Cherry Hill Mortgage Investment Corp. Stock

Good day, and welcome to the Cherry Hill Mortgage Investment Corporation's First Quarter 2026 Conference Call. [Operator Instructions] Please note, this call is being recorded. I'd now like to turn the call over to Garrett Edson, Investor Relations. Please go ahead.

We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's First Quarter 2026 Conference Call. In advance of this call, we issued a press release that was distributed earlier this afternoon. That press release and our first quarter 2026 investor presentation have been posted to the Investor Relations section of our website at www.chmireit.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to interest income, financial guidance, IRRs, future expected cash flows as well as prepayment and recapture rates, delinquencies and non-GAAP financial measures such as earnings available for distribution or EAD and comprehensive income. Forward-looking statements represent management's current estimates, and Cherry Hill assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC and the definitions contained in the financial presentations available on the company's website.

Today's conference call is hosted by Jay Lown, President and CEO; Julian Evans, the Chief Investment Officer; and Apeksha Patel, the Chief Financial Officer. Now I will turn the call over to Jay.

Thanks, Garrett, and welcome to our first quarter 2026 earnings call. The impact to markets from geopolitical events globally drove performance for the first quarter of this year. On our prior call in late February, the environment felt very much like the second half of 2025 in terms of relative stability. A few days later, we were at war with Iran, oil and gas prices spiked, inflation expectations followed in concert, and the potential for future rate cuts this year quickly fell by the wayside. Mortgage spreads promptly widened and the yield curve flattened as a result of the increased volatility.

Specific to Cherry Hill, as the geopolitical uncertainty unfolded, we acted quickly and we believe appropriately to protect the company by focusing on the risks that were within our control. We managed our interest rate exposure in March well, which we believe helped mitigate the impact to book value at the end of March. All things considered, we believe we performed well in the quarter on a relative basis.

Subsequent to quarter end, markets have responded favorably to a potential end to the conflict, and that has been a positive catalyst for agency-focused REITs, as noted by peers. That said, we are monitoring everything closely as markets will likely remain turbulent until the geopolitical situation has fully settled.

For the first quarter, we generated GAAP net loss applicable to common stockholders of $0.05 per diluted share. Book value per common share finished the quarter at $3.23 compared to $3.44 on December 31, down 6.1% for the quarter. Economic return for the quarter was negative 3.2%. On an NAV basis, which includes preferred stock, NAV was down $7.9 million or 3.3% relative to December 31. Financial leverage at the end of the quarter remained relatively consistent at 5.5x as we continue to stay prudently levered. We ended the quarter with $47 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile.

In addition, our strategic partnership and investment with Real Genius, a Florida-based digital mortgage technology company, continues to progress in line with our expectations.

As we move through the year, we expect the market will remain volatile for at least the near term until there is stability in the Middle East. We remain focused on proactively managing our portfolio through this challenging period while continuing to seek out additional investment opportunities we believe would be accretive to our business.

With that, I'll turn the call over to Julian, who will cover more details regarding our investment portfolio and its performance for the first quarter.

Thank you, Jay. First quarter portfolio performance was driven by GSE policy signaling, mortgage spread volatility and changing central bank rate expectations, which were amplified by geopolitical risk late in the quarter. January performance was strong due to a sharp but temporary mortgage spread tightening, while February and March saw the reversal of mortgage spreads driven by elevated volatility, higher interest rates and yield curve flattening that more than offset the January gains. Also having a negative impact on the portfolio performance was tighter SOFR spreads. Escalating volatility and weaker investor sentiment put SOFR spreads continuously tighter throughout the quarter.

During the quarter, we maintained our portfolio positioning for the most part. But as the spread and rate environment changed in March, we took steps to protect book value in the rising rate environment. To that end, while increased volatility impacted our portfolio, along with most of the industry, we were partially aided by an improved valuation of our MSR portfolio, which speaks to the resilience of the construction of our overall portfolio in a challenging environment.

