Business Context and Reporting Period
Company: Cherry Hill Mortgage Investment Corporation (CHMI)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2026
Business Overview: CHMI is a Maryland corporation taxed as a Real Estate Investment Trust (REIT) focused on investing in residential mortgage assets, specifically Agency Residential Mortgage-Backed Securities (RMBS) and Mortgage Servicing Rights (MSRs). The company operates through its Operating Partnership and a taxable REIT subsidiary (TRS) for servicing activities.
Key Financial Metrics
| Metric | Q2 2026 (Three Months) | YTD 2026 (Six Months) | YTD 2025 (Six Months) |
|---|---|---|---|
| Net Interest Income | $4.7 million | $9.2 million | $4.8 million |
| Net Servicing Income | $7.4 million | $15.3 million | $17.4 million |
| Total Other Income (Loss) | $(4.2) million | $(12.0) million | $(19.2) million |
| Net Income (GAAP) | $3.8 million | $4.2 million | $(5.4) million |
| Net Income Applicable to Common Stockholders | $1.3 million | $(0.6) million | $(10.2) million |
| Earnings Per Share (Diluted) | $0.04 | $(0.02) | $(0.32) |
| Total Assets | $1.40 billion | N/A | |
| Total Liabilities | $1.17 billion | ||
| Stockholders' Equity | $228.9 million | N/A | |
| Cash and Cash Equivalents | $52.1 million | ||
| Repurchase Agreements (Debt) | $1.01 billion | N/A | |
| Notes Payable (MSR Financing) | $140.6 million |
Material Changes vs. Prior Period
- Profitability Improvement: The company reported a GAAP net income of $3.8 million for Q2 2026, a significant improvement from the net loss of $1.6 million in Q2 2025. This was driven by a reduction in unrealized losses on derivatives and RMBS compared to the prior year.
- Net Interest Income Growth: Net interest income for the six months ended June 30, 2026, increased to $9.2 million from $4.8 million in the same period in 2025. This increase is attributed to higher yields on the portfolio and a decrease in financing rates.
- Asset Portfolio Reduction: Total assets decreased from $1.54 billion at December 31, 2025, to $1.40 billion at June 30, 2026. RMBS assets declined from $1.21 billion to $1.08 billion, and MSR assets decreased from $214.8 million to $211.1 million.
- Debt Reduction: Repurchase agreement borrowings decreased by approximately $128 million to $1.01 billion, and notes payable decreased by $4.5 million to $140.6 million.
- Unrealized Losses: While the company recorded an unrealized loss on RMBS of $13.3 million for the six months ended June 30, 2026, this was a significant improvement over the unrealized gain of $18.3 million in the prior year period, reflecting a shift in interest rate environments and spread widening.
Guidance, Outlook, and Risks
- Merger Agreement: On August 9, 2026, CHMI entered into a definitive merger agreement with TPG Mortgage Investment Trust, Inc. (MITT). The transaction is expected to close in Q4 2026, subject to shareholder approval. Common stockholders will receive a fixed combination of MITT stock and cash.
- Dividend Policy: During the pendency of the merger, quarterly dividends on common stock are capped at $0.10 per share. The company declared a common dividend of $0.10 per share for Q2 2026.
- Interest Rate Environment: The Federal Reserve maintained a target federal funds rate range of 3.50% to 3.75% during the first half of 2026. Management notes that rising rates generally increase borrowing costs but can extend the life of RMBS and increase the value of MSRs, while falling rates have the opposite effect.
- Key Risks:
- Merger Risks: Failure to consummate the merger could result in termination fees (4.0% of equity value) and disruption to operations.
- Market Risk: Sensitivity to interest rate changes, prepayment speeds, and credit spreads. A 10% increase in discount rates could decrease MSR fair value by approximately 4%.
- Liquidity: Reliance on repurchase agreements and MSR financing facilities. The company maintains cash reserves to meet margin calls.
Investor Verification Checklist
- Merger Terms: Verify the final exchange ratio (0.3063x MITT stock + $0.93 cash per share) and the likelihood of closing in Q4 2026.
- Dividend Sustainability: Confirm if the $0.10 per share dividend cap during the merger period impacts the company's ability to meet REIT distribution requirements.
- Asset Quality: Review the $2.8 million credit loss provision recorded in Q2 2026 related to a strategic investment and promissory note receivable.
- Leverage Levels: Assess the impact of the reduced RMBS portfolio on net interest income and the weighted average cost of funds (3.76% on repos as of June 30, 2026).
- Non-GAAP Measures: Compare GAAP Net Income to Earnings Available for Distribution (EAD), which was $5.5 million for Q2 2026, to understand core operational performance excluding fair value volatility.