NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
(unaudited)
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 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 capital gains from a diversified investment portfolio. Our investment portfolio includes credit sensitive residential and multi-family assets, including investments that may have been sourced from distressed markets.
The Company conducts its business through the parent company, New York Mortgage Trust, Inc., and several subsidiaries, including special purpose subsidiaries established for 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 REIT taxable income to its stockholders by the due date of its federal income tax return and complies with various other requirements.
COVID-19 Impact
The outbreak of the novel coronavirus (“COVID-19”) pandemic around the globe continues to adversely impact the U.S. and world economies and has contributed to significant volatility in global financial and credit markets. The impact of the outbreak has evolved rapidly, with many countries taking drastic measures to slow the spread of the virus by instituting quarantines, lockdowns, shelter-in-place, stay-at-home or other social distancing measures and imposing travel restrictions. The major disruptions caused by COVID-19 significantly slowed many commercial activities in the U.S., resulting in a rapid rise in unemployment claims, reduced business revenues and sharp reductions in liquidity and the fair value of many assets, including those in which the Company invests.
During the three months ended June 30, 2020, many jurisdictions have begun to “reopen” by reducing measures that were previously taken to limit the spread of COVID-19, but the Company cannot predict the length of time that it will take for a meaningful economic recovery to take place or whether the U.S. government and other governments will continue to take actions designed to mitigate the impact of the virus and the response thereto in the economy. In a number of jurisdictions, these reopening measures led to a surge in new cases of COVID-19 which, in turn, led governmental authorities to reimpose certain of the restrictions that previously had been lifted, which could further materially and adversely affect the Company’s business. The ultimate duration and impact of the COVID-19 pandemic and response thereto remains highly uncertain, but we expect adverse economic and market conditions will persist throughout 2020.
The global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to come under extreme duress starting in mid-March, resulting in credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and mortgage-backed securities ("MBS") markets. These events, in turn, resulted in falling prices of our assets and increased margin calls from our repurchase agreement counterparties. In an effort to manage the Company’s portfolio through this unprecedented turmoil in the financial markets and improve liquidity, the Company executed the following measures during the three months ended March 31, 2020:
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The Company sold approximately $2.0 billion of assets, recognizing a total net loss of approximately $301.7 million.
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The Company terminated interest rate swap positions with an aggregate notional value of $495.5 million, recognizing a total net loss of $44.1 million.
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The Company reduced its outstanding repurchase agreements by $1.7 billion from year-end levels, reducing its overall leverage to less than one times.
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The Company continued to improve liquidity and executed the following measures during the three months ended June 30, 2020:
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The Company obtained additional financing for residential loans pledged under a repurchase agreement in the amount of $248.8 million.
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The Company further reduced its outstanding repurchase agreements to finance investment securities by $625.8 million from March 31, 2020. As of June 30, 2020, the Company had an outstanding repurchase agreement related to investment securities with one counterparty amounting to $87.6 million.
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•
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The Company completed a non-mark-to-market re-securitization backed by non-Agency residential mortgage-backed securities generating net proceeds of approximately $109.3 million.
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The Company 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.
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We transitioned in March to a fully remote work force, ensuring the safety and well-being of our employees. Our prior investments 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.
2.Summary of Significant Accounting Policies
Definitions – The following defines certain of the commonly used terms in these financial statements:
“RMBS” refers to residential mortgage-backed securities backed by adjustable-rate, hybrid adjustable-rate, or fixed-rate residential loans;
“Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans 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 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;
“POs” refers to mortgage-backed securities that represent the right to the principal component of the cash flow from a pool of mortgage loans;
“ARMs” refers to adjustable-rate residential loans;
“Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS;
“Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-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;
“Agency CMBS” refers to CMBS representing interests or obligations backed by pools of mortgage loans guaranteed by a GSE, such as Fannie Mae or Freddie Mac;
“multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties;
“CDO” refers to collateralized debt obligation;
“non-QM loans” refers to residential loans that are not deemed “qualified mortgage,” or “QM,” loans under the rules of the Consumer Financial Protection Bureau (“CFPB”);
“qualified mortgage” refers to a mortgage loan eligible for delivery to a GSE under the rules of the CFPB, which have certain requirements such as debt-to-income ratio, being fully-amortizing, and limits on loan fees;
“second mortgages” refers to liens on residential properties that are subordinate to more senior mortgages or loans;
“residential bridge loans” refers to short-term business purpose loans collateralized by residential properties made to investors who intend to rehabilitate and sell the residential property for a profit;
“Residential CDOs” refers to the debt that permanently finances the residential ARM loans held in the Company's residential loan securitization trusts and that we consolidate 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; and
“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.
Basis of Presentation – The accompanying condensed consolidated balance sheet as of December 31, 2019 has been derived from audited financial statements. The accompanying condensed consolidated balance sheet as of June 30, 2020, the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019, the accompanying condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2020 and 2019, the accompanying condensed consolidated statements of changes in stockholders’ equity for the three and six months ended June 30, 2020 and 2019 and the accompanying condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 are unaudited. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with Article 10 of Regulation S-X and the instructions to Form 10-Q. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission (“SEC”). Accordingly, significant accounting policies and other disclosures have been omitted since such items are disclosed in Note 2 in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019. Provided in this section is a summary of additional accounting policies that are significant to, or newly adopted by, the Company for the three and six months ended June 30, 2020. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the operating results for the full year.
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 residential loans, SLST CDOs and preferred equity in, and mezzanine loans to, owners of multi-family properties.
The global impact of the COVID-19 pandemic continues to evolve as state and local governments adopt a number of emergency measures and recommendations in response to the outbreak, including imposing travel bans, "shelter in place" restrictions, curfews, canceling events, banning large gatherings, closing non-essential businesses and generally promoting social distancing. Although certain states and localities have recently begun easing some of these new measures and providing recommendations regarding recommencing economic activity, renewed outbreaks of COVID-19 may continue to occur and result in additional or different policy action at the federal, state and local level in the near future. The COVID-19 pandemic and resulting emergency measures has led (and may continue to lead) to significant disruptions in the global supply chain, global capital markets, the economy of the U.S. and the economies of other countries impacted by COVID-19. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying our condensed consolidated financial statements are reasonable and supportable based on the information available as of June 30, 2020; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of June 30, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. Accordingly, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially impact the Company’s results of operations and its financial condition.
Reclassifications – Certain prior period amounts have been reclassified in the accompanying condensed consolidated financial statements to conform to current period presentation.
Principles of Consolidation and Variable Interest Entities – The accompanying condensed consolidated financial statements of the Company include the accounts of all its subsidiaries which are majority-owned, controlled by the Company or a variable interest entity (“VIE”) where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
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.
As of December 31, 2019, the Company, or one of its “special purpose entities” (“SPEs”), owned the first loss POs, certain IOs, and certain senior and mezzanine securities issued by certain Freddie Mac-sponsored multi-family loan K-Series securitizations that we consolidated in our financial statements in accordance with GAAP (the “Consolidated K-Series”). Based on a number of factors, management determined that the Company was the primary beneficiary of each VIE within the Consolidated K-Series and met the criteria for consolidation and, accordingly, consolidated these securitizations, including their assets, liabilities, income and expenses in our financial statements. In response to market conditions and the Company's intention to improve its liquidity, in March 2020, the Company sold its entire portfolio of first loss POs issued by the Consolidated K-Series which resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO (see Note 6).
Goodwill – Goodwill in the amount of $25.2 million as of December 31, 2019 was related to the Company’s multi-family investment reporting unit.
Goodwill is not amortized but is evaluated for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist, by initially performing a qualitative screen and, if necessary, then comparing fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is less than the carrying value, an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (in an amount not to exceed the total amount of goodwill allocated to the reporting unit) is recognized.
The Company’s annual evaluation of goodwill related to its multi-family investment reporting unit as of October 1, 2019 indicated no impairment. However, financial, credit and mortgage-related asset markets experienced significant volatility as a result of the spread of COVID-19, which in turn put significant pressure on the mortgage REIT industry, including financing operations, mortgage asset pricing and liquidity demands. In response to these conditions and the Company's intention to improve its liquidity, 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. The Company considered qualitative indicators such as macroeconomic conditions, disruptions in equity and credit markets, REIT-specific market considerations, and changes in the net assets in the multi-family investment reporting unit to determine that a quantitative assessment of the fair value of the reporting unit was necessary. The Company performed its quantitative analysis by updating its discounted cash flow projection for the multi-family investment reporting unit for the reduced investment portfolio. This analysis yielded an impairment of the entire goodwill balance reported as a $25.2 million impairment of goodwill on the accompanying condensed consolidated statements of operations for the six months ended June 30, 2020.
Receivables and Other Assets – Receivables and other assets as of June 30, 2020 and December 31, 2019 include restricted cash held by third parties of $31.5 million and $2.8 million, respectively. Receivables and other assets also include $41.6 million and $41.2 million of receivables related to residential loans as of June 30, 2020 and December 31, 2019, respectively. Also included in receivables and other assets are operating lease right of use assets of $8.8 million and $9.3 million as of June 30, 2020 and December 31, 2019, respectively (with corresponding operating lease liabilities of $9.4 million and $9.8 million as of June 30, 2020 and December 31, 2019, respectively, included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets).
Stock Based Compensation – The Company has awarded restricted stock to eligible employees and officers as part of their compensation. Compensation expense for equity based awards and stock issued for services are recognized over the vesting period of such awards and services based upon the fair value of the award at the grant date.
During the six months ended June 30, 2020 and 2019, the Company granted Performance Stock Units (“PSUs”) to the Company's executive officers and certain other employees. The awards were issued pursuant to and are consistent with the terms and conditions of the Company’s 2017 Equity Incentive Plan (as amended, the “2017 Plan”). The PSUs are subject to performance-based vesting under the 2017 Plan pursuant to a form of PSU award agreement (the “PSU Agreement”). Vesting of the PSUs will occur after a three-year period based on the Company’s relative total stockholders return ("TSR") percentile ranking as compared to an identified performance peer group. The feature in this award constitutes a “market condition” which impacts the amount of compensation expense recognized for these awards. The grant date fair values of PSUs were determined through Monte-Carlo simulation analysis. The PSUs awarded during the six months ended June 30, 2020 also include dividend equivalent rights (“DERs”) which entitle the holders of vested PSUs 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 vested PSU to which such DER relates.
During the six months ended June 30, 2020, the Company granted Restricted Stock Units (“RSUs”) to Company's executive officers and certain other employees. The awards were issued pursuant to and are consistent with the terms and conditions of the 2017 Plan and are subject to a service condition, vesting ratably over a three-year period. Upon vesting, each RSU represents the right to receive one share of the Company’s common stock. The RSUs include DERs which entitle the holders of vested RSUs 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 vested RSU to which such DER relates.
