NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(unaudited)
1.Organization
New York Mortgage Trust, Inc., together with its consolidated subsidiaries (“NYMT,” “we,” “our,” or the “Company”), is a real estate investment trust ("REIT") in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and multi-family residential assets, including joint venture equity investments in multi-family apartment communities. 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 single-family and multi-family assets.
The Company conducts its business through the parent company, New York Mortgage Trust, Inc., and several subsidiaries, including taxable REIT subsidiaries (“TRSs”), qualified REIT subsidiaries (“QRSs”) and special purpose subsidiaries established for securitization purposes. 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.
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;
“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;
“CDO” refers to collateralized debt obligation and includes debt that permanently finances the residential loans held in Consolidated SLST, the Company's residential loans held in securitization trusts and a non-Agency RMBS re-securitization that we consolidate, or consolidated, in our financial statements in accordance with GAAP;
“business purpose loans” refers to short-term loans collateralized by residential properties made to investors who intend to rehabilitate and sell the residential property for a profit or loans which finance (or refinance) non-owner occupied residential properties that are rented to one or more tenants;
“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
“SOFR” refers to Secured Overnight Funding Rate.
Basis of Presentation – The accompanying condensed consolidated balance sheet as of December 31, 2021 has been derived from audited financial statements. The accompanying condensed consolidated balance sheet as of June 30, 2022, the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021, the accompanying condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2022 and 2021, the accompanying condensed consolidated statements of changes in stockholders’ equity for the three and six months ended June 30, 2022 and 2021 and the accompanying condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 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, 2021, 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, 2021. 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, 2022. The results of operations for the three and six months ended June 30, 2022 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, multi-family loans, certain equity investments and Consolidated SLST CDOs. Although the Company’s estimates contemplate current conditions and how it expects those conditions to change in the future, 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.
The COVID-19 pandemic and resulting emergency measures have 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 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, 2022; 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, 2022 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 in accordance with ASC 810, Consolidation ("ASC 810") when it is the primary beneficiary of such VIE, herein referred to as a "Consolidated VIE". As primary beneficiary, the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE. The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE.
The Company evaluates the initial consolidation of each Consolidated VIE, which includes a determination of whether the VIE constitutes the definition of a business in accordance with ASC 805, Business Combinations ("ASC 805"), by considering if substantially all of the fair value of the gross assets within the VIE are concentrated in either a single identifiable asset or group of single identifiable assets. Upon consolidation, the Company recognizes the assets acquired, the liabilities assumed, and any third-party ownership of membership interests as non-controlling interest as of the consolidation or acquisition date, measured at their relative fair values (see Note 7). Non-controlling interest in Consolidated VIEs is adjusted prospectively for its share of the allocation of income or loss and equity contributions and distributions from each respective Consolidated VIE. The third-party owners of certain of the non-controlling interests in Consolidated VIEs have the ability to sell their ownership interests to the Company, at their election. The Company has classified these third-party ownership interests as redeemable non-controlling interests in Consolidated VIEs in mezzanine equity on the accompanying condensed consolidated balance sheets.
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. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope ("ASU 2021-01"). ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the "discounting transition" (i.e., changes in the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference rates). 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 amendments in ASU 2021-01 were effective immediately and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or on a prospective basis for eligible contract modifications through December 31, 2022. The Company continues to evaluate the impact of ASU 2020-04 and ASU 2021-01 on its financing transactions that are subject to LIBOR and may apply elections, as applicable, as the expected market transition from IBORs to alternative reference rates continues to develop.
3.Residential Loans, at Fair Value
The Company’s acquired residential loans, including performing, re-performing and non-performing residential loans, and business purpose loans, are presented at fair value on its condensed consolidated balance sheets as a result of a fair value election. 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 securitization trusts, as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Residential loans (1) | | Consolidated SLST (2) | | Residential loans held in securitization trusts (3) | | Total | | Residential loans (1) | | Consolidated SLST (2) | | Residential loans held in securitization trusts (3) | | Total |
| Principal | $ | 2,262,439 | | | $ | 1,000,120 | | | $ | 1,232,355 | | | $ | 4,494,914 | | | $ | 1,682,138 | | | $ | 1,071,228 | | | $ | 776,438 | | | $ | 3,529,804 | |
| (Discount)/premium | (34,778) | | | (4,551) | | | (50,754) | | | (90,083) | | | (44,256) | | | (2,998) | | | (37,011) | | | (84,265) | |
| Unrealized (losses) gains | (34,342) | | | (74,791) | | | 33,494 | | | (75,639) | | | 65,408 | | | 2,652 | | | 62,002 | | | 130,062 | |
| Carrying value | $ | 2,193,319 | | | $ | 920,778 | | | $ | 1,215,095 | | | $ | 4,329,192 | | | $ | 1,703,290 | | | $ | 1,070,882 | | | $ | 801,429 | | | $ | 3,575,601 | |
(1)Certain of the Company's residential loans, at fair value are pledged as collateral for repurchase agreements as of June 30, 2022 and December 31, 2021 (see Note 10).
(2)The Company invests in first loss subordinated securities and certain IOs issued by a Freddie Mac-sponsored residential loan securitization. In accordance with GAAP, the Company has consolidated the underlying seasoned re-performing and non-performing residential loans held in the securitization and the CDOs issued to permanently finance these residential loans, representing Consolidated SLST. Consolidated SLST CDOs are included in collateralized debt obligations on the Company's condensed consolidated balance sheets (see Note 11).
(3)The Company's residential loans held in securitization trusts are pledged as collateral for CDOs issued by the Company. These CDOs are accounted for as financings and included in collateralized debt obligations on the Company's condensed consolidated balance sheets (see Note 11).
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, 2022 and 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| June 30, 2022 | | June 30, 2021 |
| Residential loans | | Consolidated SLST (1) | | Residential loans held in securitization trusts | | Residential loans | | Consolidated SLST (1) | | Residential loans held in securitization trusts |
| Unrealized (losses) gains, net | $ | (30,078) | | | $ | (10,798) | | | $ | (34,883) | | | $ | 1,009 | | | $ | 6,471 | | | $ | 4,893 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| June 30, 2022 | | June 30, 2021 |
| Residential loans | | Consolidated SLST (1) | | Residential loans held in securitization trusts | | Residential loans | | Consolidated SLST (1) | | Residential loans held in securitization trusts |
| Unrealized (losses) gains, net | $ | (55,602) | | | $ | (77,443) | | | $ | (72,657) | | | $ | 7,435 | | | $ | (18,872) | | | $ | 17,143 | |
(1)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 the CDOs issued by Consolidated SLST, including investment securities we own, as the fair value of these instruments is more observable (see Note 14). See Note 7 for unrealized gains (losses), net recognized by the Company on its investment in Consolidated SLST, which include unrealized gains (losses) on the residential loans held in Consolidated SLST presented in the table above and unrealized gains (losses) on the CDOs issued by Consolidated SLST.
The Company recognized $3.2 million and $7.1 million of net realized gains on the payoff of residential loans, at fair value during the three and six months ended June 30, 2022, respectively. The Company recognized $4.9 million and $8.3 million of net realized gains on the payoff of residential loans, at fair value for the three and six months ended June 30, 2021, respectively. The Company also recognized $0.3 million and $0.5 million of net realized gains on the sale of residential loans, at fair value for the three and six months ended June 30, 2021, respectively. The Company did not sell any residential loans during the three and six months ended June 30, 2022.
The geographic concentrations of credit risk exceeding 5% of the unpaid principal balance of residential loans, at fair value as of June 30, 2022 and December 31, 2021, respectively, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Residential loans | | Consolidated SLST | | Residential loans held in securitization trusts | | Residential loans | | Consolidated SLST | | Residential loans held in securitization trusts |
| California | 21.9 | % | | 10.5 | % | | 23.8 | % | | 21.7 | % | | 10.5 | % | | 22.0 | % |
| Florida | 11.2 | % | | 10.4 | % | | 10.1 | % | | 10.4 | % | | 10.5 | % | | 8.9 | % |
| New York | 8.8 | % | | 9.7 | % | | 7.5 | % | | 8.8 | % | | 9.8 | % | | 9.2 | % |
| Texas | 7.5 | % | | 4.0 | % | | 5.4 | % | | 7.4 | % | | 4.0 | % | | 4.3 | % |
| New Jersey | 6.9 | % | | 7.5 | % | | 4.7 | % | | 5.9 | % | | 7.3 | % | | 6.4 | % |
| Washington | 5.4 | % | | 1.8 | % | | 3.2 | % | | 4.4 | % | | 1.9 | % | | 3.2 | % |
| Illinois | 2.9 | % | | 7.2 | % | | 2.4 | % | | 2.7 | % | | 7.1 | % | | 2.3 | % |
| Massachusetts | 2.4 | % | | 2.7 | % | | 7.5 | % | | 4.6 | % | | 2.7 | % | | 5.6 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
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, 2022 and December 31, 2021, 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, 2022 | $ | 115,696 | | | $ | 123,559 | | | $ | 10,588 | | | $ | 11,219 | | | |
| December 31, 2021 | 92,990 | | | 102,981 | | | 17,102 | | | 17,716 | | | |
Residential loans held in Consolidated SLST with an aggregate unpaid principal balance of $138.6 million and $135.9 million were 90 days or more delinquent as of June 30, 2022 and December 31, 2021, respectively.
4.Multi-family Loans, at Fair Value
The Company's multi-family loans consisting of its preferred equity in, and mezzanine loans to, entities that have multi-family real estate assets are presented at fair value on the Company's condensed consolidated balance sheets as a result of a fair value election. Accordingly, changes in fair value are presented in unrealized gains (losses), net on the Company's condensed consolidated statements of operations. Multi-family loans consist of the following as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Investment amount | $ | 105,399 | | | $ | 118,307 | |
| Deferred loan fees, net | (517) | | | (672) | |
| Unrealized gains, net | 1,943 | | | 2,386 | |
| Total, at Fair Value | $ | 106,825 | | | $ | 120,021 | |
For the three and six months ended June 30, 2022, the Company recognized $11.9 thousand in net unrealized gains and $0.4 million in net unrealized losses on preferred equity and mezzanine loan investments included in multi-family loans, respectively. For the three and six months ended June 30, 2021, the Company recognized $0.2 million and $0.3 million in net unrealized gains on preferred equity and mezzanine loan investments included in multi-family loans, respectively.
For the three and six months ended June 30, 2022, the Company recognized $0.2 million and $1.0 million in premiums resulting from early redemption of preferred equity and mezzanine loans included in multi-family loans, respectively. For the three and six months ended June 30, 2021, the Company recognized $1.5 million and $2.0 million in premiums resulting from early redemption of preferred equity and mezzanine loans included in multi-family loans, respectively. Premiums resulting from early redemption of preferred equity and mezzanine loans accounted for as multi-family loans are included in other income on the accompanying condensed consolidated statements of operations.
The table below presents the fair value and aggregate unpaid principal balance of the Company's multi-family loans in non-accrual status as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2022 | | December 31, 2021 |
| Days Late | | | Fair Value | | Unpaid Principal Balance | | Fair Value | | Unpaid Principal Balance |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| 90 + | | | $ | 4,370 | | | $ | 3,363 | | | $ | 3,972 | | | $ | 3,363 | |
The geographic concentrations of credit risk exceeding 5% of the total multi-family loan investment amounts as of June 30, 2022 and December 31, 2021, respectively, are as follows:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Texas | 25.1 | % | | 28.3 | % |
| Florida | 13.9 | % | | 12.2 | % |
| Tennessee | 12.7 | % | | 11.0 | % |
| Georgia | 8.5 | % | | 7.4 | % |
| Ohio | 8.1 | % | | 7.2 | % |
| Louisiana | 6.3 | % | | 5.8 | % |
| Alabama | 5.8 | % | | 5.0 | % |
| North Carolina | 5.0 | % | | 7.0 | % |
5.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, Financial Instruments ("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, which we refer to as 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 (loss). The Company's investment securities available for sale consisted of the following as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| Amortized Cost | | Unrealized | | Fair Value | | Amortized Cost | | Unrealized | | Fair Value |
| | | Gains | | Losses | | | | Gains | | Losses | |
| Fair Value Option | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Non-Agency RMBS | $ | 50,307 | | | $ | 7,009 | | | $ | (7,076) | | | $ | 50,240 | | | $ | 100,186 | | | $ | 949 | | | $ | (2,636) | | | $ | 98,499 | |
| CMBS | 32,600 | | | — | | | (2,504) | | | 30,096 | | | 32,600 | | | 684 | | | (138) | | | 33,146 | |
ABS | 19,371 | | | 16,217 | | | — | | | 35,588 | | | 21,795 | | | 17,884 | | | — | | | 39,679 | |
Total investment securities available for sale - fair value option | 102,278 | | | 23,226 | | | (9,580) | | | 115,924 | | | 154,581 | | | 19,517 | | | (2,774) | | | 171,324 | |
| | | | | | | | | | | | | | | |
| CECL Securities | | | | | | | | | | | | | | | |
| Non-Agency RMBS | 25,526 | | | — | | | (944) | | | 24,582 | | | 27,743 | | | 1,787 | | | (10) | | | 29,520 | |
| | | | | | | | | | | | | | | |
Total investment securities available for sale - CECL Securities | 25,526 | | | — | | | (944) | | | 24,582 | | | 27,743 | | | 1,787 | | | (10) | | | 29,520 | |
Total | $ | 127,804 | | | $ | 23,226 | | | $ | (10,524) | | | $ | 140,506 | | | $ | 182,324 | | | $ | 21,304 | | | $ | (2,784) | | | $ | 200,844 | |
Accrued interest receivable for investment securities available for sale in the amount of $0.4 million and $0.7 million as of June 30, 2022 and December 31, 2021, respectively, is included in other assets on the Company's condensed consolidated balance sheets.
