10-Q 1 nymt-03312019x10q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q   
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ____________

Commission file number 001-32216
NEW YORK MORTGAGE TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland 
47-0934168 
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)

90 Park Avenue, New York, New York 10016
(Address of Principal Executive Office) (Zip Code)

(212) 792-0107
(Registrant’s Telephone Number, Including Area Code)

275 Madison Avenue
New York, New York 10016
(Former Address)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒
Accelerated Filer ☐
Non-Accelerated Filer ☐
Smaller Reporting Company ☐
Emerging Growth Company ☐
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒





Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share
 
NYMT
 
NASDAQ Stock Market
7.75% Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share, $25.00 Liquidation Preference
 
NYMTP
 
NASDAQ Stock Market
7.875% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share, $25.00 Liquidation Preference
 
NYMTO
 
NASDAQ Stock Market
8.000% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share, $25.00 Liquidation Preference

 
NYMTN
 
NASDAQ Stock Market


The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding on May 7, 2019 was 190,091,655.


NEW YORK MORTGAGE TRUST, INC.

FORM 10-Q

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except share data)
 
March 31, 2019
 
December 31, 2018
 
(unaudited)
 
 
ASSETS
 
 
 
Investment securities, available for sale, at fair value
$
1,583,965

 
$
1,512,252

Distressed and other residential mortgage loans, at fair value
875,566

 
737,523

Distressed and other residential mortgage loans, net
262,193

 
285,261

Investments in unconsolidated entities
92,364

 
73,466

Preferred equity and mezzanine loan investments
175,128

 
165,555

Multi-family loans held in securitization trusts, at fair value
14,328,336

 
11,679,847

Derivative assets
14,873

 
10,263

Cash and cash equivalents
65,359

 
103,724

Real estate held for sale in consolidated variable interest entities
—

 
29,704

Goodwill
25,222

 
25,222

Receivables and other assets
132,135

 
114,821

Total Assets (1)
$
17,555,141

 
$
14,737,638

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
$
2,273,005

 
$
2,131,505

Residential collateralized debt obligations
49,247

 
53,040

Multi-family collateralized debt obligations, at fair value
13,547,195

 
11,022,248

Securitized debt
—

 
42,335

Mortgages and notes payable in consolidated variable interest entities
3,986

 
31,227

Accrued expenses and other liabilities
125,955

 
101,228

Subordinated debentures
45,000

 
45,000

Convertible notes
131,301

 
130,762

Total liabilities (1)
16,175,689

 
13,557,345

Commitments and Contingencies

 

Stockholders' Equity:
 
 
 
Preferred stock, $0.01 par value, 7.75% Series B cumulative redeemable, $25 liquidation preference per share, 6,000,000 shares authorized, 3,000,000 shares issued and outstanding
72,397

 
72,397

Preferred stock, $0.01 par value, 7.875% Series C cumulative redeemable, $25 liquidation preference per share, 6,600,000 and 4,140,000 shares authorized at March 31, 2019 and December 31, 2018, respectively, 3,600,000 shares issued and outstanding
86,862

 
86,862

Preferred stock, $0.01 par value, 8.00% Series D Fixed-to-Floating Rate cumulative redeemable, $25 liquidation preference per share, 8,400,000 and 5,750,000 shares authorized at March 31, 2019 and December 31, 2018, respectively, 5,400,000 shares issued and outstanding
130,496

 
130,496

Common stock, $0.01 par value, 400,000,000 shares authorized, 187,831,455 and 155,589,528 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
1,878

 
1,556

Additional paid-in capital
1,199,090

 
1,013,391

Accumulated other comprehensive loss
(9,088
)
 
(22,135
)
Accumulated deficit
(102,530
)
 
(103,178
)
Company's stockholders' equity
1,379,105

 
1,179,389

Non-controlling interest in consolidated variable interest entities
347

 
904

Total equity
1,379,452

 
1,180,293

Total Liabilities and Stockholders' Equity
$
17,555,141

 
$
14,737,638


(1) 
Our condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company is the primary beneficiary of these VIEs. As of March 31, 2019 and December 31, 2018, assets of consolidated VIEs totaled $14,450,531 and $11,984,374, respectively, and the liabilities of consolidated VIEs totaled $13,647,045 and $11,191,736, respectively. See Note 9 for further discussion.

The accompanying notes are an integral part of the condensed consolidated financial statements.
3

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(unaudited)
 
For the Three Months Ended
March 31,
 
2019
 
2018
INTEREST INCOME:
 
 
 
Investment securities and other interest earning assets
$
15,316

 
$
11,813

Distressed and other residential mortgage loans
15,891

 
7,541

Preferred equity and mezzanine loan investments
5,007

 
4,445

Multi-family loans held in securitization trusts
111,768

 
85,092

Total interest income
147,982

 
108,891

 
 
 
 
INTEREST EXPENSE:
 
 
 
Repurchase agreements and other interest bearing liabilities
20,386

 
9,651

Residential collateralized debt obligations
422

 
411

Multi-family collateralized debt obligations
96,797

 
74,478

Securitized debt
742

 
1,330

Subordinated debentures
741

 
620

Convertible notes
2,691

 
2,649

Total interest expense
121,779

 
89,139

 
 
 
 
NET INTEREST INCOME
26,203

 
19,752

 
 
 
 
OTHER INCOME (LOSS):
 
 
 
Recovery of (provision for) loan losses
1,065

 
(42
)
Realized gain (loss) on investment securities and related hedges, net
16,801

 
(3,423
)
Realized gain (loss) on distressed and other residential mortgage loans at carrying value, net
2,079

 
(773
)
Net gain (loss) on distressed and other residential mortgage loans at fair value
11,010

 
(166
)
Unrealized (loss) gain on investment securities and related hedges, net
(14,586
)
 
11,692

Unrealized gain on multi-family loans and debt held in securitization trusts, net
9,410

 
7,545

Loss on extinguishment of debt
(2,857
)
 
—

Income from real estate held for sale in consolidated variable interest entities
215

 
2,126

Other income
7,728

 
3,994

Total other income
30,865

 
20,953

 
 
 
 
GENERAL, ADMINISTRATIVE AND OPERATING EXPENSES:
 
 
 
General and administrative expenses
8,187

 
4,656

Base management and incentive fees
723

 
833

Expenses related to distressed and other residential mortgage loans
3,252

 
1,603

Expenses related to real estate held for sale in consolidated variable interest entities
482

 
1,606

Total general, administrative and operating expenses
12,644

 
8,698

 
 
 
 
INCOME FROM OPERATIONS BEFORE INCOME TAXES
44,424

 
32,007

Income tax expense (benefit)
74

 
(79
)
 
 
 
 
NET INCOME
44,350

 
32,086

Net income attributable to non-controlling interest in consolidated variable interest entities
(211
)
 
(2,468
)
NET INCOME ATTRIBUTABLE TO COMPANY
44,139

 
29,618

Preferred stock dividends
(5,925
)
 
(5,925
)
NET INCOME ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS
$
38,214

 
$
23,693

 
 
 
 
Basic earnings per common share
$
0.22

 
$
0.21

Diluted earnings per common share
$
0.21

 
$
0.20

Weighted average shares outstanding-basic
174,421

 
112,018

Weighted average shares outstanding-diluted
194,970

 
131,761


The accompanying notes are an integral part of the condensed consolidated financial statements.
4

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
(unaudited)
 
For the Three Months Ended
March 31,
 
2019
 
2018
NET INCOME ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS
$
38,214

 
$
23,693

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
Increase (Decrease) in fair value of available for sale securities
26,712

 
(24,478
)
Reclassification adjustment for net gain included in net income
(13,665
)
 
—

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
13,047

 
(24,478
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS
$
51,261

 
$
(785
)

