SEC Document
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________ 
FORM 10-Q 
_______________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number 001-34385

(Exact Name of Registrant as Specified in Its Charter)
_______________________________________________
Maryland
 
26-2749336
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
1555 Peachtree Street, N.E., Suite 1800
Atlanta, Georgia
 
30309
(Address of Principal Executive Offices)
 
(Zip Code)
(404) 892-0896
(Registrant’s Telephone Number, Including Area Code) 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large Accelerated filer
 
ý
 
  
Accelerated filer
 
o
Non-Accelerated filer
 
o
(Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o    No  ý
As of May 2, 2016, there were 111,577,275 outstanding shares of common stock of Invesco Mortgage Capital Inc.

Table of Contents


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

Table of Contents


PART I
ITEM 1.
FINANCIAL STATEMENTS
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
  
As of
 $ in thousands except share amounts
March 31, 2016
 
December 31, 2015
ASSETS
 
Mortgage-backed and credit risk transfer securities, at fair value
15,134,066

 
16,065,935

Commercial loans, held-for-investment
277,701

 
209,062

Cash and cash equivalents
51,336

 
53,199

Due from counterparties
233,884

 
110,009

Investment related receivable
30,406

 
154,594

Accrued interest receivable
49,131

 
50,779

Derivative assets, at fair value
702

 
8,659

Other assets
115,878

 
115,072

Total assets
15,893,104

 
16,767,309

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
11,187,159

 
12,126,048

Secured loans
1,650,000

 
1,650,000

Exchangeable senior notes
395,187

 
394,573

Derivative liabilities, at fair value
398,143

 
238,148

Dividends and distributions payable
50,917

 
51,734

Investment related payable
18,782

 
167

Accrued interest payable
18,339

 
21,604

Collateral held payable
—

 
4,900

Accounts payable and accrued expenses
2,027

 
2,376

Due to affiliate
9,943

 
10,851

Total liabilities
13,730,497

 
14,500,401

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

 
135,356

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

 
149,860

Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 111,577,275 and 113,619,471 shares issued and outstanding, respectively
1,116

 
1,136

Additional paid in capital
2,382,542

 
2,407,372

Accumulated other comprehensive income
426,504

 
303,110

Retained earnings (distributions in excess of earnings)
(957,735
)
 
(755,799
)
Total stockholders’ equity
2,137,643

 
2,241,035

Non-controlling interest
24,964

 
25,873

Total equity
2,162,607

 
2,266,908

Total liabilities and equity
15,893,104

 
16,767,309

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

 
1
 

Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended 
 March 31,
$ in thousands, except share amounts
2016
 
2015
Interest Income

 

Mortgage-backed and credit risk transfer securities
121,087

 
135,265

Residential loans (1)
—

 
29,374

Commercial loans
4,893

 
3,115

Total interest income
125,980

 
167,754

Interest Expense

 

Repurchase agreements
41,800

 
43,310

Secured loans
2,715

 
1,464

Exchangeable senior notes
5,613

 
5,607

Asset-backed securities (1)
—

 
21,898

Total interest expense
50,128

 
72,279

Net interest income
75,852

 
95,475

(Reduction in) provision for loan losses
—

 
(62
)
Net interest income after (reduction in) provision for loan losses
75,852

 
95,537

Other Income (loss)

 

Gain (loss) on investments, net
11,601

 
2,172

Equity in earnings of unconsolidated ventures
1,061

 
6,006

Gain (loss) on derivative instruments, net
(238,543
)
 
(122,745
)
Realized and unrealized credit derivative income (loss), net
8,410

 
21,362

Other investment income (loss), net
(318
)
 
(894
)
Total other income (loss)
(217,789
)
 
(94,099
)
Expenses
 
 
 
Management fee – related party
9,512

 
9,415

General and administrative
2,037

 
1,727

Consolidated securitization trusts (1)
—

 
2,156

Total expenses
11,549

 
13,298

Net income (loss)
(153,486
)
 
(11,860
)
Net income (loss) attributable to non-controlling interest
(1,897
)
 
(136
)
Net income (loss) attributable to Invesco Mortgage Capital Inc.
(151,589
)
 
(11,724
)
Dividends to preferred stockholders
5,716

 
5,716

Net income (loss) attributable to common stockholders
(157,305
)
 
(17,440
)
Earnings (loss) per share:
 
 


Net income (loss) attributable to common stockholders
 
 

Basic
(1.39
)
 
(0.14
)
Diluted
(1.39
)
 
(0.14
)
Dividends declared per common share
0.40

 
0.45

(1)
The condensed consolidated statement of operations for the three months ended March 31, 2015 includes income and expenses of consolidated variable interest entities ("VIEs"). The Company deconsolidated these VIEs in December 2015. Refer to Note 2 - “Summary of Significant Accounting Policies” for further discussion.
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
2
 

Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended 
 March 31,
$ in thousands
2016
 
2015
Net loss
(153,486
)
 
(11,860
)
Other comprehensive income (loss):
 
 
 
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net
122,619

 
125,954

Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net
(10,544
)
 
(2,934
)
Reclassification of amortization of net deferred losses on de-designated interest rate swaps to repurchase agreements interest expense
12,924

 
19,145

Currency translation adjustments on investment in unconsolidated venture
(49
)
 
—

Total other comprehensive income
124,950

 
142,165

Comprehensive income (loss)
(28,536
)
 
130,305

Less: Comprehensive income (loss) attributable to non-controlling interest
341

 
(1,490
)
Less: Dividends to preferred stockholders
(5,716
)
 
(5,716
)
Comprehensive income (loss) attributable to common stockholders
(33,911
)
 
123,099

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


 
3
 

Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
For the three months ended March 31, 2016
(Unaudited)
 
 
 
 
 
 
 
Attributable to Common Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
Paid in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
(Distributions
in excess of
earnings)
 
Total
Stockholders’
Equity
 
Non-
Controlling
Interest
 
 
 
Series A
Preferred Stock
 
Series B
Preferred Stock
 
 
 
