cim-20210331

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: March 31, 2021

☐ 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)

(888) 895-6557

(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:

Yes þ No ☐

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).

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 “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)

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 April 30, 2021
Common Stock, $0.01 par value			230,555,167

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 March 31, 2021 (Unaudited) and December 31, 2020 (Derived from the audited consolidated financial statements as of December 31, 2020)			2

Consolidated Statements of Operations (Unaudited) for the quarters ended March 31, 2021 and 2020			3

Consolidated Statements of Comprehensive Income (Unaudited) for the quarters ended March 31, 2021 and 2020			4

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the quarters ended March 31, 2021 and 2020			5

Consolidated Statements of Cash Flows (Unaudited) for the quarters ended March 31, 2021 and 2020			6

Notes to Consolidated Financial Statements (Unaudited)			8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			41

Item 3. Quantitative and Qualitative Disclosures about Market Risk			60

Item 4. Controls and Procedures			66



Part II. OTHER INFORMATION



Item 1. Legal Proceedings			66

Item 1A. Risk Factors			66

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			66

Item 6. Exhibits			67

SIGNATURES			69

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)
	March 31, 2021		December 31, 2020

Cash and cash equivalents	$	317,489	$	269,090
Non-Agency RMBS, at fair value (net of allowance for credit losses of $54 thousand and $180 thousand, respectively)	2,013,478		2,150,714
Agency RMBS, at fair value	86,354		90,738
Agency CMBS, at fair value	1,355,289		1,740,368
Loans held for investment, at fair value	12,808,012		13,112,129

Accrued interest receivable	77,562		81,158
Other assets	41,078		78,822

Total assets (1)	$	16,699,262	$	17,523,019
Liabilities:
Secured financing agreements ($5.7 billion and $6.7 billion pledged as collateral, respectively)	$	4,045,912	$	4,636,847
Securitized debt, collateralized by Non-Agency RMBS ($479 million and $505 million pledged as collateral, respectively)	107,367		113,433
Securitized debt at fair value, collateralized by loans held for investment ($12.1 billion and $12.4 billion pledged as collateral, respectively)	8,734,372		8,711,677
Long term debt	51,772		51,623
Payable for investments purchased	76,534		106,169
Accrued interest payable	24,855		40,950
Dividends payable	77,355		77,213
Accounts payable and other liabilities	14,597		5,721

Total liabilities (1)	$	13,132,764	$	13,743,633

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, 230,553,340 and 230,556,760 shares issued and outstanding, respectively	2,306		2,306
Additional paid-in-capital	4,320,419		4,538,029
Accumulated other comprehensive income	493,651		558,096
Cumulative earnings	4,039,485		3,881,894
Cumulative distributions to stockholders	(5,289,735)		(5,201,311)
Total stockholders' equity	$	3,566,498	$	3,779,386
Total liabilities and stockholders' equity	$	16,699,262	$	17,523,019

(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 March 31, 2021, and December 31, 2020, total assets of consolidated VIEs were $11,736,522 and $12,165,017, respectively, and total liabilities of consolidated VIEs were $8,113,248 and $8,063,110, 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
	March 31, 2021		March 31, 2020
Net interest income:
Interest income (1)	$	243,127	$	300,266
Interest expense (2)	108,066		142,083
Net interest income	135,061		158,183

Increase/(decrease) in provision for credit losses	(126)		6,314








Other investment gains (losses):
Net unrealized gains (losses) on derivatives	—		201,000
Realized gains (losses) on terminations of interest rate swaps	—		(463,966)
Net realized gains (losses) on derivatives	—		(41,086)
Net gains (losses) on derivatives	—		(304,052)
Net unrealized gains (losses) on financial instruments at fair value	270,012		(260,887)
Net realized gains (losses) on sales of investments	37,796		75,854

Gains (losses) on extinguishment of debt	(237,137)		—
Total other gains (losses)	70,671		(489,085)





Other expenses:




Compensation and benefits	13,439		12,934
General and administrative expenses	5,198		5,137
Servicing and asset manager fees	9,281		10,530
Transaction expenses	16,437		4,906
Total other expenses	44,355		33,507
Income (loss) before income taxes	161,503		(370,723)
Income taxes	3,912		32
Net income (loss)	$	157,591	$	(370,755)

Dividends on preferred stock	18,438		18,438

Net income (loss) available to common shareholders	$	139,153	$	(389,193)

Net income (loss) per share available to common shareholders:
Basic	$	0.60	$	(2.08)
Diluted	$	0.54	$	(2.08)

Weighted average number of common shares outstanding:
Basic	230,567,231		187,018,602
Diluted	261,435,081		187,018,602

(1) Includes interest income of consolidated VIEs of $158,100 and $174,681 for the quarters ended March 31, 2021 and 2020, respectively. See Note 9 to consolidated financial statements for further discussion.

(2) Includes interest expense of consolidated VIEs of $65,205 and $64,629 for the quarters ended March 31, 2021 and 2020, 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
	March 31, 2021		March 31, 2020
Comprehensive income (loss):
Net income (loss)	$	157,591	$	(370,755)
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net	(38,652)		(199,204)


Reclassification adjustment for net realized losses (gains) included in net income	(25,793)		(6,641)

Other comprehensive income (loss)	(64,445)		(205,845)
Comprehensive income (loss) before preferred stock dividends	$	93,146	$	(576,600)
Dividends on preferred stock	$	18,438	$	18,438
Comprehensive income (loss) available to common stock shareholders	$	74,708	$	(595,038)

See accompanying notes to consolidated financial statements.


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



























For the Quarter Ended March 31, 2021

	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, 2020	$	58	$	130	$	104	$	80	$	2,306	$	4,538,029	$	558,096	$	3,881,894	$	(5,201,311)	$	3,779,386
Net income (loss)	—		—		—		—		—		—		—		157,591		—		157,591
Other comprehensive income (loss)	—		—		—		—		—		—		(64,445)		—		—		(64,445)
Repurchase of common stock	—		—		—		—		(2)		(1,826)		—		—		—		(1,828)

Settlement of warrants	—		—		—		—		—		(219,840)		—		—		—		(219,840)

Stock based compensation	—		—		—		—		2		4,056		—		—		—		4,058
Common dividends declared	—		—		—		—		—		—		—		—		(69,986)		(69,986)
Preferred dividends declared	—		—		—		—		—		—		—		—		(18,438)		(18,438)

Balance, March 31, 2021	$	58	$	130	$	104	$	80	$	2,306	$	4,320,419	$	493,651	$	4,039,485	$	(5,289,735)	$	3,566,498





For the Quarter Ended March 31, 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)	—		—		—		—		—		—		—		(370,755)		—		(370,755)

Other comprehensive income (loss)	—		—		—		—		—		—		(205,845)		—		—		(205,845)
Repurchase of common stock	—		—		—		—		(14)		(22,051)		—		—		—		(22,065)
Stock based compensation	—		—		—		—		1		1,142		—		—		—		1,143
Common dividends declared	—		—		—		—		—		—		—		—		(93,479)		(93,479)
Preferred dividends declared	—		—		—		—		—		—		—		—		(18,438)		(18,438)

Balance, March 31, 2020	$	58	$	130	$	104	$	80	$	1,860	$	4,255,054	$	502,491	$	3,422,285	$	(4,938,208)	$	3,243,854

See accompanying notes to consolidated financial statements.


CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
	For the Quarters Ended
	March 31, 2021		March 31, 2020
Cash Flows From Operating Activities:
Net income (loss)	$	157,591	$	(370,755)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
(Accretion) amortization of investment discounts/premiums, net	13,260		36,319
Accretion (amortization) of deferred financing costs, debt issuance costs, and securitized debt discounts/premiums, net	9,673		(18,318)

Net unrealized losses (gains) on derivatives	—		(201,000)


Margin (paid) received on derivatives	—		325,594
Net unrealized losses (gains) on financial instruments at fair value	(270,012)		260,887
Net realized losses (gains) on sales of investments	(37,796)		(75,854)

Net increase (decrease) in provision for credit losses	(126)		6,314

(Gain) loss on extinguishment of debt	237,137		—

Equity-based compensation expense	4,058		1,143
Changes in operating assets:
Decrease (increase) in accrued interest receivable, net	3,593		23,763
Decrease (increase) in other assets	12,042		(394,817)
Changes in operating liabilities:
Increase (decrease) in accounts payable and other liabilities	8,877		6,417

Increase (decrease) in accrued interest payable, net	(16,096)		(19,156)
Net cash provided by (used in) operating activities	$	122,201	$	(419,463)
Cash Flows From Investing Activities:
Agency MBS portfolio:
Purchases	$	(28,856)	$	(160,516)
Sales	201,037		6,244,850
Principal payments	147,859		593,341
Non-Agency RMBS portfolio:
Purchases	—		(19,503)
Sales	32,459		33,797
Principal payments	63,311		67,518
Loans held for investment:
Purchases	(1,069,554)		(575,541)
Sales	903,358		—
Principal payments	564,559		461,594


Net cash provided by (used in) investing activities	$	814,173	$	6,645,540
Cash Flows From Financing Activities:
Proceeds from secured financing agreements	$	14,021,592	$	38,210,544
Payments on secured financing agreements	(14,615,709)		(44,491,093)


Payments on repurchase of common stock	(1,828)		(22,066)
Proceeds from securitized debt borrowings, collateralized by loans held for investment	3,400,687		731,013
Payments on securitized debt borrowings, collateralized by loans held for investment	(3,379,096)		(386,362)
Payments on securitized debt borrowings, collateralized by Non-Agency RMBS	(5,499)		(4,449)


Settlement of warrants	(219,840)		—
Common dividends paid	(69,844)		(93,613)
Preferred dividends paid	(18,438)		(18,438)
Net cash provided by (used in) financing activities	$	(887,975)	$	(6,074,464)


Net increase (decrease) in cash and cash equivalents	48,399		151,613
Cash and cash equivalents at beginning of period	269,090		109,878
Cash and cash equivalents at end of period	$	317,489	$	261,491

Supplemental disclosure of cash flow information:
Interest received	$	259,981	$	359,664
Interest paid	$	114,490	$	178,292

Non-cash investing activities:

Payable for investments purchased	$	76,534	$	699,164

Net change in unrealized gain (loss) on available-for sale securities	$	(64,445)	$	(205,845)













Non-cash financing activities:
Dividends declared, not yet paid	$	77,355	$	98,434

See accompanying notes to consolidated financial statements.

CHIMERA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Chimera Investment Corporation, or the Company, was organized in Maryland on June 1, 2007. The Company commenced operations on November 21, 2007 when it completed its initial public offering. The Company elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, or the Code.

The Company conducts its operations through various subsidiaries including subsidiaries it treats as taxable REIT subsidiaries, or TRSs. In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate related business. The Company currently has thirteen wholly owned direct subsidiaries: Chimera RMBS Whole Pool LLC and Chimera RMBS LLC formed in June 2009; CIM Trading Company LLC, or CIM Trading, formed in July 2010; Chimera Funding TRS LLC, or CIM Funding TRS, a TRS formed in October 2013, Chimera CMBS Whole Pool LLC and Chimera RMBS Securities LLC formed in March 2015; Chimera Insurance Company, LLC formed in July 2015; Chimera RR Holding LLC formed in April 2016, Anacostia LLC, a TRS formed in June 2018, NYH Funding LLC, a TRS formed in May 2019, Kali 2020 Holdings LLC formed in May 2020, Varuna Capital Partners LLC formed in September 2020 and Aarna Holdings LLC formed in November 2020.

