NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
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 primarily mortgage-related single-family and multi-family 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 investment portfolio includes (i) structuredcredit sensitive residential and multi-family propertyassets, including investments such as multi-family CMBS and preferred equity in, and mezzanine loans to, owners of multi-family properties, (ii) residential mortgage loans, includingthat may have been sourced from distressed residential mortgage loans, non-QM loans, second mortgages, and other residential mortgage loans, (iii) non-Agency RMBS, (iv) Agency RMBS and (v) certain mortgage-, residential housing- and other credit-related assets.markets.
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.
“Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of mortgageresidential 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;GSE;
“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;
“Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS;
“ABS” refers to debt and/or equity tranches of securitizations backed by various asset classes including, but not limited to, automobiles, aircraft, credit cards, equipment, franchises, recreational vehicles and student loans;
“CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a GSE, 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;
“second mortgages” refers to liens on residential properties that are subordinate to more senior mortgages or loans.loans;
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-familySLST CDOs and CMBS heldpreferred equity in, securitization trusts,and mezzanine loans to, owners of multi-family properties.
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.
The following table sets forth the weighted average lives of our investment securities available for sale as of June 30, 20192020 and December 31, 20182019 (dollar amounts in thousands):
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 June 30, 20192020 and December 31, 2018,2019, respectively, are as follows:
The following table presents the fair value and aggregate unpaid principal balance of the Company's distressedresidential loans and other residential mortgage loans at fair value greater than 90 days past due andheld in securitization trusts in non-accrual status as of June 30, 20192020 and December 31, 2018,2019, respectively (dollar amounts in thousands):
The following table details activity in accretable yield for the distressed residential mortgage loans, net for the six months ended June 30, 2019 and 2018, respectively (dollar amounts in thousands):
The geographic concentrations of credit risk exceeding 5% of the unpaid principal balance of our distressed residential mortgage loans, net as of June 30, 2019 and December 31, 2018, respectively, are2019 was as follows:
The geographic concentrations of credit risk exceeding 5% of the total loan balances in our residential mortgage loans held in securitization trusts, net as of June 30, 2019 and December 31, 2018 are2019 were as follows:
The multi-family loans held in securitization trusts had unpaid aggregate principal balances of approximately $13.7 billion and $11.5$16.8 billion at June 30, 2019 and December 31, 2018, respectively.2019. The multi-family CDOs (the "Multi-Family CDOs") had aggregate unpaid principal balances of approximately $13.7 billion and $11.5$16.8 billion at June 30,December 31, 2019 and December 31, 2018, respectively. As of June 30, 2019 and December 31, 2018, the currenthad a weighted average interest rate on these Multi-Family CDOs was 4.14% and 3.96%, respectively.of 3.85%.
The condensed consolidated statements of operations of the Consolidated K-Series for the three andmonths ended June 30, 2019, for the six months ended June 30, 20192020 (prior to the sale of first loss POs and 2018,de-consolidation of the Consolidated K-Series) and for the six months ended June 30, 2019, respectively, are as follows (dollar amounts in thousands):
The geographic concentrations of credit risk exceeding 5% of the total loan balances related to multi-family loans held in securitization trusts as of June 30, 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 are2019 were as follows:
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(1) | The Company's equity investment was redeemed during the year ended December 31, 2019. |
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| 8. | Preferred Equity and Mezzanine Loan Investments |
As of January 1, 2020, the Company has elected to account for its preferred equity and mezzanine loan investments using the fair value option (see Note 2). Accordingly, balances presented below as of June 30, 2020 are stated at fair value and changes in fair value are presented in unrealized gains (losses), net on the Company’s condensed consolidated statements of operations. Preferred equity and mezzanine loan investments consist of the following as of June 30, 20192020 and December 31, 20182019, respectively (dollar amounts in thousands):
| | | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 (1) |
| Investment amount | $ | 192,814 |
| | $ | 166,789 |
| $ | 185,459 |
| | $ | 181,409 |
|
| Deferred loan fees, net | (1,427 | ) | | (1,234 | ) | (1,266 | ) | | (1,364 | ) |
| Unrealized losses, net | | (3,343 | ) | | — |
|
| Total | $ | 191,387 |
| | $ | 165,555 |
| $ | 180,850 |
| | $ | 180,045 |
|
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(1) | As of December 31, 2019, preferred equity and mezzanine loan investments were reported at amortized cost. |
For the three and six months ended June 30, 2020, the Company recognized $0.1 million and $5.8 million, respectively, in net unrealized losses on preferred equity and mezzanine loan investments.
The table below presents the fair value and aggregate unpaid principal balance of the Company's preferred equity and mezzanine loan investments in non-accrual status as of June 30, 2020 (dollar amounts in thousands):
|
| | | | | | | |
| Days Late | Fair Value | | Unpaid Principal Balance |
| 90 + | $ | 3,383 |
| | $ | 3,363 |
|
There were no0 delinquent preferred equity or mezzanine loan investments as of June 30, 2019 and December 31, 2018.2019.
The geographic concentrations of credit risk exceeding 5% of the total preferred equity and mezzanine loan investment amounts as of June 30, 20192020 and December 31, 20182019, respectively, are as follows:
| | | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| Tennessee | | 12.3 | % | | 12.3 | % |
| Florida | | 12.0 | % | | 12.0 | % |
| Georgia | | 11.8 | % | | 11.8 | % |
| Texas | 17.0 | % | | 16.6 | % | 10.4 | % | | 10.6 | % |
| Tennessee | 11.3 | % | | 6.8 | % | |
| Georgia | 10.8 | % | | 15.3 | % | |
| Alabama | 10.3 | % | | 8.6 | % | 10.0 | % | | 10.0 | % |
| Florida | 10.0 | % | | 11.3 | % | |
| South Carolina | 8.4 | % | | 9.5 | % | 6.3 | % | | 6.3 | % |
| Virginia | 7.9 | % | | 9.1 | % | |
| New Jersey | | 5.0 | % | | 5.0 | % |
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| 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, including residential loan securitizations and re-securitizations, 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.
In June 2020, the Company completed a re-securitization of certain non-Agency RMBS for which the Company received net cash proceeds of approximately $109.3 million after deducting expenses associated with the re-securitization transaction. The Company engaged in the re-securitization transaction primarily for the purpose of obtaining non-recourse, longer-term financing on a portion of its non-Agency RMBS portfolio and continues to classify the non-Agency RMBS collateral in the re-securitization as available for sale securities as the purpose is not to trade these securities. The Company's net investment amount in the re-securitization is $96.1 million as of June 30, 2020.
As of June 30, 2020 and December 31, 2019, the Company evaluated its Residential CDOsresidential loan securitizations and re-securitization of non-Agency RMBS 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 June 30, 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 transactionVIEs (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 June 30, 2020 and 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.2019.
The Company invests in subordinated securities that represent the first loss position of the Freddie Mac-sponsored residential loan securitization from which they were issued, and certain IOs and senior securities issued from the securitization. The Company has evaluated its investments in this securitization trust to determine whether it is a VIE and if so, whether the Company is the primary beneficiary requiring consolidation. The Company has determined that the Freddie Mac-sponsored residential loan securitization trust is a VIE as of June 30, 2020 and December 31, 2019, which we refer to as Consolidated SLST. The Company also determined that it is the primary beneficiary of the VIE within Consolidated SLST and, accordingly, has consolidated its assets, liabilities, income and expenses, in the accompanying condensed consolidated financial statements (see Notes 2 and 4). The Company’s investments that are included in Consolidated SLST were not included as collateral to any Financing VIE as of June 30, 2020 and December 31, 2019.
As of December 31, 2019, the Company invested 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 certain senior and mezzanine CMBS securities issued from the securitization.those securitizations. The Company has evaluated these CMBS investments in Freddie Mac-sponsored K-Series securitization trusts to determine whether they arewere VIEs and if so, whether the Company iswas the primary beneficiary requiring consolidation. The Company has determined that eleven and ninethe Freddie Mac-sponsored multi-family K-Series securitization trusts arewere VIEs as of June 30, 2019 and December 31, 2018, respectively.2019, which we refer to as the Consolidated K-Series. The Company also determined that it iswas 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 byIn March 2020, the Company that are included insold its first loss POs and certain mezzanine securities issued by the Consolidated K-Series eleven and eightwhich resulted in the de-consolidation of these investments are not included as collateral to any Financing VIEeach Consolidated K-Series as of June 30, 2019 and December 31, 2018, respectively.the sale date of each first loss PO.
In analyzing whether the Company is the primary beneficiary of the Financing VIEs, Consolidated K-SeriesSLST and the Financing VIEs,Consolidated K-Series, 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.
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)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. Real estate under development in KRVI as of June 30, 20192020 and December 31, 20182019 of $16.7$10.6 million and $22.0$14.5 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, theCompany's residential loan securitizations, non-Agency RMBS re-securitization, Consolidated K-Series,SLST and KRVI of as of June 30, 2019.2020 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
| | | | Financing VIE | | Other VIEs | | | Financing VIEs | | Other VIEs | | |
| | Residential Mortgage Loan Securitization | | Consolidated K-Series | | Other | | Total | Residential Loan Securitizations | | Non-Agency RMBS Re-Securitization | | Consolidated SLST | | KRVI | | Total |
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 1,513 |
| | $ | 1,513 |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,320 |
| | $ | 2,320 |
|
| Residential mortgage loans held in securitization trusts, net | 48,799 |
| | — |
| | — |
| | 48,799 |
| |
| Multi-family loans held in securitization trusts, at fair value | — |
| | 14,573,925 |
| | — |
| | 14,573,925 |
| |
| Investment securities available for sale, at fair value | | — |
| | 177,133 |
| | — |
| | — |
| | 177,133 |
|
| Residential loans, at fair value | | 40,693 |
| | — |
| | 1,274,850 |
| | — |
| | 1,315,543 |
|
| Receivables and other assets | 1,302 |
| | 48,958 |
| | 16,984 |
| | 67,244 |
| 3,475 |
| | 28,447 |
| | 4,241 |
| | 10,794 |
| | 46,957 |
|
| Total assets | $ | 50,101 |
| | $ | 14,622,883 |
| | $ | 18,497 |
| | $ | 14,691,481 |
| $ | 44,168 |
| | $ | 205,580 |
| | $ | 1,279,091 |
| | $ | 13,114 |
| | $ | 1,541,953 |
|
| | | | | | | | | | | | | | | | | |
| Residential collateralized debt obligations | $ | 45,280 |
| | $ | — |
| | $ | — |
| | $ | 45,280 |
| $ | 36,699 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 36,699 |
|
| Multi-family collateralized debt obligations, at fair value | — |
| | 13,772,726 |
| | — |
| | 13,772,726 |
| |
| Mortgages and notes payable in consolidated variable interest entities | — |
| | — |
| | 3,986 |
| | 3,986 |
| |
| Residential collateralized debt obligations, at fair value | | — |
| | — |
| | 1,088,233 |
| | — |
| | 1,088,233 |
|
| Securitized debt | | — |
| | 108,999 |
| | — |
| | — |
| | 108,999 |
|
| Accrued expenses and other liabilities | 40 |
| | 47,921 |
| | 111 |
| | 48,072 |
| 6 |
| | 454 |
| | 3,908 |
| | 74 |
| | 4,442 |
|
| Total liabilities | $ | 45,320 |
| | $ | 13,820,647 |
| | $ | 4,097 |
| | $ | 13,870,064 |
| $ | 36,705 |
| | $ | 109,453 |
| | $ | 1,092,141 |
| | $ | 74 |
| | $ | 1,238,373 |
|
The following table presents a summary of the assets and liabilities of the Financing VIEs,Company's residential loan securitizations, the Consolidated K-Series, KRVI,Consolidated SLST and The ClustersKRVI as of December 31, 2018.2019 (dollar amounts in thousands):
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| | | | | | | | | | | | | | | | | | | | |
| | | Financing VIE | | Other VIEs | | |
| | | Residential Loan Securitizations | | Consolidated K-Series | | Consolidated SLST | | KRVI | | Total |
| Cash and cash equivalents | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 107 |
| | $ | 107 |
|
| Residential loans, net | | 44,030 |
| | — |
| | — |
| | — |
| | 44,030 |
|
| Residential loans, at fair value | | — |
| | — |
| | 1,328,886 |
| | — |
| | 1,328,886 |
|
| Multi-family loans held in securitization trusts, at fair value | | — |
| | 17,816,746 |
| | — |
| | — |
| | 17,816,746 |
|
| Receivables and other assets | | 1,328 |
| | 59,417 |
| | 5,244 |
| | 14,626 |
| | 80,615 |
|
| Total assets | | $ | 45,358 |
| | $ | 17,876,163 |
| | $ | 1,334,130 |
| | $ | 14,733 |
| | $ | 19,270,384 |
|
| | | | | | | | | | | |
| Residential collateralized debt obligations | | $ | 40,429 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 40,429 |
|
| Residential collateralized debt obligations, at fair value | | — |
| | — |
| | 1,052,829 |
| | — |
| | 1,052,829 |
|
| Multi-family collateralized debt obligations, at fair value | | — |
| | 16,724,451 |
| | — |
| | — |
| | 16,724,451 |
|
| Accrued expenses and other liabilities | | 14 |
| | 57,873 |
| | 2,643 |
| | 75 |
| | 60,605 |
|
| Total liabilities | | $ | 40,443 |
| | $ | 16,782,324 |
| | $ | 1,055,472 |
| | $ | 75 |
| | $ | 17,878,314 |
|
The following table summarizes the Company’s securitized debt collateralized by non-Agency RMBS as of June 30, 2020 (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Financing VIEs | | Other VIEs | | |
| | Multi-family CMBS Re- securitization (1) | | Distressed Residential Mortgage Loan Securitization (2) | | Residential Mortgage Loan Securitization | | Consolidated K-Series(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 |
|
|
| | | | | | | | | |
| | Principal Amount | | Carrying Value (1) | | Pass-through Rate of Notes Issued (2) |
| Non-Agency RMBS re-securitization | $ | 110,361 |
| | $ | 108,999 |
| | One-month LIBOR plus 5.25% |
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(1) | The Company classified the multi-family CMBS issued by two securitizations and held by this Financing VIEClassified as available for sale securities. The Financing VIE consolidated one securitization includedsecuritized debt in the Consolidated K-Series that issued certainliability section of the multi-family CMBS owned byCompany’s accompanying condensed consolidated balance sheets. The securitized debt is non-recourse debt for which 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).
no obligation. |
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(2) | The Company engagedRepresents the pass-through rate through the payment date in this transactionDecember 2021. Pass-through rate increases to one-month LIBOR plus 7.75% 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 closedpayment dates 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 held 5% of the Class A Notes issued as part of the securitization transaction, which were eliminated in consolidation. |
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(3)
| Eight of the securitizations included in the Consolidated K-Series were not held in a Financing VIE as of December 31, 2018. |
As of June 30, 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 included underwriting, rating agency, legal, accounting and other fees.or after January 2022. |
The following table presents contractual maturity information about the Financing VIEs’Company's securitized debt collateralized by non-Agency RMBS as of December 31, 2018June 30, 2020 (dollar amounts in thousands):
| | Scheduled Maturity (principal amount) | December 31, 2018 | | June 30, 2020 |
| Within 24 months | $ | 12,381 |
| |
| Over 24 months to 36 months | — |
| |
| Over 36 months | 33,177 |
| | $ | 110,361 |
|
| Total | 45,558 |
| |
| Discount | (2,983 | ) | |
| Debt issuance cost | (240 | ) | | (1,362 | ) |
| Carrying value | $ | 42,335 |
| | $ | 108,999 |
|
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.
Unconsolidated VIEs
As of June 30, 2020 and December 31, 2019, the Company evaluated its investment securities mezzanine loan,available for sale, preferred equity, and other equity investments to determine whether they are VIEs and should be consolidated by the Company. 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, as of June 30, 2020 and December 31, 2018, except for the Clusters,2019, it does not have a controlling financial interest and is not the primary beneficiary of these VIEs. The following tables present the classification and carrying value of unconsolidated VIEs as of June 30, 20192020 and December 31, 2018,2019, respectively (dollar amounts in thousands):
| | | | June 30, 2019 | June 30, 2020 |
| | Investment securities, available for sale, at fair value | | Preferred equity and mezzanine loan investments | | Investments in unconsolidated entities | | Total | Investment securities available for sale, at fair value | | Preferred equity and mezzanine loan investments | | Investments in unconsolidated entities | | Total |
| ABS | $ | 24,739 |
| | $ | — |
| | $ | — |
| | $ | 24,739 |
| $ | 42,500 |
| | $ | — |
| | $ | — |
| | $ | 42,500 |
|
| Preferred equity investments in multi-family properties | — |
| | 184,727 |
| | 78,040 |
| | 262,767 |
| — |
| | 175,366 |
| | 129,100 |
| | 304,466 |
|
| Mezzanine loans on multi-family properties | — |
| | 6,660 |
| | — |
| | 6,660 |
| — |
| | 5,484 |
| | — |
| | 5,484 |
|
| Equity investments in entities that invest in residential properties and loans | — |
| | — |
| | 61,348 |
| | 61,348 |
| — |
| | — |
| | 68,189 |
| | 68,189 |
|
| Total assets | $ | 24,739 |
| | $ | 191,387 |
| | $ | 139,388 |
| | $ | 355,514 |
| $ | 42,500 |
| | $ | 180,850 |
| | $ | 197,289 |
| | $ | 420,639 |
|
| | | | December 31, 2018 | December 31, 2019 |
| | 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 | Investment securities available for sale, at fair value | | Preferred equity and mezzanine loan investments | | Investments in unconsolidated entities | | Total |
| Multi-family CMBS | $ | 52,700 |
| | $ | 72 |
| | $ | — |
| | $ | — |
| | $ | 52,772 |
| |
| ABS | | $ | 49,214 |
| | $ | — |
| | $ | — |
| | $ | 49,214 |
|
| Preferred equity investments in multi-family properties | — |
| | — |
| | 154,629 |
| | 40,472 |
| | 195,101 |
| — |
| | 173,825 |
| | 106,083 |
| | 279,908 |
|
| Mezzanine loans on multi-family properties | — |
| | — |
| | 10,926 |
| | — |
| | 10,926 |
| — |
| | 6,220 |
| | — |
| | 6,220 |
|
| Equity investments in entities that invest in residential properties | — |
| | — |
| | — |
| | 10,954 |
| | 10,954 |
| |
| Equity investments in entities that invest in residential properties and loans | | — |
| | — |
| | 65,572 |
| | 65,572 |
|
| Total assets | $ | 52,700 |
| | $ | 72 |
| | $ | 165,555 |
| | $ | 51,426 |
| | $ | 269,753 |
| $ | 49,214 |
| | $ | 180,045 |
| | $ | 171,655 |
| | $ | 400,914 |
|
Our maximum loss exposure on the investment securities available for sale, at fair value, preferred equity and mezzanine loan investments, and investments in unconsolidated entities iswas approximately $355.5$420.6 million and $400.9 million at June 30, 2019. Our maximum loss exposure on the investment securities available for sale, at fair value, held in securitization trusts, preferred equity2020 and mezzanine loan investments, and investments in unconsolidated entities is approximately $269.8 million at December 31, 2018.2019, respectively. The Company’s maximum exposure does not exceed the carrying value of its investments.
| |
| 10. | Real Estate Held for Sale in Consolidated VIEs |
In March 2017, the Company determined that it became the primary beneficiary of Riverchase Landing and The Clusters, two VIEs that each owned a multi-family apartment community and in each of which the Company held a preferred equity investment. Accordingly, the Company consolidated both Riverchase Landing and The Clusters into its condensed consolidated financial statements (seeNote 9).
During the second quarter of 2017, Riverchase Landing determined to actively market its multi-family apartment community for sale and completed the sale in March 2018, recognizing a net gain on sale of approximately $2.3 million which is included in other income and is allocated to net income attributable to non-controlling interest in consolidated variable interest entities on the accompanying condensed consolidated statements of operations. In connection with the sale, the Company's preferred equity investment was redeemed, resulting in de-consolidation of Riverchase Landing as of the date of the sale.
During the third quarter of 2017, The Clusters determined to actively market its multi-family apartment community for sale and completed the sale in February 2019, recognizing a net gain on sale of approximately $1.6 million which is included in other income and is allocated to net income attributable to non-controlling interest in consolidated variable interest entities on the accompanying condensed consolidated statements of operations. In connection with the sale, the Company's preferred equity investment was redeemed, resulting in de-consolidation of The Clusters as of the date of the sale.
As of June 30, 2019, there is no real estate held for sale in consolidated variable interest entities. The following is a summary of the real estate held for sale in consolidated variable interest entities as of December 31, 2018 (dollar amounts in thousands):
|
| | | |
| | December 31, 2018 |
| Land | $ | 2,650 |
|
| Building and improvements | 26,032 |
|
| Furniture, fixtures and equipment | 974 |
|
| Lease intangible | 2,802 |
|
| Real estate held for sale before accumulated depreciation and amortization | 32,458 |
|
Accumulated depreciation (1) | (418 | ) |
Accumulated amortization of lease intangible (1) | (2,336 | ) |
| Real estate held for sale in consolidated variable interest entities | $ | 29,704 |
|
| |
(1)
| There were no depreciation and amortization expenses for the three and six months ended June 30, 2019 and 2018. |
No gain or loss was recognized by the Company or allocated to non-controlling interests related to the initial classification of the real estate assets as held for sale during the year ended December 31, 2017.
| |
11. | Derivative Instruments and Hedging Activities |
The Company enters into derivative instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, swaptions, futures and options on futures. The Company may also purchase or sell “To-Be-Announced,” or TBAs, purchase options on U.S. Treasury futures or invest in other types of mortgage derivative securities. The Company's derivative instruments are currentlywere comprised of interest rate swaps, which arewere designated as trading instruments.instruments and were terminated during the six months ended June 30, 2020.
Derivatives Not Designated as Hedging Instruments
The following table presents the fair value of derivative instruments and their location in our condensed consolidated balance sheets at June 30, 20192020 and December 31, 2018,2019, respectively (dollar amounts in thousands):
| | | Type of Derivative Instrument | | Balance Sheet Location | | June 30, 2019 | | December 31, 2018 | | Balance Sheet Location | | June 30, 2020 | | December 31, 2019 |
Interest rate swaps (1) | | Derivative assets | | $ | 14,047 |
| | $ | 10,263 |
| | Derivative assets | | $ | — |
| | $ | 15,878 |
|
| |
(1) | All of the Company's interest rate swaps outstanding arewere cleared through a central clearing house. The Company exchangesexchanged variation margin for swaps based upon daily changes in fair value. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is treated as a legal settlement of the exposure under the swap contract. Previously, such payments were treated as cash collateral pledged against the exposure under the swap contract. Accordingly, the Company accounted for the receipt or payment of variation margin as a direct reduction to or increase of the carrying value of the interest rate swap asset or liability on the Company's condensed consolidated balance sheets. Includes $27.8$29.0 million of derivative liabilities netted against a variation margin of $41.9 million at June 30, 2019. Includes $1.8 million of derivative assets and variation margin of $8.5$44.8 million at December 31, 2018.2019. |
The tables below summarize the activity of derivative instruments not designated as hedges for the six months ended June 30, 20192020 and 2018,2019, respectively (dollar amounts in thousands):
| | | | | Notional Amount For the Six Months Ended June 30, 2019 | | Notional Amount for the Six Months Ended June 30, 2020 |
| Type of Derivative Instrument | | December 31, 2018 | | Additions | | Settlement, Expiration or Exercise | | June 30, 2019 | | December 31, 2019 | | Additions | | Terminations | | June 30, 2020 |
| Interest rate swaps | | $ | 495,500 |
| | $ | — |
| | $ | — |
| | $ | 495,500 |
| | $ | 495,500 |
| | $ | — |
| | $ | (495,500 | ) | | $ | — |
|
| | | | | Notional Amount For the Six Months Ended June 30, 2018 | | Notional Amount for the Six Months Ended June 30, 2019 |
| Type of Derivative Instrument | | December 31, 2017 | | Additions | | Settlement, Expiration or Exercise | | June 30, 2018 | | December 31, 2018 | | Additions | | Terminations | | June 30, 2019 |
| Interest rate swaps | | $ | 345,500 |
| | $ | 50,000 |
| | $ | — |
| | $ | 395,500 |
| | $ | 495,500 |
| | $ | — |
| | $ | — |
| | $ | 495,500 |
|
The following table presents the components of realized gains (losses), net and unrealized gains and losses(losses), net related to our derivative instruments that were not designated as hedging instruments, which are included in othernon-interest income category(loss) in our condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019, and 2018respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, |
| | | 2020 | | 2019 |
| | | Realized Gains (Losses) | | Unrealized Gains (Losses) | | Realized Gains (Losses) | | Unrealized Gains (Losses) |
| Interest rate swaps | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (15,007 | ) |
| Total | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (15,007 | ) |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2019 | | 2018 |
| | Realized Gains (Losses) | | Unrealized Gains (Losses) | | Realized Gains (Losses) | | Unrealized Gains (Losses) |
| Interest rate swaps | $ | — |
| | $ | (15,007 | ) | | $ | — |
| | $ | 5,135 |
|
| Total | $ | — |
| | $ | (15,007 | ) | | $ | — |
| | $ | 5,135 |
|
| | | | | | | | |
| | Six Months Ended June 30, |
| | 2019 | | 2018 |
| | Realized Gains (Losses) | | Unrealized Gains (Losses) | | Realized Gains (Losses) | | Unrealized Gains (Losses) |
| Interest rate swaps | $ | — |
| | $ | (29,593 | ) | | $ | — |
| | $ | 14,103 |
|
| Total | $ | — |
| | $ | (29,593 | ) | | $ | — |
| | $ | 14,103 |
|
|
| | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, |
| | | 2020 | | 2019 |
| | | Realized Gains (Losses) | | Unrealized Gains (Losses) | | Realized Gains (Losses) | | Unrealized Gains (Losses) |
| Interest rate swaps | | $ | (73,078 | ) | | $ | 28,967 |
| | $ | — |
| | $ | (29,593 | ) |
| Total | | $ | (73,078 | ) | | $ | 28,967 |
| | $ | — |
| | $ | (29,593 | ) |
Derivatives Designated as Hedging Instruments
As of June 30, 20192020 and December 31, 2018,2019, there were no derivative instruments designated as hedging instruments. The Company documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities, and upon entering into hedging transactions, documents the relationship between the hedging instrument and the hedged liability contemporaneously. The Company assesses, both at inception of a hedge and on an ongoing basis, whether or not the hedge is “highly effective” when using the matched term basis.
The Company discontinues hedge accounting on a prospective basis and recognizes changes in the fair value through earnings when: (i) it is determined that the derivative is no longer effective in offsetting cash flows of a hedged item (including forecasted transactions); (ii) it is no longer probable that the forecasted transaction will occur; or (iii) it is determined that designating the derivative as a hedge is no longer appropriate. The Company’s derivative instruments are carried on the Company’s balance sheets at fair value, as assets, if their fair value is positive, or as liabilities, if their fair value is negative. For the Company’s derivative instruments that are designated as “cash flow hedges,” changes in their fair value are recorded in accumulated other comprehensive income (loss), provided that the hedges are effective. A change in fair value for any ineffective amount of the Company’s derivative instruments would be recognized in earnings.
Outstanding Derivatives
The Company had no outstanding derivatives as of June 30, 2020. The following table presents information about our interest rate swaps whereby we receivereceived floating rate payments in exchange for fixed rate payments as of June 30, 2019 and December 31, 2018, respectively2019 (dollar amounts in thousands):
| | | | | June 30, 2019 | | December 31, 2018 | | December 31, 2019 |
Swap Maturities | | Notional Amount | | Weighted Average Fixed Interest Rate | | Weighted Average
Variable Interest Rate | | Notional Amount | | Weighted Average Fixed Interest Rate | | Weighted Average
Variable Interest Rate | | Notional Amount | | Weighted Average Fixed Interest Rate | | Weighted Average
Variable Interest Rate |
| 2024 | | $ | 98,000 |
| | 2.18 | % | | 2.59 | % | | $ | 98,000 |
| | 2.18 | % | | 2.45 | % | | $ | 98,000 |
| | 2.18 | % | | 1.98 | % |
| 2027 | | 247,500 |
| | 2.39 | % | | 2.57 | % | | 247,500 |
| | 2.39 | % | | 2.53 | % | | 247,500 |
| | 2.39 | % | | 1.94 | % |
| 2028 | | 150,000 |
| | 3.23 | % | | 2.57 | % | | 150,000 |
| | 3.23 | % | | 2.53 | % | | 150,000 |
| | 3.23 | % | | 1.92 | % |
| Total | | $ | 495,500 |
| | 2.60 | % | | 2.57 | % | | $ | 495,500 |
| | 2.60 | % | | 2.52 | % | | $ | 495,500 |
| | 2.60 | % | | 1.95 | % |
The use of derivatives exposes the Company to counterparty credit risks in the event of a default by a counterparty. If a counterparty defaults under the applicable derivative agreement, the Company may be unable to collect payments to which it is entitled under its derivative agreements and may have difficulty collecting the assets it pledged as collateral against such derivatives. The Company has in place with all counterparties bi-lateral margin agreements requiring a party to post collateral to the Company for any valuation deficit. This arrangement is intended to limit the Company’s exposure to losses in the event of a counterparty default. Currently, allAll of the Company's interest rate swaps outstanding arewere cleared through CME Group Inc. ("CME Clearing") which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures.
| |
12.11. | Repurchase Agreements |
Investment Securities Available for Sale
The Company has entered into repurchase agreements with third party financial institutions to finance its investment securities portfolio.portfolio (including investment securities available for sale and securities owned in Consolidated SLST and the Consolidation K-Series). These repurchase agreements areprovide short-term borrowingsfinancings that bear interest rates typically based on a spread to LIBOR and are secured by the investment securities which they finance.finance and additional collateral pledged, if any. During the three and six months ended June 30, 2020, in connection with the significant market disruption caused by the COVID-19 pandemic, the repurchase agreement counterparties for our investment securities increased haircuts, started to require additional collateral or determined to not roll our financing. As a result, we liquidated our investment securities at a disadvantageous time, which resulted in losses. At June 30, 20192020 and December 31, 2018,2019, the Company had repurchase agreements secured by investment securitiesfinancing arrangements with 1 and 14 counterparties, respectively. As of June 30, 2020 and December 31, 2019, the Company had no exposure to an outstanding balanceindividual counterparty where the amount at risk was in excess of $1.8 billion and $1.5 billion, respectively, and a weighted average interest rate5% of 3.28% and 3.41%, respectively.the Company's stockholders’ equity.
The following table presents detailed information about the amounts outstanding under the Company’s borrowings under repurchase agreements secured by investment securities and associated assets pledged as collateral at June 30, 20192020 and December 31, 20182019, respectively (dollar amounts in thousands):
| | | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| | Outstanding Repurchase Agreements | | Fair Value of Collateral Pledged | | Amortized Cost of Collateral Pledged | | Outstanding Repurchase Agreements | | Fair Value of Collateral Pledged | | Amortized Cost of Collateral Pledged | Outstanding Repurchase Agreements | | Fair Value of Collateral Pledged | | Amortized Cost of Collateral Pledged | | Outstanding Repurchase Agreements | | Fair Value of Collateral Pledged | | Amortized Cost of Collateral Pledged |
| Agency ARMs RMBS | $ | 58,802 |
| | $ | 62,295 |
| | $ | 64,004 |
| | $ | 67,648 |
| | $ | 70,747 |
| | $ | 73,290 |
| |
| Agency Fixed-rate RMBS | 812,811 |
| | 858,359 |
| | 863,160 |
| | 857,582 |
| | 907,610 |
| | 940,994 |
| |
Agency RMBS (1) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 812,742 |
| | $ | 865,765 |
| | $ | 864,428 |
|
Agency CMBS (2) | | — |
| | — |
| | — |
| | 133,184 |
| | 139,317 |
| | 140,118 |
|
Non-Agency RMBS | 172,108 |
| | 234,583 |
| | 232,657 |
| | 88,730 |
| | 117,958 |
| | 118,414 |
| 87,571 |
| | 156,523 |
| | 214,328 |
| | 594,286 |
| | 797,784 |
| | 785,952 |
|
CMBS (1)(4) | 800,094 |
| | 1,001,725 |
| | 769,395 |
| | 529,617 |
| | 687,876 |
| | 539,788 |
| — |
| | — |
| | — |
| | 811,890 |
| | 1,036,513 |
| | 853,043 |
|
| Balance at end of the period | $ | 1,843,815 |
| | $ | 2,156,962 |
| | $ | 1,929,216 |
| | $ | 1,543,577 |
| | $ | 1,784,191 |
| | $ | 1,672,486 |
| $ | 87,571 |
| | $ | 156,523 |
| | $ | 214,328 |
| | $ | 2,352,102 |
| | $ | 2,839,379 |
| | $ | 2,643,541 |
|
| |
(1) | IncludesCollateral pledged includes Agency RMBS securities with a fair value amounting to $26.2 million included in Consolidated SLST as of December 31, 2019. |
| |
(2) | Collateral pledged includes Agency CMBS securities with a fair value amounting to $88.4 million included in the Consolidated K-Series as of December 31, 2019. |
| |
(3) | Collateral pledged includes first loss PO, IOsubordinated RMBS securities with a fair value amounting to $156.5 million and $214.8 million included in Consolidated SLST as of June 30, 2020 and December 31, 2019, respectively. |
| |
(4) | Collateral pledged includes first loss POs, IOs and mezzanine CMBS securities with a fair value amounting to $755.3 million and $543.0$848.2 million included in the Consolidated K-Series as of June 30, 2019 and December 31, 2018, respectively.2019. |
As of June 30, 20192020 and December 31, 2018,2019, the average days to maturity for repurchase agreements secured by investment securities were 10655 days and 6273 days, respectively.respectively, and the weighted average interest rate was 2.72%. The Company expects to roll outstanding amounts under its repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity. The Company’s accrued interest payable on outstanding repurchase agreements secured by investment securities at June 30, 20192020 and December 31, 20182019 amounts to $4.2$0.2 million and $3.9$8.8 million, respectively, and is included in accrued expenses and other liabilities on the Company’s condensed consolidated balance sheets.
The following table presents contractual maturity information about the Company’s outstanding repurchase agreements secured by investment securities at June 30, 20192020 and December 31, 20182019 (dollar amounts in thousands):
| | | Contractual Maturity | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| Within 30 days | $ | 240,210 |
| | $ | 732,051 |
| $ | — |
| | $ | 449,474 |
|
| Over 30 days to 90 days | 1,188,847 |
| | 677,906 |
| 87,571 |
| | 1,647,683 |
|
| Over 90 days | 414,758 |
| | 133,620 |
| — |
| | 254,945 |
|
| Total | $ | 1,843,815 |
| | $ | 1,543,577 |
| $ | 87,571 |
| | $ | 2,352,102 |
|
As of June 30, 2019, the outstanding balance under our repurchase agreements secured by investment securities was funded at a weighted average advance rate of 86.1% that implies an average “haircut” of 13.9%. As of June 30, 2019, the weighted average “haircut” related to our repurchase agreement financing for our Agency RMBS, non-agency RMBS, and CMBS was approximately 5%, 26%, and 21%, respectively.
In the event we are unable to obtain sufficient short-term financing through existing repurchase agreements, or our lenders start to require additional collateral, we may have to liquidate our investment securities at a disadvantageous time, which could result in losses. Any losses resulting from the disposition of our investment securities in this manner could have a material adverse effect on our operating results and net profitability. At June 30, 2019 and December 31, 2018, the Company had financing arrangements with fourteen and eleven counterparties, respectively. As of June 30, 2019, the Company had no exposure where the amount at risk was in excess of 5% of the Company's stockholders’ equity. As of December 31, 2018 the Company's only exposure where the amount at risk was in excess of 5% was to Jefferies & Company, Inc. at 5.04%.
As of June 30, 2019,2020, the outstanding balance under our repurchase agreements secured by investment securities was funded at an advance rate of 55.0% that implies a “haircut” of 45.0%.
As of June 30, 2020, the Company had assets available to be posted as margin which included liquid assets, includedsuch as unrestricted cash and cash equivalents, and unencumbered securities that we believe maycould be posted as margin. Themonetized to pay down or collateralize a liability immediately. As of June 30, 2020, the Company had $135.0$371.7 million in cash and cash equivalents and $388.1$812.5 million in unencumbered investment securities to meet additional haircuts or market valuation requirements. The unencumbered securities that we believe may be posted as margin as of June 30, 2019 included $73.5 million of Agency RMBS, $91.6 million of CMBS, $198.3 million of non-Agency RMBS and $24.7 million of ABS. The cash and unencumbered securities,requirements, which collectively represent 28.4%greater than 100% of our outstanding repurchase agreements secured by investment securities. The following table presents information about the Company's unencumbered securities are liquidat June 30, 2020 and could be monetized to pay down or collateralize a liability immediately.December 31, 2019, respectively (dollar amounts in thousands):
|
| | | | | | | |
Unencumbered Securities
| June 30, 2020 | | December 31, 2019 |
| Agency RMBS | $ | — |
| | $ | 83,351 |
|
| CMBS | 288,112 |
| | 235,199 |
|
| Non-Agency RMBS | 481,849 |
| | 168,063 |
|
| ABS | 42,500 |
| | 49,214 |
|
| Total | $ | 812,461 |
| | $ | 535,827 |
|
Residential Mortgage Loans
The Company has master repurchase agreements with third partytwo financial institutions to fund the purchase of distressed and other residential mortgage loans, including both first and second mortgages. The following table presents detailed information about the Company’s borrowingsfinancings under these repurchase agreements and associated distressed and other residential mortgage loans pledged as collateral at June 30, 20192020 and December 31, 20182019, respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | |
| | Maximum Aggregate Uncommitted Principal Amount | | Outstanding Repurchase Agreements | | Carrying Value of Loans Pledged (1) | | Weighted Average Rate | | Weighted Average Months to Maturity |
| June 30, 2019 | $ | 950,000 |
| | $ | 761,361 |
| | $ | 891,664 |
| | 4.43 | % | | 7.01 |
| December 31, 2018 | $ | 950,000 |
| | $ | 589,148 |
| | $ | 754,352 |
| | 4.67 | % | | 9.24 |
|
| | | | | | | | | | | | | | | | |
| | Maximum Aggregate Uncommitted Principal Amount | | Outstanding Repurchase Agreements | | Carrying Value of Loans Pledged (1) | | Weighted Average Rate | | Weighted Average Months to Maturity |
| June 30, 2020 | $ | 1,450,000 |
| | $ | 876,923 |
| | $ | 1,199,652 |
| | 2.36 | % | | 5.18 |
| December 31, 2019 | $ | 1,200,000 |
| | $ | 754,132 |
| | $ | 961,749 |
| | 3.67 | % | | 11.20 |
| |
(1) | Includes distressed and other residential mortgage loans, at fair value of $806.6 million$1.2 billion and $626.2 million and distressed and other residential mortgage loans, net of $85.1 million and $128.1$881.2 million at June 30, 20192020 and December 31, 2018, respectively.2019, respectively, and residential loans, net of $80.6 million at December 31, 2019. |
At June 30, 2020, the Company had an amount at risk under a repurchase agreement with Credit Suisse AG, Cayman Islands Branch of $255.2 million. This repurchase agreement matures on November 26, 2020.
During the terms of the master repurchase agreements, proceeds from the distressed and other residential mortgage loans will be applied to pay any price differential and to reduce the aggregate repurchase price of the collateral. The financings under the master repurchase agreements are subject to margin calls to the extent the market value of the distressed and other residential mortgage loans falls below specified levels and repurchase may be accelerated upon an event of default under the master repurchase agreements.
During the three months ended March 31, 2020, the Company was not in compliance with the market capitalization covenants in its repurchase agreements with both counterparties. In March 2020, the Company executed an amended repurchase agreement with 1 counterparty to modify the terms of financial covenants. The masterCompany also agreed to a reservation of rights with the other counterparty during the three months ended March 31, 2020 in which the counterparty elected not to declare an event of default in accordance with the terms of the repurchase agreement for non-compliance with a financial covenant. The Company subsequently executed an amended repurchase agreement with this counterparty in April to modify the terms of financial covenants. Subsequent to the amendments, the repurchase agreements contain various covenants, including among other things, the maintenance of certain amounts of liquidity market capitalization, and total stockholders' equity. The Company is in compliance with such covenants as of August 6, 2019.7, 2020. The Company expects to roll outstanding borrowingsamounts under these master repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity.
Costs related to the establishment of the repurchase agreements which include commitment, underwriting, legal, accounting and other fees are reflected as deferred charges. Such costs are presented as a deduction from the corresponding debt liability on the Company’s accompanying condensed consolidated balance sheets in the amount of $0.8$1.4 million as of June 30, 20192020 and $1.2$0.8 million as of December 31, 2018.2019. These deferred charges are amortized as an adjustment to interest expense using the effective interest method, or straight line-method, if the result is not materially different.
| |
13. | Residential Collateralized Debt Obligations |
The Company’s Residential CDOs, which are recorded as liabilities on the Company’s condensed consolidated balance sheets, are secured by ARMs pledged as collateral, which are recorded as assets of the Company. Pledged assets of $48.8 million and $56.8 million are included in distressed and other residential mortgage loans, net in the Company's condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019 and December 31, 2018, the Company had Residential CDOs outstanding of $45.3 million and $53.0 million, respectively. As of June 30, 2019 and December 31, 2018, the current weighted average interest rate on these Residential CDOs was 3.02% and 3.12%, respectively. The Residential CDOs are collateralized by ARM loans with a principal balance of $52.0 million and $60.2 million at June 30, 2019 and December 31, 2018, respectively. The Company retained the owner trust certificates, or residual interest, for three securitizations, and, as of June 30, 2019 and December 31, 2018, had a net investment in the residential securitization trusts of $4.8 million.
