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CHIMERA INVESTMENT CORPORATION RELEASES 3RD QUARTER 2017 EARNINGS

  • GAAP EARNINGS OF $0.69 PER COMMON SHARE
  • CORE EARNINGS(1) OF $0.62 PER COMMON SHARE
  • GAAP BOOK VALUE OF $16.92 PER COMMON SHARE
  • ADDED $783 MILLION OF RESIDENTIAL MORTGAGE LOANS

NEW YORK--(BUSINESS WIRE)-- Chimera Investment Corporation (NYSE:CIM) today announced its financial results for the third quarter ended September 30, 2017. The Company’s third quarter 2017 GAAP net income was $129.8 million or $0.69 per common share. Core earnings(1) for the third quarter of 2017 was $116.3 million or $0.62 per common share. Economic return on book value for the quarter was 5.3%.(2) During the quarter the Company purchased approximately $783 million in loans which brings loan purchases for the year to $5.8 billion. The Company sponsored one mortgage loan securitization for $783 million and incurred $3.4 million in securitization deal related expenses.

"Chimera's seasoned mortgage loan portfolio and securitizations continue to grow" said Matthew Lambiase, Chimera's CEO and President. "We believe that residential mortgage credit offers some of the best risk adjusted returns in the fixed income market and the further development of this portfolio is central to our strategy of generating a steady, attractive stream of dividend income for our shareholders."

(1) Core earnings is a non-GAAP measure. See additional discussion on page 5.
(2) Economic return on book value is based on the change in GAAP book value per common share for the quarter plus the quarterly dividend declared per common share.
Note: All per common share amounts presented on a diluted basis.

Other Information

Chimera Investment Corporation is a publicly traded real estate investment trust, or REIT, that is primarily engaged in real estate finance. We were incorporated in Maryland on June 1, 2007 and commenced operations on November 21, 2007. We invest, either directly or indirectly through our subsidiaries, in RMBS, residential mortgage loans, Agency CMBS, commercial mortgage loans, real estate-related securities and various other asset classes. We have elected and believe that we are organized and have operated in a manner that enables us to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Code.

Please visit www.chimerareit.com and click on Investor Relations for additional information about us.

CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share and per share data)
September 30, 2017 December 31, 2016
Assets:
Cash and cash equivalents $ 38,055 $ 177,714
Non-Agency RMBS, at fair value 2,950,348 3,330,063
Agency MBS, at fair value 4,354,872 4,167,754
Loans held for investment, at fair value 13,538,052 8,753,653
Receivable for investment sold 11,235
Accrued interest receivable 99,421 79,697
Other assets 172,876 166,350
Derivatives, at fair value, net 22,525 9,677
Total assets (1) $ 21,187,384 $ 16,684,908
Liabilities:

Repurchase agreements ($8.2 billion and $7.0 billion, pledged as collateral, respectively)

$ 6,709,821 $ 5,600,903

Securitized debt, collateralized by Non-Agency RMBS ($1.6 billion and $1.8 billion pledged as collateral,
respectively)

233,113 334,124

Securitized debt at fair value, collateralized by loans held for investment ($13.0 billion and $8.8 billion
pledged as collateral, respectively)

9,683,062 6,941,097
Payable for investments purchased 733,142 520,532
Accrued interest payable 64,280 48,670
Dividends payable 95,000 97,005
Accounts payable and other liabilities 21,331 16,694
Derivatives, at fair value 1,204 2,350
Total liabilities (1) $ 17,540,953 $ 13,561,375
Stockholders' Equity:
Preferred Stock, par value of $0.01 per share, 100,000,000 shares authorized:

8.00% Series A cumulative redeemable: 5,800,000 shares issued and outstanding, respectively ($145,000
liquidation preference)

$ 58 $ 58

8.00% Series B cumulative redeemable: 13,000,000 and 0 shares issued and outstanding, respectively
($325,000 liquidation preference)

130

Common stock: par value $0.01 per share; 300,000,000 shares authorized, 187,781,000 and 187,739,634
shares issued and outstanding, respectively