For the three and six months ended June 30, 2022, the Company recognized $1.5 million in net unrealized gains and $3.1 million in net unrealized losses on investment securities available for sale accounted for under the fair value option, respectively. For the three and six months ended June 30, 2021, the Company recognized $8.0 million and $6.1 million in net unrealized gains on investment securities available for sale accounted for under the fair value option, respectively.
Realized Gain and Loss Activity
The Company did not sell investment securities during the three months ended June 30, 2022. The following tables summarize our investment securities sold during the three months ended June 30, 2021 and the six months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| Sales Proceeds | | Realized Gains | | Realized Losses | | Net Realized Gains (Losses) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| CMBS | $ | 3,770 | | | $ | 392 | | | $ | — | | | $ | 392 | |
| Total | $ | 3,770 | | | $ | 392 | | | $ | — | | | $ | 392 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| Sales Proceeds | | Realized Gains | | Realized Losses | | Net Realized Gains (Losses) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Non-Agency RMBS | $ | 24,374 | | | $ | 374 | | | $ | — | | | $ | 374 | |
| | | | | | | |
| Total | $ | 24,374 | | | $ | 374 | | | $ | — | | | $ | 374 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Sales Proceeds | | Realized Gains | | Realized Losses | | Net Realized Gains (Losses) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Non-Agency RMBS | $ | 72,083 | | | $ | 12 | | | $ | (833) | | | $ | (821) | |
| CMBS | 43,315 | | | 5,587 | | | — | | | 5,587 | |
| Total | $ | 115,398 | | | $ | 5,599 | | | $ | (833) | | | $ | 4,766 | |
Weighted Average Life
Actual maturities of our investment securities available for sale are generally shorter than stated contractual maturities (with contractual maturities up to 37 years), as they are affected by periodic payments and prepayments of principal on the underlying mortgages. As of June 30, 2022 and December 31, 2021, based on management’s estimates, the weighted average life of the Company’s investment securities available for sale portfolio was approximately 6.0 years and 5.8 years, respectively.
The following table sets forth the weighted average lives of our investment securities available for sale as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | |
| Weighted Average Life | June 30, 2022 | | December 31, 2021 |
| 0 to 5 years | $ | 68,455 | | | $ | 144,266 | |
| Over 5 to 10 years | 58,419 | | | 39,306 | |
| 10+ years | 13,632 | | | 17,272 | |
| Total | $ | 140,506 | | | $ | 200,844 | |
Unrealized Losses in Other Comprehensive Income (Loss)
The Company evaluated its CECL Securities that were in an unrealized loss position as of June 30, 2022 and December 31, 2021, respectively, and determined that no allowance for credit losses was necessary. The Company did not recognize credit losses for its CECL Securities through earnings for the three and six months ended June 30, 2022 and 2021.
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 as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | 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 | $ | 24,540 | | | $ | (938) | | | $ | 42 | | | $ | (6) | | | $ | 24,582 | | | $ | (944) | | | | | |
Total | $ | 24,540 | | | $ | (938) | | | $ | 42 | | | $ | (6) | | | $ | 24,582 | | | $ | (944) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | 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 | $ | 2,300 | | | $ | (3) | | | $ | 48 | | | $ | (7) | | | $ | 2,348 | | | $ | (10) | |
| Total | $ | 2,300 | | | $ | (3) | | | $ | 48 | | | $ | (7) | | | $ | 2,348 | | | $ | (10) | |
At June 30, 2022, 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.
Credit risk associated with non-Agency RMBS 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.
6.Equity Investments, at Fair Value
The Company's equity investments consist of, or have consisted of, preferred equity ownership interests in entities that invest in multi-family properties where the risks and payment characteristics are equivalent to an equity investment (or multi-family preferred equity ownership interests), equity ownership interests in entities that invest in single-family properties and invest in or originate residential loans (or single-family equity ownership interests) and joint venture equity investments in multi-family properties. The Company's equity investments are accounted for under the equity method and are presented at fair value on its condensed consolidated balance sheets as a result of a fair value election.
The following table presents the Company's equity investments as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| Investment Name | | Ownership Interest | | Fair Value | | Ownership Interest | | Fair Value |
| Multi-Family Preferred Equity Ownership Interests | | | | | | | | |
| Somerset Deerfield Investor, LLC | | 45% | | $ | 20,586 | | | 45% | | $ | 19,965 | |
| 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% | | 6,047 | | | 43% | | 5,725 | |
| 1122 Chicago DE, LLC | | 53% | | 7,998 | | | 53% | | 7,723 | |
| Bighaus, LLC | | 42% | | 15,987 | | | 42% | | 15,471 | |
| FF/RMI 20 Midtown, LLC | | 51% | | 26,403 | | | 51% | | 25,499 | |
| Lurin-RMI, LLC | | 38% | | 10,985 | | | 38% | | 9,548 | |
| Palms at Cape Coral, LLC | | 34% | | 5,338 | | | 34% | | 5,175 | |
| America Walks at Port St. Lucie, LLC | | 62% | | 30,367 | | | 62% | | 30,383 | |
| EHOF-NYMT Sunset Apartments Preferred, LLC | | 57% | | 17,814 | | | 57% | | 17,213 | |
| Lucie at Tradition Holdings, LLC | | 70% | | 17,271 | | | 70% | | 16,597 | |
| Syracuse Apartments and Townhomes, LLC | | 58% | | 19,987 | | | — | | — | |
| DCP Gold Creek, LLC | | — | | — | | | 44% | | 6,686 | |
| Rigsbee Ave Holdings, LLC | | — | | — | | | 56% | | 11,331 | |
| Walnut Creek Properties Holdings, L.L.C. | | — | | — | | | 36% | | 9,482 | |
| Total - Multi-Family Preferred Equity Ownership Interests | | | | 178,783 | | | | | 180,798 | |
| | | | | | | | |
| Joint Venture Equity Investments in Multi-Family Properties | | | | | | | | |
| GWR Cedars Partners, LLC | | 70% | | 3,982 | | | 70% | | 3,770 | |
| GWR Gateway Partners, LLC | | 70% | | 7,008 | | | 70% | | 6,670 | |
| Total - Joint Venture Equity Investments in Multi-Family Properties | | | | 10,990 | | | | | 10,440 | |
| | | | | | | | |
| Single-Family Equity Ownership Interests | | | | | | | | |
Morrocroft Neighborhood Stabilization Fund II, LP (1) | | 11% | | 2,878 | | | 11% | | 19,143 | |
Constructive Loans, LLC (2) | | — | | 31,000 | | | — | | 29,250 | |
| Total - Single-Family Equity Ownership Interests | | | | 33,878 | | | | | 48,393 | |
| Total | | | | $ | 223,651 | | | | | $ | 239,631 | |
(1)The Company's equity investment was partially redeemed, subject to holdbacks, as a result of a sale transaction initiated by the general partner during the six months ended June 30, 2022.
(2)The Company has the option to purchase 50% of the issued and outstanding interests of an entity that originates residential loans. The Company accounts for this investment using the equity method and has elected the fair value option. The Company purchased $82.1 million and $252.3 million of residential loans from the entity during the three and six months ended June 30, 2022, respectively.
The Company records its equity in earnings or losses from its multi-family preferred equity ownership interests under the hypothetical liquidation of book value method of accounting due to the structures and the preferences it receives on the distributions from these entities pursuant to the respective agreements. Under this method, the Company recognizes income or loss in each period based on the change in liquidation proceeds it would receive from a hypothetical liquidation of its investment. Pursuant to the fair value election, changes in fair value of the Company's multi-family preferred equity ownership interests are reported in current period earnings.
The following table presents income from multi-family preferred equity ownership interests for the three and six months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands). Income from these investments is presented in income from equity investments in the Company's accompanying condensed consolidated statements of operations. Income from these investments during the three and six months ended June 30, 2022 includes $0.3 million and $0.4 million of net unrealized gains, respectively. Income from these investments during the three and six months ended June 30, 2021 includes $0.8 million and $0.9 million of net unrealized gains, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| Investment Name | | 2022 | | 2021 | | 2022 | | 2021 | |
| Somerset Deerfield Investor, LLC | | $ | 596 | | | $ | 675 | | | $ | 1,183 | | | $ | 1,141 | | |
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) | | 163 | | | 174 | | | 322 | | | 298 | | |
DCP Gold Creek, LLC | | (599) | | | 197 | | | 254 | | | 400 | | |
1122 Chicago DE, LLC | | 241 | | | 225 | | | 478 | | | 446 | | |
| Bighaus, LLC | | 472 | | | 443 | | | 937 | | | 879 | | |
| FF/RMI 20 Midtown, LLC | | 812 | | | 758 | | | 1,610 | | | 1,504 | | |
| Lurin-RMI, LLC | | 1,520 | | | 235 | | | 1,800 | | | 470 | | |
| Palms at Cape Coral, LLC | | 158 | | | — | | | 313 | | | — | | |
| America Walks at Port St. Lucie, LLC | | 902 | | | — | | | 1,804 | | | — | | |
| EHOF-NYMT Sunset Apartments Preferred, LLC | | 559 | | | — | | | 1,108 | | | — | | |
| Lucie at Tradition Holdings, LLC | | 614 | | | — | | | 1,215 | | | — | | |
| Syracuse Apartments and Townhomes, LLC | | 591 | | | — | | | 1,107 | | | — | | |
| Rigsbee Ave Holdings, LLC | | — | | | 896 | | | (174) | | | 1,215 | | |
| Walnut Creek Properties Holdings, L.L.C. | | — | | | 263 | | | (153) | | | 541 | | |
| BBA-EP320 II, L.L.C., BBA-Ten10 II, L.L.C., and Lexington on the Green Apartments, L.L.C. (collectively) | | — | | | 357 | | | — | | | 704 | | |
| Audubon Mezzanine Holdings, L.L.C. (Series A) | | — | | | 357 | | | — | | | 721 | | |
| EP 320 Growth Fund, L.L.C. (Series A) and Turnbury Park Apartments - BC, L.L.C. (Series A) (collectively) | | — | | | 240 | | | — | | | 419 | | |
| Towers Property Holdings, LLC | | — | | | 361 | | | — | | | 740 | | |
| Mansions Property Holdings, LLC | | — | | | 348 | | | — | | | 713 | | |
| Sabina Montgomery Holdings, LLC - Series B and Oakley Shoals Apartments, LLC - Series A (collectively) | | — | | | 131 | | | — | | | 266 | | |
| Gen1814, LLC - Series A, Highlands - Mtg. Holdings, LLC - Series A, and Polos at Hudson Investments, LLC - Series A (collectively) | | — | | | 302 | | | — | | | 616 | | |
| 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) | | — | | | 374 | | | — | | | 762 | | |
| Total Income - Multi-Family Preferred Equity Ownership Interests | | $ | 6,029 | | | $ | 6,336 | | | $ | 11,804 | | | $ | 11,835 | | |
For the three and six months ended June 30, 2022, the Company recognized $0.7 million and $1.5 million in premiums resulting from early redemption of multi-family preferred equity ownership interests included in equity investments, which are included in other income on the accompanying condensed consolidated statements of operations. For the three and six months ended June 30, 2021, the Company recognized no premiums resulting from early redemption of multi-family preferred equity ownership interests included in equity investments.
