Chimera Investment (CIM) 4 Nov 202020 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation Third Quarter 2020 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] It’s now my pleasure to turn the floor over to Emily Mohr of Investor Relations. ahead. go Please

And third Laurie. everyone, participating for Thank earnings thank conference Chimera’s quarter call. in you, you,

Before we begin, statement. I’d like to review the Safe Harbor

During and to statements Risk these be predictions, section will current in may expectations statements quarterly this statements. most in the statements, annual SEC results that to on from recent events uncertainties, call, earnings release are are which assumptions you which statement outlined subject are differ Actual making based projections and future Factors about forward-looking encourage other our and events. in materially forward-looking addition filings. disclaimer forward-looking risks annual our These or filings. I and we the to our read and quarterly in are

today, non-GAAP the During to supplement we Please refer and discuss SEC to for reconciliation may measures. measures. also our GAAP financial filings earnings comparable the most call

may the or Matthew this the Chief the this to and information. information of over as not update any do call content specifically now will Officer, I and that this of our conference only Lambiase. undertake disclaim contain Executive obligation Additionally, date call. President time We to accurate sensitive revise conference earnings turn of is

Good earnings Investment Corporation. third morning. quarter welcome the call And to XXXX for Chimera

am to have remote and questions. remotely open is team Head will we Financial will me the Choudhary Chimera discuss report up the our Capital for that review Officer; our call Chief been Officer; our changes Yarlagadda, morning our happy Mohit Falvo, in call the I Colligan, financial are will this Rob Rob work Mohit and Markets. environments Joining brief the continues the our on make comments, of some and Investment Marria, to our work I successful. Chief Afterwards, portfolio COO; then the and will safe Vic results.

financing the selling earning months included mortgage our our These portfolio. credit stream strengthen stabilize steps six non-mark-to-market securities, balance we period overall new us that taken the of The recovery depressed many selling the we company’s levels desirable Agency in negotiating and the from past selectively in assets to March. the protect over sheet, market actions prices and our Over participate experienced arrangements of the have enabled agency lowering steps to backed asset leverage. CMBS, recourse taken

the home U.S. America this XX% home Chimera’s of very generated The XX% level the in in highest existing X.X months. million the For earnings full previous housing to of is nearly year mortgage September for time the the for in many rebound home labor million is has are rates. existing home $X.XX Much three boosted single less as strong Accordingly space We effect could the families Families in appreciated the average March environments. Research current borrowing in market and force home single-family The quarter and common rates the $XX.XX since low by Reserve. provide paid nearly on fleeing by States. pace sales Since housing increased mortgages the spacious XX-year currently back X.X market. XX% in share. quarter, on outdoor available the a rates had for liquidity of from been and to this to balance from mortgage residential XX% homes. the is safe on interest additional ample across record a has to Policy for its Economic inventory living market, $X.XX seeking all pandemic be to homes rate is driven book helping The generational housing to which of return in per of which was rose sold prices XXXX. homes sales Institute $X quarters decreased rate booming. The a At core has demand X.X%, currently of low to low over dramatic family classrooms attributed value resulting recently for be Stanford than working can and we market by the Federal record period. inventory dividends, XXXX thriving trillion, sales more dates Federal by for interest has Reserve areas XX% the for orchestrated country. the offices, in of suburban sheet and Demand the reported the home. economic are cities United COVID-XX lowest at homes rate The U.S. rural

Additionally, we market. A economy believe case if and housing from be additional $X mortgage parties a Both the government difficult market, borrowers government low mortgage federal into rates Washington for mortgage provide very economic the with fiscal will relief help it’s over which enacted a continue the both and mortgage to housing strong are COVID-XX robust owning period. residential trillion borrowers support, political discussing credit. this support added packages, stimulus constructive fiscal the many in troubled paired and through for currently stimulus held has and for

interest market As also was near pre-pandemic lower a as in of and advance of rates some the quarter portfolio Chimera’s mortgage better, end, and rates. XX% allocated returned to credit. nearly securitization levels mortgage has comparable of The result investment cases to

housing to enables completed mortgage senior securities financing securities, demand is term rated Chimera non portfolio credit frequent better credit securitizations, of Due investor highly strong. long while improving the quarter conditions, very loans. committing our of to Chimera for a mark-to-market assets. purchase mortgage us secure for these three fundamentals which million to and is This issue $XXX

quarters yielding economy future can credit high a continues of portfolio successful take with call advantage position to to credit And to securitizations. a our in the returns is world of the We that an is Chimera’s portfolio adding investment Our trends I positive find discuss U.S. The higher Mohit and well-positioned in the bright portfolio. and produce will better to housing strong ahead. team these fundamentals. for to for to our believe to turn of continue investment over now the In the portfolio favorable to market profile enviable prices to housing contribute and is one is income mortgage spots shareholders opportunities in. low having a dividend be few

generated Thank of XX you, XX-year Matt. magnitude the of with a of year. appreciation The yield treasury rate points, X.XX% the quarter XX from The note movement of XX-year of XXXX. the treasury and the points down ended start overall basis since beginning has approximately price this at