1,878 1,877
Additional paid-in-capital 3,825,832 3,508,779
Accumulated other comprehensive income 813,118 718,106
Cumulative earnings 2,860,244 2,443,184
Cumulative distributions to stockholders (3,854,829 ) (3,548,471 )
Total stockholders' equity $ 3,646,431 $ 3,123,533
Total liabilities and stockholders' equity $ 21,187,384 $ 16,684,908
(1) The Company's consolidated statements of financial condition include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations and liabilities of the VIE for which creditors do not have recourse to the primary beneficiary (Chimera Investment Corporation). As of September 30, 2017 and December 31, 2016, total assets of consolidated VIEs were $14,846,980 and $10,761,954, respectively, and total liabilities of consolidated VIEs were $9,954,437 and $7,302,905, respectively.
Net Income
(dollars in thousands, except share and per share data)
(unaudited)
For the Quarters Ended For the Nine Months Ended

September 30,
2017

September 30,
2016

September 30,
2017

September 30,
2016

Net interest income:
Interest income (1) $ 296,813 $ 250,953 $ 836,801 $ 673,246
Interest expense (2) 140,358 94,911 388,544 241,120
Net interest income 156,455 156,042 448,257 432,126
Other-than-temporary impairments:
Total other-than-temporary impairment losses (784 ) (993 ) (4,245 ) (8,555 )
Portion of loss recognized in other comprehensive income (10,684 ) (10,581 ) (39,431 ) (34,652 )
Net other-than-temporary credit impairment losses (11,468 ) (11,574 ) (43,676 ) (43,207 )
Other investment gains (losses):
Net unrealized gains (losses) on derivatives 9,204 27,628 19,902 (51,382 )
Realized gains (losses) on terminations of interest rate swaps (16,143 ) (60,616 )
Net realized gains (losses) on derivatives (7,841 ) (14,268 ) (28,680 ) (58,934 )
Net gains (losses) on derivatives 1,363 13,360 (24,921 ) (170,932 )
Net unrealized gains (losses) on financial instruments at fair value 19,042 32,999 159,047 80,217
Net realized gains (losses) on sales of investments 1 3,079 9,709 7,035
Gains (losses) on extinguishment of debt (1 ) (45 ) (48,016 ) (1,811 )
Total other gains (losses) 20,405 49,393 95,819 (85,491 )
Other income:
Other income 95,000
Total other income 95,000
Other expenses:
Compensation and benefits 7,533 6,911 22,759 19,087
General and administrative expenses 4,537 4,332 13,162 13,073
Servicing fees 10,715 9,788 31,193 23,139
Deal expenses 3,357 16,054 13,022
Total other expenses 26,142 21,031 83,168 68,321
Income (loss) before income taxes 139,250 172,830 417,232 330,107
Income taxes 18 13 172 65
Net income (loss) $ 139,232 $ 172,817 $ 417,060 $ 330,042
Dividend on preferred stock 9,400 24,083
Net income (loss) available to common shareholders $ 129,832 $ 172,817 $ 392,977 $ 330,042
Net income (loss) per share available to common shareholders:
Basic $ 0.69 $ 0.92 $ 2.09 $ 1.76
Diluted $ 0.69 $ 0.92 $ 2.09 $ 1.76
Weighted average number of common shares outstanding:
Basic 187,779,794 187,729,765 187,773,715 187,727,667
Diluted 188,192,111 187,919,792 188,176,757 187,917,694
Dividends declared per share of common stock $ 0.50 $ 0.48 $ 1.50 $ 1.94
(1) Includes interest income of consolidated VIEs of $241,195 and $195,488 for the quarters ended September 30, 2017 and 2016, respectively and interest income of consolidated VIEs of $668,621 and $488,353 for the nine months ended September 30, 2017 and 2016 respectively.
(2) Includes interest expense of consolidated VIEs of $101,856 and $70,715 for the quarters ended September 30, 2017 and 2016, respectively and interest expense of consolidated VIEs of $290,264 and $168,738 for the nine months ended September 30, 2017 and 2016 respectively.
CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except share and per share data)
(Unaudited)
For the Quarters Ended For the Nine Months Ended

