Chimera Investment (CIM) 3 Nov 212021 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation third 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.

If you would like to ask a question at that time, simply press star and the number one on your telephone keypad.

been queue, you press has yourself to question the from the your answered wish or remove If pound key. while allow quality. that your ask posing you question, We pick headset to for sound optimal your up to It is to Head pleasure now Capital Victor floor Markets. turn of Falvo, the my over go Please ahead.

Thank participating Chimera’s thank third quarter for and you call. everyone XXXX Operator, you in earnings conference

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

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

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

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

Investment Thanks Vic. XXXX third quarter earnings call Good and Corporation. for Chimera the morning welcome to

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

lock and yield since XX-year, risk have facilities, Chimera This voluntary have $X totaling improvements and RMBS assets XX a roughly and our the has our re-securitized deals liability rate end. bolster we billion. cost year our both made through non-agency this repo earnings of in our taken to year to quarter the year, throughout points our prepayments. Securitization to long while year have the basis impact inflating significant securitization in from and of loan made financing reduced continued reperforming portfolio we have non structure activity legacy and financing term, for high on by mark-to-market retention the Actions XXX for on enabled

home third higher to a We our expect while treasuries future. the yield structure have many quarter start initially XX expectations. rally on for basis XX-year hold about quarters positive to many earnings concerning rallied falling liability available inflationary points. impact for Interest national The up trend actions the continued Case-Shiller our distribution the ongoing the began than on Federal intra-quarter taken and quarter year-over-year Reserve of at the the yield, it gain more July. markets about their nearly potential volatility, in largest the provided clarity towards The in ended to with higher easing where years. prices on rates to picked The rhetoric up Index X.XX% XX-year appreciation the when by virtually price market the market the failed into despite quantitative to home showing of housing XX%, XX

low, spreads demand loan appreciation resulting in value. company’s this overall our economy book in Investor pandemic. yield continue on considerable of from high near and the all-time business residential grade portfolio the continues positive housing quarter have as the and emerge remains conditions near market tights. spread to high product for indices Chimera’s securitization hovering These yielded improvement benefits price and to U.S. positive the remain of HPA expect while We term with tight, remained inventory mortgage for rates strong global

sponsored sold was becomes Chimera we XX% warehouse. the financing. previous continued from which million investment of X.XX from optimization called CIM carried which approximately of and beginning the of XXX Subsequently previously cost call execution capital a X% XXXX. points the securities and loans, approximately This We average our a structure XX XXXX-RPX $XXX deal million from August retained with provided interest-only senior cost any notes of the we representing of with securities, CMLTI called time, for million subordinate cost callable quarter, the debt, the by remainder debt. basis securitization In deal. July, million XXX we This securitization $XXX CMLTI of below strategy. our XXXX-RX our reperforming We loan

on consolidated in Moody’s rated was by however, investor clean-up sheet; million $XX and invested securities. balance CIM and retained We also million We investor Chimera This first XX% $XXX interest-only is a not our XX% a created eligible in Chimera representing deal securities, and loan securitization our call. sponsored subordinate The XXXX. sold rate. Kroll XXXX-INBX, agency million loan advance $XXX of deal and

While to a have we our made asset for investment structure, amount new this our we long quarter many improvements liability purchases portfolio. made of term significant

will deal $XXX we DBRS have cost representing highest we Chimera reperforming retained million from average beginning rate settled the our $XX The coupon. CIM in XXXX. $XXX debt sold interest-only loan investment notes RX be received seasons. subordinate the an of have rate, The early on advance securities. XXXX-RX X.XX rated callable are reperforming average Fitch to loans and a was reperforming is loans The warehouse. RX deal X.XX%. purchased and loans September and million for million advance and and date. average notes, by an quarter, in In $XXX balance XX% of XX-year We weighted This a with loans we million October, $XXX,XXX with securitized

our loan business purpose of our continue to expand We portfolio. segment

and warehouse our These very servicing million very compelling which loans short produces an with duration X.X management. in an currently This quarter, asset are purchased coupon low net We investment coupon for characteristics have $XXX risk. finance we of a a spread in loan purpose interest loans with and X.X% and loans gross attractive fundamental business duration net the portfolio assets. purpose business

