10-K: Cherry Hill Mortgage Navigates Rate Shifts, Boosts EAD

Cherry Hill Mortgage Investment Corporation reports improved net interest income and earnings available for distribution for fiscal year 2025, driven by lower borrowing costs and strategic asset management, despite a GAAP net loss.

Summary

• Net Income (Loss) Applicable to Common Stockholders was $(3,001) thousand for the year ended December 31, 2025, a decrease from $2,079 thousand in 2024.
• Net Interest Income significantly increased to $11,317 thousand in 2025 from $29 thousand in 2024.
• Servicing Fee Income decreased to $43,299 thousand in 2025 from $48,527 thousand in 2024, primarily due to changes in portfolio size.
• Servicing Costs decreased to $9,275 thousand in 2025 from $12,418 thousand in 2024, mainly due to portfolio changes and a one-time loan level adjustment.
• Unrealized gain on RMBS measured at fair value through earnings was $35,578 thousand in 2025, a positive swing from a loss of $(19,445) thousand in 2024, attributed to a drop in interest rates and spread tightening.
• Unrealized loss on derivatives was $(39,767) thousand in 2025, compared to a gain of $9,809 thousand in 2024, primarily due to changes in interest rates and derivative composition.
• Unrealized loss on investments in Servicing Related Assets increased to $(18,825) thousand in 2025 from $(7,160) thousand in 2024, due to changes in valuation inputs and loan paydowns.
• General and administrative expense decreased by $3.0 million to $7,704 thousand in 2025, due to a decrease in professional fees related to the internalization.
• Compensation and benefits expense increased by $4.9 million to $6,478 thousand in 2025, as the company began operating as an internally managed entity effective November 14, 2024.
• Management fee to affiliate was $0 in 2025, down from $6,037 thousand in 2024, due to the internalization of the company.
• Earnings Available for Distribution (EAD) Attributable to Common Stockholders increased to $15,810 thousand ($0.46 per diluted share) in 2025, from $12,131 thousand ($0.40 per diluted share) in 2024.
• The Federal Reserve reduced its federal funds rate target by 75 basis points to a range of 3.50% to 3.75% since September 2025 and ceased reducing its balance sheet as of December 1, 2025.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing with cautious optimism. While the company achieved a significant increase in EAD and net interest income, driven by lower borrowing costs and the internalization, the GAAP net loss and substantial unrealized losses on derivatives and MSRs indicate ongoing volatility and challenges in the current interest rate environment. The long-term stock performance also lags peers.

Positives

• Net Interest Income saw a significant increase to $11,317 thousand in 2025 from $29 thousand in 2024.
• Interest Expense decreased by $6.0 million to $49,778 thousand in 2025, driven by lower financing rates and a decrease in notes payable.
• The company recorded a substantial Unrealized gain on RMBS of $35,578 thousand in 2025, a positive reversal from a loss in the prior year, due to a drop in interest rates and spread tightening.
• Earnings Available for Distribution (EAD) Attributable to Common Stockholders increased by approximately $3.7 million to $15,810 thousand, or $0.06 per average common share, in 2025.
• The company successfully completed its internalization event on November 14, 2024, terminating the management agreement without a termination fee and eliminating $6.0 million in management fees to an affiliate.
• Servicing Costs decreased by $3.1 million in 2025, attributed to portfolio changes and a one-time loan level adjustment.
• The Federal Reserve's recent actions to ease monetary policy, including a 75 basis point reduction in the federal funds rate target and cessation of balance sheet reduction, could lower funding costs and spur economic activity.
• Management and the independent registered public accounting firm concluded that internal control over financial reporting was effective as of December 31, 2025.

Negatives

• The company reported a GAAP Net Loss Applicable to Common Stockholders of $(3,001) thousand in 2025, a decline from a net income of $2,079 thousand in 2024.
• Servicing Fee Income decreased by $5.2 million to $43,299 thousand in 2025, due to changes in the size of the MSR portfolio.
• A significant Unrealized loss on derivatives of $(39,767) thousand was recorded in 2025, a substantial negative swing from a gain of $9,809 thousand in 2024.
• Unrealized loss on investments in Servicing Related Assets increased by $11.6 million to $(18,825) thousand in 2025, primarily due to changes in valuation inputs and paydown of underlying loans.
• Common stock dividends per share decreased to $0.50 in 2025 from $0.60 in 2024.
• The company's cumulative total stockholder return from December 31, 2020, to December 31, 2025, significantly underperformed the S&P 500 and the S&P U.S. BMI Mortgage REITs Index.