The accompanying notes are an integral part of the condensed consolidated financial statements.
5

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar amounts in thousands)
(unaudited)
 
Common
Stock
 
Preferred
Stock
 
Additional
Paid-In
Capital
 
Retained Earnings (Accumulated Deficit)
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total Company Stockholders' Equity
 
Non-Controlling Interest in Consolidated VIE
 
Total
Balance, December 31, 2018
$
1,556

 
$
289,755

 
$
1,013,391

 
$
(103,178
)
 
$
(22,135
)
 
$
1,179,389

 
$
904

 
$
1,180,293

Net income
—

 
—

 
—

 
44,139

 
—

 
44,139

 
211

 
44,350

Common stock issuance, net
322

 
—

 
185,699

 
—

 
—

 
186,021

 
—

 
186,021

Preferred stock issuance, net
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Dividends declared on common stock
—

 
—

 
—

 
(37,566
)
 
—

 
(37,566
)
 
—

 
(37,566
)
Dividends declared on preferred stock
—

 
—

 
—

 
(5,925
)
 
—

 
(5,925
)
 
—

 
(5,925
)
Reclassification adjustment for net gain included in net income
—

 
—

 
—

 
—

 
(13,665
)
 
(13,665
)
 
—

 
(13,665
)
Increase in fair value of available for sale securities
—

 
—

 
—

 
—

 
26,712

 
26,712

 
—

 
26,712

Decrease in non-controlling interest related to distributions from and de-consolidation of variable interest entities
—

 
—

 
—

 
—

 
—

 
—

 
(768
)
 
(768
)
Balance, March 31, 2019
$
1,878

 
$
289,755

 
$
1,199,090

 
$
(102,530
)
 
$
(9,088
)
 
$
1,379,105

 
$
347

 
$
1,379,452



The accompanying notes are an integral part of the condensed consolidated financial statements.
6

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar amounts in thousands)
(unaudited)
 
Common
Stock
 
Preferred
Stock
 
Additional
Paid-In
Capital
 
Retained Earnings (Accumulated Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total Company Stockholders' Equity
 
Non-Controlling Interest in Consolidated VIE
 
Total
Balance, December 31, 2017
$
1,119

 
$
289,755

 
$
751,155

 
$
(75,717
)
 
$
5,553

 
$
971,865

 
$
4,136

 
$
976,001

Net income
—

 
—

 
—

 
29,618

 
—

 
29,618

 
2,468

 
32,086

Common stock issuance, net
2

 
—

 
387

 
—

 
—

 
389

 
—

 
389

Preferred stock issuance, net
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Dividends declared on common stock
—

 
—

 
—

 
(22,423
)
 
—

 
(22,423
)
 
—

 
(22,423
)
Dividends declared on preferred stock
—

 
—

 
—

 
(5,925
)
 
—

 
(5,925
)
 
—

 
(5,925
)
Decrease in fair value of available for sale securities
—

 
—

 
—

 
—

 
(24,478
)
 
(24,478
)
 
—

 
(24,478
)
Decrease in non-controlling interest related to distributions from and de-consolidation of variable interest entities
—

 
—

 
—

 
—

 
—

 
—

 
(4,863
)
 
(4,863
)
Balance, March 31, 2018
$
1,121

 
$
289,755

 
$
751,542

 
$
(74,447
)
 
$
(18,925
)
 
$
949,046

 
$
1,741

 
$
950,787



The accompanying notes are an integral part of the condensed consolidated financial statements.
7
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(unaudited)


 
For the Three Months Ended
March 31,
 
2019
 
2018
Cash Flows from Operating Activities:
 
 
 
Net income
$
44,350

 
$
32,086

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Net accretion
(10,463
)
 
(5,729
)
Realized (gain) loss on investment securities and related hedges, net
(16,801
)
 
3,423

Net (gain) loss on distressed and other residential mortgage
(13,089
)
 
939

Unrealized loss (gain) on investment securities and related hedges, net
14,586

 
(11,692
)
Gain on sale of real estate held for sale in consolidated variable interest entities
(1,580
)
 
(2,328
)
Impairment of real estate under development in consolidated variable interest entities
936

 
—

Loss on extinguishment of debt
2,857

 
—

Unrealized gain on loans and debt held in multi-family securitization trusts
(9,410
)
 
(7,545
)
(Recovery of) provision for loan losses
(1,065
)
 
42

Income from unconsolidated entity, preferred equity and mezzanine loan investments
(13,108
)
 
(6,090
)
Distributions of income from unconsolidated entity, preferred equity and mezzanine loan investments
7,010

 
3,926

Amortization of stock based compensation, net
993

 
387

Changes in operating assets and liabilities:


 

Receivables and other assets
(15,499
)
 
125

Accrued expenses and other liabilities
18,476

 
(435
)
Net cash provided by operating activities
8,193

 
7,109

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Net proceeds from sale of real estate held for sale in consolidated variable interest entities
3,587

 
33,192

Proceeds from sales of investment securities
56,769

 
10,080

Purchases of investment securities
(136,265
)
 
(60,321
)
Purchases of other assets
(600
)
 
(2
)
Capital expenditures on real estate held for sale in consolidated variable interest entities
(128
)
 
(46
)
Funding of preferred equity, equity and mezzanine loan investments
(35,021
)
 
(18,210
)
Principal repayments received on preferred equity and mezzanine loan investments
12,316

 
3,871

Return of capital from unconsolidated entity investments
311

 
638

Net payments made on other derivative instruments settled during the period
(19,197
)
 
—

Principal repayments and proceeds from sales and refinancing of distressed and other residential mortgage loans
50,296

 
12,335

Principal repayments received on multi-family loans held in securitization trusts
37,485

 
34,434

Principal paydowns on investment securities - available for sale
37,642

 
35,365

Proceeds from sale of real estate owned
650

 
943

Purchases of residential mortgage loans and distressed residential mortgage loans
(159,658
)
 
(15,966
)
Purchases of investments held in multi-family securitization trusts
(101,570
)
 
—

Net cash (used in) provided by investing activities
(253,383
)
 
36,313

 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Net proceeds from repurchase agreements
141,153

 
10,215

Common stock issuance, net
185,027

 
—

Dividends paid on common stock
(31,118
)
 
(22,382
)
Dividends paid on preferred stock
(5,925
)
 
(5,985
)
Payments made on mortgages and notes payable in consolidated variable interest entities
(36
)
 
(25,565
)
Proceeds from mortgages and notes payable in consolidated variable interest entities
—

 
505

Payments made on residential collateralized debt obligations
(3,808
)
 
(3,167
)
Payments made on multi-family collateralized debt obligations
(37,481
)
 
(34,437
)
Extinguishment of and payments made on securitized debt
(45,557
)
 
(11,753
)
Net cash provided by (used in) financing activities
202,255

 
(92,569
)
 
 
 
 
Net Decrease in Cash, Cash Equivalents and Restricted Cash
(42,935
)
 
(49,147
)
Cash, Cash Equivalents and Restricted Cash - Beginning of Period
109,145

 
115,450

Cash, Cash Equivalents and Restricted Cash - End of Period
$
66,210

 
$
66,303

 
 
 
 
 
 
 
 

The accompanying notes are an integral part of the condensed consolidated financial statements.
8
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollar amounts in thousands)
(unaudited)


Supplemental Disclosure:
 
 
 
Cash paid for interest
$
130,627

 
$
103,316

Cash paid for income taxes
$
7

 
$
642

 
 
 
 
Non-Cash Investment Activities:
 
 
 
Consolidation of multi-family loans held in securitization trusts
$
2,426,210

 
$
—

Consolidation of multi-family collateralized debt obligations
$
2,324,639

 
$
—

Transfer from residential loans to real estate owned
$
1,841

 
$
1,992

 
 
 
 
