Cherry Hill (CHMI) Q4 2025 earnings review
Fundamentals Stabilize as Dividend Right-Sizing Pays Off
Cherry Hill wrapped up a turbulent 2025 with a distinctly positive quarter. The aggressive moves made earlier in the year—cutting the dividend, internalizing management, and repositioning the RMBS portfolio—are finally bearing fruit. For the first time since the dividend cut, Earnings Available for Distribution (EAD) of $0.11 fully covered the $0.10 payout. Meanwhile, Book Value per share continued its steady, if slow, recovery, rising sequentially to $3.44. However, the company is not out of the woods: RMBS net interest spread compressed again, and the MSR portfolio value continues to take hits as rates shift.
🐂 Bull Case
The painful Q3 dividend cut to $0.10 is completely justified now. With Q4 EAD accelerating to $0.11 per share, the current 15.4% yield is now anchored by actual operational cash generation, removing immediate payout risk.
After a brutal drop from $3.82 in 24Q4 to $3.34 in 25Q2, Book Value per share has climbed for two consecutive quarters to reach $3.44, aided by unrealized gains on the RMBS portfolio.
🐻 Bear Case
The RMBS net interest spread declined to 2.52% in Q4, down from 2.87% in Q3 and 3.55% in Q1. Asset yield is struggling to outpace funding costs.
The MSR portfolio recorded an unrealized loss of $3.9 million in Q4. If interest rates slide further in 2026, prepayment speeds will accelerate, causing further write-downs to this critical $214.8M asset.
⚖️ Verdict: 🟢
Bullish. The internal turnaround is visibly working. The dividend is covered, operating costs are structurally lower, and book value is growing. While interest rate macro risks remain, the company is on much stronger footing than it was six months ago.
Key Themes
Internalization Cost Savings Fully Materialized
Accelerating benefit. Management promised that bringing operations in-house would yield significant savings, and the numbers validate this. Total expenses dropped to $3.3M in Q4, down from $3.8M in Q3 and $4.5M in 24Q4. G&A fell by nearly 30% sequentially to $1.5M. This expense discipline is a primary reason EAD improved enough to cover the dividend.
RMBS Net Interest Spread Compression
Decelerating. Despite shifting capital toward lower-coupon mortgages to benefit from spread tightening in Q3, the RMBS net interest spread fell to 2.52% in 25Q4 (down from 2.87% in Q3). With $1.2 billion committed to this segment, this persistent margin pressure caps the upside on their core earnings engine.
MSR Valuation Headwinds Return
Reversing. The Mortgage Servicing Rights (MSR) portfolio—which served as an anchor during rate hikes—logged a $3.9 million unrealized loss in Q4. The carrying value fell to $214.8M (from $233.7M a year ago). As the macroeconomic environment shifts toward lower Fed rates, this portfolio faces rising prepayment risks that could erode its value further.
Leverage Creep Strategy in Motion
Stable trajectory, but climbing. Aggregate portfolio leverage ticked up to 5.4x, continuing a deliberate, gradual increase from 5.2x in Q1. This aligns with the CIO's earlier guidance that management would let leverage 'creep up' if the macro environment stabilized. It implies confidence, but also heightens sensitivity to future rate shocks.
Other KPIs
Reversing. A significant beat compared to $2.0M ($0.05/share) in Q3. This was heavily supported by a $6.6M unrealized gain on the RMBS portfolio measured at fair value through earnings, showing effective hedging and positioning on the agency side.
Stable. Maintained strong liquidity levels throughout the year (hovering between $47M to $58M). This provides an adequate cushion to deploy capital opportunistically into agency RMBS.
Reversing. After bottoming at $3.34 in 25Q2, book value has recovered by $0.10 over the last two quarters. While still below the $3.82 mark from 24Q4, the stabilization is a major positive for equity holders.
Key Questions
Real Genius Partnership Update
The strategic investment in Real Genius was highlighted heavily in Q2 and Q3 as an accretive driver expected to pay dividends within a year. There was zero mention of it in the Q4 release. Is the integration and growth of this platform tracking to plan in the lower-rate environment?
MSR Prepayment Speeds
With the Fed's easing cycle impacting mortgage rates, what was the actual CPR (prepayment speed) on the MSR portfolio in Q4, and at what rate threshold does management expect a material wave of refinancing?
G&A Run Rate
General and administrative expenses dropped significantly to $1.5M in Q4. Is this the new stabilized run rate following the internalization, or were there one-time benefits in the quarter?
Net Interest Spread Floor
RMBS net interest spread compressed to 2.52%. Given current funding costs and swap maturities, where does management see this spread bottoming out in 2026?