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Chimera Investment Corp (NYSE:CIM)
Q3 2019 Earnings Call
Oct 30, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation Third Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions]. After the speaker remarks, there will be a question-and-answer session. [Operator Instructions].

It is now my pleasure to turn the floor over to Emily Mohr of Investor Relations. Please go ahead.

Emily Mohr -- Investor Relations

Thank you, Brandy, and thank you everyone for participating in Chimera's third quarter 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 of 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.

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, Matthew Lambiase.

Matthew J. Lambiase -- President and Chief Executive Officer

Good morning, and welcome to the third quarter 2019 Chimera earnings call. Joining me on the call I have Mohit Marria, our Chief Investment Officer; Rob Colligan, our Chief Financial Officer; Choudhary Yarlagadda, our Chief Operating Officer; and Vic Falvo, Chimera's Head of Capital Markets. I'll make a few brief comments, Mohit will then discuss the changes in the portfolio and Rob will review the financial results. Afterward, we'll open up the call for questions.

Chimera recorded a 3.9% total economic return for the third quarter and a 12.5% economic return for the first nine months of 2019. I believe these results are solid, given the continued volatility in the fixed income market. In the third quarter, the 10-year US treasury fell 35 basis points and ended the quarter at 1.66% while one-month LIBOR closed the quarter at 2.02%.

Negative interest rates in Europe and Japan continue to distort reality and drive money into the US bond market in search of return. The latest example of craziness was the Republic of Greece issuing 3-month bills at a negative yield, a result that would have been unthinkable just a few years ago.

The US repo funding markets also exhibited significant volatility in the quarter. In September, overnight repo rate spiked higher due to several technical reasons and the secured overnight financing rate ended the quarter at 2.35%. The elevated rates and unusual market action resulted in the Federal Reserve adding substantial liquidity to the repo market. Their action was well received and it largely calmed market jitters.

Chimera's funding costs remained elevated in the period. In fact, our cost of agency repo borrowing at the end of the third quarter of 2019 was strikingly similar to our cost of borrowing at the third quarter of 2018. And that's surprising considering that we've had two Federal fund rate cuts over the course of the year.

Residential agency mortgage-backed securities experienced faster prepayments due to the lower interest rate environment after prepayment speeds lowered our yields due to increased amortization of premium. The combination of higher borrowing costs and lower agency asset yields put pressure on our earnings in the quarter. However, since quarter-end we've seen some pullback in yields and a steepening in the yield curve, which if it continues may offer some relief for prepayments on our agency portfolio. Also after quarter end, we started to see our funding costs trend lower and we remain hopeful that one or two additional Fed rate cuts will further reduce our funding costs.

On a bright note, the current low unemployment rate and positive home appreciation continue to boost the fundamentals for residential mortgage credit. Loss expectations on legacy credit have been decreasing and prices on loans have been strong due to a firm bid in the securitization market from senior bond investors. We believe that investing in residential mortgage loans is one of the few spots in a very difficult fixed income market that offers both yield and upside. We've been actively redeploying our agency mortgage-backed security pay-downs into this asset class. So far this year, we've purchased and settled over $1.5 billion of residential loans and post quarter end, we have a pipeline of future purchase commitments of over $1.7 billion. It does take time to purchase diligence and securitize loans and we expect to be busy with our pipeline well into next year.

In summary, we're hopeful that the Fed rate cuts will translate into lower borrowing costs, which should be beneficial for our spread income going forward. We think residential credit offers more long-term value than agency mortgage-backed securities. And we've been successful in finding meaningful loan investments to add to our portfolio.

While this is an abnormal and challenging fixed income market, Chimera continues to be well positioned to deliver solid returns to our shareholders. Last night, our Board of Directors announced a fourth quarter dividend of $0.50 per common share, which will result in $2 of dividends for the calendar year of 2019.

And now, I'll turn the call over to Mohit.