Non-Cash Financing Activities:
 
 
 
Dividends declared on common stock to be paid in subsequent period
$
37,566

 
$
22,423

Dividends declared on preferred stock to be paid in subsequent period
$
5,925

 
$
5,925

Mortgages and notes payable assumed by purchaser of real estate held for sale in consolidated variable entities
$
27,260

 
$
—

 
 
 
 
Cash, Cash Equivalents and Restricted Cash Reconciliation:
 
 
 
Cash and cash equivalents
$
65,359

 
$
65,495

Restricted cash included in receivables and other assets
$
851

 
$
808

Total cash, cash equivalents, and restricted cash
$
66,210

 
$
66,303


The accompanying notes are an integral part of the condensed consolidated financial statements.
9

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(unaudited)
1.
Organization

New York Mortgage Trust, Inc., together with its consolidated subsidiaries ("NYMT," "we," "our," or the “Company"), is a real estate investment trust, or REIT, in the business of acquiring, investing in, financing and managing mortgage-related and residential housing-related assets. Our objective is to deliver long-term stable distributions to our stockholders over changing economic conditions through a combination of net interest margin and net realized capital gains from a diversified investment portfolio. Our portfolio includes (i) structured multi-family property investments such as multi-family CMBS and preferred equity in, and mezzanine loans to, owners of multi-family properties, (ii) residential mortgage loans, including distressed residential mortgage loans, non-QM loans, second mortgages, and other residential mortgage loans, (iii) non-Agency RMBS, (iv) Agency RMBS and (v) certain other mortgage-related and residential housing-related assets.

The Company conducts its business through the parent company, New York Mortgage Trust, Inc., and several subsidiaries, including special purpose subsidiaries established for residential loan, distressed residential loan and CMBS securitization purposes, taxable REIT subsidiaries ("TRSs") and qualified REIT subsidiaries ("QRSs"). The Company consolidates all of its subsidiaries under generally accepted accounting principles in the United States of America (“GAAP”).

The Company is organized and conducts its operations to qualify as a REIT for U.S. federal income tax purposes. As such, the Company will generally not be subject to federal income taxes on that portion of its income that is distributed to stockholders if it distributes at least 90% of its annual REIT taxable income to its stockholders by the due date of its federal income tax return and complies with various other requirements.


10

2.Summary of Significant Accounting Policies
    
Definitions – The following defines certain of the commonly used terms in these financial statements: 

“RMBS” refers to residential mortgage-backed securities comprised of adjustable-rate, hybrid adjustable-rate, fixed-rate, interest only and inverse interest only and principal only securities;
“Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of mortgage loans issued or guaranteed by a government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or an agency of the U.S. government, such as the Government National Mortgage Association (“Ginnie Mae”);
“non-Agency RMBS” refers to RMBS that are not guaranteed by any agency of the U.S. Government or any federally chartered corporation;
“IOs” refers collectively to interest only and inverse interest only mortgage-backed securities that represent the right to the interest component of the cash flow from a pool of mortgage loans;
"IO RMBS" refers to RMBS comprised of IOs;
“Agency IOs” refers to Agency RMBS comprised of IO RMBS;
“POs” refers to mortgage-backed securities that represent the right to the principal component of the cash flow from a pool of mortgage loans;
“ARMs” refers to adjustable-rate residential mortgage loans;
“prime ARM loans” and “residential securitized loans” each refer to prime credit quality residential ARMs held in our securitization trusts formed in 2005;
“Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS;
“Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-rate RMBS;
“CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities, as well as PO, IO, or mezzanine securities that represent the right to a specific component of the cash flow from a pool of commercial mortgage loans;
“Multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties;
“CDOs” refers to collateralized debt obligations;
“non-QM loans” refers to residential mortgage loans that are not deemed "qualified mortgage," or "QM," loans under the rules of the Consumer Financial Protection Bureau; and
"second mortgages" refers to liens on residential properties that are subordinate to more senior mortgages or loans.

Basis of Presentation – The accompanying condensed consolidated balance sheet as of December 31, 2018 has been derived from audited financial statements. The accompanying condensed consolidated balance sheet as of March 31, 2019, the accompanying condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018, the accompanying condensed consolidated statements of comprehensive income for the three months ended March 31, 2019 and 2018, the accompanying condensed consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2019 and 2018 and the accompanying condensed consolidated statements of cash flows for the three months ended March 31, 2019 and 2018 are unaudited. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with Article 10 of Regulation S-X and the instructions to Form 10-Q. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the U.S. Securities and Exchange Commission (“SEC”). Accordingly, significant accounting policies and other disclosures have been omitted since such items are disclosed in Note 2 in the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2018. Provided below is a summary of additional accounting policies that are significant to or newly adopted by the Company for the three months ended March 31, 2019. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full year.


11

The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management has made significant estimates in several areas, including fair valuation of its distressed and other residential mortgage loans, multi-family loans held in securitization trusts, multi-family CDOs and CMBS held in securitization trusts, as well as income recognition on distressed residential mortgage loans purchased at a discount. Although the Company’s estimates contemplate current conditions and how it expects those conditions to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially impact the Company’s results of operations and its financial condition.
    
Reclassifications – Certain prior period amounts have been reclassified in the condensed consolidated financial statements to conform to current period presentation.

Principles of Consolidation and Variable Interest Entities – The accompanying condensed consolidated financial statements of the Company include the accounts of all its subsidiaries which are majority-owned, controlled by the Company or a variable interest entity ("VIE") where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company consolidates a VIE when it is the primary beneficiary of such VIE, herein referred to as a "Consolidated VIE". As primary beneficiary, the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE. The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE.

Adoption of Accounting Standards Codification ("ASC") Topic 842, Leases ("ASC 842")

On January 1, 2019, the Company adopted ASC 842 using the modified retrospective transition method applied to all leases that were not completed as of January 1, 2019. Results for reporting periods beginning on or after January 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. We elected the practical expedients allowed for under ASC 842 that exempt an entity from reassessing whether existing contracts contain leases, reassessing the lease classification of existing leases, and reassessing the initial direct costs for existing leases. As such, there was no cumulative impact on opening accumulated deficit as of January 1, 2019 of adopting ASC 842 under the modified retrospective transition method. Operating lease right of use assets and operating lease liabilities of $10.3 million are included in receivables and other assets and accrued expenses and other liabilities in the condensed consolidated balance sheets, respectively, as of March 31, 2019. The adoption of ASC 842 did not have a material effect on our results of operations for the three months ended March 31, 2019.

Summary of Recent Accounting Pronouncements

Financial Instruments — Credit Losses (Topic 326)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption as of the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 is permitted. The Company is currently assessing the impact of this guidance as the ASU will have an effect on the Company's estimation of credit losses on distressed residential mortgage loans, residential mortgage loans held in securitization trusts, residential mortgage loans, and preferred equity and mezzanine loan investments that are accounted for as loans.


12

Fair Value Measurement (Topic 820)

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). These amendments add, modify, or remove disclosure requirements regarding the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, narrative descriptions of measurement uncertainty, and the valuation processes for Level 3 fair value measurements. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company anticipates the implementation of this guidance as of the effective date will result in additional and modified disclosures with respect to its Level 3 fair value measurements.


