Earnings call transcript: Cherry Hill Mortgage Q2 2025 misses estimates, stock declines

Cherry Hill Mortgage Investment Corp (CHMI) reported a net loss of $0.03 per share for the second quarter of 2025, missing analyst expectations of a $0.12 earnings per share (EPS). The company’s revenue also fell short, coming in at $8.68 million compared to the forecasted $9.95 million. Consequently, the company’s stock dropped by 3.46% in after-hours trading, closing at $2.79. According to InvestingPro data, the company maintains a significant 21.51% dividend yield and has consistently paid dividends for 13 consecutive years, despite current challenges.

Key Takeaways

• Cherry Hill Mortgage reported a net loss, missing EPS expectations by 125%.
• Revenue was below forecast by 12.76%.
• Stock declined by 3.46% in after-hours trading.
• Strategic partnership with RealGenius aims to enhance digital mortgage capabilities.
• Company maintains strong liquidity with $58 million in unrestricted cash.

Company Performance

Cherry Hill Mortgage’s performance in Q2 2025 reflected challenges in meeting market expectations, with both EPS and revenue falling short. The company reported a net loss of $900,000, translating to a $0.03 loss per diluted share. With a market capitalization of $93 million and a beta of 1.05, the company shows moderate market sensitivity. InvestingPro analysis indicates the stock is currently fairly valued, with additional financial health metrics and insights available to subscribers.

Financial Highlights

• Revenue: $8.68 million, down from the expected $9.95 million.
• Earnings per share: Loss of $0.03, missing the forecasted $0.12.
• Book value per common share decreased to $3.34 from $3.58 in the previous quarter.
• Earnings Available for Distribution (EAD): $3.2 million or $0.10 per share.

Earnings vs. Forecast

Cherry Hill Mortgage’s Q2 2025 results were below expectations, with an EPS surprise of -125% and a revenue surprise of -12.76%. This marks a significant deviation from the company’s previous performance trends, highlighting potential operational challenges.

Market Reaction

Following the earnings announcement, Cherry Hill’s stock price fell by 3.46% in after-hours trading, closing at $2.79. This decline reflects investor disappointment with the company’s inability to meet earnings and revenue forecasts. The stock remains closer to its 52-week low of $2.34, indicating market concerns about the company’s short-term outlook. InvestingPro data reveals concerning liquidity metrics, with a current ratio of 0.08 and a debt-to-equity ratio of 9.96, though analysts expect the company to return to profitability this year. Get access to the comprehensive Pro Research Report covering CHMI and 1,400+ other US stocks for deeper insights.

Outlook & Guidance

Cherry Hill Mortgage is cautiously optimistic about the future, with EPS forecasts for the upcoming quarters ranging from $0.12 to $0.16. The company expects revenue to gradually increase, projecting $2.7 million in Q3 2025 to $3.82 million by Q2 2026. Management anticipates potential Federal Reserve rate cuts, which could positively impact refinancing activities.

Executive Commentary

CEO Jay Lau expressed confidence in Cherry Hill’s strategic positioning, stating, "We believe we are properly positioned for this event." Chief Investment Officer Julian Evans highlighted the potential benefits of a rate easing stance, noting, "Should the Fed shift towards a rate easing stance, we could see both these metrics begin to rise."

Risks and Challenges

• Economic uncertainty and potential interest rate changes could impact mortgage demand.
• Competitive pressures in the digital mortgage space.
• Volatility in the mortgage servicing rights market.
• Fluctuations in treasury and swap rates affecting hedging strategies.

Q&A

Analysts inquired about the company’s investment in RealGenius and its potential to lower servicing costs. Management confirmed that the July 31 book value is expected to remain flat compared to June 30, addressing concerns about asset valuation stability.

Full transcript - Cherry Hill Mortgage Investment Corp (CHMI) Q2 2025:

Operator: Good afternoon, and welcome to the Cherry Hill Mortgage Investment Corporation Second Quarter twenty twenty five Earnings Call. I am Frans, and I’ll be the operator assisting you today. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. Thank you.

I would now like to turn the call over to Peter Souza with ICR. Please go ahead.

