Good day, ladies and gentlemen, and welcome to the Chimera Investment Corporation first quarter 2023 earnings call. All lines have been placed on a listen-only mode. The floor will be open for your questions and comments following the presentation. If you should require assistance throughout the conference, please press star 0 on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Victor Falvo, Head of Capital Markets. Sir, the floor is yours.
Thank you, operator. Thank you everyone for participating in Chimera's first quarter 2023 earnings conference call. Before we begin, I'd like to review the safe harbor statements. During this call, we'll 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 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 investor presentation for reconciliation to the most comparable GAAP measures.
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 Chief Executive Officer, Phil Kardis .
Thanks, Vic. Good morning and welcome to Chimera Investment Corporation's first quarter 2023 earnings call. Joining me on the call are Choudhary Yarlagadda, our President and Co-Chief Investment Officer, Dan Thakkar, our Co-Chief Investment Officer, Subra Viswanathan, our Chief Financial Officer, and Vic Falvo, our Head of Capital Markets. After my remarks, Subra will review the financial results, and then we'll open the call for questions. The first quarter took us on quite a ride. Some would say like a roller coaster. I would say it was more like the slingshot ride at Coney Island. Despite the volatility, we accomplished quite a lot. We committed to purchase $1.25 billion of diversified mortgage loans, completed 3 securitizations, reduced recourse leverage by $237 million, and generated a 2% total economic return.
Since the quarter ended, we have completed 4 securitizations, including a securitization we expect to close later today, and reduced our recourse leverage by a further $400 million, including reducing our reperforming loan warehouse exposure to 0, all in a very challenging environment. Let's do a quick review of what happened during the quarter. The quarter started with the market expecting a recession by mid-year based on December economic data. We saw rates moderate, our book value increase, and the securitization market begin to open up. The Fed responded as expected on February 1 by slowing the pace of rate hikes to 25 basis points. On February 3rd, we were whipped in the opposite direction when the January employment report showing extraordinary job growth coupled with upward revisions to last year's jobs data.
The news continued in the same direction, with increased consumer spending and both headline and core inflation increasing in January. In response to this data, Chairman Powell's statement before Congress on March seventh was quite hawkish, raising the possibility that the Fed would revert to larger rate hikes and that the peak rate in the cycle would be higher than previously thought. Soon after his testimony, the July Fed Funds futures contract yield increased to 5.59%, the market expected that rate to remain throughout the year. Two days later, it was clear Silicon Valley Bank was in deep trouble, and the next day it was put into receivership by the FDIC, and Signature Bank failed over the weekend. The future of Credit Suisse was also overhanging the market. This set off a period of significant volatility in the rates market.
The immediate concern was that the other regional banks would fail or would need government assistance. The markets responded over the next 10 days with the July Fed Funds contract rallying by 110 basis points. Market expectations shifted to easing by the Fed in July. The expected Fed funds rate dipped below 4% by year-end. With both the FDIC and the Fed providing liquidity facilities for the banks, things began to calm. Data released in March showed the labor market remained strong and inflation remained high. The Fed responded with the business as usual rate hike of 25 basis points. New dot projections show that a majority of the Fed officials still expected the peak funds rate to be 5.125%.
The market, on the other hand, continued to disagree and had priced in rate cuts later in the year. Yesterday, the Fed raised rates again by 25 basis points and changed the language to hint that a pause at the next meeting is possible. Also said that their inflation projections do not support a rate cut this year. Higher for longer. The slingshot changes we experienced during the quarter created some unforeseen challenges. The heightened rate of volatility and spread widening that occurred impacted the timing and the execution of the securitizations of the loans we committed to purchase early in the quarter. The extreme rate volatility also had a negative impact on our longer-dated hedge instruments, resulting in approximately $34 million of realized losses on derivatives for the period.
The net result of this volatility is that while the value of our assets increased during the quarter, our book value per share decreased, but by only $0.08 or about 1%. The net change in book value plus the $0.23 dividend paid in the first quarter resulted in a 2% total economic return for the period. We believe this demonstrates the strength and resiliency of our loan portfolio. Let me take you through our business activities for the quarter. In January, Chimera issued its call rights or exercised its call rights and terminated four existing securitizations, and then issued $586 million CIM Trust 2023-R1, and $137 million CIM Trust 2023-NR1. This re-securitization enabled us to shift $150 million from recourse borrowings into securitized debt while receiving about $90 million in cash.
Our average cost of debt on the re-securitization was 6.66%. Both securitizations are callable within 2 years, which gives us the ability to refinance the securitized debt should interest rates improve in the future. We engaged in these relever transactions for several reasons, including our financing exposure to Credit Suisse. As we began the quarter, we had $168 million of recourse financing with Credit Suisse, we knew that they were exiting the business. The relever included bonds we had previously financed with CS, the net cash provided time and the opportunity for us to explore new credit facilities to replace CS. We were successful in our efforts, which enabled us to reinvest the proceeds from the relevers. Like any other form of equity raise, there is a lag effect on earnings until the new funds are fully deployed.
