Investment Securities Available for Sale, at Fair Value

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Investment Securities Available for Sale, at Fair Value

The Company accounts for certain of its investment securities available for sale using the fair value election pursuant to ASC 825 where changes in fair value are recorded in unrealized gains (losses), net on the Company's condensed consolidated statements of operations. The Company also has investment securities available for sale where the fair value option has not been elected, or CECL Securities. CECL Securities are reported at fair value with unrealized gains and losses recorded in other comprehensive income (loss) on the Company's condensed consolidated statements of comprehensive income. The Company's investment securities available for sale consisted of the following as of September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):


	September 30, 2020								December 31, 2019
	Amortized Cost		Unrealized				Fair Value		Amortized Cost		Unrealized				Fair Value
			Gains		Losses						Gains		Losses
Fair Value Option
Agency RMBS:

Agency Fixed-Rate	$	—	$	—	$	—	$	—	$	21,033	$	—	$	(55)	$	20,978
Total Agency RMBS	—		—		—		—		21,033		—		(55)		20,978
Agency CMBS	—		—		—		—		31,076		—		(395)		30,681
Total Agency	—		—		—		—		52,109		—		(450)		51,659
Non-Agency RMBS (1)	108,134		153		(11,884)		96,403		122,628		2,435		(1,248)		123,815
CMBS (2)	141,282		3,225		(5,619)		138,888		20,096		563		(19)		20,640
ABS	39,519		5,488		—		45,007		49,902		—		(688)		49,214
Total investment securities available for sale - fair value option	288,935		8,866		(17,503)		280,298		244,735		2,998		(2,405)		245,328

CECL Securities
Agency RMBS:
Agency ARMs (3)	—		—		—		—		55,740		13		(1,347)		54,406
Agency Fixed-Rate	—		—		—		—		846,203		7,397		(6,107)		847,493
Total Agency RMBS	—		—		—		—		901,943		7,410		(7,454)		901,899
Agency CMBS	—		—		—		—		20,258		19		—		20,277
Total Agency	—		—		—		—		922,201		7,429		(7,454)		922,176
Non-Agency RMBS (4)	291,925		425		(12,988)		279,362		578,955		12,557		(13)		591,499
CMBS	43,413		1,260		(636)		44,037		234,524		12,737		(124)		247,137
Total investment securities available for sale - CECL Securities	335,338		1,685		(13,624)		323,399		1,735,680		32,723		(7,591)		1,760,812

Total	$	624,273	$	10,551	$	(31,127)	$	603,697	$	1,980,415	$	35,721	$	(9,996)	$	2,006,140

(1)Includes non-Agency RMBS held in a securitization trust with a total fair value of $44.3 million as of September 30, 2020 (see Note 9).

(2)Includes IOs and mezzanine securities transferred from the Consolidated K-Series as a result of de-consolidation during the nine months ended September 30, 2020 with a total fair value of $95.9 million as of September 30, 2020.

(3)For the Company's Agency ARMs with stated reset periods, the weighted average reset period was 26 months as of December 31, 2019.

(4)Includes non-Agency RMBS held in a securitization trust with a total fair value of $87.6 million as of September 30, 2020 (see Note 9).

Accrued interest receivable for all investment securities available for sale is included in receivables and other assets on the Company's condensed consolidated balance sheets.

Realized Gain and Loss Activity

The following tables summarize our investment securities sold during the three months ended September 30, 2020 and 2019, respectively (dollar amounts in thousands).


	Three Months Ended September 30, 2020
	Sales Proceeds		Realized Gains		Realized Losses		Net Realized Gains (Losses)
Non-Agency RMBS (1)	$	259,493	$	141	$	(8,860)	$	(8,719)
CMBS	110,680		6,849		(705)		6,144
Total	$	370,173	$	6,990	$	(9,565)	$	(2,575)

(1)Includes the sale of non-Agency RMBS held in a securitization trust for total proceeds of $40.4 million and a net realized gain of $26.1 thousand.


	Three Months Ended September 30, 2019
	Sales Proceeds		Realized Gains		Realized Losses		Net Realized Gains (Losses)
Non-Agency RMBS	$	1,021	$	33	$	—	$	33
CMBS	40,161		4,980		—		4,980
Total	$	41,182	$	5,013	$	—	$	5,013

The following tables summarize our investment securities sold during the nine months ended September 30, 2020 and 2019, respectively (dollar amounts in thousands):


	Nine Months Ended September 30, 2020
	Sales Proceeds		Realized Gains		Realized Losses		Net Realized Gains (Losses)
Agency RMBS:
Agency ARMs	$	49,892	$	44	$	(4,157)	$	(4,113)
Agency Fixed-Rate (1)	943,074		5,358		(11,697)		(6,339)
Total Agency RMBS	992,966		5,402		(15,854)		(10,452)
Agency CMBS (2)	145,411		5,666		(209)		5,457
Total Agency	1,138,377		11,068		(16,063)		(4,995)
Non-Agency RMBS (3)	428,251		435		(34,681)		(34,246)
CMBS	248,741		8,176		(30,289)		(22,113)
Total	$	1,815,369	$	19,679	$	(81,033)	$	(61,354)

(1)Includes Agency RMBS securities issued by Consolidated SLST (see Note 4).

