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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: June 30, 2020
OR
             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: 1-33796

CHIMERA INVESTMENT CORPORATION
(Exact name of Registrant as specified in its Charter) 
Maryland
 
26-0630461
(State or other jurisdiction of incorporation or organization)
 
 (IRS Employer Identification No.)
                                                                                                                                             

520 Madison Avenue 32nd Floor
New York, New York
(Address of principal executive offices)
10022
(Zip Code)
(212) 626-2300
(Registrant’s telephone number, including area code)

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, par value $0.01 per share
CIM
New York Stock Exchange
8.00% Series A Cumulative Redeemable Preferred Stock
CIM PRA
New York Stock Exchange
8.00% Series B Cumulative Fixed-to-Floating Rate Redeemable Preferred Stock
CIM PRB
New York Stock Exchange
7.75% Series C Cumulative Fixed-to-Floating Rate Redeemable Preferred Stock
CIM PRC
New York Stock Exchange
8.00% Series D Cumulative Fixed-to-Floating Rate Redeemable Preferred Stock
CIM PRD
New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all documents and 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 þ No ☐




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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer Non-accelerated filer Smaller reporting company
Emerging growth company

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes No þ


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:
Class
Outstanding at July 31, 2020
Common Stock, $0.01 par value
232,020,857





CHIMERA INVESTMENT CORPORATION

FORM 10-Q
TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Financial Condition as of June 30, 2020 (Unaudited) and December 31, 2019 (Derived from the audited consolidated financial statements as of December 31, 2019)
2
 
 
Consolidated Statements of Operations (Unaudited) for the quarters and six months ended June 30, 2020 and 2019
4
 
 
Consolidated Statements of Comprehensive Income (Unaudited) for the quarters and six months ended June 30, 2020 and 2019
5
 
 
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the quarters and six months ended June 30, 2020 and 2019
6
 
 
Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2020 and 2019
8
 
 
10
 
 
47
 
 
70
 
 
76
 
 
 
 
 
 
 
 
 
 
 
 
 
76
 
 
76
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
76
 
 
77
 
 
80






1


Part I
Item 1. Consolidated Financial Statements

CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share and per share data)
(Unaudited)

June 30, 2020
December 31, 2019
Cash and cash equivalents
$
302,553

$
109,878

Non-Agency RMBS, at fair value (net of allowance for credit losses of $2 million and $0 million, respectively)
2,184,170

2,614,408

Agency RMBS, at fair value
107,263

6,490,293

Agency CMBS, at fair value
2,612,344

2,850,717

Loans held for investment, at fair value
13,036,833

14,292,815

Receivable for investments sold

446,225

Accrued interest receivable
89,387

116,423

Other assets
115,601

194,301

Derivatives, at fair value, net

3,611

Total assets (1)
$
18,448,151

$
27,118,671

Liabilities:
 

 

Secured financing agreements ($7.8 billion and $15.4 billion pledged as collateral, respectively)
$
5,944,201

$
13,427,545

Securitized debt, collateralized by Non-Agency RMBS ($524 million and $598 million pledged as collateral, respectively)
124,414

133,557

Securitized debt at fair value, collateralized by loans held for investment ($12.2 billion and $12.1 billion pledged as collateral, respectively)
8,530,111

8,179,608

Long Term Debt
71,600


Payable for investments purchased
246,770

1,256,337

Accrued interest payable
41,336

63,600

Dividends payable
75,554

98,568

Accounts payable and other liabilities
18,286

6,163

Total liabilities (1)
$
15,052,272

$
23,165,378






Commitments and Contingencies (See Note 16)









Stockholders' Equity:
 

 

Preferred Stock, par value of $0.01 per share, 100,000,000 shares authorized:




8.00% Series A cumulative redeemable: 5,800,000 shares issued and outstanding, respectively ($145,000 liquidation preference)
$
58

$
58

8.00% Series B cumulative redeemable: 13,000,000 shares issued and outstanding, respectively ($325,000 liquidation preference)
130

130

7.75% Series C cumulative redeemable: 10,400,000 shares issued and outstanding, respectively ($260,000 liquidation preference)
104

104

8.00% Series D cumulative redeemable: 8,000,000 shares issued and outstanding, respectively ($200,000 liquidation preference)
80

80

Common stock: par value $0.01 per share; 500,000,000 shares authorized, 232,003,526 and 187,226,081 shares issued and outstanding, respectively
2,320

1,873

Additional paid-in-capital
4,515,043

4,275,963

Accumulated other comprehensive income
537,510

708,336

Cumulative earnings
3,367,330

3,793,040

Cumulative distributions to stockholders
(5,026,696
)
(4,826,291
)
Total stockholders' equity
$
3,395,879

$
3,953,293

Total liabilities and stockholders' equity
$
18,448,151

$
27,118,671

(1) The Company's consolidated statements of financial condition include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations and liabilities of the VIE for which creditors do not have recourse to the primary beneficiary (Chimera Investment Corporation). As of June 30, 2020, and December 31, 2019, total assets

2



of consolidated VIEs were $12,578,835 and $12,544,744, respectively, and total liabilities of consolidated VIEs were $8,431,077 and $8,064,235, respectively. See Note 8 for further discussion.

See accompanying notes to consolidated financial statements.