Peter Souza, IR Representative, ICR: We’d like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation’s second quarter twenty twenty five conference call. In addition to this call, we have issued a press release that was distributed earlier this afternoon and posted that press release and second quarter twenty twenty five investor presentation to the Investor Relations section of our website at www.chmireit.com. On today’s call, management’s prepared remarks and answers to your questions may contain forward looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Examples of forward looking statements include those related to interest income, financial guidance, IRRs, future expected cash flows as well as prepayment recapture rates, delinquencies and non GAAP financial measures such as earnings available for distribution or EAD and comprehensive income. Forward looking statements represent management’s current estimates and Cherry Hill assumes no obligation to update any forward looking statements in the future.

We encourage listeners to review the more detailed discussions related to these forward looking statements contained in the company’s filings with the SEC and the definitions contained in the financial presentations available on the company’s website. Today’s conference call is hosted by Jay Lau, President and CEO Julian Evans, the Chief Investment Officer and Aftesh Patel, the Interim Chief Financial Officer. Now I will turn the call over to Jay.

Jay Lau, President and CEO, Cherry Hill Mortgage Investment Corporation: Thanks, Peter, and welcome to our second quarter twenty twenty five earnings call. The second quarter started out with an intense storm, but by the end of the quarter, skies were considerably clearer. The initial tariff announcements on April 2 spooked markets, resulting in an instinctive flight to quality and causing the administration to quickly pause the majority of tariffs for ninety days to reach new agreements. As the quarter progressed, investors began discounting the worst case scenarios initially feared. In fact, inflation remained low, the economy resilient, and tariff deals continued to be negotiated as we embark on a new normal.

Despite the significant intra quarter volatility, the ten year ended the quarter at 4.23%, marginally higher quarter over quarter. The negative performance for those in the Agency MBS sector was primarily driven by the mortgage basis underperforming both swap and treasury hedges, which Julian will elaborate on shortly. With the macro environment still in wait and see mode, all eyes are on the Fed to provide any signal to the end of their pause and return to the long awaited rate cut cycle in September. We believe we are properly positioned for this event. For the second quarter, we generated GAAP net loss applicable to common stockholders of $03 per diluted share.

Book value per common share finished the quarter at $3.34 compared to $3.58 on March 31. On an NAV basis, which includes preferred stock and prior to any ATM capital raised in the quarter, NAV was down approximately $6,200,000 or 2.7% relative to March 31. Financial leverage at the end of the quarter remained relatively consistent at 5.3 times, as we continue to stay prudently levered. During the quarter, we raised approximately $9,000,000 of capital through our common ATM program and ended the quarter with $58,000,000 of unrestricted cash on the balance sheet, maintaining a solid liquidity profile. During the quarter, we were pleased to enter into a strategic partnership and investment with RealGenius LLC, a Florida based digital mortgage technology company.

RealGenius has developed a proprietary direct to consumer platform, offering an efficient, fully online mortgage experience, including instant prequalification, automated document process and real time loan tracking, all of which is supported by their custom built point of sale system. Partnering with and investing in RealGenius is one of the clear benefits of our internalization, which allows us the flexibility to explore unique investment opportunities we believe are accretive to strategic growth. We’re excited to support RealGenius as they look to accelerate their growth moving forward. Looking ahead, we continue to also monitor the economic environment closely. And as it further stabilizes, we will look to evaluate a more risk on approach to our investment strategy, while maintaining strong liquidity and prudent leverage.

With that, I’ll turn the call over to Julian, who will cover more details regarding our investment portfolio and its performance over the second quarter.

Julian Evans, Chief Investment Officer, Cherry Hill Mortgage Investment Corporation: Thank you, Jay. The second quarter was divided into two distinct periods. The first period, primarily April, was dominated by market anticipation surrounding Liberation Day. April set the tone for the quarter, introducing heightened volatility, increased hedging costs, wider mortgage spreads and a significant swap spread tightening. The remainder of the quarter encompassing May and June was spent attempting to recover from April dislocations.

While volatility subsided and mortgage spreads tightened in the latter months, the improvements were insufficient to fully offset April’s impact. At quarter end, our MSR portfolio had a UPB of $16,600,000,000 and a market value of approximately $225,000,000 The MSR and related net assets represented approximately 43% of our equity capital and approximately 23 of our investable assets, excluding cash at quarter end. Meanwhile, our RMBS portfolio accounted for approximately 36% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented approximately 77%, excluding cash at quarter end. Our MSR portfolio’s net CPR averaged approximately 6% for the second quarter, up modestly from the previous quarter.