Convertible Notes
On January 23, 2017, the Company issued $138.0 million aggregate principal amount of its 6.25% Senior Convertible Notes due 2022 (the "Convertible Notes"), including $18.0 million aggregate principal amount of Convertible Notes issued upon exercise of the underwriter's over-allotment option, in an underwritten public offering. The net proceeds to the Company from the sale of the Convertible Notes, after deducting the underwriter's discounts, commissions and offering expenses, were approximately $127.0 million with the total cost to the Company of approximately 8.24%. Costs related to the issuance of the Convertible Notes which include underwriting, legal, accounting and other fees, are reflected as deferred charges. The underwriter's discount and deferred charges, net of amortization, are presented as a deduction from the corresponding debt liability on the Company's accompanying condensed consolidated balance sheets in the amount of $6.2$3.9 million and $7.2$5.0 million as of June 30, 20192020 and December 31, 2018,2019, respectively. The underwriter's discount and deferred charges are amortized as an adjustment to interest expense using the effective interest method.
The Convertible Notes were issued at 96% of the principal amount, bear interest at a rate equal to 6.25% per year, payable semi-annually in arrears on January 15 and July 15 of each year, and are expected to mature on January 15, 2022, unless earlier converted or repurchased. The Company does not have the right to redeem the Convertible Notes prior to maturity and no sinking fund is provided for the Convertible Notes. Holders of the Convertible Notes are permitted to convert their Convertible Notes into shares of the Company's common stock at any time prior to the close of business on the business day immediately preceding January 15, 2022. The conversion rate for the Convertible Notes, which is subject to adjustment upon the occurrence of certain specified events, initially equals 142.7144 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of approximately $7.01 per share of the Company’s common stock, based on a $1,000 principal amount of the Convertible Notes. The Convertible Notes are senior unsecured obligations of the Company that rank senior in right of payment to the Company's subordinated debentures and any of its other indebtedness that is expressly subordinated in right of payment to the Convertible Notes.
During the six months ended June 30, 2019,2020, none of the Convertible Notes were converted. As of August 6, 2019,7, 2020, the Company has not been notified, and is not aware, of any event of default under the covenantsindenture for the Convertible Notes.
Subordinated Debentures
Subordinated debentures are trust preferred securities that are fully guaranteed by the Company with respect to distributions and amounts payable upon liquidation, redemption or repayment. The following table summarizes the key details of the Company’s subordinated debentures as of June 30, 20192020 and December 31, 20182019 (dollar amounts in thousands):
|
| | | | | | | |
| | NYM Preferred Trust I | | NYM Preferred Trust II |
| Principal value of trust preferred securities | $ | 25,000 |
| | $ | 20,000 |
|
| Interest rate | Three month LIBOR plus 3.75%, resetting quarterly |
| | Three month LIBOR plus 3.95%, resetting quarterly |
|
| Scheduled maturity | March 30, 2035 |
| | October 30, 2035 |
|
As of August 6, 2019,7, 2020, the Company has not been notified, and is not aware, of any event of default under the covenantsindenture for the subordinated debentures.
Mortgages and Notes Payable in Consolidated VIEs
In March 2017, the Company consolidated both Riverchase Landing and The Clusters into its condensed consolidated financial statements (seeNote 9). In March 2018, Riverchase Landing completed the sale of its multi-family apartment community and redeemed the Company's preferred equity investment. The Company de-consolidated Riverchase Landing as of the date of the sale. 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 The Clusters as of the date of the sale. The Clusters' real estate investment was subject to a mortgage payable as of December 31, 2018, and the Company had no obligation for this liability as of December 31, 2018.
The Company also consolidates KRVI into its condensed consolidated financial statements (see Note 9). KRVI's real estate under development is subject to a note payable of $4.0 million that has an unused commitment of $4.4 million as of June 30, 2019. The Company has not been notified, and is not aware, of any event of default under the covenants of KRVI's note payable as of August 6, 2019.
The mortgages and notes payable in the consolidated VIEs as of June 30, 2019 are described below (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | |
| | | | | Mortgage Note Amount as of | | | | | | |
| | | Assumption/Origination Date | | June 30, 2019 | | Maturity Date | | Interest Rate | | Net Deferred Finance Costs |
| KRVI | | 12/16/2016 | | $ | 3,986 |
| | 12/16/2019 | | 7.00 | % | | $ | — |
|
As of June 30, 2019,2020, maturities for debt on the Company's condensed consolidated balance sheet are as follows (dollar amounts in thousands):
| | | Year Ending December 31, | Total | Total |
| 2019 | $ | 3,986 |
| |
| 2020 | — |
| $ | — |
|
| 2021 | — |
| — |
|
| 2022 | 138,000 |
| 138,000 |
|
| 2023 | — |
| — |
|
| 2024 | | — |
|
| 2025 | | — |
|
| Thereafter | 45,000 |
| 45,000 |
|
| | $ | 186,986 |
| $ | 183,000 |
|
| |
15.13. | Commitments and Contingencies |
Impact of COVID-19
Commitment to Purchase Securities - The Company has committed to purchaseAs further discussed in Notes 1 and 2, the full extent of the impact of the COVID-19 pandemic on the global economy generally, and the Company's business in particular, is uncertain. As of June 30, 2020, no contingencies have been recorded on our condensed consolidated balance sheets as a first loss POresult of the COVID-19 pandemic; however, as the global pandemic and IOs to be issued by a Freddie Mac-sponsored multi-family loan K-series securitization inits economic implications continue, it may have long-term impacts on the amount of approximately $48.3 million.Company's operations, financial condition, liquidity or cash flows.
Outstanding Litigation–
The Company is at times subject to various legal proceedings arising in the ordinary course of business. As of June 30, 2019,2020, the Company does not believe that any of its current legal proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s operations, financial condition or cash flows.
| |
16.14. | Fair Value of Financial Instruments |
The Company has established and documented processes for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, then fair value is based upon internally developed models that primarily use inputs that are market-based or independently-sourcedindependently sourced market parameters, including interest rate yield curves.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following describes the valuation methodologies used for the Company’s financial instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
| |
| a. | Investment Securities Available for Sale – The Company determines the fair value of the investment securities available for sale in our portfolio except the CMBS held in securitization trusts, using aby considering several observable market data points, including prices obtained from third-party pricing serviceservices or quoted prices provided by dealers who make markets in similar financial instruments. Dealer valuationsinstruments, as well as dialogue with market participants. Third-party pricing services typically incorporate commoncommonly used market pricing methods, including a spread measurement totrading activity observed in the Treasury curve or interest rate swap curve as well as underlyingmarketplace and other data inputs. The methodology considers the characteristics of the particular security includingand its underlying collateral, which are observable inputs. These inputs include, but are not limited to, historical performance, coupon, periodic and life caps, collateral type, rate reset period, seasoning, prepayment speeds and seasoning or age of the security. If quoted prices for a security are not reasonably available from a dealer, the security will be classified as a Level 3 security and, as a result, management will determine fair value by modeling the security based on its specific characteristics and available market information. Management reviews all prices used in determining fair value to ensure they represent current market conditions. This review includes surveying similar market transactions, comparisons to interest pricing models as well as offerings of like securities by dealers.credit enhancement levels. The Company'sCompany’s investment securities except the CMBS held in securitization trusts,available for sale are valued based upon readily observable market parameters and are classified as Level 2 fair values. |
The Company’s CMBS held in securitization trusts at December 31, 2018 were comprised of first loss POs and certain IOs for which there were not substantially similar securities that traded frequently. The Company classified these securities as Level 3 fair values. Fair value of the Company’s CMBS investments held in securitization trusts was based on an internal valuation model that considered expected cash flows from the underlying loans and yields required by market participants. The significant unobservable inputs used in the measurement of these investments were projected losses of certain identified loans within the pool of loans and a discount rate. The discount rate used in determining fair value incorporated default rate, loss severity and current market interest rates. The discount rate ranged from 4.5% to 9.5% as of December 31, 2018. Significant increases or decreases in these inputs would have resulted in a significantly lower or higher fair value measurement.
| |
| b. | Multi-FamilyMulti-Family Loans Held in Securitization Trusts and Residential Loans Held in Consolidated SLST – Multi-family loans held in securitization trusts and residential loans held in Consolidated SLST are carried at fair value as a result of a fair value election and classified as Level 3 fair values. TheIn accordance with the practical expedient in ASC 810, the Company determines the fair value of multi-family loans held in securitization trusts and residential loans held in Consolidated SLST based on the fair value of its Multi-Family CDOs and SLST CDOs and its retained interests from these securitizations (eliminated in consolidation in accordance with GAAP), as the fair value of these instruments is more observable.
|
| |
| c. | Derivative InstrumentsResidential Loans and Residential Loans Held in Securitization Trusts – The fair value of interest rate swaps are based on dealer quotes and are presented net of variation margin payments pledged or received. The Company’s derivatives are classified as Level 2 fair values.
|
| |
d. | Multi-Family CDOs – Multi-Family CDOs are recorded at fair value and classified as Level 3 fair values. The fair value of Multi-Family CDOs is determined using a third party pricing service or are based on quoted prices provided by dealers who make markets in similar financial instruments. The dealers will consider contractual cash payments and yields expected by market participants. Dealers also incorporate common market pricing methods, including a spread measurement to the Treasury curve or interest rate swap curve as well as underlying characteristics of the particular security including coupon, periodic and life caps, collateral type, rate reset period and seasoning or age of the security.
|
| |
e. | Investments in Unconsolidated Entities – Fair value for investments in unconsolidated entities is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets in the unconsolidated entities and a discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 in the fair value hierarchy.
|
| |
f. | Residential Mortgage Loans – Certain of the Company’s acquired distressed and other residential mortgage loans are recorded at fair value and classified as Level 3 in the fair value hierarchy. The fair value for distressed and other residential mortgage loans is determined using valuations obtained from a third party that specializes in providing valuations of residential mortgage loans. The valuation approach depends on whether the residential mortgage loan is considered performing, re-performing or non-performing at the date the valuation is performed.
|
For performing and re-performing loans, estimates of fair value are derived using a discounted cash flow model, where estimates of cash flows are determined from scheduled payments for each loan, adjusted using forecast prepayment rates, default rates and rates for loss upon default. For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, expected liquidation costs and home price appreciation. TheEstimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset. Indications of loan value such as actual trades, bids, offers and generic market color may be used in determining the appropriate discount yield.
| |
| d. | Derivative Instruments – The Company’s derivative instruments as of December 31, 2019 were classified as Level 2 fair values and were measured using valuations reported by the clearing house, CME Clearing, through which these instruments were cleared. The derivatives were presented net of variation margin payments pledged or received. |
| |
| e. | Investments in Unconsolidated Entities – Fair value for investments in unconsolidated entities is determined by (i) the valuation process for residential loans as described in c. above, (ii) the valuation process for preferred equity and mezzanine loan investments as described in f. below or (iii) provided by the general partner of the equity investment entity. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 in the fair value hierarchy. |
| |
| f. | Preferred Equity and Mezzanine Loan Investments– Fair value for preferred equity and mezzanine loan investments is determined by both market comparable pricing and discounted cash flows. The discounted cash flows are based on the underlying contractual cash flows and estimated changes in market yields. The fair value also reflects consideration of changes in credit risk since the origination or time of initial investment. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 in the fair value hierarchy. |
| |
| g. | Multi-Family and Residential Collateral Debt Obligations, at fair value – Multi-Family CDOs and SLST CDOs are classified as Level 3 fair values. The fair value of Multi-Family CDOs and SLST CDOs is determined by considering several market data points, including prices obtained from third-party pricing services or dealers who make markets in similar financial instruments. The third-party pricing service or dealers incorporate common market pricing methods, including a spread measurement to the Treasury curve or interest rate swap curve as well as underlying characteristics of a particular security. They will also consider contractual cash payments and yields expected by market participants. |
Management reviews all prices used in determining fair value for distressedto ensure they represent current market conditions. This review includes surveying similar market transactions and other residential mortgage loans ranges from 4.0%comparisons to 12.0%.
interest pricing models as well as offerings of like securities by dealers. Any changes to the valuation methodology are reviewed by management to ensure the changes are appropriate. As markets and products develop and the pricing for certain products becomes more transparent, the Company continues to refine its valuation methodologies. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of each reporting date, which may include periods of market dislocation, during which time price transparency may be reduced. This condition could cause the Company’s financial instruments to be reclassified from Level 2 to Level 3 in future periods.
The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of June 30, 20192020 and December 31, 2018,2019, respectively, on the Company’s condensed consolidated balance sheets (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Measured at Fair Value on a Recurring Basis at |
| | June 30, 2019 | | December 31, 2018 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets carried at fair value | | | | | | | | | | | | | | | |
| Investment securities available for sale: | | | | | | | | | | | | | | | |
| Agency RMBS | $ | — |
| | $ | 994,200 |
| | $ | — |
| | $ | 994,200 |
| | $ | — |
| | $ | 1,037,730 |
| | $ | — |
| | $ | 1,037,730 |
|
| Non-Agency RMBS | — |
| | 432,840 |
| | — |
| | 432,840 |
| | — |
| | 214,037 |
| | — |
| | 214,037 |
|
| CMBS | — |
| | 292,090 |
| | — |
| | 292,090 |
| | — |
| | 207,785 |
| | 52,700 |
| | 260,485 |
|
| ABS | — |
| | 24,739 |
| | — |
| | 24,739 |
| | — |
| | — |
| | — |
| | — |
|
| Multi-family loans held in securitization trusts | — |
| | — |
| | 14,573,925 |
| | 14,573,925 |
| | — |
| | — |
| | 11,679,847 |
| | 11,679,847 |
|
| Distressed and other residential mortgage loans, at fair value | — |
| | — |
| | 1,061,954 |
| | 1,061,954 |
| | — |
| | — |
| | 737,523 |
| | 737,523 |
|
| Derivative assets: | | | | | | |
|
| | | | | | | |
|
|
Interest rate swaps (1) | — |
| | 14,047 |
| | — |
| | 14,047 |
| | — |
| | 10,263 |
| | — |
| | 10,263 |
|
| Investments in unconsolidated entities | — |
| | — |
| | 88,108 |
| | 88,108 |
| | — |
| | — |
| | 32,994 |
| | 32,994 |
|
| Total | $ | — |
| | $ | 1,757,916 |
| | $ | 15,723,987 |
| | $ | 17,481,903 |
| | $ | — |
| | $ | 1,469,815 |
| | $ | 12,503,064 |
| | $ | 13,972,879 |
|
| Liabilities carried at fair value | | | | | | | | | | | | | | | |
| Multi-family collateralized debt obligations | $ | — |
| | $ | — |
| | $ | 13,772,726 |
| | $ | 13,772,726 |
| | $ | — |
| | $ | — |
| | $ | 11,022,248 |
| | $ | 11,022,248 |
|
| Total | $ | — |
| | $ | — |
| | $ | 13,772,726 |
| | $ | 13,772,726 |
| | $ | — |
| | $ | — |
| | $ | 11,022,248 |
| | $ | 11,022,248 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Measured at Fair Value on a Recurring Basis at |
| | June 30, 2020 | | December 31, 2019 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets carried at fair value | | | | | | | | | | | | | | | |
| Investment securities available for sale, at fair value: | | | | | | | | | | | | | | | |
| Agency RMBS | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 922,877 |
| | $ | — |
| | $ | 922,877 |
|
| Agency CMBS | — |
| | — |
| | — |
| | — |
| | — |
| | 50,958 |
| | — |
| | 50,958 |
|
| Non-Agency RMBS | — |
| | 630,196 |
| | — |
| | 630,196 |
| | — |
| | 715,314 |
| | — |
| | 715,314 |
|
| CMBS | — |
| | 288,112 |
| | — |
| | 288,112 |
| | — |
| | 267,777 |
| | — |
| | 267,777 |
|
| ABS | — |
| | 42,500 |
| | — |
| | 42,500 |
| | — |
| | 49,214 |
| | — |
| | 49,214 |
|
| Residential loans, at fair value: | | | | | | | | | | | | | | | |
| Residential loans | — |
| | — |
| | 1,442,685 |
| | 1,442,685 |
| | — |
| | — |
| | 1,429,754 |
| | 1,429,754 |
|
| Consolidated SLST | — |
| | — |
| | 1,274,850 |
| | 1,274,850 |
| | — |
| | — |
| | 1,328,886 |
| | 1,328,886 |
|
| Residential loans held in securitization trusts | — |
| | — |
| | 40,693 |
| | 40,693 |
| | — |
| | — |
| | — |
| | — |
|
| Investments in unconsolidated entities | — |
| | — |
| | 214,289 |
| | 214,289 |
| | — |
| | — |
| | 83,882 |
| | 83,882 |
|
Preferred equity and mezzanine loan investments
| — |
| | — |
| | 180,850 |
| | 180,850 |
| | — |
| | — |
| | — |
| | — |
|
| Multi-family loans held in securitization trusts, at fair value | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 17,816,746 |
| | 17,816,746 |
|
| Derivative assets: | | | | | | |
|
| | | | | | | |
|
|
Interest rate swaps (1) | — |
| | — |
| | — |
| | — |
| | — |
| | 15,878 |
| | — |
| | 15,878 |
|
| Total | $ | — |
| | $ | 960,808 |
| | $ | 3,153,367 |
| | $ | 4,114,175 |
| | $ | — |
| | $ | 2,022,018 |
| | $ | 20,659,268 |
| | $ | 22,681,286 |
|
| Liabilities carried at fair value | | | | | | | | | | | | | | | |
| Multi-family collateralized debt obligations, at fair value | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 16,724,451 |
| | $ | 16,724,451 |
|
| Residential collateralized debt obligations, at fair value | — |
| | — |
| | 1,088,233 |
| | 1,088,233 |
| | — |
| | — |
| | 1,052,829 |
| | 1,052,829 |
|
| Total | $ | — |
| | $ | — |
| | $ | 1,088,233 |
| | $ | 1,088,233 |
| | $ | — |
| | $ | — |
| | $ | 17,777,280 |
| | $ | 17,777,280 |
|
| |
(1) | All of the Company's interest rate swaps outstanding arewere cleared through a central clearing house. The Company exchangesexchanged variation margin for swaps based upon daily changes in fair value. IncludesIncluded derivative liabilities of $27.8$29.0 million netted against a variation margin of $41.9 million at June 30, 2019. Includes derivative assets of $1.8 million and variation margin of $8.5$44.8 million at December 31, 2018.2019. |
The following tables detail changes in valuation for the Level 3 assets for the six months ended June 30, 20192020 and 2018,2019, respectively (amounts in thousands):
Level 3 Assets:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 |
| | Residential loans | | Consolidated SLST | | Residential loans held in securitization trusts | | Investments in unconsolidated entities | | Preferred equity and mezzanine loan investments | | Multi-family loans held in securitization trusts | | Total |
| Balance at beginning of period | $ | 1,429,754 |
| | $ | 1,328,886 |
| | $ | — |
| | $ | 83,882 |
| | $ | — |
| | $ | 17,816,746 |
| | $ | 20,659,268 |
|
| Total (losses)/gains (realized/unrealized) | | | | | | | | | | | | | |
| Included in earnings | (55,144 | ) | | (15,279 | ) | | (1,730 | ) | | 4,606 |
| | 4,866 |
| | 41,795 |
| | (20,886 | ) |
Transfers in (1) | 164,279 |
| | — |
| | 46,572 |
| | 107,477 |
| | 182,465 |
| | — |
| | 500,793 |
|
Transfers out (2) (3) | (3,953 | ) | | — |
| | (349 | ) | | — |
| | — |
| | (237,297 | ) | | (241,599 | ) |
| Contributions | — |
| | — |
| | — |
| | 22,106 |
| | 8,440 |
| | — |
| | 30,546 |
|
| Paydowns/Distributions | (155,135 | ) | | (38,757 | ) | | (3,800 | ) | | (3,782 | ) | | (14,921 | ) | | (239,796 | ) | | (456,191 | ) |
| Recovery of charge-off | — |
| | — |
| | — |
| | — |
| | — |
| | 35 |
| | 35 |
|
Sales (3) | (93,755 | ) | | — |
| | — |
| | — |
| | — |
| | (17,381,483 | ) | | (17,475,238 | ) |
| Purchases | 156,639 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 156,639 |
|
| Balance at the end of period | $ | 1,442,685 |
| | $ | 1,274,850 |
| | $ | 40,693 |
| | $ | 214,289 |
| | $ | 180,850 |
| | $ | — |
| | $ | 3,153,367 |
|
| |
(1) | As of January 1, 2020, the Company has elected to account for all residential loans, residential loans held in securitization trusts, investments in unconsolidated entities and preferred equity and mezzanine loan investments using the fair value option (see Note 2). |
| |
(2) | Transfers out of Level 3 assets include the transfer of residential loans to real estate owned. |
| |
(3) | During the six months ended June 30, 2020, the Company sold first loss PO securities included in the Consolidated K-Series and, as a result, de-consolidated multi-family loans held in securitization trusts and transferred its remaining securities owned in the Consolidated K-Series to investment securities available for sale (see Notes 2 and 6). |
| | | | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2019 |
| | Multi-family loans held in securitization trusts | Distressed and other residential mortgage loans | Investments in unconsolidated entities | CMBS held in securitization trusts | | Total | Residential loans | | Investments in unconsolidated entities | | Multi-family loans held in securitization trusts | | CMBS held in securitization trusts | | Total |
| Balance at beginning of period | $ | 11,679,847 |
| $ | 737,523 |
| $ | 32,994 |
| $ | 52,700 |
| | $ | 12,503,064 |
| $ | 737,523 |
| | $ | 32,994 |
| | $ | 11,679,847 |
| | $ | 52,700 |
| | $ | 12,503,064 |
|
| Total gains/(losses) (realized/unrealized) | | | | | | | | | | | | |
| Included in earnings | 574,231 |
| 25,359 |
| 5,753 |
| 17,734 |
| | 623,077 |
| 25,359 |
| | 5,753 |
| | 574,231 |
| | 17,734 |
| | 623,077 |
|
| Included in other comprehensive income (loss) | — |
| — |
| — |
| (13,665 | ) | | (13,665 | ) | — |
| | — |
| | — |
| | (13,665 | ) | | (13,665 | ) |
| Transfers in | — |
| — |
| — |
| — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Transfers out | — |
| (182 | ) | — |
| — |
| | (182 | ) | (182 | ) | | — |
| | — |
| | — |
| | (182 | ) |
| Contributions | — |
| — |
| 50,000 |
| — |
| | 50,000 |
| — |
| | 50,000 |
| | — |
| | — |
| | 50,000 |
|
| Paydowns/Distributions | (106,363 | ) | (61,275 | ) | (639 | ) | — |
| | (168,277 | ) | (61,275 | ) | | (639 | ) | | (106,363 | ) | | — |
| | (168,277 | ) |
| Sales | — |
| (19,814 | ) | — |
| (56,769 | ) | | (76,583 | ) | (19,814 | ) | | — |
| | — |
| | (56,769 | ) | | (76,583 | ) |
Purchases (1) | 2,426,210 |
| 380,343 |
| — |
| — |
| | 2,806,553 |
| 380,343 |
| | — |
| | 2,426,210 |
| | — |
| | 2,806,553 |
|
| Balance at the end of period | $ | 14,573,925 |
| $ | 1,061,954 |
| $ | 88,108 |
| $ | — |
| | $ | 15,723,987 |
| $ | 1,061,954 |
| | $ | 88,108 |
| | $ | 14,573,925 |
| | $ | — |
| | $ | 15,723,987 |
|
| |
(1) | During the six months ended June 30, 2019, the Company purchased first loss PO securities and certain IOs and mezzanine CMBS securities issued from securitizations that it determined to consolidate and included in the Consolidated K-Series. As a result, the Company consolidated assets of these securitizations in the amount of $2.4 billion during the six months ended June 30, 2019 (see Notes 2 and 6). |
|
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2018 |
| | Multi-family loans held in securitization trusts | Distressed and other residential mortgage loans | Investments in unconsolidated entities | CMBS held in securitization trusts | | Total |
| Balance at beginning of period | $ | 9,657,421 |
| $ | 87,153 |
| $ | 42,823 |
| $ | 47,922 |
| | $ | 9,835,319 |
|
| Total (losses)/gains (realized/unrealized) | | | | | | |
| Included in earnings | (244,181 | ) | (475 | ) | 3,575 |
| 1,915 |
| | (239,166 | ) |
| Included in other comprehensive income (loss) | — |
| — |
| — |
| 297 |
| | 297 |
|
| Transfers in | — |
| — |
| — |
| — |
| | — |
|
| Transfers out | — |
| — |
| — |
| — |
| | — |
|
| Contributions | — |
| — |
| — |
| — |
| | — |
|
| Paydowns/Distributions | (67,880 | ) | (9,371 | ) | (1,246 | ) | — |
| | (78,497 | ) |
| Sales | — |
| (2,185 | ) | — |
| — |
| | (2,185 | ) |
| Purchases | — |
| 94,075 |
| — |
| — |
| | 94,075 |
|
| Balance at the end of period | $ | 9,345,360 |
| $ | 169,197 |
| $ | 45,152 |
| $ | 50,134 |
| | $ | 9,609,843 |
|
The following table detailstables detail changes in valuation for the Level 3 liabilities (Multi-family CDOs) for the six months ended June 30, 20192020 and 2018,2019, respectively (amounts in thousands):
Level 3 Liabilities:
| | | | Six Months Ended June 30, | Six Months Ended June 30, 2020 |
| | 2019 | | 2018 | Multi-Family CDOs | | SLST CDOs | | Total |
| Balance at beginning of period | $ | 11,022,248 |
| | $ | 9,189,459 |
| $ | 16,724,451 |
| | $ | 1,052,829 |
| | $ | 17,777,280 |
|
| Total losses (gains) (realized/unrealized) | | | | |
| Total losses/(gains) (realized/unrealized) | | | | | | |
Included in earnings (1) | 531,930 |
| | (282,738 | ) | 35,018 |
| | 52,420 |
| | 87,438 |
|
Purchases (2) | 2,324,639 |
| | — |
| |
| Paydowns | (106,091 | ) | | (67,880 | ) | (147,376 | ) | | (39,242 | ) | | (186,618 | ) |
Sales (1) | | (16,612,093 | ) | | 22,226 |
| | (16,589,867 | ) |
| Transfers out | | — |
| | — |
| | — |
|
| Balance at the end of period | $ | 13,772,726 |
| | $ | 8,838,841 |
| $ | — |
| | $ | 1,088,233 |
| | $ | 1,088,233 |
|
| |
(1) | AmountsDuring the six months ended June 30, 2020, the Company sold first loss PO securities included in interest expense onthe Consolidated K-Series and, as a result, de-consolidated the Multi-Family CDOs (see Notes 2 and unrealized gain on multi-family loans and debt held in securitization trusts.6). Also includes the Company's net sales of senior securities issued by Consolidated SLST during the six months ended June 30, 2020 (see Note 4). |
|
| | | |
| | Six Months Ended June 30, 2019 |
| | Multi-Family CDOs |
| Balance at beginning of period | $ | 11,022,248 |
|
| Total losses (realized/unrealized) | |
| Included in earnings | 531,930 |
|
Purchases (1) | 2,324,639 |
|
| Paydowns | (106,091 | ) |
| Balance at the end of period | $ | 13,772,726 |
|
| |
(2)(1)
| During the six months ended June 30, 2019, the Company purchased first loss PO securities and certain IOs and mezzanine CMBS securities issued from securitizations that it determined to consolidate and includeincluded in the Consolidated K-Series. As a result, the Company consolidated liabilities of these securitizations in the amount of $2.3 billion during the six months ended June 30, 2019 (see Notes 2 and 6). |
The following table discloses quantitative information regarding the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value (dollar amounts in thousands, except input values):
|
| | | | | | | | | | | | |
| June 30, 2020 | | Fair Value | | Valuation Technique | | Unobservable Input | | Weighted Average | | Range |
| Assets | | | | | | | | | | | | |
| Residential loans, at fair value: | | | | | | | | | | | | |
Residential loans and residential loans held in securitization trusts (1) | | $1,334,944 | | Discounted cash flow | | Lifetime CPR | | 10.2% | | — | - | 74.2% |
| | | | | | | Lifetime CDR | | 3.0% | | — | - | 45.0% |
| | | | | | | Loss severity | | 17.1% | | — | - | 100.0% |
| | | | | | | Yield | | 5.5% | | 2.3% | - | 33.9% |
| | | | | | | | | | | | | |
| | | $148,434 | | Liquidation model | | Annual home price appreciation | | — | | (1.3)% | - | 1.4% |
| | | | | | | Liquidation timeline (months) | | 27 | | 8 | - | 57 |
| | | | | | | Property value | | $470,204 | | $12,430 | - | $2,734,000 |
| | | | | | | Yield | | 7.5% | | 7.5% | - | 15.0% |
| | | | | | | | | | | | | |
Residential loans held in Consolidated SLST (2) | | $1,274,850 | | | | Liability price | | N/A | | | | |
| | | | | | | | | | | | | |
| Total | | $2,758,228 | | | | | | | | | | |
| | | | | | | | | | | | | |
Investments in unconsolidated entities (1) | | $129,100 | | Discounted cash flow | | Discount rate | | 12.4% | | 12.0% | - | 13.5% |
| | | | | | | Months to assumed redemption | | 44 | | 20 | - | 57 |
| | | | | | | Loss severity | | — | | | | |
| | | | | | | | | | | | | |
Preferred equity and mezzanine loan investments (1) | | $180,850 | | Discounted cash flow | | Discount rate | | 12.3% | | 11.5% | - | 16.0% |
| | | | | | | Months to assumed redemption | | 46 | | 7 | - | 188 |
| | | | | | | Loss severity | | — | | | | |
| Liabilities | | | | | | | | | | | | |
| Residential collateralized debt obligations, at fair value | | | | | | | | | | | | |
SLST CDOs (2) (3) | | $1,088,233 | | Discounted cash flow | | Yield | | 2.7% | | 1.4% | - | 12.6% |
| | | | | | | Collateral prepayment rate | | 5.6% | | 3.4% | - | 6.1% |
| | | | | | | Collateral default rate | | 2.0% | | — | - | 3.6% |
| | | | | | | Loss severity | | 21.7% | | — | - | 24.0% |
| |
(1) | Weighted average amounts are calculated based on the weighted average fair value of the assets. |
| |
(2) | In accordance with the practical expedient in ASC 810, the Company determines the fair value of the residential loans held in Consolidated SLST based on the fair value of SLST CDOs, including securities we own, as the fair value of these instruments is more observable. At June 30, 2020, the fair value of securities we owned in Consolidated SLST was $185.3 million. |
| |
(3) | Weighted average yield calculated based on the weighted average fair value of the liabilities. Weighted average collateral prepayment rate, weighted average collateral default rate, and weighted average loss severity are calculated based on the weighted average unpaid balance of the liabilities. |
The following table details the changes in unrealized gains (losses) included in earnings for the three and six months ended June 30, 20192020 and 20182019 for our Level 3 assets and liabilities held as of June 30, 20192020 and 2018,2019, respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Assets | | | | | | | |
Multi-family loans held in securitization trusts (1) | $ | 330,105 |
| | $ | (47,200 | ) | | $ | 604,788 |
| | $ | (219,746 | ) |
Investments in unconsolidated entities (2) | 1,698 |
| | 1,858 |
| | 5,359 |
| | 2,896 |
|
Distressed and other residential mortgage loans, at fair value (3) | 10,329 |
| | (34 | ) | | 19,666 |
| | (126 | ) |
| | | | | | | | |
| Liabilities | | | | | | | |
Multi-family debt held in securitization trusts (1) | (324,898 | ) | | 59,219 |
| | (590,171 | ) | | 239,310 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Assets | | | | | | | |
| Residential loans, at fair value | | | | | | | |
Residential loans (1) | $ | 39,991 |
| | $ | 10,329 |
| | $ | (36,303 | ) | | $ | 19,666 |
|
Consolidated SLST (1) | 75,052 |
| | — |
| | (13,049 | ) | | — |
|
Residential loans held in securitization trusts (1) | 59 |
| | — |
| | (1,641 | ) | | — |
|
Investments in unconsolidated entities (2) | (1,108 | ) | | 1,698 |
| | (5,130 | ) | | 5,359 |
|
Preferred equity and mezzanine loan investments (1) | (127 | ) | | — |
| | (5,686 | ) | | — |
|
Multi-family loans held in securitization trusts, at fair value (1) | — |
| | 330,105 |
| | — |
| | 604,788 |
|
| Liabilities | | | | | | | |
Multi-family collateralized debt obligations, at fair value (1) | — |
| | (324,898 | ) | | — |
| | (590,171 | ) |
Residential collateralized debt obligations, at fair value (1) | (70,956 | ) | | — |
| | (48,990 | ) | | — |
|
| |
(1) | Presented in unrealized gain on multi-family loans and debt held in securitization trusts,gains (losses), net on the Company's condensed consolidated statements of operations. |
| |
(2) | Presented in other income on the Company's condensed consolidated statements of operations. |
| |
(3)
| 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 following table presents assets measured at fair value on a non-recurring basis as of June 30, 2019 and December 31, 2018, respectively,2019, on the Company's condensed consolidated balance sheets (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Assets Measured at Fair Value on a Non-Recurring Basis at |
| | June 30, 2019 | | December 31, 2018 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Residential mortgage loans held in securitization trusts – impaired loans, net | — |
| | — |
| | $ | 5,590 |
| | $ | 5,590 |
| | — |
| | — |
| | $ | 5,921 |
| | $ | 5,921 |
|
|
| | | | | | | | | | | | | | |
| | | December 31, 2019 |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Residential loans held in securitization trusts – impaired loans, net | | — |
| | — |
| | $ | 5,256 |
| | $ | 5,256 |
|
The following table presents gains (losses) incurred for assets measured at fair value on a non-recurring basis for the three and six months ended June 30, 2019, and 2018, respectively, on the Company’s condensed consolidated statements of operations (dollar amounts in thousands):
|
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Residential mortgage loans held in securitization trusts – impaired loans, net | — |
| | — |
| | $ | (38 | ) | | $ | 110 |
|
|
| | | | | | |
| | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 |
| Residential loans held in securitization trusts – impaired loans, net | $ | — |
| $ | (38 | ) |
Residential Mortgage Loans Held in Securitization Trusts – Impaired Loans, net – Impaired residential mortgage loans held in securitization trusts, arenet were recorded at amortized cost less specific loan loss reserves. Impaired loan value iswas based on management’s estimate of the net realizable value taking into consideration local market conditions of the property, updated appraisal values of the property and estimated expenses required to remediate the impaired loan.
The following table presents the carrying value and estimated fair value of the Company’s financial instruments at June 30, 20192020 and December 31, 2018,2019, respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | | June 30, 2019 | | December 31, 2018 |
| | Fair Value Hierarchy Level | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
| Financial Assets: | | | | | | | | | |
| Cash and cash equivalents | Level 1 | | $ | 134,993 |
| | $ | 134,993 |
| | $ | 103,724 |
| | $ | 103,724 |
|
| Investment securities available for sale | Level 2 or 3 | | 1,743,869 |
| | 1,743,869 |
| | 1,512,252 |
| | 1,512,252 |
|
| Distressed and other residential mortgage loans, at fair value | Level 3 | | 1,061,954 |
| | 1,061,954 |
| | 737,523 |
| | 737,523 |
|
| Distressed and other residential mortgage loans, net | Level 3 | | 218,094 |
| | 221,615 |
| | 285,261 |
| | 289,376 |
|
| Investments in unconsolidated entities | Level 3 | | 166,148 |
| | 166,983 |
| | 73,466 |
| | 73,833 |
|
| Preferred equity and mezzanine loan investments | Level 3 | | 191,387 |
| | 193,875 |
| | 165,555 |
| | 167,739 |
|
| Multi-family loans held in securitization trusts | Level 3 | | 14,573,925 |
| | 14,573,925 |
| | 11,679,847 |
| | 11,679,847 |
|
| Derivative assets | Level 2 | | 14,047 |
| | 14,047 |
| | 10,263 |
| | 10,263 |
|
Mortgage loans held for sale, net (1) | Level 3 | | 2,460 |
| | 2,621 |
| | 3,414 |
| | 3,584 |
|
Mortgage loans held for investment (1) | Level 3 | | 1,580 |
| | 1,580 |
| | 1,580 |
| | 1,580 |
|
| Financial Liabilities: | | | | | | | | | |
| Repurchase agreements | Level 2 | | 2,604,356 |
| | 2,604,356 |
| | 2,131,505 |
| | 2,131,505 |
|
| Residential collateralized debt obligations | Level 3 | | 45,280 |
| | 43,468 |
| | 53,040 |
| | 50,031 |
|
| Multi-family collateralized debt obligations | Level 3 | | 13,772,726 |
| | 13,772,726 |
| | 11,022,248 |
| | 11,022,248 |
|
| Securitized debt | Level 3 | | — |
| | — |
| | 42,335 |
| | 45,030 |
|
| Subordinated debentures | Level 3 | | 45,000 |
| | 45,044 |
| | 45,000 |
| | 44,897 |
|
| Convertible notes | Level 2 | | 131,839 |
| | 138,773 |
| | 130,762 |
| | 135,689 |
|
| |
(1)
| Included in receivables and other assets in the accompanying condensed consolidated balance sheets. |
|
| | | | | | | | | | | | | | | | | |
| | | | June 30, 2020 | | December 31, 2019 |
| | Fair Value Hierarchy Level | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
| Financial Assets: | | | | | | | | | |
| Cash and cash equivalents | Level 1 | | $ | 371,697 |
| | $ | 371,697 |
| | $ | 118,763 |
| | $ | 118,763 |
|
| Investment securities available for sale, at fair value | Level 2 | | 960,808 |
| | 960,808 |
| | 2,006,140 |
| | 2,006,140 |
|
| Residential loans, at fair value | | | | | | | | | |
| Residential loans | Level 3 | | 1,442,685 |
| | 1,442,685 |
| | 1,429,754 |
| | 1,429,754 |
|
| Consolidated SLST | Level 3 | | 1,274,850 |
| | 1,274,850 |
| | 1,328,886 |
| | 1,328,886 |
|
| Residential loans held in securitization trusts | Level 3 | | 40,693 |
| | 40,693 |
| | — |
| | — |
|
| Residential loans, net | Level 3 | | — |
| | — |
| | 202,756 |
| | 208,471 |
|
| Investments in unconsolidated entities | Level 3 | | 214,289 |
| | 214,289 |
| | 189,965 |
| | 191,359 |
|
| Preferred equity and mezzanine loan investments | Level 3 | | 180,850 |
| | 180,850 |
| | 180,045 |
| | 182,465 |
|
| Multi-family loans held in securitization trusts, at fair value | Level 3 | | — |
| | — |
| | 17,816,746 |
| | 17,816,746 |
|
| Derivative assets | Level 2 | | — |
| | — |
| | 15,878 |
| | 15,878 |
|
Loans held for sale, net (1) | Level 3 | | — |
| | — |
| | 2,406 |
| | 2,482 |
|
| Financial Liabilities: | | | | | | | | | |
| Repurchase agreements | Level 2 | | 963,127 |
| | 963,127 |
| | 3,105,416 |
| | 3,105,416 |
|
| Securitized debt | Level 2 | | 108,999 |
| | 111,169 |
| | — |
| | — |
|
| Residential collateralized debt obligations | Level 3 | | 36,699 |
| | 34,914 |
| | 40,429 |
| | 38,888 |
|
| Multi-family collateralized debt obligations, at fair value | Level 3 | | — |
| | — |
| | 16,724,451 |
| | 16,724,451 |
|
| Residential collateralized debt obligations, at fair value | Level 3 | | 1,088,233 |
| | 1,088,233 |
| | 1,052,829 |
| | 1,052,829 |
|
| Subordinated debentures | Level 3 | | 45,000 |
| | 30,335 |
| | 45,000 |
| | 41,592 |
|
| Convertible notes | Level 2 | | 134,117 |
| | 125,862 |
| | 132,955 |
| | 140,865 |
|
In addition to the methodology to determine the fair value of the Company’s financial assets and liabilities reported at fair value on a recurring basis and non-recurring basis, as previously described, the following methods and assumptions were used by the Company in arriving at the fair value of the Company’s other financial instruments in the table immediately above:
| |
| a. | Cash and cash equivalents – Estimated fair value approximates the carrying value of such assets. |
| |
| b. | Distressed and other residential mortgage loans held in securitization trusts, net – Residential mortgage loans held in the securitization trusts are recorded at amortized cost, net of allowance for loan losses. Fair value is based on an internal valuation model that considers the aggregated characteristics of groups of loans such as, but not limited to, collateral type, index, interest rate, margin, length of fixed-rate period, life cap, periodic cap, underwriting standards, age and credit estimated using the estimated market prices for similar types of loans.
|
| |
c. | Distressed and other residential mortgage loans, net – Fair value is estimated using pricing models taking into consideration current interest rates, loan amount, payment status and property type, and forecasts of future interest rates, home prices and property values, prepayment speeds, default, loss severities, and actual purchases and sales of similar loans.
|
| |
d. | Mortgage loans held for sale, net – The fair value of mortgage loans held for sale, net are estimated by the Company based on the price that would be received if the loans were sold as whole loans taking into consideration the aggregated characteristics of the loans such as, but not limited to, collateral type, index, interest rate, margin, length of fixed interest rate period, life time cap, periodic cap, underwriting standards, age and credit.
|
| |
e. | Preferred equity and mezzanine loan investments – Estimated fair value is determined by both market comparable pricing and discounted cash flows. The discounted cash flows are based on the underlying contractual cash flows and estimated changes in market yields. The fair value also reflects consideration of changes in credit risk since the origination or time of initial investment.
|
| |
f. | Repurchase agreements – The fair value of these repurchase agreements approximates cost as they are short term in nature. |
| |
g.c. | Securitized debt - The fair value is based on discounted cash flows as well as market pricing on comparable obligations. |
| |
| d. | Residential collateralized debt obligations – The fair value of these CDOs is based on discounted cash flows as well as market pricing on comparable obligations. |
| |
h. | Securitized debt – The fair value of securitized debt is based on discounted cash flows using management’s estimate for market yields.
|
| |
i.e. | Subordinated debentures – The fair value of these subordinated debentures is based on discounted cash flows using management’s estimate for market yields. |
| |
j.f. | Convertible notes – The fair value is based on quoted prices provided by dealers who make markets in similar financial instruments. |
| |
17.15. | Stockholders' Equity |
| |
(a) | Dividends on Preferred Stock |
(a) Preferred Stock
The Company had 200,000,000 authorized shares of preferred stock, par value $0.01 per share, with 12,661,287 and 12,000,00020,872,888 shares issued and outstanding as of June 30, 20192020 and December 31, 2018, respectively.2019.
