Attached files
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EX-32.2 - EXHIBIT 32.2 - Invesco Mortgage Capital Inc. | ivr20180630ex322.htm |
EX-32.1 - EXHIBIT 32.1 - Invesco Mortgage Capital Inc. | ivr20180630ex321.htm |
EX-31.2 - EXHIBIT 31.2 - Invesco Mortgage Capital Inc. | ivr20180630ex312.htm |
EX-31.1 - EXHIBIT 31.1 - Invesco Mortgage Capital Inc. | ivr20180630ex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-Q
_______________________________________________
(Mark One)
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018
OR
o | 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 001-34385

(Exact Name of Registrant as Specified in Its Charter)
_______________________________________________
Maryland | 26-2749336 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
1555 Peachtree Street, N.E., Suite 1800 Atlanta, Georgia | 30309 | |
(Address of Principal Executive Offices) | (Zip Code) |
(404) 892-0896
(Registrant’s Telephone Number, Including Area Code)
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 ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer | ý | Accelerated filer | o | ||||
Non-Accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | o | |||
Emerging growth company | o |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of August 3, 2018, there were 111,643,188 outstanding shares of common stock of Invesco Mortgage Capital Inc.
INVESCO MORTGAGE CAPITAL INC.
TABLE OF CONTENTS
Page | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. |
PART I
ITEM 1. | FINANCIAL STATEMENTS |
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of | |||||
$ in thousands except share amounts | June 30, 2018 | December 31, 2017 | |||
ASSETS | |||||
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $17,047,937 and $17,560,811, respectively) | 17,583,187 | 18,190,754 | |||
Commercial loans, held-for-investment | 127,607 | 191,808 | |||
Cash and cash equivalents | 70,254 | 88,381 | |||
Restricted cash | — | 620 | |||
Due from counterparties | 7,255 | — | |||
Investment related receivable | 70,839 | 73,217 | |||
Derivative assets, at fair value | 47,509 | 6,896 | |||
Other assets | 108,124 | 105,580 | |||
Total assets | 18,014,775 | 18,657,256 | |||
LIABILITIES AND EQUITY | |||||
Liabilities: | |||||
Repurchase agreements | 13,702,321 | 14,080,801 | |||
Secured loans | 1,650,000 | 1,650,000 | |||
Exchangeable senior notes, net | — | 143,231 | |||
Derivative liabilities, at fair value | 6,071 | 32,765 | |||
Dividends and distributions payable | 50,201 | 50,193 | |||
Investment related payable | 23,562 | 5,191 | |||
Accrued interest payable | 18,886 | 17,845 | |||
Collateral held payable | 39,748 | 7,327 | |||
Accounts payable and accrued expenses | 1,705 | 2,200 | |||
Due to affiliate | 10,558 | 10,825 | |||
Total liabilities | 15,503,052 | 16,000,378 | |||
Commitments and contingencies (See Note 16): | |||||
Equity: | |||||
Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized: | |||||
7.75% Series A Cumulative Redeemable Preferred Stock: 5,600,000 shares issued and outstanding ($140,000 aggregate liquidation preference) | 135,356 | 135,356 | |||
7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 6,200,000 shares issued and outstanding ($155,000 aggregate liquidation preference) | 149,860 | 149,860 | |||
7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 11,500,000 shares issued and outstanding ($287,500 aggregate liquidation preference) | 278,108 | 278,108 | |||
Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 111,643,188 and 111,624,159 shares issued and outstanding, respectively | 1,116 | 1,116 | |||
Additional paid in capital | 2,384,902 | 2,384,356 | |||
Accumulated other comprehensive income | 89,461 | 261,029 | |||
Retained earnings (distributions in excess of earnings) | (551,632 | ) | (579,334 | ) | |
Total stockholders’ equity | 2,487,171 | 2,630,491 | |||
Non-controlling interest | 24,552 | 26,387 | |||
Total equity | 2,511,723 | 2,656,878 | |||
Total liabilities and equity | 18,014,775 | 18,657,256 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1 |
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
$ in thousands, except share amounts | 2018 | 2017 | 2018 | 2017 | |||||||
Interest Income | |||||||||||
Mortgage-backed and credit risk transfer securities | 147,548 | 121,027 | 296,551 | 239,900 | |||||||
Commercial loans | 4,051 | 6,021 | 8,273 | 11,785 | |||||||
Total interest income | 151,599 | 127,048 | 304,824 | 251,685 | |||||||
Interest Expense | |||||||||||
Repurchase agreements | 69,389 | 36,072 | 128,974 | 66,019 | |||||||
Secured loans | 8,471 | 4,535 | 15,398 | 7,948 | |||||||
Exchangeable senior notes | — | 3,504 | 1,621 | 8,512 | |||||||
Total interest expense | 77,860 | 44,111 | 145,993 | 82,479 | |||||||
Net interest income | 73,739 | 82,937 | 158,831 | 169,206 | |||||||