13

3.
Investment Securities Available For Sale

Investment securities available for sale consisted of the following as of March 31, 2019 and December 31, 2018 (dollar amounts in thousands):
 
March 31, 2019
 
December 31, 2018
 
Amortized Cost
 
Unrealized
 
Fair Value
 
Amortized Cost
 
Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
 
 
Gains
 
Losses
 
Agency RMBS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency ARMs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
$
26,053

 
$
—

 
$
(981
)
 
$
25,072

 
$
26,338

 
$
—

 
$
(1,052
)
 
$
25,286

Fannie Mae
41,673

 
6

 
(1,196
)
 
40,483

 
43,984

 
8

 
(1,384
)
 
42,608

Ginnie Mae
3,440

 
—

 
(133
)
 
3,307

 
3,627

 
—

 
(127
)
 
3,500

Total Agency ARMs (1)
71,166

 
6

 
(2,310
)
 
68,862

 
73,949

 
8

 
(2,563
)
 
71,394

Agency Fixed- Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
85,182

 
—

 
(1,041
)
 
84,141

 
87,018

 
—

 
(2,526
)
 
84,492

Fannie Mae
889,070

 
273

 
(18,408
)
 
870,935

 
915,039

 
—

 
(33,195
)
 
881,844

Ginnie Mae
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Agency Fixed-Rate
974,252

 
273

 
(19,449
)
 
955,076

 
1,002,057

 
—

 
(35,721
)
 
966,336

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Agency RMBS
1,045,418

 
279

 
(21,759
)
 
1,023,938

 
1,076,006

 
8

 
(38,284
)
 
1,037,730

Non-Agency RMBS (1)
310,763

 
3,738

 
(415
)
 
314,086

 
215,337

 
166

 
(1,466
)
 
214,037

CMBS (1) (2)
236,873

 
9,068

 
—

 
245,941

 
243,046

 
17,815

 
(376
)
 
260,485

Total investment securities available for sale
$
1,593,054

 
$
13,085

 
$
(22,174
)
 
$
1,583,965

 
$
1,534,389

 
$
17,989

 
$
(40,126
)
 
$
1,512,252



(1) 
For the Company's Agency ARMs, non-Agency RMBS, and CMBS securities with stated reset periods, the weighted average reset periods are twenty-nine months, eight months, and one month, respectively.
(2) 
Included in CMBS is $52.7 million of investment securities available for sale held in securitization trusts as of December 31, 2018.

Realized Gain or Loss Activity

During the three months ended March 31, 2019, the Company received total proceeds of approximately $56.8 million from the sale of investment securities available for sale, realizing a net gain of approximately $16.8 million. During the three months ended March 31, 2018, the Company received total proceeds of approximately $10.1 million from the sale of investment securities available for sale, realizing a net loss of approximately $3.4 million.

Weighted Average Life

Actual maturities of our available for sale securities are generally shorter than stated contractual maturities (with maturities up to 30 years), as they are affected by periodic payments and prepayments of principal on the underlying mortgages. As of March 31, 2019 and December 31, 2018, based on management’s estimates using the three month historical constant prepayment rate (“CPR”), the weighted average life of the Company’s available for sale securities portfolio was approximately 8.3 years and 5.7 years, respectively.


14

The following table sets forth the weighted average lives of our investment securities available for sale as of March 31, 2019 and December 31, 2018 (dollar amounts in thousands):
Weighted Average Life
March 31, 2019
 
December 31, 2018
0 to 5 years
$
549,663

 
$
456,947

Over 5 to 10 years
552,393

 
1,043,369

10+ years
481,909

 
11,936

Total
$
1,583,965

 
$
1,512,252


Unrealized Losses in Other Comprehensive Income

The following tables present the Company's investment securities available for sale in an unrealized loss position reported through other comprehensive income, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2019 and December 31, 2018 (dollar amounts in thousands):

March 31, 2019
Less than 12 months
 
Greater than 12 months
 
Total
 
Carrying
Value
 
Gross
Unrealized
Losses
 
Carrying
Value
 
Gross
Unrealized
Losses
 
Carrying
Value
 
Gross
Unrealized
Losses
Agency RMBS
$
—

 
$
—

 
$
1,004,264

 
$
(21,759
)
 
$
1,004,264

 
$
(21,759
)
Non-Agency RMBS
51,269

 
(401
)
 
150

 
(14
)
 
51,419

 
(415
)
Total investment securities available for sale
$
51,269

 
$
(401
)
 
$
1,004,414

 
$
(21,773
)
 
$
1,055,683

 
$
(22,174
)

At March 31, 2019, the Company does not intend to sell any of its investments that were in an unrealized loss position, and it is “more likely than not” that the Company will not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity.

Gross unrealized losses on the Company’s Agency RMBS were $21.8 million at March 31, 2019. Agency RMBS are issued by GSEs and enjoy either the implicit or explicit backing of the full faith and credit of the U.S. Government. While the Company’s Agency RMBS are not rated by any rating agency, they are currently perceived by market participants to be of high credit quality, with risk of default limited to the unlikely event that the U.S. Government would not continue to support the GSEs. Given the credit quality inherent in Agency RMBS, the Company does not consider any of the current impairments on its Agency RMBS to be credit related. In assessing whether it is more likely than not that it will be required to sell any impaired security before its anticipated recovery, which may be at its maturity, the Company considers for each impaired security, the significance of each investment, the amount of impairment, the projected future performance of such impaired securities, as well as the Company’s current and anticipated leverage capacity and liquidity position. Based on these analyses, the Company determined that at March 31, 2019 any unrealized losses on its Agency RMBS were temporary.

Gross unrealized losses on the Company's non-Agency RMBS were $0.4 million at March 31, 2019, respectively. Credit risk associated with non-Agency RMBS is regularly assessed as new information regarding the underlying collateral becomes available and based on updated estimates of cash flows generated by the underlying collateral. Based upon the most recent evaluation, the Company does not consider these unrealized losses to be indicative of other-than-temporary impairment and does not believe that these unrealized losses are credit related, but are rather a reflection of current market yields and/or marketplace bid-ask spreads.



15

December 31, 2018
Less than 12 months
 
Greater than 12 months
 
Total
 
Carrying
Value
 
Gross
Unrealized
Losses
 
Carrying
Value
 
Gross
Unrealized
Losses
 
Carrying
Value
 
Gross
Unrealized
Losses
Agency RMBS
$
310,783

 
$
(8,037
)
 
$
726,028

 
$
(30,247
)
 
$
1,036,811

 
$
(38,284
)
Non-Agency RMBS
187,395

 
(1,451
)
 
158

 
(15
)
 
187,553

 
(1,466
)
CMBS
75,292

 
(376
)
 
—

 
—

 
75,292

 
(376
)
Total investment securities available for sale
$
573,470

 
$
(9,864
)
 
$
726,186

 
$
(30,262
)
 
$
1,299,656

 
$
(40,126
)

Other than Temporary Impairment

For the three months ended March 31, 2019 and 2018, the Company did not recognize other-than-temporary impairment through earnings.

16

4.
Distressed and Other Residential Mortgage Loans, At Fair Value
Certain of the Company’s acquired residential mortgage loans, including distressed residential mortgage loans, non-QM loans and second mortgages, are presented at fair value on its condensed consolidated balance sheets as a result of a fair value election made at the time of acquisition. Subsequent changes in fair value are reported in current period earnings and presented in net gain (loss) on distressed and other residential mortgage loans at fair value on the Company’s condensed consolidated statements of operations.
The Company’s distressed and other residential mortgage loans at fair value consist of the following as of March 31, 2019 and December 31, 2018, respectively (dollar amounts in thousands):
 
 
Principal
 
Premium/(Discount)
 
Unrealized Gains/(Losses)
 
Carrying Value
March 31, 2019
 
$
927,196

 
$
(63,569
)
 
$
11,939

 
$
875,566

December 31, 2018
 
788,372

 
(54,905
)
 
4,056

 
737,523

As of March 31, 2019, the Company is committed to purchase $0.3 million of second mortgages from originators.

