Greetings, and welcome to the Chimera Investment's 2024 Earnings Conference. I have here with me today Victor Falvo. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Victor Falvo. You may begin.

Thank you, operator, and thank you, everyone, for participating in Chimera's First Quarter 2024 Earnings Conference Call. Before we begin, I'd like to review the safe harbor statements. During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which are outlined in the Risk Factors section in our most recent annual and quarterly SEC filings. Actual events and results may differ materially from these forward-looking statements. We encourage you to read the forward-looking statement disclaimers in our earnings release and our quarterly and annual filings. During the call today, we may also discuss non-GAAP financial measures. Please refer to our SEC filings and earnings supplement for reconciliation to the most comparable GAAP measures. Additionally, the content of this conference call may contain time-sensitive information, 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.

Good morning, and welcome to Chimera Investment Corporation's First Quarter 2024 Earnings Call. Joining me on the call are Subra Viswanathan, our Chief Financial Officer; Dan Thakkar, our Chief Investment Officer; and Vic Falvo, our Head of Capital Markets and Investor Relations. After my remarks, Subra will review the financial results, and then we'll open the call for questions. The capital markets closed 2023 on a strong note, driven by investor expectations that the Federal Reserve would cut interest rates 7 times or 175 basis points during 2024, which was more than twice the number the Federal Reserve had indicated through their quarterly dot plot. Throughout the quarter and during April, economic data reflecting strong employment and an increasing inflation rate caused the market on several occasions to reduce its expectations of interest rate cuts, triggering increased rate volatility and a backup in long-term interest rates. Today, market expectations are for 1 to 2 cuts before year-end. The 4 main themes that have emerged as we begin the second quarter are: inflation is still higher than the Federal Reserve's desired rate; economic data continues to indicate a strong economy; long-term interest rates may not have peaked; and interest rates will experience increased volatility. Despite the return of volatility, higher interest rates and reduced rate cut expectations, since the beginning of the year, we have acquired approximately $50 million in subordinated tranches of new issue mortgage securitizations backed by collateral that included reperforming residential mortgage loans and small balance commercial loans. These investments have a weighted average coupon of 10.5%, and inclusive of the purchase discount we anticipate earning low-teen unlevered returns. In addition, we also settled on $78 million of residential transition loans. These loans have a weighted average coupon of 10.6%, and we expect to receive mid-teen levered returns.…

Thank you, Phil. I will review Chimera's financial highlights for the first quarter 2024. GAAP net income for the first quarter was $111 million or $0.45 per share. GAAP book value at the end of first quarter was $7.11 per share. The appreciation in value this quarter was mostly driven by a tightening of spreads on our reperforming loans. For the first quarter, our economic return on GAAP book value was 7% based on the quarterly change in book value and the first quarter dividend per common share. On an earnings available for distribution basis, net income for the fourth quarter was $31 million or $0.12 per share. Our economic net interest income for the fourth quarter was $68 million. For the first quarter, the yield on average interest-earning assets was 5.8%. Our average cost of funds was 4.4%, and our net interest spread was 1.4%. Total leverage for the first quarter was 3.7:1, while recourse leverage ended the quarter at 0.9:1. For financing and liquidity, the company ended the quarter with $587 million in total cash and unencumbered assets. For hedging, during first quarter, the company exercised its 2 swaption contracts for $1 billion notional and entered into 2 separate 1-year swaps for a total of $1 billion notional at a weighted average 3.46% fixed pay rate. We added a new swaption contract with $500 million notional for the option to pay-fixed at 3.45% for 1 year beginning in January 2025. We had $1.7 billion floating rate exposure on our outstanding repo liabilities. We had $2 billion pay-fixed interest rate swaps at a weighted average fixed pay rate of 3.36% as a hedge position for our floating rate liabilities. $1 billion of these swaps matured in May and $1 billion pay-fixed swaps remain with 3.46% weighted average fixed pay rate. We had $1.4 billion of either non or limited mark-to-market features on our outstanding repo agreements representing 60% of our total recourse funding. For the first quarter of 2024, our economic net interest income return on equity was 10.5%, our GAAP return on average equity was 19.9%, and our EAD return on average equity was 7.3%. And lastly, for the first quarter 2024 expenses, excluding servicing fees and transaction expenses, were $15 million, down $1.3 million from same period last year, a reduction of 8%. That concludes our remarks. We will now open the call for questions.