Income from single-family equity ownership interests and joint venture equity investments in multi-family properties that are accounted for under the equity method using the fair value option is presented in income from equity investments 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, 2022 and 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| Investment Name | | 2022 | | 2021 | | 2022 | | 2021 |
| Single-Family Equity Ownership Interests | | | | | | | | |
Morrocroft Neighborhood Stabilization Fund II, LP (1) | | $ | 22 | | | $ | 998 | | | $ | 50 | | | $ | 2,186 | |
Constructive Loans, LLC (2) | | 1,750 | | | — | | | 1,750 | | | — | |
Headlands Asset Management Fund III (Cayman), LP (Headlands Flagship Opportunity Fund Series I) (3) | | — | | | 3,273 | | | — | | | (15) | |
| Total Income - Single-Family Equity Ownership Interests | | $ | 1,772 | | | $ | 4,271 | | | $ | 1,800 | | | $ | 2,171 | |
| | | | | | | | |
Joint Venture Equity Investments in Multi-Family Properties (4) | | | | | | | | |
| GWR Cedars Partners, LLC | | $ | 111 | | | $ | — | | | $ | 211 | | | $ | — | |
| GWR Gateway Partners, LLC | | 188 | | | — | | | 338 | | | — | |
| | | | | | | | |
| Total Income - Joint Venture Equity Investments in Multi-Family Properties | | $ | 299 | | | $ | — | | | $ | 549 | | | $ | — | |
(1)The Company's equity investment was partially redeemed during the six months ended June 30, 2022.
(2)Includes net unrealized gain of $1.8 million for the three and six months ended June 30, 2022.
(3)The Company's equity investment was redeemed during the year ended December 31, 2021.
(4)Includes net unrealized gain of $0.3 million and $0.5 million for the three and six months ended June 30, 2022, respectively.
7.Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE)
Financing VIEs
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.
As of June 30, 2022 and December 31, 2021, the Company evaluated its residential loan securitizations 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 then-outstanding Financing VIEs as of June 30, 2022 and December 31, 2021. During the six months ended June 30, 2021, the Company exercised its right to an optional redemption of its non-Agency RMBS re-securitization with an outstanding principal balance of $14.7 million at the time of redemption and returned the assets held by the trust to the Company.
Consolidated SLST
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, which we refer to as Consolidated SLST, is a VIE as of June 30, 2022 and December 31, 2021, and that the Company is the primary beneficiary of the VIE within Consolidated SLST. Accordingly, the Company has consolidated the assets, liabilities, income and expenses of such VIE in the accompanying condensed consolidated financial statements (see Notes 2, 3 and 11). 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.
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, 2022 and December 31, 2021 with a fair value of $208.6 million and $230.3 million, respectively (see Note 14). The Company’s investments that are included in Consolidated SLST were not included as collateral to any Financing VIE as of June 30, 2022 and December 31, 2021.
Consolidated Real Estate VIEs
The Company invests in joint venture investments that own multi-family apartment communities, which the Company determined to be VIEs and for which the Company is the primary beneficiary. Accordingly, the Company consolidates the assets, liabilities, income and expenses of these VIEs in the accompanying condensed consolidated financial statements with non-controlling interests or redeemable non-controlling interests for the third-party ownership of the joint ventures' membership interests. Additionally, during the six months ended June 30, 2022, a Consolidated VIE purchased two multi-family apartment communities. The Company accounted for the initial consolidation of the joint venture investments and the real estate acquisitions by a Consolidated VIE in accordance with asset acquisition provisions of ASC 805, as substantially all of the fair value of the assets within the entities are concentrated in either a single identifiable asset or group of similar identifiable assets.
The following table summarizes the aggregate estimated fair value of the assets, liabilities and non-controlling interests associated with the initial consolidation of the joint venture entities and real estate acquisitions by a Consolidated VIE during the three and six months ended June 30, 2022, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Cash | | $ | 1,474 | | | $ | 973 | | | $ | 8,576 | | | $ | 2,723 | |
Operating real estate (1) | | 202,220 | | | 42,050 | | | 730,988 | | | 73,513 | |
Lease intangibles (2) | | 14,431 | | | 3,320 | | | 41,892 | | | 4,964 | |
| Other assets | | 2,706 | | | 3,851 | | | 8,836 | | | 5,695 | |
| Total assets | | 220,831 | | | 50,194 | | | 790,292 | | | 86,895 | |
| | | | | | | | |
| Mortgages payable on real estate, net | | 156,494 | | | 36,057 | | | 566,250 | | | 61,831 | |
| Other liabilities | | 1,482 | | | 652 | | | 4,662 | | | 797 | |
| Total liabilities | | 157,976 | | | 36,709 | | | 570,912 | | | 62,628 | |
| | | | | | | | |
| | | | | | | | |
Non-controlling interest (3) | | 5,805 | | | 1,335 | | | 16,293 | | | 1,874 | |
| Net assets consolidated | | $ | 57,050 | | | $ | 12,150 | | | $ | 203,087 | | | $ | 22,393 | |
(1)Included in real estate, net in the accompanying condensed consolidated balance sheets.
(2)Included in other assets in the accompanying condensed consolidated balance sheets.
(3)Represents third-party ownership of membership interests in Consolidated Real Estate VIEs.
During the year ended December 31, 2020, the Company reconsidered its evaluation of its variable interest in a VIE that owns a multi-family apartment community and in which the Company held a preferred equity investment. The Company determined that it gained the power to direct the activities, and became primary beneficiary, of the VIE and consolidated this VIE into its consolidated financial statements. Subsequently, in July 2021, the VIE redeemed its non-controlling interest which resulted in an equity transaction accounted for by the Company in accordance with ASC 810. In addition, the Company reconsidered its evaluation of its investment in the entity and determined that the entity no longer met the criteria for being characterized as a VIE and is a wholly-owned subsidiary of the Company. In March 2022, the entity completed the sale of its multi-family apartment community and redeemed the Company's preferred equity investment (see Note 8).
In analyzing whether the Company is the primary beneficiary of the Financing VIEs, Consolidated SLST and Consolidated Real Estate VIEs, 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 following table presents a summary of the assets, liabilities and non-controlling interests of the Company's residential loan securitizations, Consolidated SLST and Consolidated Real Estate VIEs as of June 30, 2022 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Financing VIEs | | Other VIEs | | |
| Residential
Loan Securitizations | | | | Consolidated SLST | | Consolidated Real Estate | | Total |
| Cash and cash equivalents | $ | — | | | | | $ | — | | | $ | 38,233 | | | $ | 38,233 | |
| Residential loans, at fair value | 1,215,095 | | | | | 920,778 | | | — | | | 2,135,873 | |
Real estate, net held in Consolidated VIEs (1) | — | | | | | — | | | 1,649,472 | | | 1,649,472 | |
| Other assets | 77,630 | | | | | 3,314 | | | 48,087 | | | 129,031 | |
| Total assets | $ | 1,292,725 | | | | | $ | 924,092 | | | $ | 1,735,792 | | | $ | 3,952,609 | |
| | | | | | | | | |
Collateralized debt obligations ($1,107,091 at amortized cost, net and $710,233 at fair value) | $ | 1,107,091 | | | | | $ | 710,233 | | | $ | — | | | $ | 1,817,324 | |
Mortgages payable on real estate, net in Consolidated VIEs (2) | — | | | | | — | | | 1,251,059 | | | 1,251,059 | |
| Other liabilities | 43,477 | | | | | 3,859 | | | 25,755 | | | 73,091 | |
| Total liabilities | $ | 1,150,568 | | | | | $ | 714,092 | | | $ | 1,276,814 | | | $ | 3,141,474 | |
Redeemable non-controlling interest in Consolidated VIEs (3) | $ | — | | | | | $ | — | | | $ | 37,101 | | | $ | 37,101 | |
Non-controlling interest in Consolidated VIEs (4) | $ | — | | | | | $ | — | | | $ | 34,080 | | | $ | 34,080 | |
Net investment (5) | $ | 142,157 | | | | | $ | 210,000 | | | $ | 387,797 | | | $ | 739,954 | |
(1)Included in real estate, net in the accompanying condensed consolidated balance sheets.
(2)Included in mortgages payable on real estate, net in the accompanying condensed consolidated balance sheets.
(3)Represents redeemable third-party ownership of membership interests in Consolidated Real Estate VIEs. See Redeemable Non-Controlling Interest in Consolidated VIEs below.
(4)Represents third-party ownership of membership interests in Consolidated Real Estate VIEs.
(5)The net investment amount is the maximum amount of the Company's investment that is at risk to loss and represents the difference between total assets and total liabilities held by VIEs, less non-controlling interests, if any.
The following table presents a summary of the assets, liabilities and non-controlling interests of the Company's residential loan securitizations, Consolidated SLST and Consolidated Real Estate VIEs as of December 31, 2021 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
| | | | | | | | | | | | | | | | | | | | | | | |
| Financing VIEs | | Other VIEs | | |
| Residential
Loan Securitizations | | Consolidated SLST | | Consolidated Real Estate | | Total |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 29,606 | | | $ | 29,606 | |
| Residential loans, at fair value | 801,429 | | | 1,070,882 | | | — | | | 1,872,311 | |
Real estate, net held in Consolidated VIEs (1) | — | | | — | | | 927,725 | | | 927,725 | |
| Other assets | 36,767 | | | 3,547 | | | 70,557 | | | 110,871 | |
| Total assets | $ | 838,196 | | | $ | 1,074,429 | | | $ | 1,027,888 | | | $ | 2,940,513 | |
| | | | | | | |
Collateralized debt obligations ($682,802 at amortized cost, net and $839,419 at fair value) | $ | 682,802 | | | $ | 839,419 | | | $ | — | | | $ | 1,522,221 | |
Mortgages payable on real estate, net in Consolidated VIEs (2) | — | | | — | | | 672,568 | | | 672,568 | |
| Other liabilities | 20,156 | | | 3,193 | | | 17,527 | | | 40,876 | |
| Total liabilities | $ | 702,958 | | | $ | 842,612 | | | $ | 690,095 | | | $ | 2,235,665 | |
Redeemable non-controlling interest in Consolidated VIEs (3) | $ | — | | | $ | — | | | $ | 66,392 | | | $ | 66,392 | |
Non-controlling interest in Consolidated VIEs (4) | $ | — | | | $ | — | | | $ | 24,359 | | | $ | 24,359 | |
Net investment (5) | $ | 135,238 | | | $ | 231,817 | | | $ | 247,042 | | | $ | 614,097 | |
(1)Included in real estate, net in the accompanying condensed consolidated balance sheets.
(2)Included in mortgages payable on real estate, net in the accompanying condensed consolidated balance sheets.
(3)Represents redeemable third-party ownership of membership interests in Consolidated Real Estate VIEs. See Redeemable Non-Controlling Interest in Consolidated VIEs below.
(4)Represents third-party ownership of membership interests in Consolidated Real Estate VIEs.
(5)The net investment amount is the maximum amount of the Company's investment that is at risk to loss and represents the difference between total assets and total liabilities held by VIEs, less non-controlling interests, if any.
The following table presents condensed statements of operations for non-Company-sponsored VIEs for the three months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2022 | | 2021 |
| | Consolidated SLST | | Consolidated Real Estate | | Total | | Consolidated SLST | | Consolidated Real Estate | | Total |
| Interest income | | $ | 9,254 | | | $ | — | | | $ | 9,254 | | | $ | 10,479 | | | $ | — | | | $ | 10,479 | |
| Interest expense | | 6,208 | | | 13,148 | | | 19,356 | | | 7,151 | | | 430 | | | 7,581 | |
| Total net interest income (expense) | | 3,046 | | | (13,148) | | | (10,102) | | | 3,328 | | | (430) | | | 2,898 | |
| | | | | | | | | | | | |
| Unrealized (losses) gains, net | | (4,275) | | | — | | | (4,275) | | | 9,793 | | | — | | | 9,793 | |
| Income from real estate | | — | | | 34,409 | | | 34,409 | | | — | | | 2,150 | | | 2,150 | |
| | | | | | | | | | | | |
| Total non-interest (loss) income | | (4,275) | | | 34,409 | | | 30,134 | | | 9,793 | | | 2,150 | | | 11,943 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Expenses related to real estate (1) | | — | | | 68,337 | | | 68,337 | | | — | | | 3,913 | | | 3,913 | |
| | | | | | | | | | | | |
| Net (loss) income | | (1,229) | | | (47,076) | | | (48,305) | | | 13,121 | | | (2,193) | | | 10,928 | |
| Net loss attributable to non-controlling interest in Consolidated VIEs | | — | | | 18,922 | | | 18,922 | | | — | | | 1,625 | | | 1,625 | |
| Net (loss) income attributable to Company | | $ | (1,229) | | | $ | (28,154) | | | $ | (29,383) | | | $ | 13,121 | | | $ | (568) | | | $ | 12,553 | |
(1)See Note 8 for depreciation and amortization expenses related to operating real estate.
