August 7, 2024 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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, 2024

☐ 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 of organization)		(I.R.S. Employer Identification Number)
630 Fifth Avenue, Ste 2400
New York,	New York	10111
(Address of Principal Executive Offices)		(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 Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	CIM PRB	New York Stock Exchange
7.75% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	CIM PRC	New York Stock Exchange
8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	CIM PRD	New York Stock Exchange
9.000% Senior Notes due 2029	CIMN	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 such files).

Yes þ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a 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 July 31, 2024
Common Stock, $0.01 par value			80,530,696

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, 2024 (Unaudited) and December 31, 2023 (Derived from the audited consolidated financial statements as of December 31, 2023)	2
	Consolidated Statements of Operations (Unaudited) for the quarters a nd six months ended June 30, 2024 and 2023	3
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the quarters and six months ended June 30, 2024 and 2023	4
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the quarters and six months ended June 30, 2024 and 2023	5
	Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2024 and 2023	7
	Notes to Consolidated Financial Statements (Unaudited)	9

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	46
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	70
ITEM 4	CONTROLS AND PROCEDURES	76

	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	77
	SIGNATURES	80

Part I - Financial Information

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, 2024		December 31, 2023

Cash and cash equivalents	$	162,304	$	221,684
Non-Agency RMBS, at fair value (net of allowance for credit losses of $24 million and $19 million, respectively)	1,051,971		1,043,806
Agency MBS, at fair value	503,295		102,484
Loans held for investment, at fair value	11,232,975		11,397,046

Accrued interest receivable	70,254		76,960
Other assets	106,210		87,018
Derivatives, at fair value	4,872		—
Total assets (1)	$	13,131,881	$	12,928,998
Liabilities:
Secured financing agreements ($3.9 billion and $3.6 billion pledged as collateral, respectively, and includes $333 million and $374 million at fair value, respectively)	$	2,699,299	$	2,432,115

Securitized debt, collateralized by Non-Agency RMBS ($239 million and $249 million pledged as collateral, respectively)	72,121		75,012
Securitized debt at fair value, collateralized by Loans held for investment ($10.2 billion and $10.7 billion pledged as collateral, respectively)	7,078,991		7,601,881
Long term debt	62,424		—
Payable for investments purchased	464,038		158,892
Accrued interest payable	39,039		38,272
Dividends payable	61,256		54,552
Accounts payable and other liabilities	13,445		9,355

Total liabilities (1)	$	10,490,613	$	10,370,079

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; 166,666,667 shares authorized, 80,472,871 and 80,453,552 shares issued and outstanding, respectively	805		804
Additional paid-in-capital	4,375,538		4,370,130
Accumulated other comprehensive income	174,102		185,668
Cumulative earnings	4,351,164		4,165,046
Cumulative distributions to stockholders	(6,260,713)		(6,163,101)
Total stockholders' equity	$	2,641,268	$	2,558,919
Total liabilities and stockholders' equity	$	13,131,881	$	12,928,998

(1) The Company's consolidated statements of financial condition include assets of consolidated variable interest entities, or 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, 2024, and December 31, 2023, total assets of consolidated VIEs were $10,036,554 and $10,501,840, respectively, and total liabilities of consolidated VIEs were $7,505,465 and $7,349,109, 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 Six Months Ended
	June 30, 2024		June 30, 2023			June 30, 2024		June 30, 2023
Net interest income:
Interest income (1)	$	186,717	$	196,859		$	373,291	$	386,109
Interest expense (2)	119,422		131,181			240,889		250,796
Net interest income	67,295		65,678			132,402		135,313

Increase (decrease) in provision for credit losses	3,684		2,762			5,032		5,824








Other investment gains (losses):
Net unrealized gains (losses) on derivatives	11,955		17,994			17,144		9,443
Realized gains (losses) on derivatives	(17,317)		(6,822)			(17,317)		(40,957)
Periodic interest cost of swaps, net	6,971		4,159			12,448		6,977
Net gains (losses) on derivatives	1,609		15,331			12,275		(24,537)
Net unrealized gains (losses) on financial instruments at fair value	11,231		6,954			87,995		71,546
Net realized gains (losses) on sales of investments	—		(21,758)			(3,750)		(27,022)

Gains (losses) on extinguishment of debt	—		4,039			—		6,348
Other investment gains (losses)	1,001		(421)			5,687		(303)
Total other gains (losses)	13,841		4,145			102,207		26,032





Other expenses:




Compensation and benefits	7,011		7,677			16,226		18,168
General and administrative expenses	6,276		6,471			11,993		12,247
Servicing and asset manager fees	7,470		8,408			15,134		16,825
Transaction expenses	—		8,456			67		14,865
Total other expenses	20,757		31,012			43,420		62,105
Income (loss) before income taxes	56,695		36,049			186,157		93,416
Income tax expense (benefit)	31		25			39		26
Net income (loss)	$	56,664	$	36,024		$	186,118	$	93,390

Dividends on preferred stock	22,751		18,438			41,188		36,875

Net income (loss) available to common shareholders	$	33,913	$	17,586		$	144,930	$	56,515

Net income (loss) per share available to common shareholders:
Basic	$	0.42	$	0.23		$	1.78	$	0.73
Diluted	$	0.41	$	0.23		$	1.76	$	0.72

Weighted average number of common shares outstanding:
Basic	81,334,509		77,209,380			81,326,944		77,270,123
Diluted	82,281,890		77,955,834			82,301,992		78,230,253

(1) Includes interest income of consolidated VIEs of $144,027 and $149,674 for the quarters ended June 30, 2024 and 2023, respectively, and $290,943 and $289,576 for the six months ended June 30, 2024 and 2023, respectively. See Note 9 for further discussion.

(2) Includes interest expense of consolidated VIEs of $69,692 and $72,624 for the quarters ended June 30, 2024 and 2023, respectively, and $142,815 and $132,776 for the six months ended June 30, 2024 and 2023, respectively. See Note 9 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, 2024		June 30, 2023			June 30, 2024		June 30, 2023
Comprehensive income (loss):
Net income (loss)	$	56,664	$	36,024		$	186,118	$	93,390
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net	(11,345)		(14,081)			(11,566)		(19,984)


Reclassification adjustment for net realized losses (gains) included in net income	—		—			—		1,313

Other comprehensive income (loss)	(11,345)		(14,081)			$	(11,566)	$	(18,671)
Comprehensive income (loss) before preferred stock dividends	$	45,319	$	21,943		$	174,552	$	74,719
Dividends on preferred stock	$	22,751	$	18,438		$	41,188	$	36,875
Comprehensive income (loss) available to common stock shareholders	$	22,568	$	3,505		$	133,364	$	37,844

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 June 30, 2024

	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, 2024	$	58	$	130	$	104	$	80	$	805	$	4,373,112	$	185,447	$	4,294,500	$	(6,208,650)	$	2,645,586
Net income (loss)	—		—		—		—		—		—		—		56,664		—		56,664
Other comprehensive income (loss)	—		—		—		—		—		—		(11,345)		—		—		(11,345)


Stock based compensation	—		—		—		—		—		2,426		—		—		—		2,426
Common dividends declared	—		—		—		—		—		—		—		—		(29,312)		(29,312)
Preferred dividends declared	—		—		—		—		—		—		—		—		(22,751)		(22,751)

Balance, June 30, 2024	$	58	$	130	$	104	$	80	$	805	$	4,375,538	$	174,102	$	4,351,164	$	(6,260,713)	$	2,641,268


For the Quarter Ended June 30, 2023

	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, 2023	$	58	$	130	$	104	$	80	$	776	$	4,322,348	$	224,755	$	4,096,308	$	(5,995,172)	$	2,649,387
Net income (loss)	—		—		—		—		—		—		—		36,024		—		36,024

Other comprehensive income (loss)	—		—		—		—		—		—		(14,081)		—		—		(14,081)
Repurchase of common stock	—		—		—		—		(59)		(33,043)		—		—		—		(33,102)

Stock based compensation	—		—		—		—		1		1,689		—		—		—		1,690
Common dividends declared	—		—		—		—		—		—		—		—		(42,077)		(42,077)
Preferred dividends declared	—		—		—		—		—		—		—		—		(18,438)		(18,438)

Balance, June 30, 2023	$	58	$	130	$	104	$	80	$	718	$	4,290,994	$	210,674	$	4,132,332	$	(6,055,687)	$	2,579,403


For the Six Months Ended June 30, 2024

	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, 2023	$	58	$	130	$	104	$	80	$	804	$	4,370,130	$	185,668	$	4,165,046	$	(6,163,101)	$	2,558,919
Net income (loss)	—		—		—		—		—		—		—		186,118		—		186,118

Other comprehensive income (loss)	—		—		—		—		—		—		(11,566)		—		—		(11,566)


Stock based compensation	—		—		—		—		1		5,408		—		—		—		5,409
Common dividends declared	—		—		—		—		—		—		—		—		(56,424)		(56,424)
Preferred dividends declared	—		—		—		—		—		—		—		—		(41,188)		(41,188)