At December 31, 2018,As of June 30, 2020, the Company had designated 6,000,000 shareshas issued four series of cumulative redeemable preferred stock (the “Preferred Stock”): 7.75% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”), 4,140,000 shares of 7.875% Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”), and 5,750,000 shares of 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”). On March 28, 2019, the Company classified and designated an additional 2,460,000 shares and 2,650,000 shares of the Company's authorized but unissued preferred stock as7.875% Series CE Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock and (“Series DE Preferred Stock, respectively. At June 30, 2019, the Company had designated 6,000,000 shares, 6,600,000 shares and 8,400,000 shares of Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock, respectively (collectively, the "Preferred Stock"Stock”). The Company had 3,101,683 shares of Series B Preferred Stock, 3,993,866 shares of Series C Preferred Stock and 5,565,738 shares of Series D Preferred Stock issued and outstanding as of June 30, 2019. The Company had 3,000,000 shares of Series B Preferred Stock, 3,600,000 shares of Series C Preferred Stock and 5,400,000 shares of Series D Preferred Stock issued and outstanding as of December 31, 2018.
Each of the Series B Preferred Stock and the Series C Preferred Stock are entitled to receive a dividend at a rate of 7.75% and 7.875%, respectively, per year on its $25 liquidation preference. The Series D Preferred Stock is entitled to receive a dividend at a fixed rate to, but excluding, October 15, 2027 of 8.00% per year on its $25 liquidation preference. Beginning October 15, 2027, the Series D Preferred Stock is entitled to receive a dividend at a floating rate equal to three-month LIBOR plus a spread of 5.695% per year on its $25 liquidation preference. Each series of the Preferred Stock is senior to the Company’s common stock with respect to dividends and distributions upon liquidation, dissolution or winding up.
The following table summarizes the Company’s Preferred Stock issued and outstanding as of June 30, 2020 and December 31, 2019 (dollar amounts in thousands):
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| Class of Preferred Stock | | Shares Authorized | | Shares Issued and Outstanding | | Carrying Value | | Liquidation Preference | | Contractual Rate (1) | | Redemption Date (2) | | Fixed-to-Floating Rate Conversion Date (1)(3) | | Floating Annual Rate (4) |
| Fixed Rate | | | | | | | | | | | | | | | | |
| Series B | | 6,000,000 |
| | 3,156,087 |
| | $ | 76,180 |
| | $ | 78,902 |
| | 7.750 | % | | June 4, 2018 | | | | |
| Series C | | 6,600,000 |
| | 4,181,807 |
| | 101,102 |
| | 104,545 |
| | 7.875 | % | | April 22, 2020 | | | | |
| Fixed-to-Floating Rate | | | | | | | | | | | | | | |
| Series D | | 8,400,000 |
| | 6,123,495 |
| | 148,134 |
| | 153,087 |
| | 8.000 | % | | October 15, 2027 | | October 15, 2027 | | 3M LIBOR + 5.695% |
| Series E | | 9,900,000 |
| | 7,411,499 |
| | 179,349 |
| | 185,288 |
| | 7.875 | % | | January 15, 2025 | | January 15, 2025 | | 3M LIBOR + 6.429% |
| Total | | 30,900,000 |
| | 20,872,888 |
| | $ | 504,765 |
| | $ | 521,822 |
| | | | | | | | |
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(1) | Each series of fixed rate preferred stock is entitled to receive a dividend at the contractual rate shown, respectively, per year on its $25 liquidation preference. Each series of fixed-to-floating rate preferred stock is entitled to receive a dividend at the contractual rate shown, respectively, per year on its $25 liquidation preference up to, but excluding, the fixed-to-floating rate conversion date. |
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(2) | Each series of Preferred Stock is not redeemable by the Company prior to the respective redemption date disclosed except under circumstances intended to preserve the Company’s qualification as a REIT and except upon occurrence of a Change in Control (as defined in the Articles Supplementary designating the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, respectively). |
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(3) | Beginning on the respective fixed-to-floating rate conversion date, each of the Series D Preferred Stock and Series E Preferred Stock is entitled to receive a dividend on a floating rate basis according to the terms disclosed in footnote (4) below. |
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(4) | On and after the fixed-to-floating rate conversion date, each of the Series D Preferred Stock and Series E Preferred Stock is entitled to receive a dividend at a floating rate equal to three-month LIBOR plus the respective spread disclosed above per year on its $25 liquidation preference. |
For each series of Preferred Stock, on or after the respective redemption date disclosed, the Company may, at its option, redeem the respective series of Preferred Stock in whole or in part, at any time or from time to time, for cash at a redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends. In addition, upon the occurrence of a Change of Control, the Company may, at its option, redeem the Preferred Stock in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends.
The Preferred Stock generally do not have any voting rights, subject to an exception in the event the Company fails to pay dividends on such stock for six6 or more quarterly periods (whether or not consecutive). Under such circumstances, holders of the Preferred Stock voting together as a single class with the holders of all other classes or series of our preferred stock upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Preferred Stock will be entitled to vote to elect two2 additional directors to the Company’s Board of Directors (the “Board”) until all unpaid dividends have been paid or declared and set apart for payment. In addition, certain material and adverse changes to the terms of any series of the Preferred Stock cannot be made without the affirmative vote of holders of at least two-thirds of the outstanding shares of the series of Preferred Stock whose terms are being changed.
The Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock are not redeemable by the Company prior to June 4, 2018, April 22, 2020, and October 15, 2027, respectively, except under circumstances intended to preserve the Company’s qualification as a REIT and except upon the occurrence59
Table of a Change of Control (as defined in the Articles Supplementary designating the Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock, respectively). On and after June 4, 2018, April 22, 2020, and October 15, 2027, the Company may, at its option, redeem the Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock, respectively, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends.Contents
In addition, upon the occurrence of a Change of Control, the Company may, at its option, redeem the Preferred Stock in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends.
The Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless repurchased or redeemed by the Company or converted into the Company’s common stock in connection with a Change of Control.
Upon the occurrence of a Change of Control, each holder of Preferred Stock will have the right (unless the Company has exercised its right to redeem the Preferred Stock) to convert some or all of the Preferred Stock held by such holder into a number of shares of our common stock per share of the applicable series of Preferred Stock determined by a formula, in each case, on the terms and subject to the conditions described in the applicable Articles Supplementary for such series.
(b) Dividends on Preferred Stock
From the time of original issuance of the Preferred Stock through June 30,December 31, 2019, the Company has declared and paid all required quarterly dividends on such series of stock. On March 23, 2020, the Company announced that it had suspended quarterly dividends on its Preferred Stock that would have been payable in April 2020 to focus on conserving capital during the difficult market conditions resulting from the COVID-19 pandemic. On June 15, 2020, the Company reinstated the payment of dividends on its Preferred Stock and declared dividends in arrears for the quarterly period that began on January 15, 2020 and ended on April 14, 2020. The following table presents the relevant datesinformation with respect to such quarterly cash dividends declared on the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock commencing January 1, 20182019 through June 30, 2019:2020 and on the Series E Preferred Stock from its time of original issuance through June 30, 2020:
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| | | | | | | Cash Dividend Per Share |
| Declaration Date | | Record Date | | Payment Date | | Series B Preferred Stock | | Series C Preferred Stock | | Series D Preferred Stock |
| June 14, 2019 | | July 1, 2019 | | July 15, 2019 | | $ | 0.484375 |
| | $ | 0.4921875 |
| | $ | 0.50 |
|
| March 19, 2019 | | April 1, 2019 | | April 15, 2019 | | 0.484375 |
| | 0.4921875 |
| | 0.50 |
|
| December 4, 2018 | | January 1, 2019 | | January 15, 2019 | | 0.484375 |
| | 0.4921875 |
| | 0.50 |
|
| September 17, 2018 | | October 1, 2018 | | October 15, 2018 | | 0.484375 |
| | 0.4921875 |
| | 0.50 |
|
| June 18, 2018 | | July 1, 2018 | | July 15, 2018 | | 0.484375 |
| | 0.4921875 |
| | 0.50 |
|
| March 19, 2018 | | April 1, 2018 | | April 15, 2018 | | 0.484375 |
| | 0.4921875 |
| | 0.50 |
|
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| | | | | | | Cash Dividend Per Share |
| Declaration Date | | Record Date | | Payment Date | | Series B Preferred Stock | | Series C Preferred Stock | | Series D Preferred Stock | | Series E Preferred Stock | |
| June 15, 2020 | | July 1, 2020 | | July 15, 2020 | | $ | 0.96875 |
| (1 | ) | $ | 0.984375 |
| (1 | ) | $ | 1.00 |
| (1 | ) | $ | 0.984375 |
| (1 | ) |
| December 10, 2019 | | January 1, 2020 | | January 15, 2020 | | 0.484375 |
| | 0.4921875 |
| | 0.50 |
| | 0.47578 |
| (2 | ) |
| September 9, 2019 | | October 1, 2019 | | October 15, 2019 | | 0.484375 |
| | 0.4921875 |
| | 0.50 |
| | — |
| |
| June 14, 2019 | | July 1, 2019 | | July 15, 2019 | | 0.484375 |
| | 0.4921875 |
| | 0.50 |
| | — |
| |
| March 19, 2019 | | April 1, 2019 | | April 15, 2019 | | 0.484375 |
| | 0.4921875 |
| | 0.50 |
| | — |
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(b)(1) | DividendsPreferred Stock dividends declared on Common StockJune 15, 2020 included cash dividends in arrears for the quarterly period that began on January 15, 2020 and ended on April 14, 2020 and cash dividends for the quarterly period that began on April 15, 2020 and ended on July 14, 2020. |
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(2) | Cash dividend for the partial quarterly period that began on October 18, 2019 and ended on January 14, 2020. |
(c) Dividends on Common Stock
On March 23, 2020, the Company announced that it had suspended its quarterly dividend on common stock for the first quarter of 2020 to focus on conserving capital during the difficult market conditions resulting from the COVID-19 pandemic. As a result, the Company did not declare a cash dividend on its common stock during the three months ended March 31, 2020. On June 15, 2020, the Company declared a regular quarterly cash dividend on common stock for the second quarter of 2020. The following table presents cash dividends declared by the Company on its common stock with respect to each of the quarterly periods commencing January 1, 20182019 and ended June 30, 2019:2020:
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| Period | | Declaration Date | | Record Date | | Payment Date | | Cash Dividend Per Share |
| Second Quarter 2019 | | June 14, 2019 | | June 24, 2019 | | July 25, 2019 | | $ | 0.20 |
|
| First Quarter 2019 | | March 19, 2019 | | March 29, 2019 | | April 25, 2019 | | 0.20 |
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| Fourth Quarter 2018 | | December 4, 2018 | | December 14, 2018 | | January 25, 2019 | | 0.20 |
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| Third Quarter 2018 | | September 17, 2018 | | September 27, 2018 | | October 26, 2018 | | 0.20 |
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| Second Quarter 2018 | | June 18, 2018 | | June 28, 2018 | | July 26, 2018 | | 0.20 |
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| First Quarter 2018 | | March 19, 2018 | | March 29, 2018 | | April 26, 2018 | | 0.20 |
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| | | | | | | | | | |
| Period | | Declaration Date | | Record Date | | Payment Date | | Cash Dividend Per Share |
| Second Quarter 2020 | | June 15, 2020 | | July 1, 2020 | | July 27, 2020 | | $ | 0.05 |
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| Fourth Quarter 2019 | | December 10, 2019 | | December 20, 2019 | | January 27, 2020 | | 0.20 |
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| Third Quarter 2019 | | September 9, 2019 | | September 19, 2019 | | October 25, 2019 | | 0.20 |
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| Second Quarter 2019 | | June 14, 2019 | | June 24, 2019 | | July 25, 2019 | | 0.20 |
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| First Quarter 2019 | | March 19, 2019 | | March 29, 2019 | | April 25, 2019 | | 0.20 |
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(c) | Public Offering of Common Stock |
(d) Public Offerings of Common Stock
The following table details the Company's public offeringofferings of common stock during the six months ended June 30, 20192020 (dollar amounts in thousands): |
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| Share Issue Month | | Shares Issued | | Net Proceeds (1) |
| January 2019 | | 14,490,000 |
| | $ | 83,772 |
|
| March 2019 | | 17,250,000 |
| | 101,160 |
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| May 2019 | | 20,700,000 |
| | 123,102 |
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| Share Issue Month | | Shares Issued | | Net Proceeds (1) |
| February 2020 | | 50,600,000 |
| | $ | 305,274 |
|
| January 2020 | | 34,500,000 |
| | 206,650 |
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(1) | Proceeds are net of underwriting discounts and commissions and offering expensesexpenses. |
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(d) | Equity Distribution Agreements |
(e) Equity Distribution Agreements
On August 10, 2017, the Company entered into an equity distribution agreement (the “Common Equity Distribution Agreement”) with Credit Suisse Securities (USA) LLC (“Credit Suisse”), as sales agent, pursuant to which the Company may offer and sell shares of its common stock, par value $0.01 per share, having a maximum aggregate sales price of up to $100.0 million, from time to time through Credit Suisse. On September 10, 2018, the Company entered into an amendment to the Common Equity Distribution Agreement that increased the maximum aggregate sales price to $177.1 million. The Company has no obligation to sell any of the shares of common stock issuable under the Common Equity Distribution Agreement and may at any time suspend solicitations and offers under the Common Equity Distribution Agreement.
the Company's common stock issued under the Common Equity Distribution Agreement during the three and six months ended June 30, 2020. During the three and six months ended June 30, 2019, the Company issued 2,260,200 shares of common stock under the Common Equity Distribution Agreement, at an average sales price of $6.12 per share, resulting in total net proceeds to the Company of $13.6 million. During the three and six months ended June 30, 2018, the Company issued 12,145,144 shares of common stock under the Common Equity Distribution Agreement, at an average sales price of $6.17 per share, resulting in total net proceeds to the Company of $73.8 million. As of June 30, 2019,2020, approximately $72.5 million of common stock remains available for issuance under the Common Equity Distribution Agreement.
On March 29, 2019, the Company entered into an equity distribution agreement (the "Preferred Equity Distribution Agreement") with JonesTrading Institutional Services LLC, as sales agent, pursuant to which the Company may offer and sell shares of the Company's Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, having a maximum aggregate gross sales price of up to $50.0 million, from time to time through the sales agent. On November 27, 2019, the Company entered into an amendment to the Preferred Equity Distribution Agreement that increased the maximum aggregate sales price to $131.5 million. The amendment also provided for the inclusion of sales of the Company’s Series E Preferred Stock. The Company has no obligation to sell any of the shares of Preferred Stock issuable under the Preferred Equity Distribution Agreement and may at any time suspend solicitations and offers under the Preferred Equity Distribution Agreement.
There were 0 shares of Preferred Stock issued under the Preferred Equity Distribution Agreement during the three and six months ended June 30, 2020. During the three and six months ended June 30, 2019, the Company issued 661,287 shares of Preferred Stock under the Preferred Equity Distribution Agreement, at an average sales price of $24.72 per share, resulting in total net proceeds to the Company of $16.1 million. As of June 30, 2019,2020, approximately $33.7$82.4 million of Preferred Stock remains available for issuance under the Preferred Equity Distribution Agreement.
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18.16. | Earnings (Loss) Per Common Share |
The Company calculates basic earnings (loss) per common share by dividing net income (loss) attributable to the Company's common stockholders for the period by weighted-average shares of common stock outstanding for that period. Diluted earnings (loss) per common share takes into account the effect of dilutive instruments, such as convertible notes, performance stock units and performancerestricted stock units, and the number of incremental shares that are to be added to the weighted-average number of shares outstanding.
During the three months ended June 30, 2019,2020, the Company's Convertible Notes were determined to be anti-dilutivedilutive and were not included in the calculation of diluted earnings per common share under the "if-converted" method. Under this method, the periodic interest expense (net of applicable taxes) for dilutive notes is added back to the numerator and the number of shares that the notes are entitled to (if converted, regardless of whether they are in or out of the money) are included in the denominator. During the six months ended June 30, 2020, the Company's Convertible Notes were determined to be anti-dilutive and were not included in the calculation of diluted loss per common share. During the three and six months ended June 30, 2019, the Company's Convertible Notes were determined to be anti-dilutive and dilutive, respectively.
During the three months ended June 30, 2020, the RSUs awarded under the 2017 Plan were determined to be dilutive and were included in the calculation of diluted earnings per common share.share under the treasury stock method. Under this method, common equivalent shares are calculated assuming that target RSUs vest according to the RSU Agreements and unrecognized compensation cost is used to repurchase shares of the Company’s outstanding common stock at the average market price during the reported period. During the six months ended June 30, 2020, the RSUs awarded under the 2017 Plan were determined to be anti-dilutive and were not included in the calculation of diluted loss per common share under the treasury stock method. There were no RSUs outstanding during the three and six months ended June 30, 2018, the Company's Convertible Notes were determined to be dilutive and were included in the calculation of diluted earnings per common share.2019.
During the three months ended June 30, 2020 and the three and six months ended June 30, 2019, and 2018, performance stock units ("PSUs")the PSUs awarded under the Company's 2017 Equity Incentive Plan (as amended, the "2017 Plan," see Note 19) were determined to be dilutive and were included in the calculation of diluted earnings per common share under the treasury stock method. Under this method, common equivalent shares are calculated assuming that target PSUs vest according to the PSU award agreements ("PSU Agreements")Agreements and unrecognized compensation cost is used to repurchase shares of the Company’s outstanding common stock at the average market price during the reported period. During the six months ended June 30, 2020, the PSUs awarded under the 2017 Plan were determined to be anti-dilutive and were not included in the calculation of diluted loss per common share.
The following table presents the computation of basic and diluted earnings (loss) per common share for the periods indicated (dollar and share amounts in thousands, except per share amounts):
| | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 (1) | | 2020 | | 2019 | | 2020 | | 2019 |
| Basic Earnings per Common Share | | | | | | | | | |
| Net income attributable to Company | | $ | 22,735 |
| | $ | 29,694 |
| | $ | 66,874 |
| | $ | 59,311 |
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| Basic Earnings (Loss) per Common Share: | | | | | | | | | |
| Net income (loss) attributable to Company | | | $ | 117,813 |
| | $ | 22,735 |
| | $ | (470,570 | ) | | $ | 66,874 |
|
Less: Preferred stock dividends | | (6,257 | ) | | (5,925 | ) | | (12,182 | ) | | (11,850 | ) | | (10,296 | ) | | (6,257 | ) | | (20,593 | ) | | (12,182 | ) |
| Net income attributable to Company's common stockholders | | $ | 16,478 |
| | $ | 23,769 |
| | $ | 54,692 |
| | $ | 47,461 |
| |
| Net income (loss) attributable to Company's common stockholders | | | $ | 107,517 |
| | $ | 16,478 |
| | $ | (491,163 | ) | | $ | 54,692 |
|
| Basic weighted average common shares outstanding | | 200,691 |
| | 115,211 |
| | 187,628 |
| | 113,623 |
| | 377,465 |
| | 200,691 |
| | 364,189 |
| | 187,628 |
|
| Basic Earnings per Common Share | | $ | 0.08 |
| | $ | 0.21 |
| | $ | 0.29 |
| | $ | 0.42 |
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| Basic Earnings (Loss) per Common Share | | | $ | 0.28 |
| | $ | 0.08 |
| | $ | (1.35 | ) | | $ | 0.29 |
|
| | | | | | | | | | | | | | | | | |
| Diluted Earnings per Common Share: | | | | | | | | | |
| Net income attributable to Company | | $ | 22,735 |
| | $ | 29,694 |
| | $ | 66,874 |
| | $ | 59,311 |
| |
| Diluted Earnings (Loss) per Common Share: | | | | | | | | | |
| Net income (loss) attributable to Company | | | $ | 117,813 |
| | $ | 22,735 |
| | $ | (470,570 | ) | | $ | 66,874 |
|
Less: Preferred stock dividends | | (6,257 | ) | | (5,925 | ) | | (12,182 | ) | | (11,850 | ) | | (10,296 | ) | | (6,257 | ) | | (20,593 | ) | | (12,182 | ) |
| Add back: Interest expense on convertible notes for the period, net of tax | | — |
| | 2,633 |
| | 5,307 |
| | 5,267 |
| | 2,665 |
| | — |
| | — |
| | 5,307 |
|
| Net income attributable to Company's common stockholders | | $ | 16,478 |
| | $ | 26,402 |
| | $ | 59,999 |
| | $ | 52,728 |
| |
| Net income (loss) attributable to Company's common stockholders | | | $ | 110,182 |
| | $ | 16,478 |
| | $ | (491,163 | ) | | $ | 59,999 |
|
| Weighted average common shares outstanding | | 200,691 |
| | 115,211 |
| | 187,628 |
| | 113,623 |
| | 377,465 |
| | 200,691 |
| | 364,189 |
| | 187,628 |
|
| Net effect of assumed convertible notes conversion to common shares | | — |
| | 19,695 |
| | 19,695 |
| | 19,695 |
| | 19,695 |
| | — |
| | — |
| | 19,695 |
|
| Net effect of assumed RSUs vested | | | 2,180 |
| | — |
| | — |
| | — |
|
| Net effect of assumed PSUs vested | | 1,707 |
| | 258 |
| | 1,688 |
| | 152 |
| | 642 |
| | 1,707 |
| | — |
| | 1,688 |
|
| Diluted weighted average common shares outstanding | | 202,398 |
| | 135,164 |
| | 209,011 |
| | 133,470 |
| | 399,982 |
| | 202,398 |
| | 364,189 |
| | 209,011 |
|
| Diluted Earnings per Common Share | | $ | 0.08 |
| | $ | 0.20 |
| | $ | 0.29 |
| | $ | 0.40 |
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| Diluted Earnings (Loss) per Common Share | | | $ | 0.28 |
| | $ | 0.08 |
| | $ | (1.35 | ) | | $ | 0.29 |
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(1) | For the six months ended June 30, 2020, includes preferred stock dividends declared in arrears in June 2020 for the quarterly period that began on January 15, 2020 and ended on April 14, 2020. |
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19.17. | Stock Based Compensation |
In May 2017, the Company’s stockholders approved the 2017 Plan, with such stockholder action resulting in the termination of the Company’s 2010 Stock Incentive Plan (the “2010 Plan”). In June 2019, the Company's stockholders approved an amendment to the 2017 Plan to increase the shares reserved under the 2017 Plan by 7,600,000 shares of common stock. The terms of the 2017 Plan are substantially the same as the 2010 Plan. However, any outstanding awards under the 2010 Plan will continue in accordance with the terms of the 2010 Plan and any award agreement executed in connection with such outstanding awards. At June 30, 2019,2020, there were 81,8370 common shares of non-vested restricted stock outstanding under the 2010 Plan.
Pursuant to the 2017 Plan, eligible employees, officers and directors of the Company are offered the opportunity to acquire the Company's common stock through the award of restricted stock and other equity awards under the 2017 Plan. The maximum number of shares that may be issued under the 2017 Plan is 13,170,000.
Of the common stock authorized at June 30, 2019, 9,051,5912020, 5,819,607 shares remain available for issuance under the 2017 Plan. The Company’s non-employee directors have been issued 228,750 shares under the 2017 Plan as of June 30, 2019.2020. The Company’s employees have been issued 828,7011,881,380 shares of restricted stock under the 2017 Plan as of June 30, 2019.2020. At June 30, 2020, there were 1,603,766 shares of non-vested restricted stock outstanding, 4,798,517 common shares reserved for issuance in connection with PSUs under the 2017 Plan and 441,746 common shares reserved for issuance in connection with RSUs under the 2017 Plan.
Of the common stock authorized at December 31, 2019, 9,053,166 shares were reserved for issuance under the 2017 Plan. The Company's non-employee directors had been issued 228,750 shares under the 2017 Plan as of December 31, 2019. The Company’s employees had been issued 827,126 shares of restricted stock under the 2017 Plan as of December 31, 2019. At December 31, 2019, there were 756,861755,286 shares of non-vested restricted stock outstanding and 3,060,958 common shares reserved for issuance in connection with PSUs under the 2017 Plan.
Of the common stock authorized at December 31, 2018, 3,865,174 shares were reserved for issuance under the 2017 Plan. The Company's non-employee directors had been issued 131,975 shares under the 2017 Plan as of December 31, 2018. The Company’s employees had been issued 292,459 shares of restricted stock under the 2017 Plan as of December 31, 2018. At December 31, 2018, there were 290,373 shares of non-vested restricted stock outstanding and 1,280,392 common shares reserved for issuance in connection with outstanding PSUs under the 2017 Plan.
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(a) | Restricted Common Stock Awards |
Restricted Common Stock Awards
During the three and six months ended June 30, 2020, the Company recognized non-cash compensation expense on its restricted common stock awards of $1.0 million and $1.8 million, respectively. During the three and six months ended June 30, 2019, the Company recognized non-cash compensation expense on its restricted common stock awards of $0.6 million and $1.1 million, respectively. During the three and six months ended June 30, 2018, the Company recognized non-cash compensation expense on its restricted common stock awards of $0.3 million and $0.6 million, respectively. Dividends are paid on all restricted common stock issued, whether those shares have vested or not. In general, non-vestedNon-vested restricted stock is forfeited upon the recipient's termination of employment.employment, subject to certain exceptions. There were no0 forfeitures of shares for the three and six months ended June 30, 2019. There were forfeitures of 5,120 shares for the three2020 and six months ended June 30, 2018.2019.
A summary of the activity of the Company's non-vested restricted stock collectively under the 2010 Plan and 2017 Plan for the six months ended June 30, 20192020 and 2018,2019, respectively, is presented below:
| | | | 2019 | | 2018 | 2020 | | 2019 |
| | Number of Non-vested Restricted Shares | | Weighted Average Per Share Grant Date Fair Value (1) | | Number of Non-vested Restricted Shares | | Weighted Average Per Share Grant Date Fair Value (1) | Number of Non-vested Restricted Shares | | Weighted Average Per Share Grant Date Fair Value (1) | | Number of Non-vested Restricted Shares | | Weighted Average Per Share Grant Date Fair Value (1) |
| Non-vested shares at January 1 | 507,536 |
| | $ | 5.91 |
| | 422,928 |
| | $ | 6.36 |
| 837,123 |
| | $ | 6.18 |
| | 507,536 |
| | $ | 5.91 |
|
| Granted | 536,242 |
| | 6.30 |
| | 206,597 |
| | 5.57 |
| 1,054,254 |
| | 6.33 |
| | 536,242 |
| | 6.30 |
|
| Vested | (205,080 | ) | | 5.85 |
| | (200,064 | ) | | 6.55 |
| (287,611 | ) | | 6.22 |
| | (205,080 | ) | | 5.85 |
|
| Forfeited | — |
| | — |
| | (5,120 | ) | | 6.25 |
| |
| Non-vested shares as of June 30 | 838,698 |
| | $ | 6.18 |
| | 424,341 |
| | $ | 5.90 |
| 1,603,766 |
| | $ | 6.27 |
| | 838,698 |
| | $ | 6.18 |
|
| Restricted stock granted during the period | 536,242 |
| | $ | 6.30 |
| | 206,597 |
| | $ | 5.57 |
| 1,054,254 |
| | $ | 6.33 |
| | 536,242 |
| | $ | 6.30 |
|
| |
(1) | The grant date fair value of restricted stock awards is based on the closing market price of the Company’s common stock at the grant date. |
At June 30, 20192020 and 2018,2019, the Company had unrecognized compensation expense of $4.2$7.9 million and $2.1$4.2 million, respectively, related to the non-vested shares of restricted common stock under the 20102017 Plan and 20172010 Plan, collectively. The unrecognized compensation expense at June 30, 20192020 is expected to be recognized over a weighted average period of 2.3 years. The total fair value of restricted shares vested during the six months ended June 30, 20192020 and 20182019 was approximately $1.3$1.8 million and $1.1$1.3 million, respectively. The requisite service period for restricted stock awards at issuance is three years and the restricted common stock either vests ratably over a three year period or at the end of the requisite service period.
| |
(b) | Performance Stock Units |
Performance Stock Units
During the three and six months ended June 30, 2020 and 2019, and 2018,the Company granted PSUs that had been approved by the Compensation Committee and the Board of Directors approved the grant of PSUs.Directors. Each PSU represents an unfunded promise to receive one share of the Company's common stock once the performance condition has been satisfied. The awards were issued pursuant to and are consistent with the terms and conditions of the 2017 Plan.
The PSU awards are subject to performance-based vesting under the 2017 Plan pursuant to the PSU Agreements. Vesting of the PSUs will occur at the end of three years based on the following:
| |
| • | If three-year TSR performance relative to the Company's identified performance peer group (the "Relative TSR") is less than the 30th percentile, then 0% of the target PSUs will vest; |
| |
| • | If three-year Relative TSR performance is equal to the 30th percentile, then the Threshold % (as defined in the individual PSU Agreements) of the target PSUs will vest; |
| |
| • | If three-year Relative TSR performance is equal to the 50th percentile, then 100% of the target PSUs will vest; and |
| |
| • | If three-year Relative TSR performance is greater than or equal to the 80th percentile, then the Maximum % (as defined in the individual PSU Agreements) of the target PSUs will vest. |
The percentage of target PSUs that vest for performance between the 30th, 50th, and 80th percentiles will be calculated using linear interpolation.
Total shareholder returnTSR for the Company and each member of the peer group will be determined by dividing (i) the sum of the cumulative amount of such entity’s dividends per share for the performance period and the arithmetic average per share volume weighted average price (the “VWAP”) of such entity’s common stock for the last thirty (30) consecutive trading days of the performance period minus the arithmetic average per share VWAP of such entity’s common stock for the last thirty (30) consecutive trading days immediately prior to the performance period by (ii) the arithmetic average per share VWAP of such entity’s common stock for the last thirty (30) consecutive trading days immediately prior to the performance period.
The grant date fair value of the PSUs was determined through a Monte-Carlo simulation of the Company’s common stock total shareholder return and the common stock total shareholder return of its identified performance peer companies to determine the Relative TSR of the Company’s common stock over a future period of three years. For the PSUs granted in 20192020 and 2018,2019, the inputs used by the model to determine the fair value are (i) historical stock price volatilities of the Company and its identified performance peer companies over the most recent three year period and correlation between each company's stock and the identified performance peer group over the same time series and (ii) a risk free rate for the period interpolated from the U.S. Treasury yield curve on grant date.
The PSUs granted during the six months ended June 30, 2020 include DERs which shall remain outstanding from the grant date until the earlier of the settlement or forfeiture of the PSU to which the DER corresponds. Each vested DER entitles the holder to receive payments in an amount equal to any dividends paid by the Company in respect of the share of the Company’s common stock underlying the PSU to which such DER relates. Upon vesting of the PSUs, the DER will also vest. DERs will be forfeited upon forfeiture of the corresponding PSUs. The DERs may be settled in cash or stock at the discretion of the Compensation Committee.
A summary of the activity of the target PSU Awardsawards under the 2017 Plan for the six months ended June 30, 20192020 and 2018,2019, respectively, is presented below:
| | | | 2019 | | 2018 | 2020 | | 2019 |
| | Number of Non-vested Target Shares | | Weighted Average Per Share Grant Date Fair Value | | Number of Non-vested Target Shares | | Weighted Average Per Share Grant Date Fair Value | Number of Non-vested Target Shares | | Weighted Average Per Share Grant Date Fair Value (1) | | Number of Non-vested Target Shares | | Weighted Average Per Share Grant Date Fair Value (1) |
| Non-vested target PSUs at January 1 | 842,792 |
| | $ | 4.20 |
| | — |
| | $ | — |
| 2,018,518 |
| | $ | 4.09 |
| | 842,792 |
| | $ | 4.20 |
|
| Granted | 1,175,726 |
| | 4.01 |
| | 653,365 |
| | 4.08 |
| 883,496 |
| | 7.03 |
| | 1,175,726 |
| | 4.01 |
|
| Vested | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
| Non-vested target PSUs as of June 30 | 2,018,518 |
| | $ | 4.09 |
| | 653,365 |
| | $ | 4.08 |
| 2,902,014 |
| | $ | 4.98 |
| | 2,018,518 |
| | $ | 4.09 |
|
| |
(1) | The grant date fair value of the PSUs was determined through a Monte-Carlo simulation of the Company’s common stock total shareholder return and the common stock total shareholder return of its identified performance peer companies to determine the Relative TSR of the Company’s common stock over a future period of three years. |
As of June 30, 20192020 and 2018,2019, there was $5.9$8.2 million and $2.4$5.9 million of unrecognized compensation cost related to the non-vested portion of the PSUs, respectively. The unrecognized compensation cost related to the non-vested portion of the PSUs at June 30, 2020 is expected to be recognized over a weighted average period of 2.0 years. Compensation expense related to the PSUs was $1.2 million and $2.5 million for the three and six months ended June 30, 2020, respectively. Compensation expense related to the PSUs was $0.7 million and $1.4 million for the three and six months ended June 30, 2019, respectively.
Restricted Stock Units
During the six months ended June 30, 2020, the Company granted RSUs that had been approved by the Compensation Committee and the Board of Directors. Each RSU represents an unfunded promise to receive one share of the Company's common stock upon satisfaction of the vesting provisions. The awards were issued pursuant to and are consistent with the terms and conditions of the 2017 Plan. The requisite service period for RSUs at issuance is three years and the RSUs vest ratably over the service period.
The RSUs granted during the six months ended June 30, 2020 include DERs which shall remain outstanding from the grant date until the earlier of the settlement or forfeiture of the RSU to which the DER corresponds. Each vested DER entitles the holder to receive payments in an amount equal to any dividends paid by the Company in respect of the share of the Company’s common stock underlying the RSU to which such DER relates. Upon vesting of the RSUs, the DER will also vest. DERs will be forfeited upon forfeiture of the corresponding RSUs. The DERs may be settled in cash or stock at the discretion of the Compensation Committee.
A summary of the activity of the RSU awards under the 2017 Plan for the six months ended June 30, 2020 is presented below:
|
| | | | | | |
| | 2020 |
| | Number of Non-vested Shares | | Weighted Average Per Share Grant Date Fair Value (1) |
| Non-vested RSUs at January 1 | — |
| | $ | — |
|
| Granted | 441,746 |
| | 6.23 |
|
| Vested | — |
| | — |
|
| Non-vested RSUs as of June 30 | 441,746 |
| | $ | 6.23 |
|
| |
(1) | The grant date fair value of RSUs is based on the closing market price of the Company’s common stock at the grant date. |
As of June 30, 2020 there was $2.3 million of unrecognized compensation cost related to the non-vested portion of the RSUs. The unrecognized compensation cost related to the non-vested portion of the RSUs at June 30, 2020 is expected to be recognized over a weighted average period of 2.5 years. Compensation expense related to the PSUsRSUs was $0.2 million and $0.5 million for the three and six months ended June 30, 2018.2020, respectively.
For the three and six months ended June 30, 20192020 and 2018,2019, the Company qualified to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), for U.S. federal income tax purposes. As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S. federal income taxes on its taxable income to the extent it annually distributes at least 100% of its taxable income to stockholders and does not engage in prohibited transactions. Certain activities the Company performs may produce income that will not be qualifying income for REIT purposes. The Company has designated its TRSs to engage in these activities. The tables below reflect the taxes accrued at the TRS level and the tax attributes included in the consolidated financial statements.
The income tax provision for the three and six months ended June 30, 20192020 and 2018,2019, respectively, is comprised of the following components (dollar amounts in thousands):
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 | | 2020 | | 2019 |
| Current income tax expense | $ | 15 |
| | $ | 7 |
| | $ | 8 |
| | $ | 7 |
| $ | 2,033 |
| | $ | 15 |
| | $ | 2,043 |
| | $ | 8 |
|
| Deferred income tax benefit | (149 | ) | | (20 | ) | | (68 | ) | | (99 | ) | (106 | ) | | (149 | ) | | (355 | ) | | (68 | ) |
| Total benefit | $ | (134 | ) | | $ | (13 | ) | | $ | (60 | ) | | $ | (92 | ) | |
| Total provision (benefit) | | $ | 1,927 |
| | $ | (134 | ) | | $ | 1,688 |
| | $ | (60 | ) |
Deferred Tax Assets and Liabilities
The major sources of temporary differences included in the deferred tax assets and their deferred tax effect as of June 30, 20192020 and December 31, 20182019 are as follows (dollar amounts in thousands):
| | | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| Deferred tax assets | | | | | | |
| Net operating loss carryforward | $ | 3,213 |
| | $ | 2,416 |
| $ | 4,582 |
| | $ | 3,975 |
|
| Capital loss carryover | 1,173 |
| | 739 |
| 4,418 |
| | 739 |
|
| GAAP/Tax basis differences | 4,073 |
| | 3,903 |
| 3,841 |
| | 3,699 |
|
Total deferred tax assets (1) | 8,459 |
| | 7,058 |
| 12,841 |
| | 8,413 |
|
| Deferred tax liabilities | | | | | | |
| Deferred tax liabilities | 5 |
| | 6 |
| 4 |
| | 5 |
|
Total deferred tax liabilities (2) | 5 |
| | 6 |
| 4 |
| | 5 |
|
Valuation allowance (1) | (7,403 | ) | | (6,069 | ) | (11,102 | ) | | (7,029 | ) |
Total net deferred tax asset | $ | 1,051 |
| | $ | 983 |
| $ | 1,735 |
| | $ | 1,379 |
|
| |
(1) | Included in receivables and other assets in the accompanying condensed consolidated balance sheets. |
| |
(2) | Included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets. |
As of June 30, 2019,2020, the Company, through wholly-owned TRSs, had incurred net operating losses in the aggregate amount of approximately $9.4$11.7 million. The Company’s carryforward net operating losses of approximately $10.8 million can be carried forward indefinitely until they are offset by future taxable income. The remaining $0.9 millionof net operating losses will expire between 2036 and 2037 if they are not offset by future taxable income. Additionally, as of June 30, 2019,2020, the Company, through one of its wholly-owned TRSs, had also incurred approximately $3.4$13.0 million in capital losses. The Company's carryforward capital losses will expire between 2023 and 2024 if they are not offset by future capital gains.
At June 30, 2019,2020, the Company has recorded a valuation allowance against certain deferred tax assets as management does not believe that it is more likely than not that these deferred tax assets will be realized. The change in the valuation for the current year is approximately $4.1 million. We will continue to monitor positive and negative evidence related to the utilization of the remaining deferred tax assets for which a valuation allowance continues to be provided.
The Company files income tax returns with the U.S. federal government and various state and local jurisdictions. The Company's federal, state and city income tax returns are subject to examination by the Internal Revenue Service and related tax authorities generally for three years after they were filed. The Company has assessed its tax positions for all open years and concluded that there are no material uncertainties to be recognized.
In addition, basedBased on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. To the extent that the Company incurs interest and accrued penalties in connection with its tax obligations, including expenses related to the Company’s evaluation of unrecognized tax positions, such amounts will be included in income tax expense.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted in the U.S. This legislation was intended to support the economy during the COVID-19 pandemic with temporary changes to income and non-income based tax laws. For the three and six months ended June 30, 2020, the changes are not expected to have a material impact to our financial statements. We will continue to monitor as additional guidance is issued by the U.S. Treasury Department, the Internal Revenue Service and others.
OnIn July 22, 2019,2020, the Company issued 23,000,000 sharescompleted a securitization of its common stock through an underwritten public offering at a public offering price of $6.11 per share,residential loans, resulting in totalapproximately $242.9 million in net proceeds to the Company of $137.5 million after deducting underwriting discounts and commissions and estimated offering expenses.expenses associated with the transaction. The Company utilized the net proceeds to repay approximately $230.6 million on an outstanding repurchase agreement related to residential loans.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-Q, in future filings with the SEC or in press releases or other written or oral communications issued or made by us, statements which are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,“could,” “would,” “could,” “goal,” “objective,” “will,“should,” “may”, “expect” or similar expressions, are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended or Exchange Act,(the “Exchange Act”), and, as such, may involve known and unknown risks, uncertainties and assumptions.