Mohit Marria -- Chief Investment Officer

Thank you, Matt. Due to the rate volatility and lower interest rate, Agency RMBS underperformed this quarter. Spreads widened and duration churned, impacting our hedged liability. This quarter, we terminated $3.3 billion notional of interest rate swaps to adjust our portfolio duration and better position the portfolio for further rate movements. The construction of our total portfolio is such that nearly 70% of our investments have either explicit prepayment protection or exhibit low sensitivity to interest rate movements. These investments include $3 billion in Agency CMBS, $12.7 billion of seasoned low loan balance securitized loans and $2.9 billion of legacy Non-Agency RMBS.

The Agency CMBS carries explicit prepayment penalties, which provide call protection and portfolio durability in lower rate environments, while our seasoned loan portfolio benefits from implicit prepaid protection due to their age, low loan balances and general non-prime mortgage characteristics. And prepayments on our legacy Non-Agency RMBS portfolio continues to perform very well. The remainder of our portfolio of $7.8 billion in Agency RMBS has experienced an increase in prepayment rates due to the low interest rate environment. As we've received pay-downs on our agency pass-throughs, we have been reinvesting in residential mortgage credit through both loan purchases and Non-Agency RMBS.

Overall, we had a very productive quarter in our portfolio. We reduced our Agency MBS holdings by $670 million, mostly due to pay-downs. We increased our capital allocation to credit by purchasing $1.1 billion in reperforming mortgage loans for our warehouse. And finally, we added $67 million in residential transition loans, sometimes referred to as fix-and-flip loans. Chimera closed three loan securitizations this quarter. We securitized and consolidated $372 million of CIM 2019-R1 with reperforming loans previously purchased and held in our warehouse.

The underlying loans had 160,000 average loan size with a weighted average coupon of 4.55%. The loans were 153 [Phonetic] month seasons. Chimera issued $297 million of securitized debt in the transaction with a cost of 3.05%. We securitized our first prime jumbo deal this year, $307 million of CIM 2019-J1. The underlying loans had an average loan balance 740,000 with an average coupon of 4.32%. The prime loans were on average six months old with an average LTV of 66%.

And lastly, we securitized our third investor loan deal for 2019, $353 million of CIM 2019-INV3. The underlying investor loans had an average loan balance of 251,000, with an average coupon of 5.01%. The investor loans were on average 5 months old with an average LTV of 68%. Both the prime jumbo and investor loan deals do not consolidate on Chimera's balance sheet.

Securitization activity continued post quarter-end. We securitized $464 million of CIM 2019-R2 with loans from our warehouse. We called CIM 2016-4, which was our last callable deal in 2019 and relevered that -- loans into $343 million of CIM 2019-R3. We will give more details on these transactions on our fourth quarter earnings call.

As Matt stated, we have been busy in reallocating our agency portfolio pay-downs into mortgage credit investments. We continue to favor mortgage credit as an attractive long-term portfolio investment. Our pipeline of loans is robust with $1.7 billion in future commitments made post quarter-end. 2020 is full of opportunities with 8 callable CIM deals totaling $5.4 billion of unpaid principal balance.

I will now turn the call over to Rob to discuss our quarterly financials.

Robert Colligan -- Chief Financial Officer

Thanks, Mohit. I'll review the financial highlights for the third quarter of 2019. GAAP book value at the end of the third quarter was $16.38 per share and our economic return on GAAP book value was 3.9% based on the quarterly change in book value in the third quarter dividend per common share.

GAAP net income for the third quarter was $88 million or $0.47 per share. On a core basis, net income for the third quarter was $94 million or $0.50 per share. Economic net interest income for the third quarter was $138 million. For the third quarter, the yield on average interest earning assets was 5.3%. Our average cost of funds was 3.4% and our net interest spread was 1.9%. Total leverage for the third quarter was 5.7 to 1 while recourse leverage ended the quarter at 3.8 to 1.

For the quarter, our economic net interest return on equity was 13.9% and our GAAP return on average equity was 10.7%. Expenses for the third quarter, excluding servicing fees and transaction expenses, were $19 million, in line with the last quarter.

That concludes our remarks, and we'll now open the call for questions.

Questions and Answers:

Operator

[Operator Instructions]. Your first question comes the line of Doug Harter of Credit Suisse.

