CIM - Earnings call transcript Q4 2017 | Chimera Investment Corporation

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Emily Mohr

Good morning, and thank you everyone for participating in Chimera's Fourth Quarter and Year-End 2017 Earnings Conference Call.

Before we begin, I'd like to review the Safe Harbor statements.

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

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

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

Matthew Lambiase

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

our and company Choudhary in the Officer; beginning $X unemployment the of Financial results markets discuss company's mortgage some afterwards Chimera's will me the recovering we review appreciation period. has in of our Chief six brief expansion our calendar Colligan, open Yarlagadda, Head year. for questions. strategy will housing started the for XXXX, year call The retention quarters. the strong Chief I to in the we XXXX. the last and for return recorded the low Then investment The a capability where signs has Investment portfolio, and and economic generated book call season a of positive on acquired. return of we Mohit Joining of value focused tailwind the Victor Officer; Bob higher This The show make financial Rob continued comments, assets the Operating this over X% the Chimera XX.X% increased the dividends, our full increase finally an will very bond of of generation Chief data in Officer; morning economic Markets. eight Falvo, We've changes period. GDP loan which in had years have and market. will Since our Capital for the Chimera economy dormancy. $X.XX for domestic paid economy has the Marria, our and are and risk Mohit the U.S. the income created market portfolio points seen over balance for rates lower after improving housing that on positive performance demonstrates mortgages, of several course of are return the growth

our that market from As benefit we've conditions. that and stated been opinion to positioned a it's housing improving is these the recovering is U.S. brisk on pace, our to at previous continue calls, earnings believe portfolio well we

to December of X.X% in U.S. was allocated XX% and of credit. Price In As highest Chimera's since year-over-year, year-end, mortgage Home up Case-Shiller the to Index was the jumped confidence homebuilder level October, capital XXXX.

available loans of economy residential appreciation price in with people well is housing factor new and price of the the starter has mortgage bode portfolio in reached a for important the valuation fixed November, rates is great should a are loan average Federal to more returns Low mortgage since residential short-term billion lower to credit working sales the shoots appreciation. $XX because prices income inventory potentially of showed with credit. Increasing our the future, section that housing of highest level in This especially inventory, have The and and the home green translate Additionally, market. an future credit growing tight our the pricing higher is homes home ability belief home and the portfolio. to available balance homes of occurring loss some most of metrics sheet. for increase into supply the will the of balance start when the unique a the afforded the in balance inventory of best Chimera sale value declines entire at affirming key home The starter risk-adjusted time beneficial be should market section having low in Reserve their mortgage single-family likely market $XX,XXX. home to offers interest the constraint. our significant before economy of decrease recession, expectations mortgage seasoned

per the portfolio. the over a will lower market, that recent be fundamentals. again XX% longer we portfolio that the to dust for and been our to portfolio the return our the Considering in expectation return once last expect an share recognize over a $X.XX especially when for with market's from strong quarterly the shareholders of And for changes we're you to in to Mohit quarter dividends ability we earnings has a it's volatile or the a return to And our We in for the turn important It's enviable unfortunate our harvesting share from Chimera believe rate per stock winning for the turbulence remainder portfolio's of consider but the quarters is this quarter, common $X.XX continue Chimera's challenging quarter. fourth returns remember generated price feel produce hopeful, investors we for of settles XXXX dividends the that has power While the investors real to positioned it announced real for assets, well the in is continue to housing we're discuss a dividend sent our strong engine and that, month, in strategy market XXXX. market for to that improving confident fixed ahead. of to per our I'll dividends, term. when produce that $X.XX Last dividend first night, be income confident our investors. affirmed

Mohit Marria

as and and for points Reserve for continued yield flatten ended points The basis Thank you, XX credit and higher expected, total the of December, points like by the prior year. rates, with curve by Matt. a to in Federal tighter The QX basis XX for started equity XX quarters interest XXXX. short curve XX and spreads as yield markets. XXXX, of the flattened points basis basis quarter, raised

As is and performing by as economic the expanding well. market for GDP, mortgage are These measured the is positive very developments Matt very economy housing stated, credit.

