Chimera Investment(US:CIM)2021-11-03 14:22Financial Data and Key Metrics Changes - GAAP book value at the end of Q3 was $12.32 per share, with an economic return on book value of 10.5% based on the quarterly change in GAAP book value and the dividend per share [24] - GAAP net income for Q3 was $313 million or $1.30 per share, while earnings available for distribution was $102 million or $0.42 per share [24] - Economic net interest income for Q3 was $149 million, with a yield on average interest-earning assets of 6.3% and an average cost of funds of 2.4%, resulting in a net interest spread of 3.9% [25] Business Line Data and Key Metrics Changes - The company executed a call optimization strategy, calling a securitization with a 4% cost of debt and sponsoring a new securitization with a 1.99% average cost of debt, approximately 200 basis points lower than the previous financing [13] - The company purchased $583 million in reperforming loans with a 3.63% weighted average coupon, and committed to purchasing an additional $148 million of reperforming loans [15][18] - Business purpose loans segment saw a purchase of $115 million with an 8.4% gross coupon, bringing the year-to-date total to over $318 million [17] Market Data and Key Metrics Changes - The Case-Shiller Index showed year-over-year national home price appreciation of nearly 20%, the largest gain in over 30 years, indicating a strong housing market [11] - Investor demand for spread products remained strong, with spreads on U.S. high-grade and high-yield indices near all-time tights, benefiting the company's securitization business [12] Company Strategy and Development Direction - The company aims to be a best-in-class asset and liability manager in the mortgage REIT industry, focusing on providing stable and sustainable dividends while managing asset and liability risks [21] - The company plans to continue expanding its business purpose loan segment and is actively seeking additional opportunities to purchase loans [17][39] Management's Comments on Operating Environment and Future Outlook - Management noted that actions taken to improve the liability structure have significantly impacted earnings and reduced financing costs, with expectations for positive impacts on earnings available for distribution in the future [9] - The company remains optimistic about the securitization market and believes it can continue to grow its portfolio as the economy normalizes post-pandemic [20][40] Other Important Information - The company will no longer report on the non-GAAP measure, core earnings, and will instead report on earnings available for distribution, although the calculation method remains unchanged [22] Q&A Session Summary Question: Insights on elevated RPL and NPL dollar prices - Management acknowledged that loan pricing has increased but emphasized that credit selection and securitization execution are key to effective purchases [27] Question: Changes in expected returns for business purpose loans - Management indicated that returns have not changed significantly and they plan to grow this segment meaningfully in 2022 [28] Question: Factors behind $240 million of unrealized gains - Management attributed the gains to strong loan performance, tighter loan spreads, and increased demand in the secondary market [30][31] Question: Capacity for loan warehouse financing - Management confirmed ample capacity for financing growth, with a typical holding period of two to three months before securitization [35] Question: Current mark-to-market LTV on reperforming loans - Management estimated the overall portfolio's LTV adjusted for home price appreciation to be in the mid to high 50s [47]