Forward-looking statements are based on ourestimates, projections, beliefs and assumptions of management of the Company at the time of such statements and expectationsare not guarantees of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject toperformance. Forward-looking statements involve risks and uncertainties in predicting future results and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidityconditions. Actual results and results of operations may varyoutcomes could differ materially from those expressedprojected in these forward-looking statements due to a variety of factors, including, without limitation:
changes in our forward-looking statements. The following factors are examples of those that could cause actual results to vary from our forward-looking statements: business and investment strategy;
changes in interest rates and the fair market value of our assets, including negative changes resulting in margin calls relating to the financing of our assets;
changes in credit spreads, the impact of a downgrade ofspreads;
changes in the long-term credit ratings of the U.S., Fannie Mae, Freddie Mac, orand Ginnie Mae; market volatility;
general volatility of the markets in which we invest;
changes in prepayment rates on the loans we own or that underlie our investment securities;
increased rates of default or delinquencies and/or decreased recovery rates on our assets;
our ability to identify and acquire our targeted assets;assets, including assets in our investment pipeline;
changes in our relationships with our financing counterparties and our ability to borrow to finance our assets and the terms thereof;
our ability to predict and control costs;
changes in governmental laws, regulations or policies affecting our business; business, including actions that may be taken to contain or address the impact of the COVID-19 pandemic;
our ability to make distributions to our stockholders in the future;
our ability to maintain our qualification as a REIT for federal tax purposes;
our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”); and amended;
risks associated with investing in real estate assets, including changes in business conditions and the general economy. economy, the availability of investment opportunities and the conditions in the market for Agency RMBS, non-Agency RMBS, ABS and CMBS securities, residential loans, structured multi-family investments and other mortgage-, residential housing- and credit-related assets, including changes resulting from the ongoing spread and economic effects of COVID-19; and
the impact of COVID-19 on us, our operations and our personnel.
These and other risks, uncertainties and factors, including the risk factors described herein and in Part I, Item 1A –1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018,2019 and Part II, Item 1A. "Risk Factors" of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as updated by those risks described in our subsequent filings with the SEC under the Exchange Act, could cause our actual results to differ materially from those projected in any forward-looking statements we make. All forward-looking statements speak only as of the date on which they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Special Note Regarding COVID-19 Pandemic
Because there have been no comparable recent global pandemics that resulted in similar impact, we do not yet know the full extent of the effects of the COVID-19 pandemic on our business, operations, personnel, or the U.S. economy as a whole. Any future developments in this regard will be highly uncertain and cannot be predicted with any certainty, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third-party providers’ ability to support our operations, any actions taken by governmental authorities and other third parties in response to the pandemic, and the other factors discussed above and throughout this Quarterly Report on Form 10-Q. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.
Defined Terms
In this Quarterly Report on Form 10-Q we refer to New York Mortgage Trust, Inc., together with its consolidated subsidiaries, as “we,” “us,” “Company,” or “our,” unless we specifically state otherwise or the context indicates otherwise, and refer to our wholly-owned taxable REIT subsidiaries as “TRSs” and our wholly-owned qualified REIT subsidiaries as “QRSs.” In addition, the following defines certain of the commonly used terms in this report:
“ABS” refers to debt and/or equity tranches of securitizations backed by various asset classes including, but not limited to, automobiles, aircraft, credit cards, equipment, franchises, recreational vehicles and student loans;
“Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS;
"“Agency fixed-rate"CMBS” refers to Agency RMBS comprised of fixed-rate RMBS;
“Agency IOs” refers to Agency RMBS comprised of IO RMBS;
“Agency RMBS” refers to RMBSCMBS representing interests in or obligations backed by pools of multi-family 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”),;
“Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-rate RMBS;
“Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by Fannie Mae or Freddie Mac, or an agency of the U.S. government, such as the Government National Mortgage Association (“Ginnie Mae”);
“ARMs” refers to adjustable-rate residential mortgage loans;
“CDO” refers to collateralized debt obligation;
“CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a GSE, 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;
“Consolidated K-Series” refers to Freddie Mac-sponsored multi-family loan K-Series securitizations, of which we, or one of our “special purpose entities,” or “SPEs,” ownowned the first loss POs and certain IOs and certain senior or mezzanine securities, that we consolidated in our financial statements in accordance with GAAP;
“Consolidated SLST” refers to a Freddie Mac-sponsored residential loan securitization, comprised of seasoned re-performing and non-performing residential loans, of which we own or owned the first loss subordinated securities and certain IOs and senior securities, that we consolidate in our financial statements in accordance with GAAP;
“Consolidated VIEs” refers to VIEs where the Company is the primary beneficiary, as it 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;VIE and that we consolidate in our financial statements in accordance with GAAP;
“distressed residential mortgage loans” refers to pools of seasoned re-performing, non-performing and other delinquent mortgage loans secured by first liens on one- to four-family properties;
“excess mortgage servicing spread” refers to the difference between the contractual servicing fee with Fannie Mae, Freddie Mac or Ginnie Mae and the base servicing fee that is retained as compensation for servicing or subservicing the related mortgage loans pursuant to the applicable servicing contract;
"GAAP"“GAAP” refers to generally accepted accounting principles within the United States;
“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"“MBS” refers to RMBS comprisedmortgage-backed securities;
“Multi-family CDOs” refers to the debt that permanently finances the multi-family mortgage loans held by the Consolidated K-Series that we consolidated in our financial statements in accordance with GAAP;
“multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties;
“non-Agency RMBS” refers to RMBS that are not guaranteed by any agency of the U.S. Government or GSE;
“non-QM loans” refers to residential mortgage loans that are not deemed "qualified“qualified mortgage,"” or "QM,"“QM,” loans under the rules of the Consumer Financial Protection Bureau;
“POs” refers to mortgage-backed securities that represent the right to the principal component of the cash flow from a pool of mortgage loans;
“prime ARMresidential bridge loans” refers to short-term business purpose loans collateralized by residential properties made to investors who intend to rehabilitate and “residential securitized loans” each refersell the residential property for a profit;
“Residential CDOs” refers to prime credit qualitythe debt that permanently finances the residential ARM loans held in the Company's residential loan securitization trusts and that we consolidate in our securitization trusts;financial statements in accordance with GAAP;
“RMBS” refers to residential mortgage-backed securities comprised ofbacked by adjustable-rate, hybrid adjustable-rate or fixed-rate interest only and inverse interest only, and principal only securities;residential loans;
“second mortgages” refers to liens on residential properties that are subordinate to more senior mortgages or loans;
“SLST CDOs” refers to the debt that permanently finances the residential loans held in Consolidated SLST that we consolidate in our financial statements in accordance with GAAP; and
“Variable Interest Entity” or “VIE” refers to 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.
General
We are a real estate investment trust ("REIT"(“REIT”) for U.S. federal income tax purposes, in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and residential-housing relatedmulti-family residential 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 investment portfolio includes credit sensitive residential and multi-family assets, andincluding investments that may have been sourced from distressed markets.
Executive Summary
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") as a pandemic. On March 13, 2020, the U.S. declared a national emergency concerning the COVID-19 pandemic, and several states and municipalities have subsequently declared public health emergencies. These conditions have caused, and continue to cause, a significant disruption in the U.S. and world economies. To slow the spread of COVID-19, many countries, including the U.S., implemented social distancing measures, which have substantially prohibited large gatherings, including at sporting events, religious services and schools. Further, many regions, including the majority of U.S. states, have required additional measures, such as shelter-in-place and stay-at-home orders or have placed capacity or service restrictions on a number of businesses. Many businesses have moved to a remote working environment, temporarily suspended operations, laid off a significant percentage of their workforce and/or shut down completely. The economic fallout caused by the pandemic and certain of the actions taken to reduce its spread have been startling, resulting in lost business revenue, rapid and significant increases in unemployment, changes in consumer behavior and significant reductions in liquidity and the fair value of many assets, including those in which the Company invests. These conditions, or some level thereof, are expected to continue over the near term and are likely to prevail throughout 2020.
Although economic data and markets generally, including those in which we invest, showed signs of improvement during the second quarter, these markets and the economy continue to face significant challenges from the impact of the ongoing pandemic. The exact timing and pace of the economic recovery are uncertain with certain markets and regions that createre-opened now experiencing a surge or resurgence of COVID-19 cases, some of which are halting or re-instituting various restrictions on economic and social activity. Moreover, significant unemployment benefits funded by the potentialU.S. government expired at the end of July and this is expected to put even more pressure on the ability of borrowers and renters, including borrowers and renters that own or rent properties that back directly, or indirectly, the properties we finance or invest in, to meet their financial obligations.
The global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to come under extreme duress beginning in mid-March, resulting in credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets. These events, in turn, resulted in falling prices of our assets and increased margin calls from our repurchase agreement counterparties in March, particularly with respect to our investment securities portfolio. In an effort to manage our portfolio through this unprecedented turmoil in the financial markets and improve liquidity, in March, we paused funding of margin calls to our repurchase agreement financing counterparties, sold approximately $2.0 billion of assets, terminated interest rate swap positions with an aggregate notional value of $495.5 million and reduced our outstanding repurchase agreements that finance our investment securities and residential loan portfolios, which had exposed our investment portfolio and the financing thereof to unprecedented volatility in mark-to-market collateral repricing determinations by financing counterparties, by $1.7 billion from year-end levels, reducing our overall leverage to less than one times as of March 31, 2020.
We continued our deliberate and patient approach to enhancing liquidity by executing the following measures during the three months ended June 30, 2020:
We completed a non-mark-to-market re-securitization backed by non-Agency RMBS generating net proceeds of approximately $109.3 million.
We obtained additional financing for capitalresidential loans pledged under a repurchase agreement in the amount of $248.8 million.
We sold residential loans for approximately $43.8 million in proceeds, non-Agency RMBS for approximately $37.8 million in proceeds, and CMBS for approximately $24.0 million in proceeds.
We used the proceeds from these transactions, among other things, to further reduce our outstanding repurchase agreements that finance investment securities by $625.8 million from March 31, 2020. As of June 30, 2020, we had an outstanding repurchase agreement related to investment securities with one counterparty amounting to $87.6 million.
By focusing significant efforts on stabilizing and improving our ability to fund our investment strategy as detailed in the steps listed above, including reducing our mark-to-market repurchase agreement financing for investment securities and reducing our leverage to historically low levels, we were able to retain over $1 billion of non-Agency credit assets that experienced significant price appreciation in the second quarter and monetize gains from the price recovery with selective asset sales later in the second quarter. With this as well asa backdrop, we generated $0.28 per share and $0.50 per share of net income and comprehensive income attributable to common stockholders, respectively, and saw book value per common share move 12% higher during the quarter. We positioned the Company with a sizeable cash balance at June 30, 2020 and recently completed longer-termed securitization financings that we anticipate will provide a path for more traditional typesstable growth under a now-reduced competitive landscape. We expect that returns in the near-term will be highly sensitive to sufficient government support for the economy.
We transitioned in March to a fully remote work force, ensuring the safety and well-being of mortgage-relatedour employees. Our prior investments that generate interest income.in technology, business continuity planning and cyber-security protocols have enabled us to continue working with limited operational impact and we expect to continue our remote work arrangement for the foreseeable future.
Our investment portfolio includestargeted investments include the following (i) residential loans, including distressed residential loans, non-QM loans, second mortgages, residential bridge loans and other residential loans, (ii) 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 (v) CMBS and (v)(vi) certain other mortgage-, residential housing- and other credit-related assets. Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act, we also may opportunistically acquire and manage various other types of mortgage-relatedmortgage-, residential housing- and residential housing-relatedother credit-related assets that we believe will compensate us appropriately for the risks associated with them, including, without limitation, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads and securities issued by newly originated securitizations, including credit sensitive securities from these securitizations.
We intend to maintain ourcontinue to focus on expanding our core portfolio strengths of single-family residential and multi-family credit assets, which we believe will benefit from improving credit metrics. During the six months ended June 30, 2019, we acquired an additional $937.1 million of single-family residential, multi-family and other credit assets.deliver better risk adjusted returns over time. In periods where we have working capital in excess of our short-term liquidity needs, we may invest the excess in more liquid assets until such time as we are able to re-invest that capital in credit assets that meet our underwriting requirements. Our investment and capital allocation decisions depend on prevailing market conditions, among other factors, and may change over time in response to opportunities available in different economic and capital market environments. We expect to maintain a defensive posture as it relates to new investments due to the uncertainty relating to the duration and ongoing economic impact associated with the COVID-19 pandemic and to currently focus on assets that may benefit from active management in a prolonged, low rate environment. We also expect to continue to selectively monetize gains from the price recovery experienced by our non-Agency RMBS and Freddie-K mezzanine securities.
We seekPrior to the recent turmoil in the financial markets, we sought to achieve a balanced and diverse funding mix to finance our assets and operations. We currently rely primarily onoperations, which included a combination of short-term borrowings, such as repurchase agreements with terms typically of 3030-90 days, longer term repurchase agreement borrowings with terms between one year and 24 months and longer term financings, such as securitizations and convertible notes, with terms longer than one year.
Key Second Quarter 2019 DevelopmentsPortfolio Update
Multi-Family Credit Portfolio Activity
We purchased multi-family CMBS securities totaling $45.6 million. In addition, we funded $45.5 million in preferred equity investments in owners of multi-family properties during the second quarter of 2019.
Residential Credit Portfolio Activity
We acquired an aggregate of $338.4 million of single-family residential credit assets, including distressed residential mortgage loans totaling $148.0 million, other residential mortgage loans totaling $72.8 million2020, we sought to further improve our liquidity position and non-Agency RMBS totaling $117.6 million.
We also funded $50.0 million in other residential-related equity investments duringmaintain a defensive posture as it relates to new investments. The following table presents the second quarter of 2019.
Common Stock Issuance
We issued 20,700,000 shares of common stock through an underwritten public offering in May 2019, at a public offering price per share of $6.08, resulting in net proceeds to us of $123.1 million after deducting underwriting discounts, commissions and offering expenses. We also issued and sold 2,260,200 shares of common stock duringactivity for our investment portfolio for the quarterthree months ended June 30, 2019 under our at-the-market common equity offering program, resulting2020 (dollar amounts in net proceeds to us of $13.6 million, after deducting placement fees.thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 | | Acquisitions | | Repayments (1) | | Sales | | Fair Value Changes and Other (2) | | June 30, 2020 |
| Investment securities | | | | | | | | | | | |
| Non-Agency RMBS | $ | 576,108 |
| | $ | — |
| | $ | (2,297 | ) | | $ | (37,810 | ) | | $ | 94,195 |
| | $ | 630,196 |
|
| CMBS | 268,856 |
| | — |
| | (103 | ) | | (24,022 | ) | | 43,381 |
| | 288,112 |
|
| ABS | 42,344 |
| | — |
| | — |
| | — |
| | 156 |
| | 42,500 |
|
| Total investment securities available for sale | 887,308 |
| | — |
| | (2,400 | ) | | (61,832 | ) | | 137,732 |
| | 960,808 |
|
Consolidated SLST (3) | 182,779 |
| | — |
| | — |
| | — |
| | 2,531 |
| | 185,310 |
|
| Total investment securities | 1,070,087 |
| | — |
| | (2,400 | ) | | (61,832 | ) | | 140,263 |
| | 1,146,118 |
|
| Residential loans | 1,558,331 |
| | 2,818 |
| | (72,715 | ) | | (43,794 | ) | | 38,738 |
| | 1,483,378 |
|
| Preferred equity investments, mezzanine loans and investments in unconsolidated entities | 391,257 |
| | — |
| | (21 | ) | | — |
| | 3,903 |
| | 395,139 |
|
Other investments (4) | 15,011 |
| | 657 |
| | — |
| | (3,267 | ) | | (1,851 | ) | | 10,550 |
|
| Totals | $ | 3,034,686 |
| | $ | 3,475 |
| | $ | (75,136 | ) | | $ | (108,893 | ) | | $ | 181,053 |
| | $ | 3,035,185 |
|
| |
(1) | Primarily includes principal repayments. |
| |
(2) | Primarily includes net realized gains or losses, changes in net unrealized gains or losses (including reversals of previously recognized net unrealized gains or losses on sales), net amortization/accretion and transfers within investment categories. |
| |
(3) | Consolidated SLST is presented on our condensed consolidated balance sheets as of March 31, 2020 and June 30, 2020, respectively, as residential loans, at fair value and residential collateralized debt obligations, at fair value. A reconciliation to our condensed consolidated financial statements follows (dollar amounts in thousands): |
We issued and sold 661,287 shares of preferred stock during the quarter ended June 30, 2019 under our at-the-market preferred equity offering program, resulting in net proceeds to the Company of $16.1 million, after deducting placement fees. |
| | | | | | | |
| | March 31, 2020 | | June 30, 2020 |
| Residential loans, at fair value | $ | 1,218,299 |
| | $ | 1,274,850 |
|
Deferred interest (a) | (528 | ) | | (1,307 | ) |
| Less: Residential collateralized debt obligations, at fair value | (1,034,992 | ) | | (1,088,233 | ) |
| Consolidated SLST investment securities owned by NYMT | $ | 182,779 |
| | $ | 185,310 |
|
Second Quarter 2019 Common Stock and Preferred Stock Dividends | |
(a) | Included in accrued expenses and other liabilities on our condensed consolidated balance sheets at June 30, 2020. |
On June 14, 2019, our Board of Directors declared a regular quarterly cash dividend of $0.20 per share of common stock for the quarter ended June 30, 2019. The dividend was paid on July 25, 2019 to our common stockholders of record as of June 24, 2019. | |
(4) | Includes real estate under development in Consolidated VIEs in the amounts of $10.6 million and $14.8 million as of June 30, 2020 and March 31, 2020, respectively, and other loan investments in the amounts of $0.2 million as of March 31, 2020. |
On June 14, 2019, in accordance with the terms of our 7.75% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock"), our Board of Directors declared a Series B Preferred Stock quarterly cash dividend of $0.484375 per share of Series B Preferred Stock. The dividend was paid on July 15, 2019 to holders of record of our Series B Preferred Stock as of July 1, 2019.
On June 14, 2019, in accordance with the terms of our 7.875% Series C Cumulative Redeemable Preferred Stock ("Series C Preferred Stock"), our Board of Directors declared a Series C Preferred Stock quarterly cash dividend of $0.4921875 per share of Series C Preferred Stock. The dividend was paid on July 15, 2019 to holders of record of our Series C Preferred Stock as of July 1, 2019.
Also on June 14, 2019, in accordance with the terms of our 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock ("Series D Preferred Stock"), our Board of Directors declared a Series D Preferred Stock quarterly cash dividend of $0.50 per share of Series D Preferred Stock. The dividend was paid on July 15, 2019 to holders of record of our Series D Preferred Stock of record as of July 1, 2019.
Subsequent Development
On July 22, 2019, the Company issued 23,000,000 shares of its common stock through an underwritten public offering at a public offering price of $6.11 per share, resulting in total net proceeds to the Company of $137.5 million after deducting underwriting discounts and commissions and estimated offering expenses.
Current Market Conditions and CommentaryCommentary
The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income, the market value of our assets, which is driven by numerous factors including the supply and demand for residential mortgage, housing and credit assets in the marketplace, the ability of our operating partners and borrowers of our loans and those that underlie our investment securities to meet their payment obligations, the terms and availability of adequate financing and capital, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate, mortgage, credit and mortgage sector,financial markets, and the credit performance of our credit sensitive assets.
Financial and mortgage-related asset markets continued to experience significant volatility during the second quarter of 2020 as a result of the ongoing COVID-19 pandemic. U.S. stocks delivered their best quarterly results in more than 20 years during the second quarter of 2020 following the sharp sell-off during the back half of the first quarter. Reflective of abundant liquidity and hopeful expectations about re-opening after the global shutdown, asset prices also experienced a pronounced improvement during the second quarter of 2020. Global economic activity and consumer sentiment showed signs of significant advancement during the second quarter of 2020, with the improvements buoyed by the “re-opening” of states in the U.S. However, activity levels remain well below normal levels and some of the economic progress has stalled or may stall as COVID-19 case counts continue to rise in states that quickly relaxed their social distancing requirements.
Similar to assets in the larger economy, pricing for our investment portfolio during the second quarter of 2020 rebounded somewhat with credit spreads tightening across a large swath of the portfolio, particularly our non-Agency securities. Liquidity to MBS and mortgage financing markets also improved during the second quarter, as evidenced by the Company completing multiple longer-term, securitization financing transactions in June and July 2020. Due to the possibility that a number of states or the U.S. federal government may again impose greater restrictions on economic and social activity in light of rapidly rising COVID-19 daily case counts this summer and heightened uncertainty relating to the duration and longer-term impact of the pandemic and government actions in response thereto, we expect market volatility generally to remain elevated and operating conditions for our business specifically to remain challenging throughout the balance of 2020.
The market conditions discussed below significantly influence our investment strategy and results:results, many of which have been significantly impacted since mid-March by the ongoing COVID-19 pandemic:
General. Global and U.S. equity markets made gains during the second quarter of 2019, despite volatility largely driven by investor uncertainty regarding global trade restrictions, while economic data remains mixed. The rise in U.S. equities was driven by market expectations that the Federal Reserve will lower interest rates in the near term and indications of progress in trade tensions. U.S. economic data released over the past quarter suggestsshows that the U.S. economy has continued to expand,greatly contracted with U.S. gross domestic product (“GDP”) estimated to have grownhaving decreased by 2.1%32.9% (advance estimate) in the second quarter of 2019,2020, down from GDP growthcontraction of 3.1% for5.0% (revised) in the first quarter of 2019 and 2.2% for the quarter ended December 31, 2018. While GDP growth and the labor market data remain solid, consumer and business confidence indices have weakened and recent survey data has indicated that business activity is slowing.2020.
The U.S. labor market continuedbegan to expand duringshow slight improvements toward the end of the second quarterquarter. The U.S. Department of 2019.Labor attributed these improvements to the resumption of economic activity that had been curtailed in March and April due to the COVID-19 pandemic. According to the U.S. Department of Labor, the U.S. unemployment rate decreased slightly over the quarter, ending at 3.7% as oftowards the end of June 2019.the quarter from the high of 14.7% in April to 11.1% in June. Total nonfarm payroll employment posted an average monthly increase of 171,000 and 172,000 jobs during the three and six months endedrose by 4.8 million in June, 30, 2019, respectively, as compared to an average monthly increase of 223,000 jobs2.7 million in 2018. AlthoughMay 2020. However, despite the pacedecline in the unemployment rate in the latter parts of the labor market expansion has slowed some in 2019, average hourly earnings for all employeessecond quarter, the effects of private nonfarm payrolls have increased by 3.1% over the prior 12 months.COVID-19 pandemic and efforts to contain it further were felt with the jobless rate and the number of unemployed increasing 7.6% and 12.0 million, respectively, since February.
Federal Reserve and Monetary Policy. On July 31, 2019, in light of the implications of global economic developments and subdued inflationary pressures, the Federal Reserve lowered the target range for the federal funds rate by 25 basis points to 2.00% to 2.25%, the first rate cut in over a decade. The Federal Reserve indicated that it will continue to monitor data and will act as appropriate to sustain the expansion. The Federal Reserve indicated that in determining the size and timing of future adjustments to the target range for the federal funds rate, it will assess “realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.” Significant uncertainty with respect to the timing at which the Federal Reserve will adjust the target range for the federal funds rate continues to persist and may result in significant volatility in 2019 and future periods. Greater uncertainty frequently leads to wider asset spreads or lower prices and higher hedging costs.
Single-Family Homes and Residential Mortgage Market. The residential real estate market continued to display signsdisplayed signals of slowingmodest growth in the second quarter of 2019.quarter. Data released by the S&P Dow Jones Indices for itstheir S&P/&P CoreLogic Case-Shiller National Home Price NSA Indices for May 2019April 2020 showed that, on average, home prices increased 2.4%4.0% for the 20-City Composite over April 2019, up from 3.9% the previous month.Data from the S&P Dow Jones Indices for May 2018, down from 2.5%and June are not available currently, but we would expect the data to reflect continued slight improvements due to the partial reopening of the economy in the previous month.second quarter. In addition, according to data provided by the U.S. Department of Commerce, privately-owned housing starts for single-family homes averaged a seasonally adjusted annual rate of 842,000740,000 and 853,000 during854,000 for the three and six months ended June 30, 2019,2020, respectively, as compared to an annual rate of 871,000894,000 for the year ended December 31, 2018.2019; however, the estimate for June of 831,000 housing starts was 17.2% above May levels. Declining single-family housing fundamentals may adversely impact the borrowers of our residential mortgage loans and those that underlie our RMBS, and thus the overall credit profile of our existing portfolio of single-family residential credit investments, but also may resultas well as the availability of certain of our targeted assets. As of June 30, 2020, less than 25% of borrowers in a more attractive new investment environment.our residential loan portfolio had entered into COVID-19 relief plans.
Multi-family Housing. Apartments and other residential rental properties have continued to perform well. According to data provided by the U.S. Department of Commerce, starts on multi-family homes containing five units or more averaged a seasonally adjusted annual rate of 406,000295,000 and 373,000 during399,000 for the three and six months ended June 30, 2019,2020, respectively, and 366,000compared to 391,000 for the year ended December 31, 2018.2019. While supply expansion has remained strong, vacancy concerns amongstarts on multi-family industry participants has ticked higher. Accordinghomes containing five units or more experienced a decrease from first quarter levels, these rates saw a steady increase throughout the second quarter, eventually reaching 350,000 in June, an 18.6% increase from May levels. Moreover, with record jobless claims filed in recent months, the financial ability of households to the Multifamily Vacancy Index (“MVI”), whichmeet their rental payment obligations is produceda present and growing concern. Data released by the National AssociationMultifamily Housing Council (“NMHC”) shows that 87.6% of Home Buildersprofessionally-managed apartment households made a full or partial July rent payment by July 13, 2020 in its survey of 11.4 million professionally-managed apartment units across the country. This represents a 2.5-percentage point decrease in the share who paid rent through July 13, 2019 and surveyscompares to 89.0% that had paid by June 13, 2020. These data encompass a wide variety of market-rate rental properties, which can vary by size, type and average rental price. As of June 30, 2020, the multi-family housing industry’s perceptionCompany had oneoperating partner, representing approximately 1.1% of vacancies, the MVIour total preferred equity and mezzanine loan investment portfolio, that was at 48 for the first quarter of 2019, up from 45 for the fourth quarter of 2018 and 47 for the third quarter of 2018 and representing the highest level it has reacheddelinquent in several years. Strengthmaking distributions to us. Weakness in the multi-family housing sector, has contributedincluding, among other things, widening capitalization rates, reduced demand, increased vacancy rates, increased tenant lease defaults and reduced liquidity for owners of multi-family properties, may cause our operating partners to fail to meet their obligations to us and/or contribute to valuation improvementsdeclines for multi-family properties, and in turn, many of the structured multi-family investments that we own.
Credit Spreads. Credit spreads have generally tightened during the first half of 2019. Specifically, credit spreads for many residential and multi-family credit assets remained tight duringin the second quarter 2019 and this hadas the economy experienced a positive impact onpartial resumption of activity from the valuebeginning of many of our credit sensitive assets.the COVID-19 pandemic. Tightening credit spreads generally increase the value of many of our credit sensitive assets, while widening credit spreads generally decreasetend to have a negative impact on the value of thesemany of our credit sensitive assets.
Financing markets. During the second quarter, of 2019, the bond market experienced moderate volatility with the closing yield of the 10-year U.S. Treasury Note trading between 2.00%0.58% and 2.60%0.91% during the quarter, closing the quarter at 2.00%0.66%. Overall interest rate volatility tends to increase the costs of hedging and may place downward pressure on some of our strategies. During the second quarter of 2019,2020, the Treasury curve increased with the spread between the 2-Year U.S. Treasury yield and the 10-Year U.S. Treasury yield at 2550 basis points, up 1116 basis points from MarchDecember 31, 2019. This spread is important as it is indicative of opportunities for investing in levered assets. Increases in interest rates raisesraise the costs of many of our liabilities, while overall interest rate volatility generally increases the costs of hedging.
Developments at Fannie MaeMonetary Policy and Freddie MacRecent Regulatory Developments. Payments onThe Federal Reserve has taken a number of actions to stabilize markets as a result of the impact of the COVID-19 pandemic. Since late 2019, the Federal Reserve has been conducting large scale overnight repo operations to address disruptions in the U.S. Treasury, Agency fixed-ratedebt and Agency ARMs RMBS in which we invest are guaranteed by Fannie Maefinancing markets and Freddie Mac. In addition, although not guaranteed by Freddie Mac, all of our multi-family CMBS has been issued by securitization vehicles sponsored by Freddie Mac. As broadly publicized, Fannie Maesubstantially increased these operations to address funding disruptions resulting from the economic crisis and Freddie Mac are presently under federal conservatorship asmarket dislocations resulting from the COVID-19 pandemic. On March 15, 2020, the Federal Reserve announced a $700 billion asset purchase program to provide liquidity to the U.S. Government continuesTreasury and Agency RMBS markets. Specifically, the Federal Reserve announced that it would purchase at least $500 billion of U.S. Treasuries and at least $200 billion of Agency RMBS. The Federal Reserve also lowered the federal funds rate by 100 basis points to evaluatea range of 0.0% - 0.25%, after having already lowered the future of these entitiesfederal funds rate by 50 basis points on March 3, 2020. The Federal Reserve has purchased approximately $1.6 trillion and what role the$719 billion in U.S. Government should continue to play in the housing markets in the future. Treasuries and Agency MBS, respectively, since mid-March.
On March 27, 2019,2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law to provide many forms of direct support to individuals and small businesses in order to stem the steep decline in economic activity resulting from the COVID-19 pandemic. The over $2 trillion relief bill, among other things, provided for direct payments to each American making up to $75,000 a year, increased unemployment benefits for up to four months (on top of state benefits), funding to hospitals and health care providers, loans and investments to businesses, states and municipalities and grants to the airline industry. On April 24, 2020, President Trump signed an additional funding bill into law that provided an additional $484 billion of funding to individuals, small businesses, hospitals, health care providers and additional coronavirus testing efforts. In addition, in response to the economic impact of the COVID-19 pandemic, governors of several states issued executive orders prohibiting evictions and foreclosures for specified periods of time, and many courts enacted emergency rules delaying hearings related to evictions or foreclosures.
The markets for U.S. Treasuries, MBS and other mortgage and fixed income markets experienced severe dislocations in March as a Presidential memorandum directingresult of the SecretaryCOVID-19 pandemic. To address these issues in the fixed income and funding markets, on March 23, 2020, the Federal Reserve announced a program to acquire U.S. Treasuries and Agency RMBS in the amounts needed to support smooth market functioning. Since that date, the Federal Reserve and the Federal Housing Finance Agency (“FHFA”) have taken various other steps to support certain other fixed income markets, to support mortgage servicers and to implement various portions of Treasurythe CARES Act. The FHFA instructed the GSEs on how to develophandle servicer advances for loans that back Agency RMBS that enter into forbearance, which limits prepayments during the forbearance period that could have resulted otherwise. Further, the FHFA announced a reformloan payment deferment plan aimedfor Agency multi-family borrowers facing hardship from revenue losses caused by COVID-19, with the condition that these borrowers suspend all evictions for renters unable to pay rent due to the impact of COVID-19.
The increased unemployment benefits under the CARES Act are set to expire at ending the conservatorshipend of Fannie MaeJuly and Freddie Mac and improving regulatory oversight over them. Since being placed under federal conservatorship, theremany states have beenended their prohibitions on eviction. As a result, we anticipate that the number of proposals introduced, both from industry groupsour operating partners and by the U.S. Congress, relating to changing the roleborrowers of the U.S. government in the mortgage marketour residential loans and reformingthose that underlie our investment securities that become delinquent or eliminating Fannie Mae and Freddie Mac. It remains unclear how the U.S. Congress or the executive branch of the U.S. Government will move forwarddefault on such reform at this time and what impact, if any, this reform will have on mortgage REITs. See “Item 1A. Risk Factors-Risks Related to Regulatory Matters-The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae, Freddie Mac and Ginnie Mae and the U.S. Government,their financial obligations may increase significantly. Such increased levels could materially adversely affect our business, financial condition, and results of operations and our ability to pay dividendsmake distributions to our shareholders”stockholders.
According to the Board of Governors of the Federal Reserve, trading conditions in U.S. Treasuries and MBS markets have improved gradually since the announcement of Federal Reserve policies and the functioning and liquidity of the MBS market have mostly returned to pre-February standards, though strains continue in less liquid parts of the market. However, bid-ask spreads for longer-maturity and off-the-run Treasuries remain wider than in mid-February.
In 2017, policymakers announced that LIBOR will be replaced by 2021. The directive was spurred by the fact that banks are uncomfortable contributing to the LIBOR panel given the shortage of underlying transactions on which to base levels and the liability associated with submitting an unfounded level. LIBOR will be replaced with a new Secured Overnight Funding Rate (“SOFR”), a rate based on U.S. repo trading. The new benchmark rate will be based on overnight Treasury General Collateral repo rates. The rate-setting process will be managed and published by the Federal Reserve and the Treasury’s Office of Financial Research. Many banks believe that it may take four to five years to complete the transition to SOFR, despite the 2021 deadline. We will monitor the emergence of this new rate carefully as it will likely become the new benchmark for hedges and a range of interest rate investments.
The scope and nature of the actions the Federal Reserve and other governmental authorities will ultimately undertake are unknown and will continue to evolve, especially in light of the COVID-19 pandemic and the upcoming presidential and Congressional elections in the United States. There can be no assurance as to how, in the long term, these and other actions, as well as the negative impacts from the ongoing COVID-19 pandemic, will affect the efficiency, liquidity and stability of the financial, credit and mortgage markets, and thus, our Annual Report on Form 10-K for the year ended December 31, 2018.business. Greater uncertainty frequently leads to wider asset spreads or lower prices and higher hedging costs.
Second Quarter 2020 Summary
Earnings and Return Metrics
The following table presents key earnings and return metrics for the three and six months ended June 30, 2020 (dollar amounts in thousands, except per share data):
|
| | | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 |
| Net interest income | $ | 28,526 |
| | $ | 75,607 |
|
| Net income (loss) attributable to Company's common stockholders | $ | 107,517 |
| | $ | (491,163 | ) |
| Net income (loss) attributable to Company's common stockholders per share (basic) | $ | 0.28 |
| | $ | (1.35 | ) |
| Comprehensive income (loss) attributable to Company's common stockholders | $ | 190,121 |
| | $ | (550,723 | ) |
| Comprehensive income (loss) attributable to Company's common stockholders per share (basic) | $ | 0.50 |
| | $ | (1.51 | ) |
| Book value per common share | $ | 4.35 |
| | $ | 4.35 |
|
Economic return on book value (1) | 13.1 | % | | (23.9 | )% |
| |
(1) | Economic return on book value is based on the periodic change in GAAP book value per common share plus dividends declared per common share, if any, during the respective periods. |
Developments
Reinstated the payment of quarterly dividends on both common and preferred stock and declared preferred stock dividends in arrears for the first quarter of 2020.
Completed a non-mark-to-market re-securitization backed by non-Agency RMBS generating net proceeds of approximately $109.3 million.
Obtained additional financing for residential loans pledged under a repurchase agreement in the amount of $248.8 million.
Sold residential loans for approximately $43.8 million in proceeds, non-Agency RMBS for approximately $37.8 million in proceeds and CMBS for approximately $24.0 million in proceeds.
| |
| • | Reduced outstanding repurchase agreements to finance investment securities by $625.8 million from March 31, 2020. |
Subsequent Developments
On July 14, 2020, we completed a securitization of residential loans, resulting in approximately $242.9 million in net proceeds to the Company after deducting estimated expenses associated with the transaction. We utilized the net proceeds to repay approximately $230.6 million on an outstanding repurchase agreement related to residential loans.
Significant Estimates and Critical Accounting Policies
We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect 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. These estimates are based, in part, on our judgment and assumptions regarding various economic conditions that we believe are reasonable based on facts and circumstances existing at the time of reporting. We believe that the estimates, judgments and assumptions utilized in the preparation of our consolidated financial statements are prudent and reasonable. Although our estimates contemplate current conditions as of June 30, 2020 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive income at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income during the periods presented. Moreover, the uncertainty over the ultimate impact that that the COVID-19 pandemic will have on the global economy generally, and on our business in particular, makes any estimates and assumptions inherently less certain than they would be absent the current and potential impacts of the COVID-19 pandemic.
Accounting policies and estimates related to specific components of our consolidated financial statements are disclosed in the notes to our consolidated financial statements. A discussion of the critical accounting policies and the possible effects of changes in estimates on our consolidated financial statements is included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 20182019 and under “Note 2 – Summary of Significant Accounting Policies” to the consolidated financial statements included therein.
Recent Accounting Pronouncements
A discussion of recent accounting pronouncements and the possible effects on our consolidated financial statements is included in “Note 2 — Summary of Significant Accounting Policies” included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Capital Allocation
The following provides an overview of the allocation of our total equity as of June 30, 2020 and December 31, 2019, respectively. We fund our investing and operating activities with a combination of cash flow from operations, proceeds from common and preferred equity and debt securities offerings, including convertible notes, short-term and longer-term repurchase agreement borrowings, CDOs, securitized debt and trust preferred debentures. A detailed discussion of our liquidity and capital resources is provided in “Liquidity and Capital Resources” elsewhere in this section.
