Chimera Investment (CIM) 2 Nov 232023 Q3 Earnings call transcript

Greetings. Welcome to the Chimera Investment Corporation Third Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Victor Falvo, Head of Capital Markets. Thank you.

You may begin.

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 may measures. measures. also our GAAP financial filings earnings comparable the most call

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

Quarter Third Investment Earnings Good welcome to morning, and the Call Chimera for XXXX Corporation.

has the to remarks, After and Board November recently veteran-owned to results, Co-CIO; are to and Securities, Markets. Chimera Falvo, review X joined members investment effective Joining open Co-CIO; me we'll Vic Financial Capital the on elected President, XX. Dan start will questions. I'd Officer our the our my our Mills Thakkar, by call Susan Head Academy then the call welcoming Directors She a like and Subra Choudhary for Chief bank. of team. Chief Operating new been Yarlagadda, Officer; Viswanathan, our Subra our financial of

experience Officer. XX over experience part counsel the and joining in as President, wealth Senior management residential equity and excited Before Citibank, has last Chief years and spent spent she market, X-plus our Chief of Sung mortgage Biddle and both has of brings mortgages. as years her the excited She a that, to the to positions held Secretary us join various of the years as She listed in-house. Legal Properties American XX We're Vice Stock team. Also, related Legal York her expertise legal we're Urstadt week and of Exchange a Inc., businesses Officer very to have as Miyun REIT. where external she next team. New She senior at residential North have is

on reached per the portfolio. our the to X.XX%. The value mid-October. management. portfolio to continue however, $X.XX the quarter. We conditions, saw relatively cautious the and investment of quarter which during income or rate projected basis market from Fed During market we basis end Considering of the quarter the the on its yield liquidity paused resulting the higher reduce GAAP We the Reserve unchanged did July, points. X.X%. by XX to XXXX quarter, third These XX over they our by rate continued increase hikes after yield remain a mostly curve meeting, our left long $X.XX, half increased funds basis end rates the drop points. of moderately briefly up course And back expected, The September In and sidelines, rate higher X% and XX-year XX decrease the of while in rate the cuts to treasury book on XX-year reduced have climb points caused the quarter-over-quarter the volatility Fed the fixed target Federal at their value its interest focus and in experienced increased as liability both share rates. did,

refinanced we added rate high new we quarter, fixed quarter, X-year limited a And post facility. non-mark-to-market repo mark-to-market This X into new a facility counterparties.

XX facility us expense are save $XX We expect next the planning high. over the to our in interest XXXX, and approximately remain for outlook? million is fourth rates Looking months. What we quarter will into this ahead to

it moderated The While And appears X% its much higher the nearing has Fed target. since market remains support inflation last than Fed's labor remains another to end data year, recent the it rate the of cycle, hiking strong. is although hike. appears U.S.

quarter spending increased increased expected September. GDP consumer nearly X%, more and to Third than in

pushing with we the and concerns Fed rate helped economy push long-term Fed effectively rates Japan have engaged the and which helped driven the supply remaining and and the push about rates, -- the supply the imbalances, quick cost, funds excuse participation imbalances, interest tightening, quantitative which and relatively and me, have longer. treasury rate and auctions addition long-term believe associated of several strength in to have demand In elevated of for by by we created factors, China cuts. Also, XXXX, growth higher long-term of escalation note the coupled deficit out the Fed in including federal

In yields government the home the East of there on the fact, financial for rising sales the slowest crisis, constrained of housing a mortgage prices, a data-driven sustained and inventory of exasperate headwinds the risk in rates the Middle markets. the the volatility treasury escalation affordability pace trifecta X% further is out. since be perpetuating volatility, can housing shutdown year an cannot in in capital XX-year Home are from have elevated that created war ruled and crisis. Apart also move great high above the

for manage strategy? be our the longer. short business that both So what's term, will continue We our long rates, interest with to belief higher and

to of the first financing such derivatives more XXXX, and by strengthening our financing, million. than reduced focus soften utilize obtain mark-to-market have and X recourse seek frequently on non or limited help with Our rates. Through terms we associated To risks we longer-dated balance reduce liabilities. various our as futures contracts initiatives maturities, swaptions our financial these managing during sheet months rising and impact $XXX of the recourse remains

financing. financing outstanding We of limited have mark-to-market non or on recourse our XX%

roughly swaptions, company rate the a our financings And have of continue of the rate with beginning our environment, quarter of X.XX%. option or floating X.XX% $X to assets average give half second $X.X We rate weighted X higher a for to Even rate XXXX. pay fixed which swap billion the billion perform in year in of have this we hedged in well.

well re-performing economic low of billion conditions. $XX which Our Most a interest original unique. range our quarter-over-quarter believe relatively average of unchanged. Credit approximately our our than an has expect expectations. better portfolio perform securitizations income portfolio and our by year-over-year We XX we with LTVs performance is been is on are and to seasoning loans of will over of continue years, backed investment

