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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________ 
FORM 10-Q 
_______________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number 001-34385
393331487_ivrmainimageinblacka05.jpg

(Exact Name of Registrant as Specified in Its Charter)
_______________________________________________
Maryland
 
26-2749336
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
1555 Peachtree Street, N.E., Suite 1800
Atlanta, Georgia
 
30309
(Address of Principal Executive Offices)
 
(Zip Code)
(404) 892-0896
(Registrant’s Telephone Number, Including Area Code) 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large Accelerated filer
 
ý
 
  
Accelerated filer
 
o
Non-Accelerated filer
 
o
(Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
 
 
 
 
 
Emerging growth company
 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o    No  ý
As of May 1, 2018, there were 111,636,723 outstanding shares of common stock of Invesco Mortgage Capital Inc.


Table of Contents


INVESCO MORTGAGE CAPITAL INC.
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.


Table of Contents


PART I
ITEM 1.
FINANCIAL STATEMENTS
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
  
As of
 $ in thousands except share amounts
March 31, 2018
 
December 31, 2017
ASSETS
 
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $17,185,870 and $17,560,811, respectively)
17,622,234

 
18,190,754

Commercial loans, held-for-investment
184,255

 
191,808

Cash and cash equivalents
117,124

 
88,381

Restricted cash
2,400

 
620

Due from counterparties
5,375

 

Investment related receivable (including pledged securities of $189,263 and $0, respectively)
256,899

 
73,217

Derivative assets, at fair value
26,385

 
6,896

Other assets
107,372

 
105,580

Total assets
18,322,044

 
18,657,256

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
13,911,137

 
14,080,801

Secured loans
1,650,000

 
1,650,000

Exchangeable senior notes, net

 
143,231

Derivative liabilities, at fair value
20,354

 
32,765

Dividends and distributions payable
50,199

 
50,193

Investment related payable
109,080

 
5,191

Accrued interest payable
18,238

 
17,845

Collateral held payable
27,553

 
7,327

Accounts payable and accrued expenses
1,712

 
2,200

Due to affiliate
11,415

 
10,825

Total liabilities
15,799,688

 
16,000,378

Commitments and contingencies (See Note 16):

 

Equity:
 
 
 
Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized:
 
 
 
7.75% Series A Cumulative Redeemable Preferred Stock: 5,600,000 shares issued and outstanding ($140,000 aggregate liquidation preference)
135,356

 
135,356

7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 6,200,000 shares issued and outstanding ($155,000 aggregate liquidation preference)
149,860

 
149,860

7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 11,500,000 shares issued and outstanding ($287,500 aggregate liquidation preference)
278,108

 
278,108

Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 111,636,723 and 111,624,159 shares issued and outstanding, respectively
1,116

 
1,116

Additional paid in capital
2,384,626

 
2,384,356

Accumulated other comprehensive income
133,352

 
261,029

Retained earnings (distributions in excess of earnings)
(584,750
)
 
(579,334
)
Total stockholders’ equity
2,497,668

 
2,630,491

Non-controlling interest
24,688

 
26,387

Total equity
2,522,356

 
2,656,878

Total liabilities and equity
18,322,044

 
18,657,256

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
1
 


Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 
 
Three Months Ended March 31,
$ in thousands, except share amounts
2018
 
2017
Interest Income

 

Mortgage-backed and credit risk transfer securities
149,003

 
118,873

Commercial loans
4,222

 
5,764

Total interest income
153,225

 
124,637

Interest Expense
 
 

Repurchase agreements
59,585

 
29,947

Secured loans
6,927

 
3,413

Exchangeable senior notes
1,621

 
5,008

Total interest expense
68,133

 
38,368

Net interest income
85,092

 
86,269

Other Income (loss)

 

Gain (loss) on investments, net
(160,370
)
 
(1,853
)
Equity in earnings (losses) of unconsolidated ventures
896

 
(1,534
)
Gain (loss) on derivative instruments, net
133,367

 
5,462

Realized and unrealized credit derivative income (loss), net
3,165

 
19,955

Net loss on extinguishment of debt
(26
)
 
(4,711
)
Other investment income (loss), net
3,102

 
1,329

Total other income (loss)
(19,866
)
 
18,648

Expenses
 
 
 
Management fee – related party
10,221

 
8,801

General and administrative
1,756

 
2,084

Total expenses
11,977

 
10,885

Net income
53,249

 
94,032

Net income attributable to non-controlling interest
671

 
1,186

Net income attributable to Invesco Mortgage Capital Inc.
52,578

 
92,846

Dividends to preferred stockholders
11,107

 
5,716

Net income attributable to common stockholders
41,471

 
87,130

Earnings per share:
 
 


Net income attributable to common stockholders
 
 

Basic
0.37

 
0.78

Diluted
0.37

 
0.73

Dividends declared per common share
0.42

 
0.40

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
2
 


Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Three Months Ended March 31,
$ in thousands
2018
 
2017
Net income
53,249

 
94,032

Other comprehensive income (loss):
 
 
 
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net
(132,317
)
 
16,289

Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net
9,237

 
850

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense
(6,539
)
 
(6,298
)
Currency translation adjustments on investment in unconsolidated venture
312

 
(615
)
Total other comprehensive income (loss)
(129,307
)
 
10,226

Comprehensive income (loss)
(76,058
)
 
104,258

Less: Comprehensive (income) loss attributable to non-controlling interest
959

 
(1,315
)
Less: Dividends to preferred stockholders
(11,107
)
 
(5,716
)
Comprehensive income (loss) attributable to common stockholders
(86,206
)
 
97,227


The accompanying notes are an integral part of these condensed consolidated financial statements.


