Q2 2024 Chimera Investment Corp Earnings Call

Speaker Change: Thank you operator and thank you everyone for participating in Chimera's second quarter of 2024 earnings conference call.

Unknown Executive: from 2024 Ernie's conference call.

Operator: 2024 Earnings Conference Call. 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. 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 gap measures.

Unknown Executive: 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 risk-sent uncertainties, which are outlined in the Risk Factor section in our most recent annual and quarterly SEC filings. Actual events and results made differ materially from these forward-looking statements.

Speaker Change: Before we begin, I'd like to review the Safe Harbor Statements.

Unknown Executive: We encourage you to read the forward-looking statement, this claimers, in our earnings release, and our quarterly annual filings.

Unknown Executive: During the call today, we may also discuss non-GAAP financial measures. Please refer to our SEC filings and earning supplement for reconciliation, the most comparable GAAP measures.

Unknown Executive: Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date of this earning call. We do not undertake and specifically disclaim any obligation to update or revise this information.

Operator: Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date of this early call. We do not undertake and specifically disclaim any obligation to update or revise this information. I will now turn the call over to our President and Chief Executive Officer, Phil Kardis.

Speaker Change: Additionally, the content of this conference call may contain time-sensitive information that is accurate only as a date of this earning 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 President and Chief Executive Officer, Phil Curtis. Good morning and welcome to Chimera Investment Corporation's second quarter of 2024 earnings call. Joining me on the call are Zubra Viswanathan, our Chief Financial Officer, Dan Thacker, our Chief Investment Officer, and Vic Falbo, our Head of Capital Markets and Investor Relations. After my remarks, Zubra will review the financial results, and then we'll open the call for questions. Throughout the quarter, we experienced some headwinds, but by the end of July, we have accomplished what I would call a period of first.

Phillip Kardis: This quarter, we successfully completed our first unsecured debt offering and received an inaugural investment grade rating on the debt. We have a long history of agency investments, and this provides us with meaningful income and liquidity. We committed to purchase a pool of RPLs and, at the end of July, sponsored our first RPL securitization since May 2023. Economic data continued to indicate a strong economy, long-term interest rates may not have peaked, and interest rates would experience increased volatility, leading us to believe that while we expect interest rates to remain volatile over the near-term, long-term rates appear to have peaked, and the economy may be heading towards more normalized inflation and perhaps a weaker economic environment.

Speaker Change: I will now turn the conference over to our President and Chief Executive Officer, Phil Kardis.

Phil Kardis: Good morning and welcome to Chimera Investment Corporation's second quarter 2024 earnings call. Joining me on the call are Subramaniam Viswanathan, our Chief Financial Officer, Dan Thakkar, our Chief Investment Officer, and Victor Falvo, our Head of Capital Markets and Investor Relations.

Phil Kardis: After my remarks, Subra will review the financial results and then we'll open the call for questions.

Phil Kardis: Throughout the quarter we experienced some headwinds, but by the end of July we have accomplished what I would call a period of firsts.

Phil Curtis: This quarter, we successfully completed our first unsecured debt offering and received an inaugural investment grade rating on the debt. We made our first large agency investment since before the pandemic. We have a long history of agency investments, and this provides us with meaningful income and liquidity. We committed to purchase a pool of RPLs and at the end of July sponsored our first RPL securitization since May 2023. And most importantly for our shareholders, we raised the dividend for the first time since March 2021.

Phil Kardis: We made our first large agency investment since before the pandemic. We have a long history of agency investments, and this provides us with meaningful income and liquidity.

Phil Kardis: We committed to purchase a pool of RPLs and at the end of July sponsored our first RPL securitization since May 2023.

Phil Curtis: Last quarter, we noted that four main themes that emerged as we began the second quarter. Inflation was still higher than the Federal Reserve's desired rate. Economic data continued to indicate a strong economy; long-term interest rates may not have peaked, and interest rates would experience increased volatility. Looking back over the quarter, market volatility was substantial, but 10-year Treasury yields starting the quarter at 4.2% rising to 4.7% by late April and dropping back to 4.4% by the end of June. The second quarter GDP significantly beat expectations, indicating that the economy remained strong. With there were signs that the economy was beginning to weaken.

Phil Kardis: Economic data continued to indicate a strong economy, long-term interest rates may not have peaked, and interest rates would experience increased volatility.

