Business Context and Reporting Period
Company: Cherry Hill Mortgage Investment Corporation (CHMI)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: CHMI is a fully integrated, internally managed residential real estate finance company and Real Estate Investment Trust (REIT). It invests primarily in residential mortgage-backed securities (RMBS) and Servicing Related Assets (MSRs). Effective November 14, 2024, the Company completed an "Internalization Event," transitioning from external management to an internal management structure.
Key Financial Metrics
| Metric | 2025 | 2024 |
|---|---|---|
| Net Interest Income | $11.3 million | $0.03 million |
| Net Servicing Income | $34.0 million | $36.1 million |
| Total Income | $23.3 million | $34.6 million |
| Net Income (GAAP) | $6.9 million | $12.2 million |
| Net Income Applicable to Common Stockholders | $(3.0) million | $2.1 million |
| Earnings Available for Distribution (EAD) to Common | $15.8 million | $12.1 million |
| Total Assets | $1,540.6 million | $1,491.2 million |
| Total Debt (Repurchase Agreements + Notes Payable) | $1,282.4 million | $1,228.5 million |
| Cash and Cash Equivalents | $54.9 million | $46.3 million |
| Stockholders' Equity | $238.5 million | $233.6 million |
Material Changes vs. Prior Period
- Management Structure: The Company transitioned to internal management in November 2024, eliminating the $6.0 million management fee paid to an affiliate in 2024. This was offset by a $4.9 million increase in compensation and benefits expenses.
- Net Interest Income: Increased significantly to $11.3 million from $0.03 million in 2024, driven by higher asset yields (5.08% vs 4.91%) and lower financing costs (1.62% vs 1.12% average cost of funds, though weighted average interest expense on RMBS was 2.72% vs 2.03%).
- Unrealized Gains/Losses: The Company recorded a $35.6 million unrealized gain on RMBS measured at fair value through earnings in 2025, compared to a $19.4 million loss in 2024, primarily due to falling interest rates and spread tightening. Conversely, unrealized losses on derivatives increased to $39.8 million from a $9.8 million gain.
- Portfolio Composition: RMBS portfolio carrying value increased to $1.21 billion (from $1.12 billion), while Servicing Related Assets decreased to $214.8 million (from $233.7 million) due to paydowns and valuation changes.
- Dividends: Common stock dividends were reduced to $0.10 per share in the second half of 2025, down from $0.15 per share in the first half and throughout 2024.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- Interest Rate Environment: The Federal Reserve reduced its federal funds rate target by 75 basis points in late 2025 to a range of 3.50%–3.75%. Management notes that lower rates generally reduce funding costs but may increase prepayment speeds, which could reduce MSR values and accelerate premium amortization on RMBS.
- Capital Deployment: The Company utilized its At-The-Market (ATM) program to raise approximately $14.7 million in 2025. It maintains a share repurchase program with $4.7 million remaining, though no shares were repurchased in 2025.
- Strategy: The Company continues to focus on acquiring Servicing Related Assets and RMBS, utilizing leverage and hedging instruments (swaps, TBAs, futures) to manage interest rate and prepayment risks.
Key Risks & Contingencies:
- Interest Rate & Prepayment Risk: MSRs are highly sensitive to interest rates; rising rates generally increase MSR value but decrease RMBS value. Conversely, falling rates increase prepayment speeds, reducing MSR cash flows.
- Leverage & Liquidity: The Company relies heavily on short-term repurchase agreements (weighted average maturity of 16 days). A sudden drop in asset values could trigger margin calls, forcing asset liquidation.
- REIT Qualification: Failure to maintain REIT status would subject the Company to corporate income tax. Risks include challenges to the characterization of Excess MSRs and TBAs as qualifying assets.
- Cybersecurity: The Company relies on third-party servicers; a breach or failure by a servicer could materially impact operations.
Investor Verification Checklist
- Dividend Sustainability: Verify if the reduction in common dividends (from $0.15 to $0.10) is temporary or a new baseline, given the GAAP loss to common stockholders despite positive EAD.
- MSR Valuation Sensitivity: Review the Level 3 fair value assumptions for MSRs (prepayment speeds, discount rates) as these are unobservable inputs that significantly impact reported equity.
- Derivative Hedging Effectiveness: Assess the $39.8 million unrealized loss on derivatives against the $35.6 million unrealized gain on RMBS to understand the net impact of the hedging strategy on earnings volatility.
- Financing Costs: Monitor the weighted average cost of funds on repurchase agreements, which rose to 3.99% in Q4 2025, and its impact on net interest spreads if rates stabilize or rise.
- Internalization Costs: Confirm that the increase in compensation expenses is fully absorbed by the elimination of the management fee and does not erode long-term margins.