Matthew Lambiase - President & CEO Rob Colligan - CFO Mohit Marria - CIO Willa Sheridan - IR.

Douglas Harter - Credit Suisse Steve DeLaney - JMP Securities.

Good morning and welcome to the Chimera Investment Corporation Fourth Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.

I'd now like to turn the conference over to Willa Sheridan. Please go ahead. .

Good morning and welcome to the Fourth Quarter 2014 Earnings Call for Chimera Investment Corporation. Any forward-looking statements made during today's call 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 disclaimer in our earnings release in addition to our quarterly and annual filings.

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

Participants on this morning's call include Matthew Lambiase, President and Chief Executive Officer; Rob Colligan, Chief Financial Officer; Mohit Marria, Chief Investment Officer; Bill Dyer, Head of Underwriting; and Choudhary Yarlagadda, Head of Structuring. I will now turn the conference over to Matthew Lambiase. .

Good morning and welcome to Chimera’s 2014 fourth quarter earnings call. I’ll make a few brief comments regarding the activity in the quarter and then I’ll turn the call over to Rob Colligan to go over our financial results. Afterwards, we’ll open the call up for questions.

I’d like to start off by saying that Chimera had a good fourth quarter, both our Mortgage Credit portfolio and our Agency Mortgage-backed Securities portfolio performed well, which resulted in higher Core earnings for the period.

The portfolio additions that we made in late 2014 are now being realized into earning, and we’re optimistic for our portfolio’s potential in 2015. In the fourth quarter, we called the first of the seven Springleaf season sub-prime deals, and we securitized the underlying loans.

The demand for the securitization was strong, and we were able to execute a $330 million deal and sell unrated senior bonds. Chimera retained the higher-yielding subordinate and interest-only bonds from that transaction. In my opinion, the bonds we retained have a better return profile than bonds available in the secondary market.

Chimera has over $4 billion of similar deals to call and securitize. And if the securitization market remains strong, this pipeline will help us create high-yielding assets for our portfolio over the next two years. The overall credit performance on our Legacy Non-Agency portfolio continues to be better than what we expected at the time of purchase.

In the quarter, we saw moderation in both the voluntary prepayments and realized losses and more importantly the 60-plus day delinquencies have been on a downtrend for over the past year. These are all very good metrics, and if the trends continue, it bodes well for the future income on this portfolio.

Chimera’s Agency Mortgage-backed Securities portfolio exhibited stable prepayments quarter-over-quarter, which helped us maintain a healthy net interest margin of 210 basis points.

In the quarter, we executed a rebalancing of our Agency portfolio by selling roughly 1 billion, 30-year 4% coupons and replacing them with 30-year 3.5 coupons with the goal to increase duration in the portfolio. We also worked to extend our financing terms by adding longer-dated Repo trades.

Our weighted average days increased to 94 days, up from 52 at the end of the third quarter. Looking forward, I believe Chimera is well-positioned. We have a high-yielding mortgage credit portfolio with improving credit metrics. We’ve a robust securitization pipeline.

And we’ve a balance sheet that produces high income while operating at low leverage giving us the flexibility to take advantage of opportunities when they arise. We like our position and our portfolio and we're confident that we will continue to produce durable, relatively high income into 2015. And now with that, I’ll turn it over to Rob Colligan. .

Thanks, Matt and good morning. 2014 was a good year for Chimera. Our economic return on equity was 26% based on the increasing GAAP book value and dividends per share. Our return on investment was 21% based on stock price depreciations and dividends per share. GAAP net income for 2014 was $589 million, up from $363 million last year.

GAAP net income for the fourth quarter was $6 million, down from last quarter as a result of hedge losses and impairments on a handful of securities during the quarter compared to several nonrecurring realized and unrealized gains recognized in the third quarter.

On a Core basis, net income for 2014 was $402 million or $0.39 cents per share, up from $350 million or $0.35 per share earned in 2013. Core net income for the quarter was $120 million or $0.12 per share, up from $116 million or $0.11 per share earned in Q3.

GAAP book value ended the year at $3.51 per share, up slightly from the third quarter and up 8% this year. In 2014, we added significantly to our Agency and Consolidated Loan portfolios, which have lowered our spreads, but have increased Chimera’s net interest income. The yield on average interest earning assets was 6.9%, down from 8.8% last year.

And our average cost of funds fell to 2.5% from 3.5% in 2013. The net interest spread was 4.4%, down from 5.3% last year. Importantly, net interest in terms of dollars earned continued to trend out throughout the year. Fourth quarter net interest income was $177 million, up 17% from Q3 and up over 65% from the fourth quarter of 2013.

Our net interest return on equity was 14% for the year, up 12% from last year. And our return on average equity was 17%, up from 11% last year. The annualized dividend yield for Chimera was 11.3%, based on our fourth quarter dividend of $0.09. That concludes my remarks and we’ll now open the call for questions. .

Question-and:.

[Operator Instructions]. The first question comes from Doug Harter of Credit Suisse. Please go ahead. .

On the first securitization you've done with the Springleaf assets, can you talk about how the leverage and the rate on that compared to kind of the temporary financing that you guys had in place or the prior securitizations?.

