Chimera Investment Corporation Reports Core EPS for the 1st Quarter 2010 of $0.19 Per Share; Results Reflect Adoption of Accounting Standards Codification Topic 860 and Topic 810
NEW YORK--(BUSINESS WIRE)-- Chimera Investment Corporation (NYSE: CIM) today reported Core Earnings for the quarter ended March 31, 2010, of $127.9 million or $0.19 per average share as compared to Core Earnings for the quarter ended March 31, 2009, of $15.4 million or $0.09 per average share and Core Earnings for the quarter ended December 31, 2009, of $80.7 million or $0.12 per average share. "Core Earnings" represents a non-GAAP measure that approximates distributable income, and is defined as GAAP net income (loss) excluding non-cash equity compensation expense, other-than-temporary impairments, and gains or losses on sales of securities. The Company reported GAAP net income of $125.6 million or $0.19 per average share for the quarter ended March 31, 2010, as compared to GAAP net income of $18.9 million or $0.11 per average share for the quarter ended March 31, 2009, and GAAP net income of $95.5 million or $0.14 per average share for the quarter ended December 31, 2009.
During the quarter ended March 31, 2010, the Company sold residential mortgage-backed securities ("RMBS") with a carrying value of $89.6 million for net realized gains of $342 thousand. The Company sold RMBS with a carrying value of $544.8 million for realized gains of $3.6 million during the quarter ended March 31, 2009. During the quarter ended December 31, 2009, the Company sold RMBS with a carrying value of $213.0 million for realized gains of $16.2 million.
The results for the quarter reflect the adoption of Accounting Standards Codification ("ASC") Topic 860, Transfers and Servicing and Topic 810, Consolidation, which requires the Company to reflect in its Consolidated Statements of Financial Condition certain re-securitization transactions completed during the year ended December 31, 2009 that were previously recorded as sales pursuant to Statement of Financial Accounting Standards 140. The effect of the adoption on January 1, 2010 is the inclusion in its assets of $1.6 billion of non-Agency mortgage-backed securities at fair value no longer held in the portfolio by the Company, the inclusion in its liabilities of $1.6 billion of non-recourse securitized debt associated with these mortgage-backed securities and the de-recognition of gains on sales of bonds during 2009 associated with re-securitizations. On an ongoing basis these line items will be labeled "non-retained" in the Company's consolidated financial statements. These accounting changes had no economic effect on the Company.
The Company declared common stock dividends of $0.17, $0.06, and $0.17 per share for the quarters ended March 31, 2010, March 31, 2009, and December 31, 2009, respectively. The annualized dividend yield on the Company's common stock for the first quarter, based on the March 31, 2010, closing price of $3.89 was 17.48%. On a Core Earnings basis, the Company provided an annualized return on average equity of 23.15%, 14.50%, and 14.96% for the quarters ended March 31, 2010, March 31, 2009, and December 31, 2009, respectively. On a GAAP basis, the Company provided an annualized return on average equity of 22.73%, 17.82% and 17.69%, for the quarters ended March 31, 2010, March 31, 2009, and December 31, 2009, respectively.
Matthew J. Lambiase, Chief Executive Officer and President of the Company, commented on the quarter. "In the first quarter we continued to take steps to optimize our portfolio. In addition, subsequent to quarter-end the Company priced a successful follow-on offering of common stock. We appreciate the ongoing support of our shareholders and look forward to continuing to demonstrate our ability to take advantage of opportunities in the market."
For the quarter ended March 31, 2010, the annualized yield on average earning assets was 10.04% and the annualized cost of funds on the average borrowed funds balance was 4.50% for an interest rate spread of 5.54%. This is a 258 basis point increase over the annualized interest rate spread for the quarter ended March 31, 2009, and a 68 basis point increase over the interest rate spread for the quarter ended December 31, 2009. Leverage was 1.6:1, 2.4:1, and 1.1:1 at March 31, 2010, March 31, 2009, and December 31, 2009, respectively. Recourse leverage was 0.7:1, 1.3:1 and 0.9:0 at March 31, 2010, March 31, 2009, and December 31, 2009, respectively.