Doug Harter -- Credit Suisse. -- Analyst

Thanks. You were active in both kind of new production and legacy loans kind of in the quarter and post quarter-end. Can you just talk about the relative attractiveness of each of those types of assets?

Mohit Marria -- Chief Investment Officer

Sure, and good morning, Doug. This is Mohit. I'll start with the RPL transaction that we did in July of this year. As stated on prior calls, we continue to find attractive loans that -- at the credit box [Phonetic] that we're comfortable with and we are able to term finance them in the securitization market. That was what we did in July. We did a $340 million deal and issued debt at 3.05% and now have termed it out and we've embedded a 3-year call in it to the extent the deal de-levers over the next few years. And -- the performance improves and our rates continue to remain low, we finance that again, but the levered returns on our retained pieces off of that investment with some leverage are double digits.

On the new issues side, as it relates to the investor loans and the jumbo loans, again the investments there are much smaller given sort of the better leverage and the credit profile of that collateral type. But again, levered returns there on the retained pieces are also double digits. So, they're both attractive. It keeps us on the mix on both the reperforming season side on the loan purchases in addition to acquiring newly originated collateral.

Doug Harter -- Credit Suisse. -- Analyst

And then, Mohit, it seems like the pace of activity in the third quarter and then post third quarter has materially picked up on the reperforming side. Can you talk about what has changed, or is it just more product came to the market and that led to this pickup in activity?

Mohit Marria -- Chief Investment Officer

Sure. I think we -- the loan activity throughout the year, GSEs are the primary seller. A lot of our activity has been focused on actually non-GSE sources. We've acquired loans from multiple parties. So, the aggregation risk or the aggregation amount is taken just a longer bit of time and a lot of that has culminated in Q3 and in Q4. GSEs are going to be a continued source for us in the future, but I guess that some of the other bank sellers and dealer balance sheets that needed to be unwound [Phonetic], we were the beneficiary of those sales.

And like I said, from the time we commit to the trade till the time it funds, between the diligence and stuff we have to do, there is a 4-week to 8-week period that all that takes. So, on our Q2 earnings call we've mentioned our commitments for Q3 and a lot of that happen late in the quarter, so you will see the full effect in Q4. And then the acquisitions we've committed to post quarter-end here will probably settle in no -- early indeed [Phonetic], and you will see the full impact in Q1. And then as we build these warehouse lines, we have securitization activity that we will do on the heels of that, which will reduce our borrowing cost and improve the returns on the retained pieces.

Doug Harter -- Credit Suisse. -- Analyst

Thank you, Mohit.

Operator

Your next question from the line of Kenneth Lee of RBC Capital Markets.

Kenneth Lee -- RBC Capital Markets -- Analyst

Hi, thanks for taking my question. Just curious, and you touched upon this within the prepared remarks, but wondering whether there was any impact from the volatility within the repo markets in the quarter and whether there is an impact there for you guys.

Robert Colligan -- Chief Financial Officer

No, we didn't have much of an impact. The disruption or the volatility picked up late in September. We had rolled most of our balances over quarter-end by that time, but that volatility was only exhibited for a few days and has the subsequently stabilized. And the Fed has made announcements in the purchase of T-Bills providing reverse repo that they haven't done in a decade to stabilize that, actually as we head into Q4 and year-end. As you recall, last year we had seen a similar spike in Q4 or the turn, and I think they want to make sure that doesn't repeat itself this year.

Matthew J. Lambiase -- President and Chief Executive Officer

Yeah, and I would just say that we don't -- just as a matter of fact, we don't role our paper overnight and it was generally an overnight phenomenon. The very short-term funding we usually put the paper -- our repos out longer than overnight. I would say that in the period repo rates were elevated in general and have started to come down after the quarter.

Kenneth Lee -- RBC Capital Markets -- Analyst

Got you, very helpful. And just one quick follow-up if I can, and you touched upon this within the prepared remarks in terms of adjusting the hedging relative to just in the duration. I wonder if you could just share with us what kind of assumptions you have regarding either the Fed policy or interest rates in terms of your hedging positions. Thanks.

