Maryland | 27-0312904 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
601 Carlson Parkway, Suite 1400 Minnetonka, Minnesota | 55305 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Page | ||
PART I - FINANCIAL INFORMATION | ||
PART II - OTHER INFORMATION | ||
June 30, 2013 | December 31, 2012 | ||||||
ASSETS | (unaudited) | ||||||
Available-for-sale securities, at fair value | $ | 14,892,315 | $ | 13,666,954 | |||
Trading securities, at fair value | 1,001,172 | 1,002,062 | |||||
Equity securities, at fair value | — | 335,638 | |||||
Mortgage loans held-for-sale, at fair value | 958,201 | 58,607 | |||||
Mortgage loans held-for-investment in securitization trust, at fair value | 401,347 | — | |||||
Cash and cash equivalents | 917,224 | 821,108 | |||||
Restricted cash | 685,965 | 302,322 | |||||
Accrued interest receivable | 54,080 | 42,613 | |||||
Due from counterparties | 17,210 | 39,974 | |||||
Derivative assets, at fair value | 699,351 | 462,080 | |||||
Other assets | 13,886 | 82,586 | |||||
Total Assets (1) | $ | 19,640,751 | $ | 16,813,944 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Liabilities | |||||||
Repurchase agreements | $ | 14,903,155 | $ | 12,624,510 | |||
Collateralized borrowings in securitization trust, at fair value | 363,012 | — | |||||
Derivative liabilities, at fair value | 46,028 | 129,294 | |||||
Accrued interest payable | 17,510 | 19,060 | |||||
Due to counterparties | 340,043 | 412,861 | |||||
Dividends payable | 113,378 | 164,347 | |||||
Other liabilities | 23,502 | 13,295 | |||||
Total liabilities (1) | 15,806,628 | 13,363,367 | |||||
Stockholders’ Equity | |||||||
Preferred stock, par value $0.01 per share; 50,000,000 shares authorized; no shares issued and outstanding | — | — | |||||
Common stock, par value $0.01 per share; 900,000,000 shares authorized and 365,733,931 and 298,813,258 shares issued and outstanding, respectively | 3,657 | 2,988 | |||||
Additional paid-in capital | 3,803,013 | 2,948,345 | |||||
Accumulated other comprehensive income | 265,997 | 696,458 | |||||
Cumulative earnings | 981,711 | 449,358 | |||||
Cumulative distributions to stockholders | (1,220,255 | ) | (646,572 | ) | |||
Total stockholders’ equity | 3,834,123 | 3,450,577 | |||||
Total Liabilities and Stockholders’ Equity | $ | 19,640,751 | $ | 16,813,944 |
(1) | The condensed consolidated balance sheets include assets of a consolidated variable interest entity (“VIE”) that can only be used to settle obligations of this VIE and liabilities of the consolidated VIE for which creditors do not have recourse to the Company (Two Harbors Investment Corp.). At June 30, 2013, assets of consolidated the VIE totaled $402,775 and liabilities of the consolidated VIE totaled $363,819. The Company did not consolidate any VIEs as of December 31, 2012. See Note 3 - Variable Interest Entities for additional information. |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(unaudited) | (unaudited) | ||||||||||||||
Interest income: | |||||||||||||||
Available-for-sale securities | $ | 134,651 | $ | 104,319 | $ | 264,943 | $ | 188,533 | |||||||
Trading securities | 1,261 | 1,250 | 2,525 | 2,300 | |||||||||||
Mortgage loans held-for-sale | 4,794 | 126 | 6,112 | 195 | |||||||||||
Mortgage loans held-for-investment in securitization trust | 4,369 | — | 6,023 | — | |||||||||||
Cash and cash equivalents | 250 | 209 | 557 | 377 | |||||||||||
Total interest income | 145,325 | 105,904 | 280,160 | 191,405 | |||||||||||
Interest expense: | |||||||||||||||
Repurchase agreements | 22,553 | 15,527 | 45,571 | 26,994 | |||||||||||