Balance, June 30, 2024	$	58	$	130	$	104	$	80	$	805	$	4,375,538	$	174,102	$	4,351,164	$	(6,260,713)	$	2,641,268


For the Six Months Ended June 30, 2023

	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, 2022	$	58	$	130	$	104	$	80	$	773	$	4,319,933	$	229,345	$	4,038,942	$	(5,922,562)	$	2,666,803
Net income (loss)	—		—		—		—		—		—		—		93,390		—		93,390

Other comprehensive income (loss)	—		—		—		—		—		—		(18,671)		—		—		(18,671)
Repurchase of common stock	—		—		—				(59)		(33,043)		—		—		—		(33,102)

Stock based compensation	—		—		—				4		4,104		—		—		—		4,108
Common dividends declared	—		—		—		—		—		—		—		—		(96,250)		(96,250)
Preferred dividends declared	—		—		—		—		—		—		—		—		(36,875)		(36,875)

Balance, June 30, 2023	$	58	$	130	$	104	$	80	$	718	$	4,290,994	$	210,674	$	4,132,332	$	(6,055,687)	$	2,579,403

See accompanying notes to financial statements.


CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
	For the Six Months Ended
	June 30, 2024		June 30, 2023
Cash Flows From Operating Activities:
Net income (loss)	$	186,118	$	93,390
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
(Accretion) amortization of investment discounts/premiums, net	16,905		12,293
Accretion (amortization) of deferred financing costs, debt issuance costs, and Securitized debt discounts/premiums, net	6,168		17,833

Net unrealized losses (gains) on derivatives	(17,144)		(9,443)

Proceeds (payments) for derivative settlements	14,517		(20,509)
Margin (paid) received on derivatives	(17,939)		68,576
Net unrealized losses (gains) on financial instruments at fair value	(87,995)		(71,546)
Net realized losses (gains) on sales of investments	3,750		27,022
Other investment (gains) losses	(5,687)		303
Net increase (decrease) in provision for credit losses	5,032		5,824

(Gain) loss on extinguishment of debt	—		(6,348)

Equity-based compensation expense	5,408		4,108
Changes in operating assets:
Decrease (increase) in accrued interest receivable, net	6,706		(9,513)
Decrease (increase) in other assets	5,611		13,647
Changes in operating liabilities:
Increase (decrease) in accounts payable and other liabilities	4,092		4,894

Increase (decrease) in accrued interest payable, net	764		6,729
Net cash provided by (used in) operating activities	$	126,306	$	137,260
Cash Flows From Investing Activities:
Agency MBS portfolio:
Purchases	$	(442,726)	$	(1,916)
Sales	34,672		280,848
Principal payments	4,742		503
Non-Agency RMBS portfolio:
Purchases	(48,948)		—
Sales	—		—
Principal payments	37,476		45,091
Loans held for investment:
Purchases	(80,036)		(1,228,156)
Sales	—		2,611
Principal payments	629,612		708,119


Net cash provided by (used in) investing activities	$	134,792	$	(192,900)
Cash Flows From Financing Activities:
Proceeds from secured financing agreements	$	13,462,509	$	15,999,392
Payments on secured financing agreements	(13,186,915)		(16,744,961)


Payments on repurchase of common stock	—		(26,209)

Proceeds from securitized debt borrowings, collateralized by Loans held for investment	—		2,046,620
Payments on securitized debt borrowings, collateralized by Loans held for investment	(567,438)		(1,137,489)
Payments on securitized debt borrowings, collateralized by Non-Agency RMBS	(93)		(47)


Net proceeds from issuance of unsecured debt	62,367		—


Common dividends paid	(54,033)		(108,451)
Preferred dividends paid	(36,875)		(36,875)
Net cash provided by (used in) financing activities	$	(320,478)	$	(8,020)
Net increase (decrease) in cash and cash equivalents	(59,380)		(63,660)
Cash and cash equivalents at beginning of period	221,684		264,600
Cash and cash equivalents at end of period	$	162,304	$	200,940

Supplemental disclosure of cash flow information:
Interest received	$	396,902	$	388,889
Interest paid	$	233,956	$	226,233


Non-cash investing activities:

Payable for investments purchased	$	464,038	$	7,071

Net change in unrealized gain (loss) on available-for sale securities	$	(11,566)	$	(19,984)













Non-cash financing activities:
Dividends declared, not yet paid	$	61,256	$	52,344