The portfolio’s recapture rate remained de minimis as the incentive to refinance continues to be minimal for this portfolio, given the portfolio’s loan rate. In the near term, we continue to expect a low recapture rate and a relatively low net CPR given our portfolio’s characteristics. Should the Fed shift towards a rate easing stance, we could see both of these metrics begin to rise as the incentive to refinance returns. Meanwhile, the RMBS portfolio’s prepayment speeds continue to remain low at 6.1 CPR, with mortgage rates holding relatively steady between 6.57% for the past nine months. As long as the Fed holds rates firm, we would expect prepayment speeds to remain moderate.

However, should the Fed begin to cut rates in September, prepayment speeds could begin to rise in the latter part of the third quarter and into the fourth quarter, if long end treasury and mortgage rates move lower following the Fed easing. As of June 30, the RMBS portfolio inclusive of TBAs stood at approximately $756,000,000 compared to $733,000,000 at the previous quarter end, as we continue to modestly shift our RMBS positioning during the quarter towards higher coupon mortgages. During the quarter, we moved existing positions as well as invested new proceeds into higher coupons. For the second quarter, RMBS net interest spread was 2.61 lower than the previous quarter, primarily driven by a large swap position that matured in the first quarter, but impacted the NIM in the second quarter, as we had previously indicated. Lower dollar roll income also led to lower NIM in the quarter.

During the quarter, we reduced a portion of our longer maturity SOFR swap hedges and replaced them with treasury futures as SOFR spreads fluctuated and tightened during the quarter. Overall, our hedge strategy remains largely intact and we will continue to use a combination of SOFR swaps, TBA securities and treasury futures to hedge the portfolio. Treasury futures have become a larger portion of hedges, especially given the recent tightening of swap spreads. Going forward, SOFR swaps will primarily represent front end, short and intermediate maturity hedges to the portfolio, while treasury futures and the MSR will represent longer maturity hedges. Looking into the back half of the year, we will continue to proactively manage our portfolio and adjust our overall capital structure to add value for shareholders through improved performance and earnings.

I will now turn the call over to Apeksha for our second quarter financial discussion.

Apeksha Patel, Interim Chief Financial Officer, Cherry Hill Mortgage Investment Corporation: Thank you, Julian. GAAP net loss applicable to common stockholders for the second quarter was $900,000 or $03 per weighted average diluted share outstanding during the quarter. While comprehensive loss attributable to common stockholders, which includes the mark to market of our available for sale RMBS was $600,000 or $02 per weighted average diluted share. Our earnings available for distribution or EAD attributable to common stockholders were $3,200,000 or $0.10 per share. As we mentioned on our prior call, one of our larger hedges matured at the end of the first quarter and thus we no longer receive income from it, which caused the reduction in EAD.

However, as we have stated consistently, EAD is not the sole barometer for setting our common dividend. Our Board also considers factors such as the prevailing market environment, portfolio return potential, our level of taxable income including potential hedge gain impacts, and the degree of certainty regarding forward investment return economics. Our book value per common share as of 06/30/2025 was $3.34 compared to book value of $3.58 as of 03/31/2025. We use a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowing. At the end of the second quarter, we held interest rate swaps, TBAs and treasury futures, all of which had a combined notional amount of approximately $446,000,000 You can see more details regarding our hedging strategy in our 10 Q, as well as our second quarter presentation.

For GAAP purposes, we have not elected to apply hedge accounting for our interest rate derivatives. And as a result, we record the change in estimated fair value as a component of the net gain or loss on interest rate derivatives. Operating expenses were $3,400,000 for the quarter. On 06/13/2025, our Board of Directors declared a dividend of $0.15 per common share for the 2025, which was paid in cash on 07/31/2025. We also declared a dividend of $0.05 $1.02 $5 per share on our 8.2% Series A cumulative redeemable preferred stock and a dividend of $0.06 $4.01 $3 on our 8.25% Series B fixed to floating rate cumulative redeemable preferred stock, both of which were paid on 07/15/2025.

At this time, we will open up the call for questions. Operator?

Operator: You. And we will now begin the question and answer session. This time, if you would like to ask a question, And your first question comes from the line of Randy Binner from B. Riley Securities. Please go ahead.

Jay Lau, President and CEO, Cherry Hill Mortgage Investment Corporation: Hey, Randy.

Operator: Hey, Randy. Are you there? Can you check your microphone if you’re on mute? Okay.

Tim D’Agostino, Analyst, B. Riley Securities: Hi. Sorry. This is Tim D’Agostino on for Randy Binner. In terms of servicing costs, it came in lower than our estimates. We were just kind of wondering what went through that and why servicing costs were lower in the quarter.