3



CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share data)
(Unaudited)
 
For the Quarters Ended
For the Six Months Ended

June 30, 2020
June 30, 2019
June 30, 2020
June 30, 2019
Net interest income:




Interest income (1)
$
245,922

$
339,914

$
546,189

$
690,303

Interest expense (2)
129,256

198,110

271,339

401,060

Net interest income
116,666

141,804

274,850

289,243










Increase/(decrease) in provision for credit losses
(4,497
)

1,817











Net other-than-temporary credit impairment losses



(4,853
)









Other investment gains (losses):
 







Net unrealized gains (losses) on derivatives

(132,171
)
201,000

(221,486
)
Realized gains (losses) on terminations of interest rate swaps

(95,211
)
(463,966
)
(203,257
)
Net realized gains (losses) on derivatives

(9,697
)
(41,086
)
(16,974
)
Net gains (losses) on derivatives

(237,079
)
(304,052
)
(441,717
)
Net unrealized gains (losses) on financial instruments at fair value
(171,921
)
190,748

(432,809
)
391,561

Net realized gains (losses) on sales of investments
26,380

(7,526
)
102,234

1,077

Gains (losses) on extinguishment of debt
459

(608
)
459

(608
)
Total other gains (losses)
(145,082
)
(54,465
)
(634,168
)
(49,687
)









Other expenses:
 

 




Compensation and benefits
10,255

12,114

23,190

26,484

General and administrative expenses
6,562

6,217

12,239

12,019

Servicing fees
9,473

9,280

19,462

18,243

Transaction expenses
4,710

813

9,616

895

Total other expenses
31,000

28,424

64,507

57,641

Income (loss) before income taxes
(54,919
)
58,915

(425,642
)
177,062

Income taxes
36

155

68

155

Net income (loss)
$
(54,955
)
$
58,760

$
(425,710
)
$
176,907










Dividends on preferred stock
18,438

18,438

36,875

35,829










Net income (loss) available to common shareholders
$
(73,393
)
$
40,322

$
(462,585
)
$
141,078










Net income (loss) per share available to common shareholders:








Basic
$
(0.37
)
$
0.22

$
(2.39
)
$
0.75

Diluted
$
(0.37
)
$
0.21

$
(2.39
)
$
0.75










Weighted average number of common shares outstanding:








Basic
199,282,790

187,153,007

193,150,696

187,132,842

Diluted
199,282,790

188,271,483

193,150,696

188,254,266


(1) Includes interest income of consolidated VIEs of $169,127 and $200,703 for the quarters ended June 30, 2020 and 2019, respectively and $343,809 and $407,814 for the six months ended June 30, 2020 and 2019, respectively. See Note 8 to consolidated financial statements for further discussion.

(2) Includes interest expense of consolidated VIEs of $70,816 and $87,529 for the quarters ended June 30, 2020 and 2019, respectively and $135,445 and $178,556 for the six months ended June 30, 2020 and 2019, respectively. See Note 8 to consolidated financial statements for further discussion.

See accompanying notes to consolidated financial statements.

4




CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except share and per share data)
(Unaudited)






For the Quarters Ended
For the Six Months Ended

June 30, 2020
June 30, 2019
June 30, 2020
June 30, 2019
Comprehensive income (loss):
 



Net income (loss)
$
(54,955
)
$
58,760

$
(425,710
)
$
176,907

Other comprehensive income:
 



Unrealized gains (losses) on available-for-sale securities, net (1)
61,399

58,833

(137,805
)
85,218

Reclassification adjustment for net losses included in net income for other-than-temporary credit impairment losses



4,853

Reclassification adjustment for net realized losses (gains) included in net income
(26,380
)
7,269

(33,021
)
22,187

Other comprehensive income (loss)
35,019

66,102

(170,826
)
112,258

Comprehensive income (loss) before preferred stock dividends
$
(19,936
)
$
124,862

$
(596,536
)
$
289,165

Dividends on preferred stock
$
18,438

$
18,438

$
36,875

$
35,829

Comprehensive income (loss) available to common stock shareholders
$
(38,374
)
$
106,424

$
(633,411
)
$
253,336


(1) Quarter ended and six months ended June 30, 2020 amounts includes $8 million and $15 million, respectively, of unrealized losses on AFS securities for which the Company has recognized an allowance for credit losses.

5



CHIMERA INVESTMENT CORPORATION   
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
(Unaudited)
 
For the Quarter Ended June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Series A Preferred Stock Par Value
Series B Preferred Stock Par Value
Series C Preferred Stock Par Value
Series D Preferred Stock Par Value
Common
Stock Par
Value
Additional Paid-in Capital
Accumulated Other Comprehensive Income
Cumulative Earnings
Cumulative Distributions to Stockholders
Total
Balance, March 31, 2020
$
58

$
130

$
104

$
80

$
1,860

$
4,255,054

$
502,491

$
3,422,285

$
(4,938,208
)
$
3,243,854

Net income (loss)







(54,955
)

(54,955
)
Other comprehensive income (loss)






35,019



35,019

Settlement of Convertible Debt




460

292,349




292,809

Purchase of Capped Call





(33,750
)



(33,750
)
Stock based compensation





1,390




1,390

Common dividends declared








(70,050
)
(70,050
)
Preferred dividends declared








(18,438
)
(18,438
)
Balance, June 30, 2020
$
58

$
130

$
104

$
80

$
2,320

$
4,515,043

$
537,510

$
3,367,330

$
(5,026,696
)
$
3,395,879

 
 
 
 
 
 
 
 
 
 
 
For the Quarter Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Series A Preferred Stock Par Value
Series B Preferred Stock Par Value
Series C Preferred Stock Par Value
Series D Preferred Stock Par Value
Common
Stock Par
Value
Additional Paid-in Capital
Accumulated Other Comprehensive Income
Cumulative Earnings
Cumulative Distributions to Stockholders
Total
Balance, March 31, 2019
$
58

$
130

$
104

$
80

$
1,871

$
4,268,063

$
672,988

$
3,497,636

$
(4,487,753
)
$
3,953,177

Net income (loss)