Robert Colligan -- Chief Financial Officer

I mean as Matt said in his prepared remarks, we expect one, potentially two, rate cuts between now and year-end. We'll find out about one of them later this afternoon. I think we've taken a proactive approach this year in reducing our hedges to better balance the duration of the agency holdings as well as our credit holdings. To the extent there is another change, we'll adjust the hedges accordingly but I think we're at a good spot currently.

Kenneth Lee -- RBC Capital Markets -- Analyst

Got you. Thank you very much.

Operator

Your next question comes the line of Eric Hagen of KBW.

Eric Hagen -- KBW -- Analyst

Hey, good morning guys, thanks. In the agency segment, can you just tease apart for us the amount of leverage you run on the pass-through portfolio versus the commercial segment?

Robert Colligan -- Chief Financial Officer

Hey, Eric. Yeah, I think the leverage we run against both is similar -- they're both agency products with similar financing terms. I think the leverage there, just looking at that on isolation, is about 10 to 11 to 1 [Phonetic].

Eric Hagen -- KBW -- Analyst

Okay. So just to be clear, it's the same in both portfolios...

Robert Colligan -- Chief Financial Officer

I mean, we look at it in the aggregate, not sort of broken up, given they have similar financing terms, they're both fungible and similar capacity.

Matthew J. Lambiase -- President and Chief Executive Officer

Yeah, Eric, I'll just add, when you look at what's available in the market, the haircuts for Agency CMBS and agency pass-throughs are very similar. The one thing if you're taking into the balance sheet, the Agency MBS or construction side, we do have the commitments on the balance sheet and they do fund over time. So in that payable for securities purchase, it's not as if we've put them all on the balance sheet, we [Indecipherable] carry right away. There is a little bit of a timing component where the assets are on the balance sheet, not yet on repo until we fund them over a period of time.

Robert Colligan -- Chief Financial Officer

That's right. On an absolute dollar term, obviously the agency pass-through portfolio is much larger, but from a percentage basis and on a leverage basis if you looked at them individually, I think that would be bought 10 to 11 times.

Eric Hagen -- KBW -- Analyst

Got it. Okay, great that's helpful color. Thank you. And can you remind us on the prepay accounting on the Agency RMBS if you guys amortized premium through core earnings as it comes in or do you make a lifetime speed assumption and then back out the catch-up out of core. I'm just trying to gauge if there is a direction of core if and when prepay speeds slowed down. Thanks.

Robert Colligan -- Chief Financial Officer

Eric, we don't make an adjustment for what some call a retrospective model. So, if we have a material pickup or slowdown in speeds, we don't make an adjustment for that. The only other thing I'll mention though is the majority of our agencies are now carried at fair value to earnings. So, the majority of our Agency pass-throughs don't have that catch-up attribute to it. So, I would say roughly 10% of our agencies that we bought before 2017 still have that retrospective catch-up, but the majority of them as rates move when speeds pick up. Those adjustments will just be prospective over time and we don't make -- just to get back to your original question, we don't make any adjustments to the core for that change in speed.

Eric Hagen -- KBW -- Analyst

Okay, great, that's helpful. Thank you. And then the lower yields quarter-over-quarter in the credit segment, it's I think 6.8% from 7.1%. Was that because of credit sensitive assumptions that were changed during the quarter or is it just new investments that are coming into the portfolio at a lower yield than what was just rolling off?

Mohit Marria -- Chief Investment Officer

Yeah, it's just -- it's the newer investments, the $1.1 billion of loans we acquired as lower yields, that's where the market is and obviously with some of the pay-downs on the higher yielding assets that are rolling off.

Eric Hagen -- KBW -- Analyst

Great. Okay. And then the swaps that you guys terminated in the quarter, when did you take those off. And what was the pay rate on those? And it looks like you've basically replaced everything that you virtually took off. So, what's the pay rate on the overall swap book now?

Mohit Marria -- Chief Investment Officer

The pay rate of what we took up I don't have, I could get that number for you. The portfolio currently stands at in total about $4.4 billion of notional swaps. The pay rate is 260 [Phonetic] and the resi rate is 222 [Phonetic] as of the end of the quarter.

Eric Hagen -- KBW -- Analyst

Just judging by your book value performance, I sense that you guys took off those swaps relatively early in the third quarter, is that fair?

