Chimera Investment(US:CIM)2025-11-06 21:19Investment Portfolio - As of September 30, 2025, approximately 73% of the investment portfolio was allocated to residential mortgage loans, 21% to Agency RMBS, and 6% to Non-Agency RMBS[281]. - The company purchased approximately $1.2 billion of Agency RMBS Pass-throughs, targeting a return on equity in the 12% to 14% range[302][303]. - The principal value of Agency RMBS Pass-through was $2,561,414 thousand with a weighted average yield of 4.9%[410]. - The principal value of Non-Agency RMBS Senior was $865,570 thousand with a weighted average yield of 5.7%[410]. - The principal value of Re-performing Loans was $9,204,848 thousand with a weighted average coupon of 5.5% and an average loss severity of 33.7%[410]. - The weighted average coupon for Non-Agency RMBS Subordinated was 4.3% as of September 30, 2025, with a principal value of $499,426 thousand[410]. Financial Performance - For the quarter ended September 30, 2025, the net loss available to common shareholders was $22 million, or $(0.27) per average basic common share, compared to a net income of $14 million, or $0.17 per average basic common share for the previous quarter[334]. - Net interest income for the quarter was $65 million, with interest income increasing by approximately $8 million, or 3.9%, to $209 million, primarily driven by Agency RMBS purchases[336]. - Interest expense increased by $9 million, or 6.5%, to $144 million for the quarter, mainly due to higher borrowings for purchasing $1.2 billion of Agency RMBS pass-throughs[338]. - For the nine months ended September 30, 2025, net income available to common shareholders was $138 million, or $1.69 per average basic common share, down from $259 million, or $3.20 per average basic common share in the same period last year[335]. - Economic net interest income for the quarter ended September 30, 2025, remained relatively unchanged at $69 million compared to the prior quarter[351]. - The book value per share decreased by 3.2% to $20.24 due to higher valuations on securitized debt liabilities and elevated transaction expenses[320]. Acquisition and Strategic Initiatives - The acquisition of HomeXpress was completed on October 1, 2025, for $240 million in cash, including an estimated adjusted book value of $120 million and a premium of $120 million[290]. - The HomeXpress Acquisition is expected to diversify revenue sources and support the company's investment strategy and dividend objectives[323]. - The company plans to continue evaluating opportunities to acquire mortgage servicing rights to balance duration risk and diversify earnings sources[324]. - The company executed asset sales to temporarily increase cash holdings in preparation for the HomeXpress Acquisition, which closed on October 1, 2025[416]. Market Conditions - Mortgage rates fell in the third quarter, with the Freddie Mac 30-year survey rate decreasing from 6.77% to 6.30%[292]. - The U.S. housing shortage is estimated at 5 million homes, with demand exceeding construction, particularly in high-growth markets[294]. - Credit spreads tightened moderately in the third quarter, supported by strong collateral performance and broad investor demand[288]. - The National Association of Retailers Housing Affordability Index improved modestly in the third quarter as housing prices and mortgage rates declined[293]. Expenses and Cash Flow - Operating expenses increased, with compensation expenses rising by $2 million and transaction expenses increasing by $10 million due to the HomeXpress Acquisition[315]. - Cash and cash equivalents increased to approximately $491 million as of September 30, 2025, up by $407 million from $84 million at December 31, 2024[421]. - Investing activities used $1.3 billion in cash for the nine months ended September 30, 2025, compared to $511 million in 2024, with significant purchases of $3.3 billion in Agency MBS[423]. - Financing activities provided $1.8 billion in cash for the nine months ended September 30, 2025, a substantial increase from $219 million in 2024, driven by $2.0 billion in net proceeds from secured financing agreements[424]. Debt and Financing - The carrying value of total interest-bearing debt was approximately $12.2 billion as of September 30, 2025, representing a leverage ratio of approximately 4.8:1[433]. - The weighted average borrowing rates for secured financing agreements collateralized by Agency RMBS and Agency CMBS were both 4.4% as of September 30, 2025, down from 4.8% at December 31, 2024[430]. - The company anticipates continuing to borrow funds through secured financing agreements to meet short-term liquidity needs[418]. - The company highlighted potential challenges in securing and maintaining financing agreements due to market conditions[417]. Risk Management - Credit risk is primarily associated with investments in Non-Agency RMBS and residential mortgage loans, particularly those rated below "AAA" or not rated[473]. - Significant estimates include current expected credit losses of Non-Agency RMBS and valuation of Loans held for investments, which could materially impact financial results[469]. - The company conducts independent reviews of mortgage files to assess origination and servicing quality, focusing on specific risk-based criteria[474].