Other Income (loss) | |||||||||||
Gain (loss) on investments, net | (36,377 | ) | 11,175 | (196,747 | ) | 9,322 | |||||
Equity in earnings (losses) of unconsolidated ventures | 798 | (154 | ) | 1,694 | (1,688 | ) | |||||
Gain (loss) on derivative instruments, net | 67,169 | (53,513 | ) | 200,536 | (48,051 | ) | |||||
Realized and unrealized credit derivative income (loss), net | 735 | 21,403 | 3,900 | 41,358 | |||||||
Net loss on extinguishment of debt | — | (526 | ) | (26 | ) | (5,237 | ) | ||||
Other investment income (loss), net | (2,160 | ) | 2,533 | 942 | 3,862 | ||||||
Total other income (loss) | 30,165 | (19,082 | ) | 10,299 | (434 | ) | |||||
Expenses | |||||||||||
Management fee – related party | 10,102 | 9,027 | 20,323 | 17,828 | |||||||
General and administrative | 1,525 | 1,608 | 3,281 | 3,692 | |||||||
Total expenses | 11,627 | 10,635 | 23,604 | 21,520 | |||||||
Net income | 92,277 | 53,220 | 145,526 | 147,252 | |||||||
Net income attributable to non-controlling interest | 1,163 | 670 | 1,834 | 1,856 | |||||||
Net income attributable to Invesco Mortgage Capital Inc. | 91,114 | 52,550 | 143,692 | 145,396 | |||||||
Dividends to preferred stockholders | 11,106 | 5,716 | 22,213 | 11,432 | |||||||
Net income attributable to common stockholders | 80,008 | 46,834 | 121,479 | 133,964 | |||||||
Earnings per share: | |||||||||||
Net income attributable to common stockholders | |||||||||||
Basic | 0.72 | 0.42 | 1.09 | 1.20 | |||||||
Diluted | 0.72 | 0.41 | 1.08 | 1.15 | |||||||
Dividends declared per common share | 0.42 | 0.40 | 0.84 | 0.80 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2 |
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
$ in thousands | 2018 | 2017 | 2018 | 2017 | |||||||
Net income | 92,277 | 53,220 | 145,526 | 147,252 | |||||||
Other comprehensive income (loss): | |||||||||||
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net | (47,929 | ) | 39,633 | (180,246 | ) | 55,922 | |||||
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net | 9,889 | 651 | 19,126 | 1,501 | |||||||
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense | (6,898 | ) | (6,369 | ) | (13,437 | ) | (12,667 | ) | |||
Currency translation adjustments on investment in unconsolidated venture | 486 | 139 | 798 | (476 | ) | ||||||
Total other comprehensive income (loss) | (44,452 | ) | 34,054 | (173,759 | ) | 44,280 | |||||
Comprehensive income (loss) | 47,825 | 87,274 | (28,233 | ) | 191,532 | ||||||
Less: Comprehensive (income) loss attributable to non-controlling interest | (602 | ) | (1,099 | ) | 357 | (2,414 | ) | ||||
Less: Dividends to preferred stockholders | (11,106 | ) | (5,716 | ) | (22,213 | ) | (11,432 | ) | |||
Comprehensive income (loss) attributable to common stockholders | 36,117 | 80,459 | (50,089 | ) | 177,686 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
For the six months ended June 30, 2018
(Unaudited)
Attributable to Common Stockholders | |||||||||||||||||||||||||||||||||||||||||
Additional Paid in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings (Distributions in excess of earnings) | Total Stockholders’ Equity | Non- Controlling Interest | |||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | |||||||||||||||||||||||||||||||||||||||
$ in thousands except share amounts | Common Stock | Total Equity | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | 5,600,000 | 135,356 | 6,200,000 | 149,860 | 11,500,000 | 278,108 | 111,624,159 | 1,116 | 2,384,356 | 261,029 | (579,334 | ) | 2,630,491 | 26,387 | 2,656,878 | ||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | — | — | 143,692 | 143,692 | 1,834 | 145,526 | |||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | — | — | — | — | — | (171,568 | ) | — | (171,568 | ) | (2,191 | ) | (173,759 | ) | |||||||||||||||||||||||
Stock awards | — | — | — | — | — | — | 19,029 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Common stock dividends | — | — | — | — | — | — | — | — | — | — | (93,777 | ) | (93,777 | ) | — | (93,777 | ) | ||||||||||||||||||||||||
Common unit dividends | — | — | — | — | — | — | — | — | — | — | — | — | (1,197 | ) | (1,197 | ) | |||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | — | — | — | — | — | (22,213 | ) | (22,213 | ) | — | (22,213 | ) | ||||||||||||||||||||||||
Amortization of equity-based compensation | — | — | — | — | — | — | — | — | 262 | — | — | 262 | 3 | 265 | |||||||||||||||||||||||||||
Rebalancing of ownership percentage of non-controlling interest | — | — | — | — | — | — | — | — | 284 | — | — | 284 | (284 | ) | — | ||||||||||||||||||||||||||
Balance at June 30, 2018 | 5,600,000 | 135,356 | 6,200,000 | 149,860 | 11,500,000 | 278,108 | 111,643,188 | 1,116 | 2,384,902 | 89,461 | (551,632 | ) | 2,487,171 | 24,552 | 2,511,723 |
The accompanying notes are an integral part of this condensed consolidated financial statement.
