Chimera Investment (CIM) 7 Aug 242024 Q2 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the Chimera Investment Corporation Second Quarter Earnings Call.

Our host for today's call is Victor Falvo. [Operator Instructions]. I would like to now turn the call over to your host. Mr. begin. may you Falvo,

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

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

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

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

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

I Officer, Kardis. will our over conference Phil Chief and now the President turn Executive to

Quarter morning, Chimera Good to Corporation's Earnings Investment welcome Call. Second and XXXX

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

accomplished by first. period I a end Throughout would of we the of July, headwinds, quarter, what we have some the experienced but call

first agency inaugural investment-grade pandemic. the debt unsecured We investment This an since rating received made our before quarter, debt. we first completed and successfully on large the our offering

and our pool XXXX. of RPLs meaningful and end the We agency securitization us a We sponsored liquidity. at since first this have with a of of committed to RPL purchase May long provides history and July, income investments,

higher March since continue first to indicate second we and that Federal have still the quarter. we desired would may was Long-term emerged rate. XXXX. not X dividend than noted for Reserve's peaked Inflation that the And main the volatility. time for increased a raised shareholders, experience economy. our rates interest began importantly themes Last interest most strong the quarter, Economic rates we data as

over June. X.X% starting was market by back quarter Looking the volatility by with dropping substantial, X.X% treasury quarter, and back April rising X.X%, end XX-year to of to late the yield at the

The that remained inflation beginning second preferred But The was quarter indicating now significantly continued with direction the to trending cool, inflation there and economy expectations, have to beat labor interest measure rising weaken. strong. the the to Fed's economy X.X% the weaker signs the heading market that and GDP were may right to in to in remain be we long-term over peaked while rates rates term, appear economic us believe inflation economy environment. that the more towards June, a normalized leading perhaps expect near volatile and is

if press inflation suggested slow Fed the Chairperson September cut table be on that at as week, could a constant continues conference, its And held Last rates Powell the expected. interest to down.

X.X% unemployment decisions his After Fed week and of balance number in released comments, also high. the as he data payroll the meeting X-year ticked would last emphasized weaker rate that of up based and almost make much the totality the risks. expected meeting than However, nonfarm on by came to

going Fed data, is rates a a around month on only likely that in XX-year September. to is darked of the and yield is it single the interest cut looking increasingly to While X.X%, it's treasury

We has home more occurred several for average loan an estimate been buildup, of through of with portfolio The our over average consolidate balance housing the years LTV amortization the XX%. which and equity moderate is that in loan years, The pace. sheet we current resilient. of rise, XXX,XXX weighted market America portfolio be has over overall portfolio. $XXX,XXX. our to though continued loans our and a XX loan balance remains to approximately across have last beneficial on prices National The our home at HPA

Despite the X% higher intra-quarter These issued the notes. X was unsecured over mature callable in our interest increase. and we from May, And for rates quarter, yield the raised and period. part volatility, $X.XX, $XX a flat on our X% million whole dividend after years are May or relatively in XX, In will quarter value at senior book this to notes company's or option in we XXXX. of $X.XX

Egan-Jones, a received company the from recognized offering, statistical BBB rating nationally investment-grade the a After rating organization.

issue debt provide mortgage us further our to long-term credit financing ability capital unsecured diversify and for portfolio. our to helps Our structure

we securities. immediately until The million purchase We into proceeds kept on we income proceeds agency it to non-agency in generate returns. low $XXX and million the the In purchased raise meant this on to debt of subordinate we senior loans guaranteed investment. expect were eventually mid-teen the the provide double-digit liquidity securities, expect our SLST low we low to and investment leverage floaters, from CMO a Floaters. agencies, Agency to $XX of recourse This or also deployed generate and approximately of deploy is generate returns

purchased XX double-digit their investments made an discount basis. high-yield bonds expect value, on made low XX.X% of of to purchased subordinate $XX we an on new purchases par the of well. Throughout coupon we non-agency and with bonds the an we credit million as average quarter, generate million in unlevered basis. Combined a at quarter, unlevered subordinate returns a the first total to with We

balance investors. certain with balance Securities and reperforming the XXXX-RX, July retained cleanup securitization we -- a placement of XX% committed a in an securities in million. to a notes principal securitization. quarter, call. $XXX $XXX capital The loans structure. was structured issued deal the of private approximately with We senior an XX% that sold aggregate And approximately with institutional represented an subordinate securities of had interest-only These principal lastly, were aggregate approximately rated CIM by to settled simultaneously purchase million to this in

weighted coupon Our this average $XXX,XXX, and months is debt of X.X% we're The of cost average on X.X%. a of the the securitization a average and securitization for loan XX seasoned loans size weighted for average. had

XXXX-RX, continue to resecuritizations on company's further implement securitize market optimization volatility. on impacted expect by loans as to factors, is timing we credit well the rates and our acquire call Following these interest strategy mortgage as including speeds, CIM The of and many performance, prepayment securitizations.