RMBS comprised approximately 91.9%, 71.6%, and 92.7% of the Company's investment portfolio at March 31, 2010, March 31, 2009, and December 31, 2009, respectively. The balance of the portfolio was comprised of loans collateralizing secured debt.
The following table summarizes portfolio information for the Company:
March 31, 2010 March 31, 2009 December 31, 2009
Interest earning assets at $ 6,023,722 $ 1,651,687 $ 4,559,427
period-end, at fair value
Interest bearing $ 3,687,339 $ 1,033,094 $ 2,365,752
liabilities at period-end
Leverage at period-end 1.6:1 2.4:1 1.1:1
Leverage at period-end 0.7:1 1.3:1 0.9:1
(recourse)
Portfolio Composition, at
principal value
Non-Agency RMBS 76.5% 54.2% 67.7%
Senior, retained 31.3% 48.8% 42.7%
Subordinated, retained 28.6% 5.4% 25.0%
Senior, non-retained 16.6% 0.0% 0.0%
Agency RMBS 15.3% 17.4% 25.0%
Securitized loans 8.1% 28.4% 7.3%
Fixed-rate percentage of 66.2% 64.2% 52.7%
portfolio
Adjustable-rate percentage 33.8% 35.8% 47.3%
of portfolio
Annualized yield on average
earning assets during the 10.04% 6.44% 6.37%
period
Annualized cost of funds on
average borrowed funds 4.50% 3.48% 1.51%
during the period
The following table summarizes characteristics for each asset class:
March 31, 2010
Weighted Weighted Weighted
Average Cost Average Fair Average
Basis Value Coupon
Non-Agency Mortgage-Backed Securities
Senior, retained $ 99.31 $ 88.86 6.66 %
Subordinated, retained $ 29.02 $ 35.80 5.56 %
Senior, non-retained $ 90.54 $ 96.92 5.85 %
Agency Mortgage-Backed Securities $ 103.45 $ 105.15 5.57 %
Securitized loans $ 101.18 $ 101.18 5.92 %
The Company's portfolio is comprised of RMBS and securitized whole residential mortgage loans. During the quarter ended March 31, 2010, the Company recorded a loan loss provision in general and administrative expenses of $606 thousand as compared to a provision of $234 thousand for the quarter ended March 31, 2009 and $1.7 million for the quarter ended December 31, 2009.
The Constant Prepayment Rate on the Company's portfolio was 17%, 12%, and 18% during the quarters ended March 31, 2010, March 31, 2009, and December 31, 2009, respectively. The weighted average cost basis of the portfolio was 72.7, 96.3, and 72.0 as of March 31, 2010, March 31, 2009, and December 31, 2009, respectively. The net accretion of discounts was $59.8 million, $1.3 million and $10.7 million for the quarters ended March 31, 2010, March 31, 2009, and December 31, 2009, respectively. The total net discount remaining was $2.0 billion, $68.3 million and $1.8 billion at March 31, 2010, March 31, 2009, and December 31, 2009, respectively.
General and administrative expenses, including the management fee and loan loss provision, as a percentage of average interest earning assets were 0.55%, 0.86%, and 0.72% for the quarters ended March 31, 2010, March 31, 2009, and December 31, 2009, respectively. At March 31, 2010, March 31, 2009, and December 31, 2009, the Company had a common stock book value per share of $3.42, $2.44, and $3.17, respectively.
On March 31, 2010 the Company announced that it intended to sell 85,000,000 shares of common stock. On April 1, 2010, the Company sold these shares at a price of $3.61 per share for estimated proceeds, less the underwriters' discount and offering expenses, of approximately $306.7 million. In addition, on April 1, 2010, the underwriters exercised the option to purchase up to an additional 12,750,000 shares of common stock to cover over-allotments for proceeds, less the underwriters' discount, of approximately $46.0 million. These sales were completed on April 7, 2010. In all, the Company raised net proceeds of approximately $352.7 million in this offering.
