CIM - Earnings call transcript Q3 2018 | Chimera Investment Corporation

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation Third 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. ahead. go Please

Emily Mohr

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

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

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

Matthew Lambiase

quarter Thank Corporation Emily. XXXX to you, the earnings Welcome third Investment Chimera call.

at call in down markets. results. and off make times highest to Reserve portfolio its effort this Joining considering holdings volatility for yield highest Federal dollars Falvo, comments for the period treasury In the of three Accordingly, one in seven in rate $XXX also over time raise points quarter and supply and perhaps have Victor in for hit brief and activity our we the cool middle adding CIO; signs inflation. since its Capital the rates will sold me Chimera rates eighth questions. Chimera's years. will and Choudhary funds likely our returns and the will continue quarter believe target over income year in the Fed financial years Mohit some The several posted order are the this trended Chief Mohit then billion quarter. basis Head the has the the bonds short-term refinancing mortgage the next the call on Officer; last to I'll Rob Operating Rob market the funds an is to go the Markets. We dropped of economy XXXX. Yarlagadda, the of market the in lower. increased to Treasuries levels confidence XX-year closing fixed to federal their homebuilder XX securities third stave housing Marria, morning open solid expanding Due down and as mortgage-backed of target continue more in starting U.S. to show the Fed up to Colligan, time off our review our of additional year will the off then Afterward, moderation pare rate activities higher CFO;

of over While Series the a coupon opportunity C late years dislocations at a is the XXX has diversify being increase as the us It have the residential the end LIBOR. the We the raised our over we most coupon lower short-term plan in shares we which took the fixed mortgage-backed our often of shares. year Fed third are our X.XX% market see likely cost create agency backed trends capital the Since bid raise widening for after accretive capital History term beneficial through adjusts invest structure, common opinion tightening made has had shown opportunities in our which points interest of remained $XXX in In The have both us we're of the potential in we opinion first cycles prices think portfolio that additional volatility we of capital to the of a million the and of mortgage perspectives. rates. well which XXXX quarter risk preferred markets $XXX fourth should preferred [ph] to them date, see initially capital significantly interest macro in rate credit to spreads sharp distinctive quarter impact over should months in mortgage while who those Agency prepayment shareholders. have helped attractive issuing be have to securities quarterly in can additional near the shares for three for prices seven our future. million our prepared. Fed securities. has decline and The future. basis to capital to that to credit new more in price these capital more from continues last

also can credit. mortgage this source the pass-throughs For the pass-throughs market Agency because past been present have The successfully portfolio around a to market. and rate The example, curve longer using hedged in opportunities securities period of as the points one longer point. over coupon income themselves. dollar same ago new agency had swaps. us of slower curve duration half in prepayments it's that current securities fell assumptions cut lower the benefit duration XXX% swaps, par. these team should in And price in yield on protection at prices credit sold funds fixed entire more of hedge liquid Chimera’s mortgage-backed and the cost belief year more our the return XX-year believe highly over a securities mortgage-backed currently added of yield profiles Mae better price speed in X being same and duration flat Today a best risk-adjusted be Fannie a has X% provide prepayment functions invest trade allows ago. offers well. agency approximately shorter year securities In the as swaps attractive With longer the to interest Longer have steepened. off swaps is the should duration we rates if the entry

So Chimera to bond to well. and the and be has become should have And desire liquidity as should we opportunities the volatile capital it the credit. equity in shares become create to market also liquidity up opportunistic and volatile sum repurchase our the markets

as with ahead. I'll Mohit cautious that, current over return our talk in shareholders meaningful our to to in our understand earn While total Chimera the showed to and a in we it well-positioned results quarter. the investors to deliver to remain is dividend our turn should quarter this strong that market, And about the quarters continue portfolio

