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Text: Before we begin, I'd like to review the Safe Harbor statements.
During the call today, we may also discuss non-GAAP financial 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 CEO and chief investment officer, Mohit Marria.
Joining me on the call today are Choudhary Yarlagadda, our president and chief operating officer; Rob Colligan, our chief financial officer; and Vic Falvo, our head of our capital markets.
This quarter we took many proactive steps toward portfolio optimization and the expansion of Chimera's core earnings.
Key drivers of our performance include recirculation of mortgage loans and the refinancing of credit at lower interest rates.
The housing market continues to be robust across America.
And though longer term interest rates have risen since year end, the interest rates available for residential mortgage remain very low by historical measures.
Home prices are increasing at their fastest pace since the first quarter of 2006 and on a year-over-year basis the S&P Case-Shiller index reported 11.2% increase in home price appreciation.
Strong housing demand coupled with a limited supply of homes available for sale provide strong tailwinds in housing finance.
Home price appreciation is an important metric when evaluating future mortgage credit performance.
Interest rate on 10-year U.S. Treasuries rose 83 basis points this quarter, while short term interest rates remain near zero.
The yield curve deepened over the period with a spread between two-year and 10-year treasury notes doubling to 158 basis points on market concerns of future inflation expectations.
Federal Reserve policy remained unchanged this quarter, and the Fed indicated it's believed that recent signs of inflation are expected to be short term in nature and are elevated due to pandemic related issues.
Credit spreads on fixed income products tightened as investors continue to seek higher yielding investments for their portfolios.
The BMO's high yield index ended the quarter tighter by 57 basis point while spreads AAA rated securitized reperforming loans tightened by an approximately 15 basis points.
The current market conditions have presented a unique opportunity to optimize Chimera's liability structure, locking in low cost financing for many quarters into the future.
As part of our call optimization strategy, this quarter we exercise our call rights on six outstanding deals representing $4.1 billion of residential mortgage loans.
In February, we issued $2.1 billion CIM 2021-R1 and $233 million CIM 2021-NR1.
The mortgage loans for both securitizations were from call and the termination of three CIM securitization previously issued in 2016.
These securitizations created $1.9 billion of new securitized debt at a weighted average cost of 2.04%.
The terminated debt had $1.7 billion outstanding with the previous cost of 5.2%, a savings of more than 300 basis points.
In March, we issued $1.5 billion CIM 2021-R2 and $240 million CIM 2021-NR2.
The mortgages for both securitizations from the call and termination of three CIM securitizations.
previously issued in 2017 and 2018.
The March securitizations created $1.5 billion of new securitized debt, at a weighted average cost of 2.24%.
The terminated debt had $1.2 billion outstanding, with a previous cost of 4.22%, a savings of about 200 basis points.
The high advance rate on these four securitizations enabled us to release equity, locked in from the prior securitizations and lower our costs of securitized debt by 265 basis points.
The retained tranches from those securitizations were financed with non mark-to-market repo.
We expect to see the full benefits of all four securitizations in the new quarter.
For the month of April we issued $860 million CIM 2021-R3 and $117 million CIM 2021-NR3.
The mortgages for both securitizations were from the call and termination of three CIM deals previously issued in 2017.
The April securitizations created $813 million of new debt at a weighted average cost of 2.12%.
The terminated debt had $682 million outstanding, with a previous cost of 4.14%.
a savings of 200 basis points.
The R3 and NR3 deals closed in late April.
Securitizations of assets is a critical component of Chimera's business model.
It provides low cost, long term non-recourse debt for mortgage assets on our balance sheet.
Securitized debt represents nearly 70% of Chimera's liabilities structure.
We expect all the new securitizations issued this year to provide durable portfolio income for many years to come.
At the end of March, Chimera paid off $4 million, 7% secured financing, and retired for cash the associated warrants on approximately 20 million shares.
The cash cost on the warrants came at a 10% discount to the value of our common stock and then eliminated any future equity dilution on these shares.
The equity recaptured from our first quarter of securitizations enabled us to terminate this debt early and rebalance our liability structure.
Our secured financing now stand at $4 billion down for $4.6 billion at quarter end.
The weighted average rate on our secured financing at the end of March was 2.7%, down 70 basis points from 3.4% at year end.
The optimization of our securitized debt combined with a continued improvement in our secured financing positions Chimera's portfolio to reap long term benefits, while maintaining little recourse leverage.
On the asset side of the balance sheet, this quarter Chimera purchase and securitized NR CIM 2021 J1 and J2 deals, a total of $884 million prime jumbo loans.
Separately, through a series of transactions, we purchased $166 million high yielding business purpose loans.
The weighted average coupon on these loans was 8.5% and has an expected portfolio yield of 7%.
These loans are short duration and are currently being financed in our loan warehouse.
Our agency CMBS portfolio continues to perform well as expected, as increased rate volatility during the quarter we proactively managed to our agency CMBS portfolio.
This quarter we sold $182 million Ginnie Mae project loans, generating $14 million in realized gains.
In addition, seven Ginnie Mae project loans were called during the quarter totaling $146 million.
Unlike traditional agency pass-throughs, Ginnie Mae project loans carry explicit call protection, and due to this feature we collected approximately $14 million in interest income through P-pay penalties.
As we look forward into the second quarter, the housing market remains strong and provides added benefit for improved credit performance.
Chimera's portfolio with seasoned low loan balance loans continue to generate solid top-line performance, while demonstrating little sensitivity to prepayments.
Through the end of April, we have re securitized $5.1 billion loans, lowered our cost of financing and freed up capital to help pay down higher cost debt.
And over the remainder of 2021, we have eight additional deals with approximately $1.7 billion unpaid balance for potential resecuritizations.
Chimera's portfolio is currently structured to offer shareholders an attractive dividend relative to our low recourse leverage.
As we near the post pandemic world, Chimera is well positioned to grow our portfolio with additional income opportunity.
I'll review Chimera's financial highlights for the first quarter of 2021.
GAAP book value at the end of the first quarter was $11.44.
GAAP net income for the first quarter was $139 million or $0.54 per share.
On a core basis.
net income for the first quarter was $87 million or $0.36 per share.
Economic net interest income for the first quarter was $136 million.
For the first quarter, the yield on average interest earning assets was 6.4%.
Our average cost of funds was 3.3%.
And our net interest spread was 3.1%.
Total leverage for the first quarter was 3.6:1, while recourse leverage ended the quarter at 1.1:1.
For the quarter, our economic net interest return on equity was 15%.
And our GAAP return on average equity was 17%.
Expenses for the first quarter, excluding servicing fees and transaction expenses were $18.6 million, up slightly from last quarter.
That concludes our remarks.

user
compname reports q1 earnings per share of $0.54.
q1 gaap earnings per share $0.54.
q1 core earnings per share $0.36.
qtrly book value of $11.44 per common share.

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