The Company is a specialty finance company that invests in residential mortgage-backed securities, residential mortgage loans, real estate-related securities and various other asset classes. The Company's principal business objective is to generate net income for distribution to investors from the spread between the yields on its investments and the cost of borrowing to finance their acquisition and secondarily to provide capital appreciation. The Company, a Maryland corporation that has elected to be taxed as a real estate investment trust ("REIT"), is externally managed by Fixed Income Discount Advisory Company and currently has 768,122,737 shares of common stock outstanding.
The Company will hold the first quarter 2010 earnings conference call on Friday, May 7, 2010, at 10:00 a.m. EDT. The number to call is 800-510-9834 for domestic calls and 617-614-3669 for international calls and the pass code is 75278908. The replay number is 888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 65247723. The replay is available for 48 hours after the earnings call. There will be a web cast of the call on www.chimerareit.com. If you would like to be added to the e-mail distribution list, please visit www.chimerareit.com, click on E-Mail Alerts, complete the email notification form and click the Submit button.
This news release and our public documents to which we refer contain or incorporate by reference certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements which are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may," "would," "will" or similar expressions, or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, our business and investment strategy; our projected financial and operating results; our ability to maintain existing financing arrangements, obtain future financing arrangements and the terms of such arrangements; general volatility of the securities markets in which we invest; the implementation, timing and impact of, and changes to, various government programs, including the Term Asset-Backed Securities Loan Facility and the Public-Private Investment Program; our expected investments; changes in the value of our investments; interest rate mismatches between our investments and our borrowings used to fund such purchases; changes in interest rates and mortgage prepayment rates; effects of interest rate caps on our adjustable-rate investments; rates of default or decreased recovery rates on our investments; prepayments of the mortgage and other loans underlying our mortgage-backed or other asset-backed securities; the degree to which our hedging strategies may or may not protect us from interest rate volatility; impact of and changes in governmental regulations, tax law and rates, accounting guidance, and similar matters; availability of investment opportunities in real estate-related and other securities; availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; our understanding of our competition; market trends in our industry, interest rates, the debt securities markets or the general economy; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; and our ability to maintain our qualification as a REIT for federal income tax purposes. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in our Annual Report on Form 10-K, and any subsequent Quarterly Reports on Form 10-Q. We do not undertake, and specifically disclaim all obligations, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share and per share data)
(unaudited)
March 31, December 31, September 30, June 30, March 31,
2010 2009 (1) 2009 2009 2009
Assets:
Cash and cash $ 44,200 $ 24,279 $ 21,023 $ 13,121 $ 12,200
equivalents
Non-Agency
Mortgage-Backed
Securities, at
fair value
Senior, 1,429,530 2,022,406 1,618,116 1,720,832 685,343
retained
Subordinated, 947,963 376,459 378,344 25,711 35,593
retained
Senior, 1,646,087 - - - -
non-retained
Agency
Mortgage-Backed 1,558,795 1,690,029 1,823,308 1,889,550 364,856
Securities, at
fair value
Securitized
loans held for
investment, net
of allowance
for loan losses
of $4.6 441,347 470,533 498,915 530,638 565,895
