Chimera Investment (CIM) 3 Nov 222022 Q3 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the Chimera Investment's Third Quarter 2022 Earnings 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, Victor Falvo, Head of Capital Markets. Sir, the floor is yours.

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

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

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

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

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

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

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

built our very New Chimera very to anniversary Board much celebrate all the contributions the York congratulate present, our a have company. Exchange of I'm XXth appreciate and team proud I or members listed Stock as we would and begin, the we Before to and we all their of like Directors as company. past employees

how year, weakening complex, in able more a detail But of book capital on that portfolio. putting position, market third rate volatility value. quarter of the to the spreads, interest been our to to higher Reserve the led pressure global particular, environment to added last for first in a investments wider In this portfolio Chimera expectations. with we've several markets our the busy balance has elevated and I buffeted further new created We a period me believed September. year-over-year has both in have Inflation to either discuss us, and out nature a year, non-mark-to-market sheet. and Consumer our opportunities by reaching Federal higher end U.S. overall add turned the in X.X% inflation, sides rapidly been While or which to believe to of this increase a let in be has the volatile economy. has basis October, been moment. It increase describe The be committed our financing, Index rising and amount for market to translates and transitory have on persistent rate which will Price cash officials on

tightening year rate slowed and consumer eliminated first have ago. XX rates activity. at rates corporate interest result, and for has including through backed the to refinance mortgage rates bonds short a XXX July points X.XX% meetings, price on interest magnitude treasuries, points of have each As the to income mortgages Higher new securities. the fixed end products, rising to The Higher versus September downward home of Reserve conforming at substantially pressure XX-year basis markets their capital velocity of term X.XX% the total down mortgage the this put across rates quarter flowed over and and Federal all one tightening months bringing raised basis the of year. of nine Fed purchases

As reported past lowest the consecutive eight level in to the for sales existing in declined decade. months homes of September

result, income a residential will we disposable It differentiated economy lower mortgage toward rate less to have Chimera's well ultimately rates to lead as and this spend. rates peers. interest cycles. and many impact year's mortgage is economic many credit experienced is down As to of will shock our believe amongst slowing portfolio the the and have unique season an has and consumer consumers

made our after since billion an digit returns This portfolio, banking residential of has We mortgage largely housing channels available RMBs, non-agencies crisis. of a to opportunistic that continue of $X.X expect and banks And we have is for future. foreseeable and long of portfolio mortgage time provided the the by have amassed approximately portfolio substantially loans for investors. than with different comprised double typical used which through mortgage previous purchases traditional XXXX, we security backed into $XX.X period billion characteristics

to an loan Our average loan add season, XX%. an The average portfolio are consists was loan an of loans $XXX,XXX. and balance loans XXX,XXX average origination value XX-year of with

the Importantly, their XX-years there's history payments which size is for the XX% there to making and homeowners geographically loan only states above three or or were demonstrated appreciation, of up having XXXX X%. earlier, different. is A as mortgage low paid small on are homes eight and many amortization. payments, by a have mortgage to loans catch And of the portfolio homeowner. is time of loans price more. the originated monthly afforded home in been equates diverse, Overall, payments long homeowners period this our reasonably monthly geographic or portfolio mortgage long mortgage concentrations of of And means the

All borrower's evaluating mortgage paying important of a when are features these ability. very factors

our with cornerstone to is wider seasoned continue business. believe portfolio of loans of performing a market will Our portfolio re And the benefit term. this the mortgage seasoned We shareholders accretive year, Since new discipline presents higher we our our and will our the market. have the investment rates beginning scaling we year re-performing into long believe outperform spreads interest believe investments. new and of been investment opportunities. over We patients throughout conditions

take I through recent will a activity. you Now

During October. in this quarter to loans, purchase $XXX the residential of $XXX mortgage we total third settled XXXX, committed million of

into close a to anticipate expect benefit in long-term double to expect digit loans the loans generate returns. $XXX structure, which of to Due we these settlement, will see XXXX. We in we full the delay non-mark-to-market million

Additionally, we million down $XX settled purchased and quarter loans of purpose third business XXXX. of the during

the mentioned duration loans As we associated total, purchase income loans. characteristics They In in good in committed quarter. to like business portfolio. spread and $XXX have have the our purpose loan we million past, for third we short the with provide

principal of primary Securitizations by of of securities investors. of securitization we our retained aggregate loans. end loans, of of quarter reperforming As balance XX% was CIM with represented residential remain allocated with of our balance September, approximately source CIM $XXX approximately interest These financing issued XXXX-RX. season private of XX% subordinate the of capital million. A with and XXXX-RX of securities capital structure. to million to approximately sponsored institutional In in $XX We've million. senior the mortgage $XXX Securities notes credit the an were aggregate an sold assets. residential balance a placement the a only rated certain