The following table presents condensed statements of operations for non-Company-sponsored VIEs for the six months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
| | Consolidated SLST | | Consolidated Real Estate | | Total | | Consolidated SLST | | Consolidated Real Estate | | Total |
| Interest income | | $ | 18,635 | | | $ | — | | | $ | 18,635 | | | $ | 20,797 | | | $ | — | | | $ | 20,797 | |
| Interest expense | | 12,186 | | | 19,983 | | | 32,169 | | | 14,254 | | | 740 | | | 14,994 | |
| Total net interest income (expense) | | 6,449 | | | (19,983) | | | (13,534) | | | 6,543 | | | (740) | | | 5,803 | |
| | | | | | | | | | | | |
| Unrealized (losses) gains, net | | (19,555) | | | — | | | (19,555) | | | 19,018 | | | — | | | 19,018 | |
| Income from real estate | | — | | | 58,047 | | | 58,047 | | | — | | | 3,645 | | | 3,645 | |
| | | | | | | | | | | | |
| Total non-interest (loss) income | | (19,555) | | | 58,047 | | | 38,492 | | | 19,018 | | | 3,645 | | | 22,663 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Expenses related to real estate (1) | | — | | | 114,783 | | | 114,783 | | | — | | | 6,837 | | | 6,837 | |
| | | | | | | | | | | | |
| Net (loss) income | | (13,106) | | | (76,719) | | | (89,825) | | | 25,561 | | | (3,932) | | | 21,629 | |
| Net loss attributable to non-controlling interest in Consolidated VIEs | | — | | | 33,792 | | | 33,792 | | | — | | | 3,034 | | | 3,034 | |
| Net (loss) income attributable to Company | | $ | (13,106) | | | $ | (42,927) | | | $ | (56,033) | | | $ | 25,561 | | | $ | (898) | | | $ | 24,663 | |
(1)See Note 8 for depreciation and amortization expenses related to operating real estate.
Redeemable Non-Controlling Interest in Consolidated VIEs
The third-party owners of certain of the non-controlling interests in Consolidated VIEs have the ability to sell their ownership interests to the Company, at their election. The Company has classified these third-party ownership interests as redeemable non-controlling interests in Consolidated VIEs in mezzanine equity on the accompanying condensed consolidated balance sheets. The holders of the redeemable non-controlling interests may elect to sell their ownership interests to the Company at fair value once a year and the sales are subject to minimum and maximum amount limitations.
The following table presents activity in redeemable non-controlling interest in Consolidated VIEs for the three and six months ended June 30, 2022 (dollar amounts in thousands):
| | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| Beginning balance | $ | 53,361 | | | $ | 66,392 | |
| Contributions | 41 | | | 315 | |
| Distributions | (1,133) | | | (1,810) | |
| Net loss attributable to redeemable non-controlling interest in Consolidated VIEs | (15,168) | | | (27,796) | |
| Ending balance | $ | 37,101 | | | $ | 37,101 | |
Unconsolidated VIEs
As of June 30, 2022 and December 31, 2021, the Company evaluated its investment securities available for sale, preferred equity and other equity investments to determine whether they are VIEs and should be consolidated by the Company. Based on a number of factors, the Company determined that, as of June 30, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Multi-family loans | | Investment
securities
available for
sale, at fair value | | Equity investments | | Total |
ABS | $ | — | | | $ | 35,588 | | | $ | — | | | $ | 35,588 | |
| Non-Agency RMBS | — | | | 31,978 | | | — | | | 31,978 | |
Preferred equity investments in multi-family properties | 106,825 | | | — | | | 178,783 | | | 285,608 | |
Joint venture equity investments in multi-family properties | — | | | — | | | 10,990 | | | 10,990 | |
| Equity investments in entities that invest in residential properties | — | | | — | | | 2,878 | | | 2,878 | |
| Maximum exposure | $ | 106,825 | | | $ | 67,566 | | | $ | 192,651 | | | $ | 367,042 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Multi-family loans | | Investment
securities
available for
sale, at fair value | | | | | | | Equity investments | | Total |
| ABS | $ | — | | | $ | 39,679 | | | | | | | | $ | — | | | $ | 39,679 | |
| Non-Agency RMBS | — | | | 30,924 | | | | | | | | — | | | 30,924 | |
Preferred equity investments in multi-family properties | 120,021 | | | — | | | | | | | | 180,798 | | | 300,819 | |
Joint venture equity investments in multi-family properties | — | | | — | | | | | | | | 10,440 | | | 10,440 | |
| Equity investments in entities that invest in residential properties | — | | | — | | | | | | | | 19,143 | | | 19,143 | |
| Maximum exposure | $ | 120,021 | | | $ | 70,603 | | | | | | | | $ | 210,381 | | | $ | 401,005 | |
8.Real Estate, Net
The following is a summary of real estate, net, collectively, as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | June 30, 2022 | | | | | | December 31, 2021 |
| Land | | | | | | $ | 218,223 | | | | | | | $ | 111,182 | |
| Building and improvements | | | | | | 1,524,023 | | | | | | | 835,635 | |
| Furniture, fixture and equipment | | | | | | 46,491 | | | | | | | 23,546 | |
| Operating real estate | | | | | | $ | 1,788,737 | | | | | | | $ | 970,363 | |
| Accumulated depreciation | | | | | | (27,332) | | | | | | | (3,890) | |
| Operating real estate, net | | | | | | $ | 1,761,405 | | | | | | | $ | 966,473 | |
Real estate held for sale, net (1) | | | | | | $ | 30,915 | | | | | | | $ | 51,110 | |
| Real estate, net | | | | | | $ | 1,792,320 | | | | | | | $ | 1,017,583 | |
(1)Real estate held for sale, net is recorded at the lower of the net carrying amount of the assets or the estimated fair value, net of selling costs.
Multi-family Apartment Properties
As of June 30, 2022 and December 31, 2021, the Company invested in joint venture investments that own multi-family apartment communities, which the Company determined to be VIEs and for which the Company is the primary beneficiary. Accordingly, the Company consolidated the joint venture entities into its condensed consolidated financial statements (see Note 7). In June 2022, the Company determined that the multi-family apartment community owned by one of the joint venture investments met the criteria to be classified as held for sale, transferred the property held by the joint venture from operating real estate to real estate held for sale and recognized no loss.
As of June 30, 2021, the Company was the primary beneficiary of a VIE that owned a multi-family apartment community and in which the Company held a preferred equity investment. Accordingly, the Company consolidated the VIE into its condensed consolidated financial statements. In July 2021, the VIE redeemed its non-controlling interest, which caused the entity to no longer meet the criteria for being characterized as a VIE and became a wholly-owned subsidiary of the Company (see Note 7). In November 2021, the Company determined that the multi-family apartment community owned by the wholly-owned subsidiary met the criteria to be classified as held for sale, transferred the property held by the wholly-owned subsidiary from operating real estate to real estate held for sale and recognized a $0.2 million loss. In March 2022, the entity completed the sale of its multi-family apartment community for approximately $52.0 million, subject to certain prorations and adjustments typical in such real estate transactions, repaid the related mortgage payable in the amount of approximately $37.0 million and redeemed the Company's preferred equity investment. The sale generated a net gain of approximately $0.4 million and a loss on extinguishment of debt of approximately $0.6 million, both of which are included in other income on the accompanying condensed consolidated statements of operations.
The multi-family apartment communities lease their apartment units to individual tenants at market rates for the production of rental income. These apartment units are generally leased at a fixed monthly rate with no option for the lessee to purchase the leased unit at any point.
Single-family Rental Properties
As of June 30, 2022 and December 31, 2021, the Company owned single-family rental homes. These units are leased to individual tenants for the production of rental income and are generally leased at a fixed monthly rate with no option for the lessee to purchase the leased unit at any point.
Lease Intangibles
Intangibles related to multi-family properties consist of the value of in-place leases and are included in other assets on the accompanying condensed consolidated balance sheets. The following table presents the components of lease intangibles, net as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| Lease intangibles | | $ | 92,216 | | | $ | 51,969 | |
| Accumulated amortization | | (73,292) | | | (12,200) | |
| Lease intangibles, net | | $ | 18,924 | | | $ | 39,769 | |
Real Estate Income and Expenses
Rental income and other income derived from real estate are included in income from real estate in the accompanying condensed consolidated statements of operations. Depreciation and amortization expenses related to operating real estate and other expenses incurred on real estate are included in expenses related to real estate on the accompanying condensed consolidated statements of operations. The following table presents the components of income from real estate and expenses related to real estate for the three and six months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Rental income | | $ | 32,137 | | | $ | 2,078 | | | $ | 55,425 | | | $ | 3,567 | |
| Other income | | 3,733 | | | 72 | | | 6,033 | | | 78 | |
| Total income from real estate | | $ | 35,870 | | | $ | 2,150 | | | $ | 61,458 | | | $ | 3,645 | |
| | | | | | | | |
Interest expense, mortgages payable on real estate (1) | | $ | 13,151 | | | $ | 430 | | | $ | 20,308 | | | $ | 740 | |
| | | | | | | | |
| Depreciation expense on operating real estate | | $ | 15,132 | | | $ | 838 | | | $ | 25,244 | | | $ | 1,519 | |
| Amortization of lease intangibles related to operating real estate | | 37,262 | | | 1,516 | | | 62,737 | | | 2,758 | |
| Other expenses | | 18,365 | | | 1,559 | | | 30,767 | | | 2,560 | |
| Total expenses related to real estate | | $ | 70,759 | | | $ | 3,913 | | | $ | 118,748 | | | $ | 6,837 | |
(1)Included in interest expense in the accompanying condensed consolidated statements of operations.
9.Other Assets and Other Liabilities
Other Assets
The following table presents the components of the Company's other assets as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Restricted cash (1) | | $ | 144,614 | | | $ | 48,259 | |
| Accrued interest receivable | | 38,136 | | | 26,688 | |
| Other assets in consolidated multi-family properties | | 25,160 | | | 21,668 | |
| Collections receivable from residential loan servicers | | 20,624 | | | 28,634 | |
| Lease intangibles, net in consolidated multi-family properties | | 18,924 | | | 39,769 | |
| Recoverable advances on residential loans | | 13,444 | | | 14,143 | |
| Other receivables | | 12,943 | | | 14,507 | |
| Operating lease right-of-use assets | | 8,429 | | | 9,011 | |
| Deferred tax assets | | 5,324 | | | 6,282 | |
| Real estate owned | | 2,552 | | | 2,055 | |
| Other | | 9,788 | | | 4,003 | |
| Total | | $ | 299,938 | | | $ | 215,019 | |
(1)Restricted cash represents cash held by third parties, including cash held by the Company's securitization trusts and consolidated multi-family properties.
Other Liabilities
The following table presents the components of the Company's other liabilities as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| Advanced remittances from residential loan servicers | | $ | 94,377 | | | $ | 16,603 | |
| Dividends and dividend equivalents payable | | 49,026 | | | 48,328 | |
| Accrued expenses and other liabilities in consolidated multi-family properties | | 25,755 | | | 22,583 | |
| Accrued expenses | | 13,887 | | | 13,408 | |
| Deferred revenue | | 11,507 | | | 13,019 | |
| Unfunded commitments for residential loans | | 9,663 | | | 21,364 | |
| Operating lease liabilities | | 8,994 | | | 9,584 | |
| Accrued interest payable | | 8,604 | | | 9,051 | |
| Deferred tax liabilities | | 5,558 | | | 6,681 | |
| Other | | 3,695 | | | 460 | |
| Total | | $ | 231,066 | | | $ | 161,081 | |
10.Repurchase Agreements
The following table presents the carrying value of the Company's repurchase agreements as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | |
| Repurchase Agreements Secured By: | | June 30, 2022 | | December 31, 2021 |
| Residential loans | | $ | 1,564,545 | | | $ | 554,259 | |
| Investment securities | | 129,331 | | | — | |
| Total carrying value | | $ | 1,693,876 | | | $ | 554,259 | |
As of June 30, 2022, the Company's only repurchase agreement exposure where the amount at risk was in excess of 5% of the Company's stockholders’ equity was to Credit Suisse at 6.23%. The amount at risk is defined as the fair value of assets pledged as collateral to the financing arrangement in excess of the financing arrangement liability.
The financings under certain of our repurchase agreements are subject to margin calls to the extent the market value of the collateral subject to repurchase agreement falls below specified levels and repurchase may be accelerated upon an event of default under the repurchase agreements. As of June 30, 2022, 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 the liability immediately. As of June 30, 2022, the Company had $368.9 million included in cash and cash equivalents and $88.3 million in unencumbered investment securities available to meet additional haircuts or market valuation requirements. The following table presents information about the Company's unencumbered securities at June 30, 2022 (dollar amounts in thousands):
| | | | | | | |
| Unencumbered Securities | June 30, 2022 | | |
Non-Agency RMBS (1) | $ | 52,672 | | | |
| CMBS | — | | | |
| ABS | 35,588 | | | |
| Total | $ | 88,260 | | | |
(1)Includes IOs in Consolidated SLST with a fair value of $19.7 million as of June 30, 2022.