4 |
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, | |||||
$ in thousands | 2018 | 2017 | |||
Cash Flows from Operating Activities | |||||
Net income | 145,526 | 147,252 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||
Amortization of mortgage-backed and credit risk transfer securities premiums and (discounts), net | 25,657 | 37,534 | |||
Realized and unrealized (gain) loss on derivative instruments, net | (217,159 | ) | 5,191 | ||
Realized and unrealized (gain) loss on credit derivatives, net | 7,371 | (29,707 | ) | ||
(Gain) loss on investments, net | 196,747 | (9,322 | ) | ||
(Income) loss from investments in unconsolidated ventures in excess of distributions received | (1,150 | ) | 2,106 | ||
Other amortization | (13,052 | ) | (11,656 | ) | |
Net loss on extinguishment of debt | 26 | 5,237 | |||
(Gain) loss on foreign currency transactions, net | 1,099 | (2,229 | ) | ||
Changes in operating assets and liabilities: | |||||
(Increase) decrease in operating assets | 2,267 | (2,497 | ) | ||
Increase (decrease) in operating liabilities | 435 | (3,016 | ) | ||
Net cash provided by operating activities | 147,767 | 138,893 | |||
Cash Flows from Investing Activities | |||||
Purchase of mortgage-backed and credit risk transfer securities | (1,213,558 | ) | (2,533,663 | ) | |
(Contributions to) distributions from investments in unconsolidated ventures, net | (1,077 | ) | 7,408 | ||
Change in other assets | — | (3,457 | ) | ||
Principal payments from mortgage-backed and credit risk transfer securities | 1,061,392 | 1,081,479 | |||
Proceeds from sale of mortgage-backed and credit risk transfer securities | 387,726 | 572,616 | |||
Proceeds from/ (payments for) settlement or termination of forwards, swaps and futures, net | 149,852 | (25,311 | ) | ||
Net change in due from counterparties and collateral held payable | 25,165 | 1,771 | |||
Principal payments from commercial loans held-for-investment | 64,814 | — | |||
Origination and advances of commercial loans, net of origination fees | (1,677 | ) | (3,170 | ) | |
Net cash provided by (used in) investing activities | 472,637 | (902,327 | ) | ||
Cash Flows from Financing Activities | |||||
Due from counterparties - secured loans | — | (1,246 | ) | ||
Proceeds from repurchase agreements | 72,281,324 | 63,154,822 | |||
Principal repayments of repurchase agreements | (72,659,696 | ) | (62,200,623 | ) | |
Extinguishment of exchangeable senior notes | (143,433 | ) | (185,386 | ) | |
Payments of deferred costs | (167 | ) | — | ||
Payments of dividends and distributions | (117,179 | ) | (101,852 | ) | |
Net cash (used in) provided by financing activities | (639,151 | ) | 665,715 | ||
Net change in cash, cash equivalents and restricted cash | (18,747 | ) | (97,719 | ) | |
Cash, cash equivalents and restricted cash, beginning of period | 89,001 | 161,788 | |||
Cash, cash equivalents and restricted cash, end of period | 70,254 | 64,069 | |||
Supplement Disclosure of Cash Flow Information | |||||
Interest paid | 158,027 | 97,003 | |||
Non-cash Investing and Financing Activities Information | |||||
Net change in unrealized gain (loss) on mortgage-backed and credit risk transfer securities | (161,120 | ) | 57,423 | ||
Dividends and distributions declared not paid | 50,201 | 50,930 | |||
Net change in investment related payable (receivable) | (18,871 | ) | (163,489 | ) | |
Net change in repurchase agreements, not settled | (108 | ) | 4,081 | ||
Change in due from counterparties and collateral held payable | — | 86,450 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization and Business Operations
Invesco Mortgage Capital Inc. (the "Company", "we") is a Maryland corporation primarily focused on investing in, financing and managing residential and commercial mortgage-backed securities and mortgage loans. We are externally managed and advised by Invesco Advisers, Inc. (our "Manager"), a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd. ("Invesco"), a leading independent global investment management firm. We conduct our business through IAS Operating Partnership LP (the "Operating Partnership"), as its sole general partner. As of June 30, 2018, we owned 98.7% of the Operating Partnership, and a wholly-owned subsidiary of Invesco owned the remaining 1.3%. We have one operating segment.
We primarily invest in:
• | Residential mortgage-backed securities ("RMBS") that are guaranteed by a U.S. government agency such as the Government National Mortgage Association, or a federally chartered corporation such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation (collectively "Agency RMBS"); |
• | Commercial mortgage-backed securities (“CMBS”) that are guaranteed by a U.S. government agency such as the Government National Mortgage Association or a federally chartered corporation such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation (collectively "Agency CMBS"); |
• | RMBS that are not guaranteed by a U.S. government agency ("non-Agency RMBS"); |
• | CMBS that are not guaranteed by a U.S. government agency (“non-Agency CMBS”); |
• | Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ("GSE CRT"); |
• | Residential and commercial mortgage loans; and |
• | Other real estate-related financing agreements. |
We elected to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986 commencing with our taxable year ended December 31, 2009. To maintain our REIT qualification, we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually. We operate our business in a manner that permits exclusion from the "Investment Company" definition under the Investment Company Act of 1940.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
Certain disclosures included in our Annual Report on Form 10-K are not required to be included on an interim basis in our quarterly reports on Form 10-Q. We have condensed or omitted these disclosures. Therefore, this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017.
The condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and consolidate the financial statements of the Company and our controlled subsidiaries. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for a fair statement of our financial condition and results of operations for the periods presented.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Examples of estimates include, but are not limited to, estimates of the fair values of financial instruments, interest income on mortgage-backed and credit risk transfer securities, allowance for loan losses and other-than-temporary impairment charges. Actual results may differ from those estimates.
6 |
Significant Accounting Policies
There have been no changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2017, other than the significant accounting policy disclosed below.
Restricted Cash
Restricted cash represents cash posted with the Federal Home Loan Bank of Indianapolis ("FHLBI") as collateral for secured loans and cash posted with counterparties as collateral for various derivative instruments. Cash held by counterparties as collateral is legally restricted and is not available for general corporate purposes.
Accounting Pronouncements Recently Adopted
Effective January 1, 2018, we adopted the accounting guidance that amends certain aspects of recognition, measurement, presentation, and disclosure of financial assets and liabilities. The standard requires that all equity investments, other than those accounted for as equity method investments, be measured at fair value with changes recognized in income. As of January 1, 2018, we had three types of equity investments: investments in unconsolidated ventures, an investment in an exchange traded fund, and an investment in FHLBI stock. Our investments in unconsolidated ventures are accounted for as equity method investments, and our investment in an exchange-traded fund is measured at fair value with changes recognized in income. While the standard eliminates the cost method for equity investments without readily determinable fair values, it does allow an election to record equity investments without readily determinable fair values at cost, less impairment, and plus or minus adjustments for observable price changes. We have elected to record our investment in FHLBI stock at cost, less impairment. As such, the adoption of this accounting guidance did not impact our financial condition or results of operations. The standard also amends certain disclosure requirements for financial instruments. Refer to Note 4 - "Mortgage-Backed and Credit Risk Transfer Securities" for a tabular summary of the fair value of our available-for-sale securities and securities accounted for under the fair value option by asset type.