Adoption of Financial Instruments — Credit Losses (Topic 326)
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 (“ASU 2016-13”) which requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts (“CECL”). In adopting ASU 2016-13, the Company elected to apply the fair value option in accordance with ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”) to the Company’s residential loans, net and preferred equity and mezzanine loan investments that are accounted for as loans and preferred equity investments that are accounted for under the equity method. In adopting ASU 2016-13 and ASU 2019-05, the Company applied a modified retrospective basis by means of a cumulative-effect adjustment to the opening balance of accumulated deficit. Adjustments resulting from this one-time election to record the difference between the carrying value and the fair value of these assets have been reflected in our condensed consolidated balance sheets as of January 1, 2020. Subsequent changes in fair value for these assets are recorded in unrealized gains (losses), net or other income on our condensed consolidated statements of operations, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. As a result of the implementation of ASU 2019-05, we recorded a cumulative-effect adjustment of $12.3 million as an increase to stockholders’ equity as of January 1, 2020.
The following table presents the classification and balances at December 31, 2019, the transition adjustments, and the balances at January 1, 2020 for those balance sheet line items impacted by the implementation of ASU 2019-05 (dollar amounts in thousands):
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December 31, 2019
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Transition Adjustment
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January 1, 2020
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Assets
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Residential loans, net
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$
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202,756
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$
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5,715
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$
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208,471
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Investments in unconsolidated entities
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106,083
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1,394
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107,477
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Preferred equity and mezzanine loan investments
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180,045
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2,420
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182,465
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Receivables and other assets
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865
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2,755
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3,620
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Total Assets
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$
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489,749
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$
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12,284
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$
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502,033
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Stockholders' Equity
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Accumulated deficit
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$
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(148,863
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)
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$
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12,284
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$
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(136,579
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)
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Total Stockholders' Equity
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$
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(148,863
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)
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$
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12,284
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$
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(136,579
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)
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The Company also assessed the impact of ASU 2016-13 on the Company’s investment securities available for sale where the fair value option has not been elected and determined that the adoption of the standard would not have a material effect on our financial statements as of January 1, 2020.
The following significant accounting policies have been updated as a result of the Company's adoption of ASU 2016-13 and ASU 2019-05 effective January 1, 2020.
Investment Securities Available for Sale – The Company’s investment securities where the fair value option has not been elected and which are reported at fair value with unrealized gains and losses reported in Other Comprehensive Income (“OCI”) include non-Agency RMBS and CMBS (collectively, “CECL Securities”). Beginning in the fourth quarter of 2019, the Company made a fair value election at the time of acquisition of newly purchased investment securities 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 fair value of investment securities subject to the fair value election are recorded in current period earnings in unrealized gains (losses), net on the accompanying condensed consolidated statements of operations.
The Company generally intends to hold its investment securities until maturity; however, from time to time, it may sell any of its securities as part of the overall management of its business. As a result, our investment securities are classified as available for sale securities. Realized gains and losses recorded on the sale of investment securities available for sale are based on the specific identification method and included in realized gains (losses), net on the accompanying condensed consolidated statements of operations.
Interest income on our investment securities available for sale is accrued based on the outstanding principal balance and their contractual terms. Purchase premiums or discounts associated with Agency RMBS and Agency CMBS assessed as high credit quality at the time of purchase are amortized or accreted to interest income over the estimated life of these investment securities using the effective yield method. Adjustments to amortization are made for actual prepayment activity on our Agency RMBS.
Interest income on certain of our credit sensitive securities that were purchased at a premium or discount to par value, such as certain of our non-Agency RMBS, CMBS and ABS of less than high credit quality, is recognized based on the security’s effective yield. The effective yield on these securities is based on management’s estimate of the projected cash flows from each security, which incorporates assumptions related to fluctuations in interest rates, prepayment speeds and the timing and amount of credit losses. On at least a quarterly basis, management reviews and, if appropriate, adjusts its cash flow projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in the yield (or interest income) recognized on these securities.
The Company accounts for investment securities that are of high credit quality (generally those rated AA or better by a Nationally Recognized Statistical Rating Organization, or NRSRO) at the date of acquisition in accordance with ASC 320-10, Investments - Debt and Equity Securities (“ASC 320-10”). The Company accounts for investment securities that are not of high credit quality (i.e., those whose risk of loss is more than remote) or securities that can be contractually prepaid such that we would not recover our initial investment at the date of acquisition in accordance with ASC 325-40, Investments - Beneficial Interests in Securitized Financial Assets (“ASC 325-40”). The Company considers credit ratings, the underlying credit risk and other market factors in determining whether the investment securities are of high credit quality; however, securities rated lower than AA or an equivalent rating are not considered of high credit quality and are accounted for in accordance with ASC 325-40. If ratings are inconsistent among NRSROs, the Company uses the lower rating in determining whether the securities are of high credit quality.
When the fair value of an investment security where the fair value option has not been elected is less than its amortized cost as of the reporting balance sheet date, the security is considered impaired. If the Company intends to sell an impaired security, or it is more likely than not that it will be required to sell the impaired security before its anticipated recovery, the Company recognizes a loss through earnings equal to the difference between the investment’s amortized cost and its fair value and reduces the amortized cost basis to the fair value as of the balance sheet date. If the Company does not expect to sell an impaired security, it performs an analysis to determine if a portion of the impairment is a result of credit losses. The portion of the impairment related to credit losses (limited by the difference between the fair value and amortized cost basis) is recognized through earnings and a corresponding allowance for credit losses is established against the amortized cost basis. The remainder of the impairment is recognized as a component of other comprehensive income (loss) on the accompanying condensed consolidated balance sheets and does not impact earnings. Subsequent changes in the allowance for credit losses are recorded through earnings with reversals limited to the previously recorded allowance for credit losses. The determination of whether a credit loss exists, and if so, the amount considered to be a credit loss is subjective, as such determinations are based on both observable and subjective information available at the time of assessment as well as the Company's estimates of the future performance and cash flow projections. As a result, the timing and amount of credit losses constitute material estimates that are susceptible to significant change.
In determining if a credit loss evaluation is required for securities that are impaired, the Company compares the present value of the remaining cash flows expected to be collected at the prior reporting date or purchase date, whichever is most recent, against the present value of the cash flows expected to be collected at the current financial reporting date. The Company considers information available about the past and expected future performance of underlying collateral, including timing of expected future cash flows, prepayment rates, default rates, loss severities and delinquency rates.
Residential Loans, at fair value – All of the Company’s acquired residential loans, including distressed residential loans, non-QM loans, second mortgages and residential bridge loans, are presented at fair value on the accompanying condensed consolidated balance sheets. Changes in fair value are recorded in current period earnings in unrealized gains (losses), net on the accompanying condensed consolidated statements of operations. The Company has elected the fair value option for residential loans either at the time of acquisition pursuant to ASC 825 or following the adoption of ASU 2019-05 effective January 1, 2020. As of June 30, 2020, residential loans, at fair value on the accompanying condensed consolidated balance sheets includes those residential loans previously accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"), and the Company's residential loans held in securitization trusts.
Premiums and discounts associated with the purchase of residential loans, at fair value are amortized or accreted into interest income over the life of the related loan using the effective interest method. Any premium amortization or discount accretion is reflected as a component of interest income, residential loans on the accompanying condensed consolidated statements of operations.
Residential loans, at fair value are considered past due when they are 30 days past their contractual due date, and are placed on nonaccrual status when delinquent for more than 90 days or when, in management's opinion, the interest is not collectible in the normal course of business. Interest accrued but not yet collected at the time loans are placed on nonaccrual is reversed and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. Loans are restored to accrual status only when contractually current or the collection of future payments is reasonably assured.
Investments in Unconsolidated Entities – Non-controlling, unconsolidated ownership interests in an entity may be accounted for using the equity method or the cost method. In circumstances where the Company has a non-controlling interest but either owns a significant interest or is able to exert influence over the affairs of the enterprise, the Company utilizes the equity method of accounting. Under the equity method of accounting, the initial investment is increased each period for additional capital contributions and a proportionate share of the entity’s earnings or preferred return and decreased for cash distributions and a proportionate share of the entity’s losses. Management periodically reviews its investments for impairment based on projected cash flows from the entity over the holding period. When any impairment is identified, the investments are written down to recoverable amounts.
Effective January 1, 2020, the Company has elected the fair value option for all investments in unconsolidated entities that are accounted for using the equity method. The Company elected the fair value option for investments in unconsolidated entities that own interests (directly or indirectly) in commercial or residential real estate assets or loans because the Company determined that such presentation represents the underlying economics of the respective investment. The Company records the change in fair value of its investment in other income on the accompanying condensed consolidated statements of operations (see Note 7).
Preferred Equity and Mezzanine Loan Investments – The Company invests in preferred equity in, and mezzanine loans to, entities that have significant multi-family real estate assets.
A preferred equity investment is an equity investment in the entity that owns the underlying property. Preferred equity is not secured by the underlying property, but holders have priority relative to common equity holders on cash flow distributions and proceeds from capital events. In addition, preferred equity holders may be able to enhance their position and protect their equity position with covenants that limit the entity’s activities and grant the holder the exclusive right to control the property after an event of default.
Mezzanine loans are secured by a pledge of the borrower’s equity ownership in the property. Unlike a mortgage, this loan does not represent a lien on the property. Therefore, it is always junior and subordinate to any first lien as well as second liens, if applicable, on the property. These loans are senior to any preferred equity or common equity interests in the entity that owns the property.
The Company has evaluated its preferred equity and mezzanine loan investments for accounting treatment as loans versus equity investments utilizing the guidance provided by the Acquisition, Development and Construction Arrangements Subsection of ASC 310, Receivables. Effective January 1, 2020, preferred equity and mezzanine loan investments, for which the characteristics, facts and circumstances indicate that loan accounting treatment is appropriate, are stated at fair value. The Company elected the fair value option for its preferred equity investments in and mezzanine loan investments to entities that have significant multi-family real estate assets because the Company determined that such presentation represents the underlying economics of the respective investment. Changes in fair value are recorded in current period earnings in unrealized gains (losses), net on the accompanying condensed consolidated statements of operations. As of December 31, 2019, preferred equity and mezzanine loan investments, for which the characteristics, facts and circumstances indicate that loan accounting treatment is appropriate, were stated at unpaid principal balance, adjusted for any unamortized premium or discount and deferred fees or expenses, net of valuation allowances. The Company accretes or amortizes any discounts or premiums and deferred fees and expenses over the life of the related asset utilizing the effective interest method or straight line-method, if the result is not materially different.
Management evaluates the collectability of both interest and principal of each of these loans, if circumstances warrant, to determine whether they are impaired. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the investment to the estimated fair value of the loan or, as a practical expedient, to the value of the collateral if the loan is collateral dependent. Interest income is accrued and recognized as revenue when earned according to the terms of the loans and when, in the opinion of management, it is collectible. The accrual of interest on loans is discontinued when, in management’s opinion, the interest is not collectible in the normal course of business, but in all cases when payment becomes greater than 90 days delinquent. Loans return to accrual status when principal and interest become current and are anticipated to be fully collectible.
Preferred equity and mezzanine loan investments where the risks and payment characteristics are equivalent to an equity investment are accounted for using the equity method of accounting. See “Investments in Unconsolidated Entities.”
Adoption of Fair Value Measurement (Topic 820)
On January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). These amendments added, modified, or removed disclosure requirements regarding the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, narrative descriptions of measurement uncertainty, and the valuation processes for Level 3 fair value measurements.
