Chimera Investment (CIM) 4 Aug 212021 Q2 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation Second Quarter 2021 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 is now my pleasure to turn the floor over to Victor Falvo, Head of Capital Markets. ahead. go Please

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

Before we begin, statements. 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 upon 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. We 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 Mohit 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 Marria. undertake disclaim contain Investment obligation Additionally, date call. CEO time We to accurate sensitive revise conference earnings turn of is

Thanks, quarter . for Chimera to Vec. Investment the morning welcome XXXX Good Corporation and second earnings call

a and the Subra open we Officer, on Kelly will me Accounting remarks, new our Viswanathan, and Chief Capital financial call Officer, Falvo, President the for our Markets. results then Financial of Operating Chief our Joining call Kelley my Chief today our are our Yarlagadda, review questions. will and After Officer, Kortman, Head Choudhary Vic

towards to structure. our continue liability of we optimization quarter, make significant progress This

while lowered in future. legacy more savings Association we we recently basis market U.S. overall our this of shareholders one sales For our Chimera for X.X% for outstanding government strong since the national bonds June, Knight homes on experience rates lower strong, Black fundamental in reported below available of near a homes, both pandemic, sales of for to Demand single points XXX to plus support low of Realtors successfully than of analytics $X.X The data home XXXX, mortgages. has and cost Strong hit rate recession million year of the rates the of results seasoned existing XX% of refinance inventory of billion the sale is these more the for low debt of continue delinquency approximately a securitizations, and family transactions benefit basis. portfolio existing six of onset persists by robust moved was loan supporting XX now the delinquency pre-great and of the balance loans. second day down price of record units The According quarter. year-over-year levels. A provides The in of be expect than housing at months and level the X.X to ago. most XX% up lowest components loans than back delinquency reported from demand Interest rate prices remain for more his annual the XX to large average. median the planning at the continues on homes National economic recovery. $XXX,XXX, homes cost

securitized basis money fixed yielding market High lowest absolute products opportunities rates on Index demand quarter with presented Yield existing Tighter credit at secured two XX have low Barclays debt by on financing XX and points, print X basis interest costs. the points. Accordingly, It's the by rates Interest market the products at year Over instruments overnight X.XX%. including higher remain our near significantly treasury fell coupled rose yield credit the strong for and lower period tighter. and Bloomberg spreads continue income ever. attractive on was Corporate treasury the notes yield zero. on while to spreads, repo to year Investor ended refinance yield U.S.

of called refinance billion deals optimized than securitization legacy of SIM continued of the we this The extraction of and successfully loans. lowering and part optimization capital liability more representing quarter strategy fixed our As new debt. X.X call through cost our

us from April The a our extract supported investment debt these debt of to X.XX%. on XXX XXX points combined of a IO XX%, million CIM for deals. deals at million subordinate advance Our of of securities XXXX-RX basis retained XXX and lowering million of to rate basis nr cost loans. of capital XXX securitized loans combined Chimera these X by as by total was million by enabling XXX

called provided New The deal and The consisted capital of savings XXXX. These approximately XXX RX of NR be XX beginning dates. the basis XXXX-RX. April April is of June called up In million RX loans. IO issued CIM securitizations investments. June, X and Chimera these called have XXXX. XX for XXX advanced as billion securitized we debt The XX% rate securities financing And a financing calendar has representing XXXX. will million an of a XXX beginning cost freed it financing debt, beginning X.XX% cost retained points. subordinate RX calendar of and of called million

securitizations refinanced Chimera credit facilities. take activity capital, the enabled we've with reduce credit us of our And half page outstanding vehicle lower securitizations. cost in to effective first a quarter has of of our supplement have size the also the eight secured year, the further efficient conjunction several We outstanding Chimera. on Securitizations you cost for since earnings been to securitization long and provided in In this financing. our analysis details XXXX, and three of additional assist this of financing three

average cost prudent long our We We've when in at always and of been assets X.X%, meaningful year for financing second with diligent term from extremely the made credit down improvements X.X% have residential making secured decisions. and quarter the end. investment our

prepay with explicit protection. Our portfolio CMBS agency is constructed

the historic action of term we reaping are between prepay explicit near securitization lows CMBS our maintained have and best been to course managing fallen long on in have sale, hold, penalties. rates interest through active As determine benefits gain agency's

project prepaid out of received our from loans we of Ginnie onetime paid Mae penalties This generated non-recurring quarter million. early the through XX non-agency credit and of income combination

