10-Q: Cherry Hill Mortgage Q2 2026: Stable Operations, Mixed Asset Performance

Cherry Hill Mortgage Investment Corporation reported its Q2 2026 results, showing stable net interest income and gains from derivatives, while managing unrealized losses on its RMBS and MSR portfolios.

Summary

• Cherry Hill Mortgage Investment Corporation (CHMI) filed its Form 10-Q for the quarterly period ended June 30, 2026.
• The company reported net income of $3.8 million for the three months ended June 30, 2026, compared to a net loss of $5.4 million for the same period in 2025.
• Net interest income increased to $4.7 million from $2.6 million year-over-year for the three-month period.
• Servicing fee income decreased to $9.7 million from $10.9 million year-over-year for the three-month period.
• The company experienced a net unrealized loss on derivatives of $9.3 million for the quarter, compared to a $19.1 million unrealized loss in the prior year's quarter.
• Unrealized loss on investments in Servicing Related Assets (MSRs) was $2.4 million for the quarter.
• The company announced a merger agreement with TPG Mortgage Investment Trust, Inc. (MITT), expected to close in Q4 2026.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this filing as neutral to slightly positive, reflecting a stable operational quarter with some improvements in net interest income and derivative gains, offset by unrealized losses on RMBS and MSRs.

Positives

• Net income for the three months ended June 30, 2026 was $3.8 million, a significant improvement from a net loss of $5.4 million in the same period of 2025.
• Net interest income increased by $2.1 million to $4.7 million for the three months ended June 30, 2026, compared to $2.6 million in the prior year period, driven by higher yields and lower financing costs.
• Realized gains on derivatives, net, were $12.1 million for the three months ended June 30, 2026, contributing positively to income.
• The company's weighted average asset yield on RMBS increased to 5.76% as of June 30, 2026, from 5.24% as of December 31, 2025.
• The net interest spread on RMBS widened to 3.45% as of June 30, 2026, from 2.52% as of December 31, 2025.

Negatives

• Unrealized loss on RMBS, measured at fair value through earnings, was $0.9 million for the three months ended June 30, 2026, compared to an $18.3 million unrealized gain in the prior year period.
• Unrealized loss on derivatives was $9.3 million for the three months ended June 30, 2026, compared to a $19.1 million unrealized loss in the prior year period, indicating a negative impact from derivative valuations.
• Unrealized loss on investments in Servicing Related Assets (MSRs) was $2.4 million for the quarter, reflecting a decrease in the value of these assets.
• A credit loss and impairment on other assets of $2.8 million was recognized in the quarter, primarily related to strategic investments.
• Servicing fee income decreased by $0.5 million to $9.7 million for the three months ended June 30, 2026, compared to the prior quarter, due to changes in portfolio size.

Risks

• The pending merger with TPG Mortgage Investment Trust, Inc. (MITT) has a fixed exchange ratio, meaning changes in MITT's stock price prior to closing will affect the market value of the consideration received by CHMI stockholders.
• Failure to complete the mergers could have material adverse effects on CHMI's business, financial condition, results of operations, and stock price, including potential termination fees.
• The pendency of the mergers may adversely affect CHMI's businesses and operations, as counterparties, servicers, and lenders may delay or defer decisions or seek to renegotiate relationships.
• Covenants in the merger agreement may restrict CHMI's ability to undertake certain business activities, potentially impacting operations prior to completion.
• The company's operating results are susceptible to significant volatility due to changes in the fair value of, or cash flows from, its Servicing Related Assets as interest rates change.
• Prepayment risk and extension risk associated with RMBS can impact the effectiveness of hedging strategies and potentially cause losses.
• Counterparty risk exists in repurchase transactions, where a default by a counterparty could lead to a loss equal to the haircut on the collateral.
• The company is subject to liquidity risk as a portion of its assets are not publicly traded and may be illiquid.

Future Outlook

The company is focused on generating attractive current yields and risk-adjusted total returns through dividend distributions and capital appreciation by managing its portfolio of Servicing Related Assets and RMBS. The pending merger with MITT is expected to close in the fourth quarter of 2026, subject to stockholder approvals and closing conditions.

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 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.
• 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 operates in the residential mortgage REIT sector, which is highly sensitive to interest rate fluctuations and Federal Reserve monetary policy. The company's strategy of investing in RMBS and MSRs aligns with industry trends, but also exposes it to significant market and credit risks.

Comparison to Industry Standards

• The company's base salary levels for executives rank in line with the 25th percentile of its compensation peer set of mortgage REITs.
• The STIP performance metrics include EAD ROAE and Relative Price/Net Tangible Book Value, which are common performance indicators in the REIT industry.
• The LTIP program utilizes Total Shareholder Return (TSR) as a key performance metric, a standard practice for aligning executive compensation with shareholder value in publicly traded companies.

Legal Proceedings

• The company is not aware of any material legal or regulatory claims or proceedings as of June 30, 2026.

Stakeholder Impact

• Shareholders: The pending merger with MITT will result in a fixed exchange ratio of MITT stock and cash for CHMI common stock, with the value dependent on MITT's stock price at closing. The company's dividend policy aims to distribute REIT taxable income.
• Employees: The 2026 Executive Compensation Plan has been implemented, with base salaries, short-term incentives (cash bonuses), and long-term incentives (equity awards) designed to attract, retain, and motivate executives.
• Counterparties/Lenders: The company relies on repurchase agreements and MSR financing facilities, and manages counterparty risk through diversification and collateralization. The merger may impact relationships with these entities.

Next Steps

• Complete the merger with TPG Mortgage Investment Trust, Inc. (MITT) in the fourth quarter of 2026, subject to closing conditions.
• Continue to manage the portfolio of RMBS and MSRs to generate attractive yields and total returns.
• Monitor and manage interest rate risk and other market risks through hedging strategies.
• Distribute at least 90% of REIT taxable income to stockholders annually.

Key Dates

Recommendation

The company shows stable operational performance with improved net interest income, but faces headwinds from unrealized losses on its asset portfolio and significant uncertainty related to the pending merger. The fixed exchange ratio in the merger introduces price risk for shareholders. Given these factors, a 'hold' recommendation is appropriate pending further clarity on the merger's completion and its impact on the combined entity's financial health.

Keywords

Mortgage Investment, RMBS, MSRs, REIT, Interest Rate Risk, Derivatives, Merger, Financing