Good day, ladies and gentlemen, and welcome to the Chimera Investment second quarter 2023 earnings call. All lines have been placed on a listen-only mode, the floor will be open for questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero 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, and thank you everyone for participating in Chimera's second 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.
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 Chief Executive Officer, Phil Kardis.
Thank you, Vic. Good morning, and welcome to the Chimera Investment Corporation's second 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, then we'll open the call for questions. We continued to be active during the second quarter through securitizations, stock repurchase, and liability management. We completed five securitizations during the second quarter, totaling nearly $1.4 billion. Let me describe our quarterly securitization activity at a high level. In April, we sponsored CIM 2023-I1, a rated securitization of non-QM investor loans totaling approximately $236 million. Approximately 87% of the capital structure was sold in a private placement to institutional investors.
We retained a subordinate interest in securities with an aggregate principal balance of approximately $31 million and certain interest-only securities. Our average cost of debt of this securitization is 6.6%. We retain an option to call the securitized mortgage loans at any time beginning in April of 2026. In May, we sponsored CIM 2023-R4, a rated securitization of seasoned reperforming residential mortgage loans totaling $394 million. We sold approximately 75% of the capital structure in a private placement to institutional investors. Chimera retained subordinate interest in securities with an aggregate principal balance of approximately $97 million in certain interest-only securities. Our average cost of debt of this securitization is 5.4%. We retained an option to call the securitized mortgage loans at any time beginning in April of 2028.
In June, we sponsored CIM 2023-I2, our second rated securitization of non-QM investor loans this year, totaling approximately $239 million. Approximately 85% of the capital structure was sold in a private placement to institutional investors. We retained interest in securities with an aggregate principal balance of approximately $36 million in certain interest-only securities. Our average cost of debt of this securitization is 7%. We retain an option to call the securitized mortgage loans at any time beginning in July 2026. We expect double-digit returns on the retained securities for these three securitizations. Now regarding re-securitization, we terminated two existing trusts, CIM 2017-7 and CMLTI 2019-E. In addition to the loans from these two deals, Chimera added approximately $104 million loans from our warehouse facility.
We issued CIM Trust 2023-R3 and CIM Trust 2023-NR2. These re-securitizations allowed us to, one, avoid a step-up rate increase on the senior debt of one of these terminated trusts; two, convert short-term repo funding into long-term non-recourse fixed rate financing; three, to recapture approximately $43 million in cash from the terminated trusts. Primarily as a result of our securitization activity this quarter, we reduced our recourse financing, primarily loan warehouse facilities by more than $500 million. In total, through the first half of the year, we reduced our recourse financing by approximately $750 million. As short-term rates continued to increase this quarter, we prepared for a higher for longer rate environment.
We added an additional $500 million one by one swaption, bringing our total swaption position to $1.5 billion, with an average pay fixed interest rate of 3.56%. These swaptions give us optionality to hedge our NIM if rates remain elevated through 2024 and into mid-2025. In addition, our board reauthorized our stock buyback plan and increased it to $250 million in the middle of June. Thereafter, we were able to repurchase more than 5.8 million shares for approximately $33 million at an average price of $5.66. The share repurchase was accretive to our shareholders. Our book value per share decreased by $0.12, or 1.6% quarter-over-quarter.
The net change in book value, plus dividends paid on our common shares, resulted in an 80 basis point total economic return for the quarter and a 2.8% total economic return for the first half of 2023. Looking ahead, while we believe it is likely the Fed will raise rates one more time this year, we believe the rate hike cycle is nearing an end. Inflation is coming down slowly, while the economy and job market remain strong. The Fed's own staff no longer predicts a recession in 2023, and the Fed may well engineer a soft landing. We are also buoyed by residential credit, which performed strongly during the quarter, as well as by the strength of the housing market, despite in spite of affordability issues. What does that mean for us?
As we've discussed in the past, our portfolio continues to perform well. Our EAD challenges are primarily related to our costs of financing, not the credit quality of our portfolio. Once rates moderate and begin their decline, our portfolio is positioned to benefit. We expect that this rate moderation and stability will allow us to refinance some of our more expensive financings, which will be positive to our earnings. On the other hand, to the extent that rates stay elevated for longer, we have $1.5 billion in swaptions, which we can exercise to support our interest margins into 2025. We continue to see interesting investment opportunities, and we think with the proposed bank capital regulations, that additional investment opportunities will arise over the second half of 2023.
We will continue to evaluate those opportunities, along with our stock price relative to our book value with respect to continued stock repurchases. We have a number of tools in our toolkit, from reducing our financing costs, to repurchasing our stock, to making accretive investments to drive shareholder value. We remain optimistic about our future. 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 second quarter of 2023. GAAP book value at the end of second quarter was $7.29 per share, and our economic return on GAAP book value was 80 basis points, based on the quarterly change in book value and the second quarter dividend per common share. For first half of the year, our economic return was 2.8%. GAAP net income for the second quarter was $18 million or $0.08 per share. On an Earnings Available for Distribution basis, net income in the second quarter of approximately $28 million or $0.12 per diluted common share. Our economic net interest income for the second quarter was $67 million.
