Chimera Investment(CIM)2025-02-12 16:15Financial Data and Key Metrics Changes - GAAP net loss for Q4 2024 was $168.3 million, or $2.07 per share, while GAAP net income for the full year was $90.3 million, or $1.10 per share [28] - GAAP book value at the end of Q4 was $19.72 per share, with an economic return on GAAP book value of negative 10.1% for the quarter and positive 4.4% for the full year [29] - Economic net interest income for Q4 was $69.2 million, with a yield on average interest-earning assets of 6% and an average cost of funds of 4.5% [30][31] Business Line Data and Key Metrics Changes - The company managed a portfolio of $12.3 billion, consisting of $10.7 billion in residential loans, $1.1 billion in non-agency RMBS, and $519 million in agency MBS [44] - The residential loan book includes $9.6 billion of seasoned legacy re-performing loans, with serious delinquencies flat quarter-over-quarter at 9.1% [45][46] - The company purchased $129 million of short-duration residential transition loans and was a net seller of $452 million in agency CMOs during the quarter [44] Market Data and Key Metrics Changes - The average 30-year fixed mortgage rate started the year at 6.6%, peaked at 7.2% in May, and ended the year at 6.9% [11] - Home sales declined for the third consecutive year to the lowest level since 1995, while home prices rose 4.3% year-over-year according to the FHFA housing price index [12][14] - Credit spreads for asset-backed securities tightened significantly in 2024, with non-agency RMBS gross issuance nearly doubling from 2023 levels [15] Company Strategy and Development Direction - The company plans to diversify its portfolio, increase liquidity, and grow fee-based income revenue streams in 2025 [20][21] - The acquisition of the Palisades Group is expected to enhance returns through diversification of revenue and provide third-party investment management services [19][22] - The company aims to invest in technology to enhance asset management capabilities and drive operational efficiencies [24] Management's Comments on Operating Environment and Future Outlook - The management noted that the operating environment remains uncertain, with expectations to continue diversifying the portfolio and growing the agency RMBS portfolio [20][21] - The company is optimistic about credit performance and housing finance fundamentals, despite challenges in the housing market [15][56] - Management expressed confidence in finding new opportunities and increasing the quarterly dividend by 12% [27] Other Important Information - The company ended the year with $610 million in total cash and unencumbered assets, and total leverage for Q4 was 4 to 1 [31] - The company executed a new financing facility with a greater than 400 basis point reduction in rate, allowing for approximately $62 million to be deployed in new investments [26] Q&A Session Summary Question: Can you talk about incremental ROEs and what you see as the normalized ROE? - Management indicated that the target return on invested assets is in the mid-teens area, with a focus on reallocating capital to higher yielding assets [66][68] Question: Can you discuss the book value roll forward this quarter? - Management explained that the book value change was driven by the steepening of the yield curve and the correlation between loan values and securitized debt [70][72] Question: Can you elaborate on the potential to add MSR and other hedges? - Management stated that the strategy focuses on buying residential loans and securitizing them, with MSRs seen as a way to stabilize book value without diluting earnings [78][80] Question: Did you receive a margin call during the quarter? - Management confirmed that they received some margin calls, but they were immaterial and not significant [88] Question: Can you discuss the flow of capital in response to changing expectations for the Fed to cut interest rates? - Management noted that credit spreads have been tightening and there is strong demand throughout the capital structure, which is favorable for redeploying capital [91][92] Question: What kind of MSRs are you looking at? - Management indicated that they are focused on purposeful allocations within the portfolio, considering both current and lower coupon MSRs based on relative value [96][98]