Investment Securities (Tables)

9 Months Ended

Sep. 30, 2017

Investment securities were comprised of the following as of September 30, 2017 and December 31, 2016 (amounts in thousands):


	Carrying Value as of
	September 30, 2017		December 31, 2016
RMBS, available-for-sale	$	253,252	$	253,915
CMBS, fair value option (1)		1,026,634		990,570
Held-to-maturity (“HTM”) securities		411,196		509,980
Equity security, fair value option		13,529		12,177
Subtotal—Investment securities		1,704,611		1,766,642
VIE eliminations (1)		(1,002,793)		(959,024)
Total investment securities	$	701,818	$	807,618

(1)

Certain fair value option CMBS are eliminated in consolidation against VIE liabilities pursuant to ASC 810.

Schedule of purchases, sales and principal collections for all investment securities

Purchases, sales and principal collections for all investment securities were as follows (amounts in thousands):


	RMBS,		CMBS, fair			HTM		Equity
	available-for-sale		value option			Securities		Security		Total
Three Months Ended September 30, 2017
Purchases (1)	$	—	$	11,798		$	50,000	$	—	$	61,798
Sales (2)		—		—			—		—		—
Principal collections		10,307		1,666			111,671		—		123,644
Three Months Ended September 30, 2016
Purchases (1)	$	8,868	$	—		$	—	$	—	$	8,868
Sales (2)		—		17,456	(5)		—		—		17,456
Principal collections		9,917		12,289			566		—		22,772


	RMBS,		CMBS, fair			HTM		Equity
	available-for-sale		value option			Securities		Security		Total
Nine Months Ended September 30, 2017
Purchases (3)	$	7,433	$	11,798		$	50,000	$	—	$	69,231
Sales (4)		—		11,134			—		—		11,134
Principal collections		29,090		8,754			172,059		—		209,903
Nine Months Ended September 30, 2016
Purchases (3)	$	97,204	$	57,576		$	204,730	$	—	$	359,510
Sales (4)		—		18,725	(5)		—		—		18,725
Principal collections		32,925		31,734			5,657		—		70,316

(1)

During the three months ended September 30, 2017 and 2016, we purchased $30.9 million and $25.6 million of CMBS, respectively, for which we elected the fair value option. Due to our consolidation of securitization VIEs, $19.1 million and $25.6 million, respectively, of this amount is eliminated and reflected as repayment of debt of consolidated VIEs in our condensed consolidated statements of cash flows.

(2)

During the three months ended September 30, 2017 and 2016, we sold $1.5 million and $17.5 million of CMBS, respectively, for which we had previously elected the fair value option. Due to our consolidation of securitization VIEs, $1.5 million of our sales during the three months ended September 30, 2017 is eliminated and reflected as issuance of debt of consolidated VIEs in our condensed consolidated statements of cash flows. During the three months ended September 30, 2016, none of our sales were eliminated due to the consolidation of securitization VIEs.

(3)

During the nine months ended September 30, 2017 and 2016, we purchased $92.6 million and $126.9 million of CMBS, respectively, for which we elected the fair value option. Due to our consolidation of securitization VIEs, $80.8 million and $69.3 million, respectively, of this amount is eliminated and reflected as repayment of debt of consolidated VIEs in our condensed consolidated statements of cash flows.

(4)

During the nine months ended September 30, 2017 and 2016, we sold $22.8 million and $19.3 million of CMBS, respectively, for which we had previously elected the fair value option. Due to our consolidation of securitization VIEs, $11.7 million and $0.6 million, respectively, of this amount is eliminated and reflected as issuance of debt of consolidated VIEs in our condensed consolidated statements of cash flows.

(5)

Settlement of $14.9 million occurred subsequent to September 30, 2016. We account for all investment securities transactions on a trade-date basis.

Summary of investments in available-for-sale RMBS and single-borrower CMBS where the fair value option has not been elected

The tables below summarize various attributes of our investments in available-for-sale RMBS as of September 30, 2017 and December 31, 2016 (amounts in thousands):


							Unrealized Gains or (Losses)
							Recognized in AOCI
	Purchase				Recorded				Gross		Gross		Net
	Amortized		Credit		Amortized		Non-Credit		Unrealized		Unrealized		Fair Value
	Cost		OTTI		Cost		OTTI		Gains		Losses		Adjustment		Fair Value
September 30, 2017
RMBS	$	207,492	$	(9,897)	$	197,595	$	(95)	$	55,766	$	(14)	$	55,657	$	253,252
December 31, 2016
RMBS	$	219,171	$	(10,185)	$	208,986	$	(94)	$	45,113	$	(90)	$	44,929	$	253,915


	Weighted Average Coupon (1)		Weighted Average Rating	WAL (Years) (2)
September 30, 2017
RMBS	2.5	%	B-	6.4
December 31, 2016
RMBS	2.1	%	B	6.1

(1)

Calculated using the September 30, 2017 and December 31, 2016 one-month LIBOR rate of 1.232% and 0.772%, respectively, for floating rate securities.