The following tables set forth our allocated capital by investment category at June 30, 20192020 and December 31, 2018,2019, respectively (dollar amounts in thousands):. As previously discussed, in an effort to manage our portfolio through the unprecedented turmoil in the financial markets and improve liquidity, we sold our entire Agency CMBS and Agency RMBS portfolio during March 2020:
At June 30, 2019:2020:
|
| | | | | | | | | | | | | | | | | | | |
| | Agency RMBS | | Residential Credit (1) | | Multi- Family Credit (2) | | Other | | Total |
| Carrying value | $ | 994,200 |
| | $ | 1,778,276 |
| | $ | 1,402,217 |
| | $ | 24,739 |
| | $ | 4,199,432 |
|
| Liabilities: | | | | | | | | | |
Callable (3) | (871,613 | ) | | (932,649 | ) | | (800,094 | ) | | — |
| | (2,604,356 | ) |
| Non-callable | — |
| | (45,280 | ) | | — |
| | (45,000 | ) | | (90,280 | ) |
| Convertible | — |
| | — |
| | — |
| | (131,839 | ) | | (131,839 | ) |
Hedges (Net) (4) | 14,047 |
| | — |
| | — |
| | — |
| | 14,047 |
|
Cash and Restricted Cash (5) | 9,942 |
| | 64,741 |
| | 21,117 |
| | 40,150 |
| | 135,950 |
|
| Goodwill | — |
| | — |
| | — |
| | 25,222 |
| | 25,222 |
|
| Other | 3,738 |
| | 35,511 |
| | (7,965 | ) | | (51,778 | ) | | (20,494 | ) |
| Net capital allocated | $ | 150,314 |
| | $ | 900,599 |
| | $ | 615,275 |
| | $ | (138,506 | ) | | $ | 1,527,682 |
|
|
| | | | | | | | | | | | | | | |
| | Single-Family Credit | | Multi-
Family Credit | | Other | | Total |
| Investment securities available for sale, at fair value | $ | 630,196 |
| | $ | 288,112 |
| | $ | 42,500 |
| | $ | 960,808 |
|
| Residential loans, at fair value | 2,758,228 |
| | — |
| | — |
| | 2,758,228 |
|
| Residential collateralized debt obligations, at fair value | (1,088,233 | ) | | — |
| | — |
| | (1,088,233 | ) |
| Residential collateralized debt obligations | (36,699 | ) | | — |
| | — |
| | (36,699 | ) |
| Investments in unconsolidated entities | 68,189 |
| | 146,100 |
| | — |
| | 214,289 |
|
| Preferred equity and mezzanine loan investments | — |
| | 180,850 |
| | — |
| | 180,850 |
|
Other investments (1) | — |
| | 10,550 |
| | — |
| | 10,550 |
|
| Carrying value | 2,331,681 |
| | 625,612 |
| | 42,500 |
| | 2,999,793 |
|
| Liabilities: | | | | | | | |
| Repurchase agreements | (963,127 | ) | | — |
| | — |
| | (963,127 | ) |
| Securitized debt | (108,999 | ) | | — |
| | — |
| | (108,999 | ) |
| Subordinated debentures | — |
| | — |
| | (45,000 | ) | | (45,000 | ) |
| Convertible notes | — |
| | — |
| | (134,117 | ) | | (134,117 | ) |
Cash, cash equivalents and restricted cash (2) | 98,352 |
| | 7,316 |
| | 297,540 |
| | 403,208 |
|
| Other | 56,506 |
| | (3,179 | ) | | (42,144 | ) | | 11,183 |
|
| Net capital allocated | $ | 1,414,413 |
| | $ | 629,749 |
| | $ | 118,779 |
| | $ | 2,162,941 |
|
| | | | | | | | |
Total Leverage Ratio (3) | | | | | | | 0.5 |
|
Portfolio Leverage Ratio (4) | | | | | | | 0.4 |
|
| |
(1) | Includes $1.1 billion of distressedreal estate under development presented in the Company's accompanying condensed consolidated balance sheets in receivables and other residential mortgage loans at fair value, $218.1 million of distressed and other residential mortgage loans at carrying value, $432.8 million of non-Agency RMBS and $61.3 million of investments in unconsolidated entities.assets. |
| |
(2) | The Company, through its ownership of certain securities, has determined itRestricted cash is included in the primary beneficiary of the Consolidated K-Series and has consolidated the Consolidated K-Series into the Company’sCompany's accompanying condensed consolidated financial statements. A reconciliation to our financial statements as of June 30, 2019 follows:balance sheets in receivables and other assets. |
|
| | | |
| Multi-family loans held in securitization trusts, at fair value | $ | 14,573,925 |
|
| Multi-family CDOs, at fair value | (13,772,726 | ) |
| Net carrying value | 801,199 |
|
| Investment securities available for sale, at fair value | 292,090 |
|
| Total CMBS, at fair value | 1,093,289 |
|
| Preferred equity investments, mezzanine loans and investments in unconsolidated entities | 296,187 |
|
| Real estate under development | 16,727 |
|
| Mortgages and notes payable in consolidated variable interest entities | (3,986 | ) |
| Repurchase agreements, investment securities | (800,094 | ) |
| Cash and other | 13,152 |
|
| Net Capital in Multi-Family Credit | $ | 615,275 |
|
| |
(3) | IncludesRepresents total outstanding repurchase agreements.agreement financing, subordinated debentures and Convertible Notes divided by the Company's total stockholders' equity. Does not include SLST CDOs amounting to $1.1 billion, Residential CDOs amounting to $36.7 million and securitized debt amounting to $109.0 million as they are non-recourse debt to the Company. |
| |
(4) | Includes derivative liabilities of $27.8 million netted against a $41.9 million variation margin. |
| |
(5)
| Restricted cash is included inRepresents outstanding repurchase agreement financing divided by the Company’s accompanying condensed consolidated balance sheets in receivables and other assets.Company's total stockholders' equity. |
At December 31, 2018:2019:
| | | | Agency RMBS | | Residential Credit (1) | | Multi- Family Credit (2) | | Other | | Total | Agency | | Single-Family Credit | | Multi- Family Credit | | Other | | Total |
| Investment securities available for sale, at fair value | | $ | 973,835 |
| | $ | 715,314 |
| | $ | 267,777 |
| | $ | 49,214 |
| | $ | 2,006,140 |
|
| Residential loans, at fair value | | 26,239 |
| | 2,732,401 |
| | — |
| | — |
| | 2,758,640 |
|
| Residential collateralized debt obligations, at fair value | | — |
| | (1,052,829 | ) | | — |
| | — |
| | (1,052,829 | ) |
| Residential loans, net | | — |
| | 202,756 |
| | — |
| | — |
| | 202,756 |
|
| Residential collateralized debt obligations | | — |
| | (40,429 | ) | | — |
| | — |
| | (40,429 | ) |
| Investments in unconsolidated entities | | — |
| | 65,573 |
| | 124,392 |
| | — |
| | 189,965 |
|
| Preferred equity and mezzanine loan investments | | — |
| | — |
| | 180,045 |
| | — |
| | 180,045 |
|
| Multi-family loans held in securitization trusts, at fair value | | 88,359 |
| | — |
| | 17,728,387 |
| | — |
| | 17,816,746 |
|
| Multi-family collateralized debt obligations, at fair value | | — |
| | — |
| | (16,724,451 | ) | | — |
| | (16,724,451 | ) |
Other investments (1) | | — |
| | 3,119 |
| | 14,464 |
| | — |
| | 17,583 |
|
| Carrying value | $ | 1,037,730 |
| | $ | 1,252,770 |
| | $ | 1,166,628 |
| | $ | — |
| | $ | 3,457,128 |
| 1,088,433 |
| | 2,625,905 |
| | 1,590,614 |
| | 49,214 |
| | 5,354,166 |
|
| Liabilities: | | | | | | | | | | | | | | | | | | |
Callable (3) | (925,230 | ) | | (676,658 | ) | | (529,617 | ) | | — |
| | (2,131,505 | ) | |
| Non-callable | — |
| | (65,253 | ) | | (30,121 | ) | | (45,000 | ) | | (140,374 | ) | |
| Convertible | — |
| | — |
| | — |
| | (130,762 | ) | | (130,762 | ) | |
Hedges (Net) (4) | 10,263 |
| | — |
| | — |
| | — |
| | 10,263 |
| |
Cash and Restricted Cash (5) | 10,377 |
| | 20,859 |
| | 17,291 |
| | 60,618 |
| | 109,145 |
| |
| Repurchase agreements | | (945,926 | ) | | (1,347,600 | ) | | (811,890 | ) | | — |
| | (3,105,416 | ) |
| Subordinated debentures | | — |
| | — |
| | — |
| | (45,000 | ) | | (45,000 | ) |
| Convertible notes | | — |
| | — |
| | — |
| | (132,955 | ) | | (132,955 | ) |
Hedges (net) (2) | | 15,878 |
| | — |
| | — |
| | — |
| | 15,878 |
|
Cash, cash equivalents and restricted cash (3) | | 9,738 |
| | 44,604 |
| | 4,152 |
| | 63,118 |
| | 121,612 |
|
| Goodwill | — |
| | — |
| | — |
| | 25,222 |
| | 25,222 |
| — |
| | — |
| | — |
| | 25,222 |
| | 25,222 |
|
| Other | 2,374 |
| | 24,182 |
| | (4,929 | ) | | (40,451 | ) | | (18,824 | ) | (1,449 | ) | | 54,895 |
| | (10,123 | ) | | (71,801 | ) | | (28,478 | ) |
| Net capital allocated | $ | 135,514 |
| | $ | 555,900 |
| | $ | 619,252 |
| | $ | (130,373 | ) | | $ | 1,180,293 |
| $ | 166,674 |
| | $ | 1,377,804 |
| | $ | 772,753 |
| | $ | (112,202 | ) | | $ | 2,205,029 |
|
| | | | | | | | | | | |
Total Leverage Ratio (4) | | | | | | | | | | 1.5 |
|
Portfolio Leverage Ratio (5) | | | | | | | | | | 1.4 |
|
| |
(1) | Includes $737.5real estate under development in the amount of $14.5 million, other loan investments in the amount of distressed$2.4 million and otherdeferred interest related to residential mortgage loans, at fair value $285.3held in Consolidated SLST of $0.7 million, all of distressedwhich are included in the Company's accompanying condensed consolidated balance sheets in receivables and other residential mortgage loans at carrying value, $214.0 million of non-agency RMBS and $11.0 million of investments in unconsolidated entities.assets. |
| |
(2) | The Company, through its ownershipIncludes derivative liabilities of certain securities, has determined it is the primary beneficiary of the Consolidated K-Series and has consolidated the Consolidated K-Series into the Company’s condensed consolidated financial statements. A reconciliation to our financial statements as of December 31, 2018 follows:$29.0 million netted against a $44.8 million variation margin. |
|
| | | |
| Multi-family loans held in securitization trusts, at fair value | $ | 11,679,847 |
|
| Multi-family CDOs, at fair value | (11,022,248 | ) |
| Net carrying value | 657,599 |
|
| Investment securities available for sale, at fair value | 260,485 |
|
| Total CMBS, at fair value | 918,084 |
|
| Preferred equity investments, mezzanine loans and investments in unconsolidated entities | 228,067 |
|
| Real estate under development | 22,000 |
|
| Real estate held for sale in consolidated variable interest entities | 29,704 |
|
| Mortgages and notes payable in consolidated variable interest entities | (31,227 | ) |
| Repurchase agreements, investment securities | (529,617 | ) |
| Securitized debt | (30,121 | ) |
| Cash and other | 12,362 |
|
| Net Capital in Multi-Family Credit | $ | 619,252 |
|
| |
(3) | Includes repurchase agreements.Restricted cash is included in the Company's accompanying condensed consolidated balance sheets in receivables and other assets. |
| |
(4) | Includes derivative assets of $1.8Represents total outstanding repurchase agreement financing, subordinated debentures and Convertible Notes divided by the Company's total stockholders' equity. Does not include Multi-family CDOs amounting to $16.7 billion, SLST CDOs amounting to $1.1 billion and Residential CDOs amounting to $40.4 million and an $8.5 million variation margin.that are consolidated in the Company's financial statements as they are non-recourse debt to the Company. |
| |
(5) | Restricted cash is included inRepresents outstanding repurchase agreement financing divided by the Company’s accompanying condensed consolidated balance sheets in receivables and other assets.Company's total stockholders' equity. |
Analysis of Changes in Book Value Per Share
The following table analyzes the changes in book value of our common stock for the three and six months ended June 30, 2020 (amounts in thousands, except per share data):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 |
| | Amount | | Shares | | Per Share (1) | | Amount | | Shares | | Per Share (1) |
| Beginning Balance | $ | 1,469,220 |
| | 377,465 |
| | $ | 3.89 |
| | $ | 1,683,911 |
| | 291,371 |
| | $ | 5.78 |
|
Cumulative-effect adjustment for implementation of fair value option (2) | — |
| | | |
|
| | 12,284 |
| | | | |
Common stock issuance, net (3) | 2,429 |
| | — |
| |
|
| | 516,298 |
| | 86,094 |
| | |
| Balance after cumulative-effect adjustment and share issuance activity | 1,471,649 |
| | 377,465 |
| | 3.90 |
| | 2,212,493 |
| | 377,465 |
| | 5.86 |
|
| Dividends declared | (18,887 | ) | |
|
| | (0.05 | ) | | (18,887 | ) | | | | (0.05 | ) |
| Net change in accumulated other comprehensive income (loss): |
| |
| | | | | | | | |
Investment securities available for sale (4) | 82,604 |
| |
|
| | 0.22 |
| | (59,560 | ) | | | | (0.16 | ) |
| Net income (loss) attributable to Company's common stockholders | 107,517 |
| |
|
| | 0.28 |
| | (491,163 | ) | | | | (1.30 | ) |
| Ending Balance | $ | 1,642,883 |
| | 377,465 |
| | $ | 4.35 |
| | $ | 1,642,883 |
| | 377,465 |
| | $ | 4.35 |
|
| |
(1) | Outstanding shares used to calculate book value per common share for the three and six months ended June 30, 2020 are 377,465,405. |
| |
(2) | On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and elected to apply the fair value option provided by ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief to our residential loans, net, preferred equity and mezzanine loan investments that are accounted for as loans and preferred equity investments that are accounted for under the equity method, resulting in a cumulative-effect adjustment to beginning book value of our common stock and book value per common share. |
| |
(3) | Includes amortization of stock based compensation. |
| |
(4) | The changes primarily relate to unrealized gains (losses) in our investment securities due to increases or reductions in pricing. |
Results of Operations
ComparisonBeginning in mid-March and continuing into the second quarter, the global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to experience significant volatility. The significant dislocation in the financial markets in March and part of April caused, among other things, credit spread widening, a sharp decrease in interest rates, higher unemployment levels and unprecedented illiquidity in repurchase agreement financing and MBS markets, which in turn materially negatively impacted liquidity and pricing of our assets. While market conditions improved and volatility subsided to an extent in the latter part of the Threesecond quarter as parts of the global and Six Months Ended June 30, 2019U.S. economy "re-opened", leading to partial pricing recovery for a number of our assets, particularly investment securities, we expect volatility and markets to continue to fluctuate and that these conditions are likely to continue to negatively affect our business throughout 2020 due to the Threeuncertain duration and Six Months Ended June 30, 2018
Forongoing impact of the threepandemic. The factors described above and six months ended June 30, 2019, we reported net income attributablethroughout this Quarterly Report on Form 10-Q (particularly as related to the Company's common stockholdersCOVID-19 pandemic) have driven the majority of $16.5 million and $54.7 million, respectively, as compared to net income attributable to the Company's common stockholdersour results of $23.8 million and $47.5 million for the respective periods in 2018. The main components of the change in net incomeoperations for the three and six months ended June 30, 2020, and are expected to continue to impact our results of operations in future periods. Thus, our results of operations should be read and viewed in the context of these unprecedented conditions.
The following discussion provides information regarding our results of operations for the three and six months ended June 30, 2020 and 2019 as, including a comparison of year-over-year results and related commentary. A number of the tables contain a “change” column that indicates the amount by which results from 2020 are greater or less than the results from the respective period in 2019. Unless otherwise specified, references in this section to increases or decreases in the "three-month periods" refer to the change in results for the three months ended June 30, 2020 when compared to the same periods in 2018 are detailedthree months ended June 30, 2019 and increases or decreases in the following table (amounts"six-month periods" refer to the change in thousands, except per share data):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2019 | | 2018 | | $ Change | | 2019 | | 2018 | | $ Change |
| Net interest income | $ | 25,691 |
| | $ | 17,500 |
| | $ | 8,191 |
| | $ | 51,896 |
| | $ | 37,251 |
| | $ | 14,645 |
|
| Total other income | $ | 8,561 |
| | $ | 20,007 |
| | $ | (11,446 | ) | | $ | 39,424 |
| | $ | 40,961 |
| | $ | (1,537 | ) |
| Total general, administrative and operating expenses | $ | 12,394 |
| | $ | 8,769 |
| | $ | 3,625 |
| | $ | 25,038 |
| | $ | 17,467 |
| | $ | 7,571 |
|
| Income from operations before income taxes | $ | 21,858 |
| | $ | 28,738 |
| | $ | (6,880 | ) | | $ | 66,282 |
| | $ | 60,745 |
| | $ | 5,537 |
|
| Income tax benefit | $ | (134 | ) | | $ | (13 | ) | | $ | (121 | ) | | $ | (60 | ) | | $ | (92 | ) | | $ | 32 |
|
| Net income attributable to Company | $ | 22,735 |
| | $ | 29,694 |
| | $ | (6,959 | ) | | $ | 66,874 |
| | $ | 59,311 |
| | $ | 7,563 |
|
| Preferred stock dividends | $ | 6,257 |
| | $ | 5,925 |
| | $ | 332 |
| | $ | 12,182 |
| | $ | 11,850 |
| | $ | 332 |
|
| Net income attributable to Company's common stockholders | $ | 16,478 |
| | $ | 23,769 |
| | $ | (7,291 | ) | | $ | 54,692 |
| | $ | 47,461 |
| | $ | 7,231 |
|
| Basic earnings per common share | $ | 0.08 |
| | $ | 0.21 |
| | $ | (0.13 | ) | | $ | 0.29 |
| | $ | 0.42 |
| | $ | (0.13 | ) |
| Diluted earnings per common share | $ | 0.08 |
| | $ | 0.20 |
| | $ | (0.12 | ) | | $ | 0.29 |
| | $ | 0.40 |
| | $ | (0.11 | ) |
Net Interest Incomeresults for the six months ended June 30, 2020 when compared to the six months ended June 30, 2019.
The increases infollowing table presents the main components of our net interest income (loss) for the three and six months ended June 30, 2020 and 2019, as compared to the corresponding periods in 2018 were primarily driven by increases in average interest earning assets in our multi-family credit and residential credit portfolios resulting from purchase activity since June 30, 2018. These increases were partially offset by decreases in net interest income in our Agency RMBS portfolio due to reductions in average interest earning assets caused primarily by paydowns and the impact of our exit from our Agency IO portfolio in 2018 and increased prepayment rates and higher funding costs as compared to the corresponding periods in 2018.
See "Quarterly Comparative Portfolio Net Interest Margin" below for more information related to net interest income for the three and six months ended June 30, 2019 and 2018.
Other Income
Total other income decreased by $11.4 million for the three months ended June 30, 2019 as compared to the corresponding period in 2018. The change was primarily driven by:
A decrease in net realized loss on investment securities and related hedges of $8.8 million primarily related to the liquidation of the Agency IO portfolio in 2018.
An increase in net gain on distressed and other residential mortgage loans at fair value of $12.2 million primarily due to an increase in residential mortgage loans accounted for at fair value from purchases since June 30, 2018 and unrealized gains recognized during the current period.
A decrease in net unrealized gains on multi-family loans and debt held in securitization trusts of $6.8 million for the three months ended June 30, 2019 as compared to the corresponding period in 2018, primarily due to a deceleration in tightening of credit spreads as compared to the corresponding period in the prior year offset by an increase in multi-family CMBS owned by us.
An increase in net unrealized loss on investment securities and related hedges of $27.6 million primarily due to unrealized losses on our interest rate swaps accounted for as trading instruments during the three months
ended June 30, 2019. In addition, during the three months ended June 30, 2018, the Company reversed unrealized losses related to the liquidation of the Agency IO portfolio.
An increase in other income of $2.5 million for the three months ended June 30, 2019 as compared to the corresponding period in 2018, primarily due to an increase in preferred equity investments accounted for as equity and unrealized gains on our investments in unconsolidated entities.
Total other income decreased by $1.5 million for the six months ended June 30, 2019 as compared to the corresponding period in 2018. The change was primarily driven by:
An increase in net realized gain on investment securities and related hedges of $29.1 million primarily related to the sale of certain multi-family CMBS, where the Company recognized a realized gain of $16.8 million in the first quarter of 2019. Also, in 2018, the Company recognized $12.4 million in realized losses related to the liquidation of the Agency IO portfolio.
An increase in net gain on distressed and other residential mortgage loans at fair value of $23.4 million primarily due to an increase in residential mortgage loans accounted for at fair value from purchases since June 30, 2018 and unrealized gains recognized during the current period.
An increase in realized gain on distressed and other residential mortgage loans at carrying value of $2.7 million primarily due to increased sale activity during the six months ended June 30, 2019.
A decrease in net unrealized gains on multi-family loans and debt held in securitization trusts of $4.9 million for the six months ended June 30, 2019 as compared to the corresponding period in 2018, primarily due to a deceleration in tightening of credit spreads as compared to the corresponding period in the prior year.
An increase in net unrealized loss on investment securities and related hedges of $53.9 million primarily due to unrealized losses on our interest rate swaps accounted for as trading instruments during the six months ended June 30, 2019. In addition, during the six months ended June 30, 2018, the Company reversed unrealized losses due to the liquidation of the Agency IO portfolio.
An increase in other income of $6.2 million for the six months ended June 30, 2019 as compared to the corresponding period in 2018, primarily due to an increase in preferred equity investments accounted for as equity and an increase in realized gains on redemption of preferred equity investments.
Comparative Expenses(dollarrespectively (dollar amounts in thousands)thousands, except per share data):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| General, Administrative and Operating Expenses | | 2019 | | 2018 | | $ Change | | 2019 | | 2018 | | $ Change |
| General and Administrative Expenses | | | | | | | | | | | | |
| Salaries, benefits and directors’ compensation | | $ | 6,492 |
| | $ | 3,173 |
| | $ | 3,319 |
| | $ | 12,163 |
| | $ | 5,729 |
| | $ | 6,434 |
|
| Professional fees | | 1,142 |
| | 1,068 |
| | 74 |
| | 2,280 |
| | 2,206 |
| | 74 |
|
| Base management and incentive fees | | 543 |
| | 809 |
| | (266 | ) | | 1,266 |
| | 1,642 |
| | (376 | ) |
| Other | | 1,638 |
| | 1,035 |
| | 603 |
| | 3,016 |
| | 1,997 |
| | 1,019 |
|
| Operating Expenses | | | | | | | | | | | | |
| Expenses related to distressed and other residential mortgage loans | | 2,579 |
| | 1,811 |
| | 768 |
| | 5,831 |
| | 3,414 |
| | 2,417 |
|
| Expenses related to real estate held for sale in consolidated variable interest entities | | — |
| | 873 |
| | (873 | ) | | 482 |
| | 2,479 |
| | (1,997 | ) |
| Total | | $ | 12,394 |
| | $ | 8,769 |
|
| $ | 3,625 |
| | $ | 25,038 |
| | $ | 17,467 |
| | $ | 7,571 |
|
For the three and six months ended June 30, 2019 as compared to the corresponding periods in 2018, general and administrative expenses increased by $3.7 million and $7.2 million, respectively, primarily due to an increase in employee headcount as part of the internalization and expansion of our residential credit investment platform. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| Net interest income | $ | 28,526 |
| | $ | 25,691 |
| | $ | 2,835 |
| | $ | 75,607 |
| | $ | 51,896 |
| | $ | 23,711 |
|
| Total non-interest income (loss) | 104,412 |
| | 8,561 |
| | 95,851 |
| | (517,591 | ) | | 39,424 |
| | (557,015 | ) |
| Total general, administrative and operating expenses | 14,074 |
| | 12,394 |
| | 1,680 |
| | 27,958 |
| | 25,038 |
| | 2,920 |
|
| Income (loss) from operations before income taxes | 118,864 |
| | 21,858 |
| | 97,006 |
| | (469,942 | ) | | 66,282 |
| | (536,224 | ) |
| Income tax expense (benefit) | 1,927 |
| | (134 | ) | | 2,061 |
| | 1,688 |
| | (60 | ) | | 1,748 |
|
| Net income (loss) attributable to Company | 117,813 |
| | 22,735 |
| | 95,078 |
| | (470,570 | ) | | 66,874 |
| | (537,444 | ) |
Preferred stock dividends (1) | 10,296 |
| | 6,257 |
| | 4,039 |
| | 20,593 |
| | 12,182 |
| | 8,411 |
|
| Net income (loss) attributable to Company's common stockholders | 107,517 |
| | 16,478 |
| | 91,039 |
| | (491,163 | ) | | 54,692 |
| | (545,855 | ) |
| Basic earnings (loss) per common share | $ | 0.28 |
| | $ | 0.08 |
| | $ | 0.20 |
| | $ | (1.35 | ) | | $ | 0.29 |
| | $ | (1.64 | ) |
| Diluted earnings (loss) per common share | $ | 0.28 |
| | $ | 0.08 |
| | $ | 0.20 |
| | $ | (1.35 | ) | | $ | 0.29 |
| | $ | (1.64 | ) |
| |
(1) | For the six months ended June 30, 2020, includes preferred stock dividends declared in arrears in June 2020 for the quarterly period that began on January 15, 2020 and ended on April 14, 2020. |
For the three and six months ended June 30, 2019 as compared to the corresponding periods in 2018, expenses related to real estate held for sale in consolidated variable interest entities decreased by $0.9 million and $2.0 million, respectively, as a result of the de-consolidation of the variable interest entities after the sales of the real estate held by these entities.
For the three and six months ended June 30, 2019 as compared to the corresponding periods in 2018, expenses related to distressed and other residential mortgage loans increased by $0.8 million and $2.4 million, respectively, as a result of increased purchase activity in 2019.
Quarterly Comparative Portfolio Net Interest MarginIncome
Our results of operations for our investment portfolio during a given period typically reflect, in large part, the net interest income earned on our investment portfolio of RMBS, CMBS, distressedresidential loans and other residential mortgage loans (including loans accounted for at fair value and loans accounted for under ASC 310-10 and ASC 310-30), preferred equity investments and mezzanine loans, where the risks and payment characteristics are equivalent to and accounted for as loans and loans held for sale (collectively, our “Interest Earning Assets”). The net interest spread is impacted by factors such as our cost of financing, the interest rate that our investments bear and our interest rate hedging strategies. Furthermore, the amount of premium or discount paid on purchased portfolio investments and the prepayment rates on portfolio investments will impact the net interest spread as such factors will be amortized over the expected term of such investments.
Despite average interest earning assets decreasing in the three-month periods due to asset sales in response to the impacts of the COVID-19 pandemic, net interest income increased due to a combination of repayments of repurchase agreement financing in the first half of 2020 and lower financing costs which began in the third quarter of 2019. The increase in net interest income for the six-month periods was primarily driven by an increase in average interest earning assets in our investment portfolio resulting from purchase activity since June 30, 2019, which was funded by a combination of equity capital raised in 2019 and in the first quarter of 2020 and repurchase agreement financing. Interest expense also decreased for the six-month periods due the aforementioned repayments of repurchase agreement financing and lower financing costs.
Portfolio Net Interest Margin
The following tables set forth certain information about our portfolio by investment category and their related interest income, interest expense, weighted average yield on interest earning assets, average portfolio financing cost of funds and portfolio net interest margin for our average interest earning assets (by investment category) for the three and six months ended June 30, 20192020 and 2018,2019, respectively (dollar amounts in thousands):
Three Months Ended June 30, 2020 |
| | | | | | | | | | | | | | | |
| | Single-Family Credit (1) (3) | | Multi- Family Credit (2) | | Other (7) | | Total |
Interest Income (4) | $ | 29,530 |
| | $ | 8,854 |
| | $ | 1,428 |
| | $ | 39,812 |
|
| Interest Expense | (7,898 | ) | | (58 | ) | | (3,330 | ) | | (11,286 | ) |
| Net Interest Income (Expense) | $ | 21,632 |
| | $ | 8,796 |
| | $ | (1,902 | ) | | $ | 28,526 |
|
| | | | | | | | |
Average Interest Earning Assets (3) (5) | $ | 2,372,775 |
| | $ | 490,805 |
| | $ | 172,077 |
| | $ | 3,035,657 |
|
Average Yield on Interest Earning Assets (6) | 4.98 | % | | 7.22 | % | | 3.32 | % | | 5.25 | % |
Average Portfolio Financing Cost (7) | (2.82 | )% | | (3.00 | )% | | — |
| | (2.82 | )% |
Portfolio Net Interest Margin (8) | 2.16 | % | | 4.22 | % | | 3.32 | % | | 2.43 | % |
Three Months Ended June 30, 2019 | | | | Agency RMBS (1) | | Residential Credit | | Multi- Family Credit (2) (3) | | Other | | Total | Agency (9) | | Single-Family Credit | | Multi- Family Credit (2) (3) | | Other (7) | | Total |
Interest Income | $ | 6,758 |
| | $ | 18,725 |
| | $ | 26,834 |
| | $ | 29 |
| | $ | 52,346 |
| $ | 6,758 |
| | $ | 18,725 |
| | $ | 26,834 |
| | $ | 29 |
| | $ | 52,346 |
|
| Interest Expense | (5,887 | ) | | (10,092 | ) | | (7,246 | ) | | (3,430 | ) | | (26,655 | ) | (5,887 | ) | | (10,092 | ) | | (7,246 | ) | | (3,430 | ) | | (26,655 | ) |
| Net Interest Income (Expense) | $ | 871 |
| | $ | 8,633 |
| | $ | 19,588 |
| | $ | (3,401 | ) | | $ | 25,691 |
| $ | 871 |
| | $ | 8,633 |
| | $ | 19,588 |
| | $ | (3,401 | ) | | $ | 25,691 |
|
| | | | | | | | | | | | | | | | | | | |
Average Interest Earning Assets (3) (4)(5) | $ | 1,017,409 |
| | $ | 1,506,973 |
| | $ | 1,018,847 |
| | $ | 1,098 |
| | $ | 3,544,327 |
| $ | 1,017,409 |
| | $ | 1,506,973 |
| | $ | 1,018,847 |
| | $ | 1,098 |
| | $ | 3,544,327 |
|
Weighted Average Yield on Interest Earning Assets (5) | 2.66 | % | | 4.97 | % | | 10.54 | % | | 10.44 | % | | 5.91 | % | |
Average Cost of Funds (6) | (2.62 | )% | | (4.54 | )% | | (4.20 | )% | | — |
| | (3.75 | )% | |
Average Yield on Interest Earning Assets (6) | | 2.66 | % | | 4.97 | % | | 10.54 | % | | 10.44 | % | | 5.91 | % |
Average Portfolio Financing Cost (7) | | (2.62 | )% | | (4.54 | )% | | (4.20 | )% | | — |
| | (3.75 | )% |
Portfolio Net Interest Margin (7)(8) | 0.04 | % | | 0.43 | % | | 6.34 | % | | 10.44 | % | | 2.16 | % | 0.04 | % | | 0.43 | % | | 6.34 | % | | 10.44 | % | | 2.16 | % |
Six Months Ended June 30, 2020 |
| | | | | | | | | | | | | | | | | | | |
| | Agency (9) | | Single-Family Credit (1) (3) | | Multi- Family Credit (2) (3) | | Other (7) | | Total |
Interest Income (4) | $ | 6,401 |
| | $ | 63,823 |
| | $ | 39,068 |
| | $ | 2,837 |
| | $ | 112,129 |
|
| Interest Expense | (4,930 | ) | | (18,104 | ) | | (6,774 | ) | | (6,714 | ) | | (36,522 | ) |
| Net Interest Income (Expense) | $ | 1,471 |
| | $ | 45,719 |
| | $ | 32,294 |
| | $ | (3,877 | ) | | $ | 75,607 |
|
| | | | | | | | | | |
Average Interest Earning Assets (3) (5) | $ | 537,004 |
| | $ | 2,482,069 |
| | $ | 832,070 |
| | $ | 111,133 |
| | $ | 3,962,276 |
|
Average Yield on Interest Earning Assets (6) | 2.38 | % | | 5.14 | % | | 9.39 | % | | 5.11 | % | | 5.66 | % |
Average Portfolio Financing Cost (7) | (2.29 | )% | | (3.02 | )% | | (3.91 | )% | | — |
| | (3.02 | )% |
Portfolio Net Interest Margin (8) | 0.09 | % | | 2.12 | % | | 5.48 | % | | 5.11 | % | | 2.64 | % |
Six Months Ended June 30, 2019 |
| | | | | | | | | | | | | | | | | | | |
| | Agency (9) | | Single-Family Credit | | Multi- Family Credit (2) (3) | | Other (7) | | Total |
Interest Income (4) | $ | 14,326 |
| | $ | 38,107 |
| | $ | 51,067 |
| | $ | 29 |
| | $ | 103,529 |
|
| Interest Expense | (12,246 | ) | | (18,925 | ) | | (13,603 | ) | | (6,859 | ) | | (51,633 | ) |
| Net Interest Income (Expense) | $ | 2,080 |
| | $ | 19,182 |
| | $ | 37,464 |
| | $ | (6,830 | ) | | $ | 51,896 |
|
| | | | | | | | | | |
Average Interest Earning Assets (3) (5) | $ | 1,035,469 |
| | $ | 1,409,618 |
| | $ | 972,774 |
| | $ | 549 |
| | $ | 3,418,410 |
|
Average Yield on Interest Earning Assets (6) | 2.77 | % | | 5.41 | % | | 10.50 | % | | 10.44 | % | | 6.06 | % |
Average Portfolio Financing Cost (7) | (2.69 | )% | | (4.62 | )% | | (4.28 | )% | | — |
| | (3.79 | )% |
Portfolio Net Interest Margin (8) | 0.08 | % | | 0.79 | % | | 6.22 | % | | 10.44 | % | | 2.27 | % |
| |
(1) | The Company, through its ownership of certain securities purchased in the fourth quarter of 2019, has determined it is the primary beneficiary of Consolidated SLST and has consolidated Consolidated SLST into the Company's condensed consolidated financial statements. Interest income amounts represent interest income earned by securities that are owned by the Company. A reconciliation of net interest income generated by our single-family credit portfolio to our condensed consolidated financial statements for the three and six months ended June 30, 2020, respectively, is set forth below (dollar amounts in thousands): |
|
| | | | | | | | | | | | | | | | | | | |
| | Agency RMBS (1) | | Residential Credit | | Multi- Family Credit (2) (3) | | Other | | Total |
| Interest Income | $ | 14,326 |
| | $ | 38,107 |
| | $ | 51,067 |
| | $ | 29 |
| | $ | 103,529 |
|
| Interest Expense | (12,246 | ) | | (18,925 | ) | | (13,603 | ) | | (6,859 | ) | | (51,633 | ) |
| Net Interest Income (Expense) | $ | 2,080 |
| | $ | 19,182 |
| | $ | 37,464 |
| | $ | (6,830 | ) | | $ | 51,896 |
|
| | | | | | | | | | |
Average Interest Earning Assets (3) (4) | $ | 1,035,469 |
| | 1,409,618 |
| | $ | 972,774 |
| | $ | 549 |
| | $ | 3,418,410 |
|
Weighted Average Yield on Interest Earning Assets (5) | 2.77 | % | | 5.41 | % | | 10.50 | % | | 10.44 | % | | 6.06 | % |
Average Cost of Funds (6) | (2.69 | )% | | (4.62 | )% | | (4.28 | )% | | — |
| | (3.79 | )% |
Portfolio Net Interest Margin (7) | 0.08 | % | | 0.79 | % | | 6.22 | % | | 10.44 | % | | 2.27 | % |
|
| | | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 |
| Interest income, residential loans | $ | 29,420 |
| | $ | 63,720 |
|
Interest income, investment securities available for sale (a) | 8,268 |
| | 16,796 |
|
Interest expense, SLST CDOs (b) | (8,158 | ) | | (16,693 | ) |
| Interest income, Single-Family Credit, net | 29,530 |
| | 63,823 |
|
| Interest expense, repurchase agreements | (7,299 | ) | | (17,267 | ) |
Interest expense, Residential CDOs (b) | (130 | ) | | (368 | ) |
| Interest expense, securitized debt | (469 | ) | | (469 | ) |
| Net interest income, Single-Family Credit | $ | 21,632 |
| | $ | 45,719 |
|
| |
(a) | Included in the Company’s accompanying condensed consolidated statements of operations in interest income, investment securities and other interest earning assets. |
| |
(b) | Included in the Company’s accompanying condensed consolidated statements of operations in interest expense, residential collateralized debt obligations. |
Three Months Ended June 30, 2018 |
| | | | | | | | | | | | | | | | | | | |
| | Agency RMBS (1) | | Residential Credit | | Multi- Family Credit (2) (3) | | Other | | Total |
| Interest Income | $ | 7,851 |
| | $ | 6,906 |
| | $ | 18,280 |
| | $ | — |
| | $ | 33,037 |
|
| Interest Expense | (4,644 | ) | | (3,461 | ) | | (4,090 | ) | | (3,342 | ) | | (15,537 | ) |
| Net Interest Income (Expense) | $ | 3,207 |
| | $ | 3,445 |
| | $ | 14,190 |
| | $ | (3,342 | ) | | $ | 17,500 |
|
| | | | | | | | | | |
Average Interest Earning Assets (3) (4) | $ | 1,167,278 |
| | $ | 596,382 |
| | $ | 639,637 |
| | $ | — |
| | $ | 2,403,297 |
|
Weighted Average Yield on Interest Earning Assets (5) | 2.69 | % | | 4.63 | % | | 11.43 | % | | — |
| | 5.50 | % |
Average Cost of Funds (6) | (2.02 | )% | | (4.58 | )% | | (4.69 | )% | | — |
| | (3.11 | )% |
Portfolio Net Interest Margin (7) | 0.67 | % | | 0.05 | % | | 6.74 | % | | — |
| | 2.39 | % |
Six Months Ended June 30, 2018
|
| | | | | | | | | | | | | | | | | | | |
| | Agency RMBS (1) | | Residential Credit | | Multi- Family Credit (2) (3) | | Other | | Total |
| Interest Income | $ | 15,822 |
| | $ | 15,856 |
| | $ | 35,771 |
| | $ | — |
| | $ | 67,449 |
|
| Interest Expense | (9,051 | ) | | (6,557 | ) | | (7,979 | ) | | (6,611 | ) | | (30,198 | ) |
| Net Interest Income (Expense) | $ | 6,771 |
| | $ | 9,299 |
| | $ | 27,792 |
| | $ | (6,611 | ) | | $ | 37,251 |
|
| | | | | | | | | | |
Average Interest Earning Assets (3) (4) | $ | 1,188,089 |
| | $ | 600,208 |
| | $ | 630,579 |
| | $ | — |
| | $ | 2,418,876 |
|
Weighted Average Yield on Interest Earning Assets (5) | 2.66 | % | | 5.28 | % | | 11.35 | % | | — |
| | 5.58 | % |
Average Cost of Funds (6) | (1.92 | )% | | (4.32 | )% | | (4.60 | )% | | — |
| | (2.96 | )% |
Portfolio Net Interest Margin (7) | 0.74 | % | | 0.96 | % | | 6.75 | % | | — |
| | 2.62 | % |
| |
(1)
| Includes Agency fixed-rate RMBS, Agency ARMs and, solely with respect to the three and six months ended June 30, 2018, Agency IOs. |
| |
(2) | ThePrior to the sale of first loss POs in March 2020, the Company through its ownership of certain securities, hashad determined it iswas the primary beneficiary of the Consolidated K-Series and hashad consolidated the Consolidated K-Series into the Company’s condensed consolidated financial statements. Interest income amounts represent interest income earned by securities that are actuallywere owned by the Company. A reconciliation of our net interest income generated by our multi-family credit portfolio to our condensed consolidated financial statements for the three and six months ended June 30, 20192020 and 2018,2019, respectively, is set forth below (dollar amounts in thousands): |
| | | | Three Months Ended
June 30, | | Six Months Ended
June 30, | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 | | 2020 | | 2019 |
| Interest income, multi-family loans held in securitization trusts | $ | 133,157 |
| | $ | 85,629 |
| | $ | 244,925 |
| | $ | 170,721 |
| $ | — |
| | $ | 133,157 |
| | $ | 151,841 |
| | $ | 244,925 |
|
Interest income, investment securities, available for sale (a) | 3,443 |
| | 2,475 |
| | 7,698 |
| | 4,907 |
| |
Interest income, investment securities available for sale (a) | | 3,652 |
| | 3,443 |
| | 6,414 |
| | 7,698 |
|
| Interest income, preferred equity and mezzanine loan investments | 5,148 |
| | 4,862 |
| | 10,155 |
| | 9,308 |
| 5,202 |
| | 5,148 |
| | 10,575 |
| | 10,155 |
|
| Interest expense, multi-family collateralized debt obligations | (114,914 | ) | | (74,686 | ) | | (211,711 | ) | | (149,165 | ) | — |
| | (114,914 | ) | | (129,762 | ) | | (211,711 | ) |
| Interest income, Multi-Family Credit, net | 26,834 |
| | 18,280 |
| | 51,067 |
| | 35,771 |
| 8,854 |
| | 26,834 |
| | 39,068 |
| | 51,067 |
|
| Interest expense, repurchase agreements | (7,246 | ) | | (3,366 | ) | | (13,109 | ) | | (6,536 | ) | (58 | ) | | (7,246 | ) | | (6,774 | ) | | (13,109 | ) |
| Interest expense, securitized debt | — |
| | (724 | ) | | (494 | ) | | (1,443 | ) | — |
| | — |
| | — |
| | (494 | ) |
| Net interest income, Multi-Family Credit | $ | 19,588 |
| | $ | 14,190 |
| | $ | 37,464 |
| | $ | 27,792 |
| $ | 8,796 |
| | $ | 19,588 |
| | $ | 32,294 |
| | $ | 37,464 |
|
| |
(a) | Included in the Company’s accompanying condensed consolidated statements of operations in interest income, investment securities and other interest earning assets. |
| |
(3) | Average Interest Earning Assets for the periods indicated exclude all Consolidated SLST (for the three and six months ended June 30, 2020) and Consolidated K-Series assets (for the six months ended June 30, 2020 and the three and six months ended June 30, 2019) other than those securities actually owned by the Company. |
| |
(4) | Our Includes interest income earned on cash accounts held by the Company. |
| |
(5) | Average Interest Earning Assets is calculated each quarter based on daily average amortized cost for the respective periods. |
| |
(5)(6)
| Our Weighted Average Yield on Interest Earning Assets was calculated by dividing our annualized interest income by our Average Interest Earning Assets for the respective periods. |
| |
(6)(7)
| Our Average Portfolio Financing Cost of Funds was calculated by dividing our annualized interest expense relating to our interest earning assets by our average interest bearing liabilities, excluding our subordinated debentures and convertible notes, for the respective periods. For the three and six months ended June 30, 2020 and 2019, respectively, interest expense generated by our subordinated debentures and convertible notes generated interest expense of approximately $0.7 million and $2.7 million, respectively. For the six months ended June 30, 2019, our subordinated debentures and convertible notes generated interest expense of approximately $1.5 million and $5.4 million, respectively. For the three months ended June 30, 2018, our subordinated debentures and convertible notes generated interest expense of approximately $0.7 million and $2.7 million, respectively. For the six months ended June 30, 2018, our subordinated debentures and convertible notes generated interest expense of approximately $1.3 million and $5.3 million, respectively. Our Average Cost of Funds includes interest expense on our interest rate swaps.is set forth below (dollar amounts in thousands): |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Subordinated debentures | $ | 582 |
| | $ | 734 |
| | $ | 1,231 |
| | $ | 1,474 |
|
| Convertible notes | 2,739 |
| | 2,694 |
| | 5,474 |
| | 5,384 |
|
| Total | $ | 3,321 |
| | $ | 3,428 |
| | $ | 6,705 |
| | $ | 6,858 |
|
| |
(7)(8)
| Portfolio Net Interest Margin is the difference between our Weighted Average Yield on Interest Earning Assets and our Average Portfolio Financing Cost, of Funds, excluding the weighted average cost of subordinated debentures and convertible notes. |
| |
(9) | Includes Agency RMBS and Agency CMBS. |
Prepayment HistoryNon-interest Income (Loss)
Realized (Losses) Gains, Net
The Company sold approximately $108.9 million and $2.1 billion of assets during the three and six months ended June 30, 2020, respectively. The following table presents the components of realized (losses) gains, net recognized for the three and six months endedJune 30, 2020 and 2019, respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| Investment securities and related hedges | $ | (42 | ) | | $ | — |
| | $ | (42 | ) | | $ | (131,877 | ) | | $ | 16,801 |
| | $ | (148,678 | ) |
| Residential loans | (892 | ) | | 4,447 |
| | (5,339 | ) | | (16,975 | ) | | 9,652 |
| | (26,627 | ) |
| Total realized (losses) gains, net | $ | (934 | ) | | $ | 4,447 |
| | $ | (5,381 | ) | | $ | (148,852 | ) | | $ | 26,453 |
| | $ | (175,305 | ) |
During the six months ended June 30, 2020, the Company recognized net realized losses of $58.8 million on the sale of Agency RMBS, Agency CMBS, non-Agency RMBS and CMBS and realized losses of $73.1 million on the termination of interest rate swaps. During the six months ended June 30, 2019, the Company recognized $16.8 million of net realized gains on sales of certain Freddie Mac-sponsored multi-family loan K-Series first loss POs and IOs.
The Company also recognized net realized losses on residential loans in 2020, primarily as a result of the sale of performing and re-performing loans. The Company sold residential loans with an aggregate unpaid principal balance of $116.4 million that resulted in net realized losses of $18.2 million during the six months ended June 30, 2020. In 2019, the Company recognized net realized gains on residential loans in both the three- and six-month periods, primarily as a result of sale activity and loan prepayments.
Realized Loss on De-consolidation of Multi-family Loans Held in Securitization Trusts and Multi-family Collateralized Debt Obligations, Net
As previously discussed, the Company sold its entire portfolio of first loss POs and certain mezzanine securities issued by the Consolidated K-Series. These sales, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO and a realized net loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations of $54.1 million. The sales also resulted in the de-consolidation of $17.4 billion in multi-family loans held in securitization trusts and $16.6 billion in multi-family collateralized debt obligations.
