Earnings call transcript: Cherry Hill’s Q3 2025 shows resilience amid rate cuts

Cherry Hill Mortgage Investment Corp (CHMI) reported its third-quarter 2025 earnings, revealing a GAAP net income of 2 million USD, or 0.05 USD per diluted share. Comprehensive income reached 4.5 million USD, translating to 0.12 USD per diluted share. The company’s earnings available for distribution stood at 3.3 million USD, or 0.09 USD per share. Following the earnings release, Cherry Hill’s stock experienced a 4.68% uptick in aftermarket trading, closing at 2.46 USD, despite a 1.7% drop during regular trading hours.

Key Takeaways

• Cherry Hill’s comprehensive income exceeded net income, indicating strong operational performance.
• The company’s stock rose 4.68% in aftermarket trading, signaling positive investor sentiment.
• Strategic partnership with Real Genius LLC aims to enhance mortgage technology offerings.
• Dividend adjusted to 0.10 USD per share, reflecting proactive financial management.
• Book value per share increased to 3.36 USD, up from 3.34 USD in the previous quarter.

Company Performance

Cherry Hill Mortgage demonstrated resilience in Q3 2025, achieving steady growth despite a challenging macroeconomic environment. The company’s comprehensive income and book value per share both increased, underscoring effective portfolio management and strategic initiatives. The partnership with Real Genius LLC is expected to bolster Cherry Hill’s digital mortgage capabilities, positioning the company for future growth.

Financial Highlights

• Revenue: Not explicitly stated, but financial leverage was 5.3x.
• GAAP net income: 2 million USD, or 0.05 USD per diluted share.
• Comprehensive income: 4.5 million USD, or 0.12 USD per diluted share.
• Earnings available for distribution: 3.3 million USD, or 0.09 USD per share.
• Book value per share: 3.36 USD, up from 3.34 USD.

Earnings vs. Forecast

Cherry Hill’s earnings per share (EPS) of 0.05 USD fell short of the forecasted 0.11 USD. However, comprehensive income per share surpassed expectations at 0.12 USD. The discrepancy between GAAP net income and comprehensive income highlights the company’s ability to generate value beyond traditional earnings metrics.

Market Reaction

Following the earnings announcement, Cherry Hill’s stock price rose 4.68% in aftermarket trading, closing at 2.46 USD. This positive movement contrasts with the 1.7% decline during regular trading hours, where the stock closed at 2.35 USD. The aftermarket surge suggests investor confidence in the company’s strategic direction and financial stability.

Outlook & Guidance

Cherry Hill remains focused on maintaining prudent leverage and exploring accretive investment opportunities. The company anticipates increased prepayment speeds for higher coupon mortgages, potentially benefiting from lower funding costs. Forward guidance projects an EPS of 0.11 USD for Q4 2025, with annual EPS forecasts of 0.48 USD for 2025 and 0.55 USD for 2026.

Executive Commentary

CEO Jay Lown expressed optimism about the potential growth acceleration for Real Genius, driven by anticipated reductions in mortgage rates. CIO Julian Evans emphasized the company’s commitment to proactive portfolio management and capital structure adjustments. CFO Apeksha Patel highlighted expectations for decreased operating expenses in upcoming quarters.

Risks and Challenges

• Interest rate volatility could impact mortgage demand and refinancing activity.
• Economic uncertainties may affect housing market dynamics and consumer confidence.
• Regulatory changes in the mortgage industry could pose compliance challenges.
• Competitive pressures from other mortgage investment firms may affect market share.
• Potential fluctuations in prepayment speeds could influence revenue streams.

Q&A

Analysts inquired about the potential for additional partnerships similar to Real Genius, seeking clarification on expense fluctuations and confirming the increase in book value as of October 31. Executives reassured stakeholders of their strategic focus and operational agility in navigating the evolving market landscape.