Sure. Essentially, we had some deboarding fees that we had taken on in prior quarter and we’re able to work out of related to the whole Mr. Cooper acquisition from Flagstar. So that was a component of it. And then as the quarter has gone down, we’ve not added to the portfolio.

So the total amount of loan count has continued to drop. Okay, great. Thank you. And then second quick question. As we look throughout the 2025, where should we expect leverage to go from here?

Should we expect it to kind of remain flat? Or will it change? Thank you.

Julian Evans, Chief Investment Officer, Cherry Hill Mortgage Investment Corporation: Hi, Ray. Well, actually it’s Tim, right? Sorry. This is Julian. I would expect simply just say that I would expect leverage to kind of creep up as we for the remainder of the year.

I would say we’ve been running the portfolio kind of in a conservative pattern, mainly neutral on duration and we’ve maintained the leverage pretty consistent over the last three quarters. I think it’s increased kind of marginally. Obviously, the second quarter going in, are expecting inflation to rise and volatility to remain at an elevated level. I would say that hasn’t really changed as we ventured into the third and the fourth quarter, but there are some changes that have happened, primarily the weaker non farm payroll number probably brings the Fed into play sooner than we would have expected. We were expecting somewhere between one or two eases this into the second half of the year.

This probably pulls those eases from let’s say October and December into September. So if the Fed is going to be accommodative and steepen out the yield curve that does make mortgages and other spread assets very attractive. It will depend on where inflation is going obviously, but I would say most likely leverage should creep a little bit higher as we enter into the fall.

Tim D’Agostino, Analyst, B. Riley Securities: Okay, great. Thank you so much. That’s all from us.

Operator: And your next question comes from Mikhail Govman from Citizens JMP. Please go ahead.

Mikhail Govman, Analyst, Citizens JMP: Hey, good afternoon guys. Hope everybody is doing well. Regarding this partnership with RealGenius, are there any numbers attached to it? Any sort of projections for accretion and timeline on that? And you guys mentioned, I believe, a risk on investment strategy going forward.

If I can maybe pick your brain as to what kind of stuff you could potentially be looking at going forward? Thanks.

Jay Lau, President and CEO, Cherry Hill Mortgage Investment Corporation: Hey, dude. So the the real genius, there’s an expectation for them to be profitable within the first six or seven months. So I would expect within the first year of the investment that we should be receiving dividends off of that investment. And I think it’s just a testament to our ability to sort of be more as a part of the sausage making and to be able to make an investment around things other than just MSRs So we’re excited to work with these guys.

We think it’s a good solid team. They’re getting back on their feet. We’re giving them time to get everything going, and we expect them to be profitable in the short term. On the other front, what the other question?

Mikhail Govman, Analyst, Citizens JMP: Just going past Real Genius, you guys mentioned maybe continuing a sort of risk on investment strategy and looking at other sort of alternative investments.

Jay Lau, President and CEO, Cherry Hill Mortgage Investment Corporation: Sure. Yes. Thanks. So right now, no. I think that there’s a desire to look at assets outside of the current investment strategy we have.

But to date, we don’t have anything definitive. And if we do, we would obviously tell you guys at the right time. But today, have nothing to report on that.

Mikhail Govman, Analyst, Citizens JMP: Gotcha. Thank you. And, of course, if I may squeeze in one more about Gee. Current There’s so many to ask, but the one that I’m really looking at right now is this one about current book value.

Jay Lau, President and CEO, Cherry Hill Mortgage Investment Corporation: It’s a new one.

Apeksha Patel, Interim Chief Financial Officer, Cherry Hill Mortgage Investment Corporation: Mikhail, it’s Apeksha. We see July 31 book value per share at about flat versus June 30, and that obviously is prior to any third quarter dividend accrual as the Board hasn’t met yet to approve it.

Mikhail Govman, Analyst, Citizens JMP: Great. Thank you, guys, and best of luck going forward in the second half of the year.

Jay Lau, President and CEO, Cherry Hill Mortgage Investment Corporation: Thanks, Jade.

Operator: And there are no further questions at this time. I would now like to turn the call back over to Jay Lohne for closing remarks. Please go ahead.

Jay Lau, President and CEO, Cherry Hill Mortgage Investment Corporation: Thank you all for joining us on our second quarter earnings call. We look forward to updating you in a few months to give you progress on our third quarter. Have a great day.

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