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Press release from Business Wire

Chimera Investment Corporation Reports Core EPS for the 2nd Quarter 2011 of $0.14 Per Share

Monday, August 01, 2011

Chimera Investment Corporation Reports Core EPS for the 2nd Quarter 2011 of $0.14 Per Share16:33 EDT Monday, August 01, 2011 NEW YORK (Business Wire) -- Chimera Investment Corporation (NYSE: CIM) today reported Core Earnings for the quarter ended June 30, 2011 of $145.6 million or $0.14 per average share as compared to Core Earnings for the quarter ended June 30, 2010 of $142.8 million or $0.19 per average share and Core Earnings for the quarter ended March 31, 2011 of $153.5 or $0.15 per average share. “Core Earnings” is a non-GAAP measure that approximates distributable income, and is defined as GAAP net income (loss) excluding non-cash equity compensation expense, unrealized gains and losses, realized gains and losses on sales and other items that do not affect distributable net income. The Company reported GAAP net income of $117.8 million or $0.11 per average share for the quarter ended June 30, 2011, as compared to $124.6 million or $0.16 per average share for the quarter ended June 30, 2010, and $163.4 million or $0.16 per average share for the quarter ended March 31, 2011. During the quarter ended June 30, 2011, the Company sold residential mortgage-backed securities (RMBS) with a carrying value of $16.4 million for realized losses of $380 thousand. During the quarter ended June 30, 2010, the Company had no sales of RMBS. During the quarter ended March 31, 2011, the Company sold RMBS with a carrying value of $649.8 million for realized gains of $2.7 million. During the quarter ended June 30, 2011, the Company did not execute any re-securitization transactions. During the quarter ended June 30, 2010, the Company financed on a permanent non-recourse basis $627.9 million of AAA-rated fixed rate bonds for net proceeds of $629.2 million. During the quarter ended March 31, 2011, the Company financed on a permanent non-recourse basis $306.6 million of AAA-rated fixed rate bonds for net proceeds of $311.0 million. Assets, liabilities, interest income and interest expense associated with these transactions are identified throughout the consolidated financial statements as “non-retained” items. The Company declared common stock dividends of $0.13, $0.17, and $0.14 per share for the quarters ended June 30, 2011, June 30, 2010, and March 31, 2011, respectively. The annualized dividend yield on the Company's common stock for the quarter ended June 30, 2011 based on the June 30, 2011 closing price of $3.46 was 15.03%. On a Core Earnings basis, the Company provided an annualized return on average equity of 16.68%, 21.94%, and 17.00% for the quarters ended June 30, 2011, June 30, 2010, and March 31, 2011, respectively. On a GAAP basis, the Company provided an annualized return on average equity of 13.50%, 19.14% and 18.09%, for the quarters ended June 30, 2011, June 30, 2010, and March 31, 2011, respectively. Matthew J. Lambiase, Chief Executive Officer and President of the Company, commented on the quarter. “Our markets demonstrated volatility and caution in the second quarter, particularly due to the Federal Reserve's Maiden Lane activities. Chimera is not involved in those segments of the market, and as a result our portfolio performed relatively well. Attractive investment opportunities are developing in these market conditions, and we believe that the company is well-positioned to take advantage of them.” For the quarter ended June 30, 2011, the annualized yield on average interest earning assets, including the effect of principal write-downs, was 6.64% and the annualized cost of funds on the average borrowed funds balance, including the net interest payments on interest rate swaps, was 2.44% for an interest rate spread of 4.20%. This is a 134 basis point decrease from the 5.54% annualized interest rate spread for the quarter ended June 30, 2010, and a 51 basis point decrease from the 4.71% annualized interest rate spread for the quarter ended March 31, 2011. Beginning with the Company's consolidated financial statements for the quarter and six month period ending June 30, 2011, interest expense on interest rate swaps will be presented in Other gains (losses) as realized gains (losses) on interest