 
3
 


Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
For the three months ended March 31, 2018
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Common Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
Paid in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
(Distributions
in excess of
earnings)
 
Total
Stockholders’
Equity
 
Non-
Controlling
Interest
 
 
 
Series A
Preferred Stock
 
Series B
Preferred Stock
 
Series C
Preferred Stock
 
 
 
 
$ in thousands 
except
share amounts
 
 
 
Common Stock
 
Total
Equity
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2017
5,600,000

 
135,356

 
6,200,000

 
149,860

 
11,500,000

 
278,108

 
111,624,159

 
1,116

 
2,384,356

 
261,029

 
(579,334
)
 
2,630,491

 
26,387

 
2,656,878

Net income

 

 

 

 

 

 

 

 

 

 
52,578

 
52,578

 
671

 
53,249

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 
(127,677
)
 

 
(127,677
)
 
(1,630
)
 
(129,307
)
Stock awards

 

 

 

 

 

 
12,564

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 
(46,887
)
 
(46,887
)
 

 
(46,887
)
Common unit dividends

 

 

 

 

 

 

 

 

 

 

 

 
(599
)
 
(599
)
Preferred stock dividends

 

 

 

 

 

 

 

 

 

 
(11,107
)
 
(11,107
)
 

 
(11,107
)
Amortization of equity-based compensation

 

 

 

 

 

 

 

 
127

 

 

 
127

 
2

 
129

Rebalancing of ownership percentage of non-controlling interest

 

 

 

 

 

 

 

 
143

 

 

 
143

 
(143
)
 

Balance at March 31, 2018
5,600,000

 
135,356

 
6,200,000

 
149,860

 
11,500,000

 
278,108

 
111,636,723

 
1,116

 
2,384,626

 
133,352

 
(584,750
)
 
2,497,668

 
24,688

 
2,522,356

The accompanying notes are an integral part of this condensed consolidated financial statement.


 
4
 


Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
  
Three Months Ended March 31,
$ in thousands
2018
 
2017
Cash Flows from Operating Activities
 
 
 
Net income
53,249

 
94,032

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of mortgage-backed and credit risk transfer securities premiums and (discounts), net
12,663

 
18,888

Realized and unrealized (gain) loss on derivative instruments, net
(145,479
)
 
(28,356
)
Realized and unrealized (gain) loss on credit derivatives, net
2,468

 
(14,148
)
(Gain) loss on investments, net
160,370

 
1,853

(Income) loss from investments in unconsolidated ventures in excess of distributions received
(352
)
 
1,760

Other amortization
(6,265
)
 
(5,736
)
Net loss on extinguishment of debt
26

 
4,711

(Gain) loss on foreign currency transactions, net
(1,800
)
 
(513
)
Changes in operating assets and liabilities:
 
 
 
(Increase) decrease in operating assets
1,334

 
(2,618
)
Increase (decrease) in operating liabilities
562

 
(7,103
)
Net cash provided by operating activities
76,776

 
62,770

Cash Flows from Investing Activities
 
 
 
Purchase of mortgage-backed and credit risk transfer securities
(298,859
)
 
(1,846,444
)
(Contributions to) distributions from investments in unconsolidated ventures, net
(1,532
)
 
(2,636
)
Purchase of exchange-traded fund

 
(3,508
)
Principal payments from mortgage-backed and credit risk transfer securities
488,123

 
562,190

Proceeds from sale of mortgage-backed and credit risk transfer securities

 
180,809

Proceeds from/ (payments for) settlement or termination of forwards, swaps and futures, net
113,578

 
14,918

Net change in due from counterparties and collateral held payable
14,853

 
2,032

Principal payments from commercial loans held-for-investment
10,042

 

Origination and advances of commercial loans, net of origination fees
(698
)
 
(2,014
)
Net cash provided by (used in) investing activities
325,507

 
(1,094,653
)
Cash Flows from Financing Activities
 
 
 
Proceeds from repurchase agreements
35,711,164

 
30,147,699

Principal repayments of repurchase agreements
(35,880,828
)
 
(29,017,053
)
Extinguishment of exchangeable senior notes
(143,433
)
 
(153,750
)
Payments of deferred costs
(76
)
 

Payments of dividends and distributions
(58,587
)
 
(50,924
)
Net cash (used in) provided by financing activities
(371,760
)
 
925,972

Net change in cash, cash equivalents and restricted cash
30,523

 
(105,911
)
Cash, cash equivalents and restricted cash, beginning of period
89,001

 
161,788

Cash, cash equivalents and restricted cash, end of period
119,524

 
55,877

Supplement Disclosure of Cash Flow Information
 
 
 
Interest paid
73,811

 
51,058

Non-cash Investing and Financing Activities Information
 
 
 
Net change in unrealized gain (loss) on mortgage-backed and credit risk transfer securities
(123,080
)
 
