Chimera Investment Corporation Reports Strong Fourth Quarter; Dividend Rises as a Result of Improving Taxable Income
NEW YORK--(BUSINESS WIRE)-- Chimera Investment Corporation (NYSE: CIM) today reported Core Earnings for the quarter ended December 31, 2009, of $80.7 million or $0.12 per average share as compared to Core Earnings for the quarter ended December 31, 2008, of $9.0 million or $0.07 per average share and Core Earnings for the quarter ended September 30, 2009, of $85.9 million or $0.13 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 $95.5 million or $0.14 per average share for the quarter ended December 31, 2009, as compared to GAAP net income of $8.8 million or $0.07 per average share for the quarter ended December 31, 2008, and GAAP net income of $158.0 million or $0.24 per average share for the quarter ended September 30, 2009.
During the quarter ended December 31, 2009, the Company sold residential mortgage-backed securities ("RMBS") with a carrying value of $213.0 million for realized gains of $16.2 million. The Company did not sell any RMBS for the quarter ended December 31, 2008. During the quarter ended September 30, 2009, the Company sold RMBS with a carrying value of $916.9 million for realized gains of $74.5 million.
On January 29, 2010, the Company transferred $1.7 billion in principal value of its RMBS to the CSMC 2010-1R Trust in a re-securitization transaction. In this transaction, the Company sold $128.1 million of AAA-rated fixed rate bonds to third party investors for net proceeds of $127.7 million. The Company retained $563.6 million of AAA-rated bonds, $1.0 billion in subordinated bonds and the owner trust certificate, and interest only bonds with a notional value of $1.6 billion. The subordinated bonds and the owner trust certificate provide credit support to the AAA-rated bonds. The bonds issued by the trust are collateralized by RMBS that were transferred to the CSMC 2010-1R Trust.
The Company declared common stock dividends of $0.17, $0.04, and $0.12 per share for the quarters ended December 31, 2009, December 31, 2008, and September 30, 2009, respectively. The annualized dividend yield on the Company's common stock for the fourth quarter, based on the December 31, 2009, closing price of $3.88, was 17.53%. On a Core Earnings basis, the Company provided an annualized return on average equity of 14.96%, 10.96%, and 16.60% for the quarters ended December 31, 2009, December 31, 2008, and September 30, 2009, respectively. On a GAAP basis, the Company provided an annualized return on average equity of 17.69%, 10.72% and 30.55%, for the quarters ended December 31, 2009, December 31, 2008, and September 30, 2009, respectively.
Matthew J. Lambiase, Chief Executive Officer and President of the Company, commented on the quarter. "The fourth quarter demonstrates the evolving nature of our markets and our operations. Operationally, our purchases of significant amounts of deeply discounted securities and the retention of the subordinate securities of our re-securitizations means that a portion of our taxable income will come from the accretion of those discounts. As such, we anticipate that taxable income, which determines the amount of dividends we must pay, will be higher than Core Earnings. In our markets, demand for securities has improved from the depths of the financial crisis as investors take into account realistic performance expectations, new capital comes into the market and the securitization market continues to recover. While new non-government-backed mortgage originations remain well below prior levels, as we look ahead to the new year, we continue to see opportunities in the securities market and we look forward to the new opportunities that will arise when the primary mortgage securitization model becomes operational."
For the quarter ended December 31, 2009, the annualized yield on average earning assets was 6.37% and the annualized cost of funds on the average borrowed funds balance was 1.51% for an interest rate spread of 4.86%. This is a 308 basis point increase over the annualized interest rate spread for the quarter ended December 31, 2008, and a 118 basis point decrease over the interest rate spread for the quarter ended September 30, 2009. Leverage was 1.1:1, 2.5:1, and 0.9:1 at December 31, 2009, December 31, 2008, and September 30, 2009, respectively.
RMBS comprised approximately 92.7%, 66.2%, and 91.8% of the Company's investment portfolio at December 31, 2009, December 31, 2008, and September 30, 2009, respectively. The balance of the portfolio was comprised of loans collateralizing secured debt.
