CIM - Earnings call transcript Q2 2018 | Chimera Investment Corporation

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Chimera Investment Corporation Second Quarter 2018 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to turn the floor over to Emily Mohr of Investor Relations. Please go ahead.

Emily Mohr

thank conference for call. and second in Christy earnings quarter you, you participating everyone Chimera’s Thank

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

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

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

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

Matthew Lambiase

questions. and return X.X% results. up XXXX. second financial our Marria, the Capital return the CIO; comments review Corporation quarter me X.X% Rob will review and of Mohit first CFO; Investment the morning, Chimera Afterward, for some a Markets. brief Robert Thank joining the quarter you, Emily. Colligan, Welcome I'll total to a will and call. our Mohit half the Yarlagadda, earnings activity Chimera's economic this we economic Choudhary have in open second COO; for Falvo, had total I the And portfolio XXXX Head and the Chimera make on call call our for will Victor the of

at flat was and mortgage our market our is was news expectations credit see home of alone less income good The delinquencies from housing in the term costs no for due not of tight Treasury US we borrowing mortgage accumulated total credit market assets. resulting spreads, all and a a fixed economy flat and is the has yield performance at US performing flat key the both has yield performance. mortgage are been valuations working, points curve. continued more has expect yields assets. X-year in With have challenging companies which US helped curve residential fixed who short in and is first values, metrics XX-year has use XX treasury market portfolio portfolio, difficult bank, savings when leverage. have which to credit given Reserve expected. of important creates opportune financial immune would year mortgage increased a Whether treasuries Chimera’s one prepayment both Our XX% are the more are people basis investors returns in strength time market. This approximately longer than driver at the yield strong, for you’re yield that half as Federal or The the increased This improvement stronger in our better rates time with the the economy. of the than the creating the we all an a the of loan effects curve REIT, just The purchase. economic interest results raising and with been environment to income for A a

brought a overall while to into Chimera’s credit The credit prepayments that has over in price which help to The markets. residential or ours. past several justify increase other gaining is potential being buyers very to of years mortgage for loan the We that get little yield these it's loan category. fixed low assets in just several has prospects on still instruments, feet. US prepayment their monthly quarters. investors large FICO in been staying built, savings new in XXXX residential coupon as The homes for pickup are which home dampen square originations there difficult to loans additionally, factor employment secured And for little of age loan have believe borrowers. outstanding increase strength home the portfolio slower for housing the of XX fees exposure and starter credit better fall boosted is higher continues portfolio market. starter for is value is One this over four balance they this new the have in average in coupon define past, an the pre-crisis. paying of economy on has The were a inventory values borrowers, achieve our $XX,XXX time longer loan upfront are characteristics under inventory There has income over collateral current reasons continue average Most improving large values like for should sale. demand-led fundamentals constrained of small which longer low residential existing you market, good over into loan the we homeowners properties, home translate highest years. price want are shortest than Credit with as X.XX and new home performance look and than scores. of the positive enviable US loan loans for balance home billion appreciation the been $XX.X mortgage and FICO credit on average balance book into the origination what has are basis. homes housing Our X.XX% loans XX% high Starter portfolio. volatility, refinancing a on They sector some time. favor by the With as market and on new to nationally. market improving our important

of or arise. and enables securities new they operating recourse advantage calls, agency investments. are an of in purchases that had looks the challenge the relative which market, lower. that somewhat rich been and current We've to on opportunities tighter the credit created agency to poor second previous Chimera mortgage-backed price earnings leverage, take mortgage-backed on surge value are widened has new spreads available discussed the credit investment with when the low out in mortgage of spread. Consequently, for market of quarter in performance yields XXXX, In demand However, and securities has us

us of overall our and ratio and Chimera marketplace. relative leverage exposure the value increasing X our Our portfolio by afforded opportunity that size, the availability, upon a in history price from and take low of increase to decreasing its has agency managing widening. repo advantage the spread recourse X.X to depending

our to and with our the operating earnings should sometimes sheet dividend goal $X.XX markets Mohit currently I shareholders. continue that And good board's take balance top continue call our to strong for take the XXXX. the it's activity core the produce opportunities flexibility quarterly turn we a retains to of intention our Last with of the remainder over to for reiterated review pay to to in that, advantage night, portfolio well will period. challenging have market. in our of that quickly very important are a navigated in portfolio has habit We a believe to This through to I know changing, of a change. and team is advantage remain income to perform place fixed I and the markets before. ready

Mohit Marria

Thank you, Matt.