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 is an internally managed REIT that is primarily engaged, through its subsidiaries, in the business of investing in a diversified portfolio of mortgage assets, including residential mortgage loans, Agency RMBS, Non-Agency RMBS, Agency CMBS, and other real estate-related assets. The following defines certain of the commonly used terms in this Quarterly Report on Form 10-Q: Agency refers to a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. Government, such as Ginnie Mae; MBS refers to mortgage-backed securities secured by pools of residential or commercial mortgage loans; RMBS refers to mortgage-backed securities secured by pools of residential mortgage loans; CMBS refers to mortgage-backed securities secured by pools of commercial mortgage loans; Agency RMBS and Agency CMBS refer to MBS that are secured by pools of residential and commercial mortgage loans, respectively, and are issued or guaranteed by an Agency; ABS refers to asset-backed securities; Agency MBS refers to MBS that are issued or guaranteed by an Agency and includes Agency RMBS and Agency CMBS collectively; Agency CMO refers to collateralized mortgage obligations guaranteed by an Agency and are included in Agency RMBS; Non-Agency RMBS refers to residential MBS that are not guaranteed by any agency of the U.S. Government or any Agency; IO refers to Interest-only securities.

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 twelve 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 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.

During 2022, the Company exchanged its interest in Kah Capital Management, LLC for an interest in Kah Capital Holdings, LLC, which is accounted for as an equity method investment in other assets on the Statement of Financial Condition at June 30, 2024. Kah Capital Holdings, LLC is the parent of Kah Capital Management, LLC. The Company paid $133 thousand and $271 thousand for mortgage asset servicing oversight fees to Kah Capital Management during the quarter and six months ended June 30, 2024, respectively. The Company paid $153 thousand and $296 thousand for mortgage asset servicing oversight fees to Kah Capital Management during the quarter and six months ended June 30, 2023. These fees are reported within Other Expenses on the Consolidated Statement of Operations. The Company has made a $75 million capital commitment to a fund managed by Kah Capital Management, LLC. During the quarter ended June 30, 2024 the Company did not fund any amounts towards that commitment. During the six months ended June 30, 2024 the Company funded an additional $10 million towards that commitment, which brought its total funding to $56 million, leaving an unfunded commitment of $19 million. The Company's investment in this fund is accounted for as an equity method investment in other assets on the Consolidated Statement of Financial Condition. The Company records any gains and losses associated with its equity method investments in other investment gains (losses) on the Consolidated Statement of Operations.

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 transactions are recorded on the trade date. Certain prior year amounts have been reclassified to conform to the current year’s presentation. All per share amounts, common shares outstanding and restricted shares for all periods presented reflect the Company's 1-for-3 reverse stock split, which was effective after the close of trading on May 21, 2024.

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 in 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 Company calculates basic net income per share by dividing net income for the period by the basic weighted-average shares of its common stock outstanding for that period. Diluted net income per share takes into account the effect of dilutive instruments such as unvested restricted stock units. All per share amounts, common shares outstanding and restricted shares for all periods presented reflect the Company's 1-for-3 reverse stock split, which was effective after the close of trading on May 21, 2024.

(d) Use of Estimates

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 (Notes 4 and 5), secured financing agreements (Notes 5 and 6), and securitized debt (Notes 5 and 7). Actual results could differ materially from those estimates.

(e) 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, 2023, 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 June 30, 2024 or December 31, 2023.

(f) Recent Accounting Pronouncements

The Company has evaluated the accounting standards updates ("ASUs"), issued by Financial Accounting Standards Board ("FASB") during the six months ended June 30, 2024, and determined that none of the recently issued ASUs are applicable to the Company.

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 residential collateralized mortgage obligations, or CMO, 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 the Company's MBS investments as of June 30, 2024 and December 31, 2023.


June 30, 2024
(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	$	1,040,018	$	18,424	$	(566,053)	$	492,389	$	(20,298)	$	643,860	$	178,284	$	(6,515)	$	171,769
Subordinated	616,431		3,478		(274,893)		345,016		(3,294)		331,665		18,587		(28,644)		(10,057)
Interest-only	2,756,508		155,829		—		155,829		—		76,446		13,472		(92,855)		(79,383)
Agency RMBS

CMO	438,082		6		(71)		438,017		—		437,328		—		(689)		(689)
Interest-only	387,105		19,668		—		19,668		—		15,244		444		(4,868)		(4,424)
Agency CMBS
Project loans	48,567		621		—		49,188		—		43,658		—		(5,530)		(5,530)
Interest-only	471,729		6,906		—		6,906		—		7,065		1,058		(899)		159
Total	$	5,758,440	$	204,932	$	(841,017)	$	1,507,013	$	(23,592)	$	1,555,266	$	211,845	$	(140,000)	$	71,845

December 31, 2023

(dollars in thousands)

Principal or Notional Value

Total Premium

Total Discount

Form: 10-Q

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