CHIMERA INVESTMENT CORP
For the period ended Sep 30, 2024. Filed Nov 6, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 6, 2024
CIM$7.31-7.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-07.
0001628280-24-035631
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-06.
0001628280-24-045708
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 208 previous paragraphs and 225 current paragraphs.
122 unchanged; 75 reworded; 24 added; 10 removed; 1 previous and 4 current paragraphs rearranged.
Tables are not compared: 22 previous and 22 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (24)
Current report
•delays and/or unforeseen events that could cause our proposed acquisition of Palisades (as defined below) to be delayed or not consummated; and
Current report
•the potential that we may not fully realize the expected benefits of the acquisition of Palisades, including the potential financial impact
Current report
During the third quarter of 2024, the Federal Reserve started the process of normalizing interest rates after more than a two-year period of increasing interest rate hikes and sustained high interest rates. Due to recent reports indicating the rate of inflation has decreased, the Federal Reserve has shifted its focus to its other mandate: supporting the labor market. By the end of third quarter, the markets had priced in a more rapid interest rate decrease than originally indicated by the Federal Reserve. We believe the actual timing and amount of rate cuts will be data dependent as the Federal Reserve seeks to guide the economy towards sustainable lower inflation while maintaining full employment. The yields on the two-year and ten-year Treasury Notes ended the quarter at 3.64% and 3.79%, respectively, materially lower than the end of the previous quarter, with the yield difference showing a positive slope in the yield curve for the first time since the middle of 2022. We believe lower interest rates and a steeper yield curve are beneficial to the operating performance of the Company.
Current report
Since the beginning of the fourth quarter, Treasury yields have risen by 44 and 46 basis points across the two-year and ten-year segments of the yield curve. The market sentiment has shifted due to stronger economic data and concerns over post-election needs for increased federal funding. With the shift in sentiment, the market anticipates one or perhaps two more rate cuts in 2024, but in smaller, quarter percentage point increments.
Current report
Against this market backdrop, we increased our common stock dividend and remained active in the third quarter of 2024 with our portfolio. Highlights during the quarter include:
Current report
•Increased common stock dividend for the second consecutive quarter to $0.37.
Current report
•$75 million public unsecured corporate debt issuance.
Current report
•$50 million purchase of Non-Agency CMO securities.
Current report
•$543 million purchase of Agency CMO securities
Current report
•$118 million commitment to purchase of residential transition loans.
Current report
Third Quarter Capital Raising Activity
Current report
Third Quarter Investment, Financing, Securitization, and Hedging Activity
Current report
Agency CMO securities -Following the notes offering in August, we purchased $543 million of Agency CMOs with floating rate coupons. We expect that the levered return on this investment will exceed our cost of capital from the capital raise. As these investments have added portfolio value, while allowing us to maintain the liquidity we seek to make future investments in residential loans and credit securities. We expect to achieve low-to-mid teen levered returns on the CMOs.
Current report
Loans -We committed to purchase $118 million of residential transition loans during the third quarter. These loans have a 9.25% net weighted average coupon, 79% weighted average LTV, and an average 740 FICO score. We will utilize leverage through our warehouse facilities on these loans and expect to achieve a mid-to-high teen levered return. These loans are expected to settle in the fourth quarter.
Current report
Securitization Related Hedging Activity – as discussed in the investment activity section, we closed our CIM 2024-R1 securitization in the third quarter. As part of our strategy to mitigate securitization execution risk, we closed out $307 million of a short 5-year treasury futures contract position to protect the net interest spread of the CIM 2024-R1 securitization.
Current report
Palisades Acquisition
Current report
On October 16, 2024, we entered into a definitive agreement to acquire Palisades Group (“Palisades”), a U.S.-based alternative asset manager specializing in residential real estate credit (the “Palisades Acquisition”). Under the terms of the agreement, we will acquire Palisades for cash consideration of $30 million at closing, plus an additional potential earnout of up to $20 million over five years contingent upon achieving certain financial targets, with the option for us to pay 50% of the earnout payments in common shares, aligning interests with those of our shareholders. We expect to close the Palisades Acquisition during the fourth quarter of 2024, subject to the satisfaction of customary closing conditions
Current report
Housing credit fundamentals remain strong in the residential mortgage market with low delinquencies and default rates, and home prices are higher by approximately 5% on a year-over-year basis. While existing home inventories have increased recently and are at their highest levels in the past four years, they remain low relative to pre-pandemic levels. On a more macro-level, the shortage of housing supply should continue to support home prices, albeit at a slower pace. Housing affordability continues to remain challenging, given high mortgage rates and substantial increases in home prices.
Current report
Non-Agency RMBS issuance for 2024 are projected to be approximately $100 billion, up by approximately 40% as compared to 2023 levels, and we expect investor demand for these securities to remain strong. While spreads in the residential market have tightened significantly since the end of 2023, they remain attractive from a relative value perspective when compared to investment-grade and high-yield corporate bond markets, where spreads are hovering near their tightest levels since the great financial crisis. We believe these market conditions align well with our loan securitization strategy.
Current report
Overall, tighter spreads and lower interest rates during the quarter resulted in higher valuation of our residential credit portfolios and our book value per common share increased to $22.35 as of September 30, 2024, as compared to $21.27 as of June 30, 2024.
Current report
Nine months ended September 30, 2024 compared to the Nine months ended September 30, 2023.
Current report
During the third quarter of 2024, we issued $75 million aggregate principal amount (including the additional amount
Current report
On March 30, 2024, all 13,000,000 issued and outstanding shares of Series B Preferred Stock with an outstanding liquidation preference of $325 million became callable at a redemption price equal to the liquidation preference plus accrued and unpaid dividends through, but not including the redemption date.
