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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 September 30, 2019
 
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:  001-35543
400888580_logoa93.gif
 Western Asset Mortgage Capital Corporation
(Exact name of Registrant as specified in its charter) 
Delaware
 
27-0298092
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
 
Western Asset Mortgage Capital Corporation
385 East Colorado Boulevard
Pasadena, California 91101
(Address of Registrant’s principal executive offices)
 
(626) 844-9400
(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 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 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, a 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. 
Large accelerated filer
o
 
Accelerated filer
x
Non-accelerated filer
o
 
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 under the Securities Exchange Act of 1934).  Yes o No ý
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
 
WMC
 
New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

As of November 5, 2019 there were 53,224,379 shares, par value $0.01, of the registrant’s common stock outstanding.


Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

Part I
ITEM I. Financial Statements

Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands—except share and per share data)
(Unaudited)
 
September 30,
2019
 
December 31, 2018
Assets:
 

 
 

Cash and cash equivalents
$
50,157

 
$
21,987

Restricted cash
36,456

 
55,808

Agency mortgage-backed securities, at fair value ($2,119,013 and $1,505,979 pledged as collateral, at fair value, respectively)
2,188,844

 
1,505,979

Non-Agency mortgage-backed securities, at fair value ($317,690 and $237,107 pledged as collateral, at fair value, respectively)
339,003

 
250,856

Other securities, at fair value ($82,875 and $59,780 pledged as collateral, at fair value, respectively)
83,012

 
59,906

Residential Whole Loans, at fair value ($1,209,237 and $1,041,885 pledged as collateral, at fair value, respectively)
1,209,237

 
1,041,885

Residential Bridge Loans ($48,054 and $211,999 at fair value and $50,675 and $221,486 pledged as collateral, respectively)
53,373

 
221,719

Securitized commercial loans, at fair value
701,835

 
1,013,511

Commercial Loans, at fair value ($422,032 and $196,123 pledged as collateral, at fair value, respectively)
442,032

 
216,123

Investment related receivable
32,033

 
42,945

Interest receivable
18,801

 
21,959

Due from counterparties
90,156

 
39,623

Derivative assets, at fair value
4,037

 
2,606

Other assets
5,505

 
2,488

Total Assets (1)
$
5,254,481

 
$
4,497,395

 
 
 
 
Liabilities and Stockholders’ Equity:
 

 
 

Liabilities:
 

 
 

Repurchase agreements, net
$
2,925,108

 
$
2,818,837

Convertible senior unsecured notes, net
148,542

 
110,060

Securitized debt, net ($612,282 and $949,626 at fair value and $75,095 and $246,802 held by affiliates, respectively)
1,466,841

 
949,626

Interest payable (includes $386 and $816 on securitized debt held by affiliates, respectively)
9,734

 
8,532

Investment related payables
71,146

 

Due to counterparties
2,096

 
17,781

Derivative liability, at fair value
8,088

 
10,130

Accounts payable and accrued expenses
3,585

 
3,858

Payable to affiliate
2,026

 
4,615

Dividend payable
16,499

 
14,916

Other liabilities
36,456

 
56,031

Total Liabilities (2)
4,690,121

 
3,994,386

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders’ Equity:
 

 
 

Common stock: $0.01 par value, 500,000,000 shares authorized, 53,224,379 and 48,116,379 outstanding, respectively
532

 
481

Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding

 

Additional paid-in capital
884,978

 
833,810

Retained earnings (accumulated deficit)
(321,150
)
 
(331,282
)
Total Stockholders’ Equity
564,360

 
503,009

Total Liabilities and Stockholders’ Equity
$
5,254,481

 
$
4,497,395

 See notes to unaudited consolidated financial statements.
Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Balance Sheets (Continued)
(in thousands—except share and per share data)
(Unaudited)
 
September 30,
2019
 
December 31, 2018
(1) Assets of consolidated VIEs included in the total assets above:
 

 
 

Cash and cash equivalents
$
1,959

 
$
674

Restricted cash
36,456

 
55,808

Residential Whole Loans, at fair value ($1,209,237 and $1,041,885 pledged as collateral, at fair value, respectively)
1,209,237

 
1,041,885

Residential Bridge Loans ($46,159 and $211,766 at fair value and $50,675 and $221,486 pledged as collateral, respectively)
50,675

 
221,486

Securitized commercial loans, at fair value
701,835

 
1,013,511

Commercial Loans, at fair value ($212,032 and $196,123 pledged as collateral, at fair value, respectively)
212,032

 
196,123

Investment related receivable
32,033

 
42,945

Interest receivable
9,712

 
15,540

Other assets
253

 
178

Total assets of consolidated VIEs
$
2,254,192

 
$
2,588,150

 
 
 
 
(2) Liabilities of consolidated VIEs included in the total liabilities above:
 

 
 

Securitized debt, net ($612,282 and $949,626 at fair value and $75,095 and $246,802 held by affiliates, respectively)
$
1,466,841

 
$
949,626

Interest payable (includes $386 and $816 on securitized debt held by affiliates, respectively)
3,714

 
2,419

Accounts payable and accrued expenses
288

 
708

Other liabilities
36,456

 
56,033

Total liabilities of consolidated VIEs
$
1,507,299

 
$
1,008,786


See notes to unaudited consolidated financial statements.