we million business upon and to purpose business. This year-to-date more opportunity brings purchase this expand $XXX additional additional continue quarter’s to BPL and loans purchase than seek our to total

many quarter, committed purchase loans loans to This reperforming for expect weighted to ability for Chimera’s nearly future to cycles. $XXX a portfolio. the to loans and XXX These rate interest however million prior $XXX months continued is coupon be fourth quarter In million which end, through we X.X desired loans to mortgage These committed securitizations. to are The highlight quarter and settle we these acquire this loan average we total, have expected quarter in around loans, of settle in our $XXX,XXX. purchasing balance also economic did not seasoned. assets average

of consistency loans over interest seasoned economic assets over accumulated and the in demonstrating continue years. produce many yields high while These have large seven and maintained rate last prepayments We portfolio portfolio a for to reperforming a cycles. the

for the have Mortgage the many primary loans of the a benefiting have from has housing we stated recent improve. securitization original demonstrated decade. the of business our outperformed the have lastXX strength component months more the resiliency pandemic, default been model and our As in delinquencies time our delinquencies our expectations, in market. over despite with homeowner loan The have to over a past, portfolio than rates in on continued

our help mark-to-market risk to utilized both have source risk our primary manage and securitization as financing. liquidity We of loan

were conditions our years, call us explicit Over advantage enabled market XXXX. of most the which of to last with so far has six securitizations in structured take options favorable available

from and we opportunities continue our grow best-in-class and With we the sheet, to COVID the as strive seek the asset new to eventually industry. believe in We current the REIT exit strength to can liability of country managers pandemic. begins our mortgage and balance portfolio be normalize

future. and dividend liability provide while risk of this managing the the Our a call over with minimize I will turn to the to now book our stable value primary financial abilities objective to results our and sustainable shareholders into Subra is volatility to for quarter. review best to our asset the

everyone. Mohit, good morning you Thank and

will and you on measure, non-GAAP instead period release longer from available earnings earnings new report report noted effective on a this our distribution. may this morning, non-GAAP have earnings, core for As the we measure, no

While of the distribution identical calculation our method changed, is of earnings terminology calculation to the earnings. our for has previous core available for

of for financial was will value third the net economic the book of GAAP the income income on book our return million been per share. quarter was share. Now third per was or on third quarter value share at on income per was called. quarterly GAAP the that net for review distribution securities highlights dividend million. for for book earnings million the $XX.XX the net $X.XX quarter $XXX value distribution income for quarter basis, and third interest earnings or based $XX $X.XX and for of quarter third an result our GAAP quarter On Economic third of the available were XXXX. share. per million XX.X% or $XXX available the end have $XXX Chimera’s I received share, in the change $X.XX was per

was the assets For the earning third average X.X%. on interest quarter, yield

quarter of X.X%. ended quarter at while X. Total the leverage to was net was Our third leverage the recourse X average funds spread X, cost our and X.X%, for was interest to X.X

net return GAAP economic equity interest equity on our quarter, the on XX%. For our XX% return and was was

open concludes were third the we’ll from the our for for up expenses expense That million, and transaction quarter. excluding and $XX fees service slightly Our now questions. quarter call last remarks,

question from first George KBW. Bose instructions] take of [Operator our We’ll

good so securitizations which RPL to we’ve pretty sell, Smith you call was dollar Hey, in and elevated, really heard and securitize? certain does morning first color little it This returns quarter. maybe actually as I a prices and question Mike a strong attractive, provide My sense just on if for on just and here, NPL to make is on less Congrats is everyone. then made any Bose. bit has are that opposed instances, call wondering could

but you securitization determine has Yes, the you it obviously reflected Mike. Sure, morning performance our it’s loan pricing can strong that purchase of quarter value execute book in quarter, effective the how and credit that good XXXX pick the during that of is. this and the [indiscernible] a

a to spreads mentioned, $XXX acquire were million QX. environment for able tighter we As on we of loans, in even loans in

loans a single looking so on a it with probably the the on and can We prices to securitize generate high returns acquiring we cash in pretty have achieve, digits the we we double even pieces retained could digits securitizations these advance still of think still back, gotten. and the can optimistic are pretty to mid, leverage, liability to rates are coming quarters, amount with be some where of basis addition loss-adjusted small tune and on in the the and on attractive loans, of easily,

space. the BPLs. Then the wondering, certainly in there’s a Great, one of expected lot I on changed of has just There’s lot the just more or was institutional that’s this loans? helpful source any of how and activity been M&A color. returns a interest you

this an think are Again, assets, in expectations which moving short I rates pretty attractive is rate higher. of with environment these duration thing