Our regularly positive penalties attributes year this of over for the years. the discussed have is we proof convexity of concept received many prepaid

Now, meaningful at the midpoint balance of I XXXX, we impact our have on believe made sheet.

term the loans and cost by warrants credit We re-securitized since billion our debt supporting than points have three facilities of incurred points, fixed and X.X of yielding of repo dividend by billion, cost debt securitized XXX loans lowered our of more XXX securitizations, debt to retired for loan pandemic, seven during and cost high stable Securitizations $X.XX. the and through issued XXX X.X million jumbo lower securitizations lock prime high portfolio. our our over flip basis quarterly increase basis totaling XX% end, year separate financing long loans purchased by

outstanding over refinance have will We months. our legacy and of next the unpaid additional X have balance deals with that an become many five are deals successfully of six callable we principal billion

results sustainable to with over continue will dividend. forward, And term a stable seek liability Looking patient book Kelly and to call stay a our structure. shareholders financial course turn adjusted for the now on to focus always we opportunities long and to And period. to investments provide the the further investor our as value as risk our attractive improve

diluted book at fully was for $X.XX highlights end second the per for now share Chimera's I'll on the basis. value financial the XXXX. review GAAP quarter per second Mohit. the of a common XXX of net $XX.XX second or quarter Thanks, share. was income GAAP quarter million

X.XXX. Our for core earnings for XXX XXX the a interest was leverage our interest X% rate for million was X.X%, million. spread resulting funds second recourse income the second leverage in quarter X.XXX ended was average assets second while was second per on The net interest the Total of $X.XX yield or net the quarter of quarter quarter average while the Economic our quarter for was share. cost X.X%. earning at

XX will quarter, questions. approximately the the our equity from on down quarter, our return net That return equity quarter. million economic call for we now transaction remarks open was expenses were on GAAP fees average million, For Expenses our servicing XX%. XX%. the X was excluding concludes and for and second interest last And

from Suisse. [Operator question Doug Credit Instructions] Harter with first Our

now is line open. Your

mentioned from prepays. Mohit XX you benefit the million of Thanks,

what the mentions just XX Can presentation XX. were you into other million that is go Your to? that referring you

Sure.

$XX of CMBS them. comprises million recalled, the securities explicit agencies of the have associated XX penalties are that So with prepayment

to deals holders I of to that, legacy but were $XX rates had addition received, and call additional project deals the that other to that of accretion, as we that And that we third color non-agency opposed to million million hold that by up of penalties side. issued an called, other received. In million some say, we of Ginnie led by we non-agency not penalties or that was on $XX by a us, handful $X the Mae should the IOs that million were the $X parties to then

have of, of that what and that been benefit handy call You has from how kind prior quarters. in

in magnitude on Otherwise, hasn't that the prior We've never it of it's anything on very XXXX been very number. a pointed deals muted out would in purchased been it that, were at in these I XXXX, more like hasn't prior discount, quarters. it So early And we been this had have calls. past. said, deep so were meaningful

today what to shifting you investments. areas Great. guess as see are kind generating? of attractive just new what and you type And then the of returns most do I

So very produces returns. type business duration we on think loans. continue of asset that's We attractive a mid to teens short the purpose that levered focus

been focus but acquiring parties over we that year-to-date acquire of We've We're where to still for large continue a that's expand grow mentioned We in to in opening that XXX us. successful area on the remarks. million. as our continuing

season existing base we've leverage real the of done addition deals. shown as In off that our performance from three the

that been as mentioned banks will several in pretty been But legacy occur new bidding place could loan on call in gotten investments any there's make securitizations financial GSCs mean loans We securitizations. But, future. we'll has the loans been we're the strategy. be returns decisions where things a create I've to the of other still decent and acquire our a way by calls of to base equity done amount jumbo as your and that optimistic our that to busy. extremely are the sales don't seven crowded, aggressive. able liquidity being we've I level pretty rash have there's a driven and We've to three will season We've have the So given done opportunities you from entrants some on again, past, fair holdings earnings come future. the that and as unsuccessfully. in current prime optimize

you. thank Helpful,

next take will Eric Hagen BTIG. from with we question our And

Your line is now open.

