WESTERN ASSET MORTGAGE CAPITAL CORP, 10-K filed on 3/6/2020
Annual Report
v3.19.3.a.u2
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
Mar. 03, 2020
Jun. 30, 2019
Document and Entity Information      
Entity Registrant Name Western Asset Mortgage Capital Corp    
Entity Central Index Key 0001465885    
Current Fiscal Year End Date --12-31    
Entity Filer Category Accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 31, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Common Stock, Shares Outstanding (in shares)   53,523,876  
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
Entity Public Float     $ 514,733,789
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Assets:    
Cash and cash equivalents $ 31,331 $ 21,987
Restricted cash 52,948 55,808
Residential Whole-Loans, at fair value ($1,375,860 and $1,041,885 pledged as collateral, at fair value, respectively) 1,375,860 1,041,885
Residential Bridge Loans ($33,269 and $211,999 at fair value and $34,897 and $221,486 pledged as collateral, respectively) 36,419 221,719
Securitized commercial loans, at fair value 909,040 1,013,511
Commercial Loans, at fair value 350,213 196,123
Commercial Loans, at fair value ($350,213 and $196,123 pledged as collateral, at fair value, respectively) 370,213 216,123
Investment related receivable 19,931 42,945
Interest receivable 19,413 21,959
Due from counterparties 98,947 39,623
Derivative assets, at fair value 5,111 2,606
Other assets 4,509 2,488
Total assets 5,160,971 4,497,395
Liabilities:    
Repurchase agreements, net 2,824,801 2,818,837
Convertible senior unsecured notes, net 197,299 110,060
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively) 1,477,454 949,626
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively) 15,001 8,532
Due to counterparties 709 17,781
Derivative liability, at fair value 6,370 10,130
Accounts payable and accrued expenses 3,188 3,858
Payable to affiliate 2,148 4,615
Dividend payable 16,592 14,916
Other liabilities 52,948 56,031
Total liabilities 4,596,510 3,994,386
Commitments and contingencies
Stockholders' Equity:    
Common stock, $0.01 par value, 500,000,000 shares authorized, and 53,523,876 and 48,116,379 outstanding, respectively 535 481
Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding 0 0
Additional paid-in capital 889,227 833,810
Retained earnings (accumulated deficit) (325,301) (331,282)
Total Stockholders' Equity 564,461 503,009
Total Liabilities and Stockholders' Equity 5,160,971 4,497,395
Subtotal Agency MBS    
Assets:    
Estimated Fair Value 1,795,255 1,505,979
Non-Agency MBS    
Assets:    
Estimated Fair Value 361,833 250,856
Other securities    
Assets:    
Estimated Fair Value 80,161 59,906
VIE    
Assets:    
Cash and cash equivalents 7,589 674
Restricted cash 52,948 55,808
Residential Whole-Loans, at fair value ($1,375,860 and $1,041,885 pledged as collateral, at fair value, respectively)   1,041,885
Residential Bridge Loans ($31,748 and $211,766 at fair value and $34,897 and $221,486 pledged as collateral, respectively) 34,897 221,486
Securitized commercial loans, at fair value 909,040 1,013,511
Commercial Loans, at fair value 90,788 196,123
Investment related receivable   42,945
Interest receivable 10,829 15,540
Other assets 90 178
Total assets 2,501,179 2,588,150
Liabilities:    
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively) 1,477,454 949,626
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively) 3,886 2,419
Accounts payable and accrued expenses 185 708
Other liabilities 52,948 56,033
Total liabilities 1,534,473 1,008,786
Residential Whole-Loan And Residential Bridge Loan | VIE    
Assets:    
Cash and cash equivalents 1,811 674
Residential Whole-Loans, at fair value ($1,375,860 and $1,041,885 pledged as collateral, at fair value, respectively) 1,375,860 1,041,885
Residential Bridge Loans ($31,748 and $211,766 at fair value and $34,897 and $221,486 pledged as collateral, respectively) 34,897 221,486
Commercial Loans, at fair value 0 30,000
Investment related receivable 19,138 42,945
Interest receivable 7,840 11,807
Other assets 90 178
Total assets 1,439,636 1,348,975
Liabilities:    
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively) 795,811 0
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively) 2,367 0
Accounts payable and accrued expenses 173 677
Other liabilities 0 225
Total liabilities $ 798,351 $ 902
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Fair value of residential whole-loans pledged as collateral $ 1,375,860 $ 1,041,885
Residential bridge loan. at fair value 33,269 211,999
Commercial Loans, at fair value 350,213 196,123
Securitized debt 1,057  
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively) 1,477,454 949,626
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively) $ 15,001 $ 8,532
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 500,000,000 500,000,000
Common stock, shares issued (in shares) 53,523,876 48,116,379
Common stock, shares outstanding (in shares) 53,523,876 48,116,379
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 100,000,000 100,000,000
Preferred stock, shares outstanding (in shares) 0 0
Cash and cash equivalents $ 31,331 $ 21,987
Restricted cash 52,948 55,808
Residential Whole-Loans, at fair value ($1,375,860 and $1,041,885 pledged as collateral, at fair value, respectively) 1,375,860 1,041,885
Securitized commercial loans, at fair value 909,040 1,013,511
Investment related receivable 19,931 42,945
Interest receivable 19,413 21,959
Other assets 4,509 2,488
Assets 5,160,971 4,497,395
Accounts payable and accrued expenses 3,188 3,858
Other liabilities 52,948 56,031
Liabilities 4,596,510 3,994,386
Subtotal Agency MBS    
Fair value of mortgage-backed securities pledged as collateral 1,756,917 1,505,979
Non-Agency MBS    
Fair value of mortgage-backed securities pledged as collateral 292,613 237,107
Other securities    
Fair value of mortgage-backed securities pledged as collateral 80,031 59,780
Affiliated Entity    
Securitized debt 681,643 949,626
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively) 142,905 246,802
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively) 647 816
VIE    
Commercial Loans, at fair value 90,788 196,123
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively) 1,477,454 949,626
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively) 3,886 2,419
Cash and cash equivalents 7,589 674
Restricted cash 52,948 55,808
Residential Whole-Loans, at fair value ($1,375,860 and $1,041,885 pledged as collateral, at fair value, respectively)   1,041,885
Borrowings under repurchase agreements 31,748 211,766
Residential Bridge Loans ($31,748 and $211,766 at fair value and $34,897 and $221,486 pledged as collateral, respectively) 34,897 221,486
Securitized commercial loans, at fair value 909,040 1,013,511
Investment related receivable   42,945
Interest receivable 10,829 15,540
Other assets 90 178
Assets 2,501,179 2,588,150
Accounts payable and accrued expenses 185 708
Other liabilities 52,948 56,033
Liabilities 1,534,473 1,008,786
VIE | Affiliated Entity    
Securitized debt 681,643 949,626
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively) 142,905 246,802
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively) 647 816
VIE | Residential Whole-Loan And Residential Bridge Loan    
Commercial Loans, at fair value 0 30,000
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively) 795,811 0
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively) 2,367 0
Cash and cash equivalents 1,811 674
Residential Whole-Loans, at fair value ($1,375,860 and $1,041,885 pledged as collateral, at fair value, respectively) 1,375,860 1,041,885
Residential Bridge Loans ($31,748 and $211,766 at fair value and $34,897 and $221,486 pledged as collateral, respectively) 34,897 221,486
Investment related receivable 19,138 42,945
Interest receivable 7,840 11,807
Other assets 90 178
Assets 1,439,636 1,348,975
Accounts payable and accrued expenses 173 677
Other liabilities 0 225
Liabilities $ 798,351 $ 902
v3.19.3.a.u2
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Net Interest Income      
Interest income $ 217,264 $ 209,362 $ 124,291
Interest expense (includes $5,674, $13,739 and $981 on securitized debt held by affiliates, respectively) 150,274 138,240 48,373
Net Interest Income 66,990 71,122 75,918
Other Income (Loss)      
Realized gain (loss) on sale of investments, net 28,278 (63,257) 20,598
Other than temporary impairment 8,574 11,180 22,873
Unrealized gain (loss), net 107,529 (24,671) 28,396
Gain (loss) on derivative instruments, net (103,727) 77,969 3,292
Other, net 2,204 (189) 1,031
Other Income (Loss) 25,710 (21,328) 30,444
Expenses      
Management fee to affiliate 7,354 8,673 8,100
Other operating expenses 5,519 6,076 2,419
