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01/11 03:18
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed outlook. Financial performance shows modest improvement, with a slight increase in book value per share and comprehensive income. However, concerns about rising prepayment speeds, economic uncertainties, and vague guidance on future partnerships temper optimism. Dividend adjustments indicate a cautious approach, and unclear management responses in the Q&A add uncertainty. The digital mortgage technology partnership introduces potential execution risks. These factors balance out to a neutral sentiment, suggesting limited stock price movement.
GAAP Net Income $2 million or $0.05 per diluted share, compared to the previous quarter. The reasons for this performance include portfolio adjustments and market conditions.
Comprehensive Income $4.5 million or $0.12 per diluted share, reflecting the mark-to-market of available-for-sale RMBS.
Earnings Available for Distribution (EAD) $3.3 million or $0.09 per share, attributed to portfolio performance and hedging strategies.
Book Value Per Common Share $3.36, up from $3.34 as of June 30, 2025, due to improved portfolio performance.
Unrestricted Cash $55 million, maintaining a solid liquidity profile.
MSR Portfolio Market Value Approximately $219 million, representing 41% of equity capital and 22% of investable assets.
RMBS Portfolio Value Approximately $782 million, up from $756 million in the previous quarter, due to portfolio adjustments.
RMBS Net Interest Spread 2.87%, higher than the previous quarter, driven by increased asset purchases offsetting higher interest expenses.
Operating Expenses $3.8 million for the quarter.
Real Genius LLC Partnership: Cherry Hill entered into a strategic partnership and investment with Real Genius LLC, a Florida-based digital mortgage technology company. Real Genius offers a fully online mortgage experience, including instant prequalification, automated document processing, and real-time loan tracking. The partnership is showing positive momentum, and the reduction in mortgage rates may accelerate Real Genius' growth.
Market Positioning Adjustments: Cherry Hill adjusted its RMBS portfolio to benefit from lower interest rates and stand positioned for improved portfolio performance. The company shifted towards lower coupon mortgages due to growing investor demand for duration.
Financial Performance: GAAP net income for Q3 2025 was $2 million ($0.05 per diluted share). Comprehensive income was $4.5 million ($0.12 per diluted share). Earnings available for distribution were $3.3 million ($0.09 per share). Book value per common share increased slightly to $3.36 from $3.34 in the previous quarter.
Liquidity and Leverage: Cherry Hill maintained $55 million in unrestricted cash and a financial leverage ratio of 5.3x, ensuring a solid liquidity profile.
Dividend Realignment: The Board of Directors adjusted the dividend to $0.10 per share, aligning it with the company's earnings power for sustainability.
Interest Rate Volatility: The company faces risks from fluctuating interest rates, which could impact prepayment speeds, portfolio performance, and funding costs. Lower interest rates have led to higher prepayment speed expectations for high coupon mortgages, potentially limiting their performance.
Economic Environment: The company is monitoring economic conditions closely, including weaker employment data and the Fed's monetary policy easing. These factors could influence mortgage rates and refinancing activity, impacting portfolio returns.
Portfolio Composition: The shift towards lower coupon mortgages and adjustments in RMBS positioning could expose the company to risks if market conditions change unexpectedly, such as a sudden rise in interest rates or changes in investor demand.
Liquidity and Leverage: While the company maintains a solid liquidity profile and prudent leverage, any significant market disruptions or unexpected funding needs could strain liquidity and impact operations.
Hedging Strategy: The company relies on a combination of swaps, TBA securities, and treasury futures to hedge against interest rate risks. Ineffectiveness in the hedging strategy or unexpected market movements could lead to financial losses.
Dividend Sustainability: The recent adjustment of the dividend to $0.10 per share reflects a focus on sustainability, but it also signals potential challenges in maintaining higher payouts amid current earnings levels.
Digital Mortgage Technology Partnership: The partnership with Real Genius LLC introduces execution risks, including the potential for slower-than-expected growth or technological challenges that could impact the anticipated benefits of the collaboration.
Reduction in mortgage rates: Optimistic that the reduction in mortgage rates (hovering around 6%) may facilitate an acceleration in Real Genius' growth as more homebuyers and homeowners look to purchase homes or refinance.
Investment opportunities: The company will continue to seek out investment opportunities that are accretive to the business while maintaining strong liquidity and prudent leverage.
MSR portfolio performance: The MSR portfolio is expected to continue performing well with a low recapture rate and a relatively low net CPR in the near term given its characteristics.
RMBS portfolio adjustments: The RMBS portfolio positioning has been shifted towards lower middle of the coupon stack mortgages versus higher coupon mortgages to benefit from ongoing spread tightening and declining interest rates.
Prepayment speed expectations: Agency prepayment speeds are expected to increase with current mortgage rates ranging between 5.75% and 6.25%, especially for higher coupon mortgages.
Hedging strategy: The company will continue to use a combination of swaps, TBA securities, and treasury futures to hedge the portfolio and proactively manage the portfolio to add value for shareholders through improved performance and earnings.
Dividend Adjustment: In September, the Board of Directors adjusted the dividend to $0.10 per share, aligning it with the company's earnings power. This dividend was paid in cash on October 31, 2025.
Preferred Stock Dividends: Dividends of $0.5125 per share on the 8.2% Series A cumulative redeemable preferred stock and $0.6523 on the 8.25% Series B fixed-to-floating rate cumulative redeemable preferred stock were declared and paid on October 15, 2025.
The earnings call presents a mixed outlook. Financial performance shows modest improvement, with a slight increase in book value per share and comprehensive income. However, concerns about rising prepayment speeds, economic uncertainties, and vague guidance on future partnerships temper optimism. Dividend adjustments indicate a cautious approach, and unclear management responses in the Q&A add uncertainty. The digital mortgage technology partnership introduces potential execution risks. These factors balance out to a neutral sentiment, suggesting limited stock price movement.
The earnings call reflects several negative aspects: a decline in book value, lower earnings available for distribution, and challenges in hedging strategies. Despite a new partnership with Real Genius, the lack of definitive plans and unclear management responses in the Q&A section contribute to uncertainties. The market volatility, high leverage, and economic uncertainties further worsen the outlook. Dividend declarations provide some support, but the overall sentiment is negative, likely leading to a stock price decline in the short term.
The earnings call summary reveals mixed financial performance, with a GAAP net loss and a decline in book value per share. Despite a steady dividend, the lack of a share repurchase program and the expectation of declining EAD due to maturing hedges are concerning. The Q&A section highlights management's uncertainty about GSE reform and future earnings, further dampening sentiment. Although there are some positive aspects, such as improved RMBS net interest spread, the overall sentiment leans negative due to financial challenges and uncertainties.
The earnings call presents a mixed outlook: the internalization of management and share repurchase program are positive, but there are concerns about inflation, interest rate volatility, and economic growth uncertainty. The RMBS portfolio faced challenges, though gains in MSR provided some balance. The Q&A session revealed unclear responses on growth expectations and interest rate management, adding uncertainty. Overall, these factors suggest a neutral sentiment, with no strong catalysts for significant stock price movement in either direction.
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