Collateralized borrowings in securitization trust | 2,169 | — | 2,987 | — | |||||||||||
Total interest expense | 24,722 | 15,527 | 48,558 | 26,994 | |||||||||||
Net interest income | 120,603 | 90,377 | 231,602 | 164,411 | |||||||||||
Other-than-temporary impairments: | |||||||||||||||
Total other-than-temporary impairment losses | (1,426 | ) | (4,476 | ) | (1,662 | ) | (8,751 | ) | |||||||
Non-credit portion of loss recognized in other comprehensive (loss) income | — | — | — | — | |||||||||||
Net other-than-temporary credit impairment losses | (1,426 | ) | (4,476 | ) | (1,662 | ) | (8,751 | ) | |||||||
Other income: | |||||||||||||||
Gain on investment securities | 50,863 | 1,789 | 77,831 | 11,720 | |||||||||||
Gain (loss) on interest rate swap and swaption agreements | 259,826 | (61,014 | ) | 278,798 | (77,207 | ) | |||||||||
Gain (loss) on other derivative instruments | 62,283 | (7,577 | ) | 45,621 | (16,480 | ) | |||||||||
(Loss) gain on mortgage loans held-for-sale | (35,142 | ) | 10 | (20,819 | ) | (22 | ) | ||||||||
Other income | 1,810 | — | 8,099 | — | |||||||||||
Total other income (loss) | 339,640 | (66,792 | ) | 389,530 | (81,989 | ) | |||||||||
Expenses: | |||||||||||||||
Management fees | 12,591 | 7,610 | 17,352 | 14,353 | |||||||||||
Securitization deal costs | — | — | 2,028 | — | |||||||||||
Other operating expenses | 9,486 | 3,919 | 16,047 | 7,470 | |||||||||||
Total expenses | 22,077 | 11,529 | 35,427 | 21,823 | |||||||||||
Income from continuing operations before income taxes | 436,740 | 7,580 | 584,043 | 51,848 | |||||||||||
Provision for (benefit from) income taxes | 49,119 | (16,605 | ) | 54,083 | (24,183 | ) | |||||||||
Net income from continuing operations | 387,621 | 24,185 | 529,960 | 76,031 | |||||||||||
Income (loss) from discontinued operations | 1,016 | (181 | ) | 2,393 | (227 | ) | |||||||||
Net income attributable to common stockholders | $ | 388,637 | $ | 24,004 | $ | 532,353 | $ | 75,804 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(unaudited) | (unaudited) | ||||||||||||||
Basic earnings per weighted average common share: | |||||||||||||||
Continuing operations | $ | 1.06 | $ | 0.11 | $ | 1.58 | $ | 0.38 | |||||||
Discontinued operations | — | — | 0.01 | — | |||||||||||
Net income | $ | 1.06 | $ | 0.11 | $ | 1.59 | $ | 0.38 | |||||||
Diluted earnings per weighted average common share: | |||||||||||||||
Continuing operations | $ | 1.06 | $ | 0.11 | $ | 1.57 | $ | 0.38 | |||||||
Discontinued operations | — | — | 0.01 | — | |||||||||||
Net income | $ | 1.06 | $ | 0.11 | $ | 1.58 | $ | 0.38 | |||||||
Dividends declared per common share | $ | 0.31 | $ | 0.40 | $ | 0.63 | $ | 0.80 | |||||||
Weighted average number of shares of common stock: | |||||||||||||||
Basic | 365,589,300 | 214,810,579 | 335,603,697 | 200,833,084 | |||||||||||
Diluted | 366,057,203 | 214,810,579 | 336,677,044 | 200,833,084 | |||||||||||
Comprehensive (loss) income: | |||||||||||||||
Net income | $ | 388,637 | $ | 24,004 | $ | 532,353 | $ | 75,804 | |||||||
Other comprehensive (loss) income: | |||||||||||||||
Unrealized (loss) gain on available-for-sale securities, net | (534,713 | ) | 117,604 | (430,461 | ) | 261,514 | |||||||||
Other comprehensive (loss) income | (534,713 | ) | 117,604 | (430,461 | ) | 261,514 | |||||||||
Comprehensive (loss) income | $ | (146,076 | ) | $ | 141,608 | $ | 101,892 | $ | 337,318 |
Common Stock | ||||||||||||||||||||||||||||||