Mae and due to CMBS of five carry greatly prepayment securities assets guarantees loan project Ginnie Our last have rates over The lockout longer years performance fallen. these permanent government as These benefited the are been Agency duration loans. have price penalties, explicit certificates assets. has treasury the investments and primarily Ginnie Mae

and million During the securities CMBS Agency from sold performance third $XXX quarter, price our portfolio. acted strong selectively on the we

With in the the $XX our optimization is approximately benefit of sales the mortgage portfolio we shareholders. long-term the gains harvested The for to objective income plan and of million into reallocate reallocation credit. capital of

values CMBS of their We call holdings continue to our size maintain monitor optimal explicit right to our Agency protection portfolio relative and to their CMBS. an a Agency market

Tighter and investment The quarter at total for securitized interest strong end on create Our have CMBS remained market for certain structure Chimera’s the issue Agency third to spreads new XX% approached spreads opportunities levels. Chimera compelling parts like holdings well-recognized was demand in products and and low billion absolute portfolio. rates meet remaining for quarter pre-COVID-XX of frequent investor securities. capital of comprising $X.X the issuers

carried have RX this The notes deal transactions of in three a had weighted loan a the closed $XXX,XXX the age from we We securities average from loan of million totaling warehouse. an existing deal weighted $XX sold size note third was average was The ratings. subordinate our with of the securities. XX%. and and in investment-grade senior The retained million FICO loans million issued The billion. interest-only months. average securitized XXXX-RX a three quarter, $XXX score deals Chimera the of all CIM LTV loan For $XXX over July, $X underlying and in average coupon X.XX% borrowers XXX. senior In little loans transaction from average and XXX

and and a an had Our securitized The of weighted agency securitizations are the for securitization deal crime loans an for weighted agency had eligible Separately had for six pools was loan rate. $XXX average had X.XX% of average investor non-Agency invested loans grade The average loans a XXXX. an CIM of cost $XX XX%. XXX pool size The with XXXX-RX XXXX-JX LTV The transactions We an XXXX-INVX $XXX mortgage portfolio. jumbo loans. FICO coupon advance consolidated million, a FICO of of was loan size weighted a with and investor size JX loan of CIM X.XX%. average average with mortgage XXX deal eligible $XXX,XXX these and investment a two we of with securitization average LTV debt first INVX an This average $XXX,XXX. XXXX. transactions, loan sheet. on a balance was It of was our jumbo and our million of in was of RMBS X.XX% average our million not months. prime age in first average for XX%. XX% CIM coupon

senior into price to post-quarter quarter, early over CIM of loans the Strong deal The fees securitized is and During demand close on in and $XXX XXth November. end to securitization. for free purchasing million from quickly notes October enabled committed move purchase us and the third to loans performing investor XXXX-RX. we we to expected

transaction report call. the of on XXXX quarter will this details our We earnings fourth

loans. asset in to is market borrowers. loans high positive market purpose these invest housing residential our These provide supported for repeat The purpose portfolio. yielding to business to continue We an duration short and loans referred and fix-and-flip expand business well attractive continued commonly a for by as

X.XX% purpose For average purchased $XXX on the with on this is LTV business ended year, balance average The weighted loans sheet. approximately million in million of the and approximately with successfully coupon the XX%. portfolio we quarter $XXX

year-end. strong. mortgage well-positioned have securitization $XXX housing liquidity of warehouse million portfolio positive and had ample The and -- are for loans. securitizations as potential future At end, is quarter new the in pools on approach investment is Our we trends opportunistically single-family our market acquire loans we and market to

