Note 2—Investments in Debt Securities

The Company’s investments in debt securities primarily consist of multifamily tax-exempt bonds and other real estate-related bond investments. These investments are classified as available-for-sale for reporting purposes and are measured on a fair value basis in our Consolidated Balance Sheets.

Multifamily tax-exempt bonds are issued by state and local governments or their agencies or authorities to finance affordable multifamily rental housing. Generally, the only source of security on these bonds is either a first mortgage or a subordinate mortgage on the underlying properties.

The Company’s investments in other real estate-related bonds consist of one tax-exempt bond at March 31, 2019 and December 31, 2018, that financed the development of infrastructure for a mixed-use town center development and is secured by incremental tax revenues generated from the development and its landowners.

The weighted-average pay rate on the Company’s bond investments was 6.2% at March 31, 2019 and December 31, 2018. Weighted-average pay rate represents the cash interest payments collected on the bonds (excluding subordinated cash flow bonds) as a percentage of the bonds’ average unpaid principal balance (“UPB”) for the preceding 12 months for the population of bonds at March 31, 2019 and December 31, 2018.

The following tables provide information about the UPB, amortized cost, gross unrealized gains and fair value (“FV”) associated with the Company’s investments in bonds that are classified as available-for-sale:


	At
	March 31, 2019
					Gross
			Amortized		Unrealized				FV as a %
(in thousands)	UPB		Cost (1)		Gains		FV		of UPB
Multifamily tax-exempt bonds	$	49,493	$	25,689	$	29,840	$	55,529		112%
Other real estate-related bond investments		27,170		20,953		4,620		25,573		94%
Total	$	76,663	$	46,642	$	34,460	$	81,102		106%


	At
	December 31, 2018
					Gross
			Amortized		Unrealized				FV as a %
(in thousands)	UPB		Cost (1)		Gains		FV		of UPB
Multifamily tax-exempt bonds	$	65,162	$	38,653	$	33,564	$	72,217	111%
Other real estate-related bond investments		27,170		20,912		4,061		24,973	92%
Total	$	92,332	$	59,565	$	37,625	$	97,190	105%

⁽¹⁾

Amortized cost consists of the UPB, unamortized premiums, discounts and other cost basis adjustments, as well as net OTTI recognized in “Impairments” in our Consolidated Statements of Operations.

See Note 8, “Fair Value,” which describes factors that contributed to the $16.1 million decrease in the reported fair value of the Company’s investments in debt securities for the three months ended March 31, 2019.

Maturity

Principal payments on the Company’s investments in bonds are based on contractual terms that are set forth in the contractual documents governing such investments. If principal payments are not required to be made prior to the contractual maturity of a bond, its UPB is required to be paid in a lump sum payment at contractual maturity or at such earlier time as may be provided under the governing documents. At March 31, 2019, the majority of the Company’s bond investments amortize on a scheduled basis and have stated maturity dates between August 2033 and December 2048. The Company also had four non-amortizing bonds with principal due in full between November 2044 and August 2048 (the total cost basis and fair value of these bonds were $2.9 million and $16.7 million, respectively, at March 31, 2019).

Investments in Debt Securities with Prepayment Features

The contractual terms of all of the Company’s investments in bonds include provisions that permit such instruments to be prepaid at par after a specified date that is prior to their stated maturity date. The following table provides information about the UPB, amortized cost and fair value of the Company’s investments in bonds that were prepayable at par at March 31, 2019, as well as stratifies such information for the remainder of the Company’s investments based upon the periods in which such instruments become prepayable at par:


(in thousands)	UPB		Amortized Cost		Fair Value
March 31, 2019	$	28,998	$	21,221	$	27,679
April 1 through December 31, 2019		─		─		─
2020		─		─		─
2021		17,459		4,107		19,670
2022		30,206		21,314		33,753
2023		─		─		─
Thereafter		─		─		─
Bonds that may not be prepaid		─		─		─
Total	$	76,663	$	46,642	$	81,102

The weighted-average expected maturity of the Company’s investments in bonds that were not currently prepayable at par at March 31, 2019 was 2.7 years.

Bond Aging Analysis

The following table provides information about the fair value of the Company’s investments in bonds that are classified as available-for-sale and that were current with respect to principal and interest payments, as well as information about the fair value of bonds that were past due with respect to principal or interest payments:


	At		At
	March 31,		December 31,
(in thousands)	2019		2018
Total current	$	65,915	$	84,307
30-59 days past due		─		─
60-89 days past due		2,107		─
90 days or greater		13,080		12,883
Total	$	81,102	$	97,190

Troubled Debt Restructurings

The Company may periodically agree to modify the contractual terms of its investments in debt securities in the interest of attempting to obtain more cash or other value from a debtor than it otherwise would, or to increase the probability of receipt, by granting a concession to a borrower. If the Company makes an economic concession to a borrower that is experiencing financial difficulty, the Company will typically assess a modification or other form of concession to represent a troubled debt restructuring (“TDR”) for reporting purposes.

There were no TDRs for the three months ended March 31, 2019 and March 31, 2018.

Nonaccrual Bonds

The fair value of the Company’s investments in bonds that were on nonaccrual status was $15.2 million and $12.9 million at March 31, 2019 and December 31, 2018, respectively. The Company recognized interest income on a cash basis of $0.1 million for the three months ended March 31, 2019 and March 31, 2018. Interest income not recognized on bonds that were on nonaccrual status was $0.1 million and $0.2 million for the three months ended March 31, 2019 and March 31, 2018, respectively.

Bond Sales and Redemptions

The Company received cash proceeds in connection with the sale or redemption in full of investments in bonds of $8.6 million for the three months ended March 31, 2019. There were no sales or full redemption of investments in bonds during the three months ended March 31, 2018.

The following table provides information about gains or losses that were recognized in the Consolidated Statements of Operations in connection with the Company’s investments in bonds:


	For the three months ended
	March 31,
(in thousands)	2019		2018
OTTI losses recognized on bonds held at each period-end	$	─	$	(6)
Gains recognized at time of sale or redemption		3,571		─
Total net gains (losses) on bonds	$	3,571	$	(6)