CIM - Earnings call transcript Q4 2018 | Chimera Investment Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation Fourth Quarter and Full-year 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 fourth Nicole, everyone participating for Thank and thank full-year Chimera's quarter earnings in you, you conference call.

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

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

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

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

Matthew Lambiase

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

are economic the comments, will brief activity will go on Falvo, some Rob Chimera's Victor recent Brexit, will due Afterward, and Marria, financial me Capital our this our I'll most economy's our results. we Yarlagadda, Mohit which quarter problems, morning make to for seem the COO; our CFO; and review imply U.S. Mohit Head Joining call U.S. CIO; growth over fourth Choudhary trade portfolio, Rob Italy's Colligan, volatile then Markets. the of tariffs, starting shutdown, as to questions. to fears open periods up call for to some was well one as the of government and data slow. China-U.S. the monetary related the memory, in The

markets November, when for shins increased a since occurred on send These for by depression. Our XX in funds the the most down fourth rate to was struggling the Ten fourth helped final also the the and in in in a period points. immune fixed great the fourth the Treasury December notes a X.X% Like relatively of in S&P equities Reserve market quarter. close fixed December quarter XXXX hit Federal X.XX% quarter. treasuries. U.S. treasury then, factors yields federal left in U.S. seven-year into basis of income first investors short was experienced significantly the driving reversal to off-mode time worst not surprising Chimera's of year under-perform The high action in the kick dislocation market portfolio the at in rallied the income X.XX% the the yield. risk the up equities, most to December. volatility the great keep price XXX XX markets It sectors

high embedded due options perform As well, mortgage-backed did markets not most volatility in securities to and the prepayment experienced mortgage. know,

U.S. of comparable interest close the on we widened witnessed into rallied XXXX, rates spreads treasuries mortgage-backed As duration securities swaps. agency rate and

to of Additionally, Ginnie the partial U.S. handle to spreads Mae shutdown the due to ultimate increased closing construction in the Chimera's portfolio the and would The widen of spread further loan FHA CMBS CLC agency fourth impending government. quarter. caused yield experienced the relating uncertainty volatility how government's draws

pass-throughs. and a would experienced longer As agency price more MBS assets residential you these of expect, duration volatility

CMBS add are our actively happy looking to with action While in and agency are portfolio. the think we the not a the buying opportunity, price quarter, current represents to we market we

market the portfolios investment. high-yielding deliver our at continue solid and volatility strong tough non-agency these our Both has portfolio. mix will to impact investors. This and in asset our loan price believe non-agency Chimera's made on and and our no continue remain initial we projections for Although risk quarter movements had perform profile short-term, have better asset than for this impacted value, liability to pricing was our a book returns

XXXX the full-year stream quarter achievements. share, common $XXX amongst Chimera our and the stock. to in a we securitizations continue $X.XX of market added XXXX, represented difficult increased For pay benefit key C full-year of consistent past, stock. Chimera re-securitizations million Board many generating a of All successful nine X.X% income Last generated agency earnings and of declared economic core Despite Chimera securities, per for positive carry a securitizations its to below rates successfully Directors has spread preferred the B Series raised Chimera our Preferred the our peers, the shareholders providing raised $XXX for portfolio. XXXX, full-year Chimera of year-end with consistent which, calendar previous environment, deal. million Series common dividend investment announced intent had be portfolio. while our subsequent another to night, our quarter XXXX. liquidity fourth total and of Chimera return holdings by $X Preferred, four shares good the dividend its serving produces Loan completed our of also Chimera for XXXX. good of of our first dividend for Board for differentiator of

the stated I a until volatility, get sets political of the continue and previous Federal risks the will cycles global bring high can of earnings calls, on believe direction clear we Reserve end sorted out. As this tightening and periods

in Chimera's to generate our shareholders. the flexible to agency Our position period. balance portfolio in to continues portfolio market puts the for generate now to over continue to the will to to sheet a discuss activity good dividend large turn and consistent portfolio earnings, strong us liquid income core condition. Mohit I the call and high-yielding credit remains adapt

