"Chimera had a number of positive advances in the third quarter. We made significant progress in our transition to a fully independent, internally managed mortgage REIT, repurchased $231 million of our stock and became a member of the Federal Home Loan Bank System. Chimera has also taken a number of steps to position our portfolio and balance sheet in light of the continuing volatility in the fixed income market. This includes lowering our interest rate risk by reducing our Agency portfolio by $2 billion earlier this year, increasing the notional balances of our interest rate swaps and extending the term of our non-agency financing. Given the current uncertainty around interest rates, we believe defending book value in the near term while creating an investor friendly operating structure will be the right path to maximizing value for our shareholders over the long term."

3rd Quarter 2015 Financial Results and Highlights
  • Core earnings (1) of $0.50 per share down, from $0.53 earned in the 2 nd quarter of 2015 and $0.56 earned in the 3 rd quarter of 2014. Core earnings for the third quarter were based on 198 million average shares outstanding for the quarter compared to 189 million shares currently outstanding.
  • Net interest income of $144 million, down from $150 million in the 2 nd quarter of 2015 and $151 million in the 3 rd quarter of 2014
  • GAAP book value of $16.38 per share, down from $16.73 per share for the 2 nd quarter of 2015 and down from $17.50 per share in the 3 rd quarter of 2014
  • Economic book value of $15.28 per share, down from $15.54 per share for the 2 nd quarter of 2015 and $15.75 for the 3 rd quarter of 2014
  • Purchased 8% of Chimera's outstanding shares during the quarter which is expected to be beneficial to Chimera's shareholders in future quarters.
    • Purchased all shares held by Annaly, 4.4% of outstanding, for $14.05 per share.
    • Open market purchases were executed at $13.81 per share for an average of $13.94 per share on all purchases.
  • Exercised call right on Springleaf 2012-2 trust and securitized related mortgage loans in a new CIM 2015-3AG trust reducing financing costs from 4.1% to 2.2%. Incurred $2.4m of non-recurring deal expenses during the third quarter in relation to this transaction.

(1) Core earnings is a non-GAAP measure and is defined as GAAP net income (loss) excluding unrealized gains on the aggregate portfolio, impairment losses, realized gains on sales of investments, gain on deconsolidation, extinguishment of debt and certain other non-recurring gains or losses. Core earnings includes interest income and expense as well as realized gains or losses on derivatives used to hedge interest rate risk, including $9m of realized losses on treasury futures during the 3 rd quarter of 2015. Core earnings is provided for purposes of comparability to other peer issuers, but has important limitations. Therefore, core earnings should not be viewed in isolation and is not a substitute for net income or net income per basic share computed in accordance with GAAP.

Gross asset yields were 8.3% on the residential mortgage credit portfolio and 2.8% on the Agency MBS portfolio. The net interest spread on the total portfolio was 3.4% and net interest margin was 4.0% reflecting total leverage of 3.8:1 and recourse "at risk" leverage of 2.5:1 at September 30, 2015.

The Company declared a common stock dividend of $0.48 per share for the quarter ended September 30, 2015. The annualized dividend yield on the Company's common stock for the quarter ended September 30, 2015 was 14%.

Other Information

Chimera Investment Corporation invests in residential mortgage loans, residential mortgage-backed securities, real estate-related securities and various other asset classes. The Company's principal business objective is to generate income from the spread between yields on its investments and its cost of borrowing and hedging activities. The Company is a Maryland corporation that has elected to be taxed as a real estate investment trust ("REIT").

Please visit www.chimerareit.com and click on Investor Relations for additional information about the Company.
CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share and per share data)
(Unaudited)
 
  September 30, 2015   December 31, 2014
Assets:      
Cash and cash equivalents $ 40,097 $ 164,620
Non-Agency RMBS, at fair value 3,789,967 3,404,149
Agency RMBS, at fair value 6,514,728 8,441,522
Securitized loans held for investment, net of allowance for loan losses of $0 million and $7 million, respectively - 626,112
Securitized loans held for investment, at fair value 5,281,652 4,699,215
Receivable for investments sold 57,680 1,572,056
Accrued interest receivable 69,774 71,099
Other assets 173,512 172,601
Derivatives, at fair value, net   12,235     3,631
Total assets (1) $ 15,939,645   $ 19,155,005
 