Mohit Marria -- Chief Investment Officer

Yeah, we took some up in July and we took them up in early August.

Eric Hagen -- KBW -- Analyst

Super. Thank you, guys. Thanks for the comments.

Matthew J. Lambiase -- President and Chief Executive Officer

Thank you.

Mohit Marria -- Chief Investment Officer

Thank you.

Operator

Your next question comes from the line of Stephen Laws of Raymond James.

Stephen Laws -- Raymond James -- Analyst

Hi, good morning. Thinking about the repo balances trying to quantify that, I think you had $9 billion resetting within 30 days. Clearly, we're 30 days past the quarter-end and I think LIBOR has dropped around 25 basis points. Is it fair to look at that and expect that entire amount to roll down by about 25 basis points or how should we think about the repo cost resetting here in the first month or two in this quarter?

Mohit Marria -- Chief Investment Officer

Yes, I mean, I think again, as we ended Q3 September, as we mentioned, there was an uptick in sort of financing rates overnight. As we mentioned, we had rolled most of it into October already. But yes, given the downtick in LIBOR, we are seeing that reflect in the repo rates we're getting. I would say [Speech Overlap] basis point, but I would say, financing on agency product, the stuff that we're rolling short, is probably in the very low 2s [Speech Overlap].

Stephen Laws -- Raymond James -- Analyst

That's helpful color. Thank you. Following up on the loan side, on the loan sourcing, can you talk about the sourcing agreements you have in place for whole loans and business purpose loans? Some others have looked at acquisitions. Would you bring in-house -- would you do something like that to create your own pipeline or maybe you -- so any additional color you can provide on the sourcing agreements on the whole loan side you have in place.

Matthew J. Lambiase -- President and Chief Executive Officer

Sure. So on the new issues side on the investor and jumbo stuff, we have partnerships with some conduits that originate and then we just have an agreement to sort of acquire those loans and term finance them through securitizations. We have similar business relationships on the fix-and-flip residential transition loans where we are comfortable with the origination and the underwriting guidelines and the performance of the loans that we've acquired. I think that pipeline is growing as those businesses are growing and as those -- the need to acquire an originator -- again if it becomes necessary or more capital is needed to -- for the originator to grow their business, we would be happy to sort of look at that. But I think we're sourcing collateral pretty attractively currently.

Mohit Marria -- Chief Investment Officer

Yeah, I'd just add to that. I think we're pretty happy with the amount of as a matter of product that we're seeing that we can put through our securitization process and the quality of it. And the pricing that we're seeing is pretty good. And I don't think there is a reason for us in the short term to do anything different than we're currently doing. I think we are seeing quite a bit of product and we think the markets are open for securitization right now and I think we're in a good spot.

Steve DeLaney -- JMP Securities -- Analyst

Great. And finally, maybe if you could touch on the commercial agency securities basket again, I know there is limited volume there but it looks like that portfolio was basically flat sequentially. Are you seeing new investment opportunities there? Is it just not as attractive relative to other opportunities you're seeing or maybe touch on how we should think that -- how we should think about that basket as we move forward, either growing or remaining the same size?

Mohit Marria -- Chief Investment Officer

I would say that it's an interesting idiosyncratic market. It's relatively small and you see originations come in spurts basically. And I think in the last quarter, we really didn't see a tremendous amount of paper that we want to do to bid on and to add to the portfolio. And I think -- we think at the current level it's a good position for us. And I don't think we have a big axe to drive to bid up the market and buy a lot more.

Robert Colligan -- Chief Financial Officer

Yeah, that's right and [Indecipherable] given the opportunities that we've found on the credit side and our belief in the housing and sort of macroeconomic conditions, I think the returns there are very compelling to deploy capital.

Steve DeLaney -- JMP Securities -- Analyst

Great. I appreciate your comments this morning. Thank you.

Operator

Your next question comes from line of Matthew Howlett of Nomura.

Matthew Howlett -- Nomura -- Analyst

Thanks for taking my question. I think as you mentioned $5.4 billion of securitization debt as callable in 2020, I just want to get a sense of what the financing rate is on those deals and where you think the market is today.