XXXX. option at any We to loans call of beginning mortgage securitized September in time also the an retained

cost of average securitization X.XX%. debt Our is for this

because with securitized debt our XX% rate. total our financing end of our cost As securitized debt reduced of of million. the by of overall quarter quarter fixed financing, of represented securitization Largely is we $XXX average and of an the this recourse XX% X.X%

our remaining facilities. mark-to-market the our On we and of have of a kept XX% none financing financing, either portion credit secured or limited

XX an $XXX extended a non-mark-to-market maturing quarter, additional XXXX. by million This months facility February of we to

structure. continue facilities our We are believe to components liability these of valuable

significant a in experienced increase rate quarter Third volatility. interest

market These period. $X million an a costs in swaps and we swaps partially the complement hedge interest the over extended for billion our Given we a a entered entered swap. higher two-year million so borrowing we $XXX rates rate five-year outlook QX, longer for that period, may $XXX

in our $XXX from framework. on We lock $XXX rate expect third CIM end. million transactions into loans we asset derivative are securities position billion funding. conjunction rate managed million liability position two-year since Entered further facility These we a manage warehouse. for and of strengthened to million term interest Chimera's fixed finance On quarter during our swaps. Throughout to ended new pay balance existing entered and our quarter from swaps. non-mark-to-market quarter have an interest securitization, the post sponsored retained Entered and million $XXX approximately to with $X.X fixed liquidity with cash end, XXXX-NRX sheet our financing was XXXX, balance in hedge secured liability our $XXX total, sheet. October long of we pay additional In our

opportunities portfolio. seeking higher to our to yielding mortgage assets While have

And Repurchased securitizations of We results current limited to loans limited of many the now non-recourse securitization the nearly common our steps of while totaling five call in financial new mark-to-market our will facilities million low with leverage review believer and And other credit to to that the long turn financing and credit partners a billion patience weather our so opportunities well and We further challenging, to completed We discipline I interest have the billion. nearly recourse we in increases Chimera to assets the been and marketplace. in that mark-to-market advantage committed subordinate believe against stock, believe term. the will outperform bring enters our none portfolio bolster to $X.X financing. none in us credit positioned expect investment long have is our our are acquire we protect take assets. XX% the to quarter. hedge We've sheet we to term benefit have many that market to beginning carrying mortgage add $X the closed for transactions billion Subra of financing. $X.X strong stable of taken shareholders rates. a to and can or $XX of is to financings over economic secured our continue storm. strong new for maintained or markets balance of year, provides the since discipline stick over

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

earnings third per for Our income or $X.XX net quarter distribution available the million was for $XX cents share. basis,

for interest net income the third $XXX million. was economic quarter Our

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

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

fees servicing economic equity interest were return lastly, quarter. GAAP XX.X%. remarks, expenses, for questions. For annualized net our and That third the now with and million, the expenses quarter average XX.X%, equity transaction And return consistent concludes will on previous was negative quarter, excluding open annualized our on average was our call our we $XX

comes Go [Operator Kenneth Instructions] RBC from from Kenneth. And ahead, Lee Capital first Market. question our

good been rate swaps, thanks terms in between Hey, taking morning, question. and the and non-mark-to-market extending the into. my Lot the the side financing going for on of you've entering

Just importantly, costs how responsive wondering about you funding if term little rates? the over think these rising trend near how would bit a funding talk to you And given could be all Thanks. could costs changes?

Good that's a question. morning, Ken. is Mohit, This good

further, that enter the hikes, Fed be is additional remarks, our where financing quarters about it going four hedges to quarter obviously, why it we cost end to X%. have quickly three yesterday at and mentioned the from going gone even to for the of were, swaps two rate Fed as XXXX, As expectations And as started the to over last points how basis a was the to post we funds XX started laddering result we Feds the the much protect went to of change round. of rate an where in the expectations opening and magnitude and was into

vast the majority borrowings of floating So, are nature. our rate recourse

rate lock financing index two, a is But finance, is to that we're terms those spread on of the asset, adjustments to So in But spread years finance those into funds assets. these the next looking hedges the Fed of any the will finance spreads on. locked an in costs. ample cash in three with perspective, over the rate from in increase in at still translates there

to bigger That's rate more for the as concern benchmark spread. opposed the it's us. a So

home resi realizing But about -- And seasoned. on if up, are of you. there. appreciate RPLs one one the helpful and talk impact I the valuations. a appreciate of Got potential the Thanks. may loan of non-agency follow terms in residential the discussion housing Very and potential price declines much just valuations slowing things the that market is very or

Sure.

is portfolio big the XX%. us vast our the was So, on that and portfolio seasoning LTV differentiator origination has the the loan for

assume pretty XXXX, of you the So coupled years was portfolio amortization, strong been if of to natural that HPA. XX originated prior there's XX% with some

think adjusted LTV adjusted HPI we or portfolio updated on is So to XX%. closer amortized the the

you a from So $XXX. payment if And the is from gives that the $XXX,XXX, a in a loan balance lot that the look that if to rate to a $XXX adjustment And average mortgage compare you credit just of the mortgage, now, for at be payment month. equity you would play performance start with. standpoint, change $XXX,XXX monthly of to mortgage mortgage the of year sub

through gone rate have borrowers these So interest events. credit different different cycle

that housing know, to borrowers really you be material going there's alternatives So of given a not have. we change, lack the these think,

again. Thanks helpful there. you. Got Very

Go from Trevor. our next comes question JMP Cranston from And Securities. ahead, Trevor

