Chimera Investment (CIM) risk factors, FY2024 10-K

Risks Related to Financing

1. 01Risks Associated with Our Investments
2. 04Our inability to access funding, our cost of funding or the terms on which such funding is available could have a material adverse effect on our financial condition, liquidity or profitability, particularly during times of severe market disruption in the financial, mortgage, housing or related sectors
3. 05An increase in our borrowing costs relative to the interest income we receive on our assets may materially adversely affect our profitability
4. 06Our business strategy involves the use of leverage. We may not achieve what we believe to be optimal levels of leverage or we may become overleveraged, which may materially adversely affect our liquidity, results of operations, profitability or financial condition
5. 07We may have difficulty accessing or be unable to access capital markets
6. 08Interest rate fluctuations, including as a result of the Federal Reserve's monetary policy, may have various negative effects on us and may lead to reduced earnings and increased volatility in our earnings
7. 09Changes in the yield curve may cause differences in timing between interest rate adjustments on our interest-earning assets and our borrowings, adversely affecting our net interest spread
8. 10Significant changes in interest rates, particularly increases in long-term rates, may reduce the market value of our investments and negatively affect our book value, earnings and cash available for distribution
9. 11The impact of inflation and related monetary policy efforts may adversely affect our financial performance
10. 12We assume credit risk primarily through the ownership of securities backed by residential, multi-family, and commercial real estate loans and through direct investments in residential real estate loans. The substantial majority of our investment assets are subject to various credit risks, as discussed below
11. 13and could result in rescission of the affected residential mortgage loans, which could adversely impact our business and financial results
12. 14A significant portion of our investments are in Non-Agency RMBS that are the most subordinate securities in securitizations, making us the first-loss security holder, which means these securities are subject to significant credit risk, are illiquid, and are difficult to value
13. 15Changes in prepayment rates could negatively affect the value of our investment portfolio, which could result in reduced earnings or losses and negatively affect the cash available for distribution to our stockholders
14. 16via the Palisades Acquisition. See “Risks Related to Our Recent Acquisition and Investment Management and Advisory Services” for further discussion
15. 17Changes in the fair values of our assets, liabilities, and derivatives can have various negative effects on us, including reduced earnings, less liquidity, increased earnings volatility, and volatility in our book value
16. 18Our calculations of the fair value of the assets we own or consolidate are based upon assumptions that are inherently subjective and involve a high degree of management judgment, and such assumptions may be more difficult to calculate during times of severe market disruption in the mortgage, housing or related sectors
17. 19Any deterioration or uncertainty in broader U.S. and global economic conditions could materially adversely affect our business and financial condition

Risks Related to Hedging

1. 02Risks Associated with Our Operations
2. 24Hedging against interest rate exposure may not be successful in mitigating the risks associated with interest rates and may reduce our cash available for distribution to our stockholders and adversely affect our financial condition and result of operations
3. 25We may enter into hedging instruments that could expose us to contingent liabilities in the future, which could materially adversely affect our results of operations
4. 26The characteristics of hedging instruments present various concerns, including illiquidity, enforceability, and counterparty risks, which could adversely affect our business and results of operations
5. 27Through certain of our wholly owned subsidiaries, we have engaged in the past, and expect to continue to engage in, securitization transactions relating to residential mortgage loans. These types of transactions and investments expose us to potentially material risks
6. 28Our ability to profitably execute or participate in future securitization transactions depends, in part, on our ability to compete with other purchasers of residential mortgage loans and the cost and availability of short-term debt, which may be negatively impacted by adverse market conditions beyond our control
7. 29Competition may affect our ability to source our target assets at attractive prices and have a material adverse effect on our business, financial condition and results of operations
8. 30We rely on third parties to perform certain services particularly as it relates to servicing, comply with applicable laws and regulations, and carry out contractual covenants and terms, the failure of which by any of these third parties may adversely impact our business and financial results
9. 31We utilize third-party analytical models and data to value our investments, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks
10. 32The expanding body of federal, state and local regulations and the investigations of servicers may increase their cost of compliance and the risks of noncompliance and may adversely affect their ability to perform their servicing obligations
11. 33investments in RMBS, may adversely affect the value of, and returns on, such investments. The foregoing matters may cause our business, financial condition, results of operations and ability to pay dividends to be adversely affected
12. 34Our executive officers and other key personnel are critical to our success and the loss of any executive officer or key employee may materially adversely affect our business