Our benefited losses year portfolio has with purchase on our defaults and credit expectations. lower the lower to relative

there started has rates, the XX spike to XXXX significant concerns, XXXX yields like little basis basis XX-year XX election, in increased reason over points. those a points experienced inflation While yields further when with increasing about by XX-year over anticipate was post

weighted And XXXX-X. acquired of was securitization our in completed XX-X, and into acquired cost XXXX-CIMX, a basis were completed in performing deals year six loans. acquired Chimera refinanced We XXXX-X. portfolio. of loan cost on loans. financing CIM effectively This XXX year, reduced financing XXXX CSMC Chimera CIM four good X% X% of the over X.X quarter, re-levered Springleaf securitizations, and newly billion called securitizations newly four We loans. These We from the XXXX–X with Overall, of Springleaf very for rated resulting CIM XX-X, call savings for average full our deals points. on outstanding our a to seasoned low balance first

XXXX of XXXX–X, successfully securitization up Springleaf and we CIM in of was Total have eight of for X.X the all refinanced the re-levered concept. our our now acquired portfolio of completion XXXX the And securitization loan deals XXX billion, proof increased end With portfolio; for year, lastly, CMBS XX% total billon, agency the in million, now from at is billion the from X.X portfolio agency XX% we X.X bringing CMBS of XXXX. up XXXX. agency our portfolio to by which validating the

well-positioned. As we look is portfolio forward the to XXXX,

is distributed throughs pass portfolio between agency agency and agency CMBS. evenly residential Our

continues returns per Our securitization while to basis. at pay manageable a level low portfolio rate above generating cost down market on and

credit high loan remained data. deals purchase healthy loan market yielding supportive which we conditions. employment XXXX And closing, with mortgage expectations, performing total balance balance better callable for in it strategy appreciation seasoned and subject and our and performing are X.X In price four to are on our a home economic strategies. benefit to mortgage low credit credit of billion portfolio Prepayments have housing from unpaid principal is moderate. Our outstanding continues improved strong than our

as opportunity the turn call maintaining tapering. value can RMBS variety its while be book of could In Rob. will investments continues Reserve addition, earnings Federal a interest believe over strong a generate through we there I tremendous stability that the We that, to rate to add With environments.

Bob Colligan

our Thanks, economic book per fourth in Mohit. return book on of highlights And review quarter GAAP GAAP full-year $XX.XX the for fourth the financial I'll the quarter change XXXX. fourth on end value X.X% common the value share. quarterly book per in dividend was based share. was value quarter and at the

last for quarter. year Our was economic XX.X%. million XX fourth the was million the income compared quarter to return net XXX for GAAP

On For the income third net per XXX XXX last last million deal line the fourth million expenses a share, year, basis, quarter. $X.XX was with GAAP compared or quarter income million incurred the net X to fourth in the quarter compared Securitization for million core quarter. in XXX X was in were to million year.

in compared partially XXX million was quarter. million year, costs. For from to was last quarter financing Chimera's income XXX by Net the income loan XXX to up the Increase interest million, net portfolio, the core XXX income last net million year. primarily higher relates offset interest for fourth

million last XXX from year, income XXX the interest net was For million, up year.