September 30,
2017

September 30,
2016

September 30,
2017

September 30,
2016

Comprehensive income (loss):
Net income (loss) $ 139,232 $ 172,817 $ 417,060 $ 330,042
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net 21,370 (18,364 ) 59,114 94,059

Reclassification adjustment for net losses included in net income for other-
than-temporary credit impairment losses

11,468 11,574 43,676 43,207

Reclassification adjustment for net realized losses (gains) included in net
income

(1 ) (2,680 ) (7,778 ) (13,354 )
Other comprehensive income (loss) 32,837 (9,470 ) 95,012 123,912
Comprehensive income (loss) before preferred stock dividends $ 172,069 $ 163,347 $ 512,072 $ 453,954
Dividends on preferred stock $ 9,400 $ $ 24,083 $
Comprehensive income (loss) available to common stock shareholders $ 162,669 $ 163,347 $ 487,989 $ 453,954

Core earnings

Core earnings is a non-GAAP measure and is defined as GAAP net income excluding unrealized gains on the aggregate portfolio, impairment losses, realized gains on sales of investments, realized gains or losses on futures, realized gains or losses on swap terminations, gain on deconsolidation, extinguishment of debt and certain other non-recurring gains or losses. As defined, core earnings include interest income and expense as well as realized losses on interest rate swaps used to hedge interest rate risk. Management believes that the presentation of core earnings is useful to investors because it can provide a useful measure of comparability to our other REIT peers, but has important limitations. We believe core earnings as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool. Therefore, core earnings should not be viewed in isolation and is not a substitute for net income or net income per basic share computed in accordance with GAAP.

The following table provides GAAP measures of net income and net income per basic share available to common stockholders for the periods presented and details with respect to reconciling the line items to core earnings and related per average basic common share amounts:

For the Quarters Ended
September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016
(dollars in thousands, except per share data)
GAAP Net income available to common stockholders $ 129,832 $ 105,617 $ 157,524 $ 219,454 $ 172,817
Adjustments:
Net other-than-temporary credit impairment losses 11,468 13,509 18,701 14,780 11,574
Net unrealized (gains) losses on derivatives (9,204 ) (5,802 ) (4,896 ) (101,475 ) (27,628 )
Net unrealized (gains) losses on financial instruments at fair value (19,042 ) (67,762 ) (72,243 ) 20,664 (32,999 )
Net realized (gains) losses on sales of investments (1 ) (4,541 ) (5,167 ) (11,121 ) (3,079 )
(Gains) losses on extinguishment of debt 1 48,014 (1,334 ) 45
Realized (gains) losses on terminations of interest rate swaps 16,143
Net realized (gains) losses on Futures (1) 3,267 6,914 2,084 (19,628 ) 7,823
Core Earnings $ 116,321 $ 112,092 $ 96,003 $ 121,340 $ 128,553
GAAP net income per basic common share $ 0.69 $ 0.56 $ 0.84 $ 1.17 $ 0.92
Core earnings per basic common share(2) $ 0.62 $ 0.60 $ 0.51 $ 0.65 $ 0.68
(1) Included in net realized gains (losses) on derivatives in the Consolidated Statements of Operations.
(2) We note that core and taxable earnings will typically differ, and may materially differ, due to differences on realized gains and losses on investments and related hedges, credit loss recognition, timing differences in premium amortization, accretion of discounts, equity compensation and other items.

The following tables provide a summary of the Company’s MBS portfolio at September 30, 2017 and December 31, 2016.