Mohit Marria

more with continued higher and confidence rates. economy The U.S. continued Federal strength its show some more in in hawkish low the and third the commentary Fed significant march at the highest Reserve and to quarter somewhat unemployment, record

believe to fed a that continue rates. higher We the path to on is

However, with gains hikes and the both Post rate may increased U.S. tensions slower. end, for trade escalating has to and slowing volatility with path the international be global quarter maintain their growth, year. struggling to equities

fourth widened to have credit quarter. the spreads addition, also start In

sound Loan remains year has performance than to and the and to on made credit higher treasury steady The treasury our to economy X.X% inch initially been seasoned the continues of beneficial performance to Given investment. X.X%. at continued the equities perform backdrop but assumptions yields XX loan initially portfolio. better of back retracing spreads approaching mortgage

We our loan outstanding strategy liabilities. continue call optimizing to execute upon our securitized

yield to of $XX $XXX we we XXXX. credit issued and eligible is This originated CIM have for loans X.X% portfolio. average no with retained seasoned loans digits. $XXX Chimera's We into value investor million our at million loan-to-value our of loan million weighted a These maintaining by third on points months a are both average we the reduce of XX% Fannie refinanced the loss million at fourth weighted loans. securitization eligible into and weighted was purchase balance in grade loan These average Mae refinanced were debt quarter remaining Freddie CIM collateral The X.X%. end CIM had XXXX-RX. issued digits. for by quarter investment average million based level underlying able $XXX while XXXX-XAG in yield residential loans Late newly size was and were exceeded income was XXXX-RX. costs of and to balance also average They yield first The advance we are a Subsequent This to in three rate. [indiscernible] CIM score loss in in loan to mid-high-single of and low origination. at XXX and adjusted a deal CIM loans mortgage called of unlike securitized similar our called ratio. seasoned call Mac. the yield a $XXX,XXX. The of $XXX mid-high of single and field XXXX-INDX. this XX% Retained were financing and adjusted XXXX-XAG deal of We basis quarter October XXX XX% debt

this discuss deal our will fourth call. in detail quarter more earnings We on

an in our agency rates portfolio. find return we risk-adjusted the interest As mentioned, to back securities currently up attractive Matt mortgage-backed provide for

Mae Xs, $X.X added million we Fannie consisting CMBS. Xs portfolio in of and million $X.X quarter in Fannie billion $XXX This agency to of $XXX Mae billion our agency

the have mostly yield in continue protect shape tenures to we with to hedges to billion try longer we $X.XX the of swap advantage value As curve. book added take of

agency residential comprised with of now agency billion ranging billion. pass-throughs to is and from now portfolio agency $X.X X% coupons agency total the $X.X billion $X.X X.X% CMBS, portfolio is total Our

and is capital the XX, the credit reducing relative not to September value agency rates, backup we mortgage quarter rates capital mortgage we in disciplined fully mortgage the very investor to The interest its credit size mortgage lighter deployed. yet as new late loans. approach spreads portfolio, securitizing price in been selective performance investments. with and have successful leading interest rising of of for coupled Since Federal been our raised in opportunities in Given finding of to to create the strong and the the Reserve third helping investments XXXX has in

put representing work, for the in portfolio discuss should mortgage over Rob As quarter our see good spreads financial investment long investments credit liquidity new to income investment a pool large third now attractive opportunity. term the to while agency to I mortgage capital we call of provide residential turn we to will results. continue Chimera

Robert Colligan

value quarter at XXXX. book the end the Mohit. I highlights $XX.XX the of quarter will third Thanks the was per of review share. for financial GAAP third

GAAP a quarter. which the value months core and the first increase and the income, compared includes basis, third result share, $XXX per impact $XXX dividends return based quarter interest f $X.XX $X.XX XX% quarter third was GAAP was for income Our GAAP up net value book share year the or income of as from of for our last or million increase on to for share. last agency was our economic last the the On was million income swaps, up prior million interest quarter Interest XXX up million the million, X% $XXX to the $XXX in nine common $XXX Economic is net quarter. a on rate million book per portfolio. per quarter. from versus net

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

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

net return XX%. interest Our on was economic equity

quarter expenses, primarily for from excluding legal and were operator turn compensation are remarks. but back to return will the as now down equity XX% the I are GAAP equity expenses quarter. Our third for the quarter Expenses the last average a That deal last our expenses. for up year to from Expenses million. of due was concludes $XX.X fees servicing call on result lower question-and-answers.

