Chimera Investment (CIM) 15 Feb 232022 Q4 Earnings call transcript

Greetings, and welcome to the Chimera Investment Corporation Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Victor Falvo, Head of Capital Markets. you. Thank ahead. go Please

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

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

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

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

of conference We information the do Additionally, call. this any contain and of accurate not earnings only obligation time-sensitive is undertake that or specifically this date this information. revise update as disclaim content the of to call may

I will CEO, Kardis. our over now conference turn to Phillip the

Chimera XXXX Good to fourth welcome the full year Corporation's morning, and earnings and quarter call. Investment

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

myself. by begin Let briefly introducing me

things, served and Secretary. a Officer. the IPO I a company's joined CEO counsel I its until internalization our Chief Prior to other I in firm Legal in outside Chief was in Officer As until Corporate many of from as company's know, partner law December among I Legal XXXX, the you and, from became that, major was as may XXXX,

I before of to branch a tank, in doctoral law have student to a that Capitol Economics. became firm, a Defense a broad on a may company, from executive experience not I at is know the you XX serving being think a Fortune Analyst What range partner and in a to Hill

structuring carried serving career into in transactions. was financial and my on heavily primarily investment work a over lawyer structuring its company, as where been being experience complex at involved That the very company's involved the aspects well as transactions. all My including business, the as valuation committees I've of structuring in

not regulatory attorney. the my a rather attorney. I'm is or I'm result of not CEO litigation a not any issue a litigation experience. and strategic regulatory driven the appointment at transactional by as My but company,

the note and Chief that, the our I of where critical portfolio. strategic return and long-term Investment CIO have I our keenly these Separating on to am roles our success. the our let while focus Also, us and roles focused past, to Officer. as vision, staying investment experience, CEO not were opportunities the view will We better on enable separate me transactional to while

of the highlights quarter year. Now, before fourth the let me of vision, turning and our hit to the

especially benchmark its was of Fed the to to a rate you from us, X.X%, zero around challenging range XXXX know, by during peaked and four X.X% As inflation last Headline raised year-end. for near months. the X.XX%

late purchased familiar we for second being asset. as wife value first, behind an just a at XXXXs, and our to the to late happy the home with more but in understood catch inflation As have and because XXXXs falling enough rushing XXXXs, X.X% history around the of I home old out we an even were rate we of taken qualify the remember first had and the that economic Fed expensive a student I the to when and lived rank. through my up

onetime year-end available was the for average earnings to impact to about recourse We fourth us saw for distribution year familiar, CEO the million and X.X% on our declined quarter, the story $XXX cost those prior to borrowing our due our $X.XX fixed the non-mark-to-market by year. for saw interest expected. to for impact our primarily $X.XX increased severance to only about weighted the company was Not compared the of enhance liquidity, for on hit We assets. X.X% into but rates entered we the rate while financing a a and increasing for former protecting to from

events, two those for been EAD our quarter the approximately $X.XX. Excluding would have

action non-mark-to-market by several the for decided the looked prudent of believe half would that Fed and long-term latter the we the extending into where begin they into cutting. our we year, the longer and the point future to beyond, more We XXXX of and During were comfortable be and higher facilities. take financing that to statements would entered of felt we some done Fed a the going raising

shareholders and first of home. rates. in protecting but our of that at than interest long-term, reduces the our building were retained with to is, up financing, up protect which Such are securitizations, margin purposes. the other we equity best expensive in financing hedges we And expense of our it as more Also, with for such financing significant know course, short-term for our I against even my subordinate frees higher is, our calls, need wife bonds cash

during fourth many there quarter. the But positives were

financings, loans In and is rate acquired addition financing term approximately which fixed million long-term lengthening to facility, the into of a non-mark-to-market. effectively jumbo $XXX prime of we our

loan by $X.XX returns at Also, are CIM end the book XXXX-NRX share accretive value fourth per the the securitization. million our $XXX increased quarter. to the exposure this investment of sponsoring believe by on our shareholders. able common were our to approximately We mortgage reduce We to mark-to-market

were equity. recourse two good approximately continued The our reducing news releasing January, of securitizations, terminated securitizations and million the by and and million four issued securitization access we as during new able $XX borrowing $XXX to approximately market in

returns million are with cash. investments our loans, $XXX million purchase to accretive loans purpose of able reperforming and into $XXX which approximately on we believe these settle purchase to were to to also in shareholders. and committed January also business ended intend We the additional We securitizations

