Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation First Quarter 2021 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

It is now my pleasure to turn the floor over to Victor Falvo, Head of Capital Markets. Please go ahead..

Thank you, Tunica. And thank you, everyone, for participating in Chimera’s first 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..

Good morning and welcome to the first quarter 2020 earnings call for Chimera Investment Corporation. 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.

After my remarks, Rob will review the financial results and then we will open a call for questions. This quarter we took many proactive steps towards 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..

Thanks, Mohit. 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. And we'll now open the call for questions..

Your first question comes from the line of Doug Harter with Credit Suisse..

Thanks.

Rob, can you just talk about what was the factor that drove the declining book value this quarter?.

Sure. The primary driver of that was paying the warrant. It was about $220 million or $0.95. Outside of that book value was relatively flat. We made some markups and markdowns loans. In particular we're up in the quarter. Agencies, with an increase in rates were down. And non agencies were down slightly. But I think all that offsets pretty cleanly.

I think the biggest drivers is the warrant for the quarter..

Great. Thanks, Rob.

And then, I guess, as you look at kind of incremental dollars that you're putting to work, where are the most attractive opportunities that you see today?.

Hey, Doug, this is Mohit. So, as we mentioned in the opening remarks, we're still focused on acquiring more business purpose loans, given the rate environment we're in, keeping the duration short on those assets, it's helpful and it creates a pretty high yielding asset for us.

On a cash basis, it's 17% and with some financing on a warehouse line, you're looking at very high teens, almost 20%, levered returns. We are still committed to our season re-performing loan strategy. As you can see, the market is still pretty strong on the new issue side, as reflected in the securitizations we've been able to do.

Q1 was relatively quiet in terms of loan sales. The GSEs are the largest supplier. Their first loan sale happened at the very end of the quarter. But there was not much too sort of focus on that side. But we still think they will have between the $218 billion of loans to sell.

So we'll continue focusing on that and using securitization to enhance the backend returns..

Great. Thanks Mohit..

. Your next question is from a line of Bose George with KBW..

Hey, everyone. This is actually Mike on for Bose.

I was just wondering if you can talk through when does it decision to raise the dividend? Is any expectations for capital deployment or changes in leverage or funding costs reflected in this?.

Hey, Mike. I think it's all of those, right? I mean, as you can see from the re-levers that we've completed through April, which represent about 70% of what we came into the year looking to do. The average cost savings is over 265 basis points.

If you look at our overall recourse repo, some of the financing we took in place last year was pretty expensive, that has stepped down quite a bit. I think it's about a 70 basis point drop.

And the lack of assets that we were able to find in Q1, as I just mentioned on the earlier question, gives us the ability to deploy that capital in the second half of the year here as the GSE sales ramp up. Though, I think the earnings power of the company is driven by the re-levers given the cost savings.

And that's what gave the board comfort to increase the dividend. And as an investment opportunity to become available, the additional equity, we've freed up from these re-levers give us a good position to add assets on a go forward basis..

Great. That's very helpful color.

And then, can you just provide a quarter date book value estimate?.

Rates have sort of rallied since March 31. But I would say, credit spreads are probably flat to where they were on March 31. As our agency spreads, I think book value would be unchanged over the last 30 days..

Great. Thank you for taking my questions..

At this time, there are no further questions..

Thanks Tunica. And thank you everyone for joining us on our Q1 call. We look forward to speaking to you all on our Q2 call. Thanks..

This concludes today's call. Thank you for joining. You may now disconnect your lines..