Cherry Hill Mortgage (CHMI) Q1 2026 earnings review
Core Earnings Recover, But Book Value Continues to Bleed
Cherry Hill delivered a mixed quarter that highlights the structural tension in mortgage REITs right now. Core operating performance is accelerating: Earnings Available for Distribution (EAD) jumped to $0.14 per share, safely covering the $0.10 dividend and reversing the earnings slump seen in mid-2025. Net interest income surged to $4.5 million. However, unprecedented geopolitical volatility crushed the balance sheet, driving a $12.4 million unrealized loss on the RMBS portfolio. This sent book value tumbling to $3.23 per share—a continuation of a persistent downward trajectory. Management is stepping up leverage to 5.5x to defend yields, but the equity base remains highly vulnerable to rate shocks.
🐂 Bull Case
The painful mid-2025 dividend cut (from $0.15 to $0.10) has finally paid off. With EAD accelerating to $0.14, the current 15.5% annualized yield is fully covered by core cash flows, removing immediate payout risk.
Net interest income accelerated to $4.5 million in Q1, up sharply from $3.2 million in the prior quarter and $2.2 million a year ago. Management's portfolio repositioning is successfully capturing wider spreads.
🐻 Bear Case
Book value per share fell again to $3.23, down from $3.58 a year ago. If capital continues to erode via unrealized RMBS and MSR losses, the company will have a smaller equity base from which to generate future earnings.
Management increased aggregate portfolio leverage to 5.5x, up from 5.3x in late 2025. Taking on more risk during a period they describe as having 'unprecedented geopolitical actions' leaves the portfolio highly exposed to interest rate spikes.
⚖️ Verdict: ⚪
Neutral. The income statement looks healthier than it has in a year, and the dividend is secure. But you cannot ignore the balance sheet: Cherry Hill is slowly liquidating its own book value to sustain these returns. Buy for the yield, but expect capital depreciation.
Key Themes
Net Interest Income Rebounds
A massive bright spot: Net interest income is accelerating. The metric reached $4.5 million in 26Q1, a 39% sequential jump from $3.2 million in 25Q4, and double the $2.2 million printed in 25Q1. This suggests funding costs are stabilizing and the shift toward lower/middle coupon RMBS executed in late 2025 is generating real spread expansion.
Unrealized Losses Crush Book Value
GAAP net loss of $2.0 million was driven entirely by non-cash hits: a $12.4 million net unrealized loss on RMBS and a $1.4 million unrealized loss on MSRs. This dynamic is decelerating book value structurally. The portfolio was caught on the wrong side of Q1's geopolitical rate volatility.
Leverage Creep Materializes
Management previously telegraphed they might let leverage 'creep up' if they saw opportunities. We are now seeing the result: leverage hit 5.5x, up from the stable 5.2x-5.3x range maintained throughout 2025. While this boosts EAD in the short term, applying higher leverage during severe macro volatility is a dangerous game that amplifies downside risk.
Radio Silence on Real Genius
Throughout 2025, management heavily promoted their strategic investment in Real Genius LLC, a digital mortgage technology company, citing it as a major benefit of internalization that would pay dividends within a year. The 26Q1 release makes zero mention of the partnership, raising concerns about whether this 'risk-on' venture is actually delivering.
Other KPIs
Decelerating. The MSR portfolio has shrunk from $17.0B in 25Q1 to $16.6B in 25Q2, down to $15.6B today. Management explicitly stated in 2025 they were directing all reinvestment cash flows into RMBS rather than MSRs. The MSR carrying value sits at $213.5M.
Stable. The RMBS portfolio remains flat year-over-year. However, the composition has shifted, with the current weighted average coupon standing at 4.98% and a net interest spread of 2.90%. The company is maintaining its agency exposure while using derivatives (swaps, TBAs, Eris SOFR futures) to manage the severe duration risk.
Declining slightly from the $55-$58 million levels maintained through mid-2025. While adequate for current operations, the shrinking liquidity buffer combined with rising leverage reduces the company's margin of error for margin calls during sudden rate spikes.
Guidance
Stable. Management declared a regular common dividend of $0.10 per share, implying an annualized yield of 15.5%. Given Q1 EAD of $0.14, this payout is highly secure in the near term and represents a sustainable baseline following the 2025 right-sizing.
Key Questions
Real Genius Update
Last year, you projected the Real Genius partnership would begin paying dividends to Cherry Hill within the first year. We saw no mention of it this quarter. What is the current status of that investment and its contribution to EAD?
Leverage Limit
Aggregate leverage stepped up to 5.5x this quarter amid 'unprecedented' volatility. What is your hard ceiling for leverage in this environment, and what specific macro triggers would cause you to de-lever?
Book Value Stabilization
You noted market stabilization in April. Has this translated into a recovery of the $12.4 million in unrealized RMBS losses we saw in Q1, and where does book value sit quarter-to-date?