Current report
On March 30, 2024, all 8,000,000 issued and outstanding shares of Series D Preferred Stock with an outstanding liquidation preference of $200 million became callable at a redemption price equal to the liquidation preference plus accrued and unpaid dividends through, but not including the redemption date.
Removed paragraphs (10)
Previous report
The bond market experienced a sell-off early in the second quarter of 2024 as the outlook dimmed for the Federal Reserve to lower rates against a backdrop of stubbornly high inflation. However, by quarter-end, the bond market began to rally, as expectation of future inflation began to moderate and investors became more convinced that the Fed would begin to lower interest rates in September.
Previous report
The 10-year Treasury yield started the quarter at 4.20%, rose to 4.70% by late April, and dropped back to 4.40% by the end of June while overnight funds and the 30-year mortgage commitment rate remained relatively unchanged.
Previous report
Despite bond market volatility, equity markets remained resilient, with US equities performing well, driven by improved corporate earnings and favorable inflation data. For the near term, we believe that investors will most likely be focused on an increase in election-related uncertainties, with moderating economic growth, inflation and potential rate cuts setting a positive environment for corporate earnings and equity prices.
Previous report
Against this market backdrop, we continued to remain active with our portfolio in the first half of 2024 as we deployed the proceeds from our recent debt and equity raises.
Previous report
Following our debt offering in May, we invested in$443 million floating rate Agency CMOs. This investment is meant to be a liquidity sleeve, as we intend to eventually deploy the proceeds into loans or non-Agency subordinate securities as they become available for our targeted returns. We kept our recourse leverage low on the Agency MBS investments, and we expect to generate low double digit returns to more than offset the coupon on our unsecured debt issuance.
Previous report
We committed to purchase$486 million of reperforming loans at the end of May which settled directly into a securitization during the third quarter of 2024. We hedged the interest rate risk with $308 million short 5-year treasury future contracts to ensure certainty of net interest margin upon execution of the securitization.
Previous report
During the second quarter, spreads tightened for most credit products, leading to positive performance for some of the riskier fixed income assets. U.S. High Yield securities were amongst the top performing assets in the fixed income market. Housing data showed slower gains, with existing home sales dropping due to low inventory and affordability issues.
Previous report
Specific to securitized product spreads, the credit curve flattened modestly, with the bottom of the capital stack outperforming seniors, a continuing trend from the first quarter. RMBS issuance is running approximately 40% higher than the second half of last year. We believe the market will hold this pace for the remainder of 2024, primarily driven by Jumbo Prime, non-QMs, and HELOCs and closed end second liens.
Previous report
Fannie Mae auctioned RPLs and NPLs totaling approximately $1.7 billion that were well received by the markets, resulting in further tightening of loan spreads. The market also saw several Structured Risk Transfer, or SRT, and Credit-linked Notes, or CLN, transactions come to the market as banks took alternative measures to satisfy capital requirements.
Previous report
In May 2024, our board of directors unanimously approved a 1-for-3 reverse stock split of our common stock with the objective of reducing our number of common shares outstanding to more closely align with the number of common shares outstanding for companies of a similar market capitalization. As a result of the reverse stock split, which became effective after the close of trading on May 21, 2024, the number of outstanding shares of our common stock reduced from approximately 241 million to approximately 80 million.
Reworded paragraphs (75)
Previous wording
•prepayments of the mortgage and other loans underlying our MBS or ABS;
Current wording
•prepayments of the mortgage and other loans underlying our mortgage backed securities, or MBS, or other asset backed securities, or ABS;
Previous wording
•our expectations regarding materiality or significance; and
Current wording
•our expectations regarding materiality or significance;
Previous wording
We currently focus our investment activities primarily on acquiring residential mortgage loans. In addition, we acquire and own Non-Agency RMBS and Agency MBS. At June 30, 2024, based on the fair value of our interest earning assets, approximately 88% of our investment portfolio was residential mortgage loans, 8% of our investment portfolio was Non-Agency RMBS, and 4% of our investment portfolio was Agency MBS. At December 31, 2023, based on the fair value of our interest earning assets, approximately 91% of our investment portfolio was residential mortgage loans, 8% of our investment portfolio was Non-Agency RMBS, and 1% of our investment portfolio was Agency MBS.
Current wording
We currently focus our investment activities primarily on acquiring residential mortgage loans. In addition, we acquire and own Non-Agency RMBS and Agency MBS. At September 30, 2024, based on the fair value of our interest earning assets, approximately 84% of our investment portfolio was residential mortgage loans, 8% of our investment portfolio was Non-Agency RMBS, and 8% of our investment portfolio was Agency MBS. At December 31, 2023, based on the fair value of our interest earning assets, approximately 91% of our investment portfolio was residential mortgage loans, 8% of our investment portfolio was Non-Agency RMBS, and 1% of our investment portfolio was Agency MBS.
Previous wording
Capital raising activity: In May 2024, we issued $65 million of unsecured senior notes, bear interest at a rate equal to 9.00% per year, payable in cash on a quarterly basisdue May 15, 2029. Net of underwriting fees, we received a total of $62 million in proceeds. These notes may be redeemed, in whole or in part, at any time, from time to time, at our option on or after May 15, 2026. While we continue to favor securitized debt as the best source of financing for our assets, the ability to issue unsecured debt helps us to further diversify our capital structure and provide long-term financing for our mortgage credit portfolio. Proceeds from the capital raise were invested in Agency CMO’s (noted below) that we expect to provide accretive returns to our shareholders.