Pre-cost sheet, our the is side lower balance steps our have finances. capital. impact leverage year X.X at liability risk materially lower mark-to-market on the of stands on and secured year we the taken to times of On currently this

our will through the turn now financial the review call of separate over is or XX be outstanding Rob securitized either I the end and part deals strategy, of that have of new monitor September liquidity Chimera $X.X structures optimizing we actively optimization as XXth, our our has ample make call We as and to outstanding debt will securitizations for currently to XXXX. debt to investments, billion in callable long-term callable results. of

will quarter. Thanks, I Mohit, GAAP for value net highlights third income per quarter at On book $XX.XX $XX GAAP the net for the $XXX and good net quarter the third the the morning. million the a share. third Chimera’s review third for interest was million and was of share. financial or was core $X.XX was million. a per or quarter income $X.XX quarter income third Economic basis for $XXX end

average ended For average yield with third was and on the assets quarter servicing while million Expenses interest quarter excluding X.X:X. was our at X.X:X, quarter. funds cost the of and expenses line for third was third transaction were X.X% in recourse the the quarter leverage last $XX leverage for our fees interest spread X.X%. Total the earning quarter was net X%,

open and liquidity for monitor remarks our closely our questions. and and as $X for assets support in returns. unencumbered new That to investments portfolio concludes options continue look approximately the to we investment to optimize and financing cash have we billion now call We will and

Thank you. comes Doug the Credit first [Operator Instructions] Our of line Suisse. of from question Harter

Thanks.

into Chimera, an with be? kind each easy outcome us deploy loan per versus how property will can they off the of look you just the you of those? the you amount returns, of versus of if that just to talk the can capital about investment of jumbo can start Just re-performing what dollar and on election of buy tell one, Back kind

Doug. This reverse, will opportunity in morning, Good where see be to we And the seasoned greatest is reperforming continued start on side. Sure. Mohit. I the

think forbearances year happened we deferments from We supply have year that of with with portfolio. GSE still especially coming done securitizations five what’s ample and so far under and this this GSE the there’s

as securitization ample supply the on that create opening that come securitization largest market the pretty feel side opportunity. there’s we on will is there our And So mentioned to strong. the we remarks,

rated place We in of are a to depending term able Xs mid on, stack non-rated or to up rated on yields get non-rated mid-high financing Xs a on basis. capital of to your securitization, XX% on

digits on going end high-single to a back leverage those the are basis the XX% even could So equity digits cash get to be double XX%. you the and on returns to

months. loans find opportunity think be the opportunity still GSEs, are side, jumbo the going was there’s digits, as post-COVID to the more that get And on the attractive that available. on loans loans reperforming we to acquire a with agency as then originations origination a mitigated. returns to are not There we quarter set don’t are picking involved to delivered there and The new but in to seasoned the business in the there coming and On eligible well. side, the back are but as attractive. in issue be that there’s we the on investor up be mid-single But an originations returns as maybe leverage there attractive and somewhat want low the the larger second

returns So the reperforming side. seasoned there we the match think

are each QX. we done have one those and securitizations optimistic of So we pretty of in

of And another liquidity kind how today I about, it of volatility any kind comfort and of just the kind pocket of hit subordinate financing those kind position in your your the you the of case financing levels? in then could around bond wouldn’t for it’s know talk the depths

Sure. financing us the even on market selection trading for those that sure We was mean, to counterparty the assets were and cash the limited. great involved side. wasn’t debt and I that our side wanted were underwriting the make pre-COVID both people on for

we market and have experienced prices not QX. in as disruptions to just So,

So, think and foremost. first that’s I

the mitigating Secondly, those much was as as were as financings never as financings credit financing long on we what The assets the or QX years, had and basis. three on shortest on you months, of tenor was month-to-month of some in risk three transpired as those mark-to-market in our recall where assets. we sort a possible around had the any cases,

mark-to-market piece sensitive with We the at for cash the some have have up COVID locked equity and borrowings on last moment a are holiday not around credit recourse holding financing non-mark-to-market we the securitizations lot putting actually of just few of for And those we uncertainty the of done, the our them with assets. and elections.

Thanks, Mohit.

comes from of question line Bose next of Our the George KBW.

get level capital? morning. guys. Hey, the a in the cash as that terms comfortable and level with Actually Good what’s for just more of reasonable of and more you liquidity,

I is This Bose. think Hey, Mohit again. mean, with… I

Hi.

just -- with with highlighted of some to election again what … uncertainty it as we some outcomes, the relates COVID. happens

on we have think liquidity place I are pretty we confident both unencumbered in in with what of basis. cash and a terms

result We are buy into year-end opportunities that some we heading as investment create also some hopeful volatility hopeful are to always for that that increased a of some assets.

quickly. acquire think securitization pretty prepared to have a So, And put we into here. ability I a to I some we decent of closing think, mix as as right able of assets add were my we are the that liquidity, some we comments have loans remarks,

the given strong I us. mitigated cash all-in So how market securitization is the be for think needs would

then that Thanks. noted $XX last sense. could into range. asset see your you And updated there? still a quarter as $XX just prices maybe reasonable back the you makes thought expectation, that given value to kind recover, That book Okay. of Is

to fortunate we enough Yes. we the plenty all as to we value a were have have in QX, that highs assets the down and overall we issue that in in I performance where and a in market build portfolio. performance I today. quite issue and we May forbearance upside the credit around are were in assets liquidity last decade mean book there’s more there’s as stand from credit still of reflected significantly come reflected credit think If mindful the think for retain out deferments to not that concerns the taken generically the

Thanks. Great. Okay.