Effective January 1, 2018, we adopted the accounting guidance intended to reduce diversity in how restricted cash and certain transactions are classified in the statement of cash flows. The new guidance requires that the statement of cash flows explains the difference during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. We adopted the accounting standard on a retrospective basis, which required us to restate our statement of cash flows for the six months ended June 30, 2017. The adoption resulted in a $15.5 million decrease in net cash provided by operating activities, $17.3 million decrease in net cash used in investing activities and $1.8 million decrease in net cash provided by financing activities. We included restricted cash of $620,000 as of December 31, 2017 in our reconciliation of cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows. We did not have any restricted cash as of June 30, 2018.
Pending Accounting Pronouncements
In June 2016, new accounting guidance was issued for reporting credit losses for assets measured at amortized cost and available-for-sale securities. The new guidance significantly changes how entities will measure credit losses for most financial assets, including loans, that are not measured at fair value through net income. The guidance replaces the existing “incurred loss” model with an “expected loss” model for instruments measured at amortized cost, and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. The new guidance also simplifies the accounting model for purchased credit-impaired debt securities and loans. We are required to adopt the new guidance in the first quarter of 2020 by recording a cumulative effect adjustment to retained earnings as of January 1, 2020. We are currently evaluating the potential impacts of the new guidance on our consolidated financial statements.
In June 2018, new accounting guidance was issued that aligns the measurement and classification for stock-based payments to non-employees with the guidance for stock-based payments to employees. Under the new guidance, the measurement of equity-classified non-employee awards will be fixed at the grant date. We are required to adopt the new guidance in the first quarter of 2019 by recording a cumulative effect adjustment to retained earnings as of January 1, 2019. We are currently evaluating the potential impacts of the new guidance on our consolidated financial statements.
7 |
Note 3 - Variable Interest Entities ("VIEs")
Our maximum risk of loss in VIEs in which we are not the primary beneficiary at June 30, 2018 is presented in the table below.
$ in thousands | Carrying Amount | Company's Maximum Risk of Loss | |||
Non-Agency CMBS | 3,151,237 | 3,151,237 | |||
Non-Agency RMBS | 1,220,076 | 1,220,076 | |||
Investments in unconsolidated ventures | 28,997 | 28,997 | |||
Total | 4,400,310 | 4,400,310 |
Refer to Note 4 - "Mortgage-Backed and Credit Risk Transfer Securities" and Note 6 - "Other Assets" for additional details regarding these investments.
8 |
Note 4 – Mortgage-Backed and Credit Risk Transfer Securities
The following tables summarize our mortgage-backed securities ("MBS") and GSE CRT portfolio by asset type as of June 30, 2018 and December 31, 2017.
June 30, 2018 | ||||||||||||||||||||
$ in thousands | Principal/ Notional Balance | Unamortized Premium (Discount) | Amortized Cost | Unrealized Gain/ (Loss), net | Fair Value | Period- end Weighted Average Yield (1) | Quarterly Weighted Average Yield (2) | |||||||||||||
Agency RMBS: | ||||||||||||||||||||
15 year fixed-rate | 2,532,605 | 85,680 | 2,618,285 | (95,101 | ) | 2,523,184 | 2.32 | % | 1.99 | % | ||||||||||
30 year fixed-rate | 7,602,464 | 284,277 | 7,886,741 | (221,602 | ) | 7,665,139 | 3.14 | % | 2.95 | % | ||||||||||
ARM* | 215,178 | 1,300 | 216,478 | (1,677 | ) | 214,801 | 2.58 | % | 2.43 | % | ||||||||||
Hybrid ARM | 1,566,739 | 23,143 | 1,589,882 | (22,831 | ) | 1,567,051 | 2.56 | % | 2.28 | % | ||||||||||
Total Agency RMBS pass-through | 11,916,986 | 394,400 | 12,311,386 | (341,211 | ) | 11,970,175 | 2.88 | % | 2.65 | % | ||||||||||
Agency-CMO (3) | 995,408 | (745,565 | ) | 249,843 | (11,027 | ) | 238,816 | 3.26 | % | 3.04 | % | |||||||||
Agency CMBS | 150,268 | 1,940 | 152,208 | 19 | 152,227 | 3.46 | % | 3.63 | % | |||||||||||
Non-Agency CMBS (4) | 3,871,603 | (700,887 | ) | 3,170,716 | (19,479 | ) | 3,151,237 | 5.02 | % | 4.95 | % | |||||||||
Non-Agency RMBS (5)(6)(7) | 2,945,105 | (1,851,911 | ) | 1,093,194 | 126,882 | 1,220,076 | 7.09 | % | 7.12 | % | ||||||||||
GSE CRT (8) | 744,545 | 22,913 | 767,458 | 83,198 | 850,656 | 2.81 | % | 3.37 | % | |||||||||||
Total | 20,623,915 | (2,879,110 | ) | 17,744,805 | (161,618 | ) | 17,583,187 | 3.53 | % | 3.36 | % |
* Adjustable-rate mortgage ("ARM")
(1) | Period-end weighted average yield is based on amortized cost as of June 30, 2018 and incorporates future prepayment and loss assumptions. |
(2) | Quarterly weighted average yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average balance of the amortized cost of the investments. All yields are annualized. |
(3) | Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 79.3% of principal/notional balance, 17.0% of amortized cost and 16.1% of fair value. |
