Mortgage-Backed Securities and other securities

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Mortgage-Backed Securities and other securities

Mortgage-Backed Securities and other securities

The following tables present certain information about the Company’s investment portfolio at March 31, 2020 and December 31, 2019 (dollars in thousands):

	March 31, 2020
	Principal Balance		Unamortized Premium (Discount), net		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon
Agency CMBS	$	369,843	$	17,323	$	387,166	$	26,228	$	—	$	413,394	3.1	%
Agency CMBS Interest-Only Strips accounted for as derivatives(1) (2)	N/A		N/A		N/A		N/A		N/A		2,792		0.4	%
Subtotal Agency CMBS	369,843		17,323		387,166		26,228		—		416,186		2.3	%
Agency RMBS Interest-Only Strips (1)(2)	N/A		N/A		8,102		2,165		(315)		9,952		3.1	%
Agency RMBS Interest-Only Strips, accounted for as derivatives (1) (2)	N/A		N/A		N/A		N/A		N/A		4,490		2.9	%
Subtotal Agency RMBS	—		—		8,102		2,165		(315)		14,442		3.0	%
Total Agency MBS	369,843		17,323		395,268		28,393		(315)		430,628		2.5	%
Non-Agency RMBS	39,261		(15,462)		23,799		302		(2,978)		21,123		4.6	%
Non-Agency RMBS Interest- Only Strips (1)	N/A		N/A		7,229		6		(2,061)		5,174		0.5	%
Subtotal Non-Agency RMBS	39,261		(15,462)		31,028		308		(5,039)		26,297		0.9	%
Non-Agency CMBS	336,816		(32,685)		304,131		48		(53,870)		250,309		5.3	%
Total Non-Agency MBS	376,077		(48,147)		335,159		356		(58,909)		276,606		2.8	%
Other securities (3)	76,482		(8,660)		77,258		—		(29,847)		47,411		6.5	%
Total	$	822,402	$	(39,484)	$	807,685	$	28,749	$	(89,071)	$	754,645	2.8	%

	December 31, 2019
	Principal Balance		Unamortized Premium (Discount), net		Discount  Designated as Credit Reserve and OTTI		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon
Agency CMBS	$	1,347,929	$	26,514	$	—	$	1,374,443	$	66,832	$	(5,798)	$	1,435,477	3.4 %
Agency CMBS Interest-Only Strips accounted for as derivatives (1) (2)	N/A		N/A		N/A		N/A		N/A		N/A		3,092		0.4 %
Subtotal Agency CMBS	1,347,929		26,514		—		1,374,443		66,832		(5,798)		1,438,569		3.1	%
Agency RMBS	327,814		5,473		—		333,287		7,484		—		340,771		3.5 %
Agency RMBS Interest-Only Strips (1)	N/A		N/A		N/A		$	8,661	$	1,820	$	(138)	$	10,343	2.8 %
Agency RMBS Interest-Only Strips, accounted for as derivatives (1) (2)	N/A		N/A		N/A		N/A		N/A		N/A		5,572		3.0 %
Subtotal Agency RMBS	327,814		5,473		—		341,948		9,304		(138)		356,686		3.3 %
Total Agency MBS	1,675,743		31,987		—		1,716,391		76,136		(5,936)		1,795,255		3.1	%
Non-Agency RMBS	52,767		4,492		(20,256)		37,003		1,388		(260)		38,131		4.8 %
Non-Agency RMBS Interest- Only Strips (1)	N/A		N/A		N/A		7,705		636		(658)		7,683		0.6 %
Subtotal Non-Agency RMBS	52,767		4,492		(20,256)		44,708		2,024		(918)		45,814		1.0	%
Non-Agency CMBS	354,458		(17,909)		(22,016)		314,533		6,359		(4,873)		316,019		5.1 %
Total Non-Agency MBS	407,225		(13,417)		(42,272)		359,241		8,383		(5,791)		361,833		2.7	%
Other securities (3)	71,896		(2,437)		(6,203)		73,975		6,392		(206)		80,161		6.7 %
Total	$	2,154,864	$	16,133	$	(48,475)	$	2,149,607	$	90,911	$	(11,933)	$	2,237,249	3.1	%

(1) IOs and IIOs have no principal balances and bear interest based on a notional balance.  The notional balance is used solely to determine interest distributions on interest-only class of securities.  At March 31, 2020, the notional balance for Agency RMBS IOs and IIOs, Non-Agency RMBS IOs and IIOs, Agency RMBS IOs and IIOs, accounted for as derivatives and Agency CMBS IOs and IIOs, accounted for as derivatives was $114.5 million, $420.8 million, $60.8 million and $158.6 million, respectively.  At December 31, 2019, the notional balance for Agency RMBS IOs and IIOs, Non-Agency RMBS IOs and IIOs, Agency RMBS IOs and IIOs, accounted for as derivatives and Agency CMBS IOs and IIOs, accounted for as derivatives was $121.7 million, $442.4 million, $64.8 million, and $160.2 million, respectively.