The Company holds a significant, non-consolidated interest in Kah Capital Management, which is treated as an equity method investment. The Company paid $346 thousand and $250 thousand in fees to Kah Capital Management for investment services provided during the quarters ended March 31, 2021 and 2020, respectively.

2. Summary of the Significant Accounting Policies

(a) Basis of Presentation and Consolidation

The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. In the opinion of the Company, all normal and recurring adjustments considered necessary for a fair presentation of its financial position, results of operations and cash flows have been included. Investment securities transactions are recorded on the trade date. Certain prior period amounts have been reclassified to conform to the current period's presentation.

The consolidated financial statements include the Company’s accounts, the accounts of its wholly-owned subsidiaries, and variable interest entities, or VIEs, in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

The Company uses securitization trusts considered to be VIEs in its securitization transactions. VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly impact the VIEs’ economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE. For VIEs that do not have substantial on-going activities, the power to direct the activities that most significantly impact the VIEs’ economic performance may be determined by an entity’s involvement with the design and structure of the VIE.

The trusts are structured as entities that receive principal and interest on the underlying collateral and distribute those payments to the security holders. The assets held by the securitization entities are restricted in that they can only be used to fulfill the obligations of the securitization entity. The Company’s risks associated with its involvement with these VIEs are limited to its risks and rights as a holder of the security it has retained as well as certain risks associated with being the sponsor and depositor of and the seller, directly or indirectly to, the securitizations entities.

Determining the primary beneficiary of a VIE requires judgment. The Company determined that for the securitizations it consolidates, its ownership provides the Company with the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE. In addition, the Company has the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or power, such as rights to replace the servicer without cause or the Company was determined to have power in connection with its involvement with the structure and design of the VIE.

The Company’s interest in the assets held by these securitization vehicles, which are consolidated on the Company’s Consolidated Statements of Financial Condition, is restricted by the structural provisions of these trusts, and a recovery of the Company’s investment in the vehicles will be limited by each entity’s distribution provisions. Generally, the securities retained by the Company are the most subordinate in the capital structure, which means those securities receive distributions after the senior securities have been paid. The liabilities of the securitization vehicles, which are also consolidated on the Company’s Consolidated Statements of Financial Condition, are non-recourse to the Company, and can only be satisfied using proceeds from each securitization vehicle’s respective asset pool.

The assets of securitization entities are comprised of residential mortgage backed securities (or RMBS), or residential mortgage loans. See Notes 3, 4 and 9 for further discussion of the characteristics of the securities and loans in the Company’s portfolio.

(b) Statements of Financial Condition Presentation

The Company’s Consolidated Statements of Financial Condition include both the Company’s direct assets and liabilities and the assets and liabilities of consolidated securitization vehicles. Retained beneficial interests of the consolidated securitization vehicles are eliminated on consolidation. Assets of each consolidated VIE can only be used to satisfy the obligations of that VIE, and the liabilities of consolidated VIEs are non-recourse to the Company. The Company is not obligated to provide, nor does it intend to provide, any financial support to these consolidated securitization vehicles. The notes to the consolidated financial statements describe the Company’s assets and liabilities including the assets and liabilities of consolidated securitization vehicles. See Note 9 for additional information related to the Company’s investments in consolidated securitization vehicles.

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company’s estimates contemplate current conditions and how it expects them to change in the future, it is reasonably possible that actual conditions could be materially different than anticipated in those estimates, which could have a material adverse impact on the Company’s results of operations and its financial condition. The Company has made significant estimates including in accounting for income recognition on Agency MBS, Non-Agency RMBS, IO MBS (Note 3) and residential mortgage loans (Note 4), valuation of Agency MBS and Non-Agency RMBS (Notes 3 and 5), residential mortgage loans (Note 4 and 5), securitized debt (Note 5 and 7) and derivative instruments (Notes 5 and 10). Actual results could differ materially from those estimates.

