Cherry Hill Mortgage Investment (CHMI) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q4 2025, the company reported GAAP net income applicable to common stockholders of $5.3 million, or $0.14 per diluted share, compared to a book value per common share of $3.44, up from $3.36 as of September 30, 2025 [5][16] - The NAV increased by approximately $3.1 million, or 1.3%, relative to September 30, 2025 [5] - Financial leverage remained consistent at 5.4x, indicating a prudent leverage strategy [5] Business Line Data and Key Metrics Changes - The MSR portfolio had a UPB of $15.9 billion with a market value of approximately $215 million, representing about 40% of equity capital [10] - The RMBS portfolio accounted for approximately 40% of equity capital and 79% of investable assets, excluding cash [10] - The RMBS portfolio's net interest spread was 2.52%, lower than the previous quarter due to reduced dollar roll income [13] Market Data and Key Metrics Changes - The company noted a stabilization in the interest rate environment and a steeper yield curve, which contributed to gains in spread and equity markets [9] - The RMBS portfolio's prepayment speeds rose to 8.5% CPR for the three-month period ended December, compared to 6.1% for the prior quarter [11] - The market experienced tightening in January followed by widening in February, indicating a flight to quality in the mortgage market [21] Company Strategy and Development Direction - The company aims to seek out investment opportunities that are accretive to its business while maintaining strong liquidity and prudent leverage [8] - The strategic partnership with Real Genius LLC is expected to facilitate growth as mortgage rates potentially decrease [6][7] - The company plans to continue managing its portfolio proactively to enhance shareholder value through improved performance and earnings [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the potential for reduced mortgage rates to accelerate growth for Real Genius as more homebuyers look to refinance [7] - The company is monitoring the mortgage rate environment closely, particularly the impact of Fed rate cuts on refinancing opportunities [12] - Management acknowledged a softer tone in the market compared to the previous quarter, with a focus on quality in investment decisions [21] Other Important Information - Operating expenses for the quarter were reported at $3.3 million, reflecting a normalization from non-recurring expenses in the previous quarter [17] - The company declared a dividend of $0.10 per common share for Q4 2025, paid in cash on January 30, 2026 [17] Q&A Session Summary Question: Market conditions at the start of 2026 compared to 2025 - Management noted that net spreads tightened initially due to GSEs reinvesting in mortgage-backed securities, but the market has since shown signs of widening and a flight to quality [20][21] Question: Normalized level for CPR - Management indicated that the CPR could normalize around 20% if mortgage rates drop to 5.5%, with current speeds around 8.5% [27] Question: Drivers of the drop in G&A expenses - The decrease in G&A expenses was attributed to the normalization of costs following non-recurring expenses related to personnel changes in the previous quarter [35] Question: Share buybacks and preferred stock strategy - Management is considering strategies regarding preferred stock buybacks and is focused on growing the company rather than immediate share repurchases [37] Question: Update on book value - As of March 31, the book value is expected to show about a 1% increase compared to December 31 [47]