Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successfully completed the first unsecured debt offering and received an inaugural investment grade rating.
- Raised the dividend for the first time since March 2021, indicating strong financial health.
- Economic return on GAAP book value was 1.4% for the quarter and 8.4% year-to-date.
- Credit portfolio continued to perform well, with delinquencies and default rates within or better than original expectations.
- Maintained low recourse leverage and managed liquidity effectively, with $649 million in total cash and unencumbered assets.
Negative Points
- Market volatility was substantial, with significant fluctuations in the 10-year treasury yield.
- Economic data indicated signs of a weakening economy, with a rising unemployment rate.
- Interest rate volatility remains a concern, impacting financial planning and forecasting.
- Book value was relatively flat for the period despite higher interest rates and yield volatility.
- The timing of future securitizations is uncertain, impacted by multiple factors including credit performance and market volatility.
Q & A Highlights
Chimera Investment Corp (CIM, Financial) Q2 2024 Earnings Call Highlights
Q: Can you give us an update on how our book value is trending so far in the third quarter given the significant moves in rates?
A: (Daniel Thakkar, Co-Chief Investment Officer) Based on recent deal pricing and trading, our book value is up around 2%, primarily due to a rally in rates. However, market conditions are still volatile, and this estimate could change.
Q: You issued an unsecured note during the quarter. Can you talk about how big a part of the capital stack that can be and your appetite for continuing to access additional forms of capital for growth?
A: (Phil Kardis, President, CEO, Director) We believe growing our asset base will lead to dividend growth. We plan to keep the size of unsecured debt modest relative to our overall size, considering future refinancing or calling of the debt.
Q: What's the best way to think about your rate hedge or rate exposure as the Fed cuts rates?
A: (Subramaniam Viswanathan, CFO) We have $2 billion of floating rate liabilities hedged with $1.5 billion of swaps at a 3.56% pay-fixed rate. Rate cuts below this level will benefit us. Additionally, $525 million of preferreds are floating, and another $200 million will float in late 2025.
Q: How should we think about the potential benefits to your book value if rates drop and spreads tighten over time?
A: (Daniel Thakkar, Co-Chief Investment Officer) Depending on the magnitude of rate and spread moves, we expect a positive impact on our book value.
Q: Can you touch on callable securitizations and how you see that playing out, especially with the recent rate changes?
A: (Phil Kardis, President, CEO, Director) We are monitoring the timing of re-securitizations, especially with potential Fed rate cuts. We believe this will improve the economics of calling and re-securitizing deals.
Q: Can you quantify the potential capital you could free up from callable securitizations and the incremental return on that capital?
A: (Phil Kardis, President, CEO, Director) While it's difficult to be specific due to many moving factors, we aim to execute these actions when they provide a material benefit to the company.
Q: What is driving the strong performance in loan portfolio delinquencies, which are at the lowest level since 2019?
A: (Phil Kardis, President, CEO, Director) The trend is a reversion to pre-pandemic levels as we have worked through the pandemic-related issues.
Q: Are you expecting to see a pickup in prepayment activity due to recent interest rate moves?
A: (Daniel Thakkar, Co-Chief Investment Officer) If mortgage rates meaningfully decrease, we could see our RPL prepayments move to low to mid-double digits.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