 
$ in thousands except
 share amounts
 
 
Common Stock
 
Total
Equity
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2015
5,600,000

 
135,356

 
6,200,000

 
149,860

 
113,619,471

 
1,136

 
2,407,372

 
303,110

 
(755,799
)
 
2,241,035

 
25,873

 
2,266,908

Net loss
—

 
—

 
—

 
—

 


 


 
—

 
—

 
(151,589
)
 
(151,589
)
 
(1,897
)
 
(153,486
)
Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
123,394

 
—

 
123,394

 
1,556

 
124,950

Proceeds from issuance of common stock, net of offering costs
—

 
—

 
—

 
—

 
3,201

 
—

 
35

 
—

 
—

 
35

 
—

 
35

Repurchase of shares of common stock
—

 
—

 
—

 
—

 
(2,063,451
)
 
(20
)
 
(24,980
)
 
—

 
—

 
(25,000
)
 
—

 
(25,000
)
Stock awards
—

 
—

 
—

 
—

 
18,054

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Common stock dividends
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(44,631
)
 
(44,631
)
 
—

 
(44,631
)
Common unit dividends
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(570
)
 
(570
)
Preferred stock dividends
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,716
)
 
(5,716
)
 
—

 
(5,716
)
Amortization of equity-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
115

 
—

 


 
115

 
2

 
117

Balance at March 31, 2016
5,600,000

 
135,356

 
6,200,000

 
149,860

 
111,577,275

 
1,116

 
2,382,542

 
426,504

 
(957,735
)
 
2,137,643

 
24,964

 
2,162,607

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


 
4
 

Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
  
Three Months Ended March 31,
$ in thousands
2016
 
2015
Cash Flows from Operating Activities
 
 
 
Net loss
(153,486
)
 
(11,860
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Amortization of mortgage-backed and credit risk transfer securities premiums and (discounts), net
25,207

 
29,389

Amortization of residential loans and asset-backed securities premiums (discount), net
—

 
37

Amortization of commercial loan origination fees
(59
)
 
(6
)
Reduction in provision for loan losses
—

 
(62
)
Unrealized (gain) loss on derivative instruments, net
166,467

 
51,034

Unrealized (gain) loss on credit derivatives, net
(3,016
)
 
(15,976
)
(Gain) loss on investments, net
(11,601
)
 
(2,172
)
Realized (gain) loss on derivative instruments, net
42,985

 
26,103

Realized (gain) loss on credit derivatives, net
920

 
792

Equity in earnings of unconsolidated ventures
(1,061
)
 
(6,006
)
Amortization of equity-based compensation
117

 
155

Amortization of deferred securitization and financing costs
614

 
794

Amortization of net deferred losses on de-designated interest rate swaps to repurchase agreements interest expense
12,924

 
19,145

(Gain) loss on foreign currency transactions, net
1,125

 
1,500

Changes in operating assets and liabilities:
 
 
 
(Increase) decrease in operating assets
2,249

 
(53
)
Decrease in operating liabilities
(4,527
)
 
(5,392
)
Net cash provided by operating activities
78,858

 
87,422

Cash Flows from Investing Activities
 
 
 
Purchase of mortgage-backed and credit risk transfer securities
(47,716
)
 
(726,494
)
(Contributions) distributions (from) to investment in unconsolidated ventures, net
(116
)
 
8,761

Change in other assets
—

 
(7,250
)
Principal payments from mortgage-backed and credit risk transfer securities
528,138

 
570,110

Proceeds from sale of mortgage-backed and credit risk transfer securities
684,345

 
180,790

Payments on sale of credit derivatives
(920
)
 
(792
)
Payment of premiums for interest rate swaptions
—

 
(1,485
)
(Payments) proceeds (for) from termination of futures, forwards, swaps, swaptions and TBAs
(37,228
)
 
(2,360
)
Purchase of residential loans held-for-investment
—

 
(372,305
)
Principal payments from residential loans held-for-investment
—

 
138,210

Origination and advances of commercial loans, net of origination fees
(69,830
)
 
(1,944
)
Net cash provided by (used in) investing activities
1,056,673

 
(214,759
)
Cash Flows from Financing Activities
 
 
 
Proceeds from issuance of common stock
35

 
70

Repurchase of common stock
(25,000
)
 
—

Cost of issuance of preferred stock
—

 
(15
)
Due from counterparties
(116,766
)
 
(23,626
)
Collateral held payable
(4,900
)
 
(10,590
)
Proceeds from repurchase agreements
29,578,250

 
35,603,951

Principal repayments of repurchase agreements
(30,517,139
)
 
(35,893,498
)
Proceeds from asset-backed securities issued by securitization trusts
—

 
336,077

Principal repayments of asset-backed securities issued by securitization trusts
—

 
(130,394
)
Proceeds from secured loans
125,000

 
600,000

Principal repayments on secured loans
(125,000
)
 
(300,000
)
Payments of deferred costs
(140
)
 
—

Payments of dividends and distributions
(51,734
)
 
(61,757
)
Net cash (used in) provided by financing activities
(1,137,394
)
 
120,218

Net change in cash and cash equivalents
(1,863
)
 
(7,119
)
Cash and cash equivalents, beginning of period
53,199

 
164,144

Cash and cash equivalents, end of period
51,336

 
157,025

Supplement Disclosure of Cash Flow Information
 
 
 
Interest paid
43,110

 
59,713

Non-cash Investing and Financing Activities Information
 
 
 
Net change in unrealized gain on mortgage-backed and credit risk transfer securities
112,075

 
123,020

Dividends and distributions declared not paid
50,917

 
61,766

(Receivable) / payable for mortgage-backed and credit risk transfer securities, net
131,413

 
4,265

Repurchase agreements, not settled
—

 
(49
)
Swap terminated, not settled
4,272

 
19,055

Net change in due from counterparties
(7,109
)
 
