Cherry Hill Mortgage Investment Corp (CHMI) - Q2 2025 10-Q Summary
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the period ended June 30, 2025. Cherry Hill Mortgage Investment Corp (CHMI) is a Maryland corporation operating as a Real Estate Investment Trust (REIT) focused on investing in residential mortgage-backed securities (RMBS) and mortgage servicing rights (MSRs). Effective November 14, 2024, the Company completed an "Internalization Event," terminating its external management agreement with Cherry Hill Mortgage Management, LLC, and transitioning to a fully internally managed structure.
Key Financial Metrics
| Metric | Q2 2025 (3 Months) | YTD 2025 (6 Months) | YTD 2024 (6 Months) |
|---|---|---|---|
| Net Interest Income | $2.64 million | $4.81 million | ($0.74 million) |
| Net Servicing Income | $8.98 million | $17.41 million | $19.15 million |
| Net Income (Loss) | $1.56 million | ($5.43 million) | $12.84 million |
| Net Income (Loss) to Common Stockholders | ($0.94 million) | ($10.25 million) | $7.80 million |
| Diluted EPS (Common) | ($0.03) | ($0.32) | $0.26 |
| Total Assets | $1.49 billion | $1.49 billion | $1.49 billion |
| Total Liabilities | $1.26 billion | $1.26 billion | $1.26 billion |
| Stockholders' Equity | $232.41 million | $232.41 million | $233.62 million |
| Cash and Cash Equivalents | $58.04 million | $58.04 million | $52.42 million |
| Repurchase Agreements (Debt) | $1.07 billion | $1.07 billion | $1.08 billion |
Material Changes vs. Prior Period
- Net Income Volatility: The Company reported a net loss of $5.43 million for the six months ended June 30, 2025, compared to net income of $12.84 million in the same period in 2024. This decline is primarily driven by a $41.9 million unrealized loss on derivatives and a $9.1 million unrealized loss on Servicing Related Assets (MSRs), partially offset by an $18.3 million unrealized gain on RMBS.
- Management Structure: Following the November 2024 internalization, management fees to affiliates dropped to zero in 2025 (compared to $3.51 million in YTD 2024). However, compensation and benefits expenses increased significantly to $3.12 million in YTD 2025 from $0.30 million in YTD 2024 due to the hiring of internal staff.
- Portfolio Composition: The RMBS portfolio carrying value increased to $1.15 billion from $1.12 billion at year-end 2024. The MSR portfolio carrying value decreased to $224.6 million from $233.7 million, reflecting a $9.1 million unrealized loss due to changes in valuation inputs and loan paydowns.
- Derivative Performance: Realized gains on derivatives were $19.5 million for the six months ended June 30, 2025, compared to $15.7 million in the prior year period. However, unrealized losses on derivatives were significant at $41.9 million, contrasting with a $9.3 million unrealized gain in the prior year.
Guidance, Outlook, and Risks
- Interest Rate Environment: The Federal Reserve maintained the federal funds rate target at 4.25% to 4.5% as of the filing date. Management notes that lower rates could reduce funding costs but may increase prepayment speeds, negatively impacting MSR values and accelerating premium amortization on RMBS.
- Capital Deployment: The Company continues to utilize its At-The-Market (ATM) program for common stock, raising approximately $12.7 million in the first half of 2025. Approximately $36.5 million remains available under the program.
- Key Risks:
- Interest Rate Risk: Sensitivity analysis indicates a 20% shift in discount rates could alter MSR fair value by approximately 8-10%.
- Prepayment Risk: Changes in prepayment speeds significantly impact the fair value of MSRs and the yield on RMBS.
- Liquidity: The Company relies on repurchase agreements for RMBS financing. As of June 30, 2025, the weighted average haircut was 4.3%.
- Non-GAAP Measures: Earnings Available for Distribution (EAD) attributable to common stockholders was $8.62 million for the six months ended June 30, 2025, or $0.27 per diluted share, compared to $6.29 million ($0.21 per share) in the prior year period.
Investor Verification Checklist
- Derivative Valuation: Verify the magnitude of the $41.9 million unrealized loss on derivatives and its impact on the hedging strategy effectiveness.
- MSR Fair Value Inputs: Review the Level 3 valuation assumptions for MSRs, specifically the constant prepayment speed (weighted average 6.4%) and discount rate (9.2%) used in the discounted cash flow models.
- Internalization Costs: Confirm the sustainability of the increased compensation and benefits expenses ($3.12 million YTD 2025) relative to the savings from eliminated management fees.
- Debt Maturity Profile: Assess the refinancing risk associated with $1.07 billion in repurchase agreements with a weighted average maturity of 26 days.
- Preferred Stock Obligations: Note the $4.92 million in preferred dividends paid YTD 2025, which must be serviced before common distributions.