Mohit Marria

since dramatically in income December, the Interest across of in Reserve cycle Matt. spread you, increased XXXX, fourth quarter and widening represent XXXX The initially products. did rallied period the Federal fixed Thank of this significant time market. ninth was the rose of in fourth beginning to The short-term income spread indeed but fixed quarter, monetary rate rate raised interest the in interest for leading rates tightening. which volatility of a the time

as changes, for look somewhat the existing important a lead ahead book market of is for and the direct sharp sharp bonds. interest future to value note XXXX. volatility movement XXXX. hike It rate anticipate good strong value This December's positions the we safety more move the investments impact rates price U.S. Fed into portfolio. Chairman and somewhat. while policy weakened the rates year-end and many book caused over in approach will movements, a hedge past investors in dovish decline value, was stance of can result not XXXX, good the treasury that As stock has amongst rate recently a in changes book has it raising to is Reserve their to opportunities quarter unexpected these taken flight credit believe and [ph] on and Fed losses performance in the the one result into to to their provides a for in for we and the slightly spread leading has Paul remain painful positions, quarter data-dependent and in Federal fourth backdrop stated case We spreads,

of seasoned a be in these continue and business have loans with portfolio. maintaining warehouse our the loan comparable of perform well as repo severity portfolio, usual roughly held expect credit same financed many our the volatility. totaling loan packages performance balance Chimera's were million while $XXX coupon, average in coupon, still in strong nearly to are purchases low purchases fourth quarter, combined characteristics currently weighted of billion loans. in able securities future currently non-agency The and price rates as age, a profile our balance these accretive of two at existing of separate quarter in conviction on small X.X% prepayments, portfolio. a the And for defaults, to operated being $XX,XXX profile $XX seasoning. of XX-years to uptick recent securitized fourth and portfolio. the the Lastly, our loan loan Chimera These two lines loan seasoned balance, We to purchases we in average to and markets purchase size with

to our previously optimizing spread to securitize the income these fixed long-term liability. for monitor be the debt opportunities to loans income and continue lock-in active markets continues securitized will for portfolio. We Portfolio team

rate hybrid XXXX portfolio a $XXX securitizations agency $XX.X XXXX, source over current REIT, their portfolio points. securitization. of In low fixed of Most in million and was began and optimized whole to value we for XXX hedged deployed opportunities by stock. and The capital $XXX its quarter as and and to long-term phase, loans. used balance of issuing spreads During pass-throughs a we floating residential agency changes management, stock widen. as credit hybrid in $XXX two In agency at market XXXX. million now maximizing Series issuances. investment capital since investments preferred securities, opportunity. percentage million October mid X.XX%, through in Chimera Agency rate liquidity lots XXXX purchase highest total, of securities and separate agency to XX% lease basis, Chimera's on four capital million relative costs refinance in the cycles portfolio, billion represent of loan selling of coupon beginning time, called $X.X Fannie agency of liability $XXX and Chimera agency a our portfolio like This callable used reducing mid has million liquidity The of debt newly-originated refinanced as $X $X.X first optimization on large portfolio fourth see our become to long-term long quarter, is and history initial Chimera of of pass-throughs, total XXXX-XAG, consist of into financing billion full by those Chimera the agency allocation, raises CIM by of into and September, the credit preferred Mae Chimera investments XXXX, make Chimera and X.XX% deployed late billion successful XXXX in again our amongst seasoned model X% shifting the investment residential spring provides of over now agency CMBS. a potential has we for senior asset C period. in and In the XXXX-RX, this and flexibility Chimera's new stands In billion agencies opportunities assets. CMBS. to the performing $XXX raised CIM investment in as of basis early

continues our to investment leveraged agency portfolio. income spread and that good liquidity good believe increased Our and MBS both portfolio value team provide for represent

balance complementary We for portfolio. to credit opportunities with to financial We Rob look for credit we I of continue over actively into we investment to and long-term XXXX. to investments agency now and seek review CMBS head as call add turn our our the are results. believe investment agency will to well-positioned the

