Chimera Investment Corporation Reports Improving Market Conditions Lift Book Value and Enable Secondary Capital Markets Activity; 3rd Quarter 2009 Core EPS of $0.13
NEW YORK--(BUSINESS WIRE)-- Chimera Investment Corporation (NYSE: CIM) today reported Core Earnings for the quarter ended September 30, 2009, of $85.9 million or $0.13 per average share as compared to Core Earnings for the quarter ended September 30, 2008, of $6.3 million or $0.16 per average share and Core Earnings for the quarter ended June 30, 2009, of $48.9 million or $0.10 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, gains or losses on sales of securities and terminations of interest rate swaps and unrealized gains or losses on interest rate swaps. The Company reported GAAP net income of $158.0 million or $0.24 per average share for the quarter ended September 30, 2009, as compared to GAAP net loss of $107.6 million or $2.76 per average share for the quarter ended September 30, 2008, and GAAP net income of $51.6 million or $0.10 per average share for the quarter ended June 30, 2009.
On July 30, 2009, the Company transferred $1.5 billion in principal value of its residential mortgage-backed securities ("RMBS") to the JPMRT 2009-7 Trust in a re-securitization transaction. In this transaction, the Company sold $166.3 million of AAA-rated fixed and floating rate bonds to third party investors and realized a gain on the sale of approximately $7.3 million. The Company retained $690.6 million of AAA-rated bonds, $665.5 million in subordinated bonds and the owner trust certificate. 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 have been transferred to the JPMRT 2009-7 Trust. Subsequent to the closing date of this re-securitization and prior to September 30, 2009, the Company sold an additional $589.7 million of the AAA-rated bonds and realized a gain on the sale of approximately $59.4 million.
On September 30, 2009, the Company transferred $1.7 billion in principal value of its RMBS to the CMSC 2009-12R Trust in a re-securitization transaction. In this transaction, the Company sold $260.6 million of AAA-rated fixed and floating rate bonds to third party investors and realized a gain on sale of approximately $5.2 million. The Company retained $655.0 million of AAA-rated bonds, $815.1 million in subordinated bonds and the owner trust certificate. 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 have been transferred to the CSMC 2009-12R Trust.
During the quarter ended September 30, 2009, the Company sold RMBS with a carrying value of $32.1 million for realized gains of $2.4 million. During the quarter ended September 30, 2008, the Company sold RMBS with a carrying value of $432.6 million for realized losses of approximately $113.1 million and terminated interest rate swaps with a notional value of $983.4 million, for realized losses of approximately $10.5 million. During the quarter ended June 30, 2009, the Company sold RMBS with a carrying value of $84.6 million for realized gains of $9.3 million.
The Company declared common stock dividends of $0.12, $0.16, and $0.08 per share for the quarters ended September 30, 2009, September 30, 2008, and June 30, 2009, respectively. The annualized dividend yield on the Company's common stock for the third quarter, based on the September 30, 2009, closing price of $3.82 was 12.57%. On a Core Earnings basis, the Company provided an annualized return on average equity of 16.60%, 7.97%, and 16.45% for the quarters ended September 30, 2009, September 30, 2008, and June 30, 2009, respectively. On a GAAP basis, the Company provided an annualized return on average equity of 30.55%, (136.88%) and 17.36%, for the quarters ended September 30, 2009, September 30, 2008, and June 30, 2009, respectively.
Matthew J. Lambiase, Chief Executive Officer and President of the Company, commented on the quarter. "I'm pleased with our results for the third quarter. The residential mortgage market improved, and Chimera was positioned to perform. After fully investing the proceeds of our capital raises earlier in the year, our team executed two re-securitizations that should enhance our return potential going forward. We continue to monitor evolving market conditions and prepare for a wide range of possible outcomes."
For the quarter ended September 30, 2009, the annualized yield on average earning assets was 7.71% and the annualized cost of funds on the average borrowed funds balance was 1.67% for an interest rate spread of 6.04%. This is a 533 basis point increase over the annualized interest rate spread for the quarter ended September 30, 2008, and a 161 basis point increase over the interest rate spread for the quarter ended June 30, 2009. Leverage was 0.9:1, 4.6:1, and 1.0:1 at September 30, 2009, September 30, 2008, and June 30, 2009, respectively.
Residential mortgage-backed securities comprised approximately 91.8%, 60.4%, 90.0% of the Company's investment portfolio at September 30, 2009, September 30, 2008, and June 30, 2009, respectively. The balance of the portfolio was comprised of mortgage loans held for investment and loans collateralizing secured debt.