Current wording
Debt Issuance - in August, we issued $75 million of unsecured senior notes due August 15, 2029. Net of underwriting fees, we received a total of $72 million in proceeds. These notes may be redeemed, in whole or in part, at any time, from time to time, at our option on or after August 15, 2026. While we continue to favor securitized debt as a favorable source of financing for our assets, the ability to issue unsecured debt helps us to further diversify our capital structure and provides long-term financing for our mortgage credit portfolio. We invested the proceeds from the capital raise in Agency CMO’s which we expect will provide accretive returns to our shareholders. This was our second unsecured bond offering for 2024, resulting in a combined total of approximately $140 million in issuance.
Previous wording
Investments: We remained active during the quarter in purchasing assets. In early April, we purchased approximately$16 million in subordinated tranches of new issue mortgage securitizations backed by collateral that included reperforming mortgage loans and small balance commercial properties. These investments have an average coupon of 10.73%and were purchased at a discount to their par value. We expect to generate low double-digit returns on an unlevered basis.
Current wording
Non-Agency Subordinate Bonds - We purchased and settled on four bonds totaling approximately $50 million during the third quarter. These bonds are subordinated tranches of new-issue mortgage securitizations backed by collateral that included re-performing mortgage loans, or RPLs and small balance commercial properties. We purchased these investments at discounts to their par value and expect to achieve low double-digit unlevered returns while maintaining liquidity, as the notes are unencumbered securities.
Previous wording
In July, we sponsored CIM 2024-R1, a $468 million securitization of seasoned reperforming residential mortgage loans. Securities issued by CIM 2024-R1, with an aggregate balance of approximately $352 million, were sold in a private placement to institutional investors. These senior securities represented approximately 75% of the capital structure and we retained subordinate interests in securities with an aggregate balance of approximately $116 million and certain interest-only securities. We also retained an option to call the securitized mortgage loans when their unpaid principal balance is less than or equal to 30% of the unpaid principal balance of the securitized mortgage loans. Our advance rate was 75% with a 5.7% weighted average cost of debt. This was our first RPL securitization for 2024.
Current wording
Securitizations - In July, we sponsored CIM 2024-R1, a $468 million securitization of seasoned reperforming residential mortgage loans. Securities issued by CIM 2024-R1, with an aggregate balance of approximately $352 million, were sold in a private placement to institutional investors. These senior securities represented approximately 75.15% of the capital structure. Chimera retained subordinate interests in securities with an aggregate balance of approximately $116 million and certain interest-only securities. Chimera also retained an option to call the securitized mortgage loans when their unpaid principal balance is less than or equal to 30% of the unpaid principal balance of the securitized mortgage loans as of the cut-off date. The advance rate was 75% with a 5.7% weighted average cost of debt.
Previous wording
Financing activity – Our secured financings increased by $315 million during the quarter, as we increased our repo borrowings on account of our purchases related to the Agency CMO investments.
Current wording
Financing activity - our secured financings increased by $529 million, during the quarter predominantly because of our investments in Agency CMOs made during the quarter.
Previous wording
Hedging activity– We exercised a$500 million swaption for a pay-fixed 1-year swap with a coupon of 3.76%, and$1.0 billion of pay-fixed 3.26% swap matured during the quarter. As of June 30, 2024, we maintained $1.5 billion open interest rate swap positions with a weighted average 3.56% pay-fixed interest rate maturing in the second quarter of 2025. We also have a long position in a$500 million swaption on a 1-year pay-fixed interest rate swap with a fixed rate of 3.45%. The swaption has a January 2025 expiry.
Current wording
Balance Sheet Hedging Activity – As of September 30, 2024, we maintained open interest rate swap positions in $1.5 billion 3.56% pay-fixed interest rate swap maturing March 2025. We also have a long position in a $500 million 1-year swaption on a 1-year pay-fixed interest rate swap (1 X 1 swaption) with a blended fixed rate of 3.45 %.
Previous wording
Our financing costs increased during the second quarter due to slightly higher leverage and moderately higher rates. We have managed our portfolio consistent with our belief that short-term interest rates will be higher for longer. We continue to seek opportunities to finance a portion of our retained notes from securitizations with long-term non-mark-to market facilities. To further manage interest rate risk, we are currently using financial derivatives such as interest rate swaps and swaptions to hedge against net interest margin compression.
Current wording
While our financing costs increased during the third quarter due to additional leverage, the weighted average financing rate decreased for the first time in two years. Early in the quarter, we managed the portfolio consistent with our belief that short-term interest rates remain high for longer, and we have adjusted our strategy as new economic data warranted a shift in view. We continue to seek opportunities to finance a portion of our retained notes from securitizations with long-term non-mark-to-market facilities, but are mindful of changing, more favorable market conditions and the potential for lower interest rates in the future. To further manage interest rate risk, we are currently using financial derivatives such as interest rate swaps and swaptions to hedge against near-term net interest margin compression.
Previous wording
For the second quarter 2024, our book value per common share decreased to$21.27 as of June 30, 2024, as compared to $21.32 as of March 31, 2024. Our Economic Return (as measured by the change in book value per common share plus common stock dividend) was 1.4% for the second quarter of 2024. We declared a $0.35 dividend per common share for the second quarter of 2024, a 6% increase from the most recent dividend declared in the first quarter of 2024.
Current wording
We declared a $0.37 dividend per common share in the third quarter of 2024, representing a 6% increase from the most recent dividend declared in the second quarter of 2024, and a 12% increase from the first quarter of 2024. Our Economic Return (as measured by the change in book value per common share plus common stock dividend) was 6.82% for the third quarter of 2024 and 15.56% year to date.