(985
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
5
 

Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization and Business Operations
Invesco Mortgage Capital Inc. (the “Company”) is a Maryland corporation primarily focused on investing in, financing and managing residential and commercial mortgage-backed securities and mortgage loans. The Company conducts its business through IAS Operating Partnership LP (the “Operating Partnership”), a variable interest entity ("VIE"), as its sole general partner. As of March 31, 2016, the Company owned 98.7% of the Operating Partnership, and a wholly-owned subsidiary of Invesco owned the remaining 1.3%. The Company has one operating segment.
The Company primarily invests in:
•
Residential mortgage-backed securities ("RMBS") that are guaranteed by a U.S. government agency such as the Government National Mortgage Association, or a federally chartered corporation such as the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac") (collectively "Agency RMBS");
•
RMBS that are not guaranteed by a U.S. government agency (“non-Agency RMBS”);
•
Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ("GSE CRT");
•
Commercial mortgage-backed securities ("CMBS");
•
Residential and commercial mortgage loans; and
•
Other real estate-related financing agreements.
The Company is externally managed and advised by Invesco Advisers, Inc. (the "Manager"), a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd. (“Invesco”), a leading independent global investment management firm. The Company elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986, as amended, commencing with the Company's taxable year ended December 31, 2009. To maintain the Company’s REIT qualification, the Company is generally required to distribute at least 90% of its REIT taxable income to its stockholders annually. The Company operates its business in a manner that permits exclusion from the "Investment Company" definition under the Investment Company Act of 1940, as amended.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
Certain disclosures included in the Company’s Form 10-K are not required to be included on an interim basis in the Company’s quarterly reports on Form 10-Q. The Company has condensed or omitted these disclosures. Therefore, this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for a fair presentation of the financial condition and results of operations for the periods presented. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation.
The condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and consolidate the financial statements of the Company and its controlled subsidiaries. During the period from January 1, 2015 through December 9, 2015, the condensed consolidated financial statements also include the results of operations of certain residential loan securitization trusts (the "Residential Securitizations") that meet the definition of a VIE. On December 9, 2015, the Company completed the sale of certain beneficial interests in the Residential Securitizations and deconsolidated the Residential Securitizations.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Examples of estimates include, but are not limited to, estimates of the fair values of financial instruments, interest income on mortgage-backed and credit risk transfer securities, allowance for loan losses and other-than-temporary impairment charges. Actual results may differ from those estimates.

 
6
 

Table of Contents


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 2015 Annual Report on Form 10-K.
Reclassifications
Certain prior period reported amounts have been reclassified to be consistent with the current presentation. Such reclassifications had no impact on net income or equity attributable to common stockholders.
Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements
Effective January 1, 2016, the Company adopted the newly issued accounting guidance for presentation of debt issuance costs. Under the new standard, debt issuance costs are required to be presented in the consolidated balance sheets as a direct deduction from the carrying value of the associated debt liability. The Company adopted the accounting standard on a retrospective basis, which required the restatement of the Company's December 31, 2015 balance sheet. The adoption resulted in a $5.4 million reduction in exchangeable senior notes and a corresponding reduction in other assets.
    
In  August 2015, the FASB clarified the newly issued accounting guidance for debt issuance costs and stated that the SEC staff would not object to a company presenting debt issuance costs related to a line-of-credit arrangement on the balance sheet as a deferred asset, regardless of whether there were any outstanding borrowings at period-end. The Company did not have line of credit arrangements as of March 31, 2016 and December 31, 2015.
Effective January 1, 2016, the Company adopted the newly issued accounting guidance for reporting entities that are required to determine whether they should consolidate certain legal entities. The Company adopted the accounting standard on a modified retrospective approach which did not require restatement of prior periods to conform to the post adoption presentation. The Company did not consolidate or deconsolidate any legal entities as a result of implementing the new guidance.
In January 2016, the FASB issued guidance to improve certain aspects of classification and measurement of financial instruments, including significant revisions in accounting related to the classification and measurement of investments in equity securities and presentation of certain fair value changes for financial liabilities when the fair value option is elected. The guidance also amends certain disclosure requirements associated with the fair value of financial instruments. The Company is required to adopt the new guidance in the first quarter of 2018. Early adoption is permitted. The Company is currently evaluating the potential impact of the new guidance on its consolidated financial statements, as well as available transition methods.
Note 3 – Variable Interest Entities
The Company's maximum risk of loss in VIEs in which the Company is not the primary beneficiary at March 31, 2016 is presented in the table below.
$ in thousands
Carrying Amount
 
Company's Maximum Risk of Loss
Non-Agency RMBS
2,384,965

 
2,384,965

CMBS
2,701,950

 
2,701,950

Investments in unconsolidated ventures
39,541

 
39,541

Total
5,126,456

 
5,126,456

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

 
7
 

Table of Contents


Note 4 – Mortgage-Backed and Credit Risk Transfer Securities
The following tables summarize the Company’s MBS and GSE CRT portfolio by asset type as of March 31, 2016 and December 31, 2015.
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Net
Weighted
Average
Coupon (1)
 
Period-
end
Weighted
Average
Yield (2)
 
Quarterly
Weighted
Average
Yield (3)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
1,472,653

 
68,699

 
1,541,352

 
23,813

 
1,565,165

 
3.71
%
 
2.53
%
 
2.40
%
30 year fixed-rate
3,661,911

 
239,352

 
3,901,263

 
64,988

 
3,966,251

 
4.23
%
 
2.96
%
 
2.97
%
ARM*
400,744

 
4,344

 
405,088

 
8,561

 
413,649

 
2.72
%
 
2.63
%
 
2.42
%
Hybrid ARM
2,944,182

 
54,561

 
2,998,743

 
41,983

 
3,040,726

 
2.72
%
 
2.54
%
 
2.28
%
Total Agency pass-through
8,479,490

 
366,956

 
8,846,446

 
139,345

 
8,985,791

 
3.55
%
 
2.73
%
 
2.61
%
Agency-CMO(4)
1,763,203

 
(1,365,561
)
 
397,642

 
12,927

 
410,569

 
2.12
%
 
3.65
%
 
2.80
%
Non-Agency RMBS(5)(6)(7)
4,587,878

 
(2,261,092
)
 
2,326,786

 
58,179

 
2,384,965

 
2.15
%
 
4.01
%
 
4.68
%
GSE CRT(8)(9)
647,500

 
21,811

 
669,311

 
(18,520
)
 
