Chimera's Mixed Signals: Another Delayed Filing, But Company Maintains Dividend

| About: Chimera Investment (CIM)

On Thursday, March 1, 2012, Chimera Investment Corporation (NYSE:CIM) announced that it would delay the filing of its quarterly report for the fourth quarter of 2011. The company stated it expects to file its 2011 Form 10-K as soon as practicable. This is the second consecutive quarter that Chimera has had to delay the filing of a 10-K.

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Chimera is a hybrid mortgage REIT. Mortgage REITs ("mREITs") buy mortgage paper as an investment, or in order to re-securitize them and sell them to another mREIT or some other entity that is investing in real estate loans. Non-agency and/or hybrid mREITs like Chimera, MFA Financial (NYSE:MFA) and Invesco Mortgage Capital (NYSE:IVR) hold mortgage paper without government agency backing. Chimera is related to Annaly Capital Management, Inc. (NYSE:NLY), the largest agency mortgage, and is managed by FIDAC, a wholly owned subsidiary of Annaly.

Chimera's basis for requiring an extension was that it is still completing its financial statements for the year ended December 31, 2011, and the Annual Report on Form 10-K. The company stated that additional time is required to review the application of GAAP guidance to certain of its non-agency assets.

According to CIM, any changes should only result in a non-cash change in the GAAP accounting results, and will not affect the company's book value, cash flows, dividends and/or taxable income. Nonetheless, CIM noted that as of the end of Q4 2011, its GAAP book value was $2.97 per share and its economic book value was $2.82 per share, compared to GAAP book value of $3.27 per share and economic book value of $3.01 per share during Q3 of 2011. CIM affirmed that these Q3 numbers should not change as a result of the ongoing accounting analysis, nor should it affect prior or future dividend distributions.

Last quarter, Chimera stated the prior the delay was related to an accounting issue regarding the company's treatment of other-than-temporary impairments (OTTI). Chimera had previously evaluated certain investments in securities for OTTI under ASC 320 Investments-Debt and Equity Securities. Chimera stated that it determined investments in securities rated less than AA, non-rated non-agency securities and other subordinate securities should be evaluated for impairment under ASC 325- Investments-Other - Beneficial Interest in Securitized Transactions.

Beneficial interest model impairment recognition is similar to the investment security model, except credit loss is determined based on discounting cash flows expected to be collected through the yield currently used to accrete the beneficial interest rather than using the original effective interest rate. Essentially, the accounting would be revised to use newer information about a security that has substantially changed. It is still unclear whether the prior basis for a delayed filing is the present cause of this current delay, though it does seem likely.

Chimera also announced that for the fourth quarter of 2011, the company had taxable income of 11 cents per share and also declared a Q1 2012 dividend of $0.11 per share, payable on April 27, 2012 to shareholders of record on March 30, 2012, with an ex-dividend date of March 28, 2012. Eleven cents is the same dividend CIM paid last quarter.

Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.

Disclosure: I am long CIM, NLY.

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