Chimera Investment Corporation

Welcome to the Chimera Investment Corporation Second Quarter 2021 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. If you would like to ask a question at that time, simply press the star and the number one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, press the pound key. we ask that while posing your question, you pick up your handset to allow for optimal sound quality. It is now my pleasure to turn the program over to Victor Falvo, Head of Capital Markets. Please go ahead.

Thank you, Brittany, and thank you, everyone, for participating in Chimera's second quarter earnings conference call. Before we begin, I'd like to review the Safe Harbor statements. During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which are outlined in the risk factors section in our most recent annual and quarterly SEC filings. Actual events and results may differ materially from these forward-looking statements. We encourage you to read the forward-looking statement disclaimer in our earnings release in addition to our quarterly and annual filings. During the call today, we may also discuss non-GAAP financial measures. Please refer to our SEC filings and earnings supplement for reconciliation to the most comparable GAAP measures. Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date of this earnings call. We do not undertake and specifically disclaim any obligation to update or revive this information. I will now turn the conference over to our CEO and Chief Investment Officer, Mohit Marya.

Mohit Marya Thanks, Dex. Good morning and welcome to the second quarter 2021 earnings call for Chimera Investment Corporation. Joining me on the call today are Choudhury Yarlagada, our President and Chief Operating Officer, Subra Viswanathan, our new Chief Financial Officer, Kelly Cortman, our Chief Accounting Officer, and Vic Falvo, our Head of Capital Markets. After my remarks, Kelly will review the financial results, and then we will open the call for questions. This quarter, we continue to make significant progress towards optimization of our liability structure. For the six months of 2021, we successfully refinanced 12 legacy SIM securitizations supporting more than $5.6 billion of loans. The results of these transactions has lowered our overall cost of debt by approximately 245 basis points, and we expect this cost savings to continue to benefit our shareholders in the future. The housing market continues to be one of the most robust components of the U.S. economic recovery. The National Association of Realtors recently reported sales of existing homes at 5.9 million annual units for the median sale price of more than $363,000, up more than 23% from a year ago. Demand for single-family homes remains strong, while the inventory of homes available for sales persists near record low levels. According to Black Knight data and analytics, In June, the national delinquency rate hit its lowest level since the onset of the pandemic and is now back below the pre-Great Recession average. The 30-plus-day delinquency rate was reported at 4.4% of outstanding loans, down 42% on a year-over-year basis. Strong demand for existing homes, higher home prices, and lower delinquency rates provide strong fundamental support for Comair's large portfolio of seasoned low loan balance mortgages. Interest rates on government bonds experienced a bull-flattening move in the second quarter. Over the period, the yield on 10-year Treasury notes fell by 27 basis points, while the yield on 2-year Treasury rose by 9 basis points. Interest rates on money market instruments, including overnight repo, remained near zero. Investor demand for higher-yielding fixed-income products was strong, and spreads on credit products continued to trend tighter. Accordingly, the Bloomberg Barclays U.S. Corporate High Yield Index ended the quarter at 3.75%, its lowest yield ever. Tighter credit spreads, coupled with low absolute interest rates, have presented attractive market opportunities to refinance our existing securitized debt and secure financing at significantly lower costs. As part of our continued call optimization strategy, this quarter we called and refinanced six SIM legacy deals representing more than $1.5 billion of loans. The new securitization successfully optimized our liabilities through the extraction of capital and lowering cost of debt. Our April deals, CIM 2021-R3 and NR3 on a combined basis had a total of $813 million of securitized debt supported by $977 million of loans. The combined advance rate was 83%, enabling us to extract $125 million of capital while lowering our cost of debt for these loans by 200 basis points to 2.12%. Chimera retained $164 million of subordinate and IO securities as investments from these deals. The new securitizations have a calendar call dates. The R3 financing will be callable beginning April 2024, and the NR3 financing is callable beginning April of 2022. In June, we issued $546 million CIM 2021-R4. The deal consisted of $464 million securitized debt representing an 85% advance rate and a 1.97% cost of debt for these loans. The R4 freed up $98 million of capital and provided cost savings of approximately 180 basis points. Camaro retained $82 million of subordinate and IOS securities as investments. The R4 financing has a calendar call date beginning June 2024. We have provided additional details on page 8 of our earnings supplement to further assist you in the analysis of this quarter's SIM securitizations. Securitizations has long been a cost-effective and efficient financing vehicle for Chimera. In the first half of 2021, Chimera's re-securitization activity enabled us to take out capital, reduce the size, and lower the cost of our outstanding credit financing. And in conjunction with this year's re-securitizations, we have also refinanced several of our outstanding secured credit facilities. We have made meaningful improvements with the average cost of our secured financing for residential credit assets in the second quarter at 3.5%, down from 4.9% at year end. We have always been extremely prudent and diligent when making our long-term investment decisions. Our agency CMBS portfolio is constructed with explicit prepay protection. As interest rates have fallen and maintained near historic lows, we have been active in managing our agency CMBS to determine the best course of action between long-term hold, gain on sale, securitization, or reaping benefits through explicit prepaid penalties. This quarter, through the combination of prepaid penalties received from our Ginnie Mae project loans and early paid outs of non-agency credit, we generated one-time non-recurring income of $38 million. The prepaid penalties we received this year is proof of concept for many of the positive convexity attributes we have regularly discussed over the years. Now, at the midpoint of 2021, I believe we have made meaningful impact on our balance sheet. We have re-securitized debt supporting 5.6 billion loans through seven separate securitizations, lowered our cost of securitized debt by over 245 basis points, lowered the cost of our repo credit facilities by 140 basis points since year end, retired high cost debt and warrants incurred during the pandemic, issued three jumbo prime securitizations totaling 1.2 billion, purchased more than 200 million of high yielding fix and flip loans, and increased our quarterly dividend by 10% to 33 cents. Securizations of loans lock in stable long-term financing for our loan portfolio. We have successfully refinanced many of our outstanding legacy deals, and we have an additional five deals with $1 billion of unpaid principal balance that are or will become callable over the next six months. Looking forward, we continue to seek opportunities to further improve our liability structure. And as always, stay the course as a patient long-term investor focus on investments to provide our shareholders with stable book value and a sustainable and attractive risk-adjusted dividend. I will now turn the call over to Kelly to review our financial results for the period.