Investment Securities Available For Sale, at Fair Value

9 Months Ended

Sep. 30, 2023

Investments, Debt and Equity Securities [Abstract]

Investment Securities Available For Sale, at Fair Value

4. 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 September 30, 2023 and December 31, 2022, respectively (dollar amounts in thousands):


	September 30, 2023								December 31, 2022
	Amortized Cost		Unrealized				Fair Value		Amortized Cost		Unrealized				Fair Value
			Gains		Losses						Gains		Losses
Fair Value Option
Agency RMBS
Fixed rate
Fannie Mae	$	868,656	$	64	$	(18,193)	$	850,527	$	—	$	—	$	—	$	—
Freddie Mac	591,245		—		(18,977)		572,268		—		—		—		—
Total Fixed rate	1,459,901		64		(37,170)		1,422,795		—		—		—		—
Adjustable rate
Fannie Mae	43,377		—		(1,036)		42,341		—		—		—		—
Freddie Mac	28,803		—		(522)		28,281		—		—		—		—
Total Adjustable rate	72,180		—		(1,558)		70,622		—		—		—		—
Interest-only
Ginnie Mae	42,205		107		(725)		41,587		—		—		—		—
Total Interest-only	42,205		107		(725)		41,587		—		—		—		—
Total Agency RMBS	1,574,286		171		(39,453)		1,535,004		—		—		—		—
Non-Agency RMBS	42,059		8,729		(13,161)		37,627		48,958		9,436		(13,469)		44,925
CMBS	6,000		—		(352)		5,648		32,033		—		(1,900)		30,133
ABS	—		—		—		—		797		59		—		856
Total investment securities available for sale - fair value option	1,622,345		8,900		(52,966)		1,578,279		81,788		9,495		(15,369)		75,914

CECL Securities
Non-Agency RMBS	25,763		—		(1,827)		23,936		25,616		—		(1,971)		23,645

Total investment securities available for sale - CECL Securities	25,763		—		(1,827)		23,936		25,616		—		(1,971)		23,645
Total	$	1,648,108	$	8,900	$	(54,793)	$	1,602,215	$	107,404	$	9,495	$	(17,340)	$	99,559

Accrued interest receivable for investment securities available for sale in the amount of $8.0 million and $0.4 million as of September 30, 2023 and December 31, 2022, respectively, is included in other assets on the Company's condensed consolidated balance sheets.

For the three and nine months ended September 30, 2023, the Company recognized $30.5 million and $38.2 million in net unrealized losses on investment securities available for sale accounted for under the fair value option, respectively. For the three and nine months ended September 30, 2022, the Company recognized $17.4 million and $20.5 million in net unrealized losses on investment securities available for sale accounted for under the fair value option, respectively. Net unrealized losses on investment securities for the three and nine months ended September 30, 2022 included a reversal of previously recognized unrealized gains amounting to $15.9 million on ABS that were sold during the three months ended September 30, 2022.

Realized Gain and Loss Activity

The following table summarizes our investment securities sold during the three months ended September 30, 2023 and 2022, respectively (dollar amounts in thousands):


	Three Months Ended September 30, 2023
	Sales Proceeds		Realized Gains		Realized Losses		Net Realized Gains (Losses)






CMBS	$	24,772	$	—	$	(1,035)	$	(1,035)

Total	$	24,772	$	—	$	(1,035)	$	(1,035)


	Three Months Ended September 30, 2022
	Sales Proceeds		Realized Gains		Realized Losses		Net Realized Gains (Losses)






ABS	$	36,215	$	18,001	$	—	$	18,001

Total	$	36,215	$	18,001	$	—	$	18,001

The following table summarizes our investment securities sold during the nine months ended September 30, 2023 and 2022, respectively (dollar amounts in thousands):


	Nine Months Ended September 30, 2023
	Sales Proceeds		Realized Gains		Realized Losses		Net Realized Gains (Losses)






ABS	$	595	$	—	$	(41)	$	(41)

CMBS	24,772		—		(1,035)		(1,035)
Total	$	25,367	$	—	$	(1,076)	$	(1,076)


	Nine Months Ended September 30, 2022
	Sales Proceeds		Realized Gains		Realized Losses		Net Realized Gains (Losses)






Non-Agency RMBS	$	24,374	$	374	$	—	$	374
ABS	36,215		18,001		—		18,001

Total	$	60,589	$	18,375	$	—	$	18,375

Weighted Average Life

Actual maturities of our investment securities available for sale are generally shorter than stated contractual maturities (with contractual maturities up to 36 years), as they are affected by periodic payments and prepayments of principal on the underlying mortgages. As of September 30, 2023 and December 31, 2022, based on management’s estimates, the weighted average life of the Company’s investment securities available for sale portfolio was approximately 7.0 years and 7.6 years, respectively.

The following table sets forth the weighted average lives of our investment securities available for sale as of September 30, 2023 and December 31, 2022, respectively (dollar amounts in thousands):


Weighted Average Life	September 30, 2023		December 31, 2022
0 to 5 years	$	42,759	$	39,655
Over 5 to 10 years	1,546,244		46,558
10+ years	13,212		13,346
Total	$	1,602,215	$	99,559

Unrealized Losses in Other Comprehensive Income (Loss)

The Company evaluated its CECL Securities that were in an unrealized loss position as of September 30, 2023 and December 31, 2022, 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 nine months ended September 30, 2023 and 2022.

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 September 30, 2023 and December 31, 2022, respectively (dollar amounts in thousands):


September 30, 2023	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	$	—	$	—	$	23,936	$	(1,827)	$	23,936	$	(1,827)
Total	$	—	$	—	$	23,936	$	(1,827)	$	23,936	$	(1,827)


December 31, 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	$	23,609	$	(1,966)	$	36	$	(5)	$	23,645	$	(1,971)
Total	$	23,609	$	(1,966)	$	36	$	(5)	$	23,645	$	(1,971)

At September 30, 2023, 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.