650,791

 
1.33
%
 
0.73
%
 
0.85
%
CMBS(10)
3,193,203

 
(557,871
)
 
2,635,332

 
66,618

 
2,701,950

 
3.86
%
 
4.25
%
 
4.38
%
Total
18,671,274

 
(3,795,757
)
 
14,875,517

 
258,549

 
15,134,066

 
3.04
%
 
3.13
%
 
3.18
%
* Adjustable-rate mortgage ("ARM")
 
(1)
Net weighted average coupon as of March 31, 2016 is presented net of servicing and other fees.
(2)
Period-end weighted average yield is based on amortized cost as of March 31, 2016 and incorporates future prepayment and loss assumptions but excludes changes in anticipated interest rates.
(3)
Quarterly weighted average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the Company's average of the amortized cost of the investments. All yields are annualized.
(4)
Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 83.2% of principal (notional) balance, 24.4% of amortized cost and 25.3% of fair value.
(5)
Non-Agency RMBS held by the Company is 46.4% variable rate, 46.8% fixed rate, and 6.8% floating rate based on fair value.
(6)
Of the total discount in non-Agency RMBS, $271.7 million is non-accretable.
(7)
Non-Agency RMBS includes interest-only securities, which represent 1.4% of the balance based on fair value.
(8)
The Company has elected the fair value option for GSE CRT purchased on or after August 24, 2015, which represent 1.9% of the balance based on fair value. As a result, GSE CRT accounted for under the fair value option are not bifurcated between the debt host contract and the embedded derivative.
(9)
GSE CRT weighted average coupon and weighted average yield excludes GSE CRT not accounted for under the fair value option as the embedded derivative coupon interest is recorded as realized and unrealized credit derivative income (loss), net.
(10)
CMBS includes interest-only securities, which represent 0.9% of the balance based on fair value.


 
8
 

Table of Contents


December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Net
Weighted
Average
Coupon (1)
 
Period-
end
Weighted
Average
Yield (2)
 
Quarterly
Weighted
Average
Yield (3)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
1,527,877

 
72,389

 
1,600,266

 
10,664

 
1,610,930

 
3.72
%
 
2.47
%
 
2.40
%
30 year fixed-rate
3,796,091

 
249,285

 
4,045,376

 
18,581

 
4,063,957

 
4.24
%
 
2.81
%
 
2.85
%
ARM
417,424

 
4,625

 
422,049

 
3,976

 
426,025

 
2.72
%
 
2.58
%
 
2.26
%
Hybrid ARM
3,240,967

 
63,324

 
3,304,291

 
5,234

 
3,309,525

 
2.73
%
 
2.56
%
 
2.22
%
Total Agency pass-through
8,982,359

 
389,623

 
9,371,982

 
38,455

 
9,410,437

 
3.54
%
 
2.65
%
 
2.53
%
Agency-CMO(4)
1,774,621

 
(1,386,284
)
 
388,337

 
482

 
388,819

 
2.23
%
 
4.29
%
 
3.42
%
Non-Agency RMBS(5)(6)(7)
4,965,978

 
(2,348,080
)
 
2,617,898

 
74,589

 
2,692,487

 
2.20
%
 
4.00
%
 
4.80
%
GSE CRT(8)(9)
657,500

 
22,593

 
680,093

 
(21,865
)
 
658,228

 
1.32
%
 
0.72
%
 
0.62
%
CMBS(10)
3,429,655

 
(558,749
)
 
2,870,906

 
45,058

 
2,915,964

 
3.95
%
 
4.30
%
 
4.35
%
Total
19,810,113

 
(3,880,897
)
 
15,929,216

 
136,719

 
16,065,935

 
3.08
%
 
3.13
%
 
3.19
%
 
(1)
Net weighted average coupon as of December 31, 2015 is presented net of servicing and other fees.
(2)
Period-end weighted average yield based on amortized cost as of December 31, 2015 incorporates future prepayment and loss assumptions but excludes changes in anticipated interest rates.
(3)
Quarterly weighted average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the Company's average of the amortized cost of the investments. All yields are annualized.
(4)
Agency collateralized mortgage obligation ("Agency CMO") includes interest-only securities, which represent 84.4% of principal (notional) balance, 27.5% of amortized cost and 27.6% of fair value.
(5)
Non-Agency RMBS held by the Company is 48.4% variable rate, 45.2% fixed rate, and 6.4% floating rate based on fair value.
(6)
Of the total discount in non-Agency RMBS, $281.6 million is non-accretable.
(7)
Non-Agency RMBS includes interest-only securities, which represent 1.3% of the balance based on fair value.
(8)
The Company has elected the fair value option for GSE CRT purchased on or after August 24, 2015, which represent 1.9% of the balance based on fair value. As a result, GSE CRT accounted for under the fair value option are not bifurcated between the debt host contract and the embedded derivative.
(9)
GSE CRT weighted average coupon and weighted average yield excludes GSE CRT not accounted for under the fair value option as the embedded derivative coupon interest is recorded as realized and unrealized credit derivative income (loss), net.
(10)
CMBS includes interest-only securities and commercial real estate mezzanine loan pass-through certificates, which represent 0.9% and 0.7% of the balance based on fair value, respectively.
The following table summarizes the Company's non-Agency RMBS portfolio by asset type based on fair value as of March 31, 2016 and December 31, 2015.
$ in thousands
March 31, 2016
 
% of Non-Agency
 
December 31, 2015
 
% of Non-Agency
Prime
1,026,639

 
43.0
%
 
1,081,428

 
40.2
%
Re-REMIC
492,945

 
20.8
%
 
663,853

 
24.7
%
Alt-A
513,636

 
21.5
%
 
544,306

 
20.2
%
Subprime/reperforming
351,745

 
14.7
%
 
402,900

 
14.9
%
Total Non-Agency
2,384,965

 
100.0
%
 
2,692,487

 
100.0
%

 
9
 

Table of Contents


The following table summarizes the credit enhancement provided to the Company's re-securitization of real estate mortgage investment conduit ("Re-REMIC") holdings as of March 31, 2016 and December 31, 2015.
  