The following table summarizes portfolio information for the Company:
For the Quarter For the Quarter For the Quarter
Ended September Ended September 30, Ended June 30, 2009
30, 2009 2008
(dollars in thousands)
Interest earning
assets at $4,318,683 $1,357,392 $4,166,731
period-end
Interest bearing
liabilities at $2,011,658 $1,120,345 $1,943,413
period-end
Leverage at 0.9:1 4.6:1 1.0:1
period-end
Portfolio
Composition:
Non-Agency MBS 63.0% 60.4% 55.5%
Agency MBS 28.8% - 34.5%
Secured loans 8.2% 39.6% 10.0%
Fixed-rate
percentage of 59.0% 18.4% 59.7%
portfolio
Adjustable-rate
percentage of 41.0% 81.6% 40.3%
portfolio
Annualized yield
on average earning 7.71% 5.35% 6.83%
assets during the
period
Annualized cost of
funds on average 1.67% 4.64% 2.40%
borrowed funds
during the period
The following table summarizes characteristics for each asset class:
Non-Agency Agency Mortgage-Backed
Mortgage-Backed Securities Secured Loans
Securities
Weighted average cost $54.37 $103.51 $101.01
basis
Weighted average fair $52.40 $104.76 $101.01
value
Weighted average 5.39% 5.51% 6.11%
coupon
Fixed-rate % of 26.70% 28.80% 3.50%
portfolio
Adjustable-rate % of 35.40% - 4.70%
portfolio
The Company's portfolio is comprised of residential mortgage-backed securities and securitized whole residential mortgage loans. During the quarter ended September 30, 2009, the Company recorded a loan loss provision in general and administrative expenses of $47 thousand as compared to a reduction to its loan loss provision of $563 thousand for the quarter ended September 30, 2008 and an increase in loan loss provision of $1.1 million for the quarter ended June 30, 2009. As of September 30, 2009, the Company's 60-day plus delinquent loans totaled 0.60% of its $498.9 million portfolio of securitized loans. There were no loans in the 60-day plus delinquent loan category at September 30, 2008. As of June 30, 2009, the Company's 60-day plus delinquent loan category totaled 1.05% of its $530.6 million portfolio of securitized loans. As of September 30, 2009, loans in foreclosure totaled 1.37% of its $498.9 million portfolio of securitized loans as compared to no loans in foreclosure at September 30, 2008. As of June 30, 2009, loans in foreclosure totaled 0.49% of its $530.6 million portfolio of securitized loans.
The Constant Prepayment Rate on the Company's portfolio was 17%, 9%, and 19% during the quarters ended September 30, 2009, September 30, 2008, and June 30, 2009, respectively. The weighted average cost basis of the portfolio was 72.2, 100.1, and 82.8 as of September 30, 2009, September 30, 2008, and June 30, 2009, respectively. The net accretion of discounts was $23.7 million, $908 thousand, and $13.6 million for the quarters ended September 30, 2009, September 30, 2008, and June 30, 2009, respectively. The total net discount remaining was $1.7 billion, $1.5 million and $913.5 million at September 30, 2009, September 30, 2008, and June 30, 2009, respectively.
General and administrative expenses, including the management fee, as a percentage of average interest earning assets were 0.72%, 0.44%, and 0.83% for the quarters ended September 30, 2009, September 30, 2008, and June 30, 2009, respectively. At September 30, 2009, September 30, 2008, and June 30, 2009, the Company had a common stock book value per share of $3.27, $6.18, and $2.90, 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 670,323,926 shares of common stock outstanding.
