Chimera Investment Corporation

Good day, ladies and gentlemen, and welcome to the Chimera Investment Conference 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, Head of Capital Markets, Victor Falvo. Sir, the floor is yours.

Thank you, operator, and thank you, everyone, for participating in Chimera's second 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 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 of the most comparable GAAP measures. 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.

Thank you, Vic. Good morning and welcome to the second quarter 2022 earnings call for Chimera Investment Corporation. Joining me on the call today are Chaudhry 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 up for questions. This quarter, inflation, as measured by the Consumer Price Index, continued its climb, reaching 9.1% on a year-over-year basis. This was the highest level recorded in the last 40 years. The persistence of high inflation has forced the Federal Reserve to alter its outlook on the economy and its open market policies. They increased the federal fund rate by 125 basis points during the second quarter and again by another 75 basis points last week. The velocity of these policy moves has been faster than previously communicated by its governors. While many believe that the Fed is still in catch-up mode, lenders have become more cautious, and the rate of 30-year fixed-rate mortgages ended the quarter at 5.83%, an increase of 327 basis points since the start of the year and the highest in over a decade. Higher interest rates and increased volatility call spreads on all fixed-income products to widen substantially during the quarter. And specific to mortgage credit, newly originated prime jumbo loans and non-qualified mortgages all performed poorly, which put added pressure on the new issue securitization market. Wider spreads on these assets spilled over to other mortgage products, including re-performing loans. We believe higher primary mortgage rates will severely impact new mortgage origination volumes and consequently improve spreads in the securitization market in the second half of 2022. Given this market backdrop of higher rates and increased volatility, Chimera maintained its commitment to optimize its liability and capital structure with the objective to maximize our net interest spread for the benefit of our shareholders over the long run. Securitization remains the primary source of long-term funding for our portfolio. Over the quarter, we completed two securitizations with $727 million of loans from our existing warehouse facilities. In May, we sponsored CIM 2022-R2, collateralized by season-reperforming residential mortgage loans with a principal balance of $508 million. These loans had a weighted average coupon of 4.48% and are 162-month seasons. Securities with an aggregate balance of approximately $380 million were sold in a private placement to institutional investors. The senior securities were rated AAA by Fitch and DBRS and represented approximately 75% of the capital structure. The securities had a 3.75% fixed rate coupon and an average cost of debt of 4.4%. We retained subordinate notes and interest only securities for investment with an aggregate balance of approximately 128 million. Chimera has the option to call the Securitas mortgage loans at any time beginning in May, 2027. In June, we completed a private label investor loan securitization CIM 2022-I1 with a principal balance of approximately 219 million. The loans had an average coupon of 4.73% and five months weighted average loan age. Securities with an aggregate balance of approximately 123 million were sold in a private placement to institutional investors. These securities were rated AA by S&P and represent approximately 55% of the capital structure. Chimera retained an option to call the securitized mortgage loans at any time beginning June 2024. Our average cost of debt for this securitization was 5.13%. In total, Chimera's two securitizations this quarter created long-term non-recourse financing for $727 million of loans. Moving loans from warehouse to securitization helped reduce our recourse financing for the second quarter by $278 million. We continue to favor long-term secured financing for our retained investments. This quarter, we refinanced a $206 million non-market-to-market secured facility on our balance sheet. We established in this place a larger $307 million balance sheet. 12-month Evergreen Secured Financing Facility. The new facility provides a mark-to-market holiday on the underlying assets and provides this benefit for the duration of its term. Separately, we negotiated an 18-month extension for an existing $511 million non-mark-to-market secured facility. The new facility has a maturity date of March 2024, and the underlying assets are not subject to mark-to-market price movements. On our balance sheet, the combination of $7.7 billion of securitized debt and $818 million of new high-quality secured financing arrangements represents 78% of our total liabilities. and provide stable financing for Chimera's credit assets during periods of high interest rates and volatility and adverse market conditions. Considering the challenging market environment and hawkish commentary from the Federal Reserve officials, this quarter we entered a swaption contract for $1 billion notional value, one year forward at a fixed rate of 3.26%. This option is fully exercisable at the sold discussion of Chimera in May 2023 and provides a partial hedge for our forward repo financing should interest rates continue to rise. Last quarter, we discussed our company's share repurchase plan. which allowed us to repurchase up to $226 million of common shares. In this quarter, we repurchased 5.4 million shares of our common stock in the open market. Our weighted average purchase price was 9.10 for a total cost of approximately $49 million. We believe our stock price currently represents good value relative to other assets available in the market. and the reduction of the number of shares outstanding is accretive to our earnings available for distribution. As of June 30th, we have $177 million remaining purchase authority, and we will continue to evaluate the merits of share repurchases relative to our book value and other assets available in the market. Lastly, we continue to acquire business purpose loans for our portfolio. The credit characteristics of these loans, along with their high yield and short duration, match well with Commerz's risk profile and capital structure. This quarter we purchased and settled on 120 million of business purpose loans. While market conditions in 2022 have presented many challenges, we believe our strategy of buying and securitizing residential mortgage loans will continue to generate the best with suggested returns for our shareholders over the long run. Our team of professionals are experienced and have a demonstrated history of being responsible towards the capital. We believe our capital structure is best in class and our portfolio's full position for the future. We have acquired nearly 1 billion of loans so far in 2022 at much higher yields than have been available in recent years. We repurchased 5.4 million shares of our common stock this quarter and have authorization to purchase an additional $177 million. Our recourse leverage remains low, liquidity strong, and we continue to look for opportunities to generate the best for suggested returns for our shareholders. I will now turn the call over to Subra to review the financial results.