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: September 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 September 30, 2019
Common Stock, $0.01 par value	187,158,540

CHIMERA INVESTMENT CORPORATION



Part I. FINANCIAL INFORMATION



Item 1. Consolidated Financial Statements:

Consolidated Statements of Financial Condition as of September 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 nine months ended September 30, 2019 and 2018	3

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

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

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 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	65

Item 4. Controls and Procedures	69



Part II. OTHER INFORMATION



Item 1. Legal Proceedings	70

Item 1A. Risk Factors	70

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	70

Item 6. Exhibits	70

SIGNATURES	72

Item 1. Consolidated Financial Statements



CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share and per share data)
(Unaudited)
	September 30, 2019			December 31, 2018
Cash and cash equivalents	$	160,894		$	47,486
Non-Agency RMBS, at fair value	2,649,834			2,486,130
Agency MBS, at fair value	11,615,323			12,188,950
Loans held for investment, at fair value	13,101,728			12,572,581
Accrued interest receivable	125,601			123,442
Other assets	973,681			252,582
Derivatives, at fair value, net	5,228			37,468
Total assets ⁽¹⁾	$	28,632,289		$	27,708,639
Liabilities:
Repurchase agreements ($17.0 billion and $15.8 billion pledged as collateral, respectively)	$	15,002,106		$	14,030,465
Securitized debt, collateralized by Non-Agency RMBS ($612 million and $1.0 billion pledged as collateral, respectively)	139,163			159,955
Securitized debt at fair value, collateralized by loans held for investment ($11.5 billion and $12.3 billion pledged as collateral, respectively)	7,800,786			8,455,376
Payable for investments purchased	1,484,572			1,136,157
Accrued interest payable	81,232			110,402
Dividends payable	98,006			95,986
Accounts payable and other liabilities	31,380			16,469
Total liabilities ⁽¹⁾	$	24,637,245		$	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, 187,158,540 and 187,052,398 shares issued and outstanding, respectively	1,872			1,871
Additional paid-in-capital	4,274,721			4,072,093
Accumulated other comprehensive income	769,070			626,832
Cumulative earnings	3,662,722			3,379,489
Cumulative distributions to stockholders	(4,713,713		)	(4,376,748		)
Total stockholders' equity	$	3,995,044		$	3,703,829
Total liabilities and stockholders' equity	$	28,632,289		$	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 September 30, 2019 and December 31, 2018, total assets of consolidated VIEs were $12,356,439 and $13,392,951, respectively, and total liabilities of consolidated VIEs were $7,972,942 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 Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net interest income:
Interest income ⁽¹⁾	$	330,144		$	321,715		$	1,020,448		$	925,282
Interest expense ⁽²⁾	188,551			174,671			589,611			485,189
Net interest income	141,593			147,044			430,837			440,093
Other-than-temporary impairments:
Total other-than-temporary impairment losses	—			(772		)	(801		)	(1,871		)
Portion of loss recognized in other comprehensive income	—			(6,461		)	(4,052		)	(15,651		)
Net other-than-temporary credit impairment losses	—			(7,233		)	(4,853		)	(17,522		)
Other investment gains (losses):
Net unrealized gains (losses) on derivatives	31,620			71,197			(189,865		)	178,511
Realized gains (losses) on terminations of interest rate swaps	(148,114		)	—			(351,372		)	—
Net realized gains (losses) on derivatives	(20,178		)	2,881			(37,151		)	14,573
Net gains (losses) on derivatives	(136,672		)	74,078			(578,388		)	193,084
Net unrealized gains (losses) on financial instruments at fair value	130,825			(34,306		)	522,386			(38,204		)
Net realized gains (losses) on sales of investments	1,596			(6,123		)	2,673			(3,956		)
Gains (losses) on extinguishment of debt	—			9,263			(608		)	19,320
Total other gains (losses)	(4,251		)	42,912			(53,937		)	170,244

Other expenses:
Compensation and benefits	12,191			8,642			38,675			25,741
General and administrative expenses	6,528			5,576			18,569			16,351
Servicing fees	8,881			9,766			27,125			31,044
Transaction expenses	3,415			1,411			4,289			5,168
Total other expenses	31,015			25,395			88,658			78,304
Income (loss) before income taxes	106,327			157,328			283,389			514,511
Income taxes	1			7			156			76
Net income (loss)	$	106,326		$	157,321		$	283,233		$	514,435

Dividends on preferred stock	18,438			9,960			54,267			28,760

Net income (loss) available to common shareholders	$	87,888		$	147,361		$	228,966		$	485,675

Net income (loss) per share available to common shareholders:
Basic	$	0.47		$	0.79		$	1.22		$	2.59
Diluted	$	0.47		$	0.79		$	1.22		$	2.59

Weighted average number of common shares outstanding:
Basic	187,158,167			187,006,777			187,141,377			187,182,932
Diluted	188,440,171			187,584,958			188,331,109			187,705,831

(1) Includes interest income of consolidated VIEs of $192,622 and $223,948 for the quarters ended September 30, 2019 and 2018, respectively, and $600,436 and $688,720 for the nine months ended September 30, 2019 and 2018, respectively. See Note 8 to consolidated financial statements for further discussion.