Percentage of Re-REMIC Holdings at Fair Value
Re-REMIC Subordination(1)
March 31, 2016
 
December 31, 2015
0% - 10%
13.3
%
 
11.0
%
10% - 20%
7.0
%
 
5.6
%
20% - 30%
13.0
%
 
12.7
%
30% - 40%
16.2
%
 
20.8
%
40% - 50%
32.5
%
 
32.8
%
50% - 60%
15.4
%
 
13.3
%
60% - 70%
2.6
%
 
3.8
%
Total
100.0
%
 
100.0
%
 
(1)
Subordination refers to the credit enhancement provided to the Re-REMIC tranche held by the Company by any junior Re-REMIC tranche or tranches in a resecuritization. This figure reflects the percentage of the balance of the underlying securities represented by any junior tranche or tranches at the time of resecuritization. Generally, principal losses on the underlying securities in excess of the subordination amount would result in principal losses on the Re-REMIC tranche held by the Company. 28.8% of the Company's Re-REMIC holdings are not senior tranches.
The components of the carrying value of the Company’s MBS and GSE CRT portfolio at March 31, 2016 and December 31, 2015 are presented below. 
$ in thousands
March 31, 2016
 
December 31, 2015
Principal balance
18,671,274

 
19,810,113

Unamortized premium
468,153

 
495,537

Unamortized discount
(4,263,910
)
 
(4,376,434
)
Gross unrealized gains
334,970

 
287,469

Gross unrealized losses
(76,421
)
 
(150,750
)
Fair value
15,134,066

 
16,065,935

The following table summarizes the Company’s MBS and GSE CRT portfolio according to estimated weighted average life classifications as of March 31, 2016 and December 31, 2015. 
$ in thousands
March 31, 2016
 
December 31, 2015
Less than one year
301,799

 
427,678

Greater than one year and less than five years
8,651,266

 
6,237,547

Greater than or equal to five years
6,181,001

 
9,400,710

Total
15,134,066

 
16,065,935



 
10
 

Table of Contents


The following tables present the estimated fair value and gross unrealized losses of the Company's MBS and GSE CRTs by length of time that such securities have been in a continuous unrealized loss position at March 31, 2016 and December 31, 2015.
March 31, 2016
  
Less than 12 Months
 
12 Months or More
 
Total
$ in thousands
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
267,933

 
(814
)
 
19

 
181,040

 
(969
)
 
12

 
448,973

 
(1,783
)
 
31

30 year fixed-rate
336,431

 
(3,863
)
 
10

 
1,271,850

 
(18,519
)
 
53

 
1,608,281

 
(22,382
)
 
63

ARM
1,546

 
(13
)
 
1

 
—

 
—

 
—

 
1,546

 
(13
)
 
1

Hybrid ARM
327,101

 
(718
)
 
14

 
—

 
—

 
—

 
327,101

 
(718
)
 
14

Total Agency pass-through
933,011

 
(5,408
)
 
44

 
1,452,890

 
(19,488
)
 
65

 
2,385,901

 
(24,896
)
 
109

Agency-CMO (1)
47,765

 
(1,107
)
 
10

 
5,884

 
(1,775
)
 
7

 
53,649

 
(2,882
)
 
17

Non-Agency RMBS
774,913

 
(9,237
)
 
58

 
281,308

 
(8,037
)
 
22

 
1,056,221

 
(17,274
)
 
80

GSE CRT (2)
426,242

 
(8,224
)
 
14

 
112,988

 
(11,365
)
 
4

 
539,230

 
(19,589
)
 
18

CMBS
666,755

 
(11,190
)
 
50

 
34,260

 
(590
)
 
3

 
701,015

 
(11,780
)
 
53

Total
2,848,686

 
(35,166
)
 
176

 
1,887,330

 
(41,255
)
 
101

 
4,736,016

 
(76,421
)
 
277

(1) Fair value includes unrealized losses on Agency IO of $2.5 million and unrealized losses on CMO of $0.4 million.
(2) Fair value includes unrealized losses on both the debt host contract and the embedded derivative.
December 31, 2015
  
Less than 12 Months
 
12 Months or More
 
Total
$ in thousands
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Number
of
Securities
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
600,480

 
(8,081
)
 
33

 
77,506

 
(1,482
)
 
6

 
677,986

 
(9,563
)
 
39

30 year fixed-rate
776,065

 
(14,827
)
 
32

 
1,120,391

 
(39,497
)
 
47

 
1,896,456

 
(54,324
)
 
79

ARM
200,863

 
(501
)
 
11

 
—

 
—

 
—

 
200,863

 
(501
)
 
11

Hybrid ARM
1,913,872

 
(17,082
)
 
111

 
—

 
—

 
—

 
1,913,872

 
(17,082
)
 
111

Total Agency pass-through
3,491,280

 
(40,491
)
 
187

 
1,197,897

 
(40,979
)
 
53

 
4,689,177

 
(81,470
)
 
240

Agency-CMO (1)
166,754

 
(3,296
)
 
14

 
9,118

 
(6,934
)
 
9

 
175,872

 
(10,230
)
 
23

Non-Agency RMBS
832,978

 
(6,957
)
 
73

 
331,018

 
(10,326
)
 
28

 
1,163,996

 
(17,283
)
 
101

GSE CRT (2)
340,116

 
(10,050
)
 
16

 
120,877

 
(13,605
)
 
7

 
460,993

 
(23,655
)
 
23

CMBS
1,224,985

 
(17,328
)
 
85

 
31,533

 
(784
)
 
2

 
1,256,518

 
(18,112
)
 
87

Total
6,056,113

 
(78,122
)
 
375

 
1,690,443

 
(72,628
)
 
99

 
7,746,556

 
(150,750
)
 
474

(1) Fair value includes unrealized losses on Agency IO of $8.3 million and unrealized losses on CMO of $1.9 million.
(2) Fair value includes unrealized losses on both the debt host contract and the embedded derivative.
Gross unrealized losses on the Company’s Agency RMBS and CMO were $24.9 million and $0.4 million, respectively, at March 31, 2016. Due to the inherent credit quality of Agency RMBS and CMO, the Company determined that at March 31, 2016, any unrealized losses on its Agency RMBS and CMO portfolio are not other than temporary.
Gross unrealized losses on the Company’s Agency IO, non-Agency RMBS, GSE CRT and CMBS were $51.1 million at March 31, 2016. The Company does not consider these unrealized losses to be credit related, but rather due to non-credit related factors such as interest rate spreads, prepayment speeds, and market fluctuations. These investment securities are included in the Company’s assessment for other-than-temporary impairment on a quarterly basis.