on managing As maintaining with conditions, balance the recourse the leverage both securities. and we're current of our we focused navigate unencumbered low cash and liquidity proper market

within continuing perform mortgage quarter, investment the to better in continued the of to credit our original on or default than rates portfolio be credit and with performance delinquencies, expectations well our Our portfolio recoveries.

and generation able been markets to raise the to securitizing opportunities income to we've able were RMBS We as summary, we to Agency liquidity. loans to and securitize And acquire capital assets. and able restart look for our acquire accretive additional dividend. continue providing We we'll for In as for started access loans. buying were well and finally,

pleased performance about for year, half with our are the the optimistic of and first We our we future. remain

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

for will second the quarter per per book Thank review was $XX.XX the value Chimera's income XXXX. for the highlights net share. $X.XX GAAP of of you, share. or $XX.X financial second at GAAP million end second I quarter was quarter Phil.

value value the change return For economic quarter, common economic on was book book per in the return dividend second year-to-date the X.X% based on quarterly share. was XXXX, GAAP second on book and And value our our quarter X.X%.

or $XX.X $X.XX million net available distribution income quarter On for per basis, an was second for earnings share.

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

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

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

ended total liquidity, cash and company $XXX unencumbered the financing and with in the quarter For assets. million

mature last May. For pay as we call, fixed mentioned fixed rate pay rate -- hedging, billion on interest swaps the had $X earnings in swaps

swaps liabilities. $X.X This billion company rate. had the entered exercised X.XX% fixed repo outstanding or features swaption of $X.X average We of notional XX% pay-fixed at X.XX% pay recourse notional position at and rate floating contract mark-to-market on quarter, $X for into a swap $XXX a had pay for We repo our secured $XXX our billion X-year fixed on exposure rate non- representing million our outstanding rate interest billion our of rate hedge had funding. We million agreements a either limited floating weighted for a as one liabilities.

contracts. the The prior the position hedge during RX And interest future closed our execution $XXX a securitization. with risk on quarter, company rate securitization was hedged of XXXX treasury million of the settlement to approximately the short RX

XXXX, quarter interest For economic was of equity our the XX.X%. on return income net second

average was return Our GAAP our X.X%, was equity and EAD equity X.X%. average return on on

of objective more similar to broad We outstanding common reverse will investors, has volatility stock reverse of XXX a to the stock Chimera's implemented company companies the the number the attractive share shares split of of market the reducing quarter, stock common which over range of for price potential make a with reduce believe capitalization. time. split a This stock

from transaction of lastly, And and a $XX.X the $X.X fees XX%. XXXX, million, expenses expenses, excluding quarter, were quarter servicing first down for second million reduction

our concludes That remarks.

We will questions. for now open the call

UBS. Doug Your Instructions] first comes Harter [Operator question from with

book in could you give in the value so the given us is third quarter, moves update on an hoping how trending I'm rates? significant far

This this Dan. I'm over turn to is Doug. going to Phil,

Yes.

a recover some approximately although the you see basis Monday, pricing points deal and spreads pretty we markets did price being on chaotic couple as in subs, seen know, XX on in like that wider. to the extent a So days, have of trading to now Based an right been marketed past deals XX have yesterday. we few stack they

the its intermediate say rallied the in as the would XX would around our up have But rates I X%, of caveat book that footing the because we it markets XX speak. I So end. to in still points to part basis that are trying primarily find to is value still quarter of close curve roughly

we have you yesterday different question or very given If this asked a have answer. day before, would would

thank quarter. your be but you you for in additional continuing of understand, issued a And guys Can the update. during of about capital that note how growth? for big access unsecured Dan, for talk capital stack forms appetite to Completely you then, the the part that Phil, can

interest term. about do the dividend, lead as which growing going long growing be best shareholders asset will to the in over think we we the things, So us I base believe our mean, to of is that

and begin think rate, could our we're so in it debt X that will we to looking assets. about think And as at And this size, acquire accretive overall roll we how relative we to it, at did that years.

So keeping X those But structure. capital to piece I factors we think relatively all in to in and think, interesting our it now, years size is the to be, to now, debt to had play. going overall about that do important relative be going an But be it. to our modest, we beginning, cognizant ability we're thinking from because call refinance from add we're or overall X about either its to years

appropriately it what size keeping sized, for. is looking we're So given our

George next question KBW. comes Bose Your with from

Actually, the exposure think I got, I wanted to repo ask cutting guess, Fed's not best -- piece your about your with hedge You've to rate swaps. as hedge rate the of the exposure, that's rates? EAD what's way

You've that, is of of forward would picture got right? do the of color -- be I your just like curve big feel that sort kind on down. looking the great. get preferreds as will gets a gets double-digit you that I you reprice EAD to mean, that Or at Fed the

Subra. I'm to over going to this turn

question significantly, pay-fixed hedging will rate these right? have billion of both both Look, billion also those, we at and $X.X rate have we rate specifically, think is about liabilities floating on swaps cuts we your and -- impact To $X about X.XX%. The answer EAD of swaps. positively

fall put as below the X.XX%, and to hedges. the that's in this rates to of swaps the we pick sort additional income of So hedges thereon, begin with as right? what up will context that don't the from we additional extent the So liabilities long

In $XXX million preferred, have floating. terms currently of preferreds we are that of

of is XXXX. $XXX continue go piece, to the which rate So in in a There I will believe, that. any benefit which last small reduction million another floating preferreds, will is quarter piece, also

I'm So it's piece. sorry, million sorry, increase little a it's $XXX could $XXX that bit. million,

Okay.

