Q4 2023 Chimera Investment Corp Earnings Call

Operator: Hello, and welcome to the Chimera Investment Corporation fourth quarter and full year 2023 earnings call webcast. If anyone should require operator assistance, please press star zero on your telephone keypad.

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.

Operator: A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Victor Salvo, Head of Capital Markets, and 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 Statement. 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 of our most recent annual and quarterly SEC filings. However, actual events and results may differ materially from these forward-looking statements.

He'd be replacing the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded.

Now my pleasure to turn the call over to Victor Falvo <unk> head of capital markets and Investor Relations. Please go ahead Victor.

Okay.

Thank you operator, and thank you everyone for participating in <unk> fourth quarter and full year of 2023 earnings conference call.

Before we begin I'd like to review the Safe Harbor statements.

During this call we were 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.

Victor Salvo: 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 measure. Additionally, the content of this conference call may contain time-sensitive information and 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.

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.

Phil Curtis: 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. Joining me on the call are Chaudhry Darulagada, 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 Investors. After my remarks, Subaru will review the financial results, and then we'll open the call for questions. Let me begin by recognizing Chaudhry Jallegada, who announced his retirement. CY, as he's affectionately known, has been here since the beginning.

I will now turn the conference over to our Chief Executive Officer, So cordis.

Good morning, and welcome to Chimera investment Corporation's fourth quarter and full year 2023 earnings call.

Joining me on the call are charter rate there all the Gardner, our president Chief operating Officer, and co Chief investment Officer.

Dan Tucker, our co Chief investment Officer Subra. This one often our chief financial officer, and VIX available, our head of capital markets and Investor Relations.

After my remarks, Subaru will review the financial results and then we'll open the call for questions.

Let me begin by recognizing tried right you all legato, who announced his retirement.

See why is he is affectionately known has been here since the beginning.

Phil Curtis: He has been involved in all aspects of our business, from structuring our securitizations and unique financings to managing our operations and information technology. These are some big shoes to fill, and I'm confident with CWISE... 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 career, and we wish CY nothing but the best. Thank you. As I think back on last year, I'm reminded of Maxine Nightingale's song, Get Right Back to Where We Started.

He has been involved in all aspects of our business from structuring our securitization and unique financings to managing our operations and information technology groups.

These are some big shoes to fill.

And I'm confident we'll see wise 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 its journey.

We wish to see why nothing but the best.

Okay.

As I think back about last year I'm reminded of magazine Nightingale song get right back to where we started from.

Phil Curtis: When we ended 2022, the 10-year Treasury had a yield of 3.87%. And again, as we ended 2023, the tenure had a yield of 3.88%. But as we got right back to where we started from, we took a very volatile, Euclid.

When we ended 2022 10 year Treasury had a yield of 387%.

And again as we ended 2023, the 10 year had a yield of 388%.

But as we got right back to where we started from we took a very volatile start.

<unk> route.

Phil Curtis: During the year, we saw the 10-year Treasury yield drop to 3.3% in early April and reach as high as nearly 5% in October before finishing the year at 3%. Silicon Valley Bank and several other large regional banks failed and nearly sparked a full-fledged, The Federal Reserve raised interest rates four times for a total of $100 billion, and the rate for 30-year mortgages reached a peak of 8%. At a level not seen since the year 2000. Geopolitically, we saw the war in Ukraine continue on its Sisyphean path, and a new conflict developed in the Middle East.

During the year, we saw the 10 year Treasury yield dropped to three 3% in early April and reach 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% level.

A level not seen since the year 2000.

Geopolitically, we saw the war in Ukraine continue unanticipated Pat.

And a new conflict develop in the middle East.

Phil Curtis: 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 continue to be in line or better than originally expected at equity. 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 mortgages. Fifty percent of the loans were seasoned, re-performing loans.

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.

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.

And we refinanced $250 million of high cost debt with the new facility providing considerable savings.

We continued our business strategy of acquiring and securitizing mortgage loans and.

In total for 2023, we purchased $1 4 billion of mortgage loans.

50% of the loans were seasoned re performing loans.

Phil Curtis: 33% were DSR investor loans, and the remainder was for business purposes. We securitized $841 million of the re-performing loans and $475 million of the DSG, called six existing deals and issued four new deals totaling $1.2 billion, enabling us to recapture 133, and we raised approximately $74 million from ATM issuers, and have begun deploying the capital into high coupon, non-agency securities which we purchase at a discount, generating a load of $19 unlevered, and committed to So what will we see in 2024?