58,760


58,760

Other comprehensive income (loss)






66,102



66,102

Stock based compensation




1

3,938




3,939

Common dividends declared








(94,590
)
(94,590
)
Preferred dividends declared








(18,438
)
(18,438
)
Balance, June 30, 2019
$
58

$
130

$
104

$
80

$
1,872

$
4,272,001

$
739,090

$
3,556,396

$
(4,600,781
)
$
3,968,950

 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Series A Preferred Stock Par Value
Series B Preferred Stock Par Value
Series C Preferred Stock Par Value
Series D Preferred Stock Par Value
Common
Stock Par
Value
Additional Paid-in Capital
Accumulated Other Comprehensive Income
Cumulative Earnings
Cumulative Distributions to Stockholders
Total
Balance, December 31, 2019
$
58

$
130

$
104

$
80

$
1,873

$
4,275,963

$
708,336

$
3,793,040

$
(4,826,291
)
$
3,953,293

Net income (loss)







(425,710
)

(425,710
)
Other comprehensive income (loss)






(170,826
)


(170,826
)
Repurchase of common stock




(14
)
(22,052
)



(22,066
)
Settlement of Convertible Debt




460

292,349




292,809

Purchase of Capped Call





(33,750
)



(33,750
)
Stock based compensation




1

2,533




2,534

Common dividends declared








(163,530
)
(163,530
)
Preferred dividends declared








(36,875
)
(36,875
)
Balance, June 30, 2020
$
58

$
130

$
104

$
80

$
2,320

$
4,515,043

$
537,510

$
3,367,330

$
(5,026,696
)
$
3,395,879

 
 
 
 
 
 
 
 
 
 
 


6



For the Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Series A Preferred Stock Par Value
Series B Preferred Stock Par Value
Series C Preferred Stock Par Value
Series D Preferred Stock Par Value
Common
Stock Par
Value
Additional Paid-in Capital
Accumulated Other Comprehensive Income
Cumulative Earnings
Cumulative Distributions to Stockholders
Total
Balance, December 31, 2018
$
58

$
130

$
104

$

$
1,871

$
4,072,093

$
626,832

$
3,379,489

$
(4,376,748
)
$
3,703,829

Net income (loss)







176,907


176,907

Other comprehensive income (loss)






112,258



112,258

Stock based compensation




1

6,620




6,621

Common dividends declared








(188,204
)
(188,204
)
Preferred dividends declared








(35,829
)
(35,829
)
Issuance of preferred stock



80


193,288




193,368

Balance, June 30, 2019
$
58

$
130

$
104

$
80

$
1,872

$
4,272,001

$
739,090

$
3,556,396

$
(4,600,781
)
$
3,968,950



See accompanying notes to consolidated financial statements.

7



CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 
For the Six Months Ended
 
June 30, 2020
June 30, 2019
Cash Flows From Operating Activities:
Net income (loss)
$
(425,710
)
$
176,907

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
(Accretion) amortization of investment discounts/premiums, net
60,974

29,557

Accretion (amortization) of deferred financing costs, debt issuance costs, and securitized debt discounts/premiums, net
(35,148
)
(14,327
)
Amortization of swaption premium

559

Net unrealized losses (gains) on derivatives
(201,000
)
221,486

Margin (paid) received on derivatives
325,594

(157,052
)
Net unrealized losses (gains) on financial instruments at fair value
432,809

(391,561
)
Net realized losses (gains) on sales of investments
(102,234
)
(1,077
)
Net increase (decrease) in provision for credit losses
1,817


Net other-than-temporary credit impairment losses

4,853

(Gain) loss on extinguishment of debt
(459
)
608

Equity-based compensation expense
2,534

6,621

Changes in operating assets:




Decrease (increase) in accrued interest receivable, net
27,718

2,048

Decrease (increase) in other assets
(56,146
)
(2,166
)
Changes in operating liabilities:




Increase (decrease) in accounts payable and other liabilities
12,123

2,646

Increase (decrease) in accrued interest payable, net
(24,765
)
(26,156
)
Net cash provided by (used in) operating activities
$
18,107

$
(147,054
)
Cash Flows From Investing Activities:
Agency MBS portfolio:
 

 

Purchases
$
(292,379
)
$
(2,374,316
)
Sales
6,466,990

1,919,230

Principal payments
596,564

605,724

Non-Agency RMBS portfolio:
 



Purchases
(19,503
)
(265,062
)
Sales
141,912

5,167

Principal payments
124,351

196,261

Loans held for investment:
 



Purchases
(884,708
)
(1,137,244
)
Sales

705,653

Principal payments
895,764

806,677

Net cash provided by (used in) investing activities
$
7,028,991

$
462,090

Cash Flows From Financing Activities:
Proceeds from secured financing agreements
$
57,804,851

$
57,358,115

Payments on secured financing agreements
(65,275,151
)
(56,874,303
)
Net proceeds from preferred stock offerings

193,368

Payments on repurchase of common stock
(22,066
)

Proceeds from securitized debt borrowings, collateralized by loans held for investment
1,462,500


Payments on securitized debt borrowings, collateralized by loans held for investment
(920,083
)
(748,949
)
Payments on securitized debt borrowings, collateralized by Non-Agency RMBS
(8,445
)
(13,792
)
Net proceeds from issuance of convertible debt
361,139


Purchase of capped call
(33,750
)


8



Common dividends paid
(186,543
)
(187,098
)
Preferred dividends paid
(36,875
)
(35,829
)
Net cash provided by (used in) financing activities
$
(6,854,423
)
$
(308,488
)
Net increase (decrease) in cash and cash equivalents
192,675

6,548

Cash and cash equivalents at beginning of period
109,878

47,486

Cash and cash equivalents at end of period
$
302,553

$
54,034

 
 
 
Supplemental disclosure of cash flow information:
Interest received
$
634,199

$
721,909

Interest paid
$
328,753

$
441,557

Non-cash investing activities:
 



Payable for investments purchased
$
246,770

$
921,507

Receivable for investments sold
$

$
75,059

Net change in unrealized gain (loss) on available-for sale securities
$
(170,826
)
$
112,258

Retained beneficial interests
$

$
74,339

 
 
 
Non-cash financing activities:
 



   Dividends declared, not yet paid
$
75,554

$
97,091

Conversion of convertible debt
$
289,331

$



See accompanying notes to consolidated financial statements.