General and administrative expenses:      
Compensation expense 2,591 2,186 2,692
Professional fees 3,980 4,299 3,242
Other general and administrative expenses 1,500 1,442 1,325
Total general and administrative expenses 8,071 7,927 7,259
Total Expenses 20,944 22,676 17,778
Income before income taxes 71,756 27,118 88,584
Income tax provision (benefit) 1,057 709 3,487
Net income $ 70,699 $ 26,409 $ 85,097
Net income per Common Share — Basic (in dollars per share) $ 1.37 $ 0.61 $ 2.03
Net income per Common Share — Diluted (in dollars per share) $ 1.37 $ 0.61 $ 2.03
v3.19.3.a.u2
Consolidated Statements of Operations (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Interest Expense $ 150,274 $ 138,240 $ 48,373
Affiliated Entity      
Interest Expense $ 5,674 $ 13,739 $ 981
v3.19.3.a.u2
Consolidated Statements of Changes in Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock Outstanding
Additional Paid-In Capital
Retained Earnings (Accumulated) Deficit
Treasury Stock
Balance (in shares) at Dec. 31, 2016   41,919,801      
Balance at Dec. 31, 2016 $ 430,482 $ 419 $ 765,042 $ (334,979) $ 0
Increase (Decrease) in Stockholders' Equity          
Vesting of restricted stock 981   981    
Equity component of convertible senior unsecured notes 2,656   2,656    
Treasury stock (in shares)   (125,722)      
Treasury Stock (1,232)       (1,232)
Net income (loss) 85,097     85,097  
Dividends on common stock (51,946)   84 (52,030)  
Balance (in shares) at Dec. 31, 2017   41,794,079      
Balance at Dec. 31, 2017 466,038 $ 419 768,763 (301,912) (1,232)
Increase (Decrease) in Stockholders' Equity          
Vesting of restricted stock 265   265    
Treasury Stock (in shares)   125,722      
Treasury Stock 1,445   213   1,232
Net income (loss) 26,409     26,409  
Dividends on common stock (55,655)   124 (55,779)  
Proceeds from public offerings of common stock (in shares)   6,196,578      
Net proceeds from public offerings of common stock 64,880 $ 62 64,818    
Offering costs $ (373)   (373)    
Balance (in shares) at Dec. 31, 2018 48,116,379 48,116,379      
Balance at Dec. 31, 2018 $ 503,009 $ 481 833,810 (331,282) 0
Increase (Decrease) in Stockholders' Equity          
Vesting of restricted stock 564   564    
Equity component of convertible senior unsecured notes 2,445   2,445    
Net income (loss) 70,699     70,699  
Dividends on common stock (64,540)   178 (64,718)  
Proceeds from public offerings of common stock (in shares)   5,299,497      
Net proceeds from public offerings of common stock 52,714 $ 53 52,661    
Offering costs (430)   (430)    
Grants of restricted stock (in shares)   108,000      
Grants of restricted stock $ 0 $ 1 (1)    
Balance (in shares) at Dec. 31, 2019 53,523,876 53,523,876      
Balance at Dec. 31, 2019 $ 564,461 $ 535 $ 889,227 $ (325,301) $ 0
v3.19.3.a.u2
Consolidated Statements of Cash Flows
$ in Thousands
12 Months Ended
Dec. 31, 2019
USD ($)
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Statement of Cash Flows [Abstract]      
Net income (loss) $ 70,699 $ 26,409 $ 85,097
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Premium amortization and (discount accretion), net 7,398 5,374 (2,070)
Interest income earned added to principal of securities 0 0 (46)
Amortization of deferred financing costs 1,488 767 192
Amortization of Debt Discount (Premium) 718 550 137
Restricted stock amortization 564 265 981
Interest payments and basis recovered on MAC interest rate swaps 5,772 2,465 525
Premium on purchase of Residential Whole Loans (15,304) (15,850) (1,239)
Premium on purchase of Residential Bridge Loans 0 (3,889) (753)
Premium on purchase of securitized commercial loans (3,769) (3,019) 0
Unrealized (gain) loss, net (107,529) 24,671 (28,396)
Unrealized (gain) loss on derivative instruments, net (9,390) 10,381 (148,308)
Other than temporary impairment 8,574 11,180 22,873
Realized loss on sale of real estate owned (REO), net 90 0 0
Realized (gain) loss on sale of investments, net (28,368) 63,257 (20,598)
Other Settlements / Expirations 9,631 (10,316) 156,076
Loss on foreign currency transactions, net 0 0 1
Changes in operating assets and liabilities:      
Decrease (increase) in interest receivable 2,546 (8,356) 5,209
Decrease (increase) in other assets 1,157 (184) (1,763)
Increase (decrease) in interest payable 6,469 210 (7,719)
(Decrease) increase in accounts payable and accrued expenses (519) 563 (274)
(Decrease) increase in payable to related party (2,467) 2,574 (543)
Net cash (used in) provided by operating activities (52,240) 107,052 59,382
Cash flows from investing activities:      
Purchase of securities (1,581,485) (1,128,399) (2,881,276)
Proceeds from sale of securities 1,136,617 2,430,054 1,593,914
Principal repayments and basis recovered on securities 126,091 123,837 240,785
Proceeds from sale of REO 1,033 0 0
Purchase of Residential Whole Loans (563,821) (873,911) (87,640)
Principal repayments on Residential Whole Loans 254,125 76,942 42,176
Purchase of commercial loans (350,232) (235,857) 0
Principal repayments on commercial loans 197,245 20,638 0
Purchase of securitized commercial loans (1,109,461) (1,350,000) 0
Principal repayments on securitized commercial loans 1,214,688 361,781 154
Purchase of Residential Bridge Loans 0 (418,953) (142,913)
Principal repayments on Residential Bridge Loans 211,316 274,964 31,794
Payment of premium for option derivatives (780) (1,757) (16,355)
Premium received from option derivatives 2,158 1,236 14,553
Premium for credit default swaps, net 3,885 (297) 74
Net settlements of TBAs 1,934 (800) 4,035
Proceeds from (Payments on) termination of futures, net (12,862) 6,112 (9,130)
Due from counterparties, net (2,850) 0 8,449
Payments on total return swaps 0 0 (552)
Interest payments and basis recovered on MAC interest rate swaps (5,772) (2,465) (525)
Premium for interest rate swaptions, net (332) 0 (115)
Net cash used in investing activities (478,503) (716,875) (1,202,572)
Cash flows from financing activities:      
Net proceeds from issuance of common stock 52,714 64,880 0
Payment of offering costs (580) (195) (94)
Repurchase of common stock 0 (1,733) (1,094)
Proceeds from sale of treasury stock 0 3,177 0
Proceeds from repurchase agreement borrowings 21,381,571 21,472,963 18,438,166
Proceeds from convertible note offering 90,625 0 115,000
Repayments of repurchase agreement borrowings (21,375,531) (21,905,812) (17,342,124)
Proceeds from securitized debt 1,828,361 1,285,219 0
Repayments of securitized debt (1,292,141) (344,612) (68)
Proceeds from forward contracts 0 0 8,246
Repayments of forward contracts 0 0 (8,214)
Payments made for deferred financing costs (8,522) 0 (3,837)
Due from counterparties, net (56,474) 47,307 (9,707)
Due to counterparties, net (17,072) 16,291 750
Increase (decrease) in other liabilities, net (2,860) 55,808 0
Dividends paid on common stock (62,864) (53,699) (51,981)
Net cash provided by financing activities 537,227 639,594 1,145,043
Effect of exchange rate changes on cash and cash equivalents 0 0 (1)
Net increase in cash and cash equivalents 6,484 29,771 1,852
Cash, cash equivalents and restricted cash, beginning of period 77,795 48,024 46,172
Cash, cash equivalents and restricted cash, end of period 84,279 77,795 48,024
Supplemental disclosure of operating cash flow information:      
Interest paid 144,987 138,524 43,032
Income taxes paid 549 1,635 4,966
Supplemental disclosure of non-cash financing/investing activities:      
Underwriting and offering costs payable 27 177 0
Repurchase of common stock, not settled 0 0 (137)
Securities purchased, not settled 0 0 (17,217)
Derivative collateral offset against derivatives 0 0 (157,913)
Dividends and distributions declared, not paid 16,592 14,916 12,960
Principal payments of Residential Whole Loans, not settled 17,254 9,230 2,286
Principal payments of Residential Bridge Loans, not settled 1,949 33,717 5,381
Other assets - Transfer of Bridge Loans to REO 5,029 143 0
Proceeds from sale of REO, not settled 728 0 0
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract]      
Cash and cash equivalents 31,331 21,987 48,024
Restricted cash $ 52,948 $ 55,808 $ 0
v3.19.3.a.u2
Organization
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization 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 (including TBAs), 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 ("Legg Mason"). 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.
v3.19.3.a.u2
Basis of Presentation and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying financial statements and related notes have been prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"). 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.
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.