Phil Kardis: Looking back over the quarter, market volatility was substantial, with 10-year Treasury yields starting the quarter at 4.2%, rising to 4.7% by late April and dropping back to 4.4% by the end of June .

Phil Kardis: The second quarter GDP significantly beat expectations, indicating that the economy remains strong.

Phil Curtis: The labor market continued to cool, and inflation is now trending in the right direction, with the Fed's preferred inflation measure rising 2.5% in June. Leading us to believe that while we expect interest rates to remain volatile over the near term, long-term rates appear to have peaked and the economy may be heading towards more normalized inflation and perhaps a weaker economic environment. Last week, the Fed held interest rates constant, as expected, and at its press conference, Chairperson Powell suggested that a September cut could be on the table if inflation continues to slow down. However, he also emphasized that the Fed would make decisions meeting by meeting based on the totality of the data and balance of risks.

Phil Kardis: But there were signs that the economy was beginning to weaken. The labor market continued to cool and inflation is now trending in the right direction with the Fed's preferred inflation measure rising 2.5% in June .

Phil Kardis: leading us to believe that while we expect interest rates to remain volatile over the near term, long-term rates appear to have peaked and the economy may be heading towards more normalized inflation and perhaps a weaker economic environment.

Phil Kardis: Last week, the Fed held interest rates constant as expected, and at its press conference, Chairperson Powell suggested that a September cut could be on the table if inflation continues to slow down.

Powell: However, he also emphasized that the Fed would make decisions meeting by meeting based on the totality of the data and balance of risks.

Phil Curtis: After his comments, the non-farm payroll number released last week came in much weaker than expected, as the unemployment rate ticked up to 4.3% and almost three-year high. While it's only a single month of data, the yield on the 10-year Treasury has dropped to around 3.9%. And it is looking increasingly likely that the Fed is going to cut interest rates in September.

Speaker Change: After his comments, the non-farm payroll number released last week came in much weaker than expected as unemployment rate ticked up to 4.3% and almost three-year high.

Phil Curtis: The housing market remains resilient. National home prices have continued to rise, though at a more moderate pace. The home equity build-up, which has occurred across America in the last several years, has been beneficial for our loan portfolio. We consolidate on our balance sheet over 109,000 loans with an average balance of $108,000. The weighted average loan of our portfolio is over 15 years, and we estimate the overall current LTV of our loan portfolio through amortization in HPA to be approximately 46%. Despite higher interest rates over the quarter and intra-quarter yield of volatility, our book value was relatively flat for the period, and this quarter we raised our dividend from 33 to 35 cents, a 6% increase.

Speaker Change: The housing market remains resilient, national home prices have continued to rise, though at a more moderate pace. The home equity buildup, which has occurred across America in the last several years, has been beneficial for our loan portfolio.

Speaker Change: We consolidate on our balance sheet over 109,000 loans with an average balance of $108,000.

Phillip Kardis: The weighted average loan of our portfolio is over 15 years, and we estimate that the overall current LTV of our loan portfolio through amortization and HPA to be approximately 46%. Despite higher interest rates over the quarter and intra-quarter yield volatility, our book value was relatively flat for the period, and this quarter we raised our dividend from $0.33 to $0.35, a 6% increase. In May, we issued 65 million of 9% unsecured senior notes.

Speaker Change: Despite higher interest rates over the quarter and intra-quarter yield volatility, our book value was relatively flat for the period, and this quarter we raised our dividend from $0.33 to $0.35, a 6% increase.

Phil Curtis: In May, we issued 65 million of 9% on secured senior notes. These notes will mature in five years and are callable, in whole or in part, at the company's option on or after May 15, 2026. After the offering, the company received a triple B investment grade rating from Egan-Jones, a nationally recognized statistical rating organization. Our ability to issue unsecured debt helps us to further diversify our capital structure and provide long-term financing for our mortgage credit portfolio. The proceeds from the debt raised were immediately deployed into the purchase of approximately $377 million of agency CMO floaters.

Phillip Kardis: These notes will mature in five years and are callable, whole or in part, at the company's option, on or after May 15, 2026. After the offering, the company received a BBB investment grade rating from Egan Jones, a nationally recognized statistical rating organization. This investment is meant to generate income and provide liquidity until we eventually deploy the proceeds in loans or non-agency subordinate security. We kept our recourse leverage low on the agency floaters, and we expect to generate low double-digit returns.