Previous wording
Cash management is critical to our business, and we monitor our ongoing needs for margin (including variable margin on our hedge portfolio and ongoing margin requirements of our secured financing arrangements that are subject to margin requirements), repurchase agreement maturities and operating needs on a daily basis. Over time, we expect to continue to acquire and securitize mortgage loans, as well as further implement our call optimization strategy on our securitizations. We are currently most focused on our NR deals for call optimization. With available funds, we plan to evaluate the merits of any new investments, as well as other uses of capital, such as repurchasing outstanding common and preferred stock or reducing higher cost liabilities as they mature.
Current wording
Cash management is critical to our business, and we monitor our ongoing needs for margin (including variable margin on our hedge portfolio and the ongoing margin requirements of our secured financing arrangements), repurchase agreement maturities and operating needs on a continuous basis. Over time, we expect to continue to acquire and securitize mortgage loans as well as further implement our call optimization strategy on securitizations. With available funds, we plan to evaluate the merits of any new investments, as well as other potential uses of capital, such as repurchasing outstanding common and preferred stock or reducing higher cost liabilities as they mature.
Previous wording
The table below presents our net income (loss) on a GAAP basis for the quarters ended June 30, 2024, March 31, 2024, and the six months ended June 30, 2024 and June 30, 2023.
Current wording
The table below presents our net income (loss) on a GAAP basis for the quarters ended September 30, 2024, June 30, 2024, and the nine months ended September 30, 2024 and September 30, 2023.
Previous wording
(1) Includes interest income of consolidated VIEs of$144,027 and $146,917 for the quarters ended June 30, 2024 and March 31, 2024, respec tively, and $290,943 and $289,576 for the six months ended June 30, 2024 and 2023, respectively. See Note 9 for further discussion.
Current wording
(1) Includes interest income of consolidated VIEs of $146,007 and $144,027 for the quarters ended September 30, 2024 and June 30, 2024, respectively, and $436,950 and $443,286 for the nine months ended September 30, 2024 and 2023, respectively. See Note 9 for further discussion.
Previous wording
(2) Includes interest expense of consolidated VIEs of $69,692 and $73,123 for the quarters ended June 30, 2024 and March 31, 2024, respectively, and $142,815 and$132,776 for the six months ended June 30, 2024 and 2023, respectively. See Note 9 for further discussion.
Current wording
(2) Includes interest expense of consolidated VIEs of $71,668 and $69,692 for the quarters ended September 30, 2024 and June 30, 2024, respectively, and $214,483 and $208,678 for the nine months ended September 30, 2024 and 2023, respectively. See Note 9 for further discussion.
Previous wording
Results of Operations for the Quarters Ended June 30, 2024, and March 31, 2024, and for the six months ended June 30, 2024 and June 30, 2023.
Current wording
Results of Operations for the Quarters Ended September 30, 2024 and June 30, 2024, and for the nine months ended September 30, 2024 and September 30, 2023.
Previous wording
For the quarter ended June 30, 2024, our net income available to common shareholders was $34 million, or $0.42 per average basic common share, as compared to a net income of $111 million, or $1.37 per average basic common share for the quarter ended March 31, 2024. During the quarter ended June 30, 2024, we had net interest income of $67 million, unrealized gains on financial instruments at fair value of $11 million, and net gains on derivatives of $2 million, offset in part by operating expenses of $21 million and preferred stock dividend of $23 million.
Current wording
For the quarter ended September 30, 2024, our net income available to common shareholders was $114 million, or $1.41 per average basic common share, as compared to a net income of $34 million, or $0.42 per average basic common share for the quarter ended June 30, 2024. During the quarter ended September 30, 2024, we had net interest income of $66 million, unrealized gains on financial instruments at fair value of $104 million, and net losses on derivatives of $13 million, offset in part by operating expenses of $22 million and preferred stock dividend of $23 million.
Previous wording
The decline in net income available to common shareholders for the quarter ended June 30, 2024 as compared to March 31, 2024, was primarily driven by lower mark-to-market gains on our portfolio, lower net gains on derivatives, and an increase in our floating rate preferred stock dividends expense. During the quarter ended June 30, 2024, our unrealized gains on financial instruments at fair value decreased by $66 million, net gains on derivatives decreased by $9 million, and preferred stock dividend expense increased by $4 million, as compared to the quarter ended March 31, 2024.
Current wording
Theincrease in net income available to common shareholders for the quarter ended September 30, 2024 as compared to June 30, 2024, was primarily driven by higher mark-to-market gains on our portfolio offset by net losses on derivatives. During the quarter ended September 30, 2024, our unrealized gains on financial instruments at fair value increased by $93 million, net gains on derivatives decreased by $14 million.
Previous wording
For the six months ended June 30, 2024, our net income available to common shareholders was $145 million, or $1.78 per average basic common share, compared to a net income of $57 million, or $0.73 per average basic common share for the six months ended June 30, 2023. The increase in net income available to common shareholders for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023 was primarily driven by an increase in net gains on derivatives of$37 million, a decrease in net losses on sales of investments of $23 million, an increase in unrealized gains on financial instruments at fair value of $16 million, and a decrease in deal expenses of $15 million.
Current wording
For the nine months ended September 30, 2024, our net income available to common shareholders was $259 million, or $3.20 per average basic common share, compared to a net income of $40 million, or $0.52 per average basic common share for the nine months ended September 30, 2023. The increase in net income available to common shareholders for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 was primarily driven by an increase in unrealized gains on financial instruments at fair value of $164 million, a decrease in net losses on sales of investments of $24 million, an increase in net gains on derivatives of $19 million, and a decrease in deal expenses of $13 million.