Shares | Amount | Additional Paid-in Capital | Receivable from Issuance of Common Stock | Accumulated Other Comprehensive Income (Loss) | Cumulative Earnings | Cumulative Distributions to Stockholders | Total Stockholders' Equity | |||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Balance, January 1, 2012 | 140,596,708 | $ | 1,406 | $ | 1,373,099 | $ | — | $ | (58,716 | ) | $ | 157,452 | $ | (203,155 | ) | $ | 1,270,086 | |||||||||||||
Net income | — | — | — | — | — | 75,804 | — | 75,804 | ||||||||||||||||||||||
Other comprehensive income before reclassifications | — | — | — | — | 259,908 | — | — | 259,908 | ||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | — | — | — | — | 1,606 | — | — | 1,606 | ||||||||||||||||||||||
Net other comprehensive income | — | — | — | — | 261,514 | — | — | 261,514 | ||||||||||||||||||||||
Issuance of common stock, net of offering costs | 79,058,754 | 790 | 769,022 | — | — | — | — | 769,812 | ||||||||||||||||||||||
Increase in receivable from issuance of common stock | — | — | — | (22,248 | ) | — | — | — | (22,248 | ) | ||||||||||||||||||||
Common dividends declared | — | — | — | — | — | — | (172,744 | ) | (172,744 | ) | ||||||||||||||||||||
Non-cash equity award compensation | — | — | 433 | — | — | — | — | 433 | ||||||||||||||||||||||
Balance, June 30, 2012 | 219,655,462 | $ | 2,196 | $ | 2,142,554 | $ | (22,248 | ) | $ | 202,798 | $ | 233,256 | $ | (375,899 | ) | $ | 2,182,657 | |||||||||||||
Balance, January 1, 2013 | 298,813,258 | $ | 2,988 | $ | 2,948,345 | $ | — | $ | 696,458 | $ | 449,358 | $ | (646,572 | ) | $ | 3,450,577 | ||||||||||||||
Net income | — | — | — | — | — | 532,353 | — | 532,353 | ||||||||||||||||||||||
Other comprehensive loss before reclassifications | — | — | — | — | (368,205 | ) | — | — | (368,205 | ) | ||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | — | — | — | (62,256 | ) | — | — | (62,256 | ) | ||||||||||||||||||||
Net other comprehensive loss | — | — | — | — | (430,461 | ) | — | — | (430,461 | ) | ||||||||||||||||||||
Issuance of common stock, net of offering costs | 57,541,664 | 575 | 762,651 | — | — | — | — | 763,226 | ||||||||||||||||||||||
Issuance of common stock in connection with exercise of warrants | 9,321,705 | 93 | 101,517 | — | — | — | — | 101,610 | ||||||||||||||||||||||
Repurchase of common stock | (1,000,000 | ) | (10 | ) | (10,488 | ) | — | — | — | — | (10,498 | ) | ||||||||||||||||||
Common dividends declared | — | — | — | — | — | — | (230,202 | ) | (230,202 | ) | ||||||||||||||||||||
Special dividends declared | — | — | — | — | — | — | (343,481 | ) | (343,481 | ) | ||||||||||||||||||||
Non-cash equity award compensation | 1,057,304 | 11 | 988 | — | — | — | — | 999 | ||||||||||||||||||||||
Balance, June 30, 2013 | 365,733,931 | $ | 3,657 | $ | 3,803,013 | $ | — | $ | 265,997 | $ | 981,711 | $ | (1,220,255 | ) | $ | 3,834,123 |
Six Months Ended | |||||||
June 30, | |||||||
2013 | 2012 | ||||||
Cash Flows From Operating Activities: | (unaudited) | ||||||
Net income | $ | 532,353 | $ | 75,804 | |||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||
Amortization of premiums and discounts on available-for-sale securities, net | 12,406 | (9,058 | ) | ||||
Other-than-temporary impairment losses | 1,662 | 8,751 | |||||
Realized and unrealized gains on investment securities, net | (77,653 | ) | (11,720 | ) | |||
Loss on mortgage loans held-for-sale | 20,819 | 22 | |||||
Gain on mortgage loans held-for-investment and collateralized borrowings in securitization trust | (7,847 | ) | — | ||||
Unrealized loss on mortgage servicing rights | 45 | — | |||||
Loss on termination and option expiration of interest rate swaps and swaptions | 62,675 | 18,540 | |||||
