10-Q: Cherry Hill Mortgage Investment Corp. Q1 2026 Results

Cherry Hill Mortgage Investment Corporation reports a net loss of $1.97 million for Q1 2026, with a slight decrease in total assets and liabilities.

Summary

• Cherry Hill Mortgage Investment Corporation (CHMI) reported a net loss of $1.97 million for the first quarter ended March 31, 2026, compared to a net loss of $9.31 million in the same period of 2025.
• Total assets decreased to $1.518 billion from $1.541 billion at the end of 2025, primarily due to a reduction in RMBS holdings.
• Total liabilities also decreased to $1.288 billion from $1.302 billion, mainly driven by lower repurchase agreement borrowings.
• Net interest income increased to $4.46 million from $2.17 million year-over-year, while net servicing income decreased to $7.93 million from $8.43 million.
• The company's investment portfolio consists of RMBS and Servicing Related Assets (MSRs).
• The company continues to operate as a REIT and aims to distribute at least 90% of its taxable income.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing as slightly negative due to the reported net loss, although the narrowing of the loss compared to the prior year and improved net interest income are positive signs. The company's performance is heavily influenced by market interest rate fluctuations.

Positives

• Net loss applicable to common stockholders narrowed significantly to $1.97 million in Q1 2026 from $9.31 million in Q1 2025.
• Net interest income increased by $2.29 million to $4.46 million for the quarter ended March 31, 2026, compared to $2.17 million for the same period in 2025, driven by higher yielding securities and lower financing rates.
• The company's cost of funds decreased to 1.63% as of March 31, 2026, from 3.99% as of December 31, 2025, contributing to improved net interest spread.
• The company maintained its REIT status and continues to comply with distribution requirements.

Negatives

• The company reported a net loss of $1.97 million for the first quarter of 2026.
• Net servicing income decreased by $0.49 million to $7.93 million for the quarter ended March 31, 2026, compared to $8.43 million for the same period in 2025, due to changes in the size of the portfolio.
• Unrealized loss on RMBS, measured at fair value through earnings, was $12.44 million for the quarter ended March 31, 2026, compared to an unrealized gain of $14.78 million for the same period in 2025, largely due to an increase in interest rates.
• Total assets decreased to $1.518 billion from $1.541 billion, indicating a reduction in the company's asset base.

Risks

• The company is subject to interest rate risk, where rising interest rates can increase borrowing costs and negatively impact asset values and net interest income.
• Prepayment risk and extension risk can affect the value and cash flows of MSRs and RMBS, especially in changing interest rate environments.
• The company faces counterparty risk in its repurchase transactions and derivative agreements.
• Liquidity risk exists due to the potential illiquidity of certain assets.
• Credit risk is present in MSRs and CMOs, although Agency RMBS are expected to have low credit risk.
• The company's ability to maintain its REIT qualification is subject to various requirements, and failure to do so could result in significant tax liabilities.

Future Outlook

The company expects its cash on hand and cash flow from operations to be sufficient to meet its liquidity needs for the next twelve months. Future long-term liquidity is expected to be met through cash on hand, additional borrowings, equity offerings, and asset liquidation or refinancing. The company aims to continue qualifying as a REIT and distributing at least 90% of its taxable income.

Management Comments

• "Our principal objective is to generate attractive current yields and risk-adjusted total returns for our stockholders over the long term, primarily through dividend distributions and secondarily through capital appreciation."
• "We attempt to attain this objective by selectively constructing and actively managing a portfolio of Servicing Related Assets (as defined below) and residential mortgage-backed securities (RMBS) and, subject to market conditions, other cash flowing residential mortgage assets."
• "We finance our RMBS with an amount of leverage, that varies from time to time depending on the particular characteristics of our portfolio, the availability of financing and market conditions. We do not have a targeted leverage ratio for our RMBS."
• "Subject to maintaining our qualification as a REIT, we utilize derivative financial instruments (or hedging instruments) to hedge our exposure to potential interest rate mismatches between the interest we earn on our assets and our borrowing costs caused by fluctuations in short-term interest rates."

Industry Context

StockSavvy.ai notes that Cherry Hill Mortgage Investment Corporation's Q1 2026 results reflect the ongoing challenges and opportunities within the mortgage REIT sector, particularly concerning interest rate sensitivity and portfolio management. The company's focus on Agency RMBS and MSRs aligns with industry trends, but its performance is heavily influenced by macroeconomic factors like Federal Reserve policy and market interest rates.

Comparison to Industry Standards

• The net interest spread of 3.44% as of March 31, 2026, is a key metric for mortgage REITs. While specific industry benchmarks fluctuate, this spread indicates the company's ability to generate income from its assets relative to its funding costs.
• The company's strategy of utilizing repurchase agreements for RMBS financing is standard practice in the industry, though it exposes the company to short-term funding rate fluctuations.
• The management of MSRs, a significant asset class for many mortgage REITs, involves complex valuation and risk management, particularly concerning prepayment speeds and discount rates, which are critical for companies like CHMI.
• The company's adherence to REIT distribution requirements (at least 90% of taxable income) is a regulatory standard for all REITs.

Legal Proceedings

• The company is not aware of any material legal or regulatory claims or proceedings as of March 31, 2026.

Related Party Transactions

• Non-controlling interests in the Operating Partnership relate to LTIP-OP Units owned by directors, officers, and employees.

Stakeholder Impact

• Shareholders: The net loss and reduction in total assets may impact shareholder value. However, the narrowing of the net loss and improved net interest income could be viewed positively.
• Creditors: The company's ability to service its debt obligations is supported by its asset portfolio and financing arrangements. A decrease in liabilities is generally positive for creditors.
• Employees: Equity incentive plans, including LTIP-OP Units and RSUs, are in place, indicating a focus on employee compensation and retention.
• Suppliers: No specific impact on suppliers is detailed in the filing.

Next Steps

• Continue to manage the portfolio of RMBS and Servicing Related Assets to generate attractive yields and total returns.
• Monitor and manage interest rate risk through hedging strategies.
• Maintain compliance with REIT qualification requirements, including distributing at least 90% of taxable income.
• Evaluate opportunities to utilize the remaining Common Stock ATM program for potential capital raises.
• Continue to manage liquidity and capital resources to meet ongoing commitments and operational needs.

Key Dates

Recommendation

The company reported a net loss, which is a negative indicator. However, the significant reduction in this loss compared to the prior year, coupled with an increase in net interest income and a decrease in funding costs, suggests operational improvements. The company's performance is highly sensitive to interest rate movements, and while the current environment presents challenges, the strategic management of its assets and liabilities warrants a 'hold' recommendation pending further clarity on interest rate trends and sustained profitability.

Keywords

Cherry Hill Mortgage Investment Corporation, CHMI, 10-Q, Quarterly Report, Mortgage-Backed Securities, RMBS, Mortgage Servicing Rights, MSRs, REIT, Financial Statements, Interest Rate Risk, Fair Value