Earnings (Loss) Per Share
 
GAAP requires use of the two-class method in computing earnings per share for all periods presented for each class of common stock and participating securities as if all earnings for the period had been distributed.  Under the two-class method, during periods of net income, the net income is first reduced for dividends declared on all classes of securities to arrive at undistributed earnings.  During periods of net losses, the net loss is reduced for dividends declared on participating securities only if the security has the right to participate in the earnings of the entity and an objectively determinable contractual obligation to share in net losses of the entity.  The Company’s participating securities are not allocated a share of the net loss, as the participating securities do not have a contractual obligation to share in the net losses of the Company.

The remaining earnings are allocated to common stockholders and participating securities, to the extent that each security shares in earnings, as if all of the earnings for the period had been distributed.  Each total is then divided by the applicable number of weighted average outstanding common shares to arrive at basic earnings per share.  For the diluted earnings, the denominator includes the weighted average outstanding common shares and all potential common shares assumed issued if they are dilutive.  The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of these potential common shares.
 
Offering Costs
 
Offering costs borne by the Company in connection with common stock offerings and private placements are reflected as a reduction of additional paid-in-capital. Offering costs borne by the Company in connection with its shelf registration will be deferred and recorded in "Other assets" until such time the Company completes a common stock offering where all or a portion will be reclassified and reflected as a reduction of additional paid-in-capital. The deferred offering costs will be expensed upon the expiration of the shelf if the Company does not complete an equity offering.

