Chimera Investment (CIM) 6 Nov 242024 Q3 Earnings call transcript

Greetings, and welcome to the Chimera Investment Corporation Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Victor Falvo, Head of Capital Markets. Thank you.

You may begin.

Thank you, operator, and thank you, everyone, for participating in Chimera's Third Quarter 2024 Earnings Conference Call.

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

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

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

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

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

morning, Vic. Chimera Quarter Third Corporation's to Earnings welcome Call. Thanks, Investment XXXX the and Good

the then Officer; me -- of Vic the call on questions. Viswanathan, Investment Subra Chief results Falvo, turn Subra Officer; will briefly opening my financial I review Joining quarter, before acquisition Dan Investor Chief and our and our recent are Financial Head Relations. and announcement Capital Thakkar, about the Markets our call After the and remarks will our for discuss then

first concerned softening market. reacted Fed funds interest points by prolonged market inflation guidance a XX rapid is for rate where and the Federal than a lower U.S. difference by The short-term longer, abated a cut achieving another period XXXX. with rate believe to the by middle basis future and materially XX X performance. labor years more yield environment our be point a by notes for quarter year-end. of funding time the the showing Fed. XX curve the positive the the point in projected higher treasury operating September, decrease and slope out beneficial of for pricing the the ended since basis After lower more cost yield The reduction a Reserve steeper a from for will provided the In a rates rising about to yields on We years

beginning concerns data due quarter, the mostly economic treasury with have change stronger to and fourth of the yields over risen and the market in a deficit. federal trade Since the sentiment

we expect a adjusted, this more and point basis second cuts XX fundamentals year, default maybe Housing basis prices by in low. to year-over-year a X% cut higher are has one on Home market expect a and for approximately residential smaller and the rates mortgage increments. credit. strong rate remain but As delinquencies further remain Fed be

pace home supply continue a prices, their in the level the forward. existing to level, at past recently housing have On macro X are slower more levels. in While inventories highest albeit moving they with pre-pandemic shortage increased and line home are a support should years, at

XXXX mortgage in issuances Investor for XXXX. greater XX% may RMBS demand remain credit approximately than billion, Non-Agency strong. be $XXX would for which securities reach

market high-yield they residential the in residential remain the corporate of our market and with credit align the tightened continue significantly to beginning have investment-grade markets. conditions the relative strategy. bond While spreads since year, attractive believe well credit to We

investment approximately securities. aggregate certain in and CIM balance sold seasoned placement of million bonds sponsored XXXX-RX, $XXX a $XXX with an in XX% subordinate We securitization securities retained we of the July, approximately or structure. IO million a In capital private of We $XXX RPLs. million

in $XXX August XX, issuance combined year, the issued million August XXXX, unsecured of unsecured $XX callable resulting This we XXXX. a the our notes Our August, of In debt X.XX% total of weighted beginning was in was million. for due average of sold bond cost which second X.X%. offer are

the to helps financing invest to CMOs. capital continue issue favor loans, of me, we unsecured issuance, $XXX new to lower in Upon and repurchase on and -- While our ability us accretive agreements settled cost further XXX securitized diversify debt debt assets. million the structure our we for produced excuse as and agency and source

attractive credit on We be expect more will securities. earnings cost future These that the exceed make investments investment a this the of than seek our to capital source investments and residential as loans to provide levered and accretive returns debt. and of we return in

purchased issued mortgage we at RPLs the million and par investments collateral achieve bonds properties. quarter, backed that by $XX of approximately Over returns. commercial and non-agency a course balance subordinate the these small their securitizations values to and settled discount We on to mid-teen newly expect of purchased from included

These we loans residential loans residential quarter, of like the have million characteristics these past. committed expect This we close transition also loans, in have the purchase transition loans during $XXX to and quarter. to fourth purchased we

mid- We loans leverage will return teens. through achieve warehouse facilities in use levered high these expect to the to for our and

of validation overlap and quite We credit us improve brings with high-quality Palisades has will a the definitive suite credit. here when both asset as mortgage Palisades and the ago, to perform to Palisades management team oversight and their combined as and in-house complement and mortgage particularly own residential based to parties manages a ability investing and portfolio capabilities, is Chimera's Also, the which and monitoring by deep successful of As services of impressed of our well provides agreement weeks funds to Chimera, third credit we review at Group, vendor Group analyzing Palisades acquire credit an a manager and our in analysis, capabilities alternative business. space. residential risk history proprietary announced proven well couple residential in These strengths existing servicer Like we level third-party upon a in Austin, management. technologies perform and asset asset credits signed loans. were data Texas. and borrower