(17,139
)
Dividends and distributions declared not paid
50,199

 
50,928

Net change in investment related payable (receivable)
80,688

 
174,217

Net change in repurchase agreements, not settled

 
(1,416
)
Change in due from counterparties and collateral held payable

 
86,450

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
5
 


Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization and Business Operations
Invesco Mortgage Capital Inc. (the "Company", "we") is a Maryland corporation primarily focused on investing in, financing and managing residential and commercial mortgage-backed securities and mortgage loans. We are externally managed and advised by Invesco Advisers, Inc. (our "Manager"), a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd. ("Invesco"), a leading independent global investment management firm. We conduct our business through IAS Operating Partnership LP (the "Operating Partnership"), as its sole general partner. As of March 31, 2018, we owned 98.7% of the Operating Partnership, and a wholly-owned subsidiary of Invesco owned the remaining 1.3%. We have one operating segment.
We primarily invest in:
Residential mortgage-backed securities ("RMBS") that are guaranteed by a U.S. government agency such as the Government National Mortgage Association, or a federally chartered corporation such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation (collectively "Agency RMBS");
Commercial mortgage-backed securities ("CMBS");
RMBS that are not guaranteed by a U.S. government agency ("non-Agency RMBS");
Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ("GSE CRT");
Residential and commercial mortgage loans; and
Other real estate-related financing agreements.
We elected to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986 commencing with our taxable year ended December 31, 2009. To maintain our REIT qualification, we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually. We operate our business in a manner that permits exclusion from the "Investment Company" definition under the Investment Company Act of 1940.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
Certain disclosures included in our Annual Report on Form 10-K are not required to be included on an interim basis in our quarterly reports on Form 10-Q. We have condensed or omitted these disclosures. Therefore, this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017.
The condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and consolidate the financial statements of the Company and our controlled subsidiaries. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for a fair statement of our financial condition and results of operations for the periods presented.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Examples of estimates include, but are not limited to, estimates of the fair values of financial instruments, interest income on mortgage-backed and credit risk transfer securities, allowance for loan losses and other-than-temporary impairment charges. Actual results may differ from those estimates.

 
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Table of Contents


Significant Accounting Policies
There have been no changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2017, other than the significant accounting policy disclosed below.
Restricted Cash
Restricted cash represents cash posted with the Federal Home Loan Bank of Indianapolis ("FHLBI") as collateral for secured loans and cash posted with counterparties as collateral for various derivative instruments.  Cash held by counterparties as collateral is legally restricted and is not available for general corporate purposes.
Accounting Pronouncements Recently Adopted

Effective January 1, 2018, we adopted the accounting guidance that amends certain aspects of recognition, measurement, presentation, and disclosure of financial assets and liabilities. The standard requires that all equity investments, other than those accounted for as equity method investments, be measured at fair value with changes recognized in income. As of January 1, 2018, we had three types of equity investments: investments in unconsolidated ventures, an investment in an exchange traded fund, and an investment in FHLBI stock. Our investments in unconsolidated ventures are accounted for as equity method investments, and our investment in an exchange-traded fund is measured at fair value with changes recognized in income. While the standard eliminates the cost method for equity investments without readily determinable fair values, it does allow an election to record equity investments without readily determinable fair values at cost, less impairment, and plus or minus adjustments for observable price changes. We have elected to record our investment in FHLBI stock at cost, less impairment. As such, the adoption of this accounting guidance did not impact our financial condition or results of operations. The standard also amends certain disclosure requirements for financial instruments. Refer to Note 4 - "Mortgage-Backed and Credit Risk Transfer Securities" for a tabular summary of the fair value of our available-for-sale securities and securities accounted for under the fair value option by asset type.
Effective January 1, 2018, we adopted the accounting guidance that is intended to reduce diversity in how restricted cash and certain transactions are classified in the statement of cash flows. The new guidance requires that the statement of cash flows explain the difference during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. We adopted the accounting standard on a retrospective basis, which required us to restate our statement of cash flows for the three months ended March 31, 2017. The adoption resulted in an $8.1 million decrease in net cash provided by operating activities, $10.1 million decrease in net cash used in investing activities and $2.0 million decrease in net cash provided by financing activities. We included restricted cash of $2.4 million and $620,000 as of March 31, 2018 and December 31, 2017, respectively, in our reconciliation of cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows.
Note 3 - Variable Interest Entities ("VIEs")
Our maximum risk of loss in VIEs in which we are not the primary beneficiary at March 31, 2018 is presented in the table below.
$ in thousands
Carrying Amount
 
Company's Maximum Risk of Loss
CMBS
3,189,281

 
3,189,281

Non-Agency RMBS
1,194,952

 
1,194,952

Investments in unconsolidated ventures
28,168

 
28,168

Total
4,412,401

 
4,412,401

Refer to Note 4 - "Mortgage-Backed and Credit Risk Transfer Securities" and Note 6 - "Other Assets" for additional details regarding these investments.

 
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Table of Contents


Note 4 – Mortgage-Backed and Credit Risk Transfer Securities
The following tables summarize our mortgage-backed securities ("MBS") and GSE CRT portfolio by asset type as of March 31, 2018 and December 31, 2017.
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal/ Notional
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Period-
end
Weighted
Average
Yield (1)
 
Quarterly
Weighted
Average
Yield (2)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
2,603,748

 
102,652

 
2,706,400

 
(96,848
)
 
2,609,552

 
2.22
%
 
2.04
%
30 year fixed-rate
7,546,645

 
290,890

 
7,837,535

 
(175,497
)
 
7,662,038

 
3.14
%
 
2.96
%
ARM*
227,154

 
1,419

 
228,573

 
(907
)
 
227,666

 
2.59
%
 
2.32
%
Hybrid ARM
1,617,558

 
24,314

 
1,641,872

 
(18,334
)
 
1,623,538

 
2.54
%
 
2.24
%
Total Agency pass-through
11,995,105

 
419,275

 
12,414,380

 
(291,586
)
 
12,122,794

 
2.85
%
 
2.65
%
Agency-CMO (3)
1,146,728

 
(880,126
)
 
266,602

 
(12,648
)
 
253,954

 
2.97
%
 
2.51
%
CMBS (4)
3,899,661

 
(703,191
)
 
3,196,470

 
(7,189
)
 
3,189,281

 
4.92
%
 
4.85
%
Non-Agency RMBS (5)(6)(7)
2,672,496

 
(1,606,280
)
 
1,066,216

 
128,736

 
1,194,952

 
7.19
%
 
7.08
%
GSE CRT (8)
750,873

 
23,609

 
774,482

 
86,771

 
861,253

 
2.61
%
 
3.00
%
Total
20,464,863

 
(2,746,713
)
 
17,718,150

 
(95,916
)
 
17,622,234

 
3.48
%
 
3.32
%
* Adjustable-rate mortgage ("ARM")
 
(1)
Period-end weighted average yield is based on amortized cost as of March 31, 2018 and incorporates future prepayment and loss assumptions.
(2)
Quarterly weighted average yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average balance of the amortized cost of the investments. All yields are annualized.
(3)
Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 81.4% of principal/notional balance, 19.4% of amortized cost and 17.6% of fair value.
(4)
CMBS includes interest-only securities which represent 15.6% of principal/notional balance, 0.5% of amortized cost and 0.6% of fair value.
(5)
Non-Agency RMBS held by us is 51.8% variable rate, 38.0% fixed rate and 10.1% floating rate based on fair value.
(6)
Of the total discount in non-Agency RMBS, $191.1 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities.
(7)
Non-Agency RMBS includes interest-only securities ("Non-Agency IO") which represent 51.9% of principal/notional balance, 2.0% of amortized cost and 1.8% of fair value.
(8)
GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.