83% with DSR investor loans, and the remainder were business purpose loans.

We securitized $841 million of the re performing loans and $475 million the D SCR loans.

We call it 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 have begun deploying the capital into high coupon non agency securities, which we purchased at a discount generating low to mid teens 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.

Phil Curtis: We continue to follow the Fed mantra of higher for a long time, 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 belonging. We are hopeful for rate cuts by the summer, but we're planning for cuts later in the year, likely after the election, with more cuts to come in 2025.

We continue to follow the sad Mitra up 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 three 9% all of which support our view 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 election.

With more cuts to come in 2025.

Phil Curtis: We feel now is the opportunity to begin to scale in and acquire high-yielding assets in front of the expected. As I mentioned, we've already begun adding. In addition, we've entered into a forward contract to acquire loans, and we expect to expand our forward purchases and flow arrangements in 2021. 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, the economics of exercising the call improves, with rate cuts in the not too distant future. I'm optimistic about our future.

We feel now is the opportunity to <unk> to begin to scale in and acquire high yielding assets in front of the expected fed cuts as I mentioned, we have already begun adding assets.

In addition, we have entered into a forward contract and 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.

Had 14 outstanding securitization 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 securitization.

For instance, generally as the percentage of remic eligible loans increases and no securitization economics of exercising the call improves.

With rate cuts in the not too distant future I'm.

I'm optimistic about our future we have.

Phil Curtis: We have a talented team, outstanding assets, and a clear business. I would now like to turn to Subra to give a more detailed overview of our. Thank you, Phil.

Talented team and outstanding assets and a clear vision.

I would now like to turn to Sue Brown to give a more detailed overview of our financial results.

Thank you Phil I will review came out as financial highlights for the fourth quarter and full year of 2023.

Subra Viswanathan: I will review Chimera's financial highlights for the fourth quarter and full year 2023. Gap's net income for the fourth quarter was $12 million, or $0.05 per share. And Gap net income for the full year was $52 million, or $0.23 per share. Gap's book value at the end of the fourth quarter was $6.75 per share. The reduction in value this quarter was mostly driven by a small realized loss on asset sales during the quarter, higher mark-to-market on two separate liability facilities, and dilution from ATM issuance. For the fourth quarter, our economic return on GAAP book value was negative 58 basis points based on the quarterly change in book value and the fourth-quarter dividend or common share. And for the full year, our economic return was negative 53 basis points, which included 70 cents of dividends declared in 2020. On an earnings-available-for-distribution basis, net income for the fourth quarter was $31 million, or $0.13 per share.

GAAP net income for the fourth quarter was 12 million or five cents per share and GAAP net income for the full year was $52 million or 23 cents per share.

GAAP book value at the end of the fourth quarter was $6.75 per share.

The reduction in value. This quarter was mostly driven by a small realized loss on asset sales during the quarter higher marks on two separate liability facilities and dilution from ATM issuance.

For the fourth quarter, our economic return on GAAP book value was negative 58 basis points based on the quarterly change in book value and a fourth quarter dividend per common share.

And for the full year, our economic return was negative 53 basis points, which included 70 cents of dividends declared in 2022.

On an earnings available for distribution basis net income for the fourth quarter was $31 million or 13 cents per share and net income for the full year was 119 million or 51 cents a share.

Subra Viswanathan: And net income for the full year was $119 million, or $0.51 per share. Our economic net interest income for the fourth quarter was $68 million, and $271 million for the full year. For the fourth quarter, the yield on average interest-earning assets was 5.9 percent, our average cost of funds was 4.4 percent, and our net interest spread was 1.5 percent. Total leverage for the fourth quarter was 4 to 1, while Ricoh's leverage ended the quarter at 1 to 1. This quarter, we refinanced $250 million of high-cost debt into a new facility, which will reduce the interest expense by more than 600%. The company had $599 million of total cash and unencumbered assets at year-end.

Our economic net interest income for the fourth quarter was $68 million and $271 million for the full year for.

For the fourth quarter the yield on average interest, earning assets was five 9%.

Average cost of funds was four 4% and our net interest spread was 1.5%.

Total leverage for the fourth quarter was 41, while recourse leverage ended the quarter at one to one for.

Our financing and liquidity.

This quarter, we refinanced $250 million high cost debt into a new facility, which will reduce interest expense by more than 600 basis points.

The company had $599 million of total cash and unencumbered assets I forget it.

