Chimera Investment(CIM) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls Item 1. Consolidated Financial Statements This section details Chimera Investment Corporation's financial position, operational results, and cash flows, highlighting asset growth and net income changes Consolidated Statements of Financial Condition This statement presents the company's assets, liabilities, and equity at specific points in time Consolidated Financial Condition Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $14,863,229 | $13,116,490 | | Agency MBS, at fair value | $2,675,280 | $519,218 | | Loans held for investment, at fair value | $10,640,298 | $11,196,678 | | Total Liabilities | $12,238,698 | $10,590,301 | | Secured financing agreements | $4,563,063 | $2,824,371 | | Securitized debt at fair value | $6,970,800 | $6,984,495 | | Total Stockholders' Equity | $2,624,531 | $2,526,189 | - The company's consolidated statements include assets of consolidated variable interest entities (VIEs) totaling $9.9 billion as of June 30, 2025, which can only be used to settle obligations of the VIEs[17] Consolidated Statements of Operations This statement outlines the company's revenues, expenses, and net income over specific periods Quarterly and Six-Month Operational Highlights (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $66,010 | $67,295 | $135,230 | $132,402 | | Total Other Income (Losses) | $1,378 | $13,841 | $138,660 | $102,207 | | Net Income | $35,450 | $56,664 | $202,747 | $186,118 | | Net Income Available to Common Shareholders | $14,024 | $33,913 | $159,964 | $144,930 | | Basic EPS | $0.17 | $0.42 | $1.97 | $1.78 | | Diluted EPS | $0.17 | $0.41 | $1.94 | $1.76 | - Net income for Q2 2025 decreased to $35.5 million from $56.7 million in Q2 2024, primarily due to lower other income, including a net loss on derivatives compared to a gain in the prior-year quarter, however, for the six-month period, net income increased year-over-year, driven by significant unrealized gains on financial instruments[20] Consolidated Statements of Cash Flows This statement details the sources and uses of cash from operating, investing, and financing activities Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $41,370 | $126,306 | | Net cash provided by (used in) investing activities | $(1,378,159) | $134,792 | | Net cash provided by (used in) financing activities | $1,503,014 | $(320,478) | | Net increase (decrease) in cash | $166,225 | $(59,380) | | Cash and cash equivalents at end of period | $250,223 | $162,304 | - The significant use of cash in investing activities in the first six months of 2025 ($1.4 billion outflow) was driven by $1.9 billion in Agency MBS purchases, which was funded by a $1.5 billion net inflow from financing activities, primarily from increased secured financing agreements[36][37] Notes to Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the consolidated financial statements - The company is an internally managed REIT investing in mortgage assets, recently acquired The Palisades Group, LLC in December 2024, adding investment management and advisory services, and also entered an agreement to acquire HomeXpress Mortgage Corp in June 2025, an originator of non-QM and other mortgage products[40][42][43] - The company classifies its Non-Agency RMBS as available-for-sale and recorded an allowance for credit losses of $36.2 million as of June 30, 2025, an increase from $28.4 million at year-end 2024, primarily due to deterioration in cash flows on certain investments[67][74][75] - All Loans held for investment, with a fair value of $10.6 billion as of June 30, 2025, are carried at fair value, and the total unpaid principal balance was $10.9 billion[91] - The company uses a three-level hierarchy for fair value measurements, with Non-Agency RMBS and most Loans held for investment classified as Level 3, indicating reliance on unobservable inputs, while Agency MBS are classified as Level 2[97][106][113] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the company's financial performance, strategic actions, and portfolio shifts in a volatile market environment Executive Summary and Business Highlights This section provides an overview of key business developments and strategic initiatives during the period - As of June 30, 2025, the investment portfolio composition shifted significantly towards Agency RMBS, which comprised 19% of the portfolio by fair value, up from 4% at year-end 2024, while Residential mortgage loans decreased to 74% from 88%[257] - Key strategic actions during Q2 2025 include entering a definitive agreement to acquire HomeXpress Mortgage Corp, investing $2.3 billion in Agency RMBS Pass-throughs, adding $1.9 billion in interest rate swaps to hedge the Agency RMBS portfolio, generating $9 million in revenue from investment management and advisory services, and subsequent to quarter end, acquired $6.5 billion of Fannie Mae mortgage servicing rights (MSRs)[261] Results of Operations This section analyzes the company's financial performance, including net interest income and other gains or losses Quarterly Income