Part I. FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Chimera Investment Corporation, including the Statements of Financial Condition, Operations, Comprehensive Income (Loss), Changes in Stockholders' Equity, and Cash Flows, along with detailed notes explaining the company's organization, accounting policies, and specific financial instruments [Consolidated Statements of Financial Condition](index=4&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition) This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific reporting dates Consolidated Statements of Financial Condition (dollars in thousands) | Item | September 30, 2022 | December 31, 2021 | | :---------------------------------------------------------------------------------------------------------------- | :------------------- | :------------------ | | **Assets:** | | | | Cash and cash equivalents | $86,234 | $385,741 | | Non-Agency RMBS, at fair value | 1,191,298 | 1,810,208 | | Agency RMBS, at fair value | 38,470 | 60,487 | | Agency CMBS, at fair value | 427,984 | 761,208 | | Loans held for investment, at fair value | 11,707,299 | 12,261,926 | | Total assets | $13,669,320 | $15,407,403 | | **Liabilities:** | | | | Secured financing agreements | $2,820,931 | $3,261,613 | | Securitized debt, collateralized by Non-Agency RMBS | 79,967 | 87,999 | | Securitized debt at fair value, collateralized by Loans held for investment | 7,354,311 | 7,726,043 | | Total liabilities | $11,015,616 | $11,671,212 | | **Stockholders' Equity:** | | | | Total stockholders' equity | $2,653,704 | $3,736,191 | | Total liabilities and stockholders' equity | $13,669,320 | $15,407,403 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net income or loss over specific reporting periods Consolidated Statements of Operations (dollars in thousands, except per share data) | Item | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 | | :------------------------------------------- | :-------- | :-------- | :-------- | :-------- | | Interest income | $188,303 | $220,579 | $585,835 | $716,384 | | Interest expense | 83,464 | 71,353 | 226,403 | 260,029 | | Net interest income | 104,839 | 149,226 | 359,432 | 456,355 | | Net unrealized gains (losses) on derivatives | 10,307 | — | 8,689 | — | | Net unrealized gains (losses) on financial instruments at fair value | (239,513) | 239,524 | (848,925) | 545,643 | | Net income (loss) | $(186,145) | $331,468 | $(610,266) | $652,380 | | Net income (loss) available to common shareholders | $(204,583) | $313,030 | $(665,549) | $597,067 | | Basic EPS | $(0.88) | $1.33 | $(2.84) | $2.57 | | Diluted EPS | $(0.88) | $1.30 | $(2.84) | $2.42 | [Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This statement presents the company's net income or loss and other comprehensive income or loss, reflecting all changes in equity during a period except those resulting from investments by and distributions to owners Consolidated Statements of Comprehensive Income (Loss) (dollars in thousands) | Item | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 | | :----------------------------------------------------------------- | :-------- | :-------- | :-------- | :-------- | | Net income (loss) | $(186,145) | $331,468 | $(610,266) | $652,380 | | Unrealized gains (losses) on available-for-sale securities, net | (61,526) | (17,198) | (160,850) | (82,065) | | Other comprehensive income (loss) | (61,526) | (17,198) | (160,850) | (119,181) | | Comprehensive income (loss) before preferred stock dividends | $(247,671) | $314,270 | $(771,116) | $533,199 | | Comprehensive income (loss) available to common stock shareholders | $(266,109) | $295,832 | $(826,399) | $477,886 | [Consolidated Statements of Changes in Stockholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This statement outlines the changes in each component of stockholders' equity over specific reporting periods Changes in Total Stockholders' Equity (dollars in thousands) | Period | Beginning Balance | Net Income (Loss) | Other Comprehensive Income (Loss) | Stock Based Compensation | Common Dividends Declared | Preferred Dividends Declared | Ending Balance | | :-------------------------- | :---------------- | :---------------- | :-------------------------------- | :----------------------- | :------------------------ | :--------------------------- | :------------- | | Q3 2022 | $2,972,999 | $(186,145) | $(61,526) | $2,339 | $(55,525) | $(18,438) | $2,653,704 | | 9M 2022 | $3,736,191 | $(610,266) | $(160,850) | $4,731 | $(211,933) | $(55,283) | $2,653,704 | | Q3 2021 | $3,627,431 | $331,468 | $(17,198) | $(973) | $(79,268) | $(18,438) | $3,848,548 | | 9M 2021 | $3,779,386 | $652,380 | $(119,181) | $4,993 | $(228,284) | $(55,313) | $3,848,548 | [Consolidated Statements of Cash Flows](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement reports the cash generated and used by the company's operating, investing, and financing activities over specific reporting periods Consolidated Statements of Cash Flows (dollars in thousands) | Activity Type | 9M 2022 | 9M 2021 | | :-------------------------------------- | :-------- | :-------- | | Net cash provided by (used in) operating activities | $299,287 | $410,088 | | Net cash provided by (used in) investing activities | $655,521 | $1,840,841 | | Net cash provided by (used in) financing activities | $(1,254,315) | $(2,191,564) | | Net increase (decrease) in cash and cash equivalents | $(299,507) | $59,365 | | Cash and cash equivalents at end of period | $86,234 | $328,455 | [Notes to Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements, covering accounting policies, financial instruments, and other disclosures [Note 1. Organization](index=14&type=section&id=Note%201.%20Organization) This note details the company's formation, operational commencement, and election to be taxed as a real estate investment trust (REIT) - Chimera Investment Corporation was organized in Maryland on **June 1, 2007**, commenced operations on **November 21, 2007**, and elected to be taxed as a real estate investment trust (REIT)[45](index=45&type=chunk) - The Company is an internally managed REIT primarily engaged in 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[46](index=46&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=14&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the consolidated financial statements, including consolidation, fair value measurements, and derivative accounting - The consolidated financial statements are prepared in accordance with GAAP and include the Company's accounts, wholly-owned subsidiaries, and Variable Interest Entities (VIEs) where the Company is the primary beneficiary[49](index=49&type=chunk)[50](index=50&type=chunk) - The Company uses securitization trusts considered VIEs, and its risks associated with these VIEs are limited to its retained security holdings and certain sponsor/depositor risks[51](index=51&type=chunk)[53](index=53&type=chunk) - The Company has not yet had any contracts modified to adopt reference rate reform (LIBOR transition) but will evaluate the impact in accordance with ASU No. 2020-4 when such modifications occur[65](index=65&type=chunk) [Note 3. Mortgage-Backed Securities](index=18&type=section&id=Note%203.%20Mortgage-Backed%20Securities) This note provides details on the company's investments in mortgage-backed securities, including fair value, unrealized gains/losses, credit loss allowances, and delinquency rates MBS Investments Fair Value and Unrealized Gains/Losses (dollars in thousands) | Category | September 30, 2022 Fair Value | September 30, 2022 Net Unrealized Gain/(Loss) | December 31, 2021 Fair Value | December 31, 2021 Net Unrealized Gain/(Loss) | | :---------------- | :---------------------------- | :-------------------------------------------- | :--------------------------- | :--------------------------------------------- | | Non-Agency RMBS | $1,191,298 | $86,758 | $1,810,208 | $428,175 | | Agency RMBS | $38,470 | $(28,898) | $60,487 | $(42,447) | | Agency CMBS | $427,984 | $(25,784) | $761,208 | $43,686 | | Total | $1,657,752 | $32,076 | $2,631,903 | $429,414 | Allowance for Credit Losses on Available-for-Sale Securities (dollars in thousands) | Item | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 | | :---------------------------------------------------------------- | :-------- | :-------- | :-------- | :-------- | | Beginning allowance for credit losses | $4,890 | $508 | $213 | $180 | | Additions to allowance | 851 | 7 | 2,443 | 475 | | Increase/(decrease) on securities with prior allowance | (2,385) | (544) | 636 | (721) | | Ending allowance for credit losses | $3,355 | $122 | $3,355 | $122 | Non-Agency RMBS Delinquency Rates (% of Unpaid Principal Balance) | Delinquency Status | September 30, 2022 | December 31, 2021 | | :----------------- | :----------------- | :---------------- | | 30 Days Delinquent | 2.8% | 3.4% | | 60 Days Delinquent | 1.0% | 1.3% | | 90+ Days Delinquent | 3.3% | 5.5% | | Bankruptcy | 1.2% | 1.3% | | Foreclosure | 3.1% | 2.6% | | REO | 0.6% | 0.4% | | Total | 12.0% | 14.5% | [Note 4. Loans Held for Investment](index=27&type=section&id=Note%204.