Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: June 30, 2020

☐ 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

New York, New York

(Address of principal executive offices)

10022

(Zip Code)

(212) 626-2300

(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:

Yes þ No ☐

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).

Yes þ No ☐

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)

Yes ☐ No þ

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 July 31, 2020
Common Stock, $0.01 par value	232,020,857

CHIMERA INVESTMENT CORPORATION

FORM 10-Q

TABLE OF CONTENTS



Part I. FINANCIAL INFORMATION



Item 1. Consolidated Financial Statements:

Consolidated Statements of Financial Condition as of June 30, 2020 (Unaudited) and December 31, 2019 (Derived from the audited consolidated financial statements as of December 31, 2019)	2

Consolidated Statements of Operations (Unaudited) for the quarters and six months ended June 30, 2020 and 2019	4

Consolidated Statements of Comprehensive Income (Unaudited) for the quarters and six months ended June 30, 2020 and 2019	5

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the quarters and six months ended June 30, 2020 and 2019	6

Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2020 and 2019	8

Notes to Consolidated Financial Statements (Unaudited)	10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	47

Item 3. Quantitative and Qualitative Disclosures about Market Risk	70

Item 4. Controls and Procedures	76



Part II. OTHER INFORMATION



Item 1. Legal Proceedings	76

Item 1A. Risk Factors	76

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	76

Item 6. Exhibits	77

SIGNATURES	80

Part I

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, 2020			December 31, 2019
Cash and cash equivalents	$	302,553		$	109,878
Non-Agency RMBS, at fair value (net of allowance for credit losses of $2 million and $0 million, respectively)	2,184,170			2,614,408
Agency RMBS, at fair value	107,263			6,490,293
Agency CMBS, at fair value	2,612,344			2,850,717
Loans held for investment, at fair value	13,036,833			14,292,815
Receivable for investments sold	—			446,225
Accrued interest receivable	89,387			116,423
Other assets	115,601			194,301
Derivatives, at fair value, net	—			3,611
Total assets ⁽¹⁾	$	18,448,151		$	27,118,671
Liabilities:
Secured financing agreements ($7.8 billion and $15.4 billion pledged as collateral, respectively)	$	5,944,201		$	13,427,545
Securitized debt, collateralized by Non-Agency RMBS ($524 million and $598 million pledged as collateral, respectively)	124,414			133,557
Securitized debt at fair value, collateralized by loans held for investment ($12.2 billion and $12.1 billion pledged as collateral, respectively)	8,530,111			8,179,608
Long Term Debt	71,600			—
Payable for investments purchased	246,770			1,256,337
Accrued interest payable	41,336			63,600
Dividends payable	75,554			98,568
Accounts payable and other liabilities	18,286			6,163
Total liabilities ⁽¹⁾	$	15,052,272		$	23,165,378

Commitments and Contingencies (See Note 16)

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 shares issued and outstanding, respectively ($200,000 liquidation preference)	80			80
Common stock: par value $0.01 per share; 500,000,000 shares authorized, 232,003,526 and 187,226,081 shares issued and outstanding, respectively	2,320			1,873
Additional paid-in-capital	4,515,043			4,275,963
Accumulated other comprehensive income	537,510			708,336
Cumulative earnings	3,367,330			3,793,040
Cumulative distributions to stockholders	(5,026,696		)	(4,826,291		)
Total stockholders' equity	$	3,395,879		$	3,953,293
Total liabilities and stockholders' equity	$	18,448,151		$	27,118,671

(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, 2020, and December 31, 2019, total assets

of consolidated VIEs were $12,578,835 and $12,544,744, respectively, and total liabilities of consolidated VIEs were $8,431,077 and $8,064,235, 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, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Net interest income:
Interest income ⁽¹⁾	$	245,922		$	339,914		$	546,189		$	690,303
Interest expense ⁽²⁾	129,256			198,110			271,339			401,060
Net interest income	116,666			141,804			274,850			289,243

Increase/(decrease) in provision for credit losses	(4,497		)	—			1,817			—

Net other-than-temporary credit impairment losses	—			—			—			(4,853		)

Other investment gains (losses):
Net unrealized gains (losses) on derivatives	—			(132,171		)	201,000			(221,486		)
Realized gains (losses) on terminations of interest rate swaps	—			(95,211		)	(463,966		)	(203,257		)
Net realized gains (losses) on derivatives	—			(9,697		)	(41,086		)	(16,974		)
Net gains (losses) on derivatives	—			(237,079		)	(304,052		)	(441,717		)
Net unrealized gains (losses) on financial instruments at fair value	(171,921		)	190,748			(432,809		)	391,561
Net realized gains (losses) on sales of investments	26,380			(7,526		)	102,234			1,077
Gains (losses) on extinguishment of debt	459			(608		)	459			(608		)
Total other gains (losses)	(145,082		)	(54,465		)	(634,168		)	(49,687		)

