Greetings, and welcome to the Chimera Investment Corporation Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to [ Mean Sung ]. Please go ahead.

Thank you, operator, and thank you, everyone, for participating in Chimera's Second Quarter 2025 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 events are based on current expectations and assumptions that are subject to risks and uncertainties, which are outlined in the Risk Factors section in our most recent annual and quarterly SEC filings. Actual events and results may differ materially from these forward-looking statements. We encourage you to read the forward- looking statement disclaimers in our earnings release and our quarterly and annual filings. During the call 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. I will now turn the conference over to our President and Chief Executive Officer, Phil Kardis.

Thank you. Good morning, and welcome to the Chimera Investment Corporation's Second Quarter 2025 Earnings Call. It's great to have you with us today. Joining me on the call are Jack Macdowell, our Chief Investment Officer; and Subra Viswanathan, our Chief Financial Officer. After my remarks, Subra will review the financial results, and then Jack will review our portfolio before opening the call for questions. You may be familiar with the ancient Greek parable, "the fox knows many things, but the hedgehog knows one big thing." It's a simple parable, but powerful. The fox is clever, always trying new things. The hedgehog, it just sticks to what it knows best, and the fox cannot defeat him. And good to great, Jim Collins took that idea and asked what separates great companies from the rest? He found the answer was not simply trying new things. It was focus. He called it the hedgehog concept, the intersection of 3 key questions. What are you deeply passionate about? What can you be the best in the world at? And what drives your economic engine? A couple of years ago, we looked at ourselves in the mirror and realized we were too focused on securitizing reperforming residential mortgage loans. We needed to change, but not by becoming something new, not by chasing the new hot idea, rather by becoming more of who we already are, something we're deeply passionate about that we believe we can be the best at and will drive our economic engine, and that's residential mortgage credit. The first step, the acquisition of the Palisades Group, which enhanced our existing expertise in residential mortgage credit, brought us third-party mortgage loan management, portfolio optimization and third-party private capital raising. The second step was portfolio diversification. We have started selling some of our…

Thank you, Phil. I will review Chimera's financial highlights for the second quarter of 2025. GAAP net income for the second quarter was $14 million or $0.17 per share. GAAP book value at the end of second quarter was $20.91 per share. For the second quarter, our economic return on GAAP book value was 0.5% based on the quarterly change in book value and the $0.37 second quarter dividend per common share. And year-to-date 2025, our economic return on GAAP book value was 9.8%. On an earnings available for distribution basis, net income for the second quarter was $32.1 million or $0.39 per share. Our economic net interest income for the second quarter was $69 million. For the second quarter, the yield on average interest-earning assets was 6%, our average cost of funds was 4.5% and our net interest spread was 1.5%. Total leverage for the second quarter was 4.5:1 while recourse leverage ended the quarter at 1.8:1. Recourse leverage increased this quarter as we increased our investments in agency securities. For liquidity and strategic developments, the company ended the quarter with $561 million in total cash and unencumbered assets. As Phil mentioned, during the quarter, we announced a definitive agreement to acquire HomeXpress Mortgage Corporation. This transaction is expected to close in the fourth quarter of 2025. On the investment front, we deployed approximately $2.3 billion in new Agency RMBS investments during the quarter, primarily in the back half as opportunities arose. For repo and hedging, we had $2.4 billion outstanding repo liabilities secured by the residential credit portfolio. 58% of the outstanding residential credit repo or $1.4 billion had a floating rate sensitivity, and we maintained $1.6 billion in notional value of various interest rate hedges protecting the repo liabilities. We had $1.4 billion in either non or limited mark-to-market features on our outstanding repo agreements, representing 58% of our secured recourse funding for the residential credit portfolio. On the Agency RMBS side, we had $2 billion of interest rate swap notionals with various tenants protecting against $2.1 billion of outstanding repo liabilities. Additionally, during the quarter related to the Agency RMBS hedges, we entered and closed out $2.5 billion notional of swaption contracts with varying maturities. For the second quarter of 2025, our economic net interest income return on average equity was 10.5%. Our GAAP return on average equity was 5.4%, and our EAD return on average equity was 7.5%. And lastly, compensation, general, administrative and servicing expenses were marginally lower this quarter. Our transaction expenses were lower by $5 million this quarter, reflecting the costs associated with increased securitization activity in the prior quarter. I will now turn the call over to Jack to review our portfolio and investment activity.

