Chimera Investment Corporation

Good day, ladies and gentlemen, and welcome to the Chimera Investment Corporation first quarter 2022 earnings call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Victor Falvo, head of capital markets. Sir, the floor is yours.

Thank you, operator, and thank you, everyone, for participating in Chimera's first quarter 2022 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. They're 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 for 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 revise this information. I will now turn the conference over to our CEO and Chief Investment Officer, Mohit Morya.

Thanks, Vic. Good morning and welcome to the first quarter 2022 earnings call for Chimera Investment Corporation. Joining me on the call today are Cholri Yarlagada, our President and Chief Operating Officer, Subra Viswanathan, our Chief Financial Officer, and Vic Falvo, our Head of Capital Markets. After my remarks, Subra will review the financial results and then we will open the call for questions. Last year, we began to prepare for a higher rate environment by optimizing our liability structure, which included the re-securitization of $6 billion of our loans with long-term fixed-rate coupons. As rates began to rise this year, we have begun implementation of the next leg of our strategy to acquire high-yielding residential loans while continuing to obtain long-term financing through securitization. The dramatic increase in headline inflation and widening of credit spreads, which began late last year, continued during the first quarter of 2022. The Federal Reserve Board began to raise short-term rates and announced it would stop new purchases of agency mortgage-backed securities and possibly reduce its current Treasury and MBS portfolios. Markets reacted swiftly to Fed pronouncements causing two-year Treasury notes to increase by 160 basis points, 10-year Treasury yields increased by 83 basis points, and 30-year mortgage rates increased by approximately 160 basis points. all occurring over the course of the first quarter. This combination of high volatility and higher interest rates impacted our book value, which was down 14 percent for the quarter. At the same time, this environment created opportunity for Comair to increase our investment portfolio of residential loans at yields much higher than were available last year. This quarter, we committed to acquire about $800 million of re-performing residential loans. We have settled $570 million into our loan warehouse and expect to settle on the remaining loans early in the second quarter. New purchase activity, coupled with the settlements of loans purchased late in 2021, enabled us to settle on nearly 1 billion loans in the period. We expect these loan acquisitions to contribute to our earnings immediately and like to add more loans as interest rates continue to rise. In February, we sponsored CIM 2022 R1, our first securitization of the year, collateralized by seasoned, re-performing residential mortgage loans with a principal balance of $328 million. The loans had an average coupon of 4.61 percent and are 169 months seasoned. Securities issued by CIM 2022-R1 with an aggregate balance of approximately $264 million were sold in a private placement to institutional investors. The senior securities were rated AAA by Fitch and DBRS and represent approximately 80% of the capital structure and have a 3% fixed rate coupon. We retained 64 million of subordinate notes and interest-only securities for investment. Kamara retained an option to call the securitized mortgage loans at any time beginning in February 2027. Considering the market volatility and increase in interest rates this period, I would like to take a moment and discuss the liability structure we have worked so diligently to establish for our balance sheet. Securitization remains the primary source of funding for our mortgage assets. This debt is permanent and has been structured with call features that enable us to optimize our liabilities over the long term. At quarter end, $8.1 billion of securitized debt represented 70% of our mortgage asset funding. 7.9 billion, representing 98% of our securitized debt, have fixed rate coupons. The average rate of our 8.1 billion outstanding securitized debt as of March 31st was 2.5%. The remaining 30% of our liabilities are comprised of repo or secured financing commitments. At quarter end, we have 3.4 billion secured financing agreements, representing only one turn of recourse leverage on our total capital. Over the $3.4 billion total, $1.9 billion, or 56% of our secured financing, is used to finance non-agency RMBS, which includes our retained securities from securitizations. This portion of our financing has laddered maturities ranging from one month out to three years. 64% of the $1.9 billion were structured with non-mark-to-market or limited mark-to-market pricing arrangements on the underlying assets. and only 36 percent have a mark-to-market pricing feature to the underlying assets. The remaining $1.5 billion, or 44 percent, of our secured financing agreements are used to fund our warehouse loans and agency securities. We intentionally have kept the duration on this portion of our financing to shorter term to provide maximum flexibility for future securitizations of our loans and the management of early prepayments received on our agency CMBS. The average rate on March 31st of our full $3.4 billion of secured funding was 2.53%, up 23 basis points from year end. Our assets are performing well, and we believe our liabilities are well positioned. The company currently has a share repurchase plan in place, which allows us to repurchase up to $226 million of our common shares. Given the sharp movement in our share price relative to our book value, We plan to evaluate the benefits of share repurchases in conjunction with the added benefit of other investments to maximize the long-term benefit to our shareholders. To summarize, over the past several years, we have accumulated a high-yielding portfolio of residential loans and securities that have been primarily funded through securitization. We have locked in a low-cost fixed-rate financing for this portfolio and are regularly utilizing call provisions to optimize our net interest spread. Since the beginning of the pandemic, we have restructured our secured financing agreement to protect our portfolio during periods of high volatility and market dislocation. Higher interest rates and wider credit spreads represent potential opportunities to grow our portfolio. We have a large share repurchase plan at our disposal, and we believe we are well positioned to continue to maximize dividend income for our shareholders over the long term. I will now turn the call over to Subra to review the financial results for the quarter.