Residential Loans
The Company has repurchase agreements with four financial institutions to fund the purchase of residential loans. 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, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maximum Aggregate Uncommitted Principal Amount | | Outstanding Repurchase Agreements (1) | | Net Deferred Finance Costs (2) | | Carrying Value of Repurchase Agreements | | Fair Value of Loans Pledged | | Weighted Average Rate | | Weighted Average Months to Maturity (3) |
| June 30, 2022 | $ | 2,140,048 | | | $ | 1,566,926 | | | $ | (2,381) | | | $ | 1,564,545 | | | $ | 1,887,742 | | | 3.81 | % | | 14.51 |
| December 31, 2021 | $ | 1,252,352 | | | $ | 554,784 | | | $ | (525) | | | $ | 554,259 | | | $ | 729,649 | | | 2.79 | % | | 4.38 |
(1)Includes non-mark-to-market repurchase agreements with an aggregate outstanding balance of $755.6 million, a weighted average rate of 4.01%, and weighted average months to maturity of 20.23 months as of June 30, 2022. Includes a non-mark-to-market repurchase agreement with an outstanding balance of $15.6 million, a rate of 4.00%, and months to maturity of 2.03 months as of December 31, 2021.
(2)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 and are amortized as an adjustment to interest expense using the effective interest method, or straight line-method, if the result is not materially different.
(3)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.
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 with two of the counterparties with an aggregate outstanding balance of $811.4 million as of June 30, 2022 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.
As of June 30, 2022, the Company's 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 June 30, 2022 and through the date of this Quarterly Report on Form 10-Q.
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). These repurchase agreements provide short-term financing that bear interest rates typically based on a spread to SOFR and are secured by the investment securities which they finance and additional collateral pledged, if any. As of June 30, 2022, the Company had amounts outstanding under repurchase agreements with two counterparties. As of December 31, 2021, the Company had no amounts outstanding under repurchase agreements to finance investment securities.
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, 2022 (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | |
| Outstanding Repurchase Agreements | | Fair Value of Collateral Pledged | | Amortized Cost of Collateral Pledged | | | | | | | | | | |
| | | | | | | |
Non-Agency RMBS (1) (2) | $ | 113,650 | | | $ | 233,407 | | | $ | 263,768 | | | | | | | | | | | |
| CMBS | 15,681 | | | 30,096 | | | 32,600 | | | | | | | | | | | |
| Balance at end of the period | $ | 129,331 | | | $ | 263,503 | | | $ | 296,368 | | | | | | | | | | | |
(1)Includes first loss subordinated securities in Consolidated SLST with a fair value of $188.9 million as of June 30, 2022.
(2)Collateral pledged includes restricted cash posted as margin in the amount of $2.7 million.
As of June 30, 2022, the average days to maturity for repurchase agreements secured by investment securities was 11 days and the weighted average interest rate was 2.84%. The Company’s accrued interest payable on outstanding repurchase agreements secured by investment securities at June 30, 2022 amounted to $0.2 million and is included in 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, 2022 (dollar amounts in thousands):
| | | | | | | |
| Contractual Maturity | June 30, 2022 | | |
| Within 30 days | $ | 129,331 | | | |
| Over 30 day to 90 days | — | | | |
| Over 90 days | — | | | |
| Total | $ | 129,331 | | | |
As of June 30, 2022, the outstanding balance under our repurchase agreements secured by investment securities was funded at a weighted average advance rate of 51.7% that implies an average "haircut" of 48.3%. As of June 30, 2022, the weighted average “haircut” related to our repurchase agreement financing for our non-Agency RMBS and CMBS was approximately 48.7% and 45.0%, respectively.
11.Collateralized Debt Obligations
The Company's collateralized debt obligations, or CDOs, are accounted for as financings and are non-recourse debt to the Company. See Note 7 for further discussion regarding the collateral pledged for the Company's CDOs as well as the Company's net investments in the related securitizations.
The following tables present a summary of the Company's CDOs as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Outstanding Face Amount | | Carrying Value | | Weighted Average Interest Rate (1) | | | | Stated Maturity (2) |
Consolidated SLST (3) | $ | 742,601 | | | $ | 710,233 | | | 2.75 | % | | | | 2059 |
| Residential loan securitizations | 1,112,421 | | | 1,107,091 | | | 2.77 | % | | | | 2026 - 2061 |
| Total collateralized debt obligations | $ | 1,855,022 | | | $ | 1,817,324 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Outstanding Face Amount | | Carrying Value | | Weighted Average Interest Rate (1) | | | | Stated Maturity (2) |
Consolidated SLST (3) | $ | 814,256 | | | $ | 839,419 | | | 2.75 | % | | | | 2059 |
| Residential loan securitizations | 686,122 | | | 682,802 | | | 2.43 | % | | | | 2026 - 2061 |
| Total collateralized debt obligations | $ | 1,500,378 | | | $ | 1,522,221 | | | | | | | |
(1)Weighted average interest rate is calculated using the outstanding face amount and stated interest rate of notes issued by the securitization and not owned by the Company.
(2)The actual maturity of the Company's CDOs are primarily determined by the rate of principal prepayments on the assets of the issuing entity. The CDOs are also subject to redemption prior to the stated maturity according to the terms of the respective governing documents. As a result, the actual maturity of the CDOs may occur earlier than the stated maturity.
(3)The Company has elected the fair value option for CDOs issued by Consolidated SLST (see Note 14).
The Company's collateralized debt obligations as of June 30, 2022 had stated maturities as follows:
| | | | | | | | |
| Year ending December 31, | | Total |
| 2022 | | $ | — | |
| 2023 | | — | |
| 2024 | | — | |
| 2025 | | — | |
| 2026 | | 180,000 | |
| 2027 | | 225,000 | |
| Thereafter | | 1,450,022 | |
| Total | | $ | 1,855,022 | |
12. Debt
Convertible Notes
As of December 31, 2021, the Company had $138.0 million aggregate principal amount of its 6.25% Senior Convertible Notes due 2022 (the "Convertible Notes") outstanding. Costs related to the issuance of the Convertible Notes which included underwriting, legal, accounting and other fees, were reflected as deferred charges. The underwriter's discount and deferred charges, net of amortization, were presented as a deduction from the corresponding debt liability on the Company's accompanying condensed consolidated balance sheets in the amount of $0.1 million as of December 31, 2021. The underwriter's discount and deferred charges were amortized as an adjustment to interest expense using the effective interest method, resulting in a total cost to the Company of approximately 8.24%.
The Convertible Notes were issued at 96% of the principal amount, bore 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 matured on January 15, 2022. The Company did not have the right to redeem the Convertible Notes prior to maturity and no sinking fund was provided for the Convertible Notes. Holders of the Convertible Notes were 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 was subject to adjustment upon the occurrence of certain specified events, initially equaled 142.7144 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which was 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 were senior unsecured obligations of the Company that ranked pari passu in right of payment with the Company's senior unsecured indebtedness and ranked senior in right of payment to the Company's subordinated debentures and any of its other indebtedness that was expressly subordinated in right of payment to the Convertible Notes.
The Company redeemed the Convertible Notes at maturity for $138.0 million on January 15, 2022. None of the Convertible Notes were converted prior to maturity.
The following table presents interest expense from the Convertible Notes for the three and six months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Contractual interest expense | | $ | — | | | $ | 2,156 | | | $ | 335 | | | $ | 4,312 | |
| Amortization of underwriter's discount and deferred charges | | — | | | 632 | | | 103 | | | 1,260 | |
| Total | | $ | — | | | $ | 2,788 | | | $ | 438 | | | $ | 5,572 | |
Senior Unsecured Notes
On April 27, 2021, the Company completed the issuance and sale to various qualified institutional investors of $100.0 million aggregate principal amount of its unregistered 5.75% Senior Notes due 2026 (the "Unregistered Notes") in a private placement offering at 100% of the principal amount. The net proceeds to the Company from the sale of the Unregistered Notes, after deducting offering expenses, were approximately $96.3 million. Subsequent to the issuance of the Unregistered Notes, the Company conducted an exchange offer wherein the Company exchanged its registered 5.75% Senior Notes due 2026 (the "Registered Notes" and, together with the aggregate principal amount of Unregistered Notes that remain outstanding, the "Senior Unsecured Notes") for an equal principal amount of Unregistered Notes.
As of June 30, 2022, the Company had $100.0 million aggregate principal amount of its Senior Unsecured Notes outstanding. Costs related to the issuance of the Senior Unsecured Notes which include underwriting, legal, accounting and other fees, are reflected as deferred charges. The 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 $3.0 million and $3.3 million as of June 30, 2022 and December 31, 2021, respectively. The deferred charges are amortized as an adjustment to interest expense using the effective interest method, resulting in a total cost to the Company of approximately 6.64%.
The Senior Unsecured Notes bear interest at a rate of 5.75% per year, subject to adjustment from time to time based on changes in the ratings of the Senior Unsecured Notes by one or more nationally recognized statistical rating organizations (a “NRSRO”). The annual interest rate on the Senior Unsecured Notes will increase by (i) 0.50% per year beginning on the first day of any six-month interest period if as of such day the Senior Unsecured Notes have a rating of BB+ or below and above B+ from any NRSRO and (ii) 0.75% per year beginning on the first day of any six-month interest period if as of such day the Senior Unsecured Notes have a rating of B+ or below or no rating from any NRSRO. Interest on the Senior Unsecured Notes is paid semi-annually in arrears on April 30 and October 30 of each year and the Senior Unsecured Notes will mature on April 30, 2026.
The Company has the right to redeem the Senior Unsecured Notes, in whole or in part, at any time prior to April 30, 2023 at a redemption price equal to 100% of the principal amount of the Senior Unsecured Notes to be redeemed, plus the applicable "make-whole" premium, plus accrued but unpaid interest, if any, to, but excluding, the redemption date. The "make-whole" premium is equal to the present value of all interest that would have accrued between the redemption date and up to, but excluding, April 30, 2023, plus an amount equal to the principal amount of such Senior Unsecured Notes multiplied by 2.875%. On and after April 30, 2023, the Company has the right to redeem the Senior Unsecured Notes, in whole or in part, at 100% of the principal amount of the Senior Unsecured Notes to be redeemed, plus accrued but unpaid interest, if any, to, but excluding, the redemption date, plus an amount equal to the principal amount of such Senior Unsecured Notes multiplied by a date-dependent multiple as detailed in the following table:
| | | | | | | | |
| Redemption Period | | Multiple |
April 30, 2023 - April 29, 2024 | | 2.875 | % |
April 30, 2024 - April 29, 2025 | | 1.4375 | % |
April 30, 2025 - April 29, 2026 | | — | |
No sinking fund is provided for the Senior Unsecured Notes. The Senior Unsecured Notes are senior unsecured obligations of the Company that are structurally subordinated in right of payment to the Company's subordinated debentures.
As of June 30, 2022, the Company's Senior Unsecured Notes contain various covenants including the maintenance of a minimum net asset value, ratio of unencumbered assets to unsecured indebtedness and senior debt service coverage ratio and limit the amount of leverage the Company may utilize and its ability to transfer the Company’s assets substantially as an entirety or merge into or consolidate with another person. The Company is in compliance with such covenants as of June 30, 2022 and through the date of this Quarterly Report on Form 10-Q.
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, 2022 and December 31, 2021 (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 4, 2022, the Company has not been notified, and is not aware, of any event of default under the indenture for the subordinated debentures.
Mortgages Payable on Real Estate
As of June 30, 2022 and December 31, 2021, the Company invested in joint venture investments that own multi-family apartment communities, which the Company determined to be VIEs and for which the Company is the primary beneficiary. Accordingly, the Company consolidated the joint venture entities into its condensed consolidated financial statements (see Note 7).
As of June 30, 2021, the Company was the primary beneficiary of a VIE that owned a multi-family apartment community and in which the Company held a preferred equity investment. Accordingly, the Company consolidated the VIE into its condensed consolidated financial statements. Subsequently, in July 2021, the VIE redeemed its non-controlling interest and the Company reconsidered its evaluation of its investment in the entity. The Company determined that the entity no longer met the criteria for being characterized as a VIE and is a wholly-owned subsidiary of the Company (see Note 7). In March 2022, the entity completed the sale of this multi-family apartment community and redeemed the Company's preferred equity investment. In conjunction with the sale, the entity repaid the related mortgage payable in the amount of approximately $37.0 million and recorded a loss on extinguishment of debt of approximately $0.6 million, which is included in other income on the accompanying condensed consolidated statements of operations.
The consolidated multi-family apartment communities are subject to mortgages payable collateralized by the associated real estate assets. The Company has no obligation for repayment of the mortgages payable but, with respect to certain of the mortgages payable, we may execute a non-recourse guaranty related to commitment of bad acts. The following table presents detailed information for these mortgages payable on real estate as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maximum Committed Mortgage Principal Amount | | Outstanding Mortgage Balance | | Net Deferred Finance Cost | | Mortgage Payable, Net | | Stated Maturity | | Weighted Average Interest Rate (1) | | |
| June 30, 2022 | $ | 1,354,367 | | | $ | 1,272,515 | | | $ | (21,456) | | | $ | 1,251,059 | | | 2024 - 2032 | | 4.00 | % | | |
| December 31, 2021 | 745,915 | | | 718,717 | | | (9,361) | | | 709,356 | | | 2024 - 2031 | | 3.56 | % | | |
(1)Weighted average interest rate is calculated using the outstanding mortgage balance and interest rate as of the date indicated.