Summary of Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides optional expedients and exceptions to GAAP requirements for modifications to debt agreements, leases, derivatives and other contracts, related to the expected market transition from LIBOR, and certain other floating rate benchmark indices, or collectively, IBORs, to alternative reference rates. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. The guidance in ASU 2020-04 is optional and may be elected over time, through December 31, 2022, as reference rate reform activities occur. Once ASU 2020-04 is elected, the guidance must be applied prospectively for all eligible contract modifications. The Company continues to evaluate the impact of ASU 2020-04 and may apply elections, as applicable, as the expected market transition from IBORs to alternative reference rates continues to develop.
|
|
3.
|
Investment Securities Available for Sale, at Fair Value
|
The Company accounts for certain of its investment securities available for sale using the fair value election pursuant to ASC 825 where changes in fair value are recorded in unrealized gains (losses), net on the Company's condensed consolidated statements of operations. The Company also has investment securities available for sale where the fair value option has not been elected, or CECL Securities. CECL securities are reported at fair value with unrealized gains and losses recorded in other comprehensive income (loss) on the Company's condensed consolidated statements of comprehensive income. The Company's investment securities available for sale consisted of the following as of June 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Amortized Cost
|
|
Unrealized
|
|
Fair Value
|
|
Amortized Cost
|
|
Unrealized
|
|
Fair Value
|
|
|
Gains
|
|
Losses
|
|
|
|
Gains
|
|
Losses
|
|
Fair Value Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency Fixed-Rate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,033
|
|
|
$
|
—
|
|
|
$
|
(55
|
)
|
|
$
|
20,978
|
|
Total Agency RMBS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,033
|
|
|
—
|
|
|
(55
|
)
|
|
20,978
|
|
Agency CMBS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,076
|
|
|
—
|
|
|
(395
|
)
|
|
30,681
|
|
Total Agency
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,109
|
|
|
—
|
|
|
(450
|
)
|
|
51,659
|
|
Non-Agency RMBS (1)
|
214,841
|
|
|
438
|
|
|
(23,342
|
)
|
|
191,937
|
|
|
122,628
|
|
|
2,435
|
|
|
(1,248
|
)
|
|
123,815
|
|
CMBS (2)
|
229,023
|
|
|
9,308
|
|
|
(10,765
|
)
|
|
227,566
|
|
|
20,096
|
|
|
563
|
|
|
(19
|
)
|
|
20,640
|
|
ABS
|
45,969
|
|
|
—
|
|
|
(3,469
|
)
|
|
42,500
|
|
|
49,902
|
|
|
—
|
|
|
(688
|
)
|
|
49,214
|
|
Total investment securities available for sale - fair value option
|
489,833
|
|
|
9,746
|
|
|
(37,576
|
)
|
|
462,003
|
|
|
244,735
|
|
|
2,998
|
|
|
(2,405
|
)
|
|
245,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CECL Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency ARMs (3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
55,740
|
|
|
13
|
|
|
(1,347
|
)
|
|
54,406
|
|
Agency Fixed-Rate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
846,203
|
|
|
7,397
|
|
|
(6,107
|
)
|
|
847,493
|
|
Total Agency RMBS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
901,943
|
|
|
7,410
|
|
|
(7,454
|
)
|
|
901,899
|
|
Agency CMBS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,258
|
|
|
19
|
|
|
—
|
|
|
20,277
|
|
Total Agency
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
922,201
|
|
|
7,429
|
|
|
(7,454
|
)
|
|
922,176
|
|
Non-Agency RMBS (4)
|
470,600
|
|
|
—
|
|
|
(32,341
|
)
|
|
438,259
|
|
|
578,955
|
|
|
12,557
|
|
|
(13
|
)
|
|
591,499
|
|
CMBS
|
62,633
|
|
|
1,084
|
|
|
(3,171
|
)
|
|
60,546
|
|
|
234,524
|
|
|
12,737
|
|
|
(124
|
)
|
|
247,137
|
|
Total investment securities available for sale - CECL Securities
|
533,233
|
|
|
1,084
|
|
|
(35,512
|
)
|
|
498,805
|
|
|
1,735,680
|
|
|
32,723
|
|
|
(7,591
|
)
|
|
1,760,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,023,066
|
|
|
$
|
10,830
|
|
|
$
|
(73,088
|
)
|
|
$
|
960,808
|
|
|
$
|
1,980,415
|
|
|
$
|
35,721
|
|
|
$
|
(9,996
|
)
|
|
$
|
2,006,140
|
|
|
|
(1)
|
Includes non-Agency RMBS held in a securitization trust with a total fair value of $90.8 million as of June 30, 2020 (see Note 9).
|
|
|
(2)
|
Includes IOs and mezzanine securities transferred from the Consolidated K-Series as a result of de-consolidation during the six months ended June 30, 2020 with a total fair value of $139.8 million as of June 30, 2020.
|
|
|
(3)
|
For the Company's Agency ARMs with stated reset periods, the weighted average reset period was 26 months as of December 31, 2019.
|
|
|
(4)
|
Includes non-Agency RMBS held in a securitization trust with a total fair value of $86.3 million as of June 30, 2020 (see Note 9).
|
Accrued interest receivable for all investment securities available for sale is included in receivables and other assets on the Company's condensed consolidated balance sheets.
Realized Gain and Loss Activity
The following table summarizes our investment securities sold during the three months ended June 30, 2020 (dollar amounts in thousands). There were no investment securities sold during the three months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Sales Proceeds
|
|
Realized Gains
|
|
Realized Losses
|
|
Net Realized Gains/Losses
|
Non-Agency RMBS (1)
|
$
|
37,810
|
|
|
$
|
294
|
|
|
$
|
(1,690
|
)
|
|
$
|
(1,396
|
)
|
CMBS
|
24,022
|
|
|
1,327
|
|
|
—
|
|
|
1,327
|
|
Total
|
$
|
61,832
|
|
|
$
|
1,621
|
|
|
$
|
(1,690
|
)
|
|
$
|
(69
|
)
|
|
|
(1)
|
Includes the sale of non-Agency RMBS held in a securitization trust for total proceeds of $27.2 million and a net realized gain of $0.2 million.
|
The following tables summarize our investment securities sold during the six months ended June 30, 2020 and 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Sales Proceeds
|
|
Realized Gains
|
|
Realized Losses
|
|
Net Realized Gains/Losses
|
Agency RMBS:
|
|
|
|
|
|
|
|
Agency ARMs
|
$
|
49,892
|
|
|
$
|
44
|
|
|
$
|
(4,157
|
)
|
|
$
|
(4,113
|
)
|
Agency Fixed-Rate (1)
|
943,074
|
|
|
5,358
|
|
|
(11,697
|
)
|
|
(6,339
|
)
|
Total Agency RMBS
|
992,966
|
|
|
5,402
|
|
|
(15,854
|
)
|
|
(10,452
|
)
|
Agency CMBS (2)
|
145,411
|
|
|
5,666
|
|
|
(209
|
)
|
|
5,457
|
|
Total Agency
|
1,138,377
|
|
|
11,068
|
|
|
(16,063
|
)
|
|
(4,995
|
)
|
Non-Agency RMBS (3)
|
168,758
|
|
|
294
|
|
|
(25,821
|
)
|
|
(25,527
|
)
|
CMBS
|
138,061
|
|
|
1,327
|
|
|
(29,584
|
)
|
|
(28,257
|
)
|
Total
|
$
|
1,445,196
|
|
|
$
|
12,689
|
|
|
$
|
(71,468
|
)
|
|
$
|
(58,779
|
)
|
|
|
(1)
|
Includes Agency RMBS securities issued by Consolidated SLST (see Note 4).
|
|
|
(2)
|
Includes Agency CMBS securities transferred from the Consolidated K-Series (see Note 6).
|
|
|
(3)
|
Includes the sale of non-Agency RMBS held in a securitization trust for total proceeds of $27.2 million and a net realized gain of $0.2 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Sales Proceeds
|
|
Realized Gains
|
|
Realized Losses
|
|
Net Realized Gains/Losses
|
CMBS
|
$
|
56,769
|
|
|
$
|
16,957
|
|
|
$
|
(156
|
)
|
|
$
|
16,801
|
|
Total
|
$
|
56,769
|
|
|
$
|
16,957
|
|
|
$
|
(156
|
)
|
|
$
|
16,801
|
|
Weighted Average Life
Actual maturities of our investment securities available for sale are generally shorter than stated contractual maturities (with contractual maturities up to 40 years), as they are affected by periodic payments and prepayments of principal on the underlying mortgages. As of June 30, 2020 and December 31, 2019, based on management’s estimates, the weighted average life of the Company’s investment securities available for sale portfolio was approximately 7.2 years and 5.0 years, respectively.
The following table sets forth the weighted average lives of our investment securities available for sale as of June 30, 2020 and December 31, 2019 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
Weighted Average Life
|
June 30, 2020
|
|
December 31, 2019
|
0 to 5 years
|
$
|
605,108
|
|
|
$
|
1,359,894
|
|
Over 5 to 10 years
|
285,099
|
|
|
521,517
|
|
10+ years
|
70,601
|
|
|
124,729
|
|
Total
|
$
|
960,808
|
|
|
$
|
2,006,140
|
|
Unrealized Losses in Other Comprehensive Income
As of January 1, 2020, the Company adopted ASU 2016-13 to account for its investments in CECL Securities (see Note 2). The Company evaluated its CECL Securities that were in an unrealized loss position as of June 30, 2020 and determined that no allowance for credit losses was necessary. Accordingly, the Company did not recognize credit losses through earnings for the three and six months ended June 30, 2020.
The following table presents the Company's CECL Securities in an unrealized loss position with no credit losses reported, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2020 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
Less than 12 months
|
|
Greater than 12 months
|
|
Total
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
Non-Agency RMBS
|
$
|
421,337
|
|
|
$
|
(31,061
|
)
|
|
$
|
16,922
|
|
|
$
|
(1,280
|
)
|
|
$
|
438,259
|
|
|
$
|
(32,341
|
)
|
CMBS
|
43,927
|
|
|
(2,546
|
)
|
|
6,678
|
|
|
(625
|
)
|
|
50,605
|
|
|
(3,171
|
)
|
Total
|
$
|
465,264
|
|
|
$
|
(33,607
|
)
|
|
$
|
23,600
|
|
|
$
|
(1,905
|
)
|
|
$
|
488,864
|
|
|
$
|
(35,512
|
)
|
At June 30, 2020, the Company did not intend to sell any of its investment securities available for sale that were in an unrealized loss position, and it was “more likely than not” that the Company would not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity.
Gross unrealized losses in other comprehensive income on the Company's non-Agency RMBS and CMBS were $32.3 million and $3.2 million, respectively, at June 30, 2020. Credit risk associated with non-Agency RMBS and CMBS is regularly assessed as new information regarding the underlying collateral becomes available and based on updated estimates of cash flows generated by the underlying collateral. In performing its assessment, the Company considers past and expected future performance of the underlying collateral, including timing of expected future cash flows, prepayment rates, default rates, loss severities, delinquency rates, current levels of subordination, volatility of the security's fair value, temporary declines in liquidity for the asset class and interest rate changes since purchase. Based upon the most recent evaluation, the Company does not believe that these unrealized losses are credit related but are rather a reflection of current market yields and/or marketplace bid-ask spreads.