At quarter end, our MSR portfolio had a UPB of $15.6 billion and a market value of approximately $213 million. The MSR and related net assets represented approximately 41% of our equity capital and approximately 21% of our investable assets, excluding cash at quarter end. Meanwhile, our RMBS portfolio accounted for approximately 42% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented approximately 79%, excluding cash at quarter end. Our MSR portfolio's net CPR averaged approximately 4.5% for the first quarter, down modestly from the previous quarter. The portfolio's recapture rate remains de minimis as the incentive to refinance continues to be minimal for this portfolio given the portfolio's loan rate. We continue to expect a low recapture rate and a relatively low net CPR in the near term given our MSR portfolio's characteristics. The RMBS portfolio's prepayment speeds declined modestly to 8% CPR for the 3-month period ending March compared to 8.5% for the prior quarter. Despite first quarter interest rate fluctuations, mortgage rates averaged 6.1% for the 3-month period, which was lower than the previous 3-month average. Homeowners moved quickly to take advantage of the lower mortgage rates. That refinancing opportunity quickly vanished at the initiation of the Iran war and mortgage rates settled near 6.4% to end the quarter.

At this level of mortgage rates, mortgage supply should be reduced, improving mortgage technicals. That, coupled with consistent demand from the GSEs should support mortgage spreads. Offsetting the potential improvement in mortgage spreads is volatility driven by geopolitical risk. Mortgages like certainty and clarity and should improve as the Iran war is resolved.

At current rate levels, the mortgage universe is approximately 14% refinanceable. Prior to the start of the war, we were monitoring a mortgage rate of 5.5%. At a 5.5% mortgage rate, the refinanceable universe would have averaged approximately 30%. As of March 31, the RMBS portfolio inclusive of TBAs stood at approximately $807 million, in line with the previous quarter end as we maintained our mortgage portfolio positioned towards the middle of the coupon stack and higher. For the first quarter, our RMBS net interest spread was 2.9%, which was higher than the previous quarter. The improvement in NIM was mainly driven by a reduction in interest expenses related to repo costs. Our RMBS financing rate declined to 3.78% from 3.99% at quarter end. The NIM improvement was also aided by improved dollar roll income. Overall, our hedge strategy remains intact, and we will continue to use a combination of swaps, TBA securities, treasury futures and Eris SOFR futures to hedge the portfolio.

Moving forward, we will continue to proactively manage our portfolio and adjust our overall capital structure to add value for shareholders while closely monitoring the macro environment given our expectation for volatility to remain elevated in the near term with geopolitical tensions subside.

I will now turn the call over to Apeksha for our first quarter financial discussion.

Thank you, Julian. GAAP net loss applicable to common stockholders for the first quarter was $2 million or $0.05 per weighted average diluted share outstanding during the quarter, while comprehensive loss attributable to common stockholders, which includes the mark-to-market of our available-for-sale RMBS, was $4.4 million or $0.12 per weighted average diluted share. Our earnings available for distribution or EAD attributable to common stockholders were $5.3 million or $0.14 per share. Our book value per common share as of March 31, 2026, was $3.23 compared to book value of $3.44 as of December 31, 2025. We used a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowings. At the end of the first quarter, we held interest rate swaps, TBAs, treasury futures and swap futures, all of which had a combined notional amount of approximately $396 million. You can see more details regarding our hedging strategy in our 10-Q as well as in our first quarter presentation.

For GAAP purposes, we have not elected to apply hedge accounting for our interest rate derivatives. And as a result, we record the change in estimated fair value as a component of the net gain or loss on interest rate derivatives. Operating expenses were $3.3 million for the quarter. On March 12, 2026, our Board of Directors declared a dividend of $0.10 per common share for the first quarter of 2026, which was paid in cash on April 30, 2026. We also declared a dividend of $0.5125 per share on our 8.2% Series A Cumulative Redeemable Preferred Stock and a dividend of $0.5978 on our 8.25% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, both of which were paid on April 15, 2026. At this time, we will open up the call for questions. Operator?

And our first question comes from Timothy D'Agostino with B. Riley Securities.

Congrats on the quarter. Earlier in the call, you mentioned examining additional investment opportunities. I guess, could you just provide some color on how you would go about funding those investment opportunities?

Anything that we might do from an investment perspective would obviously come at the expense of a different asset class. So clearly, when we evaluate new opportunities, one of the things that we would think about and evaluate closely is the return profile on a risk-return weighted basis and how that might impact shareholder returns. So given the capital is constrained, that's how we would think about it.

Okay. Great. And then a second question for me. You noted the volatility in March and then the stabilization that we saw in April. As we think forward, could you just kind of walk us through your general thoughts on the return profile of the portfolio if stabilization persists through the second quarter or if we do see a spike in volatility again? Just kind of understanding from your perspective, that that return and how it might be impacted based off the general market.