(d) Significant Accounting Policies

There have been no significant changes to the Company's accounting policies included in Note 2 to the consolidated financial statements of the Company’s Form 10-K for the year ended December 31, 2020, other than the significant accounting policies discussed below.

Fair Value Disclosure

A complete discussion of the methodology utilized by the Company to estimate the fair value of its financial instruments is included in Note 5 to these consolidated financial statements.

Income Taxes

The Company does not have any material unrecognized tax positions that would affect its financial statements or require disclosure. No accruals for penalties and interest were necessary as of March 31, 2021 or December 31, 2020.

(e) Recent Accounting Pronouncements

Reference Rate Reform (Topic 848)

In March 2020, the FASB issued ASU No. 2020-4, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Inter Bank Offering Rate (or LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The amendments in this update are effective for contracts held by the Company subject to

reference rate reform that fall within the scope of this update beginning immediately through December 31, 2022 at which time the transition is expected to be complete. The Company has not yet had any contracts modified to adopt reference rate reform. When a contract within the scope of this update is updated for reference rate reform, we will evaluate the impact in accordance with this update.

Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)

In August 2020, the FASB issued ASU No. 2020-6, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The FASB issued this update to simplify the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The update also provides for expanded disclosure requirements to increase transparency. The amendments in this update are effective for the Company on January 1, 2022. The Company has not yet adopted this guidance and is currently evaluating what impact this update will have on the consolidated financial statements.

3. Mortgage-Backed Securities

The Company classifies its Non-Agency RMBS as senior, subordinated, or Interest-only. The Company also invests in Agency MBS which it classifies as Agency RMBS to include residential and residential interest-only MBS and Agency CMBS to include commercial and commercial interest-only MBS. Senior interests in Non-Agency RMBS are generally entitled to the first principal repayments in their pro-rata ownership interests at the acquisition date. The tables below present amortized cost, allowance for credit losses, fair value and unrealized gain/losses of Company's MBS investments as of March 31, 2021 and December 31, 2020.


			March 31, 2021
			(dollars in thousands)
	Principal or Notional Value		Total Premium		Total Discount		Amortized Cost		Allowance for credit losses		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gain/(Loss)
Non-Agency RMBS
Senior	$	1,498,212	$	3,923	$	(748,648)	$	753,487	$	(54)	$	1,202,495	$	449,362	$	(300)	$	449,062
Subordinated	857,925		6,902		(301,842)		562,985		—		594,221		65,882		(34,646)		31,236
Interest-only	4,850,934		229,963		—		229,963		—		216,762		43,519		(56,720)		(13,201)
Agency RMBS

Interest-only	1,199,688		114,244		—		114,244		—		86,354		355		(28,245)		(27,890)
Agency CMBS
Project loans	1,196,682		21,438		(845)		1,217,275		—		1,333,102		115,835		(8)		115,827
Interest-only	1,114,212		19,952		—		19,952		—		22,187		2,681		(446)		2,235
Total	$	10,717,653	$	396,422	$	(1,051,335)	$	2,897,906	$	(54)	$	3,455,121	$	677,634	$	(120,365)	$	557,269



			December 31, 2020
			(dollars in thousands)
	Principal or Notional Value		Total Premium		Total Discount		Amortized Cost		Allowance for credit losses		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gain/(Loss)
Non-Agency RMBS
Senior	$	1,560,135	$	3,934	$	(773,804)	$	790,265	$	(180)	$	1,277,800	$	487,963	$	(248)	$	487,715
Subordinated	905,674		7,059		(347,056)		565,677		—		610,655		83,007		(38,029)		44,978
Interest-only	5,628,240		249,610		—		249,610		—		262,259		67,868		(55,219)		12,649
Agency RMBS

Interest-only	1,262,963		118,867		—		118,867		—		90,738		270		(28,399)		(28,129)
Agency CMBS
Project loans	1,527,621		28,559		(861)