Previous wording
Interest income increased slightly by $143 thousand, or 0.1%, to $187 million for the quarter ended June 30, 2024, as compared to $187 million for the quarter ended March 31, 2024. This slight increase in our interest income during the quarter ended June 30, 2024 was primarily driven by the purchases of Agency CMO investments and an increase in our average interest earning assets as compared to the quarter ended March 31, 2024. Our average interest earning assets increased by $63 million to $12.7 billion during the quarter ended June 30, 2024 as compared to $12.7 billion for the quarter ended March 31, 2024, and the yields on our average interest earning assets increased slightly from 5.8% to 5.9%, driving the slight increase in the interest income. Our Agency RMBS interest income increased by $2 million primarily due to the purchases of Agency CMO investment. Non-Agency RMBS interest income increased by $2 million due to higher yields, which was offset in part by a decrease in our Loans held for investment interest income of $3 million driven by lower asset balances during the quarter ended June 30, 2024, as compared to the quarter ended March 31, 2024.
Current wording
Interest income increased by $8 million, or 4.3%, to $195 million for the quarter ended September 30, 2024, as compared to $187 million for the quarter ended June 30, 2024. This increase in our interest income during the quarter ended September 30, 2024 was primarily driven by the purchases of Agency CMO investments and an increase in our average interest earning assets as compared to the quarter ended June 30, 2024. Our average interest earning assets increased by $163 million to $12.9 billion during the quarter ended September 30, 2024 as compared to $12.7 billion for the quarter ended June 30, 2024, and the yields on our average interest earning assets increased slightly from 5.9% to 6.1%, driving the increase in the interest income. Our Agency RMBS interest income increased by $8 million, primarily due to the Agency CMO Investments.
Previous wording
Interest income decreased by $13 million, or 3%, to $373 million for the six months ended June 30, 2024, as compared to $386 million for the six months ended June 30, 2023. This decrease in our interest income during the six months ended June 30, 2024 was primarily driven by a decrease in our average interest earning assets as compared to the six months ended June 30, 2023. We reduced our Loans held for investments by $955 million, Agency CMBS positions by $176 million and Non-Agency RMBS positions by $16 million, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. However, during the six months ended June 30, 2024, the yields on our average interest earning assets increased by 20 basis points to 5.8%, as compared to 5.6% for the six months ended June 30, 2023, which partially offset the effects of lower interest earning asset balances.
Current wording
Interest income decreased by $13 million, or 2.3%, to $569 million for the nine months ended September 30, 2024, as compared to $582 million for the nine months ended September 30, 2023. This decrease in our interest income during the nine months ended September 30, 2024 was primarily driven by a decrease in our average interest earning assets as compared to the nine months ended September 30, 2023. We reduced our Loans held for investments by $912 million, Agency CMBS positions by $148 million and Non-Agency RMBS positions by $5 million, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. However, during the nine months ended September 30, 2024, the yields on our average interest earning assets increased by 10 basis points to 5.8%, as compared to 5.7% for the nine months ended September 30, 2023, which partially offset the effects of lower interest earning asset balances.
Previous wording
Due to these changes in our portfolio, our interest income on Loans held for investment, Agency CMBS, and Non-Agency RMBS decreased by $10 million, $3 million, and $179 thousand, respectively, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. This decrease was offset in part by an increase in interest income of $2 million on our Agency RMBS portfolio driven by our Agency CMO purchases during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.
Current wording
Due to these changes in our portfolio, our interest income on Loans held for investment, and Agency CMBS decreased by $20 million and $5 million, respectively, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. This decrease was offset in part by an increase in interest income of $13 million on our Agency RMBS portfolio driven by our Agency CMO purchases during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.
Previous wording
Interest expense decreased by $2 million, or 2%, to $119 million for thequarter ended June 30, 2024 as compared to $121 million for thequarter ended March 31, 2024. The decrease in interest expense during the quarter ended June 30, 2024, was primarily driven by lower securitized debt balances and lower secured financing agreements collateralized by Loans held for investments, Non-Agency RMBS and Agency CMBS balances. The interest expense on securitized debt decreased by$4 million as the average securitized debt balance decreased by $280 million during the quarter ended June 30, 2024, as compared to the quarter ended March 31, 2024. The interest expense on secured financing agreements collateralized by Loans held for investments, Non-Agency RMBS and Agency CMBS decreased by $2 million, $448 thousand, and $160 thousand, respectively, during the quarter ended June 30, 2024, as compared to the quarter ended March 31, 2024 due to lower balances on these secured financing agreements. This decrease was largely offset by an interest expense increase of $2 million in secured financing agreements collateralized by Agency RMBS driven by Agency CMO purchase financings, and long term debt interest expense increase of$691 thousand.
Current wording
Interest expense increased by $10 million, or 8%, to $129 million for the quarter ended September 30, 2024 as compared to $119 million for the quarter ended June 30, 2024. The increase in interest expense during the quarter ended September 30, 2024, was primarily driven by higher secured financing agreements collateralized by Agency RMBS balances. The increase in interest expense on secured financing agreements was mostly driven by an increase of $6 million in secured financing agreements collateralized by Agency RMBS driven by Agency CMO purchase financings, and long term debt interest expense increase of $2 million.
Previous wording
Interest expense decreased by $10 million, or 4%, to $241 million for the six months ended June 30, 2024, as compared to $251 million for the six months ended June 30, 2023.This decrease in interest expense for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was primarily driven by our de-levering efforts, which included reducing our secured financing agreements and securitized debt. Our average secured financing agreements balance decreased by $278 million to $2.8 billion for the six months ended June 30, 2024 as compared to $3.1 billion for the six months ended June 30, 2023. As a result, our interest expenses on secured financing agreements collateralized by Loans held for investments, Non-Agency RMBS and Agency CMBS decreased by $13 million, $10 million, and $3 million, respectively, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. This decrease was offset by an increase in interest expense on securitized debt of $9 million, as the average borrowing rates on our securitizations increased by 40 basis points, and an increase in interest expense of $2 million on our secured financing agreement collateralized by Agency RMBS driven by Agency CMO purchase financing, and long term debt interest expense increase of$691 thousand.
