Chimera Investment(CIM) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for the period ended June 30, 2023, including key financial positions and performance metrics Consolidated Statement of Financial Condition Highlights (as of June 30, 2023) | Metric | Amount (in thousands) | | :--- | :--- | | Assets | | | Cash and cash equivalents | $200,940 | | Loans held for investment, at fair value | $11,929,537 | | Non-Agency RMBS, at fair value | $1,092,205 | | Agency MBS, at fair value | $136,326 | | Total Assets | $13,509,643 | | Liabilities | | | Secured financing agreements | $2,686,522 | | Securitized debt at fair value | $8,041,276 | | Total Liabilities | $10,930,240 | | Total Stockholders' Equity | $2,579,403 | Consolidated Statement of Operations Highlights (For the Quarter Ended June 30, 2023) | Metric | Amount (in thousands) | | :--- | :--- | | Net interest income | $65,678 | | Total other gains (losses) | $4,145 | | Total other expenses | $31,012 | | Net income (loss) | $36,024 | | Net income (loss) available to common shareholders | $17,586 | | Net income (loss) per share - Basic | $0.08 | | Net income (loss) per share - Diluted | $0.08 | Notes to Consolidated Financial Statements This section provides detailed disclosures on the company's accounting policies, investment portfolio, fair value measurements, and financing arrangements, including VIE consolidation - The company is an internally managed REIT primarily investing in a diversified portfolio of mortgage assets, including residential mortgage loans, Agency and Non-Agency RMBS, and Agency CMBS[373] - The company consolidates Variable Interest Entities (VIEs), primarily securitization trusts, where it is determined to be the primary beneficiary, indicating power to direct significant activities and absorb losses or benefits[348][349] - Significant estimates are required for valuing financial instruments, including Loans held for investment and Non-Agency MBS, and in recognizing income and credit losses[241][352][382] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q2 2023 financial performance, highlighting net income, book value changes, and strategic actions taken amidst rising interest rates and market volatility - The company's investment portfolio at June 30, 2023, based on fair value, consisted of approximately 91% residential mortgage loans, 8% Non-Agency RMBS, and 1% Agency MBS[100] - Book value per common share slightly declined to $7.29 as of June 30, 2023, from $7.41 as of March 31, 2023, as higher interest rates were mostly offset by credit spread tightening[51] - The Board of Directors reduced the second quarter 2023 cash dividend to $0.18 per common share from $0.23 in the prior quarter to better align with expected earnings performance[52] - During Q2 2023, the company sponsored $1.4 billion in securitizations to secure long-term, non-mark-to-market financing for its residential mortgage loans[101] Results of Operations This section analyzes the company's Q2 2023 operating results, detailing changes in net income, interest income, and expenses compared to prior periods, and the impact of market conditions Quarterly Performance Comparison (Q2 2023 vs Q1 2023) | Metric (in thousands, except per share) | Q2 2023 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $65,678 | $69,635 | ($3,957) | | Net Gains (Losses) on Derivatives | $15,331 | ($39,866) | $55,197 | | Net Unrealized Gains on Financial Instruments | $6,954 | $64,592 | ($57,638) | | Net Income Available to Common Shareholders | $17,586 | $38,928 | ($21,342) | | Basic EPS | $0.08 | $0.17 | ($0.09) | - Interest expense increased by $12 million quarter-over-quarter to $131 million, driven by higher borrowing rates on securitized debt due to the rise in the Federal Funds Rate[593][616] - Earnings available for distribution (a non-GAAP measure) was $28 million, or $0.12 per share, for Q2 2023, down from $31 million, or $0.13 per share, in Q1 2023[128][148] Financial Condition This section reviews the company's financial position as of June 30, 2023, including investment portfolio composition, leverage ratios, liquidity, and share repurchase program updates Portfolio Composition by Fair Value | Asset Class | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Loans held for investment | 90.7% | 87.8% | | Non-Agency RMBS | 8.3% | 8.9% | | Agency MBS & CMBS | 1.0% | 3.3% | Leverage Ratios | Metric | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | GAAP Leverage (Total Debt / Equity) | 4.2:1 | 4.0:1 | | Recourse Leverage (Recourse Debt / Equity) | 1.0:1 | 1.3:1 | - The company held $201 million in cash and cash equivalents at June 30, 2023, a decrease of $64 million from year-end 2022[136] - The share repurchase program authorization was increased to $250 million in June 2023, with the company repurchasing 5.8 million shares for $33 million in Q2 2023, leaving $217 million available[177][178] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to market risks, primarily credit and interest rate risks, and the strategies employed to mitigate them, including derivative use and LIBOR to SOFR transition management - The primary components of market risk are identified as credit risk, interest rate risk, prepayment risk, extension risk, basis risk, and market risk[213] Interest Rate Sensitivity Analysis (as of June 30, 2023) | Change in Interest Rate | Projected % Change in Net Interest Income | Projected % Change in Market Value | | :--- | :--- | :--- | | +100 Basis Points | (3.21)% | (6.07)% | | +50 Basis Points | (0.92)% | (3.13)% | | -50 Basis Points | 4.40% | 3.44% | | -100 Basis Points | 7.40% | 8.33% | - The company is managing the transition from LIBOR to SOFR, which became effective July 1, 2023, noting that differences could result in lower interest income than if LIBOR had remained[222][223][254] - The company employs a "Three Layers of Defense Approach" to Enterprise Risk Management (ERM), involving business units, an independent risk management unit, and internal or external audits[143] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[194] - No material changes to internal control over financial reporting were identified during the second quarter of 2023[194] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports that there are no material legal proceedings to disclose for the period - The company reports no material legal proceedings[195] Item 1A. Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes to the risk factors set forth in the Form 10-K for the year ended December 31, 2022[164] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchase activity, including the increased authorization and shares repurchased during the second quarter of 2023 - In June 2023, the Board of Directors increased the share repurchase program authorization by $73 million, bringing the total to $250 million[165] Common Stock Repurchases in Q2 2023 | Period | Total Shares Repurchased | Average Price Paid | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | April 2023 | 0 | N/A | $0 | | May 2023 | 0 | N/A | $0 | | June 2023 | 5,845,149 | $5.66 | $33.1 | | Total Q2 | 5,845,149 | $5.66 | $33.1 | - As of June 30, 2023, the approximate dollar value of shares that may yet be purchased under the Repurchase Program is $217 million[166] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including articles of incorporation, bylaws, descriptions of securities, the 2023 Equity Incentive Plan, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - The report includes various exhibits, such as the 2023 Equity Incentive Plan and CEO/CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[173][174]