Speaker Change: In May we issued 65 million of 9% unsecured senior notes. These notes will mature in five years and are callable and whole or in part at the company's option on or after May 15th, 2026.

Speaker Change: Our ability to issue unsecured debt helps us to further diversify our capital structure and provide long-term financing for a mortgage credit portfolio.

Speaker Change: The proceeds from the debt raise were immediately deployed into the purchase of approximately $377 million of agency CMO floaters. This investment is meant to generate income and provide liquidity until we eventually deploy the proceeds in loans or non-agency subordinate securities.

Phil Curtis: This investment is meant to generate income and provide liquidity until we eventually deploy the proceeds in loans or non-agency subordinate securities. We kept our recourse leverage low on the agency floaters, and we expected to generate low double-digit returns. In agencies, we also purchased 65 million of a guaranteed senior SLST securities, and we expected to generate low to mid-teen returns on this investment. Throughout the quarter, we made new credit investments as well. We purchased 16 million nine agencies subordinate bonds with an average coupon of 10.7% at a discount to their par value, and we expect to generate low double-digit returns on an unlevered basis.

Speaker Change: We kept our recourse leverage low on the agency floaters, and we expect to generate low double-digit returns.

Phillip Kardis: In agencies, we also purchased $65 million of guaranteed senior SLST securities, and we expect to generate low to mid-teen returns on this investment. Throughout the quarter, we made new credit investments as well. We purchased 16 million non-agency subordinate bonds with an average coupon of 10.7% at a discount to their par value, and we expect to generate low double-digit returns on an unleveraged loan. Combined with the purchases made in the first quarter, we've purchased a total of 67 million of high-yield subordinate bonds in Leverett Basin.

Speaker Change: In agencies, we also purchased $65 million of a guaranteed senior SLST securities, and we expect to generate low to mid-teen returns on this investment.

Phil Curtis: Combined with the purchases made in the first quarter, we purchased a total of 67 million of high yield subordinate bonds on an unlevered basis.

Phil Curtis: And lastly, this quarter, we committed to purchase re-performing loans that settled simultaneously in July and to Sim 2020 for R1, a rated securitization. Securities issued by the Securitization had an aggregate principal balance of approximately 352 million were sold in a private placement to institutional investors. These senior securities represented approximately 75% of the capital structure. We retain subordinate notes and certain interest-only securities with an aggregate principal balance of approximately 116 million. The deal was structured with a 30% cleanup call. Our average cost of the debt for this securitization is 5.7%. The loans for the securitization had a weighted average coupon of 5.6% and a weighted average loan size of 228,000, and were 86 months seasoned on average.

Speaker Change: And lastly this quarter we committed to purchase reperforming loans that settled simultaneously in July into SIM 2024 R1, a rated securitization.

Phillip Kardis: These senior securities represented approximately 75% of the capital structure. Our average cost of the debt for this securitization is 5.7%, and we're 86 months seasoned on average. Our credit portfolio continued to perform well in the quarter, with the credit performance of our portfolio continuing to be within or better than our original investment expectations for mortgage delinquencies, default rates, and recovery. Additionally, we were able to restart agency RMBS for income generation as well as for providing liquidity.

Phil Curtis: Following on Sam 2024 R1, we expect to continue to acquire and securitize mortgage loans, as well as further implement the company's call optimization strategy on our securitizations. The timing of these re-securitizations is impacted by many factors, including credit performance, prepayments, fees, interest rates, and market volatility. As we navigate the current market conditions, we're focused on maintaining low-recourse leverage and managing our liquidity with the proper balance of both cash and unencumbered securities. Our credit portfolio continued to perform well in the quarter, with the credit performance of our portfolio continuing to be within or better than our original investment expectations on mortgage delinquencies, default rates, and recovered.

Speaker Change: Following on SEM 2024 R1, we expect to continue to acquire and securitize mortgage loans as well as further implement the company's call optimization strategy on our securitizations.

Speaker Change: The timing of these re-securitizations is impacted by many factors, including credit performance, prepayment speeds, interest rates, and market volatility.

Phil Curtis: In summary, we've been able to access the capital markets and acquire creative assets. We've started buying and securitizing loans, and we'll continue to look for opportunities to acquire and securitize additional loans. We were able to restart agency RNBS for income generation as well as for providing liquidity, and finally, we were able to raise our dividend. We are pleased with our performance for the first half of the year, and we remain optimistic about our future.