%20Loans%20Held%20for%20Investment) This note describes the company's portfolio of loans held for investment, including their fair value, changes in carrying value, and delinquency status - All Loans held for investment are carried at fair value, with changes reflected in earnings, and no loan loss provision is estimated or recorded[98](index=98&type=chunk) Changes in Carrying Value of Loans Held for Investment at Fair Value (dollars in thousands) | Item | 9M 2022 | FY 2021 | | :---------------------------- | :---------- | :---------- | | Balance, beginning of period | $12,261,926 | $13,112,129 | | Purchases | 1,625,222 | 3,364,609 | | Principal paydowns | (1,764,067) | (2,652,767) | | Change in fair value | (1,402,600) | 196,603 | | Balance, end of period | $11,707,299 | $12,261,926 | Residential Loan Portfolio Delinquency (dollars in thousands) | Delinquency Status | September 30, 2022 Unpaid Principal Balance | September 30, 2022 % of Unpaid Principal Balance | December 31, 2021 Unpaid Principal Balance | December 31, 2021 % of Unpaid Principal Balance | | :----------------- | :------------------------------------------ | :---------------------------------------------- | :----------------------------------------- | :---------------------------------------------- | | 30 Days Delinquent | $716,864 | 6.1% | $959,481 | 8.7% | | 60 Days Delinquent | $235,250 | 2.0% | $227,593 | 2.1% | | 90+ Days Delinquent | $419,543 | 3.6% | $582,311 | 5.3% | | Total Delinquent | $2,021,643 | 17.2% | $2,273,654 | 20.7% | [Note 5. Fair Value Measurements](index=30&type=section&id=Note%205.%20Fair%20Value%20Measurements) This note explains the methodologies and inputs used to determine the fair value of financial instruments, categorizing them into a three-level hierarchy based on observability - The Company categorizes financial instruments into a three-level fair value hierarchy based on input observability: **Level 1** (quoted prices in active markets), **Level 2** (observable inputs for similar assets/liabilities), and **Level 3** (unobservable and significant inputs)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) Fair Value Reconciliation, Level 3 Financial Instruments (dollars in thousands) | Item | Non-Agency RMBS (9M 2022) | Loans held for investment (9M 2022) | Securitized Debt (9M 2022) | | :------------------------------------ | :------------------------ | :-------------------------- | :----------------------- | | Beginning balance Level 3 | $1,810,208 | $12,032,299 | $7,726,043 | | Transfer due to consolidation | (218,276) | 1,047,838 | 774,514 | | Purchases of assets/ issuance of debt | 23,187 | 1,439,348 | 1,029,050 | | Principal payments | (159,149) | (1,587,269) | (1,498,635) | | Net unrealized gains (losses) included in income | (128,644) | (1,399,689) | (679,125) | | Ending balance Level 3 | $1,191,298 | $11,471,225 | $7,354,311 | Sensitivity of Significant Inputs for Level 3 Non-Agency RMBS (Weighted Average) | Input | September 30, 2022 | December 31, 2021 | | :---------------- | :----------------- | :---------------- | | **Non-Agency RMBS Senior:** | | | | Discount Rate | 6.5% | 3.9% | | Prepay Rate | 8.1% | 11.4% | | CDR | 1.6% | 1.8% | | Loss Severity | 32.4% | 36.6% | | **Non-Agency RMBS Subordinated:** | | | | Discount Rate | 8.2% | 5.6% | | Prepay Rate | 9.6% | 17.8% | | CDR | 0.4% | 1.1% | | Loss Severity | 37.8% | 40.1% | | **Non-Agency RMBS Interest-only:** | | | | Discount Rate | 10.1% | 10.3% | | Prepay Rate | 12.4% | 24.9% | | CDR | 1.1% | 1.3% | | Loss Severity | 30.1% | 33.0% | [Note 6. Secured Financing Agreements](index=48&type=section&id=Note%206.%20Secured%20Financing%20Agreements) This note details the company's secured financing arrangements, including repurchase agreements and credit facilities, their outstanding balances, collateral, and borrowing rates - Secured financing agreements include short-term repurchase agreements, long-term financing agreements, and loan warehouse credit facilities, collateralized by Agency and Non-Agency MBS and loans[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) Secured Financing Agreements Outstanding (dollars in thousands) | Item | September 30, 2022 | December 31, 2021 | | :----------------------------------------------------------------- | :------------------- | :------------------ | | Secured financing agreements outstanding secured by: | | | | Agency RMBS | $6,141 | $23,170 | | Agency CMBS | 368,554 | 589,535 | | Non-Agency RMBS and Loans held for investment | 2,446,236 | 2,648,908 | | Total | $2,820,931 | $3,261,613 | | MBS pledged as collateral at fair value on Secured financing agreements: | | | | Agency RMBS | $8,048 | $28,320 | | Agency CMBS | 395,286 | 617,457 | | Non-Agency RMBS and Loans held for investment | 3,314,176 | 3,747,573 | | Total | $3,717,510 | $4,393,350 | Secured Financing Agreements Remaining Maturities and Borrowing Rates (September 30, 2022) | Remaining Maturity | Principal (dollars in thousands) | Weighted Average Borrowing Rates | Range of Borrowing Rates | | :----------------- | :------------------------------- | :------------------------------- | :----------------------- | | 1 to 29 days | $425,202 | 3.84% | 2.77% - 6.11% | | 30 to 59 days | 434,926 | 3.40% | 2.74% - 4.13% | | 60 to 89 days | 181,282 | 4.26% | 2.45% - 4.93% | | 90 to 119 days | 146,780 | 4.36% | 3.63% - 5.96% | | 120 to 180 days | 546,867 | 5.18% | 3.98% - 6.06% | | 180 days to 1 year | 596,387 | 4.67% | 4.33% - 5.33% | | 2 to 3 years | 489,487 | 6.79% | 6.79% - 6.79% | | Total | $2,820,931 | 4.77% | | [Note 7. Securitized Debt](index=50&type=section&id=Note%207.%20Securitized%20Debt) This note provides information on the company's securitized debt, which is collateralized by mortgage loans and RMBS, including repayment schedules and fair value - All securitized debt is collateralized by residential mortgage loans or Non-Agency RMBS and accounted for as secured borrowings, with underlying assets recorded as Company assets and securitized debt as non-recourse liabilities[180](index=180&type=chunk) Estimated Principal Repayment Schedule of Securitized Debt Collateralized by Non-Agency RMBS (dollars in thousands) | Maturity | September 30, 2022 | December 31, 2021 | | :--------------- | :------------------- | :------------------ | | Within One Year | $751 | $4,374 | | One to Three Years | 533 | 2,361 | | Three to Five Years | 88 | 949 | | Greater Than Five Years | 84 | 82 | | Total | $1,456 | $7,766 | Estimated Principal Repayment Schedule of Securitized Debt Collateralized by Loans Held for Investment (dollars in thousands) | Maturity | September 30, 2022 | December 31, 2021 | | :--------------- | :------------------- | :------------------ | | Within One Year | $1,799,830 | $2,031,445 | | One to Three Years | 2,705,792 | 2,886,255 | | Three to Five Years | 1,767,557 | 1,697,760 | | Greater Than Five Years | 1,821,698 | 1,145,995 | | Total | $8,094,877 | $7,761,455 | [Note 8. Long Term Debt](index=53&type=section&id=Note%208.%20Long%20Term%20Debt) This note outlines the status of the company's long-term debt, specifically convertible senior notes, and their outstanding principal amounts - As of **December 31, 2021**, all outstanding principal amount on the Company's **7.0%** convertible senior notes due **2023** were either converted or acquired, with no outstanding principal amount remaining[195](index=195&type=chunk) [Note 9. Consolidated Securitization Vehicles and Other Variable Interest Entities](index=53&type=section&id=Note%209.