(2)  Interest on these securities is reported as a component of "Gain (loss) on derivative instruments, net" in the Consolidated Statements of Operations.

(3)  Other securities include residual interests in asset-backed securities which have no principal balance and an amortized cost of approximately $9.4 million and $10.7 million, as of March 31, 2020 and December 31, 2019, respectively.

As of March 31, 2020 and December 31, 2019 the weighted average expected remaining term of the MBS and other securities investment portfolio was 8.4 years and 7.9 years, respectively.

Prior to to the adoption of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” on January 1, 2020, the Company recorded Other Than Temporary Impairment ("OTTI") when the credit quality of the underlying collateral of the beneficial interest deteriorates and or the scheduled payments are faster than previously projected. Accordingly, as of January 1, 2020, a credit loss adjustment, if any, would be reflected in the fair value of these securities and are no longer reported as OTTI in the Consolidated Statements of Operations.

The following table presents the changes in the components of the Company’s purchase discount and amortizable premium on its Non-Agency RMBS, Non-Agency CMBS and other securities for the three months ended March 31, 2019 (dollars in thousands):

	Three months ended March 31, 2019
	Discount Designated as Credit Reserve and OTTI		Accretable  Discount(1)		Amortizable  Premium(1)
Balance at beginning of period	$	(53,523)	$	(29,465)	$	14,928
Accretion of discount	—		1,277		—
Amortization of premium	—		—		(481)
Realized credit losses	3,001		—		—
Purchases	—		—		—
Sales	2,694		—		(523)
Net impairment losses recognized in earnings	(966)		—		—
Transfers/release of credit reserve(2)	(1,293)		556		737
Balance at end of period	$	(50,087)	$	(27,632)	$	14,661

(1) Together with coupon interest, accretable purchase discount and amortizable premium is recognized as interest income over the life of the security.

(2) Subsequent reductions of a security’s non-accretable discount results in a corresponding reduction in its amortizable premium.

The following tables present the fair value and contractual maturities of the Company’s investment securities at March 31, 2020 and December 31, 2019 (dollars in thousands):

	March 31, 2020
	< or equal to 10 years		> 10 years and < or equal to 20 years		> 20 years and < or equal to 30 years		> 30 years		Total
Agency CMBS	$	68,875	$	344,519	$	—	$	—	$	413,394
Agency CMBS Interest-Only Strips, accounted for as derivatives	—		—		—		2,792		2,792
Agency RMBS Interest-Only Strips	1,965		1,924		6,063		—		9,952
Agency RMBS Interest-Only Strips accounted for as derivatives	545		3,192		753		—		4,490
Subtotal Agency	71,385		349,635		6,816		2,792		430,628
Non-Agency CMBS	69,336		116,300		63,839		834		250,309
Non-Agency RMBS	—		—		7,732		13,391		21,123
Non-Agency RMBS Interest- Only Strips	—		—		744		4,430		5,174
Subtotal Non-Agency	69,336		116,300		72,315		18,655		276,606
Other securities	13,168		10,937		13,126		10,180		47,411
Total	$	153,889	$	476,872	$	92,257	$	31,627	$	754,645

	December 31, 2019
	< or equal to 10  years		> 10 years and < or  equal to 20 years		> 20 years and < or  equal to 30 years		> 30 years		Total
Agency CMBS	$	973,189	$	462,288	$	—	$	—	$	1,435,477
Agency CMBS Interest-Only Strips, accounted for as derivatives	—		—		—		3,092		3,092
Agency RMBS	—		—		340,771		—		340,771
Agency RMBS Interest-Only Strips	2,413		1,966		5,964		—		10,343
Agency RMBS Interest-Only Strips accounted for as derivatives	669		3,893		1,010		—		5,572
Subtotal Agency	976,271		468,147		347,745		3,092		1,795,255
Non-Agency CMBS	89,782		125,282		92,610		8,345		316,019
Non-Agency RMBS	—		—		8,966		29,165		38,131
Non-Agency RMBS Interest- Only Strips	—		—		1,716		5,967		7,683
Subtotal Non-Agency	89,782		125,282		103,292		43,477		361,833
Other securities	25,824		31,823		2,768		19,746		80,161
Total	$	1,091,877	$	625,252	$	453,805	$	66,315	$	2,237,249

The following tables present the gross unrealized losses and estimated fair value of the Company’s MBS and other securities by length of time that such securities have been in a continuous unrealized loss position at March 31, 2020 and December 31, 2019 (dollars in thousands):