The Company will hold the third quarter 2009 earnings conference call on Tuesday, November 3, 2009, at 10:00 a.m. EST. The number to call is 866-770-7125 for domestic calls and 617-213-8066 for international calls and the pass code is 83651025. The replay number is 888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 56733885. 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 Alert, 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)
September June 30, March 31, September
30, 30,
2009 2009 2009 December 2008
31,
(unaudited) (unaudited) (unaudited) 2008 (1) (unaudited)
ASSETS
Cash and cash $ 21,023 $ 13,121 $ 12,200 $ 27,480 $ 6,167
equivalents
Non-Agency
Mortgage-Backed 1,996,460 1,746,543 720,936 613,105 759,378
Securities, at
fair value
Agency
Mortgage-Backed 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 $3.0 498,915 530,638 565,895 583,346 598,014
million, $3.0
million, $1.9
million, $1.6
million, $681
thousand,
respectively
Accrued
interest 29,444 27,055 11,212 9,951 8,212
receivable
Other assets 330 798 949 1,257 456
Total assets $ 4,369,480 $ 4,207,705 $ 1,676,048 $ 1,477,501 $ 1,372,227
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Liabilities:
Repurchase $ 1,444,243 $ 1,377,148 $ 107,446 $ - $ -
agreements
Repurchase
agreements with 153,076 123,483 452,480 562,119 619,657
affiliates
Securitized 414,339 442,782 473,168 488,743 500,688
debt
Payable for
investments 73,460 270,735 193,973 - -
purchased
Accrued
interest 3,199 2,801 2,468 2,465 2,579
payable
Dividends 80,311 37,705 10,566 7,040 6,048
payable
Accounts
payable and 752 487 538 387 632
other
liabilities
Investment
management fee 9,071 5,955 2,583 2,292 1,681
payable to
affiliate
Total 2,178,451 2,261,096 1,243,222 1,063,046 1,131,285
liabilities
Stockholders'
Equity:
Common stock:
par value $0.01
per share;
1,000,000,000
authorized,
670,324,854, 6,693 6,692 1,761 1,760 378
670,325,786,
177,196,945,
177,198,212,
and 38,992,893,
outstanding,
respectively
Additional 2,290,328 2,290,308 832,070 831,966 533,220
paid-in capital
Accumulated
other (53,322) (220,029) (256,705) (266,668) (138,307)
comprehensive
loss
Accumulated (52,670) (130,362) (144,300) (152,603) (154,349)
deficit
Total
stockholders' 2,191,029 1,946,609 432,826 414,455 240,942
equity
Total
liabilities and $ 4,369,480 $ 4,207,705 $ 1,676,048 $ 1,477,501 $ 1,372,227
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)
(unaudited)
For the For the For the For the For the
Quarter Ended Quarter Ended Quarter Ended Quarter Ended Quarter
Ended
September 30, June 30, March 31, December 31, September
30,
2009 2009 2009 2008 2008
Net interest income:
Interest income $ 104,690 $ 65,077 $ 28,007 $ 23,656 $ 23,458
Interest expense 9,197 8,313 9,042 10,954 15,543
Net interest income 95,493 56,764 18,965 12,702 7,915
Other-than-temporary
impairments:
Total
other-than-temporary (6,209) (8,575) - - -
credit impairment
losses
Non-credit portion
of loss recognized 4,024 2,080 - - -
in other
comprehensive income
Net
other-than-temporary (2,185) (6,495) - - -
impairment losses
Other gains
(losses):
Unrealized gains on - - - - 10,065
interest rate swaps
Realized gains
(losses) on sales of 74,508 9,321 3,627 - (113,130)
investments, net
Realized losses on
principal (61) - - - -
write-downs
Realized losses on
terminations of - - - - (10,460)
interest rate swaps
Total other gains 74,447 9,321 3,627 - (113,525)
(losses)
Net investment
income 167,755 59,590 22,592 12,702 (105,610)
(expense)
Other expenses:
Management fee 8,649 5,955 2,583 2,292 1,681
Provision for loan 47 1,130 234 940 (563)
losses
General and
administrative 1,057 861 905 686 816
expenses
Total other expenses 9,753 7,946 3,722 3,918 1,934
Income (loss) before 158,002 51,644 18,870 8,784 (107,544)
income taxes
Income taxes - - 1 (3) 12
Net income (loss) $ 158,002 $ 51,644 $ 18,869 $ 8,787 ($
107,556)
Net income (loss)
per share - basic $ 0.24 $ 0.10 $ 0.11 $ 0.07 ($ 2.76)
and diluted
Weighted average
number of shares 670,324,864 503,110,132 177,196,959 135,115,190 38,992,893
outstanding - basic
and diluted
Comprehensive income
(loss):
Net income (loss) $ 158,002 $ 51,644 $ 18,869 $ 8,787 ($
107,556)
Other comprehensive
income (loss):
Unrealized gain
(loss) on 238,969 39,501 13,590 (128,361) (146,456)
available-for-sale
securities
Reclassification
adjustment for net
losses included in
net income for 2,185 6,495 - - -
other-than
-temporary
impairments
Reclassification
adjustment for
realized (gains) (74,447) (9,321) (3,627) - 113,130
losses included in
net income
Other comprehensive 166,707 36,675 9,963 (128,361) (33,326)
income (loss)
Comprehensive income $ 324,709 $ 88,319 $ 28,832 ($ 119,574) ($
(loss ) 140,882)
Source: Chimera Investment Corporation
Released November 2, 2009