(4) | Non-Agency CMBS includes interest-only securities which represent 15.7% of principal/notional balance, 0.5% of amortized cost and 0.6% of fair value. |
(5) | Non-Agency RMBS held by us is 47.6% variable rate, 46.0% fixed rate and 6.4% floating rate based on fair value. |
(6) | Of the total discount in non-Agency RMBS, $190.7 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities. |
(7) | Non-Agency RMBS includes interest-only securities ("Non-Agency IO") which represent 55.7% of principal/notional balance, 2.4% of amortized cost and 2.3% of fair value. |
(8) | GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net. |
9 |
December 31, 2017 | ||||||||||||||||||||
$ in thousands | Principal/Notional Balance | Unamortized Premium (Discount) | Amortized Cost | Unrealized Gain/ (Loss), net | Fair Value | Period- end Weighted Average Yield (1) | Quarterly Weighted Average Yield (2) | |||||||||||||
Agency RMBS: | ||||||||||||||||||||
15 year fixed-rate | 2,917,307 | 119,120 | 3,036,427 | (61,645 | ) | 2,974,782 | 2.17 | % | 1.98 | % | ||||||||||
30 year fixed-rate | 7,354,211 | 295,977 | 7,650,188 | (9,648 | ) | 7,640,540 | 3.09 | % | 2.90 | % | ||||||||||
ARM | 238,486 | 1,609 | 240,095 | 1,105 | 241,200 | 2.60 | % | 2.36 | % | |||||||||||
Hybrid ARM | 1,696,148 | 26,066 | 1,722,214 | (2,829 | ) | 1,719,385 | 2.54 | % | 2.25 | % | ||||||||||
Total Agency RMBS pass-through | 12,206,152 | 442,772 | 12,648,924 | (73,017 | ) | 12,575,907 | 2.79 | % | 2.58 | % | ||||||||||
Agency-CMO (3) | 1,226,539 | (942,290 | ) | 284,249 | (10,306 | ) | 273,943 | 2.91 | % | 2.74 | % | |||||||||
Non-Agency CMBS (4) | 3,879,775 | (704,097 | ) | 3,175,678 | 40,739 | 3,216,417 | 4.92 | % | 4.77 | % | ||||||||||
Non-Agency RMBS (5)(6)(7) | 2,785,704 | (1,661,683 | ) | 1,124,021 | 133,587 | 1,257,608 | 7.19 | % | 7.18 | % | ||||||||||
GSE CRT (8) | 757,183 | 24,306 | 781,489 | 85,390 | 866,879 | 2.45 | % | 2.79 | % | |||||||||||
Total | 20,855,353 | (2,840,992 | ) | 18,014,361 | 176,393 | 18,190,754 | 3.42 | % | 3.27 | % |
(1) | Period-end weighted average yield is based on amortized cost as of December 31, 2017 and incorporates future prepayment and loss assumptions. |
(2) | Quarterly weighted average yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average balance of the amortized cost of the investments. All yields are annualized. |
(3) | Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 81.8% of principal (notional) balance, 20.9% of amortized cost and 18.7% of fair value. |
(4) | Non-Agency CMBS includes interest-only securities which represent 15.8% of principal/notional balance, 0.5% of amortized cost and 0.6% of fair value. |
(5) | Non-Agency RMBS held by us is 52.2% variable rate, 37.8% fixed rate, and 10.0% floating rate based on fair value. |
(6) | Of the total discount in non-Agency RMBS, $195.3 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities. |
(7) | Non-Agency RMBS includes interest-only securities, which represent 51.5% of principal/notional balance, 2.0% of amortized cost and 1.8% of fair value. |
(8) | GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net. |
The following table presents the fair value of our available-for-sale securities and securities accounted for under the fair value option by asset type as of June 30, 2018 and December 31, 2017. We have elected the fair value option for all of our RMBS IOs, our MBS purchased on or after September 1, 2016 and our GSE CRTs purchased on or after August 24, 2015. As of June 30, 2018 and December 31, 2017, approximately 41% and 36%, respectively, of our MBS and GSE CRTs are accounted for under the fair value option.
June 30, 2018 | December 31, 2017 | ||||||||||||||||
$ in thousands | Available-for-sale Securities | Securities under Fair Value Option | Total Fair Value | Available-for-sale Securities | Securities under Fair Value Option | Total Fair Value | |||||||||||
Agency RMBS: | |||||||||||||||||
15 year fixed-rate | 2,170,906 | 352,278 | 2,523,184 | 2,842,440 | 132,342 | 2,974,782 | |||||||||||
30 year fixed-rate | 2,216,755 | 5,448,384 | 7,665,139 | 2,467,871 | 5,172,669 | 7,640,540 | |||||||||||
ARM* | 214,801 | — | 214,801 | 241,200 | — | 241,200 | |||||||||||
Hybrid ARM | 1,535,502 | 31,549 | 1,567,051 | 1,719,385 | — | 1,719,385 | |||||||||||
Total RMBS Agency pass-through | 6,137,964 | 5,832,211 | 11,970,175 | 7,270,896 | 5,305,011 | 12,575,907 | |||||||||||
Agency-CMO | 182,293 | 56,523 | 238,816 | 203,351 | 70,592 | 273,943 | |||||||||||
Agency CMBS | — | 152,227 | 152,227 | — | — | — | |||||||||||
Non-Agency CMBS | 2,294,341 | 856,896 | 3,151,237 | 2,376,413 | 840,004 | 3,216,417 | |||||||||||
Non-Agency RMBS | 1,075,371 | 144,705 | 1,220,076 | 1,236,178 | 21,430 | 1,257,608 | |||||||||||
GSE CRT | 619,553 | 231,103 | 850,656 | 635,537 | 231,342 | 866,879 | |||||||||||
Total | 10,309,522 | 7,273,665 | 17,583,187 | 11,722,375 | 6,468,379 | 18,190,754 |
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The components of the carrying value of our MBS and GSE CRT portfolio at June 30, 2018 and December 31, 2017 are presented below.