Debt Maturities
As of June 30, 2022, maturities for debt on the Company's condensed consolidated balance sheet are as follows (dollar amounts in thousands):
| | | | | | | | |
| Year Ending December 31, | | Outstanding Balance |
| 2022 | | $ | — | |
| 2023 | | — | |
| 2024 | | 294,814 | |
| 2025 | | 535,240 | |
| 2026 | | 133,772 | |
| 2027 | | — | |
| Thereafter | | 453,689 | |
| | $ | 1,417,515 | |
13. Commitments and Contingencies
Impact of COVID-19
As further discussed in Note 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, 2022, 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, 2022, 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.
Investment Commitment
The Company has entered into an agreement to fund joint venture equity investments in multi-family properties totaling $40.0 million with certain members of its existing joint ventures.
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.Residential Loans Held in Consolidated SLST – 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 residential loans held in Consolidated SLST based on the fair value of the CDOs issued by the securitization and its investment in the securitization (eliminated in consolidation in accordance with GAAP), as the fair value of these instruments is more observable.
The investment securities (eliminated in consolidation in accordance with GAAP) that we own in the securitization are generally illiquid and trade infrequently. As such, they are classified as Level 3 in the fair value hierarchy. The fair valuation of these investment securities is determined based on an internal valuation model that considers expected cash flows from the underlying loans and yields required by market participants. The significant unobservable inputs used in the measurement of these investments are projected losses within the pool of loans and a discount rate. The discount rate used in determining fair value incorporates default rate, loss severity, prepayment rate and current market interest rates. Significant increases or decreases in these inputs would result in a significantly lower or higher fair value measurement.
b.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.
c.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 estimated 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.
d.Investment Securities Available for Sale – The Company determines the fair value of all of its investment securities available for sale based on discounted cash flows utilizing an internal pricing model. 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, delinquency status, coupon, loan-to-value ("LTV"), historical performance, periodic and life caps, collateral type, rate reset period, seasoning, prepayment speeds and credit enhancement levels. The Company also considers several observable market data points, including prices obtained from third-party pricing services or dealers who make markets in similar financial instruments, trading activity, and 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 similar to those used in the Company's internal pricing model. The Company has established thresholds to compare internally generated prices with independent third-party prices and any differences that exceed the thresholds are reviewed both internally and with the third-party pricing service. The Company reconciles and resolves all pricing differences in excess of the thresholds before a final price is established. The Company’s investment securities available for sale are valued based upon readily observable market parameters and are classified as Level 2 fair values.
e.Equity Investments – Fair value for equity investments is determined (i) by the valuation process for preferred equity and mezzanine loan investments as described in c. above, (ii) using weighted multiples of origination volume and earnings before taxes, depreciation and amortization of the entity or (iii) using the net asset value ("NAV") of the equity investment entity as a practical expedient. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 in the fair value hierarchy.
f.Collateralized Debt Obligations – CDOs issued by Consolidated SLST are classified as Level 3 fair values for which fair value 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 the particular security. They will also consider contractual cash payments and yields expected by market participants.
Refer to a. above for a description of the fair valuation of CDOs issued by Consolidated SLST that are eliminated in consolidation.
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, 2022 and December 31, 2021, respectively, on the Company’s condensed consolidated balance sheets (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Measured at Fair Value on a Recurring Basis at |
| June 30, 2022 | | December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets carried at fair value | | | | | | | | | | | | | | | |
| Residential loans: | | | | | | | | | | | | | | | |
Residential loans | $ | — | | | $ | — | | | $ | 2,193,319 | | | $ | 2,193,319 | | | $ | — | | | $ | — | | | $ | 1,703,290 | | | $ | 1,703,290 | |
Consolidated SLST | — | | | — | | | 920,778 | | | 920,778 | | | — | | | — | | | 1,070,882 | | | 1,070,882 | |
Residential loans held in securitization trusts | — | | | — | | | 1,215,095 | | | 1,215,095 | | | — | | | — | | | 801,429 | | | 801,429 | |
| Multi-family loans | — | | | — | | | 106,825 | | | 106,825 | | | — | | | — | | | 120,021 | | | 120,021 | |
| | | | | | | | | | | | | | | |
| Investment securities available for sale: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Non-Agency RMBS | — | | | 74,822 | | | — | | | 74,822 | | | — | | | 128,019 | | | — | | | 128,019 | |
CMBS | — | | | 30,096 | | | — | | | 30,096 | | | — | | | 33,146 | | | — | | | 33,146 | |
ABS | — | | | 35,588 | | | — | | | 35,588 | | | — | | | 39,679 | | | — | | | 39,679 | |
| Equity investments | — | | | — | | | 223,651 | | | 223,651 | | | — | | | — | | | 239,631 | | | 239,631 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total | $ | — | | | $ | 140,506 | | | $ | 4,659,668 | | | $ | 4,800,174 | | | $ | — | | | $ | 200,844 | | | $ | 3,935,253 | | | $ | 4,136,097 | |
Liabilities carried at fair value | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Consolidated SLST CDOs | $ | — | | | $ | — | | | $ | 710,233 | | | $ | 710,233 | | | $ | — | | | $ | — | | | $ | 839,419 | | | $ | 839,419 | |
Total | $ | — | | | $ | — | | | $ | 710,233 | | | $ | 710,233 | | | $ | — | | | $ | — | | | $ | 839,419 | | | $ | 839,419 | |
The following tables detail changes in valuation for the Level 3 assets for the six months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands):
Level 3 Assets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
| Residential loans | | | | | |
| | Residential loans | | Consolidated SLST | | Residential loans held in securitization trusts | | Multi-family loans | | Equity investments | | Total |
| Balance at beginning of period | $ | 1,703,290 | | | $ | 1,070,882 | | | $ | 801,429 | | | $ | 120,021 | | | $ | 239,631 | | | $ | 3,935,253 | |
| Total (losses)/gains (realized/unrealized) | | | | | | | | | | | |
| Included in earnings | (52,976) | | | (79,292) | | | (65,935) | | | 6,298 | | | 15,633 | | | (176,272) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Transfers out (1) | (875) | | | — | | | (980) | | | — | | | — | | | (1,855) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Transfer to securitization trust, net (2) | (676,560) | | | — | | | 676,560 | | | — | | | — | | | — | |
| Funding/Contributions | — | | | — | | | — | | | — | | | 19,191 | | | 19,191 | |
| Paydowns/Distributions | (293,564) | | | (70,812) | | | (237,712) | | | (19,494) | | | (50,804) | | | (672,386) | |
| | | | | | | | | | | |
| Sales | — | | | — | | | — | | | — | | | — | | | — | |
| Purchases | 1,514,004 | | | — | | | 41,733 | | | — | | | — | | | 1,555,737 | |
| Balance at the end of period | $ | 2,193,319 | | | $ | 920,778 | | | $ | 1,215,095 | | | $ | 106,825 | | | $ | 223,651 | | | $ | 4,659,668 | |
(1)Transfers out of Level 3 assets represents the transfer of residential loans to real estate owned.
(2)During the six months ended June 30, 2022, the Company completed two securitizations of certain performing, re-performing and business purpose loans (see Note 7 for further discussion of the Company's residential loan securitizations).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| Residential loans | | | | | |
| | Residential loans | | Consolidated SLST | | Residential loans held in securitization trusts | | Multi-family loans | | Equity investments | | Total |
| Balance at beginning of period | $ | 1,090,930 | | | $ | 1,266,785 | | | $ | 691,451 | | | $ | 163,593 | | | $ | 259,095 | | | $ | 3,471,854 | |
| Total gains/(losses) (realized/unrealized) | | | | | | | | | | | |
| Included in earnings | 14,494 | | | (21,788) | | | 21,105 | | | 10,853 | | | 14,006 | | | 38,670 | |
| | | | | | | | | | | |
Transfers out (1) | (1,259) | | | — | | | (1,415) | | | — | | | — | | | (2,674) | |
| | | | | | | | | | | |
Transfer to securitization trust, net (2) | (160,623) | | | — | | | 160,623 | | | — | | | — | | | — | |
| Funding/Contributions | — | | | — | | | — | | | — | | | 320 | | | 320 | |
| Paydowns/Distributions | (306,209) | | | (68,458) | | | (70,025) | | | (47,727) | | | (68,724) | | | (561,143) | |
| | | | | | | | | | | |
| Sales | (15,568) | | | — | | | (2,376) | | | — | | | — | | | (17,944) | |
| Purchases | 605,076 | | | — | | | — | | | — | | | — | | | 605,076 | |
| Balance at the end of period | $ | 1,226,841 | | | $ | 1,176,539 | | | $ | 799,363 | | | $ | 126,719 | | | $ | 204,697 | | | $ | 3,534,159 | |
(1)Transfers out of Level 3 assets represents the transfer of residential loans to real estate owned.
(2)During the six months ended June 30, 2021, the Company completed a securitization of certain business purpose loans (see Note 7 for further discussion of the Company's residential loan securitizations).
The following table details changes in valuation for the Level 3 liabilities for the six months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands):
Level 3 Liabilities:
| | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
| Consolidated SLST CDOs |
| Balance at beginning of period | $ | 839,419 | | | $ | 1,054,335 | |
| Total gains (realized/unrealized) | | | |
| Included in earnings | (57,532) | | | (37,931) | |
| | | |
| | | |
| Paydowns | (71,654) | | | (68,314) | |
| | | |
| | | |
| Balance at the end of period | $ | 710,233 | | | $ | 948,090 | |
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, 2022 | | Fair Value | | Valuation Technique | | Unobservable Input | | Weighted Average | | Range |
| Assets | | | | | | | | | | | | |
| Residential loans: | | | | | | | | | | | | |
Residential loans and residential loans held in securitization trusts (1) | | $3,318,357 | | Discounted cash flow | | Lifetime CPR | | 4.8% | | — | - | 46.2% |
| | | | | | Lifetime CDR | | 0.4% | | — | - | 21.5% |
| | | | | | Loss severity | | 6.7% | | — | - | 96.5% |
| | | | | | Yield | | 6.0% | | 4.6% | - | 64.9% |
| | | | | | | | | | | | |
| | $90,057 | | Liquidation model | | Annual home price appreciation | | 1.0% | | — | - | 27.8% |
| | | | | | Liquidation timeline (months) | | 26 | | 9 | - | 50 |
| | | | | | Property value | | $801,412 | | $17,000 | - | $4,300,000 |
| | | | | | Yield | | 7.8% | | 7.5% | - | 29.6% |
| | | | | | | | | | | | |
Consolidated SLST (3) | | $920,778 | | | | Liability price | | N/A | | | | |
| | | | | | | | | | | | |
| Total | | $4,329,192 | | | | | | | | | | |
| | | | | | | | | | | | |
Multi-family loans (1) | | $106,825 | | Discounted cash flow | | Discount rate | | 11.3% | | 10.0% | - | 19.5% |
| | | | | | Months to assumed redemption | | 36 | | 3 | - | 57 |
| | | | | | Loss severity | | — | | | | |
| | | | | | | | | | | | |
Equity investments (1) (2) | | $189,773 | | Discounted cash flow | | Discount rate | | 12.5% | | 11.0% | - | 15.4% |
| | | | | | Months to assumed redemption | | 24 | | 1 | - | 51 |
| | | | | | Loss severity | | — | | | | |
| | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | |
Consolidated SLST CDOs (3) (4) | | $710,233 | | Discounted cash flow | | Yield | | 4.6% | | 3.7% | - | 10.0% |
| | | | | | Collateral prepayment rate | | 8.0% | | 3.0% | - | 9.7% |
| | | | | | Collateral default rate | | 1.7% | | — | - | 9.4% |
| | | | | | Loss severity | | 16.6% | | — | - | 19.5% |
(1)Weighted average amounts are calculated based on the weighted average fair value of the assets.
(2)Equity investments does not include equity ownership interests in entities that invest in or originate residential properties and loans. The fair value of these investments is determined using weighted multiples of origination volume and earnings before taxes, depreciation and amortization of the entity or the net asset value ("NAV") as a practical expedient.
(3)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 the CDOs issued by Consolidated SLST, including investment securities we own, as the fair value of these instruments is more observable. At June 30, 2022, the fair value of investment securities we own in Consolidated SLST amounts to $208.6 million.
(4)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, 2022 and 2021, respectively, for our Level 3 assets and liabilities held as of June 30, 2022 and 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Assets | | | | | | | |
| Residential loans: | | | | | | | |
Residential loans (1) | $ | (29,826) | | | $ | 3,752 | | | $ | (55,058) | | | $ | 12,192 | |
Consolidated SLST (1) | (10,798) | | | 6,471 | | | (77,443) | | | (18,872) | |
Residential loans held in securitization trusts (1) | (33,262) | | | 6,030 | | | (64,729) | | | 18,611 | |
Multi-family loans (1) | 181 | | | 460 | | | 358 | | | 665 | |
Equity investments (2) | 3,139 | | | 805 | | | 3,593 | | | 927 | |
| Liabilities | | | | | | | |
Consolidated SLST CDOs (1) | 6,523 | | | 3,322 | | | 57,889 | | | 37,890 | |
(1)Presented in unrealized gains (losses), net on the Company's condensed consolidated statements of operations.