Risks

• Reliance on third-party servicers exposes the company to risks of non-compliance with laws, data protection, and Agency requirements, potentially leading to fines, penalties, or termination of servicers.
• Relatively high rates of prepayments on residential mortgage loans adversely affect the values of the company's Servicing Related Assets and RMBS.
• The company relies on financial modeling to value its Servicing Related Assets and analyze investment opportunities, and these models are based on assumptions that may differ significantly from actual results.
• Future actions by the Federal Reserve, including changes in interest rates or balance sheet composition, are unpredictable and may negatively impact the company's asset values, cost of funds, and net interest income.
• The use of leverage to increase returns exposes the company to margin calls on its investable assets and can magnify losses when economic conditions are unfavorable.
• Future litigation, regulatory proceedings, and governmental investigations could adversely affect the company's business, results of operations, and financial condition.
• Maintenance of certain exceptions from the definitions of an investment company under the Investment Company Act imposes significant limitations on the company's operations and investment flexibility.
• The REIT rules impose ownership limits which may discourage a possible takeover or business combination that could benefit stockholders.
• The trading volume and market prices for shares of the company's equity securities tend to be volatile due to its relatively small market capitalization.
• There is no assurance that the company will be able to pay dividends on its equity securities at a fixed rate or at all.
• Failure to satisfy ongoing REIT qualification tests would subject the company to U.S. federal, state, and local income taxes, substantially reducing cash available for distribution.
• The company's board of directors may change its investment strategy, investment guidelines, and asset allocation without notice or stockholder consent, potentially resulting in riskier investments.
• The company operates in a highly competitive market, which may limit its ability to acquire targeted assets at favorable prices.
• Changes in U.S. trade policies, including tariffs, may indirectly impact macroeconomic conditions, inflation, and interest rates, adversely affecting the residential real estate and mortgage markets.
• The company is highly dependent on information systems and third parties, and systems failures or cybersecurity incidents could disrupt its business and lead to significant costs or liabilities.
• The lack of liquidity of certain assets may adversely affect the company's ability to sell them quickly in response to changing economic conditions.
• Interest rate mismatches between assets and borrowings may reduce income during periods of changing interest rates, especially if short-term rates rise disproportionately.
• Interest rate caps on adjustable-rate and hybrid adjustable-rate RMBS may reduce net interest margin during periods of rapidly increasing interest rates.
• An increase in delinquencies on mortgage loans underlying Servicing Related Assets may significantly diminish their fair value and reduce net revenue.
• The ability to own and manage MSRs is subject to terms and conditions established by GSEs, which are subject to change and could increase costs or lead to termination of approved status.
• The company faces representation and warranty risk in its capacity as an owner and seller of MSRs and other assets, potentially leading to repurchase obligations or indemnification for losses.
• Possible risks associated with the effects of climate change and severe weather could impact house prices, housing-related costs, and borrowers' ability to pay mortgages, leading to asset repricing.
• Increasing attention to ESG matters may result in increased compliance costs, decreased access to capital, and unfavorable ESG ratings.
• The company's risk management policies and procedures may not be effective in identifying or mitigating all financial, operational, information security, and compliance risks.
• The development and use of AI technology could lead to legal or regulatory actions, harm the company's reputation, or negatively impact its business if not effectively and ethically adopted.
• The company's recognition of phantom income may reduce a stockholder's after-tax return on investment.
• Liquidation of assets to repay obligations may jeopardize REIT qualification.
• REIT qualification and tax exemption may be dependent on the accuracy of legal opinions or advice, and inaccuracies could result in significant corporate-level tax.

Future Outlook

The company expects to distribute substantially all of its REIT taxable income to stockholders annually. It anticipates using a significant portion of RMBS paydowns to purchase MSRs and plans to invest more unrestricted cash in targeted assets if economic normalization continues. The company believes its cash on hand and operating cash flow will be sufficient to satisfy short-term liquidity needs for the next twelve months and expects to meet long-term liquidity requirements through existing cash, additional borrowings, equity offerings, and asset liquidation or refinancing. The company also anticipates that the increasing adoption of AI will heavily influence customer preferences and market trends in its industry.

Management Comments

• "We currently expect to distribute substantially all of our REIT taxable income to our stockholders."
• "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."
• "Our senior management team... makes the determinations as to the percentage of assets that are invested in each of our targeted asset classes."
• "Our senior management teams acquisition decisions depend on prevailing market conditions and may change over time in response to opportunities available in different interest rate, economic and credit environments."
• "We believe that every individual on our team brings a unique perspective and experience that contributes to our success and seek to have a well-rounded, inclusive workplace that reflects the communities in which we live and conduct our business and our stockholders."
• "As of the date of this filing, we believe we have sufficient liquid assets to satisfy all of our short-term recourse liabilities and to satisfy covenants in our financing documents."
• "With respect to the next twelve months, we expect that our cash on hand combined with the cash flow provided by our operations will be sufficient to satisfy our anticipated liquidity needs with respect to our current investment portfolio, including related financings, potential margin calls and operating expenses."
• "While it is inherently more difficult to forecast beyond the next twelve months, we currently expect to meet our long-term liquidity requirements through our cash on hand and, if needed, additional borrowings, proceeds received from repurchase agreements and similar financings, proceeds from equity offerings and the liquidation or refinancing of our assets."
• Jeffrey Lown II, CEO, stated regarding the Federal Reserve investigation, "he believed the investigation was initiated because the Federal Reserve would not set interest rates as the President preferred."