Capital Our comes of RBC Markets. next one question of Kenneth Lee

Hi. Thanks taking for question. my

potential still out the wonder on share extend maturities? in you whether fund I thoughts wondering side, further the see just Just you of -- a terms if on could your financing to

separating one credit on one want a between side, flat versus agency side. that I there from the give but funding if portfolio optimize I and curve funding pretty month think, lot the the mean, But agency optionality you of remains year. the the up is you Yeah. short, our to

keep we So short flexibility. us some give to that

some we credit Agency which into stated redeploy did will positions, they CMBS sensitive book solve Now our gains of some assets.

On book, the credit that of side financing the do to yes, prefer be longer. we

re-lever. some we to if As continue them, we arrangements that’s off have years cases five long-term and in the Matt to on that extent up needed, said, have especially available deals and recall entered use will to that match that to to we into there,

I Got just there? us costs follow-up, share you. could then And funding you near-term could with that think just you how over quick if a wonder trend

asset also the side like know meaningfully financing quite the So the you coming whys has since where in that come in spread March, of equation are costs in.

Fed again, and between the side points I months. XX points are basis on are do to agency those to around one sticky think XX pretty has XX costs and illustrated they they going what to done and month basis

On the had from in sheet credit on we to credit financing have the has come street and in mean, I as overall come will the a and there. profile, of those be depending continue use there’s balance to think I I decreased the side think

QX financing think So well. I costs head QX as as would come we in there into and should

Got you. Very helpful. Thanks.

Stephen from comes of Raymond question next James. Laws Our

morning. Good Hi.

it on liability end? about and marks can really in but some asset questions. up Q talk us marks today you be give are later, year you follow will Can Let’s I think Bose’s the color versus the the where

Yeah. Sure Stephen.

good about at But it. on look basis, of retraced you maybe statement if the think terms marks months Obviously, way and so year-to-day the this look down a you completely look we if haven’t a at take earnings our take are release value. a recovery we at million. our was quarter of nine through to $XXX in one I book press still

bit. a maybe mentioning a Now changed that’s still earlier to value that has come that Matt But numbers back book the book can today. little was mix closer value material and adds amount to that

they Great. talk and portfolio shift the did corresponding down. And you was appreciate the sequentially, fall that seeing sizable are quantifying that. kind increase Can the declines leverage color look I change assets. but pretty we assets, you at and what shift in off agency there, about of mean, in When and I guess there when are

what leverage for impact about maybe of versus quarter as the So balance kind think the power end the of weighted how average end does quarter the was that we go-forward what quarter sheet? earnings

Hey. Stephen, this is Mohit.

as but So won’t as of the assets I far and part acquiring vastly better have we say, we rate the lower last effectively that NIM portfolio, CMBS down in were now six years term some sort a the did environment, Agency of, yielding spent in have those hedges that’s different had to we some we and place. relative assets the put locked also that

have to on asset higher can’t have those that a QX done So, yield sales completed what base led that we we retained. we in

I necessarily not it’s the they assets, addition are assets that a portfolio. to there, new of think lower the optimize So, change that’s yielding selling just

securities. will monitor trade, to well, protection we in embedded these it’s all think those continue that’s I assets where

us asset way outright. on longer duration have So, that of hedges portfolio, those, with given the duration -- that as to is it’s a also it manage for we no the

action base advantages investor and the demand there’s that. well price lot and continue a So as we remain the the would strong is fed take as that to both from here of freight pretty a of

decreased of were end obviously, to leverage about As times the year we throughout the overall X.X and have QX. and far that, how about leverage as we the think at

around COVID, and year we these the going as probably a mirror. probably elections levels while think rearview I year-end then from the through in removed remain are are to

assets our to earnings more We currently. will back core want you our that see to adjust at upwards earning we -- assets the and if earning that on and But have are relative books. dividend

a burn we of sort to currently don’t see the So cash.