is fourth increase expect companies. this Chimera we'll partnerships the and as expertise established it We our in benefits When credit. and us investment achieve acquisition Palisades close enables loans $XX transaction asset this completed, to like strong managed. have combined parties on and value fee-based excited it This accretive a of a service provide and of in already breadth mortgage benefits will with insurance about believe Palisades third or XXXX. acquisition management advised in adding for real and depth residential residential management credit will complementary The and basis, over billion estate in to to Chimera from the that would owned, new notional invest quarter. while We're

closing, Chief 's will Officer Officer. upon new and Co-Founder Macdowell, finally, of Jack the Investment And Palisades Chief Investment become Chimera

business. about has markets the And approach good XXXX, increased So what for horizon. does X short-term aligns by of as XX Chimera and basis we've robust, the We're are over shareholders? We with rates indicated Reserve opportunities, Federal quarterly be has on new end finding our lowered Residential rates the this mean we and points past dividend business short-term which credit interest quarters. by may the feel lower our the XX% strategy.

of a new Palisades markets, business additional capital unsecured source opportunities We acquisition we have growth. the the and existing believe and established our and funding for provide expand will through further strengthen of

residential the term. And to successful acquisition. Over team capabilities our The the to position the fee-based and assets. history shareholders, a and a close year, broaden and work acquisition and the seek possible securitizing hard buying continue at of the long ways new we We're Chimera Palisades, existing of credit of balance we'll and working management to this business. long will add best with results achieve has increase company the we'll investment third-party our over for to diligently

quarterly review to I Subra results. will call now financial the turn over to our

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

economic net the was share. GAAP on third book For was per quarterly on dividend available was million quarter, an change and On $X.XX value our third quarter basis, income year-to-date for for the XXXX, our on value share. value return GAAP third $XX.X in common based return the book X.X% per earnings distribution the And quarter or economic XX.X%. book

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

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

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

position For hedging, fixed had weighted as We $X.X a our floating pay rate had a for pay swaps we rate floating outstanding on rate average X.XX% repo hedge exposure at billion liabilities. liabilities. our interest of $X.X rate billion

rate with or mark-to-market billion funding. $XXX million in interest has The had a X.XX%. secured of long pay $X.X agreements, We our swap of limited on swaption company position repo blended fixed non either rate recourse X-year also outstanding representing a XX% X-year our on a features in

we As closed during mentioned, the our XXXX-RX third CIM quarter. Phil securitization

risk of part interest X-year securitizations, we $XXX to out CIM net execution of mitigate As spread short protect position securitization contract on certain strategy our XXXX-RX. futures of million closed treasury to the

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

XX.X%. Our on was GAAP average return equity

third in from quarter return the and quarter, common Our $X.XX to the QX. $X.XX on $XX.X quarter. and the from for second company Also transaction equity average dividend stock XXXX expenses, EAD lastly, QX up excluding for fees was modestly expenses, share, And down the million, increased $X.XX were the X.X%. third per servicing in

That concludes our remarks.

now open We the questions. call for will

Trevor the Cranston Our [Operator questions Citizens of Instructions] first from JMP. line come with

guys the loan grow a One trying of on if the talked originators wondering future. heard are some and home focus seeing potential recently you is I opportunities thing there we've are the guys in equity to a you you of a about participate the talk some from lending. about that's You you of seeing think lot opportunity for to on nonbank could Chimera what if was side. kind

things, for that that And the at yes, we to but are that looking are are worked the Palisades us hasn't and things looking an We it's interesting. now, heard same haven't pretty something in. just area experience seeing an It pull just Listen, some yet we're that area right on. closely. and found we've got trigger it actually space, has at we is

say XX? net quarter portfolio, update an it. in on where you the terms Got value rates overall of interest also the duration that or the at in fourth the could provide was And given maybe then so rate far? book September moving Okay. And exposure of

to But going end has gone I Vic quarter value we book let excuse public. traditionally me, Dan. the me -- address -- haven't since think the made So let going where of But book kind that something to I'm of mean, Thakkar. value, Dan on we on it's -- here to over part, second I'm the that other just a in the turn

Yes, yes.

the so that in yes, market we the the So rates all quarter plus gained are some. the saw, more the treasuries that pronounced as we intermediate same all getting gains sell-off in like raised they

versus say would quarter I end, flat we So Trevor. this are morning,

questions Doug of next Harter the come Our from with line UBS.

end say the a what I that. frame Just are up that of on the Just When you page. from sure the you comparing on time quarter, follow we're to? to flat you are same make guess,

X/XX end versus So we're move today. at. [ of the book value looking That's what as of the ]

balance Yes, versus defined that? And on think of you would think would to third-party of just acquisition how funds want of broadly that you kind kind and you of Palisades, kind growth how to with Chimera whether kind in how talk sheet of about balance look yes. about the about kind Great. you of can be for AUM, you

Sure.