The following table presents the Company's investment securities available for sale in an unrealized loss position reported through other comprehensive income, aggregated by investment category and length of time that individual securities were in a continuous unrealized loss position as of December 31, 2019 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Less than 12 months
|
|
Greater than 12 months
|
|
Total
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
Agency RMBS
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
222,286
|
|
|
$
|
(7,454
|
)
|
|
$
|
222,286
|
|
|
$
|
(7,454
|
)
|
Non-Agency RMBS
|
—
|
|
|
—
|
|
|
104
|
|
|
(13
|
)
|
|
104
|
|
|
(13
|
)
|
CMBS
|
25,507
|
|
|
(124
|
)
|
|
—
|
|
|
—
|
|
|
25,507
|
|
|
(124
|
)
|
Total
|
$
|
25,507
|
|
|
$
|
(124
|
)
|
|
$
|
222,390
|
|
|
$
|
(7,467
|
)
|
|
$
|
247,897
|
|
|
$
|
(7,591
|
)
|
Other than Temporary Impairment
For the three and six months ended June 30, 2019, the Company did not recognize other-than-temporary impairment through earnings.
|
|
4.
|
Residential Loans, at Fair Value
|
The Company’s acquired residential loans, including distressed residential loans, non-QM loans, 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 or as of January 1, 2020 (see Note 2). Subsequent changes in fair value are reported in current period earnings and presented in unrealized gains (losses), net on the Company’s condensed consolidated statements of operations.
The following table presents the Company’s residential loans, at fair value, which consist of residential loans held by the Company, Consolidated SLST and other securitizations trusts, as of June 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Residential loans
|
|
Consolidated SLST (1)
|
|
Residential loans held in securitization trusts (2)
|
|
Residential loans
|
|
Consolidated SLST (1)
|
Principal
|
$
|
1,521,781
|
|
|
$
|
1,283,350
|
|
|
$
|
43,108
|
|
|
$
|
1,464,984
|
|
|
$
|
1,322,131
|
|
(Discount)/premium
|
(83,407
|
)
|
|
4,248
|
|
|
277
|
|
|
(81,372
|
)
|
|
6,455
|
|
Unrealized gains/(losses)
|
4,311
|
|
|
(12,748
|
)
|
|
(2,692
|
)
|
|
46,142
|
|
|
300
|
|
Carrying value
|
$
|
1,442,685
|
|
|
$
|
1,274,850
|
|
|
$
|
40,693
|
|
|
$
|
1,429,754
|
|
|
$
|
1,328,886
|
|
|
|
(1)
|
In 2019, the Company invested in first loss subordinated securities and certain IOs and senior securities 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 held in the securitization and the SLST CDOs issued to permanently finance these residential loans, representing Consolidated SLST. SLST CDOs are included in residential collateralized debt obligations, at fair value on the Company's condensed consolidated balance sheets.
|
|
|
(2)
|
Residential loans held in securitization trusts are comprised of ARM loans transferred to Consolidated VIEs that have been securitized into sequentially rated classes of beneficial interests. Residential loans held in securitization trusts were included in residential loans, net on the Company's condensed consolidated balance sheets as of December 31, 2019 (see Note 5).
|
The following table presents the unrealized gains (losses), net attributable to residential loans, at fair value for the three and six months ended June 30, 2020 and 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 30, 2020
|
|
June 30, 2019
|
|
Residential loans
|
|
Consolidated SLST (1)
|
|
Residential loans held in securitization trusts
|
|
Residential loans
|
Unrealized gains, net
|
$
|
38,198
|
|
|
$
|
75,051
|
|
|
$
|
4
|
|
|
$
|
9,877
|
|
|
|
(1)
|
The fair value of residential loans held in Consolidated SLST is determined in accordance with the practical expedient in ASC 810, Consolidation, ("ASC 810") (see Note 14).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2020
|
|
June 30, 2019
|
|
Residential loans
|
|
Consolidated SLST (1)
|
|
Residential loans held in securitization trusts
|
|
Residential loans
|
Unrealized (losses) gains, net
|
$
|
(43,482
|
)
|
|
$
|
(13,049
|
)
|
|
$
|
(1,725
|
)
|
|
$
|
17,762
|
|
|
|
(1)
|
The fair value of residential loans held in Consolidated SLST is determined in accordance with the practical expedient in ASC 810 (see Note 14).
|
The Company also recognized $0.2 million of net realized gains and $14.1 million of net realized losses on the sale and payoff of residential loans, at fair value during the three and six months ended June 30, 2020, respectively. The Company recognized $2.4 million and $5.5 million of net realized gains on the sale and payoff of residential loans, at fair value during the three and six months ended June 30, 2019, respectively.
The geographic concentrations of credit risk exceeding 5% of the unpaid principal balance of residential loans, at fair value as of June 30, 2020 and December 31, 2019, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Residential loans
|
|
Consolidated SLST
|
|
Residential loans held in securitization trusts
|
|
Residential loans
|
|
Consolidated SLST
|
California
|
21.3
|
%
|
|
10.9
|
%
|
|
1.6
|
%
|
|
23.9
|
%
|
|
11.0
|
%
|
Florida
|
10.3
|
%
|
|
10.6
|
%
|
|
12.6
|
%
|
|
9.4
|
%
|
|
10.6
|
%
|
New York
|
7.5
|
%
|
|
9.1
|
%
|
|
37.0
|
%
|
|
8.0
|
%
|
|
9.1
|
%
|
Texas
|
5.6
|
%
|
|
4.0
|
%
|
|
—
|
|
|
5.4
|
%
|
|
4.0
|
%
|
New Jersey
|
4.9
|
%
|
|
7.0
|
%
|
|
12.5
|
%
|
|
5.1
|
%
|
|
6.9
|
%
|
Maryland
|
4.7
|
%
|
|
3.8
|
%
|
|
5.2
|
%
|
|
4.6
|
%
|
|
3.8
|
%
|
Massachusetts
|
2.7
|
%
|
|
2.9
|
%
|
|
16.8
|
%
|
|
2.8
|
%
|
|
2.9
|
%
|
Illinois
|
2.6
|
%
|
|
6.7
|
%
|
|
—
|
|
|
2.8
|
%
|
|
6.6
|
%
|
The following table presents the fair value and aggregate unpaid principal balance of the Company's residential loans and residential loans held in securitization trusts in non-accrual status as of June 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 90 days past due
|
|
Less than 90 days past due
|
|
Fair Value
|
|
Unpaid Principal Balance
|
|
Fair Value
|
|
Unpaid Principal Balance
|
June 30, 2020
|
$
|
125,147
|
|
|
$
|
149,392
|
|
|
$
|
41,712
|
|
|
$
|
45,217
|
|
December 31, 2019
|
106,199
|
|
|
122,918
|
|
|
9,291
|
|
|
10,705
|
|
Residential loans held in Consolidated SLST with an aggregate unpaid principal balance of $149.1 million and $50.7 million were 90 days or more delinquent as of June 30, 2020 and December 31, 2019, respectively.
Repurchase Agreements - Residential Loans
Residential loans with a fair value of approximately $1.2 billion and $881.2 million at June 30, 2020 and December 31, 2019, respectively, are pledged as collateral for repurchase agreements (see Note 11).
Residential Collateralized Debt Obligations
The Company's residential loans held in securitization trusts are pledged as collateral for the Residential CDOs issued by the Company. These Residential CDOs are accounted for as financings and included in residential collateralized debt obligations on the Company's condensed consolidated balance sheets. As of June 30, 2020, the Company had Residential CDOs outstanding of $36.7 million recorded as liabilities on the Company’s condensed consolidated balance sheets with a current weighted average interest rate of 0.80%. The Company retained the owner trust certificates, or residual interest, for three securitizations and had a net investment in the residential securitization trusts of $7.5 million. The net investment amount is the maximum amount of the Company’s investment that is at risk to loss and represents the difference between (i) the carrying amount of the residential loans, real estate owned and receivables held in residential securitization trusts and (ii) the amount of Residential CDOs outstanding. The Residential CDOs are non-recourse debt for which the Company has no obligation.
Consolidated SLST
The Company has elected the fair value option on the assets and liabilities held within Consolidated SLST, which requires that changes in valuations in the assets and liabilities of Consolidated SLST be reflected in the Company’s condensed consolidated statements of operations. Our investment in Consolidated SLST is limited to the securities that we own with an aggregate net carrying value of $185.3 million and $276.8 million at June 30, 2020 and December 31, 2019, respectively (see Note 9). During the six months ended June 30, 2020, the Company purchased approximately $40.0 million in additional senior securities issued by Consolidated SLST and subsequently sold its entire investment in the senior securities issued by Consolidated SLST for sales proceeds of approximately $62.6 million at a realized loss of approximately $2.4 million, which is included in realized gains (losses), net on the Company's condensed consolidated statements of operations.
The condensed consolidated balance sheets of Consolidated SLST at June 30, 2020 and December 31, 2019, respectively, are as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
Balance Sheet
|
June 30, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
Residential loans, at fair value
|
$
|
1,274,850
|
|
|
$
|
1,328,886
|
|
Receivables (1)
|
4,241
|
|
|
5,244
|
|
Total Assets
|
$
|
1,279,091
|
|
|
$
|
1,334,130
|
|
Liabilities and Equity
|
|
|
|
Residential collateralized debt obligations, at fair value
|
$
|
1,088,233
|
|
|
$
|
1,052,829
|
|
Accrued expenses and other liabilities (2)
|
3,908
|
|
|
2,643
|
|
Total Liabilities
|
1,092,141
|
|
|
1,055,472
|
|
Equity
|
186,950
|
|
|
278,658
|
|
Total Liabilities and Equity
|
$
|
1,279,091
|
|
|
$
|
1,334,130
|
|
|
|
(1)
|
Included in receivables and other assets on the accompanying condensed consolidated balance sheets.
|
|
|
(2)
|
Included in accrued expenses and other liabilities on the accompanying condensed consolidated balance sheets.
|
The SLST CDOs had aggregate unpaid principal balances of approximately $1.3 billion at June 30, 2020 and December 31, 2019. As of June 30, 2020 and December 31, 2019, the weighted average interest rate on the SLST CDOs was 3.53%.
The Company does not have any claims to the assets or obligations for the liabilities of Consolidated SLST (other than those securities owned by the Company as of June 30, 2020 and December 31, 2019, respectively). The net fair value of our investment in Consolidated SLST, which represents the difference between the carrying values of residential loans, at fair value held in Consolidated SLST less the carrying value of SLST CDOs, approximates the fair value of our underlying securities (see Note 14).
The condensed consolidated statements of operations of Consolidated SLST for the three and six months ended June 30, 2020 are as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
Statements of Operations
|
Three Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2020
|
Interest income (1)
|
$
|
11,522
|
|
|
$
|
23,646
|
|
Interest expense (2)
|
8,158
|
|
|
16,693
|
|
Net interest income
|
3,364
|
|
|
6,953
|
|
Unrealized gains (losses), net (3)
|
4,096
|
|
|
(62,038
|
)
|
Net income (loss)
|
$
|
7,460
|
|
|
$
|
(55,085
|
)
|
|
|
(1)
|
Included in the Company’s accompanying condensed consolidated statements of operations in interest income, residential loans.
|
|
|
(2)
|
Included in the Company’s accompanying condensed consolidated statements of operations in interest expense, residential collateralized debt obligations.
|
|
|
(3)
|
Presented in unrealized gains (losses), net on the Company’s condensed consolidated statements of operations. Includes $75.1 million of unrealized gains and $13.0 million of unrealized losses on residential loans held in Consolidated SLST for the three and six months ended June 30, 2020, respectively, and $71.0 million and $49.0 million of unrealized losses on SLST CDOs for the three and six months ended June 30, 2020, respectively.
|
|
|
5.
|
Residential Loans, Net
|
As of January 1, 2020, the Company has elected to account for its residential loans using the fair value option (see Note 2). The following information related to the Company's residential loans, net is provided for the prior periods presented in the accompanying condensed consolidated financial statements.