As we is there net differing coupon within what highlighted, gross acquired high very loan of our just is X%, Again, north purpose basis and space. business it’s on Xs. a niches the we’ve from

haven’t we returns in can seen that portfolio any we’re attain, and in to subset meaningfully what change the among us offered more grow We being of to XXXX. our looking

Great, taking questions. lot thanks a for the

Mike. No problem, thanks

of Our is Hagen Eric BTIG. next question from

Hey, good morning.

already question, period, can the the came pretty It quarter that? what spreads gains led of apart the with credit were million factors First we $XXX tease that tight. into on in like the felt to unrealized you

of the maybe wondering were. that to Just some factors that individual led what

if anything. Eric, miss let I’ll Sure start add and I Subra Kelly I’ll and on

or that’s appreciation uptick question where given Loan the key is spreads quarter strong securities gotten, the how already that? the basis on quarter, with to held and tightened driver. spread That add pricing has additional the QX. the duration driver QX, and value primarily meaningful performance investment for and was anything hold is in consolidation a tight Kelly, of most our five four you [indiscernible]. We XX - years, unchanged we to by that for of book you an that implied would products Subra and other Mike, with quarter. else just there agree As of with key around points the over asked were pretty loans spreads into an loan a coming

it that much pretty No, summarizes well.

driving it rate lower that? Yes, speeds? applied helpful, actual that’s factors factors individually? what are there the the Is that is being a or What loans, the severity but was prepayment are to faster were that

lower so Again, all-in the I the in price also the as down upticked in within QX discussed the that, environment. resulting for it’s of speaks think LTVs ourselves, lower obviously given the decreased assets the we more the demand for have secondary obviously credit little so have the severity, a so than as performance overall well as appreciation speeds has low bit Strong LTVs, for call, the just assets. expectations gone mortgage rate loss But market. home

to, relates that you’ve mentioned products in is improved, price As loans an and residential you upside is guys leading long tighter again, terms from loan seller trading some spreads largest still term seasoned to funds, quarter the in addition the XX as in GSEs to quarter, appreciation; have and other trading on very but the just some other were of to relative portfolio driving so over the performance. know, all large which are is points loans, basis our market it performance metrics attractive net secondary all-in of mortgage to of upside banks the with all the secondary yield it

on loan in can have finance any warehouse Then financing, to how guys much okay. portfolio? you it, potential growth you the capacity about there Got talk the

Sure.

bought as Over possible. going warehouse all which objective quarter, to to is we’ve said calls, financed. as third our as the be we of quickly million, $XXX over numerous those securitize But is

capacity on market with saw a holding continue again year three lines still currently two of looking anywhere exit, securitization so and between be to the a warehouse pretty now we if period have typical would between and line we’re securitization we to months add Our end, strong, with the to securitizing. opportunities to plenty

a effective remarks, on quarter and we it. As do securitization execution mentioned end pretty in we our got after we right opening did

Right, if the flip, the jumbo, that was I bought, but it, sorry you breakdown what RPL? prime between XXX fix and missed and guys and

the seasoned reperforming. million of is XXX and that we remaining the Of bought, of $XXX fix is None is all prime flip, that and jumbo.

jumbo much. included Okay, got prime - Thank not you it. the is very

thanks problem, sir. No

next question, Trevor a on of ask star, Cranston telephone to Securities. keypad. to your move again, is JMP Once one that We’ll

BPLs portfolio to secure Hey, guys you historically? morning. and asset you seen acquire trying loans space thanks. the something if some have grow on A to sourcing I Good that’s look to follow-up to way We’ve was peers have considered prefer that question forward. that in a the continue way about lenders going an curious or as flow. you

seen the some of M&A space. We’ve obviously the in activity, activity

are assets pretty We especially the but in last at successful have, the relationships we’ve two been given looking in acquiring captive those and actively that, that over we years, QX.