%20Consolidated%20Securitization%20Vehicles%20and%20Other%20Variable%20Interest%20Entities) This note details the assets, liabilities, income, and expenses associated with the company's consolidated securitization vehicles and variable interest entities (VIEs) Assets and Liabilities of Consolidated VIEs (dollars in thousands) | Item | September 30, 2022 | December 31, 2021 | | :---------------------------------------------------------------- | :------------------- | :------------------ | | **Assets:** | | | | Non-Agency RMBS, at fair value | $281,055 | $399,048 | | Loans held for investment, at fair value | 10,437,514 | 10,205,587 | | Total Assets | $10,790,005 | $10,666,591 | | **Liabilities:** | | | | Securitized debt, collateralized by Non-Agency RMBS | $79,967 | $87,999 | | Securitized debt at fair value, collateralized by Loans held for investment | 6,905,913 | 7,118,374 | | Total Liabilities | $7,005,717 | $7,223,655 | Income and Expense Related to Consolidated VIEs (dollars in thousands) | Item | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 | | :------------------------------------------------ | :-------- | :-------- | :-------- | :-------- | | Interest income, Assets of consolidated VIEs | $139,598 | $138,984 | $410,873 | $446,198 | | Interest expense, Non-recourse liabilities of VIEs | 50,030 | 43,525 | 142,714 | 159,666 | | Net interest income | $89,568 | $95,459 | $268,159 | $286,532 | | (Increase) decrease in provision for credit losses | $2,284 | $(365) | $(859) | $(117) | | Servicing fees | $6,701 | $6,561 | $20,256 | $20,244 | - The Company's maximum exposure to loss from unconsolidated VIEs was **$865 million** at **September 30, 2022**, down from **$1.2 billion** at **December 31, 2021**[204](index=204&type=chunk) [Note 10. Derivative Instruments](index=55&type=section&id=Note%2010.%20Derivative%20Instruments) This note describes the company's use of derivative instruments, such as interest rate swaps and swaptions, for hedging interest rate risk and their impact on financial statements - The Company uses interest rate swaps and swaptions to economically hedge interest rate risk, with all changes in fair value recognized in earnings as these derivatives are not designated as hedges for GAAP[205](index=205&type=chunk)[208](index=208&type=chunk) Derivative Instruments Fair Value (September 30, 2022, dollars in thousands) | Derivative Instrument | Notional Amount Outstanding | Net Estimated Fair Value/Carrying Value (Assets) | | :-------------------- | :-------------------------- | :----------------------------------------------- | | Interest Rate Swaps | $885,000 | $4,187 | | Swaptions | $1,000,000 | $202 | | Total | $1,885,000 | $4,389 | Effect of Derivatives on Consolidated Statements of Operations (dollars in thousands) | Item | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 | | :------------------------------------------------------- | :-------- | :-------- | :-------- | :-------- | | Net unrealized gains (losses) on derivatives (Interest Rate Swaps) | $3,718 | — | $3,718 | — | | Periodic interest cost of interest rate swaps, net | (122) | — | (122) | — | | Net unrealized gains (losses) on derivatives (Swaptions) | 6,589 | — | 4,971 | — | | Total net gains (losses) on derivatives | $10,185 | — | $8,567 | — | [Note 11. Capital Stock](index=59&type=section&id=Note%2011.%20Capital%20Stock) This note provides information on the company's capital stock, including dividends declared on preferred stock, common stock repurchases, and earnings per share data Dividends Declared on Preferred Stock (dollars in millions) | Series | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 | | :----- | :------ | :------ | :------ | :------ | | Series A | $3 | $3 | $9 | $9 | | Series B | $7 | $7 | $20 | $20 | | Series C | $5 | $5 | $15 | $15 | | Series D | $4 | $4 | $12 | $12 | | Total | $19 | $19 | $56 | $56 | - The Company repurchased approximately **5.4 million shares** of common stock for **$49 million** during the nine months ended **September 30, 2022**, with **$177 million** remaining under the repurchase program[227](index=227&type=chunk) Net Income (Loss) Per Share Available to Common Shareholders | Item | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 | | :---------------------------------------------------------------- | :-------- | :-------- | :-------- | :-------- | | Net income (loss) available to common shareholders - Basic (thousands) | $(204,583) | $313,030 | $(665,549) | $597,067 | | Basic EPS | $(0.88) | $1.33 | $(2.84) | $2.57 | | Diluted EPS | $(0.88) | $1.30 | $(2.84) | $2.42 | | Weighted average basic shares outstanding | 231,750,422 | 235,887,296 | 234,671,912 | 232,717,010 | | Weighted average diluted shares outstanding | 231,750,422 | 240,362,602 | 234,671,912 | 247,358,823 | [Note 12. Accumulated Other Comprehensive Income](index=62&type=section&id=Note%2012.%20Accumulated%20Other%20Comprehensive%20Income) This note details the changes in accumulated other comprehensive income (AOCI), primarily related to unrealized gains and losses on available-for-sale securities Changes in Accumulated Other Comprehensive Income (AOCI) (dollars in thousands) | Item | 9M 2022 | 9M 2021 | | :---------------------------------------------------------------- | :-------- | :-------- | | Balance as of December 31 (prior year) | $405,054 | $558,096 | | OCI before reclassifications (Unrealized gains (losses) on securities, net) | (160,850) | (82,065) | | Amounts reclassified from AOCI | — | (37,116) | | Net current period OCI | (160,850) | (119,181) | | Balance as of September 30 | $244,204 | $438,915 | - No amounts were reclassified from AOCI during the nine months ended **September 30, 2022**, compared to **$37 million** net unrealized gains on available-for-sale securities sold in the prior year[235](index=235&type=chunk) [Note 13. Equity Compensation, Employment Agreements and other Benefit Plans](index=64&type=section&id=Note%2013.%20Equity%20Compensation%2C%20Employment%20Agreements%20and%20other%20Benefit%20Plans) This note outlines the company's equity compensation plans, including RSU and PSU grants, and associated stock-based compensation and 401(k) expenses - The Company granted **221 thousand RSU awards** with a fair value of **$3 million** during the nine months ended **September 30, 2022**, and **128 thousand PSU awards** with a fair value of **$2 million** to senior management[238](index=238&type=chunk)[240](index=240&type=chunk) - Stock-based compensation expenses were **$2 million** for **Q3 2022** and **$5 million** for **9M 2022**[241](index=241&type=chunk) - 401(k) expenses were **$95 thousand** for **Q3 2022** and **$423 thousand** for **9M 2022**, with the Company matching **100%** of the first **6%** of eligible employee contributions[243](index=243&type=chunk) [Note 14. Income Taxes](index=66&type=section&id=Note%2014.%20Income%20Taxes) This note discusses the company's income tax status as a REIT, current tax expenses, and the anticipated impact of recent tax legislation - The Company qualified as a REIT for the year ended **December 31, 2021**, and generally distributes at least **90%** of its annual REIT taxable income to stockholders to maintain this status[244](index=244&type=chunk) - Current income tax expense was **$4 thousand** for **Q3 2022** and **$28 thousand** for **9M 2022**, primarily from Taxable REIT Subsidiaries (TRSs)[245](index=245&type=chunk) - The Inflation Reduction Act (IRA) is not expected to materially impact the Company's financial statements, as REITs are excluded from the corporate alternative minimum tax (CAMT)[246](index=246&type=chunk) [Note 15. Credit Risk and Interest Rate Risk](index=66&type=section&id=Note%2015.%20Credit%20Risk%20and%20Interest%20Rate%20Risk) This note describes the company's primary market risks, credit risk and interest rate risk, and the strategies employed to manage them, including hedging and collateral arrangements - The Company's primary market risks are credit risk and interest rate risk, which are managed through asset selection, hedging, and matching income with financing costs[248](index=248&type=chunk) - Counterparty credit risk from derivatives and secured financing agreements is mitigated by monitoring credit profiles, master netting arrangements, and obtaining collateral[250](index=250&type=chunk)[252](index=252&type=chunk) Liabilities Subject to Master Netting Arrangements (September 30, 2022, dollars in thousands) | Item | Gross Amounts Recognized Liabilities | Gross Amounts Offset in Consolidated Statements of Financial Position | Net Amounts Offset in Consolidated Statements of Financial Position | Gross Amounts Not Offset with Financial Instruments | Cash Collateral Pledged | Net Amount | | :---------------------------------- | :----------------------------------- | :---------------------------------------------------- | :---------------------------------------------------- | :---------------------------------- | :---------------------- | :--------- | | Secured financing agreements | $(2,820,931) | — | $(2,820,931) | $3,717,510 | $55,642 | $952,221 | | Interest Rate Swaps - Gross Liabilities | $(470) | $470 | — | — | $7,123 | $7,123 | | Total | $(2,806,042) | $(10,500) | $(2,816,542) | $3,717,510 | $68,444 | $969,412 | [Note 16. Commitments and Contingencies](index=68&type=section&id=Note%2016.