Mohit Marria -- Chief Investment Officer

Sure. So I'll start with where the market is today. As we mentioned, we completed three securitizations this year -- this year, in the -- in Q3, the one that will mimic what's being callable in 2020 is the 2019-R1 deal, which is our traditional reperforming deal. That deal was non-rated, and as I mentioned in the opening remarks, we were able to finance the debt at a cost basis of 3.05%. I think again, depending on where rates are, and they've exhibited a lot of volatility year-over-year, the Federal rates remain here, I think there's plenty of cash from a senior investor side that needs to be deployed. And so, there's going to be the graph for assets and we think that financing cost -- term financing cost should be in a similar context. We also obviously have the ability to go down the rated path and that could bring financing cost in a little bit more. So, it's just a balance between cost and benefit analysis on what's the best way to turn those securitizations out.

As far as where those are currently being financed, on the aggregate -- and this is not exclusively just the $5.4 billion that's callable next year but our entire secured debt portfolio on the loan side, has a financing cost around -- it's a 4.49 [Phonetic] coupon, so it will be a material pickup to -- if the economics [Speech Overlap] -- if the economics and the rates remain where they are to refinance those assets.

Matthew Howlett -- Nomura -- Analyst

Right, they're [Phonetic] trended down reported -- the 4.2 came down from, I think it was 4.4 last quarter. On that funding class, so that should continue coming down as you call and resecuritize these deals. Is that the trend there, sort of we should expect [Speech Overlap]...

Mohit Marria -- Chief Investment Officer

That's what we're hoping, yeah. Those are the things we evaluate. There is an equity takeout component and are reducing the financing component, and that's -- given the sort of change in the rate sentiment and what the Fed is doing, I think -- and if all else remains equal, we would expect financing cost to be coming down.

Matthew Howlett -- Nomura -- Analyst

Great, OK. We will look for that. And then let me just get back to the pipeline you mentioned and looking at 2020, I mean you're doing this sort of a mixture today of reperforming in the new issue jumbo investor loans. If we look at -- if we look out into 2020, I mean there was a comment by one of your competitors that the RPL markets is just shrinking from the GSEs naturally because their liquid books are running off -- are coming down.

And then, you look at obviously the QM patch, which is not until '21, but we're getting set up here for GSE reform. There's a lot of talk that they've just got to price themselves in the investor loan market, we're doing something like $60 billion [Phonetic] the year. I mean what can you tell me in terms of 2020, do you expect them to be an equal mix of those two? Do you think you will start moving more toward these non-QM type GSE loans that are going to come out? Anything you can give on sort of how to look at in terms of the acquisitions next year on the credit side.

Mohit Marria -- Chief Investment Officer

Sure. Again, I'll start with the RPL. Outside of the $5.4 billion that we have already own that we can refinance and grow earnings, I think in speaking to the GSEs, although shrinking, they're still going to have north of $20 billion plus of RPL loans that are going to come out for bid next year. So, that's still ample supply of loan to be absorbed by the market. And in addition to that, over the last two years, we've built this relationship network of doing newly originated stuff, whether it's jumbo, whether it's investor, even on the non-QM side even though we haven't been active we've looked at loan packages, we've -- just the numbers didn't make sense what -- where we would have cared.

But whether it's the QM patch going away and creating more opportunity for private capital to be deployed in the mortgage market, we have those relationships. We see those assets. And if the numbers work, we would do that. I think as you've seen from 2018 to 2019, we've done three investor deals, we did two last year, we did one jumbo deals, we've completed one this year. So I think on the new issues side, new origination side, we would continue to --hopefully that uptick, and the lower the GSE footprint the better it is and the better opportunities are for Chimera.

Matthew Howlett -- Nomura -- Analyst

And so just [Indecipherable] reach up in capital allocation and capital management, so you just think about it as -- that agency book could continue to be a source of capital or clearly you have a very strong balance sheet where you could go access more term debt or more preferred debt. Just thinking about it, if these opportunities do arise and they're more than you thought, would you look at sort of that agency book as a source of capital?

