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Note 11 - Collateralized Securities Transactions

12 Months Ended

Dec. 31, 2021

Repurchase Agreements, Resale Agreements, Securities Borrowed, and Securities Loaned Disclosure [Text Block]

11. COLLATERALIZED SECURITIES TRANSACTIONS

Matched Book Repo Business

The Company enters into repos and reverse repos as part of its matched book repo business. In general, the Company will lend money to a counterparty after obtaining collateral securities from that counterparty pursuant to a reverse repo. The Company will borrow money from another counterparty using the same collateral securities pursuant to a repo. The Company seeks to earn net interest income on these transactions. Until the fourth quarter 2021, the Company categorized its matched book repo business into two major groups: gestation repo and GCF repo. In the fourth quarter 2021, the Company wound down its GCF repo business.

Gestation Repo

Gestation repo involves entering into repo and reverse repo where the underlying collateral security represents a pool of newly issued mortgage loans. The borrowers (the reverse repo counterparties) are generally mortgage originators. The lenders (the repo counterparties) are a diverse group of the counterparties comprised of banks, insurance companies, and other financial institutions. The Company self-clears its gestation repo transactions.

GCF Repo

In October 2017, the Company became a full netting member of the FICC’s Government Securities Division. As a full netting member of the FICC, the Company has access to the FICC’s GCF repo service that provides netting and settlement services for repo transactions where the underlying security is general collateral (primarily U.S. Treasuries and U.S. Agency securities). The Company began entering into matched book GCF repo transactions in November 2017. The borrowers (the reverse repo counterparties) are a diverse group of financial institutions including hedge funds, registered investment funds, REITs, and other similar counterparties. The lenders (the repo counterparties) are the FICC and other large financial institutions. The Company uses Bank of New York (“BONY”) as its settlement agent for its GCF repo matched book transactions. The Company is considered self-clearing for this business. In connection with the Company’s full netting membership of the FICC, the Company agreed to establish and maintain a committed line of credit in a minimum amount of $25,000, which it entered into with Fifth Third Financial Bank, N.A. ("FT Financial") on April 25, 2018. The FT Financial line of credit arrangement was subsequently amended. In October 2020, the Company entered into a replacement credit arrangement with Byline Bank, which was subsequently amended in December 2021. See note 20.

In October 2021, primarily due to reduced spreads in the repo market for GCF collateral, the Company decided to wind down this business. As of December 31, 2021, the carrying value of the Company's reverse repurchase agreements and repurchase agreements were zero.

Other Repo Transactions

In addition to the Company’s matched book repo business, the Company may also enter into reverse repos to acquire securities, to cover short positions or as an investment. Additionally, the Company may enter into repos to finance the Company’s securities positions held in inventory. These repo and reverse repo agreements are generally cleared on a bilateral or triparty basis; no clearing broker is involved.

Repo Information

At December 31, 2021 and 2020, the Company held reverse repos of $3,175,645 and $5,716,343, respectively, and the fair value of securities and cash received as collateral under reverse repos was $3,249,411 and $5,885,656, respectively. As of December 31, 2021, and 2020, the reverse repo balance was comprised of receivables collateralized by 14 and 38 counterparties, respectively.

At December 31, 2021 and 2020, the Company had repos of $3,171,415 and $5,713,212, respectively, and the fair value of securities pledged as collateral under repos was $3,232,091 and $5,768,018, respectively. These amounts include collateral for reverse repos that were re-pledged as collateral for repos.

Intraday and Overnight Lending Facility

In conjunction with the Company’s GCF repo business, on October 19, 2018, the Company and BONY entered into an intraday lending facility. The lending facility allowed for BONY to advance funds to JVB in order to facilitate the settlement of GCF repo transactions. In conjunction with the wind down of the GCF Repo business, the Company terminated this facility during 2021.

Concentration

In the matched book repo business, the demand for borrowed funds is generated by the reverse repo counterparty and the supply of funds is provided by the repo counterparty.

On the demand side, the Company did not consider its GCF repo business to be concentrated because the Company’s reverse repo counterparties were comprised of a diverse group of financial institutions. On the supply side, the Company obtained a significant amount of its funds from the FICC. Therefore, during the periods the Company operated a GCF repo business, it considered that business to be concentrated from the supply side of the business.

The gestation repo business has been and continues to be concentrated as to reverse repo counterparties. The Company conducts this business with a limited number of reverse repo counterparties. As of December 31, 2021, and 2020, the Company’s gestation reverse repos shown in the tables below represented balances from 14 and 11 counterparties, respectively. The Company also has a limited number of repo counterparties in the gestation repo business. However, this is primarily a function of the limited number of reverse repo counterparties with whom the Company conducts this business rather than a reflection of a limited supply of funds. Therefore, the Company considers the gestation repo business to be concentrated on the demand side.

The total net revenue earned by the Company on its matched book repo business (both gestation and GCF repo) was $46,139, $33,980, and $12,011 for the years ended December 31, 2021, 2020, and 2019, respectively.

Detail

ASC 210 provides the option to present reverse repo and repo on a net basis if certain netting conditions are met. The Company presents all repo and reverse repo transactions on a gross basis even if the underlying netting conditions are met. The amounts in the table below are presented on a gross basis.

As of December 31, 2021, the Company had no repurchase agreements and reverse agreements with the same counterparty that were eligible for netting. As of December 31, 2020, the Company had outstanding reverse repos of $5,716,343 and repos of $5,713,212. Included in these amounts are outstanding reverse repos of $99,750 and repos of $2,155,850, where the FICC was the Company’s counterparty to the transaction and which were subject to a master netting arrangement. The following tables summarize the remaining contractual maturity of the gross obligations under repos accounted for as secured borrowings segregated by the underlying collateral pledged as of each date shown. All amounts as well as counterparty cash collateral (see notes 7 and 17) are subject to master netting arrangements.

Secured Borrowings

(Dollars in Thousands)

December 31, 2021

	Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
Collateral Type:	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
MBS (gestation repo)	$	-	$	3,171,415	$	-	$	-	$	3,171,415

	Reverse Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
Collateral Type:	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
MBS (gestation repo)	$	-	$	3,175,645	$	-	$	-	$	3,175,645

SECURED BORROWINGS

(Dollars in Thousands)

December 31, 2020

	Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
Collateral Type:	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
U.S. treasury and government agency MBS (GCF repo)	$	1,946,890	$	1,070,094	$	-	$	-	$	3,016,984
MBS (gestation repo)		638,057		2,004,451		51,530		-		2,694,038
SBA loans		2,190		-		-		-		2,190
	$	2,587,137	$	3,074,545	$	51,530	$	-	$	5,713,212

	Reverse Repurchase Agreements
	Remaining Contractual Maturity of the Agreements
U.S. treasury and government agency MBS (GCF repo)	$	871,805	$	1,016,446	$	1,091,609	$	39,816	$	3,019,676
MBS (gestation repo)		641,619		2,003,514		51,534		-		2,696,667
	$	1,513,424	$	3,019,960	$	1,143,143	$	39,816	$	5,716,343