As discussed on our prior earnings call, during the quarter, we committed to purchase approximately $1.25 billion of mortgages. Of the total commitments, approximately 57% were seasoned Re-Performing Loans, 39% were non-qualified investor mortgage loans, and the remainder were Business Purpose Loans. With the exception of the Business Purpose Loans, all loans were purchased with the intention to finance over the long term through securitization. The loan characteristics of the seasoned RPLs and BPLs were consistent with the characteristics which currently exist in our portfolio. In March, we sponsored CIM 2023-R2, a rated securitization of seasoned Re-Performing residential mortgage loans having a principal balance of $447 million. Securities issued in CIM 2023-R2, with an aggregate balance of approximately $365 million, were sold in private placements to institutional investors. These senior securities represented approximately 82% of the capital structure.
We retained a subordinate interest in certain interest-only securities with an aggregate balance of approximately $83 million for investment. Our average cost of debt on this securitization is 5.95%. We retained an option to call the securitized mortgage loans at any time beginning in March 2028. We continued our securitization activities post-quarter. In April, we sponsored CIM Trust 2023-I1, a rated securitization of non-QM investor mortgage loans, having a principal balance of $236 million. We also exercised call rights and terminated two existing securitization trusts, then issued a $451 million CIM Trust 2023-R3 and a $67 million CIM Trust 2023-NR2. This re-securitization enabled us to shift approximately $150 million from recourse borrowing to securitized debt while receiving about $40 million in cash.
We priced CIM Trust 2023-R4, a rated securitization of seasoned reperforming residential mortgage loans. We expect that transaction will close later today. The mortgage loans included loans we committed to purchase in January, as well as RPLs we had on warehouse. Upon closing of the transaction, our RPL warehouse exposure will be reduced to 0. We currently expect to close the remaining non-QM investor loans into a securitization during the second quarter. Despite the market turbulence this quarter, we remain optimistic about our future. We believe our continued ability to execute on loan purchases and securitizations highlights the overall strength of Chimera's franchise value. Our seasoned reperforming loan portfolio continues to perform well from a credit perspective.
Our recent EAD challenges are primarily related to our cost of financing, not the credit quality of our portfolio, and not the income generated by the portfolio, which is down marginally over the past year. We note that once rates moderate and begin their decline, our portfolio is well positioned to benefit. We expect our repo financing will decrease when rates fall, resulting in a steadily increasing NIM over time. Currently, we have 14 securitizations that are callable this year. The timing on calling these securitizations depends on a number of factors, including the amount of equity to be extracted, new investment opportunities available, the cost of new senior securitized debt, and the overall impact on our balance sheet and income statements.
We continue to view this ability to extract equity from our investments as a key differentiator for Chimera amongst its peers and can be a significant source of capital for redeployment. We believe our assets are very strong and the company is well-positioned when rates begin to moderate. We continue to see interesting and accretive opportunities in prime jumbo loans, RPLs, non-QMs, BPLs, as well as agency RMBS. While our focus for the past few years has been on RPLs, we expect to continue to diversify our investments over time. We understand the road ahead is not smooth, but new investment opportunities look attractive, and we remain optimistic about our future. We have a great team, outstanding assets, and a clear vision. I would now like to turn to Subra to give a more detailed overview of our financial results.
Thank you, Phil. I will review Chimera's financial highlights for the first quarter of 2023. GAAP book value at the end of first quarter was $7.41 per share, and our economic return on GAAP book value was 2% based on quarterly change in book value and the first quarter dividend per common share. GAAP net income for the first quarter was $39 million or $0.17 per share. On an earnings available for distribution basis, net income in the first quarter of approximately $31 million or $0.13 per diluted common share. Our economic net interest income for the first quarter was $69 million. For the first quarter, the yield on average interest earning assets was 5.5%. Our average cost of funds was 4.1%, and our net interest spread was 1.4%.
Total leverage for the first quarter was 4.1 to 1, while Recourse leverage ended the quarter at 1.2 to 1. For financing and liquidity, the company had $660 million total cash on unencumbered assets at quarter end. We had $1.6 billion of either non or limited mark-to-market features on our outstanding repo agreements. We had $2.5 billion floating rate exposure on our outstanding repo liabilities. We had $1 billion pay fixed interest rate swap at a rate of 3.26% as a hedge position for our liabilities. We had $1 billion swaptions to pay fixed for 1 year beginning in March 2024 at an average rate of 3.46% as a hedge position for liabilities.
The company also had $450 million outstanding short futures contracts to hedge loans for future securitizations. For the quarter, our economic net interest income return on equity was 10.5%, and our GAAP return on average equity was 8.6%. Lastly, our first quarter 2023 expenses, excluding servicing fees and transaction expenses, were $16 million, modestly lower from the same quarter in the prior year. That concludes our remarks. We will now open the call for questions.
Operator, we're ready for our questions.
I apologize for that. Thank you. If you have a question or comment, please press star one on your telephone keypad at this time. If at any time your question has been answered, you can remove yourself from the queue by pressing one. Again, ladies and gentlemen, if you have a question or comment, please press star one on your telephone keypad at this time. Please hold while we poll for questions. Our first question comes from Doug Harter of Credit Suisse. Please go ahead.