Matthew J. Lambiase -- President and Chief Executive Officer

Yes, I think that's exactly right. I think that we will definitely look to our agency portfolio and the run-off there and redeploy it. And I guess the issue really is that the agencies run-off and it takes time to put -- so we always have this timing differential between the capital coming in through normal run-off and that's putting it out into securitized residential mortgage credit. And so, that's what we're really managing to. And I think Mohit has done an incredibly [Phonetic] good job managing that over the course of the quarter. And I think when you look at our pipeline of residential mortgage credit that we have to securitize and you think about our agency pay-downs over the next, say, four months, I think we're doing a pretty good job trying to match the two of them. I mean it'd be perfect, but we are actively thinking about the agencies as the source of capital for the credit part.

Matthew Howlett -- Nomura -- Analyst

Great. Thanks a lot, guys.

Operator

Your next question comes from Steve DeLaney of JMP Securities.

Steve DeLaney -- JMP Securities -- Analyst

Good morning and thanks. Matt, just speed me through the 2020 loan mix question, so good for him. I won't make you repeat that, guys. But maybe closer in, I believe you mentioned a $1.7 billion whole loan sort of credit pipeline that you're looking at. Could you just roughly talk about the mix within that $1.7 billion, sort of the near-term deployment? Thank you.

Matthew J. Lambiase -- President and Chief Executive Officer

Yes. So, hey, Steve. As far as the credit profile of the assets -- or the loans we're bringing in, it will be very similar to the assets and the loans we currently have in the pipeline. Perhaps you [Phonetic] wrote down some numbers here. So the average WACC of these loans is going to be in the -- around the 5 area, the LTVs are going to be in the mid-high '80s, the average loan balance is going to be in the 150,000 and this is all season reperforming stuff, the $1.7 billion committed, it's not...

Mohit Marria -- Chief Investment Officer

It's not -- that's not jumbo, that's not our investor loan programs, that's all $1.7 billion of RPL.

Matthew J. Lambiase -- President and Chief Executive Officer

Yeah, season reperforming loans.

Steve DeLaney -- JMP Securities -- Analyst

Got it. That's the product you guys really know well and had been concentrating on here for the last couple of years.

Mohit Marria -- Chief Investment Officer

And the product that's really been performing really well for us.

Steve DeLaney -- JMP Securities -- Analyst

So what the -- just to follow-up real quick on your conversation with Matt, when you look at the whole sort of BTL [Phonetic], I mean I think we can split this -- there is so of acronyms, whether it's FNF, SFR, you can go crazy. But we've got, what I would call, the whole NQM thing on the residential owner/occupied. And I'm just throwing everything else in a bucket called BTL business purpose. I don't know how you all see that, but there are so many subtleties. Kind of the -- go ahead, I'm sorry, I cut you off.

Mohit Marria -- Chief Investment Officer

No, go ahead, I'm sorry.

Steve DeLaney -- JMP Securities -- Analyst

So I guess what I'm trying to say is you've looked at those two, and let's just split it kind of between more the investor loans and more the year NQM. Do you have a sense for which one of those you're likely going to find the most opportunity as we look out over the next year or two?

Mohit Marria -- Chief Investment Officer

I mean I think that the non-QM sector, and again depending on how you define it, has had tremendous growth over the last two years and is projected to grow even more with the QM patch going away. On the business purpose side, again that has had growth. The durations on that product are significantly shorter than the non-QM, which is already [Speech Overlap]...

Steve DeLaney -- JMP Securities -- Analyst

Indeed.

Mohit Marria -- Chief Investment Officer

...to begin with. The average maturity on a business purpose loan ranges between 12 months to 24 months. We think given the rate environment and the volatility created [Phonetic] we wanted to just have short duration assets and we've aggregated the portfolio now through Q3 of $144 million. We have very attractive coupon. The net WACC on that portfolio is 7.25. And that's very attractive as a cash target for us.

The non-QM side, like I said, has seen tremendous growth. I think the pricing there is a little challenged, but as rates stabilize and prepayment stabilize on that product, we would continue to look at it and we have sources to find that. It's just like the pricing has been a little bit challenged for us.