Hey, the high given acquire your about investment takes could when little of that and in loans the Good between rates has and Can move you risks rates talk morning. guys volatility a spreads, markets how the securitization you big when bit place? period in appetite, time there level the thanks. a impacted just be

our buy one Hey, aggregate that addressed as bulk necessarily and in warehousing calls good we sort size and Like on other bulk ultimately servicing to many production of we've question Trevor. securitize. is Again, them and loans transfer not to to well. a approach

XX-day of basis securitization. of a tournament a to So perspective. from the to at funding a time a sort XX period it committing from trade trade to We look from

points. So we basis the moved have unique year XXX now how five how rates and this moved try year year XXX to and moved adjusting has in QX, have rates given much to basis we two exposure the spreads XX year points, basis been XXish limit quickly moved points the

as environment market. issuance top risk, use So, mentioned. it possible. new and of the made just we challenging in of that it bit on turnaround again, that amount a warehousing I as the But quick the take But issue do much

update, $XXX And it. post quarter got million you Okay, mentioned then the in of loans. the

call that you I non-mark-to-market you were that is? why placed securitization? that used going exactly term long into think what explain utilizing to you structure. a they And person's be Can are to

like the acquire so just have that Sure, tenure issued five-year also which as will the question, financing you market and be new on mentioned basis, via prior similar loans, securitization. a in you I challenges these have to upon non-mark-to-market just we would touched a the currently, arrangement, achieving within given we a get where rate locked advanced

So to better we a outcome thought company. this was for produce the returns better

Okay. that look in And doesn't available near be, term, market that attractive? issue something you our as necessarily more could structures new think like the

will the basis. returns could Yes, I given And on is go commonplace. structures issue forward we mean, these challenges, again, think, and the I if new a front, the more become out market the securitization -- balance market sort that when facing of on

Can thing. quarter book value today? provide last an And it. got you on Okay, update

moved the quarter, two to about points of down by various are of time quarter ended. end sort the quarters I suspect And rates book X% curve. again, across quarters. been XX value it's like wider. vastly the have basis X% presented it, end. Spreads had to would marginally between be since parallel we've the I question different each five mean, Sure. this last we've Since

you. Thank Okay.

And Instructions] George from [Operator Go our comes next from Bose KBW. question ahead.

in you away on for loan your of Smith any Wondering uptick if kind you Bose. rates? then, an partners us have loan the facing given just acquisition for you any many level of kind kind and is, of Mike remind of provide volatility? just the issues, actually your overall it's a pipeline origination follow stepped guys, And Hey, doors of in have? then space? shutting question moving as up, partners if how are update origination given you. first asset Thank can And the solvency the or My can on competition

Mike. Sure,

As problem. far as sourcing not assets, a it's

billion sort the and year, obviously, loans, to lot also defensive, a of adding the required leverage think, those five securitizations accretive been trying of transactions. start Since we've done I maintain to fund while low as we've of we $X.X we've highlighted, assets. of

securitization a or bid for term and We economic We agreement of to perspective what are with anybody an is, loans. sources find the where loans don't exit full other we buy, most to going the long financing to those the company. can where have sense from for we makes ROE

on with of no assets. basis, commitment So terms again, any sourcing originators flow in have we particular a any

We have, we to that choose collateral sort and everybody of and our pick like. the at beck call

hopefully your So answers that question.

more. And stock kind Can are position? new balancing back levered the then little Thank just talk investments? strong on about maybe about bit you. on a thinking that's you of, where then liquidity offense one you're maintaining ROEs helpful. and And buying act going Yes, a between how

Sure, ROE on returns the to investment. QX, in settle that are mentioned, we double we digit the so here let question. on me the mentioned $XXX loans start with million, looking that And as

think vast produce higher pretty the pretty beating going a disciplined ecosystem I of maintain and returns. attractive, still, backdrop approach deploying of rates, majority inflation, given being Fed the active, the capital. can mortgage to But levered we're

liquidity is biggest I think focus maintaining here. the

XXX the throughout at We're done have leverage for capital. the be sort But plenty see should some investments accretive there of deploy how least in to in mid-teens, rates aggregate, turns on X.X recourse have points now, stands opportunities of at look. year, the as deploying the we returns across the now. the attractive we us And to same X.X justice be capital, of given want it at we But and started year to to moved leverage. curve. XXX with tune we of time, basis the As

questions. lot a thanks Great, taking the for

like to management further to this now no appear to I for closing any it time. be over turn At questions. remarks. would there And

everyone operator. our look joining you, And on Thank you call thank today. speaking to next We to you us forward for year.

today's you, participation. your thank does conference. for you Thank conclude We this

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