November 6, 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: September 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,	Suite 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
9.250% Senior Notes due 2029	CIMO	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 October 31, 2024
Common Stock, $0.01 par value			80,875,336

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 September 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 and nine months ended September 30, 2024 and 2023	3
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the quarters and nine months ended September 30, 2024 and 2023	4
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the quarters and nine months ended September 30, 2024 and 2023	5
	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 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)
	September 30, 2024		December 31, 2023

Cash and cash equivalents	$	97,326	$	221,684
Non-Agency RMBS, at fair value (net of allowance for credit losses of $24 million and $19 million, respectively)	1,121,836		1,043,806
Agency MBS, at fair value	1,018,918		102,484
Loans held for investment, at fair value	11,283,775		11,397,046

Accrued interest receivable	76,952		76,960
Other assets	103,472		87,018
Derivatives, at fair value	97		—
Total assets (1)	$	13,702,376	$	12,928,998
Liabilities:
Secured financing agreements ($4.6 billion and $3.6 billion pledged as collateral, respectively, and includes $339 million and $350 million at fair value, respectively)	$	3,228,748	$	2,432,115

Securitized debt, collateralized by Non-Agency RMBS ($241 million and $249 million pledged as collateral, respectively)	72,174		75,012
Securitized debt at fair value, collateralized by Loans held for investment ($10.7 billion and $10.7 billion pledged as collateral, respectively)	7,314,411		7,601,881
Long term debt	134,437		—
Payable for investments purchased	123,902		158,892
Accrued interest payable	39,797		38,272
Dividends payable	33,961		54,552
Accounts payable and other liabilities	17,634		9,355

Total liabilities (1)	$	10,965,064	$	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, 80,875,061 and 80,453,552 shares issued and outstanding, respectively	809		804
Additional paid-in-capital	4,378,750		4,370,130
Accumulated other comprehensive income	183,646		185,668
Cumulative earnings	4,487,623		4,165,046
Cumulative distributions to stockholders	(6,313,888)		(6,163,101)
Total stockholders' equity	$	2,737,312	$	2,558,919
Total liabilities and stockholders' equity	$	13,702,376	$	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 September 30, 2024, and December 31, 2023, total assets of consolidated VIEs were $10,453,181 and $10,501,840, respectively, and total liabilities of consolidated VIEs were $7,737,834 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 Nine Months Ended
	September 30, 2024		September 30, 2023			September 30, 2024		September 30, 2023
Net interest income:
Interest income (1)	$	195,295	$	195,591		$	568,586	$	581,700
Interest expense (2)	128,844		132,193			369,733		382,988
Net interest income	66,451		63,398			198,853		198,712

Increase (decrease) in provision for credit losses	358		3,217			5,389		9,041








Other investment gains (losses):
Net unrealized gains (losses) on derivatives	(14,457)		17			2,687		9,460
Realized gains (losses) on derivatives	(4,864)		—			(22,181)		(40,957)
Periodic interest cost of swaps, net	6,789		4,894			19,237		11,871
Net gains (losses) on derivatives	(12,532)		4,911			(257)		(19,626)
Net unrealized gains (losses) on financial instruments at fair value	104,012		(43,988)			192,008		27,558
Net realized gains (losses) on sales of investments	—		(460)			(3,750)		(27,482)

Gains (losses) on extinguishment of debt	—		—			—		6,348
Other investment gains (losses)	1,366		2,381			7,053		2,077
Total other gains (losses)	92,846		(37,156)			195,054		(11,125)





Other expenses:




Compensation and benefits	7,203		7,124			23,427		25,292
General and administrative expenses	5,610		5,427			17,605		17,674
Servicing and asset manager fees	7,334		8,139			22,470		24,965
Transaction expenses	2,317		90			2,384		14,955
Total other expenses	22,464		20,780			65,886		82,886
Income (loss) before income taxes	136,475		2,245			322,632		95,660
Income tax expense (benefit)	16		75			55		100
Net income (loss)	$	136,459	$	2,170		$	322,577	$	95,560

Dividends on preferred stock	22,787		18,438			63,975		55,313

Net income (loss) available to common shareholders	$	113,672	$	(16,268)		$	258,602	$	40,248

Net income (loss) per share available to common shareholders:
Basic	$	1.41	$	(0.22)		$	3.20	$	0.52
Diluted	$	1.39	$	(0.22)		$	3.16	$	0.52

Weighted average number of common shares outstanding:
Basic	80,810,861		75,578,214			80,753,709		76,699,956
Diluted	81,855,872		75,578,214			81,716,629		77,429,439

(1) Includes interest income of consolidated VIEs of $146,007 and $153,710 for the quarters ended September 30, 2024 and 2023, respectively, and $436,950 and $443,286 for the nine months ended September 30, 2024 and 2023, respectively. See Note 9 for further discussion.

