CIM - Earnings call transcript Q4 2020 | Chimera Investment Corporation

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation Fourth Quarter and Fiscal Year End 2020 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to turn the floor over to Victor Falvo, Head of Capital Markets to begin.

Victor Falvo

Laurie. you, Thank everyone, conference you, in fourth Chimera’s And for earnings call. quarter thank participating

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

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 upon from recent events uncertainties, call, earnings release are are which assumptions you which statement outlined subject are differ Actual making based projections and future Factors 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 the or Mohit this the Chief the this to and information. information of over as not update any do call content specifically now will Officer I and that this of our conference only Marria undertake disclaim contain Investment obligation Additionally, date call. CEO time We to accurate sensitive revise conference earnings turn of is

Mohit Marria

Thank fourth Corporation. call for welcome you Chimera to Good and quarter Vic. Investment morning the XXXX earnings

Capital open Rob our on then we me of and Chief our Colligan, for Financial review a Officer, After President the our the call questions. Officer Rob Operating Head will Joining call Vic results Chief today our are my Yarlagadda, will and financial and Falvo, remarks Choudhary Markets.

Under leadership wish mentor in for $X.X billion led in and Matt November retirement all success future. and we Chimera Chimera company. was want to leader, dividends great our thank grew the in in REIT everyone the since paid billion begin his Matt than best We and shareholders. mortgage Matt friend of a we of a him more Lambiase. to $X.X Matt Before announced to founded and his XXXX. we

a were widened our the in securitization company's second for market XX of has since GAAP amongst an of is worked been robust policy year Chimera liability demonstrated and in has XXXX. low, started annualized position. the spreads differentiated a mortgage of demand unique homeowners all included indicators loans has credit our Housing enhance historic have key own management. past return these mortgage loan that is deal. its our is mortgage prior senior purchases Fed's pandemic for the residential component we time side XXXX. providing levels. securities This of $XX.X a Spreads in investment each The book purchases strongest those value non-agency contract our of This middle sheet XXXX. in recovery, inventories billion by enables closing to the company purchases for June with supportive of mortgage-backed year continued Over our book our benefit rates we X% on its the longer housing X.XX XX% and asset for in open Reserve with is the non-agency America. for the and This historically market low mortgage we us portfolio of finance housing mortgage These us diligently agency on XXXX. balance path homes The existing securitized strong a long-term year-end liability and helps well. in Subsequently for recently the while term units. non-agency cash low loans XX% the return The the new warehouse quarter improved seasoned trust prices year the seen of into desire as mortgage as XXXX. strengthen portfolio. began Chimera of home at the for portfolio lenders improvement that refinance. notes lowering December have Realtors helped since lows. late our in the pace is accomplish and tighter to Securitization Association ownership spring asset post-pandemic has very The National cost to and of are billion mortgage process enabled of credit depth offer quarter loans the half and market rates of in actions as quarter This and from to retain closed reported increased across X% and liability well as resiliency believe portfolio loans value The are mix to a Federal to our strong to fourth mortgage improved sheet have nearly continued loans our RMBS the residential economic to portfolio are performance high-yielding for sell the strategically Chimera's underlying to generated from financing. transferring liquidity of and economic all economic and million on prospects that of securities credit. pace reappreciation. desired combined REITs. home positioned and them at non-recourse we originated company's $X.X a and the mortgage At Throughout XX% The book RMBS. since dividend These year. housing the the fundamentals value perform in over grown fourth balance

firmly year, notes leverage sponsored returns securitization Chimera's full loan year XX In provides in in that is $X.X Chimera’s loan the financing in non-performing as one the Chimera total, Chimera's sponsored deals jumbo investor securitized prime retained XX% source billion We XXXX believe the and $XXX eligible agency debt subordinate of our than for loan for the portfolio we we’ve best securitizations, securitizations, liabilities. and subordinate two securitized available of Securitization securitization. of one separate more and deals million For loan notes. primary re-performing seven market. yearend retention calendar represented of sponsored from

we XXXX. debt, utilize issued of with entered to portfolio and less concurrent the taken is forms the non-mark-to-market call our loans for $X.X year-end a have Since In actions our mark-to-market. are At The subordinate and months billion reduce or seek Chimera's strengthening onset which financings financing and the either credit XX% warehouse pandemic notes maturity into roughly $X returns. secured offering repo we financing to enhance other average risk at of is two-thirds secured company lengthening aggressive yearend related Secondarily, secured as or limited the our were facilities. we our have and of we billion credit by credit-related we financing than convertible capped April, we XX transaction. financing