June 30, 2018 | ||||||||
$ in thousands | MBS and GSE CRT Securities | Interest-Only Securities | Total | |||||
Principal/ notional balance | 17,743,581 | 2,880,334 | 20,623,915 | |||||
Unamortized premium | 471,489 | — | 471,489 | |||||
Unamortized discount | (552,058 | ) | (2,798,541 | ) | (3,350,599 | ) | ||
Gross unrealized gains (1) | 253,314 | 7,010 | 260,324 | |||||
Gross unrealized losses (1) | (415,201 | ) | (6,741 | ) | (421,942 | ) | ||
Fair value | 17,501,125 | 82,062 | 17,583,187 |
December 31, 2017 | ||||||||
$ in thousands | MBS and GSE CRT Securities | Interest-Only Securities | Total | |||||
Principal/ notional balance | 17,974,390 | 2,880,963 | 20,855,353 | |||||
Unamortized premium | 521,626 | — | 521,626 | |||||
Unamortized discount | (577,344 | ) | (2,785,274 | ) | (3,362,618 | ) | ||
Gross unrealized gains (1) | 336,543 | 5,113 | 341,656 | |||||
Gross unrealized losses (1) | (155,146 | ) | (10,117 | ) | (165,263 | ) | ||
Fair value | 18,100,069 | 90,685 | 18,190,754 |
(1) | Gross unrealized gains and losses includes gains (losses) recognized in net income for securities accounted for as derivatives or under the fair value option as well as gains (losses) for available-for-sale securities which are recognized as adjustments to other comprehensive income. Realization occurs upon sale or settlement of such securities. Further detail on the components of our total gains (losses) on investments, net for the three and six months ended June 30, 2018 and 2017 is provided later in this Note 4. |
The following table summarizes our MBS and GSE CRT portfolio according to estimated weighted average life classifications as of June 30, 2018 and December 31, 2017.
$ in thousands | June 30, 2018 | December 31, 2017 | |||
Less than one year | 135,350 | 135,559 | |||
Greater than one year and less than five years | 6,166,267 | 7,934,836 | |||
Greater than or equal to five years | 11,281,570 | 10,120,359 | |||
Total | 17,583,187 | 18,190,754 |
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The following tables present the estimated fair value and gross unrealized losses of our MBS and GSE CRTs by length of time that such securities have been in a continuous unrealized loss position at June 30, 2018 and December 31, 2017.
June 30, 2018
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||
$ in thousands | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | Number of Securities | |||||||||||||||||
Agency RMBS: | ||||||||||||||||||||||||||
15 year fixed-rate | 385,423 | (5,524 | ) | 87 | 1,780,406 | (92,961 | ) | 127 | 2,165,829 | (98,485 | ) | 214 | ||||||||||||||
30 year fixed-rate | 5,930,551 | (182,696 | ) | 212 | 890,051 | (50,074 | ) | 58 | 6,820,602 | (232,770 | ) | 270 | ||||||||||||||
ARM | 157,531 | (2,230 | ) | 17 | 530 | (26 | ) | 1 | 158,061 | (2,256 | ) | 18 | ||||||||||||||
Hybrid ARM | 852,306 | (12,652 | ) | 94 | 436,416 | (12,707 | ) | 46 | 1,288,722 | (25,359 | ) | 140 | ||||||||||||||
Total Agency RMBS pass-through (1) | 7,325,811 | (203,102 | ) | 410 | 3,107,403 | (155,768 | ) | 232 | 10,433,214 | (358,870 | ) | 642 | ||||||||||||||
Agency-CMO (2) | 149,189 | (9,756 | ) | 43 | 71,796 | (3,873 | ) | 5 | 220,985 | (13,629 | ) | 48 | ||||||||||||||
Agency CMBS (3) | 69,365 | (78 | ) | 1 | — | — | — | 69,365 | (78 | ) | 1 | |||||||||||||||
Non-Agency CMBS (4) | 1,842,373 | (35,757 | ) | 136 | 207,220 | (11,547 | ) | 17 | 2,049,593 | (47,304 | ) | 153 | ||||||||||||||
Non-Agency RMBS (5) | 250,751 | (1,687 | ) | 30 | 50,145 | (374 | ) | 7 | 300,896 | (2,061 | ) | 37 | ||||||||||||||
Total | 9,637,489 | (250,380 | ) | 620 | 3,436,564 | (171,562 | ) | 261 | 13,074,053 | (421,942 | ) | 881 |
(1) | Amounts disclosed includes Agency RMBS with a fair value of $5.3 billion for which the fair value option has been elected. Such securities have unrealized losses of $177.0 million. |
(2) | Amounts disclosed includes Agency IO and Agency-CMO with fair value of $22.4 million and $18.0 million, respectively, for which the fair value option has been elected. These Agency IO and Agency-CMO securities have unrealized losses of $6.5 million and $856,000, respectively. |
(3) | Fair value option has been elected for all Agency CMBS. |
(4) | Amounts disclosed includes Non-Agency CMBS with a fair value of $693.4 million for which the fair value option has been elected. Such securities have unrealized losses of $21.8 million. |
(5) | Amounts disclosed includes Non-Agency RMBS and Non-Agency IO with a fair value of $111.2 million and $10.7 million, respectively for which the fair value option has been elected. Such securities have unrealized losses of $4,000 and $247,000, respectively. |
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December 31, 2017
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||
$ in thousands | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | Number of Securities | |||||||||||||||||
Agency RMBS: | ||||||||||||||||||||||||||
15 year fixed-rate | 111,020 | (321 | ) | 26 | 2,406,021 | (67,285 | ) | 133 | 2,517,041 | (67,606 | ) | 159 | ||||||||||||||
30 year fixed-rate | 3,677,576 | (20,730 | ) | 107 | 963,547 | (27,158 | ) | 56 | 4,641,123 | (47,888 | ) | 163 | ||||||||||||||
ARM | 101,173 | (902 | ) | 12 | — | — | — | 101,173 | (902 | ) | 12 | |||||||||||||||