Unrealized Gains (Losses), Net
The disruptions of the financial markets due to the COVID-19 pandemic caused credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets during the first quarter of 2020. These conditions put significant downward pressure on the fair value of our assets and resulted in unrealized losses for the first quarter. Pricing for our investment portfolio during the second quarter of 2020 rebounded somewhat with credit spreads tightening on a majority of our assets, which resulted in a partial reversal of unrealized losses recognized in the first quarter of 2020. The following table presents the components of unrealized gains (losses), net recognized for the three and six months ended June 30, 2020 and 2019, respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| Investment securities and related hedges | $ | 60,701 |
| | $ | (15,006 | ) | | $ | 75,707 |
| | $ | (9,889 | ) | | $ | (29,593 | ) | | $ | 19,704 |
|
| Residential loans | 38,202 |
| | 9,877 |
| | 28,325 |
| | (45,207 | ) | | 17,762 |
| | (62,969 | ) |
| Consolidated SLST | 4,096 |
| | — |
| | 4,096 |
| | (62,038 | ) | | — |
| | (62,038 | ) |
| Consolidated K-Series | — |
| | 5,207 |
| | (5,207 | ) | | (171,011 | ) | | 14,617 |
| | (185,628 | ) |
| Preferred equity and mezzanine loan investments | (127 | ) | | — |
| | (127 | ) | | (5,763 | ) | | — |
| | (5,763 | ) |
| Total unrealized gains (losses), net | $ | 102,872 |
| | $ | 78 |
| | $ | 102,794 |
| | $ | (293,908 | ) | | $ | 2,786 |
|
| $ | (296,694 | ) |
For the three months ended June 30, 2020, the Company recognized $57.0 million in net unrealized gains on investment securities that remained in our portfolio at the end of the period as a result of increases in fair value. For the six months ended June 30, 2020, the Company recognized $293.9 million in net unrealized losses. Included in unrealized losses on both investment securities and related hedges and the Consolidated K-Series are net unrealized gain reversals due to sales and interest rate swap terminations during the six months ended June 30, 2020 totaling $135.4 million.
Impairment of Goodwill
In March 2020, the Company sold its entire portfolio of first loss POs issued by the Consolidated K-Series, certain senior and mezzanine securities issued by the Consolidated K-Series, Agency CMBS and CMBS that were held by its multi-family investment reporting unit. As a result of the sales, the Company re-evaluated its goodwill balance associated with the multi-family investment reporting unit for impairment. This analysis yielded an impairment of the entire goodwill balance of $25.2 million.
Other Income
The following table sets forthpresents the actual constant prepayment rates (“CPR”) for our Agency fixed-rate RMBS and Agency ARM portfolios, by quarter,components of other income for the periods indicated:three and six months ended June 30, 2020 and 2019, respectively (dollar amounts in thousands):
|
| | | | | | | | | |
| Quarter Ended | | Weighted Average | | Agency Fixed-Rate RMBS | | Agency ARMs |
| June 30, 2019 | | 10.3 | % | | 9.6 | % | | 20.0 | % |
| March 31, 2019 | | 6.6 | % | | 6.5 | % | | 8.2 | % |
| December 31, 2018 | | 7.2 | % | | 6.8 | % | | 12.9 | % |
| September 30, 2018 | | 7.8 | % | | 7.3 | % | | 14.6 | % |
| June 30, 2018 | | 6.6 | % | | 5.9 | % | | 16.3 | % |
| March 31, 2018 | | 5.8 | % | | 5.4 | % | | 10.2 | % |
| December 31, 2017 | | 7.0 | % | | 6.3 | % | | 12.9 | % |
| September 30, 2017 | | 11.9 | % | | 12.8 | % | | 9.4 | % |
| June 30, 2017 | | 11.4 | % | | 9.6 | % | | 16.5 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
Income from preferred equity investments accounted for as equity (1) | $ | 4,024 |
| | $ | 1,656 |
| | $ | 2,368 |
| | $ | 3,062 |
| | $ | 3,099 |
| | $ | (37 | ) |
| Income from joint venture equity investments in multi-family properties | (1,310 | ) | | 1,698 |
| | (3,008 | ) | | (1,071 | ) | | 5,346 |
| | (6,417 | ) |
| Income from entities that invest in residential properties and loans | 1,398 |
| | 163 |
| | 1,235 |
| | 2,616 |
| | 395 |
| | 2,221 |
|
Preferred equity and mezzanine loan premiums resulting from early redemption (2) | — |
| | 522 |
| | (522 | ) | | 55 |
| | 3,364 |
| | (3,309 | ) |
Losses in Consolidated VIEs (3) | (1,780 | ) | | (1,459 | ) | | (321 | ) | | (2,121 | ) | | (1,973 | ) | | (148 | ) |
| Miscellaneous income | 142 |
| | 160 |
| | (18 | ) | | 1,968 |
| | 449 |
| | 1,519 |
|
| Total other income | $ | 2,474 |
| | $ | 2,740 |
| | $ | (266 | ) | | $ | 4,509 |
| | $ | 10,680 |
| | $ | (6,171 | ) |
| |
(1) | Includes income earned from preferred equity ownership interests in entities that invest in multi-family properties accounted for under the equity method of accounting. |
| |
(2) | Includes premiums resulting from early redemptions of preferred equity and mezzanine loan investments accounted for as loans. |
| |
(3) | Losses in Consolidated VIEs exclude income or loss from the Consolidated K-Series and Consolidated SLST and are offset by allocations of losses or increased by allocations of income to non-controlling interests in the respective Consolidated VIEs, resulting in net losses to the Company of $0.9 million and $0.7 million for the three months ended June 30, 2020 and 2019, respectively, and $1.1 million and $1.8 million for the six months ended June 30, 2020 and 2019, respectively. |
When prepayment expectations over the remaining life90
Financial ConditionThe decrease in other income during the three-month periods is primarily due to a decrease of $3.0 million in income generated from the Company's remaining joint venture equity investments. The decrease was partially offset by an increase of $2.4 million in income from preferred equity investments accounted for as equity due to additional investments made since June 30, 2019.
AsThe decrease in other income during the six-month periods is primarily due to a decrease of $6.4 million in income generated from the Company's remaining joint venture equity investments and fewer redemptions of preferred equity and mezzanine loan investments in 2020. The overall decrease in other income during the six-month periods was partially offset by a $2.2 million increase in income from entities that invest in residential properties and loans due to an additional investment made in the latter part of the second quarter of 2019.
Expenses
The following tables present the components of general, administrative and operating expenses for the three and six months ended June 30, 2020 and 2019, we had approximately $18.3 billionrespectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| General and Administrative Expenses | | | | | | | | | | | |
| Salaries, benefits and directors’ compensation | $ | 8,586 |
| | $ | 6,492 |
| | $ | 2,094 |
| | $ | 15,771 |
| | $ | 12,163 |
| | $ | 3,608 |
|
| Professional fees | 1,164 |
| | 1,142 |
| | 22 |
| | 2,937 |
| | 2,280 |
| | 657 |
|
Other (1) | 2,073 |
| | 2,181 |
| | (108 | ) | | 3,920 |
| | 4,282 |
| | (362 | ) |
| Total general and administrative expenses | $ | 11,823 |
| | $ | 9,815 |
| | $ | 2,008 |
| | $ | 22,628 |
| | $ | 18,725 |
| | $ | 3,903 |
|
| |
(1) | Includes base management and incentive fees. |
The increase in compensation in the three- and six- month periods is primarily due to an increase in employee headcount as part of total assets, as compared to approximately $14.7 billion of total assets as of December 31, 2018. A significant portionthe internalization and expansion of our assets representssingle-family credit investment platform and overall asset growth which was partially offset by the assets comprising the Consolidated K-Series, which we consolidate in accordance with GAAP. Aselimination of June 30, 2019 and December 31, 2018, the Consolidated K-Series assets amounted to approximately $14.6 billion and $11.7 billion, respectively. For a reconciliation of our actual interestmanagement fees. Professional fees also increased in the Consolidated K-Series to oursix-month periods as a result of additional legal expenses incurred in March 2020 in connection with the disruptions in the financial statements, see "Capital Allocation" and "Quarterly Comparative Portfolio Net Interest Margin" above.markets.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| Operating Expenses | | | | | | | | | | | |
| Expenses related to residential loans | $ | 2,251 |
| | $ | 2,579 |
| | $ | (328 | ) | | $ | 5,330 |
| | $ | 5,831 |
| | $ | (501 | ) |
| Expenses related to real estate held for sale in Consolidated VIEs | — |
| | — |
| | — |
| | — |
| | 482 |
| | $ | (482 | ) |
| Total | $ | 2,251 |
| | $ | 2,579 |
| | $ | (328 | ) | | $ | 5,330 |
| | $ | 6,313 |
| | $ | (983 | ) |
Comprehensive Income (Loss)
The main components of comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019, respectively, are detailed in the following table (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended
June 30, |
| | 2020 | | 2019 | | $ Change | | 2020 | | 2019 | | $ Change |
| NET INCOME (LOSS) ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS | $ | 107,517 |
| | $ | 16,478 |
| | $ | 91,039 |
| | $ | (491,163 | ) | | $ | 54,692 |
| | $ | (545,855 | ) |
| OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | | | | | | |
| Increase (decrease) in fair value of available for sale securities | | | | | | | | | | | |
| Agency RMBS | — |
| | 12,971 |
| | (12,971 | ) | | — |
| | 29,768 |
| | (29,768 | ) |
| Non-Agency RMBS | 69,032 |
| | 1,074 |
| | 67,958 |
| | (46,107 | ) | | 5,697 |
| | (51,804 | ) |
| CMBS | 9,241 |
| | 6,075 |
| | 3,166 |
| | (10,947 | ) | | 11,367 |
| | (22,314 | ) |
| ABS | — |
| | (28 | ) | | 28 |
| | — |
| | (28 | ) | | 28 |
|
| Total | 78,273 |
| | 20,092 |
| | 58,181 |
| | (57,054 | ) | | 46,804 |
| | (103,858 | ) |
| Reclassification adjustment for net loss (gain) included in net income (loss) | 4,331 |
| | — |
| | 4,331 |
| | (2,506 | ) | | (13,665 | ) | | 11,159 |
|
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS) | 82,604 |
| | 20,092 |
| | 62,512 |
| | (59,560 | ) | | 33,139 |
| | (92,699 | ) |
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS | $ | 190,121 |
| | $ | 36,570 |
| | $ | 153,551 |
| | $ | (550,723 | ) | | $ | 87,831 |
| | $ | (638,554 | ) |
The changes in other comprehensive income ("OCI") for the three-month periods can be attributed primarily to an increase in the fair value of our investment securities where fair value option was not elected due to significant credit spread tightening in the second quarter of 2020 from levels that had significantly widened from the impact of the COVID-19 pandemic in the first quarter of 2020.
The changes in OCI for the six-month periods can be attributed primarily to a decrease in the fair value of our investment securities where fair value option was not elected as a result of significant spread widening during the first quarter of 2020 due to the market turmoil caused by the COVID-19 pandemic. Additionally, previously recognized net unrealized gains reported in OCI were reclassified to net realized loss in relation to the sale of certain investment securities during the first half of 2020. As noted above, these losses were partially offset by fair value increases during the second quarter of 2020.
Beginning in the fourth quarter of 2019, the Company’s newly purchased investment securities are presented at fair value as a result of a fair value election made at the time of acquisition pursuant to ASC 825, Financial Instruments (“ASC 825”). The fair value option was elected for these investment securities to provide stockholders and others who rely on our financial statements with a more complete and accurate understanding of our economic performance. Changes in the market values of investment securities where the Company elected the fair value option are reflected in earnings instead of in OCI.
Balance Sheet Analysis
As of June 30, 2020, we had approximately $4.6 billion of total assets. Included in this amount was approximately $1.3 billion of assets held in Consolidated SLST, which we consolidate in accordance with GAAP.
As of December 31, 2019, we had approximately $23.5 billion of total assets, $17.9 billion of which represented assets comprising the Consolidated K-Series that we consolidated in accordance with GAAP. The Company subsequently sold its first loss POs and certain mezzanine securities issued by the Consolidated K-Series resulting in the de-consolidation of $17.4 billion in multi-family loan assets. The Company had no claims to the assets or obligations for the liabilities of the Consolidated K-Series (other than those securities that were owned by the Company). As of December 31, 2019, Consolidated SLST assets amounted to approximately $1.3 billion.
For a reconciliation of our actual interests in Consolidated SLST and the Consolidated K-Series to our financial statements, see “Capital Allocation” and “Portfolio Net Interest Margin” above.
Investment Securities Available for Sale.
At June 30, 2019,2020, our investment securities portfolio includes Agencyincluded non-Agency RMBS, including Agency fixed-rate and Agency ARMs, CMBS non-Agency RMBS and ABS, which are classified as investment securities available for sale. Our securities investments also included first loss subordinated securities and certain IOs issued by Consolidated SLST. At June 30, 2019,2020, we had no investment securities in a single issuer or entity that had an aggregate book value in excess of 10%5% of our total assets. The increasedecrease in the carrying value of our investment securities available for sale as of June 30, 20192020 as compared to December 31, 20182019 is primarily due to purchasesour $2.0 billion in asset sales related to our response to the significant disruption in the financial markets caused by the COVID-19 pandemic, including $1.1 billion of multi-family CMBS,our entire portfolio of Agency securities (including Agency RMBS issued by Consolidated SLST), $555.2 million of first loss POs and certain mezzanine securities issued by the Consolidated K-Series, $168.8 million of non-Agency RMBS and ABS during$138.1 million of CMBS. The decrease in carrying value was also due to a decline in the period and an increase in fair value of a number of our investment securities partially offset by salessince December 31, 2019 as a result of multi-family CMBS during the period.ongoing pandemic.
The following tables set forth the balances ofsummarize our investment securities available for sale by vintage (i.e., by issue year)portfolio as of June 30, 20192020 and December 31, 2018,2019, respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Par Value | | Carrying Value | | Par Value | | Carrying Value |
| Agency RMBS | | | | | | | |
| ARMs | | | | | | | |
| Prior to 2012 | $ | 10,149 |
| | $ | 10,570 |
| | $ | 11,813 |
| | $ | 12,257 |
|
| 2012 | 50,962 |
| | 51,949 |
| | 58,547 |
| | 59,137 |
|
| Total ARMs | 61,111 |
| | 62,519 |
| | 70,360 |
| | 71,394 |
|
| Fixed-Rate | |
| | |
| | |
| | |
|
| Prior to 2012 | 260 |
| | 266 |
| | 357 |
| | 358 |
|
| 2012 | 187,715 |
| | 191,732 |
| | 207,667 |
| | 207,572 |
|
| 2015 | 2,349 |
| | 2,426 |
| | 2,386 |
| | 2,392 |
|
| 2017 | 696,024 |
| | 718,592 |
| | 735,959 |
| | 736,851 |
|
| 2018 | 18,115 |
| | 18,665 |
| | 19,132 |
| | 19,163 |
|
| Total Fixed-Rate | 904,463 |
| | 931,681 |
| | 965,501 |
| | 966,336 |
|
| | | | | | | | |
| Total Agency RMBS | 965,574 |
| | 994,200 |
| | 1,035,861 |
| | 1,037,730 |
|
| | | | | | | | |
| Non-Agency RMBS | |
| | |
| | |
| | |
|
| 2006 | 146 |
| | 133 |
| | 173 |
| | 156 |
|
| 2017 | 13,000 |
| | 12,968 |
| | 19,000 |
| | 18,691 |
|
| 2018 | 511,971 |
| | 219,202 |
| | 196,919 |
| | 195,190 |
|
| 2019 | 572,275 |
| | 200,537 |
| | — |
| | — |
|
| Total Non-Agency RMBS | 1,097,392 |
| | 432,840 |
| | 216,092 |
| | 214,037 |
|
| | | | | | | | |
| CMBS | | | | | | | |
Prior to 2013 (1) | — |
| | — |
| | 807,319 |
| | 52,700 |
|
| 2016 | 14,474 |
| | 15,471 |
| | 20,228 |
| | 21,444 |
|
| 2017 | 48,563 |
| | 49,130 |
| | 50,243 |
| | 48,840 |
|
| 2018 | 143,118 |
| | 145,073 |
| | 143,680 |
| | 137,501 |
|
| 2019 | 81,509 |
| | 82,416 |
| | — |
| | — |
|
| Total CMBS | 287,664 |
| | 292,090 |
| | 1,021,470 |
| | 260,485 |
|
| | | | | | | | |
| ABS | | | | | | | |
| 2019 | 65 |
| | 24,739 |
| | — |
| | — |
|
| Total ABS | 65 |
| | 24,739 |
| | — |
| | — |
|
| | | | | | | | |
| Total | $ | 2,350,695 |
| | $ | 1,743,869 |
| | $ | 2,273,423 |
| | $ | 1,512,252 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 |
| | | | | | Unrealized | | | | Weighted Average | | |
| Investment Securities | Current Par Value | | Amortized Cost | | Gains | | Losses | | Fair Value | | Coupon (1) | | Yield (2) | | Outstanding Repurchase Agreements |
| Available for Sale (“AFS”) | | | | | | | | | | | | | | | |
| Non-Agency RMBS | | | | | | | | | | | | | | | |
| Senior | $ | 205,535 |
| | $ | 205,757 |
| | $ | — |
| | $ | (9,867 | ) | | $ | 195,890 |
| | 3.66 | % | | 3.83 | % | | $ | — |
|
| Mezzanine | 252,547 |
| | 249,516 |
| | — |
| | (21,569 | ) | | 227,947 |
| | 4.40 | % | | 5.08 | % | | — |
|
| Subordinated | 232,985 |
| | 222,739 |
| | — |
| | (21,844 | ) | | 200,895 |
| | 4.83 | % | | 5.27 | % | | — |
|
| IO | 655,153 |
| | 7,429 |
| | 438 |
| | (2,403 | ) | | 5,464 |
| | 0.44 | % | | 5.92 | % | | — |
|
| Total Non-Agency RMBS | 1,346,220 |
| | 685,441 |
| | 438 |
| | (55,683 | ) | | 630,196 |
| | 2.33 | % | | 4.68 | % | | — |
|
| CMBS | | | | | | | | | | | | | | | |
| Mezzanine | 213,629 |
| | 205,945 |
| | 10,392 |
| | (7,801 | ) | | 208,536 |
| | 4.31 | % | | 4.86 | % | | — |
|
| Subordinated | 6,000 |
| | 6,000 |
| | — |
| | (1,483 | ) | | 4,517 |
| | 8.08 | % | | 8.08 | % | | — |
|
| IO | 12,284,263 |
| | 79,711 |
| | — |
| | (4,652 | ) | | 75,059 |
| | 0.10 | % | | 4.71 | % | | — |
|
| Total CMBS | 12,503,892 |
| | 291,656 |
| | 10,392 |
| | (13,936 | ) | | 288,112 |
| | 0.20 | % | | 4.86 | % | | — |
|
| ABS | | | | | | | | | | | | | | | |
| Residuals | 113 |
| | 45,969 |
| | — |
| | (3,469 | ) | | 42,500 |
| | — |
| | 11.14 | % | | — |
|
| Total ABS | 113 |
| | 45,969 |
| | — |
| | (3,469 | ) | | 42,500 |
| | — |
| | 11.14 | % | | — |
|
| Total - AFS | $ | 13,850,225 |
| | $ | 1,023,066 |
| | $ | 10,830 |
| | $ | (73,088 | ) | | $ | 960,808 |
| | 0.77 | % | | 4.23 | % | | $ | — |
|
| Consolidated SLST | | | | | | | | | | | | | | | |
| Non-Agency RMBS | | | | | | | | | | | | | | | |
| Subordinated | $ | 256,807 |
| | $ | 214,328 |
| | $ | — |
| | $ | (57,805 | ) | | $ | 156,523 |
| | 4.68 | % | | 4.94 | % | | $ | 87,571 |
|
| IO | 219,698 |
| | 33,103 |
| | — |
| | (4,316 | ) | | 28,787 |
| | 3.50 | % | | 8.28 | % | | — |
|
| Total Non-Agency RMBS | 476,505 |
| | 247,431 |
| | — |
| | (62,121 | ) | | 185,310 |
| | 4.13 | % | | 5.40 | % | | 87,571 |
|
| Total - Consolidated SLST | $ | 476,505 |
| | $ | 247,431 |
| | $ | — |
| | $ | (62,121 | ) | | 185,310 |
| | 4.13 | % | | 5.40 | % | | $ | 87,571 |
|
| Total Investment Securities | $ | 14,326,730 |
| | $ | 1,270,497 |
| | $ | 10,830 |
| | $ | (135,209 | ) | | $ | 1,146,118 |
| | 0.68 | % | | 5.58 | % | | $ | 87,571 |
|
| |
(1) | These amounts represent first loss POs and certain IOs held in securitization trusts at December 31, 2018. These securities were sold in March 2019.Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods. |
| |
(2) | Our weighted average yield was calculated by dividing our annualized interest income by our weighted average amortized cost for the respective periods. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | | | | | Unrealized | | | | Weighted Average | | |
| Investment Securities | Current Par Value | | Amortized Cost | | Gains | | Losses | | Fair Value | | Coupon (1) | | Yield (2) | | Outstanding Repurchase Agreements |
| Available for Sale (“AFS”) | | | | | | | | | | | | | | | |
| Agency RMBS |
|
|
| |
| |
| |
| | | | | |
|
| Agency Fixed-Rate | $ | 836,223 |
| | $ | 867,236 |
| | $ | 7,397 |
| | $ | (6,162 | ) | | $ | 868,471 |
| | 3.38 | % | | 2.61 | % | | $ | 746,834 |
|
| Agency ARMs | 53,038 |
| | 55,740 |
| | 13 |
| | (1,347 | ) | | 54,406 |
| | 3.21 | % | | 1.68 | % | | 41,765 |
|
| Total Agency RMBS | 889,261 |
| | 922,976 |
| | 7,410 |
| | (7,509 | ) | | 922,877 |
| | 3.37 | % | | 2.55 | % | | 788,599 |
|
| Agency CMBS | | | | | | | | | | | | | | | |
| Senior | 51,184 |
| | 51,334 |
| | 19 |
| | (395 | ) | | 50,958 |
| | 2.45 | % | | 2.41 | % | | 48,640 |
|
| Total Agency CMBS | 51,184 |
| | 51,334 |
| | 19 |
| | (395 | ) | | 50,958 |
| | 2.45 | % | | 2.41 | % | | 48,640 |
|
| Total Agency | 940,445 |
| | 974,310 |
| | 7,429 |
| | (7,904 | ) | | 973,835 |
| | 3.36 | % | | 2.55 | % | | 837,239 |
|
| Non-Agency RMBS | | | | | | | | | | | | | | | |
| Senior | 260,604 |
| | 260,741 |
| | 1,971 |
| | (13 | ) | | 262,699 |
| | 4.65 | % | | 4.66 | % | | 194,024 |
|
| Mezzanine | 285,760 |
| | 281,743 |
| | 8,713 |
| | — |
| | 290,456 |
| | 5.24 | % | | 5.59 | % | | 179,424 |
|
| Subordinated | 150,961 |
| | 150,888 |
| | 2,518 |
| | (2 | ) | | 153,404 |
| | 5.64 | % | | 5.66 | % | | 70,390 |
|
| IO | 842,577 |
| | 8,211 |
| | 1,790 |
| | (1,246 | ) | | 8,755 |
| | 0.42 | % | | 5.93 | % | | — |
|
| Total Non-Agency RMBS | 1,539,902 |
| | 701,583 |
| | 14,992 |
| | (1,261 | ) | | 715,314 |
| | 2.68 | % | | 5.26 | % | | 443,838 |
|
| CMBS | | | | | | | | | | | | | | | |
| Mezzanine | 261,287 |
| | 254,620 |
| | 13,300 |
| | (143 | ) | | 267,777 |
| | 5.00 | % | | 5.37 | % | | 142,230 |
|
| Total CMBS | 261,287 |
| | 254,620 |
| | 13,300 |
| | (143 | ) | | 267,777 |
| | 5.00 | % | | 5.37 | % | | 142,230 |
|
| ABS | | | | | | | | | | | | | | | |
| Residuals | 113 |
| | 49,902 |
| | — |
| | (688 | ) | | 49,214 |
| | — |
| | 10.70 | % | | — |
|
| Total ABS | 113 |
| | 49,902 |
| | — |
| | (688 | ) | | 49,214 |
| | — |
| | 10.70 | % | | — |
|
| Total - AFS | $ | 2,741,747 |
| | $ | 1,980,415 |
| | $ | 35,721 |
| | $ | (9,996 | ) | | $ | 2,006,140 |
| | 3.25 | % | | 3.71 | % | | $ | 1,423,307 |
|
| Consolidated K-Series | | | | | | | | | | | | | | | |
| Agency CMBS | | | | | | | | | | | | | | | |
| Senior | $ | 86,355 |
| | $ | 88,784 |
| | $ | — |
| | $ | (425 | ) | | $ | 88,359 |
| | 2.74 | % |
| 2.34 | % | | $ | 84,544 |
|
| Total Agency CMBS | 86,355 |
| | 88,784 |
| | — |
| | (425 | ) | | 88,359 |
| | 2.74 | % | | 2.34 | % | | 84,544 |
|
| CMBS | | | | | | | | | | | | | | | |
| Mezzanine | 92,926 |
| | 83,264 |
| | 12,271 |
| | — |
| | 95,535 |
| | 4.21 | % | | 5.70 | % | | 59,579 |
|
| PO | 1,375,874 |
| | 654,849 |
| | 169,678 |
| | — |
| | 824,527 |
| | — |
| | 13.98 | % | | 571,403 |
|
| IO | 12,364,412 |
| | 83,960 |
| | 138 |
| | (224 | ) | | 83,874 |
| | 0.10 | % | | 4.66 | % | | 38,678 |
|
| Total CMBS | 13,833,212 |
| | 822,073 |
| | 182,087 |
| | (224 | ) | | 1,003,936 |
| | 0.13 | % | | 12.10 | % | | 669,660 |
|
| Total - Consolidated K-Series | $ | 13,919,567 |
| | $ | 910,857 |
| | $ | 182,087 |
| | $ | (649 | ) | | $ | 1,092,295 |
| | 0.13 | % | | 11.92 | % | | $ | 754,204 |
|
| Consolidated SLST | | | | | | | | | | | | | | | |
| Agency RMBS | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Senior | $ | 25,902 |
| | $ | 26,227 |
| | $ | 11 |
| | $ | — |
| | $ | 26,238 |
| | 2.83 | % | | 2.53 | % | | $ | 24,143 |
|
| Total Agency RMBS | 25,902 |
| | 26,227 |
| | 11 |
| | — |
| | 26,238 |
| | 2.83 | % | | 2.53 | % | | 24,143 |
|
| Non-Agency RMBS | | | | | | | | | | | | | | | |
| Subordinated | 256,093 |
| | 215,034 |
| | — |
| | (275 | ) | | 214,759 |
| | 5.62 | % | | 7.23 | % | | 150,448 |
|
| IO | 228,437 |
| | 35,592 |
| | 181 |
| | — |
| | 35,773 |
| | 3.60 | % | | 8.58 | % | | — |
|
| Total Non-Agency RMBS | 484,530 |
| | 250,626 |
| | 181 |
| | (275 | ) | | 250,532 |
| | 4.67 | % | | 7.42 | % | | 150,448 |
|
| Total - Consolidated SLST | $ | 510,432 |
| | $ | 276,853 |
| | $ | 192 |
| | $ | (275 | ) | | $ | 276,770 |
| | 4.58 | % | | 6.96 | % | | $ | 174,591 |
|
| Total Investment Securities | $ | 17,171,746 |
| | $ | 3,168,125 |
| | $ | 218,000 |
| | $ | (10,920 | ) | | $ | 3,375,205 |
| | 0.69 | % | | 6.02 | % | | $ | 2,352,102 |
|
| |
(1) | Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods. |
| |
(2) | Our weighted average yield was calculated by dividing our annualized interest income by our weighted average amortized cost for the respective periods. |
Consolidated SLST and Consolidated K-SeriesDistressed and Other Residential Mortgage Loans, at Fair Value
CertainConsolidated SLST
The Company owns first loss subordinated securities and certain IOs issued by a Freddie Mac-sponsored residential loan securitization. In accordance with GAAP, the Company has consolidated the underlying seasoned re-performing and non-performing residential loans of the securitization and the SLST CDOs issued to permanently finance these residential loans, representing Consolidated SLST.
We do not have any claims to the assets or obligations for the liabilities of Consolidated SLST (other than those securities owned by the Company). Our investment in Consolidated SLST as of June 30, 2020 was limited to the RMBS comprised of first loss subordinated securities and IOs issued by the securitization with an aggregate net carrying value of $185.3 million. In March 2020, we sold our entire investment in the senior securities issued by Consolidated SLST. As of December 31, 2019, our investment in Consolidated SLST was limited to the RMBS comprised of first loss subordinated securities, IOs and senior securities with an aggregate carrying value of $276.8 million.
The following table details the loan characteristics of the underlying residential loans that back our first loss subordinated securities of Consolidated SLST as of June 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands, except as noted):
|
| | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
| Current balance of loans | $ | 1,283,350 |
| | $ | 1,322,131 |
|
| Number of loans | 7,918 |
| | 8,103 |
|
| Current average loan size | $ | 158,029 |
| | $ | 162,804 |
|
| Weighted average original loan term (in months) | 351 |
| | 351 |
|
| Weighted average LTV at purchase | 66.0 | % | | 66.2 | % |
| Weighted average credit score at purchase | 710 |
| | 711 |
|
| | | | |
| Current Coupon: | | | |
| 3.00% or less | 3.2 | % | | 3.8 | % |
| 3.01% – 4.00% | 36.0 | % | | 35.2 | % |
| 4.01% – 5.00% | 40.2 | % | | 40.2 | % |
| 5.01% – 6.00% | 12.3 | % | | 12.4 | % |
| 6.01% and over | 8.3 | % | | 8.4 | % |
| | | | |
| Delinquency Status: | | | |
| Current | 69.2 | % | | 47.6 | % |
| 31 - 60 | 12.6 | % | | 35.5 | % |
| 61 - 90 | 6.6 | % | | 13.1 | % |
| 90+ | 11.6 | % | | 3.8 | % |
| | | | |
| Origination Year: | | |
|
| 2005 or earlier | 30.9 | % | | 30.9 | % |
| 2006 | 15.4 | % | | 15.4 | % |
| 2007 | 20.8 | % | | 20.7 | % |
| 2008 or later | 32.9 | % | | 33.0 | % |
| | | | |
| Geographic state concentration (greater than 5.0%): | | | |
| California | 10.9 | % | | 11.0 | % |
| Florida | 10.6 | % | | 10.6 | % |
| New York | 9.1 | % | | 9.1 | % |
| New Jersey | 7.0 | % | | 6.9 | % |
| Illinois | 6.7 | % | | 6.6 | % |
Consolidated K-Series
In March 2020, in response to the market turmoil related to the COVID-19 pandemic, the Company elected to sell its entire portfolio of first loss POs and certain mezzanine securities issued by the Consolidated K-Series. The Consolidated K-Series were comprised of multi-family mortgage loans held in, and related debt issued by, Freddie Mac-sponsored multi-family loan K-Series securitizations of which we, or one of our SPEs, owned the first loss POs and, in certain cases, IOs and/or senior or mezzanine securities issued by these securitizations. We determined that the securitizations comprising the Consolidated K-Series were VIEs and that we were the primary beneficiary of these securitizations. Accordingly, we were required to consolidate the Consolidated K-Series’ underlying multi-family loans and related debt, income and expense in our condensed consolidated financial statements. The sales of the first loss POs and certain mezzanine securities issued by the Consolidated K-Series, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO, a realized net loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations of $54.1 million and reversal of previously recognized net unrealized gains of $168.5 million. The sales also resulted in the de-consolidation of $17.4 billion in multi-family loans held in securitization trusts and $16.6 billion in multi-family collateralized debt obligations. Also in March 2020, the Company transferred its remaining IOs and mezzanine and senior securities owned in the Consolidated K-Series with a fair value of approximately $237.3 million to investment securities available for sale.
As of December 31, 2019, we owned 100% of the first loss POs of the Consolidated K-Series. We did not have any claims to the assets (other than those securities owned by the Company) or obligations for the liabilities of the Consolidated K-Series. Our investment in the Consolidated K-Series was limited to the multi-family CMBS comprised of first loss POs, and, in certain cases, IOs, senior or mezzanine securities, issued by these K-Series securitizations with an aggregate net carrying value of $1.1 billion as of December 31, 2019.
Multi-family CMBS - Consolidated K-Series Loan Characteristics:
The following table details the loan characteristics of the underlying multi-family mortgage loans that backed our multi-family CMBS first loss POs as of December 31, 2019 (dollar amounts in thousands, except as noted):
|
| | | |
| | December 31, 2019 |
| Current balance of loans | $ | 16,759,382 |
|
| Number of loans | 828 |
|
| Weighted average original LTV | 68.2 | % |
| Weighted average underwritten debt service coverage ratio | 1.48x |
|
| Current average loan size | $ | 20,241 |
|
| Weighted average original loan term (in months) | 125 |
|
| Weighted average current remaining term (in months) | 84 |
|
| Weighted average loan rate | 4.12 | % |
| First mortgages | 100 | % |
| Geographic state concentration (greater than 5.0%): | |
| California | 15.9 | % |
| Texas | 12.4 | % |
| Florida | 6.2 | % |
| Maryland | 5.8 | % |
Investment Securities Financing
Repurchase Agreements
In March 2020, in reaction to the market turmoil related to the COVID-19 pandemic, our repurchase agreement providers dramatically changed their risk tolerances, including reducing or eliminating availability to add or roll maturing repurchase agreements, increased haircuts and reduced security valuations. In turn, this led to significant disruptions in our financing markets, negatively impacting the Company as well as the entire mortgage REIT industry. In response, the Company has significantly reduced its securities repurchase agreement exposure since mid-March, lowering its outstanding repurchase agreements by $2.3 billion from year-end levels through June 30, 2020. The Company will continue to evaluate the securities repurchase agreement market before significantly increasing its exposure.
The Company has historically financed its investment securities primarily through repurchase agreements with third-party financial institutions. These repurchase agreements are short-term financings that bear interest rates typically based on a spread to LIBOR and are secured by the investment securities which they finance. Upon entering into a financing transaction, our counterparties negotiate a “haircut”, which is the difference expressed in percentage terms between the fair value of the collateral and the amount the counterparty will advance to us. The size of the haircut represents the counterparty’s perceived risk associated with holding the investment securities as collateral. The haircut provides counterparties with a cushion for daily market value movements that reduce the need for margin calls or margins to be returned as normal daily changes in investment security market values occur. The Company expects to roll outstanding amounts under its repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity.
The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2020, 2019 and 2018 for our repurchase agreements secured by investment securities (dollar amounts in thousands):
|
| | | | | | | | | | | |
| Quarter Ended | Quarterly Average Balance | | End of Quarter Balance | | Maximum Balance at any Month-End |
| June 30, 2020 | $ | 108,529 |
| | $ | 87,571 |
| | $ | 150,445 |
|
| March 31, 2020 | 1,694,933 |
| | 713,364 |
| | 2,237,399 |
|
| | | | | | |
| December 31, 2019 | 2,212,335 |
| | 2,352,102 |
| | 2,352,102 |
|
| September 30, 2019 | 1,776,741 |
| | 1,823,910 |
| | 1,823,910 |
|
| June 30, 2019 | 1,749,293 |
| | 1,843,815 |
| | 1,843,815 |
|
| March 31, 2019 | 1,604,421 |
| | 1,654,439 |
| | 1,654,439 |
|
| | | | | | |
| December 31, 2018 | 1,372,459 |
| | 1,543,577 |
| | 1,543,577 |
|
| September 30, 2018 | 1,144,080 |
| | 1,130,659 |
| | 1,163,683 |
|
| June 30, 2018 | 1,230,648 |
| | 1,179,961 |
| | 1,279,121 |
|
| March 31, 2018 | 1,287,939 |
| | 1,287,314 |
| | 1,297,949 |
|
Securitized Debt
In June 2020, the Company completed a re-securitization of certain non-Agency RMBS primarily for the purpose of obtaining non-recourse, longer-term financing on a portion of its non-Agency RMBS portfolio. The Company received net cash proceeds of approximately $109.3 million after deducting expenses associated with the re-securitization transaction. The Company had a net investment in the re-securitization of $96.1 million as of June 30, 2020.
The following table summarizes the Company’s securitized debt collateralized by non-Agency RMBS as of June 30, 2020 (dollar amounts in thousands):
|
| | | | | | | | | |
| | Principal Amount | | Carrying Value (1) | | Pass-through Rate of Notes Issued (2) |
| Non-Agency RMBS re-securitization | $ | 110,361 |
| | $ | 108,999 |
| | One-month LIBOR plus 5.25% |
| |
(1) | Classified as securitized debt in the liability section of the Company’s accompanying condensed consolidated balance sheets. The securitized debt is non-recourse debt for which the Company has no obligation. |
| |
(2) | Represents the pass-through rate through the payment date in December 2021. Pass-through rate increases to one-month LIBOR plus 7.75% for payment dates in or after January 2022. |
Residential Loans
As of June 30, 2020, all of Company’s acquired residential mortgage loans, including distressed residential mortgage loans, non-QM loans, and second mortgages and residential bridge loans, 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 pursuant to ASC 825, Financial Instruments.sheets. Subsequent changes in fair value are reported in current period earnings and presented in unrealized gains (losses), net gain (loss) on distressed and other residential mortgage loans at fair value on the Company’s condensed consolidated statements of operations.
The following table details our distressed residential and other mortgageresidential loans at fair value at June 30, 20192020 and December 31, 2018,2019, respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Number of Loans | | Unpaid Principal | | Fair Value | | Number of Loans | | Unpaid Principal | | Fair Value |
| Distressed Residential Mortgage Loans | 4,670 |
| | $ | 800,634 |
| | $ | 758,765 |
| | 3,352 |
| | $ | 627,092 |
| | $ | 576,816 |
|
Other Residential Mortgage Loans (1) | 1,972 |
| | $ | 309,529 |
| | $ | 303,189 |
| | 1,539 |
| | $ | 161,280 |
| | $ | 160,707 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
| | Number of Loans | | Unpaid Principal | | Carrying Value | | Number of Loans | | Unpaid Principal | | Carrying Value |
Distressed Residential Loans (1) | 6,830 |
| | $ | 1,009,148 |
| | $ | 951,627 |
| | 7,713 |
| | $ | 1,131,855 |
| | $ | 1,098,867 |
|
Other Residential Loans (2) | 2,768 |
| | $ | 555,741 |
| | $ | 531,751 |
| | 2,700 |
| | $ | 547,379 |
| | $ | 533,643 |
|
| |
(1) | Includes second mortgagesAs of December 31, 2019, the Company had 5,696 distressed residential loans with a fair value $58.9aggregate unpaid principal of $964.8 million and $67.4an aggregate carrying value of $940.1 million accounted for at June 30, 2019fair value. The Company also had 2,017 distressed residential loans with aggregate unpaid principal of $167.0 million and an aggregate carrying value of $158.7 million accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality as of December 31, 2018, respectively.2019. |
| |
(2) | As of December 31, 2019, the Company had 2,534 other residential loans with an aggregate unpaid principal balance of $500.1 million and an aggregate carrying value of $489.6 million accounted for at fair value. The Company also had 166 residential ARM loans held in securitization trusts with an aggregate unpaid principal balance of $47.2 million and an aggregate carrying value of $44.0 million accounted for at amortized cost as of December 31, 2019. |
Characteristics of Our Distressed and Other Residential Mortgage Loans, at Fair Value:
| | Loan to Value at Purchase (1) | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| 50.00% or less | 17.8 | % | | 18.5 | % | 14.8 | % | | 15.4 | % |
| 50.01% - 60.00% | 13.0 | % | | 13.6 | % | 12.2 | % | | 12.6 | % |
| 60.01% - 70.00% | 16.5 | % | | 14.5 | % | 18.1 | % | | 17.9 | % |
| 70.01% - 80.00% | 17.6 | % | | 15.9 | % | 20.2 | % | | 18.5 | % |
| 80.01% - 90.00% | 16.0 | % | | 15.4 | % | 14.2 | % | | 14.5 | % |
| 90.01% - 100.00% | 9.7 | % | | 9.3 | % | 9.9 | % | | 10.0 | % |
| 100.01% and over | 9.4 | % | | 12.8 | % | 10.6 | % | | 11.1 | % |
| Total | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % |
| |
(1) | For second mortgages, the Company calculates the combined loan to value. For residential bridge loans, the Company calculates as the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan. |
| | | FICO Scores at Purchase | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| 550 or less | 23.2 | % | | 26.0 | % | 22.5 | % | | 22.1 | % |
| 551 to 600 | 21.2 | % | | 21.9 | % | 20.2 | % | | 20.4 | % |
| 601 to 650 | 16.8 | % | | 17.3 | % | 17.2 | % | | 17.1 | % |
| 651 to 700 | 14.2 | % | | 12.7 | % | 14.4 | % | | 14.2 | % |
| 701 to 750 | 11.2 | % | | 10.3 | % | 11.8 | % | | 12.1 | % |
| 751 to 800 | 8.9 | % | | 7.8 | % | 10.1 | % | | 10.4 | % |
| 801 and over | 4.5 | % | | 4.0 | % | 3.8 | % | | 3.7 | % |
| Total | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % |
| | | Current Coupon | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| 3.00% or less | 5.7 | % | | 8.6 | % | 5.0 | % | | 5.1 | % |
| 3.01% - 4.00% | 17.9 | % | | 16.1 | % | 19.5 | % | | 17.1 | % |
| 4.01% - 5.00% | 36.6 | % | | 35.2 | % | 38.9 | % | | 38.4 | % |
| 5.01% – 6.00% | 22.3 | % | | 19.0 | % | 14.9 | % | | 18.1 | % |
| 6.01% and over | 17.5 | % | | 21.1 | % | 21.7 | % | | 21.3 | % |
| Total | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % |
| | | Delinquency Status | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| Current | 83.2 | % | | 71.8 | % | 83.7 | % | | 80.8 | % |
| 31 – 60 days | 7.9 | % | | 6.4 | % | 4.8 | % | | 6.4 | % |
| 61 – 90 days | 2.3 | % | | 12.3 | % | 1.9 | % | | 2.6 | % |
| 90+ days | 6.6 | % | | 9.5 | % | 9.6 | % | | 10.2 | % |
| Total | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % |
|
| | | | | |
| Origination Year | June 30, 2019 | | December 31, 2018 |
| 2005 or earlier | 21.7 | % | | 23.8 | % |
| 2006 | 14.9 | % | | 16.0 | % |
| 2007 | 25.1 | % | | 27.4 | % |
| 2008 or later | 38.3 | % | | 32.8 | % |
| Total | 100.0 | % | | 100.0 | % |
|
| | | | | |
| Origination Year | June 30, 2020 | | December 31, 2019 |
| 2007 or earlier | 57.7 | % | | 59.3 | % |
| 2008 - 2016 | 11.3 | % | | 13.8 | % |
| 2017 | 5.1 | % | | 6.1 | % |
| 2018 | 10.7 | % | | 11.0 | % |
| 2019 | 14.9 | % | | 9.8 | % |
| 2020 | 0.3 | % | | — |
|
| Total | 100.0 | % | | 100.0 | % |
Distressed and Other Residential Mortgage Loans, NetLoan Financing
Distressed Residential Mortgage Loans accounted for under ASC 310-30:
Certain of the distressed residential mortgage loans acquired by the Company at a discount, with evidence of credit deterioration since their origination and where it is probable that the Company will not collect all contractually required principal payments, are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"). Management evaluates whether there is evidence of credit quality deterioration as of the acquisition date using indicators such as past due or modified status, risk ratings, recent borrower credit scores and recent loan-to-value percentages.Repurchase Agreements
The Company has repurchase agreements with two third-party financial institutions to fund the purchase of residential loans, including both first and second mortgages. The following table details our portfolio of distressed residential mortgage loans at carrying valuepresents detailed information about these repurchase agreements and associated assets pledged as collateral at June 30, 20192020 and December 31, 2018,2019, respectively (dollar amounts in thousands):
|
| | | | | | | | | | |
| | Number of Loans | | Unpaid Principal | | Carrying Value |
| June 30, 2019 | 2,125 |
| | $ | 178,323 |
| | $ | 169,295 |
|
| December 31, 2018 | 2,702 |
| | 242,007 |
| | 228,466 |
|
|
| | | | | | | | | | | | | | | | |
| | Maximum Aggregate Uncommitted Principal Amount | | Outstanding Repurchase Agreements | | Carrying Value of Loans Pledged (1) | | Weighted Average Rate | | Weighted Average Months to Maturity |
| June 30, 2020 | $ | 1,450,000 |
| | $ | 876,923 |
| | $ | 1,199,652 |
| | 2.36 | % | | 5.18 |
| December 31, 2019 | $ | 1,200,000 |
| | $ | 754,132 |
| | $ | 961,749 |
| | 3.67 | % | | 11.20 |
| |
(1) | Includes residential loans, at fair value of $1.2 billion and $881.2 million at June 30, 2020 and December 31, 2019, respectively, and residential loans, net of $80.6 million at December 31, 2019. |
The Company expects to roll outstanding amounts under its repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity.