Subra Viswanathan: We had 1.7 billion floating rate exposure on our outstanding repo liability. Additionally, we had 1 billion pay fixed interest rate swap at a rate of 3.26% as a hedge position for our floating rate liability. These swaps mature in the second quarter of 2024, and we had 1.5 billion swaptions to pay fixed for one year beginning in the second quarter of 2024 at a weighted average strike rate of 3.56% as a hedge position for LIBOR. We have 1.5 billion of either non- or limited mark-to-market features on our outstanding repo agreements, representing 60% of our total recourse. For the full year, our Economic Net Interest Income return on equity was 10.5%, our GAAP return on average equity was 4.9%, and our EAD return on average equity was 7.2%.

We had $1 7 billion floating rate exposure on our outstanding repo liabilities.

We had 1 billion pay fixed interest rate swap at a rate of $3 two 6% as our hedge position for our floating rate liabilities. These swaps mature in the second quarter of 2024, and we had $1 5 billion swaption to pay fixed for one year beginning in the second quarter of 2024 and the weighted average.

Strike rate of 3.56% as a hedge position for liabilities.

We have one 5 billion of either non are limited mark to market features on our outstanding repo agreements, representing 60% of our total vehicles funding.

For the full year on economic net interest income, but return on equity was 10, 5% on a GAAP return on average equity was four 9% and return on average equity was seven 2% and lastly for the full year 2023 expenses excluding <unk>.

Operator: And lastly, for the full year 2023 expenses, excluding servicing fees and transaction expenses, we're 55.7 million, down 16.3 million from full year 2022, a year-over-year reduction of 23 percent. That concludes our remarks. We will now open the call for questions. Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone. A confirmation tone will indicate your line is in the question queue.

Servicing fees and transaction expenses were $55 7 million down $16 3 million from full year 2022 a year over year reduction of 23% that.

That concludes our remarks, we will now open the call for questions.

Thank you, we'll now be conducting a question and answer session.

That can be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to move your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star one one moment. Please while we poll for.

Operator: You may press star 2 if you'd like to remove your question from the... For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question today is coming from Boj George from KBW. Your line is now live. Good morning.

Our first question today is coming from Bose George from K B W. Your line is now live.

Hey, everyone. Good morning.

Subra Viswanathan: The first question just was on the comment you made on the book value change and the, you know, the mark on the liability side, you know, was there any corresponding mark on the asset side for some of those holdings? The portfolio overall experienced a mark-to-market benefit during the quarter. What I highlighted there were actually the reasons why some of the items that actually caused the book value to go down. But overall, the portfolio, the residential credit portfolio, experienced a significant mark-to-market benefit.

First question just was on the comment you made on the book value change in the Mark on the liability side.

Is there.

No corresponding mark on the asset side for some of those holdings.

Hi, This is so Brian thanks for the question, even though the portfolio overall X, but experienced a mark to market a benefit during the quarter, what I highlighted those that wed actually the reasons, whereas some of the you know some of the items that actually cost of book value.

To go down.

You know, but but overall the portfolio that isn't your current portfolio experienced a significant mark to market gain.

Subra Viswanathan: Okay, so the drivers really were just the ATM issuance and that one, the realized loss that you mentioned. Well, there's realized loss. And there are like two liability facilities.

Okay. So the the drivers really then we're just the ATM issuance and that one the realized loss that you mentioned.

Well, there's a realized loss and there's like two liability facilities. One is a prime jumbo facility, which had a a we had a bunch of them, but it's swaps which had a.

Subra Viswanathan: One is a prime jumbo facility, which had a, which had a bunch of embedded swaps in it, which had a higher mark, but because it was a higher mark on a liability, it was a lower book value for us. And also, the other reason was we had two, previously, we had two unsold securities from our prior securitizations, which were financed in our repo facilities. We then sold them all out this past quarter.

Quite honestly, a higher mark, but because it was a higher mark on our liability it was a lower book value for us.

And also the other reason was we had to previously we had to.

Unsold securities up from our prior Securitizations, which was financed at all.

Both facilities.

Then sold them solve them out this past quarter.

Subra Viswanathan: So now they have become SEC debt. So the SEC debt, from the time it became SEC debt and where we sold it to the end of the period mark, it experienced a further increase in value, which reduced our book. Okay, that's helpful.

So now they became sect that so the sect that are from the time, we became sick debt embedded we sold it to the end of the period Mark It experienced you know, Florida and increase in value, which reduced our Brooklyn.

Okay. Okay. That's helpful. Thanks, and then actually in terms of the ATM issuance what was the average price for that.