moratorium COVID foreclosure portfolio the impacts get I in still portfolio to Good will Thanks. how and modifications around of the approach the real your expiration what the the any what related was be percentage in pandemic borrowers was a extending to morning. on hoping the forbearance. seasoned perspective performing of including overall

So delinquency pandemic re-performing of overall, the seasoned materially portfolio didn't change really pipeline to post-pandemic. to the prior our

XX X%. delinquency pipeline around plus Our was

XX%. up back that have on around may inched same it to think I in about now aggregate. context This X% reverted the to

docks As that far given servicing, or these doing There plan extensions is on that best in they to their are And matrix that strategies we on on within what to other control these mitigation our issue. own. players we of the the governing loans all do as servicing not of trust do as relates PPM loss have practices and we to the have follow. deals a

So much basis. servicing the a we deals on forward on go really these have of don't control

does being that of really positive for of kind foreclosure incremental the else of as an neutral limit it moratorium the see Or investors is event? the yield portfolio? kind expiration held All equal a should

disruption. is see loan think our mortgage I we you that under The just of composition, mean, flow the if cash portfolio average $XXX month. of Honestly, average XXX,XXX. the a about I payment a is balance mean, didn't much of north mortgage

rates. moratorium flow again the should So as remarks pandemic. overall, perspective, have the highlighted given perspective from as delinquencies universe But didn't over opening strong see been with continued of result experienced housing be mortgage from in coupled cash flow come year-over-year a a we that's a mortgage positive a that the the low cash appreciation down much change

So or refinance their anybody lower having to could payments. their reset rates challenges potentially lower

the on the the portfolio. held LTV loans Got one credit What's item housekeeping in of it. course? investment this for at And then point, portfolio the

go housing XXs. loans, mid held is going investment, Loans the LTV loans But acquired. probably that probably lower for update be is BPOs strong from were probably HPA. time those the again, number we we that will will that given to and securitize Once number the those

Got it. Thank you very much.

And George take Bose next our we question KBW. from will with

is Your line now open.

on actually this everyone, for is Bose. Hey, Mike

do today, just run that because then this earnings. the XX. for wondering of funding expectations material, near I'm rate going how second the term X.X%. And see to on where in half of your maybe costs Just does your relate core you

costs made rates well mean, I both finance assets. financing low we've down just recourse to have on of level and given as those these the on our as the come debt quite the appetite side, significantly dealer borrowing securitize

page amount on plentiful. think it debt side moment see I And But look if are. year the that that much that are outstanding of last there. the the now place sloshing between could cash secured that's still at depends totaling recourse the have it callable really really debt in deals which the supplement, of don't given five the balance or the spreads we the highlights you on end more take and billion is I the callable are of supplement and improvement $X again system, where UPV side of the at amount securitized deals

think I half back the earnings still that So could year. of on the drive

financing been be north relative Now, those debt and to get where we've XXX basis done, if on could is at you some able of where deals point look deals. it to that issued reduction cost

helpful end. more books is one then for How just Great. That's me. quarter color and

value book spreads of valid been So -- the market pretty have sticky. since

say XX. to ended So unchanged we I would where June

Thanks questions. taking the Great. for

is securities, question we now Cranston And next your Trevor take our with will open. from line JMP

Thanks, good morning.

across point being deals. was guys their in the one if got there's reason this or widespread counterparty any called of legacy be the in called some would something as of curious quarter particular On those to some legacy quarter. this was I bonds from particular. guys there's or maybe if calling that who's you And to something if started to income it's market deals why you Thanks. counterparties, the particular