%20Commitments%20and%20Contingencies) This note discloses the company's potential legal claims, obligations, and other contingent liabilities arising in the ordinary course of business - The Company may be involved in various claims and legal actions in the ordinary course of business and has obligations to repurchase assets from VIEs upon breach of certain representations and warranties[255](index=255&type=chunk) [Note 17. Subsequent Events](index=68&type=section&id=Note%2017.%20Subsequent%20Events) This note reports on any significant events that occurred after the balance sheet date but before the financial statements were issued - No subsequent events were reported[256](index=256&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=69&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance and condition, discussing net income, interest income/expense, credit losses, fair value changes, and liquidity [Executive Summary](index=72&type=section&id=Executive%20Summary) This summary introduces the company as a publicly traded REIT, its investment focus on diversified mortgage assets, and its objective of providing attractive risk-adjusted returns - The Company is a publicly traded REIT focused on investing in a diversified portfolio of mortgage assets, including residential mortgage loans (**88%** of portfolio), Non-Agency RMBS (**9%**), and Agency MBS (**3%**) as of **September 30, 2022**[264](index=264&type=chunk)[265](index=265&type=chunk) - The primary objective is to provide attractive risk-adjusted returns through distributable income and asset performance linked to residential mortgage credit fundamentals, utilizing leverage and managing interest rate risk[264](index=264&type=chunk)[266](index=266&type=chunk) [Business Update](index=72&type=section&id=Business%20Update) This section provides an update on recent market conditions, including inflation and interest rate hikes, and the company's strategic responses, such as asset purchases and financing activities - Persistent high inflation and Federal Reserve rate hikes (**two 75 basis-point increases** in Q3) led to surging mortgage rates, negatively impacting residential mortgage markets[268](index=268&type=chunk) - The Company committed to purchase **$211 million** of Seasoned Re-Performing residential mortgage loans and **$476 million** Prime Jumbo loans in **Q3 2022**, with expected **Q4** settlement[269](index=269&type=chunk) - Financing activities included reducing secured financing borrowings by **$328 million**, sponsoring a **$370 million** securitization (CIM 2022-R3) of Seasoned Re-Performing residential mortgage loans, and entering **two interest rate swaps** (**$500 million two-year**, **$380 million five-year**) to hedge borrowing costs[270](index=270&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) [Market Conditions and our Strategy](index=74&type=section&id=Market%20Conditions%20and%20our%20Strategy) This section discusses the impact of rising interest rates and widening credit spreads on the company's portfolio and outlines its strategy for acquiring new assets, maintaining liquidity, and hedging against interest rate risk - Continued rise in forward interest rates and widening credit spreads in **Q3 2022**, with the Federal Reserve raising the Federal Funds Rate by **75 basis-points** to **3.25%** in September[275](index=275&type=chunk) - Mark-to-market losses in Agency and Residential Credit portfolios led to a **$1.38 decline** in book value per common share, reaching **$7.44** as of **September 30, 2022** (from **$8.82** on **June 30, 2022**)[278](index=278&type=chunk) - The Company's strategy focuses on acquiring new assets, maintaining low leverage and ample liquidity, and using hedges to protect against rising interest rates, leading to a reduced common stock dividend of **$0.23 per share**[279](index=279&type=chunk) [Business Operations](index=74&type=section&id=Business%20Operations) This section analyzes the company's operational performance, including detailed discussions on net income, interest income, interest expense, and other key financial metrics [Net Income (Loss) Summary](index=74&type=section&id=Net%20Income%20%28Loss%29%20Summary) This summary presents the company's net income or loss available to common shareholders and basic/diluted EPS, highlighting the primary drivers of changes in profitability Net Income (Loss) Available to Common Shareholders (dollars in thousands, except per share data) | Item | Q3 2022 | Q2 2022 | QoQ Change | 9M 2022 | 9M 2021 | YoY Change | | :--------------------------------------------------- | :-------- | :-------- | :--------- | :-------- | :-------- | :--------- | | Net income (loss) available to common shareholders | $(204,583) | $(179,765) | $(24,818) | $(665,549) | $597,067 | $(1,262,616) | | Basic EPS | $(0.88) | $(0.76) | $(0.12) | $(2.84) | $2.57 | $(5.41) | | Diluted EPS | $(0.88) | $(0.76) | $(0.12) | $(2.84) | $2.42 | $(5.26) | | Dividends declared per share of common stock | $0.23 | $0.33 | $(0.10) | $0.89 | $0.96 | $(0.07) | - The net loss in **Q3 2022** was primarily driven by additional mark-to-market losses on the portfolio's asset prices due to continued increases in interest rates and credit spread widening, partially offset by net interest income[288](index=288&type=chunk) - The nine-month net loss was primarily due to **$849 million** in net unrealized losses on financial instruments at fair value, compared to **$546 million** in unrealized gains in the prior year[290](index=290&type=chunk) [Interest Income](index=77&type=section&id=Interest%20Income) This section analyzes the trends and factors influencing the company's interest income, including changes in interest-earning assets and yields - Interest income decreased by **$7 million** (**4%**) QoQ to **$188 million** in **Q3 2022**, driven by a **$430 million decline** in total average interest-earning assets and lower yields on Non-Agency RMBS and Agency CMBS[292](index=292&type=chunk) - Interest income decreased by **$130 million** (**18%**) YoY to **$586 million** for **9M 2022**, primarily due to a **$916 million reduction** in average interest-earning assets, lower prepayment penalties on Agency CMBS, and lower yields on Loans held for investments and Non-Agency RMBS[294](index=294&type=chunk)[296](index=296&type=chunk) [Interest Expense](index=79&type=section&id=Interest%20Expense) This section examines the company's interest expense, focusing on the impact of rising interest rates and de-levering efforts on borrowing costs - Interest expense increased by **$5 million** (**6%**) QoQ to **$83 million** in **Q3 2022**, primarily due to increases in Federal Funds Rate driving secured financing agreement borrowing rates higher[297](index=297&type=chunk) - Interest expense decreased by **$34 million** (**13%**) YoY to **$226 million** for **9M 2022**, driven by de-levering efforts to reduce secured financing agreements balances and calls of higher-rate securitized debt[298](index=298&type=chunk)[299](index=299&type=chunk) [Economic Net Interest Income](index=79&type=section&id=Economic%20Net%20Interest%20Income) This section provides a non-GAAP measure of economic net interest income, analyzing the net interest rate spread and its drivers over various periods - Economic net interest income (non-GAAP) decreased by **$13 million** QoQ to **$104 million** in **Q3 2022**, with the net interest rate spread decreasing by **40 basis points** due to higher secured financing agreement borrowing rates[309](index=309&type=chunk) - Economic net interest income decreased by **$100 million** YoY to **$359 million** for **9M 2022**, and the net interest rate spread decreased by **80 basis points**, primarily due to declining asset yields and lower prepayment penalties[310](index=310&type=chunk)[311](index=311&type=chunk) Economic Net Interest Income Reconciliation (dollars in thousands) | Item | Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | | :------------------------------------ | :-------- | :-------- | :-------- | :-------- | :-------- | | GAAP Interest Income | $188,303 | $195,357 | $202,175 | $221,162 | $220,579 | | GAAP Interest Expense | 83,464 | 78,467 | 64,473 | 66,598 | 71,353 | | Periodic Interest Cost of Interest Rate Swaps | 122 | — | — | — | — | | Economic Interest Expense | 83,586 | 78,467 | 64,473 | 66,598 | 71,114 | | Economic Net Interest Income | $104,177 | $116,809 | $137,684 | $154,552 | $149,446 | [Provision for Credit Losses](index=83&type=section&id=Provision%20for%20Credit%20Losses) This section discusses the company's provision for credit losses, detailing the factors contributing to increases or decreases in expected losses and delinquencies - The Company recorded a **$1.5 million decrease** in provision for credit losses in **Q3 2022**, compared to a **$4.5 million increase** in **Q2 2022**, primarily due to decreased expected losses and delinquencies[316](index=316&type=chunk) - For **9M 2022**, there was a **$3.2 million increase** in provision for credit losses, compared to a **$58 thousand decrease** in **9M 2021**, mainly due to higher expected losses and delinquencies, and increased unrealized losses on certain Non-Agency RMBS[317](index=317&type=chunk) [Net Unrealized Gains (Losses) on Derivatives](index=83&type=section&id=Net%20Unrealized%20Gains%20%28Losses%29%20on%20Derivatives) This section reports the net unrealized gains or losses on derivative instruments, reflecting their fair value changes due to interest rate fluctuations - Net unrealized gains on derivatives were **$10.3 million** in **Q3 2022**, compared to net unrealized losses of **$1.6 million** in **Q2 2022**, reflecting changes in market value due to interest rate fluctuations[322](index=322&type=chunk) - For **9M 2022**, total net gains on derivative instruments were **$8.6 million**, compared to no derivative instruments in **9M 2021**[322](index=322&type=chunk) [Net Unrealized Gains (Losses) on Financial Instruments at Fair Value](index=85&type=section&id=Net%20Unrealized%20Gains%20%28Losses%29%20on%20Financial%20Instruments%20at%20Fair%20Value) This section details the net unrealized gains or losses on financial instruments carried at fair value, highlighting the impact of market conditions on portfolio valuation - Net unrealized losses on financial instruments at fair value were **$240 million** in **Q3 2022**, similar to **$239 million** in **Q2 2022**, driven by mark-to-market losses in Agency MBS and Residential Credit portfolios[323](index=323&type=chunk)[326](index=326&type=chunk) - For **9M 2022**, net unrealized losses totaled **$849 million**, a significant shift from **$546 million** in net unrealized gains for **9M 2021**, primarily due to increased inflation, yield curve inversion, and widening credit spreads[323](index=323&type=chunk)[327](index=327&type=chunk) [Gains and Losses on Sales of Assets](index=85&type=section&id=Gains%20and%20Losses%20on%20Sales%20of%20Assets) This section reports the realized gains and losses from the sale of assets, reflecting portfolio optimization efforts and liquidity management strategies - The Company realized a **$37 million loss** from the sale of Agency IO investments in **Q3** and **9M 2022** as part of portfolio optimization efforts[329](index=329&type=chunk) - In **9M 2021**, the Company recorded a **$45 million realized gain** from selling Agency CMBS and Non-Agency RMBS to strengthen liquidity[329](index=329&type=chunk) [Extinguishment of Securitized Debt](index=85&type=section&id=Extinguishment%20of%20Securitized%20Debt) This section discusses the acquisition and extinguishment of securitized debt, including any associated net gains or losses - No securitized debt collateralized by Non-Agency RMBS or Loans held for investment was acquired during **Q3** or **9M 2022**[331](index=331&type=chunk)[333](index=333&type=chunk) - In **9M 2021**, the Company acquired **$3.9 billion** of securitized debt collateralized by Loans held for investment, resulting in a **$260 million net loss** on extinguishment of debt[333](index=333&type=chunk) [Compensation, General and Administrative Expenses and Transaction Expenses](index=87&type=section&id=Compensation%2C%20General%20and%20Administrative%20Expenses%20and%20Transaction%20Expenses) This section analyzes the trends in compensation, general and administrative expenses, and transaction expenses, often presented as a percentage of average assets Total Compensation, G&A, and Transaction Expenses as % of Average Assets (Annualized) | Period | Total Expenses (thousands) | % of Average Assets | | :--------------------------------- | :------------------------- | :------------------ | | Q3 2022 | $17,177 | 0.50% | | Q2 2022 | $21,530 | 0.59% | | Q1 2022 | $20,868 | 0.54% | | Q4 2021 | $21,275 | 0.54% | | Q3 2021 | $21,426 | 0.54% | - Compensation and benefit costs decreased for **9M 2022** due to a decline in performance-based compensation[335](index=335&type=chunk) - Transaction expenses decreased for **Q3** and **9M 2022** due to lower call and securitization activity[337](index=337&type=chunk) [Servicing and Asset Manager Fees](index=87&type=section&id=Servicing%20and%20Asset%20Manager%20Fees) This section reports on the servicing and asset manager fees incurred, primarily related to the management of whole loans in consolidated securitization vehicles - Servicing and asset manager fees remained relatively unchanged at **$9 million** for **Q3 2022** and **Q2 2022**, and **$27 million** for **9M 2022**, primarily related to servicing costs of whole loans in consolidated securitization vehicles[338](index=338&type=chunk) [Earnings available for distribution](index=87&type=section&id=Earnings%20available%20for%20distribution) This section presents a non-GAAP measure of earnings available for distribution, detailing its components and per-share amounts - Earnings available for distribution (non-GAAP) decreased by **$11 million** QoQ to **$63 million** (**$0.27 per share**) in **Q3 2022**, driven by increased interest expense due to higher Fed Funds rates and no prepayment penalties[347](index=347&type=chunk) Earnings Available for Distribution (dollars in thousands, except per share data) | Item | Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | | :---------------------------------------------------------------- | :-------- | :-------- | :-------- | :-------- | :-------- | | GAAP Net income (loss) available to common stockholders | $(204,583) | $(179,765) | $(281,202) | $(718) | $313,030 | | Net unrealized (gains) losses on financial instruments at fair value | 239,513 | 239,246 | 370,167 | 108,286 | (239,524) | | Net realized (gains) losses on sales of investments | 37,031 | — | — | — | — | | Earnings available for distribution | $62,613 | $73,931 | $93,732 | $110,558 | $102,047 | | Earnings available for distribution per adjusted diluted common share | $0.27 | $0.31 | $0.39 | $0.46 | $0.42 | [Net Income (Loss) and Return on Total Stockholders' Equity](index=91&type=section&id=Net%20Income%20%28Loss%29%20and%20Return%20on%20Total%20Stockholders%27%20Equity) This section analyzes the company's net income or loss and various return on equity metrics, highlighting the factors influencing profitability relative to equity - Return on average equity decreased by **602 basis points** QoQ in **Q3 2022**, primarily due to lower unrealized asset pricing losses[349](index=349&type=chunk) Return on Equity Metrics (Annualized) | Period | Economic Net Interest Income/Average Equity | Earnings available for distribution/Average Common Equity | | :--------------------------------- | :------------------------------------------ | :---------------------------------------------------- | | Q3 2022 | 14.81% | 13.30% | | Q2 2022 | 14.81% | 13.29% | | Q1 2022 | 15.57% | 14.38% | | Q4 2021 | 16.30% | 15.45% | | Q3 2021 | 15.99% | 14.54% | [Financial Condition](index=91&type=section&id=Financial%20Condition) This section provides an overview of the company's financial position, including portfolio composition, liquidity, capital resources, and exposure to financial counterparties [Portfolio Review](index=91&type=section&id=Portfolio%20Review) This section reviews the company's investment portfolio, detailing asset purchases, principal payments, and the composition of various asset classes by amortized cost and fair value - During **9M 2022**, the Company purchased **$1.5 billion** of investments and received **$2.2 billion** in principal payments across its Agency MBS, Non-Agency RMBS, and Loans held for investment portfolios[350](index=350&type=chunk) Portfolio Composition (% of Total) | Asset Class | September 30, 2022 Amortized Cost | December 31, 2021 Amortized Cost | September 30, 2022 Fair Value | December 31, 2021 Fair Value | | :------------------------------------ | :-------------------------------- | :------------------------------- | :---------------------------- | :----------------------------- | | Non-Agency