Our future be rates, take when continue on and to depending we delever. And out cash securitizations will terminate interest able appropriate. to

optimize intend we seek In on liability addition and we opportunities to assets that acquire returns will our and and portfolio, management our investment focusing liquidity. will to liquidity, to improve

reduced liquidity better prudent challenging, about to that believe best of a the we over we it in investment next for the are year. reset end the remain dividend our earn have long in we market environment this and conditions our optimistic our and future. consistent improve ourselves level term with what We dividend. Today's of macroeconomic opportunities, position to Finally, but is interest to the expect shareholders our to through

its generation in continues credit. performance, strong income and both Our portfolio

will callable we continue that believe in in decrease, our term. I'll improve. shareholders which performance XXXX. taking XXXX X financial to to economic long over deals we're significantly We another Chimera's with steps will turn callable the results. over prudent review call our We believe benefit financing Our and securitizations in XX deliver the expect costs X as our XXXX, become another Subra now to

earnings or distribution share. economic on return financial quarterly $XX.X was the year-to-date, for economic income since was Chimera's XXXX. zero highlights per net X.X% of quarter dividend for an On you, third our based available the per negative net common book share. GAAP book million value $X.XX common the for approximately And will per per value the in on per our third was year-end end share. GAAP first months quarters quarter for loss $XX and Thank the based third was share. I $X.XX change of diluted the basis, the $X.XX in on value quarter or review dividends GAAP million quarter X and third in the X at and percent book the book Phil. value third change quarter share, return common

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

on quarter the quarter assets X.X%, interest-earning quarter, cost average was our X.X%, was while the leverage for was For funds the the recourse interest our X.X%. Total X:X. yield spread ended was X.X:X, at of average third and leverage third

position repo fixed liabilities. mark-to-market for $X.X X.XX% pay X.XX% hedge at And year quarter pay our for a rate the liquidity, company an XXXX $X.X assets liabilities. had unencumbered or $X.X of as average fixed had million billion as and billion rate $X floating non interest for either outstanding at repo end. we swap at to hedge features We second our rate financing a billion the rate liabilities. arrangements. had and of exposure on swaptions on a position outstanding our quarter billion total had cash in of For had limited of We beginning We X $XXX

second on was our were our GAAP excluding million, XX.X%, quarter, servicing XXXX on third our the expenses, return was return X.X%. the economic fees interest than our $XX.X modestly average For quarter lastly, and income and And concludes remarks. transaction equity net expenses, equity lower quarter. That

call for the open now will questions. We

of Stephen Raymond first Laws Our Instructions] [Operator come line James. with the from questions

Phil, kind for you your you seems And think your How cautious, of pretty you do liquidity I returns position, about you wanted else you deploy about do the -- to some offensively? capital see where something remain said sidelines. the or happy defensive. you follow in where you on are kind think Can of you remarks prepared stock to about on decide on -- more look -- up new stack? which with of do possibly your repurchases I just if capital investments current mostly talk appetite

question. the for thanks Stephen,

do common factors. then. And or priorities, repurchases, variety probably we we under it's So makes up us, near are extent now our If stock that the at that preferred, think looking to and over that's with liquidity And a we term -- we near some in the and for are our of about term, of as going higher opportunities Dan. at deploy we're right we liquidity shore opportunities investment I happy where But the least the the third we're think at the whether position. we seeing look be we first. those look think for come to But to rates in have for now we think right those look liquidity to more turn option opportunities. are I'm to of going us. We're liquidity kind and at being look sense. longer, now, to We going there liquidity investment to think would

Sure.

Dan this So Thakkar. is

non-QM in those of BPLs non-QM, So be mid-teens the think allocations the to between third primary gross high securitization deals source originated newly the to AAAs will we able opportunities, quarter. We're especially as economics high stable, especially WAC we as securitizations. terms the targeting said, capital around returns loans far concerned, Prime the in in space to XXXs the on in the X.X%. That versus with that. are recent the out it's the are extent coupons is point in that Jumbo will pretty I pricing DSCRs, the with mid-hundreds and

RMBS. the So non-QM Agency there. cautious we on AAA the there seen have in so the ARB, very has Obviously, deteriorate any are widened that more with will widening underperformance the sympathy we

at really are in. it is that the kind point, deteriorate environment your answers we macro but question. hope So compelling and in I stable it of quickly this can

helpful thing. verify color. the just That's to And I comments. wanted one appreciate

in a an $X.XX $XX A facility. somewhere? that mentioned to higher there Is million savings you right? benefit cost think annually? to of is interest there the that expense refinance I Or $X.XX offset from

federal as in based I that's year, our our particular to aware, from law to on the information we early the next of of current we the applicability going preferreds expect but fixed number that's to yes. happen part think to say, what's reset least things. going are mean X to the expect float, those of of I probably you're at

primarily about And as positive what this, I offset our happen we that believe stock. by us, preferred for you to -- so it think has to be been really expect but financing refinancing to we is think very this going

