XML 48 R22.htm IDEA: XBRL DOCUMENT

FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2023

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is based upon internal models, using market quotations, broker quotations, counterparty quotations or pricing services quotations, which provide valuation estimates based upon reasonable market order indications and are subject to significant variability based on market conditions, such as interest rates, credit spreads and market liquidity. The fair value of the mortgage loan receivables held for sale is based upon a securitization model utilizing market data from recent securitization spreads and pricing.

Fair Value Summary Table

The carrying values and estimated fair values of the Company’s financial instruments, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at December 31, 2023 and December 31, 2022 are as follows ($ in thousands):

December 31, 2023


									Weighted Average
	Principal Amount			Amortized Cost Basis/Purchase Price		Fair Value		Fair Value Method	Yield %		Remaining Maturity/Duration (years)
Assets:
CMBS(1)	$	439,679		$	439,052	$	424,890	Internal model	6.83	%	2.00
CMBS interest-only(1)	876,555		(2)	6,453		6,569		Internal model	6.61	%	1.07
GNMA interest-only(3)	37,053		(2)	214		213		Internal model	6.12	%	3.60
Agency securities(1)	22			22		21		Internal model	2.70	%	1.05


U.S. Treasury securities(1)	54,031			53,648		53,716		Internal model	5.41 %		0.07
Equity securities(3)	N/A			160		144		Observable market prices	N/A		N/A





Mortgage loan receivables held for investment, net, at amortized cost(4)	3,164,226			3,155,089		3,150,843		Discounted Cash Flow(5)	9.65	%	0.68


Mortgage loan receivables held for sale	31,350			26,868		26,868		Internal model, third-party inputs(6)	4.57	%	8.19
FHLB stock(7)	5,175			5,175		5,175		(7)	8.25	%	N/A
Nonhedge derivatives(1)(10)	194,900			1,454		1,454		Counterparty quotations	N/A		0.48

Liabilities:
Repurchase agreements - short-term	337,631			337,631		337,631		Cost plus Accrued Interest (8)	7.57	%	0.48
Repurchase agreements - long-term	268,976			268,976		268,976		Discounted Cash Flow(9)	7.35	%	1.74

Mortgage loan financing	437,384			437,759		425,992		Discounted Cash Flow	5.87	%	2.64


CLO debt	1,062,777			1,060,719		1,060,719		Discounted Cash Flow(9)	7.08	%	1.89

Borrowings from the FHLB	115,000			115,000		115,000		Discounted Cash Flow	5.82	%	0.57
Senior unsecured notes	1,575,614			1,563,861		1,475,303		Internal model, third-party inputs	4.66	%	3.77

(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.

(2)Represents notional outstanding balance of underlying collateral.

(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.

(4)Balance does not include impact of allowance for current expected credit losses of $43.2 million at December 31, 2023.

(5)Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit spreads. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow model.

(6)Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.

(7)Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.

(8)For repurchase agreements - short term, the value approximates the cost plus accrued interest.

(9)For repurchase agreements - long term and CLO debt, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

(10)The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

December 31, 2022


									Weighted Average
	Principal Amount			Amortized Cost Basis/Purchase Price		Fair Value		Fair Value Method	Yield %		Remaining Maturity/Duration (years)
Assets:
CMBS(1)	$	562,839		$	562,246	$	541,333	Internal model, third-party inputs	5.32	%	1.06
CMBS interest-only(1)	1,026,195		(2)	10,498		10,443		Internal model, third-party inputs	3.65	%	1.45
GNMA interest-only(3)	45,369		(2)	285		281		Internal model, third-party inputs	4.23	%	3.30
Agency securities(1)	36			36		35		Internal model, third-party inputs	2.70	%	1.54


U.S. Treasury securities(1)	36,000			35,328		35,328		Internal model, third-party inputs	4.17	%	0.60
Equity securities(3)	N/A			160		118		Observable market prices	N/A		N/A

Mortgage loan receivables held for investment, net, at amortized cost(4)	3,907,295			3,885,746		3,875,708		Discounted Cash Flow(5)	8.85	%	1.26