Reserve ten-year US During bringing the flattening year second with by continued continues seventh June. strength basis XX quarter, and rate the points XX the funds its XX the Fed curve to Federal basis economy show this by significant by US points. This Treasury raised is the two expected, the two yield as yields the basis federal rate XX-year hike and spreads to interest points, cycle. basis yield increasing XX only rising points year The in

the over months. rates to additional We to the higher with to next rate XX XX on Fed path believe that continue the hikes an is three four to

and before escalating and the hikes at to opportunity portfolio. to be add high an X.XX%. trade mortgages growth, spreads agency X-year wider slowing yields for Treasury global Higher with path XX-year slower. the our closing reached tensions a created quarter of May However, in treasury yields may rate X.XX%

of This agency previous remains residential our quarter, we pass added throughs CMBS. consisting billion XXX quarters. investments, X% residential in and Most to million coupons CMBS X.X agency in agency X.XX billion strategy of in consistent increase agency the passthroughs of and were

XX lowered the the XXXX-XAG financing X% CIM into continue The savings basis characterized million senior on refinanced providing we deal was XXX to cost optimize from these and CIM our as X.X%, to loan senior us a quarter, of financing points this structure towards size We XXXX-RX. on notes notes and liability loans.

CIM deal senior deal issued of also quarter an XXX effective with the is XXXX-XAG, remaining LTV. [ph] our million an were million average one for XXX loans have XXX loan BPO of CIM sheet. notes on the we and weighted average at average priced of end, XXXX. season of leaving our loans The The we $XXX,XXX were XXXX-rX had XX% possible in yield quarter, a coupon X.X%, Post of with a This refinancing re-lever a X.XX%. which months on CIM of issued size XXXX-RX, weighted balance

good start. off half first the mentioned, to Matt As is of a XXXX

to has XX.XX and book economic June portfolio for increased Our XX.XX shareholders. at our dividend XX. stable end return Portfolio provided at portfolio performance year have value us X.X% price from

credit relatively manage to leverage, opportunistically continue low both strategies. execute agency We investment both portfolio the enabling team with to and

be and conditions capability our of The us strategy us appropriate giving the when market Our the provides afford mortgage opportunities liquidity, added available. value ability are agency investment opportunistic low to income market spread attractive to continue leverage to when residential continues the favorable investment has credit exist.

value. managing to turn be in and portfolio income stable to to positions our continue net to approach call and over preserving go Rob results. hedge over to book are We disciplined the I'll investments financial provide the our

Robert Colligan

rate and million swap Interest prior interest versus the against XXX XXX quarter. basis, up which our core net income, the swaps, Economic for or XXX $X.XX quarter share, from million $X.XX on quarterly per last value of $XX.XX at book return the share. on for the the Mohit. increase quarter. the economic I’ll the quarter value per and million and quarter was was dividend XXX share financial second Thanks, book X.X%, XXX end second second of share up rising of income income per interest rates. million, common portfolio income review impact book net from hedge is to in XXX our compared value was XXXX. the quarter up GAAP million second GAAP or includes the a the was last helped million net for second quarter has quarter. On highlights based per quarter interest last GAAP

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

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

Our equity the our servicing excluding economic net interest XX.X return the fees for was average deal were GAAP return equity quarter, and on quarter. was and expenses Expenses XX% million. second for on XX%

the also to incurred legal calls, of as are discussed for now earnings This call remarks and result As last activity. expenses. the last questions. expenses equity expenses open from related year deal a company on compensation securitization concludes year our we’ll up The