it. Great. Thanks the color, for Mohit. Appreciate

from question next Trevor of comes [Operator Cranston Securities. Instructions] JMP Your

loans. one guess, When credit mentioned about are talking class investments, I that Thanks. opportunities you for asset Hey. didn’t you was the non-QM

asset Thanks wondering was originated terms you are non-QM adding is supply that maybe that comment the on you class at kind what of could in guys I So if are seeing portfolio? an if of newly of into loan and you looking and

origination over some Sure. That’s line a a Trevor. spent Hey, in think securitization warehouse wasn’t significantly quite that that the Yeah. class we of gone a weren’t XX there QX. originators we off QX market class the positive of lot is those hiccups the missed last months. the and lot And I turning level experienced financing and asset volumes time the of Gladly effectively of as at available, there, in down hiccups had wasn’t there. looking result with

As been of up, up that warehouse cleaned lot those availability as for sort line picking are of originations have warehouse reverted, back products. a our the lines

we we on have those in the months with other again, being primarily on opportunities over focused partners mean lot XX how eligible that it’s So, to relative I and a discussion of other the potential source originators are us. collateral, see the to evaluate different said, investor available we just like but space. the to to the relation I in-depth non-QM that returns equity will relative piece loans to compare and loans is reperforming agency seasoned had

have Okay. in quarter are of Great. and you fourth XQ. comment guys that’s book on quarter-to-date. far seeing in value obviously, so book strong what value a Can how And spread you then, credit number terms you since impacted

unchanged XXth from are -- Xst. I we as spreads would say, November Sure. credit through September

I that of around sort check. the think in with the uncertainty spreads election kept

spec other more spreads We sponsorship from we that, weeks the growing will Fed. I As coming in clarity the feel hasn’t days, get as tighter. base same products the think, the all that had this on

think for which grind value. tighter spreads basis to in book a and beneficial relative is and continue on should it’s higher assets of offers that near-term, the returns in I still our So sort

Got it.

Okay. Thank you.

Thank you.

Omega of Your next Lee line Office. question comes from Family Cooperman of the

you. Thank

$XX, is count did now, at see be -- should the security you financing three time, only a say, -- That’s below the lot Just share number what diluted we dilutive let’s is but assuming the question one. any diluted count difficult at? What share fully shares of we that fully questions. looking

Sure. Fully million. diluted $XXX is

I Okay. hear $XXX you, million didn’t million? $XXX or

million. $XXX

Got you.

The but ago, circumstances with sometime up are think, that you addressed might recourse that level? you you year X.X asset next you Okay. moment upon leverage, want or to it it depending comfortable keep level I and a take at

Hey, Lee. No.

I and heading think we into to comfortable with further year-end the everything stabilizes, in to are we I take XXXX. up is think it that look extent

$X of your business? can do view need to out do is cash? have some cash? How spread? the to you unemployed you current the billion we earnings am below How you kind much earning minimum run can because are additional have trying cash where much assume figure that cash invest you How normalized I of

at I a a company minimum. now liquidity. And looking the is really we balance that try keep about we I always under are ample as Well, holdings to sheet. we are business to levered think right -- assets mean, mean, it’s I on we cash have levered the

have most for is some as I election there. of here maybe another today days there longer, think that even I uncertainty go or on we couple think will

I in to at two I have where leverage. and posture. months volatility next the keep just year, think prudent cautious of and up think into through think, trying to and itself and we cash just be or year-end just for And least makes company in we some the the I markets in -- going take are it seen -- out we to we much lower been am gearing has I think settle make are sense have year-end we about it for think conservative the what a I more so be it things the kind sense when I of this given can

I agree. sense. Make

result You our Do do talk repatriation left. bias be the important most terms of the outcome, in election about --I is care but about the think in in terms next far mean, the the we few business, personnel days. it will the election the of of came most of that out results thus best, we have

Yeah.

of I is I I think great happened. portfolio and the the all, for market think first best that credit I that’s portfolio. mean, of for our the mean housing and screaming our

think the is I to with that’s very probably different be for it government stay the results. change close not So is bad going election, I like senate that’s which Presidential terrific. markets. in of the happens thing think I maybe think And the don’t what looks going Republic, regardless to Biden election

is I My mean too the party very one Yeah. pays own the wake sense for over. is day say careful. going who be to that somebody party and up when

Yeah.

It’s not XX% a XXX that’s from and to XX%, year. up debt years to no $XX national trillion going It’s sustainable. go

wake to have Somebody up.

So be luck, careful. good But guys.

Thank you.

Thanks.

At this I Lambiase are now time, there no turn or Matt to call will the comments. addition closing further questions. any for

you third Investment quarter year. you early thank participating earnings for to in Well, we call the XXXX for speaking Chimera Corp. and look next to forward

for you today’s in conference participating call. Thank

wonderful a have day. and lines your disconnect may You