Chimera Investment Corp. 2026 Q2 Earnings Call

Thank you, operator, thank you everyone for joining us this morning. I'm Tyra Welton, Head of Investor Relations. This morning, Chimera released its results for the second quarter of 2026. The earnings release and presentation for the quarter are both available on our website at chimerareit.com. Before we begin, I'd like to review the Safe Harbor statement. Today's remarks may contain 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, we may also discuss non-GAAP financial measures.

Please refer to our SEC filings and earnings supplements for reconciliations to the most comparable GAAP measures. Additionally, the contents 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.

Thanks, Tyra. Good morning, welcome to Chimera Investment Corporation's second quarter 2026 earnings call. Joining me on the call are Subra Viswanathan, our Chief Financial Officer, Jack Macdowell, our Chief Investment Officer, and Kyle Walker, the President and CEO of HomeXpress Mortgage. After my remarks, Subra will review the financial results, Jack will review the investment portfolio, Kyle will review HomeXpress's results. It's nearly 3,000 years old, but with a fresh translation by Emily Wilson and a blockbuster movie by Christopher Nolan, a new generation is discovering "The Odyssey," and it has much to say about that is relevant to us. During Odysseus's 10-year journey home, we learn that most threats are unpredictable and that risk management matters more than heroics.

He doesn't know he'll face challenges like the Cyclops and the Sirens, just as we didn't know at the beginning of the year that we would see open conflict in the Gulf or that the rate cuts everyone had penciled in would give way to talks of hikes before year-end. We also learned that Odysseus reaches home by planning for the downside, for example, by plugging his crew's ears and lashing himself to the mast to resist the Sirens rather than to rely on willpower. Likewise, as I noted in the first quarter, we don't try to predict where the market will be. We focus on being prepared for wherever it goes, and we do that by building resiliency through diversified income streams and liquidity. Most importantly, The Odyssey teaches us that we must have a fixed destination but not a fixed route. Odysseus' objective never changes: return home.

His route, however, is not direct. He must be flexible, creative, know when to wait and when to preserve resources, and when to take calculated risks to make it home. We've been clear about our destination, to build a company that is not dependent on any single market environment and that benefits shareholders through tax-advantaged dividend and enterprise growth. While we have model portfolio-targeted growth plans, like Odysseus, we're not locked into a particular path. We remain flexible and open to change as market conditions change. The second quarter remained much like the first. Volatility and uncertainty persisted. We went about our business much as we did in the first quarter. With respect to the investment portfolio, we continued to reduce our lower-yielding assets and sponsor two re-securitizations, redeploying the proceeds into more liquid and higher-yielding assets.

Turning to HomeXpress, in the second quarter, loan production grew by 30% compared to the second quarter of 2025 and 24% compared to the prior quarter. Earnings, however, grew only modestly quarter-over-quarter. This result, increased production with essentially flat earnings, was driven primarily by margin compression from increased competition. We'll look to increase HomeXpress's earnings by further scaling production while maintaining our strong credit discipline and by reducing our cost to originate. Increasing our allocation to agency RMBS and third-party sales of HomeXpress loans are not the only ways to grow Chimera's earnings, especially given the current securitization market economics and compressed sale margins. Therefore, we are pivoting to acquire and securitize mortgage loans from both HomeXpress and third parties. Currently, we're targeting two securitization of HomeXpress loans and one of third-party loans by year-end.

Depending on the relative value between loan sales and securitizations, we may increase the size or frequency of those securitizations. How are we doing? Last quarter, we noted that as we looked out over 2026, we believed we'd be able to generate $1.80 of EAD. We also noted that we expected some volatility in EAD period to period, given our operations and the market. We further pointed out that our fourth quarter and first quarter EAD contained several one-time items and that we believed our underlying run rate was closer to $0.47 ±. EAD for the second quarter was $0.46, right on our projected underlying run rate, and once again exceeding our dividend.