2

Table of Contents

Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands—except share and per share data)
(Unaudited)
 
 
For the three months ended September 30, 2019
 
For the three months ended September 30, 2018
 
For the nine months ended September 30, 2019
 
For the nine months ended September 30, 2018
Net Interest Income
 

 
 

 
 
 
 
Interest income
$
55,652

 
$
54,461

 
$
161,503

 
$
151,342

Interest expense (includes $964, $4,465, $4,408 and $9,672 on securitized debt held by affiliates, respectively)
39,082

 
38,517

 
113,440

 
97,348

Net Interest Income
16,570

 
15,944

 
48,063

 
53,994

 
 
 
 
 
 
 
 
Other Income (Loss)
 

 
 

 
 

 
 

Realized gain (loss) on investments, net
21,399

 
(24,229
)
 
16,286

 
(29,262
)
Other than temporary impairment
(1,819
)
 
(2,533
)
 
(6,346
)
 
(8,423
)
Unrealized gain (loss), net
35,030

 
13,128

 
160,425

 
(87,526
)
Gain (loss) on derivative instruments, net
(47,056
)
 
24,625

 
(145,734
)
 
132,697

Other, net
918

 
(2
)
 
1,686

 
(100
)
Other Income (Loss)
8,472

 
10,989

 
26,317

 
7,386

 
 
 
 
 
 
 
 
Expenses
 

 
 

 
 

 
 

Management fee to affiliate
1,800

 
2,284

 
5,367

 
6,723

Other operating expenses
1,589

 
1,609

 
4,440

 
4,133

General and administrative expenses:
 

 
 

 
 
 
 
Compensation expense
671

 
552

 
1,920

 
1,634

Professional fees
973

 
1,065

 
2,949

 
3,178

Other general and administrative expenses
344

 
335

 
1,059

 
1,093

Total general and administrative expenses
1,988

 
1,952

 
5,928

 
5,905

Total Expenses
5,377

 
5,845

 
15,735

 
16,761

 
 
 
 
 
 
 
 
Income before income taxes
19,665

 
21,088

 
58,645

 
44,619

Income tax (benefit) provision
(55
)
 
206

 
435

 
555

Net income
$
19,720

 
$
20,882

 
$
58,210

 
$
44,064

 
 
 
 
 
 
 
 
Net income per Common Share — Basic
$
0.37

 
$
0.50

 
$
1.15

 
$
1.05

Net income per Common Share — Diluted
$
0.37

 
$
0.50

 
$
1.15

 
$
1.05


See notes to unaudited consolidated financial statements.

3

Table of Contents

Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands—except shares and share data)
(Unaudited)
 
 
Three Months Ended September 30, 2019
 
Common Stock Outstanding
 
Additional 
Paid-In Capital
 
Retained 
Earnings 
(Accumulated Deficit)
 
Treasury Stock
 
 
 
Shares
 
Par
 
 
 
 
Total
Balance at June 30, 2019
53,224,379

 
$
532

 
$
883,417

 
$
(324,323
)
 
$

 
$
559,626

Offering costs

 

 
(41
)
 

 

 
(41
)
Equity component of convertible senior unsecured notes

 

 
1,390

 

 

 
1,390

Vesting of restricted stock

 

 
164

 

 

 
164

Net income

 

 

 
19,720

 

 
19,720

Dividends declared on common stock

 

 
48

 
(16,547
)
 

 
(16,499
)
Balance at September 30, 2019
53,224,379

 
$
532

 
$
884,978

 
$
(321,150
)
 
$

 
$
564,360

 
Three Months Ended September 30, 2018
 
Common Stock Outstanding
 
Additional 
Paid-In Capital
 
Retained 
Earnings 
(Accumulated Deficit)
 
Treasury Stock
 
 
 
Shares
 
Par
 
 
 
 
Total
Balance at June 30, 2018
41,616,379

 
$
419

 
$
768,945

 
$
(304,608
)
 
$
(2,965
)
 
$
461,791

Proceeds from public offerings of common stock
6,196,578

 
62

 
64,818

 

 

 
64,880

Offering costs

 

 
(239
)
 

 

 
(239
)
Vesting of restricted stock

 

 
70

 

 

 
70

Treasury stock
303,422

 

 
213

 

 
2,965

 
3,178

Net income

 

 

 
20,882

 

 
20,882

Dividends declared on common stock

 

 
33

 
(14,950
)
 

 
(14,917
)
Balance at September 30, 2018
48,116,379

 
$
481

 
$
833,840

 
$
(298,676
)
 
$

 
$
535,645

 
Nine Months Ended September 30, 2019
 
Common Stock Outstanding
 
Additional 
Paid-In Capital
 
Retained 
Earnings 
(Accumulated Deficit)
 
Treasury Stock
 
 
 
Shares
 
Par
 
 
 
 
Total
Balance at December 31, 2018
48,116,379

 
$
481

 
$
833,810

 
$
(331,282
)
 
$

 
$
503,009

Proceeds from public offerings of common stock
5,000,000

 
50

 
49,600

 

 

 
49,650

Offering costs

 

 
(350
)
 

 

 
(350
)
Equity component of convertible senior unsecured notes

 

 
1,390

 

 

 
1,390

Grants of restricted stock
108,000

 
1

 
(1
)
 

 

 

Vesting of restricted stock

 

 
399

 

 

 
399

Net income

 

 

 
58,210

 

 
58,210

Dividends declared on common stock

 

 
130

 
(48,078
)
 

 
(47,948
)
Balance at September 30, 2019
53,224,379

 
$
532

 
$
884,978

 
$
(321,150
)
 
$

 
$
564,360



4

Table of Contents

 
Nine Months Ended September 30, 2018
 
Common Stock Outstanding
 
Additional 
Paid-In Capital
 
Retained 
Earnings 
(Accumulated Deficit)
 