Speaker Change: In summary, we've been able to access the capital markets and acquire accretive assets. We've started buying and securitizing loans, and we'll continue to look for opportunities to acquire and securitize additional loans.

Speaker Change: We were able to restart agency RMBS for income generation as well as for providing liquidity. And finally, we were able to raise our dividends.

Phillip Kardis: And finally, we were able to raise our dividend. We are pleased with our performance for the first half of the year and we remain optimistic about our future. I would now like to turn to Subra to give a more detailed overview of our financial performance.

Speaker Change: We are pleased with our performance for the first half of the year and we remain optimistic about our future. I would now like to turn to Subra to give a more detailed overview of our financial results.

Subramaniam Viswanathan: I would now like to turn to Subra to give a more detailed overview of our financial results. Thank you, Phil. I will review Cameras financial highlights for the second quarter of 2024. Gap net income for the second quarter was 33.9 million, or 41 cents per share. Gap book value at the end of the second quarter was $21.27 per share. For the second quarter, our economic return on Gap book value was 1.4% based on the quarterly change in book value and the second quarter dividend per common share. And year to date 2024, our economic return on book value was 8.4%.

Subramaniam Viswanathan: Thank you, Phil. I will review Chimera's financial highlights for the second quarter of 2020. On an earnings available for distribution basis, net income for the second quarter was 30.3 million, or 37 cents per share. Our economic net interest income for the second quarter was $73 million, due to hedging. As mentioned on the last earnings call, we had 1 billion pay fixed rate swaps, pay fixed interest rate swaps mature in May. This quarter, the company exercised one swaption contract for 500 million notional and entered into a one year swap for 500 million notional at a 3.76% pay fixed rate.

Subra: Thank you, Phil. I will review Chimera's financial highlights for the second quarter of 2024.

Subra: Gap net income for the second quarter was $33.9 million or $0.41 per share.

Subra: Gap book value at the end of second quarter was $21.27 per share.

Subramaniam Viswanathan: On an earnings available for distribution basis, net income for second quarter was 30.3 million, or 37 cents per share. Our economic net interest income for the second quarter was $73 million. For the second quarter, the yield on average interest earning assets was 5.9%; our average cost of funds was 4.2%; and our net interest spread was 1.7%. Total leverage for the second quarter was 3.8 to 1, while recourse leverage ended the quarter 1 to 1. For financing and liquidity, the company ended the quarter with 649 million in total cash and our income. with Assets. For hedging, as mentioned on the last earnings call, we had 1 billion pay-fixed rate swaps, pay-fixed interest rate swaps, mature in May.

Subra: For the second quarter, the yield on average interest earning assets was 5.9 percent, our average cost of funds was 4.2 percent, and our net interest spread was 1.7 percent.

Rico: Total leverage for the second quarter was 3.8 to 1, while Ricoh's leverage ended the quarter 1 to 1.

Rico: For financing and liquidity, the company ended the quarter with $649 million in total cash and unencumbered assets.

Rico: We had $1 billion pay fixed.

Subramaniam Viswanathan: This quarter, the company exercised to one swapsion contract for 500 million noisional and entered into a 1-year swap for 500 million noisional at a 3.76% pay-fixed rate. We had 2 billion floating rate exposure on our outstanding repo liabilities. We had 1.5 billion pay-fixed interest rate swaps at a weighted average fixed pay rate of 3.56% as a hedge position for our floating rate liabilities. We had 1.4 billion of either non or limited market to market features on our outstanding repo agreements, representing 52% of our secured records funding. And during the quarter, the company hedged the interest rate execution risk on our 2024 R1 securitization with a short position of approximately 308 million treasury feature contracts.

Subramaniam Viswanathan: We had 2 billion floating rate exposure on our outstanding repo library. Additionally, we had 1.5 billion pay fixed interest rate swaps at a weighted average fixed pay rate of 3.56% as a hedge position for a floating rate ladder. This quarter, the company implemented a 1-4-3 reverse stock split with the objective of reducing Chimera's number of shares of common stock outstanding. We believe the reverse stock split will make the common stock more attractive to a broad range of investors, which has the potential to reduce share price volatility over time. That concludes our remarks. We will now open the call for questions.