Operator

is the first Jason Our from question to line come Arnold, Instructions] RBC. [Operator going of

Jason Arnold

of your nicely this basis you on commented Good results detail, on quarter. kind on you on be prices, you bit outlook reflecting the going you morning. at then you. context said in those in again see tap looking I on hikes coupons slower talk kind your will of was Nice your had what rate and X% about how little things a focused agency on just agency and and buys out? here focus Thank I you a maybe context little coming, more add can just might but be our maybe coupons helpful? added extra are know

Matthew Lambiase

markets have buying vanilla just where them, the lot is maybe of go like Matt the in will much here I'll we're we're the pay Jason, that's we it earlier of progress we that credit. in liquidity. more able liquid if portfolio get, of originated this plain to we and buying a the ups to shorter down say to XXXX recently think large is position we position when like some pretty get kind take Hi after agencies paper what we our agency pass-throughs, volatility really want not say this Because is as on down mortgage as can did the you what and we agency some - pools and because pared and be

So done we're hedging than ourselves the duration I we've – longer past. in the think

a year of of put the and XX the steepens, lot back little if think over the I think I that decent position newer on higher and we've a curve Mohit agencies be and house course we've the the internal that's you bit have think at that next talk moment year is about against at can We swaps Fed keeps I duration think idea put should the be with the XX pretty yield here, least we'll feel how year the hedged treasury ourselves if a purchased in rates rates happens And raising on actual I the longer hedges. the pools. that if up way the and

Mohit Marria

the Yes into seasonally universe, coupon X% very prepayment pool rates think at the the as with X% is actually to where stack, months. Spec of in on total I ups down mortgage and Matt come maybe the sympathy premium in refinance going to adjusted pay given Jason alluded haven't outlooks are are little able moment.

the right agency monetize of trading we up alter yield par to but So portfolio. don't down a prepayments us portfolio, and for for forward pay big We the extent concern spread have come can absolute around pools the given here. sort that in a to rate spec healthy the to bit aren't levels maybe the lock

Jason Arnold

it is Thank color. the that potential up bucket of or that guess be value great particular capital, is I color a just because price segment of there you maybe came it, we'd the when there in of dislocation, hey, kind if if some down side cheap or it's like deployment on please? you. happens credit we'll of of after a there kind like Okay, And opportunistic that over just that all market Thanks. just we it you'd approach then more and go added say loan based one if side follow

Matthew Lambiase

our jumbo deal. looking remarks, opening RPL and loans. Sure, mix as We've at all this I the in first mean year done out investor a We're to loan some of prime stated we've done of the loans there. open we've done opportunities

attractive assets. So I think pricing any become has been the biggest issue deploy in of in terms take of of If more one finding spaces. any in would volatility those the and capital uptick attractive with we those advantage

Jason Arnold

much Okay, fantastic. Thanks very gents.

Matthew Lambiase

Thank you.

Operator

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

Trevor Cranston

also estimate fourth value on has performed duration provide agency follow Thanks. you in sounds mentioned far remarks the up in you a questions prepared to in one have but quarter? the your the how It hedging in Could you're an like portfolio. a Little so of the spreads or particular. of about October quite bit that the of comment previous widened those bit bonds, on book

Mohit Marria

Trevor, is Hi this Mohit.