9



CHIMERA INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization

Chimera Investment Corporation, or the Company, was organized in Maryland on June 1, 2007. The Company commenced operations on November 21, 2007 when it completed its initial public offering. The Company elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, or the Code.

The Company conducts its operations through various subsidiaries including subsidiaries it treats as taxable REIT subsidiaries, or TRSs. 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. The Company currently has eleven wholly owned direct subsidiaries: Chimera RMBS Whole Pool LLC, and Chimera RMBS LLC formed in June 2009; CIM Trading Company LLC, or CIM Trading, formed in July 2010; Chimera Funding TRS LLC, or CIM Funding TRS, a TRS formed in October 2013, Chimera CMBS Whole Pool LLC and Chimera RMBS Securities LLC formed in March 2015; Chimera Insurance Company, LLC formed in July 2015; Chimera RR Holding LLC formed in April 2016, Anacostia LLC, a TRS formed in June 2018, NYH Funding LLC, a TRS formed in May 2019, and Kali 2020 Holdings, LLC formed in May 2020.

2. Summary of the Significant Accounting Policies

(a) Basis of Presentation and Consolidation
The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included. Investment securities transactions are recorded on the trade date. Certain prior period amounts have been reclassified to conform to the current period's presentation.
The consolidated financial statements include the Company’s accounts, the accounts of its wholly-owned subsidiaries, and variable interest entities, or VIEs, in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
The Company uses securitization trusts considered to be VIEs in its securitization and re-securitization transactions. VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly impact the VIEs’ economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE. For VIEs that do not have substantial on-going activities, the power to direct the activities that most significantly impact the VIEs’ economic performance may be determined by an entity’s involvement with the design and structure of the VIE.
The trusts are structured as entities that receive principal and interest on the underlying collateral and distribute those payments to the security holders. The assets held by the securitization entities are restricted in that they can only be used to fulfill the obligations of the securitization entity. The Company’s risks associated with its involvement with these VIEs are limited to its risks and rights as a holder of the security it has retained.
Determining the primary beneficiary of a VIE requires judgment. The Company determined that for the securitizations it consolidates, its ownership provides the Company with the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE. In addition, the Company has the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or power, such as rights to direct servicer activity or the Company was determined to have power in connection with its involvement with the structure and design of the VIE.
The Company’s interest in the assets held by these securitization vehicles, which are consolidated on the Company’s Consolidated Statements of Financial Condition, is restricted by the structural provisions of these trusts, and a recovery of the Company’s investment in the vehicles will be limited by each entity’s distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on the Company’s Consolidated Statements of Financial Condition, are non-recourse to the Company, and can only be satisfied using proceeds from each securitization vehicle’s respective asset pool.
The assets of securitization entities are comprised of residential mortgage backed securities (or RMBS), or residential mortgage loans. See Notes 3, 4 and 8 for further discussion of the characteristics of the securities and loans in the Company’s portfolio.