Steve DeLaney -- JMP Securities -- Analyst

Got it. Yes, probably a bigger -- probably more eyes on that product than on the BTL. That was very helpful, thank you for the color guys.

Mohit Marria -- Chief Investment Officer

Thank you, Steve.

Operator

[Operator Instructions]. Your next question comes from the line of Lee Cooperman of Omega Family Office.

Lee Cooperman -- Omega Advisors -- Analyst

Yes. Hi, thanks. I don't have the technical knowledge that some of these folks on the call have. So let me just ask you some simple top-down questions. How much dry powder do we have, which we've not employed where we could earn a spread, or are we fully employed?

And secondly, as you look at this $0.50 number in the quarter which match the dividend, do you think that represents normalized earnings or below normalized earnings? How do you see the quarter being representative of recurring earning power, below recurring earning, above recurring earnings power?

And then the third question I'd ask is, the effect on rising rates, one of these days in our lifetime rates are going to go up. I assume it's going to be sooner than most people think, but what's our exposure to rising rates?

Matthew J. Lambiase -- President and Chief Executive Officer

Well, I think we're a levered company, so we don't keep an awful lot of dry powder around. But I would frame it like this. We have quite a bit of agency mortgage-backed securities on our balance sheet and we look at them as an asset class that we would go to if we found good credit investments. I think right now the way we feel about the mortgage -- residential mortgage credit market is that there is still good upside. I think with so many people working and with home pricing appreciation still going on, I think that you can -- we can buy these reperforming seasoned loan packages and we can finance them. That calls into this into the securitizations. And if the collateral continues to improve, we'll have I think upside in the future and -- in yield today and upside in the future.

And for us it's -- finding those investments is the hard part. That's why Mohit has done such a great job and the team has done such a great job to find residential mortgage credit investments. And what we're doing is we're taking -- I guess our dry powder is our agency portfolio. And I'd say there I think we've got plenty of dry powder to deploy into residential mortgage credit when we find it.

So I think from a credit, from a dry powder or -- money that we need to make investments for the foreseeable future is going to come from that agency book and I don't think -- and I think we have got plenty of capacity in our balance sheet to do that.

Lee Cooperman -- Omega Advisors -- Analyst

Well, you guys have done a terrific job in running the Company. So I interpret what you said is you don't think the $2 run rate of earnings that we have now represents peak earning power, you'd hope to enlarge upon that over the coming years.

Matthew J. Lambiase -- President and Chief Executive Officer

Well, I mean, yeah. I think -- let's just say, this is an abnormal market and I think anybody that sits here and tells you that this is a very easy fixed income market to operate a levered mortgage strategy in, they'd be just not frank. This is a very tough market and we are very focused on maintaining and making sure that our book value stays constant. We don't want to bet the ranch to make a few pennies and then lose the dollar than book value. So, it's always trying to balance those two risks. And I think we feel like we're in a good spot right now with the earnings.

Lee Cooperman -- Omega Advisors -- Analyst

Good, thank you very much. Every time I'm on this call, I congratulate you guys on doing a very fine job and I continue to have that view. Thank you.

Matthew J. Lambiase -- President and Chief Executive Officer

Thank you.

Mohit Marria -- Chief Investment Officer

Thank you. Appreciate your support.

Operator

There are no further questions at this time. I will now turn the floor back over to Matt for any closing or additional comments.

Matthew J. Lambiase -- President and Chief Executive Officer

I'd just like to thank everybody for joining us on the third quarter 2019 Chimera earnings call. We're hoping for less volatility and looking forward to speaking to you in the New Year. Thank you.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Emily Mohr -- Investor Relations

Matthew J. Lambiase -- President and Chief Executive Officer

Mohit Marria -- Chief Investment Officer

Robert Colligan -- Chief Financial Officer

Doug Harter -- Credit Suisse. -- Analyst

Kenneth Lee -- RBC Capital Markets -- Analyst

Eric Hagen -- KBW -- Analyst

Stephen Laws -- Raymond James -- Analyst

Steve DeLaney -- JMP Securities -- Analyst

Matthew Howlett -- Nomura -- Analyst

Lee Cooperman -- Omega Advisors -- Analyst

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