Okay. Great.

to mean Subra. didn't Go interrupt. I Sorry, ahead,

we think gotten I think I we've there -- you're No, was we answered thought looking there if forward... maybe would -- is what -- you

question time book thanks. I answered spreads just to about, mean, way are as a thinking get I Is value. Doug's could happens? is right, rates curve about but prospectively, to over that your down, tighten there think book then stabilize. of Yes. the forward value benefits the if potential that, as kind to you things good again, over sensitivity. your value But book on Switching

and rate down. to be book the of I of settles market that positive it The magnitude spread should think the after thing on is only the we going moves, depending value. to impact it's think can our I say sort a which eventually happen

from James. Stephen with [Operator Instructions] comes Your Raymond Laws next question

Can How free kind you has the of have playing touch you up speeds and amount your on changed the the callable rollover And deals to out? in that additional how and of repayment security to expectation you'll or call quickly resecuritize see rates capital? securitizations? look of

Yes. This Phil. is

where mentioned look and are the the financing there's to to ones We've hurdle as loans debt a about given a X on overall for rate raise now cuts. at prior terms this deals lower at would maybe Fed lot of think performing of on calls X% we've -- we've our potential are the because on factors, those. we there normal we're us looking So in cost also to but do more looked first period, was opportunity an the effective way capital. rate with there those is of we past that feedback in the And NR looked

So will only with we're at rate that of cuts. looking those improve timing the

So it. how we're looking at I think that's

was far play start to we as -- NRs, about are other that going at what And into to a as going to continue first, access X%, those rates able I cutting that they to resecuritizations. improve once monitoring and we our will and the that non well. were be close very are Fed come deals. did thinking in drop, And we're obviously, We to to still as as the given market the economics so are think starts

So hopefully, helpful for that's you.

incremental It much or you far calls capital recent of to kind be the is as you optimize up little quantify mean, down once you capital drill what as to kind could on of of as maybe is. do a of And would resecuritizations kind possible return bit. the free I and deployment? that think it that you how execute any

be we're as really so that at And it's means to where something the quantify material right are on that company. the way. and book is moment. it's about, than me That can do going in it's talked But do But future about thinking going Yes. And it direction. thinking when material these done we it think much point, we the improvement other be about what it, things we've hard company. Dan this the factors, relevers moving depending I do, think past, when even be it's kind at looking really in to value, benefit we of for might it it's a that a to we'll in to when more at. many I specific do the do it to

of moving lot A Sure. assumptions that on Sure. question.

loan what's was as that Is aggressive lowest as portfolio XXXX. low problem at delinquencies it notable. typically see that strength was but thought the I thought performance? Can talk loans. Lastly, season, low -- it in full increased was it I resolutions that I delinquencies, about delinquencies mean you notable that level strong on you are seems since driving

I So comment on that. you could was hoping

Yes.

of about to reverting If think of is it you back pre-pandemic. it, really kind kind

it's reversion up And So kind down little bit the of a in to kind been a it's since of spiked mean post-pandemic. it of a 'XX. trend

kind the through look portfolio. of think our a given way the to we're of back of of maybe the kind reverting now level pandemic, I way worked So kind we're at ceasing it better is pre-pandemic and our to

the Great. morning. appreciate this I comments

Your from Hagen comes next BTIG. Eric question with

rate about Eric. pinpoint Catsicas I moves? it recent more you of Jake would ] a to pickup maybe on rates you expecting of accelerate do Are level see prepayment And a in the is out guys talk activity. think to interest result to what meaningfully. prepayment [ as can you wanted for begin This activity

to meaningfully we mid-double RPL go would to prepayments to, mortgage here, could call has we expect digits. to mid-double to you to from come see digits. So portfolio, I But rates where low that or If look the at to think obviously, from point our low it's meaningfully early X say, too to our go back RPL if CPR down rates ranged I that. close

there At to in closing over I'd call like no are further the Mr. remarks. this questions back queue. any Phil Kardis time, turn for to

call, in results. look with quarter Thanks third our our to participating forward speaking earnings for we you and to

This the concludes Chimera and Corporation Quarter Call. Investment Earnings for have day. Second rest Thank a attending, wonderful you your of