rate swaps. This change will not affect GAAP or taxable net income, stockholders' equity, cash flows or earnings per share. Consolidated financial statements for periods prior to June 30, 2011 will be conformed to the restated presentation. Leverage was 1.9:1, 1.3:1, and 1.8:1 at June 30, 2011, June 30, 2010, and March 31, 2011, respectively. Recourse leverage was 1.3:1, 0.5:1 and 1.1:1 at June 30, 2011, June 30, 2010, and March 31, 2011, respectively. The following table summarizes portfolio information for the Company:     June 30, 2011     June 30, 2010     March 31, 2011         Interest earning assets at period-end * $ 10,014,236 $ 6,595,363 $10,170,231 Interest bearing liabilities at period-end $ 6,471,407 $ 3,801,485 $6,228,141 Leverage at period-end 1.9:1 1.3:1 1.8:1 Leverage at period-end (recourse) 1.3:1 0.5:1 1.1:1 Portfolio Composition, at principal value Non-Agency RMBS 71.5% 80.5% 71.7% Senior 0.0% 5.2% 0.1% Senior, interest only 33.6% 25.9% 33.2% Subordinated 26.0% 30.2% 25.6% Subordinated, interest only 1.6% 2.2% 1.6% Senior, non-retained 10.3% 17.0% 11.2% Agency RMBS 25.5% 13.4% 25.1% Securitized loans 3.0% 6.1% 3.2% Fixed-rate percentage of portfolio 80.4% 72.4% 79.8% Adjustable-rate percentage of portfolio 19.6% 27.6% 20.2% Annualized yield on average interest earning assets for the quarter ended** 6.64% 8.47% 7.41% Annualized cost of funds on average borrowed funds for the quarter ended*** 2.44% 2.93% 2.70% *   Excludes cash and cash equivalents. ** Includes the effect of realized loss on principal write-downs. *** Includes the effect of interest paid on interest rate hedges.   The following table summarizes characteristics for each asset class:       June 30, 2011       Principal orNotionalValue atPeriod-End     WeightedAverageAmortizedCost Basis atPeriod-End     WeightedAverage FairValue atPeriod-End     WeightedAverageCoupon atPeriod-End     WeightedAverageYield (LossAdjusted) atPeriod-End     AnnualizedYield OverCurrentQuarter*     WeightedAverage 3Month CPRat Period-End Non-Agency Mortgage-Backed Securities                             Senior $ 6,967 $ 98.67 $ 97.03 1.15 % 2.59 % 1.95 % 16 % Senior, interest only $ 6,387,919 $ 6.35 $ 5.34 1.91 % 14.07 % 4.12 % 17 % Subordinated $ 4,938,497 $ 48.68 $ 43.32 4.05 % 13.61 % 18.40 % 17 % Subordinated, interest only $ 301,619 $ 9.95 $ 11.15 2.93 % 23.96 % 28.36 % 14 % Senior, non-retained $ 1,948,002 $ 98.00 $ 111.74 5.17 % 4.58 % 5.70 % 16 % Agency Mortgage-Backed Securities $ 4,849,630 $ 102.81 $ 104.41 4.71 % 4.34 % 4.34 % 7 % Securitized loans Senior $ 252,159 $ 101.19 $ 101.19 5.47 % 5.35 % 2.35 % 24 % Senior, interest only $ 266,092 $ 0.01 $ 0.01 0.40 % 100.00 % 4428.57 % 24 % Subordinated $ 54,880 $ 100.54 $ 100.54 5.16 % -5.04 % 16.49 % 26 %   * Includes the effect of realized loss on principal write-downs.   The Company's portfolio is comprised of Non-Agency and Agency RMBS and securitized whole residential mortgage loans. During the quarter ended June 30, 2011, the Company recorded no loan loss provision as compared to a provision of $1.0 million for the quarter ended June 30, 2010 and $1.4 million for the quarter ended March 31, 2011. The Constant Prepayment Rate on the Company's portfolio was 14%, 16%, and 18% as of June 30, 2011, June 30, 2010, and March 31, 2011, respectively. The net accretion of discounts was $54.2 million, $65.0 million and $64.4 million for the quarters ended June 30, 2011, June 30, 2010, and March 31, 2011, respectively. The total net discount remaining was $2.0 billion, $2.2 billion and $2.1 billion at June 30, 2011, June 30, 2010, and March 31, 2011, respectively. General and administrative expenses, including the management fee and loan loss provision, as a percentage of average interest earning assets were 0.50%, 0.54%, and 0.56% for the quarters ended June 30, 2011, June 30, 2010, and March 31, 2011, respectively. At June 30, 2011, June 30, 2010, and March 31, 2011, the Company had a GAAP common stock book value per share of $3.35, $3.30, and $3.45, respectively. At June 30, 2011, June 30, 2010, and March 31, 2011, the Company had an estimated economic book value per share of $3.08, $3.41, and $3.18, respectively. Estimated economic book value considers the fair values of only the assets the Company owns or is able to dispose of, pledge, or otherwise monetize, and specifically