Chimera Investment Corporation Q2 FY2025 earnings call

Key Points

• Phil Kardis discussed the hedgehog concept and strategic focus on residential mortgage credit, noting shifts like acquisition of Palisades Group, portfolio diversification into Agency RMBS and Fannie Mae mortgage servicing rights, and acquisition of HomeXpress.
• Subra Viswanathan reviewed financial results, economic net interest income, leverage, liquidity, and strategic developments including the pending acquisition of HomeXpress.
• Jack Macdowell discussed portfolio performance, market dynamics, repositioning toward Agency MBS, completion of an MSR transaction, and the strategic significance of the HomeXpress acquisition, emphasizing cultural alignment and business synergy in the non-QM sector.

GAAP net income for the second quarter was $14 million or $0.17 per share. GAAP book value at the end of the second quarter was $20.91 per share. Economic return on GAAP book value for the second quarter was 0.5% based on the quarterly change in book value and the $0.37 second quarter dividend per common share. Year-to-date 2025, economic return on GAAP book value was 9.8%. On an earnings available for distribution basis, net income for the second quarter was $32.1 million or $0.39 per share. Economic net interest income for the second quarter was $69 million. Yield on average interest-earning assets was 6%, average cost of funds was 4.5% and net interest spread was 1.5%. Total leverage for the second quarter was 4.5:1 while recourse leverage ended the quarter at 1.8:1. The company ended the quarter with $561 million in total cash and unencumbered assets. Approximately $2.3 billion in new Agency RMBS investments were deployed during the quarter.

Forward-Looking Statements

• HomeXpress acquisition is expected to be accretive, though short-term earnings may decrease as capital is redeployed for the acquisition and integration.
• Anticipate 2026 and 2027 to be strong years for non-QM originations with HomeXpress.
• Plan to continue diversifying the portfolio, growing recurring fee income, adding liquidity, and seeking accretive platforms and assets to drive long-term economic return.

Risks

• Market volatility, such as surrounding Liberation Day, can cause short-term drags on earnings.
• Interest rate fluctuations may impact net interest margin and securitization debt valuations.
• Regulatory changes or geopolitical events could affect business operations and market conditions.

Q: Bose George asked about the direction of future acquisitions.

A: Phil Kardis stated the company remains open to opportunities within its core competency of residential credit that make sense strategically.

Q: Trevor Cranston inquired about the long-term capital allocation mix between legacy credit portfolio and newer Agency/MSR asset classes.

A: Jack Macdowell discussed a diversified portfolio across complementary sectors, noting agencies and MSRs have permanent roles with opportunism in other product sectors.

Q: Doug Harter asked about the dividend strategy post-HomeXpress closure.

A: Phil Kardis said the company will balance using earnings to grow the platform and providing near-term dividends, considering liquidity needs and investment horizon.

Q: Doug Harter asked about the decrease in secured financings rate.

A: Subra Viswanathan responded it was due to increased financing of the agency portfolio.

Q: Eric Hagen asked about book value change and impact of Fed rate cuts.

A: Jack Macdowell mentioned book value was down ~55 basis points, and Fed rate cuts could impact net interest margin and callable securitization economics.

Q: Eric Hagen asked about home equity products and HomeXpress production.

A: Jack Macdowell talked about potential prepayment impacts from home equity products and the balance between selling production to third parties and retaining for the balance sheet.