The following table presents the components of net gain (loss) on distressed and other residential mortgage loans at fair value for the three months ended March 31, 2019 and 2018, respectively (dollar amounts in thousands):

 
March 31, 2019
 
March 31, 2018
Net realized gain on payoff and sale of loans
$
3,127

 
$
40

Net unrealized gains (losses)
7,883

 
(206
)

The geographic concentrations of credit risk exceeding 5% of the unpaid principal balance of distressed and other residential mortgage loans at fair value as of March 31, 2019 and December 31, 2018, respectively, are as follows:
 
March 31, 2019
 
December 31, 2018
California
27.8
%
 
27.9
%
Florida
9.8
%
 
9.0
%
Texas
5.1
%
 
4.2
%
New York
5.0
%
 
5.1
%

The following table presents the fair value and aggregate unpaid principal balance of the Company's distressed and other residential mortgage loans at fair value greater than 90 days past due and in non-accrual status as of March 31, 2019 and December 31, 2018, respectively (dollar amounts in thousands):
 
Fair Value
 
Unpaid Principal Balance
March 31, 2019
$
49,284

 
$
60,858

December 31, 2018
60,117

 
75,167


Distressed and other residential mortgage loans with a fair value of approximately $677.6 million and $626.2 million at March 31, 2019 and December 31, 2018, respectively, are pledged as collateral for master repurchase agreements (see Note 12).


17

5.
Distressed and Other Residential Mortgage Loans, Net

Distressed Residential Mortgage Loans, Net

As of March 31, 2019 and December 31, 2018, the carrying value of the Company’s distressed residential mortgage loans accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30") amounts to approximately $209.3 million and $228.5 million, respectively.

The Company did not purchase loans accounted for under ASC 310-30 during the three months ended March 31, 2019 and 2018, respectively.
    
The following table details activity in accretable yield for the distressed residential mortgage loans for the three months ended March 31, 2019 and 2018, respectively (dollar amounts in thousands):
 
March 31, 2019
 
March 31, 2018
Balance at beginning of period
$
195,559

 
$
303,949

Additions
587

 
1,694

Disposals
(15,080
)
 
(8,694
)
Accretion
(1,825
)
 
(5,354
)
Balance at end of period (1)
$
179,241

 
$
291,595


(1) 
Accretable yield is the excess of the distressed residential mortgage loans’ cash flows expected to be collected over the purchase price. The cash flows expected to be collected represents the Company’s estimate of the amount and timing of undiscounted principal and interest cash flows. Additions include accretable yield estimates for purchases made during the period and reclassification to accretable yield from nonaccretable yield. Disposals include distressed residential mortgage loan dispositions, which include refinancing, sale and foreclosure of the underlying collateral and resulting removal of the distressed residential mortgage loans from the accretable yield, and reclassifications from accretable to nonaccretable yield. The reclassifications between accretable and nonaccretable yield and the accretion of interest income is based on various estimates regarding loan performance and the value of the underlying real estate securing the loans. As the Company continues to update its estimates regarding the loans and the underlying collateral, the accretable yield may change. Therefore, the amount of accretable income recorded in each of the three month periods ended March 31, 2019 and 2018 is not necessarily indicative of future results.

The geographic concentrations of credit risk exceeding 5% of the unpaid principal balance of our distressed residential mortgage loans as of March 31, 2019 and December 31, 2018, respectively, are as follows:
 
March 31, 2019
 
December 31, 2018
Florida
10.6
%
 
10.4
%
North Carolina
9.7
%
 
9.0
%
Georgia
5.9
%
 
7.2
%
New York
5.7
%
 
5.4
%
Virginia
5.6
%
 
5.3
%
South Carolina
5.6
%
 
5.6
%
Ohio
5.3
%
 
5.0
%
Texas
5.2
%
 
4.9
%
California
5.1
%
 
4.8
%

The Company had no distressed residential mortgage loans held in securitization trusts pledged as collateral for securitized debt as of March 31, 2019. The Company's distressed residential mortgage loans held in securitization trusts with a carrying value of approximately $88.1 million at December 31, 2018 were pledged as collateral for certain of the Securitized Debt issued by the Company (see Note 9). In addition, distressed residential mortgage loans with a carrying value of approximately $114.8 million and $128.1 million at March 31, 2019 and December 31, 2018, respectively, are pledged as collateral for a master repurchase agreement (see Note 12).

18

Residential Mortgage Loans Held in Securitization Trusts, Net

Residential mortgage loans held in securitization trusts are comprised of certain ARMs transferred to Consolidated VIEs that have been securitized into sequentially rated classes of beneficial interests. Residential mortgage loans held in securitization trusts, net consist of the following as of March 31, 2019 and December 31, 2018, respectively (dollar amounts in thousands):
 
March 31, 2019
 
December 31, 2018
Unpaid principal balance
$
56,140

 
$
60,171

Deferred origination costs – net
359

 
383

Reserve for loan losses
(3,630
)
 
(3,759
)
Total
$
52,869

 
$
56,795


Allowance for Loan Losses - The following table presents the activity in the Company's allowance for loan losses on residential mortgage loans held in securitization trusts for the three months ended March 31, 2019 and 2018, respectively (dollar amounts in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Balance at beginning of period
$
3,759

 
$
4,191

Provision for (recovery of) loan losses
38

 
(110
)
Transfer to real estate owned
(167
)
 
—

Charge-offs
—

 
—

Balance at the end of period
$
3,630

 
$
4,081


On an ongoing basis, the Company evaluates the adequacy of its allowance for loan losses. The Company’s allowance for loan losses as of March 31, 2019 was $3.6 million, representing 647 basis points of the outstanding principal balance of residential mortgage loans held in securitization trusts, as compared to 625 basis points as of December 31, 2018. As part of the Company’s allowance for loan loss adequacy analysis, management will assess an overall level of allowances while also assessing credit losses inherent in each non-performing residential mortgage loan held in securitization trusts. These estimates involve the consideration of various credit related factors, including, but not limited to, current housing market conditions, current loan to value ratios, delinquency status, the borrower’s current economic and credit status and other relevant factors.
    
All of the Company’s residential mortgage loans held in securitization trusts and real estate owned are pledged as collateral for the residential collateralized debt obligations (the "Residential CDOs") issued by the Company. The Company’s net investment in the residential securitization trusts, which is the maximum amount of the Company’s investment that is at risk to loss and represents the difference between (i) the carrying amount of the mortgage loans, real estate owned and receivables held in residential securitization trusts and (ii) the amount of Residential CDOs outstanding, was $4.8 million as of March 31, 2019 and December 31, 2018.

Delinquency Status of Our Residential Mortgage Loans Held in Securitization Trusts

As of March 31, 2019, we had 18 delinquent loans with an aggregate principal amount outstanding of approximately $10.5 million categorized as residential mortgage loans held in securitization trusts, net, of which $6.4 million, or 60%, are under some form of temporary modified payment plan. The table below shows delinquencies in our portfolio of residential mortgage loans held in securitization trusts as of March 31, 2019 (dollar amounts in thousands):

March 31, 2019
Days Late
Number of
Delinquent
Loans 
 
Total
Unpaid
Principal 
 
% of Loan
Portfolio 
90 +
18
 
$
10,530

 
18.65
%
Real estate owned through foreclosure
1
 
$
360

 
0.64
%


19

As of December 31, 2018, we had 19 delinquent loans with an aggregate principal amount outstanding of approximately $10.9 million categorized as residential mortgage loans held in securitization trusts, net, of which $6.6 million, or 61%, are under some form of temporary modified payment plan. The table below shows delinquencies in our portfolio of residential mortgage loans held in securitization trusts as of December 31, 2018 (dollar amounts in thousands):

December 31, 2018
Days Late
Number of Delinquent
Loans
 
Total
Unpaid Principal
 
% of Loan
Portfolio
90 +
19
 
$
10,926

 
18.16
%

The geographic concentrations of credit risk exceeding 5% of the total loan balances in our residential mortgage loans held in securitization trusts as of March 31, 2019 and December 31, 2018 are as follows:
 