Tim, it's Julian. Look, I think currently, mortgages from a spread and yield perspective are attractive here. I think a very simple return on a levered basis, about 15% to, let's say, mid-teens to high teens in terms of returns for RMBS. And I'd say probably on the MSR anywhere between 10% to maybe 12% on a levered basis. So I think any type of stability that we can get, we can obviously get some spread tightening that would impact the portfolio in a positive situation or just get rates to stabilize. I think if you look at kind of some of the scenarios that are in the presentation, it really shows that a parallel shift or a steepening, bull steepening type of scenario does add some positive returns to the portfolio.

Congrats on a great quarter.

Thanks, Tim.

Our next question comes from Trevor Cranston with Citizens JMP.

You mentioned expecting some continued volatility in the near term. Can you talk a little bit about what kind of range you expect spreads to trade in kind of over the near future? And I guess, in widening scenarios, did you see any behavior in particular, I guess, from the GSEs or other investors that kind of give you added confidence in kind of where the ceiling is on where spreads could go, in widening events?

Well, I mean, currently, I think when we look at the mortgage spreads, and this is just versus swaps, I mean, we're currently -- I want to say, well, we can say where we ended the first quarter, call it, versus 7-year swaps, we ended around 165. We've kind of retraced ourselves into like 150 at this current point in time. You probably could go back towards 130 over. So if you think about a spread of 90 and swap spreads of 40 on that time frame, you get to 130. And then to the high side, I mean, we probably could visit the 180 again. So 140 on spread and 40 on the swap spreads. Any type of stabilization that we've noticed in terms of volatility, if the war has come to some type of resolution in terms of just being calm for a while, we've obviously seen spreads tighten. And obviously, any type of escalation, we've seen volatility pick up. I think vol remains elevated until we get clarity and some type of certainty that takes place over that time frame. I think we are going to be at these higher levels for a while until the resolution comes about. And what form that may take, I do not know the answer to that.

Got it. Okay. That's helpful. And do you guys have an update on where book value is today from the end of the quarter?

Oh, the infamous Mikhail question?

Yes, he told me to ask that.

No worries, go ahead.

Hey, Trevor, it's Apeksha. So our April 30 book value per share has increased nearly 2% from March 31, and that is excluding any second quarter dividend accrual as the Board hasn't met yet to approve it. But I would like to point out that post mid-April, spreads have softened.

I'm showing no further questions at this time. I'd like to turn the call back over to Jay Lown for closing remarks.

Thank you very much for joining us on our first quarter 2026 call. We look forward to updating you on our second quarter performance in August this year. Have a great evening.

Thank you for your participation. You may now disconnect.

Thank you for standing by, and welcome to Cherry Hill Mortgage Investment Corporation's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Emma Little, Investor Relations. Please go ahead.

We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's Fourth Quarter 2025 Conference Call. In advance of this call, we issued a press release that was distributed earlier this afternoon. That press release and a fourth quarter 2025 investor presentation have been posted to the Investor Relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to interest income, financial guidance, IRRs, future expected cash flows as well as prepayment and recapture rates, delinquencies and non-GAAP financial measures such as earnings available for distribution or EID and comprehensive income.

Forward-looking statements represent management's current estimates, and Cherry Hill assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC and the definitions contained in the financial presentations available on the company's website. Today's conference call is hosted by Jay Lown, President and CEO; Julian Evans, the Chief Investment Officer; and Apeksha Patel, the Chief Financial Officer. Now I will turn the call over to Jay..

Thanks, Emma, and welcome to our fourth quarter 2025 earnings call. Themes that resonated in the third quarter continued into the fourth quarter. A further reduction in tariff rhetoric and above-trend domestic growth allowed realized and implied volatility levels to drop. The limited government shutdown and a slightly weaker employment picture, were offset by additional FOMC eases, which lowered the Fed funds rate by a total of 50 basis points during the quarter. All these factors contributed to the improvement of the equity and credit markets.

Mortgage spreads embraced the lower volatility, coupled with a steeper yield curve tightening throughout the quarter. Specific to Cherry Hill, Portfolio performance was driven by tighter mortgage spreads and a steeper yield curve. All portfolio components aided in the performance. Mortgages, swaps futures and MSRs performed well with lower and middle coupon mortgages outperforming the wings of the coupon stack.

