Chimera Investment (CIM) 5 Aug 222022 Q2 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the Chimera Investment Conference Call. All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Head of Capital Markets, Victor Falvo. Sir, the floor is yours.

Thank you, operator, and thank you, everyone, for participating in Chimera's Second Quarter 2022 Earnings Conference Call.

like the I'd harbor begin, we to safe review statements. Before

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

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

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

Thank to Quarter Earnings the for and morning, XXXX Corporation. you, Chimera Second Investment Good Call Vic. welcome

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

last the basis by outlook previously The open its Reserve points forced second high during recorded the its the another Federal quarter, has The XXX to policy continued This on moves Price faster and points year-over-year to level Index, as the alter economy climb, in the the was than X.X% velocity communicated the been by have XX by years. these market a inflation again policies. basis by persistence its week. Consumer XX of funds This reaching quarter on increased basis. rate last federal They and of inflation, measured governors. highest

the is an lenders cautious While Fed X.XX%, mortgages XX-year quarter the since to the in Higher of at reperforming on of poorly, securitization basis spreads to the volatility newly assets and prime loans many XXXX. ended mortgage interest a XXX start fixed during mortgage of products, income added loans. the and believe put believe of points in become impact credit, that increase volumes have in widen rate rates catch-up fixed pressure call over new substantially new products consequently the mortgage the which improve highest market and the more all on will year rates second to all still quarter. originated the rate decade. market. mortgage spreads We And mode, jumbo issue performed spilled half specific spreads higher in nonqualified primary origination Wider other securitization the including severely and over and mortgages these on increased

with the higher remains optimize Chimera our structure benefit our of long-term for primary the to the liability and objective for its maintained of the volatility, backdrop funding our source commitment market Securitization and run. spread to this Given portfolio. over maximize its interest long rates net capital shareholders increased of

of and were rate loans The facilities. aggregate Chimera DBRS $XXX are loans collateralized for of time to These investor million. balance residential These option million. In coupon XXX-month of we with has balance existing represent had the balance securities securities a AAA of approximately securitized weighted beginning quarter, capital securities X.XX% X.XX% loans by June These at of in sponsored senior age. months private cost we institutional In with X.XX% to at average approximately by in investment by May mortgage loans Chimera loans X.X%. a Securities seasoned securitized placement capital principal structure. an XXXX. of the mortgage interest-only debt to We approximately S&P securities and placement with in Securities $XXX and rated X of rated million of the retained retained Fitch May, average the reperforming of average loan and loans a subordinated The the XX% with of notes weighted our XXXX-RX, had million option XX% warehouse approximately million balance were private the a average private any principal an beginning an aggregate and structure. XXXX-IX Over represented a coupon CIM a a sold with approximately completed season. aggregate fixed the June, investors. mortgage an of $XXX completed investors. $XXX from X were to and balance we sold any securitizations coupon $XXX securitization, of and had were loan AA an CIM XXXX. label call approximately an $XXX call for million. time institutional

debt the X nonrecourse created quarter X.XX%. for Our loans. long-term of was this cost financing securitization for million $XXX securitizations average Chimera's In of total,

by from loans to helped recourse financing $XXX reduce for million. securitization Moving the our quarter warehouse second

retained financing We for secured to investments. continue favor long-term our

shares. of mark-to-market new The this existing On the are duration facility established evergreen our assets the underlying these and the partial provides up market. maturity stable our repurchase of XXXX liabilities we XX-month in provides secured hedge a our and repo facility forward benefit we billion of $XXX for we in to provides billion this and underlying challenging million assets periods this and May million and discussed and non-mark-to-market XX-month debt repurchased the our year for quarter, the million sheet, fully for price negotiated place volatility holiday $XXX This to larger its The we million us of interest Separately, repurchase this term. swaption which contract swaption to during of value, from rise. rates, discretion balance sole forward X.X a Chimera adverse X $XXX of secured at assets on the quarter, high-quality non-mark-to-market X.XX%. facility. on a notional the provides sheet. interest million represents fixed XXXX, a officials, combination exercisable financing Considering is for a conditions. Reserve XX% a Last financing total for of share open allowed of securitized balance an subject million arrangement $X.X environment market a rate not $X credit refinanced quarter, stock new in we facility. our entered mark-to-market to financing super continue our should company's of We an This Federal movements. market common date March $XXX at hawkish facility of commentary extension financing has $XXX of secured shares and quarter, high common Chimera's And rates new plan,

