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 and the floor will be open for your questions and comments following the presentation. [Operator Instructions] 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 first quarter 2023 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 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 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 three securitizations, reduced the recourse leverage by $237 million and generated a 2% total economic return. And since the quarter ended, we have completed four securitizations including a securitization we expect to close later today, and reduced our recourse leverage by a further $400 million, including reducing our re-performing loan warehouse exposure to zero, 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 midyear, 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. Then 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 as 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 7th was…

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 dividends 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 agreement. 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, and we had $1 billion swaptions to pay fixed for one 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 a GAAP return on average equity was 8.6%. And 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. [Operator Instructions] And the first question comes from Doug Harter of Credit Suisse. Please go ahead.

Thanks. I'm hoping you could talk about how you're thinking about the dividend given kind of current earnings power and your outlook for earnings kind of once kind of all of the freed up capital is redeployed?

Hi Doug, this is Phil. We recognize that our current dividend exceeds our EAD. But, 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. But 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. And so, while we remain positive, we're going to be keeping our eyes on these kind of developments.

And, given that it’s kind of uncertain as to when rates decline, kind of [Technical Difficulty] I guess, how are you thinking about, how long or how far into the future you kind of look on kind of the earnings power versus kind of maybe preserving some of that capital for investment opportunities?

Yes, I think you actually said exactly how we're thinking about it. As I mentioned, with a -- portfolio, it's still stay strong, our top line revenues still staying strong. Our financing costs are, obviously, what's hurting. And we'll be looking at 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 fair amount of uncertainty. And so, we'll be looking at all that and come to the right balance which we think will be in the best interest of shareholders.

Our next question is from Trevor Cranston of JMP Securities. Please go ahead.

Can you talk a little bit about the potential opportunities you're seeing coming out of the bank portfolios on the whole loan side? And how much free capital you feel you have available to potentially take advantage of any opportunities like that, or if you might be willing to increase leverage in the near term, if a significant opportunity comes to market? Thanks.

I'll start with that and just -- 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 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 going to turn this over to Dan Thakkar, our Co-Chief Investment Officer.

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. So, as Phil said, right now, what we're trying to do is deploy the capital to the extent that become available in non-QM as well as RPL. Does that answer your question?

Yes. That’s helpful. Thanks. And then on the warehouse financing side, can you guys just give some general market color in terms of, if you've seen any changes or impact to the warehouse market, 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.

Our next question is from Bose George of KBW. Please go ahead.

Just one for me. What's -- do you have an update per book value quarter to date?

We think it's relatively unchanged.

Our next question is from Eric Hagen of BTIG.

You've got Ethan on for Eric. Just a couple for me, and I joined a couple minutes late. So apologies if you already answered these. But is there a market yield you would estimate for the loan portfolio? And how does that compare to the yield on your cost basis?

Well, the yield that on a cost basis we have in our -- sorry, this is for gross. The yield we have is -- the overall portfolio we have is 5.5%. And then most of it obviously is the loans. That's on the cost basis. On the market yield, I mean, it's just really -- maybe Dan or Choudhary can talk about the market yields. It really depends on the asset class, RPL and non-QM investor loans, which is what we've been trading recently.

Yes. If the question is around the unlevered yields in the non-QM, we see the current coupon close to around 8%.

Last one for 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?

Okay. This is Phil. Generally speaking, the only time you would need to buy back on our securitizations for certain breaches of repren and warranties. So 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 provide support to them. And to the extent that the loan goes into foreclosure in the REO, then it’s just liquidated within the trust.

There are no further questions at this time.

All right. This is Phil Kardis. Thank you for joining us on this 2023 first quarter earnings call. And 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.