 
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Table of Contents


December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal/Notional
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Period-
end
Weighted
Average
Yield (1)
 
Quarterly
Weighted
Average
Yield (2)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
2,917,307

 
119,120

 
3,036,427

 
(61,645
)
 
2,974,782

 
2.17
%
 
1.98
%
30 year fixed-rate
7,354,211

 
295,977

 
7,650,188

 
(9,648
)
 
7,640,540

 
3.09
%
 
2.90
%
ARM
238,486

 
1,609

 
240,095

 
1,105

 
241,200

 
2.60
%
 
2.36
%
Hybrid ARM
1,696,148

 
26,066

 
1,722,214

 
(2,829
)
 
1,719,385

 
2.54
%
 
2.25
%
Total Agency pass-through
12,206,152

 
442,772

 
12,648,924

 
(73,017
)
 
12,575,907

 
2.79
%
 
2.58
%
Agency-CMO (3)
1,226,539

 
(942,290
)
 
284,249

 
(10,306
)
 
273,943

 
2.91
%
 
2.74
%
CMBS (4)
3,879,775

 
(704,097
)
 
3,175,678

 
40,739

 
3,216,417

 
4.92
%
 
4.77
%
Non-Agency RMBS (5)(6)(7)
2,785,704

 
(1,661,683
)
 
1,124,021

 
133,587

 
1,257,608

 
7.19
%
 
7.18
%
GSE CRT (8)
757,183

 
24,306

 
781,489

 
85,390

 
866,879

 
2.45
%
 
2.79
%
Total
20,855,353

 
(2,840,992
)
 
18,014,361

 
176,393

 
18,190,754

 
3.42
%
 
3.27
%
 
(1)
Period-end weighted average yield is based on amortized cost as of December 31, 2017 and incorporates future prepayment and loss assumptions.
(2)
Quarterly weighted average yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average balance of the amortized cost of the investments. All yields are annualized.
(3)
Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 81.8% of principal (notional) balance, 20.9% of amortized cost and 18.7% of fair value.
(4)
CMBS includes interest-only securities which represent 15.8% of principal/notional balance, 0.5% of amortized cost and 0.6% of fair value.
(5)
Non-Agency RMBS held by us is 52.2% variable rate, 37.8% fixed rate, and 10.0% floating rate based on fair value.
(6)
Of the total discount in non-Agency RMBS, $195.3 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities.
(7)
Non-Agency RMBS includes interest-only securities, which represent 51.5% of principal/notional balance, 2.0% of amortized cost and 1.8% of fair value.
(8)
GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.
The following table presents the fair value of our available-for-sale securities and securities accounted for under the fair value option by asset type as of March 31, 2018 and December 31, 2017. We have elected the fair value option for all of our RMBS IOs, our MBS purchased on or after September 1, 2016 and our GSE CRTs purchased on or after August 24, 2015. As of March 31, 2018, $6.6 billion (December 31, 2017: $6.5 billion) or 37.6% (December 31, 2017: 35.6%) of our MBS and GSE CRT are accounted for under the fair value option.
 
March 31, 2018
 
December 31, 2017
$ in thousands
Available-for-sale Securities
 
Securities under Fair Value Option
 
Total
Fair Value
 
Available-for-sale Securities
 
Securities under Fair Value Option
 
Total
Fair Value
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
2,484,470

 
125,082

 
2,609,552

 
2,842,440

 
132,342

 
2,974,782

30 year fixed-rate
2,333,288

 
5,328,750

 
7,662,038

 
2,467,871

 
5,172,669

 
7,640,540

ARM*
227,666

 

 
227,666

 
241,200

 

 
241,200

Hybrid ARM
1,623,538

 

 
1,623,538

 
1,719,385

 

 
1,719,385

Total Agency pass-through
6,668,962

 
5,453,832

 
12,122,794

 
7,270,896

 
5,305,011

 
12,575,907

Agency-CMO
190,930

 
63,024

 
253,954

 
203,351

 
70,592

 
273,943

CMBS
2,339,249

 
850,032

 
3,189,281

 
2,376,413

 
840,004

 
3,216,417

Non-Agency RMBS
1,174,590

 
20,362

 
1,194,952

 
1,236,178

 
21,430

 
1,257,608

GSE CRT
629,952

 
231,301

 
861,253

 
635,537

 
231,342

 
866,879

Total
11,003,683

 
6,618,551

 
17,622,234

 
11,722,375

 
6,468,379

 
18,190,754


 
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The components of the carrying value of our MBS and GSE CRT portfolio at March 31, 2018 and December 31, 2017 are presented below. 
 