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

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

stock-based XX% quarter as compared and XX some grow portfolio equity quarter. with concludes Our per I our will during on XX.X% net quarter, questions. call for expect quarter were with experienced interest return excluding approximately expenses average fourth we in mark-to-market XXXX expenses now last remarks, the line by was consistent open the to third deal quarter. for That do related in the for compensation. quarter, to and fees Expenses fourth to and last on the return investment XX% the equity servicing losses X our was million the million quarter

Operator

first will Bose line come the from [Operator question Instructions] KBW. of Our George,

Bose George

cost guess I through I mean But job times, can guess question just is just different you XXXX, The you that kind good about stable. When could of few so that talk can the you've that's play that the you trend walk into got you first know a securitizations a on rates the if look out. that keeping Fed could there. you funds. out where call, of raises the ways offset can I

Mohit Marria

George, Mohit. is morning, this Good

of in commentary. funds So his cost did Rob alluded far three our funds of had in Fed opening to portfolios go and as cost the the you mentioned, up as in go as -- we hikes, XXXX,

at look forward And reflect It's the and want agency to of in funds prevalent that look baked financing. out XXXX, how of rate XX-month, dated. non-agency hikes as side to we markets. we on in I because three have two we far term typically the the is potentially take anything we of on cases our to financed, trades also some we on. three-year some As six-month, already, there are cost more mean, is longer stuff recourse have sort

less be point conditions, call we ability to, it'll mentioned, in the have think up ability we term at deals the those deals subject as come have And I four everything as economics that again, market impactful for based to on calls and finance time. there. you to

Bose George

seeing pipeline in talk And how for you're out Thanks. great. Okay, there then right now? acquisitions, about of terms just can things

Mohit Marria

don't points sold of year. off Yes, little well. is resi have attractive -- the that high a the of from stuff spreads a and the obviously over side a for with start since a And lot volatility; as return are of started as the has prices the yield And has pretty currently in corporate look lined profile on interest even that XX-year attainable basis year result the XX bit. out us. But risk-adjusted held rate

dust are for cautious opportunities several the deploying there a capital to interesting lot environment. the and we I of trading large is tighter So we're incremental to in each once pools invest it'll so months, the makes There's have extent to be sense. come the bid to several going But a are settles assets, think levels one, the for it'll what first think than clearing up been the see be it be that one but capital. prior challenging

Matthew Lambiase

look very that are flashes we and think the interest in very investors around sit in think this we see confident, caution we and think with our we're marketplace can backing I I'd portfolio we when for we when happy And and the And our not last and say and announcement add to position, in think that I the for this we this market. is play, up, you we're pretty night, real in course at market feel very a But fed that the aggressive return Yes, us, pretty credit at opportunity. year. the tight high things when to us. moment. that Bose, see the good forward market can And I from looking the this to we we just is rates I looking and produce spreads are Matt, aggressive shareholders see that like of be would I as over we're for like saying super

we're I them. think lower things jump can some I cautious. think it's think we levered I having right And and being cautious a pretty up I firepower right to prudent now. position, do on as think be in now, that But cheapen

Bose George

there for has been more book one Okay, since end, me, of just great. Actually quarter change. much value a Thanks. just

Mohit Marria

mentioned, as today, with saw months than it was is as the mean, even QX. quarter in before if impact to be softened a expect think we the be two rates again, we But muted less we on to end I I value, it'll I book down end value X% No, thought book but completed.

Bose George

Great. Thanks.

Operator

next Sam line the Our Choe, Suisse. from Credit come question of will

Sam Choe

are kind answered you it guys thinking going we guess strategic. Bose's you actually be I to guys on of question, but You are about when said leverage,

the safe it consistent assume to leverage that be is going is to with So XXXX? level pretty

Mohit Marria

Correct.

Matt opportunity question, to I prudent accretive. the I going we're in and are on think as mentioned of prior finding sort investment that be

XXXX. in leverage So meaningful in way see a an uptick I in don't

Sam Choe

Got it.

