TWO Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Available-for-Sale Securities, at Fair Value

Available-for-Sale Securities, at Fair Value

3 Months Ended

Mar. 31, 2023

Debt Securities, Available-for-Sale [Abstract]

Available-for-Sale Securities, at Fair Value

The Company holds both Agency and non-Agency available-for sale, or AFS, investment securities which are carried at fair value on the condensed consolidated balance sheets. The following table presents the Company’s AFS investment securities by collateral type as of March 31, 2023 and December 31, 2022:


(in thousands)	March 31, 2023		December 31, 2022
Agency:
Federal National Mortgage Association	$	4,968,798	$	4,112,556
Federal Home Loan Mortgage Corporation	3,615,921		3,332,314
Government National Mortgage Association	75,975		208,706
Other	172,846		—
Non-Agency	127,280		125,158
Total available-for-sale securities	$	8,960,820	$	7,778,734

At March 31, 2023 and December 31, 2022, the Company pledged AFS securities with a carrying value of $9.0 billion and $7.4 billion, respectively, as collateral for repurchase agreements. See Note 11 - Repurchase Agreements.

At March 31, 2023 and December 31, 2022, the Company did not have any securities purchased from and financed with the same counterparty that did not meet the conditions of ASC 860, Transfers and Servicing, to be considered linked transactions and, therefore, classified as derivatives.

The Company is not required to consolidate VIEs for which it has concluded it does not have both the power to direct the activities of the VIEs that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant. The Company’s investments in these unconsolidated VIEs include all non-Agency securities, which are classified within available-for-sale securities, at fair value on the condensed consolidated balance sheets. As of March 31, 2023 and December 31, 2022, the carrying value, which also represents the maximum exposure to loss, of all non-Agency securities in unconsolidated VIEs was $127.3 million and $125.2 million, respectively.

The following tables present the amortized cost and carrying value of AFS securities by collateral type as of March 31, 2023 and December 31, 2022:


	March 31, 2023
(in thousands)	Principal/ Current Face		Un-amortized Premium		Accretable Purchase Discount		Amortized Cost		Allowance for Credit Losses		Unrealized Gain		Unrealized Loss		Carrying Value
Agency:
Principal and interest	$	8,848,397	$	189,182	$	(84,550)	$	8,953,029	$	—	$	32,146	$	(185,516)	$	8,799,659
Interest-only	875,510		42,232		—		42,232		(5,274)		1,579		(4,656)		33,881
Total Agency	9,723,907		231,414		(84,550)		8,995,261		(5,274)		33,725		(190,172)		8,833,540



Non-Agency	1,242,893		8,070		(326)		131,088		(648)		523		(3,683)		127,280
Total	$	10,966,800	$	239,484	$	(84,876)	$	9,126,349	$	(5,922)	$	34,248	$	(193,855)	$	8,960,820


	December 31, 2022
(in thousands)	Principal/ Current Face		Un-amortized Premium		Accretable Purchase Discount		Amortized Cost		Allowance for Credit Losses		Unrealized Gain		Unrealized Loss		Carrying Value
Agency:
Principal and interest	$	7,781,277	$	189,246	$	(33,413)	$	7,937,110	$	—	$	6,310	$	(325,960)	$	7,617,460
Interest-only	963,866		45,882		—		45,882		(6,785)		1,890		(4,871)		36,116
Total Agency	8,745,143		235,128		(33,413)		7,982,992		(6,785)		8,200		(330,831)		7,653,576



Non-Agency	1,263,789		8,511		(225)		131,635		(173)		545		(6,849)		125,158
Total	$	10,008,932	$	243,639	$	(33,638)	$	8,114,627	$	(6,958)	$	8,745	$	(337,680)	$	7,778,734

The following table presents the Company’s AFS securities according to their estimated weighted average life classifications as of March 31, 2023:


	March 31, 2023
(in thousands)	Agency		Non-Agency		Total
< 1 year	$	1,078	$	—	$	1,078
≥ 1 and < 3 years	22,974		—		22,974
≥ 3 and < 5 years	386,697		119,157		505,854
≥ 5 and < 10 years	8,004,076		4,262		8,008,338
≥ 10 years	418,715		3,861		422,576
Total	$	8,833,540	$	127,280	$	8,960,820

Measurement of Allowances for Credit Losses on AFS Securities

The Company uses a discounted cash flow method to estimate and recognize an allowance for credit losses on both Agency and non-Agency AFS securities that are not accounted for under the fair value option. The following table presents the changes for the three months ended March 31, 2023 and 2022 in the allowance for credit losses on Agency and non-Agency AFS securities:


	Three Months Ended			Three Months Ended
	March 31, 2023			March 31, 2022

(in thousands)		Agency		Non-Agency		Total		Agency		Non-Agency		Total
Allowance for credit losses at beginning of period		$	(6,785)	$	(173)	$	(6,958)	$	(12,851)	$	(1,387)	$	(14,238)

Additions on securities for which credit losses were not previously recorded		—		(318)		(318)		(2)		—		(2)




(Increase) decrease on securities with previously recorded credit losses		827		(367)		460		(2,493)		1,381		(1,112)
Write-offs		684		210		894		3,779		—		3,779

Allowance for credit losses at end of period		$	(5,274)	$	(648)	$	(5,922)	$	(11,567)	$	(6)	$	(11,573)

The following tables present the components comprising the carrying value of AFS securities for which an allowance for credit losses has not been recorded by length of time that the securities had an unrealized loss position as of March 31, 2023 and December 31, 2022. At March 31, 2023 and December 31, 2022, the Company held 646 and 704 AFS securities, respectively; of the securities for which an allowance for credit losses has not been recorded, 431 and 553 were in an unrealized loss position for less than twelve consecutive months. At both March 31, 2023 and December 31, 2022, none of the Company’s AFS securities were in an unrealized loss position for more than twelve months without an allowance for credit losses recorded.


	March 31, 2023
	Unrealized Loss Position for
	Less than 12 Months				12 Months or More				Total
(in thousands)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Agency	$	6,206,214	$	(187,843)	$	—	$	—	$	6,206,214	$	(187,843)
Non-Agency	119,252		(3,294)		—		—		119,252		(3,294)
Total	$	6,325,466	$	(191,137)	$	—	$	—	$	6,325,466	$	(191,137)


	December 31, 2022
	Unrealized Loss Position for
	Less than 12 Months				12 Months or More				Total
(in thousands)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Agency	$	7,168,694	$	(328,258)	$	—	$	—	$	7,168,694	$	(328,258)
Non-Agency	117,816		(5,933)		—		—		117,816		(5,933)
Total	$	7,286,510	$	(334,191)	$	—	$	—	$	7,286,510	$	(334,191)

Realized Gains and Losses

Gains and losses from the sale of AFS securities are recorded as realized gains (losses) within gain (loss) on investment securities in the Company’s condensed consolidated statements of comprehensive loss. The following table presents details around sales of AFS securities during the three months ended March 31, 2023 and 2022:


	Three Months Ended
	March 31,
(in thousands)		2023		2022
Proceeds from sales of available-for-sale securities		$	1,360,742	$	2,012,620
Amortized cost of available-for-sale securities sold		(1,393,484)		(2,067,471)
Total realized losses on sales, net		$	(32,742)	$	(54,851)

Gross realized gains		$	14,070	$	14,695
Gross realized losses		(46,812)		(69,546)
Total realized losses on sales, net		$	(32,742)	$	(54,851)