As of December 31,The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2020, 2019 and 2018 $88.1 million of distressedfor our repurchase agreements secured by residential mortgage loans, were heldincluding both first and second mortgages (dollar amounts in a securitization trust and were pledged as collateral for certain of the securitized debt issued by the Company. The Company’s net investment in this securitization trust was the maximum amount of the Company’s investment that was at risk to loss and represented the difference between the carrying amount of the net assets and liabilities associated with the distressed residential mortgage loans held in securitization trusts. The Company had a net investment in these securitization trusts of $85.7 million as of December 31, 2018. In March 2019, the Company repaid the outstanding notes from this securitization and distressed residential mortgage loans with a carrying value of $80.0 million became unencumbered.
Characteristics of Distressed Residential Mortgage Loans accounted for under ASC 310-30:thousands):
|
| | | | | |
| Loan to Value at Purchase | June 30, 2019 | | December 31, 2018 |
| 50.00% or less | 4.6 | % | | 3.9 | % |
| 50.01% - 60.00% | 4.9 | % | | 4.8 | % |
| 60.01% - 70.00% | 6.8 | % | | 7.6 | % |
| 70.01% - 80.00% | 14.1 | % | | 12.4 | % |
| 80.01% - 90.00% | 14.4 | % | | 13.7 | % |
| 90.01% - 100.00% | 16.0 | % | | 15.0 | % |
| 100.01% and over | 39.2 | % | | 42.6 | % |
| Total | 100.0 | % | | 100.0 | % |
|
| | | | | |
| FICO Scores at Purchase | June 30, 2019 | | December 31, 2018 |
| 550 or less | 21.8 | % | | 20.3 | % |
| 551 to 600 | 31.1 | % | | 30.5 | % |
| 601 to 650 | 29.8 | % | | 29.3 | % |
| 651 to 700 | 11.3 | % | | 12.3 | % |
| 701 to 750 | 4.2 | % | | 5.3 | % |
| 751 to 800 | 1.6 | % | | 1.9 | % |
| 801 and over | 0.2 | % | | 0.4 | % |
| Total | 100.0 | % | | 100.0 | % |
|
| | | | | |
| Current Coupon | June 30, 2019 | | December 31, 2018 |
| 3.00% or less | 6.4 | % | | 7.9 | % |
| 3.01% - 4.00% | 6.6 | % | | 8.5 | % |
| 4.01% - 5.00% | 21.9 | % | | 21.2 | % |
| 5.01% – 6.00% | 13.2 | % | | 13.6 | % |
| 6.01% and over | 51.9 | % | | 48.8 | % |
| Total | 100.0 | % | | 100.0 | % |
|
| | | | | |
| Delinquency Status | June 30, 2019 | | December 31, 2018 |
| Current | 67.8 | % | | 65.7 | % |
| 31 – 60 days | 8.8 | % | | 10.6 | % |
| 61 – 90 days | 3.1 | % | | 4.5 | % |
| 90+ days | 20.3 | % | | 19.2 | % |
| Total | 100.0 | % | | 100.0 | % |
|
| | | | | |
| Origination Year | June 30, 2019 | | December 31, 2018 |
| 2005 or earlier | 30.5 | % | | 29.2 | % |
| 2006 | 17.6 | % | | 17.9 | % |
| 2007 | 30.7 | % | | 32.1 | % |
| 2008 or later | 21.2 | % | | 20.8 | % |
| Total | 100.0 | % | | 100.0 | % |
|
| | | | | | | | | | | | |
| Quarter Ended | | Quarterly Average Balance | | End of Quarter Balance | | Maximum Balance at any Month-End |
| June 30, 2020 | | $ | 892,422 |
| | $ | 876,923 |
| | $ | 905,776 |
|
| March 31, 2020 | | 731,245 |
| | 715,436 |
| | 744,522 |
|
| | | | | | | |
| December 31, 2019 | | 764,511 |
| | 754,132 |
| | 774,666 |
|
| September 30, 2019 | | 745,972 |
| | 736,348 |
| | 755,299 |
|
| June 30, 2019 | | 705,817 |
| | 761,361 |
| | 761,361 |
|
| March 31, 2019 | | 595,897 |
| | 619,605 |
| | 619,605 |
|
| | | | | | | |
| December 31, 2018 | | 301,956 |
| | 589,148 |
| | 589,148 |
|
| September 30, 2018 | | 179,241 |
| | 177,378 |
| | 181,574 |
|
| June 30, 2018 | | 176,951 |
| | 192,553 |
| | 197,263 |
|
| March 31, 2018 | | 150,537 |
| | 149,535 |
| | 153,236 |
|
Residential Mortgage Loans Held in Securitization Trusts, NetCollateralized Debt Obligations
Included in our portfolio are primeresidential ARM loans that we originated or purchased in bulk from third parties that met our investment criteria and portfolio requirements and that we subsequently securitized in 2005.
At June 30, 2019, All of the Company’s residential mortgage loans held in securitization trusts totaled approximately $48.8 million.are pledged as collateral for Residential CDOs issued by the Company. The Company retained the owner trust certificates, or residual interest, in three securitization trusts. As of June 30, 2020 and December 31, 2019, we had Residential CDOs outstanding of $36.7 million and $40.4 million, respectively. 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 was $4.8 million, whichand represents the difference between (i) the carrying amount of (i) the ARMresidential loans, real estate owned and receivables held in residential securitization trusts and (ii) the amount of Residential CDOs outstanding. Of the residential mortgage loans held in securitization trusts, 100% are traditional ARMs or hybrid ARMs, 81.4%outstanding, was $7.5 million and $4.9 million as of which were ARM loans that were interest only at the time of origination. With respect to the hybrid ARMs included in these securitizations, interest rate reset periods were predominately five years or lessJune 30, 2020 and the interest-only period is typically nine years, which mitigates the “payment shock” at the time of interest rate reset. None of the residential mortgage loans held in securitization trusts are pay option-ARMs or ARMs with negative amortization.December 31, 2019, respectively. As of June 30, 2019, the interest only period for the interest only ARM loans included in these securitizations has ended.
The following table details our residential mortgage loans held in securitization trusts at June 30, 20192020 and December 31, 2018, respectively (dollar amounts in thousands):
|
| | | | | | | | | | |
| | Number of Loans | | Unpaid Principal | | Carrying Value |
| June 30, 2019 | 177 |
| | $ | 51,986 |
| | $ | 48,799 |
|
| December 31, 2018 | 196 |
| | 60,171 |
| | 56,795 |
|
Characteristics of Ourthese Residential Mortgage Loans Held in Securitization Trusts:
The following table sets forth the composition of our residential mortgage loans held in securitization trusts as of June 30, 2019CDOs was 0.80% and December 31, 2018, respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Average | | High | | Low | | Average | | High | | Low |
| General Loan Characteristics: | | | | | | | | | | | |
| Original Loan Balance | $ | 422 |
| | $ | 2,850 |
| | $ | 48 |
| | $ | 425 |
| | $ | 2,850 |
| | $ | 48 |
|
| Current Coupon Rate | 5.00 | % | | 6.88 | % | | 3.00 | % | | 4.75 | % | | 6.63 | % | | 3.00 | % |
| Gross Margin | 2.36 | % | | 4.13 | % | | 1.13 | % | | 2.36 | % | | 4.13 | % | | 1.13 | % |
| Lifetime Cap | 11.32 | % | | 12.63 | % | | 9.38 | % | | 11.32 | % | | 12.63 | % | | 9.38 | % |
| Original Term (Months) | 360 |
| | 360 |
| | 360 |
| | 360 |
| | 360 |
| | 360 |
|
| Remaining Term (Months) | 190 |
| | 198 |
| | 157 |
| | 197 |
| | 204 |
| | 163 |
|
| Average Months to Reset | 5 |
| | 11 |
| | 1 |
| | 5 |
| | 11 |
| | 1 |
|
| Original FICO Score | 727 |
| | 818 |
| | 603 |
| | 725 |
| | 818 |
| | 603 |
|
| Original LTV | 70.59 | % | | 95.00 | % | | 16.28 | % | | 70.54 | % | | 95.00 | % | | 16.28 | % |
Investments in Unconsolidated Entities. Investments in unconsolidated entities is comprised of ownership interests in entities that invest in multi-family or residential real estate and related assets. As of June 30, 2019 and December 31, 2018, we had approximately $166.1 million and $73.5 million of investments in unconsolidated entities, respectively.
Multi-Family Preferred Equity and Mezzanine Loan Investments.Investments
The Company hadinvests in preferred equity in, and mezzanine loans to, entities that have significant multi-family real estate assets (referred to in this section as “Preferred Equity and Mezzanine Loans”).A preferred equity investment is an equity investment in the entity that owns the underlying property and mezzanine loans are secured by a pledge of the borrower’s equity ownership in the property. We evaluate our Preferred Equity and Mezzanine Loans for accounting treatment as loans versus equity investments. Preferred Equity and Mezzanine Loans, for which the characteristics, facts and circumstances indicate that loan accounting treatment is appropriate are included in preferred equity and mezzanine loan investments on our condensed consolidated balance sheets. Preferred Equity and Mezzanine Loans where the risks and payment characteristics are equivalent to an equity investment are accounted for using the equity method of accounting and are included in investments in unconsolidated entities on our condensed consolidated balance sheets.
As of June 30, 2020, one preferred equity investment representing 1.1% of the amounttotal fair value of $191.4 millionour Preferred Equity and $165.6 millionMezzanine Loans was greater than 90 days delinquent.
As of January 1, 2020, the Company has elected to account for its Preferred Equity and Mezzanine Loans using the fair value option. Accordingly, balances presented below as of June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019, all preferred equity and mezzanine loan investments were paying in accordance with their contractual terms. During the three and six months ended June 30, 2019, there were no impairments with respect to our preferred equity and mezzanine loan investments.
2020 are stated at fair value. The following tables summarize our preferred equityPreferred Equity and mezzanine loan investmentsMezzanine Loans as of June 30, 20192020 and December 31, 2018 (dollars2019, respectively (dollar amounts in thousands):
| | | | June 30, 2019 | June 30, 2020 |
| | Count | | Carrying Amount (1) | | Investment Amount (1) | | Weighted Average Interest or Preferred Return Rate (2) | | Weighted Average Remaining Life (Years) | Count | | Fair Value (1) (2) | | Investment Amount (2) | | Weighted Average Interest or Preferred Return Rate (3) | | Weighted Average Remaining Life (Years) |
| Preferred equity investments | 31 |
| | $ | 184,727 |
| | $ | 186,139 |
| | 11.48 | % | | 7.2 |
| 46 |
| | $ | 304,466 |
| | $ | 312,485 |
| | 11.42 | % | | 7.2 |
|
| Mezzanine loans | 3 |
| | 6,660 |
| | 6,675 |
| | 12.08 | % | | 24.5 |
| 3 |
| | 5,484 |
| | 5,786 |
| | 11.80 | % | | 27.5 |
|
| Total | 34 |
| | $ | 191,387 |
| | $ | 192,814 |
| | 11.50 | % | | 7.8 |
| 49 |
| | $ | 309,950 |
| | $ | 318,271 |
| | 11.43 | % | | 7.5 |
|
| | | | December 31, 2018 | December 31, 2019 |
| | Count | | Carrying Amount (1) | | Investment Amount (1) | | Weighted Average Interest or Preferred Return Rate (2) | | Weighted Average Remaining Life (Years) | Count | | Carrying Amount (1) (2) | | Investment Amount (2) | | Weighted Average Interest or Preferred Return Rate (3) | | Weighted Average Remaining Life (Years) |
| Preferred equity investments | 24 |
| | $ | 154,629 |
| | $ | 155,819 |
| | 11.59 | % | | 7.2 |
| 42 |
| | $ | 279,908 |
| | $ | 282,064 |
| | 11.39 | % | | 7.8 |
|
| Mezzanine loans | 4 |
| | 10,926 |
| | 10,970 |
| | 12.29 | % | | 17.5 |
| 3 |
| | 6,220 |
| | 6,235 |
| | 11.95 | % | | 25.8 |
|
| Total | 28 |
| | $ | 165,555 |
| | $ | 166,789 |
| | 11.63 | % | | 7.8 |
| 45 |
| | $ | 286,128 |
| | $ | 288,299 |
| | 11.40 | % | | 8.2 |
|
| |
(1) | Preferred equity and mezzanine loan investments in the amounts of $180.8 million and $180.0 million are included in preferred equity and mezzanine loan investments on the accompanying condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, respectively. Preferred equity investments in the amounts of $129.1 million and $106.1 million are included in investments in unconsolidated entities on the accompanying condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, respectively. |
| |
(2) | The difference between the fair value and investment amount as of June 30, 2020 consists of any unamortized premium or discount, deferred fees or deferred expenses, and any unrealized gain or loss. The difference between the carrying amount and the investment amount as of December 31, 2019 consists of any unamortized premium or discount, deferred fees or deferred expenses. |
| |
(2)(3)
| Based upon investment amount and contractual interest or preferred return rate. |
Preferred Equity and Mezzanine Loan Investments Characteristics:
|
| | | | | |
| Combined Loan to Value at Investment | June 30, 2019 | | December 31, 2018 |
| 70.01% - 80.00% | 9.7 | % | | 10.4 | % |
| 80.01% - 90.00% | 90.3 | % | | 89.6 | % |
| Total | 100.0 | % | | 100.0 | % |
Consolidated K-Series. As of June 30, 2019 and December 31, 2018, we owned 100% of the first loss POs of the Consolidated K-Series. The Consolidated K-Series are comprised of multi-family mortgage loans held in eleven and nine Freddie Mac-sponsored multi-family loan K-Series securitizations as of June 30, 2019 and December 31, 2018, respectively, of which we, or one of our SPEs, own the first loss POs and, in certain cases, IOs and/or mezzanine securities issued by these securitizations. We determined that the securitizations comprising the Consolidated K-Series were VIEs and that we are the primary beneficiary of these securitizations. Accordingly, we are required to consolidate the Consolidated K-Series’ underlying multi-family loans and related debt, income and expense in our condensed consolidated financial statements.
We have elected the fair value option on the assets
Preferred Equity 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 our condensed consolidated statements of operations. As of June 30, 2019 and December 31, 2018, the Consolidated K-Series were comprised of $14.6 billion and $11.7 billion, respectively, in multi-family loans held in securitization trusts and $13.8 billion and $11.0 billion, respectively, in multi-family CDOs, with a weighted average interest rate of 4.14% and 3.96%, respectively. The increases in multi-family loans held in securitization trusts and multi-family CDOs during the six months ended June 30, 2019 were primarily due to the consolidation of $2.4 billion in multi-family loans held in securitization trusts and $2.3 billion in multi-family CDOs in connection with the purchase of $101.6 million in additional first loss POs and certain IOs and mezzanine CMBS securities. As a result of the consolidation of the Consolidated K-Series, our condensed consolidated statements of operations for the three and six months ended June 30, 2019 included interest income of $133.2 million and $244.9 million, respectively, and interest expense of $114.9 million and $211.7 million, respectively. Also, we recognized a $5.2 million and a $14.6 million unrealized gain in the condensed consolidated statements of operations for the three and six months ended June 30, 2019, respectively, as a result of the fair value accounting method election. As a result of the consolidation of the Consolidated K-Series, our condensed consolidated statements of operations for the three and six months ended June 30, 2018 included interest income of $85.6 million and $170.7 million, respectively, and interest expense of $74.7 million and $149.2 million, respectively. Also, we recognized a $12.0 million and a $19.6 million unrealized gain in the condensed consolidated statements of operations for the three and six months ended June 30, 2018, respectively, as a result of the fair value accounting method election.
We do not have any claims to the assets (other than those securities represented by our first loss POs, IOs and mezzanine securities) or obligations for the liabilities of the Consolidated K-Series. Our investment in the Consolidated K-Series is limited to the multi-family CMBS comprised of first loss PO, and, in certain cases, IOs and/or mezzanine securities, issued by these K-Series securitizations with an aggregate net carrying value of $801.2 million and $657.6 million as of June 30, 2019 and December 31, 2018, respectively.
Multi-Family CMBS LoanMezzanine Loans Characteristics:
The following table details the loan characteristics of the loans that back multi-family loans held in securitization trusts as of June 30, 2019 and the multi-family CMBS investment securities available for sale, held in securitization trusts, and multi-family loans held in securitization trusts as of December 31, 2018 (dollar amounts in thousands, except as noted):
|
| | | | | | | | |
| | | June 30, 2019 | | December 31, 2018 |
| Current balance of loans | $ | 13,726,641 |
| | $ | 13,593,818 |
|
| Number of loans | 710 |
| | 773 |
|
| Weighted average original LTV | 68 | % | | 68.8 | % |
| Weighted average underwritten debt service coverage ratio | 1.48 |
| | 1.45x |
|
| Current average loan size | $ | 19,333 |
| | $ | 19,364 |
|
| Weighted average original loan term (in months) | 125 |
| | 123 |
|
| Weighted average current remaining term (in months) | 77 |
| | 64 |
|
| Weighted average loan rate | 4.28 | % | | 4.34 | % |
| First mortgages | 100 | % | | 100 | % |
| Geographic state concentration (greater than 5.0%): | | | |
| | California | 16.1 | % | | 14.8 | % |
| | Texas | 12.4 | % | | 13.0 | % |
| | Maryland | 5.8 | % | | 5.0 | % |
| | New York | 5.1 | % | | 6.4 | % |
| | Florida | 5.0 | % | | 4.5 | % |
|
| | | | | |
| Combined Loan to Value at Investment | June 30, 2020 | | December 31, 2019 |
| 60.01% - 70.00% | 5.4 | % | | — |
|
| 70.01% - 80.00% | 21.5 | % | | 23.4 | % |
| 80.01% - 90.00% | 73.1 | % | | 76.6 | % |
| Total | 100.0 | % | | 100.0 | % |
Equity Investments in Multi-Family and Residential Entities
Multi-Family Joint Venture Equity Investments
The Company has a joint venture equity investment in an entity that owns a multi-family real estate asset. We receive variable distributions from this investment on a pari passu basis based upon property performance and record our position at fair value. The following table summarizes our multi-family joint venture equity investment as of June 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | | |
| | | | June 30, 2020 | | December 31, 2019 |
| | Property Location | | Ownership Interest | | Fair Value | | Ownership Interest | | Fair Value |
| The Preserve at Port Royal Venture, LLC | Port Royal, SC | | 77% | | $ | 17,000 |
| | 77% | | $ | 18,310 |
|
Equity Investments in Entities that Invest in Residential Properties and Loans
The Company has ownership interests in entities that invest in residential properties and loans. We may receive variable distributions from these investments based upon underlying asset performance and record our positions at fair value. The following table summarizes our ownership interests in entities that invest in residential properties and loans as of June 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
| | | | | | | | | | | | |
| | | June 30, 2020 | | December 31, 2019 |
| | Strategy | Ownership Interest | | Fair Value | | Ownership Interest | | Fair Value |
| Morrocroft Neighborhood Stabilization Fund II, LP | Single-Family Rental Properties | 11% | | $ | 12,362 |
| | 11% | | $ | 11,796 |
|
| Headlands Asset Management Fund III (Cayman), LP (Headlands Flagship Opportunity Fund Series I) | Residential Loans | 49% | | 55,827 |
| | 49% | | 53,776 |
|
| Total | | | | $ | 68,189 |
| | | | $ | 65,572 |
|
Derivative Assets and Liabilities.Liabilities
The Company enters into derivative instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, swaptions, futures, options on futures and mortgage derivatives such as forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are "To-Be-Announced," or TBAs.
Our current derivative instruments arewere comprised of interest rate swaps. We use interest rate swaps that we used to hedge variable cash flows associated with our variable rate borrowings. We typically paypaid a fixed rate and receivereceived a floating rate based on oneone- or threethree- month LIBOR, on the notional amount of the interest rate swaps. The floating rate we receivereceived under our swap agreements hashad the effect of offsetting the repricing characteristics and cash flows of our financing arrangements. Historically,
In March 2020, in response to the turmoil in the financial markets, we have accounted for theseterminated our interest rate swaps, under the hedged accounting methodology with changesrecognizing a realized loss of $73.1 million which was partially offset by a reversal of $29.0 million in value reflectedunrealized losses, resulting in comprehensive earnings and not through the statementa total net loss of operations. Beginning in the fourth quarter of 2017, the Company$44.1 million. We did not elect hedge accounting treatmentrecognize any realized gains or losses during the three and all changes in fair value aresix months ended June 30, 2019. We recognized inunrealized losses of $15.0 million and $29.6 million on our interest rate swaps for the statement of operations.
Atthree and six months ended June 30, 2019, respectively. Unrealized gains and December 31, 2018,losses include the Company had no outstanding swaps that qualifychange in market value, period over period, generally as cash flow hedges for financial reporting purposes. See Note 11 to our condensed consolidated financial statements includeda result of changes in this Form 10-Q for more information on our derivative instrumentsinterest rates and hedging activities.
Derivative financial instruments may contain credit risk to the extent that the institutional counterparties may be unable to meet the terms of the agreements. We minimize this risk by limiting our counterparties to major financial institutions with good credit ratings. In addition, we regularly monitor the potential risk of loss with any one party resulting from this type of credit risk. Currently, allAll of the Company's interest rate swaps outstanding arewere cleared through CME Group Inc. ("CME Clearing") which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures.
Repurchase Agreements
Investment Securities, Available for Sale
The Company finances its investment securities primarily through repurchase agreements with third party financial institutions. These repurchase agreements are short-term borrowings that bear interest rates typically based on a spread to LIBOR and are secured by the investment securities which they finance.
As of June 30, 2019, the Company had repurchase agreements secured by investment securities with an outstanding balance of $1.8 billion and a weighted average interest rate of 3.28%. At December 31, 2018, the Company had repurchase agreements secured by investment securities with an outstanding balance of $1.5 billion and a weighted average interest rate of 3.41%. Our repurchase agreements secured by investment securities have a weighted average days to maturity of 106 days.
As of June 30, 2019, the Company had no exposure where the amount at risk was in excess of 5% of the Company's stockholders’ equity. As of December 31, 2018, the Company's only exposure where the amount at risk was in excess of 5% of the Company's stockholders' equity was to Jefferies & Company, Inc. at 5.04%. The amount at risk is defined as the fair value of securities pledged as collateral to the repurchase agreement in excess of the repurchase agreement liability.
As of June 30, 2019, the outstanding balance under our repurchase agreements secured by investment securities was funded at a weighted average advance rate of 86.1% that implies a weighted average "haircut" of 13.9%. The weighted average “haircut” related to our repurchase agreement financing for our Agency RMBS, non-Agency RMBS, and CMBS was approximately 5%, 26%, and 21%, respectively, at June 30, 2019. As of December 31, 2018, the outstanding balance under our repurchase agreements secured by investment securities was funded at a weighted average advance rate of 87.7% that implies an average "haircut" of 12.3%. The weighted average “haircut” related to our repurchase agreement financing for our Agency RMBS, non-Agency RMBS, and CMBS was approximately 5%, 25%, and 23%, respectively, at December 31, 2018.
The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2019, 2018 and 2017 for our repurchase agreement borrowings secured by investment securities (dollar amounts in thousands):
|
| | | | | | | | | | | | |
| Quarter Ended | | Quarterly Average Balance | | End of Quarter Balance | | Maximum Balance at any Month-End |
| June 30, 2019 | | $ | 1,749,293 |
| | $ | 1,843,815 |
| | $ | 1,843,815 |
|
| March 31, 2019 | | $ | 1,604,421 |
| | $ | 1,654,439 |
| | $ | 1,654,439 |
|
| | | | | | | |
| December 31, 2018 | | $ | 1,372,459 |
| | $ | 1,543,577 |
| | $ | 1,543,577 |
|
| September 30, 2018 | | $ | 1,144,080 |
| | $ | 1,130,659 |
| | $ | 1,163,683 |
|
| June 30, 2018 | | $ | 1,230,648 |
| | $ | 1,179,961 |
| | $ | 1,279,121 |
|
| March 31, 2018 | | $ | 1,287,939 |
| | $ | 1,287,314 |
| | $ | 1,297,949 |
|
| | | | | | | |
| December 31, 2017 | | $ | 1,224,771 |
| | $ | 1,276,918 |
| | $ | 1,276,918 |
|
| September 30, 2017 | | $ | 624,398 |
| | $ | 608,304 |
| | $ | 645,457 |
|
| June 30, 2017 | | $ | 688,853 |
| | $ | 656,350 |
| | $ | 719,222 |
|
| March 31, 2017 | | $ | 702,675 |
| | $ | 702,309 |
| | $ | 762,382 |
|
Distressed and Other Residential Mortgage Loans
The Company has master repurchase agreements with third party financial institutions to fund the purchase of distressed and other residential mortgage loans, including both first and second mortgages. The following table presents detailed information about the Company’s borrowings under repurchase agreements and associated assets pledged as collateral at June 30, 2019 and December 31, 2018 (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | |
| | Maximum Aggregate Uncommitted Principal Amount | | Outstanding Repurchase Agreements | | Carrying Value of Loans Pledged | | Weighted Average Rate | | Weighted Average Months to Maturity |
| June 30, 2019 | $ | 950,000 |
| | $ | 761,361 |
| | $ | 891,664 |
| | 4.43 | % | | 7.01 |
| December 31, 2018 | $ | 950,000 |
| | $ | 589,148 |
| | $ | 754,352 |
| | 4.67 | % | | 9.24 |
The Company expects to roll outstanding borrowings under these master repurchase agreements into new repurchase agreements or other financings prior to or at maturity.
Residential Collateralized Debt Obligations. As of June 30, 2019 and December 31, 2018, we had Residential CDOs of $45.3 million and $53.0 million, respectively. As of June 30, 2019 and December 31, 2018, the weighted average interest rate of these Residential CDOs was 3.02% and 3.12%, respectively. The Residential CDOs are collateralized by ARMs with a principal balance of $52.0 million and $60.2 million at June 30, 2019 and December 31, 2018, respectively. The Company retained the owner trust certificates, or residual interest, for three securitizations that issued Residential CDOs, and, as of June 30, 2019 and December 31, 2018, had a net investment in these residential securitization trusts of $4.8 million.
Securitized Debt. On March 14, 2019, the Company exercised its option to redeem the notes issued by its multi-family CMBS re-securitization with an outstanding principal balance of $33.2 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.
As of December 31, 2018, the Company had approximately $42.3 million of securitized debt. As of December 31, 2018, the weighted average interest rate for the Company's securitized debt was 4.96%. The Company’s securitized debt was collateralized by multi-family CMBS and distressed residential mortgage loans. See Note 9 to our condensed consolidated financial statements included in this report for more information on securitized debt.
Debt. The Company's debt as of June 30, 20192020 included Convertible Notes and subordinated debentures and mortgages and notes payable in consolidated variable interest entities.debentures.
Convertible Notes
On January 23, 2017, the Company issued $138.0 million aggregate principal amount of its 6.25% Senior Convertible Notes due 2022 (the "Convertible Notes") in an underwritten public offering. The net proceeds to the Company from the sale of the Convertible Notes, after deducting the underwriter's discounts, commissions and offering expenses, were approximately $127.0 million with the total cost to the Company of approximately 8.24%.
Subordinated Debentures
As of June 30, 2019,2020, certain of our wholly-owned subsidiaries had trust preferred securities outstanding of $45.0 million with a weighted average interest rate of 6.43%.4.35% which are due in 2035. The securities are fully guaranteed by us with respect to distributions and amounts payable upon liquidation, redemption or repayment. These securities are classified as subordinated debentures in the liability section of our condensed consolidated balance sheets.
Mortgages and Notes Payable in Consolidated VIEs
In March 2017, the Company determined that it became the primary beneficiary of The Clusters, a VIE that owned a multi-family apartment community and in which the Company held a preferred equity investment. Accordingly, the Company consolidated The Clusters into its condensed consolidated financial statements. 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 The Clusters as of the date of the sale. See Note 9 to our condensed consolidated financial statements included in this report for more information on The Clusters.
The Company also consolidates Kiawah River View Investors LLC ("KRVI") into its condensed consolidated financial statements. KRVI's real estate under development is subject to a note payable of $4.0 million that has an unused commitment of $4.4 million as of June 30, 2019. See Note 9 to our condensed consolidated financial statements included in this report for more information on KRVI.
Balance Sheet Analysis - Company's Stockholders’ Equity
The Company's stockholders' equity at June 30, 20192020 was $1.5$2.2 billion and included $11.0$34.4 million of accumulated other comprehensive loss. The accumulated other comprehensive loss at June 30, 2020 consisted primarily of $32.3 million in net unrealized losses related to our non-Agency RMBS and $2.1 million in net unrealized losses related to our CMBS. The Company's stockholders’ equity at December 31, 2019 was $2.2 billion and included $25.1 million of accumulated other comprehensive income. The accumulated other comprehensive income at June 30,December 31, 2019 consisted primarily of $15.1$12.6 million in net unrealized gains related to our CMBS and $4.4$12.5 million in net unrealized gains related to our non-Agency RMBS, partially offset by $8.5 million in net unrealized losses related to our Agency RMBS. The Company's stockholders’ equity at December 31, 2018 was $1.2 billion and included $22.1 million of accumulated other comprehensive loss. The accumulated other comprehensive loss at December 31, 2018 consisted of $38.3 million in unrealized losses related to our Agency RMBS and $1.2 million in net unrealized losses related to our non-Agency RMBS, partially offset by $17.4 million in net unrealized gains related to our CMBS.
Analysis of Changes in Book Value
The following table analyzes the changes in book value of our common stock for the three and six months ended June 30, 2019 (amounts in thousands, except per share):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
| | Amount | | Shares | | Per Share (1) | | Amount | | Shares | | Per Share (1) |
| Beginning Balance | $ | 1,079,105 |
| | 187,831 |
| | $ | 5.75 |
| | $ | 879,389 |
| | 155,590 |
| | $ | 5.65 |
|
Common stock issuance, net (2) | 138,471 |
| | 23,042 |
| |
|
| | 324,492 |
| | 55,283 |
| | |
| Preferred stock issuance, net | 16,087 |
| |
|
| |
| | 16,087 |
| | | | |
| Preferred stock liquidation preference | (16,532 | ) | |
| |
| | (16,532 | ) | | | | |
| Balance after share issuance activity | 1,217,131 |
| | 210,873 |
| | 5.77 |
| | 1,203,436 |
| | 210,873 |
| | 5.71 |
|
| Dividends declared | (42,155 | ) | |
|
| | (0.20 | ) | | (79,721 | ) | | | | (0.38 | ) |
| Net change in accumulated other comprehensive income: |
| |
| | | | | | | | |
Investment securities, available for sale (3) | 20,092 |
| |
|
| | 0.10 |
| | 33,139 |
| | | | 0.16 |
|
| Net income attributable to Company's common stockholders | 16,478 |
| |
|
| | 0.08 |
| | 54,692 |
| | | | 0.26 |
|
| Ending Balance | $ | 1,211,546 |
| | 210,873 |
| | $ | 5.75 |
| | $ | 1,211,546 |
| | 210,873 |
| | $ | 5.75 |
|
| |
(1)
| Outstanding shares used to calculate book value per share for the three and six months ended June 30, 2019 are 210,872,614. |
| |
(2)
| Includes amortization of stock based compensation. |
| |
(3)
| The increases relate to unrealized gains in our investment securities due to improved pricing. |
Liquidity and Capital Resources
General
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, comply with margin requirements, fund our operations, pay management and incentive fees, pay dividends to our stockholders and other general business needs. OurGenerally, our investments and assets excluding the multi-family CMBS first loss POs we invest in, generate liquidity on an ongoing basis through principal and interest payments, prepayments, net earnings retained prior to payment of dividends and distributions from unconsolidated investments. Our multi-family CMBS first loss POs are backed by balloon non-recourse mortgage loans that provide for the payment of principal at maturity date, which is typically ten to fifteen years from the date the underlying mortgage loans are originated, and therefore do not directly contribute to monthly cash flows. In addition, we may generate liquidity through the Company will, from time to time, sell on an opportunistic basis certainsale of assets from itsour investment portfolio as part of its overall investment strategyportfolio.
As discussed throughout this Quarterly Report on Form 10-Q, the COVID-19 pandemic driven disruptions in the real estate, mortgage and these salesfinancial markets have negatively affected and are expected to providecontinue to negatively affect our liquidity. In March 2020, we observed a mark-down of a portion of our assets by the counterparties to our repurchase agreements, resulting in us having to pay cash or additional liquidity.securities to counterparties to satisfy margin calls that were well beyond historical norms. To conserve capital, protect assets and to pause the escalating negative impacts caused by the market dislocation and allow the markets for many of our assets to stabilize, on March 23, 2020, we notified our repurchase agreement counterparties that we did not expect to fund the existing and anticipated future margin calls under our repurchase agreements and commenced discussions with our counterparties with regard to entering into forbearance agreements.
DuringIn response to these conditions, we focused on improving liquidity and long-term capital preservation by taking the six monthsactions described below. Starting March 23, 2020 and through the period ended June 30, 2019, net2020, we sold a total of $2.1 billion in assets, including the sale of 100% of our Agency securities portfolio, all of our first loss multi-family POs and a portion of our non-Agency RMBS, CMBS and residential loan portfolios for proceeds of $1.1 billion, $555.2 million, $168.8 million, $138.1 million and $93.8 million, respectively. By April 7, 2020, we were again current with our repurchase payment obligations and no longer in a position to need forbearance agreements from our repurchase agreement counterparties. We used the proceeds from these sales to repay our repurchase agreement financing, reducing our portfolio leverage to 0.4 times as of June 30, 2020. At June 30, 2020, we had $371.7 million of cash and restricted cash increased primarily as a result of $569.7 million provided by financing activities and $7.0 million provided by operating activities, which was partially offset by $549.9 million used in investing activities.
Our financing activities primarily included net proceeds from repurchase agreements of $472.0 million and $337.8 million in net proceeds from issuance of common and preferred stock, partially offset by $106.1 million in payments made on multi-family CDOs, $80.5 million in aggregate dividends paid on common stock and preferred stock, $45.6 million in extinguishment of and payments made on securitized debt, and $7.8 million in payments made on Residential CDOs.
Our investing activities primarily included $380.5equivalents, $812.5 million of purchasesunencumbered securities, $243.0 million of unencumbered residential mortgage loans and distressed residential mortgage loans, $321.1$310.0 million of purchases of investment securities, $130.0 million in funding ofunencumbered preferred equity investments equityin and mezzanine loans to owners of multi-family properties.
Both of our residential and multi-family asset management teams have been active in responding to the government assistance programs instituted in response to the impacts of the COVID-19 pandemic providing relief to residential and multi-family loan investments, $101.6 millionborrowers. At this time, we are endeavoring to work with any individual or entity that needs relief because of purchasesthe pandemic. As of investments heldJune 30, 2020, less than 25% of our residential loan borrowers had requested some form of assistance; however, approximately half of these borrowers were already delinquent for more than 30 days in 2020 before the onset of COVID-19. We have a long history of dealing with distressed borrowers and currently do not expect these levels of forbearance to have a material impact on our liquidity. In our multi-family securitization trusts, and $33.4 million in net payments made on other derivative instruments settled during the period, partially offset by $144.2 million in principal repayments and proceeds from sales and refinancingportfolio, only one operating partner, representing 1.1% of distressed and other residential mortgage loans, $106.4 million in principal repayments received on multi-family loans held in securitization trusts, $84.4 million in principal paydowns on investment securities available for sale, $56.8 million in proceeds from sales of investment securities, $20.4 million in principal repayments received onour total preferred equity and mezzanine loan investments,investment portfolio, is delinquent in making its distribution to us. We expect delinquencies, defaults and $3.6 millionrequests for forbearance arrangements to rise as savings, incomes and revenues of borrowers, operating partners and other businesses become increasingly constrained from the slow-down in economic activity caused by the COVID-19 pandemic and/or the reduction or elimination of current unemployment benefits or other policies intended to help keep borrowers and renters in their residence. We cannot assure you that any increase in or prolonged period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will not adversely affect our net proceeds from salesinterest income, the fair value of real estate in Consolidated VIEs.
We historically have endeavored to fund our investments and operations through a balanced and diverse funding mix, which includesincluding proceeds from the issuance of common and preferred equity and debt securities, including convertible notes, short-term and longer-term repurchase agreement borrowings, CDOs, securitized debt and trust preferred debentures. The type and terms of financing used by us depends on the asset being financed and the financing available at the time of the financing. In those cases whereAs discussed above, as a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our repurchase agreement financing and MBS markets, we utilize some formexpect to place a greater emphasis on procuring stable, longer-termed financing, such as securitizations and other term financings, that provide less or no exposure to fluctuations in the collateral repricing determinations of structured financing be it through CDOs,counterparties or rapid liquidity reductions in repurchase agreement financing markets. Consistent with our stated intent to procure this type of stable longer-term repurchase agreements or securitized debt, the cash flow producedfinancing, in June 2020, we completed a non-mark-to-market re-securitization backed by the assetsnon-Agency RMBS that serve as collateral for these structured finance instruments may be restrictedmatures in terms of its use or appliedJune 2025. Moreover, subsequent to pay principal or interest on CDOs, repurchase agreements, notes or other securities that are senior to our interests. At June 30, 2019,2020, we had cash and cash equivalents balancescompleted a non-mark-to-market securitization backed by residential loans that will mature in June 2025.
Based on current market conditions, our current investment portfolio, new investment initiatives, leverage ratio and available and future possible financing arrangements, we believe our existing cash balances, funds available under our various financing arrangements and cash flows from operations will meet our liquidity requirements for at least the next 12 months. We have explored and will continue in the near term to explore additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities, including, without limitation, additional issuances of our equity and debt securities and longer-termed financing arrangements; however, no assurance can be given that we will be able to access any such financing, or the size, timing or terms thereof.
Cash Flows and Liquidity – Financing Arrangementsfor the Six Months Ended June 30, 2020
During the six months ended June 30, 2020, net cash, cash equivalents and restricted cash increased by $281.6 million.
Cash Flows from Operating Activities
We relygenerated net cash flows from operating activities of $38.5 million during the six months endedJune 30, 2020. Our cash flow provided by operating activities differs from our net income due to these primary factors: (i) differences between (a) accretion, amortization and recognition of income and losses recorded with respect to our investments and (b) the cash received therefrom and (ii) unrealized gains and losses on our investments and derivatives.