Cash and Cash Equivalents
 
The Company considers all highly liquid short-term investments with original maturities of 90 days or less when purchased to be cash equivalents.  Cash and cash equivalents are exposed to concentrations of credit risk. The Company places its cash and cash equivalents with what it believes to be high credit quality institutions. At times such investments may be in excess of the Federal Deposit Insurance Corporation insurance limit.

Restricted Cash

Restricted cash represents cash held by the trustee or servicer for mortgage escrows in connection with the Company's securitized loan and commercial loan investments held in its consolidated VIEs. These escrows consist of principal and interest escrows, capital improvement reserves, repair reserves, real estate tax and insurance reserves and tenant reserves. The corresponding liability is recorded in "Other liabilities" in the Consolidated Balance Sheets. The restricted cash is not available for general corporate use.

Valuation of Financial Instruments
 
The Company discloses the fair value of its financial instruments according to a fair value hierarchy (Levels I, II, and III, as defined below). ASC 820, "Fair Value Measurement and Disclosures" establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value measurements. ASC 820 further specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:
 
Level I — Quoted prices in active markets for identical assets or liabilities.
 
Level II — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
 
Level III — Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, for example, when there is little or no market activity for an investment at the end of the period, unobservable inputs may be used.
 
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.  Transfers between levels are determined by the Company at the end of the reporting period. Refer to Note 3 - "Fair Value of Financial Instruments."

Mortgage-Backed Securities and Other Securities
 
The Company's mortgage-backed securities and other securities portfolio primarily consists of Agency CMBS, Non-Agency CMBS, Agency RMBS, Non-Agency RMBS, ABS and other real estate related securities, these investments are recorded in accordance with ASC 320, “Investments - Debt and Equity Securities” and ASC 325-40, “Beneficial Interests in Securitized Financial Assets.” The Company has chosen to elect the fair value option pursuant to ASC 825, “Financial Instruments” for its mortgage-backed securities and other securities portfolio. Electing the fair value option allows the Company to record changes in fair value in the Consolidated Statements of Operations as a component of “Unrealized gain (loss), net.”

If the Company purchases securities with evidence of credit deterioration, it will analyze to determine if the guidance found in ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” is applicable.

The Company evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis. The determination of whether a security is other-than-temporarily impaired involves judgments, estimates and assumptions based on subjective and objective factors. As a result, the timing and amount of an OTTI constitutes an accounting estimate that may change materially over time.

When the fair value of an investment security is less than its amortized cost at the balance sheet date, the security is considered impaired, and the impairment is designated as either “temporary” or “other-than-temporary.” When a security is impaired, an OTTI is considered to have occurred if (i) the Company intends to sell the security (i.e., a decision has been made as
of the reporting date) or (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If the Company intends to sell the security or if it is more likely than not that the Company will be required to sell the real estate security before recovery of its amortized cost basis, the entire amount of the impairment loss, if any, is recognized in earnings as OTTI and the cost basis of the security is adjusted to its fair value. Additionally, for securities accounted for under ASC 325-40 an OTTI is deemed to have occurred when there is an adverse change in the expected cash flows to be received and the fair value of the security is less than its carrying amount. In determining whether an adverse change in cash flows occurred, the present value of the remaining cash flows, as estimated at the initial transaction date (or the last date previously revised), is compared to the present value of the expected cash flows at the current reporting date. The estimated cash flows reflect those a “market participant” would use and are discounted at a rate equal to the current yield used to accrete interest income. Any resulting OTTI adjustments are reflected in the “Other than temporary impairment” in the Consolidated Statements of Operations.

Increases in interest income may be recognized on a security in which the Company previously recorded an OTTI charge if the cash flow of such security subsequently improves.

In addition, unrealized losses on the Company's Agency securities, with explicit guarantee of principal and interest by the governmental sponsored entity ("GSE"), are not credit losses but rather were due to changes in interest rates and prepayment expectations. These securities would not be considered other than temporarily impaired provided the Company did not intend to sell the security.

Residential Whole Loans

Investments in Residential Whole Loans are recorded in accordance with ASC 310-20, "Nonrefundable Fees and Other Costs." The Company has chosen to elect the fair value option pursuant to ASC 825 for our entire Residential Whole-Loan portfolio. Residential Whole Loans are recorded at fair value with periodic changes in fair market value being recorded in earnings as a component of "Unrealized gain (loss), net." All other costs incurred in connection with acquiring Residential Whole Loans or committing to purchase these loans are charged to expense as incurred.

On a quarterly basis, the Company evaluates the collectability of both interest and principal of each loan, if circumstances warrant, to determine whether such loan is impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the Company does not record an allowance for loan loss as it has elected the fair value option. However, income recognition is suspended for loans at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated.

Residential Bridge Loans

For the Bridge Loans acquired prior to October 25, 2017, the Company did not elect the fair value option pursuant to ASC 825. These loans are recorded at their principal amount outstanding, net of any premium or discount. Commencing with purchases on October 25, 2017, the Company decided to elect the fair value option pursuant to ASC 825 to be consistent with the accounting of its' other investments, which are all carried at fair value. These loans are recorded at fair value with periodic changes in fair market value being recorded in earnings as a component of "Unrealized gain (loss), net." All other costs incurred in connection with acquiring the Residential Bridge Loans or committing to purchase these loans are charged to expense as incurred.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. The Company evaluates each of its Residential Bridge Loans on a quarterly basis. These loans are individually specific as they relate to the borrower, collateral type, interest rate, LTV and term as well as geographic location. The Company evaluates the collectability of both principal and interest of each loan. When a loan is impaired, the impairment is then measured based on fair value of the collateral less cost to sell, since these loans are collateral dependent. For loans the Company did not elect the fair value option, upon measurement of impairment, the Company records an allowance to reduce the carrying value of the loan with a corresponding charge to earnings. Significant judgments are required in determining impairment, including assumptions regarding the value of the loan, the value of the underlying collateral and other
provisions such as guarantees. The Company will not record an allowance for loan loss for the Residential Bridge Loans that it has elected the fair value option.

Income recognition is suspended for loans at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated.