Treasury Stock
 
 
 
Shares
 
Par
 
 
 
 
Total
Balance at December 31, 2017
41,794,079

 
$
419

 
$
768,763

 
$
(301,912
)
 
$
(1,232
)
 
$
466,038

Proceeds from public offerings of common stock
6,196,578

 
62

 
64,818

 

 

 
64,880

Offering costs

 

 
(239
)
 

 

 
(239
)
Vesting of restricted stock

 

 
195

 

 

 
195

Treasury stock
125,722

 

 
213

 

 
1,232

 
1,445

Net income

 

 

 
44,064

 

 
44,064

Dividends declared on common stock

 

 
90

 
(40,828
)
 

 
(40,738
)
Balance at September 30, 2018
48,116,379

 
$
481

 
$
833,840

 
$
(298,676
)
 
$

 
$
535,645



See notes to unaudited consolidated financial statements.


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Table of Contents

Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)

 
For the nine months ended September 30, 2019
 
For the nine months ended September 30, 2018
Cash flows from operating activities:
 

 
 

Net income
$
58,210

 
$
44,064

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 

 
 

Premium amortization and (discount accretion), net
5,165

 
2,884

Amortization of deferred financing costs
942

 
576

Amortization of discount on convertible senior notes
461

 
412

Restricted stock amortization
399

 
195

Interest payments and basis recovered on MAC interest rate swaps
4,870

 
1,064

Premium on purchase of Residential Whole Loans
(6,940
)
 
(8,863
)
Premium on purchase of Residential Bridge Loans

 
(3,191
)
Premium on purchase of securitized commercial loans
(3,769
)
 
(3,019
)
Unrealized (gain) loss, net
(160,425
)
 
87,526

Realized loss on sale of real estate owned ("REO")
33

 

Unrealized (gain) loss on derivative instruments, net
(3,293
)
 
1,460

Other than temporary impairment
6,346

 
8,423

Realized (gain) loss on investments, net
(16,319
)
 
29,262

(Gain) loss on derivatives, net
2,068

 
(12,905
)
Changes in operating assets and liabilities:
 

 
 

Decrease (increase) in interest receivable
3,158

 
(8,266
)
Decrease (increase) in other assets
267

 
(599
)
Increase in interest payable
1,202

 
1,705

(Decrease) increase in accounts payable and accrued expenses
(134
)
 
221

(Decrease) increase in payable to affiliate
(2,589
)
 
448

Net cash (used in) provided by operating activities
(110,348
)
 
141,397

Cash flows from investing activities:
 

 
 

Purchase of securities
(1,468,473
)
 
(846,680
)
Proceeds from sale of securities
808,440

 
1,111,547

Proceeds from sale of REO
219

 

Principal repayments and basis recovered on securities
85,980

 
109,938

Purchase of Residential Whole Loans
(323,003
)
 
(493,365
)
Principal repayments on Residential Whole Loans
165,224

 
42,867

Purchase of commercial loans
(300,919
)
 
(164,570
)
Principal repayments on commercial loans
76,000

 
20,638

Purchase of securitized commercial loans
(900,000
)
 
(1,350,000
)
Principal repayments on securitized commercial loans
1,214,583

 
196,007

Purchase of Residential Bridge Loans

 
(356,584
)
Principal repayments on Residential Bridge Loans
186,989

 
197,099

Payment of premium for option derivatives
(780
)
 
(829
)
Premium received from option derivatives
2,157

 
298

Premium for credit default swaps, net
3,884

 
(174
)
Net settlements of TBAs

 
136

(Payments on) Proceeds from termination of futures, net
(6,718
)
 
8,823

Interest payments and basis recovered on MAC interest rate swaps
(4,870
)
 
(1,064
)
Due from counterparties
(3,720
)
 

Premium for interest rate swaptions, net
(332
)
 

Net cash used in investing activities
(465,339
)
 
(1,525,913
)
 
 
 
 

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Table of Contents

Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued) (in thousands)
(Unaudited)


 
For the nine months ended September 30, 2019
 
For the nine months ended September 30, 2018
Cash flows from financing activities:
 

 
 

Proceeds from issuance of common stock
49,650

 
64,880

Payment of offering costs
(490
)
 
(65
)
Repurchase of common stock

 
(1,733
)
Proceeds from sale of treasury stock

 
3,177

Proceeds from issuance of convertible senior notes
40,000

 

Proceeds from repurchase agreement borrowings
16,401,124

 
15,469,118

Repayments of repurchase agreement borrowings
(16,294,853
)
 
(15,251,485
)
Proceeds from securitized debt
1,757,464

 
1,285,219

Repayments of securitized debt
(1,233,153
)
 
(186,015
)
Payments made for deferred financing costs
(7,023
)
 

Due from counterparties, net
(46,813
)
 
5,417

Due to counterparties, net
(15,685
)
 
(422
)
Increase in other liabilities
(19,351
)
 
100,138

Dividends paid on common stock
(46,365
)
 
(38,782
)
Net cash provided by financing activities
584,505

 
1,449,447

 
 
 
 
Net increase in cash, cash equivalents and restricted cash
8,818

 
64,931

Cash, cash equivalents and restricted cash, beginning of period
77,795

 
48,024

Cash, cash equivalents and restricted cash, end of period
$
86,613

 
$
112,955

 
 
 
 
Supplemental disclosure of operating cash flow information:
 

 
 

Interest paid
$
113,746

 
$
96,030

   Income taxes paid
$
454

 
$
1,635

Supplemental disclosure of non-cash financing/investing activities:
 

 
 

Underwriting and offering costs payable
$
38

 
$
174

Principal payments of securities, not settled
$

 
$
42

Securities sold, not settled
$

 
$
34,559

Securities purchased, not settled
$
(71,146
)
 
$
(124,036
)
Net unsettled TBAs
$

 
$
(10
)
Dividends and distributions declared, not paid
$
16,499

 
$
14,916

Principal payments of Residential Whole Loans, not settled
$
21,621

 
$
11,061

Principal payments of Residential Bridge Loans, not settled
$
10,412

 
$
22,227

Other assets - Transfer of Bridge Loans to REO
$
3,536

 
$
143

See notes to unaudited consolidated financial statements.