all record COVID, track the to loans be in people activity us or I be credibility distressed, source our fund think where with able committed of we will our fulfilled obligations I portfolio. and any a to then are the M&A space, lot even given think we had during without those we loans more and still to grow to. successful It’s

growing much maybe warehouse XXXX may you. in potentially grow, to capital how room additional you got capacity Also need portfolio keep to up adding on Okay, have can raising at about you the assets the capital? continuing follow the for on guys from to question a to look you your perspective, to thoughts share before

Sure.

of number’s pretty the cash high balance north have that pandemic. post been on million of hovering and We sheet, $XXX

of leverage, the significantly judicious one have leverage, to sure we have of want between portfolio. and just right brought capital of down We to down unencumbered recourse making opportunities. be find grow recourse to cash We our the we plenty in so turn assets,

the key focus later taper our able mortgage year, of million. for from a first could potentially some $XXX we enter assets rate create doesn’t environment, today was remains balance but QX the on do side The is the environment the to seem liability opportunities sheet have deploy of a we theme to be half on the expectations liquidity excess transitory, that we tune think XXXX. widening that successfully - were potentially the the high With Fed, with we to potential spread in and and add optimizing to inflation QX, as

book which impacted [indiscernible]? obviously it’s on Okay, thing, would or any on the you quarter give value, you mentioned, could Last seen off, you got flattened fourth and you of loan spread that commentary sort have continue XQ say tightening it. into the

but some yet, side securities of I well, was year have quick color head have term some of a a yesterday, on, into long seen sale in led new loans actually loan again the trend. full think again, traded in think widening we those There don’t of a expectation sort extremely issue as start that’s on as softening softening loan the bit a with was so by trading. to our seen loan on given have haven’t the rates little would really I don’t QX, side end. coupled the we to the Yes, move trading GSE [indiscernible] front,

again, could of vast move after think, people higher rates, that nervous the XXXX, dearth within a of of I pretty where expectation a so deployed given been But space, to a part be think has any the should is transitional in be again, back for and successful to made think be, cash thing. little XXXX. I I on rates, a that it the the sidelines revert near the looking there term mortgage just widening so better

that’s you. Okay, helpful. Thank

Thanks Trevor.

Once Suisse. Harter move again, on star, We’ll telephone next that Doug keypad. is of your Credit one to

quarter? of Thanks. increased more changed or was led Can supply it to was that just the what it your talk kind market, appetite in activity you about in the the

in just year. seasoned as has highlighted been, competitive numerous the would half as the first appetite Our we as reperforming calls, been been loans, pretty we’ve on we of were strong not for have

that’s most and we some you negotiate traditional sellers, less engaged if successfully were where the we’ve with sort we not so of of were run-of-the-mill with able the success. your transactions to that think [indiscernible], will, counterparties had I QX in

thoughts in or bidding a the it likely is continues, insights share that your coming competitive Any whether as process it. quarters? more or to Got be to

that those few but we to between, a again, just come some how will loan the is. strong demand think more little think, opportunities I and quiet, forefront still are far given

there highlighted, so that’s strength we’ve slight ourselves I just a pull been were space take people I others. our in back. think, that, is focus advantage It’s to hopeful from active could differentiated and sort if given as we year, widening, been core and a that that pretty of of

do on over How would where LTV price mark-to-market year-plus? strength Got it. given the--on past the about you appreciation book you reperforming have, you see of current the book, that the the home the think

Sure.

we’ve As year-over-year XX%, was in up the mentioned XX-plus highest our about in years. opening remarks, Case-Shiller

on of and touched Those year, LTVs think we’ve mid we to the re-securitization well, and refreshed this down loans have activity as quite a mid the [indiscernible] they upon to XXs. ’XX high I acquired XXs, we call had and in come the the in this have significantly. XXXX the had LTVs amount lot closer re-securitization of done

last I would the aggregate. that where price would think I three, years, the amortization high in home mid, portfolio’s overall the appreciation be on four XXs adjusted is, for say and LTV probably

you. thank Great,

our I’d does answer question for for happy call Marria This conclude to any to session Mohit concluding Mr. return be and the remarks. morning. this

Leo, to forward and call, you talking to our we in look Thank next everybody you for participating thank and you quarter. again

Corp This does today’s Chimera conclude call. XXXX earnings Investment QX

a You have may great Everyone disconnect. now day.