Document

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _______________ TO _________________

COMMISSION FILE NUMBER: 1-33796

CHIMERA INVESTMENT CORPORATION

(Exact name of Registrant as specified in its Charter)



Maryland		26-0630461
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

520 Madison Avenue 32nd Floor

(Address of principal executive offices)

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share	CIM	New York Stock Exchange
8.00% Series A Cumulative Redeemable Preferred Stock	CIM PRA	New York Stock Exchange
8.00% Series B Cumulative Fixed-to-Floating Rate Redeemable Preferred Stock	CIM PRB	New York Stock Exchange
7.75% Series C Cumulative Fixed-to-Floating Rate Redeemable Preferred Stock	CIM PRC	New York Stock Exchange
8.00% Series D Cumulative Fixed-to-Floating Rate Redeemable Preferred Stock	CIM PRD	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:



Class	Outstanding at June 30, 2019
Common Stock, $0.01 par value	187,157,432

CHIMERA INVESTMENT CORPORATION



Part I. FINANCIAL INFORMATION



Item 1. Consolidated Financial Statements:

Consolidated Statements of Financial Condition as of June 30, 2019 (Unaudited) and December 31, 2018 (Derived from the audited consolidated financial statements as of December 31, 2018)	2

Consolidated Statements of Operations (Unaudited) for the quarters and six months ended June 30, 2019 and 2018	3

Consolidated Statements of Comprehensive Income (Unaudited) for the quarters and six months ended June 30, 2019 and 2018	4

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the quarters and six months ended June 30, 2019 and 2018	5

Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2019 and 2018	7

Notes to Consolidated Financial Statements (Unaudited)	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

Item 3. Quantitative and Qualitative Disclosures about Market Risk	64

Item 4. Controls and Procedures	68



Part II. OTHER INFORMATION



Item 1. Legal Proceedings	68

Item 1A. Risk Factors	68

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 6. Exhibits	69

SIGNATURES	71

Item 1. Consolidated Financial Statements



CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share and per share data)
(Unaudited)
	June 30, 2019			December 31, 2018
Cash and cash equivalents	$	54,034		$	47,486
Non-Agency RMBS, at fair value	2,699,367			2,486,130
Agency MBS, at fair value	12,154,575			12,188,950
Loans held for investment, at fair value	12,301,263			12,572,581
Receivable for investments sold	75,059			—
Accrued interest receivable	121,393			123,442
Other assets	231,828			252,582
Derivatives, at fair value, net	211			37,468
Total assets ⁽¹⁾	$	27,637,730		$	27,708,639
Liabilities:
Repurchase agreements ($16.4 billion and $15.8 billion pledged as collateral, respectively)	$	14,514,719		$	14,030,465
Securitized debt, collateralized by Non-Agency RMBS ($962 million and $1.0 billion pledged as collateral, respectively)	145,130			159,955
Securitized debt at fair value, collateralized by loans held for investment ($11.5 billion and $12.3 billion pledged as collateral, respectively)	7,881,087			8,455,376
Payable for investments purchased	921,507			1,136,157
Accrued interest payable	84,234			110,402
Dividends payable	97,091			95,986
Accounts payable and other liabilities	25,012			16,469
Total liabilities ⁽¹⁾	$	23,668,780		$	24,004,810

Commitments and Contingencies (See Note 15)

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 shares issued and outstanding, respectively ($325,000 liquidation preference)	130			130
7.75% Series C cumulative redeemable: 10,400,000 shares issued and outstanding, respectively ($260,000 liquidation preference)	104			104
8.00% Series D cumulative redeemable: 8,000,000 and 0 shares issued and outstanding, respectively ($200,000 liquidation preference)	80			—
Common stock: par value $0.01 per share; 500,000,000 and 300,000,000 shares authorized, 187,157,432 and 187,052,398 shares issued and outstanding, respectively	1,872			1,871
Additional paid-in-capital	4,272,001			4,072,093
Accumulated other comprehensive income	739,090			626,832
Cumulative earnings	3,556,396			3,379,489
Cumulative distributions to stockholders	(4,600,781		)	(4,376,748		)
Total stockholders' equity	$	3,968,950		$	3,703,829
Total liabilities and stockholders' equity	$	27,637,730		$	27,708,639

(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 June 30, 2019 and December 31, 2018, total assets of consolidated VIEs were $12,715,740 and $13,392,951, respectively, and total liabilities of consolidated VIEs were $8,060,256 and $8,652,158, respectively. See Note 8 for further discussion.