10



(b) Statements of Financial Condition Presentation
The Company’s Consolidated Statements of Financial Condition include both the Company’s direct assets and liabilities and the assets and liabilities of consolidated securitization vehicles. Assets of each consolidated VIE can only be used to satisfy the obligations of that VIE, and the liabilities of consolidated VIEs are non-recourse to the Company. The Company is not obligated to provide, nor does it intend to provide, any financial support to these consolidated securitization vehicles. The notes to the consolidated financial statements describe the Company’s assets and liabilities including the assets and liabilities of consolidated securitization vehicles. See Note 8 for additional information related to the Company’s investments in consolidated securitization vehicles.
(c) Use of Estimates
The preparation of financial statements in conformity with GAAP 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 period. Although the Company’s estimates contemplate current conditions and how it expects them to change in the future, it is reasonably possible that actual conditions could be materially different than anticipated in those estimates, which could have a material adverse impact on the Company’s results of operations and its financial condition. Management has made significant estimates including in accounting for income recognition on Agency MBS, Non-Agency RMBS, IO MBS (Note 3) and residential mortgage loans (Note 4), valuation of Agency MBS and Non-Agency RMBS (Notes 3 and 5), residential mortgage loans (Note 4 and 5), securitized debt (Note 5 and 7) and derivative instruments (Notes 5 and 10). Actual results could differ materially from those estimates.
(d) Significant Accounting Policies
There have been no significant changes to the Company's accounting policies included in Note 2 to the consolidated financial statements of the Company’s Form 10-K for the year ended December 31, 2019, other than the significant accounting policies discussed below.
Interest Income Recognition and Allowance for Credit Losses
Investments in Non-agency RMBS securities
The Company considers its investments in Non-Agency RMBS as beneficial interests. Beneficial interests give the Company the right to receive all or portions of specified cash flows received by a trust or other entity. Beneficial interests held by the Company are created in connection with securitization transactions such as those involving mortgage loan obligations. Beneficial interests are accounted for in accordance with guidance in ASC 325-40 as amended by the ASU 2016-13. Beneficial interests classified as available-for-sale (AFS) record changes in fair value in other comprehensive income (OCI). Beneficial interests for which the Company has elected the fair value option (FVO) record changes in fair value in earnings.
Interest income on the Company’s beneficial interests is recognized using the interest method based on management’s estimates of cash flows expected to be collected. The effective interest rate on these securities is based on management’s estimate for each security of the projected cash flows, which are estimated based on observation of current market information and include assumptions related to fluctuations in prepayment speeds and the timing and amount of credit losses. On a quarterly basis, the Company reviews and, if appropriate, adjusts its cash flow projections based on inputs and analyses received from external sources, internal models, and the Company’s judgments about prepayment rates, the timing and amount of credit losses, and other factors. Changes in the amount or timing of cash flows from those originally projected, or from those estimated at the last evaluation date, are considered to be either favorable changes or adverse changes.
Adverse changes in the timing or amount of cash flows on beneficial interests classified as AFS could result in the Company recording an increase in the allowance for credit losses. The allowance for credit losses are calculated using a discounted cash flow (DCF) approach and is measured as the difference between the beneficial interest’s amortized cost and the estimate of cash flows expected to be collected discounted at the effective interest rate used to accrete the beneficial interest. The allowance for credit losses is recorded as a contra-asset and a reduction in earnings. The allowance for credit losses will be limited to the amount of the unrealized losses on the beneficial interest. Any allowance for credit losses in excess of the unrealized losses on the beneficial interests are accounted for as a prospective reduction of the effective interest rate. No allowance is recorded for beneficial interests in an unrealized gain position. Favorable changes in the DCF will result in a reduction in the allowance for credit losses, if any. Any reduction in allowance for credit losses is recorded in earnings. If the allowance for credit losses has been reduced to zero, the remaining favorable changes are reflected as a prospective increase to the effective interest rate.
Beneficial interests for which other than temporary impairment (OTTI) had been recognized prior to the effective date of ASU 2016-13 shall apply the guidance in the update on a prospective basis. In addition, the yield used to accrete the beneficial interest on beneficial interests with prior OTTI will remain unchanged as a result of the adoption of ASU 2016-13. Recoveries

11



of amounts previously written off relating to improvements in cash flows shall be recorded in income in the period received. Therefore, subsequent favorable changes in the DCF of the beneficial interests with prior OTTI will not be reflected as an adjustment to their yield used to accrete the discount. Subsequent adverse changes in the DCF will result in an increase to the allowance for credit losses, limited to the amount of the unrealized losses on the beneficial interest.
Credit losses recognized on BIs will be accreted on a monthly basis at the rate used to recognize interest income, the effective interest rate. The accretion will be recorded as a reduction to interest income in the statement of operations.
The Company presents separately all accrued interest on the statement of financial position. Interest is accrued on all BIs when due. Interest which is not received at the due date is written off when it becomes delinquent. As all interest not received when due is charged off against interest income, no allowance for accrued interest is required.
No allowances for credit losses are recognized on beneficial interests for which the Company has elected the fair value option. All favorable or adverse changes in management’s estimates of cash flows expected to be collected results in a prospective increase or decrease in the effective interest rate used to recognize interest income.
Investments in agency MBS securities
The Company invests in pass-through mortgage-backed securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA) and Freddie Mac (FHLMC) (collectively “Agency Securities”).
Interest income for Agency Securities for which changes in fair value are recorded in OCI, including premiums and discounts associated with the acquisition of these securities, is recognized over the life of such securities using the interest method based on the contractual cash flows of the security. In applying the interest method, the Company considers estimates of future principal prepayments in the calculation of the effective yield. Differences that arise between previously anticipated prepayments and actual prepayments received, as well as changes in future prepayment assumptions, result in a recalculation of the effective yield on the security. This recalculation of the effective yield is updated on a monthly basis. Upon a recalculation of the effective yield, the investment in the security is adjusted to the amount that would have existed had the new effective yield been retrospectively applied since acquisition with a corresponding charge or credit to interest income. This adjustment is accounted for as a change in estimate with a cumulative effect adjustment on interest income as a result in the change in the yield. Prepayments are estimated using models generally accepted in the industry.
All securities carried at fair value with changes in fair value recorded in OCI need to be evaluated for expected losses, even if the risk of loss is considered remote. However, the Company is not required to measure expected credit losses on securities in which historical credit loss information adjusted for current conditions and reasonable and supportable forecasts results in an expectation that incurring a credit loss is zero. Based on the current facts and circumstances, the Company believes its investments Agency Securities would qualify for zero expected credit losses. The factors considered in reaching this conclusion include the long history of zero credit losses, the explicit guarantee by the US government (although limited for FNMA and FHLMC securities) and yields that, while not risk-free, generally trade based on market views of prepayment and liquidity risk (not credit risk).
Interest income on Agency Securities for which changes in fair value are recorded in earnings is recognized using the interest method based on management’s estimates of cash flows expected to be collected. The effective interest rate on these securities is based on management’s estimate of the projected cash flows. Changes in the amount or timing of cash flows as a result of changes in expected prepayments from those originally projected, or from those estimated at the last evaluation date, are reflected prospectively as an adjustment to the effective interest rate used to recognize interest income. This recalculation of the effective interest rate is updated on a monthly basis.
Long Term Debt
Convertible Notes

Convertible notes include unsecured convertible debt that are carried at their unpaid principal balance net of any unamortized deferred issuance costs. Interest on the notes is payable semiannually until such time the notes mature or are converted or exchanged into shares. Any debt discounts or premiums are reported as an adjustment to the carrying amount of the debt liability and amortized into interest expense using the effective interest method. If converted by a holder, the holder of the notes would receive shares of our common stock. Deferred debt issuance costs are expenses associated with the issuance of long-term debt. These expenses typically include underwriting, legal, accounting, and other fees. Deferred debt issuance costs are included in the carrying value of the related long-term debt issued and are amortized as an adjustment to interest expense using the effective interest method, based upon the actual and estimated repayment schedules of the related long-term debt issued.

