Chimera Investment Corporation

Hello, and welcome to the Chimera Investment Corporation fourth quarter and full year 2023 earnings call and webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Victor Falvo, Head of Capital Markets and Investor Relations. Please go ahead, Victor.

Thank you, operator. And thank you everyone for participating in Chimera's fourth quarter and full year 2023 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 revise this information. I will now turn the conference over to our Chief Executive Officer, Phil Curtis.

Good morning, and welcome to Chimera Investment Corporation's fourth quarter and full year 2023 earnings call. Joining me on the call are Chaudhry Yarlagada, our President, Chief Operating Officer, and Co-Chief Investment Officer. Dan Thacker, our Co-Chief Investment Officer. Subra Viswanathan, our Chief Financial Officer. and Vic Falvo, our head of capital markets and investor relations. After my remarks, Subra will review the financial results, and then we'll open the call for questions. Let me begin by recognizing Chaudhry Yerligada, who announced his retirement. CY, as he's affectionately known, has been here since the beginning. He has been involved in all aspects of our business, from structuring our securitizations and unique financings to managing our operations and information technology groups. These are some big shoes to fill, and I'm confident with CY's assistance our transition will be seamless. While we're saddened by his departure, we are happy for him as he begins the next stage of his journey, and we wish CY nothing but the best. As I think back about last year, I'm reminded of Maxine Nightingale's song, Get Right Back to Where We Started From. When we ended 2022, 10-year Treasury had a yield of 3.87%. And again, as we ended 2023, the 10-year had a yield of 3.88%. But as we got right back to where we started from, we took a very volatile and circuitous route. During the year, we saw the 10-year Treasury yield drop to 3.3% in early April. and reached as high as nearly 5% in October before finishing the year at 3.88%. Silicon Valley Bank and several other large regional banks failed and nearly sparked a full-fledged banking crisis. The Federal Reserve raised interest rates four times for a total of 100 basis points, and the rate for 30-year mortgages reached a peak of 8%, a level not seen since the year 2000. Geopolitically, we saw the war in Ukraine continue on its Sisyphean path and a new conflict develop in the Middle East. Despite these adverse market conditions, we achieved some significant accomplishments throughout the year. We believe our portfolio performed well during the volatile environment as evidenced by interest income for 2023, essentially unchanged from 2022 at $773 million. and our credit metrics continued to be in line or better than originally expected at acquisition. We reduced our total recourse financing by approximately $1 billion, and we refinanced $250 million of high-cost debt with a new facility providing considerable savings. We continued our business strategy of acquiring and securitizing mortgage loans. In total for 2023, we purchased $1.4 billion of mortgage loans. 50% of the loans were seasoned re-performing loans, 33% were DSR investor loans, and the remainder were business purpose loans. We securitized $841 million of the re-performing loans and $475 million of the DSCR loans. We called six existing deals and issued four new deals, totaling $1.2 billion, enabling us to recapture $133 million. And we raised approximately $74 million from ATM issuance and had begun deploying the capital into high-coupon non-agency securities, which we purchased at a discount, generating low to mid-teen unlevered returns, and committed to purchase approximately $150 million of business purpose loans with mid-teen levered returns. So what do we see in 2024? We continue to follow the Fed mantra of higher for longer, especially as evidenced by recent statements by Chairman Powell, the recent blowout of January employment numbers, and yesterday's core CPI of 3.9%, all of which support our view of higher for longer. We are hopeful for rate cuts by the summer, but we're planning for cuts later in the year, likely after the elections. with more cuts to come in 2025. We feel now is the opportunity to begin to scale in and acquire high-yielding assets in front of the expected Fed cuts. As I mentioned, we've already begun adding assets. In addition, we've entered into forward contract to acquire loans, and we expect to expand our forward purchases and flow arrangements in 2024. Additionally, with expected rate cuts by the end of the year, we may acquire loans now and hold them on warehouse facilities until securitization economics are more stable and provide better long-term returns for our portfolio. Finally, as of December 2023, we had 14 outstanding securitizations that are callable, and four more become callable in 2024. The timing of exercising our option to call these securitizations depends on a variety of factors as we have discussed in the past. I note that our non-REMIC deals present some nuances that are slightly different from most of our securitizations. For instance, generally as the percentage of REMIC eligible loans increases in those securitizations, economics of exercising the call improves. With rate cuts in the not too distant future, I'm optimistic about our future. We have a talented team and outstanding assets and a clear vision. I would now like to turn to Subra to give a more detailed overview of our financial results.