Securitized Commercial Loans

Securitized commercial loans are comprised of commercial loans of consolidated variable interest entities which were sponsored by third parties. These loans are recorded in accordance with ASC 310-20, "Nonrefundable Fees and Other Costs." The Company has chosen to elect the fair value option pursuant to ASC 825. Accordingly, these loans are recorded at fair value with periodic changes in fair value being recorded in earnings as a component of "Unrealized gain (loss), net."

The securitized commercial loans are typically collateralized by commercial real estate. As a result, the Company regularly evaluates the extent and impact of any credit migration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower on a loan by loan basis. On a quarterly basis, the Company evaluates the collectability of both interest and principal of each loan, if circumstances warrant, to determine whether such loan is impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the Company does not record an allowance for loan loss as the Company has elected the fair value option.  However, income recognition is suspended for loans at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed. Interest income accrual is resumed when the loan becomes contractually current and performance is demonstrated.

Commercial Loans

Investments in Commercial Loans, which are comprised of first lien commercial mortgage loans and commercial mezzanine loans, are recorded in accordance with ASC 310-20, "Nonrefundable Fees and Other Costs." The Company has chosen to make the fair value election pursuant to ASC 825 for its Commercial Loan portfolio. Accordingly, these loans are recorded at fair value with periodic changes in fair value being recorded in earnings as a component of "Unrealized gain (loss), net." All other costs incurred in connection with acquiring the Commercial Loans or committing to purchase these loans are charged to expense as incurred.

The Company’s loans are typically collateralized by commercial real estate. As a result, the Company regularly evaluates the extent and impact of any credit migration associated with the performance and or value of the underlying collateral property as well as the financial and operating capability of the borrower on a loan by loan basis. On a quarterly basis, the Company evaluates the collectability of both interest and principal of each loan, if circumstances warrant, to determine whether such loan is impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the Company does not record an allowance for loan loss as the Company has elected the fair value option.  However, income recognition is suspended for loans at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed. Interest income accrual is resumed when the loan becomes contractually current and performance is demonstrated.

Interest Income Recognition
 
Agency MBS, Non-Agency MBS and other securities, excluding Interest-Only Strips, rated AA and higher at the time of purchase
 
Interest income on mortgage-backed and other securities is accrued based on the respective outstanding principal balances and corresponding contractual terms. The Company records interest income in accordance with ASC subtopic 835-30 "Imputation of Interest," using the effective interest method. As such premiums and discounts associated with Agency MBS, Non-Agency MBS and other securities, excluding Interest-Only Strips, are amortized into interest income over the estimated life of such securities. Adjustments to premium and discount amortization are made for actual prepayment activity.  The Company estimates prepayments at least quarterly for its securities and, as a result, if the projected prepayment speed increases, the Company will accelerate the rate of amortization on premiums or discounts and make a retrospective adjustment to historical amortization.  Alternatively, if projected prepayment speeds decrease, the Company will reduce the rate of amortization on the premiums or discounts and make a retrospective adjustment to historical amortization.

Non-Agency MBS and other securities that are rated below AA at the time of purchase and Interest-Only Strips that are not classified as derivatives
 
Interest income on Non-Agency MBS and other securities that are rated below AA at the time of purchase and Interest-Only Strips that are not classified as derivatives are also recognized in accordance with ASC 835, using the effective yield method.  The effective yield on these securities is based on the projected cash flows from each security, which is estimated based on the Company’s observation of the then current information and events, where applicable, and will include assumptions related to interest rates, prepayment rates and the timing and amount of credit losses.  On at least a quarterly basis, the Company reviews and, if appropriate, makes adjustments to its cash flow projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in the yield/interest income recognized on such securities. Actual maturities of the securities are affected by the contractual lives of the underlying collateral, periodic payments of scheduled principal, and prepayments of principal. Therefore, actual maturities of the securities will generally be shorter than stated contractual maturities.
 
Based on the projected cash flow of such securities purchased at a discount to par value, the Company may designate a portion of such purchase discount as credit protection against future credit losses and, therefore, not accrete such amount into interest income.  The amount designated as credit discount may be adjusted over time, based on the actual performance of the security, its underlying collateral, actual and projected cash flow from such collateral, economic conditions and other factors.  If the performance of a security with a credit discount is more favorable than forecasted, a portion of the amount designated as credit discount may be accreted into interest income prospectively.
 
Loan Portfolio

Interest income on the Company's residential loan portfolio and commercial loan portfolio is recorded using the effective interest method based on the contractual payment terms of the loan. Any premium amortization or discount accretion will be reflected as a component of "Interest income" in the Consolidated Statements of Operations.
 
Purchases and Sales of Investments

The Company accounts for a contract for the purchase or sale of securities, or other securities that do not yet exist on a trade date basis, which it intends to take possession and thus recognizes the acquisition or disposition of the securities at the inception of the contract.
 
Sales of investments are driven by the Company’s portfolio management process. The Company seeks to mitigate risks including those associated with prepayments and will opportunistically rotate the portfolio into securities and/or other investments the Company’s Manager believes have more favorable attributes. Strategies may also be employed to manage net capital gains, which need to be distributed for tax purposes. Realized gains or losses on sales of investments, including Agency Interest-Only Strips not characterized as derivatives, are a component of "Realized gain (loss) on sale of investments, net" in the Consolidated Statements of Operations, and are recorded at the time of disposition.  Realized gains or losses on Interest-Only Strips which are characterized as derivatives are a component of "Gain (loss) on derivative instruments, net" in the Consolidated Statements of Operations. 

 
Due From Counterparties / Due To Counterparties
 
"Due from counterparties" represents cash posted by the Company with its counterparties as collateral for the Company’s interest rate and/or futures contracts, repurchase agreements, and TBAs. "Due to counterparties" represents cash posted with the Company by its counterparties as collateral under the Company’s interest rate and/or currency derivative financial instruments, repurchase agreements, and TBAs.  Included in "Due from counterparties" and/or "Due to counterparties" are daily variation margin settlement amounts with counterparties which are based on the price movement of the Company’s futures contracts. Daily variation margin on only the Company's centrally cleared derivatives was treated as a settlement and classified as either "Derivative assets, at fair value" or "Derivative liability, at fair value" in the Consolidated Balance Sheets. In addition, as provided below, "Due to counterparties" may include non-cash collateral in which the Company has the obligation to return and which the Company has either sold or pledged. To the extent the Company receives collateral other than cash from its counterparties, such assets are not included in the Company’s Consolidated Balance Sheets.  Notwithstanding the foregoing, if the Company either rehypothecates such assets or pledges the assets as collateral pursuant to a repurchase agreement, the cash received and the corresponding liability are reflected in the Consolidated Balance Sheets.
 
