cim-20200930

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, 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

(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 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 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 “large accelerated filer,” “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 October 31, 2020
Common Stock, $0.01 par value			233,730,629

CHIMERA INVESTMENT CORPORATION


Part I. FINANCIAL INFORMATION



Item 1. Consolidated Financial Statements:

Consolidated Statements of Financial Condition as of September 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 nine months ended September 30, 2020 and 2019			4

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

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

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 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			77



Part II. OTHER INFORMATION



Item 1. Legal Proceedings			77

Item 1A. Risk Factors			77

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			77

Item 6. Exhibits			78

SIGNATURES			80

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, 2020		December 31, 2019

Cash and cash equivalents	$	325,717	$	109,878
Non-Agency RMBS, at fair value (net of allowance for credit losses of $167 thousand and $0 thousand, respectively)	2,218,289		2,614,408
Agency RMBS, at fair value	99,988		6,490,293
Agency CMBS, at fair value	1,754,740		2,850,717
Loans held for investment, at fair value	13,533,252		14,292,815
Receivable for investments sold	—		446,225
Accrued interest receivable	86,727		116,423
Other assets	75,155		194,301
Derivatives, at fair value, net	—		3,611
Total assets (1)	$	18,093,868	$	27,118,671
Liabilities:
Secured financing agreements ($6.7 billion and $15.4 billion pledged as collateral, respectively)	$	4,700,037	$	13,427,545
Securitized debt, collateralized by Non-Agency RMBS ($528 million and $598 million pledged as collateral, respectively)	117,904		133,557
Securitized debt at fair value, collateralized by loans held for investment ($12.4 billion and $12.1 billion pledged as collateral, respectively)	8,757,449		8,179,608
Long term debt	70,641		—
Payable for investments purchased	614,583		1,256,337
Accrued interest payable	36,451		63,600
Dividends payable	76,362		98,568
Accounts payable and other liabilities	23,899		6,163

Total liabilities (1)	$	14,397,326	$	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, 232,190,087 and 187,226,081 shares issued and outstanding, respectively	2,322		1,873
Additional paid-in-capital	4,517,819		4,275,963
Accumulated other comprehensive income	554,981		708,336
Cumulative earnings	3,734,659		3,793,040
Cumulative distributions to stockholders	(5,113,611)		(4,826,291)
Total stockholders' equity	$	3,696,542	$	3,953,293
Total liabilities and stockholders' equity	$	18,093,868	$	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 September 30, 2020, and December 31, 2019, total

assets of consolidated VIEs were $12,795,729 and $12,544,744, respectively, and total liabilities of consolidated VIEs were $8,660,123 and $8,064,235, respectively. See Note 9 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, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Net interest income:
Interest income (1)	$	247,905	$	330,144	$	794,094	$	1,020,448
Interest expense (2)	124,557		188,551		395,897		589,611
Net interest income	123,348		141,593		398,197		430,837

Increase/(decrease) in provision for credit losses	(1,650)		—		167		—





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


Other investment gains (losses):
Net unrealized gains (losses) on derivatives	—		31,620		201,000		(189,865)
Realized gains (losses) on terminations of interest rate swaps	—		(148,114)		(463,966)		(351,372)
Net realized gains (losses) on derivatives	—		(20,178)		(41,086)		(37,151)
Net gains (losses) on derivatives	—		(136,672)		(304,052)		(578,388)
Net unrealized gains (losses) on financial instruments at fair value	260,766		130,825		(172,042)		522,386
Net realized gains (losses) on sales of investments	65,041		1,596		167,275		2,673

Gains (losses) on extinguishment of debt	(55,794)		—		(55,338)		(608)
Total other gains (losses)	270,013		(4,251)		(364,157)		(53,937)





Other expenses:




