Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Chimera Investment Corp (CIM, Financial) reported a GAAP net income of $113.7 million or $1.39 per share for the third quarter.
- The company increased its quarterly dividend by 12% over the past two quarters, reflecting confidence in its financial performance.
- Chimera Investment Corp (CIM) successfully closed a $468 million securitization of seasoned RPLs, enhancing its capital structure.
- The acquisition of Palisades Group is expected to strengthen Chimera's residential credit expertise and provide new growth opportunities.
- The company has a strong cash position with $648 million in total cash and unencumbered assets, supporting liquidity and future investments.
Negative Points
- Chimera Investment Corp (CIM) has seen a flat book value compared to the end of the second quarter, indicating limited growth in asset value.
- The company faces challenges in finding suitable opportunities in the home equity lending space, which could limit diversification.
- Interest rate volatility poses a risk to Chimera's portfolio, with potential impacts on net interest spread and earnings.
- The company's economic net interest spread is relatively low at 1.6%, which may constrain profitability.
- Chimera Investment Corp (CIM) has significant exposure to floating rate liabilities, which could be affected by interest rate changes.
Q & A Highlights
Q: Can you discuss the opportunities in home equity lending and whether Chimera plans to participate in this area?
A: Phillip Kardis, President and CEO, mentioned that Chimera is exploring the home equity lending space, which Palisades has experience in. However, they have not yet found a suitable opportunity to pursue.
Q: What is the current interest rate exposure or net duration of Chimera's portfolio as of September 30, and how has book value been affected by rate changes in the fourth quarter?
A: Daniel Thakkar, Co-Chief Investment Officer, stated that the sell-off in the rates market has erased gains from the quarter, leaving the book value flat compared to the end of the third quarter.
Q: How does Chimera plan to balance growth in assets under management (AUM) between on-balance sheet investments and third-party funds following the Palisades acquisition?
A: Phillip Kardis explained that Chimera will develop a detailed allocation policy to benefit both shareholders and limited partners. The focus will be on growing third-party asset management in a way that is advantageous for all parties involved.
Q: How does Chimera's interest rate exposure affect earnings available for distribution (EAD) and net interest spread, especially with potential changes in short-term rates?
A: Subramaniam Viswanathan, CFO, noted that EAD will react positively to lower short-term rates. The company has $2.5 billion in floating rate liabilities, partially hedged by $1.5 billion in swaps. As rates fall below 3.56%, Chimera expects to see benefits, with additional adjustments planned for 2025.
Q: Given the current environment, where does Chimera see the best opportunities for investing incremental capital?
A: Daniel Thakkar highlighted opportunities in RPL deals, non-agency subordinate bonds, and residential transition loans, which are expected to yield mid to high double-digit returns. The company is also exploring non-QM and home equity investments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