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Table of Contents

Western Asset Mortgage Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(in thousands- except share and per share data)
 
The following defines certain of the commonly used terms in these Notes to Consolidated Financial Statements: “Agency” or “Agencies” refer to a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”), or an agency of the U.S. Government, such as the Government National Mortgage Association (“Ginnie Mae” or “GNMA”); references to “MBS” refer to mortgage backed securities, including residential mortgage-backed securities or “RMBS,” commercial mortgage-backed securities or “CMBS,” and “Interest-Only Strips” (as defined herein); “Agency MBS” refer to RMBS, CMBS and Interest-Only Strips issued or guaranteed by the Agencies while “Non-Agency MBS” refer to RMBS, CMBS and Interest-Only Strips that are not issued or guaranteed by the Agencies; references to “ARMs” refers to adjustable rate mortgages; references to “Interest-Only Strips” refer to interest-only (“IO”) and inverse interest-only (“IIO”) securities issued as part of or collateralized with MBS; references to “TBA” refer to To-Be-Announced Securities; and references to “Residential Whole Loans”, “Residential Bridge Loans” and “Commercial Loans” (collectively “Whole Loans”) refer to individual mortgage loans secured by single family, multifamily and commercial properties.

Note 1 — Organization
 
Western Asset Mortgage Capital Corporation, a Delaware corporation, and its subsidiaries (the “Company”), commenced operations in May 2012. The Company invests in, finances and manages a diversified portfolio of real estate related securities, Whole Loans and other financial assets.  The Company’s portfolio is comprised of Agency CMBS, Agency RMBS, Non-Agency RMBS, Non-Agency CMBS, Non-Qualified Residential Whole Loans ("Non-QM"), Conforming Residential Whole Loans, Residential Bridge Loans and Commercial Loans. In addition, and to a significantly lesser extent, the Company has invested in other securities including certain Agency obligations that are not technically MBS as well as certain Non U.S. CMBS and in asset-backed securities (“ABS”) investments secured by a portfolio of private student loans.  The Company’s investment strategy is based on Western Asset Management Company, LLC’s (the “Manager”) perspective of which mix of portfolio assets it believes provides the Company with the best risk-reward opportunities at any given time.  The Manager will vary the allocation among various asset classes subject to maintaining the Company’s qualification as a REIT and maintaining its exemption from the Investment Company Act of 1940, as amended (the “1940 Act”).  These restrictions limit the Company’s ability to invest in non-qualifying MBS, non-real estate assets and/or assets which are not secured by real estate.  Accordingly, the Company’s portfolio will continue to be principally invested in qualifying MBS, Whole Loans and other real estate related assets.
 
The Company is externally managed by the Manager, an investment advisor registered with the Securities and Exchange Commission (“SEC”).  The Manager is a wholly-owned subsidiary of Legg Mason, Inc.  The Company operates and has elected to be taxed as a real estate investment trust or “REIT” commencing with its taxable year ended December 31, 2012.
 
Note 2 — Basis of Presentation and Summary of Significant Accounting Policies
 
Basis of Presentation and Consolidation
 
The accompanying unaudited financial statements and related notes have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting in accordance with Article 10 of Regulation S-X and the instructions to Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary have been made to state fairly the Company’s financial position, results of operations and cash flows. The results of operations for the period ended September 30, 2019, are not necessarily indicative of the results to be expected for the full year or any future period. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 6, 2019.
 
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and variable interest entities (“VIEs”) in which it is considered the primary beneficiary.  All intercompany amounts between the Company and its subsidiaries and consolidated VIEs have been eliminated in consolidation.


8

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Variable Interest Entities
 
VIEs are defined as entities that by design either lack sufficient equity for the entity to finance its activities without additional subordinated financial support or are unable to direct the entity’s activities or are not exposed to the entity’s losses or entitled to its residual returns. The Company evaluates all of its interests in VIEs for consolidation. When the interests are determined to be variable interests, the Company assesses whether it is deemed the primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.
 
To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, it considers all facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes: first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers is deemed to have the power to direct the activities of a VIE.
 
To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, it considers all of its economic interests. This assessment requires the Company to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Company.
 
In instances where the Company and its related parties have variable interests in a VIE, the Company considers whether there is a single party in the related party group that meets both the power and losses or benefits criteria on its own as though no related party relationship existed.  If one party within the related party group meets both these criteria, such reporting entity is the primary beneficiary of the VIE and no further analysis is needed.  If no party within the related party group on its own meets both the power and losses or benefits criteria, but the related party group as a whole meets these two criteria, the determination of primary beneficiary within the related party group requires significant judgment. The analysis is based upon qualitative as well as quantitative factors, such as the relationship of the VIE to each of the members of the related-party group, as well as the significance of the VIE's activities to those members, with the objective of determining which party is most closely associated with the VIE. 
 
Ongoing assessments of whether an enterprise is the primary beneficiary of a VIE are required.
 
