Business Context and Reporting Period
Company: Cherry Hill Mortgage Investment Corporation (CHMI)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter ended March 31, 2026
Business Overview: CHMI is a fully integrated, internally managed residential real estate finance company and REIT. Its primary business involves investing in residential mortgage-backed securities (RMBS) and mortgage servicing rights (MSRs). The company utilizes leverage primarily through repurchase agreements to finance its RMBS portfolio and MSR financing facilities for its servicing assets.
Key Financial Metrics
| Metric | Q1 2026 | Q4 2025 | Q1 2025 |
|---|---|---|---|
| Net Interest Income | $4.46 million | $3.21 million | $2.17 million |
| Net Servicing Income | $7.93 million | $8.15 million | $8.43 million |
| Total Income (Loss) | $4.64 million | $11.76 million | $(3.05) million |
| Net Income (Loss) | $0.43 million | $7.86 million | $(6.99) million |
| Net Loss Applicable to Common Stockholders | $(1.97) million | $5.29 million | $(9.31) million |
| Net Loss Per Share (Basic & Diluted) | $(0.05) | $0.14 | $(0.29) |
| Total Assets | $1.52 billion | $1.54 billion | N/A |
| Total Liabilities | $1.29 billion | $1.30 billion | N/A |
| Stockholders' Equity | $230.6 million | $238.5 million | N/A |
| Cash and Cash Equivalents | $46.7 million | $54.9 million | N/A |
| Repurchase Agreements (Debt) | $1.12 billion | $1.14 billion | N/A |
| Notes Payable (MSR Debt) | $143.3 million | $145.2 million | N/A |
Material Changes vs. Prior Periods
- Net Income Volatility: GAAP Net Income was $0.43 million in Q1 2026, a significant decrease from $7.86 million in Q4 2025. This decline was primarily driven by a $12.4 million unrealized loss on RMBS measured at fair value through earnings, compared to a $6.6 million unrealized gain in the prior quarter. This shift was attributed to rising interest rates during the quarter.
- Derivative Performance: The company recorded a $6.1 million unrealized gain on derivatives in Q1 2026, offsetting some of the RMBS losses. This contrasts with a $0.4 million unrealized loss in Q4 2025.
- Interest Expense Reduction: Interest expense decreased to $11.4 million in Q1 2026 from $12.6 million in Q4 2025, reflecting lower financing rates. Consequently, Net Interest Income improved to $4.46 million.
- Servicing Assets: Net servicing income declined slightly to $7.93 million due to portfolio size changes. The MSR portfolio carrying value decreased to $213.5 million from $214.8 million, with a $1.4 million unrealized loss recorded on these assets.
- Year-Over-Year Improvement: Compared to Q1 2025, the company moved from a net loss of $6.99 million to a net income of $0.43 million, driven by improved net interest spreads and reduced realized losses on RMBS (which were zero in Q1 2026 vs. $4.0 million loss in Q1 2025).
Guidance, Outlook, and Risks
- Interest Rate Environment: Management notes that since September 2025, the Federal Reserve has reduced the federal funds rate target by 75 basis points to a range of 3.50% to 3.75%. However, the company experienced rising rates during Q1 2026, which negatively impacted the fair value of its RMBS portfolio.
- Non-GAAP Measure (EAD): Earnings Available for Distribution (EAD) attributable to common stockholders was $5.26 million ($0.14 per share) for Q1 2026, an increase from $3.88 million ($0.11 per share) in Q4 2025. This metric excludes fair value adjustments and provides a view of operational cash flow.
- Liquidity and Capital: The company maintains sufficient liquid assets to meet short-term obligations. It has $34.6 million remaining under its Common Stock ATM program and $4.7 million remaining under its common stock repurchase program. No shares were issued or repurchased in Q1 2026.
- Risk Factors:
- Interest Rate Risk: Rising rates decrease the value of fixed-rate RMBS but increase the value of MSRs. The company uses interest rate swaps and futures to hedge these risks.
- Prepayment Risk: Changes in prepayment speeds affect the duration and yield of both RMBS and MSRs.
- Counterparty Risk: Exposure to repurchase agreement counterparties is limited to 5% of equity per counterparty.
Investor Verification Checklist
- Verify Fair Value Adjustments: Confirm the impact of the $12.4 million unrealized loss on RMBS on the company's book value and GAAP earnings, noting that this is a non-cash item.
- Review EAD vs. GAAP: Analyze the reconciliation between GAAP Net Loss to Common Stockholders ($(1.97)M) and EAD to Common Stockholders ($5.26M) to understand the company's distributable cash flow capacity.
- Monitor Leverage Ratios: Check the weighted average haircut on repurchase agreements (4.4%) and the total debt-to-equity ratio to assess refinancing risk.
- Assess MSR Valuation Inputs: Review the Level 3 fair value inputs for MSRs, specifically the constant prepayment speed (6.4%) and discount rate (9.3%), as these significantly drive valuation.
- Track Dividend Coverage: Verify that the company's cash flow from operations ($12.6 million) and EAD are sufficient to cover the $2.39 million in preferred dividends and the $3.69 million in common dividends declared.