(2)Presented in income from equity investments on the Company's condensed consolidated statements of operations.
The following table presents the carrying value and estimated fair value of the Company’s financial instruments at June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 30, 2022 | | December 31, 2021 |
| | Fair Value
Hierarchy Level | | Carrying
Value | | Estimated
Fair Value | | Carrying
Value | | Estimated
Fair Value |
| Financial Assets: | | | | | | | | | |
| Cash and cash equivalents | Level 1 | | $ | 407,104 | | | $ | 407,104 | | | $ | 289,602 | | | $ | 289,602 | |
| Residential loans | Level 3 | | 4,329,192 | | | 4,329,192 | | | 3,575,601 | | | 3,575,601 | |
| Multi-family loans | Level 3 | | 106,825 | | | 106,825 | | | 120,021 | | | 120,021 | |
| Investment securities available for sale | Level 2 | | 140,506 | | | 140,506 | | | 200,844 | | | 200,844 | |
| Equity investments | Level 3 | | 223,651 | | | 223,651 | | | 239,631 | | | 239,631 | |
| Financial Liabilities: | | | | | | | | | |
| Repurchase agreements | Level 2 | | 1,693,876 | | | 1,693,876 | | | 554,259 | | | 554,259 | |
| Collateralized debt obligations: | | | | | | | | | |
| Residential loan securitizations at amortized cost, net | Level 3 | | 1,107,091 | | | 1,050,939 | | | 682,802 | | | 686,027 | |
| Consolidated SLST | Level 3 | | 710,233 | | | 710,233 | | | 839,419 | | | 839,419 | |
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| Subordinated debentures | Level 3 | | 45,000 | | | 38,674 | | | 45,000 | | | 44,388 | |
| Convertible notes | Level 2 | | — | | | — | | | 137,898 | | | 138,011 | |
| Senior unsecured notes | Level 2 | | 97,039 | | | 89,489 | | | 96,704 | | | 102,215 | |
| Mortgages payable on real estate | Level 3 | | 1,251,059 | | | 1,227,040 | | | 709,356 | | | 712,112 | |
In addition to the methodology to determine the fair value of the Company’s financial assets and liabilities reported at fair value, 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.Residential loan securitizations at amortized cost, net – The fair value of these CDOs is based on discounted cash flows as well as market pricing on comparable obligations.
d.Subordinated debentures – The fair value of these subordinated debentures is based on discounted cash flows using management’s estimate for market yields.
e.Convertible notes and senior unsecured notes – The fair value is based on quoted prices provided by dealers who make markets in similar financial instruments.
f.Mortgages payable on real estate – The fair value of consolidated variable-rate mortgages payable approximates the carrying value of such liabilities. The fair value of consolidated fixed-rate mortgages payable is estimated based upon discounted cash flows at current borrowing rates.
15. Stockholders' Equity
(a) Preferred Stock
The Company had 200,000,000 authorized shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), with 22,284,994 shares issued and outstanding as of June 30, 2022 and December 31, 2021.
As of June 30, 2022, the Company has four outstanding series of cumulative redeemable preferred stock: 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”), 7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”), 6.875% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”) and 7.000% Series G Cumulative Redeemable Preferred Stock (“Series G 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 tables summarize the Company’s Preferred Stock issued and outstanding as of June 30, 2022 and December 31, 2021 (dollar amounts in thousands):
June 30, 2022
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| Class of Preferred Stock | | Shares Authorized | | Shares Issued and Outstanding | | Carrying Value | | Liquidation Preference | | Contractual Rate (1) | | Optional Redemption Date (2) | | Fixed-to-Floating Rate Conversion Date (1)(3) | | Floating Annual Rate (4) |
| 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% |
| Series F | | 7,750,000 | | | 5,750,000 | | | 138,650 | | | 143,750 | | | 6.875 | % | | October 15, 2026 | | October 15, 2026 | | 3M SOFR + 6.130% |
| Fixed Rate | | | | | | | | | | | | | | | | |
| Series G | | 5,450,000 | | | 3,000,000 | | | 72,088 | | | 75,000 | | | 7.000 | % | | January 15, 2027 | | | | |
| Total | | 31,500,000 | | | 22,284,994 | | | $ | 538,221 | | | $ | 557,125 | | | | | | | | | |
December 31, 2021
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| Class of Preferred Stock | | Shares Authorized | | Shares Issued and Outstanding | | Carrying Value | | Liquidation Preference | | Contractual Rate (1) | | Optional Redemption Date (2) | | Fixed-to-Floating Rate Conversion Date (1)(3) | | Floating Annual Rate (4) |
| 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% |
| Series F | | 7,750,000 | | | 5,750,000 | | | 138,650 | | | 143,750 | | | 6.875 | % | | October 15, 2026 | | October 15, 2026 | | 3M SOFR + 6.130% |
| Fixed Rate | | | | | | | | | | | | | | | | |
| Series G | | 3,450,000 | | | 3,000,000 | | | 72,088 | | | 75,000 | | | 7.000 | % | | January 15, 2027 | | | | |
| Total | | 29,500,000 | | | 22,284,994 | | | $ | 538,221 | | | $ | 557,125 | | | | | | | | | |
(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 optional 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 D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock, respectively).
(3)Beginning on the respective fixed-to-floating rate conversion date, each of the Series D Preferred Stock, Series E Preferred Stock and Series F 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. On and after the fixed-to-floating rate conversion date, the Series F Preferred Stock is entitled to receive a dividend at a floating rate equal to three-month SOFR plus the spread disclosed above per year on its $25 liquidation preference.
For each series of Preferred Stock, on or after the respective optional 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 (the "Board") until all unpaid dividends have been paid or declared and set apart for payment. In addition, certain material and adverse changes to the terms of any series of the Preferred Stock cannot be made without the affirmative vote of holders of at least two-thirds of the outstanding shares of the series of Preferred Stock whose terms are being changed.
The 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
The following table presents the relevant information with respect to quarterly cash dividends declared on the Preferred Stock commencing January 1, 2021 through June 30, 2022:
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| | | | | | Cash Dividend Per Share | |
| Declaration Date | | Record Date | | Payment Date | | Series B Preferred Stock (1) | | Series C Preferred Stock(1) | | Series D Preferred Stock | | Series E Preferred Stock | | Series F Preferred Stock | | Series G Preferred Stock | |
| June 17, 2022 | | July 1, 2022 | | July 15, 2022 | | $ | — | | | $ | — | | | $ | 0.50 | | | $ | 0.4921875 | | | $ | 0.4296875 | | | $ | 0.43750 | |
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| March 14, 2022 | | April 1, 2022 | | April 15, 2022 | | — | | | — | | | 0.50 | | | 0.4921875 | | | 0.4296875 | | | 0.43750 | |
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| December 13, 2021 | | January 1, 2022 | | January 15, 2022 | | — | | | — | | | 0.50 | | | 0.4921875 | | | 0.4296875 | | | 0.24792 | | (2) |
| September 13, 2021 | | October 1, 2021 | | October 15, 2021 | | 0.484375 | | | — | | | 0.50 | | | 0.4921875 | | | 0.4679000 | | (3) | — | | |
| June 14, 2021 | | July 1, 2021 | | July 15, 2021 | | 0.484375 | | | 0.4921875 | | | 0.50 | | | 0.4921875 | | | — | | | — | | |
| March 15, 2021 | | April 1, 2021 | | April 15, 2021 | | 0.484375 | | | 0.4921875 | | | 0.50 | | | 0.4921875 | | | — | | | — | | |
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(1)The Company redeemed all outstanding shares of its Series B Preferred Stock and Series C Preferred Stock in December 2021 and July 2021, respectively.
(2)Cash dividend for the short initial dividend period that began on November 24, 2021 and ended January 14, 2022.
(3)Cash dividend for the long initial dividend period that began on July 7, 2021 and ended on October 14, 2021.
(c) Common Stock
The Company had 800,000,000 authorized shares of common stock, par value $0.01 per share, with 378,647,371 and 379,405,240 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively.
In February 2022, the Board of Directors approved a $200.0 million stock repurchase program. The program, which expires March 31, 2023, allows the Company to make repurchases of shares of common stock from time to time in open market transactions, including through block purchases, through privately negotiated transactions or pursuant to any Rule 10b-18 or 10b5-1 plans. During the three and six months ended June 30, 2022, the Company repurchased 2,794,824 shares of its common stock pursuant to the stock repurchase program for a total cost of approximately $7.5 million, net of fees and commissions paid to the broker of approximately $0.03 million, representing an average repurchase price of $2.69 per common share. As of June 30, 2022, $192.5 million of the approved amount remained available for the repurchase of shares of the Company's common stock under the stock repurchase program.
(d) Dividends on Common Stock
The following table presents cash dividends declared by the Company on its common stock with respect to the quarterly periods commencing January 1, 2021 and ended June 30, 2022:
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| Period | | Declaration Date | | Record Date | | Payment Date | | Cash Dividend Per Share |
| Second Quarter 2022 | | June 17, 2022 | | June 27, 2022 | | July 25, 2022 | | $ | 0.10 | |
| First Quarter 2022 | | March 14, 2022 | | March 24, 2022 | | April 25, 2022 | | 0.10 | |
| Fourth Quarter 2021 | | December 13, 2021 | | December 27, 2021 | | January 25, 2022 | | 0.10 | |
| Third Quarter 2021 | | September 13, 2021 | | September 23, 2021 | | October 25, 2021 | | 0.10 | |
| Second Quarter 2021 | | June 14, 2021 | | June 24, 2021 | | July 26, 2021 | | 0.10 | |
| First Quarter 2021 | | March 15, 2021 | | March 25, 2021 | | April 26, 2021 | | 0.10 | |
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(e) Equity Distribution Agreements
On August 10, 2021, the Company entered into an equity distribution agreement (the “Common Equity Distribution Agreement”) with a 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 the sales agent. The Company has no obligation to sell any of the shares of common stock issuable under the Common Equity Distribution Agreement and may at any time suspend solicitations and offers under the Common Equity Distribution Agreement.
The Common Equity Distribution Agreement replaced the Company's prior equity distribution agreement with a sales agent dated as of August 10, 2017, as amended on September 10, 2018 (collectively, the "Prior Equity Distribution Agreement"), pursuant to which approximately $72.5 million of aggregate value of the Company's common stock remained available for issuance prior to termination.
There were no shares of the Company's common stock issued under the Common Equity Distribution Agreement and the Prior Equity Distribution Agreement during the three and six months ended June 30, 2022 and 2021. As of June 30, 2022, approximately $100.0 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 a 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. On August 10, 2021, the Company entered into an amendment to the Preferred Equity Distribution Agreement that increased the maximum aggregate sales price to $149.1 million. The amendment also provided for the inclusion of sales of the Company's Series F Preferred Stock and the exclusion of sales of the Company's Series C Preferred Stock. On March 2, 2022, the Company entered into an amendment to the Preferred Equity Distribution Agreement that provided for the inclusion of sales of the Company's Series G Preferred Stock and the exclusion of sales of the Company's Series B 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, 2022 and 2021. As of June 30, 2022, approximately $100.0 million of Preferred Stock remains available for issuance under the Preferred Equity Distribution Agreement.
16. (Loss) Earnings Per Common Share
The Company calculates basic (loss) earnings per common share by dividing net (loss) income attributable to the Company's common stockholders for the period by weighted-average shares of common stock outstanding for that period. Diluted (loss) earnings per common share takes into account the effect of dilutive instruments, such as convertible notes, performance share units ("PSUs") and restricted stock units ("RSUs"), and the number of incremental shares that are to be added to the weighted-average number of shares outstanding.
The Company redeemed the Convertible Notes at maturity in the amount of $138.0 million on January 15, 2022. During the six months ended June 30, 2022 and the three and six months ended June 30, 2021, the Company's Convertible Notes were determined to be anti-dilutive and were not included in the calculation of diluted (loss) earnings per common share.
During the three and six months ended June 30, 2022, the PSUs and RSUs awarded under the Company's 2017 Equity Incentive Plan (as amended, the "2017 Plan") 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, 2021, certain of the PSUs and 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 PSUs and outstanding RSUs vest according to the respective PSU and 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.
