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Securities Held-to-Maturity

6 Months Ended

Jun. 30, 2020

Securities Held-to-Maturity

Securities Held-to-Maturity

Note 7 — Securities Held-to-Maturity

Agency B Piece Bonds. Freddie Mac may choose to hold, sell or securitize loans we sell to them under the Freddie Mac SBL program. As part of the securitizations under the SBL program, we have the option to purchase the B Piece bond through a bidding process, which represents the bottom 10%, or highest risk, of the securitization. As of June 30, 2020, we retained 49%, or $106.2 million initial face value, of seven B Piece bonds, which were purchased at a discount for $74.7 million, and sold the remaining 51% to a third-party at par. These securities are collateralized by a pool of multifamily mortgage loans, bear interest at an initial weighted average variable rate of 3.74% and have an estimated weighted average remaining maturity of 5.9 years. The weighted average effective interest rate was 10.66% and 10.85% at June 30, 2020 and December 31, 2019, respectively, including the accretion of a portion of the discount deemed collectible. Approximately $13.4 million is estimated to mature within one year, $39.6 million is estimated to mature after one year through five years, $15.2 million is estimated to mature after five years through ten years and $16.6 million is estimated to mature after ten years.

Agency Private Label Certificates. In connection with our $727.2 million Private Label securitization in May 2020, we retained the most subordinate class of certificates with an initial face value of $63.6 million (the “APL certificates”). We purchased the APL certificates at a discount for $37.9 million, which are collateralized by a pool of 40 fixed rate 10-year mortgage loans secured by first mortgage leans on 49 multifamily properties, bear interest at an initial weighted average variable rate of 4.95% and have an estimated weighted average remaining maturity of 9.5 years. The weighted average effective interest rate was 11.50% at June 30, 2020 and the full $63.6 million is expected to mature after five years through ten years.

Structured Single-Family Rental Bonds (“SFR bonds”). As of June 30, 2020, we held $20.0 million initial face value of Class A2 securitized SFR bonds at par, which are collateralized by a pool of single-family rental properties. These securities have a three-year maturity, bear interest at a weighted average fixed interest rate of 4.58% and have an estimated weighted average remaining maturity of 0.4 years. Approximately $18.4 million is estimated to mature within one year and $1.6 million is estimated to mature after one year through five years.

A summary of our securities held-to-maturity is as follows (in thousands):


					Net Carrying			Unrealized			Estimated			Allowance for
		Face Value			Value			Gain/(Loss)			Fair Value			Credit Losses
June 30, 2020
B Piece bonds		$	84,830		$	63,171		$	1,296		$	64,467		$	1,069
APL certificates			63,627			35,848			2,079			37,927			2,079
SFR bonds			20,000			20,000			(2,513)			17,487			—
Total		$	168,457		$	119,019		$	862		$	119,881		$	3,148
December 31, 2019
B Piece bonds		$	91,028		$	68,699		$	2,965		$	71,664		$	—
SFR bonds			20,000			20,000			74			20,074			—
Total		$	111,028		$	88,699		$	3,039		$	91,738		$	—

A summary of the changes in the allowance for credit losses for our securities held-to-maturity is as follows (in thousands):


		Three Months Ended June 30, 2020
		APL			B Piece
		Certificates			Bonds			Total
Beginning balance		$	—		$	992		$	992
Provision for credit loss expense			2,079			77			2,156
Ending balance		$	2,079		$	1,069		$	3,148


		Six Months Ended June 30, 2020
		APL Certificates			B Piece Bonds			Total

Beginning balance, prior to adoption of CECL		$	—		$	—		$	—
Impact of adopting CECL - January 1, 2020			—			501			501
Provision for credit loss expense			2,079			568			2,647
Ending balance		$	2,079		$	1,069		$	3,148

The allowance for credit losses on our held-to-maturity securities was estimated on a collective basis by major security type and was based on a reasonable and supportable forecast period and a historical loss reversion for similar securities. The issuers continue to make timely principal and interest payments and we continue to accrue interest on all our securities. As of June 30, 2020, no other-than-temporary impairment was recorded on our held-to-maturity securities.

We recorded interest income (including the amortization of discount) related to these investments of $1.7 million and $4.0 million during the three and six months ended June 30, 2020, respectively, and $2.3 million and $4.4 million during the three and six months ended June 30, 2019, respectively. As of June 30, 2020, accrued interest receivable related to these bonds totaling $0.6 million was excluded from the estimate of credit losses and is included in other assets on the consolidated balance sheet.