March 31, 2018
$ in thousands
MBS and GSE CRT Securities
 
Interest-Only Securities
 
Total
Principal/ notional balance
17,696,263

 
2,768,600

 
20,464,863

Unamortized premium
494,730

 

 
494,730

Unamortized discount
(559,366
)
 
(2,682,077
)
 
(3,241,443
)
Gross unrealized gains (1)
277,526

 
4,716

 
282,242

Gross unrealized losses (1)
(368,916
)
 
(9,242
)
 
(378,158
)
Fair value
17,540,237

 
81,997

 
17,622,234

 
December 31, 2017
$ in thousands
MBS and GSE CRT Securities
 
Interest-Only Securities
 
Total
Principal/ notional balance
17,974,390

 
2,880,963

 
20,855,353

Unamortized premium
521,626

 

 
521,626

Unamortized discount
(577,344
)
 
(2,785,274
)
 
(3,362,618
)
Gross unrealized gains (1)
336,543

 
5,113

 
341,656

Gross unrealized losses (1)
(155,146
)
 
(10,117
)
 
(165,263
)
Fair value
18,100,069

 
90,685

 
18,190,754

(1)
Gross unrealized gains and losses includes gains (losses) recognized in net income for securities accounted for as derivatives or under the fair value option as well as gains (losses) for available-for-sale securities which are recognized as adjustments to other comprehensive income. Realization occurs upon sale or settlement of such securities. Further detail on the components of our total gains (losses) on investments, net for the three months ended March 31, 2018 and 2017 is provided later in this Note 4.
The following table summarizes our MBS and GSE CRT portfolio according to estimated weighted average life classifications as of March 31, 2018 and December 31, 2017
$ in thousands
March 31, 2018
 
December 31, 2017
Less than one year
106,835

 
135,559

Greater than one year and less than five years
7,156,838

 
7,934,836

Greater than or equal to five years
10,358,561

 
10,120,359

Total
17,622,234

 
18,190,754



 
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The following tables present the estimated fair value and gross unrealized losses of our MBS and GSE CRTs by length of time that such securities have been in a continuous unrealized loss position at March 31, 2018 and December 31, 2017.
March 31, 2018
  
Less than 12 Months
 
12 Months or More
 
Total
$ in thousands
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
300,750

 
(3,026
)
 
71

 
2,072,058

 
(96,994
)
 
129

 
2,372,808

 
(100,020
)
 
200

30 year fixed-rate
5,816,164

 
(149,050
)
 
185

 
913,526

 
(45,945
)
 
56

 
6,729,690

 
(194,995
)
 
241

ARM
129,244

 
(1,776
)
 
14

 
754

 
(32
)
 
1

 
129,998

 
(1,808
)
 
15

Hybrid ARM
701,155

 
(10,134
)
 
84

 
480,849

 
(12,250
)
 
46

 
1,182,004

 
(22,384
)
 
130

Total Agency pass-through (1)
6,947,313

 
(163,986
)
 
354

 
3,467,187

 
(155,221
)
 
232

 
10,414,500

 
(319,207
)
 
586

Agency-CMO (2)
157,601

 
(11,414
)
 
46

 
76,278

 
(3,303
)
 
5

 
233,879

 
(14,717
)
 
51

CMBS (3)
1,617,640

 
(33,804
)
 
125

 
171,683

 
(7,753
)
 
16

 
1,789,323

 
(41,557
)
 
141

Non-Agency RMBS (4)
138,721

 
(1,284
)
 
28

 
85,870

 
(1,393
)
 
10

 
224,591

 
(2,677
)
 
38

Total
8,861,275

 
(210,488
)
 
553

 
3,801,018

 
(167,670
)
 
263

 
12,662,293

 
(378,158
)
 
816

(1)
Amounts disclosed includes Agency RMBS with a fair value of $5.3 billion for which the fair value option has been elected. Such securities have unrealized losses of $146.2 million.
(2)
Amounts disclosed includes Agency IO and Agency-CMO with fair value of $26.3 million and $18.4 million, respectively, for which the fair value option has been elected. These Agency IO and Agency-CMO securities have unrealized losses of $9.0 million and $694,000, respectively.
(3)
Amounts disclosed includes CMBS with a fair value of $769.0 million for which the fair value option has been elected. Such securities have unrealized losses of $22.4 million.
(4)
Amounts disclosed includes Non-Agency IO with a fair value of $12.5 million for which the fair value option has been elected. Such securities have unrealized losses of $204,000.


 
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December 31, 2017
  
Less than 12 Months
 
12 Months or More
 
Total
$ in thousands
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
111,020

 
(321
)
 
26

 
2,406,021

 
(67,285
)
 
133

 
2,517,041

 
(67,606
)
 
159

30 year fixed-rate
3,677,576

 
(20,730
)
 
107

 
963,547

 
(27,158
)
 
56

 
4,641,123

 
(47,888
)
 
163

ARM
101,173

 
(902
)
 
12

 

 

 

 
101,173

 
(902
)
 
12

Hybrid ARM
614,321

 
(4,189
)
 
73

 
517,642

 
(8,091
)
 
47

 
1,131,963

 
(12,280
)
 
120

Total Agency pass-through (1)
4,504,090

 
(26,142
)
 
218

 
3,887,210

 
(102,534
)
 
236

 
8,391,300

 
(128,676
)
 
454

Agency-CMO (2)
75,299

 
(10,433
)
 
44

 
81,988

 
(2,309
)
 
5

 
157,287

 
(12,742
)
 
49

CMBS (3)
892,553

 
(17,612
)
 
81

 
135,139

 
(3,792
)
 
12

 
1,027,692

 
(21,404
)
 
93

Non-Agency RMBS (4)
84,439

 
(709
)
 
15

 
96,263

 
(1,732
)
 
11

 
180,702

 
(2,441
)
 
26

Total
5,556,381

 
(54,896
)
 
358

 
4,200,600

 
(110,367
)
 
264

 
9,756,981

 
(165,263
)
 