[Operator Instructions]. Our first question comes from Doug Harter with UBS.

You mentioned that you're getting closer on calling some of your deals. Can you just talk about how you -- what type of capital you think you might be able to free up in the coming quarters? And how you would view the relative return on redeploying that capital versus kind of what you're calling?

Doug, this is Phil. So yes, I mean, I think we believe we're getting closer. We're not there yet. We're looking at a variety of factors. Partly, that comes down to issues like how much are we actually going to get. We think it's significant enough that we're willing to really look at this seriously. But the actual amount will be -- again, will depend on factors, and we look at kind of what the hurdle rates are and the like. And so I think we can say that there's a fair amount of opportunities out there for kind of low to mid-teen returns, and it currently looks like we can beat the hurdle for reinvestment. That's why I mentioned it. I mentioned on the prior call that we thought that was possible. We think it's now, given where the spreads have gone, that it's more possible. But we need some further improvement before we're there. But we are hopeful that we get something done in the next period or so.

Great. And I was hoping you could give us an update as to how book value has trended so far in the second quarter?

Yes. So far in the second quarter -- so I'm going to turn this over to Dan Thakkar, our Chief Investment Officer.

Yes. Yes. So Doug, so this quarter we have had a sell-up in rates in the range of 25 to 30 basis points. Spreads have tightened a bit more, especially post the FOMC and the soft payroll last week. So our estimate at this point is that we are lower by close to 1.5% to 2%.

Our next question comes from Bose George from KBW.

Just a follow-up to the book value question. The -- just in terms of the improvement this quarter, can you just walk through the drivers?

Yes. So Bose, so look, I think as Subra said, we had positive mark-to-market changes in the investment portfolio, which was primarily driven by the tightening in the loan portfolio. Look, spreads tightened a fair bit commensurate with the tightening in the non-Agency subs in the last quarter. We saw roughly $3 billion to $4 billion trading in loans. Fannie Mae sold $500 million early -- in early February. That traded pretty well. There is another list out today that's expected to trade even better than that. So in addition, there was a fair amount of issuance in the securitization market, close to $5 billion. So we saw that spread tightening as far as the trading is concerned in the markets and what we saw in the supply. So that's how we tighten our loan portfolio.

Okay. Makes sense. And then if the forward curve is right and we're in the higher for longer, can you just talk about the outlook for EAD? And just talk about the path to a double-digit ROE if we're remaining higher for longer.

Bose, this is Subra. EAD, at this point, based on the hedges we have and the forward rate projections, we are expecting EAD to be consistent along where we have reported. If you actually look at our E&D trend the last 3 or 4 quarters, we have remained very stable, and we expect that to continue. Obviously, if you add more assets and if you raise more capital and add more assets, that could change the scenario a little bit, but the trend so far is that we're maintaining consistent EAD.

And the second part, yes...

Sorry, say that again, your second part.

The second part was really if we remain in higher for longer, what's the path to a double-digit ROE.

Okay. So the -- if you think about the ROE today, in my prepared statement, I said that average return on equity was 10.9%. Now that's before the expenses. So we are generating double-digit ROEs today. And obviously, how we manage our hedges and additional investments that we make on capital raise would contribute further on top of that.

Our next question comes from Trevor Cranston with Citizens JMP.

Can you talk about how you guys are evaluating the potential to buy back shares versus making other new types of loan investments given where the stock is trading relative to book value?

Sure. I mean, I think as we said in the past, we look at all those factors. Right now, I think we view acquiring assets in this environment as a better long-term investment for our shareholders.

This concludes our question-and-answer session. I would like to turn the floor back over to Phillip Kardis for closing comments.

I would like to thank everyone for participating in our first quarter earnings call, and we look forward to speaking to you at the end of next quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.