Hybrid ARM | 614,321 | (4,189 | ) | 73 | 517,642 | (8,091 | ) | 47 | 1,131,963 | (12,280 | ) | 120 | ||||||||||||||
Total Agency RMBS pass-through (1) | 4,504,090 | (26,142 | ) | 218 | 3,887,210 | (102,534 | ) | 236 | 8,391,300 | (128,676 | ) | 454 | ||||||||||||||
Agency-CMO (2) | 75,299 | (10,433 | ) | 44 | 81,988 | (2,309 | ) | 5 | 157,287 | (12,742 | ) | 49 | ||||||||||||||
Non-Agency CMBS (3) | 892,553 | (17,612 | ) | 81 | 135,139 | (3,792 | ) | 12 | 1,027,692 | (21,404 | ) | 93 | ||||||||||||||
Non-Agency RMBS (4) | 84,439 | (709 | ) | 15 | 96,263 | (1,732 | ) | 11 | 180,702 | (2,441 | ) | 26 | ||||||||||||||
Total | 5,556,381 | (54,896 | ) | 358 | 4,200,600 | (110,367 | ) | 264 | 9,756,981 | (165,263 | ) | 622 |
(1) | Amounts disclosed includes Agency RMBS with a fair value of $3.4 billion for which the fair value option has been elected. Such securities have unrealized losses of $22.8 million. |
(2) | Amounts disclosed includes Agency IO and Agency-CMO with fair value of $36.5 million and $9.5 million, respectively, for which the fair value option has been elected. These Agency IO and Agency-CMO securities have unrealized losses of $10.1 million and $88,000, respectively. |
(3) | Amounts disclosed includes Non-Agency CMBS with a fair value of $596.0 million for which the fair value option has been elected. Such securities have unrealized losses of $8.9 million. |
(4) | Amounts disclosed includes Non-Agency IO with a fair value of $530,000 for which the fair value option has been elected. Such securities have unrealized losses of $39,000. |
Gross unrealized losses on our Agency RMBS, Agency CMBS and CMO were $366.1 million at June 30, 2018 (December 31, 2017: $131.3 million). Due to the inherent credit quality of Agency RMBS, Agency CMBS and Agency-CMO, we determined that at June 30, 2018 and December 31, 2017, any unrealized losses on these securities are not other than temporary.
Gross unrealized losses on our Agency IO, non-Agency RMBS and non-Agency CMBS were $55.9 million (December 31, 2017: $33.9 million) at June 30, 2018. We did not consider these unrealized losses to be credit related, but rather due to non-credit related factors such as interest rates, prepayment speeds, and market fluctuations. These investment securities are included in our assessment for other-than-temporary impairment on a quarterly basis.
We assess our investment securities for other-than-temporary impairment ("OTTI") on a quarterly basis. When the fair value of an investment is less than its amortized cost at the balance sheet date of the reporting period for which impairment is assessed, the impairment is designated as either "temporary" or "other-than-temporary." This analysis includes a determination of estimated future cash flows through an evaluation of the characteristics of the underlying loans and the structural features of the investment. Underlying loan characteristics reviewed include, but are not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration.
The following table summarizes OTTI included in earnings for the three and six months ended June 30, 2018 and 2017:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
$ in thousands | 2018 | 2017 | 2018 | 2017 | |||||||
RMBS interest-only securities | 2,089 | 3,585 | 6,398 | 3,876 | |||||||
Non-Agency RMBS (1) | — | 513 | 50 | 754 | |||||||
Total | 2,089 | 4,098 | 6,448 | 4,630 |
(1) | Amounts disclosed relate to credit losses on debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income. |
OTTI on RMBS interest-only securities was recorded as a reclassification from an unrealized to realized loss within gain (loss) on investments, net on the condensed consolidated statements of operations because we account for these securities under
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the fair value option. As of June 30, 2018, we did not intend to sell the securities and determined that it was not more likely than not that we will be required to sell the securities.
The following table summarizes the components of our total gain (loss) on investments, net for the three and six months ended June 30, 2018 and 2017.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
$ in thousands | 2018 | 2017 | 2018 | 2017 | |||||||
Gross realized gains on sale of investments | 35 | 1,311 | 35 | 2,215 | |||||||
Gross realized losses on sale of investments | (11,560 | ) | (1,962 | ) | (20,797 | ) | (3,873 | ) | |||
Other-than-temporary impairment losses | (2,089 | ) | (4,098 | ) | (6,448 | ) | (4,630 | ) | |||
Net unrealized gains and losses on MBS accounted for under the fair value option | (22,941 | ) | 7,715 | (170,136 | ) | 4,113 | |||||
Net unrealized gains and losses on GSE CRT accounted for under the fair value option | 182 | 8,195 | 616 | 11,474 | |||||||
Net unrealized gains and losses on trading securities | (4 | ) | 14 | (17 | ) | 23 | |||||
Total gain (loss) on investments, net | (36,377 | ) | 11,175 | (196,747 | ) | 9,322 |
The following tables present components of interest income recognized on our MBS and GSE CRT portfolio for the three and six months ended June 30, 2018 and 2017. GSE CRT interest income excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.