Trevor Cranston

Mohit. Hi

Mohit Marria

initially quarter post you ratchet to So top this approaching that. XXX to as back on and morning, of off widened mentioned we’re and had book have on kind value XXX spreads end of sort XXX rates sold of XXX

based about on to the think October expect I have. book we we currently down roughly be X% through value hedges

Trevor Cranston

it. Got

other new there opportunities so investment that's And about second the the newly you that are Okay, opportunities in guys on any the available the Thanks. you the like credit helpful. sort investment you're loan more what Are you then talked compare you question securitized. the, you side, loans on of originated versus, that that the think seeing? today? within the securitization And guys market investor guys particularly maybe seeing space returns agency can also are in are loan

Matthew Lambiase

me talk first. let loan so Sure, space the about

months the to ago. think offers XX extent RPL I attractive they to space an down set were opportunity where come still the prices

there. is think I supply the

think had and/or RPA private $XX out it whether be from come I the billion year-to-date over we've - of GSEs investors. loans we've

out of sort the little supply would $XX again, think that that see I be soften I think going if prices there. of space. bit us north more loans some of potentially start coming to even fourth billion for here, to of buying in a we're quarter helpful And

aggregate mean the played are in little non-QM issue those a new deal deal volumes To the size in we're side up the greater. lot opportunities space. of the there RPL are the side think that's On also the the non-QM QX, be a than jumbo side, between the our we've on at I looking in could in to though deal could smaller first picked investor that in one especially QX, opportunities months, size. prime require all side three a haven't bit did investor We here anywhere

of widen, decent that economics as could attractive. would on box think have could a securitization we retain originations meaningful the that to continues to be I would there amount lead what we and

you the would securitization in leverage than basis mind agencies, are you I leverage the be would in a say would versus on on a credit term Keep use acquiring they significantly on investments to the going agency loan the portfolio. If on are returns. that levered financing use compare returns doing lower that you levered your similar

Trevor Cranston

makes that Alright, sense.

you. thank Okay,

Operator

the will question of KBW. next George, line Bose come Our from

Unidentified Analyst

It’s morning. Bose. Good Eric thanks. Hey, for on

spreads of those course your and for mean observe to generically relates just the in widened can portfolio spreads we a I a market market, of Thanks. I value? we up spreads the know and the to your a bit. how value spreads? book mortgage your, it Just value, us mean book credit follow just give CRT what on can sensitivity somewhat to mentioned mean you or relate I of that generally I you as book I guys had general kind legacy guess triangulate I and mean sort for can them

Mohit Marria

Sure. it’s Hey Mohit Eric, again.

So on spread more has origination, the product. on widening been new like credit concentrated assets CRT

are XX month of between basis sort CRTs XX points think date to I anywhere to wider.

I think have bent to technical out as and the have assets CRTs has significantly think I those widened legacy more them don't have.

to in think be. are warrant what adjustments to adjusted I performance there the continues last yields your going

on So five side. as meaningful up nothing have those I to maybe two CRT points, as may basis think lined the

tune XX loans, it how say any I portfolio, RPL think of have new jumbo don't currently. our as of also well X whether as I on to that to relates to weighted transactions and prime would up lined there be the the we spread issue some basis CRTs points again have

So say wider, I two is much. legacy portfolio our a point if or would that maybe basis

think defaults if improve I out are you cleaning delinquency performance at October latest looked really remit The in Severities the came running are lower. to continues lower. that pipelines up.

of all assets, those think portfolio. for loan thing positive than billion our same of loan applies given plus month are are better on sort we've the majority the the housing favorable portfolio over for performance $XX the portfolio. expected I producing that also The I loans that's And our to think vast conditions And seasoned. XXX built. of our legacy

Matt the us I that to spoke are loans. softness jumbo on credit on give investors, of are the newer be event plenty that that and we credit the think it those metrics of focused type numbers and a housing we or referred comfort I about the collateral on on and whether some of prime get stuff origination

Unidentified Analyst

fixed side, for the of I percentage weighted securitized percentage LIBOR Thanks detail. what and is one over, point this rate it's I great debt? the and month on margin that's floating And at then your assume is average your what floating, financing what's Great, Mohit. mean debt