(2) Includes interest expense of consolidated VIEs of $71,668 and $75,902 for the quarters ended September 30, 2024 and 2023, respectively, and $214,483 and $208,678 for the nine months ended September 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 Nine Months Ended
	September 30, 2024		September 30, 2023			September 30, 2024		September 30, 2023
Comprehensive income (loss):
Net income (loss)	$	136,459	$	2,170		$	322,577	$	95,560
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net	9,544		(29,447)			(2,022)		(49,431)


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

Other comprehensive income (loss)	9,544		(29,447)			$	(2,022)	$	(48,118)
Comprehensive income (loss) before preferred stock dividends	$	146,003	$	(27,277)		$	320,555	$	47,442
Dividends on preferred stock	$	22,787	$	18,438		$	63,975	$	55,313
Comprehensive income (loss) available to common stock shareholders	$	123,216	$	(45,715)		$	256,580	$	(7,871)

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 September 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, June 30, 2024	$	58	$	130	$	104	$	80	$	805	$	4,375,538	$	174,102	$	4,351,164	$	(6,260,713)	$	2,641,268
Net income (loss)	—		—		—		—		—		—		—		136,459		—		136,459
Other comprehensive income (loss)	—		—		—		—		—		—		9,544		—		—		9,544


Stock based compensation	—		—		—		—		4		3,212		—		—		—		3,216
Common dividends declared	—		—		—		—		—		—		—		—		(30,388)		(30,388)
Preferred dividends declared	—		—		—		—		—		—		—		—		(22,787)		(22,787)

Balance, September 30, 2024	$	58	$	130	$	104	$	80	$	809	$	4,378,750	$	183,646	$	4,487,623	$	(6,313,888)	$	2,737,312


For the Quarter Ended September 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, June 30, 2023	$	58	$	130	$	104	$	80	$	718	$	4,290,994	$	210,674	$	4,132,332	$	(6,055,687)	$	2,579,403
Net income (loss)	—		—		—		—		—		—		—		2,170		—		2,170

Other comprehensive income (loss)	—		—		—		—		—		—		(29,447)		—		—		(29,447)


Stock based compensation	—		—		—		—		5		2,326		—		—		—		2,331
Common dividends declared	—		—		—		—		—		—		—		—		(41,562)		(41,562)
Preferred dividends declared	—		—		—		—		—		—		—		—		(18,438)		(18,438)

Balance, September 30, 2023	$	58	$	130	$	104	$	80	$	723	$	4,293,320	$	181,227	$	4,134,502	$	(6,115,687)	$	2,494,457


For the Nine Months Ended September 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)	—		—		—		—		—		—		—		322,577		—		322,577

Other comprehensive income (loss)	—		—		—		—		—		—		(2,022)		—		—		(2,022)


Stock based compensation	—		—		—		—		5		8,620		—		—		—		8,625
Common dividends declared	—		—		—		—		—		—		—		—		(86,812)		(86,812)
Preferred dividends declared	—		—		—		—		—		—		—		—		(63,975)		(63,975)

Balance, September 30, 2024	$	58	$	130	$	104	$	80	$	809	$	4,378,750	$	183,646	$	4,487,623	$	(6,313,888)	$	2,737,312


For the Nine Months Ended September 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)	—		—		—		—		—		—		—		95,560		—		95,560

Other comprehensive income (loss)	—		—		—		—		—		—		(48,118)		—		—		(48,118)
Repurchase of common stock	—		—		—				(59)		(33,043)		—		—		—		(33,102)

Stock based compensation	—		—		—				9		6,430		—		—		—		6,439
Common dividends declared	—		—		—		—		—		—		—		—		(137,812)		(137,812)
Preferred dividends declared	—		—		—		—		—		—		—		—		(55,313)		(55,313)

Balance, September 30, 2023	$	58	$	130	$	104	$	80	$	723	$	4,293,320	$	181,227	$	4,134,502	$	(6,115,687)	$	2,494,457

See accompanying notes to financial statements.


CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
	For the Nine Months Ended
	September 30, 2024		September 30, 2023
Cash Flows From Operating Activities:
Net income (loss)	$	322,577	$	95,560
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
(Accretion) amortization of investment discounts/premiums, net	10,594		16,985
Accretion (amortization) of deferred financing costs, debt issuance costs, and Securitized debt discounts/premiums, net	10,524		27,228

Net unrealized losses (gains) on derivatives	(2,687)		(9,460)

Proceeds (payments) for derivative settlements	14,517		(20,509)
Margin (paid) received on derivatives	(18,513)		78,248
Net unrealized losses (gains) on financial instruments at fair value	(192,008)		(27,558)
Net realized losses (gains) on sales of investments	3,750		27,482
Other investment (gains) losses	(7,053)		(2,077)
Net increase (decrease) in provision for credit losses	5,389		9,041

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

Equity-based compensation expense	8,625		6,439
Changes in operating assets:
Decrease (increase) in accrued interest receivable, net	7		(11,047)
Decrease (increase) in other assets	2,191		(13,121)
Changes in operating liabilities:
Increase (decrease) in accounts payable and other liabilities	8,281		6,105