Our for weighted the of $XX was total relative distribution. our number our approximately million. good to price believe price to reduction purchase average shares is represents the other $X.XX currently value cost of assets We available for stock market and a earnings accretive the outstanding in of available

purchase authority market. repurchases in of June of million other merits and to we share to assets book relative $XXX evaluate have the our and As the XX, remaining will continue value we available

their credit with of characteristics business capital yield to continue duration these loans acquire with and The our match risk profile structure. for portfolio. we high along and purpose Chimera's loans, Lastly, short well

settled This quarter, purchased business of and we million loans. purpose on $XXX

shareholders residential and presented believe securitizing best market our While mortgage loans little a of strategy challenges, conditions many for buying run. in our generate the returns to long XXXX we will continue have risk-adjusted

team our positioned of professionals the We portfolio a is is full demonstrated Our for and future. responsible believe being and are capital. capital of our of best-in-class, structure have experienced history towards

nearly available repurchased higher loans than XXXX billion common We $XXX far so $X million acquired to have million. our an We of at in stock in authorization have this shares been and recent yields additional have X.X quarter of purchase much years.

liquidity for turn to for best generate Our over will the we look to opportunities to shareholders. adjusted I now and is continue financial remains low, Subra results. the recourse our call return to strong, review the risk leverage

the quarter X.X% end at Mohit. per you, economic net value financial per $XX share, million GAAP and book loss book our second share. will XXXX. Chimera's was second net per book dividend quarter $X.XX in the common quarter Thank quarterly the second share. for On per GAAP the based highlights second the on distribution second was quarter negative for value $X.XX $XXX value on an quarter earnings I $X.XX share. and was of return was review income for or the for GAAP million or available change basis,

net interest million. income the $XXX Economic was second Our quarter for

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

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

was average quarter excluding annualized our For $XX the slightly our quarter. million, annualized equity on XX.X%. average concludes servicing XX.X% on second the quarter, interest down and our from economic our and GAAP previous lastly, fees net That was expenses, expenses, were And negative equity transaction return return remarks.

now for We the call open will questions.

from Instructions] from comes [Operator And KBW. our question Bose first George

on Smyth for one. Quick This actually is Bose. Mike

returns expected are securitization now? the what right of Just on pieces retained the your

which the that's Mohit. is lower X was this earlier QX from acquiring a mid-high single year. returns in pieces we the retained on expected are probably of The cost bit this loans, reason Mike, The securitizations is completed the the digits. little

As would the we lower make execution new the than market's acquisitions up slightly returns on attained on we produced seniors backed and the today.

new what you then returns where do expectation And for -- you you. today? have would would be Got an

I'm capital times historically isn't relative levels. to Yes. are Senior I wide trading at securitization, that attractive. sure and as the multiple of parts mean loans you've acquiring heard structure already,

teens, a but be acquire attractive able especially opportunity, top returns don't and moment. structure. capital loans think at I the to the you would more the generate of Actually, the in buying securities be to at So an that that's is will today think many high I

Got you. color. That's good

look -- because the repo you of or were could way you ex risk kind that as able control would eliminate of if look loans, acquire you return to to environment? in reduce a to just current the you So ever to leverage --

Yes. what That's exactly in QX. did we

line. into X manage focus $X.X recourse on had as to issue a totaling basis in our $XXX basis we environment we non-mark-to-market on we them a warehouse a openings the the in quarter, out over had the securitizations on that new financing As remains came risk By a challenging little term of billion warehouse as March completing bit the date, termed we've that even million, line. well. are in And go-forward locking our loans

And And you has on as a just the can on color. update book potential then good a then follow-up, value. just of if recovery? a much decline, How book of quarter-to-date value? That's couple Great. the quick Great. any, ones for provide

is unrealized. value fair mean in I Sure. any change

any We the sold hold. that we haven't of assets

So from rate tightened. all a rally and recoverability that of theoretically, spreads is recoverable, standpoint,

here, As firmer. has we little the sit X quarter rallied. Rates end, bit weeks market a after are

has to X% to to I improved still volatility, So tune probably the up a the again, but But value volatility, and X%. it's the to of rate book again, quarter X% early would of quarter. in spread lot X% start say

go Securities. we'll Trevor next Cranston from JMP And to

you higher the much so All with And next right. housing how outlook market moved your Can about mortgage years? guys the thinking home of is you're maybe what's about this price appreciation over year? talk for rates couple having

as technical from still to be think X% rates, again, remains -- I still we to this projected But home to think appreciation limited. still Supply -- expected double-digit with is a HPA far is will annualized higher had year market somewhat already like X% standpoint, an do. favorable. the slow year. double at We're on this We for forecast mean, year. starting if I last maybe a and low X% slow sort rates, XXXX, so X% but forward. from mortgage home XXXX, digits pretty to price down supply of with And double increasing a mortgage going you it digits, housing into basis from Trevor, about look is HPA to be

Got it.

quarter. this mentioned added And a you swaption the Okay. then to that hedge portfolio you

that. I down. them get so think again, Can can you just you I details the missed say I gave those

Yes.