Thanks, Subra, and good morning, everyone. The second quarter was shaped primarily by policy developments, including international trade uncertainty, the administration's tax proposal, regulatory capital relief initiatives, geopolitical events and ongoing scrutiny of Federal Reserve rate policy. The early April tariff escalation rattled risk markets, pushing interest rate volatility to levels not seen since October 2023. Investors repriced the odds of a June Fed rate cut peaking at an implied 1.6 cuts on April 8 as concerns of a tariff-induced recession increased. But as trade time lines extended and policy tensions eased, risk sentiment stabilized and volatility finished the quarter below its starting point. Economic data remained a key market driver as the Fed maintained its data-dependent stance. While early Q2 consumer sentiment surveys showed weakness, June data improved notably. Hard data revealed surprising economic resilience despite tariff concerns. Employment statistics consistently met or exceeded expectations and core PCE inflation ended the quarter at 2.8%, just 10 basis points above where it began. The yield curve steepened during the quarter, with the 2-year treasury yield declining approximately 16 basis points, supported by softening inflation expectations and a more balanced economic backdrop. Conversely, long-duration treasuries faced headwinds with the 10-year [indiscernible] hedging up 2 basis points, while the 30-year sold off roughly 20, pressured by mounting fiscal supply concerns and uncertainty around duration demand. This dynamic produced significant curve steepening with the 2s, 10 spread widening approximately 19 basis points and the 2s and 30s by roughly 37 basis points. Corporate credit spreads outperformed non-Agency RMBS as investment grade and high-yield corporates tightened 11 and 57 basis points, respectively, while non-Agency RMBS was wider by 5 to 10 basis points across the capital stack. Generically, Agency MBS held up better against treasury hedges with current coupon OAS tightening 8 basis points,…

[Operator Instructions] Our first question today is coming from Bose George from KBW.

Actually, in the prepared remarks, you suggested that there might be more to do in terms of -- on the acquisition front or sort of pieces as the company continues to evolve. Can you just discuss what direction that could be?

Yes. What I want to signal is that as with HomeXpress, I mean, we will continue to be open to opportunities that make sense within our kind of core competency of residential credit. And that's -- we'll just remain open to those things, and we're more signaling that. It's still possible to continue to grow those to the extent that they could be synergistic within that framework.

Okay. That makes sense. And then after the HomeXpress deal closes, do you think you have all the pieces in place to generate a double-digit ROE next year?

Yes. I think, Bose, just from an earnings power perspective, I mean, obviously, we're doing several things that are focused on increasing our earnings power, increasing our EAD. HomeXpress is obviously a critical component to that. We think that's going to be materially accretive as we go forward in 2026 and beyond. The other thing that we alluded to in some of the prepared remarks was just our efforts to generate liquidity and earnings power just from our existing callable securitization. So that's something that we're continuing to focus on and try to identify the economics of. The other thing, too, is just looking across our portfolio, we've got a lot of legacy positions. So identifying any underperforming or fully valued assets and seeking to sell those, redeploy them into more accretive investments. And I think as we've mentioned on prior calls, another element that we're very focused on is continuing to increase the revenue and earnings attribution from our fee-based businesses, our asset management and investment management platforms. So look, all those pieces and then there's obviously market dynamics that flow into this with respect to the path of Fed rate policy, and that obviously impacts our net interest margin and things like that. But we certainly believe that we're laying the foundation and are on the right path for continuing to increase our earnings power going forward.

Next question today is coming from Trevor Cranston from Citizens JMP.

As you guys continue to go through the portfolio repositioning process, can you talk about how you sort of envision the long-term capital allocation mix between the legacy credit portfolio and the newer Agency/MSR asset classes?

Yes, sure. It's a good question. And obviously, that is a function of several things, market conditions being one; two, the legacy portfolio naturally will run off over time. But we're certainly focused on sort of what we have in-house that we're looking at, which is kind of our model portfolio. And one of our primary goals there is to have a diversified portfolio across complementary sectors or product types that would provide stability and durability across different economic housing and interest rate environments. The legacy portfolio, primarily made up of the reperforming loans, super seasoned loans. They've got a ton of equity in them. In many cases and for many reasons, we like those assets. At the same time, they were securitized in a different period of the market. And so we're looking and they've delevered. And as they continue to delever, that has an impact on our earnings power. So going forward, I would say -- MSRs, we did our first MSR transaction. It's now less than 2% of our overall capital allocation. As we think about where we want to be from an equity duration perspective, again, depending on the types of MSRs that we're buying, are they at the money? Are they more out of the money like the trade that we did in July? I see those being anywhere from 15% to 25%, something like that, give or take. Agencies, we've mentioned, is a very important component of our overall portfolio allocation, but that's going to be a function of our liquidity needs, where we're seeing relative value, some of the opportunistic -- relative value opportunities we're seeing in other products and sectors. So it's hard to nail down like what is our specific long-term portfolio allocation. But what I can say is agencies has a permanent role there, MSRs have a permanent role there, and being opportunistic around other product sectors is something that we're always going to do just because we've got the capabilities to allocate and manage assets across the entire spectrum of residential credit products. And so we don't want to limit ourselves to any just 1 or 2. I don't know if that helps, but hopefully, it gives you some idea of what we're thinking.

Next question today is coming from Doug Harter from UBS.

Hoping you could talk about how you're thinking about the dividend strategy going forward once HomeXpress closes and how you think about retaining some capital from that business versus increasing the payout?