excludes the non-retained non-Agency Mortgage-Backed Securities and the corresponding securitized debt, non-retained as presented in the Company's consolidated statements of financial condition. The Company's estimate of economic book value has important limitations. Should the Company sell the assets in its portfolio, it may realize materially different proceeds from the sale than estimated as of the reporting date. The Company invests in residential mortgage-backed securities, residential mortgage loans, commercial mortgage loans, real estate-related securities and various other asset classes. The Company's principal business objective is to generate net income from the spread between the yields on its investments and the cost of borrowing to finance their acquisition and secondarily to provide capital appreciation. The Company, a Maryland corporation that has elected to be taxed as a real estate investment trust (REIT), is externally managed by Fixed Income Discount Advisory Company. The Company will hold the second quarter 2011 earnings conference call on Tuesday, August 2nd, 2011, at 11:00 a.m. EDT. The number to call is 866-843-0890 for domestic calls and 412-317-9250 for international calls and the pass code is 6462951. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the pass code is 10002677. The replay is available for 48 hours after the earnings call. There will be a web cast of the call on www.chimerareit.com. If you would like to be added to the email distribution list, please visit www.chimerareit.com, click on Email Alerts, complete the email notification form and click the Submit button. For further information, please contact Investor Relations at 1-866-315-9930 or visit www.chimerareit.com. This news release and our public documents to which we refer contain or incorporate by reference certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements which are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may,” “would,” “will” or similar expressions, or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, our business and investment strategy; our projected financial and operating results; our ability to maintain existing financing arrangements, obtain future financing arrangements and the terms of such arrangements; general volatility of the securities markets in which we invest; the implementation, timing and impact of, and changes to, various government programs, our expected investments; changes in the value of our investments; interest rate mismatches between our investments and our borrowings used to fund such purchases; changes in interest rates and mortgage prepayment rates; effects of interest rate caps on our adjustable-rate investments; rates of default or decreased recovery rates on our investments; prepayments of the mortgage and other loans underlying our mortgage-backed or other asset-backed securities; the degree to which our hedging strategies may or may not protect us from interest rate volatility; impact of and changes in governmental regulations, tax law and rates, accounting guidance, and similar matters; availability of investment opportunities in real estate-related and other securities; availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; our understanding of our competition; market trends in our industry, interest rates, the debt securities markets or the general economy; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; and our ability to maintain our qualification as a REIT for federal income tax purposes. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our Annual Report on Form 10-K, and any subsequent Quarterly Reports on Form 10-Q. We do not undertake, and specifically disclaim all obligations, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. CHIMERA INVESTMENT CORPORATIONCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except share and per share data)       For the quarter ended         June 30, 2011(unaudited)     March 31, 2011(unaudited)     December 31, 2010(1)     September 30, 2010(unaudited)     June 30, 2010(unaudited) Assets:                               Cash and cash equivalents $ 16,080     $ 16,295     $ 7,173     $ 11,949     $ 236,214 Non-Agency RMBS, at fair value Senior 347,900 329,782 987,685 1,065,145 817,736 Subordinated 2,173,005 2,266,560 2,210,858 1,866,911 1,465,905 Senior, non-retained 