Earnings: Chimera Investment Corporation (NYSE: CIM) Reports Strong Fourth Quarter
CIM misses by $0.02 ----- Chimera Investment CIM $0.12 analysts average $0.14 same period last year $0.07
Chimera Investment Corporation (NYSE: CIM) reported Core Earnings for the quarter ended December 31, 2009, of $80.7 million or $0.12 per average share as compared to Core Earnings for the quarter ended December 31, 2008, of $9.0 million or $0.07 per average share and Core Earnings for the quarter ended September 30, 2009, of $85.9 million or $0.13 per average share. “Core Earnings” represents a non-GAAP measure that approximates distributable income, and is defined as GAAP net income (loss) excluding non-cash equity compensation expense, other-than-temporary impairments, and gains or losses on sales of securities. The Company reported GAAP net income of $95.5 million or $0.14 per average share for the quarter ended December 31, 2009, as compared to GAAP net income of $8.8 million or $0.07 per average share for the quarter ended December 31, 2008, and GAAP net income of $158.0 million or $0.24 per average share for the quarter ended September 30, 2009.
During the quarter ended December 31, 2009, the Company sold residential mortgage-backed securities (“RMBS”) with a carrying value of $213.0 million for realized gains of $16.2 million. The Company did not sell any RMBS for the quarter ended December 31, 2008. During the quarter ended September 30, 2009, the Company sold RMBS with a carrying value of $916.9 million for realized gains of $74.5 million.
On January 29, 2010, the Company transferred $1.7 billion in principal value of its RMBS to the CSMC 2010-1R Trust in a re-securitization transaction. In this transaction, the Company sold $128.1 million of AAA-rated fixed rate bonds to third party investors for net proceeds of $127.7 million. The Company retained $563.6 million of AAA-rated bonds, $1.0 billion in subordinated bonds and the owner trust certificate, and interest only bonds with a notional value of $1.6 billion. The subordinated bonds and the owner trust certificate provide credit support to the AAA-rated bonds. The bonds issued by the trust are collateralized by RMBS that were transferred to the CSMC 2010-1R Trust.
The Company declared common stock dividends of $0.17, $0.04, and $0.12 per share for the quarters ended December 31, 2009, December 31, 2008, and September 30, 2009, respectively. The annualized dividend yield on the Company’s common stock for the fourth quarter, based on the December 31, 2009, closing price of $3.88, was 17.53%. On a Core Earnings basis, the Company provided an annualized return on average equity of 14.96%, 10.96%, and 16.60% for the quarters ended December 31, 2009, December 31, 2008, and September 30, 2009, respectively. On a GAAP basis, the Company provided an annualized return on average equity of 17.69%, 10.72% and 30.55%, for the quarters ended December 31, 2009, December 31, 2008, and September 30, 2009, respectively.
Matthew J. Lambiase, Chief Executive Officer and President of the Company, commented on the quarter. “The fourth quarter demonstrates the evolving nature of our markets and our operations. Operationally, our purchases of significant amounts of deeply discounted securities and the retention of the subordinate securities of our re-securitizations means that a portion of our taxable income will come from the accretion of those discounts. As such, we anticipate that taxable income, which determines the amount of dividends we must pay, will be higher than Core Earnings. In our markets, demand for securities has improved from the depths of the financial crisis as investors take into account realistic performance expectations, new capital comes into the market and the securitization market continues to recover. While new non-government-backed mortgage originations remain well below prior levels, as we look ahead to the new year, we continue to see opportunities in the securities market and we look forward to the new opportunities that will arise when the primary mortgage securitization model becomes operational.”
For the quarter ended December 31, 2009, the annualized yield on average earning assets was 6.37% and the annualized cost of funds on the average borrowed funds balance was 1.51% for an interest rate spread of 4.86%. This is a 308 basis point increase over the annualized interest rate spread for the quarter ended December 31, 2008, and a 118 basis point decrease over the interest rate spread for the quarter ended September 30, 2009. Leverage was 1.1:1, 2.5:1, and 0.9:1 at December 31, 2009, December 31, 2008, and September 30, 2009, respectively.
RMBS comprised approximately 92.7%, 66.2%, and 91.8% of the Company’s investment portfolio at December 31, 2009, December 31, 2008, and September 30, 2009, respectively. The balance of the portfolio was comprised of loans collateralizing secured debt.
The Company is a specialty finance company that invests in residential mortgage-backed securities, residential mortgage loans, real estate-related securities and various other asset classes. The Company’s principal business objective is to generate net income for distribution to investors 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 and currently has 670,371,002 shares of common stock outstanding.
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