Subra Viswanathan: Thanks. And then, actually, in terms of the ATM issuance, what was the average price for that? Give me one.

Give me once.

Okay.

Yeah.

Yeah.

Subra Viswanathan: Let me just confirm, it's at a low five. Okay. Confirm. Okay. Great. Thank you. Thank you. The next question today is coming from Trevor Cranston from J&P Securities. Your line is now live.

Let me just.

But it's at low fives, Okay in front of me.

Okay.

Okay, great. Thank you.

Yeah.

Okay.

Thank you. Our next question today is coming from Trevor Cranston from JMP Securities. Your line is now live.

Phil Curtis: Hey, thanks. Actually, just a follow up on the question about the ATM issuance this quarter. Can you sort of talk through the thought process on, you know, issuing a current valuation versus how you guys think about potentially buying back stock and what goes into that decision? Sure. I think, as we mentioned, we were looking at where we see Fed rate cuts coming later in the year and kind of opportunities to acquire higher coupon assets at a discount. We thought now was the time to do that.

Alright. Thanks.

Actually just a follow up on the question about the ATM issuance. This quarter could you sort of talk through the thought process on it.

Issuing it at current valuation.

Versus you know how are you guys thinking about potentially buying back stock or what goes into that decision. Thanks.

Sure I think as we mentioned.

Yeah, we were looking at.

Where we see.

Fed rate cuts coming later in the year and kind of opportunities to acquire.

Higher coupon assets at a discount we thought now is the time to do that we these assets on a on a current basis more than cover the dividend associated with.

Phil Curtis: These assets, on a current basis, more than cover the dividend associated with that stock and have potential for upside as rates begin coming down, so we thought this was a good time to go ahead and acquire these contracts. Okay, in terms of, you know, continuing to add assets in 2024 ahead of rate cuts, can you talk about how much sort of free capital you feel you have available to do that by, you know, deploying cash on hand versus, you know, potentially, you know, you're using more capital issuance to buy new assets in the near term? Yeah, sure.

With that stock and have.

Potential for upside as rates begin coming down. So we thought this was a good time to go ahead and acquire these kinds of assets.

Okay.

And in terms of continuing to add assets 'twenty 'twenty four ahead of rate cuts.

Can you talk about how much sort of free capital you feel you have available to do that by.

Deploying our cash on hand versus you know potentially.

Right.

You know you're using more capital issuance to to buy new assets in the near term. Thanks, Yes, sure. So we would look at there.

Phil Curtis: So, you know, there could be a couple of sources; clearly, we have cash on hand, and the amount of cash and other liquidity that we would be willing to use is going to be a function of kind of where we see market volatility and rates, and as those calm down, Douglas Harter, Stephen Laws, Eric Hagen, Matthew Howlett, Emily Mohr, Matthew Lambiase, are forming loans, and we can convert those Douglas Harter, Stephen Laws, Eric Hagen, Matthew Howlett, Emily Mohr, Matthew Lambiase, in addition to the capital markets, and we are We constantly look at those things.

There could be.

A couple of sources clearly, we have cash on hand, and the amount of cash.

Although liquidity that we would be willing to use is going to be a function of kind of where we see market volatility in rates and as those come down we can see deploying some of that into new assets is also I mentioned, depending on a variety of factors. We do have callable securitization I mentioned for example.

Those non remic securitizations as those in particular those are very high sect that so theres opportunities to call and collapsed those and they have a higher percentage of.

Performing loans and we can convert those into remic and another non remic and so the sect that on those on a blended rate could be lower so that could be another source of capital. So we have several potential sources of capital that we could use.

In addition to the capital markets and we are.

Phil Curtis: Okay, I appreciate the comment. Thank you. Thank you. As a reminder, that's Star 1 to be placed. Our next question is coming from Stephen Laws from Raymond James. Your line is now live. Hi, good morning.

Constantly look at those opportunities.

Okay. Appreciate it thank you.

Thank you as a reminder, that star one to be placed into question queue. Our next question is coming from Stephen laws from Raymond James Your line is now live.

Hmm.

Phil Curtis: Just one last question on the ATM or follow up, you know, you know, I think you said live shooting the low five stocks at four and a half now like what's your valuation sensitivity? You mentioned the yield versus the mid team returns. So is it strictly the dividend yield?

Hi, Good morning, just one last one last question on the ATM or follow up you know you know I think you said lifts you didn't have a low five stocks at four and a half now like what's your what's your valuation sensitivity of you mentioned the yield versus the mid teen returns. So is that is it strictly the dividend yield or.

