Chimera Investment(US:CIM)2023-11-02 15:57Financial Data and Key Metrics Changes - The GAAP book value per share decreased from $7.29 to $6.90, a decline of 5.4% quarter-over-quarter [36] - The GAAP net loss for the third quarter was $16.3 million or $0.07 per share, while net income available for distribution was approximately $29 million or $0.13 per diluted common share [57] - Economic net interest income for the third quarter was $66 million, with a yield on average interest-earning assets of 5.8% and an average cost of funds of 4.5%, resulting in an interest spread of 1.3% [57] Business Line Data and Key Metrics Changes - The company reduced recourse financing by more than $800 million during the first nine months of 2023 [3] - The economic net interest income return on equity was 10.4%, while the GAAP return on average equity was 0.3% [5][57] Market Data and Key Metrics Changes - The 10-year treasury rate increased by 73 basis points over the quarter to 4.57%, briefly reaching 5% in mid-October [35][36] - The company noted that the fixed income market experienced increased volatility and higher rates, impacting the value of its portfolio [35][36] Company Strategy and Development Direction - The company plans to focus on liquidity and liability management, having added three new repo counterparties and refinanced a high fixed-rate facility to save approximately $16 million in interest expense over the next 12 months [37][42] - The company aims to optimize its investment portfolio and seek opportunities to acquire assets that will improve returns and liquidity [42] - The company has reduced its dividend to align with expected earnings, considering the current macroeconomic environment [42][43] Management's Comments on Operating Environment and Future Outlook - Management remains cautious, expecting interest rates to remain high for an extended period, with inflation still above the Fed's target [38][39] - The company believes that as financing costs decrease, its economic performance will significantly improve [43] - Management expressed optimism about the portfolio's performance, highlighting strong income generation and credit quality [43] Other Important Information - The company had $606 million in total cash and unencumbered assets at quarter-end, with $1.5 billion in non or limited mark-to-market features on outstanding repo arrangements [44] - The company has hedged $1 billion of floating rate financings with a weighted average swap rate of 3.26% [3][44] Q&A Session Summary Question: Current liquidity position and appetite for stock repurchases - Management is currently focused on liquidity and investment opportunities, considering stock repurchases as a third option [6][7] Question: Savings from refinancing a higher-cost facility - The company confirmed a $16 million savings in interest expense from refinancing, translating to an annual benefit of $0.06 to $0.07 per share [8] Question: Changes in loan facility terms and further refinancing opportunities - Management elaborated on the limited mark-to-market terms of the refinanced facility and indicated that further refinancing opportunities may arise in early 2025 [9][50][52] Question: Incremental liquidity generation from paydowns - Management noted that the portfolio is running around 6 CPR in terms of paydowns, contributing to incremental liquidity [25] Question: Sensitivity of optionality to interest rates - Management acknowledged that the optionality is sensitive to interest rates, with plans to monitor the situation closely as rates moderate [26]