12




When the conversion of debt occurs in accordance with debt terms, the unpaid principal balance of the convertible debt is recorded as additional paid in capital and the outstanding debt is considered repaid. Any unamortized issuance costs and unpaid accrued interest related to the converted notes are also credited to the additional paid in capital.

Income Taxes

The Company does not have any material unrecognized tax positions that would affect its financial statements or require disclosure. No accruals for penalties and interest were necessary as of June 30, 2020 or December 31, 2019.

Fair Value Disclosure

A complete discussion of the methodology utilized by the Company to estimate the fair value of its financial instruments is included in Note 5 to these consolidated financial statements.

(e) Recent Accounting Pronouncements
Financial Instruments - Credit Losses - (Topic 326)
On January 1, 2020 the Company adopted accounting standards update (or ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments. This update replaced the previous model for recognizing credit losses from an incurred credit loss model to a current expected credit loss (or CECL) model for financial instruments measured at amortized cost and required the Company to record an allowance for credit losses on available-for-sale (or AFS) debt securities for all expected (rather than incurred) credit losses of the asset rather than reduce the carrying amount, as the Company did under the OTTI model. This update also revised the accounting model for purchased credit-impaired debt securities. The changes in the allowance for credit losses created in accordance with this update have been recorded in earnings. Expected credit losses are limited to the amount of the unrealized loss on the debt securities impacted by the update.
The update did not have any impact on financial instruments which were carried at fair value with changes in fair value recorded in earnings. As all Loans held for investment are carried at fair value, with changes in fair value recorded in earnings, the update had no impact on the carrying value or revenue recognition of Loans held for investment.
On January 1, 2020, the effective date of the update, the Company was required to record a cumulative-effect adjustment related to financial instruments under the scope of this update to the statement of financial position. As all financial instruments impacted by the update, including all purchased credit impaired debt securities, were in an unrealized gain position as of the effective date, there was no impact on the financial statements at the transition date and no cumulative-effect adjustment was required.
In addition, the update superseded subtopic 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality. As of January 1, 2020, the Company accounted all investments previously classified as AFS and under subtopic 310-30, using the subtopic 326-30 Financial Instruments - Credit Losses; Available-for-Sale Debt Securities and subtopic 325-40, Investments -Other-Beneficial Interests in Securitized Financial Assets.
Reference Rate Reform (Topic 848)
In March 2020, the FASB issued ASU No. 2020-4, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Inter Bank Offering Rate (or LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company has not yet adopted this guidance and is currently evaluating what impact this update will have on the consolidated financial statements.
3. Mortgage-Backed Securities


13



The Company classifies its Non-Agency RMBS as senior, subordinated, or Interest-only. The Company also invests in Agency MBS which it classifies as Agency RMBS to include residential and residential interest-only MBS and Agency CMBS to include commercial and commercial interest-only MBS. Senior interests in Non-Agency RMBS are generally entitled to the first principal repayments in their pro-rata ownership interests at the acquisition date. The tables below present amortized cost, allowance for credit losses, fair value and unrealized gain/losses of Company's MBS investments as of June 30, 2020 and December 31, 2019.
 
 
June 30, 2020
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
Principal or Notional Value
Total Premium
Total Discount
Amortized Cost
Allowance for credit losses
Fair Value
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gain/(Loss)
Non-Agency RMBS
 
 
 
 
 
 
 
 
 
Senior
$
1,697,252

$
3,038

$
(820,859
)
$
879,431

$
(1,379
)
$
1,341,814

$
464,065

$
(303
)
$
463,762

Subordinated
893,311

8,132

(339,437
)
562,006

(438
)
522,655

51,707

(90,620
)
(38,913
)
Interest-only
6,380,154

275,025


275,025


319,701

90,965

(46,289
)
44,676

Agency RMBS
 

 

 

 

 
 

 

 



Pass-through









Interest-only
1,425,919

130,610


130,610


107,263

378

(23,725
)
(23,347
)
Agency CMBS
 
 
 
 
 
 
 
 
 
Project loans
2,297,301

43,061

(3,671
)
2,336,691


2,572,329

235,673

(35
)
235,638

Interest-only
1,690,539

40,504


40,504


40,015

2,050

(2,539
)
(489
)
Total
$
14,384,476

$
500,370

$
(1,163,967
)
$
4,224,267

$
(1,817
)
$
4,903,777

$
844,838

$
(163,511
)
$
681,327


 
 
December 31, 2019
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
Principal or Notional Value
Total Premium
Total Discount
Amortized Cost
Fair Value
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gain/(Loss)
Non-Agency RMBS
 
 
 
 
 
 
 
 
Senior
$
2,024,564

$
2,038

$
(953,916
)
$
1,072,686

$
1,700,911

$
628,518

$
(293
)
$
628,225

Subordinated
876,592

9,915

(332,913
)
553,594

624,598

76,272

(5,268
)
71,004

Interest-only
7,458,653

301,170


301,170

288,899

51,481

(63,752
)
(12,271
)
Agency RMBS
 

 

 

 

 

 

 

 