See accompanying notes to consolidated financial statements.



CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share data)
(Unaudited)
	For the Quarters Ended						For the Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Net interest income:
Interest income ⁽¹⁾	$	339,914		$	306,436		$	690,303		$	603,567
Interest expense ⁽²⁾	198,110			161,266			401,060			310,518
Net interest income	141,804			145,170			289,243			293,049
Other-than-temporary impairments:
Total other-than-temporary impairment losses	—			(805		)	(801		)	(1,099		)
Portion of loss recognized in other comprehensive income	—			(8,326		)	(4,052		)	(9,190		)
Net other-than-temporary credit impairment losses	—			(9,131		)	(4,853		)	(10,289		)
Other investment gains (losses):
Net unrealized gains (losses) on derivatives	(132,171		)	25,895			(221,486		)	107,314
Realized gains (losses) on terminations of interest rate swaps	(95,211		)	—			(203,257		)	—
Net realized gains (losses) on derivatives	(9,697		)	(1,393		)	(16,974		)	11,693
Net gains (losses) on derivatives	(237,079		)	24,502			(441,717		)	119,007
Net unrealized gains (losses) on financial instruments at fair value	190,748			(18,364		)	391,561			(3,898		)
Net realized gains (losses) on sales of investments	(7,526		)	2,167			1,077			2,167
Gains (losses) on extinguishment of debt	(608		)	387			(608		)	10,057
Total other gains (losses)	(54,465		)	8,692			(49,687		)	127,333

Other expenses:
Compensation and benefits	12,114			8,689			26,484			17,100
General and administrative expenses	7,030			5,860			12,914			11,349
Servicing fees	9,280			9,943			18,243			21,277
Deal expenses	—			2,095			—			3,183
Total other expenses	28,424			26,587			57,641			52,909
Income (loss) before income taxes	58,915			118,144			177,062			357,184
Income taxes	155			36			155			68
Net income (loss)	$	58,760		$	118,108		$	176,907		$	357,116

Dividends on preferred stock	18,438			9,400			35,829			18,800

Net income (loss) available to common shareholders	$	40,322		$	108,708		$	141,078		$	338,316

Net income (loss) per share available to common shareholders:
Basic	$	0.22		$	0.58		$	0.75		$	1.81
Diluted	$	0.21		$	0.58		$	0.75		$	1.80

Weighted average number of common shares outstanding:
Basic	187,153,007			186,994,743			187,132,842			187,272,469
Diluted	188,271,483			187,422,145			188,254,266			187,738,443

(1) Includes interest income of consolidated VIEs of $200,703 and $229,746 for the quarters ended June 30, 2019 and 2018, respectively and $407,814 and $464,772 for the six months ended June 30, 2019 and 2018. See Note 8 to consolidated financial statements for further discussion.

(2) Includes interest expense of consolidated VIEs of $87,529 and $99,507 for the quarters ended June 30, 2019 and 2018, respectively and $178,556 and $199,121 for the six months ended June 30, 2019 and 2018. See Note 8 to consolidated financial statements for further discussion.

See accompanying notes to consolidated financial statements.



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 Six Months Ended
	June 30, 2019		June 30, 2018			June 30, 2019		June 30, 2018
Comprehensive income (loss):
Net income (loss)	$	58,760	$	118,108		$	176,907	$	357,116
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net	58,833		(42,341		)	85,218		(131,157		)
Reclassification adjustment for net losses included in net income for other-than-temporary credit impairment losses	—		9,131			4,853		10,289
Reclassification adjustment for net realized losses (gains) included in net income	7,269		(4,383		)	22,187		(4,383		)
Other comprehensive income (loss)	66,102		(37,593		)	112,258		(125,251		)
Comprehensive income (loss) before preferred stock dividends	$	124,862	$	80,515		$	289,165	$	231,865
Dividends on preferred stock	$	18,438	$	9,400		$	35,829	$	18,800
Comprehensive income (loss) available to common stock shareholders	$	106,424	$	71,115		$	253,336	$	213,065



CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
(Unaudited)