Distressed Residential Loans, Net
As of December 31, 2019, the carrying value of the Company’s distressed residential loans, net accounted for under ASC 310-30 amounted to approximately $158.7 million.
The following table details activity in accretable yield for the distressed residential loans, net for the six months ended June 30, 2019 (dollar amounts in thousands):
|
|
|
|
|
|
June 30, 2019
|
Balance at beginning of period
|
$
|
195,560
|
|
Additions
|
2,369
|
|
Disposals
|
(45,004
|
)
|
Accretion
|
(2,370
|
)
|
Balance at end of period (1)
|
$
|
150,555
|
|
|
|
(1)
|
Accretable yield is the excess of the distressed residential loans’ cash flows expected to be collected over the purchase price. The cash flows expected to be collected represented the Company’s estimate of the amount and timing of undiscounted principal and interest cash flows. Additions included reclassification to accretable yield from nonaccretable yield. Disposals included distressed residential loan dispositions, which included refinancing, sale and foreclosure of the underlying collateral and resulting removal of the distressed residential loans from the accretable yield, and reclassifications from accretable to nonaccretable yield. The reclassifications between accretable and nonaccretable yield and the accretion of interest income were based on various estimates regarding loan performance and the value of the underlying real estate securing the loans. As the Company continued to update its estimates regarding the loans and the underlying collateral, the accretable yield was subject to change. Therefore, the amount of accretable income recorded in the six month period ended June 30, 2019 was not necessarily indicative of future results.
|
The geographic concentrations of credit risk exceeding 5% of the unpaid principal balance of our distressed residential loans, net as of December 31, 2019 was as follows:
|
|
|
|
|
December 31, 2019
|
North Carolina
|
10.5
|
%
|
Florida
|
10.1
|
%
|
Georgia
|
7.0
|
%
|
South Carolina
|
5.8
|
%
|
Texas
|
5.6
|
%
|
New York
|
5.5
|
%
|
Ohio
|
5.2
|
%
|
Virginia
|
5.2
|
%
|
Distressed residential loans, net with a carrying value of approximately $80.6 million were pledged as collateral for a repurchase agreement at December 31, 2019 (see Note 11).
Residential Loans Held in Securitization Trusts, Net
Residential loans held in securitization trusts, net were comprised of ARM loans transferred to Consolidated VIEs that have been securitized into sequentially rated classes of beneficial interests. Residential loans held in securitization trusts, net consisted of the following as of December 31, 2019 (dollar amounts in thousands):
|
|
|
|
|
|
December 31, 2019
|
Unpaid principal balance
|
$
|
47,237
|
|
Deferred origination costs – net
|
301
|
|
Allowance for loan losses
|
(3,508
|
)
|
Total
|
$
|
44,030
|
|
Allowance for Loan Losses - The following table presents the activity in the Company's allowance for loan losses on residential loans held in securitization trusts, net for the six months ended June 30, 2019 (dollar amounts in thousands):
|
|
|
|
|
|
June 30, 2019
|
Balance at beginning of period
|
$
|
3,759
|
|
Provision for loan losses
|
38
|
|
Transfer to real estate owned
|
(167
|
)
|
Charge-offs
|
(109
|
)
|
Balance at the end of period
|
$
|
3,521
|
|
Prior to January 1, 2020, the Company evaluated the adequacy of its allowance for loan losses on a recurring basis. The Company’s allowance for loan losses as of December 31, 2019 was $3.5 million, representing 743 basis points of the outstanding principal balance of residential loans held in securitization trusts. As part of the Company’s allowance for loan loss adequacy analysis, management assessed an overall level of allowances while also assessing credit losses inherent in each non-performing residential loan held in securitization trusts. These estimates involved the consideration of various credit related factors, including, but not limited to, current housing market conditions, current loan to value ratios, delinquency status, the borrower’s current economic and credit status and other relevant factors.
Residential Collateralized Debt Obligations
The Company's residential loans held in securitization trusts, net were pledged as collateral for the Residential CDOs issued by the Company. These Residential CDOs were accounted for as financings and included in residential collateralized debt obligations on the Company's condensed consolidated balance sheets. As of December 31, 2019, the Company had Residential CDOs outstanding of $40.4 million recorded as liabilities on the Company’s condensed consolidated balance sheets with a weighted average interest rate of 2.41%. The Company retained the owner trust certificates, or residual interest, for three securitizations and had a net investment in the residential securitization trusts of $4.9 million. The net investment amount is the maximum amount of the Company’s investment that was at risk to loss and represented the difference between (i) the carrying amount of the residential loans, real estate owned and receivables held in residential securitization trusts and (ii) the amount of Residential CDOs outstanding. The Residential CDOs are non-recourse debt for which the Company has no obligation.
Delinquency Status of Our Residential Loans Held in Securitization Trusts, Net
As of December 31, 2019, we had 18 delinquent loans with an aggregate principal amount outstanding of approximately $10.2 million categorized as residential loans held in securitization trusts, net, of which $6.7 million, or 66%, were under some form of temporary modified payment plan. The table below shows delinquencies in our portfolio of residential loans held in securitization trusts, net, including real estate owned (REO) through foreclosure, as of December 31, 2019 (dollar amounts in thousands):
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Days Late
|
Number of
Delinquent
Loans
|
|
Total
Unpaid
Principal
|
|
% of Loan
Portfolio
|
30 - 60
|
2
|
|
$
|
211
|
|
|
0.44
|
%
|
90 +
|
16
|
|
$
|
10,010
|
|
|
21.05
|
%
|
Real estate owned through foreclosure
|
1
|
|
$
|
360
|
|
|
0.76
|
%
|
The geographic concentrations of credit risk exceeding 5% of the total loan balances in our residential loans held in securitization trusts, net as of December 31, 2019 were as follows:
|
|
|
|
|
December 31, 2019
|
New York
|
36.1
|
%
|
Massachusetts
|
17.2
|
%
|
New Jersey
|
12.8
|
%
|
Florida
|
12.1
|
%
|
Maryland
|
5.5
|
%
|
In March 2020, the Company sold its first loss POs and certain mezzanine securities issued by certain Freddie Mac-sponsored multi-family loan K-Series securitizations that we consolidated in our financial statements in accordance with GAAP and which we refer to as 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, 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.
The Company elected the fair value option on the assets and liabilities held within the Consolidated K-Series, which required that changes in valuations in the assets and liabilities of the Consolidated K-Series be reflected in the Company's condensed consolidated statements of operations. Our investment in the Consolidated K-Series was limited to the multi-family CMBS that we owned with an aggregate net carrying value of $1.1 billion at December 31, 2019 (see Note 9).
The condensed consolidated balance sheet of the Consolidated K-Series at December 31, 2019 is as follows (dollar amounts in thousands):
|
|
|
|
|
Balance Sheet
|
December 31, 2019
|
Assets
|
|
Multi-family loans held in securitization trusts, at fair value
|
$
|
17,816,746
|
|
Receivables (1)
|
59,417
|
|
Total Assets
|
$
|
17,876,163
|
|
Liabilities and Equity
|
|
Multi-family CDOs, at fair value
|
$
|
16,724,451
|
|
Accrued expenses
|
57,873
|
|
Total Liabilities
|
16,782,324
|
|
Equity
|
1,093,839
|
|
Total Liabilities and Equity
|
$
|
17,876,163
|
|
|
|
(1)
|
Included in receivables and other assets on the accompanying condensed consolidated balance sheets.
|
The multi-family loans held in securitization trusts had unpaid aggregate principal balances of approximately $16.8 billion at December 31, 2019. The multi-family CDOs (the "Multi-Family CDOs") had aggregate unpaid principal balances of approximately $16.8 billion at December 31, 2019 and had a weighted average interest rate of 3.85%.
The Company did not have any claims to the assets or obligations for the liabilities of the Consolidated K-Series (other than those securities represented by the first loss POs, IOs and certain senior and mezzanine securities owned by the Company). We elected the fair value option for the Consolidated K-Series. The net fair value of our investment in the Consolidated K-Series, which represented the difference between the carrying values of multi-family loans held in securitization trusts less the carrying value of Multi-Family CDOs, approximated the fair value of our underlying securities (see Note 14).
The condensed consolidated statements of operations of the Consolidated K-Series for the three months ended June 30, 2019, for the six months ended June 30, 2020 (prior to the sale of first loss POs and de-consolidation of the Consolidated K-Series) and for the six months ended June 30, 2019, respectively, are as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Statements of Operations
|
2019
|
|
2020
|
|
2019
|
Interest income
|
$
|
133,157
|
|
|
$
|
151,841
|
|
|
$
|
244,925
|
|
Interest expense
|
114,914
|
|
|
129,762
|
|
|
211,711
|
|
Net interest income
|
18,243
|
|
|
22,079
|
|
|
33,214
|
|
Unrealized gains (losses), net
|
5,207
|
|
|
(10,951
|
)
|
|
14,617
|
|
Net income
|
$
|
23,450
|
|
|
$
|
11,128
|
|
|
$
|
47,831
|
|
The geographic concentrations of credit risk exceeding 5% of the total loan balances related to multi-family loans held in securitization trusts as of December 31, 2019 were as follows:
|
|
|
|
|
December 31, 2019
|
California
|
15.9
|
%
|
Texas
|
12.4
|
%
|
Florida
|
6.2
|
%
|
Maryland
|
5.8
|
%
|
|
|
7.
|
Investments in Unconsolidated Entities
|
The Company's preferred equity ownership interests in entities that invest in multi-family properties where the risks and payment characteristics are equivalent to an equity investment are included in investments in unconsolidated entities and accounted for under the equity method. As of January 1, 2020, the Company has elected to account for these investments using the fair value option (see Note 2). Accordingly, balances presented below as of June 30, 2020 are stated at fair value. The Company's preferred equity ownership interests accounted for under the equity method consist of the following as of June 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Investment Name
|
|
Ownership Interest
|
|
Fair Value
|
|
Ownership Interest
|
|
Carrying Amount
|
BBA-EP320 II, L.L.C., BBA-Ten10 II, L.L.C., and Lexington on the Green Apartments, L.L.C. (collectively)
|
|
45%
|
|
$
|
10,849
|
|
|
45%
|
|
$
|
10,108
|
|
Somerset Deerfield Investor, LLC
|
|
45%
|
|
17,811
|
|
|
45%
|
|
17,417
|
|
RS SWD Owner, LLC, RS SWD Mitchell Owner, LLC, RS SWD IF Owner, LLC, RS SWD Mullis Owner, LLC, RS SWD JH Mullis Owner, LLC and RS SWD Saltzman Owner, LLC (collectively)
|
|
43%
|
|
4,869
|
|
|
43%
|
|
4,878
|
|
Audubon Mezzanine Holdings, L.L.C. (Series A)
|
|
57%
|
|
10,839
|
|
|
57%
|
|
10,998
|
|
EP 320 Growth Fund, L.L.C. (Series A) and Turnbury Park Apartments - BC, L.L.C. (Series A) (collectively)
|
|
46%
|
|
6,804
|
|
|
46%
|
|
6,847
|
|
Walnut Creek Properties Holdings, L.L.C.