Liabilities:
Repurchase agreements, RMBS ($8.5 billion and $9.3 billion pledged as collateral, respectively) $ 7,150,821 $ 8,455,381
Securitized debt, collateralized by Non-Agency RMBS ($2.2 billion and $2.5 billion pledged as collateral, respectively) 571,853 704,915
Securitized debt, collateralized by loans held for investment ($0 million and $626 million pledged as collateral, respectively) - 521,997
Securitized debt at fair value, collateralized by loans held for investment ($5.3 billion and $4.7 billion pledged as collateral, respectively) 4,221,295 3,868,366
Payable for investments purchased 715,512 1,845,282
Accrued interest payable 39,842 31,888
Dividends payable 91,383 92,483
Accounts payable and other liabilities 11,516 2,469
Investment management fees payable 3,992 10,357
Derivatives, at fair value   14,714     14,177
Total liabilities (1)   12,820,928     15,547,315
 
Commitments and Contingencies (See Note 16)
 
Stockholders' Equity:
Preferred Stock: par value $0.01 per share; 100,000,000 shares authorized, 0 shares issued and outstanding, respectively $ - $ -
Common stock: par value $0.01 per share; 300,000,000 shares authorized, 190,394,216 and 205,546,144 shares issued and outstanding, respectively 10,163 10,275
Additional paid-in-capital 3,394,637 3,606,191
Accumulated other comprehensive income 935,248 1,046,680
Accumulated deficit   (1,221,331)     (1,055,456)
Total stockholders' equity $ 3,118,717   $ 3,607,690
Total liabilities and stockholders' equity $ 15,939,645   $ 19,155,005

(1) The Company's consolidated statements of financial condition include assets of consolidated variable interest entities ("VIEs") that can only be used to settle obligations and liabilities of the VIE for which creditors do not have recourse to the primary beneficiary (Chimera Investment Corp.). As of September 30, 2015 and December 31, 2014, total assets of consolidated VIEs were $7,649,737 and $7,924,232, respectively, and total liabilities of consolidated VIEs were $4,806,481 and $5,111,348, respectively.
 

Core earnings

Core earnings is a non-GAAP measure and is defined as GAAP net income excluding unrealized gains on the aggregate portfolio, impairment losses, realized gains on sales of investments, gain on deconsolidation, extinguishment of debt and certain other non-recurring gains or losses. As defined, core earnings include interest income and expense as well as realized gains or losses on derivatives used to hedge interest rate risk. Core earnings are provided for the purpose of comparability to other peer issuers, but have important limitations. Core earnings as described above helps evaluate our financial performance without the impact of certain transactions and is of limited usefulness as an analytical tool. Therefore, core earnings should not be viewed in isolation and is not a substitute for net income or net income per basic share computed in accordance with GAAP.

The following table provides GAAP measures of net income and net income per basic share available to common stockholders for the quarters ended September 30, 2015 and 2014 and details with respect to reconciling the line items to core earnings and related per average basic common share amounts:
  For the Quarter Ended   For the Nine Months Ended
September 30, 2015   September 30, 2014 September 30, 2015   September 30, 2014
(dollars in thousands, except per share data)
GAAP Net income $ (48,259 ) $ 377,580   $ 134,969   $ 582,717  
Adjustments:
Net other-than-temporary credit impairment losses 17,832 1,990 52,748 8,871
Net unrealized gains (losses) on derivatives 71,540 (12,975 ) (20,543 ) 11,720
Net unrealized (gains) losses on financial instruments at fair value 40,955 (162,921 ) 88,640 (183,722 )
Net realized (gains) losses on sales of investments (3,539 ) (64,107 ) (42,789 ) (68,145 )
(Gains) losses on extinguishment of debt 19,915 - 14,836 2,184
Gain on deconsolidation - - - (47,846 )
Realized (gains) losses on terminations of interest rate swaps - - 99,703 -
Other (income) expense   -     (23,783 )   -     (23,783 )
Core Earnings $ 98,444   $ 115,784   $ 327,564   $ 281,996  
       
GAAP net income per basic common share $ (0.24 ) $ 1.85   $ 0.65   $ 2.85  
Core earnings per basic common share $

0.50
  $ 0.55   $ 1.61   $ 1.36  

CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(dollars in thousands, except share and per share data)
(Unaudited)
       
For the Quarter Ended For the Nine Months Ended
Net Interest Income: September 30, 2015   September 30, 2014   September 30, 2015   September 30, 2014
Interest income (1) $   211,876 $   190,355 $   670,825 $   445,340
 
 
 
Interest expense (2)       67,910         38,886         194,410         81,991  
Net interest income       143,966         151,469         476,415         363,349  
 
Other-than-temporary impairments:
Total other-than-temporary impairment losses (3,129 ) (726 ) (6,389 ) (4,939 )
Portion of loss recognized in other comprehensive income       (14,703 )       (1,264 )       (46,359 )       (3,932 )
Net other-than-temporary credit impairment losses       (17,832 )       (1,990 )       (52,748 )       (8,871 )
 