Derivatives and Hedging Activities
 
Subject to maintaining its qualification as a REIT for U.S. federal income tax purposes, the Company as part of its hedging strategy, we may enter into interest rate swaps, including forward starting swaps, interest rate swaptions, U.S. Treasury options, Eurodollar, Volatility Index and U.S, Treasury futures, TBAs, total return swaps, credit default swaps and forwards to hedge the interest rate and currency risk associated with its portfolio and related borrowings. Derivatives, subject to REIT requirements, are used for hedging purposes rather than speculation.  The Company has also entered into a total return swap, which transfers the total return of the referenced security to the Company.  The Company determines the fair value of its derivative positions and obtains quotations from third parties, including the Chicago Mercantile Exchange or CME, to facilitate the process of determining such fair values. The Company does not necessarily seek to hedge all such risks. In addition, if the Company’s hedging activities do not achieve the desired results, reported earnings may be adversely affected.
 
GAAP requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and to measure those instruments at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative. The fair value adjustment will affect either other comprehensive income in stockholders’ equity until the hedged item is recognized in earnings or net income depending on whether the derivative instrument is designated and qualifies as a for hedge for accounting purposes and if so, the nature of the hedging activity.  The Company elected not to apply hedge accounting for its derivative instruments.  Accordingly, the Company records the change in fair value of its derivative instruments, which includes net interest rate swap payments/receipts (including accrued amounts) and net currency payments/receipts (including accrued amounts) related to interest rate swaps and currency swaps, respectively, in "Gain (loss) on derivative instruments, net" in its Consolidated Statements of Operations.

In January 2017, the CME amended its rulebooks to legally characterize variation margin payments and receipts for over-the-counter derivatives they clear as settlements of the derivatives' exposure rather than collateral against exposure. As a result of the change in legal characterization, effective January 1, 2017, variation margin is no longer classified as collateral in the Consolidated Balance Sheets in either "Due from counterparties" or "Due to counterparties," but rather a component of the respective "Derivative asset, at fair value" or "Derivative liability, at fair value" in the Consolidated Balance Sheets. The variation margin is now considered partial settlements of the derivative contract and will result in realized gains or losses which prior to January 1, 2017 were classified as unrealized gains or losses on derivatives. Prior to the CME rulebook change variation margin was included in financing activities in the Company's Consolidated Statement of Cash Flows in either "Due from counterparties, net" or "Due to counterparties, net." Commencing in January 2017, cash postings for variation margin are included in operating activities in the Consolidated Statements of Cash Flows.

In the Company’s Consolidated Statements of Cash Flows, premiums received or paid on termination of its interest rate swaps are included in cash flows from operating activities. Notwithstanding the foregoing, proceeds and payments on settlement of swaptions, futures contracts and TBAs are included in cash flows from investing activities.  Proceeds and payments on settlement of forward contracts are reflected in cash flows from financing activities in the Company’s Consolidated Statements of Cash Flows.  For Agency and Non-Agency Interest-Only Strips accounted for as derivatives, the purchase, sale and recovery of basis activity is included with MBS and other securities under cash flows from investing activities in the Company’s Consolidated Statements of Cash Flows.

The Company evaluates the terms and conditions of its holdings of Agency and Non-Agency Interest-Only Strips, interest rate swaptions, currency forwards, futures contracts and TBAs to determine if these instruments have the characteristics of an investment or should be considered a derivative under GAAP. In determining the classification of its holdings of Interest-Only Strips, the Company evaluates the securities to determine if the nature of the cash flows have been altered from that of the underlying mortgage collateral. Interest-Only Strips, for which the underlying mortgage collateral has been included into a structured security that alters the cash flows from the underlying mortgage collateral, are accounted for as derivatives. The carrying value of the Agency and Non-Agency Interest-Only Strips, accounted for as derivatives, is included in "Mortgage-backed securities and other securities, at fair value" in the Consolidated Balance Sheets. The carrying value of interest rate swaptions, currency forwards, futures contracts and TBAs is included in "Derivative assets, at fair value" or "Derivative liability, at fair value" in the Consolidated Balance Sheets. Interest earned or paid along with the change in fair value of these instruments accounted for as derivatives is recorded in "Gain (loss) on derivative instruments, net" in its Consolidated Statements of Operations.

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.  An embedded derivative is separated from the host contact and accounted for separately when all of the guidance criteria are met.  Hybrid instruments that are remeasured at fair value through earnings, including the fair value option are not bifurcated.  Derivative instruments, including derivative instruments accounted for as liabilities, are recorded at fair value and are re-valued at each reporting date, with changes in the fair value together with interest earned or paid (including accrued amounts) reported in "Gain (loss) on derivative instruments, net" in the Consolidated Statements of Operations.
 
Repurchase Agreements and Reverse Repurchase Agreements
 
Investments sold under repurchase agreements are treated as collateralized financing transactions, unless they meet all the criteria for sales treatment. Securities financed through a repurchase agreement remain in the Company's Consolidated Balance Sheets as assets and cash received from the lender is recorded in the Company's Consolidated Balance Sheets as a liability. Interest payable in accordance with repurchase agreements is recorded as "Accrued interest payable" in the Consolidated Balance Sheets. Interest paid (including accrued amounts) in accordance with repurchase agreements is recorded as interest expense.

The Company may borrow securities under reverse repurchase agreements to deliver a security owned and sold by the Company but pledged to a different counterparty under a separate repurchase agreement when in the Manager’s view terminating the outstanding repurchase agreement is not in the Company’s best interest.  Cash paid to the borrower is recorded in the Company’s Consolidated Balance Sheets as an asset.  Interest receivable in accordance with reverse repurchase agreements is recorded as accrued interest receivable in the Consolidated Balance Sheets. The Company reflects all proceeds on reverse repurchase agreement and repayment of reverse repurchase agreement, on a net basis in the Consolidated Statements of Cash Flows.  Upon sale of a pledged security, the Company recognizes an obligation to return the borrowed security in the Consolidated Balance Sheet in "Due to counterparties."  The Company establishes haircuts to ensure the market value of the underlying asset remains sufficient to protect the Company in the event of default by the counterparty.  Realized gains and losses associated with the sale of the security are recognized in "Realized gain (loss) on sale of investments, net" in the Consolidated Statements of Cash Flows.
 