million, $4.7
million, $3.0
million, $3.0
million, and
$1.9 million,
respectively
Receivable for
investments 47,185 - - - -
sold
Accrued
interest 39,637 33,128 29,444 27,055 11,212
receivable
Other assets 1,451 1,494 330 798 949
Total assets $ 6,156,195 $ 4,618,328 $ 4,369,480 $ 4,207,705 $ 1,676,048
Liabilities:
Repurchase $ 1,538,820 $ 1,716,398 $ 1,444,243 $ 1,377,148 $ 107,446
agreements
Repurchase
agreements with 147,417 259,004 153,076 123,483 452,480
affiliates
Securitized 364,665 390,350 414,339 442,782 473,168
debt
Securitized
debt, 1,636,437 - - - -
non-retained
Payable for
investments 41,822 - 73,460 270,735 193,973
purchased
Accrued
interest 9,691 3,235 3,199 2,801 2,468
payable
Dividends 113,793 113,788 80,311 37,705 10,566
payable
Accounts
payable and 489 472 752 487 538
other
liabilities
Investment
management fees 8,114 8,519 9,071 5,955 2,583
payable to
affiliate
Total $ 3,861,248 $ 2,491,766 $ 2,178,451 $ 2,261,096 $ 1,243,222
liabilities
Stockholders'
Equity:
Common stock:
par value $0.01
per share;
1,000,000,000
shares
authorized,
670,371,002,
670,371,587, $ 6,694 $ 6,693 $ 6,693 $ 6,692 $ 1,761
670,324,854,
670,325,786,
and 177,196,945
shares issued
and
outstanding,
respectively
Additional 2,290,636 2,290,614 2,290,328 2,290,308 832,070
paid-in-capital
Accumulated
other 144,978 (99,754 ) (53,322 ) (220,029 ) (256,705 )
comprehensive
income
Accumulated (147,361 ) (70,991 ) (52,670 ) (130,362 ) (144,300 )
deficit
Total
stockholders' $ 2,294,947 $ 2,126,562 $ 2,191,029 $ 1,946,609 $ 432,826
equity
Total
liabilities and $ 6,156,195 $ 4,618,328 $ 4,369,480 $ 4,207,705 $ 1,676,048
stockholders'
equity
(1) Derived from the audited consolidated financial statements at December 31, 2009.
CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(dollars in thousands, except share and per share data)
(unaudited)
March 31, December 31, September 30, June 30, March 31,
2010 2009 2009 2009 2009
Net Interest Income:
Interest income, $ 128,984 $ 100,765 $ 104,690 $ 65,077 $ 28,007
retained
Interest expense, 7,374 8,530 9,197 8,313 9,042
retained
Interest income, 50,861 - - - -
non-retained
Interest expense, 33,830 - - - -
non-retained
Net interest income 138,641 92,235 95,493 56,764 18,965
Other-than-temporary
impairments:
Total
other-than-temporary (22,687 ) (1,480 ) (6,209 ) (8,575 ) -
impairment losses
Non-credit portion
of loss recognized
in other 20,143 164 4,024 2,080 -
comprehensive income
(loss)
Net
other-than-temporary (2,544 ) (1,316 ) (2,185 ) (6,495 ) -
credit impairment
losses
Other (losses)
gains:
Realized gains on
sales of 342 16,191 74,508 9,321 3,627
investments, net
Realized losses on
principal (949 ) (195 ) (61 ) - -
write-downs of
non-Agency RMBS
Total other (losses) (607 ) 15,996 74,447 9,321 3,627
gains
Net investment 135,490 106,915 167,755 59,590 22,592
income
Other expenses:
Management fee 8,114 8,516 8,649 5,955 2,583
Provision for loan 606 1,692 47 1,130 234
losses
General and
administrative 1,160 1,238 1,057 861 905
expenses
Total other expenses 9,880 11,446 9,753 7,946 3,722
Income before income 125,610 95,469 158,002 51,644 18,870
taxes
Income taxes - - - - 1
Net income $ 125,610 $ 95,469 $ 158,002 $ 51,644 $ 18,869
Net income per
share-basic and $ 0.19 $ 0.14 $ 0.24 $ 0.10 $ 0.11
diluted
Weighted average
number of shares 670,371,022 670,324,435 670,324,854 503,110,132 177,196,959
outstanding-basic
and diluted
Comprehensive
income:
Net income $ 125,610 $ 95,469 $ 158,002 $ 51,644 $ 18,869
Other comprehensive
income (loss):
Unrealized gain
(loss) on 241,581 (31,753 ) 238,969 39,501 13,590
available-for-sale
securities
Reclassification
adjustment for net
losses included in
net income for 2,544 1,316 2,185 6,495 -
other-than-temporary
credit impairment
losses
Reclassification
adjustment for
realized losses 607 (15,996 ) (74,447 ) (9,321 ) (3,627 )
(gains) included in
net income
Other comprehensive 244,732 (46,433 ) 166,707 36,675 9,963
income (loss):
Comprehensive income $ 370,342 $ 49,036 $ 324,709 $ 88,319 $ 28,832
Source: Chimera Investment Corporation
Released May 6, 2010