Risks Related to Regulatory Matters, Accounting, and Our 1940 Act Exemption

1. 03U.S. Federal Income Tax Risks and Risk Related to Our REIT Status
2. 35We are required to obtain various state licenses to purchase mortgage loans in the secondary market and there is no assurance we will be able to obtain or maintain those licenses
3. 36Our GAAP financial results may not be an accurate indicator of taxable income and dividend distributions
4. 37Changes in accounting rules could occur at any time and could impact us in significantly negative ways that we are unable to predict or protect against
5. 38Loss of our 1940 Act exemption would adversely affect us and negatively affect the market price of shares of our capital stock and our ability to distribute dividends
6. 39Certain of our subsidiaries may rely on Section 3(c)(7) for their 1940 Act exemption and, therefore, our interest in each of these subsidiaries would constitute an “investment security” for purposes of determining whether we pass the 40% test
7. 40effect of these factors will be to lower our net interest income. If we fail to qualify for exemption from registration as an investment company, our ability to use leverage would be substantially reduced, and we would not be able to conduct our business as described
8. 41Complying with REIT requirements may cause us to forego otherwise attractive opportunities or to liquidate otherwise attractive investments
9. 42Complying with REIT requirements may limit our ability to hedge effectively
10. 43We may invest in TBAs, which have some uncertainty in their treatment under the REIT asset and income tests
11. 44Failure to qualify as a REIT would subject us to U.S. federal income tax, which would reduce the cash available for distribution to our stockholders
12. 45The ability of our Board of Directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders
13. 46Distributions may be treated as unrelated business taxable income to tax-exempt investors
14. 47Classification of our securitizations or financing arrangements as a taxable mortgage pool could subject us or certain of our stockholders to increased taxation
15. 48Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders
16. 49We intend to distribute all of our REIT taxable income to our stockholders so as to satisfy the 90% distribution requirement and to avoid both corporate income tax and the 4% nondeductible excise tax
17. 50Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax
18. 51The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S. federal income tax purposes
19. 52The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests
20. 53Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow
21. 54We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our capital stock and our business in general

Risks Related to Our Recent Acquisition and Investment Management and Advisory Services

1. 20We may be unable to successfully integrate and realize the anticipated benefits of the Palisades Acquisition, which may adversely affect our operations
2. 21Our investment management and advisory services involve certain risks, which could adversely affect our business, financial condition and results of operations
3. 22Our failure to appropriately manage or address conflicts of interest could damage our reputation and adversely affect our business, financial condition and results of operations
4. 23Two of our subsidiaries are currently required to be registered as an investment adviser or a relying adviser, subjecting us to extensive regulation that could adversely affect our ability to manage our business

Risks Related to Our Organization and Structure

1. 55Certain provisions of Maryland Law, of our charter, and of our bylaws contain provisions that may inhibit potential acquisition bids that stockholders may consider favorable, and the market price of our capital stock may be lower as a result
2. 56approved by our Board of Directors (including a majority of our directors who are not affiliates or associates of such person)
3. 57Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit stockholders’ recourse in the event of actions not in their best interests

Risks Related to Our Securities

1. 58The market price and trading volume of shares of our capital stock may be volatile
2. 59We may not be able to pay dividends or other distributions on our capital stock
3. 60Interests of holders of our securities are structurally subordinated to the liabilities and obligations of our subsidiaries and may also be adversely affected by future offerings of securities
4. 61Changes in the amount of dividend distributions we pay or in the tax characterization of dividend distributions we pay may adversely affect the market price of our common stock or may result in holders of our common stock being taxed on dividend distributions at a higher rate than initially expected
5. 62Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends
6. 63We cannot guarantee that any share repurchase program will be fully consummated or will enhance long-term stockholder value, and share repurchases could increase the volatility of our stock prices and could diminish our cash reserves
7. 64Holders of our preferred stock have limited voting rights