Use of Estimates
 
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

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, 2018.




    
 






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Recently adopted accounting pronouncements

Description
 
Adoption Date
 
Effect on Financial Statements
 
 
 
 
 
In July 2017, the FASB issued ASU 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivative and Hedges (Topic 815): Part I - Accounting for Certain Financial Instruments with Down Round Features and Part II - Replacement of the Indefinite Deferral for Mandatory Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatory Redeemable Noncontrolling Interest with a Scope Exception". Part I of this update changes the classification analysis of certain financial instruments (such as warrants and convertible instruments) with down round features. Down round features are features of certain equity-linked financial instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. Entities that present earnings per share are required to recognize the effect of the down round feature when it is triggered. The amendments in Part II of this update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.
 
First quarter 2019.
 
The adoption of this standard did not have a material impact on its consolidated financial statements.
 
 
 
 
 
In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting." The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.
 
First quarter 2019.
 
The adoption of this standard did not have a material impact on its consolidated financial statements.
 
 
 
 
 
In July 2018, the FASB issued ASU 2018-09, "Codification Improvements." The amendments in this update affect a wide variety of Topics in the Codification including derivatives and hedging, stock compensation-income taxes, distinguishing liabilities from equity, debt modification and extinguishment, reporting comprehensive income, business combinations-income taxes, financial services and Plan accounting.
 
First quarter 2019.
 
The adoption of this standard did not have a material impact on its consolidated financial statements.
 
 
 
 
 

Recently issued accounting pronouncements
Description
 
Effective Date
 
Effect on Financial Statements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This standard significantly changes how an entity will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through the income statement. The standard will replace the current "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For available for sale debt securities, entities will be required to record an allowance rather than reduce the carrying amount, as is currently done under the other than temporary impairment model. It also simplifies the accounting model for purchased credit impaired debt securities and loans.
 
First quarter 2020.
 
The Company is currently evaluating the impact the standard may have on its consolidated financial statements. However, since the Company elects the fair value option for its financial assets, it does not foresee the adoption of this guidance having a material impact on its financial statements
 
 
 
 
 
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in this update modify the disclosure requirements on fair value measurements including the consideration of costs and benefits.
 
First quarter 2020.
 
The Company is evaluating the impact this standard may have on its consolidated financial statements.

 
 
 
 
 
In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments." The amendments in this update represent changes to clarify, correct errors in, or improve the Codification. The amendments should make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarification.
 
First quarter 2020.
 
The Company is currently evaluating the impact the standard may have on its consolidated financial statements when adopted. However, the Company does not foresee the Codification Improvements having a material impact on its financial statements

 

 

In May 2019, the FASB issued ASU 2019-05, "Financial Instruments-Credit Losses (Topic 326). The amendments in this Update provide entities that have certain instruments within the scope of Subtopic 326-20 with an option to irrevocably elect the fair value option in the Subtopic 825-10, Financial Instruments-Overall, upon adoption of Topic 326. An entity that elects the fair value option should subsequently apply the guidance in Subtopic 820-10, Fair Value Measurement-Overall, and 825-10.
 
First quarter 2020.
 
The Company is currently evaluating the impact the standard may have on its consolidated financial statements. However, since the Company already elects the fair value option for its financial assets, it does not foresee the adoption of this guidance having a material impact on its financial statements
    

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Note 3 — Fair Value of Financial Instruments
 
The following tables present the Company’s financial instruments carried at fair value as of September 30, 2019 and December 31, 2018, based upon the valuation hierarchy (dollars in thousands):
 
 
September 30, 2019
 
Fair Value
 
Level I
 
Level II
 
Level III
 
Total
Assets
 

 
 

 
 

 
 

Agency CMBS
$

 
$
1,735,324

 
$
67,734

 
$
1,803,058

Agency CMBS Interest-Only Strips accounted for as derivatives, included in MBS

 
3,691

 

 
3,691

Agency RMBS

 
365,286

 

 
365,286

Agency RMBS Interest-Only Strips

 

 
10,940

 
10,940

Agency RMBS Interest-Only Strips accounted for as derivatives, included in MBS

 

 
5,869

 
5,869

Subtotal Agency MBS

 
2,104,301

 
84,543

 
2,188,844

 
 
 
 
 
 
 
 
Non-Agency RMBS

 

 
38,673

 
38,673

Non-Agency RMBS Interest-Only Strips

 

 
8,582

 
8,582

Non-Agency CMBS

 
291,748

 

 
291,748

Subtotal Non-Agency MBS

 
291,748

 
47,255

 
339,003

 
 
 
 
 
 
 
 
Other securities

 
65,237

 
17,775

 
83,012

Total mortgage-backed securities and other securities

 
2,461,286

 
149,573

 
2,610,859

 
 
 
 
 
 
 
 
Residential Whole Loans

 

 
1,209,237

 
1,209,237

Residential Bridge Loans

 

 
48,054

 
48,054

Securitized commercial loans

 

 
701,835

 
701,835

Commercial Loans

 

 
442,032

 
442,032

Derivative assets
808

 
3,229

 

 
4,037

Total Assets
$
808

 
$
2,464,515

 
$
2,550,731

 
$
5,016,054

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

Derivative liabilities
$
1,518

 
$
6,570

 
$

 
$
8,088

Securitized debt

 
610,306

 
1,976

 
612,282

Total Liabilities
$
1,518

 
$
616,876

 
$
1,976

 
$
620,370


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December 31, 2018
 
Fair Value
 
Level I
 
Level II
 
Level III
 
Total
Assets
 

 
 

 
 

 
 

