Chimera Investment(US:CIM)2019-10-31 20:17Financial Performance - As of September 30, 2019, the book value per common share was $16.38, an increase from $16.24 as of June 30, 2019[258]. - For the quarter ended September 30, 2019, net income available to common shareholders was $88 million, or $0.47 per average basic common share, a decrease of $59 million, or $0.32, compared to the same period in 2018[269]. - For the nine months ended September 30, 2019, net income available to common shareholders was $229 million, or $1.22 per share, a decrease of $257 million, or $1.37, compared to the same period in 2018[270]. - GAAP net income available to common stockholders for the quarter ended September 30, 2019, was $87.888 million, compared to a net income of $147.361 million for the same quarter in 2018[328]. - For the quarter ended September 30, 2019, core earnings were $94 million, or $0.50 per average basic common share, compared to $113 million, or $0.60 per average basic common share for the same quarter in 2018, reflecting a decrease driven by higher interest expenses[329]. Interest Income and Expense - Interest income for the quarter ended September 30, 2019, was $330.1 million, compared to $321.7 million for the same period in 2018, reflecting a year-over-year increase of 0.13%[264]. - Interest income for the quarter ended September 30, 2019, increased by $8 million, or 3%, to $330 million, primarily due to an increase in interest income earned on Agency MBS of $22 million[272]. - For the nine months ended September 30, 2019, interest income increased by $95 million, or 10%, to $1.0 billion, driven by an increase in interest income on Agency MBS of $142 million[273]. - Interest expense for the quarter ended September 30, 2019, increased by $14 million, or 8%, to $189 million, primarily due to higher interest expense on repurchase agreements collateralized by Agency MBS[274]. - For the nine months ended September 30, 2019, interest expense increased by $105 million, or 22%, to $590 million, mainly due to higher interest expenses on repurchase agreements collateralized by Agency MBS[275]. Investment Portfolio - The company’s investment portfolio consisted of approximately 49% residential mortgage loans, 44% Agency MBS, and 7% Non-Agency RMBS as of September 30, 2019[252]. - The company acquired securitized debt collateralized by Non-Agency RMBS with an amortized cost balance of $2.9 million for $3.5 million during the nine months ended September 30, 2019[316]. - The company recorded principal writedowns during the quarter amounting to $5,764 thousand for Senior Non-Agency Mortgage-Backed Securities[340]. - The weighted average coupon for Senior Non-Agency Mortgage-Backed Securities was 4.7% at period-end[340]. - The weighted average delinquency pipeline for Senior Non-Agency Mortgage-Backed Securities was 14.9%[340]. Cash Flow and Liquidity - As of September 30, 2019, the company held cash and cash equivalents of approximately $161 million, an increase of $114 million from $47 million at December 31, 2018[351]. - For the nine months ended September 30, 2019, the company reported net cash used in operating activities of approximately $145 million, compared to cash provided of approximately $490 million for the same period in 2018[352]. - Cash provided from investing activities for the nine months ended September 30, 2019, was $3.3 billion, while cash used was $5.9 billion, resulting in a net cash outflow of $2.6 billion[353]. - Financing activities provided cash of $47 million for the nine months ended September 30, 2019, compared to $3.3 billion in 2018, reflecting a significant decrease[354]. - The company expects to continue borrowing funds through repurchase agreements to meet short-term liquidity needs[346]. Expenses - The company’s compensation and benefits expenses increased to $12.2 million for the quarter ended September 30, 2019, from $8.6 million in the same quarter of 2018, marking a 41.5% increase[264]. - Compensation and benefit costs increased to $12 million for the quarter ended September 30, 2019, from $9 million in the same quarter of 2018, primarily due to higher bonus accruals and stock-based compensation[319]. - General and administrative (G&A) expenses rose to $7 million for the quarter ended September 30, 2019, compared to $6 million in the same quarter of 2018, driven by higher investment consulting and legal fees[320][321]. - Transaction expenses increased to $3 million for the quarter ended September 30, 2019, from $1 million in the same quarter of 2018, attributed to higher securitization activity[322]. - Servicing fees were $9 million for the quarter ended September 30, 2019, down from $10 million in the same quarter of 2018, with total servicing fees for the nine months ended September 30, 2019, at $27 million compared to $31 million in 2018[323]. Debt and Leverage - Total debt carrying value was approximately $22.9 billion as of September 30, 2019, with a leverage ratio of approximately 5.7:1[363][364]. - GAAP leverage at period-end was 5.7:1 as of September 30, 2019, compared to 6.1:1 at December 31, 2018[336]. - The recourse leverage ratio was 3.8:1 for the nine months ended September 30, 2019, consistent with the previous year[355]. - The average remaining maturity of repurchase agreements was 131 days as of September 30, 2019[366]. - The company had $17.0 billion of securities pledged against repurchase agreement obligations as of September 30, 2019[365]. Risk Management - The company is subject to credit risk related to investments in Non-Agency RMBS and residential mortgage loans, particularly those rated below "AAA"[402]. - The company is exposed to interest rate risk due to its investments and related debt obligations, which include repurchase agreements and warehouse facilities[405]. - The net interest income is affected by the difference between investment income and borrowing costs, with floating rates based on LIBOR, leading to potential narrowing of net interest spreads during rising interest rates[407]. - A 100 basis point increase in interest rates could result in a projected decline in portfolio value by 1.66%[416]. - The company has a significant interest rate sensitivity gap of $(17,392,092) within 3 months, indicating a mismatch between rate-sensitive assets and liabilities[426]. Hedging and Interest Rate Sensitivity - The company utilizes hedging strategies, including interest rate swaps, to manage interest rate risk and mitigate potential losses[422]. - The fair value of available-for-sale securities fluctuates primarily due to changes in interest rates, with expected decreases in a rising interest rate environment[420]. - The company faces basis risk, which may lead to a decline in the fair value of RMBS greater than the increase in the value of hedges[419]. - Management computes the projected weighted-average life of investments based on prepayment assumptions, which can impact results if prepayment rates decrease in a rising interest rate environment[417]. - Cumulative interest rate sensitivity gap as a percentage of total rate-sensitive assets is -63% within 3 months, highlighting potential vulnerability to interest rate changes[426]. Capital and Shareholder Returns - Dividends declared to common shareholders for the nine months ended September 30, 2019, totaled $283 million, maintaining the same per share amount as the previous year[377]. - The company issued 8,000,000 shares of 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, generating net proceeds of $193 million[378]. - Dividends declared for Series A preferred stockholders amounted to $3 million and $9 million for the quarters ended September 30, 2019 and 2018, respectively[379]. - Dividends declared for Series B preferred stockholders totaled $7 million and $20 million for the same periods[379]. - The company granted 447,000 Restricted Stock Units (RSUs) during the nine months ended September 30, 2019, with a fair value of $8 million[382]. Commitments and Obligations - The company has a total of approximately $24.07 billion in contractual obligations as of September 30, 2019[387]. - The company made a $150 million capital commitment to Hains Point, LLC, with $61 million funded as of September 30, 2019[392]. - The company must pay annual dividends of at least 90% of its taxable income to maintain REIT qualification[395]. - The company has no material commitments for capital expenditures as of September 30, 2019[394]. Cybersecurity - Cybersecurity risk management includes technology solutions and training, but there is no assurance that these efforts will fully mitigate risks[427].