	March 31, 2020
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities
Agency RMBS Interest-Only Strips	$	731	$	(72)	3	$	1,496	$	(243)	7	$	2,227	$	(315)	10
Subtotal Agency	731		(72)		3	1,496		(243)		7	2,227		(315)		10
Non-Agency CMBS	218,447		(51,052)		40	17,146		(2,818)		5	235,593		(53,870)		45
Non-Agency RMBS	18,993		(2,978)		5	—		—		—	18,993		(2,978)		5
Non-Agency RMBS Interest-Only Strips	4,728		(2,061)		3	—		—		—	4,728		(2,061)		3
Subtotal Non-Agency	242,168		(56,091)		48	17,146		(2,818)		5	259,314		(58,909)		53
Other securities	47,411		(29,847)		16	—		—		—	47,411		(29,847)		16
Total	$	290,310	$	(86,010)	67	$	18,642	$	(3,061)	12	$	308,952	$	(89,071)	79

	December 31, 2019
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities	Fair Value		Unrealized Losses		Number  of Securities
Agency CMBS	$	214,084	$	(5,798)	16	$	—	$	—	—	$	214,084	$	(5,798)	16
Agency RMBS Interest-Only Strips	1,376		(43)		4	1,828		(95)		7	3,204		(138)		11
Subtotal Agency	215,460		(5,841)		20	1,828		(95)		7	217,288		(5,936)		27
Non-Agency CMBS	171,650		(4,302)		31	18,069		(571)		4	189,719		(4,873)		35
Non-Agency RMBS	13,214		(260)		1	—		—		—	13,214		(260)		1
Non-Agency RMBS Interest-Only Strips	1,716		(658)		1	—		—		—	1,716		(658)		1
Subtotal Non-Agency	186,580		(5,220)		33	18,069		(571)		4	204,649		(5,791)		37
Other securities	10,512		(206)		2	—		—		—	10,512		(206)		2
Total	$	412,552	$	(11,267)	55	$	19,897	$	(666)	11	$	432,449	$	(11,933)	66

The following table presents the OTTI the Company recorded on its securities portfolio (dollars in thousands):

	Three months ended March 31, 2019
Agency RMBS(1)	$	25
Non-Agency CMBS	966
Non-Agency RMBS	241
Total	$	1,232

⁽¹⁾ Other-than-temporary impairment on Agency RMBS includes impairments on Agency RMBS IOs and unrealized loss on Agency RMBS securities that we had the intent to sell at the end of the period, if applicable.

The following tables present components of interest income on the Company’s MBS and other securities for the three months ended March 31, 2020 and March 31, 2019, respectively (dollars in thousands):

	For the three months ended March 31, 2020						For the three months ended March 31, 2019
	Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Amortization		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Amortization		Interest Income
Agency CMBS	$	10,923	$	(588)	$	10,335	$	10,989	$	(56)	$	10,933
Agency RMBS	2,756		(842)		1,914		871		(655)		216
Non-Agency CMBS	4,797		968		5,765		3,111		924		4,035
Non-Agency RMBS	1,151		(641)		510		1,207		(477)		730
Other securities	2,805		(1,464)		1,341		2,889		(1,591)		1,298
Total	$	22,432	$	(2,567)	$	19,865	$	19,067	$	(1,855)	$	17,212

The following tables present the sales and realized gain (loss) of the Company’s MBS and other securities for the three months ended March 31, 2020 and March 31, 2019, respectively (dollars in thousands):

	For the three months ended March 31, 2020								For the three months ended March 31, 2019
	Proceeds		Gross Gains		Gross Losses		Net Gain  (Loss)		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)
Agency CMBS	$	1,259,032	$	94,307	$	(6,454)	$	87,853	$	206,710	$	—	$	(4,189)	$	(4,189)
Agency RMBS	391,436		10,420		(38)		10,382		—		—		—		—
Non-Agency CMBS	51,940		1		(8,802)		(8,801)		9,000		—		(829)		(829)
Non-Agency RMBS	12,702		—		(16)		(16)		—		—		—		—
Other securities	17,746		113		—		113		—		—		—		—
Total	$	1,732,856	$	104,841	$	(15,310)	$	89,531	$	215,710	$	—	$	(5,018)	$	(5,018)

Unconsolidated CMBS VIEs

The Company’s economic interests held in unconsolidated CMBS VIEs are limited in nature to those of a passive holder of CMBS issued by securitization trusts; the Company was not involved in the design or creation of the securitization trusts. The Company evaluates its CMBS holdings, for potential consolidation of the securitized trust, in which it owns the most subordinate tranche or a portion of the controlling class. As of March 31, 2020 and December 31, 2019, the Company held eight and ten variable interests in unconsolidated CMBS VIEs, respectively, in which it either owned the most subordinate class or a portion of the controlling class. The Company determined it was not the primary beneficiary and accordingly, the CMBS VIEs were not consolidated in the Company’s consolidated financial statements. As of March 31, 2020 and December 31, 2019, the Company’s maximum exposure to loss from these variable interests did not exceed the carrying value of these investments of $74.6 million and $117.7 million, respectively. These investments are classified in "Non-Agency mortgage-backed securities, at fair value" in the Company’s Consolidated Balance Sheets. Further, as of March 31, 2020 and December 31, 2019, the Company did not guarantee any obligations of unconsolidated entities or enter into any commitment or intent to provide funding to any such entities.