Chimera Investment Corporation Q1 FY2026 earnings call

• The first quarter demonstrated the value and necessity of the transformation executed over the past year. Loan sale activities released capital and materially improved earnings capacity. The growing agency portfolio provided flexibility to redeploy and de-risk dynamically as conditions shifted. Home Express continued to contribute to earnings while building a pipeline for its securitization program. - Home Express delivered strong results in the first quarter, originating $884 million in total loan volume, a 39% increase year-over-year. Reasons included the natural lag in the loan submission to close process and the less rate-driven refinancing dependence of consumer non-QM and business purpose loan demand. - Efforts were made to enhance efficiency, such as integrating with Arrive for brokers to access products and pricing directly, using AI to reduce manual work and underwriting, and increasing total warehouse funding capacity to $1.5 billion during the quarter while maintaining the high touch service model.

Chimera's Home Express segment originated total loan volume of $884 million in the first quarter, an increase of 39% compared to the first quarter of the previous year. EBITDA was $11.4 million and the net origination margin was 114 basis points. On the agency side, risk was managed through TBA positions, with the hedge composition shifting from pay fix swaps and swaptions to interest rate caps to achieve an asymmetric payoff in case of a significant decline in short-term rates.

• Entering the year, there was a clear plan to diversify the portfolio, strengthen liquidity, and grow durable sources of income. Actions taken this quarter advanced these objectives. - Volume in the second quarter for Home Express should be very consistent with forecasts. Margins appeared to be holding up and are back to normal regarding margin activity.

• Market volatility, such as the market disruption late in the quarter which did not meaningfully impact origination volume due to the natural lag in the loan submission to close process. - Interest rate volatility which affects portfolio allocation and earnings. - Softening labor market conditions which could lead to an increase in credit delinquencies.

• Q: How much additional embedded optionality remains in the existing securitization stack and how should we think about the trade-off between book value volatility and future earnings power?

A: When looking at these deals, the economics of calling and re-securitizing are evaluated holistically. There are a large number of callable deals and the team constantly assesses the economics of these actions. - Q: You mentioned establishing a short TBA position in March, which was about $1 billion at the end of the quarter. Can you say if you guys are continuing to hold that short TBA position or if there's been any other significant changes to the agency books since the end of the quarter?

A: The short position established early in March for the Middle East conflict was taken off before quarter end. Other shorts have been re-established and maintained post-quarter end, used in part when seeing attractive payout or call protection in spec pools and to offset risk when expecting to raise capital in the future. - Q: Can you give us a little bit of color on sort of the early indications on the second quarter for Home Express, how volumes are holding up with higher mortgage rates and if you've seen any sort of indication of changes in margin levels as well?

A: Volume in the second quarter should be very consistent with forecasts. Volumes have been increasing month over month. Margins appeared to be holding up with some trades to an insurance investor during the market dislocation helping to keep margins and now back to normal. - Q: Given rate volatility and headline risks on unemployment, can you talk about what you're seeing in the market there on credit and how Home Express platform thinks about retaining servicing or MSR exposure going forward?

A: In 2023 more seasoned vintage pools of non-QM, delinquencies are rising in the normal course due to softening labor market but losses remain muted due to significant equity in loans. Regarding Home Express retaining servicing, currently everything is on a servicing release basis and there are discussions about retaining servicing longer-term but still work to be done.