Note 8 — Securities

Available-for-Sale

Our available-for-sale securities consist of equity securities and Agency Business commercial mortgage interest-only securities (“Agency IOs”) from loans sold and securitized under the Freddie Mac Small Balance Loan Program (“SBL Program”).

Equity Securities. We own common stock of CV Holdings, Inc., formerly Realty Finance Corporation, which is a commercial real estate specialty finance company. These securities are carried at their estimated fair value with unrealized gains (losses) reported in accumulated other comprehensive income.

The following is a summary of the equity securities classified as available-for-sale:

	September 30, 2017
	Amortized Cost		Cummulative Unrealized Gain		Carrying Value / Estimated Fair Value

2,939,465 common shares of CV Holdings, Inc.	$	58,789	$	205,764	$	264,553

	December 31, 2016

2,939,465 common shares of CV Holdings, Inc.	$	58,789	$	558,499	$	617,288

Agency IOs. Through our Agency Business, we originate and sell loans to Freddie Mac under the SBL Program, which are then pooled and securitized. Prior to the Acquisition and upon securitization of SBL Program loans, our Former Manager received Agency IOs under the SBL Program, which we acquired in the Acquisition. We elected the fair value option for the Agency IOs, which requires changes in fair value to be recognized through earnings. We record such gains and losses to gain on sales, including fee-based services, net in the consolidated statements of income. As a result of changes in the Freddie Mac SBL Program in 2016, we do not expect to receive Agency IOs from future securitizations.

A summary of our Agency IOs activity is as follows:

	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Balance at beginning of period	$	4,602,722		$	4,786,175
Changes in fair value	(160,190		)	(343,643		)

Balance at end of period	$	4,442,532		$	4,442,532

	Three and Nine Months Ended September 30, 2016
Balance at beginning of period	$	—
Additions from the Acquisition	4,908,283
Changes in fair value	(46,021		)

Balance at end of period	$	4,862,262

The UPB of loans associated with our Agency IOs was $839.2 million and $904.4 million at September 30, 2017 and December 31, 2016, respectively, which mature between 2035 and 2036. During the three and nine months ended September 30, 2017, we recognized interest income related to these Agency IOs of $0.3 million and $0.9 million, respectively, and $0.3 million during both the three and nine months ended September 30, 2016.

Held-to-Maturity

As part of the SBL Program securitizations described above, we are required to purchase the bottom tranche bond, generally referred to as the “B Piece,” that represents the bottom 10%, or highest risk of the securitization. During the nine months ended September 30, 2017, we retained 49%, or $28.1 million initial face value of two B Piece bonds, at a discount, for $18.3 million and sold the remaining 51% to the third party at par. Prior to 2017, a third party investor agreed to purchase the entire B Piece of each SBL Program securitization at par. These held-to-maturity securities are carried at cost, net of unamortized discounts and are collateralized by a pool of multifamily mortgage loans, bear interest at an initial weighted average variable rate of 3.55% and have an estimated weighted average maturity of 6.1 years. The weighted average effective interest rate was 13.38% at September 30, 2017, including the accretion of discount. Approximately $3.4 million is estimated to mature within one year, $11.3 million is estimated to mature after one year through five years, $8.1 million is estimated to mature after five years through ten years and $5.2 million is estimated to mature after ten years.

The following is a summary of the held-to-maturity securities we held at September 30, 2017:

	Face Value		Carrying Value		Unrealized Gain		Estimated Fair Value
B Piece bonds	$	28,035,293	$	18,851,089	$	31,908	$	18,882,997

We do not intend to sell these investments and it is not more-likely-than-not that we will be required to sell these investments before recovering the cost basis, which may be at maturity. These securities are evaluated periodically to determine whether a decline in their value is other-than-temporary, though such a determination is not intended to indicate a permanent decline in value. As of September 30, 2017, no impairment was recorded on these held-to-maturity securities. During the three and nine months ended September 30, 2017, we recorded interest income of $0.5 million and $0.9 million, respectively, related to these investments.