So X.XX%. swaption we billion added rate a with a $X strike of

and terminal variability some was rate the the the to the up, where portfolio of end what it in outlook the some we thought protection may Given Fed to may add prudent buy insurance. do and

in we So exercisable is XXXX swaption that in and added May. that

the what's And underlying swap? of term Okay. the

X-year a It's year. X for swaption

they will if and So you'll have year X protection through exercised. XXXX run

And Harter Credit our next Suisse. question from comes from Doug

quarter. you about decline the Could investment the in that? talk in portfolio What the drove

in are anything, Doug. Mohit. Sure, the natural we This the reason it's paydowns decline just for mean, didn't portfolio. is the I sell primary so

Our prepaid not -- prior in was quarters limited. we received the prepayments more much

So that didn't cause it.

were portfolio in other for downs. paydowns adjustment the the And reduction fair mark the is then are value just cause the as experienced natural the in a well. adjustments that So that the on

mean I about go quarter kind reinvestment coming in it. forward you thinking of I Got quarters, you kind I of third size the in of of total the are guess guess, of and the paydowns kind the as portfolio? how

mean question, half the looking we've on Sure. first year, an of that I to just pretty of the for a actually reflect sort investment standpoint. had active from back

As I in investor the between of billion portfolio reperforming highlighted under bought the BPLs, we loans. opening loans just remarks, to $X new

So of warehouse earlier. was X risk stock that the that's purchased quarter. in some second completed of been securitizations back the We've accretive. mitigate million $XX to asked We've

transactions accretive. all of capital, So from an of investment and those deployment are

still where from last years. just credit Right mortgage non-QM, are been prime AAA yielding The Our quality the looking does standpoint, attractive. the playing. jumbo securitization quality high focused a has where or loans, XX% primarily of to is sense? or again, the attractive. between you're the ecosystem very Does at are depending it top economic we've mid-teens for But heard, nonrated where As parts deteriorated, the Doug, senior loans returns is returns? producing the returns it make AR on you've mean of mid now, the levered several structure low securitizations capital -- of AAA even XX% credit not

keeping and defensive expect, a we've and the more liquidity QX. given adding leverage rate cycle we So in we high, had where half although we've assets first in of busy be to are in been sort QX and

[Operator Capital. Instructions] Lee And our from Kenneth next question comes from RBC

these comments whether Just markets. wondering prepared about your flesh you could further out securitization

could in improve. improvement you spreads the as see mentioned You declines the second half and supply some mortgage

it wanted out. if you further to just flesh see Just can

Yes. Sure, Ken.

we've of prime play supply As side. are spaces into the from quite it'd the whether the this onslaught RPLs, have The spreads some historically year, hit in, and of we issuance origination to asset due we in. rated just that that came which widened types jumbo, the market significantly played be seniors, nonrated an that's

to is put just XX to anywhere we're trading in the around that perspective, XX AAAs year, to today to swaps. ranging swaps. start So from to probably to XXX non-QM XXX That

execution. XXX about the points on of it's So basis spread widening AAA

to and back of were start mid-XXXs probably back to trading where loans those low go to probably mid-XXXs were, are today. you If loans the trading of swaps at the swaps year, between

back the somewhere a the if match as the doesn't of tighten would limited where with ARP, XXX was loans continues XXX structure supply spreads top today. capital could sort widening there's the up it to should the and the been senior in flesh in we even of So of you half pressure to be think lot of the market inside loan if securitization ideal, has on acquire relation the to year, that to of the widening will. But match, market which to and you supply has put fleshed on

half. they third-party optimistic company are that in if has market So on very the securitization attractive returns securities up. shown change, buy provides that second It not the could does risk-adjusted still that the But more for why shareholders. lever the our in is past those we

time. in loans, any to a So we're to buy attractive securities loans at buying we more point not budget-hold look and lot can that just pivot

the may. power there. to I Got thoughts views That's coverage, just you. one earnings if quick near term? wonder your over relative very could especially on just on your share follow-up, And helpful color you economic dividend I if

expectations more They've QX. XX a gone we're mean and has for meetings. remaining or of a XXX basis twice combination lot raising potentially the XX X last Fed The of sort for a the year them. rates $X.XX in in with aggressive points, are I front-loading the points for meetings of X been The XX, another basis paying XX. XX, out Yes. XX, dividend

X.X of the we portfolio we the outlook evaluate reflect $X.X for what dividend our can like will and has given cash aggressive So with the sitting assets. assumptions and recourse been, unencumbered said, what is. billion We'll at And Fed turns earn. policy of are Board leverage I how the to

remarks, more to of ample north had that we So again, I prior of Fed hike. said but liquidity deploy points XXX accretively. in basis our

the the in experience we'd aggressive half maintaining more be more liquidity prudent. was adding But some and So to in volatility think spread back the year the income. I assets of drive spread

at Okay, back to be turn Instructions] like to this [Operator time. floor to the no there and further questions for Mohit closing over appear remarks. I'd

November. we in Thanks, call for joining the forward you us Karen, to look and on and thanks, speaking to today, everyone,

conclude for does you Thank you. participation. and gentlemen, this teleconference. thank today's Ladies We your

may time, and have this at disconnect lines day. your a You great