We have $1 of EAD through the first half of the year and still believe EAD for the year will be at least $1.80. In short, we continue to perform as we expected, even though the market environment is significantly different than anticipated at the beginning of the year. What's our outlook for the remainder of the year, and how are we positioned? Like we noted in the first quarter, we expect continued uncertainty, political, geopolitical, and market-driven. Despite the uncertainty, we remain optimistic about the future. We will continue to grow and diversify the portfolio, expand originations, build fee-based income, and opportunistically pursue acquisitions. Staying flexible on the route and clear on our destination. With that, I'll turn it over to Subra to walk you through the financials.

Thanks, Phil. GAAP net loss for the second quarter was approximately $4 million. Net loss of $13 million from our investment portfolio segment was offset by net income of $9 million from residential origination. We generated approximately $39 million of earnings available for distribution or $0.46 per share. Our EAD was not materially impacted by one-time charges this quarter. As a reminder, our EAD per share of $0.54 in the first quarter included $0.07 of one-time benefits. These non-recurring favorable items resulted from the securitization unwind undertaken as part of our portfolio optimization efforts as well as MSR-related investments. Excluding the impact of those items, EAD in the first quarter would have been $0.47. The quarterly dividend of $0.45 was covered by second quarter earnings. Book value per share declined 3.2% to $17.75.

Economic return on GAAP book value was -0.8% based on the quarterly change in book value and second-quarter dividend of $0.45 per common share. Annualized EAD return on average common equity was 10.35%. Segment performance for the first quarter was as follows. For the investment portfolio, economic net interest income was $66.3 million, while annualized economic net interest income return on average equity was 12.35%. The yield on average interest-earning assets was 5.9%, our average cost of funds was 4.3%, and the resulting net interest spread was 1.6%. For the residential origination segment, HomeXpress funded $1.1 billion in loans. EBITDA, defined as earnings before taxes, depreciation, and amortization, was $11.8 million, and annualized EBITDA ROE was 17.3%. With respect to leverage and liquidity, our total leverage was 5.6 to 1, while recourse leverage was 3.3 to 1.

GAAP leverage increased due to re-securitization activity and increasing allocation to agency RMBS. Growing agency allocation also drove the increase in recourse leverage. We ended the quarter with $656 million in total cash and unencumbered assets, compared to $675 million the last quarter. Total consolidated secured financing outstanding was $7.7 billion. It was comprised of $727 million related to our residential origination warehouse loans, and the remaining approximately $7 billion was for our investment portfolio. Within the investment portfolio, $5.1 billion of secured financing supported the agency positions against which we maintained $4.9 billion in swaps, interest rate caps, and other hedges with varying maturities. $1.9 billion was secured by residential credit assets, of which $1.2 billion or 61% carried non or limited mark-to-market features, and $1.1 billion or 55% of this were floating rate facilities. Finally, on expenses, compensation, G&A, and servicing expenses were lower in the quarter.

The decrease were offset by higher transaction expenses related to our securitization activity during the second quarter. In summary, though the first quarter results included certain non-recurring benefits, our second quarter results provide a normalized EAD. Taken together, the first half demonstrates continued dividend support, and as we move into the second half, we remain focused on supporting dividend coverage over the full year and driving total shareholder returns over the long term. With that, I'll turn the call over to Jack.

Thanks, Subra, and good morning, everyone. The second quarter was defined by a sharp repricing of the expected path of monetary policy as persistent inflation and resilient economic activity shifted markets from anticipating rate cuts toward a higher for longer outlook. Volatility increased materially in mid-May, pushing Treasury yields higher and temporarily widening agency MBS and residential credit spreads. Market conditions subsequently improved and spreads across both agency MBS and structured residential credit, including new issue non-QM and RPL securities ended the quarter tighter, supported by strong investor demand. By quarter end, Treasury yields were considerably higher, particularly at the front end, reducing the pronounced bear flattening of the curve. While tighter spreads offset part of the increase in benchmark rates, all in mortgage bond yields still finished the quarter at elevated levels.