Mortgage loan receivables held for sale	31,350			27,391		27,391		Internal model, third-party inputs(6)	4.57	%	9.19
FHLB stock(7)	9,585			9,585		9,585		(7)	4.75	%	N/A
Nonhedge derivatives(1)(10)	204,700			2,038		2,038		Counterparty quotations	N/A		1.52

Liabilities:
Repurchase agreements - short-term	481,465			481,465		481,465		Cost plus Accrued Interest (8)	4.04	%	0.37
Repurchase agreements - long-term	366,398			366,398		366,398		Discounted Cash Flow(9)	4.06	%	2.56

Mortgage loan financing	497,454			497,991		477,101		Discounted Cash Flow	5.51	%	3.36


CLO debt	1,064,365			1,058,462		1,058,462		Discounted Cash Flow(9)	6.35	%	15.92

Borrowings from the FHLB	213,000			213,000		213,055		Discounted Cash Flow	1.61	%	1.25
Senior unsecured notes	1,643,794			1,628,382		1,397,977		Internal model, third-party inputs	4.66	%	4.75

(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.

(2)Represents notional outstanding balance of underlying collateral.

(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.

(4)Balance does not include impact of allowance for current expected credit losses of $20.8 million at December 31, 2022.

(5)Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow model.

(6)Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.

(8)The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

(9)Fair value for repurchase agreement liabilities - short term borrowings under the Revolving Credit Facility is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

(10)For repurchase agreements - long term and CLO debt, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

(11)The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

The following table summarizes the Company’s financial assets and liabilities, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at December 31, 2023 and December 31, 2022 ($ in thousands):

December 31, 2023


Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition	Principal Amount			Fair Value
				Level 1		Level 2		Level 3		Total

Assets:
CMBS(1)	$	430,398		$	—	$	415,935	$	—	$	415,935
CMBS interest-only(1)	868,228		(2)	—		6,260		—		6,260
GNMA interest-only(3)	37,053		(2)	—		213		—		213
Agency securities(1)	22			—		21		—		21


U.S. Treasury securities	54,031			53,716		—		—		53,716
Equity securities	N/A			144		—		—		144
Nonhedge derivatives(4)	194,900			—		1,454		—		1,454
				$	53,860	$	423,883	$	—	$	477,743






Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition	Principal Amount			Fair Value
				Level 1		Level 2		Level 3		Total

Assets:
Mortgage loan receivable held for investment, net, at amortized cost:
Mortgage loan receivables held for investment, net, at amortized cost(5)	$	3,164,226		$	—	$	—	$	3,150,843	$	3,150,843


Mortgage loan receivable held for sale(6)	31,350			—		—		26,868		26,868
CMBS(7)	9,281			—		8,955		—		8,955
CMBS interest-only(7)	8,327			—		309		—		309


FHLB stock	5,175			—		—		5,175		5,175
				$	—	$	9,264	$	3,182,886	$	3,192,150
Liabilities:
Repurchase agreements - short-term	$	337,631		$	—	$	337,631	$	—	$	337,631
Repurchase agreements - long-term	268,976			—		268,976		—		268,976

Mortgage loan financing	437,384			—		—		425,992		425,992


CLO debt	1,062,777			—		1,060,719		—		1,060,719

Borrowings from the FHLB	115,000			—		—		115,000		115,000
Senior unsecured notes	1,575,614			—		—		1,475,303		1,475,303


				$	—	$	1,667,326	$	2,016,295	$	3,683,621

(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.

(2)Represents notional outstanding balance of underlying collateral.

(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.

(4)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

(5)Balance does not include impact of allowance for current expected credit losses of $43.2 million at December 31, 2023.

(6)A lower of cost or market adjustment was recorded as of December 31, 2023.

(7)Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, are classified as held-to-maturity and reported at amortized cost.