The following table summarizes portfolio information for the Company:
December 31, 2009 December 31, 2008 September 30, 2009
Interest earning $ 4,559,427 $ 1,438,813 $ 4,318,683
assets at period-end
Interest bearing
liabilities at $ 2,365,752 $ 1,050,862 $ 2,011,658
period-end
Leverage at period-end 1.1:1 2.5:1 0.9:1
Portfolio Composition
Non-Agency MBS 67.7% 52.5% 63.0%
Agency MBS 25.0% 13.7% 28.8%
Secured loans 7.3% 33.8% 8.2%
Fixed-rate percentage 52.7% 29.9% 59.0%
of portfolio
Adjustable-rate
percentage of 47.3% 70.1% 41.0%
portfolio
Annualized yield on
average earning assets 6.37% 5.74% 7.71%
during the period
Annualized cost of
funds on average 1.51% 3.96% 1.67%
borrowed funds during
the period
The following table summarizes characteristics for each asset class:
December 31, 2009
Non-Agency Agency
Mortgage-Backed Mortgage-Backed Secured Loans
Securities Securities
Weighted average cost basis $57.59 $103.41 $101.09
Weighted average fair value $54.86 $104.55 $101.09
Weighted average coupon 5.80% 5.50% 5.49%
Fixed-rate percentage of 24.55% 25.02% 3.14%
portfolio
Adjustable-rate percentage of 43.15% 0.00% 4.14%
portfolio
The Company's portfolio is comprised of RMBS and securitized whole residential mortgage loans. During the quarter ended December 31, 2009, the Company recorded a loan loss provision in general and administrative expenses of $1.7 million as compared to a provision of $940 thousand for the quarter ended December 31, 2008 and $47 thousand for the quarter ended September 30, 2009.
The Constant Prepayment Rate on the Company's portfolio was 18%, 9%, and 17% during the quarters ended December 31, 2009, December 31, 2008, and September 30, 2009, respectively. The weighted average cost basis of the portfolio was 72.0, 99.7, and 72.2 as of December 31, 2009, December 31, 2008, and September 30, 2009, respectively. The net accretion of discounts was $10.7 million, net amortization of premium $319 thousand, and net accretion of discount was $23.7 million for the quarters ended December 31, 2009, December 31, 2008, and September 30, 2009, respectively. The total net discount remaining was $1.8 billion, $5.3 million and $1.7 billion at December 31, 2009, December 31, 2008, and September 30, 2009, respectively.
General and administrative expenses, including the management fee, as a percentage of average interest earning assets were 0.72%, 0.97%, and 0.72% for the quarters ended December 31, 2009, December 31, 2008, and September 30, 2009, respectively. At December 31, 2009, December 31, 2008, and September 30, 2009, the Company had a common stock book value per share of $3.17, $2.34, and $3.27, respectively.
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 670,371,002 shares of common stock outstanding.
The Company will hold the fourth quarter 2009 earnings conference call on Tuesday, February 9, 2010, at 10:00 a.m. EST. The number to call is 800-295-4740 for domestic calls and 617-614-3925 for international calls and the pass code is 22337075. The replay number is 888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 35866531. 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 Investor Relations, then E-Mail Alerts, enter your e-mail address where indicated 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 Treasury's plan to buy U.S. government agency RMBS, 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 for the fiscal year ended December 31, 2008, 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)
December December
31, September June 30, March 31, 31,
30, 2009 2009 2009
2009 2008 (1)
Assets: (Unaudited)
Cash and cash $ 24,279 $ 21,023 $ 13,121 $ 12,200 $ 27,480
equivalents
Non-Agency
Mortgage-Backed 2,398,865 1,996,460 1,746,543 720,936 613,105
Securities, at
fair value
Agency
Mortgage-Backed 1,690,029 1,823,308 1,889,550 364,856 242,362
Securities, at
fair value
Securitized