For the second quarter, the yield on average interest earning assets was 5.6%, our average cost of funds was 4.4%, and our net interest spread was 1.2%. Total leverage for the second quarter was 4.2 to one, while recourse leverage ended the quarter at 1.0 to one. For financing and liquidity, the company had $670 million total cash and unencumbered assets at quarter end. We had $1.5 billion of either non or limited mark-to-market features on our outstanding repo agreements. We had $2 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 $1.5 billion swaptions to pay fixed for one year, beginning in the second quarter of 2024, at an average rate of 3.56% as a hedge position for liabilities. For the quarter, our economic net interest income return on equity was 10.2%, and our GAAP return on average equity was 5.5%. Lastly, our second quarter 2023 expenses, excluding servicing fees and transaction expenses, were $14 million, modestly lower from the first quarter. That concludes our remarks. We will now open the call for questions.
We will now conduct a question-and-answer session. If you have a question, please press star, then the number one on your telephone keypad now. Once again, to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from Bose George of KBW. Your line is open.
Hey, guys, this is Bose. Actually, I had a couple of questions. First, on, on the expenses, it, you know, did come down this quarter. Can you just sort of talk about the outlook for expenses going forward?
We expect the expenses to, you know, remain constant. Obviously, you know, some of the variable expenses, such as servicing fees and transaction expenses, would, would, you know, would vary depending on, you know, if we increase the number of loans. As pay-down happens, some of these variable expenses will continue to go down. But otherwise, our G&A expenses, we, we expect it to be pretty benign or pretty consistent as we have.
Okay, great. Thanks. Then just in terms of the current returns, you showed that economic ROE, I think it was 10.2%. How does that compare to the incremental ROEs that you're getting on, you know, stuff, the loans you're buying and securitizing currently?
Okay. I just want to make sure. What we project right now, the 10.2%, our scenarios, we expect our top line interest income to stay consistent with what we have. Expenses, you know, really it depends on where the rate is. If we expect an additional 25 basis point increase in interest expense, that'll, you know, somewhat offset some of that. What we focus right now is to have a consistent economic return based on our net income or our interest income being, you know, projecting to be consistent across quarters.
When, when I take that number and sort of the expense, you know, the expenses, run rate expenses as a percentage of equity. I mean, for you guys to get to kind of a double-digit ROE on a net basis, does it require, like, either more scale or, you know, rates to come down? Or what kind of scenarios -- like, how do you get from here to, you know, sort of that run rate, double-digit net ROE?
This is Phil. That's correct. I mean, as we look for accretive investments, we'll have to, you know, we need to increase our size, and we'll need some rates to come down as well. Both.
Okay, great. Thank you.
Your next question comes from Doug Harter of Credit Suisse. Your line is open.
Thanks. can you talk about the, the decision on, on the dividend and, you know, and, you know, in light of kind of where earnings are and, you know, kind of the expectation?
Yeah, sorry, you broke up a little bit. I think you were asking about the dividend. Hello?
Yes, sorry. I think I cut out there for a second.
Yeah.
So just, sorry, just to repeat. You know, can you talk about the board's decision around the dividend in light of where current earnings are and your expectations around kind of getting back to covering the new dividend?
Yeah. As, as we've said in the, in the past, you know, the EAD is one of the metrics the board looks at. It, you know, it's a useful guide. It isn't, you know, an exact in terms of what our dividend-paying capacity is. We look at what that capacity is. We look at, kind of, as we mentioned, looking forward into the future. As rates are moderating, we believe we'll be able to, to do-- refinance some of our more expensive financings, which will help us on our earnings. We think there are opportunities to continue to grow into that. By the same token, you know, right now, what we're portfolio is generating, the board feels comfortable at, you know, paying that dividend.
Great. Thank you.
Once again, to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from Trevor Cranston with JMP. Your line is open.
Hey, thanks. Good morning. Can you elaborate a little bit on, you know, the type of opportunities that you think could emerge, coming out of the banks as a result of, you know, the capital requirement changes? And, you know, what you think the, the timing of opportunities emerging there could be over, over the second half of the year. Thanks.
Sure. We'll turn this over to, to Dan, who can address that.
Yeah. So, Trevor, so the as you said, there is a strong likelihood that mortgage banks will have to hold more capital against residential mortgage pools. This should, you know, push more residential mortgage origination to non-bank originators and result in more private label securitization. We will see those opportunities in the future, as you said. One thing I will say that even without that, we are being shown large inventories of discounted underwater mortgages, given the consolidation going on in the banking space. At this point, the opportunities that we are seeing is primarily in the prime jumbo, low LTV kind of paper.
Okay, got it. Appreciate that. Thank you.
Yeah.
At this time, there are no further questions. I'd like to turn the call back over to management for any closing remarks.
Hi, this is Phil Kardis. Thank you for participating in Chimera Investment Corporation's second quarter earnings call, and we look forward to discussing our third quarter earnings call in November. Thank you.
Thank you everyone for attending the Chimera earnings call. That does conclude today's call. Have a wonderful day.