2,176,692 2,368,212 2,330,568 1,967,812 2,133,486 Agency RMBS, at fair value 5,013,760 4,879,382 2,133,584 1,884,193 1,761,732 Securitized loans held for investment, net of allowance for loan losses of $7.5 million $8.0 million, $6.6 million, $6.0 million, and $5.6 million, respectively 302,879 326,295 353,532 389,315 416,504 Receivable for investments sold - 6,192 - - - Accrued interest receivable 57,946 58,570 49,088 47,767 45,682 Other assets 847 1,270 1,212 360 923 Interest rate swaps, at fair value       -         5,876         -         -         -   Total assets     $ 10,089,109       $ 10,258,434       $ 8,073,700       $ 7,233,452       $ 6,878,182     Liabilities: Repurchase agreements, Agency RMBS $ 4,320,487 $ 3,870,407 $ 1,600,078 $ 1,359,504 $ 1,133,036 Repurchase agreements, non-Agency RMBS - - 208,719 208,719 204,769 Securitized debt, loans held for investment 245,984 266,363 289,236 320,552 342,819 Securitized debt, non-Agency RMBS, non-retained 1,904,936 2,091,371 1,956,079 1,955,665 2,120,861 Payable for investments purchased - 311,610 127,693 279,649 - Accrued interest payable 11,529 12,543 11,641 11,164 12,145 Dividends payable 133,425 143,676 174,445 158,811 130,420 Accounts payable and other liabilities 1,355 1,234 393 810 679 Investment management fees payable to affiliate 13,196 12,807 12,422 11,411 9,357 Interest rate swaps, at fair value       19,658         6,033         9,988         24,820         11,237   Total liabilities     $ 6,650,570       $ 6,716,044       $ 4,390,694       $ 4,331,105       $ 3,965,323     Stockholders' Equity: Common stock: par value $0.01 per share; 1,500,000,000 shares authorized, 1,027,167,395, 1,027,107,362, 1,027,034,357, 883,169,403, and 883,151,028 shares issued and outstanding, respectively $ 10,263 $ 10,262 $ 10,261 $ 8,822 $ 8,822 Additional paid-in-capital 3,602,671 3,602,339 3,601,890 3,056,659 3,056,566 Accumulated other comprehensive income (loss) 25,297 113,899 274,651 22,444 673 Retained earnings (accumulated deficit)       (199,692 )       (184,110 )       (203,796 )       (185,578 )       (153,202 ) Total stockholders' equity     $ 3,438,539       $ 3,542,390       $ 3,683,006       $ 2,902,347       $ 2,912,859   Total liabilities and stockholders' equity     $ 10,089,109       $ 10,258,434       $ 8,073,700       $ 7,233,452       $ 6,878,182     (1) Derived from the audited consolidated financial statements at December 31, 2010.   CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except share and per share data) (unaudited)       For the quarter ended         June 30, 2011     March 31, 2011     December 31, 2010     September 30, 2010     June 30, 2010 Net Interest Income:                 Interest income $ 194,235 $ 206,574 $ 159,967 $ 140,405 $ 133,522 Interest expense 7,481 8,002 9,480 8,034 6,499   Interest income, non-retained 28,428 21,159 33,780 58,090 49,829 Interest expense, non-retained       28,312         27,575         27,573         32,237         21,421   Net interest income (expense)       186,870         192,156         156,694         158,224         155,431   Other-than-temporary impairments: Total other-than-temporary impairment losses (1,926 ) (4,205 ) (5,596 ) (1,314 ) (24,746 ) Non-credit portion of loss recognized in other comprehensive income (loss)       882         1,580         3,233         436         17,853   Net other-than-temporary credit impairment losses       (1,044 )       (2,625 )       (2,363 )       (878 )       (6,893 ) Other gains (losses): Unrealized gains (losses) on interest rate swaps (19,500 ) 9,831 14,831 (13,583 ) (11,237 ) Realized gains (losses) on interest rate swaps       (4,297 )       (2,847 )       (2,596 )       (2,493 )       (699 ) Gains (losses) on interest rate swaps       (23,797 )       6,984         12,235         (16,076 )       (11,936 ) Net gains (losses) on interest-only RMBS (4,442 ) - - - - Net gains (losses) on embedded derivatives in interest-only RMBS (2,234 ) - - - - Realized gains (losses) on sales of investments, net (380 ) 2,744 7,711 2,032 - Realized losses on principal write-downs of non-Agency RMBS       (22,040 )       (19,520 )       (3,593 )       (2,517 )       (326 ) Total other gains (losses)       (52,893 )       (9,792 )       16,353         (16,561 )       (12,262 ) Net investment income (loss)       132,933         179,739         