Pass-through
6,080,547

131,023


6,211,570

6,362,626

152,271

(1,215
)
151,056

Interest-only
1,539,941

139,536


139,536

127,667

220

(12,089
)
(11,869
)
Agency CMBS
 
 
 
 
 
 
 
 
Project loans
2,621,938

52,681

(4,961
)
2,669,658

2,801,692

132,700

(666
)
132,034

Interest-only
1,817,246

51,140


51,140

49,025

586

(2,701
)
(2,115
)
Total
$
22,419,481

$
687,503

$
(1,291,790
)
$
10,999,354

$
11,955,418

$
1,042,048

$
(85,984
)
$
956,064



The following tables present the gross unrealized losses and estimated fair value of the Company’s Agency and Non-Agency MBS by length of time that such securities have been in a continuous unrealized loss position at June 30, 2020 and December 31, 2019. All available for sale securities in an unrealized loss position have been evaluated by the Company for current expected credit losses.


14



 
 
 
June 30, 2020
 
 
 
 
 
 
 


(dollars in thousands)
 
 
 
 
 
 
 
Unrealized Loss Position for Less than 12 Months
 
Unrealized Loss Position for 12 Months or More
 
Total
 
Estimated Fair Value
Unrealized Losses
Number of Positions
 
Estimated Fair Value
Unrealized Losses
Number of Positions
 
Estimated Fair Value
Unrealized Losses
Number of Positions
Non-Agency RMBS
 
 
 
 
 
 
 
 
 
 
 
Senior
$
16,375

$
(303
)
2

 
$

$


 
$
16,375

$
(303
)
2

Subordinated
376,359

(88,566
)
28

 
14,378

(2,054
)
12

 
390,737

(90,620
)
40

Interest-only
15,589

(5,026
)
26

 
37,951

(41,263
)
51

 
53,540

(46,289
)
77

Agency RMBS
 

 



 


 

 

 
 

 

 

Pass-through



 



 



Interest-only
76,605

(14,572
)
14

 
24,471

(9,153
)
8

 
101,076

(23,725
)
22

Agency CMBS
 
 
 
 
 
 
 
 
 
 
 
Project loans
24,755

(20
)
1

 
14,862

(15
)
2

 
39,617

(35
)
3

Interest-only
4,045

(281
)
4

 
5,071

(2,258
)
5

 
9,116

(2,539
)
9

Total
$
513,728

$
(108,768
)
75

 
$
96,733

$
(54,743
)
78

 
$
610,461

$
(163,511
)
153


 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
Unrealized Loss Position for Less than 12 Months
 
Unrealized Loss Position for 12 Months or More
 
Total
 
Estimated Fair Value
Unrealized Losses
Number of Positions
 
Estimated Fair Value
Unrealized Losses
Number of Positions
 
Estimated Fair Value
Unrealized Losses
Number of Positions
Non-Agency RMBS
 
 
 
 
 
 
 
 
 
 
 
Senior
$

$


 
$
31,635

$
(293
)
1

 
$
31,635

$
(293
)
1

Subordinated
69,178

(5,064
)
9

 
1,836

(204
)
11

 
71,014

(5,268
)
20

Interest-only
50,376

(22,737
)
46

 
64,129

(41,015
)
66

 
114,505

(63,752
)
112

Agency RMBS
 

 

 

 
 

 

 

 
 

 

 

Pass-through
11,398

(605
)
4

 
67,552

(610
)
5

 
78,950

(1,215
)
9

Interest-only
121,228

(12,089
)
22

 



 
121,228

(12,089
)
22

Agency CMBS
 
 
 
 
 
 
 
 
 
 
 
Project loans
41,971

(277
)
3

 
44,896

(389
)
4

 
86,867

(666
)
7

Interest-only
15,045

(295
)
6

 
9,930

(2,406
)
7

 
24,975

(2,701
)
13

Total
$
309,196

$
(41,067
)
90

 
$
219,978

$
(44,917
)
94

 
$
529,174

$
(85,984
)
184



At June 30, 2020, the Company did not intend to sell any of its Agency and Non-Agency MBS that were in an unrealized loss position, and it was not more likely than not that the Company would be required to sell these MBS investments before recovery of their amortized cost basis, which may be at their maturity. With respect to RMBS held by consolidated VIEs, the ability of any entity to cause the sale by the VIE prior to the maturity of these RMBS is either expressly prohibited, not probable, or is limited to specified events of default, none of which have occurred as of June 30, 2020.

Gross unrealized losses on the Company’s Agency MBS (excluding Agency MBS which are reported at fair value with changes in fair value recorded in earnings) were $35 thousand and $1 million as of June 30, 2020 and December 31, 2019, respectively. Given the inherent credit quality of Agency MBS, the Company does not consider any of the current impairments on its Agency MBS to be credit related. In evaluating whether it is more likely than not that it will be required to sell any impaired security before its anticipated recovery, which may be at their maturity, the Company considers the significance of each investment, the amount of impairment, the projected future performance of such impaired securities, as well as the Company’s current and anticipated leverage capacity and liquidity position. Based on these analyses, the Company determined that at June 30, 2020 and December 31, 2019, unrealized losses on its Agency MBS were temporary.

Gross unrealized losses on the Company’s Non-Agency RMBS (excluding Non-Agency RMBS which are reported at fair value with changes in fair value recorded in earnings), net of any allowance for credit losses, was $9 million at June 30, 2020. After evaluating the securities and recording the allowance for credit losses, we concluded that the remaining unrealized losses

15



reflected above were non-credit related and would be recovered from the securities' estimated future cash flows. We considered a number of factors in reaching this conclusion, including that we did not intend to sell the securities, it was not considered more likely than not that we would be forced to sell the securities prior to recovering the amortized cost, and there were no material credit events that would have caused us to otherwise conclude that we would not recover the amortized cost. Credit losses are calculated by comparing the estimated future cash flows of each security discounted at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to the net amortized cost basis. Significant judgment is used in projecting cash flows for Non-Agency RMBS.