Other investment gains (losses):
Net unrealized gains (losses) on derivatives (71,540 ) 12,975 20,543 (11,720 )
 
Realized gains (losses) on terminations of interest rate swaps - - (99,703 ) -
Net realized gains (losses) on derivatives       (21,160 )       (23,152 )       (80,023 )       (48,692 )
Net gains (losses) on derivatives       (92,700 )       (10,177 )       (159,183 )       (60,412 )
Net unrealized gains (losses) on financial instruments at fair value (40,955 ) 162,921 (88,640 ) 183,722
Net realized gains (losses) on sales of investments 3,539 64,107 42,789 68,145
Gain on deconsolidation - - - 47,846
Gains (losses) on Extinguishment of Debt (19,915 ) - (14,836 ) (2,184 )
Realized losses on principal write-downs of Non-Agency RMBS       -             -         -  
Total other gains (losses)       (150,031 )       216,851         (219,870 )       237,117  
 
Other expenses:
Management fees 4,088 9,381 24,610 21,873
Expense recoveries from Manager       (1,140 )       (1,975 )       (6,905 )       (4,820 )
Net management fees       2,948         7,406         17,705         17,053  
Compensation and benefits 3,955 - 4,482 -
General and administrative expenses 8,534 2,538 22,028 11,996
Servicing Fees of consolidated VIEs 6,499 2,589 19,276 3,610
Deal Expenses 2,426 - 5,337 -
Other (income) expense       -         (23,783 )       -         (23,783 )
Total other expenses       24,362         (11,250 )       68,828         8,876  
 
Income (loss) before income taxes (48,259 ) 377,580 134,969 582,719
Income taxes       -         -         -         2  
Net income (loss)   $   (48,259 )   $   377,580     $   134,969     $   582,717  
 
Net income (loss) per share available to common shareholders:                
Basic   $   (0.24 )   $   1.85     $   0.65     $   2.85  
Diluted   $   (0.24 )   $   1.85     $   0.65     $   2.85  
 
Weighted average number of common shares outstanding:                
Basic       197,787,858         205,436,676         202,891,610         205,443,605  
Diluted       197,875,408         205,501,776         202,979,160         205,508,748  
 
Comprehensive income (loss):
Net income (loss) $ (48,259 ) $ 377,580 $ 134,969 $ 582,717
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net 16,512 (74,155 ) (121,142 ) 63,995
Reclassification adjustment for net losses included in net income for other-than-

temporary credit impairment losses
17,832 1,990 52,748 8,871
Reclassification adjustment for net realized losses (gains) included in net income (3,903 ) (62,477 ) (43,038 ) (70,817 )
Reclassification adjustment for gain on deconsolidation included in net income       -         -         -         (47,846 )
Other comprehensive income (loss)       30,441         (134,642 )       (111,432 )       (45,797 )
Comprehensive income (loss)   $   (17,818 )   $   242,938     $   23,537     $   536,920  

(1)
 

Includes interest income of consolidated VIEs of $142,053 and $103,742 for the quarters ended September 30, 2015 and 2014, respectively.
Includes interest income of consolidated VIEs of $439,571 and $274,215 for the nine months ended September 30, 2015 and 2014, respectively.
See Note 8 for further discussion.
 

(2)

Includes interest expense of consolidated VIEs of $50,837 and $28,984 for the quarters ended September 30, 2015 and 2014, respectively.
Includes interest expense of consolidated VIEs of $148,017 and $66,859 for the nine months ended September 30, 2015 and 2014, respectively.
See Note 8 for further discussion.

The following tables provide a summary of the Company's RMBS portfolio at September 30, 2015 and December 31, 2014.

All Portfolio Assets            
        September 30, 2015
       

Principal orNotional Valueat Period-End(dollars inthousands)
 

WeightedAverageAmortizedCost Basis
 

WeightedAverage FairValue
 

WeightedAverageCoupon
 

WeightedAverage Yieldat Period-End(1)
Non-Agency RMBS
  Senior $   3,691,932 $   57.29 $   78.46 3.8% 17.2%
Senior, interest-only 5,673,250 4.77 4.31 1.6% 13.0%
Subordinated 821,814 63.76 77.25 3.1% 10.1%
Subordinated, interest-only 297,851 5.61 4.65 1.3% 10.9%
Agency MBS
Residential pass-through 5,061,800 105.21 105.68 3.8% 3.1%
Commercial pass-through 853,404 102.21 104.14 3.4% 3.0%
Interest-only 6,593,418 4.25 4.20 0.8% 3.6%
 
(1) Bond Equivalent Yield at period end.
 