Phil Curtis: Or how do you guys think about your valuation sensitivity around the continued issuance of ATM? Yeah, I mean, it's a combination of those, you know, and I think, you know, where the stock is now, I think, you know, where there are, there's a limit in terms of, you know, how much dilution we'd be willing to handle, even though we could cover the dividend yield. And so we do look at those factors, so it's a combination. We want to make sure that we cover the dividend yield, and we need to have upside from there, and the amount of upside we need depends on how much dilution there is, and so we'll have to make that tradeoff, and that's kind of how we look at it. Obviously, where we were in the lower fives was one calculation; in the mid 40s, another.

How do you guys think about your your body relation sensitivity around the continued issue its on a T M.

Yeah, I mean, it's a combination of those and I think where we're where the stock is now I think you know where you know they are theirs.

There is a limit in terms of how much dilution, we'd be willing to handle even though we could cover the dividend yield.

So we do look at those factors. So it's a combo we watch when it make sure that we cover the dividend yield.

And we need to have upside from there and the amount of upside we need depends on how much dilution and so they'll have to make that trade off.

And that's kind of how we look at it.

Obviously, where we were in.

And the lower fives was one calculation yeah.

In the mid fours as a different calculation.

Subra Viswanathan: Great. And then as a follow-up, as you think about your outlook and potential upside, I don't know if it's the long end or the short end or spread tightening or all of it, but if rates, say, drop 100 basis points, how does that change the return expectation versus the mid-teens kind of current return on these new investments? Do you want to answer that?

Great and then as a follow up as you think about your outlook and potential upside I don't I don't know if it's the long end or the short end or spread tightening or all of it.

But if rates drop 100 basis points, how does that change the return expectation versus the mid teens kind of return on these new investments.

So.

Yeah, Yeah, I think when we talk about it its primarily especially.

Subra Viswanathan: Yeah, yeah. I think when we talk about it, you know, it's primarily, especially as, you know, Phil mentioned in his comments about purchasing the non-agency submarines, which are not financed right now. So to the extent, you know, you know, the funding costs go down, and we are able to finance them, the returns would be boosted further. So it's primarily a function of funding rates, not necessarily rates going down in the long run. Obviously, you know, and Phil mentioned in his comments too, as securitization markets become more stable, which we saw with how deals priced in January and yesterday, we kind of got a hiccup. To the extent they become stable and we are able to accumulate loans and securitize them in a stable macro environment, that's the sector that will be benefiting from the long end of the curve. So the potential upside would be tied to declining short-end as far as the new investment is concerned. Yeah, I think that's it.

Phil mentioned in his comments about purchasing the non agency side.

Which are not financed right now so to the extent you know the funding cost going on and we are able to finance them.

The returns would be boosted further.

So it's primarily a function of funding that's not necessarily a.

Rates going down in the long run obviously, you know and Phil mentioned in his comments to securitization markets become more stable.

We saw it like how do you price in January and you know yesterday, we kind of got a hiccup.

To the extent they become stable and we're able to accumulate loans and securitize them.

The macro environment, that's the fact that that could be benefiting from the on the long end of the car.

Great. So the potential upside would be tied to declining short and as far as the new investments.

Yes, I think thats kind of care.

Phil Curtis: Great. Appreciate the comments as well. Thank you. The next question today is coming from Eric Hagen from BTIG. Your line is now live. Thanks, good morning.

Great I appreciate the comments as well.

Thank you. Your next question today is coming from Eric Hagen from <unk>. Your line is now live.

Hey, Thanks, good morning.

Phil Curtis: How are you guys thinking about conditions in the securitization market related to interest rate policy at the short end of the yield curve? How do you even see that demand equation changing from securitized debt investors themselves and their appetite for..., you know, more debt, especially as you think about maybe calling some of the debt that you have in your securitization pipeline already? So, you know, as I just said, Eric, we would like to see the securitization markets a little more stable before we get into the markets again. So we are going to be accumulating loans. We saw in January, especially in the non-QM space, that the AAA is priced in a range of like 143 to 250 basis points.

You know how are you guys thinking about conditions in the securitization market related interest rate policy at the short end of the yield curve.

How do you even see that demand equation changing from securitized debt investors themselves and their appetite for.

No more debt.

Especially as you think about maybe culling some of it some of the debt that you have in your securitization pipeline already.

Yeah.

Okay.

So yeah.

You said Eric.