The RMBS portfolio positioning remained consistent with the third quarter, and that positioning benefited performance. In addition, our MSR portfolio, which remains 250 basis points out of the money, given current mortgage rates, performed well given the steeper yield curve. All in, we were pleased with our performance for the quarter. For the fourth quarter, we generated GAAP net income applicable to common stockholders of $0.14 per diluted share. Book value per common share finished the quarter at $3.44 compared to $3.36 on September 30.

On an NAV basis, which includes preferred stock, NAV was up approximately $3.1 million or 1.3% relative to September 30. Financial leverage at the end of the quarter remained relatively consistent at 5.4x, as we continue to stay prudently levered. We ended the quarter with $55 million of unrestricted cash on the balance sheet, maintaining a solid liquidity profile. Along with our solid portfolio performance, our strategic partnership and investment with Real Genius LLC, a Florida-based digital mortgage technology company continues to grow steadily and in line with our expectations.

As a reminder, Real Genius has developed a proprietary direct-to-consumer platform, offering an efficient fully online mortgage experience, including instant prequalification, automated document process and real-time loan tracking, all of which is supported by their custom-built point-of-sale system. With 30-year mortgage rates still hovering around 6% and the potential for additional Fed rate cuts later this year, we remain optimistic that the reduction in mortgage rates may facilitate an acceleration in Real Genius' growth as more homebuyers and homeowners look to purchase homes or refinance.

As we progress through 2026, we will continue to seek out investment opportunities we believe would be accretive to our business. We will also remain focused on thoughtfully growing the company. while consistently maintaining our strong liquidity and prudent leverage positioning. With that, I'll turn the call over to Julian, who will cover more details regarding our investment portfolio and its performance over the fourth quarter.

Thank you, Jay. Fourth quarter's performance was driven by a more stabilized interest rate environment and a steeper yield curve, which enabled most spread and equity markets to post gains. Tighter mortgage spreads and a portfolio position for a steeper yield curve aided our performance, as Jay mentioned. The portfolio started the quarter slightly long duration, positioned for lower rates and a steepening yield curve, which we maintained throughout the quarter. Performance was bolstered by sulfur swap spreads, which widened in the quarter, aiding mortgage spread tightening.

The shift from higher to lower coupon mortgages initiated in September proved advantageous as expectations for additional Fed easing increased, supporting tighter spreads and higher prices for lower coupon, longer duration collateral. In the quarter, we proactively adjusted our portfolio positioning as necessary to continue benefiting from the spread and rate environment. As the quarter progressed, the entire coupon stack had a hand in performance as interest and SOFR swap rate fluctuated.

To start, lower and middle coupon mortgages outperformed in concert with lower rates. However, in December, following the Fed's third rates of the year, rates actually moved higher, which favored middle and higher coupon mortgages. Quarter end, our MSR portfolio had a UPB of $15.9 billion and a market value of approximately $215 million. The MSR and related net assets represented approximately 40% of our equity capital and approximately 21% of our investable assets, excluding cash at quarter end.

Meanwhile, our RMBS portfolio accounted for approximately 40% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented approximately 79% excluding cash at quarter end. Our MSR portfolio's net CPR averaged approximately 5.1% for the fourth quarter, down modestly from the previous quarter. The portfolio's recapture rate remain de minimis as the incentive to refinance continues to be minimal for this portfolio, given the portfolio's loan rate. We continue to expect a lower capture rate and a relatively low net CPR in the near term, given our MSR portfolio's characteristics.

As expected, the RMBS portfolio's prepayment speeds rose to 8.5% and CPR for the 3-month period ended December compared to 6.1% for the prior quarter, given our portfolio is comprised of a large portion of higher coupon specified pools. As previously mentioned, the majority of our higher coupon positioning is TBA. The larger spec pool positioning starts in the 5.5% coupon where the underlying collateral typically has a 650 loan rate and which was impacted by the recent move to lower mortgage rates.

As a reminder, while the mortgage universe is only approximately 19% refinanceable at the current mortgage rate levels, as the Fed continues to ease monetary policy, we are monitoring a mortgage rate of 5.5%. At a 5.5% mortgage rate, the refinanceable universe increases to approximately 30%. As of December 31, the RMBS portfolio inclusive of TBAs, stood at approximately $805 million compared to $782 million at the previous quarter end. A modest shift as we reposition the mortgage portfolio towards the middle of the coupon stack.