Robert Colligan

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

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

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

agency offset for income was $XXX fourth For million, consistent the core in million $XXX the costs. core XXXX. by financing last earned higher income year, The interest relates was net million partially Economic primarily in increase the Chimera's increase up net in quarter $XXX income from income to interest with net quarter. portfolio

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

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

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

and return For the was were the cost to from questions. concludes and remarks, on economic deal equity XX%, was expenses Expenses XX%. net GAAP year, the interest on fees average fourth million, for our return servicing $XX quarter our quarter our equity up legal and pool third the This and loan increased now primarily open call the we'll compensation and equity-based diligence to related acquisitions. for excluding related increased

Operator

the of first JMP Instructions] [Operator Cranston with Trevor The question Securities. comes line from

Trevor Cranston

Hi, Good thanks. morning.

of little how on Could terms a little agency First a add RMBS, which of deploying versus sector. of spread you of about agency widening maybe capital, you question, thinking market obviously, sector bit agency particular particularly in you're the asset but a and the talked also value? guys opportunity terms across bit in you're the CMBS bit of a looking expand color the most Thanks. is classes in terms agency at CMBS about

Mohit Marria

morning, Good This Trevor. is Mohit.

And So, wider materially spreads, basis you looming the the agency opening par fixed they were passthroughs ended of in to those agency part residential government about played we in were out depending XX QX, into December with to on spreads than spreads XX the all CMBS what on in. and QX. XX wider as remarks, on points we stated materially spreads were five income coupons basis between on agency that side, where as shutdown, the gapped and headed points

side, it's guaranteed, buy But government And agency landscape, shutdown, I it volumes we the are given, at the be the there more based attractive all more has the flow FHA-backed. pools agency widening we CMBS so reopened; very there have XXXX, there the levered Mae construction QX produced currently. CMBS been extent returns. obviously loan lot the that pending And government of returns And to there. can more But been on the is picked those Ginnie haven't now loans. in there find agency teens. limited we a teens up. look side, there's again, Mae we also our mid in the took The project low mid Now, stuff on as on returns place focus levered levered Ginnie to so definitely buy would investable think just spread the

Trevor Cranston

Got you.

Have loan CRT more market? you the any sort being non-agency guys anything legacy increased that's terms or also. Okay, within credit, are you helpful. of home in space credit the widened And of seen to add obviously opportunities spreads attractive seeing the outside

Mohit Marria

I legacy don't look the that think On side, returns have there widened, but compelling. spreads again, the levered

is although don't spreads money you LIBOR a and of think double over I returns significantly Financing course the real currently. improved to rates rates, better XXXX, advance to bid. relative digit

result What the On played technical place, haven't again, look But of front. us of issuance even new spreads does the look widening, space side, sort GSCs attractive took to that those and the some starting that been and there's significant the a on like out is continuing we further. widen as from to in issue attractive. the CRT really it's to given rising spreads of

trading the and have of the anywhere and which widened of of spreads start at attractive and as are currently bonds securitization so Some XX XXs senior gotten XXX, The as the area non-rated do as earlier stack XXX that priced, tight capital trading being stuff was securitizations. the non-rated have parts in significantly XXX swaps, those on is rated between as XXXX, rated are those around the low to us. year, tight to look both

Trevor Cranston

like non-QM or… jumbo you you prime say issue, deals Okay, referring to are when and new or

Mohit Marria

transactions. the All RPLs, non-QM, rated RPL those, prime non-rated jumbo, of

Trevor Cranston

guess update And so guys the Got have the give some recovered has spreads I trended December on think last heard Could value commentary the your of year. thing, then since book we've end since XX? you how that Thanks. you, somewhat okay. you an

Mohit Marria

on spreads. Sure. probably And spreads, I the the and mortgage of as yield product definitely has as corporate we have X% high spreads headed has sentiment book year. structured into around since January. up we mean, firmed end roughly up, shifted Both are value

Trevor Cranston

helpful. Okay, Thank perfect. That's you.

