Chimera Investment(US:CIM)2022-08-05 03:25Financial Data and Key Metrics Changes - GAAP book value at the end of Q2 2022 was $8.82 per share, with an economic return on GAAP book value of negative 9.9% [19] - GAAP net loss for Q2 was $180 million or $0.76 per share, while net income on an earnings available for distribution basis was $74 million or $0.31 per share [19] - Economic net interest income for Q2 was $117 million, with a yield on average interest-earning assets of 5.6% and an average cost of funds of 2.7%, resulting in a net interest spread of 2.9% [20] - Total leverage for Q2 was 3.7:1, and recourse leverage ended at 1.1:1 [20] Business Line Data and Key Metrics Changes - The company completed two securitizations totaling $727 million, which helped reduce recourse financing by $278 million [12] - The average cost of debt for the securitizations was 5.13% [11] - The company repurchased 5.4 million shares at an average price of $9.10, totaling approximately $49 million [15] Market Data and Key Metrics Changes - The Federal Reserve increased the federal funds rate by 125 basis points during Q2 and another 75 basis points recently, leading to a 30-year fixed mortgage rate of 5.83%, the highest in over a decade [6] - The company noted that higher primary mortgage rates would severely impact new mortgage origination volumes [8] Company Strategy and Development Direction - The company aims to optimize its liability and capital structure to maximize net interest spread for shareholders [8] - The strategy includes acquiring business purpose loans that match the company's risk profile and capital structure [16] - The company has acquired nearly $1 billion of loans in 2022 at higher yields than in recent years [17] Management's Comments on Operating Environment and Future Outlook - Management indicated that the housing market is expected to slow down due to rising mortgage rates, but supply remains limited [28] - Home price appreciation is projected to be 4% to 6% annually going forward [29] - The company is optimistic about the securitization market in the second half of the year as supply declines and spreads improve [42] Other Important Information - The company entered a swaption contract for $1 billion notional value at a fixed rate of 3.26%, exercisable in May 2023 [14][15] - The company has $177 million remaining purchase authority for share repurchases [16] Q&A Session Summary Question: Expected returns on retained pieces of securitization - Expected returns are mid-high single digits due to earlier loan acquisition costs [22] Question: New returns expectations - New returns are expected to be in the high teens, but acquiring loans is currently less attractive [23] Question: Decline in investment portfolio - The decline was primarily due to natural paydowns and fair value adjustments, with no assets sold [33] Question: Thoughts on housing market and home price appreciation - The housing market is expected to slow, but home price appreciation is projected to be low double digits for the year and 4% to 6% annually thereafter [28][29] Question: Dividend coverage and economic earnings power - The company is evaluating its dividend policy in light of aggressive Fed rate hikes and has ample liquidity to deploy more assets [43][44]