March 31, 2019
 
December 31, 2018
New York
33.9
%
 
33.9
%
Massachusetts
18.3
%
 
20.0
%
New Jersey
14.9
%
 
14.5
%
Florida
10.5
%
 
9.9
%
Maryland
5.4
%
 
5.3
%


20

6.
Consolidated K-Series

The Company's investments in first loss POs, certain IOs and mezzanine securities issued by certain Freddie Mac-sponsored multi-family loan K-series securitizations that we consolidate in our financial statements in accordance with GAAP represent the "Consolidated K-Series." The Company has elected the fair value option on the assets and liabilities held within the Consolidated K-Series, which requires that changes in valuations in the assets and liabilities of the Consolidated K-Series be reflected in the Company's condensed consolidated statements of operations. Our investment in the Consolidated K-Series is limited to the multi-family CMBS comprised of first loss POs and certain IOs and mezzanine securities issued by certain Freddie Mac-sponsored multi-family loan K-Series securitizations that we consolidate with an aggregate net carrying value of $781.1 million and $657.6 million at March 31, 2019 and December 31, 2018, respectively (see Note 9). The Consolidated K-Series is comprised of eleven and nine Freddie Mac-sponsored multi-family loan K-Series securitizations as of March 31, 2019 and December 31, 2018, respectively.

The condensed consolidated balance sheets of the Consolidated K-Series at March 31, 2019 and December 31, 2018, respectively, are as follows (dollar amounts in thousands):

Balance Sheets
March 31, 2019
 
December 31, 2018
Assets
 
 
 
Multi-family loans held in securitization trusts
$
14,328,336

 
$
11,679,847

Receivables
47,186

 
41,850

Total Assets
$
14,375,522

 
$
11,721,697

Liabilities and Equity
 
 
 
Multi-family CDOs
$
13,547,195

 
$
11,022,248

Accrued expenses
46,154

 
41,102

Total Liabilities
13,593,349

 
11,063,350

Equity
782,173

 
658,347

Total Liabilities and Equity
$
14,375,522

 
$
11,721,697


The multi-family loans held in securitization trusts had unpaid aggregate principal balances of approximately $13.8 billion and $11.5 billion at March 31, 2019 and December 31, 2018, respectively. The multi-family CDOs (the "Multi-Family CDOs") had aggregate unpaid principal balances of approximately $13.8 billion and $11.5 billion at March 31, 2019 and December 31, 2018, respectively. As of March 31, 2019 and December 31, 2018, the current weighted average interest rate on these Multi-Family CDOs was 4.02% and 3.96%, respectively.

The Company does not have any claims to the assets or obligations for the liabilities of the Consolidated K-Series (other than those securities represented by our first loss POs, IOs and mezzanine securities). We have elected the fair value option for the Consolidated K-Series. The net fair value of our investment in the Consolidated K-Series, which represents the difference between the carrying values of multi-family loans held in securitization trusts less the carrying value of Multi-Family CDOs, approximates the fair value of our underlying securities (see Note 16).

The condensed consolidated statements of operations of the Consolidated K-Series for the three months ended March 31, 2019 and 2018, respectively, are as follows (dollar amounts in thousands):

 
Three Months Ended
March 31,
Statements of Operations
2019
 
2018
Interest income
$
111,768

 
$
85,092

Interest expense
96,797

 
74,478

Net interest income
14,971

 
10,614

Unrealized gain on multi-family loans and debt held in securitization trusts, net
9,410

 
7,545

Net income
$
24,381

 
$
18,159



21

The geographic concentrations of credit risk exceeding 5% of the total loan balances related to multi-family loans held in securitization trusts as of March 31, 2019 and our CMBS investments included in investment securities available for sale, held in securitization trusts, and multi-family loans held in securitization trusts as of December 31, 2018 are as follows:

 
March 31, 2019
 
December 31, 2018
California
16.0
%
 
14.8
%
Texas
12.5
%
 
13.0
%
Maryland
6.0
%
 
5.0
%
New York
5.1
%
 
6.4
%



22

7.
Investments in Unconsolidated Entities

The Company's investments in unconsolidated entities accounted for under the equity method consist of the following as of March 31, 2019 and December 31, 2018 (dollar amounts in thousands):

 
 
March 31, 2019

December 31, 2018
Investment Name
 
Ownership Interest
 
Carrying Amount
 
Ownership Interest
 
Carrying Amount
BBA-EP320 II, L.L.C., BBA-Ten10 II, L.L.C., and Lexington on the Green Apartments, L.L.C. (collectively)
 
45%
 
$
9,217

 
45%
 
$
8,948

Somerset Deerfield Investor, LLC
 
45%
 
16,504

 
45%
 
16,266

RS SWD Owner, LLC, RS SWD Mitchell Owner, LLC, RS SWD IF Owner, LLC, RS SWD Mullis Owner, LLC, RS SWD JH Mullis Owner, LLC and RS SWD Saltzman Owner, LLC (collectively)
 
43%
 
4,752

 
43%
 
4,714

Audubon Mezzanine Holdings, L.L.C. (Series A)
 
57%
 
10,701

 
57%
 
10,544

EP 320 Growth Fund, L.L.C. (Series A) and Turnbury Park Apartments - BC, L.L.C. (Series A) (collectively)
 
46%
 
6,612

 
—
 
—

Walnut Creek Properties Holdings, L.L.C.
 
36%
 
8,003

 
—
 
—

Total - Equity Method
 
 
 
$
55,789

 
 
 
$
40,472

    
The Company's investments in unconsolidated entities accounted for under the equity method using the fair value option consist of the following as of March 31, 2019 and December 31, 2018 (dollar amounts in thousands):
 
 
March 31, 2019
 
December 31, 2018
Investment Name
 
Ownership Interest
 
Carrying Amount
 
Ownership Interest
 
Carrying Amount
Morrocroft Neighborhood Stabilization Fund II, LP
 
11%
 
$
11,185

 
11%
 
$
10,954

Evergreens JV Holdings, LLC
 
85%
 
11,340

 
85%
 
8,200

The Preserve at Port Royal Venture, LLC
 
77%
 
14,050

 
77%
 
13,840

Total - Fair Value Option
 
 
 
$
36,575

 
 
 
$
32,994


The following table presents income from investments in unconsolidated entities for the three months ended March 31, 2019 and March 31, 2018 (dollar amounts in thousands):
        
 
 
Three Months Ended March 31,
Investment Name
 
2019
 
2018
BBA-EP320 II, L.L.C., BBA-Ten10 II, L.L.C., and Lexington on the Green Apartments, L.L.C. (collectively)
 
$
275

 
$
253

Morrocroft Neighborhood Stabilization Fund II, LP
 
232

 
282

Evergreens JV Holdings, LLC
 
3,224

 
194

The Preserve at Port Royal Venture, LLC
 
438

 
483

WR Savannah Holdings, LLC
 
—

 
361

Somerset Deerfield Investor, LLC
 
478

 
—

RS SWD Owner, LLC, RS SWD Mitchell Owner, LLC, RS SWD IF Owner, LLC, RS SWD Mullis Owner, LLC, RS SWD JH Mullis Owner, LLC and RS SWD Saltzman Owner, LLC (collectively)
 
131

 
—

Audubon Mezzanine Holdings, L.L.C. (Series A)
 
297

 
—

EP 320 Growth Fund, L.L.C. (Series A) and Turnbury Park Apartments - BC, L.L.C. (Series A) (collectively)
 
165

 
—

Walnut Creek Properties Holdings, L.L.C.
 