Compensation and benefits	10,287		12,191		33,476		38,675
General and administrative expenses	6,811		6,528		19,050		18,569
Servicing fees	8,898		8,881		28,359		27,125
Transaction expenses	1,624		3,415		11,239		4,289
Total other expenses	27,620		31,015		92,124		88,658
Income (loss) before income taxes	367,391		106,327		(58,251)		283,389
Income taxes	62		1		130		156
Net income (loss)	$	367,329	$	106,326	$	(58,381)	$	283,233

Dividends on preferred stock	18,438		18,438		55,313		54,267

Net income (loss) available to common shareholders	$	348,891	$	87,888	$	(113,694)	$	228,966

Net income (loss) per share available to common shareholders:
Basic	$	1.50	$	0.47	$	(0.55)	$	1.22
Diluted	$	1.32	$	0.47	$	(0.55)	$	1.22

Weighted average number of common shares outstanding:
Basic	232,127,224		187,158,167		206,237,705		187,141,377
Diluted	265,346,359		188,440,171		206,237,705		188,331,109

(1) Includes interest income of consolidated VIEs of $171,442 and $192,622 for the quarters ended September 30, 2020 and 2019, respectively and $515,250 and $600,436 for the nine months ended September 30, 2020 and 2019, respectively. See Note 9 to consolidated financial statements for further discussion.

(2) Includes interest expense of consolidated VIEs of $74,753 and $82,234 for the quarters ended September 30, 2020 and 2019, respectively and $210,198 and $260,790 for the nine months ended September 30, 2020 and 2019, respectively. See Note 9 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, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Comprehensive income (loss):
Net income (loss)	$	367,329	$	106,326	$	(58,381)	$	283,233
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net (1)	40,470		29,980		(97,334)		115,198

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	(22,999)		—		(56,021)		22,187

Other comprehensive income (loss)	17,471		29,980		(153,355)		142,238
Comprehensive income (loss) before preferred stock dividends	$	384,800	$	136,306	$	(211,736)	$	425,471
Dividends on preferred stock	$	18,438	$	18,438	$	55,313	$	54,267
Comprehensive income (loss) available to common stock shareholders	$	366,362	$	117,868	$	(267,049)	$	371,204

(1) Quarter ended and nine months ended September 30, 2020 amounts includes $150 thousand 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 September 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, June 30, 2020	$	58	$	130	$	104	$	80	$	2,320	$	4,515,043	$	537,510	$	3,367,330	$	(5,026,696)	$	3,395,879
Net income (loss)	—		—		—		—		—		—		—		367,329		—		367,329
Other comprehensive income (loss)	—		—		—		—		—		—		17,471		—		—		17,471

Settlement of Convertible Debt	—		—		—		—		2		1,198		—		—		—		1,200

Stock based compensation	—		—		—		—		—		1,578		—		—		—		1,578
Common dividends declared	—		—		—		—		—		—		—		—		(68,477)		(68,477)
Preferred dividends declared	—		—		—		—		—		—		—		—		(18,438)		(18,438)

Balance, September 30, 2020	$	58	$	130	$	104	$	80	$	2,322	$	4,517,819	$	554,981	$	3,734,659	$	(5,113,611)	$	3,696,542




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 Nine Months Ended September 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)	—		—		—		—		—		—		—		(58,381)		—		(58,381)
Other comprehensive income (loss)	—		—		—		—		—		—		(153,355)		—		—		(153,355)
Repurchase of common stock	—		—		—		—		(15)		(22,051)		—		—		—		(22,066)
Settlement of Convertible Debt	—		—		—		—		463		293,546		—		—		—		294,009
Purchase of Capped Call	—		—		—		—		—		(33,750)		—		—		—		(33,750)
Stock based compensation	—		—		—		—		1		4,111		—		—		—		4,112
Common dividends declared	—		—		—		—		—		—		—		—		(232,007)		(232,007)
Preferred dividends declared	—		—		—		—		—		—		—		—		(55,313)		(55,313)

Balance, September 30, 2020	$	58	$	130	$	104	$	80	$	2,322	$	4,517,819	$	554,981	$	3,734,659	$	(5,113,611)	$	3,696,542


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