For the fourth quarter, our RMBS portfolio's net interest spread was 2.52%, which was lower than the previous quarter due to a reduction in dollar roll income as well as a reduction in interest earned on payer swaps. We would expect to bounce back in the first quarter as dollar roll income improves. Overall, our hedge strategy remains intact. And we will continue to use a combination of swaps, TBA securities and treasury futures to hedge the portfolio.

During the quarter, the hedge portfolio marginally changed as we initiated a small position in ARRIS SOFR futures. We would expect their usage to grow as we transition a portion of the portfolio to ARRIS SOFR futures. As we progress through 2026, we will continue to proactively manage our portfolio and adjust our overall capital structure to add value for shareholders through improved performance and earnings. I will now turn the call over to Apeksha for our fourth quarter financial discussion.

Thank you, Julian. GAAP net income applicable to common stockholders for the fourth quarter was $5.3 million or $0.14 per weighted average diluted share outstanding during the quarter. While comprehensive income attributable to common stockholders, which includes the mark-to-market of our available for sale RMBS, was $6.5 million or $0.18 per weighted average diluted share. Our earnings available for distribution or EAD attributable to common stockholders were $3.9 million or $0.11 per share. Our book value per common share as of December 31, 2025, was $3.44 compared to book value of $3.36 as of September 30, 2025.

We use a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowings. At the end of the fourth quarter, we held interest rate swaps, TBAs, treasury futures and swap futures, all of which had a combined notional amount of approximately $422 million. You can see more details regarding our hedging strategy in our 10-K as well as our fourth quarter presentation. For GAAP purposes, we have not elected to apply hedge accounting for our interest rate derivatives. And as a result, we [ record ] the change in estimated fair value as a component of the net gain or loss on interest rate derivatives.

Operating expenses were $3.3 million for the quarter. On December 12, 2025, our Board of Directors declared a dividend of $0.10 per common share for the fourth quarter of 2025, which was paid in cash on January 30, 2026. We also declared a dividend of $0.5125 per share on our 8.2% Series A cumulative redeemable preferred stock and a dividend of $0.6259 on our 8.25% Series B fixed to floating rate cumulative redeemable preferred stock, both of which were paid on January 15, 2026.

At this time, we will open up the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of Timothy D'Agostino of B. Riley Securities.

Thanks for the comments before. My first question is, could you just kind of give us a sense or provide maybe a little bit more color on how the market for you all feels at the start of '26 compared to '25. It'd be great to just kind of through your lens, understand kind of the changes you're seeing and what's different.

Tim, this is Julian. Well, I mean, obviously, the first thing off the table is we obviously got the tweet that talked about the DSCs being able to reinvest about $200 billion into mortgage-backed securities. So I would say net-net spreads have in the first instance of that went tighter, especially in the middle of the coupon stack closest to par and over gradually over the next couple of weeks has subsequently given a lot of that back in terms of returns.

Yes, spreads ended the month of January, slightly tighter. But I would say, as we moved into February, the market has changed. And I think relative to where we were in the fourth quarter, I think you saw kind of continuously tightening over the entire quarter. I think what we've seen so far is tightening in the month of January, widening in the month of February, plus the flattening of the yield curve. There seems to be more of a flight to quality bid in the market at the moment.

Some of that obviously having to do with equities in terms of either a rotation or a scare out of particular equity stocks. And I think that's filtered over into rates and where we see more flight to quality. So mortgages, I would say the bid-ask has widened out a little bit. So softer tone this month than what we've had definitely in the fourth quarter of last year.

Okay. Great. And if I could ask a quick follow-up. Regarding the RMBS book, I know you said CPR picked up quarter-over-quarter. Is there a normalized level for CPR that you think you'll get to or that over the cycle, you kind of look to? Just trying to understand where that -- or the CPR is now relative to over a normalized period.

Well, I think if you look at like our specified pools, I kind of tried to note was that a majority of the specified pools are not in the 6 and 6.5 coupon for specified pools. Majority of it kind of has been in the 5 and 5.5 coupons. So we've given ourselves a little bit of wiggle room. We felt we've gone high in terms of rates, came back down, but we advised ourselves not to maybe buy that fixed coupon that would kind of be in the refinanceable bucket right now. Given the 6.5 loan rate that we see. Our 6 is, I would say, I mean, our 5.5s are kind of prepaying in that, I would say, 9 to 12-ish type area.