Current wording
Interest expense decreased by $13 million, or 3%, to $370 million for the nine months ended September 30, 2024, as compared to $383 million for the nine months ended September 30, 2023.This decrease in interest expense for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, was primarily driven by our de-levering efforts, which included reducing our secured financing agreements and securitized debt and the Federal Reserve's 50 basis points rate cut. Our average secured financing agreements balance decreased by $64 million to $2.9 billion for the nine months ended September 30, 2024 as compared to $2.9 billion for the nine months ended September 30, 2023. As a result, our interest expenses on secured financing agreements collateralized by Loans held for investments, Non-Agency RMBS and Agency CMBS decreased by $16 million, $17 million, and $4 million, respectively, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. This decrease was offset by an increase in interest expense on securitized debt of $5 million, as the average borrowing rates on our securitizations increased by 30 basis points, and an increase in interest expense of $9 million on our secured financing agreement collateralized by Agency RMBS driven by Agency CMO purchase financing, and long term debt interest expense increase of $3 million.
Previous wording
Our Economic net interest income (which is a non-GAAP measure, see “Economic net interest income” discussion earlier for details) increased by $4 million to $72 million for the quarter ended June 30, 2024 from $68 million for the quarter ended March 31, 2024. Our net interest rate spread, which equals the yield on our average interest-earning assets less the economic average cost of funds, increased by 30 basis points for the quarter ended June 30, 2024, as compared to the quarter ended March 31, 2024, primarily driven by a lower interest expense on securitized debt due to lower outstanding debt balance. The net interest margin, which equals the Economic net interest income as a percentage of the net average balance of our interest-earning assets less our interest-bearing liabilities, increased by 20 basis points to 2.3% for the quarter ended June 30, 2024 compared to 2.1% for the quarter ended March 31, 2024. Our Average net interest-earning assets decreased by $49 million to $2.0 billion for the quarter ended June 30, 2024, compared to $2.1 billion for the quarter ended March 31, 2024.
Current wording
Our Economic net interest income (which is a non-GAAP measure, see “Economic net interest income” discussion earlier for details) decreased by $883 thousand to $72 million for the quarter ended September 30, 2024 from $72 million for the quarter ended June 30, 2024. Our net interest rate spread, which equals the yield on our average interest-earning assets less the economic average cost of funds, decreased by 10 basis points for the quarter ended September 30, 2024, as compared to the quarter ended June 30, 2024. The net interest margin, which equals the Economic net interest income as a percentage of the net average balance of our interest-earning assets less our interest-bearing liabilities, increased by 10 basis points to 2.2% for the quarter ended September 30, 2024 compared to 2.3% for the quarter ended June 30, 2024. Our Average net interest-earning assets remained relatively unchanged at $2.0 billion for the quarters ended September 30, 2024 and June 30, 2024.
Previous wording
Our Economic net interest income (which is a non-GAAP measure, see “Economic net interest income” discussion earlier for details) increased by $4 million to $140 million for the six months ended June 30, 2024 from $136 million for the six months ended June 30, 2023. Our net interest rate spread, which equals the yield on our average interest-earning assets less the economic average cost of funds, increased by 27 basis points for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily driven by lower secured financing agreement interest expense. The net interest margin, which equals the Economic net interest income as a percentage of the net average balance of our interest-earning assets less our interest-bearing liabilities, increased by 20 basis points for the six months ended June 30, 2024, as compared to the same period of 2023. Our Average net interest-earning assets decreased by $233 million to $2.0 billion for the six months ended June 30, 2024, compared to $2.3 billion for the same period of 2023.
Current wording
Our Economic net interest income (which is a non-GAAP measure, see “Economic net interest income” discussion earlier for details) increased by $10 million to $212 million for the nine months ended September 30, 2024 from $202 million for the nine months ended September 30, 2023. Our net interest rate spread, which equals the yield on our average interest-earning assets less the economic average cost of funds, increased by 20 basis points for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, primarily driven by lower secured financing agreement interest expense. The net interest margin, which equals the Economic net interest income as a percentage of the net average balance of our interest-earning assets less our interest-bearing liabilities, incr eased by 20 basis points for the nine months ended September 30, 2024, as compared to the same period of 2023. Our Average net interest-earning assets decreased by $141 million to $2.0 billion for the nine months ended September 30, 2024, compared to $2.2 billion for the same period of 2023.
Previous wording
Average interest-bearing liabilities increased by $112 million for the quarter ended June 30, 2024, as compared to the quarter ended March 31, 2024. Economic interest expense decreased by $4 million for the quarter ended June 30, 2024, as compared to the quarter ended March 31, 2024 driven by the decrease in average interest-bearing liabilities.
Current wording
Average interest-bearing liabilities increased by $164 million for the quarter ended September 30, 2024, as compared to the quarter ended June 30, 2024. Economic interest expense increased by $10 million for the quarter ended September 30, 2024, as compared to the quarter ended June 30, 2024 driven by the decrease in average interest-bearing liabilities.
Previous wording
Average interest-bearing liabilities decreased by $475 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. Economic interest expense decreased by $15 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.
Current wording
Average interest-bearing liabilities decreased by $364 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. Economic interest expense decreased by $21 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.
Previous wording
For the quarter ended June 30, 2024, we recorded an increase in provision for credit losses of $4 million, as compared to an increase in provision of credit losses of $1 million for the quarter ended March 31, 2024. For the six months ended June 30, 2024, we recorded an increase in provision for credit losses of $5 million, as compared to an increase in provision of credit losses of $6 million for the six months ended June 30, 2023.