170,684         140,785         136,276   Other expenses: Management fee 13,152 12,750 12,229 11,318 9,263 Provision for loan losses - 1,442 577 482 1,024 General and administrative expenses       1,820         1,487         1,648         1,798         1,409   Total other expenses       14,972         15,679         14,454         13,598         11,696   Income (loss) before income taxes 117,961 164,060 156,230 127,187 124,580 Income taxes       118         698         3         752         1   Net income (loss)     $117,843       $163,362       $156,227       $126,435       $124,579     Net income (loss) per share-basic and diluted     $ 0.11       $ 0.16       $ 0.16       $ 0.14       $ 0.16   Weighted average number of shares outstanding-basic and diluted       1,027,130,496         1,027,063,055         967,544,377         883,147,726         765,475,340   Comprehensive income (loss): Net income (loss)     $ 117,843       $ 163,362       $ 156,227       $ 126,435       $ 124,579   Other comprehensive income (loss): Unrealized gains (losses) on available-for-sale securities, net (112,067 ) (180,153 ) 253,962 20,408 (151,524 ) Reclassification adjustment for net losses included in net income (loss) for other-than-temporary credit impairment losses 1,044 2,625 2,363 878 6,893 Reclassification adjustment for net realized losses (gains) included in net income (loss)       22,420         16,776         (4,118 )       485         326   Other comprehensive income (loss)       (88,603 )       (160,752 )       252,207         21,771         (144,305 ) Comprehensive income (loss)     $ 29,240       $ 2,610       $ 408,434       $ 148,206       $ (19,726 )   (1) Derived from the audited consolidated financial statements at December 31, 2010.   CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except share and per share data) (unaudited)       For the six months ended       June 30, 2011     June 30, 2010 Net Interest Income:     Interest income $ 400,809 $ 262,506 Interest expense 15,483 13,873   Interest income, non-retained 49,587 100,690 Interest expense, non-retained       55,887         55,251   Net interest income (expense)       379,026         294,072   Other-than-temporary impairments: Total other-than-temporary impairment losses (6,131 ) (47,433 ) Non-credit portion of loss recognized in other comprehensive income (loss)       2,462         37,996   Net other-than-temporary credit impairment losses       (3,669 )       (9,437 ) Other gains (losses): Unrealized gains (losses) on interest rate swaps (9,669 ) (11,237 ) Realized gains (losses) on interest rate swaps       (7,144 )       (699 ) Gains (losses) on interest rate swaps       (16,813 )       (11,936 ) Net gains (losses) on interest-only RMBS (4,442 ) - Net gains (losses) on embedded derivatives in interest-only RMBS (2,234 ) - Realized gains (losses) on sales of investments, net 2,364 342 Realized losses on principal write-downs of non-Agency RMBS       (41,560 )       (1,275 ) Total other gains (losses)       (62,685 )       (12,869 ) Net investment income (loss)       312,672         271,766   Other expenses: Management fee 25,902 17,377 Provision for loan losses 1,442 1,630 General and administrative expenses       3,307         2,569   Total other expenses       30,651         21,576   Income (loss) before income taxes 282,021 250,190 Income taxes       816         1   Net income (loss)     $281,205       $250,189     Net income (loss) per share-basic and diluted     $ 0.27       $ 0.35   Weighted average number of shares outstanding-basic and diluted       1,027,096,962         718,185,900   Comprehensive income (loss): Net income (loss)     $ 281,205       $ 250,189   Other comprehensive income (loss): Unrealized gains (losses) on available-for-sale securities, net (292,220 ) 90,057 Reclassification adjustment for net losses included in net income (loss) for other-than-temporary credit impairment losses 3,669 9,437 Reclassification adjustment for net realized losses (gains) included in net income (loss)       39,196         933   Other comprehensive income (loss)       (249,355 )       100,427   Comprehensive income (loss)     $ 31,850       $ 350,616     (1) Derived from the audited consolidated financial statements at December 31, 2010. Chimera Investment CorporationInvestor Relations1-866-315-9930www.chimerareit.com