Agency CMBS
$

 
$
1,481,984

 
$

 
$
1,481,984

Agency CMBS Interest-Only Strips accounted for as derivatives, included in MBS

 
4,158

 

 
4,158

Agency RMBS Interest-Only Strips

 

 
12,135

 
12,135

Agency RMBS Interest-Only Strips accounted for as derivatives, included in MBS

 

 
7,702

 
7,702

Subtotal Agency MBS

 
1,486,142

 
19,837

 
1,505,979

 
 
 
 
 
 
 
 
Non-Agency RMBS

 

 
39,026

 
39,026

Non-Agency RMBS Interest-Only Strips

 

 
11,529

 
11,529

Non-Agency CMBS

 
200,301

 

 
200,301

Subtotal Non-Agency MBS

 
200,301

 
50,555

 
250,856

 
 
 
 
 
 
 
 
Other securities

 
50,955

 
8,951

 
59,906

Total mortgage-backed securities and other securities

 
1,737,398

 
79,343

 
1,816,741

 
 
 
 
 
 
 
 
Residential Whole Loans

 

 
1,041,885

 
1,041,885

Residential Bridge Loans

 

 
211,999

 
211,999

Securitized commercial loan

 

 
1,013,511

 
1,013,511

Commercial Loans

 

 
216,123

 
216,123

Derivative assets

 
2,606

 

 
2,606

Total Assets
$

 
$
1,740,004

 
$
2,562,861

 
$
4,302,865

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

Derivative liabilities
$
4,657

 
$
5,473

 
$

 
$
10,130

Securitized debt

 
947,340

 
2,286

 
949,626

Total Liabilities
$
4,657

 
$
952,813

 
$
2,286

 
$
959,756

 
When available, the Company uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company will use independent pricing services and if the independent pricing service cannot price a particular asset or liability, the Company will obtain third party broker quotes.  The Manager’s pricing group, which functions independently from its portfolio management personnel, reviews the third party broker quotes by comparing the broker quotes for reasonableness to alternate sources when available.  If independent pricing services or third party broker quotes, are not available, the Company determines the fair value of the securities using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and when applicable, estimates of prepayments and credit losses.

In instances when the Company is required to consolidate a VIE that is determined to be a qualifying collateralized financing entity ("CFE"), under GAAP and the Company has elected the fair value option for the securitized debt, the Company will measure both the financial assets and financial liabilities of the VIE using the fair value of either the VIE’s financial assets or financial liabilities, whichever is more observable.

Mortgage-backed securities and other securities
 
In determining the proper fair value hierarchy or level, the Company considers the amount of available observable market data for each security. Agency CMBS, given the amount of available observable market data, generally are classified in Level II.  For newly issued Agency CMBS securities that have not settled at period end and do not have a cusip yet, the Company utilizes a broker quote due to lack of observable market data. Accordingly these securities are classified in Level III. For Agency IOs,

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Non-Agency RMBS, CMBS and other securities, to determine whether a security should be a Level II, the securities are grouped by security type and the Manager reviews the internal trade history, for the quarter, for each security type. If there is sufficient trade data above a predetermined threshold of a security type, the Manager determines it has sufficient observable market data and the security will be categorized as a Level II; otherwise, the security is classified as a Level III.
 
Values for the Company’s securities are based upon prices obtained from independent third party pricing services. The valuation methodology of the third party pricing services incorporates market information and commonly used market pricing methods, which include actual trades and quoted prices for similar or identical instruments, and are designed to produce a pricing process that is responsive to market conditions. Depending on the type of asset and the underlying collateral, the primary inputs to the model include yields for TBAs, Agency RMBS, the U.S. Treasury market and floating rate indices such as LIBOR, the Constant Maturity Treasury rate and the prime rate as a benchmark yield. In addition, the model may incorporate the current weighted average maturity and additional pool level information such as prepayment speeds, default frequencies and default severities, if applicable. When the third party pricing service cannot adequately price a particular security, the Company utilizes a broker’s quote which is reviewed for reasonableness by the Manager’s pricing group.

Residential Whole Loans and Residential Bridge Loans
 
Values for the Company's Non-QM Residential Whole Loans and Bridge Loans are based upon prices obtained from an independent third party pricing service that specializes in loan valuation, utilizing a discounted cash flow valuation model that is calibrated to recent loan trade execution. Their valuation methodology incorporates commonly used market pricing methods, which include the inputs considered most significant to the determination of fair value of the Company's Residential Whole Loans and Residential Bridge Loans. The key loan inputs include loan balance, interest rate, loan to value, FICO score and delinquencies. The assumption made by the independent third party pricing service includes the market discount rate, prepayment, default assumption and loss severity.
Values for the Conforming Residential Whole Loan Portfolio, the third party pricing service valuation model assigns a loan value using TBA prices, adjusted for delivery to Fannie Mae using Fannie Mae's loan-level price adjustment matrix. In addition to pricing the underlying mortgages, the third party pricing service uses a service release premium valuation representing the sale of the right to service the mortgages. Together, the TBA price and service release premium price form the "All-In" price for these mortgages.
The Company reviews the analysis provided by pricing service as well as the key assumptions made available to the company. Due to the inherent uncertainty of such valuation, the fair values established for residential loans held by the Company may differ from the fair values that would have been established if a readily available market existed for these loans. Accordingly, the Company's loans are classified as Level III.