Gross unrealized losses on the Company's Non-Agency RMBS (excluding Non-Agency RMBS which are reported at fair value with changes in fair value recorded in earnings), was $348 thousand at December 31, 2019. Based upon the most recent evaluation, the Company does not consider these unrealized losses to be indicative of other-than-temporary and does not believe that these unrealized losses are credit related, but rather are due to other factors.

The Company has reviewed its Non-Agency RMBS that are in an unrealized loss position to identify those securities with losses that are credit related based on an assessment of changes in cash flows expected to be collected for such RMBS, which considers recent bond performance and expected future performance of the underlying collateral. A summary of the credit loss allowance on available-for-sale securities for the quarter and six months ended June 30, 2020 is presented below.

 
For the Quarter Ended
For the Six Months Ended
 
June 30, 2020
June 30, 2020
 
(dollars in thousands)
(dollars in thousands)
Beginning allowance for credit losses
$
6,314

$

 


Transition impact from CECL standard


Additions to the allowance for credit losses on securities for which credit losses were not previously recorded
247

6,561

Allowance on purchased financial assets with credit deterioration


Reductions for the securities sold during the period
(321
)
(321
)
Increase/(decrease) on securities with an allowance in the prior period
(2,703
)
(2,703
)
Write-offs charged against the allowance
(1,748
)
(1,748
)
Recoveries of amounts previously written off
28

28




Ending allowance for credit losses
$
1,817

$
1,817



The following table presents significant credit quality indicators used for the credit loss allowance on our Non-Agency RMBS investments as of June 30, 2020.
 
 
June 30, 2020
 
 
(dollars in thousands)
  
 
Prepay Rate
CDR
Loss Severity
  
Amortized Cost
Weighted Average
Weighted Average
Weighted Average
Non-Agency RMBS
 
 
 
 
Senior
80,221,558
5.4%
3.0%
53.3%
Subordinated
55,859,406
9.3%
1.0%
36.3%


For the quarter ended June 30, 2020 the allowance for credit losses decreased as there was a reduction on expected losses and delinquencies for the period. The increase in the allowance for credit losses for the six months ended June 30, 2020 is primarily due to increased expected losses and delinquencies as compared to the beginning of the year. In addition, the decline in fair value on certain Non-Agency RMBS positions which had previously been in an unrealized gain position as of the prior year-end, are now in an unrealized loss position as of the end of the current period. These Non-Agency RMBS positions now in an unrealized loss have resulted in the recognition of an allowance for credit losses which was previously limited by unrealized gains on these investments.

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The following tables present a summary of unrealized gains and losses at June 30, 2020 and December 31, 2019.
 
 
June 30, 2020
 
 
 
 
 
(dollars in thousands) 
 
 
 
 
Gross Unrealized Gain Included in Accumulated Other Comprehensive Income
Gross Unrealized Gain Included in Cumulative Earnings
Total Gross Unrealized Gain
Gross Unrealized Loss Included in Accumulated Other Comprehensive Income
Gross Unrealized Loss Included in Cumulative Earnings
Total Gross Unrealized Loss
Non-Agency RMBS
 
 
 
 
 
 
Senior
$
464,065

$

$
464,065

$
(303
)
$

$
(303
)
Subordinated
44,026

7,681

51,707

(8,864
)
(81,756
)
(90,620
)
Interest-only

90,965

90,965


(46,289
)
(46,289
)
Agency RMBS
 

 

 
 

 

 
Pass-through






Interest-only

378

378


(23,725
)
(23,725
)
Agency CMBS
 
 
 
 
 
 
Project loans
38,621

197,052

235,673

(35
)

(35
)
Interest-only

2,050

2,050


(2,539
)
(2,539
)
Total
$
546,712

$
298,126

$
844,838

$
(9,202
)
$
(154,309
)
$
(163,511
)
 
 
December 31, 2019
 
 
 
 
 
(dollars in thousands)  
 
 
 
 
Gross Unrealized Gain Included in Accumulated Other Comprehensive Income
Gross Unrealized Gain Included in Cumulative Earnings
Total Gross Unrealized Gain
Gross Unrealized Loss Included in Accumulated Other Comprehensive Income
Gross Unrealized Loss Included in Cumulative Earnings
Total Gross Unrealized Loss
Non-Agency RMBS
 
 
 
 
 
 
Senior
$
628,518

$

$
628,518

$
(293
)
$

$
(293
)
Subordinated
57,174

19,098

76,272

(55
)
(5,213
)
(5,268
)
Interest-only

51,481

51,481


(63,752
)
(63,752
)
Agency RMBS
 

 

 

 

 

 

Pass-through

152,271

152,271


(1,215
)
(1,215
)
Interest-only

220

220


(12,089
)
(12,089
)
Agency CMBS
 
 
 
 
 
 
Project loans
23,643

109,057

132,700

(651
)
(15
)
(666
)
Interest-only

586

586


(2,701
)
(2,701
)
Total
$
709,335

$
332,713

$
1,042,048

$
(999
)
$
(84,985
)
$
(85,984
)


Changes in prepayments, actual cash flows, and cash flows expected to be collected, among other items, are affected by the collateral characteristics of each asset class. The Company chooses assets for the portfolio after carefully evaluating each investment’s risk profile.

The following tables provide a summary of the Company’s MBS portfolio at June 30, 2020 and December 31, 2019.

17