622

(1)
Amounts disclosed includes Agency RMBS with a fair value of $3.4 billion for which the fair value option has been elected. Such securities have unrealized losses of 22.8 million.
(2)
Amounts disclosed includes Agency IO and Agency-CMO with fair value of $36.5 million and $9.5 million, respectively, for which the fair value option has been elected. These Agency IO and Agency-CMO securities have unrealized losses of $10.1 million and $88,000, respectively.
(3)
Amounts disclosed includes CMBS with a fair value of $596.0 million for which the fair value option has been elected. Such securities have unrealized losses of $8.9 million.
(4)
Amounts disclosed includes Non-Agency IO with a fair value of $530,000 for which the fair value option has been elected. Such securities have unrealized losses of $39,000.
Gross unrealized losses on our Agency RMBS and CMO were $319.2 million (December 31, 2017: $128.7 million) and $5.7 million (December 31, 2017: $2.7 million), respectively, at March 31, 2018. Due to the inherent credit quality of Agency RMBS and CMO, we determined that at March 31, 2018 and December 31, 2017, any unrealized losses on our Agency RMBS and CMO portfolio are not other than temporary.
Gross unrealized losses on our Agency IO, non-Agency RMBS, GSE CRT and CMBS were $53.3 million (December 31, 2017: $33.9 million) at March 31, 2018. We did not consider these unrealized losses to be credit related, but rather due to non-credit related factors such as interest rate spreads, prepayment speeds, and market fluctuations. These investment securities are included in our assessment for other-than-temporary impairment on a quarterly basis.
We assess our investment securities for other-than-temporary impairment ("OTTI") on a quarterly basis. When the fair value of an investment is less than its amortized cost at the balance sheet date of the reporting period for which impairment is assessed, the impairment is designated as either "temporary" or "other-than-temporary." This analysis includes a determination of estimated future cash flows through an evaluation of the characteristics of the underlying loans and the structural features of the investment. Underlying loan characteristics reviewed include, but are not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration.
The following table represents OTTI included in earnings for the three months ended March 31, 2018 and 2017:
 
Three Months Ended March 31,
$ in thousands
2018
 
2017
RMBS interest-only securities
4,309

 
291

Non-Agency RMBS (1)
50

 
241

Total
4,359

 
532

(1)
Amounts disclosed relate to credit losses on debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income.
OTTI on RMBS interest-only securities was recorded as a reclassification from an unrealized to realized loss within gain (loss) on investments, net on the condensed consolidated statements of operations because we account for these securities under

 
12
 


Table of Contents


the fair value option. As of March 31, 2018, we did not intend to sell the securities and determined that it was not more likely than not that we will be required to sell the securities.
The following table summarizes the components of our total gain (loss) on investments, net for the three months ended March 31, 2018 and 2017.
 
Three Months Ended March 31,
$ in thousands
2018
 
2017
Gross realized gains on sale of investments

 
904

Gross realized losses on sale of investments
(9,237
)
 
(1,911
)
Other-than-temporary impairment losses
(4,359
)
 
(532
)
Net unrealized gains and losses on MBS accounted for under the fair value option
(147,195
)
 
(3,602
)
Net unrealized gains and losses on GSE CRT accounted for under the fair value option
434

 
3,279

Net unrealized gains and losses on trading securities
(13
)
 
9

Total gain (loss) on investments, net
(160,370
)
 
(1,853
)
The following tables present components of interest income recognized on our MBS and GSE CRT portfolio for the three months ended March 31, 2018 and 2017. GSE CRT interest income excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.
For the three months ended March 31, 2018
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
108,317

 
(23,222
)
 
85,095

CMBS
37,293

 
1,426

 
38,719

Non-Agency
14,012

 
5,177

 
19,189

GSE CRT
6,525

 
(697
)
 
5,828

Other
172

 

 
172

Total
166,319

 
(17,316
)
 
149,003

For the three months ended March 31, 2017
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
91,231

 
(28,578
)
 
62,653

CMBS
29,676

 
(2,634
)
 
27,042

Non-Agency
20,614

 
4,387

 
25,001

GSE CRT
4,487

 
(371
)
 
4,116

Other
61

 

 
61

Total
146,069

 
(27,196
)
 
118,873



 
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Table of Contents


Note 5 – Commercial Loans Held-for-Investment
The following table summarizes purchased or originated commercial mezzanine loans held-for-investment as of March 31, 2018 and December 31, 2017.
$ in thousands
Number of
loans
 
Principal
Balance
 
Unamortized (fees)/
costs, net
 
Carrying
value
 
Weighted Average Coupon
 
Weighted Average Years to Maturity (1)
March 31, 2018
7

 
184,311

 
(56
)
 
184,255

 
8.72
%
 
1.1
December 31, 2017
8

 
191,894

 
(86
)
 
191,808

 
8.52
%
 
1.2
(1)
Weighted average years to maturity is based on the contractual maturity date. Certain loans may contain either an option to prepay or an option to extend beyond their contractual maturity dates as specified in the respective loan agreements.
These loans were not impaired, and no allowance for loan loss has been recorded as of March 31, 2018 and December 31, 2017 based on our analysis of credit quality factors as described in Note 2 - "Summary of Significant Accounting Policies" included in the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2017.
Note 6 – Other Assets
The following table summarizes our other assets as of March 31, 2018 and December 31, 2017.
$ in thousands
March 31, 2018
 
December 31, 2017
FHLBI stock
74,250

 
74,250

Investments in unconsolidated ventures
28,168

 
25,972

Investment in exchange-traded fund
3,966

 
3,979

Prepaid expenses and other assets
988

 
1,379

Total
107,372

 
105,580

IAS Services LLC, our wholly-owned subsidiary, is required to purchase and hold FHLBI stock as a condition of membership in the FHLBI. The stock is recorded at cost.
We have invested in unconsolidated ventures that are managed by an affiliate of our Manager. The unconsolidated ventures invest in our target assets. Refer to Note 16 - "Commitments and Contingencies" for additional details regarding our commitments to these unconsolidated ventures.
We have invested in an exchange-traded fund that is managed by an affiliate of our Manager. The exchange-traded fund invests in our target assets.