Over time, obviously, if rates get down to 5.5, that particular coupon becomes refinanceable. And I think you could see those speeds probably get to 20. We do have, obviously, some prepaid protection on the majority of the collateral that we have there. So that will offset that. And so I think TBA will be a lot worse. Deliverable will probably be closer to the 30s, maybe 35, 40 type of CPR. But overall, I think our portfolio right now, as we mentioned, it's $8.5 million. Could you see that portfolio depending on how low mortgage rates, I would say probably knock on wood maxes itself, probably around 15.

The good part about that portfolio that we're also not really hasn't been noted as the majority of that was purchased at a discount. So the accretion towards par would be beneficial to our overall portfolio.

Our next question comes from the line of Mikhail Goberman of Citizens JMP.

Good afternoon, everybody. I hope everybody is doing well. Appreciate the detailed answer to the first question that was just asked. So I'll shift to something completely different. What is the -- what would you say the main driver is of quarter-to-quarter of the big drop G&A expenses that you guys had about 30%?

Yes. I'll let Apeksha answer that.

So this is something that we had touched on in our last call as well. We had incurred some nonrecurring expenses in the third quarter, primarily due to personnel changes. So expenses have normalized in the fourth quarter.

Great. And how are you guys thinking about the -- looking at the equity stack, how are you guys thinking about both share buybacks going forward and also the 2 series of preferreds.

So we do have an eye on the preferreds, the Series B recently was trading at a discount and post earnings, I think we'll have some conversations relative to a strategy with respect to whether or not we're going to continue to buy that back. On the common front, look, we are currently focused on growing. We think the stock is cheap relative to where our performance has been, and we're looking forward to stock price recovering to a higher level. That's more representative above what we think we're doing. And as it relates to just explicitly giving direction around share buybacks. I'm not really prepared to do that, but we definitely do think about share repurchases relative to the impact to book value.

Appreciate that, Jay. And if I can sneak in 1 more. I think you might know what it is...

I don't know, I think you're out of questions.

Well, we are a little bit deeper into the quarter at this time of the year. So I guess an update on both sides would be great.

Wait a minute. Wait a minute. Hang on a second. We'll answer the question. So we'll let Apeksha answer the question, and she'll tell you what she sees for the book value.

Yes. So as of 3/31, we're seeing about a 1% increase in book value as compared to December 31.

Best of luck going forward. Talk to you soon.

Thank you. I would now like to turn the conference back to Jay Lown for closing remarks. Sir?

Thank you. Thanks, everyone, for joining our fourth quarter 2025 earnings call, and we look forward to updating you in May for our first quarter 2026 results. Have a great evening.

Ladies and gentlemen, the conference has now concluded. You may now disconnect your lines. Thank you.

Good day, and welcome to Cherry Hill Mortgage Investment Corporation's Third Quarter 2025 Conference Call. [indiscernible] I would now like to turn the call over to Garrett Edson of ICR. Please go ahead.

We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's Third Quarter 2025 Conference Call. In advance of this call, we issued a press release that was distributed earlier this afternoon. That press release and our third quarter 2025 investor presentation have been posted to the Investor Relations section of our website at www.chmireit.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to interest income, financial guidance, IRRs, future expected cash flows as well as prepayment and recapture rates, delinquencies and non-GAAP financial measures such as earnings available for distribution or EAD and comprehensive income.

Forward-looking statements represent management's current estimates, and Cherry Hill assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC and the definitions contained in the financial presentations available on the company's website. Today's conference call is hosted by Jay Lown, President and CEO; Julian Evans, the Chief Investment Officer; and Apeksha Patel, the Chief Financial Officer. Now I will turn the call over to Jay.

Thanks, Garrett, and welcome to our third quarter 2025 earnings call. The third quarter saw a continued reduction in overall macro volatility as we moved into the fall with tariff concerns mostly fading into the background and investors accepting the new normal. As the quarter progressed, it became clear that the Fed would proceed with rate cuts given economic indicators, and they did exactly that in both September and last week. Rates were mostly contained quarter-over-quarter with the 10-year yield ending marginally lower at 4.15%. Specific to Cherry Hill, portfolio components such as mortgages, swaps, futures and MSRs performed well in the quarter, though lower coupon mortgages outperformed higher coupons due to lower rates and investors' growing demand for duration.