Mohit Marria

rate adjust have that all to in to floating have re-lever securitized a a I call still on as embedded plus that spread to floating debt option we for floating to plus and rate anywhere XX% three-year debt. deals fixed of XXXX them L our want I rate we think need you portion. is the deal the we've was up aware call say that to which debt but done our so last extent in XXXX, is are XXX ranges the from rate, secure Yes, still L XXX the

Unidentified Analyst

into that Okay, have a rate…? where guys so rate been much everything mean called I pretty put fixed and coupon you has fixed

Matthew Lambiase

QX? is Everything until

Unidentified Analyst

coupon sort are that, be? trending can next of securitization Yes, year, I to sort got pipeline of and let's we just out the that where we we rate to the Thanks. were mean for, assume say where fixed coupons for portfolio, expect model like if that

Matthew Lambiase

XX capital to coupon X% a where the all I driven swaps four mean just trading a think looking of to probably and at puts you're probably are on side weighted quarter. the in at I be four if under that anywhere but at eight that's in it's securitizations some stack non-weighted going you rates to between by currently. plus XX, And you look top a of

Mohit Marria

Yes the off I sheet we fixed, get us that, if so rate and to give thing we but don't than and it do and bonds we will for looking anybody economic of swap, shareholders, has good economics bid if to do got individual I'd just floaters transaction. it for balance prefer that somebody rate their each debt, makes when don't, impression fixed a and like an more the my want deals floating we can senior we're the comes issuing mean, at the best if sense we my I

Matthew Lambiase

the as to that exposure to well I match our the ability fixed of right to That's we hedges on data rates floating put change yes. to outside mean have rate correct. that deal

Unidentified Analyst

definitely, guys. you. great, color that's Yes, Thank great

Operator

Harter, next Our Instructions] question of come from will [Operator Suisse. the Credit Doug line

Joshua Bolton

Bolton Josh Doug. on for Hey actually guys this is

thinking preference then agencies current of how advantage spread realistically widening? take to capacity Thanks allocation to of additional are additional talk become? the could the you about big and volatility agencies can an And ability spread we expectation also leverage that the you see for when and widening, context, Given in for how and thinking about portfolio

Mohit Marria

use portfolio. reinvest experiencing the portfolio pay that think could look the downs the we we again. the mean, were agency Hey portfolio on QX, I to continues we raised that extent both I in agency to mean well we Mohit the Josh, this to as non-agency I the that, deploy capital could as compelling, grow is to

I products, So take I volatility to limited pickup mean, the the in with good just we spread to could of widening and on QX. just question, market far into also a had the as has that a not that the up product widening of that to there CRT spread rest carries But on and points. laid backup we hope the agency you as the think that credit advantage go time we well reflects just prior well. deploy is product wind XX a could XX into it out going basis capital the be on spread Hopefully forward basis as

Matthew Lambiase

to just running company very I'd too with and a time. leverage Yes, long for very period low like that, that add recourse been to of is we've our

So opinion attractive it flexibility our balance get environment than in go more when into our much this us the sheet like you agencies when those credit, to on opportunities. an are gives after

see So there. opportunity ahead we of we have of us a should room good lot

Joshua Bolton

guys. thanks Great,

Operator

James. the Raymond from Steven come of laws, will question line next Our

Steven Laws

supply, have good Hi, it's the it's already, now been assets. about Can things those asset portion know like taking attractiveness be but there's I would about maybe prepayment know some limited that only the Thanks to color I big of there, agency on pipeline how I on protection, ability it talk that the can there hedge know get? the CMBS. XX% some my you with hit great? portfolio. for but ask above morning. couple looks A questions. of to commercial the wanted I