Operator

question Suisse. coming Credit is Harter from [Operator first Instructions] of Doug Your

Doug Harter

risk maintaining about, available between of extra you balance of kind there of, it's liquid, more assets of deploying how talk I you Can agency and just money they to balance versus kind buy credit decision? kind become when optionality but into the and while kind the the that guess

Matthew Lambiase

Sure.

that new think to or saying are by assets. agency it's important start think that to securities selling relatively investments. we out agency we credit just assets backed are attractive mortgage It's that our not buy I

who in portfolio. we credit possible residential us as cheap when have on that portfolio seller attractive that credit The mortgage saying it's agencies be as you the and calls loans accumulated paying we'll is really are are that and it's can is very sell change agency position going unique I buyer a bought that large this and as the long relatively last adding take in in relatively because earnings country right was credit say to frankly that now the them aggressively the keep two here presidential we -- there very packages quickly full, We're we think out exiting our future of in valuations attractive years, buyer highly not that's in to and expect to gets new think relatively advantage very see that stuff. doing the and when bid prices the normal portfolio, and to largely But, to to mortgages to we this due on very and that we We market great could said, be market we would marketplace well. now, of a and are that for scrambling Probably every the be feel in the are together put be see I large and the stay went happens. as to bank relatively continue mortgage the So high. paydowns should to over buyer is that's -- it wider. them we’ll credit think to attractive spreads and mortgages Fed more to attractive

Robert Colligan

the to XXXX, total of agency the to were opportunity strategies there. Springleaf just will deploy up pare into agency Matt and capital said, of be side, summer, becomes And agencies when same was portfolio late here, and we Doug, north the that were here able if to what attractive we that I’ll and presented billion down ramped something which go in X attractive, add our itself on portfolio but adding credit credit the time the and flexibility at sort

Operator

George Your next of from Bose question is KBW.

Unidentified Analyst

Eric from last is come reserve the million Bose. did The mostly credit quarter, from loans? or it that It's transferred securitized portfolios on the re-remit for the $XX

Robert Colligan

non-agency Those all are the from portfolio.

at I’m If discount you’re in the the Eric. release, looking press assuming, accretable

Unidentified Analyst

That’s right.

Robert Colligan

we will in once on cash accretable spread in a our have discount and discount other we have expected flows non-accretable we As have income portfolio, into when the of part reclass overtime. seen quarters, improvements

Unidentified Analyst

came Maybe within little the it just was else? -- you a press that from the it specifically if the I for was can re-remits just bit, something Rob, RMBS, or bucket non-agency did

Robert Colligan

to disclosed. we’ve back take and something you We’ll we’ll look on a that. come not It’s maybe

Unidentified Analyst

call slide X just securitized us, maybe of feature just or XXXX? those of and balance the in guys all that which you deals you on remind a do transactions Can have loan the list on you callable are just Thanks.

Mohit Marria

Mohit. this is Erica,

vast of listed I the have rights on the call I majority X deals think do slide them.

is as from list CIM goes, far this deal only the XXXX-X. is that the XXXX year callable As that

Unidentified Analyst

you -- doing you did deal can a ROE that was what you maybe spread got And from Great. that? pickup end, call you the and mentioned in since quarter or re-securitized, that

Mohit Marria

point but given next re-lever. in economics refinancing out, closed just of that executed we we in the I go think the we'll over July the that transaction the quarter's had call, to wanted it another

Unidentified Analyst

Okay.

mentioned at guess You that it said down you that on was the was what call? to or I just the financing you before got before XXX,

Matthew Lambiase

Yeah.

the So the XXXX-XAG from re-lever. went QX, related to as saved comments in was re-lever to of a yield refinancing XX opening X.XX% that did basis it we we in X% was, referred the CIM we a which that we on and yield and points to

XAG these we we the did again, to are again XXXX we On the able savings acquired securitization ’XX Springleaf on and of that re-levered end, it we post I context had refinance the what call that quarter plant in think same again. preexisting cost both we that and the in were given option, in had option we completed a of

Unidentified Analyst

Thanks.