So right I answer, want to just make to clarify. before I sure

is we what that value of the book to quarter. I on given end relative to the we second say of all third the showed we've most the of think nearly the quarter gains or at end up the meant

of So that... most

That second be more flat would June. -- with

Okay.

Yes.

in we we're something through terms think of management how is that going to fund asset Palisades, On business. about Okay. working third-party in the are

partners for detailed that shareholders allocation through future develop We and create that will and funds any that will policy limited that. will a Chimera well we any pretty be work --

them, we'll extent for the and management grow to that's way for and a that, business useful look management as as our that it that we'll investment have said, That's find in but both to third-party collateral kind look capabilities, grow to I well, their portfolio. own asset grow of parties. And early-stage is look on and an business. to an interesting And they we'll we'll then all beneficial

or about positions, do that. to your rates spread exposure more -- interest appreciate but I think on How swap of steeper short-term And just net how think one just know I to lower you earnings your earnings you about to exposure. short then your interest your end? kind sensitivity kind a the curve? And updated or EAD rate of

We mean, Subra. about and it positively the the this way will significantly. both -- react question. for Thanks is think is Doug, to I EAD

floating So $X.X if at that of billion. you think rate the the about our quarter, was end liabilities about

So continue rate of we billion floating of see those at Now hedging have X.XX%. a will right? have that $X.X to some liabilities, benefit, rate those swaps, we and

received be some by benefits of going offset from some the swaps rate down So the liabilities losing will we that of the benefit. floating

as the However, will we go below continue benefit. see X.XX%, rates to

mature that Now XXXX. second I by you the them also, the end the will quarter most of remind of swaps, of

that, our dividends, there. Outside of which So evaluate strategy we again about rate. we'll preferred have are to floating of have million readjust $XXX hedging and

limited then away obviously longer-dated would -- early $XXX sorry, in mark-to-market the separately, And about right XXXX, because will non-mark-to-market rate so okay? or facilities And that benefit see maturing those be changes, some of we floating mark-to-market have continue limited million. to

see those as as happen then reinvest we restruck, the paydowns and should we able reinvest, benefit to assets. get paydowns obviously, So And will there. be hopefully higher-yielding in we some

sensitivity summary like interest the how think the EAD. it rate will So affect to how of and that's kind of about

George Instructions] from with next Our the Bose questions [Operator come of line KBW.

expenses, here net is you to the discuss the drivers double-digit EAD on be I on that after for seems touch ROE a fact wanted just range. get around $X.XX Can of your can This just please? $X.XX rating you Frank some to run Labetti the that from to to Bose.

about net as on will on I explained return net just we the could I some in return my rates the mean down, income economic EAD mean, that obviously, say But I prepared our I go -- say we -- -- expect. growth that EAD of XX.X%. the remarks, to But go I interest continue is the did up. interest would

through go So go are getting investment -- an we we see XX.X%. growth, and even of The will will down our say is on through that But interest some really will perspective, it in continue additional economic we will some it's still perspective, go like EAD, there to RIA. get investment in are our that thing economic And LP those, net it. But an go EAD, to don't other expense as and investments we benefits. the see growth. from we interest though income one rates continue down, doesn't seeing an I some are

just then a And follow-up.

do incremental like the Given the current see forward? environment, where going capital you best investing opportunities for

Yes.

just make So about So deployed like also we there. addition, relative found like deal, non-agency did in expect his And there. RPL that on deal, of double-digit the prepared Phil and pockets the remarks to capital we low in we in attractive subs right? to value talked returns

$XXX we that double-digit things addition to million. approximately committed in the are That's deployed RPLs. are That's those high to to returns. buy mid- get So we targeting where to going or

every as on in as are we that areas well just meets of non-QM addition the that mentioned. sector, equity bogeys focusing our to kind we stuff return are in those which So home looking at

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

This Eric. is Jake for Kutikas on

you the Just could you callable to further quickly, you're opportunity wondering able the through to have more potentially if dividend raise resecuritize if or debt. the walk

Okay.

So that. I'll with start

hurdle have the down could they've in we down. and part a of terms of of power like off invest now capital in the could time. just That able some with I to the paid that raised deals collapsing and further come accretively, existing on think as the at those earnings adds rates we to capital deals the held So We've it when because raise we lower we're relevering portfolio. of than

aggressively to market looking to returns where portfolio. are is which given accretively, begin a look securitization out. and and relever that to the to pull cash we will reinvest enhance to the opportunities driver opportunities there's more on And be for think money So we the

call like any hand Kardis back comments. are to There I'd now time. questions no at the to Phil over this closing further for

everyone, XXXX and earnings quarter speaking fourth third Thank for our look you to when much. give year and in our fiscal we year next very we quarter participating forward you Thank report. call, to you,

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

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