Chimera Investment Corporation

Greetings and welcome to Chimera Investment Corporation fourth quarter and full year 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Victor Falvo, head of capital markets and investor relations. Thank you. You may begin.

Thank you operator. And thank you everyone for participating in Chimera's fourth quarter and full year 2024 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 disclaimers in our earnings release and 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 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 President and Chief Executive Officer, Phil Curtis.

Phil Curtis Good morning and welcome to Chimera Investment Corporation's fourth quarter 2024 earnings call. Joining me on the call are Jack McDowell, our Chief Investment Officer, Subra Viswanathan, our Chief Financial Officer, Dan Thacker, our Chief Risk and Credit Officer, and Vic Falvo, our Head of Capital Markets and Investor Relations. After my remarks, Subra will review the financial results and then Jack will review our portfolio before opening the call for questions. 2024 was another year of reversals. The first part of the year saw continued progress on reducing inflation and long-term rates improved from a high of 4.7% in April to 3.6% in September. However, The second half of the year saw inflation reduction stall, and the Fed, with a softening labor market, reduced the Fed fund rate by 100 basis points over their final three meetings of the year. Long-term rates did not react as expected. For the first time in seven rate-cutting cycles dating back to the 1980s, the 10-year rose, finishing the year at 4.6 percent, up 100 basis points, despite the Fed cuts. During the fourth quarter of 2024, the term premium for the 10-year Treasuries increased by 75 basis points, which reflects the market's uncertainty about future rates, the political environment, and the underlying strength of the economy. The housing market continued to face various challenges and unevenness due to many factors, including interest rates, affordability, and long-term supply-demand issues. The average 30-year fixed rate Fixed rate mortgage started the year at 6.6%, peaked at 7.2% in May, and dropped to 6.1% in September, leading to a modest uptick in activity before ending the year at 6.9%. Unsurprisingly, home sales suffered. In 2024, sales of previously owned homes declined for the third consecutive year to the lowest level since 1995, reflecting what we believe to be the continuation of the lock-in effects. New home construction was up slightly from 2023, but new homes for sale that are under construction peaked in March and were slightly down from that peak in December. The number of completed new homes for sale hit its highest level in December since 2009. The new home inventory represents eight and a half months supply, which is above the balanced market of six months. But completed new homes were estimated to sell in 2.8 months reflecting what we believe to be strong demand for newly built homes, which is supportive of the RTL market. On the positive side, home prices continue to increase. Between the third quarter 2023 and the third quarter 2024, U.S. home prices rose 4.3% according to the FHFA's Housing Price Index. We believe that this house price appreciation is positive for our existing portfolio due to further improvement in homeowners' equity. Another positive development for our business was credit spreads for asset-packed securities and other securitized products. Residential credit performance was particularly strong in 2024, driven by robust fundamentals due to low defaults, rising home prices, and record levels of homeowners' equity. In addition, technical indicators were strong as non-agency RMBS gross issuance ended at approximately $137 billion. almost doubling from 2023's issuance levels of $71 billion. Investor demand was very strong and credit spreads tightened in 2024, especially at the bottom of the capital structure, with credit curves flattening significantly. So what did all of this mean for our strategy in 2024, and what will it mean for 2025? In 2024, we managed our portfolio to increase liquidity and diversify sources of income, Consistent with that strategy, we deployed $209 million in proceeds from our equity raise in December 2023 and our two senior debt raises in 2024. We invested in floating rate agency CMOs. We believe these investments provide an attractive return while serving as a source of liquidity as we seek to deploy capital in loans or other investments, as we did for the Palisades acquisitions. We invested in subordinate tranches of newly issued third-party mortgage securitizations, backed by re-performing mortgage loans and small balance commercial loans. We purchased residential transition loans. We purchased RPLs and securitized them in SEM 2024 R1. And in the fourth quarter, we committed to purchase non-QM loans, which we securitized this year. And finally, in December, we closed the acquisition of the Palisades Group, a U.S.-based alternative asset manager specializing in residential real estate credit. Founded in 2012, Palisades manages and invests on behalf of third parties in residential real estate assets across the broad spectrum of credit products. Through this acquisition, we began providing third-party investment management and advisory services, which represents a new fee-based source of income, and we believe the ability to grow our income on a capital-light basis. What are our plans for 2025? We continue to approach portfolio management in a disciplined manner and are expecting to operate in an uncertain environment. In 2025, we expect to continue to diversify our portfolio, increase liquidity, and grow our fee-based income revenue stream. While we'll continue to look for opportunities to acquire and securitize mortgage loans, we expect to grow our agency RMBS portfolio. In addition to supporting our regulatory compliance, we believe the agency RMBS portfolio will provide diversification, more stable dividends, and a source of liquidity for opportunistic asset and business acquisitions and provide in periods of volatility protection. By growing our agency portfolio, we are returning to our roots as a hybrid REIT. We intend to also look to potential opportunities to acquire mortgage servicing rights, which we believe will help hedge our loan portfolio, as well as provide a diverse source of income for our dividends. With the Palisades acquisition, we have embarked on our strategy of enhancing returns to our shareholders through diversification of revenue. Palisades Advisory Services is the asset manager of our most recent securitization. and we expect to add them to our future securitizations, including the re-securitizations of our existing deals. We believe that combining Palisade's platform with ours will allow us to drive efficiency and performance across the portfolio. Lastly, we've begun to see those investments of the fee for service-based income. It's early in the process, but we continue to believe the acquisition will be accretive to earnings. As we move into 2025 and beyond, We will look to expand and grow our non-discretionary investment asset management and advisory services and continue to look for opportunities to grow through a combination of organic and external growth. In addition, we plan on investing in technology that allows us to enhance and expand our asset management capabilities and drive operational efficiencies. We expect the source of funds for the portfolio diversification and growth initiatives to come from our existing portfolio as we return to our re-lever strategy. We have issued call notices on all of our outstanding NR securitizations, and we expect to re-securitize the loans in the next couple of months. In addition, we expect to call some of our R securitizations in 2025. We'll also look for opportunities to raise capital in the capital markets. Finally, we continue to seek opportunities to finance our retained notes from securitizations with long-term limited or non-mark-to-market financing facilities. As we have discussed in the past, we had an expensive non-mark-to-market facility coming due in January 2025. We were able to enter into a new, larger facility with better terms and greater than 400 basis point reduction in rate. By increasing the size of the facility, our interest expense is flat but we were able to receive approximately 62 million to deploy in new investments. Our goal is to build a durable, more diversified portfolio and implement growth initiatives that are designed to provide stable and growing sources of income that will benefit our current stock price relative to our book value. We feel good about our business and we're finding new opportunities and we increased the quarterly dividend by 12% to 2024. And lastly, we believe the acquisition of Palisades will further strengthen and expand our business and provide additional opportunities for growth for our shareholders. I will now turn the call over to Subra to review our financial results.