Statement Summary (in thousands, except per share data) | Metric | Q2 2025 | Q1 2025 | QoQ Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $66,010 | $69,219 | $(3,209) | | Net Unrealized Gains on Financial Instruments | $6,971 | $128,895 | $(121,924) | | Net Gains (Losses) on Derivatives | $(15,441) | $(2,252) | $(13,189) | | Net Income | $35,450 | $167,297 | $(131,847) | | Net Income Available to Common Shareholders | $14,024 | $145,940 | $(131,916) | | Basic EPS | $0.17 | $1.79 | $(1.62) | - The significant decrease in net income from Q1 to Q2 2025 was primarily driven by a $122 million reduction in unrealized gains on financial instruments and a $13 million increase in net losses on derivatives[295] Earnings Available for Distribution (Non-GAAP) | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Earnings available for distribution (in thousands) | $32,111 | $33,526 | | Earnings available for distribution per adjusted diluted common share | $0.39 | $0.41 | Financial Condition, Liquidity and Capital Resources This section discusses the company's financial position, cash availability, and capital management strategies Leverage Ratios | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | GAAP Leverage at period-end | 4.5:1 | 4.0:1 | | GAAP Leverage at period-end (recourse) | 1.8:1 | 1.2:1 | - Recourse leverage increased to 1.8:1 from 1.2:1 at year-end, primarily due to higher borrowings under secured financing agreements to fund Agency RMBS purchases[379] - As of June 30, 2025, the company had $250 million in cash and cash equivalents and $311 million in unencumbered assets available for liquidity needs[375][381] - To mitigate margin call risk, the company utilizes non-mark-to-market (non-MTM) and limited-MTM financing facilities, with $924 million in non-MTM facilities and $498 million in limited-MTM facilities as of June 30, 2025[385][386] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to market risks, including interest rate and credit risks, and its mitigation strategies Interest Rate Sensitivity Analysis (as of June 30, 2025) | Change in Interest Rate | Projected Percentage Change in Net Interest Income | Projected Percentage Change in Market Value | | :--- | :--- | :--- | | -100 Basis Points | 8.75 % | 4.11 % | | -50 Basis Points | 4.59 % | 2.08 % | | Base Interest Rate | — | — | | +50 Basis Points | (4.62)% | (2.07)% | | +100 Basis Points | (9.34)% | (4.03)% | - The company is subject to credit risk on its Non-Agency RMBS and residential mortgage loans, managing this risk through independent reviews of mortgage files, obtaining representations and warranties from sellers, and closely monitoring credit loss expectations[431][432] - The company's interest rate risk management strategy includes monitoring the reset indices of assets and financings, structuring financing with varied maturities, and using derivatives to adjust interest rate sensitivity[458] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[466] - There were no changes in internal control over financial reporting during the second quarter of 2025 that materially affected, or are reasonably likely to materially affect, these controls[467] PART II. OTHER INFORMATION This section provides additional disclosures on legal proceedings, risk factors, equity sales, and other relevant information Item 1. Legal Proceedings The company reported no material legal proceedings during the period - There are no legal proceedings to report for the period[469] Item 1A. Risk Factors New risk factors related to the pending HomeXpress acquisition are disclosed, including integration challenges and closing conditions - New risk factors have been added related to the acquisition of HomeXpress, highlighting that the completion is subject to closing conditions and there is no assurance they will be satisfied[471] - The company may face challenges and devote significant resources to integrating HomeXpress's operations, and failure to do so effectively could limit the anticipated benefits and adversely affect results[472] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no common stock repurchases during the quarter, with $250 million remaining under its repurchase program - The company did not repurchase any of its common stock during the quarters and six months ended June 30, 2025[477] - The authorized amount remaining under the Share Repurchase Program is $250 million as of June 30, 2025[398] Item 5. Other Information The company amended the HomeXpress acquisition agreement, shifting stock issuance to a private placement with a new Registration Rights Agreement - On August 5, 2025, the company amended its stock purchase agreement for the HomeXpress acquisition, where the shares to be issued as part of the consideration will now be issued in a private placement rather than through a registered offering on Form S-4[481] - In connection with the amendment, the company entered into a Registration Rights Agreement, obligating it to file a resale shelf registration statement for the shares issued to the sellers shortly after the closing of the acquisition[482][483]