Rico: We had $2 billion floating rate exposure on our outstanding repo liabilities. We had $1.5 billion pay fixed interest rate swaps at a weighted average fixed pay rate of 3.56% as a hedge position for our floating rate liabilities.

Subramaniam Viswanathan: The hedge was closed prior to settlement of the R1 securization. For the second quarter of 2024, our economic net interest income return on equity was 11.1%. Our gap return on average equity was 8.6%, and our EAD return on average equity was 7.1%.

Rico: Our GAAP return on average equity was 8.6% and our EAD return on average equity was 7.1%.

Subramaniam Viswanathan: This quarter, the company implemented a 1-for-43 reverse stock split with the objective of reducing cameras, number of shares of common stock outstanding for companies of a similar market capitalization. We believe the reverse stock split will make the common stock more attractive to a broad range of investors, which has the potential to reduce share price volatility over time. And lastly, for the second quarter 2024, expenses including servicing fees in transaction expenses were 13.3 million, down 1.6 million from first quarter, a reduction of 11%.

Rico: And lastly, for the second quarter 2024, expenses including servicing fees and transaction expenses were $13.3 million, down $1.6 million from first quarter, a reduction of 11 percent.

Unknown Executive: That concludes our remarks. We will now open the call for questions. If you would like to ask a question at this time, please press star, then the number one on your telephone keypad now. You will be placed in the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star, then the number one on your telephone keypad now.

Speaker Change: That concludes our remarks. We will now open the call for questions.

Operator: If you would like to ask a question at this time, please press star, then the number 1 on your telephone keypad now. You will be placed in the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star, then the number 1 on your telephone keypad now.

Speaker Change: If you would like to ask a question at this time, please press star then the number 1 on your telephone keypad now. You will be placed into the queue in the order received.

Speaker Change: Please be prepared to ask your question when prompted. Once again, if you have a question, please press star then the number one on your telephone keypad now.

Douglas Harter: Your first question comes from Doug Harder with UPS. UBS. Your line is open. Thanks. Good morning. Hoping you could give us an update on how book value is trending so far in the third quarter, given the significant moves in rates.

Speaker Change: Your first question comes from Doug Harter with UPS. UPS, your line is open.

Douglas Harter: Thanks. Good morning. I'm hoping you could give us an update on how book value is trending so far in the third quarter given the significant moves in rates.

Speaker Change: Thanks. Good morning. Hoping you could give us an update on how book value is trending so far in the third quarter given the significant moves in rates.

Unknown Executive: Hi. This is self-dog.

Phillip Kardis: This is Phillip, Doug. I'm going to turn this over to Dan. Yep, yep. Hi Doug. So, good morning.

Unknown Executive: I'm going to turn this over to Dan.

Doug Harter: Hi.

Dan Thakkar: Yes. Hi.

Dan Thakkar: So, you know, as you know, the markets have been pretty chaotic the past few days, although they did recover to an extent yesterday. You know, based on deal pricing Monday, price talk on a couple of deals being marketed right now. And, you know, some trading that we've seen in the subs, we see spreads, you know, approximately 20 to 30 basis points wider, you know, so I would say our book value is up around roughly 2%, primarily because of the rates that have rallied close to 50 to 60 basis points in the intermediate part of the curves at quarter end, you know, but I would still caveat it that, you know, markets are still trying to find You know, if you had asked this question yesterday or the day before, we would have given a very different answer.

Dan Thakkar: So good morning. As you know, like markets have been pretty chaotic the past few days, although they did recover to an extent yesterday, based on a deal pricing Monday, price stock on a couple of deals being marketed right now, and some trading that we have seen in the subs, VCs spreads approximately 20 to 30 basis points wider. So I would say our book value is up around roughly 2%. Primarily because of the rates that have rallied close to 50 to 60 basis points in the intermediate part of the curves in the quarter end, but I would still caveat that markets are still trying to find its footing as we speak.

Doug Harter: This is Phillip, Doug. I'm going to turn this over to Dan.

Dan: As you know, markets have been pretty chaotic the past few days, although they did recover to an extent yesterday.

Speaker Change: and you know some trading that we have seen in the subs.

Dan: in the intermediate part of the curve since the quarter-end, you know, but I would still caveat it that, you know, markets are still, you know, trying to find its footing as we speak. You know, if you would have, you know, asked this question yesterday or day before, we would have given a very different answer.