Operator

comes question line Bose with KBW. George next the of Your from

Unidentified Analyst

mix you're change in forward? came common is the that might of two-part did you I where with [ph] just the that morning. preferred that went the on year Hey thanks. CMBS sounds where just thinking this just your leverage year the and that went. you Can preferred, capital stuff discussed, Bose. into forma you structure. maybe going discuss a stack of question just mix about can and out early you the capital how give just, just color went versus part probably that the on look but deal? Eric how that that It It's question capital pro just to Good the guess some The can just for you discuss deal it like on Thanks. you second of

Robert Colligan

is This Rob. Eric. Sure,

sense. us order, to your few raised equity that last range. So the good if how questions common convertible, over look we'll as time. over sources, the fair capital not we Listen, to take see a years, amount as as in to capital try and and way alternate possible, the have about preferred eight of percentage to make stack and is makes that we including talked lose of at in time for diversify And over evolves source We've sure holders. efficient our a the stack being we'll

capital about previous in calls think to XX% XX% having in of I've talked I preferred. our

close We there. how to are things getting see that, we'll so go from

saw of capital agencies, as deployment a amount give color maybe I hard of passthroughs, far agency with of into but CMBS. little and As can went that a to acquire the would bit time. raised some to went Mohit year a second-half into last that, point was capital, CMBS one in the fair more going at on agency lot It's of the majority agency

like it just can CMBS of deploy capital of a So you we into raise all side. it's not lot the if

Mohit Marria

of market market a said, smaller given that available for We part government significantly And was invested in. did, we a earlier, the add agency yes, even -- were agency annual that the originations side, changed to on in materially CMBS passthroughs it's so go shutdown, to most did able passthroughs. obviously or to QX, so raise expand size capital originations billion, on the in weren't on majority XX there still when the again, just and January what the hasn't basis to mentioned really there. just September, a look to on But Rob acquire QX, the into of basis. as I in QX that QX trend range vast CMBS billion residential the XX levered And in from assets anywhere an attractive

Unidentified Analyst

the helpful. can did it. just the bit a that the leverage That's year. Maybe I really came preferred Got of of that press you in the deal you out little for just start

Robert Colligan

we've We'll the Yes, it's more point. not to something this that in disclosed probably about talk first quarter. that

leverage to was You're and about that? D how talking specifically Series the deployed that on

Unidentified Analyst

Correct, yes.

Robert Colligan

hold think off Yes, we'll I that QX. on until

Unidentified Analyst

in All credit out of on just think around Maybe reserve give you color Sure. seen I how the credit transfer while. to a the question think some the impact you. first the what piece. just is forward. we the the the portfolio the out that, about can that has on The that's around second -- we've right, Thank going during quarter, should transfer yield and led

Robert Colligan

don't I change based that on transfer on think I and that's Yes, performance see out was yields so of a don't forward cash independently. Sure. going the dramatic, that flows, dependent obviously dramatic in

Unidentified Analyst

did better historically you've right, Which been would of? have of come the -- question guess that a segment be, the Or has of you accounting taken just opposite, a credit portfolio out credit. the taken guys I release

to So versus past last the what just has led quarters? of difference quarter between this the string

Robert Colligan

time to time I could be there be think the portfolio performance over from quarter-to-quarter, are very most unusual. anything thing period I was older, and of say don't of still will that I think but wouldn't book. in potentially particular. lumpy yield particularly over the related Those a Yes, And long was that on anyone there our are strong. positions non-agency those

Unidentified Analyst

great. guys. Appreciate it, color, it. Thanks for the Got

Operator

of Steven from Your question the Laws line Instructions] [Operator comes James. Raymond with next

Steven Laws

and questions My now on been in classes morning. follow-up portfolio that attractive that ones are currently to there previous you're Or more have jumbo looking Are have just aren't at? the target? of commented at? a you on, to significantly looking with the asset already one couple I become out earlier. that maybe there there good question maybe hit Hi, pretty about happy are any non-QM but But other guys know securitizations. you what new classes issue you out asset you