XX And those I sorry in $X comments. agency have, billion on missed guys swaps? if pay that of the opening you what's swaps points now rate CMBS, basis the interest hedging The rate that

Matthew Lambiase

pay receive basis blended rate I a is the it's net rate, points. probably on think what I think XX a on basis, minus the basis,

Operator

Cranston And JMP Securities. from question your is Instructions] [Operator next Trevor of

Trevor Cranston

like for less opportunities agencies you're originated if more guys loans that deploying attractive returns or on, Can So, in the capital? such rentals loan family is comment to you seeing obviously mentioned non-QM you're the in space in and right single are seeing something that space, maybe newly any you space the loan what now. than start

Mohit Marria

is this Mohit again. Trevor,

really X% high timely off originated On space, but X%, are deal The seller, aggregate a a credit to there, a a on the a duration a short. non-QM the of relatively the at yield. to it's being we adjusted low a loss the from do mid assets basis, probably of, have to gross whacks concern amount on enough of collateral perspective, concern duration you're are looking high that large X% probably the and it's concern net are the not the

to of is it a until get but of do view a will more see take available as into that credit XX we the jumbo cures aggregate. that sort So, XX that but financing there, people again, maybe we interim opportunities long and program, size time to million the is evaluate million we

As prior to deal to XXX from relative work. have be the on a make to size said the economic, million we’ve perspective, deal about calls, expenses,

consuming time in size larger that space. just it's of So, a acquire sort to

mean, X% think, little to On it non-QM, of the closely, conduit haven't more low I intensive to by an side, run will think loans. the I sort single of operationally loss on lead basis, but high-X jumbo that too we on to just family to a operation yields. buying yield I adjusted rental looked opposed again at But as again, that’s similar a

Trevor Cranston

then can adding types residential guys if the agency bonds to whether like or you’re concentrated you guys on pools when And low more loan focusing been the portfolio, the on balance portfolio? are fairly have on they’re you something agency maybe you generic comment with of buying,

Matthew Lambiase

rates, product our the with new view mean portfolio on production, internally more new pay-ups. of of of minimal has backdrop I Sure. the is and sort which origination higher generic sort concentrated

backed in since and play the been quite noticed rates You’ve Fed and rates significantly have up. the pay-ups have has collapsed

think I but in there. if at is current that, I the having speeds So mean line look you paying said environment, up again, we not our warranted are necessarily in the for the protection cohorts, prepay versus

X around three think around versus CPR portfolio, the on the months our speed cohorts we’re X or I XX.

and do the look we're rates assets if prepay protection still we we too we contraction and the the and needed of up paying what type rally, accordingly. that much, manage getting have obviously see to without So hedges will will rates

Robert Colligan

Yeah. easier flatness XXX, that other between to years the are swap and swap the curves figure I X at with And about Fannie to three they this thing at yield last And, the to lot a they out were the a X.X to ten X year on handle, X basis Trevor the difference is swap would that is points. the and curve, when forced fall. Mae add today the where which look hedging XX than of are

swap can duration you optionality allow of interesting the hedging on perform I think curve you longer can you flatness I that if some the think, the in better sell-off. do get put where will, hedges

think it's a out manageable we hedge now portfolio. the to very the time in duration right So,

Matthew Lambiase

was And want the clarify I made we for as June make pay rate to one XX I Eric have just financials, that company the I for of the the one rate earlier question. pay on X.XX, point in average your point, earlier, average that

Operator

management Thank this you. additional further return at time. or any are the questions closing no There I’ll for remarks. call to

Matthew Lambiase

participating quarter you for speaking look second Chimera in Corporation’s earnings the November. and in with you XXXX Investment call thank we to forward Well,

Operator

conclude does conference today's This call. you. Thank

may time You have disconnect your lines day. at wonderful this a and

Chimera Investment (CIM) 1 Aug 182018 Q2 Earnings call transcript