|
|
36%
|
|
8,277
|
|
|
36%
|
|
8,288
|
|
Towers Property Holdings, LLC
|
|
37%
|
|
11,320
|
|
|
37%
|
|
11,278
|
|
Mansions Property Holdings, LLC
|
|
34%
|
|
10,908
|
|
|
34%
|
|
10,867
|
|
Sabina Montgomery Holdings, LLC - Series B and Oakley Shoals Apartments, LLC - Series A (collectively)
|
|
43%
|
|
4,060
|
|
|
43%
|
|
4,062
|
|
Gen1814, LLC - Series A, Highlands - Mtg. Holdings, LLC - Series A, and Polos at Hudson Investments, LLC - Series A (collectively)
|
|
37%
|
|
9,360
|
|
|
37%
|
|
9,396
|
|
Axis Apartments Holdings, LLC, Arbor-Stratford Holdings II, LLC - Series B, Highlands - Mtg. Holdings, LLC - Series B, Oakley Shoals Apartments, LLC - Series C, and Woodland Park Apartments II, LLC (collectively)
|
|
53%
|
|
11,599
|
|
|
53%
|
|
11,944
|
|
DCP Gold Creek, LLC
|
|
44%
|
|
5,937
|
|
|
—
|
|
—
|
|
1122 Chicago DE, LLC
|
|
53%
|
|
6,826
|
|
|
—
|
|
—
|
|
Rigsbee Ave Holdings, LLC
|
|
56%
|
|
9,641
|
|
|
—
|
|
—
|
|
Total - Preferred Equity Ownership Interests
|
|
|
|
$
|
129,100
|
|
|
|
|
$
|
106,083
|
|
The following table presents income from preferred equity ownership interests accounted for under the equity method using the fair value option for the three and six months ended June 30, 2020 and income from preferred equity ownership interests accounted for under the equity method for the three and six months ended June 30, 2019 (dollar amounts in thousands). Income from these investments, which includes $0.2 million of net unrealized gains and $4.1 million of net unrealized losses during the three and six months ended June 30, 2020, respectively, is presented in other income in the Company's accompanying condensed consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Investment Name
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
BBA-EP320 II, L.L.C., BBA-Ten10 II, L.L.C., and Lexington on the Green Apartments, L.L.C. (collectively)
|
|
$
|
358
|
|
|
$
|
287
|
|
|
$
|
603
|
|
|
$
|
562
|
|
Somerset Deerfield Investor, LLC
|
|
627
|
|
|
492
|
|
|
787
|
|
|
970
|
|
RS SWD Owner, LLC, RS SWD Mitchell Owner, LLC, RS SWD IF Owner, LLC, RS SWD Mullis Owner, LLC, RS SWD JH Mullis Owner, LLC and RS SWD Saltzman Owner, LLC (collectively)
|
|
158
|
|
|
134
|
|
|
92
|
|
|
265
|
|
Audubon Mezzanine Holdings, L.L.C. (Series A)
|
|
284
|
|
|
304
|
|
|
175
|
|
|
601
|
|
EP 320 Growth Fund, L.L.C. (Series A) and Turnbury Park Apartments - BC, L.L.C. (Series A) (collectively)
|
|
225
|
|
|
188
|
|
|
124
|
|
|
353
|
|
Walnut Creek Properties Holdings, L.L.C.
|
|
216
|
|
|
231
|
|
|
122
|
|
|
328
|
|
Towers Property Holdings, LLC
|
|
284
|
|
|
10
|
|
|
122
|
|
|
10
|
|
Mansions Property Holdings, LLC
|
|
273
|
|
|
10
|
|
|
118
|
|
|
10
|
|
Sabina Montgomery Holdings, LLC - Series B and Oakley Shoals Apartments, LLC - Series A (collectively)
|
|
107
|
|
|
—
|
|
|
53
|
|
|
—
|
|
Gen1814, LLC - Series A, Highlands - Mtg. Holdings, LLC - Series A, and Polos at Hudson Investments, LLC - Series A (collectively)
|
|
245
|
|
|
—
|
|
|
114
|
|
|
—
|
|
Axis Apartments Holdings, LLC, Arbor-Stratford Holdings II, LLC - Series B, Highlands - Mtg. Holdings, LLC - Series B, Oakley Shoals Apartments, LLC - Series C, and Woodland Park Apartments II, LLC (collectively)
|
|
304
|
|
|
—
|
|
|
135
|
|
|
—
|
|
DCP Gold Creek, LLC
|
|
222
|
|
|
—
|
|
|
102
|
|
|
—
|
|
1122 Chicago DE, LLC
|
|
296
|
|
|
—
|
|
|
236
|
|
|
—
|
|
Rigsbee Ave Holdings, LLC
|
|
425
|
|
|
—
|
|
|
279
|
|
|
—
|
|
The Company's equity ownership interests in entities that invest in multi-family properties and residential properties and loans that are included in investments in unconsolidated entities and are accounted for under the equity method using the fair value option as of both June 30, 2020 and December 31, 2019, respectively, consist of the following (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Investment Name
|
|
Ownership Interest
|
|
Fair Value
|
|
Ownership Interest
|
|
Fair Value
|
Joint venture equity investments in multi-family properties
|
|
|
|
|
|
|
|
|
The Preserve at Port Royal Venture, LLC
|
|
77%
|
|
17,000
|
|
|
77%
|
|
18,310
|
|
Equity investments in entities that invest in residential properties and loans
|
|
|
|
|
|
|
|
|
Morrocroft Neighborhood Stabilization Fund II, LP
|
|
11%
|
|
12,362
|
|
|
11%
|
|
11,796
|
|
Headlands Asset Management Fund III (Cayman), LP (Headlands Flagship Opportunity Fund Series I)
|
|
49%
|
|
55,827
|
|
|
49%
|
|
53,776
|
|
Total - Equity Ownership Interests
|
|
|
|
$
|
85,189
|
|
|
|
|
$
|
83,882
|
|
Income from equity ownership interests in entities that invest in multi-family properties and residential properties and loans that are accounted for under the equity method using the fair value option, which includes $1.3 million and $1.1 million of net unrealized losses for the three and six months ended June 30, 2020, respectively, and $1.7 million and $5.4 million of net unrealized gains for the three and six months ended June 30, 2019, respectively, is presented in other income in the Company's accompanying condensed consolidated statements of operations. The following table presents income from these investments 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,
|
Investment Name
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Joint venture equity investments in multi-family properties
|
|
|
|
|
|
|
|
|
Evergreens JV Holdings, LLC (1)
|
|
$
|
—
|
|
|
$
|
1,289
|
|
|
$
|
—
|
|
|
$
|
4,513
|
|
The Preserve at Port Royal Venture, LLC
|
|
(1,310
|
)
|
|
409
|
|
|
(1,071
|
)
|
|
847
|
|
Equity investments in entities that invest in residential properties and loans
|
|
|
|
|
|
|
|
|
Morrocroft Neighborhood Stabilization Fund II, LP
|
|
347
|
|
|
163
|
|
|
565
|
|
|
395
|
|
Headlands Asset Management Fund III (Cayman), LP (Headlands Flagship Opportunity Fund Series I)
|
|
1,051
|
|
|
—
|
|
|
2,051
|
|
|
—
|
|
|
|
(1)
|
The Company's equity investment was redeemed during the year ended December 31, 2019.
|
|
|
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, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019 (1)
|
Investment amount
|
$
|
185,459
|
|
|
$
|
181,409
|
|
Deferred loan fees, net
|
(1,266
|
)
|
|
(1,364
|
)
|
Unrealized losses, net
|
(3,343
|
)
|
|
—
|
|
Total
|
$
|
180,850
|
|
|
$
|
180,045
|
|
|
|
(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 no delinquent preferred equity or mezzanine loan investments as of December 31, 2019.
The geographic concentrations of credit risk exceeding 5% of the total preferred equity and mezzanine loan investment amounts as of June 30, 2020 and December 31, 2019, respectively, are as follows:
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Tennessee
|
12.3
|
%
|
|
12.3
|
%
|
Florida
|
12.0
|
%
|
|
12.0
|
%
|
Georgia
|
11.8
|
%
|
|
11.8
|
%
|
Texas
|
10.4
|
%
|
|
10.6
|
%
|
Alabama
|
10.0
|
%
|
|
10.0
|
%
|
South Carolina
|
6.3
|
%
|
|
6.3
|
%
|
New Jersey
|
5.0
|
%
|
|
5.0
|
%
|
|
|
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 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 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 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 (each a “Financing VIE” and collectively, the “Financing VIEs”). Accordingly, the Company consolidated the Financing VIEs as of June 30, 2020 and December 31, 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 those securitizations. The Company evaluated these CMBS investments in Freddie Mac-sponsored K-Series securitization trusts to determine whether they were VIEs and if so, whether the Company was the primary beneficiary requiring consolidation. The Company determined that the Freddie Mac-sponsored multi-family K-Series securitization trusts were VIEs as of December 31, 2019, which we refer to as the Consolidated K-Series. The Company also determined that it was the primary beneficiary of each VIE within the Consolidated K-Series and, accordingly, consolidated its assets, liabilities, income and expenses in the accompanying condensed consolidated financial statements (see Notes 2 and 6). In March 2020, the Company sold its first loss POs and certain mezzanine securities issued by the Consolidated K-Series which resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO.
In analyzing whether the Company is the primary beneficiary of the Financing VIEs, Consolidated SLST and the 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, 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, 2020 and December 31, 2019 of $10.6 million and $14.5 million, respectively, is included in receivables and other assets on the condensed consolidated balance sheets.
