to remain relatively low in the near term, with a potential increase in refinanceable mortgages if mortgage rates drop to 5.5%.
Hedging strategy: The company plans to continue using a combination of swaps, TBA securities, and treasury futures to hedge the portfolio, with an expected increase in the use of ARRIS SOFR futures as they transition a portion of the portfolio.
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Shareholder Return Plan
Dividend for common stock: Declared a dividend of $0.10 per common share for the fourth quarter of 2025, paid in cash on January 30, 2026.
Dividend for Series A preferred stock: Declared a dividend of $0.5125 per share on 8.2% Series A cumulative redeemable preferred stock, paid on January 15, 2026.
Dividend for Series B preferred stock: Declared a dividend of $0.6259 per share on 8.25% Series B fixed to floating rate cumulative redeemable preferred stock, paid on January 15, 2026.
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Key Q&A
Q:How does the market for the start of 2026 compare to 2025?
A:The market has seen changes such as tightening in January, widening in February, and a flattening of the yield curve. There is a flight to quality bid in the market, influenced by equities and a scare out of certain stocks. Mortgages have a softer tone compared to Q4 2025.
Q:What is the normalized level for CPR in the RMBS book?
A:The CPR for specified pools is currently in the 9-12 range. If rates drop to 5.5%, speeds could reach 20. The portfolio has prepaid protection, and the overall portfolio CPR could max out around 15. The portfolio was purchased at a discount, benefiting from accretion towards par.
Q:What caused the 30% drop in G&A expenses quarter-to-quarter?
A:The drop was due to nonrecurring expenses in Q3 2025, primarily related to personnel changes. Expenses normalized in Q4 2025.
Q:What is the strategy for share buybacks and preferred shares?
A:The Series B preferred shares were trading at a discount, and discussions on buybacks will occur post-earnings. For common shares, the focus is on growth, and while share repurchases are considered, no explicit direction was provided.
Q:What is the update on book value as of March 31, 2026?
A:Book value has increased by about 1% compared to December 31, 2025.
Q:Review of Unclear Management Responses
A:Management avoided providing explicit direction on share buybacks, using vague language and not committing to a clear strategy.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Conference Instructions
EID income
Fed fund
Fed rate
Hill Portfolio
Instructions Investor
Investment Conference
Mortgage spread
Mortgages swap
Officer Themes
Officer today
Portfolio mortgage
Real Genius
Relations Forward
SOFR future
SOFR swap
TBA pool
Themes reduction
basis point
collateral
coupon stack
curve portfolio
dollar roll
expectation
mortgage spread
portfolio interest
portfolio position
portfolio positioning
rate coupon
rate environment
rate yield
reminder
roll income
shift
stack RMBS
universe
yield curve
CHMI Transcript
Cherry Hill Mortgage Investment Corporation (CHMI) Q4 2025 Earnings Call Transcript
Unknown2-25
The earnings call presents a mixed picture: a slight increase in book value and income, but concerns over liquidity, leverage, and market risks. The dividend declaration is stable, but no increase was announced. The Q&A highlights uncertainties in market conditions and a lack of clear strategic direction on share buybacks. The company's financial health appears stable, but market sensitivity and economic uncertainties temper optimism. Without a clear market cap, the stock's reaction is likely neutral, reflecting cautious investor sentiment amid stable but unexciting financial performance.
Cherry Hill Mortgage Investment Corporation (CHMI) Q3 2025 Earnings Call Transcript
Unknown11-7
The earnings call presents a mixed outlook. Financial performance shows modest improvement, with a slight increase in book value per share and comprehensive income. However, concerns about rising prepayment speeds, economic uncertainties, and vague guidance on future partnerships temper optimism. Dividend adjustments indicate a cautious approach, and unclear management responses in the Q&A add uncertainty. The digital mortgage technology partnership introduces potential execution risks. These factors balance out to a neutral sentiment, suggesting limited stock price movement.
Cherry Hill Mortgage Investment Corporation (CHMI) Q2 2025 Earnings Call Transcript
Unknown8-7
The earnings call reflects several negative aspects: a decline in book value, lower earnings available for distribution, and challenges in hedging strategies. Despite a new partnership with Real Genius, the lack of definitive plans and unclear management responses in the Q&A section contribute to uncertainties. The market volatility, high leverage, and economic uncertainties further worsen the outlook. Dividend declarations provide some support, but the overall sentiment is negative, likely leading to a stock price decline in the short term.
Cherry Hill Mortgage Investment Corporation (CHMI) Q1 2025 Earnings Call Transcript
Unknown5-6
The earnings call summary reveals mixed financial performance, with a GAAP net loss and a decline in book value per share. Despite a steady dividend, the lack of a share repurchase program and the expectation of declining EAD due to maturing hedges are concerning. The Q&A section highlights management's uncertainty about GSE reform and future earnings, further dampening sentiment. Although there are some positive aspects, such as improved RMBS net interest spread, the overall sentiment leans negative due to financial challenges and uncertainties.
CHMI Slides
Cherry Hill Q4 2025 slides: book value rises despite revenue miss2026-03-10
Cherry Hill Mortgage Q3 2025 slides: Book value grows as dividend strategy adjusts2025-11-06
Cherry Hill Mortgage Q2 2025 slides: book value declines amid portfolio rebalancing2025-08-07
Cherry Hill Mortgage Q1 2025 slides: EAD improves despite net loss and book value decline2025-05-06
CHMI Report
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