Cranston Securities. line come of questions with the next JMP Our Trevor from

increase bulk you Can the from about you're in regulatory coming banking loan to out seeing get if are material what the and ahead changes? a particularly market, talk of banks looking sector, guys supply you seeing in from

Yes.

to wait now, term facility end. We I from not think that right that we're bulk, seeing got much. for the to

really been focusing area it's been right so that on And this the an given situation. not current we've --

you to it. change of Okay. terms a into Got moving loan limited elaborate a that cost guys? opportunities And the bit alternative the of little comment can that kind in if there are facility to from And of point. of you any you in terms what on mark-to-market, you on the a refinance non-mark-to-market protection other refinanced maybe the facilities think also facility are on sort this for at your lower of then further

Yes.

year. a sense facility this do us desire it terms for It to longer-term significant for were So where in given find our refinance us facility the And to we refinance of that a now. it. us was was makes after a allowed to able that ability financing, to

will detail some the through terms, mark-to-market with we the that think our were some on this savings where will the I was think significantly it a is limited statements that. But we're cap rate, where and below a is more particular have quarter it since from go next of post come since we'll we end, in it's on just financing.

as refinancing normally. to what far call, We're That coming be I early facility. will opportunities, able the opportunity the market functioning been that in in would right roll really next, As XXXX. has other high-cost now,

George questions of next from come Bose Our the line KBW. with

to Actually, returns, when of rates ROE? the And how money what's think on existing work? is remain think we putting kind of talking does if remain fund maturities And it, just that about the about I ROE you're on But the about. guess to portfolio, when -- roll the part into essentially stable, long I incremental new to the stable. new been rates kind of you've this returns cost guess, if the

Thank So you Subra. the your current for portfolio question. -- is this

my XX.X%. in -- current about is or economic current remarks, our the portfolio I returns the net mentioned economic So on prepared that ROE --

this we for comp have the where potentially administrative higher and to is Now yielding costs environment. that's that excluding other other are what are. expenses excluding right? assets us, and and buy That's is on or what hedge seeing, going which that rate So Obviously, we you if are grow. is today, XX.X% G&A XX.X% we than high

in of ROE, of the a ways basis to of to trying rates time? of this Okay. on think a double-digit then more normalized kind getting or -- on Just does restructuring And then the some depend actually, about gets coming that sort terms to over just really ROE. net down it liabilities to a

is again. this Phil Sure, Yes.

as month really next mentioned, we one the facility were to So of high XXXX. not so cost I first is we one able had the that or refinance, until and

in think I come we've done going rest moderation. from chunk costs, the is of So it already. high financing of to that The rate a really restructuring abilities terms of some

come the BTIG. Eric from next line questions with of Hagen

your going on being based I what's did liquidity was of Sorry way if CPR? just a incremental just natural quarterly you what current just liquidity, through to And like I paydowns, that's mean kind generated monthly but basis guys the think or then book about October? this, say to the right on missed the value back

is Phil. This

value the the turn quarter, since going I'm book Dan that to over the of On Thakkar. to end

Yes.

X%. in we deck the think to that we being Fed, we roughly post last X%. down given I the rates had investor X% released versus strong to night, So we are in the stated rally But down had that closer market the

think I that then paydowns. And to you correct? asked Is relative

about liquidity through being natural Right. that's Yes, a of way incrementally just to think of paydowns. kind just sort generated

is of paydowns of I the helpful I kind hope that's around So where you. in the now, right are X CPR running think portfolio to coming. terms

really call here? value just And optionality sensitive that you to the existing see have portfolio? of the kind forward interest you resecuritize we going how about option being how and rates are Okay. then to And thinking

Yes.

in on So it you would have it's sensitive size when the terms -- it Obviously, you that of makes of the decline, transaction the to more interest size rates. senior, depends economic. of rates as also paid transactions the refinance It down, it. how the

all look factors. at you those So

just be And to those right better the going as so CPR in out, accretive. the now, more up, longer then picks this it's And the stay obviously, environment.

optionality rates more cautious in and going to this have of we and So terms the look in term. we're but But begin at moderate, to this -- we it's valuable, be as start closely. we'll to think very near now, more

Thank you.

I of now We question-and-answer have reached the like comments. session. end back would our Kardis turn the for floor to any to Phil closing over

call Thanks, speaking to everyone, related XXXX. for our in participating earnings quarter in year February our to fiscal to call, with we look and forward third you

This does participation. conclude appreciate teleconference. today's We your

rest this disconnect may time. You day. your of lines Enjoy the at your