Dan Thakkar: If you would have asked this question yesterday or the day before, we would have given a very different answer. Sir.

Douglas Harter: Completely understand, Dan, but thank you for that update.

Douglas Harter: And then Phil, you guys issued the unsecured note during the quarter.

Dan: I completely understand, Dan, but thank you for that update.

Dan: And then, Phil, you know, you guys, you know, issued the unsecured note during the quarter. Can you talk about, you know, how big a part of the capital stack that can be in your appetite for continuing to access additional forms of capital for growth?

Phil Curtis: Can you talk about how big a part of the capital stack that can be in your appetite for continuing to access additional forms of capital for growth? So, you know, as we think about things, I mean, we do believe that growing our asset base will lead to us growing the dividend, which is going to be in the best interest of shareholders over the long term. And so we think that at that rate, we could have, we could and did acquire, you know, a creative assets. And as we think about it, we're looking at our relatives or overall size, how the, this debt will begin to roll in two years.

Phil Kardis: And so we think that at that rate, we could have, we could and did acquire, you know, accretive assets. And as we think about it,

Phil Curtis: So we're going to be, I think, in the beginning, relatively modest, keeping all those factors in play. But we do think it is an interesting and important piece to add to our overall capital structure. But we're going to be cognizant about its size relative to overall, because we've got to be thinking about two years from now, three years from now, our ability to, you know, either call that debt or refinance it. So keeping it, you know, appropriately size is given our size is what we're looking for.

Speaker Change: factors in play. But we do think it is an interesting and important piece to add to our overall capital structure.

Speaker Change: but we're going to be cognizant about its size relative to overall, because we're going to have to be thinking about two years from now, three years from now, our ability to, you know, either call that debt or refinance it, so keeping it, you know,

unknown: Appropriately sized given our size is what we're

Douglas Harter: Great. Thank you.

Speaker Change: appropriately sized given our size is what we're looking for.

Bose George: Your next question comes from Bose George with KBW. Your line is open. Hi guys, good morning.

Bose George: Your next question comes from Bose George with KBW. Your line is open.

Bose George: Actually, I wanted to ask, what's the best way to think about your rate, a rate exposure, EAD exposure as the Fed's cutting rates. You've got, I guess, the piece of your repo that's not hedgewood swaps; you've got your preferred said, we'll reprise down. It's kind of sort of looking at the whole, the big picture of that. I mean, do you feel like that gets you to a double digit EAD as the Fed, you know, get the forward curve is right or just, yeah, color on that would be great.

Speaker Change: Hey guys, good morning.

Speaker Change: Actually, I wanted to ask, what's the best way to think about your...

Speaker Change: rate exposure, EAD exposure as the Fed's cutting rates. You've got, I guess, the piece of your repo that's not hedged with swaps. You've got your preferred several repriced down.

Speaker Change: Sort of looking at the big picture of that, do you feel like that gets you to a double digit EAD as the Fed, you know, if the forward curve is right, or just, yeah, color on that would be great.

Subramaniam Viswanathan: I'm going to turn this over to the Supra. Hey, hey, Bose, thanks. Look, you know, we think rate cuts will impact both, you know, EAD, both positively and also significantly, right? To answer your question specifically, we have about two billion of floating rate liabilities, and hedging those we have about 1.5 billion or swaps. The rate on these swaps is, you know, pay fixed at 3.56 percent. So, to the extent that the rates fall below this 3.56 percent, we will begin to pick up additional sort of income as long as we don't put additional hedges from there on, right?

Boaz: Hey, Boaz, thanks.

Boaz: Look, you know, we think rate cuts will impact both, you know, EAD both positively and also significantly, right? To answer your question specifically, we have about 2 billion of floating rate liabilities and hedging those, we have about 1.5 billion of swaps.

Speaker Change: So, to the extent that the rates fall below this 3.56 percent, we will begin to pick up additional sort of income as long as we don't put additional hedges from there on. Right? So, that's in context of what the liabilities and the swaps with the hedges.

Subramaniam Viswanathan: So that's that's in context of what the liabilities and the swaps with the hedges. In terms of preferred, we have 525 million of prefers that are currently floating. So, you know, any rate reduction will continue to benefit that. We there is also a small piece and other hundred seventy five million piece, I believe, which is in prefers which will go floating in in the last quarter of 2025. So that could, that could increase a little bit. I'm sorry, it's two hundred million. Sorry, it's two hundred million pieces.