approximately size million. benefit evaluate opportunities common the authorization investment tool retirement as During large our our option our receive of which of benefiting stock valuable of outstanding potential provides the the the book board fourth quarter our XXX we This company. repurchase. Last elected of directors team for a share company's of capped a the a XXXX reduces relative to to returns settlement and stock of repurchase of increased company the Americas common night, new the million future for value of to retired. stock our call we these common shares shares count X.X exercise The then were and stock

strong Our on remain balance value focused sheet is shareholders. for and long-term we delivering

notes underlying Now like in weighted in a I average XXXX-RX X.XX% months. the of purchased In loan The sold activity. go the average through The of XXX fourth loans borrower CIM of and in of score senior XX the interest-only and plus in securities. loans would from average loan million deal re-performing we was an portfolio average LTV The and FICO was September. XXX. with to RX it the million million size had securities issue quarter XX%. with XXX,XXX deal age a retained XXX the transaction had average October XXX coupon We subordinate

for [CIM loans of November weighted had of issued advance without million average size debt and re-performing The was average X.XX% deal in loan We sold XXX. had The $XXX $XXX The LTV the XXXX-RX XXX the was securities rate. notes The the and security. XXXX-RX in of was the underlying XX%. the RX XX,XXX consisted the a coupon an XX% plus of transaction of within in XXXX-X CIM average retained from million average securitization. CIM RX months. in deal $XX cost and million from loan FICO and XXXX-NRX]. borrowers interest-only age loans score of deal X.XX% In call we subordinate CIM a Our

The months. an RX, the by The XXX underlying million of average average advance called our of a The advance December, at of an loans had of and average with rating average CIM rated was weighted cost notes The a DBRS rate. of million agencies. two a a XXX,XXX of the XXX other weighted loan debt average FICO. by at debt rated XXX we sold rate. of XX loans retained XX%. $XXX cost average an a and Fitch with loan X.XX% average and average million $XX million In RX any a a issued X.XX% XXXX. an non-performing FICO size was and deal RX of NRX XXXX-X The We subordinate deal LTV and deal second months. notes. was for Chimera weighted rate X.XX% was CIM deal. jumbo coupon loan from securitization and age XXXX-JX, size XX% securitization had and XX and prime The Our NRX X.XX% XXX with of Moody's, age loan of not LTV XX% collateral for the coupon loans for XXX,XXX were was

is market As we booming. the XXXX begin housing

of costs to is all-time year spreads Our position new we mortgage to upon some and This the at with ample as our ways securities primary make have cash Interest to from lower continue will well liability historic perform securitization are securitizations. retained or near improve for financing the to continues strong rates seek debt securitized and market investments. back-end portfolio as well classes lows our on types. we

source is As rights lastly strong or in billion of call investor issued currently provides demand. meet leverage callable owns to will And a XX CIM callable X previously are product of on company's that either yearend XXXX. low. our in deals This become Chimera

leverage the growing both. or the either increase Rob deliver improve adjusted financial tools we is begin we now by to to As dividends turn will our I use assets, available conditions call shareholders. as and Chimera results. we equity repurchasing well best over XXXX the the our risk can review positioned to will to market all

Rob Colligan

and change quarterly and of $XXX $XX net or the the $X.XX GAAP fourth full end and the I'll per on year. million the full $XX was value our the it On share is highlights $XXX book per on million million the or million Chimera's and the per income Thanks return at net quarter the book was for interest the $X.XX per for $X.XX income basis income share full fourth share $XXX for and Mohit. fourth fourth GAAP or review value net year the million core value dividend year. per full Economic and quarter share a was quarter was or $XXX quarter for financial GAAP was for it for share. was $X.XX quarter fourth for million in year. book economic common XXXX. based X% fourth the quarter $XX.XX

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

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

the For questions. servicing the on GAAP concludes quarter. for return up equity fourth and our equity economic were XX.X% was slightly average Expenses last excluding our from $XX for fees That now net and was open we'll on return quarter the and expenses transaction fourth our remarks quarter interest XX.X%. million call