September 30, 2017

Principal or
Notional Value
at Period-End
(dollars in
thousands)

Weighted
Average
Amortized
Cost Basis

Weighted
Average Fair
Value

Weighted
Average
Coupon

Weighted
Average Yield
at Period-End (1)

Non-Agency RMBS
Senior $ 2,821,535 $ 54.54 $ 81.68 4.4% 16.7%
Senior, interest-only 4,948,265 5.42 4.30 1.4% 7.8%
Subordinated 531,526 66.62 79.30 4.1% 9.2%
Subordinated, interest-only 256,286 5.06 4.52 1.0% 8.4%
Agency MBS
Residential pass-through 2,316,838 105.54 104.80 3.8% 2.9%
Commercial pass-through 1,774,802 102.26 102.09 3.6% 3.2%
Interest-only 3,176,110 3.82 3.61 0.7% 3.5%
December 31, 2016

Principal or
Notional Value
at Period-End
(dollars in
thousands)

Weighted
Average
Amortized
Cost Basis

Weighted
Average Fair
Value

Weighted
Average
Coupon

Weighted
Average Yield
at Period-End (1)

Non-Agency RMBS
Senior $ 3,190,947 $ 55.76 $ 78.69 4.3% 15.5%
Senior, interest-only 5,648,339 5.18 4.49 1.5% 11.7%
Subordinated 673,259 70.83 82.21 3.8% 9.2%
Subordinated, interest-only 266,927 5.20 4.50 1.1% 13.5%
Agency MBS
Residential pass-through 2,594,570 105.78 104.29 3.9% 3.0%
Commercial pass-through 1,331,543 102.64 98.91 3.6% 2.9%
Interest-only 3,356,491 4.53 4.31 0.8% 3.5%
(1) Bond Equivalent Yield at period end.

At September 30, 2017 and December 31, 2016, the repurchase agreements collateralized by MBS had the following remaining maturities.

September 30, 2017 December 31, 2016
(dollars in thousands)
Overnight $ $
1 to 29 days 3,777,160 2,947,604
30 to 59 days 1,591,370 958,956
60 to 89 days 330,186 407,625
90 to 119 days 28,798 559,533
Greater than or equal to 120 days 982,307 727,185
Total $ 6,709,821 $ 5,600,903

The following table summarizes certain characteristics of our portfolio at September 30, 2017 and December 31, 2016.

For the Quarter Ended For the Year Ended
September 30, 2017 December 31, 2016
Interest earning assets at period-end (1) $ 20,843,272 $ 16,251,470
Interest bearing liabilities at period-end $ 16,625,996 $ 12,876,124
GAAP Leverage at period-end 4.6:1 4.1:1
GAAP Leverage at period-end (recourse) 1.8:1 1.8:1
Portfolio Composition, at amortized cost
Non-Agency RMBS 6.2 % 9.0 %
Senior 2.9 % 3.9 %
Senior, interest only 1.4 % 1.9 %
Subordinated 1.8 % 3.1 %
Subordinated, interest only 0.1 % 0.1 %
RMBS transferred to consolidated VIEs 4.9 % 7.6 %
Agency MBS 22.2 % 27.7 %
Residential 12.4 % 17.8 %
Commercial 9.2 % 8.9 %
Interest-only 0.6 % 1.0 %
Loans held for investment 66.7 % 55.7 %
Fixed-rate percentage of portfolio 92.0 % 88.4 %
Adjustable-rate percentage of portfolio 8.0 % 11.6 %
Annualized yield on average interest earning assets for the periods ended 6.3 % 6.4 %
Annualized cost of funds on average borrowed funds for the periods ended (2) 3.6 % 3.0 %
(1) Excludes cash and cash equivalents.
(2) Includes the effect of realized losses on interest rate swaps.

Economic Net Interest Income

Our “Economic net interest income” is a non-GAAP financial measure, that equals interest income, less interest expense and realized losses on our interest rate swaps. Realized losses on our interest rate swaps are the periodic net settlement payments made or received. For the purpose of computing economic net interest income and ratios relating to cost of funds measures throughout this section, interest expense includes net payments on our interest rate swaps, which is presented as a part of Realized gains (losses) on derivatives in our Consolidated Statements of Operations and Comprehensive Income. Interest rate swaps are used to manage the increase in interest paid on repurchase agreements in a rising rate environment. Presenting the net contractual interest payments on interest rate swaps with the interest paid on interest-bearing liabilities reflects our total contractual interest payments. We believe this presentation is useful to investors because it depicts the economic value of our investment strategy by showing actual interest expense and net interest income. Where indicated, interest expense, including interest payments on interest rate swaps, is referred to as economic interest expense. Where indicated, net interest income reflecting interest payments on interest rate swaps, is referred to as economic net interest income.