The following table presents the computation of basic and diluted (loss) earnings per common share for the periods indicated (dollar and share amounts in thousands, except per share amounts):
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Basic (Loss) Earnings per Common Share: | | | | | | | |
| Net (loss) income attributable to Company | $ | (71,896) | | | $ | 53,240 | | | $ | (145,746) | | | $ | 105,448 | |
| Less: Preferred Stock dividends | (10,493) | | | (10,296) | | | (20,986) | | | (20,593) | |
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| Net (loss) income attributable to Company's common stockholders | $ | (82,389) | | | $ | 42,944 | | | $ | (166,732) | | | $ | 84,855 | |
Basic weighted average common shares outstanding | 381,200 | | | 379,299 | | | 380,999 | | | 379,091 | |
| Basic (Loss) Earnings per Common Share | $ | (0.22) | | | $ | 0.11 | | | $ | (0.44) | | | $ | 0.22 | |
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| Diluted (Loss) Earnings per Common Share: | | | | | | | |
| Net (loss) income attributable to Company | $ | (71,896) | | | $ | 53,240 | | | $ | (145,746) | | | $ | 105,448 | |
| Less: Preferred Stock dividends | (10,493) | | | (10,296) | | | (20,986) | | | (20,593) | |
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| Net (loss) income attributable to Company's common stockholders | $ | (82,389) | | | $ | 42,944 | | | $ | (166,732) | | | $ | 84,855 | |
Weighted average common shares outstanding | 381,200 | | | 379,299 | | | 380,999 | | | 379,091 | |
| Net effect of assumed PSUs vested | — | | | 2,003 | | | — | | | 1,931 | |
Net effect of assumed RSUs vested | — | | | 215 | | | — | | | 145 | |
Diluted weighted average common shares outstanding | 381,200 | | | 381,517 | | | 380,999 | | | 381,167 | |
| Diluted (Loss) Earnings per Common Share | $ | (0.22) | | | $ | 0.11 | | | $ | (0.44) | | | $ | 0.22 | |
17. Stock Based Compensation
Pursuant to the 2017 Plan, as approved by the Company's stockholders, eligible employees, officers and directors of the Company and individuals who provide services to the Company are offered the opportunity to acquire the Company's common stock through equity awards under the 2017 Plan. The maximum number of shares that may be issued under the 2017 Plan is 43,170,000.
Of the common stock authorized at June 30, 2022, 28,758,269 shares remain available for issuance under the 2017 Plan. The Company’s non-employee directors have been issued 919,019 shares under the 2017 Plan as of June 30, 2022. The Company’s employees have been issued 3,847,231 shares of restricted stock under the 2017 Plan as of June 30, 2022. At June 30, 2022, there were 2,181,985 shares of non-vested restricted stock outstanding, 6,233,373 common shares reserved for issuance in connection with outstanding PSUs under the 2017 Plan and 1,054,880 common shares reserved for issuance in connection with outstanding RSUs under the 2017 Plan.
Of the common stock authorized at December 31, 2021, 31,367,872 shares were reserved for issuance under the 2017 Plan. The Company's non-employee directors had been issued 687,503 shares under the 2017 Plan as of December 31, 2021. The Company’s employees had been issued 2,689,394 shares of restricted stock under the 2017 Plan as of December 31, 2021. At December 31, 2021, there were 1,909,107 shares of non-vested restricted stock outstanding, 6,168,886 common shares reserved for issuance in connection with outstanding PSUs under the 2017 Plan and 1,016,252 common shares reserved for issuance in connection with outstanding RSUs under the 2017 Plan.
(a) Restricted Common Stock Awards
During the three and six months ended June 30, 2022, the Company recognized non-cash compensation expense on its restricted common stock awards of $1.1 million and $2.3 million, respectively. During the three and six months ended June 30, 2021, the Company recognized non-cash compensation expense on its restricted common stock awards of $1.2 million and $2.3 million, respectively. Dividends are paid on all restricted 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.
A summary of the activity of the Company's non-vested restricted stock under the 2017 Plan for the six months ended June 30, 2022 and 2021, respectively, is presented below:
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| 2022 | | 2021 |
| 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 as of January 1 | 1,909,107 | | | $ | 5.05 | | | 1,603,766 | | | $ | 6.27 | |
| Granted | 1,217,671 | | | 3.59 | | | 939,446 | | | 3.82 | |
| Vested | (884,959) | | | 5.49 | | | (621,438) | | | 5.41 | |
| Forfeited | (59,834) | | | 3.96 | | | (19,430) | | | 3.26 | |
Non-vested shares as of June 30 | 2,181,985 | | | $ | 4.08 | | | 1,902,344 | | | $ | 5.09 | |
Restricted stock granted during the period | 1,217,671 | | | $ | 3.59 | | | 939,446 | | | $ | 3.82 | |
(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, 2022 and 2021, the Company had unrecognized compensation expense of $6.9 million and $7.2 million, respectively, related to the non-vested shares of restricted common stock under the 2017 Plan. The unrecognized compensation expense at June 30, 2022 is expected to be recognized over a weighted average period of 2.0 years. The total fair value of restricted shares vested during the six months ended June 30, 2022 and 2021 was approximately $3.2 million and $2.5 million, respectively. The requisite service period for restricted stock awards at issuance is three years and the restricted common stock either vests ratably over the requisite service period or at the end of the requisite service period.
(b) Performance Share Units
During the six months ended June 30, 2022 and 2021, 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 award agreements ("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 PSUs granted, 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, 2022 and 2021 include dividend equivalent rights ("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, 2022 and 2021, respectively, is presented below:
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| 2022 | | 2021 |
| 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 as of January 1 | 3,376,740 | | | $ | 5.43 | | | 2,902,014 | | | $ | 4.98 | |
| Granted | 844,534 | | | 4.87 | | | 1,631,661 | | | 5.56 | |
| Vested | (1,074,918) | | | 4.00 | | | (842,792) | | | 4.20 | |
| | | | | | | |
Non-vested target PSUs as of June 30 | 3,146,356 | | | $ | 5.76 | | | 3,690,883 | | | $ | 5.41 | |
(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.
The three-year performance period for PSUs granted in 2019 ended on December 31, 2021, resulting in the vesting of 733,496 shares of common stock during the six months ended June 30, 2022 with a fair value of $2.6 million on the vesting date. The number of vested shares related to PSUs granted in 2019 was less than the target PSUs of 1,074,918. The three-year performance period for PSUs granted in 2018 ended on December 31, 2020, resulting in the vesting of 974,074 shares of common stock during the six months ended June 30, 2021 with a fair value of $3.7 million on the vesting date. The number of vested shares related to PSUs granted in 2018 exceeded the target PSUs of 842,792. Non-vested PSUs are forfeited upon the recipient's termination of employment, subject to certain exceptions.
As of June 30, 2022 and 2021, there was $8.8 million and $11.7 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, 2022 is expected to be recognized over a weighted average period of 1.8 years. Compensation expense related to the PSUs was $1.5 million and $3.0 million for the three and six months ended June 30, 2022, respectively. Compensation expense related to the PSUs was $1.7 million and $3.1 million for the three and six months ended June 30, 2021, respectively.
(c) Restricted Stock Units
During the six months ended June 30, 2022 and 2021, 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 requisite service period.
The RSUs granted during the six months ended June 30, 2022 and 2021 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, 2022 and 2021, respectively, is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | |
| | Number of
Non-vested
Shares | | Weighted Average Per Share Grant Date Fair Value (1) | | Number of
Non-vested
Shares | | Weighted Average Per Share Grant Date Fair Value (1) | | | | |
| Non-vested RSUs as of January 1 | | 1,016,252 | | | $ | 4.36 | | | 441,746 | | | $ | 6.23 | | | | | |
| Granted | | 422,267 | | | 3.72 | | | 815,830 | | | 3.69 | | | | | |
| Vested | | (383,639) | | | 4.58 | | | (147,254) | | | 6.23 | | | | | |
| | | | | | | | | | | | |
Non-vested RSUs as of June 30 | | 1,054,880 | | | $ | 4.03 | | | 1,110,322 | | | $ | 4.36 | | | | | |
(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.
During the six months ended June 30, 2022, 383,639 shares of common stock were issued in connection with the vesting of RSUs at a fair value of $1.4 million on the vesting date. During the six months ended June 30, 2021, 147,254 shares of common stock were issued in connection with the vesting of RSUs at a fair value of $0.5 million on the vesting date. Non-vested RSUs are forfeited upon the recipient's termination of employment, subject to certain exceptions.
As of June 30, 2022 and 2021, there was $3.2 million and $4.0 million of unrecognized compensation cost related to the non-vested portion of the RSUs, respectively. The unrecognized compensation cost related to the non-vested portion of the RSUs at June 30, 2022 is expected to be recognized over a weighted average period of 1.8 years. Compensation expense related to the RSUs was $0.6 million and $1.1 million for the three and six months ended June 30, 2022, respectively. Compensation expense related to the RSUs was $0.5 million and $0.9 million for the three and six months ended June 30, 2021, respectively.
18. Income Taxes
For the three and six months ended June 30, 2022 and 2021, the Company qualified to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, 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 condensed consolidated financial statements.
The income tax provision for the three and six months ended June 30, 2022 and 2021, respectively, is comprised of the following components (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Current income tax expense | $ | 166 | | | $ | 58 | | | $ | 231 | | | $ | 271 | |
| Deferred income tax benefit | (76) | | | (43) | | | (164) | | | (190) | |
| Total income tax provision | $ | 90 | | | $ | 15 | | | $ | 67 | | | $ | 81 | |
Deferred Tax Assets and Liabilities
The major sources of temporary differences included in the deferred tax assets (liabilities) and their deferred tax effect as of June 30, 2022 and December 31, 2021, respectively, are as follows (dollar amounts in thousands):
| | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| Deferred tax assets | | | |
| Net operating loss carryforward | $ | 2,927 | | | $ | 3,615 | |
| Capital loss carryover | 7,654 | | | 7,549 | |
| GAAP/Tax basis differences | 2,124 | | | 254 | |
Total deferred tax assets (1) | 12,705 | | | 11,418 | |
| Deferred tax liabilities | | | |
| GAAP/Tax basis differences | 5,558 | | | 6,681 | |
Total deferred tax liabilities (2) | 5,558 | | | 6,681 | |
Valuation allowance (1) | (7,381) | | | (5,136) | |
Total net deferred tax liability | $ | (234) | | | $ | (399) | |
(1)Included in other assets in the accompanying condensed consolidated balance sheets.
(2)Included in other liabilities in the accompanying condensed consolidated balance sheets.
As of June 30, 2022, the Company, through wholly-owned TRSs, had incurred net operating losses in the aggregate amount of approximately $8.6 million. The Company’s carryforward net operating losses can be carried forward indefinitely until they are offset by future taxable income. Additionally, as of June 30, 2022, the Company, through its wholly-owned TRSs, had also incurred approximately $22.5 million in capital losses. The Company's carryforward capital losses will expire between 2023 and 2027 if they are not offset by future capital gains.
At June 30, 2022, 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 an increase of approximately $2.2 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, 2022, the changes did not 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.
19. Net Interest Income
The following table details the components of the Company's interest income and interest expense for the three and six months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended
June 30, | | For the Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Interest income | | | | | | | |
| Residential loans | | | | | | | |
| Residential loans | $ | 32,669 | | | $ | 20,155 | | | $ | 57,502 | | | $ | 39,816 | |
| Consolidated SLST | 9,254 | | | 10,479 | | | 18,635 | | | 20,797 | |
| Residential loans held in securitization trusts | 18,853 | | | 9,933 | | | 35,486 | | | 17,901 | |
| Total residential loans | 60,776 | | | 40,567 | | | 111,623 | | | 78,514 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Multi-family loans | 2,834 | | | 4,130 | | | 5,785 | | | 8,531 | |
| Investment securities available for sale | 4,331 | | | 7,475 | | | 9,006 | | | 15,150 | |
| Other | 79 | | | 14 | | | 107 | | | 30 | |
| Total interest income | 68,020 | | | 52,186 | | | 126,521 | | | 102,225 | |
| Interest expense | | | . | | | | |
| Repurchase agreements | 11,647 | | | 3,732 | | | 17,178 | | | 7,774 | |
| Collateralized debt obligations | | | | | | | |
| Consolidated SLST | 6,208 | | | 7,151 | | | 12,186 | | | 14,254 | |
| Residential loan securitizations | 8,728 | | | 5,015 | | | 16,185 | | | 9,735 | |
| Non-Agency RMBS re-securitization | — | | | — | | | — | | | 283 | |
| Total collateralized debt obligations | 14,936 | | | 12,166 | | | 28,371 | | | 24,272 | |
| Convertible notes | — | | | 2,788 | | | 438 | | | 5,572 | |
| Senior unsecured notes | 1,607 | | | 1,136 | | | 3,210 | | | 1,136 | |
| Subordinated debentures | 550 | | | 459 | | | 1,008 | | | 916 | |
| Mortgages payable on real estate | 13,151 | | | 430 | | | 20,308 | | | 740 | |
| Total interest expense | 41,891 | | | 20,711 | | | 70,513 | | | 40,410 | |
| Net interest income | $ | 26,129 | | | $ | 31,475 | | | $ | 56,008 | | | $ | 61,815 | |