The following table presents a summary of the assets and liabilities of the Company's residential loan securitizations, non-Agency RMBS re-securitization, Consolidated SLST and KRVI of as of June 30, 2020 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing VIEs
|
|
Other VIEs
|
|
|
|
Residential
Loan Securitizations
|
|
Non-Agency RMBS Re-Securitization
|
|
Consolidated SLST
|
|
KRVI
|
|
Total
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,320
|
|
|
$
|
2,320
|
|
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
|
3,475
|
|
|
28,447
|
|
|
4,241
|
|
|
10,794
|
|
|
46,957
|
|
Total assets
|
$
|
44,168
|
|
|
$
|
205,580
|
|
|
$
|
1,279,091
|
|
|
$
|
13,114
|
|
|
$
|
1,541,953
|
|
|
|
|
|
|
|
|
|
|
|
Residential collateralized debt obligations
|
$
|
36,699
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,699
|
|
Residential collateralized debt obligations, at fair value
|
—
|
|
|
—
|
|
|
1,088,233
|
|
|
—
|
|
|
1,088,233
|
|
Securitized debt
|
—
|
|
|
108,999
|
|
|
—
|
|
|
—
|
|
|
108,999
|
|
Accrued expenses and other liabilities
|
6
|
|
|
454
|
|
|
3,908
|
|
|
74
|
|
|
4,442
|
|
Total liabilities
|
$
|
36,705
|
|
|
$
|
109,453
|
|
|
$
|
1,092,141
|
|
|
$
|
74
|
|
|
$
|
1,238,373
|
|
The following table presents a summary of the assets and liabilities of the Company's residential loan securitizations, the Consolidated K-Series, Consolidated SLST and KRVI as of December 31, 2019 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
The following table presents contractual maturity information about the Company's securitized debt collateralized by non-Agency RMBS as of June 30, 2020 (dollar amounts in thousands):
|
|
|
|
|
|
Scheduled Maturity (principal amount)
|
|
June 30, 2020
|
Over 36 months
|
|
$
|
110,361
|
|
Debt issuance cost
|
|
(1,362
|
)
|
Carrying value
|
|
$
|
108,999
|
|
Unconsolidated VIEs
As of June 30, 2020 and December 31, 2019, the Company evaluated its investment securities available for sale, preferred equity, mezzanine loan 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, 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, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
Investment
securities
available for
sale, at fair value
|
|
Preferred equity and mezzanine loan investments
|
|
Investments in unconsolidated entities
|
|
Total
|
ABS
|
$
|
42,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
42,500
|
|
Preferred equity investments in multi-family properties
|
—
|
|
|
175,366
|
|
|
129,100
|
|
|
304,466
|
|
Mezzanine loans on multi-family properties
|
—
|
|
|
5,484
|
|
|
—
|
|
|
5,484
|
|
Equity investments in entities that invest in residential properties and loans
|
—
|
|
|
—
|
|
|
68,189
|
|
|
68,189
|
|
Total assets
|
$
|
42,500
|
|
|
$
|
180,850
|
|
|
$
|
197,289
|
|
|
$
|
420,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Investment
securities
available for
sale, at fair value
|
|
Preferred equity and mezzanine loan investments
|
|
Investments in unconsolidated entities
|
|
Total
|
ABS
|
$
|
49,214
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
49,214
|
|
Preferred equity investments in multi-family properties
|
—
|
|
|
173,825
|
|
|
106,083
|
|
|
279,908
|
|
Mezzanine loans on multi-family properties
|
—
|
|
|
6,220
|
|
|
—
|
|
|
6,220
|
|
Equity investments in entities that invest in residential properties and loans
|
—
|
|
|
—
|
|
|
65,572
|
|
|
65,572
|
|
Total assets
|
$
|
49,214
|
|
|
$
|
180,045
|
|
|
$
|
171,655
|
|
|
$
|
400,914
|
|
Our maximum loss exposure on the investment securities available for sale, preferred equity and mezzanine loan investments, and investments in unconsolidated entities was approximately $420.6 million and $400.9 million at June 30, 2020 and December 31, 2019, respectively. The Company’s maximum exposure does not exceed the carrying value of its investments.
|
|
10.
|
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 were comprised of interest rate swaps, which were designated as trading 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, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Type of Derivative Instrument
|
|
Balance Sheet Location
|
|
June 30, 2020
|
|
December 31, 2019
|
Interest rate swaps (1)
|
|
Derivative assets
|
|
$
|
—
|
|
|
$
|
15,878
|
|
|
|
(1)
|
All of the Company's interest rate swaps were cleared through a central clearing house. The Company exchanged 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 $29.0 million of derivative liabilities netted against a variation margin of $44.8 million at December 31, 2019.
|
The tables below summarize the activity of derivative instruments not designated as hedges for the six months ended June 30, 2020 and 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount for the Six Months Ended June 30, 2020
|
Type of Derivative Instrument
|
|
December 31, 2019
|
|
Additions
|
|
Terminations
|
|
June 30, 2020
|
Interest rate swaps
|
|
$
|
495,500
|
|
|
$
|
—
|
|
|
$
|
(495,500
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount for the Six Months Ended June 30, 2019
|
Type of Derivative Instrument
|
|
December 31, 2018
|
|
Additions
|
|
Terminations
|
|
June 30, 2019
|
Interest rate swaps
|
|
$
|
495,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
495,500
|
|
The following table presents the components of realized gains (losses), net and unrealized gains (losses), net related to our derivative instruments that were not designated as hedging instruments, which are included in non-interest income (loss) in our condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019, respectively (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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2020 and December 31, 2019, there were no derivative instruments designated as hedging instruments.
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 received floating rate payments in exchange for fixed rate payments as of December 31, 2019 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Swap Maturities
|
|
Notional
Amount
|
|
Weighted Average
Fixed
Interest Rate
|
|
Weighted Average
Variable Interest Rate
|
2024
|
|
$
|
98,000
|
|
|
2.18
|
%
|
|
1.98
|
%
|
2027
|
|
247,500
|
|
|
2.39
|
%
|
|
1.94
|
%
|
2028
|
|
150,000
|
|
|
3.23
|
%
|
|
1.92
|
%
|
Total
|
|
$
|
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. All of the Company's interest rate swaps were 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.
|
|
11.
|
Repurchase Agreements
|
Investment Securities
The Company has entered into repurchase agreements with financial institutions to finance its investment securities portfolio (including investment securities available for sale and securities owned in Consolidated SLST and the Consolidation K-Series). These repurchase agreements provide short-term financings that bear interest rates typically based on a spread to LIBOR and are secured by the investment securities which they 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, 2020 and December 31, 2019, the Company had financing arrangements with one and fourteen counterparties, respectively. As of June 30, 2020 and December 31, 2019, the Company had no exposure to an individual counterparty where the amount at risk was in excess of 5% of the Company's stockholders’ equity.
The following table presents detailed information about the amounts outstanding under the Company’s repurchase agreements secured by investment securities and associated assets pledged as collateral at June 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
Agency RMBS (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
812,742
|
|
|
$
|
865,765
|
|
|
$
|
864,428
|
|
Agency CMBS (2)
|
—
|
|
|
—
|
|
|
—
|
|
|
133,184
|
|
|
139,317
|
|
|
140,118
|
|
Non-Agency RMBS (3)
|
87,571
|
|
|
156,523
|
|
|
214,328
|
|
|
594,286
|
|
|
797,784
|
|
|
785,952
|
|
CMBS (4)
|
—
|
|
|
—
|
|
|
—
|
|
|
811,890
|
|
|
1,036,513
|
|
|
853,043
|
|
Balance at end of the period
|
$
|
87,571
|
|
|
$
|
156,523
|
|
|
$
|
214,328
|
|
|
$
|
2,352,102
|
|
|
$
|
2,839,379
|
|
|
$
|
2,643,541
|
|
|
|
(1)
|
Collateral 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 subordinated 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 $848.2 million included in the Consolidated K-Series as of December 31, 2019.
|
As of June 30, 2020 and December 31, 2019, the average days to maturity for repurchase agreements secured by investment securities were 55 days and 73 days, 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, 2020 and December 31, 2019 amounts to $0.2 million and $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, 2020 and December 31, 2019 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
Contractual Maturity
|
June 30, 2020
|
|
December 31, 2019
|
Within 30 days
|
$
|
—
|
|
|
$
|
449,474
|
|
Over 30 days to 90 days
|
87,571
|
|
|
1,647,683
|
|
Over 90 days
|
—
|
|
|
254,945
|
|
Total
|
$
|
87,571
|
|
|
$
|
2,352,102
|
|
As of June 30, 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, such as unrestricted cash and cash equivalents, and unencumbered securities that could be monetized to pay down or collateralize a liability immediately. As of June 30, 2020, the Company had $371.7 million in cash and cash equivalents and $812.5 million in unencumbered investment securities to meet additional haircuts or market valuation requirements, which collectively represent greater than 100% of our outstanding repurchase agreements secured by investment securities. The following table presents information about the Company's unencumbered securities at June 30, 2020 and 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 Loans
The Company has repurchase agreements with two financial institutions to fund the purchase of residential loans, including both first and second mortgages. The following table presents detailed information about the Company’s financings under these repurchase agreements and associated residential loans pledged as collateral at June 30, 2020 and December 31, 2019, 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, 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.
|
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 repurchase agreements, 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 the 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.
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 one counterparty to modify the terms of financial covenants. The Company 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 and total stockholders' equity. The Company is in compliance with such covenants as of August 7, 2020. The Company expects to roll outstanding amounts under these repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity.
Costs related to 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 $1.4 million as of June 30, 2020 and $0.8 million as of December 31, 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.
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%. 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 $3.9 million and $5.0 million as of June 30, 2020 and December 31, 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, 2020, none of the Convertible Notes were converted. As of August 7, 2020, the Company has not been notified, and is not aware, of any event of default under the indenture 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, 2020 and December 31, 2019 (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 7, 2020, the Company has not been notified, and is not aware, of any event of default under the indenture for the subordinated debentures.
Debt Maturities
As of June 30, 2020, maturities for debt on the Company's condensed consolidated balance sheet are as follows (dollar amounts in thousands):
|
|
|
|
|
Year Ending December 31,
|
Total
|
2020
|
$
|
—
|
|
2021
|
—
|
|
2022
|
138,000
|
|
2023
|
—
|
|
2024
|
—
|
|
2025
|
—
|
|
Thereafter
|
45,000
|
|
|
$
|
183,000
|
|
|
|
13.
|
Commitments and Contingencies
|
Impact of COVID-19
As 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 result of the COVID-19 pandemic; however, as the global pandemic and its economic implications continue, it may have long-term impacts on the 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, 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.
|
|
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 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 by considering several observable market data points, including prices obtained from third-party pricing services or dealers who make markets in similar financial instruments, as well as dialogue with market participants. Third-party pricing services typically incorporate commonly used market pricing methods, trading activity observed in the marketplace and other data inputs. The methodology considers the characteristics of the particular security and 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 credit enhancement levels. The Company’s investment securities available for sale are valued based upon readily observable market parameters and are classified as Level 2 fair values.
|
|
|
b.
|
Multi-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 and classified as Level 3 fair values. In 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.
|
Residential Loans and Residential Loans Held in Securitization Trusts – The Company’s acquired residential loans are recorded at fair value and classified as Level 3 in the fair value hierarchy. The fair value for residential loans is determined using valuations obtained from a third party that specializes in providing valuations of residential loans. The valuation approach depends on whether the residential 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. Estimated 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 to ensure they represent current market conditions. This review includes surveying similar market transactions and comparisons to 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, 2020 and December 31, 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, 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 were cleared through a central clearing house. The Company exchanged variation margin for swaps based upon daily changes in fair value. Included derivative liabilities of $29.0 million netted against a variation margin of $44.8 million at December 31, 2019.