The following table reconciles the GAAP and non-GAAP measurements reflected in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.

GAAP
Interest
Income

GAAP
Interest
Expense

Net
Realized
Losses on
Interest
Rate
Swaps

Economic
Interest
Expense

GAAP Net
Interest
Income

Net
Realized
Losses on
Interest
Rate
Swaps

Other (1)

Economic
Net
Interest
Income

For the Quarter Ended September 30, 2017 $ 296,813 $ 140,358 $ 3,489 $ 143,847 $ 156,455 $ (3,489 ) $ (167 ) $ 152,799
For the Quarter Ended June 30, 2017 $ 288,644 $ 137,955 $ 3,486 $ 141,441 $ 150,689 $ (3,486 ) $ (350 ) $ 146,853
For the Quarter Ended March 31, 2017 $ 251,344 $ 110,231 $ 4,106 $ 114,337 $ 141,113 $ (4,106 ) $ (519 ) $ 136,488
For the Quarter Ended December 31, 2016 $ 260,823 $ 106,737 $ 4,151 $ 110,888 $ 154,086 $ (4,151 ) $ 40 $ 149,975
For the Quarter Ended September 30, 2016 $ 250,953 $ 94,911 $ 4,595 $ 99,506 $ 156,042 $ (4,595 ) $ (105 ) $ 151,342
(1) Primarily interest income on cash and cash equivalents.

The table below shows our average earning assets held, interest earned on assets, yield on average interest earning assets, average debt balance, economic interest expense, economic average cost of funds, economic net interest income, and net interest rate spread for the periods presented.

For the Quarters Ended
September 30, 2017 September 30, 2016
(dollars in thousands) (dollars in thousands)

Average
Balance

Interest

Average
Yield/Cost

Average
Balance

Interest

Average
Yield/Cost

Assets:
Interest-earning assets (1):
Agency MBS $ 3,733,640 $ 24,236 2.6% $ 3,735,142 $ 29,482 3.2%
Non-Agency RMBS 1,258,634 28,590 9.1% 1,404,995 25,879 7.4%
Non-Agency RMBS transferred to consolidated VIEs 1,000,912 56,388 22.5% 1,267,633 61,272 19.3%
Residential mortgage loans held for investment 12,959,595 187,432 5.8% 8,974,781 134,215 6.0%
Total $ 18,952,781 $ 296,646 6.3% $ 15,382,551 $ 250,848 6.5%
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Repurchase agreements collateralized by:
Agency MBS (2) $ 3,114,689 $ 14,211 1.8% $ 3,407,242 $ 11,606 1.4%
Non-Agency RMBS 706,941 5,257 3.0% 831,412 5,700 2.7%
Re-Remic repurchase agreements 443,029 3,679 3.3% 660,303 4,901 3.0%
RMBS from loan securitizations 2,285,232 18,843 3.3% 970,425 6,584 2.7%
Securitized debt, collateralized by Non-Agency RMBS 248,989 4,416 7.1% 402,657 5,182 5.1%
Securitized debt, collateralized by loans 9,399,125 97,441 4.1% 7,313,626 65,533 3.6%
Total $ 16,198,005 $ 143,847 3.6% $ 13,585,665 $ 99,506 2.9%
Economic net interest income/net interest rate spread $ 152,799 2.7% $ 151,342 3.6%
Net interest-earning assets/net interest margin $ 2,754,776 3.2% $ 1,796,886 3.9%
Ratio of interest-earning assets to interest bearing liabilities 1.17 1.13
(1) Interest-earning assets at amortized cost
(2) Interest includes cash paid on swaps

The table below shows our Net Income, Economic Net Interest Income and Core Earnings, each as a percentage of average equity. Return on average equity is defined as our GAAP net income (loss) as a percentage of average equity. Average equity is defined as the average of Company’s beginning and ending equity balance for the period reported. Economic Net Interest Income is a non-GAAP financial measure, that equals interest income, less interest expense and realized losses on our interest rate swaps. Core Earnings is a non-GAAP measures as defined in previous section.