Thanks. Hoping you could talk about how you're thinking about the dividend given, you know, kind of current earnings power and your outlook for earnings kind of once, you know, kind of all of the freed up capital is redeployed?
Hi, Doug, this is Phil. Yeah, we recognize that our current dividend exceeds our EAD. As we said earlier, we believe our portfolio is strong and it's positively positioned when rates begin to decline. We also believe that we'll see accretive investments come to the market. On the other hand, we note that rate volatility and the subsequent dislocations in the banking sector, possibly a banking crisis, is creating a great deal of uncertainty around the future. While we remain positive, we're going to be keeping our, you know, eyes on these kind of developments.
Got it. You know, given that it's, you know, kind of uncertain as to when rates decline, kind of whether you believe pieces versus the best shot, you know, I guess how are you thinking about, you know, how, you know, how long or how far into the future you kind of look on, you know, on kind of the earnings power versus, you know, kind of, you know, maybe preserving some of that capital for investment opportunities?
Yeah. I think you actually said it exactly how we're thinking about it. You know, as I mentioned, you know, with the portfolio, it still stays strong. Our top line revenue is still staying strong. Our, our financing costs are, you know, obviously what's hurting. We'll be looking at, you know, how long that lasts, what our actual investment opportunities are and where the market is, and we'll be constantly juggling those things to come to a view. As you said, right now there's a, there's a fair amount of uncertainty. We'll be looking at all that and come to the right balance that we think will be in the best interest of shareholders.
Okay. Thank you.
Our next question is from Trevor Cranston of JMP Securities. Please go ahead.
Hey, thanks. Can you talk a little bit about, you know, the potential opportunities you're seeing coming out of the bank portfolios, you know, on the whole loan side, and you know, how much, you know, free capital you feel you have available to potentially take advantage of any opportunities like that, or if you might be willing to, you know, increase leverage in the near term if a significant opportunity comes to market? Thanks.
Well, I'll start with that. Just saying, you know, look, as we mentioned, we have 14 securitizations that are callable, and we'll look at the facts and circumstances, and some of them are investment opportunities. We could look at leverage, other sources of capital. As to the kinds of things that we're seeing and we think I'm gonna turn this over to Dan Thakkar, our Co-Chief Investment Officer.
Yeah. Hi, this is Dan Thakkar. If your question is regarding this FDIC liquidations, the majority of that's in the agency RMBS. At this point, the stance that we have taken is even though spreads are pretty wide, we think given the negative technicals in the agency RMBS market, we think spreads can stay here and don't see an imminent catalyst for tightening. I feel that right now what we are trying to do is deploy the capital to the extent they become available in non-QM as well as RPL. Does that answer your question?
Yeah, that's helpful. Thanks. Then on the warehouse financing side, can you guys just give some general market color in terms of, you know, if you've seen any changes or impact to the warehouse market, you know, in light of the banking issues and volatility that we've seen over the last couple of months?
We have not. We have not seen any impact as of currently.
Okay. Thank you.
Our next question is from Bose George of KBW. Please go ahead.
Hey, guys, just one for me. What's do you have an update for book value quarter to date?
We think it's relatively unchanged.
Yeah. Okay, great. That's all I had. Thanks.
Our next question is from Eric Hagen of BTIG. Please go ahead.
Good morning. You've got Ethan on for Eric. Just a couple from me. I joined a couple of minutes late, so apologies if you already answered these. Is there a market yield you would estimate for the loan portfolio? How does that compare to the yield on your cost basis?
Well, the yield that on a cost basis, we have it in our... Sorry, this is Subra Viswanathan now, you know. The yield we have is, you know, the overall portfolio we have is 5.5%. Most of it, obviously, is the loans. That's on the cost basis. On, you know, on the market yield, I mean, it's just very, maybe Dan Thakkar or Chaudry can talk about the market yield. You know, it really depends on the asset class, you know, between RPL and, you know, non-QM investor loans, which is what we've been trending recently.
Yes. If the question is around the unlevered yields in the non-QM, we see the current coupon close to around 8%.
Got it. That's, really helpful. Last one from me. Should investors expect you to buy defaulted loans out of the securitization trust in your debt deals? Or is the idea to have loans in the trust until a resolution? More generally, what kind of liquidity could you need to support your delinquent pipeline?
Generally speaking, this is Phil. Generally speaking, you know, the only time you would need to buy back on our securitizations for certain breaches of rep and warranties. If a, if a loan becomes delinquent, then we expect the servicer to engage in loss mitigation techniques. For certain of our securitizations, we actually have an asset manager who sits over top and provides support to them. To the extent that it, the loan goes into foreclosure in the REO, then it's just liquidated within the trust.
Great. That's helpful. That's all for me.
All right. Thank you.
There are no further questions at this time.
All right. This is Phil Cartus. Thank you for joining us on this, 2023 first quarter earnings call. We look forward to speaking to you, later this year.
Thank you. This concludes today's conference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.