98

 
—


23

8.
Preferred Equity and Mezzanine Loan Investments

Preferred equity and mezzanine loan investments consist of the following as of March 31, 2019 and December 31, 2018 (dollar amounts in thousands):
 
March 31, 2019
 
December 31, 2018
Investment amount
$
176,486

 
$
166,789

Deferred loan fees, net
(1,358
)
 
(1,234
)
Total
$
175,128

 
$
165,555


There were no delinquent preferred equity or mezzanine loan investments as of March 31, 2019 and December 31, 2018.
The geographic concentrations of credit risk exceeding 5% of the total preferred equity and mezzanine loan investment amounts as of March 31, 2019 and December 31, 2018 are as follows:
 
March 31, 2019
 
December 31, 2018
Georgia
14.6
%
 
15.3
%
Texas
11.9
%
 
16.6
%
Alabama
11.1
%
 
8.6
%
Florida
10.8
%
 
11.3
%
Tennessee
10.2
%
 
6.8
%
South Carolina
9.1
%
 
9.5
%
Virginia
8.6
%
 
9.1
%


24

9.
Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE)

The Company uses SPEs to facilitate transactions that involve securitizing financial assets or re-securitizing previously securitized financial assets. The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying securitized financial assets on improved terms. Securitization involves transferring assets to an SPE to convert all or a portion of those assets into cash before they would have been realized in the normal course of business through the SPE’s issuance of debt or equity instruments. Investors in an SPE usually have recourse only to the assets in the SPE and depending on the overall structure of the transaction, may benefit from various forms of credit enhancement, such as over-collateralization in the form of excess assets in the SPE, priority with respect to receipt of cash flows relative to holders of other debt or equity instruments issued by the SPE, or a line of credit or other form of liquidity agreement that is designed with the objective of ensuring that investors receive principal and/or interest cash flow on the investment in accordance with the terms of their investment agreement.    

The Company has entered into re-securitization or financing transactions which required the Company to analyze and determine whether the SPEs that were created to facilitate the transactions are VIEs in accordance with ASC 810, Consolidation, and if so, whether the Company is the primary beneficiary requiring consolidation. As of March 31, 2019, the Company evaluated its Residential CDOs and concluded that the entities created to facilitate each of the financing transactions are VIEs and that the Company is the primary beneficiary of these VIEs. Accordingly, the Company continues to consolidate the Residential CDOs as of March 31, 2019.

As of December 31, 2018, the Company evaluated the following re-securitization and financing transactions: 1) its Residential CDOs; 2) its multi-family CMBS re-securitization transaction and 3) its distressed residential mortgage loan securitization transaction (each a “Financing VIE” and collectively, the “Financing VIEs”) and concluded that the entities created to facilitate each of the transactions were VIEs and that the Company was the primary beneficiary of these VIEs. Accordingly, the Company consolidated the Financing VIEs as of December 31, 2018. On March 14, 2019, the Company exercised its right to an optional redemption of its multi-family CMBS re-securitization with an outstanding principal balance of $33.2 million resulting in a loss on extinguishment of debt of $2.9 million. Additionally, on March 25, 2019, the Company repaid outstanding notes from its April 2016 distressed residential mortgage loan securitization with an outstanding principal balance of $6.5 million. Due to the redemptions, the multi-family CMBS held by the re-securitization trust and residential mortgage loans held in securitization trust were returned to the Company.

The Company invests in multi-family CMBS consisting of POs that represent the first loss position of the Freddie Mac-sponsored multi-family K-series securitizations from which they were issued, and certain IOs and mezzanine CMBS securities issued from the securitization. The Company has evaluated these CMBS investments to determine whether they are VIEs and if so, whether the Company is the primary beneficiary requiring consolidation. The Company has determined that eleven and nine Freddie Mac-sponsored multi-family K-Series securitization trusts are VIEs as of March 31, 2019 and December 31, 2018, respectively. The Company also determined that it is the primary beneficiary of each VIE within the Consolidated K-Series and, accordingly, has consolidated its assets, liabilities, income and expenses in the accompanying condensed consolidated financial statements (see Notes 2 and 6). Of the multi-family CMBS investments owned by the Company that are included in the Consolidated K-Series, eleven and eight of these investments are not included as collateral to any Financing VIE as of March 31, 2019 and December 31, 2018, respectively.

In analyzing whether the Company is the primary beneficiary of the Consolidated K-Series and the Financing VIEs, the Company considered its involvement in each of the VIEs, including the design and purpose of each VIE, and whether its involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of the VIEs. In determining whether the Company would be considered the primary beneficiary, the following factors were assessed:

•
whether the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE; and
•
whether the Company has a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE.
    

25

The Company owns 100% of RB Development Holding Company, LLC ("RBDHC"). RBDHC owns 50% of Kiawah River View Investors LLC ("KRVI"), a limited liability company that owns developed land and residential homes under development in Kiawah Island, SC, for which RiverBanc LLC ("RiverBanc", a wholly-owned subsidiary of the Company) is the manager. The Company has evaluated KRVI to determine if it is a VIE and if so, whether the Company is the primary beneficiary requiring consolidation. The Company has determined that KRVI is a VIE for which RBDHC is the primary beneficiary as the Company, collectively through its wholly-owned subsidiaries, RiverBanc and RBDHC, has both the power to direct the activities that most significantly impact the economic performance of KRVI and has a right to receive benefits or absorb losses of KRVI that could be potentially significant to KRVI. Accordingly, the Company has consolidated KRVI in its condensed consolidated financial statements with a non-controlling interest for the third-party ownership of KRVI membership interests.

The Company evaluates the home pricing and lot values of the real estate under development that is owned by KRVI, which is included in receivables and other assets on the Company's condensed consolidated balance sheets, on a quarterly basis. Based on the evaluation during the three months ended March 31, 2019, the Company determined that the real estate under development with a carrying amount of $20.9 million was no longer fully recoverable and was impaired. The Company recognized a $0.9 million impairment loss which is included in other income in the Company's condensed consolidated statements of operations for the three months ended March 31, 2019. For the three months ended March 31, 2019, $0.5 million of this impairment loss is included in net income attributable to non-controlling interest in consolidated variable interest entities on the accompanying condensed consolidated statements of operations, resulting in a net loss to the Company of $0.4 million. Fair value was determined based on the sales comparison approach which derives a value indication by comparing the subject property to similar properties that have been recently sold and assumes a purchaser will not pay more for a particular property than a similar substitute property. Real estate under development as of March 31, 2019 and December 31, 2018 of $20.0 million and $22.0 million, respectively, is included in receivables and other assets on the condensed consolidated balance sheets.

In March 2017, the Company reconsidered its evaluation of its variable interests in 200 RHC Hoover, LLC ("Riverchase Landing") and The Clusters, LLC ("The Clusters"), two VIEs that each owned a multi-family apartment community and in each of which the Company held a preferred equity investment. The Company determined that it gained the power to direct the activities, and became primary beneficiary, of Riverchase Landing and The Clusters and consolidated them in its condensed consolidated financial statements. In March 2018, Riverchase Landing completed the sale of its multi-family apartment community and redeemed the Company's preferred equity investment. Also, in February 2019, The Clusters completed the sale of its multi-family apartment community and redeemed the Company's preferred equity investment. The Company de-consolidated Riverchase Landing and The Clusters as of the date of each property's sale. Prior to the properties' sale, the Company did not have any claims to the assets or obligations for the liabilities of Riverchase Landing and The Clusters.

The following table presents a summary of the assets and liabilities of the Residential CDOs, the Consolidated K-Series, and KRVI of as of March 31, 2019. Intercompany balances have been eliminated for purposes of this presentation.