Convertible Senior Unsecured Notes

Convertible senior unsecured notes include unsecured convertible debt that is carried at its unpaid principal balance, net of any unamortized deferred issuance costs, in the Company’s Consolidated Balance Sheets. Interest on the notes is payable semiannually until such time the notes mature or are converted into shares of the Company’s common stock. ASC 470-20 "Debt-Debt with Conversion and Other Options" requires that convertible debt instruments with cash settlement features, including partial cash settlement, account for the liability component and equity component (conversion feature) of the instrument separately. The initial value of the liability component will reflect the present value of the discounted cash flows using the nonconvertible debt borrowing rate at the time of issuance. The debt discount represents the difference between the proceeds received from the issuance and the initial carrying value of the liability component, which is accreted back to the notes principal amount through interest expense over the life of the notes.





Share-based Compensation
 
Compensation cost related to restricted common stock issued to the Company’s independent directors, including any restricted stock which is subject to a deferred compensation program, is measured at its fair value at the grant date and amortized into expense over the service period on a straight-line basis. Compensation cost related to restricted common stock issued to the Manager and to employees of the Manager, including officers and certain directors, of the Company who are employees of the Manager and its affiliates, is initially measured at fair value at the grant date, and amortized into expense over the vesting period on a straight-line basis.

Income Taxes
 
The Company operates and has elected to be taxed as a REIT commencing with its taxable year ended December 31, 2012. Accordingly, the Company will generally not be subject to corporate U.S. federal or state income tax to the extent that the Company makes qualifying distributions to stockholders, and provided that the Company satisfies, on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income, distribution and stock ownership tests. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, the Company will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which the Company lost its REIT qualification. Accordingly, the failure to qualify as a REIT could have a material adverse impact in the Company’s results of operations and amounts available for distribution to stockholders.

As a REIT, if the Company fails to distribute in any calendar year (subject to specific timing rules for certain dividends paid in January) at least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its capital gain net income for such year, and (iii) any undistributed taxable income from the prior year, the Company would be subject to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (i) the amounts actually distributed and (ii) the amounts of income retained and on which the Company has paid corporate income tax.
 
The dividends paid deduction for qualifying dividends paid to stockholders is computed using the Company’s taxable income as opposed to net income reported in the Consolidated Statements of Operations. Taxable income, generally, will differ from net income reported in the Consolidated Statements of Operations because the determination of taxable income is based on tax regulations and not GAAP.
 
From time to time the Company may create and elect to treat certain subsidiaries as Taxable REIT Subsidiaries ("TRS"). In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business. A domestic TRS is subject to U.S. federal, state and local corporate income taxes, and its value, along with all other TRS's, may not exceed 20% of the value of the Company. If the TRS generates net income it may declare dividends to the Company, which will be included in the Company’s taxable income and necessitate a distribution to its stockholders. Conversely, if the Company retains earnings at the TRS level, no distribution is required and it can increase book equity of the consolidated entity. As of December 31, 2019, the Company has a single wholly-owned subsidiary which it has elected to treat as a domestic TRS.

Current and deferred taxes are recorded on earnings (losses) recognized by the Company's TRS. Deferred income tax assets and liabilities are calculated based upon temporary differences between the Company's U.S. GAAP consolidated financial statements and the federal and state basis of assets and liabilities as of the Consolidated Balance Sheet date. The Company evaluates the realizability of its deferred tax assets and recognizes a valuation allowance if, based on available evidence, it is more likely than not that some or all of its deferred tax assets will not be realized. In evaluating the realizability of the deferred tax asset, the Company will consider the expected future taxable income, existing and projected book to tax differences as well as tax planning strategies. This analysis is inherently subjective, as it is based on forecasted earning and business and economic activity. Changes in estimates of deferred tax asset realizability, if any, are included in "Income tax provision (benefit)" in the Consolidated Statements of Operations.

Comprehensive Income (Loss)

The Company has none of the components of comprehensive income (loss) and therefore comprehensive income (loss) is not presented.
  
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 the Company's 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 the Copompany's 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 the Company's 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. In November 2018, the FASB issued ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses." This update was issued related to ASU 2016-13 to increase the stakeholders' awareness of the amendments to scope and transition and effective date requirements and to expedite the improvements. In November 2019, the FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses." The amendments in this update clarify or address stakeholders' specific issues about certain aspects of the amendments in Update 2016-13.
 
First quarter 2020.
 
The Company evaluated the impact this standard will have on its consolidated financial statements. However, since the Company elects the fair value option for its financial assets, the adoption of this guidance will not have a material impact on its consolidated 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 evaluated the impact this standard will have on its consolidated financial statements and the adoption will not have a material impact 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 evaluated the impact this standard will have on its consolidated financial statements and the adoption will not have a material impact on its consolidated 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 evaluated the impact this standard will have on its consolidated financial statements and the adoption will not have a material impact on its consolidated financial statements.
 
 
 
 
 
In January 2020, the FASB issued ASU 2020-01, “Investments-Equity Securities (Topic 321), Investment-Equity Method and Joint Ventures (Topic 323, and Derivatives and Hedging (Topic 815).” The amendments in this Update clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchase options accounted for under Topic 815.

 
First quarter 2021.
 
The Company is evaluating the impact this
standard may have on its consolidated
financial statements.