Operator

Thank Instructions] George the comes Your line first of you. from of question KBW. Bose [Operator

Unidentified Analyst

actually Hey Bose. on guys, this is for Mike

season is RPLs So deploy investment you're the case? quarter RPLs, capital I the just Last to seeing wondering jumbo if maybe about is my between of the you that first was best opportunities still talk property? where best question mentioned you could

Mohit Marria

tremendous for strong Mohit. market fundamentals is term Yes, the season offered is just losses company core where us. you're securitization Thanks in new to given been has achieve with strong from since coupled value how the joining mean mitigated This still the and upside the re-performing XXXX. the strategy financing. housing able loan Mike. for Hey I It

still tremendous we think pieces that think, value. offer end you So we the retain back would

Unidentified Analyst

the Got I you. high last quarter And RPLs mentioned then is on think single you digits. cash that still yield

pricing everything's maybe recent looks when the of RPL like So look sales, it par. some above I [Fannie] at

So I if was just still walk that digit maybe yield case? the the through that's high get you can wondering if single to math to

Mohit Marria

space as mentioned in have things and yields GSE most come have Yes, the par quite the also in alluded packages the on or time you in quite most on to QX. above and issue place that have I are of loan in trading par same Spreads new RPL but mean meaningfully took side sales in the come at significantly. just spreads come at

side at securitization XX the rated affect a level you could the On basis at points. AAA

basis. So the looking end mid high around investment rate XX%, of probably an structure to capital your to that you probably XXXs blended XX% stack the to as back which you and about swaps represents that returns and advance execution grade you're go all-in of down gets at on an

anymore. returns digits in but products you digit be on can your back with leverage that double I produce all Probably digits some if retained like come So as would other as single won't spread be single high mid-high piece. have said returns end

Unidentified Analyst

the Great. you're yield not business pretty purpose I can now? assume and again regards That's math on originating up through of those and if then margins sale to and with right asset the must loans helpful loans, economics because you are ROE maybe there high be on the that the the just some just talk

Mohit Marria

Yes.

monthly fund, a on downs at on duration we our portfolio $XXX portfolio we've given short a is basis execution pay par servicing coupon fees So business on I been as slightly the million price it's and loan now on X% or management six focused probably nature, mean of a coupon I a going par. plus have purpose you're and mean lot the and probably above net that little just [neto] gross % looking under the asset the but originations at basis around just on with fees over

is double into asset. nature than product challenge the Replacing returns are the given returns short well sort of it going your relatively it. duration nature, there the short on again digits the So a leveraged to that for be asset in] [ratio short by offered bigger the of

Unidentified Analyst

helpful and buyback. more one just That's Great. the then on

authorization XXX. authorization? the the was just increased me you of Can previous what remind You

Mohit Marria

before. we XXX Sure had

Unidentified Analyst

is available? currently Got much you. And how

Mohit Marria

So XXX million year. used we XX million last

Unidentified Analyst

much so appreciate you my taking Thank questions. Great. Okay. for I it.

Mohit Marria

Mike. Thanks

Operator

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

Doug Harter

just was to of quarter? the of the Thanks. what sense Mohit securitizations your of the financing or Rob, was did compare through walk the cost was that can what cost being of that financing you you kind guys in on change? just the Can a you replaced to get

Mohit Marria

Mohit again. Sure. Hey is Dough this

the around a so I was about So on with XXXX-X. X.XX% said the the debt was that We had XXX and re-lever rate. based re-lever we as acquired X.XX%. was at We did of we basis November did securitizations basis - that XX% said issued in of on That securitization as advance cost in we the we savings. right XX% four cost securitization term around The there CIM September not re-lever. a we early loans points saved an just put into funding end a the XXXX-RX was

So to X.X the it was prior or roughly. re-lever over X.XX

Doug Harter

that the are on and callable or securitization where of of either expect amount it they ‘XX said today are kind deals callable would savings? in assuming comparable you Got stay markets you

Mohit Marria

you here. So give I some will stats

advanced non-rated you're X you the get. we on of could securitizations rates or sec billion. and as collateral XX the UPB yield $X.X willing X.X that's current the in has to deals profile of with debt somewhere to roughly mentioned debt that that the associated of now, space have I think of with represents billion $X issue that X.XX% right billion become a $X callable and So current between new That earlier issue depending

going a So re-lever. the to bigger we it's on what able actually number be than were XXXX-X achieve to

