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Press release from Business Wire

Chimera Investment Corporation Reports Estimated Taxable EPS for the 3rd Quarter 2011 of $0.13; GAAP EPS of $0.06

Friday, November 18, 2011

Chimera Investment Corporation Reports Estimated Taxable EPS for the 3rd Quarter 2011 of $0.13; GAAP EPS of $0.0616:30 EST Friday, November 18, 2011 NEW YORK (Business Wire) -- Chimera Investment Corporation (NYSE: CIM) today reported GAAP net income of $65.9 million or $0.06 per average share for the quarter ended September 30, 2011, as compared to $116.3 million or $0.13 per average share for the quarter ended September 30, 2010, and $134.6 million or $0.13 per average share for the quarter ended June 30, 2011. As previously disclosed, estimated taxable income for the quarter ended September 30, 2011, was $0.13 per share. During the quarter ended September 30, 2011, the Company sold residential mortgage-backed securities (RMBS) with a carrying value of $2.3 million for realized gains of $28 thousand. During the quarter ended September 30, 2010, the Company sold RMBS with a carrying value of $206.0 million for realized gains of $2.0 million. During the quarter ended June 30, 2011, the Company sold RMBS with a carrying value of $16.4 million for realized losses of $381 thousand. The Company declared common stock dividends of $0.13, $0.18, and $0.13 per share for the quarters ended September 30, 2011, September 30, 2010, and June 30, 2011, respectively. The Company distributes dividends based on its current estimate of taxable earnings per common share, not GAAP earnings. Taxable and GAAP earnings will typically differ due to items such as differences in premium amortization, discount accretion, unrealized and realized gains and losses, credit loss recognition, and non-deductible general and administrative expenses. The annualized dividend yield on the Company's common stock for the quarter ended September 30, 2011 based on the September 30, 2011 closing price of $2.77 was 18.77%. On a GAAP basis, the Company provided an annualized return on average equity of 7.76%, 16.00% and 15.42%, for the quarters ended September 30, 2011, September 30, 2010, and June 30, 2011, respectively. Matthew J. Lambiase, Chief Executive Officer and President of the Company, commented on the quarter. “Our third quarter results reflect the variability of cash flows in a portfolio of mortgages and mortgage-backed securities. While the credit of our structured holdings is behaving as expected, we did witness a decline in prepayment speeds in our portfolio of senior and subordinated pieces, which slowed the accretion of discount in the period. Market conditions remain turbulent and I believe our conservative approach to managing our portfolio has positioned us to take advantage of opportunities as they arise.” Beginning with the Company's financial statements for the period ended September 30, 2011, the Company will evaluate its investments in securities rated less than AA, non-rated non-Agency securities and other subordinate securities for impairment under ASC 325-40 - Investments-Other – Beneficial Interest in Securitized Transactions and will make immaterial restatements to previously presented financial information in prior comparable periods. Alexandra Denahan, Chief Financial Officer of the Company, commented on the restatements: “The Company retrospectively applied the OTTI guidance of ASC 325-40 to its portfolio to determine what the effect would be on previously reported financial statements had the Company always applied ASC 325-40. I want to re-emphasize that the effect of this evaluation is immaterial non-cash changes in our GAAP financial statements that in no way affect our previously announced economic or GAAP book value, cash flows and taxable income. As we base our dividend distributions on taxable income, not GAAP income, this evaluation has no impact on dividends for any prior or future period.” For the quarter ended September 30, 2011, the annualized yield on average interest earning assets was 7.21% and the annualized cost of funds on the average borrowed funds balance, including the realized gains and losses on interest rate swaps, was 2.33% for an interest rate spread of 4.88%. This is a 61 basis point increase from the 4.27% annualized interest rate spread for the quarter ended September 30, 2010, and an 87 basis point decrease from the 5.75% annualized interest rate spread for the quarter ended June 30, 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 