Speaker Change: I'm sorry, it's 200 million. Sorry, it's 200 million piece.

Bose George: Okay, great. Okay, and then, sorry, good. Sorry, I didn't mean to interrupt. Go ahead. No, I think if we've answered, you know, this, or I think was there, we thought maybe you would, we'd gotten what you, you're looking for it. Thanks, thank you.

Speaker Change: Okay, great. Okay, and then... Sorry, go ahead.

unknown: We thought maybe you'd gotten what you were looking for. Oh, yeah, I did. Yeah. So I did that.

Bose George: Switching over to book value sensitivity. I mean, you answered, you know, Doug's question on the book value, just, but you know, prospectively just thinking about, you know, again, a forward curve is right, rates are down, but, but spreads kind of tighten over time if, as things stabilize. You know, is there a good way to think about your, you know, potential benefits to your book value as that happens? I mean, depending on the magnitude of the rate and the spread moves, which eventually we think it's going to happen after market sort of settles down, the only thing I can say that should be a positive impact level value.

Bose George: Thanks. Okay. Switching over then to, book value sensitivity. I mean, you answered Doug's question on book value, but, prospectively, just thinking about, you know, again, if the forward curve is right, rates are down, but spreads kind of tighten over time if, as things stabilize, you know, can, is there a good way to think about your, you know, potential benefits to your book value as that happens?

Speaker Change: Is there a good way to think about your potential benefits to your book value as that happens?

unknown: Yeah. Yeah. Yeah. Yeah.

unknown: Okay.

Bose George: Okay, great, thanks.

Unknown Executive: Once again, to ask a question at this time, please press store the number one on your telephone keypad.

Speaker Change: Once again, to ask a question at this time, please press star, then the number 1 on your telephone keypad.

Stephen Laws: Your next question comes from Stephen Laws with Raymond James. Your line is open. Hi, good morning. Can you touch on the callable security securitization, how you see that playing out and has the roll over and rates or, you know, change your expectation of repayment speeds and kind of how quickly or the amount of deals you'll call and look to re-secure ties to free up additional capital. Yes, this is still so. You know, as we've mentioned on prior calls about maybe the first ones we would look to do is our in our deals because we think, you know, there are loans that are performing in there and there's an opportunity to lower the overall cost of financing on those.

Speaker Change: Your next question comes from Stephen Laws with Raymond James. Your line is open.

Phillip Kardis: Yes, this is Phil. As we've mentioned on prior calls, maybe the first ones we would look to do are in our deals because we think, you know, there are loans that are performing in there. And there's an opportunity to lower the overall cost of financing for these. We've looked at Unknown Executive, Subramaniam Viswanathan, Victor Falvo, and Chimera Investment Corp. Unknown Executive, Subramaniam Viswanathan, Victor Falvo, Chimera Investment Corp. Unknown Executive, Subramaniam Viswanathan, Victor Falvo, Chimera Investment Corp.

Dan Thakkar: We've looked at feedback. We've looked at a lot of those normal factors, but also, you know, this past period, given where the hurdle rate was 9% on the debt, was a more effective way for us to raise capital. And now we're looking at the potential Fed rate cuts. So we're looking at, you know, the timing of that will only improve with those rate cuts. So I think that's how we're looking at it. We were very close to thinking about the, our, in our deals. And I think those economics are going to improve once the Fed starts cutting.

Speaker Change: So we're looking at, you know, the timing of that will only improve with those rate cuts. So I think that's how we're looking at it. We were very close to thinking about the art in our deals. And I think those economics are going to improve once the Fed starts cutting.

Dan Thakkar: And so, given that we were able to access the market at a 9%, that was what we did first. And we're going to be still monitoring the re-securetizations. And as far as other non-NORs, obviously, as rates continue to drop, don't start to come into play as well. So, you know, hopefully that's helpful for you. It is.

Speaker Change: And so, given that we were able to access the market at a 9%, that was what we did first, and we're going to be still monitoring.