Full transcript - Cherry Hill Mortgage Investment Corp (CHMI) Q3 2025:

Conference Operator: Good day and welcome to Cherry Hill Mortgage Investment Corporation’s third quarter 2025 conference call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there’ll be a question-and-answer session. To ask a question, please press star 1-1 on your touch-tone telephone. If your question has been answered and you’d like to withdraw your question, please press star 1-1 again. I would like to turn the call over to Garrett Edson of ICR. Please go ahead.

Garrett Edson, IR Representative, ICR: We’d like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation’s third quarter 2025 conference call. In advance of this call, we issued a press release that was distributed earlier this afternoon. That press release and a third quarter 2025 investor presentation have been posted to the investor relations section of our website at www.chmire.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 and 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 Lown, President and CEO, Julian Evans, the Chief Investment Officer, and Apeksha Patel, the Chief Financial Officer. Now, I will turn the call over to Jay.

Jay Lown, President and CEO, Cherry Hill Mortgage Investment Corporation: Thanks, Garrett, and welcome to our third quarter 2025 earnings call. The third quarter saw a continued reduction in overall macro volatility as we moved into the fall. With tariff concerns mostly fading into the background and investors accepting the new normal. As the quarter progressed, it became clear that the Fed would proceed with rate cuts given economic indicators, and they did exactly that in both September and last week. Rates were mostly contained quarter over quarter, with the 10-year yield ending marginally lower at 4.15%. Specific to Cherry Hill, portfolio components such as mortgages, swaps, futures, and MSRs performed well in the quarter, though lower coupon mortgages outperformed higher coupons due to lower rates and investors’ growing demand for duration. With the Fed in easing mode leading to higher prepayment speed expectations for high coupon mortgages.

We shifted our RMBS portfolio in the quarter to benefit from the lower interest rate environment. We stand positioned to benefit from lower funding costs and improved portfolio performance. Our MSR portfolio has a weighted average note rate of 3.5%, well below current mortgage rates and continues to perform well. For the third quarter, we generated GAAP net income applicable to common stockholders of $0.05 per diluted share. Book value per common share finished the quarter at $3.36, compared to $3.34 on June 30. On an NAV basis, which includes preferred stock and prior to any AQM capital raised in the quarter, NAV was up approximately $1.1 million, or 0.5%, relative to June 30. Financial leverage at the end of the quarter remained consistent at 5.3 times as we continue to stay prudently levered. We ended the quarter with $55 million of unrestricted cash, maintaining a solid liquidity profile.

In September, our board of directors made the strategic decision to adjust our dividend to $0.10 per share. We believe the realignment is more sustainable and in line with the company’s earnings power. As we mentioned on our last call, we entered into a strategic partnership and investment with Real Genius LLC, a Florida-based digital mortgage technology company, earlier this year. As a reminder, Real Genius 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. We are seeing positive momentum from that partnership as Real Genius’s growth trajectory and stabilization progresses in line with our expectations, with 30-year mortgage rates hovering around 6%.

We are optimistic that the reduction in mortgage rates may facilitate an acceleration in Real Genius’s growth as more home buyers and homeowners look to purchase homes or refinance. Looking ahead, we will continue to seek out investment opportunities we believe would be accretive to our business. We are monitoring the economic environment closely and are focused on thoughtfully growing the company 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 third quarter.

Julian Evans, Chief Investment Officer, Cherry Hill Mortgage Investment Corporation: Thank you, Jay. Mortgage spread tightening drove performance in the third quarter. Reduced tariff rhetoric, a few announced preliminary tariff deals, as well as declining rate volatility and the assumption that the Fed would initiate and continue easing monetary policy based upon weaker employment data helped to define mortgage performance over the quarter. As the market grew more comfortable with the potential Fed easing, mortgage spreads ground tighter. As dollar prices rose, the expectations for faster prepayment speeds grew for higher coupon mortgages, limiting their performance. Higher coupon dollar prices became capped as interest rates moved lower and spreads tightened. As a result, investors’ desire for lower coupon mortgages and duration needs became apparent. Investors were chasing the par coupon mortgage as interest rates moved lower. Throughout the quarter, we adjusted our portfolio positioning to benefit from ongoing spread tightening and declining interest rates.