Return on
Average Equity

Economic Net
Interest
Income/Average
Equity *

Core
Earnings/Average
Equity

(Ratios have been annualized)
For the Quarter Ended September 30, 2017 15.42% 16.92% 12.88%
For the Quarter Ended June 30, 2017 12.98% 16.57% 12.65%
For the Quarter Ended March 31, 2017 19.63% 16.46% 11.57%
For the Quarter Ended December 31, 2016 28.82% 19.48% 15.76%
For the Quarter Ended September 30, 2016 23.04% 20.18% 17.14%
* Includes effect of realized losses on interest rate swaps.

The following table presents changes to Accretable Discount (net of premiums) as it pertains to our Non-Agency RMBS portfolio, excluding premiums on IOs, during the previous five quarters.

For the Quarters Ended
Accretable Discount (Net of Premiums) September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016
(dollars in thousands)
Balance, beginning of period $ 627,724 $ 648,659 $ 683,648 $ 733,060 $ 769,764
Accretion of discount (43,502 ) (42,625 ) (43,715 ) (44,427 ) (44,455 )
Purchases 1,723 (108 ) (3,642 ) (33,987 ) 8,959
Sales and deconsolidation 5,792 212 (7,303 ) (2,138 ) (14,386 )
Transfers from/(to) credit reserve, net 31,245 21,586 19,671 31,140 13,178
Balance, end of period $ 622,982 $ 627,724 $ 648,659 $ 683,648 $ 733,060

Disclaimer

This press release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “target,” “assume,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believe,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results, including, among other things, those described in our Annual Report on Form 10-K for the year ended December 31, 2016, and any subsequent Quarterly Reports on Form 10-Q, under the caption “Risk Factors.” Factors that could cause actual results to differ include, but are not limited to: the state of credit markets and general economic conditions; changes in interest rates and the market value of our assets; the rates of default or decreased recovery on the mortgages underlying our target assets; the occurrence, extent and timing of credit losses within our portfolio; the credit risk in our underlying assets; declines in home prices; our ability to establish, adjust and maintain appropriate hedges for the risks in our portfolio; the availability and cost of our target assets; our ability to borrow to finance our assets and the associated costs; changes in the competitive landscape within our industry; our ability to manage various operational risks and costs associated with our business; interruptions in or impairments to our communications and information technology systems; our ability to acquire residential mortgage loans and successfully securitize the residential mortgage loans we acquire; our ability to oversee our third party sub-servicers; the impact of any deficiencies in the servicing or foreclosure practices of third parties and related delays in the foreclosure process; our exposure to legal and regulatory claims; legislative and regulatory actions affecting our business; the impact of new or modified government mortgage refinance or principal reduction programs; our ability to maintain our REIT qualification; and limitations imposed on our business due to our REIT status and our exempt status under the Investment Company Act of 1940.

Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Chimera does not undertake or accept any obligation to release publicly any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. Additional information concerning these and other risk factors is contained in Chimera’s most recent filings with the Securities and Exchange Commission (SEC). All subsequent written and oral forward-looking statements concerning Chimera or matters attributable to Chimera or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above.

Readers are advised that the financial information in this press release is based on company data available at the time of this presentation and, in certain circumstances, may not have been audited by the Company’s independent auditors.

View source version on businesswire.com: http://www.businesswire.com/news/home/20171102005696/en/

Chimera Investment Corporation
Investor Relations
888-895-6557
www.chimerareit.com

Source: Chimera Investment Corporation

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