(2) Includes interest expense of consolidated VIEs of $82,234 and $99,622 for the quarters ended September 30, 2019 and 2018, respectively, and $260,790 and $298,744 for the nine months ended September 30, 2019 and 2018, respectively. 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 Nine Months Ended
	September 30, 2019		September 30, 2018			September 30, 2019		September 30, 2018
Comprehensive income (loss):
Net income (loss)	$	106,326	$	157,321		$	283,233	$	514,435
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net	29,980		(50,728		)	115,198		(181,885		)
Reclassification adjustment for net losses included in net income for other-than-temporary credit impairment losses	—		7,233			4,853		17,522
Reclassification adjustment for net realized losses (gains) included in net income	—		(220		)	22,187		(4,603		)
Other comprehensive income (loss)	29,980		(43,715		)	142,238		(168,966		)
Comprehensive income (loss) before preferred stock dividends	$	136,306	$	113,606		$	425,471	$	345,469
Dividends on preferred stock	$	18,438	$	9,960		$	54,267	$	28,760
Comprehensive income (loss) available to common stock shareholders	$	117,868	$	103,646		$	371,204	$	316,709



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

For the Quarter Ended September 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, June 30, 2019	$	58	$	130	$	104	$	80	$	1,872	$	4,272,001	$	739,090		$	3,556,396	$	(4,600,781	)	$	3,968,950
Net income (loss)	—		—		—		—		—		—		—			106,326		—			106,326
Other comprehensive income (loss)	—		—		—		—		—		—		29,980			—		—			29,980
Stock based compensation	—		—		—		—		—		2,720		—			—		—			2,720
Common dividends declared	—		—		—		—		—		—		—			—		(94,494		)	(94,494		)
Preferred dividends declared	—		—		—		—		—		—		—			—		(18,438		)	(18,438		)
Balance, September 30, 2019	$	58	$	130	$	104	$	80	$	1,872	$	4,274,721	$	769,070		$	3,662,722	$	(4,713,713	)	$	3,995,044

For the Quarter Ended September 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, June 30, 2018	$	58	$	130	$	—	$	—	$	1,870	$	3,816,631	$	671,651		$	3,324,966	$	(4,165,166	)	$	3,650,140
Net income (loss)	—		—		—		—		—		—		—			157,321		—			157,321
Other comprehensive income (loss)	—		—		—		—		—		—		(43,715		)	—		—			(43,715		)
Stock based compensation	—		—		—		—		—		1,805		—			—		—			1,805
Common dividends declared	—		—		—		—		—		—		—			—		(93,946		)	(93,946		)
Preferred dividends declared	—		—		—		—		—		—		—			—		(9,960		)	(9,960		)
Issuance of preferred stock	—		—		104		—		—		251,432		—			—		—			251,536
Balance, September 30, 2018	$	58	$	130	$	104	$	—	$	1,870	$	4,069,868	$	627,936		$	3,482,287	$	(4,269,072	)	$	3,913,181

For the Nine Months Ended September 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)	—		—		—		—		—		—		—			283,233		—			283,233
Other comprehensive income (loss)	—		—		—		—		—		—		142,238			—		—			142,238
Stock based compensation	—		—		—		—		1		9,340		—			—		—			9,341
Common dividends declared	—		—		—		—		—		—		—			—		(282,698		)	(282,698		)
Preferred dividends declared	—		—		—		—		—		—		—			—		(54,267		)	(54,267		)
Issuance of preferred stock	—		—		—		80		—		193,288		—			—		—			193,368
Balance, September 30, 2019	$	58	$	130	$	104	$	80	$	1,872	$	4,274,721	$	769,070		$	3,662,722	$	(4,713,713	)	$	3,995,044




For the Nine Months Ended September 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)	—		—		—		—		—			—			—			514,435		—			514,435
Other comprehensive income (loss)	—		—		—		—		—			—			(168,966		)	—		—			(168,966		)
Repurchase of common stock	—		—		—		—		(8		)	(14,826		)	—			—		—			(14,834		)
Stock based compensation	—		—		—		—		—			6,571