Phil Curtis: And to kind of drill down a little bit, I mean, is it possible to quantify any of that as far as, you know, how much capital you think you could pre-op or maybe once you execute the recent calls and re-securetization is kind of what the incremental return would be on that capital, as you've kind of optimized deployment? Yeah, you know, that is something that we were looking at. But even as Dan talked about, thinking about both value, it's depending on so many factors. It's really at that moment. I do think in the past, you know, we've done these relivers where we think it's going to be, you know, a material improvement for the company.

Speaker Change: to quantify any of that as far as how much capital you think you could free up or maybe once you execute the recent calls and re-securitizations kind of what the incremental return would be on that capital as you kind of optimize deployment.

Phil Curtis: And so I can kind of quantify it that way. But at this point, thinking about when we might do it in the future and what it means is really hard for me to be much more specific, other than things are moving in the right direction. And when we do do it, we'll do it when it's going to be a material benefit to the company. Sure, period.

Phil Curtis: A lot of moving assumptions in that question. Last, I thought it was notable that loan portfolio delinquencies are at the lowest level since 2019. You know, can you talk about what's driving that strong performance? You know, is it aggressive resolutions on problem loans? I mean, it seems typically as one of those pool season, you see increased delinquencies, but I thought that the strength in loan delinquencies was notable, so was hoping you comment on that. Yeah, you know, if you think about it, it really is kind of reverting back to kind of pre-pandemic, so it's a little bit of a reversion to the mean kind of post-pandemic.

Speaker Change: Sure, sure. A lot of moving assumptions in that question. Lastly, I thought it was notable that loan portfolio delinquencies are at the lowest level since 2019. Can you talk about what's driving that strong performance? Is it aggressive

unknown: Yeah, you know, if you think about it, it really is kind of reverting back to the kind of pre-pandemic. So it's a little bit of a reversion to the mean kind of post-pandemic. And it's been a trend down since, you know, it kind of spiked up in 20. So I think maybe the better way to look at it is we're kind of now working our way through the pandemic. And we're kind of reverting back to kind of a pre-pandemic level given the seizing of our food.

Phil Curtis: And it's been a trend down since, you know, it kind of spiked up in 20. So I think maybe the better way to look at it is we're kind of now working our way through the pandemic, and we're kind of reverting back to kind of a pre-pandemic level given the ceasing of our portfolio. Great. I appreciate comments this morning. Thank you.

Speaker Change: Great. I appreciate the comments this morning. Thank you.

Eric Hagen: Your next question comes from Eric Hagen with VTIG. Your line is open. Good morning, Mrs. Jake.

Unknown Executive: Ted Ficus on for Eric. Thanks for taking my questions. I want to talk about pre-pandemic activity. Are you guys expecting to see a pickup in it as a result of the recent interest rate moves? And can you make it pinpoint at what level of rates you think pre-pandemic activity would begin to accelerate more meaningfully? Thank you. Go ahead.

unknown: I want to talk about prepayment activity. Are you guys expecting to see a pickup in it as a result of the recent interest rate moves? And can you maybe pinpoint at what level of rates you think prepayment activity would begin to accelerate more meaningfully? Thank you.

Unknown Executive: So I think the obviously, you know, it's too early to call that, but if you look at our RPL portfolio, you know, that has range from close to six to a six CPR to low to mid-double digits. You know, if we come to the point where, you know, rates meaningfully or mortgage rates meaningfully go down from here, we could expect to see our RPL pre-pandemic, you know, go back to, I would say low to mid-double digits. Great. Thank you so much. At this time, there are no further questions in queue.

Speaker Change: So I think obviously, you know, it's too early to call that, but if you look at our RPL portfolio,

Speaker Change: If we come to the point where mortgage rates meaningfully go down from here, we could expect to see our RPL prepayments go back to, I would say, low to mid-double digits.

unknown: Great. Thank you so much.

Speaker Change: Great, thank you so much.

Phil Curtis: I'd like to turn the call back over to Mr. Phil Curtis for any closing remarks. Thanks for participating in our earnings call, and we look forward to speaking to you with our third quarter results.

Unknown Executive: This concludes the Chimera Investment Corporation's second quarter earnings call.

Operator: This concludes the Chimera Investment Corporation second quarter earnings call. Thank you for attending, and have a wonderful rest of your day.

Unknown Executive: Thank you for attending, and have a wonderful rest of your day. .

Speaker Change: This concludes the Chimera Investment Corporation second quarter earnings call. Thank you for attending and have a wonderful rest of your day.

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