Chimera Investment(US:CIM)2020-05-06 19:14Financial Data and Key Metrics Changes - GAAP book value at the end of Q1 2020 was $12.45 per share, with a GAAP net loss of $389 million or $2.08 per share [37] - Core net income for Q1 was $106 million or $0.57 per share, with economic net interest income of $151 million [38] - The yield on average interest-earning assets was 5.3%, while the average cost of funds was 3%, resulting in a net interest spread of 2.3% [38] - Total leverage for Q1 was 4.7:1, with recourse leverage ending at 2.2:1, a 35% reduction from the previous quarter [39][34] Business Line Data and Key Metrics Changes - The agency mortgage-backed securities portfolio was sold to pay down debt, contributing to a reduction in recourse leverage [17][34] - The company executed two mortgage securitizations totaling $883 million in March, indicating active management of its credit assets [20][29] - The agency CMBS portfolio, totaling $2.5 billion, was retained due to its favorable spread income and financing characteristics [32] Market Data and Key Metrics Changes - The 10-year treasury note yield fell from 1.92% to 0.67% during Q1, reflecting significant market volatility [25] - The COVID-19 pandemic led to record outflows from credit-focused bond funds and ETFs, causing sharp price declines across most fixed income markets [10][11] Company Strategy and Development Direction - The company aims to maintain liquidity, extend financing terms, and keep its credit portfolio intact during uncertain economic conditions [23] - There is a focus on securitization as a primary funding strategy for credit assets, with plans to explore new investment opportunities as the market stabilizes [27][75] - The management remains cautiously optimistic about the recovery of the U.S. economy and the mortgage market [21][23] Management's Comments on Operating Environment and Future Outlook - The management expressed uncertainty regarding the economic recovery, emphasizing the challenges posed by high unemployment and changes in social habits [21][22] - Earnings for the upcoming quarters are expected to be difficult to predict due to the complexities of the current environment [23] - The management highlighted the importance of monitoring liquidity and assessing opportunities to increase it while supporting the current portfolio [39] Other Important Information - The company has approximately $650 million in cash and unencumbered assets after paying dividends totaling $111 million [39] - The management noted that the high-yield credit assets have been marked down, contributing to a lower book value this quarter [35] Q&A Session Summary Question: How is the company thinking about liquidity in the absence of the Agency RMBS portfolio? - The management feels confident about current liquidity levels and is exploring opportunities in the loan space while ensuring lockdown financing [42][43] Question: What has been the rate of borrowers asking for forbearance in the portfolio? - The management indicated that forbearance requests have not materially changed but expect an uptick as government programs take effect [52][53] Question: How should the company think about principal paydown and cash flow in the portfolio? - The management stated that principal paydowns will gradually reduce portfolio leverage, and collections have remained stable [56][58] Question: What percentage of the book value impact in Q1 was realized versus unrealized losses? - The majority of the losses were unrealized, with some realized gains from agency sales [59][60] Question: Is the company considering buying back any outstanding securitization debt? - The management believes it is not a good use of capital at this time but will evaluate the situation as the market stabilizes [71][72] Question: How does the company view alternative investments in the current cycle? - The management is focused on evaluating the best investment options relative to risk and return, particularly in the loan space [73][75]