|
The following tables detail changes in valuation for the Level 3 assets for the six months ended June 30, 2020 and 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
|
|
Residential loans
|
|
Investments in unconsolidated entities
|
|
Multi-family loans held in securitization trusts
|
|
CMBS held in securitization trusts
|
|
Total
|
Balance at beginning of period
|
$
|
737,523
|
|
|
$
|
32,994
|
|
|
$
|
11,679,847
|
|
|
$
|
52,700
|
|
|
$
|
12,503,064
|
|
Total gains/(losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
25,359
|
|
|
5,753
|
|
|
574,231
|
|
|
17,734
|
|
|
623,077
|
|
Included in other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,665
|
)
|
|
(13,665
|
)
|
Transfers in
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Transfers out
|
(182
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(182
|
)
|
Contributions
|
—
|
|
|
50,000
|
|
|
—
|
|
|
—
|
|
|
50,000
|
|
Paydowns/Distributions
|
(61,275
|
)
|
|
(639
|
)
|
|
(106,363
|
)
|
|
—
|
|
|
(168,277
|
)
|
Sales
|
(19,814
|
)
|
|
—
|
|
|
—
|
|
|
(56,769
|
)
|
|
(76,583
|
)
|
Purchases (1)
|
380,343
|
|
|
—
|
|
|
2,426,210
|
|
|
—
|
|
|
2,806,553
|
|
Balance at the end of period
|
$
|
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).
|
The following tables detail changes in valuation for the Level 3 liabilities for the six months ended June 30, 2020 and 2019, respectively (amounts in thousands):
Level 3 Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Multi-Family CDOs
|
|
SLST CDOs
|
|
Total
|
Balance at beginning of period
|
$
|
16,724,451
|
|
|
$
|
1,052,829
|
|
|
$
|
17,777,280
|
|
Total losses/(gains) (realized/unrealized)
|
|
|
|
|
|
Included in earnings
|
35,018
|
|
|
52,420
|
|
|
87,438
|
|
Paydowns
|
(147,376
|
)
|
|
(39,242
|
)
|
|
(186,618
|
)
|
Sales (1)
|
(16,612,093
|
)
|
|
22,226
|
|
|
(16,589,867
|
)
|
Transfers out
|
—
|
|
|
—
|
|
|
—
|
|
Balance at the end of period
|
$
|
—
|
|
|
$
|
1,088,233
|
|
|
$
|
1,088,233
|
|
|
|
(1)
|
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 the Multi-Family CDOs (see Notes 2 and 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
|
|
|
|
(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 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, 2020 and 2019 for our Level 3 assets and liabilities held as of June 30, 2020 and 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
|
The following table presents assets measured at fair value on a non-recurring basis as of December 31, 2019, on the Company's condensed consolidated balance sheets (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, respectively, on the Company’s condensed consolidated statements of operations (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
Six Months Ended June 30, 2019
|
Residential loans held in securitization trusts – impaired loans, net
|
$
|
—
|
|
$
|
(38
|
)
|
Residential Loans Held in Securitization Trusts – Impaired Loans, net – Impaired residential loans held in securitization trusts, net were recorded at amortized cost less specific loan loss reserves. Impaired loan value was 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, 2020 and December 31, 2019, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
Repurchase agreements – The fair value of these repurchase agreements approximates cost as they are short term in nature.
|
|
|
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.
|
|
|
e.
|
Subordinated debentures – The fair value of these subordinated debentures is based on discounted cash flows using management’s estimate for market yields.
|
|
|
f.
|
Convertible notes – The fair value is based on quoted prices provided by dealers who make markets in similar financial instruments.
|
(a) Preferred Stock
The Company had 200,000,000 authorized shares of preferred stock, par value $0.01 per share, with 20,872,888 shares issued and outstanding as of June 30, 2020 and December 31, 2019.
As of June 30, 2020, the Company has issued four series of cumulative redeemable preferred stock (the “Preferred Stock”): 7.75% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”), 7.875% Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”), 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”) and 7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”). 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
|
|
(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).
|
|
|
(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.
|
|
|
(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 six 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 two additional directors to the Company’s Board of Directors 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 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 December 31, 2019, the Company 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 information with respect to quarterly cash dividends declared on the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock commencing January 1, 2019 through June 30, 2020 and on the Series E Preferred Stock from its time of original issuance through June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
|
|
(1)
|
Preferred Stock dividends declared on June 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.
|
|
|
(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, 2019 and ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Fourth Quarter 2019
|
|
December 10, 2019
|
|
December 20, 2019
|
|
January 27, 2020
|
|
0.20
|
|
Third Quarter 2019
|
|
September 9, 2019
|
|
September 19, 2019
|
|
October 25, 2019
|
|
0.20
|
|
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
|
|
(d) Public Offerings of Common Stock
The following table details the Company's public offerings of common stock during the six months ended June 30, 2020 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
Share Issue Month
|
|
Shares Issued
|
|
Net Proceeds (1)
|
February 2020
|
|
50,600,000
|
|
|
$
|
305,274
|
|
January 2020
|
|
34,500,000
|
|
|
206,650
|
|
|
|
(1)
|
Proceeds are net of underwriting discounts and commissions and offering expenses.
|
(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.
There were no shares of 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. As of June 30, 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 no 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, 2020, approximately $82.4 million of Preferred Stock remains available for issuance under the Preferred Equity Distribution Agreement.
|
|
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 restricted 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, 2020, the Company's Convertible Notes were determined to be dilutive and were 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 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, 2019.
During the three months ended June 30, 2020 and the three and six months ended June 30, 2019, the PSUs awarded under the 2017 Plan 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 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,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Basic Earnings (Loss) per Common Share:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company
|
|
$
|
117,813
|
|
|
$
|
22,735
|
|
|
$
|
(470,570
|
)
|
|
$
|
66,874
|
|
Less: Preferred stock dividends (1)
|
|
(10,296
|
)
|
|
(6,257
|
)
|
|
(20,593
|
)
|
|
(12,182
|
)
|
Net income (loss) attributable to Company's common stockholders
|
|
$
|
107,517
|
|
|
$
|
16,478
|
|
|
$
|
(491,163
|
)
|
|
$
|
54,692
|
|
Basic weighted average common shares outstanding
|
|
377,465
|
|
|
200,691
|
|
|
364,189
|
|
|
187,628
|
|
Basic Earnings (Loss) per Common Share
|
|
$
|
0.28
|
|
|
$
|
0.08
|
|
|
$
|
(1.35
|
)
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Common Share:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company
|
|
$
|
117,813
|
|
|
$
|
22,735
|
|
|
$
|
(470,570
|
)
|
|
$
|
66,874
|
|
Less: Preferred stock dividends (1)
|
|
(10,296
|
)
|
|
(6,257
|
)
|
|
(20,593
|
)
|
|
(12,182
|
)
|
Add back: Interest expense on convertible notes for the period, net of tax
|
|
2,665
|
|
|
—
|
|
|
—
|
|
|
5,307
|
|
Net income (loss) attributable to Company's common stockholders
|
|
$
|
110,182
|
|
|
$
|
16,478
|
|
|
$
|
(491,163
|
)
|
|
$
|
59,999
|
|
Weighted average common shares outstanding
|
|
377,465
|
|
|
200,691
|
|
|
364,189
|
|
|
187,628
|
|
Net effect of assumed convertible notes conversion to common shares
|
|
19,695
|
|
|
—
|
|
|
—
|
|
|
19,695
|
|
Net effect of assumed RSUs vested
|
|
2,180
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net effect of assumed PSUs vested
|
|
642
|
|
|
1,707
|
|
|
—
|
|
|
1,688
|
|
Diluted weighted average common shares outstanding
|
|
399,982
|
|
|
202,398
|
|
|
364,189
|
|
|
209,011
|
|
Diluted Earnings (Loss) per Common Share
|
|
$
|
0.28
|
|
|
$
|
0.08
|
|
|
$
|
(1.35
|
)
|
|
$
|
0.29
|
|
|
|
(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.
|
|
|
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. At June 30, 2020, there were no 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, 2020, 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, 2020. The Company’s employees have been issued 1,881,380 shares of restricted stock under the 2017 Plan as of June 30, 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 755,286 shares of non-vested restricted stock outstanding and 3,060,958 common shares reserved for issuance in connection with outstanding PSUs under the 2017 Plan.
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. Dividends are paid on all restricted common stock issued, whether those shares have vested or not. Non-vested restricted stock is forfeited upon the recipient's termination of employment, subject to certain exceptions. There were no forfeitures of shares for the three and six months ended June 30, 2020 and 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, 2020 and 2019, respectively, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
Non-vested shares at January 1
|
837,123
|
|
|
$
|
6.18
|
|
|
507,536
|
|
|
$
|
5.91
|
|
Granted
|
1,054,254
|
|
|
6.33
|
|
|
536,242
|
|
|
6.30
|
|
Vested
|
(287,611
|
)
|
|
6.22
|
|
|
(205,080
|
)
|
|
5.85
|
|
Non-vested shares as of June 30
|
1,603,766
|
|
|
$
|
6.27
|
|
|
838,698
|
|
|
$
|
6.18
|
|
Restricted stock granted during the period
|
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, 2020 and 2019, the Company had unrecognized compensation expense of $7.9 million and $4.2 million, respectively, related to the non-vested shares of restricted common stock under the 2017 Plan and 2010 Plan, collectively. The unrecognized compensation expense at June 30, 2020 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, 2020 and 2019 was approximately $1.8 million and $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.
Performance Stock Units
During the six months ended June 30, 2020 and 2019, the Company granted PSUs that had been approved by the Compensation Committee and the Board of 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.
TSR 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 2020 and 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 awards under the 2017 Plan for the six months ended June 30, 2020 and 2019, respectively, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
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
|
2,018,518
|
|
|
$
|
4.09
|
|
|
842,792
|
|
|
$
|
4.20
|
|
Granted
|
883,496
|
|
|
7.03
|
|
|
1,175,726
|
|
|
4.01
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-vested target PSUs as of June 30
|
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, 2020 and 2019, there was $8.2 million and $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 RSUs was $0.2 million and $0.5 million for the three and six months ended June 30, 2020, respectively.
For the three and six months ended June 30, 2020 and 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, 2020 and 2019, respectively, is comprised of the following components (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Current income tax expense
|
$
|
2,033
|
|
|
$
|
15
|
|
|
$
|
2,043
|
|
|
$
|
8
|
|
Deferred income tax benefit
|
(106
|
)
|
|
(149
|
)
|
|
(355
|
)
|
|
(68
|
)
|
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, 2020 and December 31, 2019 are as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Deferred tax assets
|
|
|
|
Net operating loss carryforward
|
$
|
4,582
|
|
|
$
|
3,975
|
|
Capital loss carryover
|
4,418
|
|
|
739
|
|
GAAP/Tax basis differences
|
3,841
|
|
|
3,699
|
|
Total deferred tax assets (1)
|
12,841
|
|
|
8,413
|
|
Deferred tax liabilities
|
|
|
|
Deferred tax liabilities
|
4
|
|
|
5
|
|
Total deferred tax liabilities (2)
|
4
|
|
|
5
|
|
Valuation allowance (1)
|
(11,102
|
)
|
|
(7,029
|
)
|
Total net deferred tax asset
|
$
|
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, 2020, the Company, through wholly-owned TRSs, had incurred net operating losses in the aggregate amount of approximately $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 million of net operating losses will expire between 2036 and 2037 if they are not offset by future taxable income. Additionally, as of June 30, 2020, the Company, through its wholly-owned TRSs, had also incurred approximately $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, 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.
Based 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.
In July 2020, the Company 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. The Company utilized the net proceeds to repay approximately $230.6 million on an outstanding repurchase agreement related to residential loans.