Other expenses:
Compensation and benefits	10,255			12,114			23,190			26,484
General and administrative expenses	6,562			6,217			12,239			12,019
Servicing fees	9,473			9,280			19,462			18,243
Transaction expenses	4,710			813			9,616			895
Total other expenses	31,000			28,424			64,507			57,641
Income (loss) before income taxes	(54,919		)	58,915			(425,642		)	177,062
Income taxes	36			155			68			155
Net income (loss)	$	(54,955	)	$	58,760		$	(425,710	)	$	176,907

Dividends on preferred stock	18,438			18,438			36,875			35,829

Net income (loss) available to common shareholders	$	(73,393	)	$	40,322		$	(462,585	)	$	141,078

Net income (loss) per share available to common shareholders:
Basic	$	(0.37	)	$	0.22		$	(2.39	)	$	0.75
Diluted	$	(0.37	)	$	0.21		$	(2.39	)	$	0.75

Weighted average number of common shares outstanding:
Basic	199,282,790			187,153,007			193,150,696			187,132,842
Diluted	199,282,790			188,271,483			193,150,696			188,254,266

(1) Includes interest income of consolidated VIEs of $169,127 and $200,703 for the quarters ended June 30, 2020 and 2019, respectively and $343,809 and $407,814 for the six months ended June 30, 2020 and 2019, respectively. See Note 8 to consolidated financial statements for further discussion.

(2) Includes interest expense of consolidated VIEs of $70,816 and $87,529 for the quarters ended June 30, 2020 and 2019, respectively and $135,445 and $178,556 for the six months ended June 30, 2020 and 2019, 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 Six Months Ended
	June 30, 2020			June 30, 2019		June 30, 2020			June 30, 2019
Comprehensive income (loss):
Net income (loss)	$	(54,955	)	$	58,760	$	(425,710	)	$	176,907
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net⁽¹⁾	61,399			58,833		(137,805		)	85,218
Reclassification adjustment for net losses included in net income for other-than-temporary credit impairment losses	—			—		—			4,853
Reclassification adjustment for net realized losses (gains) included in net income	(26,380		)	7,269		(33,021		)	22,187
Other comprehensive income (loss)	35,019			66,102		(170,826		)	112,258
Comprehensive income (loss) before preferred stock dividends	$	(19,936	)	$	124,862	$	(596,536	)	$	289,165
Dividends on preferred stock	$	18,438		$	18,438	$	36,875		$	35,829
Comprehensive income (loss) available to common stock shareholders	$	(38,374	)	$	106,424	$	(633,411	)	$	253,336

(1) Quarter ended and six months ended June 30, 2020 amounts includes $8 million and $15 million, respectively, of unrealized losses on AFS securities for which the Company has recognized an allowance for credit losses.



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

For the Quarter Ended June 30, 2020

	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, 2020	$	58	$	130	$	104	$	80	$	1,860		$	4,255,054		$	502,491		$	3,422,285		$	(4,938,208	)	$	3,243,854
Net income (loss)	—		—		—		—		—			—			—			(54,955		)	—			(54,955		)
Other comprehensive income (loss)	—		—		—		—		—			—			35,019			—			—			35,019
Settlement of Convertible Debt	—		—		—		—		460			292,349			—			—			—			292,809
Purchase of Capped Call	—		—		—		—		—			(33,750		)	—			—			—			(33,750		)
Stock based compensation	—		—		—		—		—			1,390			—			—			—			1,390
Common dividends declared	—		—		—		—		—			—			—			—			(70,050		)	(70,050		)
Preferred dividends declared	—		—		—		—		—			—			—			—			(18,438		)	(18,438		)
Balance, June 30, 2020	$	58	$	130	$	104	$	80	$	2,320		$	4,515,043		$	537,510		$	3,367,330		$	(5,026,696	)	$	3,395,879

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 Six Months Ended June 30, 2020

	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, 2019	$	58	$	130	$	104	$	80	$	1,873		$	4,275,963		$	708,336		$	3,793,040		$	(4,826,291	)	$	3,953,293
Net income (loss)	—		—		—		—		—			—			—			(425,710		)	—			(425,710		)
Other comprehensive income (loss)	—		—		—		—		—			—			(170,826		)	—			—			(170,826		)
Repurchase of common stock	—		—		—		—		(14		)	(22,052		)	—			—			—			(22,066		)
Settlement of Convertible Debt	—		—		—		—		460			292,349			—			—			—			292,809
Purchase of Capped Call	—		—		—		—		—			(33,750		)	—			—			—			(33,750		)
Stock based compensation	—		—		—		—		1			2,533			—			—			—			2,534
Common dividends declared	—		—		—		—		—			—			—			—			(163,530		)	(163,530		)
Preferred dividends declared	—		—		—		—		—			—			—			—			(36,875		)	(36,875		)
Balance, June 30, 2020	$	58	$	130	$	104	$	80	$	2,320		$	4,515,043		$