Chimera Investment(US:CIM)2020-02-12 18:44Financial Data and Key Metrics Changes - Chimera reported a GAAP net income of $112 million or $0.60 per share for Q4 2019, and $341 million or $1.82 per share for the full year [32] - The economic return on GAAP book value was 1.7% for Q4 and 14.1% for the full year [31] - Economic net interest income for Q4 was $164 million, with a yield on average interest-earning assets of 5.5% and an average cost of funds of 3.1% [34] Business Line Data and Key Metrics Changes - In Q4, Chimera added $1 billion in seasoned reperforming loans, totaling $2.3 billion for the full year [15] - The company completed five securitizations totaling $1.8 billion in Q4, with a total of 10 securitizations for the year [15][23] - The average cost of repo borrowing from agency securities decreased to 2.1% at year-end, down from 2.28% in Q3 [20] Market Data and Key Metrics Changes - The average loan size for reperforming loans in the R2 deal was $136,000 with an average FICO of 644 [24] - The agency pass-throughs ended the year at $6.1 billion, down from $9 billion at the end of 2018 [20] - The market demand for fixed income spread products remains strong in 2020, with existing CIM securitizations exceeding $5 billion [30] Company Strategy and Development Direction - The company plans to adopt new CECL accounting rules in 2020, which will reduce yields on legacy non-agency bonds but is not expected to impact dividend payments [17] - Chimera's strategy focuses on optimizing its portfolio through securitization and capital allocation, with a strong emphasis on residential mortgage credit [29] - The company aims to continue sourcing new loans and believes the fundamentals of the U.S. economy will support residential mortgage credit performance [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the portfolio's performance and the stability of funding costs in the low interest rate environment [16] - The company anticipates that the Federal Reserve will maintain stable funding costs, which should benefit its operations [14] - Management highlighted the importance of the strong U.S. economy, including low unemployment and attractive mortgage rates, as supportive factors for future growth [15] Other Important Information - The Board of Directors announced a first-quarter dividend of $0.50 per common share, with an expectation to pay $2 in common dividends for the full year of 2020 [17] - The company noted that $0.07 of core earnings in Q4 came from one-time gains on securities called away from the portfolio [9] Q&A Session Summary Question: Details on callable deals pipeline and pacing - Management indicated there are eight callable deals in 2020 totaling about $5 billion in loans, with potential cost savings of over 150 basis points [36] Question: Attractiveness of legacy loans vs. jumbo loans - Management finds seasoned reperforming loans attractive due to better financing terms and double-digit returns compared to new issue origination [37] Question: CECL impact on book value - Management clarified that the only impact from CECL is a forward yield adjustment, with no requirement for reserves due to unrealized gains on most impacted securities [42] Question: Size of the legacy low balance loan market - Management estimated that there is still over $100 billion of seasoned reperforming loans that GSEs need to dispose of [44] Question: Callable securities and macro assumptions - Management noted that the callability of securities is influenced by various factors, including amortization and market conditions, rather than solely interest rates [56] Question: Drivers for movements in book value per share - The primary driver for lower book value was a change in rates, with a market sell-off of about 30 basis points impacting book value [57] Question: Agency MBS portfolio management - Management confirmed that pay-down sales from the agency portfolio are being redeployed into loan investments, contributing to capital growth [59]