 
11
 

Table of Contents


The Company assesses its investment securities for other-than-temporary impairment on a quarterly basis. When the fair value of an investment is less than its amortized cost at the balance sheet date of the reporting period for which impairment is assessed, the impairment is designated as either “temporary” or “other-than-temporary.” This analysis includes a determination of estimated future cash flows through an evaluation of the characteristics of the underlying loans and the structural features of the investment. Underlying loan characteristics reviewed include, but are not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration.
The Company recorded $5.7 million in other-than-temporary credit impairments during the three months ended March 31, 2016. The Company did not have other-than-temporary impairments ("OTTI") for the three months ended March 31, 2015. Other-than-temporary impairments are reported as gain (loss) on investments, net on the condensed consolidated statements of operations. As of March 31, 2016, the Company did not intend to sell the securities and determined that it was not more likely than not that the Company will be required to sell the securities.
The Company impaired certain RMBS interest-only securities during the three months ended March 31, 2016. As the changes in fair value on interest-only securities are already recorded in the Company's consolidated statement of operations, the $5.7 million in other-than-temporary credit impairments was recorded as a reclassification from an unrealized to a realized loss within gain (loss) in investments, net on the consolidated statements of operations.
The following table presents the changes in OTTI included in earnings for the three months ended March 31, 2016 and 2015.
$ in thousands
Three Months 
 ended 
 March 31, 2016
 
Three Months 
 ended 
 March 31, 2015
Cumulative credit loss at beginning of period
—

 
—

Additions:


 
—

Other-than-temporary impairments not previously recognized
5,683

 
—

Cumulative credit loss at end of period
5,683

 
—

The following table presents the impact of the Company’s MBS and GSE CRT debt host contract on accumulated other comprehensive income (loss) for the three months ended March 31, 2016 and 2015.  The table excludes RMBS IOs and GSE CRTs that are accounted for under the fair value option.
$ in thousands
Three Months 
 ended 
 March 31, 2016
 
Three Months 
 ended 
 March 31, 2015
Accumulated other comprehensive income (loss) from MBS and GSE CRT securities:
 
 
 
Unrealized gain (loss) on MBS and GSE CRT at beginning of period
162,081

 
351,774

Unrealized gain (loss) on MBS and GSE CRT
122,619

 
125,954

Reclassification of unrealized (gain) loss on sale of MBS and GSE CRT to gain (loss) on investments, net
(10,544
)
 
(2,934
)
Balance at the end of period
274,156

 
474,794

During the three months ended March 31, 2016 and 2015, the Company reclassified $10.5 million and $2.9 million of net unrealized gains, respectively, from other comprehensive income into gain (loss) on investments, net as a result of the Company selling certain investments.

 
12
 

Table of Contents


The following table summarizes the components of the Company's total gain (loss) on investments, net for the three months ended March 31, 2016 and 2015.
$ in thousands
Three Months 
 ended 
 March 31, 2016
 
Three Months 
 ended 
 March 31, 2015
Gross realized gain on sale of investments
13,015

 
2,964

Gross realized loss on sale of investments
(2,471
)
 
(30
)
Other-than-temporary credit impairment losses
(5,683
)
 
—

Net unrealized gain (loss) on RMBS IOs (fair value option)
6,676

 
(762
)
Net unrealized gain (loss) on GSE CRT (fair value option)
64

 
—

Total gains (loss) on investments, net
11,601

 
2,172

The following table presents components of interest income on the Company’s MBS and GSE CRT portfolio for the three months ended March 31, 2016 and 2015. GSE CRT interest income excludes coupon interest associated with embedded derivatives not accounted for under the fair value option recorded in realized and unrealized credit derivative income (loss), net.
For the three months ended March 31, 2016
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
85,771

 
(24,185
)
 
61,586

Non-Agency
25,849

 
2,685

 
28,534

GSE CRT
2,197

 
(767
)
 
1,430

CMBS
32,264

 
(2,940
)
 
29,324

Other
213

 
—

 
213

Total
146,294

 
(25,207
)
 
121,087

For the three months ended March 31, 2015
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency
94,372

 
(26,859
)
 
67,513

Non-Agency
30,810

 
658

 
31,468

GSE CRT
1,568

 
(760
)
 
808

CMBS
37,905

 
(2,428
)
 
35,477

Other
(1
)
 
—

 
(1
)
Total
164,654

 
(29,389
)
 
135,265



 
13
 

Table of Contents


Note 5 – Commercial Loans Held-for-Investment
The following table summarizes commercial loans held-for-investment as of March 31, 2016 and December 31, 2015 that were purchased or originated by the Company.
March 31, 2016
$ in thousands
Number of
loans
 
Principal
Balance
 
Unamortized (fees)/
costs, net
 
Carrying
value
Mezzanine loans
10

 
278,162

 
(461
)
 
277,701

Total
10

 
278,162

 
(461
)
 
277,701

December 31, 2015
$ in thousands
Number of
loans
 
Principal
Balance
 
Unamortized (fees)/
costs, net
 
Carrying
value
Mezzanine loans
6

 
210,769

 
(1,707
)
 
209,062

Total
6

 
210,769

 
(1,707
)
 
209,062

These loans were not impaired, and no allowance for loan loss has been recorded as of March 31, 2016 and December 31, 2015.
Note 6 – Other Assets
The following table summarizes the Company's other assets as of March 31, 2016 and December 31, 2015.
$ in thousands
March 31, 2016
 
December 31, 2015
FHLBI stock
75,375

 
75,375

Investments in unconsolidated ventures
39,541

 
38,413

Prepaid expenses
962

 
1,284

Total
115,878

 
115,072

IAS Services LLC, the Company's wholly-owned subsidiary, is required to purchase and hold FHLBI stock as a condition of membership in the Federal Home Loan Bank of Indianapolis ("FHLBI"). The stock is recorded at cost.
The Company has invested in unconsolidated ventures that are managed by an affiliate of the Company's Manager. The unconsolidated ventures invest in the Company's target assets. Refer to Note 15 - "Commitments and Contingencies" for additional details regarding the Company's commitments to these unconsolidated ventures.