RMBS | 7.6% | 10.1% | 8.9% | 12.1% | | Agency RMBS | 0.5% | 0.8% | 0.3% | 0.4% | | Agency CMBS | 3.2% | 5.3% | 3.2% | 5.2% | | Loans held for investment | 88.7% | 83.8% | 87.6% | 82.3% | | Fixed-rate percentage of portfolio | 96.3% | 95.4% | 95.5% | 94.4% | | Adjustable-rate percentage of portfolio | 3.7% | 4.6% | 4.5% | 5.6% | Changes to Net Present Value of Expected Credit Losses (Non-Agency RMBS, dollars in thousands) | Item | Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | | :-------------------------- | :-------- | :-------- | :-------- | :-------- | :-------- | | Balance, beginning of period | $91,187 | $94,590 | $106,240 | $107,686 | $129,053 | | Increase/(decrease) | 11,136 | (5,108) | (12,503) | (3,387) | (25,518) | | Balance, end of period | $103,394 | $91,187 | $94,590 | $106,240 | $107,686 | [Liquidity and Capital Resources](index=96&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's cash position, cash flow activities, leverage ratios, and the impact of market volatility on secured financing agreements - Cash and cash equivalents decreased from **$386 million** at **December 31, 2021**, to **$86 million** at **September 30, 2022**, a **$228 million decrease**[373](index=373&type=chunk) - Operating activities provided **$299 million** in cash for **9M 2022**, investing activities provided **$656 million**, and financing activities used **$1.3 billion**[374](index=374&type=chunk)[375](index=375&type=chunk)[376](index=376&type=chunk) - GAAP leverage was **3.9:1** at **September 30, 2022** (up from **3.0:1** at **December 31, 2021**), and recourse leverage was **1.1:1** (up from **0.9:1**)[352](index=352&type=chunk)[377](index=377&type=chunk) - The weighted average haircut on secured financing agreements increased across all asset classes from **December 31, 2021**, to **September 30, 2022**, reflecting increased perceived risk and market volatility[380](index=380&type=chunk) [Exposure to Financial Counterparties](index=102&type=section&id=Exposure%20to%20Financial%20Counterparties) This section details the company's exposure to various financial counterparties through secured financing agreements, categorized by country and managed for risk mitigation Exposure to Secured Financing Agreements Counterparties (September 30, 2022, dollars in thousands) | Country | Number of Counterparties | Secured Financing Agreement | Exposure (1) | | :-------------- | :----------------------- | :-------------------------- | :----------- | | United States | 9 | $1,422,789 | $498,224 | | Japan | 1 | 717,902 | 258,378 | | Canada | 1 | 406,233 | 113,566 | | Netherlands | 1 | 47,546 | 1,898 | | South Korea | 1 | 122,226 | 6,352 | | Switzerland | 1 | 104,235 | 51,276 | | Total | 14 | $2,820,931 | $929,694 | - The Company actively manages counterparty risk and did not have any exposure exceeding **10%** of its equity at **September 30, 2022**[389](index=389&type=chunk)[390](index=390&type=chunk) [Stockholders' Equity](index=104&type=section&id=Stockholders%27%20Equity) This section provides an overview of changes in stockholders' equity, including share repurchase programs, common and preferred dividends declared, and their impact on capital structure - The Company's share repurchase program has **$177 million** remaining as of **September 30, 2022**, after repurchasing **5.4 million shares** for **$49 million** during **9M 2022**[392](index=392&type=chunk) - Common dividends declared were **$56 million** (**$0.23 per share**) in **Q3 2022** and **$212 million** (**$0.89 per share**) for **9M 2022**[394](index=394&type=chunk) - Preferred dividends declared totaled **$19 million** for **Q3 2022** and **$56 million** for **9M 2022** across Series A, B, C, and D preferred stocks[395](index=395&type=chunk)[396](index=396&type=chunk)[397](index=397&type=chunk)[398](index=398&type=chunk) [Restricted Stock Unit and Performance Share Unit Grants](index=106&type=section&id=Restricted%20Stock%20Unit%20and%20Performance%20Share%20Unit%20Grants) This section details the grants of restricted stock units (RSUs) and performance share units (PSUs) to employees and senior management, including their fair value and outstanding amounts - During **9M 2022**, the Company granted **221 thousand RSU awards** (**$3 million fair value**) and **128 thousand PSU awards** (**$2 million fair value**) to employees and senior management, respectively[401](index=401&type=chunk)[402](index=402&type=chunk) - As of **September 30, 2022**, approximately **3.0 million** unvested shares of RSUs and PSUs were outstanding[403](index=403&type=chunk) [Contractual Obligations and Commitments](index=106&type=section&id=Contractual%20Obligations%20and%20Commitments) This section outlines the company's contractual obligations, including secured financing agreements and securitized debt, categorized by maturity periods Contractual Obligations (September 30, 2022, dollars in thousands) | Obligation Type | Within One Year | One to Three Years | Three to Five Years | Greater Than or Equal to Five Years | Total | | :---------------------------------------------------------------- | :-------------- | :----------------- | :------------------ | :---------------------------------- | :---------- | | Secured financing agreements | $2,331,444 | $489,487 | — | — | $2,820,931 | | Securitized debt, collateralized by Non-Agency RMBS | 751 | 533 | 88 | 84 | 1,456 | | Securitized debt at fair value, collateralized by Loans held for investment | 1,799,830 | 2,705,792 | 1,767,557 | 1,821,698 | 8,094,877 | | Interest expense on MBS secured financing agreements | 20,026 | 2,491 | — | — | 22,517 | | Interest expense on securitized debt | 208,681 | 299,397 | 176,184 | 169,682 | 853,944 | | Total | $4,360,732 | $3,497,700 | $1,943,829 | $1,991,464 | $11,793,725 | - Unfunded construction loan commitments were **$10 million** at **September 30, 2022**, with the majority expected to be paid within one year[410](index=410&type=chunk) [Capital Expenditure Requirements](index=107&type=section&id=Capital%20Expenditure%20Requirements) This section reports on any material commitments for capital expenditures, indicating the company's investment plans for future growth or maintenance - The Company had no material commitments for capital expenditures at **September 30, 2022**, or **December 31, 2021**[411](index=411&type=chunk) [Critical Accounting Estimates](index=107&type=section&id=Critical%20Accounting%20Estimates) This section highlights the critical accounting policies and estimates that require significant judgment, such as revenue recognition, credit loss provisions, and fair value determinations - Critical accounting policies and estimates relate to revenue recognition on investments, including loss recognition, and the determination of fair value for financial instruments[414](index=414&type=chunk) - Significant estimates are made in accounting for current expected credit losses of Non-Agency RMBS, valuation of Loans held for investments, Agency and Non-Agency MBS, interest rate swaps, and income recognition[417](index=417&type=chunk)[418](index=418&type=chunk) [Recent Accounting Pronouncements](index=109&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to the notes to consolidated financial statements for a discussion of recently issued accounting guidance and its potential impact on the company - Refer to **Note 2** in the Notes to Consolidated Financial Statements for a discussion of recent accounting guidance[419](index=419&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=109&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details the Company's exposure to various market risks, including credit risk, interest rate risk (with specific attention to LIBOR transition, cap, and mismatch risks), prepayment risk, extension risk, basis risk, and market value risk [Credit Risk](index=109&type=section&id=Credit%20Risk) This section describes the company's exposure to credit risk from mortgage-backed securities and residential mortgage loans, and the strategies employed for mitigation - The Company is exposed to credit risk from Non-Agency RMBS and residential mortgage loans, particularly on assets rated below 'AAA' or unrated[422](index=422&type=chunk) - Credit risk is mitigated through due diligence, independent review of mortgage files, and quantitative/qualitative analysis of collateral characteristics for Non-Agency RMBS[423](index=423&type=chunk)[424](index=424&type=chunk) [Interest Rate Risk](index=109&type=section&id=Interest%20Rate%20Risk) This section discusses the impact of interest rate volatility on the company's