Doug Harter

how of That's about you of you as helpful. opportunity? think we just or Can you ability have increase present and then And how also size kind leverage. to just kind that mentioned themselves you help opportunities the that that

Mohit Marria

if pandemic the of still and the selling grown the company during focus is and schedule behind if took at think pace space, look half they're We I year a GSE the pause last result has portfolio you the in the the mean the up core back the the season picked as you of of pandemic. a of Yes. re-performing which year.

an they're north on billion season still side loans need probably of re-performing $XX from So that'll of annual the disposed the be billion on XXX GSEs billion $XX to of to basis. between

for of to. alluded now has pricing we par of us. some also primary banks lot still some par. A So cases a where as given funds in or some is are source that assets, just collateral come that There probably at will some above that's space liquidate

So for will and given course available is of an the will that loans a approaching sale of and of the available these almost the today at market there again we strength there lack remain all-time from new robust which become levels the of issue is assets over spreads issue XXXX think standpoint. tights or pipeline and legacy

fancy So a come loans double in the but basis structural leverage pretty still on returns. yields digit The produce underlying are you limited leverage can the recourse markets have coupled on with term strong. some

Rob Colligan

is this Yes. Dough Hey Yes. Rob.

Just to add there.

a a is re-lever year, reduced the resecuritize a obviously COVID-XX last market back to funding is was costs for additional but lot and other many go going have companies and into very for year year we you hold and or lot our and pandemic the to on of plan things liquid of put this low. things securitization thesis If cost deals

we're XXXX. about optimistic pretty I So think

Doug Harter

you. Thank Great.

Operator

comes Hagen the of BTIG. of question Eric next Our line from

Eric Hagen

on portfolio additions the a since can you And deals CMBS just that you securitized made of frame of And tweaks portfolio the can some pass-throughs? A talk more call? as how relative maybe morning. of to agency that complete about importantly you're and you just the decision as to appetite source lever the factors then or Thanks. questions. retained year talk liquidity Can end good to couple incremental you've and like now debt, of piece? you hedging how Hey you the your drive callable maybe about any

Mohit Marria

Hey Eric.

Let the agency me CMBS with question. start

not market of we points in currently we as book QX basis XX still with on and XX-year. had even as off hedges that the the have sold that no So on having well QX changed

agency of based our that XXXX to north in back coupon you based the the it's mid the high and book, on to from price the on go market much given of be If rallied XXXX would the on average weighted assets CMBS coupon, those how duration X% teen. implied

So it'll these in are be penalty cases XXX depending to area given that XXX XX and loan around prepaid prices protection hard to $XXX years, assets of prepaid exhibited looking capped the the artificially with price that's most in at. you're on that around a $XXX of the sort

it as So in even is a the of also tightening selling far. CMBS witnessed, witnessed offs QX I similar that leading so with of did other was sort sort think unchanged QX, most products portfolio spread in price market trend being our of the spread agency to

So, yes.

have hedges on no We at the moment.

occur We think sort is portfolio an some still the the the tightening happens could but are year spread there we given duration what sensitivity keeping of product. on that to eye that within XX of

cost So just the we moment. is at not of the think needed hedging

as call of of cost to mentioned determinant where the $X.X that of second of probably equity conditions more capital opportunities. billion call XX% to that's be X and effective we In and take we debt that of would generating XX% relative and to question in a rate of market also weighted how we deals strategy of represents of into frequently able X.XX% new sell average course the into X.X to we to new addition subject an and because will it securitizations you addition XX% attractive on think the market the re-lever have big to look conditions we able when advance UPB collateral we'll that if issued advance we cost to could issue is roughly to at on the debt billion underpinning As new be on and rates based billion those a deploy a debt I out on on will performance part at go collateral reducing investment your debt

Eric Hagen

Right.

ahead. Sorry go

Mohit Marria

for both was a as well potential equity. to going I financing be cost say as going saving term it's to on a takeout

Eric Hagen

or I thoughts you Got as maybe some around those lever appetite this retained was your it. the piece you deals year? give can to hoping complete guidance