 
14
 


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Note 7 – Borrowings
We finance the majority of our investment portfolio through repurchase agreements, secured loans and exchangeable senior notes. The following tables summarize certain characteristics of our borrowings at March 31, 2018 and December 31, 2017. Refer to Note 8 - "Collateral Positions" for collateral pledged under our repurchase agreements and secured loans.
$ in thousands
March 31, 2018
 
 
 
 
Weighted
 
 
Weighted
 
Average
 
 
Average
 
Remaining
Amount
 
Interest
 
Maturity
Outstanding
 
Rate
 
(days)
Repurchase Agreements:
 
 
 
 
 
Agency RMBS
10,864,430

 
1.88
%
 
26

CMBS
1,482,869

 
2.97
%
 
13

Non-Agency RMBS
882,571

 
3.09
%
 
24

GSE CRT
681,267

 
3.02
%
 
26

Total Repurchase Agreements
13,911,137

 
2.13
%
 
25

Secured Loans
1,650,000

 
1.88
%
 
2,227

Total Borrowings
15,561,137

 
2.10
%
 
259

$ in thousands
December 31, 2017
 
 
 
 
Weighted
 
 
Weighted
 
Average
 
 
Average
 
Remaining
Amount
 
Interest
 
Maturity
Outstanding
 
Rate
 
(days)
Repurchase Agreements:
 
 
 
 
 
Agency RMBS
11,111,755

 
1.58
%
 
25

CMBS
1,396,330

 
2.61
%
 
9

Non-Agency RMBS
915,225

 
2.77
%
 
31

GSE CRT
657,491

 
2.78
%
 
24

Total Repurchase Agreements
14,080,801

 
1.82
%
 
25

Secured Loans
1,650,000

 
1.52
%
 
2,317

Exchangeable Senior Notes (1)
143,410

 
5.00
%
 
74

Total Borrowings
15,874,211

 
1.82
%
 
263

(1)
The carrying value of exchangeable senior notes was $143.2 million as of December 31, 2017. The carrying value was net of unamortized debt issuance costs of $179,000 as of December 31, 2017.
The following table shows the aggregate amount of maturities of our outstanding borrowings:
$ in thousands
As of
Borrowings maturing within:
March 31, 2018
4/1/2018 - 3/31/2019
13,911,137

4/1/2019 - 3/31/2020
300,000

4/1/2020 - 3/31/2021
100,000

4/1/2021 - 3/31/2022

4/1/2022 - 3/31/2023

Thereafter
1,250,000

Total
15,561,137


 
15
 


Table of Contents


The following tables summarize certain characteristics of our repurchase agreements and secured loans at March 31, 2018 and December 31, 2017.
March 31, 2018
 
 
 
 
 
$ in thousands
Amount Outstanding
 
Percent of Total Amount Outstanding
 
MBS and GSE CRT Pledged as Collateral (1)
Repurchase Agreement Counterparties:
 
 
 
 
 
HSBC
1,948,586

 
12.5
%
 
2,057,152

ING Financial Markets
1,411,676

 
9.1
%
 
1,489,621

RBC
1,098,363

 
7.1
%
 
1,329,727

E D & F Man Capital Markets
1,033,231

 
6.6
%
 
1,094,262

Industrial and Commercial Bank of China
987,568

 
6.3
%
 
1,042,653

Mirae Asset Securities
914,219

 
5.9
%
 
968,612

MUFG Securities
855,183

 
5.5
%
 
934,365

Citigroup
772,117

 
5.0
%
 
903,677

Amherst Pierpont Securities
571,116

 
3.7
%
 
612,022

JP Morgan
435,886

 
2.8
%
 
512,237

KGS-Alpha Capital Markets
435,707

 
2.8
%
 
467,214

South Street Securities
413,073

 
2.7
%
 
441,763

Societe Generale
379,575

 
2.4
%
 
482,370

BNP Paribas Securities
328,194

 
2.1
%
 
363,539

Goldman Sachs
311,477

 
2.0
%
 
405,701

Mizuho Securities
293,858

 
1.9
%
 
312,521

Guggenheim Liquidity Services
285,860

 
1.8
%
 
302,122

Natixis Securities
277,765

 
1.8
%
 
310,830

Bank of Nova Scotia
275,727

 
1.8
%
 
287,766

All other counterparties (2)
881,956

 
5.6
%
 
1,050,432

Total Repurchase Agreement Counterparties
13,911,137

 
89.4
%
 
15,368,586

Secured Loans Counterparty:
 
 
 
 
 
FHLBI
1,650,000

 
10.6
%
 
1,916,895

Total
15,561,137

 
100.0
%
 
17,285,481

(1)
Amount pledged as collateral is measured at fair value as described in Note 2 - "Summary of Significant Accounting Policies" included in the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2017.
(2)
Represents amounts outstanding with seven counterparties.


 
16
 


Table of Contents


December 31, 2017
 
 
 
 
 
$ in thousands
Amount Outstanding
 
Percent of Total Amount Outstanding
 
MBS and GSE CRT Pledged as Collateral (1)
Repurchase Agreement Counterparties:
 
 
 
 
 