Increase (decrease) in accrued interest payable, net	1,527		4,974
Net cash provided by (used in) operating activities	$	167,722	$	181,942
Cash Flows From Investing Activities:
Agency MBS portfolio:
Purchases	$	(985,976)	$	(2,006)
Sales	34,672		285,709
Principal payments	36,679		677
Non-Agency RMBS portfolio:
Purchases	(96,159)		(3,954)
Sales	—		—
Principal payments	57,868		64,796
Loans held for investment:
Purchases	(523,022)		(1,260,187)
Sales	—		2,611
Principal payments	964,508		1,087,319


Net cash provided by (used in) investing activities	$	(511,430)	$	174,965
Cash Flows From Financing Activities:
Proceeds from secured financing agreements	$	21,453,553	$	22,272,760
Payments on secured financing agreements	(20,662,572)		(23,099,486)


Payments on repurchase of common stock	—		(33,101)

Proceeds from securitized debt borrowings, collateralized by Loans held for investment	340,097		2,046,620
Payments on securitized debt borrowings, collateralized by Loans held for investment	(874,432)		(1,461,868)
Payments on securitized debt borrowings, collateralized by Non-Agency RMBS	(97)		(52)


Net proceeds from issuance of unsecured debt	134,181		—


Common dividends paid	(88,967)		(152,476)
Preferred dividends paid	(82,413)		(55,313)
Net cash provided by (used in) financing activities	$	219,350	$	(482,916)
Net increase (decrease) in cash and cash equivalents	(124,358)		(126,009)
Cash and cash equivalents at beginning of period	221,684		264,600
Cash and cash equivalents at end of period	$	97,326	$	138,591

Supplemental disclosure of cash flow information:
Interest received	$	579,187	$	587,637
Interest paid	$	357,685	$	350,787


Non-cash investing activities:

Payable for investments purchased	$	123,902	$	6,237

Net change in unrealized gain (loss) on available-for sale securities	$	(2,022)	$	(49,431)













Non-cash financing activities:
Dividends declared, not yet paid	$	33,961	$	49,881

See accompanying notes to consolidated financial statements.

CHIMERA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 September 30, 2024. Kah Capital Holdings, LLC is the parent of Kah Capital Management, LLC. The Company paid $128 thousand and $398 thousand for mortgage asset servicing oversight fees to Kah Capital Management during the quarter and nine months ended September 30, 2024, respectively. The Company paid $150 thousand and $445 thousand for mortgage asset servicing oversight fees to Kah Capital Management during the quarter and nine months ended September 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 September 30, 2024 the Company did not fund any amounts towards that commitment. During the nine months ended September 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) Long Term Debt

The Company's Long Term Debt is comprised of unsecured senior notes. Unsecured senior notes are carried at their unpaid principal balance net of any unamortized deferred issuance costs. Interest on the notes is payable quarterly until such time the notes mature. Any debt discounts or premiums are reported as an adjustment to the carrying amount of the debt liability and amortized into interest expense using the effective interest method. Deferred debt issuance costs are expenses associated with the issuance of long-term debt. These expenses typically include underwriting, legal, accounting, and other fees. Deferred debt issuance costs are included in the carrying value of the related long-term debt issued and are amortized as an adjustment to interest expense using the effective interest method, based upon the actual and estimated repayment schedules of the related long-term debt issued.

(f) 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 September 30, 2024 or December 31, 2023.

(g) Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280); Improvements to Reportable Segment Disclosures. This standard requires public companies to disclose information about their reportable segments' significant expenses on an interim and annual basis to provide more transparency about the expenses they incur from revenue generating business units. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not expect the adoption of the new standard to have a material effect on its Consolidated Financial Statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740); Improvements to Income Tax Disclosures. this standard require entities to provide additional information about federal, state and foreign incomes taxes and reconciling items in the rate reconciliation table, and to disclose further disaggregation of income taxes paid (net of refunds received) by federal (national), state and foreign taxes by jurisdiction. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance should be applied prospectively, but entities have the option to apply it retrospectively for each period presented. The Company does not expect the adoption of the new standard to have a material effect on its 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 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 September 30, 2024 and December 31, 2023.


September 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	$	1,023,580	$	18,895	$	(556,667)	$	485,808	$	(20,969)	$	644,520	$	184,226	$	(4,545)	$	179,681
Subordinated	658,194		3,325		(272,085)		389,434		(2,980)		385,197		21,697		(22,954)		(1,257)
Interest-only	2,699,126		154,647		—		154,647		—		92,119		14,914		(77,442)		(62,528)
Agency RMBS

CMO	956,977		208		(74)		957,111		—		959,142		2,031		—		2,031
Interest-only	384,826		19,702		—		19,702		—		16,810		1,263		(4,155)		(2,892)
Agency CMBS
Project loans	40,890		620		—		41,510		—		36,302		—		(5,208)		(5,208)
Interest-only	468,136		6,482		—		6,482		—		6,664		1,008		(826)		182
Total	$	6,231,729	$	203,879	$	(828,826)	$	2,054,694

Form: 10-Q

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