This is Phil. Yes, I mean, as we signaled, we are -- we look at a variety of factors. We look at what our liquidity needs are, what the investment horizon is. And we're looking to maintain and grow kind of the total economic return. And there's a couple of levers there. As you know, there's the dividend, there's book value, there's assets that support both. And so as we look at HomeXpress, we do believe it's going to be materially accretive to our earnings. And the question will be at the time of next year as we look through things, we will want to take some of that and make sure we invest it to grow that platform and assets. And some of that, we will want to make sure that we're providing some near-term dividend. That mix, we haven't determined, but those are the kind of factors we'll think about as we go forward because acquiring new and accretive assets is going to support the current dividend and allow that dividend to grow. So we have to strike an appropriate balance between using some of those earnings to grow the dividend now versus making the investments that will grow the dividend in the future.

Great. And then shifting to the secured financings. It looks like as of June 30, that rate came down about 60 basis points from the prior quarter. I guess can you just talk about what drove that and how much of that benefit you saw during the second quarter?

Doug, it's Subra. Thanks for your question. So that 60 basis points is really a result of our increase in financing of our agency portfolio. So that just brought the weighted average rate down.

Okay. That makes sense. And then is there -- has there been any significant change in book value quarter-to-date or through July, whichever?

Yes. I think as of the end of last Friday, we were down about 55 basis points on book value. That was primarily driven by our loan portfolio being relatively flat quarter-to-date, and we are seeing spreads tighten marginally on securitized -- senior securitized debt. So that increased the value of our sec debt and had a nominal impact on our book value.

[Operator Instructions] Our next question is coming from Eric Hagen from BTIG.

Maybe following up on that last point. I mean you mentioned some mark-to-market noise related to the move at the short end of the yield curve last quarter. I mean what's the outlook from here if the Fed cuts rates? And how will that drive your appetite to call the remaining securitized debt that you have that's currently callable?

Yes. No, that's a great question, Eric. And certainly, if rates -- if they cut rates sort of where we're seeing Fed futures and things like that, that would certainly have multiple impacts on how we look at things. I mean, one, that would increase our net interest margin. We've set up our non-agency hedges in a bit of an asymmetric way with our $1 billion cap that we put on earlier this year. So as rates go down -- we're protected if rates go up. But to the extent that rates go down, we're going to see a benefit there from our net interest margin. At the same time, if rates go down, that -- depending on where other parts of the curve move, that should also help the economics in our callable securitization analysis. So we certainly could see some of those deals that may not be currently economic to call, we could certainly see them move into the box and be more actionable. So yes, those things are definitely something that we're paying close attention to.

Got it. That's helpful. That's helpful. All right. So we're looking at the really low mark-to-market LTV for these seasoned reperforming loans. I imagine the DTI is probably too high for most of those folks to get a cash out refi or take on more debt. But there's so much innovation in our market right now, right, especially with like home equity products. I mean, are there other equity products which could appeal to these borrowers, which either drive a refi event or strengthen the underlying credit in some way?

Yes. That's another good question. And we're very familiar with a lot of these home equity products that are out there, including the ones that require no monthly scheduled payments. So I do think they -- some of these borrowers would be ripe for those types of products to the extent that they wanted to tap into the equity in their homes. With that being said, if you think about the profile of the borrower in this portfolio, they've been in the house 17, 18, 19, 20 years. If they didn't refinance back in 2021, I think in many cases, these folks are just planning on living in these places for the rest of their lives almost. And basically, we're seeing that captured in the prepayment speeds that are basically right around housing turnover levels. So I agree with you, it very well could be a world where some of these home equity products and the marketing reach that they're making gets to these borrowers, and we could see some pickup in payoff speeds. But I will say from a credit perspective, I'm not sure that any of those products will really -- we're looking toward those to improve the credit profile. We're seeing, like I said in the prepared remarks, very good cash flow velocity. You've got a ton of equity in these loans. The profile of borrower, they may miss a payment or 2 around the holidays. They pick it back up again when they get their tax returns just as a general profile. So yes, it's -- I'm not sure if that answered the question.

No, that was really helpful detail. No, that was good stuff. I appreciate that. One more, if I may. I mean, do you have a sense for how much of the production from HomeXpress will be capitalized on the balance sheet versus sold to third parties going forward?

Yes. I think it's really important for us to really emphasize the fact that -- and I alluded to it in the prepared remarks, but their business has been built around relationships they have with institutional investors who have been multiyear partners to them and buying their production, and we expect to continue to support that and continue to develop those relationships and sell to third parties. At the same time, as we see HomeXpress' production volume grow, we do expect to be in a position to retain a portion of that production, whether it's for the REIT balance sheet, for our credit funds, our third-party clients on the asset management side. But we certainly do not -- we want to strike a very good balance with respect to continuing to make sure that we grow the relationships that they already have in place and that they've been building over the years versus what we're retaining. I can't tell you that -- we don't have a specific number or percentage at this point. I think it's something that we're still working through and making sure that we're thoughtful as we go down that path.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

This is Phil Kardis again. I want to thank everyone for participating in our second quarter earnings call, and we look forward to speaking with you in November for our third quarter call. Thank you.

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.