 
14
 

Table of Contents


Note 7 – Borrowings
The Company has financed the majority of its investment portfolio through repurchase agreements, secured loans and exchangeable senior notes. The following table summarizes certain characteristics of the Company’s borrowings at March 31, 2016 and December 31, 2015.
$ in thousands
March 31, 2016
 
December 31, 2015
 
 
 
 
Weighted
 
 
 
 
 
Weighted
 
 
Weighted
 
Average
 
 
 
Weighted
 
Average
 
 
Average
 
Remaining
 
 
 
Average
 
Remaining
Amount
 
Interest
 
Maturity
 
Amount
 
Interest
 
Maturity
Outstanding
 
Rate
 
(days)
 
Outstanding
 
Rate
 
(days)
Repurchase Agreements:
 
 
 
 
 
 
 
 
 
 
 
Agency RMBS
7,916,802

 
0.66
%
 
16

 
8,389,643

 
0.65
%
 
24

Non-Agency RMBS
1,860,669

 
1.81
%
 
39

 
2,077,240

 
1.68
%
 
32

GSE CRT
396,753

 
2.07
%
 
38

 
488,275

 
1.91
%
 
19

CMBS
1,012,935

 
1.63
%
 
23

 
1,170,890

 
1.49
%
 
23

Secured Loans
1,650,000

 
0.68
%
 
2,957

 
1,650,000

 
0.55
%
 
2,937

Exchangeable Senior Notes (1)
400,000

 
5.00
%
 
714

 
400,000

 
5.00
%
 
805

Total
13,237,159

 
1.07
%
 
408

 
14,176,048

 
1.02
%
 
386

(1)
The carrying value of exchangeable senior notes is $395.2 million and $394.6 million as of March 31, 2016 and December 31, 2015, respectively. The carrying value is net of debt issuance costs of $4.8 million and $5.4 million as of March 31, 2016 and December 31, 2015, respectively.
Repurchase Agreements
Repurchase agreements bear interest at a contractually agreed upon rate and have maturities ranging from one month to twelve months. Repurchase agreements are accounted for as secured borrowings since the Company maintains effective control of the financed assets. Under the repurchase agreements, the respective lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral or fund margin calls. The Company intends to maintain a level of liquidity that will enable the Company to meet margin calls. In addition, the repurchase agreements are subject to certain financial covenants. The Company was in compliance with these covenants at March 31, 2016.


 
15
 

Table of Contents


The following tables summarize certain characteristics of the Company’s repurchase agreements at March 31, 2016 and December 31, 2015.
March 31, 2016
 
 
 
 
 
$ in thousands
Repurchase Agreement Counterparties
Amount Outstanding
 
Percent of Total Amount Outstanding
 
Company MBS and GSE CRTs Held as Collateral
HSBC Securities (USA) Inc
1,498,650

 
13.3
%
 
1,550,677

ING Financial Market LLC
1,084,730

 
9.7
%
 
1,159,981

Royal Bank of Canada
1,004,782

 
9.0
%
 
1,225,784

South Street Securities LLC
794,811

 
7.1
%
 
835,147

Industrial and Commercial Bank of China Financial Services LLC
698,273

 
6.2
%
 
736,743

Pierpont Securities LLC
672,291

 
6.0
%
 
700,740

JP Morgan Securities Inc.
601,806

 
5.4
%
 
702,519

Mitsubishi UFJ Securities (USA), Inc.
577,899

 
5.2
%
 
610,726

Scotia Capital
560,714

 
5.0
%
 
584,745

Citigroup Global Markets Inc.
461,318

 
4.1
%
 
583,809

BNP Paribas Securities Corp.
453,622

 
4.1
%
 
517,606

Goldman, Sachs & Co.
437,425

 
3.9
%
 
548,395

Wells Fargo Securities, LLC
388,085

 
3.5
%
 
465,418

KGS-Alpha Capital Markets, L.P.
375,376

 
3.4
%
 
395,307

Societe Generale
295,776

 
2.6
%
 
387,701

Morgan Stanley & Co. Incorporated
264,708

 
2.4
%
 
310,809

All other counterparties (1)
1,016,893

 
9.1
%
 
1,152,441

Total
11,187,159

 
100.0
%
 
12,468,548

(1) Represents amounts outstanding with ten counterparties.
 

 
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December 31, 2015
 
 
 
 
 