Current wording
For the quarter ended September 30, 2024, we recorded an increase in provision for credit losses of $358 thousand, as compared to an increase in provision of credit losses of $4 million for the quarter ended June 30, 2024. For the nine months ended September 30, 2024, we recorded an increase in provision for credit losses of $5 million, as compared to an increase in provision of credit losses of $9 million for the nine months ended September 30, 2023.
Previous wording
The increase in provision for credit losses for the quarter and six months ended June 30, 2024 as compared to the quarter ended March 31, 2024, and six months ended June 30, 2023, is primarily due to an increase in expected losses and delinquencies. In addition, certain Non-Agency RMBS positions now have higher unrealized losses and resulted in the recognition of an allowance for credit losses which was previously limited by unrealized gains on these investments.
Current wording
The increase in provision for credit losses for the quarter and nine months ended September 30, 2024 as compared to the quarter ended June 30, 2024, and nine months ended September 30, 2023, is primarily due to an increase in expected losses and delinquencies.
Previous wording
The table below shows a summary of our net gains (losses) on derivative instruments, for the quarters ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively.
Current wording
The table below shows a summary of our net gains (losses) on derivative instruments, for the quarters ended September 30, 2024 and June 30, 2024, and nine months ended September 30, 2024 and September 30, 2023, respectively.
Previous wording
During the quarters ended June 30, 2024 and March 31, 2024, we recognized total net gains on derivatives of $2 million and $11 million, respectively. During the six months ended June 30, 2024 and June 30, 2023, we recognized total net gains on derivatives of $12 million and net losses on derivatives of $25 million, respectively.
Current wording
During the quarters ended September 30, 2024 and June 30, 2024, we recognized total net losses on derivatives of $13 million and net gains on derivatives of $2 million, respectively. During the nine months ended September 30, 2024 and September 30, 2023, we recognized total net losses on derivatives of $257 thousand and $20 million, respectively.
Previous wording
The weighted average pay rate on our interest rate swap at June 30, 2024 was 3.56% and the weighted average receive rate was 5.33%. At June 30, 2024, the weighted average maturity on our interest rate swaps was less than one year. The weighted average pay rate on our interest rate swap at December 31, 2023 was 3.26% and the weighted average receive rate was 5.40%. At December 31, 2023, the weighted average maturity on our interest rate swaps was less than one year.
Current wording
The weighted average pay rate on our interest rate swap at September 30, 2024 was 3.56% and the weighted average receive rate was 4.96%. At September 30, 2024, the weighted average maturity on our interest rate swaps was less than one year. The weighted average pay rate on our interest rate swap at December 31, 2023 was 3.26% and the weighted average receive rate was 5.40%. At December 31, 2023, the weighted average maturity on our interest rate swaps was less than one year.
Previous wording
We had a realized loss of $17 million related to the maturity of one swap during the quarter and six months ended June 30, 2024. We had no swap terminations during the quarter ended June 30, 2023. We paid $45 million to terminate interest rate swaps with a notional value of $2.5 billion during the six months ended June 30, 2023. The terminated swaps had original maturities ranging from 2025 to 2028.
Current wording
We had no swap terminations during the quarters ended September 30, 2024 and 2023, respectively. We had a realized loss of $17 million related to the maturity of one swap during the nine months ended September 30, 2024. We paid $45 million to terminate interest rate swaps with a notional value of $2.5 billion during the nine months ended September 30, 2023. The terminated swaps had original maturities ranging from 2025 to 2028.
Previous wording
During the quarter ended June 30, 2024, we exercised one swaption contract with a $500 million notional, and entered into a one-year swap with $500 million notional and a weighted average fixed pay rate of $3.76%. During the six months ended June 30, 2024, we exercised three swaption contracts, each with $500 million notional and entered into three one-year swaps, each with $500 million notional, and a weighted average fixed pay rate of 3.56%. We entered into one swaption contract for one-year forward starting swap with a notional of $500 million with 3.76% strike rate during the quarter ended June 30, 2023.
Current wording
During the nine months ended September 30, 2024, we exercised three swaption contracts, each with $500 million notional, and entered into three one-year swaps, each with $500 million notional and a weighted average fixed pay rate of 3.56%.
Previous wording
During the six months ended June 30, 2023, we entered into three swaption contracts for a one-year forward starting swaps with a total notional of $1.5 billion with 3.56% strike rate. The underlying swap terms will allow us to pay a fixed rate of 3.56% and receive floating overnight SOFR rate. Additionally, during the six months ended 2023 we terminated our existing $1.0 billion notional swaption contract for a one-year forward starting swap. Additionally, we entered and terminated three new swaptions contracts with $2.3 billion notional during the six months ended June 30, 2023. We had net realized gains of $11 million on these swaption terminations.
Current wording
During the nine months ended September 30, 2023, we entered into three swaption contracts for a one-year forward starting swaps with a total notional of $1.5 billion with a 3.56% strike rate. The underlying swap terms will allow us to pay a fixed rate of 3.56% and receive floating overnight SOFR rate. Additionally, during the nine months ended 2023, we terminated our existing $1.0 billion notional swaption contract for a one-year forward starting swap. We also entered and terminated three new swaptions contracts with $2.3 billion notional during the nine months ended September 30, 2023. We had net realized gains of $11 million on these swaption terminations.