With the Fed in easing mode, leading to higher prepayment speed expectations for high coupon mortgages, we shifted our RMBS portfolio in the quarter to benefit from the lower interest rate environment and stand positioned to benefit from lower funding costs and improved portfolio performance. Our MSR portfolio has a weighted average note rate of 3.5%, well below current mortgage rates and continues to perform well. For the third quarter, we generated GAAP net income applicable to common stockholders of $0.05 per diluted share. Book value per common share finished the quarter at $3.36 compared to $3.34 on June 30. On an NAV basis, which includes preferred stock and prior to any ATM capital raised in the quarter, NAV was up approximately $1.1 million or 0.5% relative to June 30. Financial leverage at the end of the quarter remained consistent at 5.3x as we continue to stay prudently levered. We ended the quarter with $55 million of unrestricted cash, maintaining a solid liquidity profile.

In September, our Board of Directors made the strategic decision to adjust our dividend to $0.10 per share. We believe the realignment is more sustainable and in line with the company's earnings power. As we mentioned on our last call, we entered into a strategic partnership and investment with Real Genius LLC, a Florida-based digital mortgage technology company earlier this year. As a reminder, Real Genius has developed a proprietary direct-to-consumer platform, offering an efficient fully online mortgage experience, including instant prequalification, automated document process and real-time loan tracking, all of which is supported by their custom-built point-of-sale system. We are seeing positive momentum from that partnership as Real Genius' growth trajectory and stabilization progresses in line with our expectations.

With 30-year mortgage rates hovering around 6%, we are optimistic that the reduction in mortgage rates may facilitate an acceleration in Real Genius' growth as more homebuyers and homeowners look to purchase homes or refinance. Looking ahead, we will continue to seek out investment opportunities we believe would be accretive to our business. We are monitoring the economic environment closely and are focused on thoughtfully growing the company while maintaining strong liquidity and prudent leverage. With that, I'll turn the call over to Julian, who will cover more details regarding our investment portfolio and its performance over the third quarter.

Thank you, Jay. Mortgage spread tightening drove performance in the third quarter. Reduced tariff rhetoric, a few announced preliminary tariff deals as well as declining rate volatility and the assumption that the Fed would initiate and continue easing monetary policy based upon weaker employment data helped to define mortgage performance over the quarter. As the market grew more comfortable with the potential Fed easing, mortgage spreads ground tighter. And as dollar prices rose, the expectations for faster prepayment speeds grew for higher coupon mortgages, limiting their performance. Higher coupon dollar prices became capped as interest rates moved lower and spreads tightened. As a result, investors' desire for lower coupon mortgages and duration needs became apparent.

Investors were chasing the par coupon mortgage as interest rates moved lower. Throughout the quarter, we adjusted our portfolio positioning to benefit from ongoing spread tightening and declining interest rates. At quarter end, our MSR portfolio had a UPB of $16.2 billion and a market value of approximately $219 million. The MSR and related net assets represented approximately 41% of our equity capital and approximately 22% of our investable assets, excluding cash at quarter end. Meanwhile, our RMBS portfolio accounted for approximately 39% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented approximately 78%, excluding cash at quarter end.

Our MSR portfolio's net CPR averaged approximately 5.9% for the third quarter, pretty much comparable with the previous quarter. The portfolio's recapture rate remained de minimis as the incentive to refinance continues to be minimal for this portfolio given the portfolio's loan rate. We continue to expect a low recapture rate and a relatively low net CPR in the near term given our MSR portfolio's characteristics. Like the MSR, the RMBS portfolio prepayment speeds held steady at 6.1% CPR for the 3-month period ended September. We do expect agency prepayment speeds to increase with current mortgage rates ranging between 5.75% and 6.25%, especially for higher coupon mortgages. Our portfolio is not comprised of a large portion of higher coupon specified pools. Most of the higher coupon positioning is represented by TBA positioning.

The larger spec pool positioning starts at the 5.5% coupon where the underlying collateral typically has a 650 loan rate, which will be impacted by the recent lower mortgage rates. The initial impact should be limited as the mortgage universe is only approximately 19% refinanceable at the current mortgage rate levels. But as the Fed continues to ease monetary policy, we are monitoring a mortgage rate of 5.5%. At 5.5% mortgage rate, the refinanceable universe increases to approximately 30%. As of September 30, the RMBS portfolio inclusive of TBAs stood at approximately $782 million compared to $756 million at the previous quarter end as we modestly shifted our RMBS positioning towards lower middle of the coupon stack mortgages versus higher coupon mortgages.