Matthew Lambiase

just dividend chase when and caution. don't our spreads and on market the I, think market to don't it's flashing to tight We leverage that, are take in after need increase to pay to rate. follow-up we And is meet really I up earnings and don't wise leverage -- the this

Sam Choe

you. Okay, Thank for me. yes. That's it

Matthew Lambiase

you. Thank

Operator

line Trevor question next Cranston, Our the come from of Securities. will JMP

Trevor Cranston

the Most impacts of there's been on a questions comment have so morning. of one amount just the on been you But my Thanks, Can on agency volatility, thinking on agency would composition good how decent think your a that more asked. Thanks. guys thinking volatility there if higher far XXXX. sort the be in of if portfolio, your obviously agency of the how you'd may rate sustained that you of impact period book? portfolio. And rate manage

Mohit Marria

do CMBS I XXXX well agency over backdrop the capital Trevor. better year closely agency as several the given NIM agency had last calls. [back more agency two remarks as the we will adding my to may power why match now be to portfolio we're of a in rates portfolio had mortgage to this in what as think future our the tapering. exhibits opening out] CMBS that in book year, impacts and We've to opposed profile morning, And is And locked have we've interest with started this well the the dividend earnings start the of to Starting to XXXX. spread within of in the another terms And our market [ph] portfolio. Good able the volatility I sustain mentioned the expectations widening, said pass-through and and our portfolio that, allocation. value some of hikes CMBS three agency earnings XX% rate minimal of given convexity our Fed since coupled positioned

Matthew Lambiase

add that. to just would I and Yes,

paydowns As and down, CMBS. securities to we see taking pay trying agency the them agency the we've residential been mortgage-backed add those to

and seen we characteristics Ginnie of we couple because the you've and And ongoing on So they're an like to, the of project like that. Mae the to pass-throughs favorable we residential we when the last that paydowns that's -- years. prepayment -- over the take buy and try from available, loans,

been the project You've Ginnie seen loans of and the have residential type getting mortgage-backed the increase agency, and smaller. while Mae our portfolio, that paper in securities

Trevor Cranston

Got it.

Okay, thank you.

Operator

will Advisors question from Jim Wasatch next DeLisle, of Our line come the [ph]

Unidentified Analyst

gentlemen. morning, Good

Matthew Lambiase

Hello.

Mohit Marria

Good morning.

Unidentified Analyst

You price guys, a stock you mentioned little Matt. bit earlier, the

big possibly premium the well, you when there were that trading were in some book, very trading weeks by were below. you last sometimes, few and were restrained guys at You measures to guys

things share simultaneously buyback further a your do actually like on I, a that, significantly a you buyback of also you based unique an share that's leverage. we have thought your heard Did I utterance without you where one. guys your that consider I model Anyway, a increasing I kind yes authorized on case that one in can You that on have a pay-down and speeds you that? by you -- dislocations? Do have heard been have model Board? Would

Matthew Lambiase

my reauthorized it's Thank you, the the market that repurchase on And Board prices, to share forward. market, conditions Jim, program $XXX the utilize Directors of million Matter for frankly, the authorization intention the question. depending fact, going of recently. a

Unidentified Analyst

All a time. buyback, would to where if to it are, you when you down use just relative it's sort or the right. they're be And relative to were if obviously, -- book competitors market, at that trading of to also your

Matthew Lambiase

I what much myself don't want not give and or we anybody against or really do. any clarity trade on may give on information -- to too may

it'd be of actually we the think about talk I period. end do what better at next to

Unidentified Analyst

guys. Thanks

Matthew Lambiase

Thank you.

Operator

next question Omega from line Lee come will Our of the Advisors. Cooperman,

Lee Cooperman

could we my unemployed I on, but asked, Yes, but what have of think earning been now? a where not capital a questions spread do earn have spread you amount

Mohit Marria

hand be to view earnings of have is as that -- in of surrogates, the this we agency assets cash box to our going maintain of we in we cash run. ample don't powers. disruptions. be mean having Most much Mohit. which is cash Lee, to some on We dilutive form a case cash are but keep position I market just pass-throughs, too going

to all our But, assets your keep So, we don't some around. are spread typically question. much answer too earning

Lee Cooperman

Got you.