At quarter end, our MSR portfolio had a UPB of $16.2 billion and a market value of approximately $219 million. The MSR and related net assets represented approximately 41% of our equity capital and approximately 22% of our investable assets, excluding cash at quarter end. Meanwhile, our RMBS portfolio accounted for approximately 39% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented approximately 78%, excluding cash at quarter end. Our MSR portfolio’s net CPR averaged approximately 5.9% for the third quarter, pretty much comparable with 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. We continue to expect a low recapture rate and a relatively low net CPR in the near term given our MSR portfolio’s characteristics.

Like the MSR, the RMBS’s portfolio prepayment speeds held steady at 6.1% CPR for the three-month period ended September. We do expect agency prepayment speeds to increase with current mortgage rates ranging between 5.75% and 6.25%, especially for higher coupon mortgages. Our portfolio is not comprised of a large portion of higher coupon-specified pools. Most of the higher coupon positioning is represented by TBA positioning. The larger spec pool positioning starts at the 5.5 coupon, where the underlying collateral typically has a 6.50 loan rate, which will be impacted by the recent lower mortgage rates. The initial impact should be limited as the mortgage universe is only approximately 19% refinanceable at the current mortgage rate levels. As the Fed continues to ease monetary policy, we are monitoring a mortgage rate of 5.5%. At a 5.5% mortgage rate, the refinanceable universe increases to approximately 30%.

As of September 30th, the RMBS portfolio, inclusive of TBAs, stood at approximately $782 million compared to $756 million at the previous quarter end, as we modestly shifted our RMBS positioning towards lower and middle-of-the-coupon stack mortgages versus higher coupon mortgages. For the third quarter, our RMBS net interest spread was approximately 2.87%, higher than the previous quarter, as increased asset purchases more than offset higher interest expenses. Overall, our hedge strategy remains largely intact. We will continue to use a combination of swaps, TBA securities, and treasury futures to hedge the portfolio. During the quarter, the hedge portfolio changed marginally because more positioning changes were made to the RMBS portfolio. As we close out 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 a third quarter financial discussion.

Apeksha Patel, Chief Financial Officer, Cherry Hill Mortgage Investment Corporation: Thank you, Julian. GAAP net income applicable to common stockholders for the third quarter was $2 million, or $0.05 per weighted average diluted share outstanding during the quarter, while comprehensive income attributable to common stockholders, which includes the mark-to-market of our available-for-sale RMBS, was $4.5 million, or $0.12 per weighted average diluted share. Our earnings available for distribution, or EAD, attributable to common stockholders were $3.3 million, or $0.09 per share. Our book value per common share as of September 30, 2025, was $3.36 compared to book value of $3.34 as of June 30, 2025. We used a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowings. At the end of the third quarter, we held interest rate swaps, TBAs, and treasury futures, all of which had a combined notional amount of approximately $435 million.

You can see more details regarding our hedging strategy in our 10-Q, as well as our third 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 $3.8 million for the quarter. On September 15th, 2025, our board of directors declared a dividend of $0.10 per common share for the third quarter of 2025, which was paid in cash on October 31st, 2025. We also declared a dividend of $0.5125 per share on our 8.2% Series A cumulative redeemable preferred stock and a dividend of $0.6523 on our 8.25% Series B fixed to floating rate cumulative redeemable preferred stock, both of which were paid on October 15th, 2025.

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

Conference Operator: Thank you. As a reminder, if you’d like to ask a question, please press star 11. Our first question comes from Timothy D’Agostino with B Riley Securities. Your line is open.