$ in thousands
Repurchase Agreement Counterparties
Amount Outstanding
 
Percent of Total Amount Outstanding
 
Company MBS and GSE CRTs Held as Collateral
HSBC Securities (USA) Inc
1,566,747

 
12.9
%
 
1,611,020

Royal Bank of Canada
1,148,480

 
9.5
%
 
1,383,839

ING Financial Market LLC
1,050,548

 
8.7
%
 
1,112,102

South Street Securities LLC
799,783

 
6.6
%
 
838,600

Pierpont Securities LLC
786,623

 
6.5
%
 
814,804

Industrial and Commercial Bank of China Financial Services LLC
695,933

 
5.7
%
 
730,941

Mitsubishi UFJ Securities (USA), Inc.
627,383

 
5.2
%
 
657,201

JP Morgan Securities Inc.
622,665

 
5.1
%
 
728,502

Citigroup Global Markets Inc.
585,632

 
4.8
%
 
725,882

Scotia Capital
576,137

 
4.8
%
 
598,343

BNP Paribas Securities Corp.
474,053

 
3.9
%
 
530,584

Wells Fargo Securities, LLC
463,673

 
3.8
%
 
551,667

Goldman, Sachs & Co.
428,799

 
3.5
%
 
552,549

KGS-Alpha Capital Markets, L.P.
380,286

 
3.1
%
 
400,758

Banc of America Securities LLC
380,520

 
3.1
%
 
442,801

Morgan Stanley & Co. Incorporated
273,124

 
2.3
%
 
320,484

Guggenheim Liquidity Services, LLC
265,709

 
2.2
%
 
279,345

All other counterparties
999,953

 
8.3
%
 
1,180,866

Total
12,126,048

 
100.0
%
 
13,460,288

(1) Represents amounts outstanding with nine counterparties.
The Company's repurchase agreement collateral ratio (Company MBS and GSE CRTs Held as Collateral/Amount Outstanding) was 111% as of March 31, 2016 ( December 31, 2015: 111%).
The Company posted cash of $710,000 (December 31, 2015: $710,000) with its repurchase agreement counterparties at March 31, 2016. Cash margin posted by the Company is classified as due from counterparties.
Secured Loans
The Company's wholly-owned subsidiary, IAS Services LLC is a member of the FHLBI. As a member of the FHLBI, IAS Services LLC may borrow funds from the FHLBI in the form of secured advances.
As of March 31, 2016, IAS Services LLC, had $1.65 billion in outstanding secured advances from the FHLBI. These secured advances have floating rates. Floating rates are based on the three-month FHLB swap rate plus a spread. For the three months ended March 31, 2016, IAS Services LLC had weighted average borrowings of $1.65 billion with a weighted average borrowing rate of 0.66% and a weighted average maturity of 8.10 years.
The Federal Housing Finance Agency’s ("FHFA") final rule governing Federal Home Loan Bank membership (the “FHFA Rule”) was effective on February 19, 2016. The FHFA Rule, among other provisions, excludes captive insurance companies from membership eligibility. The FHFA Rule permits existing captive insurance companies, such as IAS Services LLC, to remain members for a period of five years following the effective date of the FHFA Rule. New advances or renewals that mature beyond the five year period are prohibited. As permitted by the FHFA Rule, the FHLBI has indicated it will honor the contractual maturity dates of existing advances to IAS Services LLC that were made prior to the effective date of the final FHFA Rule and extend beyond the five year period. The Company does not expect there to be any impact to its existing FHLBI borrowings under the FHFA rule. The ability to borrow from the FHLBI is subject to the Company's continued creditworthiness, pledging of sufficient eligible collateral to secure advances, and compliance with certain agreements with FHLBI and FHFA rules.

 
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As of March 31, 2016, the FHLBI advances were collateralized by CMBS and Agency RMBS with a fair value of $1.4 billion and $588.0 million, respectively. The FHLBI retains the right to mark the underlying collateral for FHLBI advances to fair value. A reduction in the value of pledged assets would require IAS Services LLC to provide additional collateral.
As discussed in Note 6 - "Other Assets," IAS Services LLC is required to purchase and hold a certain amount of FHLBI stock, which is based, in part, upon the outstanding principal balance of secured advances from the FHLBI.
Note 8 – Derivatives and Hedging Activities
The following table presents information with respect to the Company's derivative instruments:
$ in thousands
Notional Amount as
of January 1, 2016
 
Additions
 
Settlement,
Termination,
Expiration
or Exercise
 
Notional Amount as
of March 31, 2016
Interest Rate Swaptions
300,000

 
—

 
(300,000
)
 
—

Interest Rate Swaps
11,450,000

 
—

 
(4,550,000
)
 
6,900,000

Currency Forward Contracts
76,324

 
79,821

 
(73,927
)
 
82,218

Credit Derivatives
645,000

 
—

 
(10,000
)
 
635,000

Total
12,471,324

 
79,821

 
(4,933,927
)
 
7,617,218

Credit Derivatives
The Company's GSE CRTs purchased prior to August 24, 2015 are accounted for as hybrid financial instruments consisting of a debt host contract and an embedded derivative and are reported at fair value. At March 31, 2016 and December 31, 2015, terms of the GSE CRT embedded derivatives are:
$ in thousand
March 31, 2016
 
December 31, 2015
Fair value amount
(22,706
)
 
(25,722
)
Notional amount
635,000

 
645,000

Maximum potential amount of future undiscounted payments
635,000

 
645,000

Interest Rate Swaps
The Company's repurchase agreements are usually settled on a short-term basis ranging from one to twelve months. At each settlement date, the Company typically refinances each repurchase agreement at the market interest rate at that time. In addition, the Company's secured loans have floating interest rates. As such, the Company is exposed to changing interest rates. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposures to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
Effective December 31, 2013, the Company voluntarily discontinued cash flow hedge accounting for its interest rate swaps to gain greater flexibility in managing interest rate exposures. Amounts recorded in AOCI prior to the Company discontinuing cash flow hedge accounting for its interest rate swaps are reclassified to interest expense on repurchase agreements on the condensed consolidated statements of operations as interest is accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements. The Company reclassified $12.9 million (March 31, 2015: $19.1 million) as an increase to interest expense for the three months ended March 31, 2016. During the next 12 months, the Company estimates that $14.1 million will be reclassified as a decrease to interest expense, repurchase agreements.


 
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As of March 31, 2016, the Company had the following interest rate swaps outstanding:
$ in thousands
Counterparty
 
Notional
 
Maturity Date
 
Fixed Interest Rate
in Contract
Deutsche Bank AG
 
150,000

 
2/5/2018
 
2.90
%
ING Capital Markets LLC
 
350,000

 
2/24/2018
 
0.95
%
UBS AG
 
500,000

 
5/24/2018
 
1.10
%
ING Capital Markets LLC
 
400,000

 
6/5/2018
 
0.87
%
CME Central Clearing
 
300,000

 
2/5/2021
 
2.50
%
CME Central Clearing
 
300,000

 
2/5/2021
 
2.69
%
Wells Fargo Bank, N.A.
 
200,000

 
3/15/2021
 
3.14
%
CME Central Clearing
(1
)
500,000

 
5/24/2021