 
Financing VIE
 
Other VIEs
 
 
 
Residential
Mortgage
Loan Securitization
 
Multi-family
CMBS
 
Other
 
Total
Cash and cash equivalents
$
—

 
$
—

 
$
712

 
$
712

Residential mortgage loans held in securitization trusts, net
52,869

 
—

 
—

 
52,869

Multi-family loans held in securitization trusts, at fair value
—

 
14,328,336

 
—

 
14,328,336

Receivables and other assets
1,203

 
47,186

 
20,225

 
68,614

Total assets
$
54,072

 
$
14,375,522

 
$
20,937

 
$
14,450,531

 
 
 
 
 
 
 
 
Residential collateralized debt obligations
$
49,247

 
$
—

 
$
—

 
$
49,247

Multi-family collateralized debt obligations, at fair value
—

 
13,547,195

 
—

 
13,547,195

Mortgages and notes payable in consolidated variable interest entities
—

 
—

 
3,986

 
3,986

Accrued expenses and other liabilities
24

 
46,154

 
439

 
46,617

Total liabilities
$
49,271

 
$
13,593,349

 
$
4,425

 
$
13,647,045





26



The following table presents the Consolidated K-Series, the Financing VIEs, KRVI, and The Clusters as of December 31, 2018.

 
Financing VIEs
 
Other VIEs
 
 
 
Multi-family
CMBS Re-
securitization (1)
 
Distressed
Residential
Mortgage
Loan
Securitization (2)
 
Residential
Mortgage
Loan Securitization
 
Multi-
family
CMBS (3)
 
Other
 
Total
Cash and cash equivalents
$
—

 
$
—

 
$
—

 
$
—

 
$
708

 
$
708

Investment securities available for sale, at fair value held in securitization trusts
52,700

 
—

 
—

 
—

 
—

 
52,700

Residential mortgage loans held in securitization trusts, net
—

 
—

 
56,795

 
—

 
—

 
56,795

Distressed residential mortgage loans held in securitization trusts, net
—

 
88,096

 
—

 
—

 
—

 
88,096

Multi-family loans held in securitization trusts, at fair value
1,107,071

 
—

 
—

 
10,572,776

 
—

 
11,679,847

Real estate held for sale in consolidated variable interest entities
—

 
—

 
—

 
—

 
29,704

 
29,704

Receivables and other assets
4,243

 
10,287

 
1,061

 
37,679

 
23,254

 
76,524

Total assets
$
1,164,014

 
$
98,383

 
$
57,856

 
$
10,610,455

 
$
53,666

 
$
11,984,374

 
 
 
 
 
 
 
 
 
 
 
 
Residential collateralized debt obligations
$
—

 
$
—

 
$
53,040

 
$
—

 
$
—

 
$
53,040

Multi-family collateralized debt obligations, at fair value
1,036,604

 
—

 
—

 
9,985,644

 
—

 
11,022,248

Securitized debt
30,121

 
12,214

 
—

 
—

 
—

 
42,335

Mortgages and notes payable in consolidated variable interest entities
—

 
—

 
—

 
—

 
31,227

 
31,227

Accrued expenses and other liabilities
4,228

 
444

 
26

 
37,022

 
1,166

 
42,886

Total liabilities
$
1,070,953

 
$
12,658

 
$
53,066

 
$
10,022,666

 
$
32,393

 
$
11,191,736


(1) 
The Company classified the multi-family CMBS issued by two securitizations included in the Consolidated K-Series and held by this Financing VIE as available for sale securities as the purpose is not to trade these securities. The Financing VIE consolidated one securitization included in the Consolidated K-Series that issued certain of the multi-family CMBS owned by the Company, including its assets, liabilities, income and expenses, in its financial statements, as based on a number of factors, the Company determined that it was the primary beneficiary and has a controlling financial interest in this particular K-Series securitization (see Note 6).
(2) 
The Company engaged in this transaction for the purpose of financing certain distressed residential mortgage loans acquired by the Company. The distressed residential mortgage loans serving as collateral for the financing are comprised of re-performing and, to a lesser extent, non-performing and other delinquent mortgage loans secured by first liens on one- to four- family properties. Balances as of December 31, 2018 are related to a securitization transaction that closed in April 2016 that involved the issuance of $177.5 million of Class A Notes representing the beneficial ownership in a pool of performing and re-performing seasoned mortgage loans. The Company holds 5% of the Class A Notes issued as part of the securitization transaction, which were eliminated in consolidation.
(3) 
Eight of the securitizations included in the Consolidated K-Series were not held in a Financing VIE as of December 31, 2018.

27

As of March 31, 2019, the Company had no securitized debt outstanding. The following table summarizes the Company’s securitized debt collateralized by multi-family CMBS or distressed residential mortgage loans as of December 31, 2018 (dollar amounts in thousands):
 
Multi-family CMBS
Re-securitization (1)
 
Distressed
Residential Mortgage
Loan Securitization 
Principal Amount at December 31, 2018
$
33,177

 
$
12,381

Carrying Value at December 31, 2018 (2)
$
30,121

 
$
12,214

Pass-through rate of notes issued
5.35
%
 
4.00
%

(1) 
The Company engaged in the re-securitization transaction primarily for the purpose of obtaining non-recourse financing on a portion of its multi-family CMBS portfolio. As a result of engaging in this transaction, the Company remained economically exposed to the first loss position on the underlying multi-family CMBS transferred to the Consolidated VIE.
(2) 
Presented net of unamortized deferred costs of $0.2 million related to the issuance of the securitized debt, which include underwriting, rating agency, legal, accounting and other fees.

The following table presents contractual maturity information about the Financing VIEs’ securitized debt as of December 31, 2018 (dollar amounts in thousands):
Scheduled Maturity (principal amount) 
December 31, 2018
Within 24 months
$
12,381

Over 24 months to 36 months
—

Over 36 months
33,177

Total
45,558

Discount
(2,983
)
Debt issuance cost
(240
)
Carrying value
$
42,335


Residential Mortgage Loan Securitization Transaction

The Company has completed four residential mortgage loan securitizations (other than the distressed residential mortgage loan securitizations discussed above) since inception; the first three were accounted for as permanent financings and have been included in the Company’s accompanying condensed consolidated financial statements. The fourth was accounted for as a sale and, accordingly, is not included in the Company’s accompanying condensed consolidated financial statements.


28

Unconsolidated VIEs

As of March 31, 2019, the Company evaluated its mezzanine loan, preferred equity and other equity investments to determine whether they are VIEs and should be consolidated by the Company. Based on a number of factors, the Company determined that it does not have a controlling financial interest and is not the primary beneficiary of these VIEs. The following table presents the classification and carrying value of unconsolidated VIEs as of March 31, 2019 (dollar amounts in thousands):

 
March 31, 2019
 
Preferred equity and mezzanine loan investments
 
Investments in unconsolidated entities
 
Total
Preferred equity investments in multi-family properties
$
164,533

 
$
55,789

 
$
220,322

Mezzanine loans on multi-family properties
10,595

 
—

 
10,595

Equity investments in entities that invest in residential properties
—

 
11,185

 
11,185

Total assets
$
175,128

 
$
66,974

 
$
242,102


As of December 31, 2018, the Company evaluated its multi-family CMBS investments in two Freddie Mac-sponsored multi-family loan K-Series securitizations and its mezzanine loan, preferred equity and other equity investments to determine whether they are VIEs and should be consolidated by the Company. Based on a number of factors, the Company determined that, except for The Clusters as of December 31, 2018, it does not have a controlling financial interest and is not the primary beneficiary of these VIEs. The following table presents the classification and carrying value of unconsolidated VIEs as of December 31, 2018 (dollar amounts in thousands):

 
December 31, 2018
 
Investment
securities,
available for
sale, at fair
value, held in securitization trusts
 
Receivables and other assets
 
Preferred equity and mezzanine loan investments
 
Investments in unconsolidated entities
 
Total
Multi-family CMBS
$
52,700

 
$
72

 
$
—

 
$
—

 
$
52,772

Preferred equity investments in multi-family properties
—

 
—

 
154,629

 
40,472