Finally, so far purchase to again, accretive non-QM to shareholders. be loans, million of have committed our will February, in we approximately believe which, we $XXX

So to adjusted mortgage is believe continues We for Our have $XXX strong. deliver attractive sheet where we double-digit shareholders mission to here? REIT. credit million on our balance do our to generate assets simple, very being are risk approximately non-Agency best-in-class portfolio. that of go yields our RMBS returns We still from by the legacy our

serve consistent The our largest billion of cornerstone loans purchase held very are is loan regarding the reperforming business. component and RPLs of we mortgage loans. metrics value histories. seasoned $XX.X including for credit our portfolio improving loans, fair of had of As prepayment to had year-end, both These approximately since performance loans demonstrated investment. These and as

Over delever We shareholders be capital debt dividends. into as a equity. equity have We to distributions to and opportunities provided have of these can either to amongst uses source years. new for extract for significant peers ability view from successfully and Chimera release key securitizations assets, securitized the deployment. historically for this of resecuritized Chimera throughout time, these redeployment its this a retirement through loans or differentiator and our investments Chimera for equity

expect past interesting RPLs, diversify opportunities on see All few RPLs BPLs mortgages. has continue we and purchases. jumbo our been to to and during in years non-QM, loan our prime accretive to continue the We focus

REITs equity historically Since RMBS robust our CMBS. these support where we over to addition, the and we can't Agency find to time, returns ourselves and periods portfolios We to credit during liquidity In are the had rebuild raise portfolio. credit for assets not on earnings, attractive. often have of the returns portfolios able intend both Agency for retain

challenging capital. a can see for Agency credit use We these periods. opportunities Likewise, now, our credit raise of more portfolios way the support portfolios they assets in financing and Agency liquidity are We to to increased when credit attractive or our us grow when out our as during the to challenged as are markets. purchase attractive balance can these assets it to be

hedging investment portfolios and generate appropriate While business, will credit to to both support these these our our in income support current maintain value will core portfolios and manage the leverage our to with and assets. dividend we book

us. new for is We until not from the it used pandemic. a internalization successfully This strategy

our on the depending $X portfolio ranged a Agency from our about invest to combined $XX -- to CMBS than a billion low period, credit of billion, RMBS more opportunities that assets. and high During in of slightly

dark X%, if for Journal fourth sector Street article, payrolls. our take XX% positives clouds. to Now, of Getting we do trends. According so some service hospitality down a think to to we possible, believe is healthcare, XXXX account presents private positive recent challenges. in Nevertheless, January some inflation and We the Wall industries, are all time. see also still there saw lot and of going

XX% information accounted token, months, sector approximately in same remain labor accounts industries strong. These and service the these six By demand the only past of all teach-heavy for gains industries job sector have the private X%. over the for

Accordingly, for we it financing to from liquidity on with positioned cloud, eye that handle outcome. keeping says to of believe rates And the will Fed respect also higher volatility roll and believe We're ourselves longer. go debt second our dates our when the we We're have cloud. we arising ceiling this mindful shenanigans.

to positions, our Iran the and impact handle variety a unknown in future. we Despite long-term turmoil is of our of of scenarios. is geopolitical are particular. Korea there known such believe North we I hedging The these about positioned between China, optimistic But am Finally, cash Russia, turmoil, and stress unknown. clouds, financing,

a great outstanding team, have We a assets vision. clear and

detailed turn I overview would Subra to more give like now financial to a our of results. to

highlights of will share. economic GAAP per $X.XX value and value based the financial share, I on Thank fourth for XXXX. value per change was book quarter at Phil. in and review you, dividend and fourth GAAP common end quarter the quarterly the quarter on year the return Chimera's book book our fourth X.X% the was full

