Chimera Investment Corporation

Greetings and welcome to the Chimera Investment Corporation second quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Tyra Welton, head of IR. Thank you. You may begin.

Thank you, operator. and thank you everyone for joining us this morning. I'm Tyra Welton, Head of Investor Relations. This morning, Chimera released its results for the second quarter of 2026. The earnings release and presentation for the quarter are both available on our website at chimeraread.com. Before we begin, I'd like to review the Safe Harbor Statement. Today's remarks may contain forward-looking statements, which are predictions, projections or other statements about future events. These events 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, we may also discuss non-GAAP financial measures Please refer to our SEC filings and earnings supplements or reconciliations to the most comparable gap measures. Additionally, the contents 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 President and Chief Executive Officer, Phil Kardis.

Thanks, Tyra. Good morning and welcome to Chimera Investment Corporation's second quarter 2026 earnings call. Joining me on the call are Subra Viswanathan, our Chief Financial Officer, Jack Macdowell, our Chief Investment Officer, and Kyle Walker, the President and CEO of Home Express Mortgage. After my remarks, Subra will review the financial results, Jack will review the investment portfolio, and then Kyle will review Home Express's results. It's nearly 3,000 years old. but with a fresh translation by Emily Watson and a blockbuster movie by Christopher Nolan, a new generation is discovering the Odyssey, and it has much to say that is relevant to us. During Odysseus' 10-year journey home, we learned that most threats are unpredictable and that risk management matters more than heroics. He doesn't know he'll face challenges like the Cyclops and the Sirens, just as we didn't know at the beginning of the year that we would see open conflict in the Gulf, were that the rate cuts everyone had penciled in would give way to talks of hikes before year end. We also learned that Odysseus reaches home by planning for the downside, for example, by plugging his crew's ears and lashing himself to the mast to resist the sirens rather than to rely on willpower. Likewise, as I noted in the first quarter, we don't try to predict where the market will be. We focus on being prepared for wherever it goes. and we do that by building resiliency through diversified income streams and liquidity. But most importantly, the Odyssey teaches us that we must have a fixed destination but not a fixed route. Odysseus' objective never changes, return home. His route, however, is not direct. He must be flexible, creative, know when to wait and when to preserve resources and when to take calculated risk to make it home. We've been clear about our destination to build a company that is not dependent on any single market environment and that benefits shareholders through tax-advantaged dividend and enterprise growth. And while we have model portfolio, targeted growth plans like Odysseus, we're not locked into a particular path. We remain flexible and open to change as market conditions change. The second quarter remained much like the first. Volatility and uncertainty persisted. We went about our business much as we did in the first quarter. With respect to the investment portfolio, we continue to reduce our lower yielding assets and sponsor two re-securitizations, redeploying the proceeds in the more liquid and higher yielding assets. Turning to Home Express, in the second quarter, loan production grew by 30% compared to the second quarter of 2025 and 24% compared to the prior quarter. Earnings, however, grew only modestly quarter over quarter. This result, increased production with essentially flat earnings was driven primarily by margin compression from increased competition. We'll look to increase Home Express's earnings by further scaling production while maintaining our strong credit discipline and by reducing our cost to originate. But increasing our allocation to agency RMBS and third-party sales of Home Express loans are not the only ways to grow Chimera's earnings, especially given the current securitization market economics and compressed sale margins. Therefore, we are pivoting to acquire and securitize mortgage loans from both Home Express and third parties. Currently, we're targeting two securitization of Home Express loans and one of third party loans by year end. And depending on the relative value between loan sales and securitizations, we may increase the size or frequency of those securitizations. So how are we doing? Last quarter, we noted that as we looked out over 2026, we believed we'd be able to generate $1.80 of EAD. We also noted that we expected some volatility in EAD period to period given our operations and the market. We further pointed out that our fourth quarter and first quarter EAD contained several one-time items and that we believed our underlying run rate was closer to 47 cents plus or minus. EAD for the second quarter was 46 cents. right on our projected underlying run rate, and once again, exceeding our dividend. We have $1 of EAD through the first half of the year and still believe EAD for the year will be at least $1.80. In short, we continue to perform as we expected, even though the market environment is significantly different than anticipated at the beginning of the year. What's our outlook for the remainder of the year and how are we positioned? Just like we noted in the first quarter, we expect continued uncertainty, Thanks Phil. Gap net loss for the second quarter was approximately $4 million.