Commercial Loans

Values for the Company's Commercial Loans are based upon either prices obtained from an independent third party pricing service that specializes in loan valuation, utilizing a valuation model that is calibrated to recent loan trade execution . Their valuation methodology incorporates commonly used market pricing methods, which include the inputs considered most significant to the determination of fair value of the Company's Commercial Loans. The assumptions made by the independent third party pricing vendor include a market discount rate, default assumption and loss severity. The Company reviews the analysis provided by pricing service as well as the key assumptions. Due to the inherent uncertainty of such valuation, the fair values established for commercial loans held by the Company may differ from the fair values that would have been established if a readily available market existed for these loans. Accordingly, the Company's commercial loans are classified as a Level III.
 
Securitized commercial loans
 
Values for the Company’s securitized commercial loans are based on the CFE valuation methodology.  Since there is an extremely limited market for the securitized commercial loans, the Company determined the securitized debt is more actively traded and therefore was more observable.  Due to the inherent uncertainty of such valuation, the Company classifies its securitized commercial loans as Level III.

Securitized debt

Values for the Company's securitized debt are based upon prices obtained from independent third party pricing services. The valuation methodology of the third party pricing services incorporates market information and commonly used market pricing methods, which include actual trades and quoted prices for similar or identical instruments. In determining the proper fair value hierarchy or level, the Company considers the amount of available observable market data for each security. Since the securitized

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debt represents traded debt securities, the Manager's pricing team reviews the trade activity during the quarter for each security to determine the appropriate level within the fair value hierarchy. If there is sufficient trade data above a predetermined threshold, the Manager determines it has sufficient observable market data and the debt security will be categorized as a Level II. If there is not sufficient observable market data the debt security will be categorized as a Level III.

Derivatives
 
Values for the Company's derivatives are based upon prices from third party pricing services, whose pricing is subject to review by the Manager’s pricing committee. In valuing its over-the-counter interest rate derivatives, such as swaps and swaptions, its currency derivatives, such as swaps and forwards and credit derivatives such as total return swaps, the Company considers the creditworthiness of both the Company and its counterparties, along with collateral provisions contained in each derivative agreement, from the perspective of both the Company and its counterparties. No credit valuation adjustment was made in determining the fair value of interest rate and/or currency derivatives for the periods ended September 30, 2019 and December 31, 2018.

Third Party Pricing Data Review
 
The Company performs quarterly reviews of the independent third party pricing data. These reviews may include a review of the valuation methodology used by third party valuation specialists and review of the daily change in the prices provided by the independent pricing vendor which exceed established tolerances or comparisons to executed transaction prices, utilizing the Manager’s pricing group.  The Manager’s pricing group, which functions independently from its portfolio management personnel, reviews the price differences or changes in price by comparing the vendor price to alternate sources including other independent pricing services or broker quotations.  If the price change or difference cannot be corroborated, the Manager’s pricing group consults with the portfolio management team for market color in reviewing such pricing data as warranted.  To the extent that the Manager has information, typically in the form of broker quotations that would indicate that a price received from the independent pricing service is outside of a tolerance range, the Manager generally challenges the independent pricing service price.
The following tables present a summary of the available quantitative information about the significant unobservable inputs used in the fair value measurement of financial instruments for which the Company has utilized Level III inputs to determine fair value as of September 30, 2019 and December 31, 2018 (dollars in thousands):
 
 
 Fair Value at
 
 
 
 
 
Range
 
 
 
 
September 30, 2019
 
Valuation Technique
 
Unobservable Input
 
Minimum
 
Maximum
 
Weighted Average
 
 
 

 
 
 
 
 
 

 
 
 
 
Residential Whole-Loans(2)
 
1,015,712

 
Discounted Cash Flow
 
Yield
 
3.3
%
 
7.5
%
 
3.7
%
 
 
 
 
 
 
Weighted Average Life
 
1.3

 
14.9

 
2.6

Residential Bridge Loans
 
48,054

 
Discounted Cash Flow
 
Yield
 
7.0
%
 
144.0
%
(1) 
9.8
%
 
 
 
 
 
 
Weighted Average Life
 
0.1

 
2.7

 
0.8

Commercial Loans
 
442,032

 
Discounted Cash Flow
 
Yield
 
4.5
%
 
8.6
%
 
6.4
%
 
 
 
 
 
 
Weighted Average Life
 
0.2

 
2.9

 
1.8



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 Fair Value at
 
 
 
 
 
Range
 
 
 
 
December 31, 2018
 
Valuation Technique
 
Unobservable Input
 
Minimum
 
Maximum
 
Weighted Average
 
 
 

 
 
 
 
 
 

 
 
 
 
Residential Whole-Loans
 
1,041,885

 
Discounted Cash Flow
 
Yield
 
3.5
%
 
7.9
%
 
5.5
%
 
 
 
 
 
 
Weighted Average Life
 
0.8

 
10.3

 
2.8

Residential Bridge Loans
 
211,999

 
Discounted Cash Flow
 
Yield
 
5.6
%
 
145.3
%
(1) 
11.3
%
 
 
 
 
 
 
Weighted Average Life
 
0.1

 
1.6

 
0.5

Commercial Loans
 
216,123

 
Discounted Cash Flow
 
Yield
 
6.7
%
 
9.2
%
 
7.6
%
 
 
 
 
 
 
Weighted Average Life
 
0.9

 
2.7

 
2.1

 
(1)
Yield to maturity is the total return on the loan expressed as an annual rate. Delinquent Bridge Loans that are nearing maturity and with fair value that is significantly less than the principal amount have a higher yield to maturity, some of which are greater than 100%.
(2)
Excludes the Conforming Residential Whole Loans, which are valued using TBA prices, adjusted for delivery to Fannie Mae using Fannie Mae's loan-level price adjustment matrix.