For the Quarter Ended June 30, 2019
	Series A Preferred Stock Par Value		Series B Preferred Stock Par Value		Series C Preferred Stock Par Value		Series D Preferred Stock Par Value		Common Stock Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income			Cumulative Earnings		Cumulative Distributions to Stockholders			Total
Balance, March 31, 2019	$	58	$	130	$	104	$	80	$	1,871	$	4,268,063	$	672,988		$	3,497,636	$	(4,487,753	)	$	3,953,177
Net income (loss)	—		—		—		—		—		—		—			58,760		—			58,760
Other comprehensive income (loss)	—		—		—		—		—		—		66,102			—		—			66,102
Stock based compensation	—		—		—		—		1		3,938		—			—		—			3,939
Common dividends declared	—		—		—		—		—		—		—			—		(94,590		)	(94,590		)
Preferred dividends declared	—		—		—		—		—		—		—			—		(18,438		)	(18,438		)
Balance, June 30, 2019	$	58	$	130	$	104	$	80	$	1,872	$	4,272,001	$	739,090		$	3,556,396	$	(4,600,781	)	$	3,968,950

For the Quarter Ended June 30, 2018
	Series A Preferred Stock Par Value		Series B Preferred Stock Par Value		Series C Preferred Stock Par Value		Series D Preferred Stock Par Value		Common Stock Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income			Cumulative Earnings		Cumulative Distributions to Stockholders			Total
Balance, March 31, 2018	$	58	$	130	$	—	$	—	$	1,870	$	3,814,391	$	709,244		$	3,206,860	$	(4,061,809	)	$	3,670,744
Net income (loss)	—		—		—		—		—		—		—			118,108		—			118,108
Other comprehensive income (loss)	—		—		—		—		—		—		(37,593		)	—		—			(37,593		)
Stock based compensation	—		—		—		—		—		2,240		—			—		—			2,240
Common dividends declared	—		—		—		—		—		—		—			—		(93,957		)	(93,957		)
Preferred dividends declared	—		—		—		—		—		—		—			—		(9,400		)	(9,400		)
Balance, June 30, 2018	$	58	$	130	$	—	$	—	$	1,870	$	3,816,631	$	671,651		$	3,324,968	$	(4,165,166	)	$	3,650,142

For the Six Months Ended June 30, 2019
	Series A Preferred Stock Par Value		Series B Preferred Stock Par Value		Series C Preferred Stock Par Value		Series D Preferred Stock Par Value		Common Stock Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income			Cumulative Earnings		Cumulative Distributions to Stockholders			Total
Balance, December 31, 2018	$	58	$	130	$	104	$	—	$	1,871	$	4,072,093	$	626,832		$	3,379,489	$	(4,376,748	)	$	3,703,829
Net income (loss)	—		—		—		—		—		—		—			176,907		—			176,907
Other comprehensive income (loss)	—		—		—		—		—		—		112,258			—		—			112,258
Stock based compensation	—		—		—		—		1		6,620		—			—		—			6,621
Common dividends declared	—		—		—		—		—		—		—			—		(188,204		)	(188,204		)
Preferred dividends declared	—		—		—		—		—		—		—			—		(35,829		)	(35,829		)
Issuance of preferred stock	—		—		—		80		—		193,288		—			—		—			193,368
Balance, June 30, 2019	$	58	$	130	$	104	$	80	$	1,872	$	4,272,001	$	739,090		$	3,556,396	$	(4,600,781	)	$	3,968,950



For the Six Months Ended June 30, 2018
	Series A Preferred Stock Par Value		Series B Preferred Stock Par Value		Series C Preferred Stock Par Value		Series D Preferred Stock Par Value		Common Stock Par Value			Additional Paid-in Capital			Accumulated Other Comprehensive Income			Cumulative Earnings		Cumulative Distributions to Stockholders			Total
Balance, December 31, 2017	$	58	$	130	$	—	$	—	$	1,878		$	3,826,691		$	796,902		$	2,967,852	$	(3,958,534	)	$	3,634,977
Net income (loss)	—		—		—		—		—			—			—			357,116		—			357,116
Other comprehensive income (loss)	—		—		—		—		—			—			(125,251		)	—		—			(125,251		)
Repurchase of common stock	—		—		—		—		(8		)	(14,826		)	—			—		—			(14,834		)
Stock based compensation	—		—		—		—		—			4,766			—			—		—			4,766
Common dividends declared	—		—		—		—		—			—			—			—		(187,832		)	(187,832		)
Preferred dividends declared	—		—		—		—		—			—			—			—		(18,800		)	(18,800		)
Balance, June 30, 2018	$	58	$	130	$	—	$	—	$	1,870		$	3,816,631		$	671,651		$	3,324,968	$	(4,165,166	)	$	3,650,142

See accompanying notes to consolidated financial statements.