Our first securitization of the call, Springleaf transaction took place in November of this year, the deal closed. Like Matt said, it was a $330 million transaction.

We were able to place unrated senior bonds in a floating-rate structure, and we sold them on a weighted average basis between the A1 and A2 tranches at LIBOR plus 225 to 230 is the execution. Now that versus where the original Springleaf transactions was priced, I think the weighted average coupon on those viabilities was north of 5% effectively.

So it’s much better financing and better leverage in this new structure that we’ve created given the demand for assets in a depraved yield universe. .

Can you just give us a sense Mohit, as how much extra -- you know, I guess the advance rate on the old versus here, just to get a sense as to how much sort of capital or equity you freed up?.

Sure, so if you look at where the A1 A2 is placed off of the new deal, CIM 14, CIM 1 [ph] , the effective advance rate on the entire deal is about 84%,85%, and if you look at the performing assets, it’s most effectively 90% on a non-rated securitization.

The Springleaf 11-1A deal, the advance rate was again to AAA, it was about 55% to 60% when it was issued back in 2011. And if you look at that Double A and Single A, I think it got you to maybe 70%. So we’ve been able to effectively get better advancement with a non-rated deal in 2014. .

And I think importantly there too is that the rate of return is, we think it’s pretty good on the --.

On what we retained, the effective returns, we’re looking at is low-double digits for the call date. .

And that's an important thing too, is that when we re-securitized these deals Doug or securitized the deals, they have a -- there is a call in there, so another three years out we’ll be able to call again, and relever if the market is advantageous to do it. .

And then just one question, the operating expenses seem to be up pretty substantially this quarter.

Was there anything kind of related to this call that was in there, anything sort of standing out that is kind of nonrecurring?.

Yeah, this is Rob Colligan. So the main difference there also relates to Springleaf. Since we’re consolidating that deal, we’re also consolidating the expenses, so we’ve a fair amount of servicing in that.

For the quarter, we had a little over $6 million of servicing-related expenses, which when you look at it quarter-over-quarter, we had a little over 2.5, so it has clearly trended it up. But that sixish million dollar is a good run rate going forward. .

Got it, so you know, effectively the asset yield reflects, you know it’s higher and reflects that expense?.

That's exactly, right. .

The next question comes from Steve DeLaney of JMP Securities. Please go ahead. .

Matt, I was wondering you know as far as we got March coming up here and first quarter dividend, in 2014 the board sort of preannounced that they would pay a stable $0.09 dividend per quarter through 4Q of 14.

So as we look out to 2015, do you think the board would take a similar forward-looking policy or will be back to more of a quarter-by-quarter look at the dividend?.

Yeah, I believe that the board actually likes setting a dividend for a period of time and then having stability in the pay rate of the company. So I think that they will, most likely when they meet for the next dividend, consider that. And we’ll see that, we’ll know more of that [indiscernible]. .

A couple of weeks?.

Yeah. .

Okay, great, and could you comment generally as far as just looking out this year, the investment landscape. I'm curious if you see any additional types of credit investments? I mean the Springleaf trade, you know it looks like a home run, and it's great you’ve got that on the books.

But I'm sure you are always looking at the market for where the next dollar of capital, you know can be deployed, maybe shifted out of the agency allocation, and specifically in that context, I noticed last week on the Annaly call that David Finkelstein mentioned that Annaly itself had actually invested in some GSE risk-sharing bonds in the first quarter.

And I was curious specifically if Chimera also participated in that same trade?.

Sure, well I would say that, that is the operative thing for us going forward in 2015, as I think ideally we would like to take down our agency positions and invest more in credit. I think we’re seeing a lot more availability in financing terms for longer Repos on non-agency credit.

And there just seems to be cheaper and more capital available for us for financing there which is helpful, and I think that's the trade that we’re going to try to execute over the next couple of quarters is to take down the agency book and invest more into credit.

I’ll let Mohit speak to some of the opportunities he’s seeing in the mortgage credit space. .

As far as opportunities in resi credit, I mean we’ve discussed loans that we’ve look at in the past, the prime jumbo isn’t necessarily a good fit for us at the moment. But the RPL space, we’ve actively looked at and we’ve made some investments on the security side in Q4. We’re looking at loan packages to do our own deals off of in 2015.

As that market’s picked up, I think there’s definitely opportunities there. As far as the risk transfer deals go, we didn't participate in the [Cast Stacker] deals, but we did participate in the first JPMorgan Madison Avenue deal, which is a similar structure to the agency deals.

And we feel that structure has a lot more upside in terms of credit versus the [Cast Stacker] option. So if those deals continue to come to the marketplace, we’ll definitely invest in those. .

And the JPMorgan deal, that was actually true first loss up to 1%, was it not?.

That's correct. .

This concludes our question-and-answer session. I would like to turn the conference back over to Matt Lambiase for closing remarks. .

Well, I’d like to thank all of you for participating in our fourth quarter 2014 earnings call. And I look forward to speaking to you for the first quarter of 2015. Thank you very much. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..