Mohit Marria

mix and spread asset widening is Hey, continue would at I of have, add we're But Steven, volumes very the we non-QM the search currently as landscape up the space, obviously place. again. the Yes, to given there. that's happy look with mean we investable picking we are this Mohit assets, taken

done around in changed view securitizations in aggregate with. to Our accretive volumes that at the have that the loans We've widening. for by the of have be affecting again has origination that others portfolio. concern been meaningful changes sort loans the in do acquire and to size picked to would the landscape know we portfolio. always residential some I could and XXXX, could We or spread searching where we're given same up opportunities ability that either past XXXX, attractive be the mean looked transition volumes to where and something new the

Steven Laws

questions And what a that was Okay, the thanks changed asked. months ago. forecast rate But I more the Has macro as has to pricing different than you're XX here of that on the financing all as with color. at doing that from both changed, outlook guess rate for side impacted been it maybe costs. well how as what on portfolio side, strategy six is lot the from think have interest portfolio the I market the the expected certainly your has in

responded you talked you've how bit that If about in a outlook? maybe to and little interest change

Mohit Marria

October XXXX vast on did did we as and of head may the part outlook 'XX. floating going what 'XX, of own fixed XXXX liabilities last mean, lot with our in was given what of deals. the able rate for a the remainder do, of But we've securitization it issued 'XX keep fed the portfolio switching floating given we fixed done. are better the and we what go of of [indiscernible] as expectations most to both in side 'XX into the do it on liability majority start were securitizations deals rate the the the did time, for spent I'll we rate sort lock assets, a We rate 'XX floating so from we've we the I than first. of to fed of to fixed a had the in securitization

I side, On on one-month months the Fed this mean our the shorter duration, and three in our kept of Fed, view between we've some just liability mismatch the agency repo repos given funding, given LIBOR.

given the days, think down said brought XX we under about significantly converges And three difference had we've it rates the between I think year, point in. in closes basis repo the on was the that that maturity So the the could months over what difference extend late-Jan in based as I meeting, funding one-month currently. Paul backyard longer as rates

Steven Laws

Great. my a taking for lot questions, I Thanks it. appreciate

Operator

comes from with next of Your Credit line Harter question Douglas the Suisse.

Douglas Harter

Thanks. Can that's purpose whether like today? and you talk that's rental you loans, class to of asset you single-family about just how attractive flip, fixed the attractiveness an see business

Mohit Marria

The Hey. of you rental and the have higher think we're are are And more opportunity product has Good around rates the traditional I concern source to look the at loans to fixed the past we looking of nomenclature last those in as our add the loans, on mortgage XXXX. transition loans but in to depending actively we again, sort that picked have mentioned volumes or those portfolio, used, the been that and the morning, fixed noticed rate so side… Mohit to than up. XX-year volumes. getting of single-family sort offering could attractive on demand on Doug. question, residential flip started and We've on

Douglas Harter

Great.

Mohit Marria

transition on single-family spread that basis. currently the more we're offer rental again, levered the loans product, side, looking at but the on And residential

Douglas Harter

you around then know, that issuances the off talking owning is of you kind the of new And to just the attractiveness talking outright? loans, spread loans when about on of it. prior Got people's clarify your the were non-QM, commentary attractiveness jumbo there, the or MBS or widening other issue of about

Mohit Marria

So, has widened market people's have securitization spreads sympathy but the -- else, with for out the loan everything issuances. other with so

spreads in new materially that's the I done. lined the like market have loan has buy more up issued others, by could there than issued we So product pricing said the

to four to side, three lined and to months. rated stuff XXX, widened is mid-XX last close the the XXX on on from non-rated to XXX is the side in from So, to stuff XX

I attractive look where invest think to find we product to us. in. That's both could

Douglas Harter

for thanks right, All that Mohit. clarification,

Operator

Instructions] hand questions, call I'll back Mr. the no with further [Operator remarks. Lambiase for Matthew And closing to

Matthew Lambiase

Well, Corporation's Chimera quarter. us May for much thank you call, quarter speaking you. on we earnings to joining fourth for forward Investment our to first our look you very Thank XXXX and in

Operator

conference call. ask We participation, today's conclude thank for your you you line. your and that disconnect please does This

Chimera Investment (CIM) 13 Feb 192018 Q4 Earnings call transcript