Cash Flows from Investing Activities
During the six months ended June 30, 2020, our net cash flows provided by investing activities was $2.0 billion, primarily as a result of sales of Agency RMBS and Agency CMBS, including securities issued by Consolidated SLST and the Consolidated K-Series, sales of non-Agency RMBS and CMBS, sales of first loss POs and certain mezzanine securities issued by the Consolidated K-Series and sales of residential loans compounded by principal repayments and refinancing of residential loans and principal paydowns or repayments of investment securities and preferred equity and mezzanine loan investments. These sales and repayments were partially offset by purchases of residential loans, RMBS, CMBS, and funding of preferred equity investments during the period, reflecting our continued focus on short-termsingle-family residential and multi-family investment strategies.
Although we generally intend to hold our assets as long-term investments, we may sell certain of these assets in order to manage our interest rate risk and liquidity needs, to meet other operating objectives or to adapt to market conditions, as was the case in March 2020. We cannot predict the timing and impact of future sales of assets, if any.
Because a portion of our assets are financed through repurchase agreements, CDOs or securitized debt, a portion of the proceeds from any sales of or principal repayments on our assets may be used to financerepay balances under these financing sources. Similarly, all or a significant portion of cash flows from principal repayments received on multi-family loans held in securitization trusts, principal repayments received from residential loans and proceeds from sales or principal paydowns received from investment securities available for sale would generally be used to repay CDOs or securitized debt issued by the more liquid assetsrespective Consolidated VIEs or repurchase agreements (included as cash used in financing activities).
As presented in the “Supplemental Disclosure - Non-Cash Investment Activities” subsection of our condensed consolidated statements of cash flows, during the six months ended June 30, 2020, we de-consolidated certain multi-family securitization trusts which represent significant non-cash transactions that were not included in cash flows provided by investing activities.
Cash Flows from Financing Activities
During the six months ended June 30, 2020, our net cash flows used in financing activities was $1.8 billion. The main uses of cash flows from financing activities were primarily payments made on repurchase agreements for our investment portfolio. Over the last several years, certain repurchase agreement lenders have elected to exit the repo lending market forsecurities partially offset by net proceeds from various reasons, including new capital requirement regulations. However, as certain lenders have exited the space, other financing counterparties that had not participated in the repo lending market historically have stepped in, offsetting, in part the lenders that have elected to exit.issuances of our common stock and securitized debt.
Liquidity – Financing Arrangements
As of June 30, 2019,2020, we have outstandinga short-term repurchase agreements,agreement, a form of collateralized short-term borrowing,financing, with fourteen differentone financial institutions. Theseinstitution. Repurchase agreements are secured by certain of our investment securities and bear interest rates that have historically moved in close relationship to LIBOR. Our borrowingsfinancings under repurchase agreements are based on the fair value of our investment securitiesthe assets that serve as collateral under these agreements. Interest rate changes and increased prepayment activity can have a negative impact on the valuation of these securities, reducing the amount we can borrow under these agreements. Moreover, our repurchase agreements allow the counterparties to determine a new market value of the collateral to reflect current market conditions and because these lines of financing are not committed, the counterparty can effectively call the loan at any time. Market value of the collateral represents the price of such collateral obtained from generally recognized sources or most recent closing bid quotation from such source plus accrued income. If a counterparty determines that the value of the collateral has decreased, the counterparty may initiate a margin call and require us to either post additional collateral to cover such decrease or repay a portion of the outstanding borrowingamount financed in cash, on minimal notice.notice, and repurchase may be accelerated upon an event of default under the repurchase agreements. Moreover, in the event an existing counterparty elected to not renew the outstanding balance at its maturity into a new repurchase agreement, we would be required to repay the outstanding balance with cash or proceeds received from a new counterparty or to surrender the securities that serve as collateral for the outstanding balance, or any combination thereof. If we are unable to secure financing from a new counterparty and had to surrender the collateral, we would expect to incur a loss. In addition, in the event one of our lenders under the repurchase agreement counterparties defaults on its obligation to “re-sell” or return to us the securitiesassets that are securing the borrowingsfinancing at the end of the term of the repurchase agreement, we would incur a loss on the transaction equal to the amount of “haircut” associated with the short-term repurchase agreement, which we sometimes refer to as the “amount at risk.” As of June 30, 2019,2020, we had an aggregate amount at risk under our securities repurchase agreementsagreement of approximately $313.1 million, with no more than approximately $67.4 million at risk with any single counterparty.$69.0 million. At June 30, 2019,2020, the Company had short-term repurchase agreement borrowingsagreements outstanding of $1.8 billion$87.6 million as compared to $1.5$2.4 billion as of December 31, 2018.2019. Significant margin calls have had, and could in the future have, a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders. See “Liquidity and Capital Resources –General” above.
As of June 30, 2019, our2020, we had assets available to be posted as margin under securities repurchase agreements, which included liquid assets, includesuch as unrestricted cash and cash equivalents, and unencumbered securities we believe maythat could be posted as margin.monetized to pay down or collateralize a liability immediately. We had $135.0$371.7 million in cash and cash equivalents and $388.1$812.5 million in unencumbered investment securities to meet additional haircuts or market valuation requirements.requirements, which collectively represent greater than 100% of our outstanding repurchase agreements. The unencumbered securities that we believe may be monetized to pay, or posted as, margin under securities repurchase agreements as of June 30, 20192020 included $73.5 million of Agency RMBS, $91.6$288.1 million of CMBS, $198.3$481.8 million of non-Agency RMBS and $24.7$42.5 million of ABS. We believe the cash and unencumbered securities, which collectively represent 28.4% of our financing arrangements, are liquid and could be monetized to pay down or collateralize a liability immediately.
At June 30, 2019, the Company2020, we also had longer-term master repurchase agreements with terms of up to one year with certain third partythird-party financial institutions that are secured by certain of our residential mortgage loans.loans and that function similar to our short-term repurchase agreements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis - Analysis—Residential Loan Financing—Repurchase Agreements" for further information. During the terms of the repurchase agreements secured by residential loans, proceeds from the residential loans will be applied to pay any price differential and to reduce the aggregate repurchase price of the collateral. The financings under these repurchase agreements are subject to margin calls to the extent the market value of the residential loans falls below specified levels and repurchase may be accelerated upon an event of default under the repurchase agreements. The repurchase agreements secured by residential loans contain various covenants, including among other things, the maintenance of certain amounts of liquidity and total stockholders' equity. As of June 30, 2020, we had an aggregate amount at risk under our residential loan repurchase agreements of approximately $322.7 million, which represents the difference between the carrying value of the loans pledged and the outstanding balance of our repurchase agreements.
On January 23, 2017,At June 30, 2020, the Company issuedhad $138.0 million aggregate principal amount of Convertible Notes in a public offering.outstanding. The Convertible Notes were issued at 96% of the principal amount, bear interest at a rate equal to 6.25% per year, payable semi-annually in arrears on January 15 and July 15 of each year, and are expected to mature on January 15, 2022, unless earlier converted or repurchased. The Company does not have the right to redeem the Convertible Notes prior to maturity and no sinking fund is provided for the Convertible Notes. Holders of the Convertible Notes are permitted to convert their Convertible Notes into shares of the Company's common stock at any time prior to the close of business on the business day immediately preceding January 15, 2022. The conversion rate for the Convertible Notes, which is subject to adjustment upon the occurrence of certain specified events, initially equals 142.7144 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of approximately $7.01 per share of the Company’s common stock, based on a $1,000 principal amount of the Convertible Notes.
At June 30, 2019,2020, we also had other consolidated longer-term debt, including ResidentialSLST CDOs outstanding of $45.3 million, multi-family CDOs outstanding of $13.8$1.1 billion (which represent obligations of the Consolidated K-Series)SLST), securitized debt outstanding of $109.0 million, Residential CDOs outstanding of $36.7 million and subordinated debt outstanding of $45.0 million. The CDOs are collateralized by residential and multi-family loans held in securitization trusts respectively.and the securitized debt is collateralized by non-Agency RMBS.
As of June 30, 2019,2020, our overall leverage ratio, which represents our total debtoutstanding repurchase agreement financing, subordinated debentures and Convertible Notes divided by our total stockholders' equity, was approximately 1.80.5 to 1. Our overall leverage ratio does not include debt associated with the Multi-familySLST CDOs, securitized debt, the Residential CDOs or other non-recourse debt for which we have no obligation.to the Company. As of June 30, 2019,2020, our leverage ratio on our short term financings, or callable debt, which represents our outstanding repurchase agreement borrowingsfinancing divided by our total stockholders' equity, was approximately 1.70.4 to 1. We monitor all at risk or short-term borrowingsfinancings to ensure that we have adequate liquidity to satisfy margin calls and have the abilityenable us to respond to other market disruptions.
disruptions as they arise.
Liquidity – Hedging and Other Factors
Certain of our hedging instruments may also impact our liquidity. We may use interest rate swaps, swaptions, TBAs or other futures contracts to hedge interest rate and market value risk associated with our investments in Agency RMBS.
With respect to interest rate swaps, futures contracts and TBAs, initial margin deposits, which can be comprised of either cash or securities, will be made upon entering into these contracts. During the period these contracts are open, changes in the value of the contract are recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of these contracts at the end of each day’s trading. We may be required to satisfy variable margin payments periodically, depending upon whether unrealized gains or losses are incurred. In addition, because delivery of TBAs extend beyond the typical settlement dates for most non-derivative investments, these transactions are more prone to market fluctuations between the trade date and the ultimate settlement date, and thereby are more vulnerable to increasing amounts at risk with the applicable counterparties. In March 2020, in response to the turmoil in the financial markets, we terminated our interest rate swaps.
For additional information regarding the Company’s derivative instruments and hedging activities for the periods covered by this report, including the fair values and notional amounts of these instruments and realized and unrealized gains and losses relating to these instruments, please see Note 1110 to our condensed consolidated financial statements included in this report. Also, please see Item 3. Quantitative and Qualitative Disclosures about Market Risk, under the caption, “Fair Value Risk”, for a tabular presentation of the sensitivity of the fair value and net duration changes of the Company’s portfolio across various changes in interest rates, which takes into account the Company’s hedging activities.
Liquidity — Securities Offerings
In addition to the financing arrangements described above under the caption “Liquidity—Financing Arrangements,” we also rely on follow-on equity offerings of common and preferred stock, and may utilize from time to time debt securities offerings, as a source of both short-term and long-term liquidity. We also may generate liquidity through the sale of shares of our common or stock or preferred stock in “at the market”“at-the-market” equity offering programs pursuant to equity distribution agreements, as well as through the sale of shares of our common stock pursuant to our Dividend Reinvestment Plan ("DRIP"(“DRIP”). Our DRIP provides for the issuance of up to $20,000,000 of shares of our common stock.
For information regarding secondary equityThe following table details the Company's public offerings of our common stock forduring the periods covered by this report, please see Note 17 to our condensed consolidated financial statements included in this report.
During the three and six months ended June 30, 2019, there were 2,260,200 shares of common stock issued under the equity distribution agreement relating to our common equity "at-the-market" offering program ("Common Equity Distribution Agreement"). As of June 30, 2019, approximately $72.5 million of common stock remains available for issuance under the Common Equity Distribution Agreement.2020 (dollar amounts in thousands):
|
| | | | | | | |
| Offering Type | | Shares Issued | | Net Proceeds (1) |
| Public offerings of common stock | | 85,100,000 |
| | $ | 511,924 |
|
| |
(1) | Proceeds are net of underwriting discounts and commissions and offering expenses, as applicable. |
During the three and six months ended June 30, 2019, the Company issued 661,287 shares113
Dividends
For information regardingOn June 15, 2020, our Board of Directors declared the declaration and payment of dividends on our common and preferred stock for the periods covered by this report, please see Note 17 to our condensed consolidated financial statements included in this report.following quarterly cash dividends:
|
| | | | | | | | |
| Class of Stock | | Dividend Amount Per Share (1) | | Record Date | | Payment Date |
| Common Stock | | $ | 0.05 |
| | July 1, 2020 | | July 27, 2020 |
| Fixed Rate Preferred Stock | | | | | | |
| 7.75% Series B Cumulative Redeemable Preferred Stock | | $ | 0.97 |
| | July 1, 2020 | | July 15, 2020 |
| 7.875% Series C Cumulative Redeemable Preferred Stock | | $ | 0.98 |
| | July 1, 2020 | | July 15, 2020 |
| Fixed-to-Floating Rate Preferred Stock | | | | | | |
| 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock | | $ | 1.00 |
| | July 1, 2020 | | July 15, 2020 |
| 7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock | | $ | 0.98 |
| | July 1, 2020 | | July 15, 2020 |
| |
(1) | For all classes of preferred stock, includes preferred stock dividends declared in arrears for the quarterly period that began on January 15, 2020 and ended on April 14, 2020. |
We expect to continue to pay quarterly cash dividends on our common stock during the near term. However, our
Our Board of Directors will continue to evaluate our dividend policy each quarter and will make adjustments as necessary, based on a variety of factors, including, among other things, the need to maintain our REIT status, our financial condition, liquidity, earnings projections, business prospects and business prospects.current and anticipated future market conditions. Our dividend policy does not constitute an obligation to pay dividends.
We intend to make distributions to our stockholders to comply with the various requirements to maintain our REIT status and to minimize or avoid corporate income tax and the nondeductible excise tax. However, differences in timing between the recognition of REIT taxable income and the actual receipt of cash could require us to sell assets or to borrow funds on a short-term basis to meet the REIT distribution requirements and to minimize or avoid corporate income tax and the nondeductible excise tax.
Inflation
Substantially all our assets and liabilities are financial in nature and are sensitive to interest rate and other related factors to a greater degree than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our condensed consolidated financial statements and corresponding notes thereto have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering inflation.
Off-Balance Sheet Arrangements
We did not maintain any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
This section should be read in conjunction with “Item 1A. Risk Factors” in our Annual Report on Form 10-K, and"Part II, Item 1A. Risk Factors" in our subsequent periodic reports filed withQuarterly Report on Form 10-Q for the SEC.quarter ended March 31, 2020 and the other disclosures made throughout this report and our Annual Report on Form 10-K.
We seek to manage risks that we believe will impact our business including interest rates, liquidity, prepayments, credit quality and market value. Many of these risks have become particularly heightened due to the COVID-19 pandemic and related economic and market conditions. When managing these risks we consider the impact on our assets, liabilities and derivative positions. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience. We seek to actively manage that risk, to generate risk-adjusted total returns that we believe compensate us appropriately for those risks and to maintain capital levels consistent with the risks we take.
The following analysis includes forward-looking statements that assume that certain market conditions occur. Actual results may differ materially from these projected resultsprojections due to changes in our portfolio assets and borrowings mix and due to developments in the domestic and global financial, mortgage and real estate markets. Developments in the financial markets include the likelihood of changing interest rates and the relationship of various interest rates and their impact on our portfolio yield, cost of funds and cash flows. The analytical methods that we use to assess and mitigate these market risks should not be considered projections of future events or operating performance.
Interest Rate Risk
Interest rates are sensitive to many factors, including governmental, monetary or tax policies, domestic and international economic conditions, and political or regulatory matters beyond our control. Changes in interest rates affect the value of the assets we manage and hold in our investment portfolio and the variable-rate borrowings we use to finance our portfolio. Changes in interest rates also affect the interest rate swaps and caps, Eurodollar and other futures, TBAs and other securities or instruments we may use to hedge our portfolio. As a result, our net interest income is particularly affected by changes in interest rates.
For example, we hold RMBS, some of which may have fixed rates or interest rates that adjust on various dates that are not synchronized to the adjustment dates on our repurchase agreements. In general, the re-pricing of our repurchase agreements occurs more quickly than the re-pricing of our variable-interest rate assets. Thus, it is likely that our floating rate borrowings,financing, such as our repurchase agreements, may react to interest rates before our RMBS because the weighted average next re-pricing dates on the related borrowingsfinancing may have shorter time periods than that of the RMBS. In addition, the interest rates on our Agency ARMs backed by hybrid ARMs may be limited to a “periodic cap,” or an increase of typically 1% or 2% per adjustment period, while our borrowings do not have comparable limitations. Moreover, changes in interest rates can directly impact prepayment speeds, thereby affecting our net return on RMBS. During a declining interest rate environment, the prepayment of RMBS may accelerate (as borrowers may opt to refinance at a lower interest rate) causing the amount of liabilities that have been extended by the use of interest rate swaps to increase relative to the amount of RMBS, possibly resulting in a decline in our net return on RMBS, as replacement RMBS may have a lower yield than those being prepaid. Conversely, during an increasing interest rate environment, RMBS may prepay more slowly than expected, requiring us to finance a higher amount of RMBS than originally forecast and at a time when interest rates may be higher, resulting in a decline in our net return on RMBS. Accordingly, each of these scenarios can negatively impact our net interest income.
We seek to manage interest rate risk in our portfolio by utilizing interest rate swaps, swaptions, interest rate caps, futures, options on futures and U.S. Treasury securities with the goal of optimizing the earnings potential while seeking to maintain long term stable portfolio values. We continually monitorGiven current market volatility and historically low interest rates, we do not currently have any hedges in place to mitigate the durationrisk of our mortgage assets and have a policy to hedge the financing of those assets such that the net duration of the assets, our borrowed funds related to such assets, and related hedging instruments, is less than one year.rising interest rates.
We utilize a model-based risk analysis system to assist in projecting portfolio performances over a scenario of different interest rates. The model incorporates shifts in interest rates, changes in prepayments and other factors impacting the valuations of our financial securities and derivative hedging instruments.
Based on the results of the model, the instantaneous changes in interest rates specified below would have had the following effect on our net interest income for the next 12 months based on our assets and liabilities as of June 30, 20192020 (dollar amounts in thousands):
| | Changes in Net Interest Income | | Changes in Interest Rates (basis points) | Changes in Net Interest Income | Changes in Net Interest Income |
| +200 | $(29,992) | $(18,013) |
| +100 | $(15,792) | $(7,302) |
| -100 | $14,114 | $2,462 |
Interest rate changes may also impact our net book value as our assets and related hedge derivatives are marked-to-market each quarter. Generally, as interest rates increase, the value of our mortgage assets decreases, and conversely, as interest rates decrease, the value of such investments will increase. In general, we expect that, over time, decreases in the value of our portfolio attributable to interest rate changes will be offset, to the degree we are hedged, by increases in the value of our interest rate swaps or other financial instruments used for hedging purposes, and vice versa. However, the relationship between spreads on our assets and spreads on our hedging instruments may vary from time to time, resulting in a net aggregate book value increase or decline. That said, unless there
The interest rates for certain of our investments and a majority of our financing transactions are either explicitly or indirectly based on LIBOR. On July 27, 2017, the United Kingdom Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. At this time, it is a material impairmentnot possible to predict the effect of such change, including the establishment of potential alternative reference rates, on the economy or markets we are active in value that would result in a payment not being received on a securityeither currently or loan, changes in the bookfuture, or on any of our assets or liabilities whose interest rates are based on LIBOR. We are in the process of evaluating the potential impact of a discontinuation of LIBOR after 2021 on our portfolio, as well as the related accounting impact. However, we expect that throughout 2020, we will work closely with the entities that are involved in calculating the interest rates for our RMBS and securitized debt, our loan servicers for our floating rate loans, and with the various counterparties to our financing transactions in order to determine what changes, if any, are required to be made to existing agreements for these transactions.
In March, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of the COVID-19 pandemic on markets and stress in the energy sector. Our net interest income, the fair value of our portfolioassets and our financing activities could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates could cause a loss of future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will not directly affectimpact both the level of income and expense recorded on most of our recurring earningsassets and liabilities and the market value of all or substantially all of our ability to makeinterest-earning assets and interest-bearing liabilities, which in turn could have a distribution tomaterial adverse effect on our stockholders.net income, operating results, or financial condition.
Liquidity Risk
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends to our stockholders and other general business needs. The primary liquidity risk we face arises from financing long-maturity assets with shorter-term borrowingsfinancings, primarily in the form of repurchase agreement financings.agreements. We recognize the need to have funds available to operate our business. We manage and forecast our liquidity needs and sources daily to ensure that we have adequate liquidity at all times. We plan to meet liquidity through normal operations with the goal of avoiding unplanned sales of assets or emergency borrowing of funds.
We are subject to “margin call” risk under our repurchase agreements. In the event the value of our assets pledged as collateral suddenly decreases, margin calls relating to our repurchase agreements could increase, causing an adverse change in our liquidity position. Additionally, if one or more of our repurchase agreement counterparties chooses not to provide ongoing funding, we may be unable to replace the financing through other lenders on favorable terms or at all.
As discussed throughout this Quarterly Report on Form 10-Q, in March 2020, we observed unprecedented illiquidity in repurchase agreement financing and MBS markets which resulted in our receiving margin calls under our repurchase agreements that were well beyond historical norms. We took a number of decisive actions in response to these conditions, including the sale of assets and termination of our interest rate swaps. Due to the disruption, we believe a number of financial institutions are limiting their access to repurchase agreement and other financing, or temporarily or permanently exiting the MBS repurchase agreement financing space. Because of this, we intend to place a greater emphasis on procuring stable, longer-termed financings, such weas securitizations and other term financings, which may involve greater expense relative to repurchase agreement funding. We provide no assurance that we will be able in the future to access sources of capital that are attractive to us, that we will be able to roll over or replace our repurchase agreements, securitized debt or other financing instruments as they mature from time to time in the future or that we otherwise will not need to resort to unplanned sales of assets to provide liquidity in the future. See Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and the other information in this Quarterly Report on Form 10-Q for further information about our liquidity and capital resource management.
Derivative financial instruments are also subject to “margin call” risk. For example, under ourthe interest rate swaps we have utilized, typically we would pay a fixed rate to the counterparties while they would pay us a floating rate. If interest rates drop below the fixed rate we are payingpay on an interest rate swap, we may be required to post cash margin.
Prepayment Risk
When borrowers repay the principal on their residential mortgage loans before maturity or faster than their scheduled amortization, the effect is to shorten the period over which interest is earned, and therefore, reduce the yield for residential mortgage assets purchased at a premium to their then current balance, as with our portfolio of Agency RMBS.balance. Conversely, residential mortgage assets purchased for less than their then current balance, such as many of our distressed residential mortgage loans, exhibit higher yields due to faster prepayments. Furthermore, actual prepayment speeds may differ from our modeled prepayment speed projections impacting the effectiveness of any hedges we may have in place to mitigate financing and/or fair value risk. Generally, when market interest rates decline, borrowers have a tendency to refinance their mortgages, thereby increasing prepayments.
Our modeled prepayments will help determine the amount of hedging we use to off-set changes in interest rates. If actual prepayment rates are higher than modeled, the yield will be less than modeled in cases where we paid a premium for the particular residential mortgage asset. Conversely, when we have paid a premium, if actual prepayment rates experienced are slower than modeled, we would amortize the premium over a longer time period, resulting in a higher yield to maturity.
In an environment of increasing prepayment speeds, the timing difference between the actual cash receipt of principal paydowns and the announcement of the principal paydowns may result in additional margin requirements from our repurchase agreement counterparties.
We mitigate prepayment risk by constantly evaluating our residential mortgage assets relative to prepayment speeds observed for assets with similar structures, quantities and characteristics. Furthermore, we stress-test the portfolio as to prepayment speeds and interest rate risk in order to further develop or make modifications to our hedge balances. Historically, we have not hedged 100% of our liability costs due to prepayment risk. Given the combination of low interest rates, government stimulus and high unemployment, and other disruptions related to COVID-19, it has become more difficult to predict prepayment levels for the securities in our portfolio.
Credit Risk
Credit risk is the risk that we will not fully collect the principal we have invested in our credit sensitive assets, including distressed residential and other mortgage loans, non-Agency RMBS, ABS, multi-family CMBS, preferred equity and mezzanine loan and joint venture equity investments, due to borrower defaults.defaults or defaults by our operating partners in their payment obligations to us. In selecting the credit sensitive assets in our portfolio, we seek to identify and invest in assets with characteristics that we believe offset or limit our exposure to borrower defaults.
We seek to manage credit risk through our pre-acquisition or pre-funding due diligence process, and by factoring projected credit losses into the purchase price we pay or loan terms we negotiate for all of our credit sensitive assets. In general, we evaluate relative valuation, supply and demand trends, prepayment rates, delinquency and default rates, vintage of collateral and macroeconomic factors as part of this process. Nevertheless, these procedures do not guarantee unanticipated credit losses which would materially affect our operating results.
Concern surrounding the ongoing COVID-19 pandemic and certain of the actions taken to reduce its spread has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and multi-family property vacancy and lease default rates, reduced profitability and ability for property owners to make loan, mortgage and other payments, and overall economic and financial market instability, all of which may cause an increase in credit risk of our credit sensitive assets. We expect delinquencies, defaults and requests for forbearance arrangements to rise as savings, incomes and revenues of borrowers, operating partners and other businesses become increasingly constrained from the resulting slow-down in economic activity and/or the reduction or elimination of current unemployment benefits or other policies intended to help keep borrowers and renters in their residences. Any future period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will likely adversely affect our net interest income from preferred equity investments, residential loans, mezzanine loans and our RMBS, CMBS and ABS investments, the fair value of these assets, our ability to liquidate the collateral that may underlie these investments and obtain additional financing and the future profitability of our investments. Further, in the event of delinquencies, defaults and foreclosure, regulatory changes and policies designed to protect borrowers and renters may slow or prevent us from taking remediation actions. See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in this Quarterly Report on Form 10-Q and "Part II - Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 for more information on how COVID-19 may impact the credit quality of our credit sensitive assets and the credit quality of the underlying borrowers or operating partners.
With respect to the $169.3 million of distressedour residential mortgage loans, at carrying value and $758.8 million of distressed residential mortgage loans at fair value owned by the Company at June 30, 2019, we purchased the majority of these mortgage loans at a discount to par reflecting their distressed state or perceived higher risk of default. In connection with our loan acquisitions, we or a third partythird-party due diligence firm perform an independent review of the mortgage file to assess the state of mortgage loan files, the servicing of the mortgage loan, compliance with existing guidelines, as well as our ability to enforce the contractual rights in the mortgage. We also obtain certain representations and warranties from each seller with respect to the mortgage loans, as well as the enforceability of the lien on the mortgaged property. A seller who breaches these representations and warranties may be obligated to repurchase the loan from us. In addition, as part of our process, we focus on selecting a servicer with the appropriate expertise to mitigate losses and maximize our overall return on these residential mortgage loans. This involves, among other things, performing due diligence on the servicer prior to their engagement, assigning the appropriate servicer on each loan based on certain characteristics and monitoring each servicer's performance on an ongoing basis.
We are exposed to credit risk in our investments in CMBS, non-Agency RMBS totaling $432.8 million as of June 30, 2019. The non-Agency RMBS in our investment portfolioand ABS. These investments typically consist of either the senior, mezzanine or subordinate tranches in securitizations. The underlying collateral of these securitizations are predominantly residential credit assets, which may be exposed to various macroeconomic and asset-specific credit risks. These securities have varying levels of credit enhancement which providesprovide some structural protection from losses within the portfolio. We undertake an in-depth assessment of the underlying collateral and securitization structure when investing in these assets, which may include modeling defaults, prepayments and loss across different scenarios.
As of June 30, 2019, In addition, we own $651.9 million of multi-family CMBS comprised solely of first loss POs that are backed by commercial mortgage loans on multi-family properties at a weighted average amortized purchase price of approximately 45.1% of current par. Priorexposed to the acquisition of each of our multi-family CMBS POs, the Company completed an extensive review of the underlying loan collateral, including loan level cash flow re-underwriting, site inspections on selected properties, property specific cash flow and loss modeling, review of appraisals, property condition and environmental reports, and other credit risk analysis. We continue to monitor credit quality on an ongoing basis using updated property level financial reports provided by borrowers and periodic site inspection of selected properties. We also reconcile on a monthly basis the actual bond distributions received against projected distributions to assure proper allocation of cash flow generated by the underlying loan pool.
As of June 30, 2019, we own approximately $307.5 million ofin our preferred equity, mezzanine loan and equity investments in owners of residential and multi-family properties. The performance and value of these investments depend upon the applicable operating partner’s or borrower’s ability to effectively operate the multi-family and residential properties, that serve as the underlying collateral, to produce cash flows adequate to pay distributions, interest or principal due to us. The Company monitors the performance and credit quality of the underlying assets that serve as collateral for its investments. In connection with these types of investments by us in multi-family properties, the procedures for ongoing monitoring include financial statement analysis and regularly scheduled site inspections of portfolio properties to assess property physical condition, performance of on-site staff and competitive activity in the sub-market. We also formulate annual budgets and performance goals alongside our operating partners for use in measuring the ongoing investment performance and credit quality of our investments. Additionally, the Company's preferred equity and equity investments typically provide us with various rights and remedies to protect our investment. In March 2017, the Company exercised such rights and remedies with respect to Riverchase Landing and The Clusters and effectively assumed control of both entities. In March 2018, the Company successfully resolved its investment in Riverchase Landing with the sale of the entity's multi-family apartment community and full redemption of the Company's preferred equity investment. In February 2019, the Company successfully resolved its investment in The Clusters with the sale of the entity's multi-family apartment community and full redemption of the Company's preferred equity investment.
Fair Value Risk
Changes in interest rates, market liquidity, credit quality and other factors also expose us to market value (fair value) fluctuation on our assets, liabilities and hedges. While a significant amountFor certain of our credit sensitive assets, (when excluding all Consolidated K-Series assets other than the securities we actually own) that are measured on a recurring basis are determined using Level 2 fair values we own certain assets, such as our multi-family CMBS POs and residential mortgage loans, for which fair values may not be readily available if there are no active trading markets for the instruments. In such cases, fair values would only be derived or estimated for these investments using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated future cash flows is inherently subjective and imprecise. Moreover, the uncertainty over the ultimate impact that the COVID-19 pandemic will have on the global economy generally, and on our business in particular, makes any estimates and assumptions inherently less certain than they would be absent the current and potential impacts of the COVID-19 pandemic. The uncertainties stemming from the pandemic have created unprecedented illiquidity and volatility in the financial markets. As a result, our market value (fair value) risk has significantly increased. Minor changes in assumptions or estimation methodologies can have a material effect on these derived or estimated fair values. Our fair value estimates and assumptions are indicative of the interest rate and business environments as of June 30, 20192020 and do not take into consideration the effects of subsequent interest rate fluctuations.changes.
We note that the fair values119
The following describes the methods and assumptions we use in estimating fair values of our financial instruments:
Fair value estimates are made as of a specific point in time based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimate of future cash flows, future expected loss experience and other factors.
Changes in assumptions could significantly affect these estimates and the resulting fair values. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair values, the fair values used by us should not be compared to those of other companies.
The table below presents the sensitivity of the fair value and net duration changes of our portfolio as of June 30, 2019,2020, using a discounted cash flow simulation model assuming an instantaneous interest rate shift. Application of this method results in an estimation of the fair market value change of our assets, liabilities and hedging instruments per 100 basis point (“bp”) shift in interest rates.
The use of hedging instruments ishas historically been a critical part of our interest rate risk management strategies, and the effects of these hedging instruments on the market value of the portfolio are reflected in the model's output.strategies. This analysis also takes into consideration the value of options embedded in our mortgage assets including constraints on the re-pricing of the interest rate of assets resulting from periodic and lifetime cap features, as well as prepayment options. Assets and liabilities that are not interest rate-sensitive such as cash, payment receivables, prepaid expenses, payables and accrued expenses are excluded.
Changes in assumptions including, but not limited to, volatility, mortgage and financing spreads, prepayment behavior, credit conditions, defaults, as well as the timing and level of interest rate changes will affect the results of the model. Therefore, actual results are likely to vary from modeled results.
| | Fair Value Changes | | Changes in Interest Rates | | Changes in Fair Value | | Net Duration | | Changes in Fair Value | | Net Duration |
| (basis points) | | (dollar amounts in thousands) | | | (dollar amounts in thousands) | |
| +200 | | $(222,972) | | 3.7 | | $(167,782) | | 4.1 |
| +100 | | $(71,996) | | 3.3 | | $(84,970) | | 3.8 |
| Base | |
| | 3.0 | |
| | 4.0 |
| -100 | | $71,891 | | 2.8 | | $81,219 | | 3.7 |
It should be noted that the model is used as a tool to identify potential risk in a changing interest rate environment but does not include any changes in portfolio composition, financing strategies, market spreads or changes in overall market liquidity.
Although market value sensitivity analysis is widely accepted in identifying interest rate risk, it does not take into consideration changes that may occur such as, but not limited to, changes in investment and financing strategies, changes in market spreads and changes in business volumes. Accordingly, we make extensive use of an earnings simulation model to further analyze our level of interest rate risk.
Capital Market Risk
We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock, preferred stock or other equity instruments. We are also exposed to risks related to the debt capital markets, and our related ability to finance our business through credit facilities or other debt instruments. As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore may require us to utilize debt or equity capital to finance our business. We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing, and terms of capital we raise. The ongoing COVID-19 pandemic has resulted in extreme volatility in a variety of global markets, including the U.S. financial, mortgage and real estate markets. In reaction to these tumultuous market conditions, various banks and other financing participants restricted or limited lending activity and requested margin posting or repayments where applicable. Although these conditions subsided somewhat during the second quarter, we expect these conditions to re-appear or even persist for the near future and this may adversely affect our ability to access capital to fund our operations, meet our obligations and make distributions to our stockholders.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosures. An evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2019.2020. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2019.2020.
Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting during the quarter ended June 30, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes from theFor a discussion of our risk factors, disclosed under "Itemsee Part I, Item 1A. Risk"Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018.
Item 6. Exhibits
EXHIBIT INDEX
|
| | |
Exhibit | | Description |
| | |
| | Membership Purchase Agreement, by and among Donlon Family LLC, JMP Investment Holdings LLC, Hypotheca Capital, LLC, RiverBanc LLC and the Company, dated May 3, 2016 (Incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 5, 2016). |
| | | |
| | Articles of Amendment and Restatement of the Company, as amended (Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2014)February 28, 2020). |
| | | |
| | Second Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 4.23.1 to the Company’s Registration StatementCurrent Report on Form S-88-K filed with the Securities and Exchange Commission on July 1, 2019)April 23, 2020). |
| | | |
| | Articles Supplementary designating the Company’s 7.75% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”) (Incorporated by reference to Exhibit 3.3 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on May 31, 2013). |
| | | |
| | Articles Supplementary classifying and designating 2,550,000 additional shares of the Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 20, 2015). |
| | | |
| | Articles Supplementary classifying and designating the Company's 7.875% Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”) (Incorporated by reference to Exhibit 3.5 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on April 21, 2015). |
| | | |
| | Articles Supplementary classifying and designating the Company's 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series D Preferred Stock”) (Incorporated by reference to Exhibit 3.6 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 10, 2017). |
| | | |
| | Articles Supplementary classifying and designating 2,460,000 additional shares of the Series C Preferred Stock (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2019). |
| | | |
| | Articles Supplementary classifying and designating 2,650,000 additional shares of the Series D Preferred Stock (Incorporated by reference to Exhibit 3.3 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2019). |
| | | |
| | Articles Supplementary classifying and designating the Company's 7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series E Preferred Stock”) (Incorporated by reference to Exhibit 3.9 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 15, 2019). |
| | |
| | Articles Supplementary classifying and designating 3,000,000 additional shares of the Series E Preferred Stock (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 27, 2019). |
| | |
| | Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-11 (Registration No. 333-111668) filed with the Securities and Exchange Commission on June 18, 2004). |
| | | |
| | Form of Certificate representing the Series B Preferred Stock Certificate (Incorporated by reference to Exhibit 3.4 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on May 31, 2013). |
| | | |
| | Form of Certificate representing the Series C Preferred Stock (Incorporated by reference to Exhibit 3.6 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on April 21, 2015). |
| | | |
| | Form of Certificate representing the Series D Preferred Stock (Incorporated by reference to Exhibit 3.7 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 10, 2017). |
| | | |
|
| | |
| | Indenture, dated April 15, 2016, by and between NYMT Residential 2016-RP1, LLC and U.S. Bank National AssociationForm of Certificate representing the Series E Preferred Stock (Incorporated by reference to Exhibit 4.13.10 to the Company’s Current ReportRegistration Statement on Form 8-K8-A filed with the Securities and Exchange Commission on April 19, 2016)October 15, 2019). |
| | | |
| | Indenture, dated January 23, 2017, between the Company and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2017).). |
| | | |
| | First Supplemental Indenture, dated January 23, 2017, between the Company and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2017). |
| | | |
| | Form of 6.25% Senior Convertible Note Due 2022 of the Company (Incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2017). |
| | | |
| | | Certain instruments defining the rights of holders of long-term debt securities of the Company and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company hereby undertakes to furnish to the Securities and Exchange Commission, upon request, copies of any such instruments. |
|
| | |
| | | |
| | Amendment No. 1 to the New York Mortgage Trust, Inc. 2017 Equity Incentive PlanForm of Indemnification Agreement (Incorporated by reference to Exhibit 10.210.1 to the Company'sCompany’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 28, 2019)April 23, 2020). |
|
| | |
| | | |
| | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| | Certification Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * |
| | | |
101.INS101.INS** | | XBRL Instance Document **- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | | |
101.SCH101.SCH** | | Taxonomy Extension Schema Document ** |
| | | |
101.CAL101.CAL** | | Taxonomy Extension Calculation Linkbase Document ** |
| | | |
101.DEF XBRLXBRL** | | Taxonomy Extension Definition Linkbase Document ** |
| | | |
101.LAB101.LAB** | | Taxonomy Extension Label Linkbase Document ** |
| | | |
101.PRE101.PRE** | | Taxonomy Extension Presentation Linkbase Document ** |
| | |
| 104 | | The cover page for the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (formatted in Inline XBRL and contained in Exhibit 101). |
| |
| * | Furnished herewith. Such certification shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
| |
| ** | Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 20192020 and December 31, 2018;2019; (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 20192020 and 2018;2019; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 20192020 and 2018;2019; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 20192020 and 2018;2019; (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 20192020 and 2018;2019; and (vi) Notes to Condensed Consolidated Financial Statements. |
98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned. thereunto duly authorized.
|
| | | |
| | | NEW YORK MORTGAGE TRUST, INC. |
| | | | |
| Date: | August 6, 20197, 2020 | By: | /s/ Steven R. Mumma |
| | Steven R. Mumma |
| | Chairman of the Board and Chief Executive Officer |
| | (Principal Executive Officer) |
| | | | |
| Date: | August 6, 20197, 2020 | By: | /s/ Kristine R. Nario-Eng |
| | Kristine R. Nario-Eng |
| | Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
EXHIBIT INDEX
|
| | |
Exhibit
| | Description
|
| | |
| | Membership Purchase Agreement, by and among Donlon Family LLC, JMP Investment Holdings LLC, Hypotheca Capital, LLC, RiverBanc LLC and the Company, dated May 3, 2016 (Incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 5, 2016). |
| | |
| | Articles of Amendment and Restatement of the Company, as amended (Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2014). |
| | |
| | Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 1, 2019). |
| | |
| | Articles Supplementary designating the Company’s 7.75% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”) (Incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on May 31, 2013). |
| | |
| | Articles Supplementary classifying and designating 2,550,000 additional shares of the Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 20, 2015). |
| | |
| | Articles Supplementary classifying and designating the Company's 7.875% Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”) (Incorporated by reference to Exhibit 3.5 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on April 21, 2015). |
| | |
| | Articles Supplementary classifying and designating the Company's 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series D Preferred Stock”) (Incorporated by reference to Exhibit 3.6 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 10, 2017). |
| | |
| | Articles Supplementary classifying and designating 2,460,000 additional shares of the Series C Preferred Stock (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2019). |
| | |
| | Articles Supplementary classifying and designating 2,650,000 additional shares of the Series D Preferred Stock (Incorporated by reference to Exhibit 3.3 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2019). |
| | |
| | Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-11 (Registration No. 333-111668) filed with the Securities and Exchange Commission on June 18, 2004). |
| | |
| | Form of Certificate representing the Series B Preferred Stock Certificate (Incorporated by reference to Exhibit 3.4 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on May 31, 2013). |
| | |
| | Form of Certificate representing the Series C Preferred Stock (Incorporated by reference to Exhibit 3.6 of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on April 21, 2015). |
| | |
| | Form of Certificate representing the Series D Preferred Stock (Incorporated by reference to Exhibit 3.7 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 10, 2017). |
| | |
| | Indenture, dated April 15, 2016, by and between NYMT Residential 2016-RP1, LLC and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 19, 2016). |
| | |
|
| | |
| | Indenture, dated January 23, 2017, between the Company and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2017). |
| | |
| | First Supplemental Indenture, dated January 23, 2017, between the Company and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2017). |
| | |
| | Form of 6.25% Senior Convertible Note Due 2022 of the Company (Incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2017).
|
| | |
| | Certain instruments defining the rights of holders of long-term debt securities of the Company and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company hereby undertakes to furnish to the Securities Exchange Commission, upon request, copies of any such instruments.
|
| | |
| | |
| | Amendment No. 1 to the New York Mortgage Trust, Inc. 2017 Equity Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 28, 2019). |
|
| | |
| | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * |
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101.INS | | XBRL Instance Document ** |
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101.SCH | | Taxonomy Extension Schema Document ** |
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101.CAL | | Taxonomy Extension Calculation Linkbase Document ** |
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101.DEF XBRL | | Taxonomy Extension Definition Linkbase Document ** |
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101.LAB | | Taxonomy Extension Label Linkbase Document ** |
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101.PRE | | Taxonomy Extension Presentation Linkbase Document ** |
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* | Furnished herewith. Such certification shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
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** | Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2019 and December 31, 2018; (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018; (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018; and (vi) Notes to Condensed Consolidated Financial Statements.
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