We would like to see the securitization market a little more stable.

Before we get into the markets again, so we are going to be accumulating loans. You know we saw in January especially in the non QM space. You know you know the AAA is priced.

In a range of 543 to 250 basis points.

Subra Viswanathan: And as I said, if we get a little more clarity, you know, in the first half of the year, the loans that we would have accumulated are the loans that we're going to be securing. Okay, but how are we thinking about just conditions with respect to calling, you know, the pipeline of debt that you have, which is callable right now? and just where you can issue some of that debt and maybe extract some capital.

And as I said, if we get a little more clarity.

The first half of the year, the lowest that'd be would have to accumulate it under the lens that people wanted to visa advertising.

Okay, but how are we thinking about just conditions with respect to calling the pipeline of debt that you have which is called callable right now.

And just where are you where you can issue some of that debt and you know maybe extract some some capital.

Sylvia.

Currently.

The second day.

Subra Viswanathan: If we lock it in at the current rates, it is locked in for a longer period of time. So we are looking for the front-end rates and the general market to be... like the rates to come down so we can get better funding rates for longer. All right. It also depends on what is available in the market, so sometimes it might be lucrative to take on a little expense on funding if you are getting very accretive assets.

If we lock it in at the current rates. It has been for a long period of time. So they are looking for different then great and general market, but b.

Like the rates to come down so we can get better funding rate for that long that though.

Right.

Okay. That's helpful.

Also it depends on what is available in the market. So sometimes they might be looking at it with the bank on a little expense on funding if.

If we are getting very creative assets in the marketplace.

Phil Curtis: Right, that does make sense. How are we also thinking about the fix to floating rate preferred? Looks like that's going to reset with this year. Do you think there's situations or conditions where you might look to call those or redeem them as they turn into their floating legs?

Right now that does makes sense.

However, we also thinking about the fixed to floating rate preferred I mean.

Looks like that's going to reset this year.

Do you think there's situations or conditions, where you might look to call those or redeem them as they turn into their floating legs.

Phil Curtis: Yeah, you know, we evaluate all of those options. I think, as we mentioned right now, we think that cuts are coming in the future, at the end of the year and through next year, that while we expect the floating rate to reset higher, we see that coming down over time and probably looking to deploy capital and buy new assets rather than, at this point, retiring that. But that's a case-by-case and fact-based analysis that we're constructing, http://TheBusinessProfessor.com, to actually start repurchasing it. But that's part of the mix of how we think about deploying capital in new investments versus, reducing, that.

Yeah, I think we evaluate all of those.

Options as I think as we mentioned right now we think that with <unk>.

Cuts coming in the future at the end of the year and through next year that.

While we expect to.

Floating rate to reset higher we see that coming down.

Over time and.

Probably looking to deploy capital in buying.

Buying new.

Assets rather than at this point are retiring that but that's a you know that's a case by case and fact based analysis that we're constantly looking at so things could change and we can come to a view that it would make more sense.

To actually start repurchasing it but that's part of the mix of how we think about deploying capital in new investments versus.

Reducing.

That that expense.

Phil Curtis: Yep. Thank you guys for the comments. Thank you. Next question today is coming from Trevor Cranston and J&P Securities. Thanks. Just one follow-up. Do you guys have an updated estimate on where book value stands so far in the first quarter? Yeah, yeah, sure.

Yep.

Thank you guys for the comments I appreciate it.

Yeah.

Thank you. Your next question today is coming from Trevor Cranston from JMP Securities. Your line is open.

Okay. Thanks.

Just one follow up.

Do you guys have an updated estimate on the.

Where book value stands so far in the first quarter.

Yeah, Yeah sure. So you know while the most recent you know Fannie RPI sales stated pretty vowels.

Subra Viswanathan: So, you know, while the most recent Fannie RPL sale traded pretty well, with the sell-off in rates since quarter end and especially yesterday, which accelerated, I would say we are down roughly a point or so. 1%. 1%.

But the sell off in rates since quarter ended, especially yesterday accelerated I would say like we're down roughly a point or so.

Perfect.

1%.

Subra Viswanathan: Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments. Hi, this is Phil Curtis. I'd like to thank everyone for participating in our fourth quarter and full-year earnings call, and we look forward to speaking to you on our earnings call for the first quarter. Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation.

Thank you we've reached the end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.

Hi, This is Phil Carlos I'd like to thank everyone for participating in our fourth quarter and full year earnings call and we look forward to speaking to you on our earnings call for the first quarter 2020.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.