Mohit Marria

is I or to have on I sheet a forward the committed a non-mark-to-market sheet We on we mean, we're focus with said that balance or at but I large on but we to asset could a we're working pretty balance on were position back or addition the on large we I sure on basis. recourse the and basis financing limited mark-to-market go think that leverage with market have always unencumbered comfortable times having have a mark mean those coupled finances prior having to a position we finance on pandemic, in cash our where to like either end basis. pieces unlike mark-to-market focused X.X basis making want these with non-mark-to-market limited strategies to also

Eric Hagen

market and from to essentially non-mark-to-market areas refinance the funding retained the is that got has the term you appetite lower last pieces? as for any or cost and ability line year it pay in and there down come tightened, into Right

Mohit Marria

cost of on mean, borrowings. at I cost coupled on of go securitizations December I as of financing with and both of our repo better the those on think if borrowing was the I mean back cost on ‘XX was liability QX in X%. portfolio credit that's callable that another like we is end you our X.XX% XXXX just of the as to our the the focus remains side XXXX it have tool Yes. savings of the part

could of money we a crisis for but we borrowed have borrowing was Now time that. it and ability refinance the obviously short expensive in times to

in earnings for even borrowings securitizations meaningful upside the company repo So XXXX. to coupled the potential our with have

Eric Hagen

for much the comments. very you Thank Great. it. Got

Mohit Marria

Eric. Thanks

Operator

from Securities. Cranston line [Operator JMP of Instructions] the comes Your of question Trevor next

Trevor Cranston

Good thanks. morning. Hey

kind of what to decline question from the you EPS I through take could then sort drivers $X.XX were hoping of provide light and core was into Rob, you are guys First investment quarter main some thoughts spreads, us can question been the maybe are the general has about earnings in thinking this Thanks. where and the maybe guys around heading XXXX? in second you of dividend of that on compression last quarter new just how

Rob Colligan

Sure Trevor. question. the Thanks for

Going the think have from that of in maintenance quarter have and side but provisions we some bigger portfolio of may we a last some did earnings number lockouts to quarter one this on and had on CMBS penalties we where drivers paydown this them. on last I prepayments the have quarter's call yield we’ve touched those have portfolio received on

if do we penalties. pay some receive they off early do So prepayment

don't higher little at in back very on I think many were normal if it than almost CMBS if particular a abnormally the had normal quarter you sledding. any we got last a had we So versus looked they to this bit yields paydown. high quarter,

bit --. a in obviously of have and Mohit maybe was liability that I'd forward costs. looking think then regard I but can to it quarter So at say On opportunities spread compression our last quarter we're little higher going this reduce some versus

Mohit Marria

Yes. Sure.

the stated thing your the have given of and about of financing. we our experience, opening good we in of part remarks think is assets could where pool a sort question Second optimize the how we we as about compression dividend yields

have sect go dividend so points. drive X.XX% going that a our of of billion debt basis XXX and current to basis cost As we maintain to I at over base said down $X.X is

basis our our on and on and alluded given with recourse of XXXX and of and So we're of the and side billion $X.X for funds earnings another power as the in forward going X.XX% source earnings cost beyond of save the flush to on just a driving cash XXXX on basis cost points that's credit XXX I you're that market beyond. will go at reducing repo to company borrowings a is how drive

Trevor Cranston

speeds guys outlook over slowly. what if provide off Thanks. and that historically how And quite is last for could helpful. forward? portfolio several sort color the then I around paid you progressed wondering months the prepay has was That's Okay. some of going you have

Mohit Marria

XXXX around uniqueness prepayments the mean is were if portfolio credit think, I looked portfolio at remain mean CPR our and of have is look our pandemic. the if you X-XX our I if I at largest that Yes. position, Jan basis. which to forward just These Jan the have that of credit change CPR and been we around standings X just changed remain XXXX in due prepayments flat but in expect XX impairment don't consistent what you credit throughout speeds you it either. nature to they to that borrowers hasn't money to the their

Trevor Cranston

Great. Appreciate the Thank Okay. you. comments.

Operator

I'll for the return call you. Thank closing now comments. Mohit Marria to any

Mohit Marria

call our forward QX in Thank Thank later all May. joining call we earnings us you to and you. on earnings for QX look to speaking you this our on

Operator

QX Corporation Call. Investment Chimera XXXX the Earnings conclude does Conference that you Thank

disconnect. You now may

Chimera Investment (CIM) 10 Feb 212020 Q4 Earnings call transcript