Industry Context

StockSavvy.ai notes that the broader mortgage REIT industry has faced significant interest rate volatility in recent years. The Federal Reserve's recent easing of monetary policy, including rate cuts and the cessation of balance sheet reduction, represents a notable shift from the tightening cycle of 2022-2024. This shift generally benefits mortgage REITs by potentially lowering funding costs and increasing asset values, though it can also accelerate prepayments on RMBS and negatively impact MSR valuations. The company's strategic focus on Servicing Related Assets, which tend to increase in value as interest rates rise, provides a natural hedge against rising rates, but the recent rate drops would negatively impact MSR valuations, as seen in the unrealized losses. The company's improved net interest income and EAD suggest it is adapting to the changing rate environment, but the GAAP net loss indicates ongoing challenges in fair value accounting for its diverse portfolio.

Comparison to Industry Standards

• StockSavvy.ai observes that Cherry Hill Mortgage Investment Corporation's cumulative total stockholder return of $61.96 from an initial $100 investment on December 31, 2020, significantly underperforms the S&P 500 ($196.16) and the S&P U.S. BMI Mortgage REITs Index ($114.62) over the same period ending December 31, 2025.
• The company's 2025 annual return (15.3%) was competitive with the Russell 2000 (12.8%) and close to the S&P U.S. BMI Mortgage REITs Index (15.7%), indicating improved relative performance in the most recent year.
• The average net yield spread on RMBS of 3.46% at December 31, 2025, is a key metric for comparison within the mortgage REIT sector, where maintaining healthy spreads is crucial for profitability, and its slight decrease from 3.79% in 2024 warrants monitoring.

Management Changes

Corporate Governance

Legal Proceedings

• As of December 31, 2025, the company is not aware of any material legal or regulatory claims or proceedings.

Related Party Transactions

• Prior to November 14, 2024, the company was externally managed by Cherry Hill Mortgage Management, LLC (CHMM) and paid management fees, which totaled $6,037 thousand in 2024. This relationship was terminated upon internalization.
• Net income is allocated to noncontrolling interests in the Operating Partnership, which are LTIP-OP Units owned by the company's directors, officers, and employees, representing approximately 1.6% of net income in 2025.

Stakeholder Impact

• Shareholders: Experienced a GAAP net loss in 2025, but an increase in EAD. Common dividends per share decreased. The cumulative total stockholder return significantly underperformed market and peer indices over the past five years. Potential for dilution from ATM program and benefits from share repurchase programs.
• Employees: Benefited from the internalization event, leading to direct employment and increased compensation and benefits. Equity incentive plans (LTIP-OP Units, RSUs) are in place to align interests.
• Creditors/Lenders: The company maintains repurchase agreements and MSR financing facilities. Management believes it has sufficient liquid assets to satisfy short-term recourse liabilities and covenants.
• Regulatory Bodies: The company is subject to various federal, state, and local regulations, including REIT qualification requirements, Investment Company Act exceptions, and cybersecurity mandates. Compliance is a continuous operational focus.

Next Steps

• File Definitive Proxy Statement on Schedule 14A relating to its 2026 Annual Meeting of Stockholders by no later than April 30, 2026.
• Continue to evaluate and ensure the competitiveness of employee benefits offerings to attract, develop, and retain talent.
• Continuously monitor and develop information technology networks and infrastructure to prevent, detect, address, and mitigate cybersecurity threats.
• Conduct an annual business impact analysis and maintain a business continuity and disaster recovery plan.
• The board of directors will continue to develop and advance the cybersecurity strategy and evaluate the adequacy of programs and policies.
• The CEO is responsible for ensuring the board comprehends the company's cybersecurity risk profile and receives quarterly updates.
• The company may raise additional funds through future offerings of equity or debt securities.
• The company may use capital resources to repurchase additional shares of common stock under its stock repurchase program.
• The company may repurchase preferred stock under its preferred stock repurchase program.
• The Freddie Mac MSR Revolver has an option for two renewals for similar terms following its June 2025 extension.
• Aurora and QRS III have the option to increase the maximum credit of the Fannie Mae MSR Revolving Facility to $150 million during the extended 24-month revolving period.
• The Fannie Mae MSR Revolving Facility may be further extended by a period of 1-year by agreement with the lender.

Key Dates

Recommendation

Cherry Hill Mortgage Investment Corporation presents a mixed financial picture. While the internalization and improved net interest income and EAD are positive developments, the GAAP net loss, substantial unrealized losses on derivatives and MSRs, and a reduction in common dividends raise concerns. The company's long-term stock performance has significantly lagged broader market and peer indices. The Federal Reserve's easing policy could be beneficial, but the company remains exposed to interest rate volatility and competitive pressures. A "Hold" recommendation is appropriate as investors should monitor the company's ability to translate improved EAD into sustained GAAP profitability and better shareholder returns, especially given the ongoing market uncertainties and the need for consistent execution post-internalization.

Keywords

Mortgage REIT, RMBS, MSRs, Real Estate Finance, REIT, Interest Rates, Financial Performance, Dividends, Capital Markets, Hedging, Corporate Governance, Cybersecurity, Federal Reserve, Asset Management, Internalization, Fixed-to-Floating Rate Preferred Stock, Equity Incentive Plan