Okay.

people. will won't questions. have we call I I it to so ask any leave think other a I later,

Mohit Marria

It's Feel free ask an forum. open questions. to

Lee Cooperman

fine. Okay,

in is when for what dividend, stock, priorities? against everybody the use been question in business, reality the you to ought operandi the want priority the it is of kind that's asked want buy modus boost do so your would feel want trading really list do to to are cash I your do invest you see my So towards of how you you comfortable to yourself, back to flow, you guess really shareholders, you trade more the because is, telling

Bob Colligan

when Hey, in raise we very us. Lee. markets, we book, just below when preferred and add amount we of trading to This think buy Why the in don't went back markets for I XXXX were a capital is the meaningful Rob. did and I open healthy shares were

And so opportunities. book, to the think be whenever would There active the stock below -- dislocations. it capital, we that extent need trade value. And I see below -- that trades below book we we more of if are buyers we of

capital think to have the us. been I markets good

good We in capital have stock efficient capital convertible company. sure markets. well-positioned want are a make building markets, opportunities that we that's raise preferred to to for the and we And

Mohit Marria

is front moment all clear book what landscape when option back its for the and we for shares And past credit, see book value. To in best think in below below believe marketplace value. investible especially the be me is I now the seeing with buying that do the assets think I we at and in the capital I in the shares have the that the right bought mortgage and

Lee Cooperman

Let clear. me be

guys the excellent the to trying you and job the internally, guys have pleased. shareholders and what for congratulated but ought done done I am for think done be I very job you fabulous have to shareholders. am in understand have I just a you you priorities

you if obviously moves But Net-net are we heading negative abnormal in towards when look be we people impacted, $XX on to Fed Denmark that paid it's trillion is will rise, but in fact two that normalization, reinvestment fourth are Just a the rate crazy. interest an in as debt we path normalization. we are feel sovereign have value comfortable rates my to and this improve. your with questions; the live book you theme live get world in good still shape? home, at We will rate year, negatively other if

Mohit Marria

Yes.

when portfolio think the we in we - I as rates play last value bit listen, a the went saw year book year last saw and rise our little up well. Fed

a a happens in see So, I we think it out, farther the for of knows near good at We on the really I are weakening don't very technical basis spot. a but mortgage good moment. the think it credit very own in is I future. lot what spot credit And in pricing. Who

sure think to we what happens think up our anyone's We going rates one we into. it's number and we guess at don't And the here a have moment. two priority. lever lose the at book number role market is smart in dividend value. to I So stated that make really is is truly interest conservative here. be make priority the -- look are the to don't But as we But,

portfolio So investment hand when be -- And in XX% out model we they I can think produce our about outlook in hand. return. and go think and our still pretty I conservative of earnings, our we a

that's a be this marketplace. great think to I in place

Lee Cooperman

excellent an am you. shot. done have you you the Well, call good. than more that happy job. And Thank Very I

Mohit Marria

Okay, thank you, Lee.

Operator

you. I turn now back comments. closing over Lambiase today's conference Matthew for to will Thank

Matthew Lambiase

call all we in all the you. you the earnings speaking markets. quarter forward Well, thank fourth give participating and look XXXX in recent you you Investment And to in Corp our as Chimera for May. appreciate volatility morning, shareholders. We Thank call. We us this to you on the you appreciate joining

Operator

today's again, we to like participating would Once for all. on conference thank you

You may now disconnect.

Emily Mohr	IR
Matthew Lambiase	President and Chief Executive Officer
Mohit Marria	Chief Investment Officer
Bob Colligan	Chief Financial Officer
Choudhary Yarlagadda	Chief Operating Officer
Victor Falvo	Head of Capital Markets
Bose George	KBW
Sam Choe	Credit Suisse.
Trevor Cranston	JMP Securities
Lee Cooperman	Omega Advisors

Chimera Investment (CIM) 14 Feb 182017 Q4 Earnings call transcript