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Cherry Hill Mortgage Investment Corporation (NYSE:CHMI) released its first quarter 2025 investor presentation on May 6, revealing mixed financial results with improved earnings available for distribution (EAD) despite a GAAP net loss and declining book value per share.
Quarterly Performance Highlights
Cherry Hill reported a GAAP net loss of $0.29 per share for Q1 2025, a significant reversal from the $0.29 per share net income reported in the previous quarter. However, the company’s EAD, a non-GAAP measure, improved to $0.17 per share from $0.10 in Q4 2024.
Book value per common share declined 6.3% to $3.58, continuing a downward trend from $3.82 at the end of 2024. The company declared and paid a dividend of $0.15 per share, resulting in a total quarterly economic loss of 2.4%.
As shown in the following comprehensive overview of the quarter’s key metrics:
The company’s leverage ratio for its aggregate portfolio stood at 5.2x, slightly down from 5.26x in the previous quarter. Net interest spread for RMBS was 3.6%, while the constant prepayment rate (CPR) for RMBS was 5.8% and net CPR for MSRs was 4.1%.
Portfolio Composition and Strategy
Cherry Hill’s portfolio remains heavily weighted toward mortgage servicing rights (MSRs), which comprised 76% of assets and 17% of equity as of Q1 2025, with residential mortgage-backed securities (RMBS) making up the remaining 24% of assets and 39% of equity.
The following chart illustrates the company’s asset and equity composition over the past five quarters:
The MSR portfolio included approximately $17.0 billion in unpaid principal balance (UPB) of underlying Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC) loans, representing a continued decline from $17.3 billion in Q4 2024 and $19.6 billion in Q1 2024. The company’s investment in MSRs totaled $227.3 million, with a 5.32 multiple on the servicing strip of 25.2 basis points.
The detailed characteristics of the MSR portfolio are presented below:
The RMBS portfolio had a fair market value of $732,954 thousand and a par amount of $738,322 thousand. The portfolio had a weighted average gross coupon of 5.7% and a weighted average loan age of 23 months.
Interest Rate and Market Sensitivity
Cherry Hill operates in a challenging interest rate environment, with the company’s presentation highlighting the mortgage basis spread versus the 10-year Treasury yield, which has generally increased over time.
The following chart shows the mortgage landscape, including yield changes for U.S. Treasuries and mortgage dollar price changes:
The company’s sensitivity to interest rates is illustrated in its analysis of how changes in the 2-year and 10-year Treasury yields would affect book value per share. A parallel 25 basis point decrease in rates would reduce book value to $3.55 from $3.58, while a parallel increase would decrease it slightly to $3.57.
The detailed interest rate sensitivity analysis is shown below:
Similarly, Cherry Hill’s exposure to basis risk (RMBS and MSR spread changes) shows that a 50 basis point widening in spreads would reduce book value per share to $3.07, while a 50 basis point tightening would increase it to $4.11.
Financial Position and Outlook
Cherry Hill’s financing is primarily through repurchase agreements with a weighted average rate of 4.5% and a weighted average of 25 days remaining to maturity. The company has established relationships with 35 repo counterparties and is currently borrowing from 12 of them.
The company’s earnings available for distribution (EAD) for Q1 2025 totaled $7,981 thousand, with $5,376 thousand attributable to common stockholders. This represents a significant improvement from Q4 2024, when EAD attributable to common stockholders was $3,292 thousand.
The reconciliation from GAAP net income to EAD is shown below:
Cherry Hill’s stock closed at $2.94 on May 6, 2025, down 1.67% from the previous close of $2.99. In after-hours trading, the stock declined further to $2.89, suggesting investors may be focusing on the GAAP net loss and book value decline rather than the improved EAD.
The company’s presentation suggests it is positioning for continued operation in a "higher for longer" interest rate environment, with a focus on maintaining its current portfolio mix while being prepared to adjust as market conditions evolve.
The NAV snapshot below shows the factors contributing to the change in net asset value during the quarter:
Despite the challenges, Cherry Hill’s improved EAD provides some positive news for investors concerned about dividend sustainability, though the continued decline in book value and GAAP net loss highlight the ongoing difficulties in the current mortgage investment landscape.
Full presentation:
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