net interest income, borrowing costs, and asset market values, including the implications of LIBOR transition - Interest rate volatility, driven by inflation and Federal Reserve rate hikes, negatively impacts net interest income, borrowing costs, and market value of assets[425](index=425&type=chunk) - The transition from LIBOR to SOFR for LIBOR-based borrowings and adjustable-rate mortgages could result in higher interest costs and increased difficulty in investing, hedging, and risk management[432](index=432&type=chunk)[435](index=435&type=chunk) Projected Percentage Change in Net Interest Income and Market Value (September 30, 2022) | Change in Interest Rate | Projected Percentage Change in Net Interest Income | Projected Percentage Change in Market Value | | :---------------------- | :------------------------------------------------- | :------------------------------------------ | | -100 Basis Points | 5.55% | 6.79% | | -50 Basis Points | 2.62% | 3.25% | | Base Interest Rate | — | — | | +50 Basis Points | (2.37)% | (3.09)% | | +100 Basis Points | (4.78)% | (5.95)% | [Prepayment Risk](index=115&type=section&id=Prepayment%20Risk) This section explains how changes in prepayment rates affect the amortization of purchase premiums and accretion of discounts on the company's investments - Increased prepayment rates accelerate the amortization of purchase premiums (reducing interest income) and the accretion of discounts (increasing interest income) on investments[447](index=447&type=chunk) [Extension Risk](index=115&type=section&id=Extension%20Risk) This section describes the risk that declining prepayment rates in a rising interest rate environment could extend the life of fixed-rate assets beyond hedging terms, negatively impacting financial results - If prepayment rates decrease in a rising interest rate environment, the life of fixed-rate assets could extend beyond hedging instrument terms, negatively impacting results as borrowing costs rise while asset income remains fixed[448](index=448&type=chunk) [Basis Risk](index=115&type=section&id=Basis%20Risk) This section defines basis risk as the potential for widening spreads between mortgage-backed securities and hedges, leading to a net decline in book value - Basis risk is the risk that the spread between MBS and hedges widens, causing a greater decline in the fair value of MBS than the increase in fair value of hedges, resulting in a net decline in book value[449](index=449&type=chunk) [Market Risk](index=115&type=section&id=Market%20Risk) This section covers various market risks, including market value fluctuations of available-for-sale securities and real estate market volatility impacting collateral values [Market Value Risk](index=115&type=section&id=Market%20Value%20Risk) This section explains how the fair value of available-for-sale securities is influenced by changes in interest rates, prepayment speeds, market liquidity, and credit quality - The fair value of available-for-sale securities fluctuates due to changes in interest rates, prepayment speeds, market liquidity, and credit quality, with increased volatility in rising interest rate environments or decreased liquidity[452](index=452&type=chunk)[453](index=453&type=chunk) [Real Estate Market Risk](index=117&type=section&id=Real%20Estate%20Market%20Risk) This section discusses the volatility of residential property values due to economic conditions, local real estate factors, and natural disasters, which can impact collateral value and lead to loan losses - Residential property values are subject to volatility from economic conditions, local real estate factors, and natural disasters, which can reduce collateral value and lead to loan losses[454](index=454&type=chunk) [Risk Management](index=117&type=section&id=Risk%20Management) This section outlines the company's strategies for managing various risks, including monitoring asset/financing re-pricing, diversifying financing agreements, and utilizing derivatives and securitization - Risk management strategies include monitoring and adjusting asset/financing re-pricing, structuring diverse financing agreements, using derivatives (swaps, futures, options), and utilizing securitization for long-term financing[455](index=455&type=chunk) Interest Rate Sensitivity Gap (September 30, 2022, dollars in thousands) | Period | Within 3 Months | 3-12 Months | 1 Year to 3 Years | Greater than 3 Years | Total | | :---------------------------------------------------------------- | :-------------- | :---------- | :---------------- | :------------------- | :----------- | | Total rate sensitive assets | $2,219,709 | $7,290,374 | $25,733 | $3,934,402 | $13,470,218 | | Rate sensitive liabilities | 5,249,253 | 4,925,987 | — | 4,187 | 10,179,427 | | Interest rate sensitivity gap | $(3,029,544) | $2,364,387 | $25,733 | $3,930,215 | $3,290,791 | | Cumulative rate sensitivity gap | $(3,029,544) | $(665,157) | $(639,424) | $3,290,791 | | | Cumulative interest rate sensitivity gap as a percentage of total rate sensitive assets | (22)% | (5)% | (5)% | 24% | | [Cybersecurity Risk](index=118&type=section&id=Cybersecurity%20Risk) This section describes the company's information security controls, risk assessments, and incident response plan to mitigate cybersecurity threats, acknowledging inherent risks - The Company employs a suite of information security controls, including hardware/software solutions, risk assessments, penetration tests, and an incident response plan, actively monitoring for suspicious activities[461](index=461&type=chunk) - Despite security measures, inherent cybersecurity risks remain, exacerbated by remote work environments which have seen increased phishing attempts[462](index=462&type=chunk)[463](index=463&type=chunk) [Item 4. Controls and Procedures](index=118&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures and reports on changes in internal control over financial reporting, noting the replacement of an investment accounting sub-ledger system [Evaluation of Disclosure Controls and Procedures](index=118&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms management's conclusion regarding the effectiveness of the company's disclosure controls and procedures as of the reporting date - Management, including the CEO, CFO, and Chief Accounting Officer, concluded that the Company's disclosure controls and procedures were effective as of **September 30, 2022**[465](index=465&type=chunk)[466](index=466&type=chunk) [Changes in Internal Control over Financial Reporting](index=120&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes in the company's internal control over financial reporting during the period, such as system replacements - During **Q3 2022**, the Company replaced its investment accounting sub-ledger system; no other material changes to internal control over financial reporting occurred[466](index=466&type=chunk) Part II. OTHER INFORMATION [Item 1. Legal Proceedings](index=120&type=section&id=Item%201.%20Legal%20Proceedings) This section reports on any legal proceedings involving the company during the period - No legal proceedings were reported[468](index=468&type=chunk) [Item 1A. Risk Factors](index=120&type=section&id=Item%201A.%20Risk%20Factors) This section addresses any material changes to the risk factors previously disclosed in the company's annual report - No material changes to the risk factors set forth in the Annual Report on Form 10-K for the year ended **December 31, 2021**[469](index=469&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=120&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's share repurchase program, including its authorization, the amount of shares repurchased, and the remaining funds available for future repurchases - The Company's share repurchase program has a **$250 million** authorization, with approximately **$177 million** remaining available for future repurchases as of **September 30, 2022**[470](index=470&type=chunk)[471](index=471&type=chunk) - No shares of common stock were repurchased under the program during the quarter ended **September 30, 2022**[471](index=471&type=chunk) [Item 3. Defaults Upon Senior Securities](index=120&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section reports on any defaults concerning the company's senior securities - No defaults upon senior securities were reported[472](index=472&type=chunk) [Item 4. Mine Safety Disclosures](index=120&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section provides any required disclosures related to mine safety - No mine safety disclosures were reported[473](index=473&type=chunk) [Item 5. Other Information](index=120&type=section&id=Item%205.%20Other%20Information) This section includes any other material information not otherwise disclosed in the report - No other information was reported[475](index=475&type=chunk) [Item 6. Exhibits](index=122&type=section&id=Item%206.%20Exhibits) This section provides a comprehensive list of exhibits filed with the Form 10-Q, including organizational documents, preferred stock certificates, certifications, and XBRL-related documents - The exhibits include Articles of Amendment and Restatement, Articles Supplementary for various preferred stock series, Amended and Restated Bylaws, Specimen Common Stock and Preferred Stock Certificates, and certifications under Sarbanes-Oxley Act[477](index=477&type=chunk)[479](index=479&type=chunk) [SIGNATURES](index=124&type=section&id=SIGNATURES) This section contains the official signatures of the company's authorized officers, certifying the accuracy and completeness of the report - The report is signed by Mohit Marria, Chief Executive Officer and Chief Investment Officer, and Subramaniam Viswanathan, Chief Financial Officer, on **November 3, 2022**[482](index=482&type=chunk)[483](index=483&type=chunk)