For the third quarter, our RMBS net interest spread was approximately 2.87%, higher than the previous quarter as increased asset purchases more than offset higher interest expenses. Overall, our hedge strategy remains largely intact. We will continue to use a combination of swaps, TBA securities and treasury futures to hedge the portfolio. During the quarter, the hedge portfolio changed marginally because more positioning changes were made to the RMBS portfolio. As we close out the year, we will continue to proactively manage our portfolio and adjust our overall capital structure to add value for shareholders through improved performance and earnings. I will now turn the call over to Apeksha for a third quarter financial discussion.

Thank you, Julian. GAAP net income applicable to common stockholders for the third quarter was $2 million or $0.05 per weighted average diluted share outstanding during the quarter, while comprehensive income attributable to common stockholders, which includes the mark-to-market of our available-for-sale RMBS, was $4.5 million or $0.12 per weighted average diluted share. Our earnings available for distribution or EAD attributable to common stockholders were $3.3 million or $0.09 per share. Our book value per common share as of September 30, 2025, was $3.36 compared to book value of $3.34 as of June 30, 2025.

We used a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowings. At the end of the third quarter, we held interest rate swaps, TBAs and treasury futures, all of which had a combined notional amount of approximately $435 million. You can see more details regarding our hedging strategy in our 10-Q as well as our third quarter presentation. For GAAP purposes, we have not elected to apply hedge accounting for our interest rate derivatives. And as a result, we record the change in estimated fair value as a component of the net gain or loss on interest rate derivatives.

Operating expenses were $3.8 million for the quarter. On September 15, 2025, our Board of Directors declared a dividend of $0.10 per common share for the third quarter of 2025, which was paid in cash on October 31, 2025. We also declared a dividend of $0.5125 per share on our 8.2% Series A cumulative redeemable preferred stock and a dividend of $0.6523 on our 8.25% Series B fixed to floating rate cumulative redeemable preferred stock, both of which were paid on October 15, 2025. At this time, we will open up the call for questions. Operator?

And our first question comes from Timothy D'Agostino with B. Riley Securities.

Just one quick question for me. Regarding the Real Genius acquisition -- or partnership, sorry, was that more opportunistic? Or could we see more partnerships like that in the future?

So I'm not really prepared to forecast, but to the extent that we see things that are interesting that are accretive, sure, we'll look at them. This was a long time in the making for this investment. And broadly speaking, we're really happy with how it's progressing. But to the extent that we find opportunities that fit within the skill set of people here, we'll absolutely look at them.

Our next question comes from Mikhail Goberman with Citizens.

If I could pick your brain about just your thoughts on expenses going forward. I'm looking at G&A plus comp. It looks like it was about a 12.5% sequential rise. Is there a sort of run rate that you guys are targeting going forward? Is there a seasonality to that combined number?

Mikhail, it's Apeksha Yes, their G&A and comp and benefits were both up this quarter, and that is mostly due to changes in personnel that we had during the second quarter and the third quarter of the year as well as professional fees that related to those changes. Going forward, we do anticipate those costs going down, especially with having a new in-house GC now. As of this point, though, it's difficult for us to quantify exactly what that would be, but we are anticipating them going down.

Great. And the sequential rise in servicing costs, what was driving that there?

That was essentially part of the deboarding fee that got reimbursed in Q2. So it's not a typical ongoing expense. And that was something that in Q2 lowered the expense. Q3, we didn't have it, of course, because we didn't have the deboarding again. And so you saw that quarter-over-quarter change, but Q3 is more similar to our ongoing run rate.

Great. And if I can get one more in there. I think you know what it's going to be. Any update on the current book value?

The usual. I turn it over to Apeksha.

We're seeing our October 31 book value per share up about 1.2% from September 30. And obviously, that's before any fourth quarter dividend accrual as the Board has not yet met to approve it.

I'm showing no further questions. At this time, I'd like to turn the call back over to Jay Lown for closing remarks.

Thank you. Thanks for attending our third quarter 2025 earnings call, and we look forward to updating you on our year-end results in the first quarter of 2026. Have a good evening.

This does conclude the call. You may now disconnect. Good day.