Hey good morning, Trevor.

on who call calling especially side market to deals owns on just called. has markets was not got I'm these how of supportive of an is issuers attractive and it deals called. Again As are shells, sure really across legacy time issue deals securitization is debt also new issue the market top strong the is where been it been it new transactions. getting rights it the relates where deals call on But and pricing issue the the who's new loan given across to its different the that

a as So meaningfully slowed I'm surprised realize. we those away as at them do quarters up this of been just not but as has as been pick just that accretion moratorium, taken since well prior place activity to XXXX, XXXX highlighted down time in we of the in question the result forbearance XX COVID, as earlier amount go it but meaningful expect that and highlighted we did hasn't on this

you of agency Yes portfolio. the legacy is those of makes them non Is many your terms deals at how this point? of all on And it or Do much in are handy think it? pretty number have that sense. you callable

number would would it number, those had but be I a put could probably XX% callable. I our on factored the north on a expect and of now you XXXX, to say back have either of around where to given assets I of again, portfolio handy, cleanup are it at down deals spit they securities look that calls. and those of those securities, XX into Most of to XX% a we if the XX% And probably aggregate legacy have today issuance in if years XXXX. are we but issued hold those lot don't were number an ball I legacy at XXXX, XX% I'll around of callable

Thank very you. That's helpful.

from we our And Stephen question Laws with Raymond take will next James.

open. now is line Your

Hi, good morning Mohit.

Morning.

The investment a historical. you've portfolio other there. standpoint? the fit of place. discussed others of to really asset seems same little any the to but and is out you the policy, lot seemed Trevor just a there's a assets you that about activity call continue from we've just competition you done you're narrow going Can like smaller. know, to line that talk think focusing watching with I And you're on likely classes Are mandate credit focus, take

from prime of both the commercial. gamut space. on the deals. participated across loan deals, an We've done business full re-performing We've as mean, stuff I We've look jumbo well available eligible focused investor we as in investment season we're in, standpoint, done growing the portfolio. agency and purpose

is up picking value we said, where vacuum three And we've relative where we market, exist But deals. want in So widens where and jumbo pools we've ability it's gamut that's been small I out the as and those is deploy great is still earnings a we done there. to that securities. the issue structured a opportunities create to a loans have gotten the we interesting here highlighted season we've addition and in reperforming space best securitize But capital. patient across past. and prior the like have The way crowded one and think times, challenging there call that at to that environment in and the And on business. to done, times

we vehicles. done, with We to that securitization repeated involved. deals continuing loans going to to where, and be as still want acquiring optimistic and forward, shown I to think on I we've the finance get those be use want

Thanks color LTVs. question the for Great. the And follow there. around up earlier

reperforming shake take does that you where that home number current and LTVs the the prices. I kind older based look you at of looked home know, on guys market price given vintage to don't appreciation out If at loan, loans and mark math

$X.X relevered BPOs. issued securitizations. which LTVs XXs. got When totaling with securitizations new X.X those price deals I'll new we of new and mid XXXX, loans securitizations, in on the home update refresh appreciation over the we've XX given in last LTVs That were years, this the When mentioned, billion four we though we have XX, and touch into low completed the prior to XXs. were billion upon legacy the in called coupled had We as based BPOs, in in that the amortization, was

So it's rest transfer we LTVS similar been both to down if of trend expect meaningful amortization And and asset the a to price home drop and owe would you a we to that that see the in appreciation. LTVS. in due

one, that great up. just color. then touch That's you And there. the one for Thank numbers

mentioned, was stock seasonality that or decline? some in there it the down think around due sequential I impact vesting QX Is was expenses sequentially. X about million to were another for

comp It from related all didn't reoccur vesting, in was correction just stock that QX a of QX. which

Fantastic. Thanks a lot. Take care.

And program back closing or the additional any I for remarks. will now to over turn Mohit

Thank on speaking thanks, earnings our We you to our call. joining us for you everyone call. to and on forward look QX

conclude does participation. program. Thank for This today's your you

You have time any may at a wonderful disconnect and day.