Mohit Marria

Mohit Sure, again. hey Steven, it’s

the sort there limited. opportunity the As is set of stated you

there. originations took billion. so of year started million. annual an QX grew as a in had that a basis $X.X the and anywhere so. the that to stated, we're offer like you of portfolio little some $XX did To the we are successful on spread and product product continue it We've liquidity to, so if extent as on $XX range north think focused there extent billion We financing widening to over mean and would up increase do, And we adding a better convexity could portfolio like between I has XXXX agency number, to $XXX advantage in far I that pretty in to it it and we the currently, doing pickup similar billion. pass-throughs to we grow can does see

Steven Laws

Great, that I don't look and on there you that to other now assets and touched time on? any think the is you're RPLs have opportunities at, you've whole any attractive, loans is there know in starting there there, spending are the you you look asset more out different portfolio class

Mohit Marria

I mean again.

I investments think mortgage flow available whatever it from looking single QM at we're non-QM cash portfolio. at all sides it’s into making going and opportunities rental, residential on we RPLs the most family put think be loans, could is the be the we're investor to I whether the ultimately

Steven Laws

Great guess one I and macro larger then of final kind picture.

focused at the on kind here. going off inflation and been the multi-decade on and they've rates in set is then touched economy prepared very of remarks You fighting unemployment where are with the and lows think I

where decision do other way, potentially you higher, standards do that the about - older credit that how underwriting think credit but does you continuing your since the to crisis you cycle about impact have the residential performance as move here loans, moving in on been are So compared investment conservative we unemployment think residential rates how going with to think forward? pretty

Matthew Lambiase

very on prices and think delinquency Well, I housing I very mortgage think in general. more to we're still Obviously, for going better, people it's good doing for good be very just constructive mortgages residential performance. working,

good actually I mortgage tight. backed originations, too are boxes that's making loans think very still originators for at securities for are credit - their the I looking think the And in forward that performance. I going credit think

and a like of I think you they're the know X.X% Mohit and that said, not the big market agency marketplace are lot issue now. the in coupons is and mortgages really the how duration refinancable in X%

seeing slowing dry and down dramatically. we're activity refinancing that pretty So up market

the lack the agency but I So of met supply the very their portfolio. new and teeter-totter with of Fed to going coming market, of supply the constructive. It's to opportunities out think stuff have and it's back there market that in we're coming of some going into forth being you're

very a spot, I think tough going the right in Fed now into December. is

pause if here and up market this that's credit to think take a we're Powell March. and see skittish, again what the looks they [ph] volatility least. But - chance they little the see probably a rates and I at happens preparing and it there's I'd what economy maybe and keep raising pressing in for some in keep you significant was I here we're that could if

Steven Laws

Great, Mohit, thank my appreciate you well comments. for you both I questions. the Matt, taking

Matthew Lambiase

Thanks.

Operator

question next Bose KBW. comes George, Our from

Bose George

Thanks for follow up. taking the

a yield coupon got on the of but loss what I think was the adjusted property on deal that? investor I say you XX, did

Matthew Lambiase

The X.XX. coupon is actually

Bose George

okay. X.XX,

Sorry about that.

Matthew Lambiase

yields The be on digits. our investment going to losses are mid-high-single

Bose George

Got guys and those from? you are where sourcing it,

Matthew Lambiase

money working center work We're both the on bank, a parties. a that's sourcing package just bank for that, an pricing and a in agreement we're on of collateral with

Bose George

Okay prepared the make agreement, source guys as and the that you I is are loans are only them? to more they mean flow buy

Matthew Lambiase

No, parties I both for extent can agree on we work to a think it has the price. to

transaction but not You full can it's a do a agreement.

Bose George

Okay, for Thanks thank you. the color.

Operator

closing Thank over now Matt the Lambiase for to you. call I'll turn back comments.

Matthew Lambiase

XXXX for forward on joining Call Earnings fourth Well, quarter New to and speaking to you the results. you the look the third for Chimera Corp Investment us Year quarter thank we in

Operator

thank to like call. we’d on conference you today's again for Once participating

disconnect. You may now

Chimera Investment (CIM) 31 Oct 182018 Q3 Earnings call transcript