(2)Includes Agency CMBS securities transferred from the Consolidated K-Series (see Note 6).

(3)Includes the sale of non-Agency RMBS held in a securitization trust for total proceeds of $67.6 million and a net realized gain of $0.2 million.


	Nine Months Ended September 30, 2019
	Sales Proceeds		Realized Gains		Realized Losses		Net Realized Gains (Losses)
Non-Agency RMBS	$	1,021	$	33	$	—	$	33
CMBS	96,930		21,938		(156)		21,782
Total	$	97,951	$	21,971	$	(156)	$	21,815

Weighted Average Life

Actual maturities of our investment securities available for sale are generally shorter than stated contractual maturities (with contractual maturities up to 40 years), as they are affected by periodic payments and prepayments of principal on the underlying mortgages. As of September 30, 2020 and December 31, 2019, based on management’s estimates, the weighted average life of the Company’s investment securities available for sale portfolio was approximately 7.1 years and 5.0 years, respectively.

The following table sets forth the weighted average lives of our investment securities available for sale as of September 30, 2020 and December 31, 2019, respectively (dollar amounts in thousands):


Weighted Average Life	September 30, 2020		December 31, 2019
0 to 5 years	$	343,573	$	1,359,894
Over 5 to 10 years	183,910		521,517
10+ years	76,214		124,729
Total	$	603,697	$	2,006,140

Unrealized Losses in Other Comprehensive Income

As of January 1, 2020, the Company adopted ASU 2016-13 to account for its investments in CECL Securities (see Note 2). The Company evaluated its CECL Securities that were in an unrealized loss position as of September 30, 2020 and determined that no allowance for credit losses was necessary. Accordingly, the Company did not recognize credit losses through earnings for the three and nine months ended September 30, 2020.

The following table presents the Company's CECL Securities in an unrealized loss position with no credit losses reported, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2020 (dollar amounts in thousands):


September 30, 2020	Less than 12 months				Greater than 12 months				Total
	Carrying Value		Gross Unrealized Losses		Carrying Value		Gross Unrealized Losses		Carrying Value		Gross Unrealized Losses

Non-Agency RMBS	$	235,449	$	(11,651)	$	16,966	$	(1,337)	$	252,415	$	(12,988)
CMBS	33,903		(636)		—		—		33,903		(636)
Total	$	269,352	$	(12,287)	$	16,966	$	(1,337)	$	286,318	$	(13,624)

At September 30, 2020, the Company did not intend to sell any of its investment securities available for sale that were in an unrealized loss position, and it was “more likely than not” that the Company would not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity.

Gross unrealized losses in other comprehensive income on the Company's non-Agency RMBS and CMBS were $13.0 million and $0.6 million, respectively, at September 30, 2020. Credit risk associated with non-Agency RMBS and CMBS is regularly assessed as new information regarding the underlying collateral becomes available and based on updated estimates of cash flows generated by the underlying collateral. In performing its assessment, the Company considers past and expected future performance of the underlying collateral, including timing of expected future cash flows, prepayment rates, default rates, loss severities, delinquency rates, current levels of subordination, volatility of the security's fair value, temporary declines in liquidity for the asset class and interest rate changes since purchase. Based upon the most recent evaluation, the Company does not believe that these unrealized losses are credit related but are rather a reflection of current market yields and/or marketplace bid-ask spreads.

The following table presents the Company's investment securities available for sale in an unrealized loss position reported through other comprehensive income, aggregated by investment category and length of time that individual securities were in a continuous unrealized loss position as of December 31, 2019 (dollar amounts in thousands):


December 31, 2019	Less than 12 months				Greater than 12 months				Total
	Carrying Value		Gross Unrealized Losses		Carrying Value		Gross Unrealized Losses		Carrying Value		Gross Unrealized Losses
Agency RMBS	$	—	$	—	$	222,286	$	(7,454)	$	222,286	$	(7,454)
Non-Agency RMBS	—		—		104		(13)		104		(13)
CMBS	25,507		(124)		—		—		25,507		(124)
Total	$	25,507	$	(124)	$	222,390	$	(7,467)	$	247,897	$	(7,591)

Other than Temporary Impairment

For the three and nine months ended September 30, 2019, the Company did not recognize other-than-temporary impairment through earnings.