are presented in other gains (losses) as realized gains (losses) on interest rate swaps. This change does 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 1.8:1, 1.3:1, and 1.9:1 at September 30, 2011, September 30, 2010, and June 30, 2011, respectively. Recourse leverage was 1.2:1, 0.5:1 and 1.3:1 at September 30, 2011, September 30, 2010, and June 30, 2011, respectively. The following table summarizes portfolio information for the Company:       September 30, 2011     September 30, 2010     June 30, 2011         Interest earning assets at period-end * $9,648,420 $7,173,376 $10,014,236 Interest bearing liabilities at period-end $6,155,185 $3,844,440 $6,471,407 Leverage at period-end 1.8:1 1.3:1 1.9:1 Leverage at period-end (recourse) 1.2:1 0.5:1 1.3:1 Portfolio Composition, at principal value Non-Agency RMBS 71.6% 82.8% 71.5% Senior 0.0% 5.7% 0.0% Senior, interest only 34.0% 32.2% 33.6% Subordinated 26.3% 29.6% 26.0% Subordinated, interest only 1.6% 2.0% 1.6% Senior, non-retained 9.7% 13.3% 10.3% Agency RMBS 25.5% 12.3% 25.5% Securitized loans 2.9% 4.9% 3.0% Fixed-rate percentage of portfolio 80.6% 55.9% 80.4% Adjustable-rate percentage of portfolio 19.4% 44.1% 19.6% Annualized yield on average interest earning assets for the quarter ended 7.21% 8.85% 8.19% Annualized cost of funds on average borrowed funds for the quarter ended** 2.33% 4.58% 2.44%   * Excludes cash and cash equivalents. ** Includes the effect of realized losses on interest rate swaps.   The following table summarizes characteristics for each asset class: September 30, 2011                       Weighted         Weighted Average Average Weighted Weighted Yield Weighted Amortized Average Average (Loss Annualized Average 3 Principal or Cost Fair Coupon Adjusted) Yield Month CPR Notional Basis at Value at at at Over at Value at Period- Period- Period- Period- Current Period-         Period-End     End     End     End     End     Quarter     End Non-Agency Mortgage-Backed Securities Senior $ 1,282 $ 96.91 $ 91.85 1.00 % 2.70 % 19.15 % 22 % Senior, interest only $ 6,323,254 $ 6.10 $ 5.07 1.84 % 10.61 % -3.69 % 16 % Subordinated $ 4,886,224 $ 51.17 $ 41.91 3.99 % 12.56 % 20.08 % 15 % Subordinated, interest only $ 299,578 $ 9.98 $ 8.86 2.87 % 17.34 % 34.80 % 16 % Senior, non-retained $ 1,794,023 $ 93.22 $ 112.25 5.10 % 4.85 % 7.98 % 14 % Agency Mortgage-Backed Securities $ 4,728,152 $ 102.89 $ 106.67 4.74 % 4.15 % 4.13 % 11 % Securitized loans Senior $ 236,582 $ 101.18 $ 101.18 5.46 % 5.16 % 4.98 % 20 % Senior, interest only $ 249,964 $ 0.01 $ 0.01 0.37 % 100.00 % 4789.84 % 20 % Subordinated $ 53,042 $ 101.09 $ 101.09 5.08 % 4.77 % 1.63 % 20 %   The Company's portfolio is comprised of Non-Agency and Agency RMBS and securitized whole residential mortgage loans. During the quarter ended September 30, 2011, the Company recorded no loan loss provision as compared to a provision of $482 thousand for the quarter ended September 30, 2010. No loan loss provision was recorded for the quarter ended June 30, 2011. The Constant Prepayment Rate on the Company's portfolio was 14%, 16%, and 14% as of September 30, 2011, September 30, 2010, and June 30, 2011, respectively. The net accretion of discounts was $49.1 million, $65.3 million and $78.8 million for the quarters ended September 30, 2011, September 30, 2010, and June 30, 2011, respectively. The net accretion of discounts will differ for GAAP and tax purposes due to differences such as the methodology to amortize premiums and accrete discounts and GAAP OTTI as opposed to actual principal write-downs that impact taxable income. The total net discount remaining was $2.0 billion, $2.4 billion and $2.0 billion at September 30, 2011, September 30, 2010, and June 30, 2011, respectively. General and administrative expenses, including the management fee and loan loss provision, as a percentage of average interest earning assets were 0.51%, 0.62%, and 0.50% for the quarters ended September 30, 2011, September 30, 2010, and June 30, 2011, respectively. At September 30, 2011, September 30, 2010, and June 30, 2011, the Company had a GAAP common stock book value per share of $3.27, $3.29, and $3.35, respectively. At September 30, 2011, September 30, 2010, and June 30, 2011, the Company had an estimated economic book value per share of $3.01, $3.41, and $3.08, 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 RMBS and the corresponding non-retained securitized debt, 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 third quarter 2011 earnings conference call Monday, November 21, 2011, at 10:00 a.m. EST. The number to call is 866-843-0890 for domestic calls and 412-317-9250 for international calls and the pass code is 2546625. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the pass code is 10005697. 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   September 30, 2011 June 30, 2011 March 31, 2011 September 30, 2010         (unaudited)     (unaudited)     (unaudited)     December 31, 2010     (unaudited) Assets:                               Cash and cash equivalents $ 9,824 $ 16,080 $ 16,295 $ 7,173 $ 11,949 Non-Agency RMBS, at fair value Senior 321,483 347,900 329,782 987,685 1,065,145 Subordinated 2,074,409 2,173,005 2,266,560 2,210,858 1,866,911 Senior, non-retained 2,013,798 2,176,692 2,368,212 2,330,568 1,967,812 Agency RMBS, at fair value 4,952,721 5,013,760 4,879,382 2,133,584 1,884,193 Securitized loans held for investment, net of allowance for loan losses of $7.0 million $7.5 million, $8.0 million, $6.6 million, and $6.0 million, respectively 286,009 302,879 326,295 353,532 389,315 Receivable for investments sold - - 6,192 - - Accrued interest receivable 55,539 57,946 58,570 49,088 47,767 Other assets 422 847 1,270 1,212 360 Interest rate swaps, at fair value       -         -         5,876         -         -   Total assets     $ 9,714,205       $ 10,089,109       $ 10,258,434       $ 8,073,700       $ 7,233,452     Liabilities: Repurchase agreements, Agency RMBS $ 4,171,190 $ 4,320,487 $ 3,870,407 $ 1,600,078 $ 1,568,223 Repurchase agreements, non-Agency RMBS - - - 208,719 - Securitized debt, loans held for investment 230,767 245,984 266,363 289,236 320,552 Securitized debt, non-Agency RMBS, non-retained 1,753,228 1,904,936 2,091,371 1,956,079 1,955,665 Payable for investments purchased - - 311,610 127,693 279,649 Accrued interest payable 11,538 11,529 12,543 11,641 11,164 Dividends payable 133,443 133,425 143,676 174,445 158,811 Accounts payable and other liabilities 1,583 1,355 1,234 393 810 Investment management fees payable to affiliate 13,417 13,196 12,807 12,422 11,411 Interest rate swaps, at fair value       44,970         19,658         6,033         9,988         24,820   Total liabilities     $ 6,360,136       $ 6,650,570       $ 6,716,044       $ 4,390,694       $ 4,331,105     Stockholders' Equity: Common stock: par value $0.01 per share; 1,500,000,000 shares authorized, 1,027,246,793, 1,027,167,395, 1,027,107,362, 1,027,034,357, and 883,169,403 shares issued and outstanding, respectively $ 10,264 $ 10,263 $ 10,262 $ 10,261 $ 8,822 Additional paid-in-capital 3,603,040 3,602,671 3,602,339 3,601,890 3,056,659 Accumulated other comprehensive income (loss) 29,972 47,253 152,540 321,537 49,480 Retained earnings (accumulated deficit)       (289,207 )       (221,648 )       (222,751 )       (250,682 )       (212,614 ) Total stockholders' equity     $ 3,354,069       $ 3,438,539       $ 3,542,390       $ 3,683,006       $ 2,902,347   Total liabilities and stockholders' equity     $ 9,714,205       $ 10,089,109       $ 10,258,434       $ 8,073,700       $ 7,233,452                       CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except share and per share data) (unaudited)   For the quarter ended   September 30, June 30, March 31, December 31, September 30,       2011     2011     2011     2010     2010 Net Interest Income: Interest income $ 177,640 $ 208,803 $ 214,133 $ 160,550 $ 139,683 Interest expense 7,217 7,481 8,002 9,480 8,034   Interest income, non-retained 35,030 38,415 34,124 31,018 55,088 Interest expense, non-retained       25,575         28,312         27,575         27,573         32,237   Net interest income (expense)       179,878         211,425         212,680         154,515         154,500   Other-than-temporary impairments: Total other-than-temporary impairment losses (249,257 ) (114,592 ) (69,124 ) (36,017 ) (51,922 ) Non-credit portion of loss recognized in other comprehensive income (loss)       208,081         83,639         35,749         12,202         42,112   Net other-than-temporary credit impairment losses       (41,176 )       (30,953 )       (33,375 )       (23,815 )       (9,810 ) Other gains (losses): Unrealized gains (losses) on interest rate swaps (25,312 ) (19,500 ) 9,831 14,831 (13,583 ) Realized gains (losses) on interest rate swaps       (4,500 )       (4,297 )       (2,847 )       (2,596 )       (2,493 ) Gains (losses) on interest rate swaps       (29,812 )       (23,797 )       6,984         12,235         (16,076 ) Net gains (losses) on interest-only RMBS 