loans held for
investment, net
of allowance
for loan losses
of $4.7 470,533 498,915 530,638 565,895 583,346
million, $3.0
million, $3.0
million, $1.9
million and
$1.6 million,
respectively
Accrued
interest 33,128 29,444 27,055 11,212 9,951
receivable
Other assets 1,494 330 798 949 1,257
Total assets $ 4,618,328 $ 4,369,480 $ 4,207,705 $ 1,676,048 $ 1,477,501
Liabilities:
Repurchase 1,716,398 1,444,243 1,377,148 107,446 -
agreements
Repurchase
agreements with 259,004 153,076 123,483 452,480 562,119
affiliates
Securitized 390,350 414,339 442,782 473,168 488,743
debt
Payable for
investments - 73,460 270,735 193,973 -
purchased
Accrued
interest 3,235 3,199 2,801 2,468 2,465
payable
Dividends 113,788 80,311 37,705 10,566 7,040
payable
Accounts
payable and 472 752 487 538 387
other
liabilities
Investment
management fees 8,519 9,071 5,955 2,583 2,292
payable to
affiliate
Total $ 2,491,766 $ 2,178,451 $ 2,261,096 $ 1,243,222 $ 1,063,046
liabilities
Commitments and - - - - -
Contingencies
Stockholders'
Equity:
Common stock:
par value $0.01
per share;
1,000,000,000
shares
authorized,
670,371,587,
670,324,854, $ 6,693 $ 6,693 $ 6,692 $ 1,761 $ 1,760
670,325,786,
177,196,945 and
177,198,212
shares issued
and
outstanding,
respectively
Additional 2,290,614 2,290,328 2,290,308 832,070 831,966
paid-in-capital
Accumulated
other (99,754) (53,322) (220,029) (256,705) (266,668)
comprehensive
loss
Accumulated (70,991) (52,670) (130,362) (144,300) (152,603)
deficit
Total
stockholders' $ 2,126,562 $ 2,191,029 $ 1,946,609 $ 432,826 $ 414,455
equity
Total
liabilities and $ 4,618,328 $ 4,369,480 $ 4,207,705 $ 1,676,048 $ 1,477,501
stockholders'
equity
(1) Derived from the audited consolidated financial statements at December 31,
2008.
CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except share and per share data)
For the Quarter Ended
December
31, September June 30, March 31, December
30, 2009 2009 2009 31, 2008
2009
(Unaudited)
Net Interest Income:
Interest income $ 100,765 $ 104,690 $ 65,077 $ 28,007 $ 23,656
Interest expense 8,530 9,197 8,313 9,042 10,954
Net interest income 92,235 95,493 56,764 18,965 12,702
Other-than-temporary
impairments:
Total
other-than-temporary (1,480) (6,209) (8,575) - -
credit impairment
losses
Non-credit portion
of loss recognized
in other 164 4,024 2,080 - -
comprehensive income
(loss)
Net
other-than-temporary (1,316) (2,185) (6,495) - -
impairment losses
Other gains:
Realized gains on
sales of 16,191 74,508 9,321 3,627 -
investments, net
Realized losses on
principal (195) (61) - - -
write-downs
Total other gains 15,996 74,447 9,321 3,627 -
Net investment 106,915 167,755 59,590 22,592 12,702
income
Other expenses:
Management fee 8,516 8,649 5,955 2,583 2,292
Provision for loan 1,692 47 1,130 234 940
losses
General and
administrative 1,238 1,057 861 905 686
expenses
Total other expenses 11,446 9,753 7,946 3,722 3,918
Income before income 95,469 158,002 51,644 18,870 8,784
taxes
Income taxes - - - 1 (3)
Net income $ 95,469 $ 158,002 $ 51,644 $ 18,869 $ 8,787
Net income per
share-basic and $ 0.14 $ 0.24 $ 0.10 $ 0.11 $ 0.07
diluted
Weighted average
number of shares 670,324,435 670,324,864 503,110,132 177,196,959 135,115,190
outstanding-basic
and diluted
Comprehensive income
(loss):
Net income $ 95,469 $ 158,002 $ 51,644 $ 18,869 $ 8,787
Other comprehensive
(loss) income:
Unrealized (loss)
gain on (31,753) 238,969 39,501 13,590 (128,361)
available-for-sale
securities
Reclassification
adjustment for net
losses included in 1,316 2,185 6,495 - -
net income for
other-than-temporary
impairments
Reclassification
adjustment for
realized gains (15,996) (74,447) (9,321) (3,627) -
included in net
income
Other comprehensive (46,433) 166,707 36,675 9,963 (128,361)
(loss) income:
Comprehensive income $ 49,036 $ 324,709 $ 88,319 $ 28,832 $ (119,574)
(loss)
Source: Chimera Investment Corporation
Released February 8, 2010