Our was the XX.X%. negative economic return full for year

and per quarter million loss severance per was share distribution $XXX net diluted of $X.XX for million of an diluted related available expense earnings income or share. net income for fourth On former to for our GAAP the a $X.XX full $XX common net in $X.XX GAAP the the basis, the was CEO. excluding quarter or year And common one-time share. after $X.XX per separation approximately per fourth share

year, full $XXX for the million or distribution, for And per $X.XX share. available was earnings

and quarter $XXX interest fourth net full for for the million $XX year. economic Our million was the income

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

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

return return fees from transaction and For net expenses, full on was equity average year, and year up modestly lastly, economic was excluding $XX And interest were negative equity XX.X%, servicing previous on our our XX.X%. our expenses, the GAAP year. XXXX the million,

That concludes our remarks.

for questions. call the open We now will

and Thank the Ladies open of Instructions] is coming go first ahead. The questions. is now Bose you. [Operator question Please gentlemen, from floor George for KBW.

is guys. Mike for Bose. Smyth Hey This actually on

that Agency you intend the portfolios. So, CMBS you and MBS rebuild mentioned to

do you then Just wondering percentage envision this how what's getting getting kind And big for the timeline capital? as of there? of a

We'll a in assets. we'll is isn't value, Phil. start depending There for moving for specific market of And kind question. Thanks time this both. Hi, those relative the the at the opportunities line. on look into

going size, or actual the looking see what this but of to I effective and the is of kind possible the on portfolio space future a at minimum is investments. to we our think size minimum credit As which of where will a efficient, to the terms portfolio be of of we'll be depend size be in we size think in

XX% going XX%. in So, pay time. not a at holistically We're going to to it to look a or at get we're to more

it loan are loans the was then and holding those of of And balance I wondering, the the securitize purchases, to the you able Thanks. repo? loans purchase and same of sheet funding avoid Great. time it on to roughly kind kind at risk on with

intent our end on for into that is settle -- be there. of these a but case intent we right timing the is could when warehousing because That up we week that It correct. so, securitization. to purchase them the That's we or

maybe And more. just then one Great.

on accretive. be does what assume of pieces? walk Can the the leverage? And You does retained just kind through kind any assume noted of expected And it ROE? that terms of you would the leverage purchases what's repo structural in this

on that Yes. it's mid-teens we're retained talking and something the the include about returns, -- We pieces. leverage in for would think

Great. lot questions. taking the Thanks a for

bet. You

question The of JMP go Cranston is from Thank next Trevor Please you. Securities. ahead. coming

Good Hey thanks. morning.

much how you types forward. where so of see BPL, talk going the terms more You guys of and supply the beyond think talked in about Thanks. broadening you about opportunity get out that non-QM traditional just those a can investments? purchases to you're loan the you can bigger Between on returns new as loans RPLs for categories we example, making the of of be available is and you go

really we and for can short opportunities we times, are challenging that always looking good, At BPLs. We size, but first, returns Well, very it think to there. the the in like we're be acquire like duration.

non-QM, And so something the we it's -- played but haven't traditionally in in. that

that basis. in investor be of of finding more terms way, in the -- our now like category, opportunities of And But to some attractive. on that loans forms are be and think we'll we a go-forward buying we're and we're coming

trend maybe And on downwards excluding dividend. earnings, stuff, still cost thinking the onetime that metric when just setting any funds the you fourth quarter guys the you you are Thanks. the seems about I trended dividend? into and as it. that a guys increased. Board talk fourth question got EAD just the maybe -- have Okay, account takes given then about of to beyond the Can it has considerations dividend other the how mean, are so

for Sure. aspects, one Thanks. EAD but And foolproof. of not the good it's measure the certain only It's at metric. not metrics. times, a XXX% is

some factors, Board captured think looks portfolio not the the at cash generating, total metric. a is EAD including I variety that the which of in just So is the of

as that equity we We also mind, mentioned, securitizations. in in I our bear have

may needs And to so the depending time and on that are, what from timing our we time. tap

-- we all Board or into So about dividend. those think go thinks have the it we the when factors about when

EAD portfolio moment. were with they comfortable the where where at at quarter first given is, -- were dividend the despite declaring they is so the XXXX And present

comments. Thank Appreciate the Okay. you.