For the three months ended June 30, 2018
$ in thousands | Coupon Interest | Net (Premium Amortization)/Discount Accretion | Interest Income | |||||
Agency RMBS and CMBS | 105,430 | (22,275 | ) | 83,155 | ||||
Non-Agency CMBS | 38,101 | 1,195 | 39,296 | |||||
Non-Agency RMBS | 13,195 | 5,159 | 18,354 | |||||
GSE CRT | 7,180 | (696 | ) | 6,484 | ||||
Other | 259 | — | 259 | |||||
Total | 164,165 | (16,617 | ) | 147,548 |
For the three months ended June 30, 2017
$ in thousands | Coupon Interest | Net (Premium Amortization)/Discount Accretion | Interest Income | |||||
Agency RMBS and CMBS | 91,979 | (27,775 | ) | 64,204 | ||||
Non-Agency CMBS | 31,506 | (1,852 | ) | 29,654 | ||||
Non-Agency RMBS | 18,131 | 3,734 | 21,865 | |||||
GSE CRT | 5,556 | (347 | ) | 5,209 | ||||
Other | 95 | — | 95 | |||||
Total | 147,267 | (26,240 | ) | 121,027 |
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For the six months ended June 30, 2018
$ in thousands | Coupon Interest | Net (Premium Amortization)/Discount Accretion | Interest Income | |||||
Agency RMBS and CMBS | 213,747 | (45,497 | ) | 168,250 | ||||
Non-Agency CMBS | 75,394 | 2,621 | 78,015 | |||||
Non-Agency RMBS | 27,207 | 10,336 | 37,543 | |||||
GSE CRT | 13,705 | (1,393 | ) | 12,312 | ||||
Other | 431 | — | 431 | |||||
Total | 330,484 | (33,933 | ) | 296,551 |
For the six months ended June 30, 2017
$ in thousands | Coupon Interest | Net (Premium Amortization)/Discount Accretion | Interest Income | |||||
Agency RMBS and CMBS | 183,210 | (56,353 | ) | 126,857 | ||||
Non-Agency CMBS | 61,182 | (4,486 | ) | 56,696 | ||||
Non-Agency RMBS | 38,745 | 8,121 | 46,866 | |||||
GSE CRT | 10,043 | (718 | ) | 9,325 | ||||
Other | 156 | — | 156 | |||||
Total | 293,336 | (53,436 | ) | 239,900 |
Note 5 – Commercial Loans Held-for-Investment
The following table summarizes purchased or originated commercial mezzanine loans held-for-investment as of June 30, 2018 and December 31, 2017.
$ in thousands | Number of loans | Principal Balance | Unamortized (fees)/ costs, net | Carrying value | Weighted Average Coupon | Weighted Average Years to Maturity (1) | ||||||||||
June 30, 2018 | 5 | 127,638 | (31 | ) | 127,607 | 8.96 | % | 0.7 | ||||||||
December 31, 2017 | 8 | 191,894 | (86 | ) | 191,808 | 8.52 | % | 1.2 |
(1) | Weighted average years to maturity is based on the contractual maturity date. Certain loans may contain either an option to prepay or an option to extend beyond their contractual maturity dates as specified in the respective loan agreements. |
These loans were not impaired, and no allowance for loan loss has been recorded as of June 30, 2018 and December 31, 2017 based on our analysis of credit quality factors as described in Note 2 - "Summary of Significant Accounting Policies" included in the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2017.
Note 6 – Other Assets
The following table summarizes our other assets as of June 30, 2018 and December 31, 2017.
$ in thousands | June 30, 2018 | December 31, 2017 | |||
FHLBI stock | 74,250 | 74,250 | |||
Investments in unconsolidated ventures | 28,997 | 25,972 | |||
Investment in exchange-traded fund | 3,962 | 3,979 | |||
Prepaid expenses and other assets | 915 | 1,379 | |||
Total | 108,124 | 105,580 |
IAS Services LLC, our wholly-owned subsidiary, is required to purchase and hold FHLBI stock as a condition of membership in the FHLBI. The stock is recorded at cost.
We have invested in unconsolidated ventures that are managed by an affiliate of our Manager. The unconsolidated ventures invest in our target assets. Refer to Note 16 - "Commitments and Contingencies" for additional details regarding our commitments to these unconsolidated ventures.
15 |
We have invested in an exchange-traded fund that is managed by an affiliate of our Manager. The exchange-traded fund invests in our target assets.
Note 7 – Borrowings
We have financed the majority of our investment portfolio through repurchase agreements, secured loans and exchangeable senior notes. The following tables summarize certain characteristics of our borrowings at June 30, 2018 and December 31, 2017. Refer to Note 8 - "Collateral Positions" for collateral pledged under our repurchase agreements and secured loans.
$ in thousands | June 30, 2018 | |||||||
Weighted | ||||||||
Weighted | Average | |||||||
Average | Remaining | |||||||
Amount | Interest | Maturity | ||||||
Outstanding | Rate | (days) | ||||||
Repurchase Agreements: | ||||||||
Agency RMBS | 10,537,934 | 2.13 | % | 22 | ||||
Agency CMBS | 133,417 | 2.10 | % | 30 | ||||
Non-Agency CMBS | 1,450,627 | 3.25 | % | 23 | ||||
Non-Agency RMBS | 917,106 | 3.28 | % | 23 | ||||
GSE CRT | 663,237 | 3.18 | % | 23 | ||||
Total Repurchase Agreements | 13,702,321 | 2.38 | % | 23 | ||||
Secured Loans | 1,650,000 | 2.18 | % | 2,136 | ||||
Total Borrowings | 15,352,321 | 2.36 | % | 250 |
$ in thousands | December 31, 2017 | |||||||
Weighted | ||||||||
Weighted | Average | |||||||
Average | Remaining | |||||||
Amount | Interest | Maturity | ||||||
Outstanding | Rate | (days) | ||||||
Repurchase Agreements: | ||||||||
Agency RMBS | 11,111,755 | 1.58 | % | 25 | ||||
Non-Agency CMBS | 1,396,330 | 2.61 | % | 9 | ||||
Non-Agency RMBS | 915,225 | 2.77 | % | 31 | ||||
GSE CRT | 657,491 | 2.78 | % | 24 |