HSBC
1,745,684

 
11.2
%
 
1,839,411

ING Financial Markets
1,482,603

 
9.4
%
 
1,571,061

RBC
1,144,856

 
7.3
%
 
1,375,285

Industrial and Commercial Bank of China
1,038,844

 
6.6
%
 
1,102,543

E D & F Man Capital Markets
1,028,437

 
6.5
%
 
1,085,429

Mirae Asset Securities
958,756

 
6.1
%
 
1,018,664

MUFG Securities
865,201

 
5.5
%
 
936,071

Citigroup
724,094

 
4.6
%
 
841,977

Amherst Pierpont Securities
722,080

 
4.6
%
 
764,713

KGS-Alpha Capital Markets
461,098

 
2.9
%
 
491,313

JP Morgan
451,941

 
2.9
%
 
523,590

Societe Generale
386,737

 
2.5
%
 
495,093

BNP Paribas Securities
348,340

 
2.2
%
 
388,091

South Street Securities
332,623

 
2.1
%
 
354,689

Goldman Sachs
324,152

 
2.1
%
 
419,713

Mizuho Securities
310,835

 
2.0
%
 
330,555

Guggenheim Liquidity Services
306,081

 
1.9
%
 
322,452

Bank of Nova Scotia
289,705

 
1.8
%
 
301,715

Natixis Securities
275,764

 
1.8
%
 
302,291

All other counterparties (2)
882,970

 
5.5
%
 
1,058,759

Total Repurchase Agreement Counterparties
14,080,801

 
89.5
%
 
15,523,415

Secured Loans Counterparty:
 
 
 
 
 
FHLBI
1,650,000

 
10.5
%
 
1,927,496

Total
15,730,801

 
100.0
%
 
17,450,911


(1)
Amount pledged as collateral is measured at fair value as described in Note 2 - "Summary of Significant Accounting Policies" included in the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2017.
(2)
Represents amounts outstanding with seven counterparties.
Repurchase Agreements
Repurchase agreements bear interest at a contractually agreed upon rate and have maturities ranging from one month to twelve months. Repurchase agreements are accounted for as secured borrowings since we maintain effective control of the financed assets. Repurchase agreements are subject to certain financial covenants. We were in compliance with these covenants at March 31, 2018.
Our repurchase agreement collateral ratio (MBS and GSE CRTs pledged as collateral/Amount Outstanding) was 110% as of March 31, 2018 (December 31, 2017: 110%).
Secured Loans
Our wholly-owned captive insurance subsidiary, IAS Services LLC, is a member of the FHLBI. As a member of the FHLBI, IAS Services LLC has borrowed funds from the FHLBI in the form of secured loans.
As of March 31, 2018, IAS Services LLC had $1.65 billion in outstanding secured loans from the FHLBI. These secured loans have floating rates that are based on the three-month FHLB swap rate plus a spread. For the three months ended March 31, 2018, IAS Services LLC had weighted average borrowings of $1.65 billion with a weighted average borrowing rate of 1.68% and a weighted average maturity of 6.1 years.

 
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Table of Contents


The Federal Housing Finance Agency’s ("FHFA") final rule governing Federal Home Loan Bank membership (the "FHFA Rule") was effective on February 19, 2016. The FHFA Rule permits existing captive insurance companies, such as IAS Services LLC, to remain members until February 2021. New advances or renewals that mature after February 2021 are prohibited. The FHLBI has indicated it will honor the contractual maturity dates of existing advances to IAS Services LLC that were made prior to February 19, 2016 and extend beyond February 2021. We do not expect there to be any impact to our existing FHLBI borrowings under the FHFA rule. The ability to borrow from the FHLBI is subject to our continued creditworthiness, pledging of sufficient eligible collateral to secure advances, and compliance with certain agreements with FHLBI and FHFA rules.
As discussed in Note 6 - "Other Assets," IAS Services LLC is required to purchase and hold a certain amount of FHLBI stock, which is based, in part, upon the outstanding principal balance of secured loans from the FHLBI.
Exchangeable Senior Notes
In 2013, our wholly-owned subsidiary, IAS Operating Partnership LP, issued $400.0 million in aggregate principal amount of Exchangeable Senior Notes (the "Notes") due March 15, 2018. We retired a portion of the Notes prior to their maturity and fully retired the Notes upon their maturity on March 15, 2018.
The Notes were reported on our condensed consolidated balance sheets net of unamortized debt issuance costs. Debt issuance costs were amortized as an adjustment to interest expense using the effective interest method over the stated legal maturity of the Notes.
The following table summarizes retirements of the Notes during the three months ended March 31, 2018 and 2017.
$ in thousands
Three Months Ended March 31,
 
2018
 
2017
Reacquisition price
143,433

 
153,750

Less: Par value of Notes retired during the period
(143,410
)
 
(150,000
)
Add: Write off of unamortized debt issuance cost associated with Notes retired during the period
3

 
961

Net loss on extinguishment of debt
26

 
4,711

Accrued interest payable on the Notes was approximately $2.1 million as of December 31, 2017.

 
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Note 8 - Collateral Positions
The following table summarizes the fair value of collateral that we have pledged and held under our repurchase agreements, secured loans, interest rate swaps, futures contracts and currency forward contracts as of March 31, 2018 and December 31, 2017. Refer to Note 2 - "Summary of Significant Accounting Policies - Fair Value Measurements" of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 for a description of how we determine fair value. RMBS, CMBS and GSE CRT collateral pledged is included in mortgage-backed and credit risk transfer securities on our condensed consolidated balance sheets. Cash collateral pledged on secured loans, bilateral interest rate swaps and currency forward contracts is classified as restricted cash on our condensed consolidated balance sheets. Cash collateral pledged on futures contracts is classified as due from counterparties on our condensed consolidated balance sheets.
Cash collateral held on bilateral swaps that is not restricted for use is included in cash and cash equivalents on our condensed consolidated balance sheets and the liability to return the collateral is included in collateral held payable. Non-cash collateral held is only recognized if the counterparty defaults or if we sell the pledged collateral. As of March 31, 2018 and December 31, 2017, we did not recognize any non-cash collateral held.
$ in thousands
As of
Collateral Pledged
March 31, 2018
 
December 31, 2017
Repurchase Agreements:
 
 
 
Agency RMBS (1)
11,546,380

 
11,788,765

CMBS
1,856,165

 
1,737,831

Non-Agency RMBS
1,110,185

 
1,143,373

GSE CRT
855,856