Timothy D’Agostino, Analyst, B Riley Securities: Yeah. Hi. Thank you so much. Just one quick question for me. Regarding the Real Genius acquisition or partnership, sorry, was that more opportunistic, or could we see more partnerships like that in the future? Thank you.

Jay Lown, President and CEO, Cherry Hill Mortgage Investment Corporation: Hey, Tim. How are you? Good to have you on. I’m not really prepared to forecast, but to the extent that we see things that are interesting, that are creative, sure, we’ll look at them. This was a long time in the making for this investment. Broadly speaking, we’re really happy with how it’s progressing. To the extent that we find opportunities that fit within the skill set of people here, we’ll absolutely look at them.

Julian Evans, Chief Investment Officer, Cherry Hill Mortgage Investment Corporation: Okay. Great. Thank you so much.

Conference Operator: Thank you. Our next question comes from Miguel Goberman with Citizens. Your line is open.

Miguel Goberman, Analyst, Citizens: Hey. Good afternoon, guys. Hope everybody’s doing well.

Jay Lown, President and CEO, Cherry Hill Mortgage Investment Corporation: Good.

Miguel Goberman, Analyst, Citizens: If I could pick your brain about just your thoughts on expenses going forward, I’m looking at G&A plus comp. Looks like it was about a 12.5% sequential rise. Is there a sort of run rate that you guys are targeting going forward? Is there a seasonality to that combined number? Thanks.

Apeksha Patel, Chief Financial Officer, Cherry Hill Mortgage Investment Corporation: Hi, Miguel. It’s Apeksha.

Miguel Goberman, Analyst, Citizens: Hello.

Apeksha Patel, Chief Financial Officer, Cherry Hill Mortgage Investment Corporation: Yes. G&A and comp and benefits were both up this quarter, and that is mostly due to changes in personnel that we had during the second quarter and the third quarter of the year, as well as professional fees that related to those changes. Going forward, we do anticipate those costs going down, especially with having a new in-house GC now. As of this point, though, it’s difficult for us to quantify exactly what that would be, but we are anticipating them going down.

Miguel Goberman, Analyst, Citizens: Great. Thank you for that, Calleran. The sequential rise in servicing costs, what was driving that there?

Julian Evans, Chief Investment Officer, Cherry Hill Mortgage Investment Corporation: That was essentially part of a deboarding fee that got reimbursed in Q2. It is not a typical ongoing expense. That was something that in Q2 lowered the expense. Q3, we did not have it, of course, because we did not have the deboarding again. You saw that quarter-over-quarter change, but Q3 is more similar to our ongoing run rate.

Miguel Goberman, Analyst, Citizens: Great. If I can get one more in there, I think you know what it’s going to be. Any update on current book value?

Jay Lown, President and CEO, Cherry Hill Mortgage Investment Corporation: Hang on.

Miguel Goberman, Analyst, Citizens: The usual.

Jay Lown, President and CEO, Cherry Hill Mortgage Investment Corporation: Turn it over to Apeksha?

Miguel Goberman, Analyst, Citizens: Thank you.

Apeksha Patel, Chief Financial Officer, Cherry Hill Mortgage Investment Corporation: We’re seeing our October 31 book value per share up about 1.2% from September 30. Obviously, that’s before any fourth-quarter dividend accrual as the board has not yet met to approve it.

Miguel Goberman, Analyst, Citizens: Great. Thank you all. Appreciate it.

Jay Lown, President and CEO, Cherry Hill Mortgage Investment Corporation: Anytime. Good to have you on.

Conference Operator: Thank you. I’m sure no further questions. At this time, I’d like to turn the call back over to Jay Lown for closing remarks.

Jay Lown, President and CEO, Cherry Hill Mortgage Investment Corporation: Thank you. Thanks for attending our third quarter 2025 earnings call, and we look forward to updating you on our year-end results in the first quarter of 2026. Have a good evening.

Conference Operator: This does conclude the call. You may now disconnect. Good day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.