December 31, 2022


Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition	Principal Amount			Fair Value
				Level 1		Level 2		Level 3		Total

Assets:
CMBS(1)	$	553,424		$	—	$	—	$	532,304	$	532,304
CMBS interest-only(1)	1,017,735		(2)	—		—		10,026		10,026
GNMA interest-only(3)	45,369		(2)	—		—		281		281
Agency securities(1)	36			—		—		35		35


Equity securities	N/A			118		—		—		118
U.S. Treasury securities	36,000			35,328		—		—		35,328
Nonhedge derivatives(4)	204,700			—		2,038		—		2,038
				$	35,446	$	2,038	$	542,646	$	580,130



Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition	Principal Amount			Fair Value
				Level 1		Level 2		Level 3		Total

Assets:
Mortgage loan receivable held for investment, net, at amortized cost:
Mortgage loan receivables held for investment, net, at amortized cost(5)	$	3,907,295		$	—	$	—	$	3,875,708	$	3,875,708


Mortgage loan receivable held for sale(6)	31,350			—		—		27,391		27,391
CMBS(7)	9,415			—		—		9,030		9,030
CMBS interest-only(7)	8,460			—		—		417		417

FHLB stock	9,585			—		—		9,585		9,585
				$	—	$	—	$	3,922,131	$	3,922,131
Liabilities:
Repurchase agreements - short-term	$	481,465		$	—	$	—	$	481,465	$	481,465
Repurchase agreements - long-term	366,398			—		—		366,398		366,398

Mortgage loan financing	497,454			—		—		477,101		477,101


CLO debt	1,064,365			—		—		1,058,462		1,058,462

Borrowings from the FHLB	213,000			—		—		213,055		213,055
Senior unsecured notes	1,643,794			—		—		1,397,977		1,397,977


				$	—	$	—	$	3,994,458	$	3,994,458

(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.

(2)Represents notional outstanding balance of underlying collateral.

(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.

(5)Balance does not include impact of allowance for current expected credit losses of $20.8 million at December 31, 2022.

(6)A lower of cost or market adjustment was recorded as of December 31, 2022.

The following table summarizes changes in Level 3 financial instruments reported at fair value on the consolidated statements of financial condition for the years ended December 31, 2023 and 2022 ($ in thousands):


	Year Ended December 31,
Level 3	2023		2022

Balance at January 1,	$	542,646	$	692,864
Transfer into level 3	—		—

Purchases	143,953		59,333
Sales	(17,838)		(4,261)
Paydowns/maturities	(231,993)		(183,929)
Amortization of premium/discount	(2,716)		(4,354)
Unrealized gain/(loss)	7,039		(16,901)
Realized gain/(loss) on sale	(275)		(106)
Transfer out of level 3 (1)	(440,816)		—
Balance at December 31,	$	—	$	542,646

(1)As of December 31, 2023, the Company determined that $440.8 million of securities were level 2 based on the Company’s increased observability of the inputs used to internally value the securities.

The following is quantitative information about significant unobservable inputs in our Level 3 measurements for those assets and liabilities measured at fair value on a recurring basis ($ in thousands):

December 31, 2022


Financial Instrument	Carrying Value			Valuation Technique	Unobservable Input	Minimum		Weighted Average		Maximum

CMBS(1)	$	532,304		Discounted cash flow	Yield (4)	2.89	%	5.29	%	17.47	%

CMBS interest-only(1)	10,026		(2)	Discounted cash flow	Yield (4)	1.39	%	3.72	%	19.66	%


GNMA interest-only(3)	281		(2)	Discounted cash flow	Yield (4)	1.28	%	5.50	%	10.00	%


Agency securities(1)	35			Discounted cash flow	Yield (4)	2.70	%	2.70	%	2.70	%





Total	$	542,646

(1)CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities, U.S. Treasury securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.

(2)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.

(3)GNMA interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.

Sensitivity of the Fair Value to Changes in the Unobservable Inputs

(4)Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement.

Nonrecurring Fair Values

The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may be impaired. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or write-down of assets value due to impairment. Refer to Note 3, Mortgage Loan Receivables and Note 5, Real Estate and Related Lease Intangibles, Net, for disclosure of level 3 inputs for certain assets measured on a nonrecurring basis.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details