Financial Data and Key Metrics Changes - GAAP book value at the end of Q2 2022 was $8.82 per share, with an economic return on GAAP book value of negative 9.9% [19] - GAAP net loss for Q2 was $180 million or $0.76 per share, while net income on an earnings available for distribution basis was $74 million or $0.31 per share [19] - Economic net interest income for Q2 was $117 million, with a yield on average interest-earning assets of 5.6% and an average cost of funds of 2.7%, resulting in a net interest spread of 2.9% [20] - Total leverage for Q2 was 3.7:1, and recourse leverage ended at 1.1:1 [20] Business Line Data and Key Metrics Changes - The company completed two securitizations totaling $727 million, which helped reduce recourse financing by $278 million [12] - The average cost of debt for the securitizations was 5.13% [11] - The company repurchased 5.4 million shares at an average price of $9.10, totaling approximately $49 million [15] Market Data and Key Metrics Changes - The Federal Reserve increased the federal funds rate by 125 basis points during Q2 and another 75 basis points recently, leading to a 30-year fixed mortgage rate of 5.83%, the highest in over a decade [6] - The company noted that higher primary mortgage rates would severely impact new mortgage origination volumes [8] Company Strategy and Development Direction - The company aims to optimize its liability and capital structure to maximize net interest spread for shareholders [8] - The strategy includes acquiring business purpose loans that match the company's risk profile and capital structure [16] - The company has acquired nearly $1 billion of loans in 2022 at higher yields than in recent years [17] Management's Comments on Operating Environment and Future Outlook - Management indicated that the housing market is expected to slow down due to rising mortgage rates, but supply remains limited [28] - Home price appreciation is projected to be 4% to 6% annually going forward [29] - The company is optimistic about the securitization market in the second half of the year as supply declines and spreads improve [42] Other Important Information - The company entered a swaption contract for $1 billion notional value at a fixed rate of 3.26%, exercisable in May 2023 [14][15] - The company has $177 million remaining purchase authority for share repurchases [16] Q&A Session Summary Question: Expected returns on retained pieces of securitization - Expected returns are mid-high single digits due to earlier loan acquisition costs [22] Question: New returns expectations - New returns are expected to be in the high teens, but acquiring loans is currently less attractive [23] Question: Decline in investment portfolio - The decline was primarily due to natural paydowns and fair value adjustments, with no assets sold [33] Question: Thoughts on housing market and home price appreciation - The housing market is expected to slow, but home price appreciation is projected to be low double digits for the year and 4% to 6% annually thereafter [28][29] Question: Dividend coverage and economic earnings power - The company is evaluating its dividend policy in light of aggressive Fed rate hikes and has ample liquidity to deploy more assets [43][44]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 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 StockCIM PRB New York Stock Exchange 7.75% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred StockCIM PRC New York Stock Exchange 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Sto ...

FINANCIAL SUPPLEMENT 1st Quarter 2022 DISCLAIMER This presentation includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as "goal" "expect," "target," "assume," "estimate," "project," "budget," "forecast," "anticip ...

Chimera Investment Corporation (NYSE:CIM) Q1 2022 Earnings Conference Call May 5, 2022 8:00 AM ET Company Participants Victor Falvo – Head of Capital Markets Mohit Marria – Chief Executive Officer and Chief Investment Officer Subra Viswanathan – Chief Financial Officer Conference Call Participants Mike Smyth – KBW Trevor Cranston – JMP Securities Doug Harter – Credit Suisse Operator Good day, ladies and gentlemen, and welcome to the Chimera Investment Corporation's First Quarter 2022 Earnings Call. All line ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 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 StockCIM PRB New York Stock Exchange 7.75% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred StockCIM PRC New York Stock Exchange 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Sto ...

Portfolio Composition & Asset Allocation - Chimera allocated 95% of its equity capital to mortgage credit[5] - The total assets were $14.1 billion for the residential mortgage credit portfolio and $0.8 billion for the agency MBS portfolio[5] - As of December 31, 2021, the GAAP asset allocation included 82% in Loan Portfolio, 6% in Non-Agency MBS, and 12% in Agency CMBS and RMBS, totaling $14.9 billion[6] - As of September 30, 2021, the GAAP asset allocation included 81% in Loan Portfolio, 7% in Non-Agency MBS, and 12% in Agency CMBS and RMBS, totaling $15.6 billion[7] Financing Sources - As of December 31, 2021, financing sources included 67% Non-Recourse Debt, Securitized Loans, 25% Non-Agency and Loans Secured Financing, 7% Agency Secured Financing, and 1% Non-Recourse Debt, Securitized RMBS, totaling $11.1 billion[9] - As of September 30, 2021, financing sources included 70% Non-Recourse Debt, Securitized Loans, 24% Non-Agency and Loans Secured Financing, 6% Agency Secured Financing, and 1% Non-Recourse Debt, Securitized RMBS, totaling $11.8 billion[10] - Total Non-Agency Secured Financing was $2.0 billion as of both December 31, 2021, and September 30, 2021[10] Net Investment Analysis - The residential mortgage credit portfolio had a gross asset yield of 6.0%, financing costs of 2.5%, and a net interest spread of 3.5%[12] - The agency portfolio had a gross asset yield of 11.6%, financing costs of 0.2%, and a net interest spread of 11.4%[12] - The total portfolio had a gross asset yield of 6.4%, financing costs of 2.3%, and a net interest spread of 4.1%[12] Net Asset Breakdown - Total invested assets were $14.44 billion, including $1.81 billion in Non-Agency RMBS, $60.49 million in Agency RMBS, $761.21 million in Agency CMBS, and $11.81 billion in Residential Mortgage Loans[16] - Total securitized debt (non-recourse) was $7.81 billion, collateralized by Non-Agency RMBS and Residential Mortgage Loans[14]

Chimera Investment Corp (NYSE:CIM) Q4 2021 Earnings Conference Call February 17, 2022 8:30 AM ET Company Participants Victor Falvo - Head, Capital Markets Mohit Marria - CEO, CIO & Director Subramaniam Viswanathan - CFO Conference Call Participants Michael Smyth - KBW Eric Hagen - BTIG Kenneth Lee - RBC Capital Markets Trevor Cranston - JMP Securities Douglas Harter - Crédit Suisse Operator Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation Fourth Quarter and Full ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: December 31, 2021 OR ☐ 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 o ...

FINANCIAL SUPPLEMENT 3rd Quarter 2021 DISCLAIMER This presentation includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as "goal" "expect," "target," "assume," "estimate," "project," "budget," "forecast," "anticip ...