Sure. No problem.

[Operator Lee ahead. next is Please coming Cooperman Family go Instructions] question The from of Omega Office.

make very observation. an much. just Thank you I'll

hedged You student Why of going interest a not said now? were earlier weren't history student you rates than Any know up. you're history. of would

have that, have in a in hindsight, to change do with mean mean, though, longer We do a where have basis. our going. I We leadership. of and is have term we're -- done. had financing. should go-forward right I company relooking That versus we a something hedging now the strategy that on vision a respect a we're structure

of is am it student history. focusing where that so are. And we what to I past, our is that's and fixing we're on a But in be and forward. frank, moving

right. All

generate around, way to return and was that company you asked, for but was to was book it value. the equity on So previously of you question a reasonable talked on our want the run $X.XX a us

It's return, really range. our XX%-ish dividend XX%,

would Well, XX% return a a imply that on equity wouldn't do it. XX% $X.XX return cut. on be equity would dividend

currently stock. capital dividend is This expect the Historically, that's on and expected and we we investments where our on -- are the dividend around where Subra. stock see to where as to has been dividends from return XX%, the our yielding, be to that's our be the to yields XX%

income, which So what are determines on the dividend. you the saying distributable equity will then? Return determine

XX%? you're So be that return equity should the to on XX% saying

Yeah.

Right.

kind the is we might do that that shareholders should XX dividend iffy chance there's our the dividend assume the reduced a likely dividend imply think at next maintained? would in or months, the That good of you level, be Okay. is this

No.

feel that feel terms I predict portfolio markets we think, right potential in It's of future now, $X.XX cash and But the the new where in we where dark about. where clouds investments off good dividend. is, dividend now, we that of to is terms we're and throwing right hard making. the the our talked about

Thank capital you. you run plenty business. to given assume, the sheet, And I have the balance of

You additional capital. don't need new

going and raised that's shy to just that But if business straight, to as the capital of run investment currently mentioned in raising of from to plenty terms rate other constructed. be to as a opportunities, growing money reinvest we're away we money have portfolios at it's us in is we not the appropriate the Yes, assets. for

see a we capital, funds. we away raising to if So won't additional from that return positive shy

Yes. at these Equity, levels? consider you would equity financing

that opportunities the market, we I at the would investment on financing, consider time access the could depending equity yes.

sell to discount book would a value? at you So stock

No, we will say I raise said I that, capital… that. didn't

created Wall NAV. dividend. I'm space. Street buy stock view in would the lot you I'm sell MLP, work asking. me this BDC, you my of Their premium what sell stock, you Because happens what has tell I'm asking. is. you a only to a is, asking. assets, REIT raise let Look, at companies your

buy sell your a assets, raise its you you game stock, You go When dividend. over. to to NAV, you discount

the discount. consider and synergies affairs It's and only idea made merge to buy efficient sense, say smart company generate at mistake. to value either the become and back money a or more discount stock guy the giving to no to is a that the up selling basically, of winding back absolutely stock at we should shareholders to we The of book makes basically

Our stock a has been disaster.

would would in Yes. we the I to massively that. if for disagree book. mean we raise going-in our And what -- accretive, opportunity I it, is. of depends not that with a at pause it's we that's least terms our intent feel mean, I mean, that don't I it but the at second, be position. would reason I consider

Thank you. luck. Good good. Very

Thank you.

At this Kardis I over comments. you. Mr. like the back for Thank to time, floor would turn closing to

frankly, to doing joining I'd the first to It's my been opportunity to so earnings have like call our you, everybody a in speak I to forward future. and to earnings pleasure the for call. Thank thank and look you.

concludes you gentlemen, thank participation. today's your event. Ladies This for and

lines time and day. disconnect off the You the may this your or of at log enjoy your rest webcast