Previous wording
During the quarter and six months ended June 30, 2024, we entered into 1,391 short 5-year and 1,684 short 5-year U.S. Treasury futures contract with a notional of $139 million and $168 million, respectively. During the quarter ended June 30, 2023, we covered our 2,000 short 5-year and 1,250 short 2-year U.S. Treasury futures contracts with a notional of $200 million and $250 million, respectively, for a realized loss of $7 million. During the six months ended June 30, 2023, we entered into 6,000 short 5-year and 1,875 short 2-year U.S. Treasury futures contract with a notional of $600 million and $375 million, respectively, which we subsequently covered and had no outstanding U.S. Treasury futures contract at June 30, 2023. We had a net realized loss of $6 million on covering these short U.S. Treasury futures contract. We also entered into 400 call options on 2-year and 5-year U.S. Treasury futures and subsequently covered them during the six months ended June 30, 2023 for a realized loss of $187 thousand.
Current wording
During the quarter and nine months ended September 30, 2024, we entered into 1,391 short 5-year and 1,684 short 5-year U.S. Treasury futures contract with a notional of $139 million and $168 million, respectively, which we subsequently covered for a net realized loss of $4.9 million. We had no outstanding U.S. Treasury futures contract at September 30, 2024. During the nine months ended September 30, 2023, we entered into 6,000 short 5-year and 1,875 short 2-year U.S. Treasury futures contract with a notional of $600 million and $375 million, respectively, which we subsequently covered and had no outstanding U.S. Treasury futures contract at September 30, 2023. We had a net realized loss of $6 million on covering these short U.S. Treasury futures contract. We also entered into 400 call options on 2-year and 5-year U.S. Treasury futures and subsequently covered them during the nine months ended September 30, 2023 for a realized loss of $187 thousand.
Previous wording
As discussed earlier the residential credit spread tightening during the quarter and six months ended June 30, 2024, as compared to the previous periods resulted in an increase in market value of our investments. We recorded Net unrealized gains on financial instruments at fair value of $11 million and $77 million for the quarters ended June 30, 2024 and March 31, 2024, respectively. We recorded Net unrealized gains on financial instruments at fair value of $88 million and $72 million for the six months ended June 30, 2024 and June 30, 2023, respectively.
Current wording
As discussed earlier, generally tighter residential credit spreads and lower interest rates during the quarter and nine months ended September 30, 2024, as compared to the previous periods resulted in an increase in market value of our investments. We recorded Net unrealized gains on financial instruments at fair value of $104 million and $11 million for the quarters ended September 30, 2024 and June 30, 2024, respectively. We recorded Net unrealized gains on financial instruments at fair value of $192 million and $28 million for the nine months ended September 30, 2024 and September 30, 2023, respectively.
Previous wording
During the quarter ended June 30, 2024, we did not have sales of investments and during March 31, 2024, we sold some of our Agency CMBS investments as part of our portfolio optimization efforts and realized a loss of $4 million. During the six months ended June 30, 2024, and June 30, 2023, we recorded a realized loss of $4 million and $27 million, respectively, as we sold some of our Agency CMBS investments.
Current wording
During the quarters ended September 30, 2024 and June 30, 2024, we did not have sales of investments. During the nine months ended September 30, 2024, and September 30, 2023, we recorded a realized loss of $4 million and $27 million, respectively, as we sold some of our Agency CMBS investments.
Previous wording
We did not acquire any securitized debt collateralized by Non-Agency RMBS during the quarters ended June 30, 2024 and March 31, 2024, and six months ended June 30, 2024 and June 30, 2023.
Current wording
We did not acquire any securitized debt collateralized by Non-Agency RMBS during the quarters ended September 30, 2024 and June 30, 2024, and nine months ended September 30, 2024 and September 30, 2023.
Previous wording
During the six months ended June 30, 2023, we acquired securitized debt collateralized by Loans held for investment with an amortized cost balance of $551 million for $545 million. These transactions resulted in net gain on extinguishment of debt of $6 million.
Current wording
We did not acquire any securitized debt collateralized by loans held for investment during the nine months ended September 30, 2024. During the nine months ended September 30, 2023, we acquired securitized debt collateralized by Loans held for investment with an amortized cost balance of $551 million for $545 million. These transactions resulted in net gain on extinguishment of debt of $6 million.
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Rearranged current paragraphs (4)
Current report — wording carried from elsewhere
•$468 million securitization of Re-Performing loans.
Current report — wording carried from elsewhere
issued pursuant to the exercise of the over-allotment option) of 9.25% unsecured senior notes due 2029 that pay quarterly interest. After deducting the underwriting discount and other debt issuance costs, we received approximately $72 million of proceeds.
Current report — wording carried from elsewhere
At September 30, 2024, the outstanding principal amount of these notes was $140 million and the accrued interest payable on this debt was $2 million. At September 30, 2024, the unamortized deferred debt issuance cost was $5 million. The net interest expense was $2 million for the quarter ended September 30, 2024 and $3 million for the nine months ended September 30, 2024.
Current report — wording carried from elsewhere
Because the fair value of the Non-Agency MBS is more difficult to determine in current financial conditions, as well as more volatile period to period than Agency MBS, the Non-Agency MBS typically requires a larger haircut. In addition, when financing assets using the standard form of SIFMA Master Repurchase Agreements, the counterparty to the agreement typically nets its exposure to us on all outstanding repurchase agreements and issues margin calls if movement of the fair values of the assets in the aggregate exceeds their allowable exposure to us. A decline in asset fair values could create a margin call or may create no margin call depending on the counterparty’s specific policy. In addition, counterparties consider a number of factors, including their aggregate exposure to us as a whole and the number of days remaining before the repurchase transaction closes prior to issuing a margin call. To minimize the risk of margin calls, as of September 30, 2024, we have entered into
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
We did not acquire any securitized debt collateralized by loans held for investment during the six months ended June 30, 2024.