 
 
 
 
 

v3.19.3.a.u2
Fair Value of Financial Instruments
12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments Fair Value of Financial Instruments
The following tables present the Company's financial instruments carried at fair value as of December 31, 2019 and December 31, 2018, based upon the valuation hierarchy (dollars in thousands):
 
December 31, 2019
 
Fair Value
Assets
Level I
 
Level II
 
Level III
 
Total
Agency CMBS
$

 
$
1,435,477

 
$

 
$
1,435,477

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

 
3,092

 

 
3,092

Agency RMBS

 
340,771

 

 
340,771

Agency RMBS Interest-Only Strips

 

 
10,343

 
10,343

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

 

 
5,572

 
5,572

Subtotal Agency MBS

 
1,779,340

 
15,915

 
1,795,255

 
 
 
 
 
 
 
 
Non-Agency RMBS

 

 
38,131

 
38,131

Non-Agency RMBS Interest-Only Strips

 

 
7,683

 
7,683

Non-Agency CMBS

 
316,019

 

 
316,019

Subtotal Non-Agency MBS

 
316,019

 
45,814

 
361,833

 
 
 
 
 
 
 
 
Other securities

 
62,965

 
17,196

 
80,161

Total mortgage-backed securities and other securities

 
2,158,324

 
78,925

 
2,237,249

 
 
 
 
 
 
 
 
Residential Whole Loans

 

 
1,375,860

 
1,375,860

Residential Bridge Loans

 

 
33,269

 
33,269

Commercial loans

 

 
370,213

 
370,213

Securitized commercial loans

 

 
909,040

 
909,040

Derivative assets

 
5,111

 

 
5,111

Total Assets
$

 
$
2,163,435

 
$
2,767,307

 
$
4,930,742

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

Derivative liabilities
$

 
$
6,370

 
$

 
$
6,370

Securitized debt

 
680,586

 
1,057

 
681,643

Total Liabilities
$

 
$
686,956

 
$
1,057

 
$
688,013




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

Commercial loans

 

 
216,123

 
216,123

Securitized commercial loan

 

 
1,013,511

 
1,013,511

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 RMBS and 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, 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, delinquencies and fair value of the collateral for collateral dependent loans. The assumption made by the independent third party pricing service includes the market discount rate, yield, default assumption and loss severity. Other inputs and assumptions relevant to the pricing of Residential Whole Loans include FICO scores and prepayment speeds.
Values for the Conforming Residential Whole Loan Portfolio, are based on a third party pricing service valuation model that 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 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 the securitized commercial loan's 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
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 volume 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 futures contracts for the years ended December 31, 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 December 31, 2019 and December 31, 2018 (dollars in thousands).
 
 
 Fair Value at
 
 
 
 
 
Range
 
 
 
 
December 31, 2019
 
Valuation Technique
 
Unobservable Input
 
Minimum
 
Maximum
 
Weighted Average
Residential Whole-Loans(2)
 
1,200,566

 
Discounted Cash Flow
 
Yield
 
3.4
%
 
7.0
%
 
3.7
%
 
 
 
 
 
 
Weighted Average Life
 
1.4

 
7.8

 
3.0

Residential Bridge Loans(3)
 
33,269

 
Discounted Cash Flow
 
Yield
 
7.5
%
 
27.0
%
(1) 
9.8
%
 
 
 
 
 
 
Weighted Average Life
 
0.3

 
1.8

 
0.8

Commercial Loans
 
370,213

 
Discounted Cash Flow
 
Yield
 
4.7
%
 
10.9
%
 
7.5
%
 
 
 
 
 
 
Weighted Average Lie
 
0.4

 
2.9

 
1.6


 
 
 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.
(2)
Excludes $175,294 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. As of December 31, 2019, the TBA prices used for valuing the conforming loans range from $101.39 to $107.63.
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:
 
Year ended December 31, 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
$
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

 

 

 
544,426

 

 
274,422

 
1,113,231

 

Sales and settlements
(401
)
 

 

 

 

 

 

 
3,769

Transfers to REO

 

 

 

 
(2,677
)
 

 

 

Principal repayments

 
(965
)
 
(555
)
 
(228,163
)
 
(175,422
)
 
(121,245
)
 
(1,214,688
)
 

Total net gains/losses included in net income
 

 
 
 
 
 
 

 
 
 
 
 
 

 
 

Realized gains/(losses), net on assets

 

 

 

 
(351
)
 

 

 

Other than temporary impairment
(222
)
 
(1,332
)
 

 

 

 

 

 

Unrealized gains/(losses), net on assets(1)
762

 
(229
)
 
693

 
20,887

 
397

 
(122
)
 
(1,070
)
 

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

 

 

 

 

 

 

 
(2,373
)
Premium and discount amortization, net
(4,061
)
 
(2,215
)
 
(279
)
 
(3,175
)
 
(677
)
 
1,035

 
(1,944
)
 
(2,625
)
Ending balance
$
15,915

 
$
45,814

 
$
17,196

 
$
1,375,860

 
$
33,269

 
$
370,213

 
$
909,040

 
$
1,057

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains/(losses), net on assets held at the end of the period(1)
$
780

 
$
(229
)
 
$
693

 
$
21,768

 
$
(488
)
 
$
128

 
$
(1,042
)
 
$

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

 
$

 
$

 
$

 
$

 
$

 
$

 
$
375

 
Year ended December 31, 2018
$ in thousands
Agency MBS
 
Non-Agency MBS
 
Other Securities
 
Residential
Whole Loans
 
Residential
Bridge Loans
 
Commercial Loans
 
Securitized Commercial Loans
 
Securitized Debt
Beginning balance
$
17,217

 
$
8,735

 
$
9,239

 
$
237,423

 
$
64,526

 
$

 
$
24,876

 
$
10,945

Transfers into Level III from Level II
22,795

 
39,084

 
9,708

 

 

 

 

 

Transfers from Level III into Level II
(16,805
)
 

 
(8,697
)
 

 

 

 

 
(10,899
)
Purchases
2,093

 
8,602

 

 
860,576

 
207,705

 
215,322

 
1,353,020

 

Sales and settlements

 
(4,180
)
 

 

 

 

 

 
12

Principal repayments
(53
)
 
(307
)
 
(604
)
 
(55,186
)
 
(57,528
)
 

 
(361,782
)
 
(44
)
Total net gains / (losses) included in net income
 

 
 
 
 
 
 

 
 
 
 
 
 

 
 
Realized gains/(losses), net on assets

 
258

 

 

 

 

 

 

Other than temporary impairment
(735
)
 
(918
)
 
(161
)
 

 

 

 

 

Unrealized gains/(losses), net on assets(1)
(630
)
 
1,183

 
(532
)
 
(415
)
 
(1,806
)
 
631

 
(16
)
 

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

 

 

 

 

 

 

 
1,996

Premium and discount amortization, net
(4,045
)
 
(1,902
)
 
(2
)
 
(513
)
 
(898
)
 
170

 
(2,587
)
 
276

Ending balance
$
19,837

 
$
50,555

 
$
8,951

 
$
1,041,885

 
$
211,999

 
$
216,123

 
$
1,013,511