(2)

Represents the WAL of each respective group of securities as of the respective balance sheet date. The WAL of each individual security is calculated using projected amounts and projected timing of future principal payments.

Reconciliation of aggregate principal balance to amortized cost for RMBS and single-borrower CMBS, excluding CMBS where the fair value option is elected

The following table contains a reconciliation of aggregate principal balance to amortized cost for our RMBS as of September 30, 2017 and December 31, 2016 (amounts in thousands):


	September 30, 2017		December 31, 2016
Principal balance	$	379,432	$	399,883
Accretable yield		(58,763)		(64,290)
Non-accretable difference		(123,074)		(126,607)
Total discount		(181,837)		(190,897)
Amortized cost	$	197,595	$	208,986

Schedule of changes to accretable yield and non-accretable difference for RMBS and single-borrower CMBS, excluding CMBS where the fair value option is elected

The following table discloses the changes to accretable yield and non-accretable difference for our RMBS during the three and nine months ended September 30, 2017 (amounts in thousands):


			Non-Accretable
Three Months Ended September 30, 2017	Accretable Yield		Difference
Balance as of July 1, 2017	$	59,777	$	126,708
Accretion of discount		(3,187)		—
Principal write-downs, net		—		(1,461)
Purchases		—		—
Sales		—		—
OTTI		—		—
Transfer to/from non-accretable difference		2,173		(2,173)
Balance as of September 30, 2017	$	58,763	$	123,074

Nine Months Ended September 30, 2017
Balance as of January 1, 2017	$	64,290	$	126,607
Accretion of discount		(10,375)		—
Principal write-downs, net		—		(3,828)
Purchases		311		4,723
Sales		—		—
OTTI		109		—
Transfer to/from non-accretable difference		4,428		(4,428)
Balance as of September 30, 2017	$	58,763	$	123,074

Schedule of gross unrealized losses and estimated fair value of securities in an unrealized loss position, excluding CMBS where the fair value option is elected

The following table presents the gross unrealized losses and estimated fair value of any available-for-sale securities that were in an unrealized loss position as of September 30, 2017 and December 31, 2016, and for which OTTIs (full or partial) have not been recognized in earnings (amounts in thousands):


	Estimated Fair Value				Unrealized Losses
	Securities with a		Securities with a		Securities with a		Securities with a
	loss less than		loss greater than		loss less than		loss greater than
	12 months		12 months		12 months		12 months
As of September 30, 2017
RMBS	$	10,463	$	645	$	(80)	$	(29)
As of December 31, 2016
RMBS	$	8,819	$	957	$	(90)	$	(94)

Summary of investments in HTM securities


	Net Carrying Amount		Gross Unrealized		Gross Unrealized
	(Amortized Cost)		Holding Gains		Holding Losses		Fair Value
September 30, 2017
CMBS	$	390,966	$	2,446	$	(5,875)	$	387,537
Preferred interests		20,230		675		—		20,905
Total	$	411,196	$	3,121	$	(5,875)	$	408,442
December 31, 2016
CMBS	$	490,107	$	2,106	$	(8,648)	$	483,565
Preferred interests		19,873		727		—		20,600
Total	$	509,980	$	2,833	$	(8,648)	$	504,165

The table below summarizes the maturities of our HTM CMBS and our HTM preferred equity interests in limited liability companies that own commercial real estate as of September 30, 2017 (amounts in thousands):


			Preferred
	CMBS		Interests		Total
Less than one year	$	129,282	$	—	$	129,282
One to three years		261,684		—		261,684
Three to five years		—		—		—
Thereafter		—		20,230		20,230
Total	$	390,966	$	20,230	$	411,196

- Definition

Tabular disclosure of available-for-sale securities which includes, but is not limited to, changes in the cost basis and fair value, fair value and gross unrealized gain (loss), fair values by type of security, contractual maturity and classification, amortized cost basis, contracts to acquire securities to be accounted for as available-for-sale, debt maturities, transfers to trading, change in net unrealized holding gain (loss) net of tax, continuous unrealized loss position fair value, aggregate losses qualitative disclosures, other than temporary impairment (OTTI) losses or other disclosures related to available for sale securities.

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- Definition

Tabular disclosure of all investments in certain debt and equity securities for which the entity has the positive intent and ability to hold until maturity.

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