        December 31, 2014
       

Principal orNotional Valueat Period-End(dollars inthousands)
 

WeightedAverageAmortizedCost Basis
 

WeightedAverage FairValue
 

WeightedAverageCoupon
 

WeightedAverage Yieldat Period-End(1)
Non-Agency RMBS
Senior $ 3,435,362 $ 55.09 $ 79.63 4.3% 15.9%
Senior, interest-only 5,221,937 4.35 3.97 1.6% 14.4%
Subordinated 690,599 50.18 65.79 3.1% 10.6%
Subordinated, interest-only 216,403 4.43 3.14 0.9% 9.2%
Agency MBS
Pass-through 7,774,266 104.96 106.19 4.0% 3.2%
Interest-only 3,884,523 4.89 4.79 0.9% 3.1%
 
(1) Bond Equivalent Yield at period end.

At September 30, 2015 and December 31, 2014, the repurchase agreements collateralized by RMBS had the following remaining maturities.
    September 30, 2015   December 31, 2014
  (dollars in thousands)
Overnight $ 33,119   $ -
1 to 29 days 1,620,979 2,652,717
30 to 59 days 1,846,105 1,371,856
60 to 89 days 877,448 656,915
90 to 119 days 1,224,940 2,068,740
Greater than or equal to 120 days     1,548,230     1,705,153
Total   $ 7,150,821   $ 8,455,381
 
Average days to maturity 114 Days 100 Days

The following table summarizes certain characteristics of our portfolio at September 30, 2015 and December 31, 2014.

    September 30, 2015   December 31, 2014
   
Interest earning assets at period-end (1) $ 15,586,347 $ 17,170,998
Interest bearing liabilities at period-end $ 11,943,969 $ 13,550,659
Leverage at period-end 3.8:1 3.8:1
Leverage at period-end (recourse) 2.5:1 2.6:1
Portfolio Composition, at amortized cost
Non-Agency RMBS 9.8 % 5.1 %
Senior 4.3 % 1.5 %
Senior, interest only 1.8 % 1.4 %
Subordinated 3.6 % 2.2 %
Subordinated, interest only 0.1 % 0.1 %
RMBS transferred to consolidated VIEs 10.2 % 10.3 %
Agency MBS 44.3 % 52.1 %

Residential
36.4 % 50.9 %
Commercial 6.0 % N/A
Interest-only 1.9 % 1.2 %
Securitized loans held for investment 35.7 % 32.5 %
Fixed-rate percentage of portfolio 85.6 % 92.5 %
Adjustable-rate percentage of portfolio 14.4 % 7.5 %
Annualized yield on average interest earning assets for the year ended 6.1 % 6.9 %
Annualized cost of funds on average borrowed funds for the year ended (2)     2.5 %     2.5 %
(1) Excludes cash and cash equivalents.
(2) Includes the effect of realized losses on interest rate swaps.

The tables below present the adjustments to GAAP book value that we believe are necessary to adequately reflect our calculation of estimated economic book value as of September 30, 2015 and December 31, 2014.

September 30, 2015
(dollars in thousands, except per share data)
       
GAAP Book Value   $ 3,118,717
GAAP Book Value per Share $ 16.38
 
Economic Adjustments:
Assets of Consolidated VIEs (7,525,004 )
Non-Recourse Liabilities of Consolidated VIEs 4,793,148
Interests in VIEs eliminated in consolidation 2,522,817
       
Total Adjustments - Net     (209,039 )
Total Adjustments - Net (per share)     1.10  
 
Economic Book Value   $ 2,909,678  
Economic Book Value per Share   $ 15.28  
 
 
 
December 31, 2014
(dollars in thousands, except per share data)
       
GAAP Book Value $ 3,607,690
GAAP Book Value per Share $ 17.55
 

Economic Adjustments:
Assets of Consolidated VIEs (7,798,794 )
Non-Recourse Liabilities of Consolidated VIEs 5,095,278
Interests in VIEs eliminated in consolidation 2,367,953
       
Total Adjustments - Net     (335,563 )
Total Adjustments - Net (per share)     1.65  
 
Economic Book Value   $ 3,272,127  
Economic Book Value per Share   $ 15.90  

The table below shows our average earning assets held, interest earned on assets, yield on average interest earning assets, average debt balance, economic interest expense, economic average cost of funds, economic net interest income, and net interest rate spread for the periods presented.