The following tables present additional information about the Company’s financial instruments which are measured at fair value on a recurring basis for which the Company has utilized Level III inputs to determine fair value:
 
Three months ended September 30, 2019
$ in thousands
Agency MBS
 
Non-Agency MBS
 
Other Securities
 
Residential 
Whole Loans
 
Residential
Bridge Loans
 
Commercial Loans
 
Securitized 
commercial 
loans
 
Securitized debt
Beginning balance
$
58,917

 
$
47,187

 
$
17,797

 
$
1,206,220

 
$
87,402

 
$
312,032

 
$
804,134

 
$
2,876

Transfers into Level III from Level II

 

 

 

 

 

 

 

Transfers from Level III into Level II
(43,686
)
 

 

 

 

 

 

 

Purchases
68,633

 

 

 
80,725

 

 
129,730

 

 

Sales and settlements
(401
)
 

 

 

 

 

 

 

Transfers to REO

 

 

 

 
(2,677
)
 

 

 

Principal repayments

 
(311
)
 
(253
)
 
(78,672
)
 
(36,978
)
 

 
(100,700
)
 

Total net gains / losses included in net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized gains/(losses), net on assets

 

 

 

 
(195
)
 

 

 

Other than temporary impairment
(193
)
 
(27
)
 

 

 

 

 

 

Unrealized gains/(losses), net on assets(1)
2,256

 
970

 
305

 
1,875

 
569

 
204

 
(845
)
 

Unrealized (gains)/losses, net on liabilities(2)

 

 

 

 

 

 

 
(71
)
Premium and discount amortization, net
(983
)
 
(564
)
 
(74
)
 
(911
)
 
(67
)
 
66

 
(754
)
 
(829
)
Ending balance
$
84,543

 
$
47,255

 
$
17,775

 
$
1,209,237

 
$
48,054

 
$
442,032

 
$
701,835

 
$
1,976

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains/(losses), net on assets held at the end of the period(1)
$
844

 
$
970

 
$
305

 
$
3,239

 
$
(41
)
 
$
204

 
$
(845
)
 
$

Unrealized gains/(losses), net on liabilities held at the end of the period(2)
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$
71


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Three months ended September 30, 2018
$ in thousands
Agency MBS
 
Non-Agency MBS
 
Other Securities
 
Residential 
Whole Loans
 
Residential
Bridge Loans
 
Commercial Loans
 
Securitized 
commercial 
loan
 
Securitized debt
Beginning balance
$
75,043

 
$
16,307

 
$
8,955

 
$
335,149

 
$
236,359

 
$
70,717

 
$
1,309,195

 
$
2,870

Transfers into Level III from Level II

 
57,275

 
9,708

 

 

 

 

 

Transfers from Level III into Level II
(51,976
)
 

 
(8,697
)
 

 

 

 

 

Purchases
107,034

 

 

 
372,348

 
70,465

 
94,313

 

 

Principal repayments
(42
)
 
(14
)
 
(285
)
 
(21,258
)
 
(70,341
)
 
(20,638
)
 
(117,100
)
 

Total net gains / losses included in net income
 
 
 
 
0

 
 

 
 
 
 
 
 

 
 

Other than temporary impairment
(384
)
 
(142
)
 

 

 

 

 

 

Unrealized gains/(losses), net on assets(1)
(1,007
)
 
(95
)
 
(15
)
 
(1,469
)
 
(1,103
)
 
(575
)
 
282

 

Unrealized (gains)/losses, net on liabilities(2)

 

 

 

 

 

 

 
(330
)
Premium and discount amortization, net
(1,335
)
 
(544
)
 
42

 
(307
)
 
(633
)
 
134

 
(1,329
)
 
66

Ending balance
$
127,333

 
$
72,787

 
$
9,708

 
$
684,463

 
$
234,747

 
$
143,951

 
$
1,191,048

 
$
2,606

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains/(losses), net on assets held at the end of the period(1)
$
(668
)
 
$
(94
)
 
$

 
$
(1,231
)
 
$
(844
)
 
$
(618
)
 
$
282

 
$

Unrealized gains/(losses), net on liabilities held at the end of the period(2)
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$
330


 
Nine months ended September 30, 2019
$ in thousands
Agency MBS
 
Non-Agency MBS
 
Other Securities
 
Residential 
Whole-Loans
 
Residential
Bridge Loans
 
Commercial Loans
 
Securitized 
commercial 
loan
 
Securitized debt
Beginning balance
$
19,837

 
$
50,555

 
$
8,951

 
$
1,041,885

 
$
211,999

 
$
216,123

 
$
1,013,511

 
$
2,286

Transfers into Level III from Level II

 

 
8,386

 

 

 

 

 

Transfers from Level III into Level II

 

 

 

 

 

 

 

Purchases
66,641

 

 

 
318,130

 

 
225,109

 
903,770

 

Sales and settlements
(401
)
 

 

 

 

 

 

 
3,769

Transfers to REO

 

 

 

 
(2,677
)
 

 

 

Principal repayments

 
(837
)
 
(439
)
 
(166,015
)
 
(160,240
)
 

 
(1,214,584
)
 

Total net gains / losses included in net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized gains/(losses), net on assets

 

 

 

 
(444
)
 

 

 

Other than temporary impairment
(222
)
 
(1,204
)
 

 

 

 

 

 

Unrealized gains/(losses), net on assets(1)
1,776

 
494

 
1,123

 
17,281

 
80

 
368

 
1,076

 

Unrealized (gains)/losses, net on liabilities(2)