52 (4,442 ) - - - Net gains (losses) on embedded derivatives in interest-only RMBS (28,175 ) (2,234 ) - - - Realized gains (losses) on sales of investments, net       28         (381 )       1,695         7,899         2,032   Total other gains (losses)       (57,907 )       (30,854 )       8,679         20,134         (14,044 ) Net investment income (loss)       80,795         149,618         187,984         150,834         130,646   Other expenses: Management fee 13,252 13,152 12,750 12,229 11,318 Provision for loan losses - - 1,442 577 482 General and administrative expenses       1,830         1,820         1,487         1,648         1,798   Total other expenses       15,082         14,972         15,679         14,454         13,598   Income (loss) before income taxes 65,713 134,646 172,305 136,380 117,048 Income taxes       (171 )       118         698         3         752   Net income (loss)     $65,884       $134,528       $171,607       $136,377       $116,296     Net income (loss) per share-basic and diluted     $ 0.06       $ 0.13       $ 0.17       $ 0.14       $ 0.13   Weighted average number of shares outstanding-basic and diluted       1,027,195,404         1,027,130,496         1,027,063,055         967,544,377         883,147,726   Comprehensive income (loss): Net income (loss)     $ 65,884       $ 134,528       $ 171,607       $ 136,377       $ 116,296   Other comprehensive income (loss): Unrealized gains (losses) on available-for-sale securities, net (58,429 ) (136,621 ) (200,677 ) 256,141 24,132 Reclassification adjustment for net losses included in net income (loss) for other-than-temporary credit impairment losses 41,176 30,953 33,375 23,815 9,810 Reclassification adjustment for net realized losses (gains) included in net income (loss)       (28 )       381         (1,695 )       (7,899 )       (2,032 ) Other comprehensive income (loss)       (17,281 )       (105,287 )       (168,997 )       272,057         31,910   Comprehensive income (loss)     $ 48,603       $ 29,241       $ 2,610       $ 408,434       $ 148,206           CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except share and per share data) (unaudited)   For the nine months ended         September 30, 2011     September 30, 2010 Net Interest Income: Interest income $ 600,576 $ 401,929 Interest expense 22,700 21,907   Interest income, non-retained 107,569 169,723 Interest expense, non-retained       81,462         87,488   Net interest income (expense)       603,983         462,257   Other-than-temporary impairments: Total other-than-temporary impairment losses (432,973 ) (135,136 ) Non-credit portion of loss recognized in other comprehensive income (loss)       327,469         84,032   Net other-than-temporary credit impairment losses       (105,504 )       (51,104 ) Other gains (losses): Unrealized gains (losses) on interest rate swaps (34,981 ) (24,820 ) Realized gains (losses) on interest rate swaps       (11,644 )       (3,192 ) Gains (losses) on interest rate swaps       (46,625 )       (28,012 ) Net gains (losses) on interest-only RMBS (4,390 ) - Net gains (losses) on embedded derivatives in interest-only RMBS (30,409 ) - Realized gains (losses) on sales of investments, net       1,342         2,374   Total other gains (losses)       (80,082 )       (25,638 ) Net investment income (loss)       418,397         385,515   Other expenses: Management fee 39,154 28,695 Provision for loan losses 1,442 2,112 General and administrative expenses       5,137         4,367   Total other expenses       45,733         35,174   Income (loss) before income taxes 372,664 350,341 Income taxes       645         753   Net income (loss)     $372,019       $349,588     Net income (loss) per share-basic and diluted     $ 0.36       $ 0.45   Weighted average number of shares outstanding-basic and diluted       1,027,130,136         773,777,431   Comprehensive income (loss): Net income (loss)     $ 372,019       $ 349,588   Other comprehensive income (loss): Unrealized gains (losses) on available-for-sale securities, net (395,727 ) 100,504 Reclassification adjustment for net losses included in net income (loss) for other-than-temporary credit impairment losses 105,504 51,104 Reclassification adjustment for net realized losses (gains) included in net income (loss)       (1,342 )       (2,374 ) Other comprehensive income (loss)       (291,565 )       149,234   Comprehensive income (loss)     $ 80,454       $ 498,822   Chimera Investment CorporationInvestor Relations1-866-315-9930www.chimerareit.com