        For the Quarter Ended
September 30, 2015       September 30, 2014
(dollars in thousands)
             

AverageBalance
  Interest  

AverageYield/Cost
     

AverageBalance
  Interest  

AverageYield/Cost
Assets:                                    
Interest-earning assets (1):        
Agency RMBS $ 5,935,743 $ 42,132 2.8% $ 7,614,237 $ 64,065 3.4%
Non-Agency RMBS 1,450,827 27,579 7.6% 812,667 22,544 11.1%
Non-Agency RMBS transferred to consolidated VIEs

 

 

 
1,527,414 65,028 17.0% 1,787,994 71,108 15.9%
Jumbo Prime securitized residential mortgage loans held for investment

 

 
510,708 3,972 3.1% 710,865 5,282 3.0%
    Seasoned sub-prime securitized residential mortgage loans held for investment         4,664,014     73,054   6.3%         1,556,948     27,352   7.0%
Total             $ 14,088,706   $ 211,765   6.0%       $ 12,482,711   $ 190,351   6.1%
                                       
Liabilities and stockholders' equity:                                  
Interest-bearing liabilities:
Agency repurchase agreements (2) $ 5,243,274 $ 18,690 1.4% $ 7,181,000 $ 23,872 1.3%
Non-Agency repurchase agreements 1,772,806 9,739 2.2% 560,836 3,162 2.3%
Securitized debt, collateralized by Non-Agency RMBS

 
598,562 9,946 6.6% 765,028 13,540 7.1%
Securitized debt, collateralized by jumbo prime residential mortgage loans

 
401,222 3,227 3.2% 588,699 5,205 3.5%
    Securitized debt, collateralized by seasoned sub-prime residential mortgage loans       3,843,969     35,449   3.7%         1,255,689     10,239   3.3%
Total             $ 11,859,833   $ 77,051   2.6%       $ 10,351,252   $ 56,018   2.2%
                                       
Net economic interest income/net interest rate spread             $ 134,714   3.4%           $ 134,333   3.9%
                                       
Net interest-earning assets/net interest margin         $ 2,228,873       4.0%       $ 2,131,459       4.3%
                                       
Ratio of interest-earning assets to interest bearing liabilities           1.19                 1.21        
(1) Interest-earning assets at amortized cost
(2) Interest includes cash paid on swaps
 
 
For the Nine Months Ended
September 30, 2015 September 30, 2014
(dollars in thousands)
             

AverageBalance
  Interest  

AverageYield/Cost
     

AverageBalance
  Interest  

AverageYield/Cost
Assets:                                    
Interest-earning assets (1):
Agency RMBS $ 6,713,571 $ 154,739 3.1% $ 4,321,091 $ 109,322 3.4%
Non-Agency RMBS 1,224,947 77,654 8.5% 796,297 61,791 10.3%
Non-Agency RMBS transferred to consolidated VIEs

 

 

 
1,583,689 202,096 17.0% 1,921,600 225,417 15.6%
Jumbo Prime securitized residential mortgage loans held for investment

 

 
560,772 18,225 4.3% 742,858 21,446 3.8%
    Seasoned sub-prime securitized residential mortgage loans held for investment         4,581,975     219,250   6.4%         518,983     27,352   7.0%
Total             $ 14,664,954   $ 671,964   6.1%       $ 8,300,829   $ 445,328   7.2%
                                       
Liabilities and stockholders' equity:                                  
Interest-bearing liabilities:
Agency repurchase agreements (2) $ 5,945,916 $ 57,930 1.3% $ 3,921,089 $ 46,036 1.6%
Non-Agency repurchase agreements 1,466,067 24,017 2.2% 246,603 3,939 2.1%
Securitized debt, collateralized by Non-Agency RMBS

 
645,086 27,111 5.6% 823,113 39,559 6.4%
Securitized debt, collateralized by jumbo prime residential mortgage loans

 
449,424 13,725 4.1% 621,142 17,061 3.7%
    Securitized debt, collateralized by seasoned sub-prime residential mortgage loans       3,817,215     104,965   3.7%         418,563     10,239   3.3%
Total             $ 12,323,708   $ 227,748   2.5%       $ 6,030,510   $ 116,834   2.6%
                                       
Net economic interest income/net interest rate spread             $ 444,216   3.6%           $ 328,494   4.6%
                                       
Net interest-earning assets/net interest margin         $ 2,341,246       4.0%       $ 2,270,319       5.3%
                                       
Ratio of interest-earning assets to interest bearing liabilities           1.19                

1.38
       
(1) Interest-earning assets at amortized cost
(2) Interest includes cash paid on swaps

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