Unrealized (gain) loss on interest rate swaps and swaptions | (374,884 | ) | 46,296 | ||||
Unrealized gain on other derivative instruments | (8,131 | ) | (4,799 | ) | |||
Equity based compensation expense | 999 | 433 | |||||
Depreciation of fixed assets | 256 | 46 | |||||
Depreciation of real estate | — | 32 | |||||
Purchases of mortgage loans held-for-sale | (954,027 | ) | (6,618 | ) | |||
Proceeds from sales of mortgage loans held-for-sale | 25,404 | — | |||||
Proceeds from repayment of mortgage loans held-for-sale | 9,649 | 1,026 | |||||
Net change in assets and liabilities: | |||||||
Increase in accrued interest receivable | (11,467 | ) | (12,517 | ) | |||
Decrease/(increase) in deferred income taxes, net | 52,692 | (19,720 | ) | ||||
Decrease/(increase) in current income tax receivable | 4,323 | (4,465 | ) | ||||
Increase in prepaid and fixed assets | (557 | ) | (600 | ) | |||
Decrease in other receivables | 28,437 | — | |||||
Increase in servicing advances | (4,881 | ) | — | ||||
(Decrease)/increase in accrued interest payable, net | (1,550 | ) | 5,089 | ||||
Increase/(decrease) in income taxes payable | 1,320 | (3,632 | ) | ||||
Increase in accrued expenses and other liabilities | 379 | 2,252 | |||||
Net change in assets and liabilities due to purchase of entity | 3,306 | — | |||||
Net cash (used in) provided by operating activities | (684,272 | ) | 85,162 |
Six Months Ended | |||||||
June 30, | |||||||
2013 | 2012 | ||||||
Cash Flows From Investing Activities: | (unaudited) | ||||||
Purchases of available-for-sale securities | $ | (3,142,095 | ) | $ | (4,696,861 | ) | |
Proceeds from sales of available-for-sale securities | 986,357 | 197,714 | |||||
Principal payments on available-for-sale securities | 556,549 | 295,829 | |||||
Purchases of other derivative instruments | (49,526 | ) | (205,440 | ) | |||
Proceeds from sales of other derivative instruments, net | 47,890 | 69,699 | |||||
Purchases of trading securities | — | (996,016 | ) | ||||
Proceeds from sales of trading securities | — | 1,001,904 | |||||
Purchases of mortgage loans held-for-investment in securitization trust | (442,788 | ) | — | ||||
Proceeds from repayment of mortgage loans held-for-investment in securitization trust | 16,684 | — | |||||
Purchases of investments in real estate | — | (71,758 | ) | ||||
Purchase of entity | (6,404 | ) | — | ||||
(Decrease)/increase in due to counterparties, net | (50,054 | ) | 72,932 | ||||
(Increase)/decrease in restricted cash | (383,643 | ) | 28,251 | ||||
Increase in escrow deposits of discontinued operations | — | (28,693 | ) | ||||
Net cash used in investing activities | (2,467,030 | ) | (4,332,439 | ) | |||
Cash Flows From Financing Activities: | |||||||
Proceeds from repurchase agreements | 73,388,331 | 23,100,723 | |||||
Principal payments on repurchase agreements | (71,109,686 | ) | (19,322,430 | ) | |||
Proceeds from issuance of collateralized borrowings in securitization trust | 412,216 | — | |||||
Principal payments on collateralized borrowings in securitization trust | (16,600 | ) | — | ||||
Proceeds from issuance of common stock, net of offering costs | 763,226 | 769,812 | |||||
Proceeds from exercise of warrants | 101,600 | — | |||||
Increase in receivable from issuance of common stock | — | (22,248 | ) | ||||
Repurchase of common stock | (10,498 | ) | — | ||||
Dividends paid on common stock | (281,171 | ) | (141,922 | ) | |||
Net cash provided by financing activities | 3,247,418 | 4,383,935 | |||||
Net increase in cash and cash equivalents | 96,116 | 136,658 | |||||
Cash and cash equivalents at beginning of period | 821,108 | 360,016 | |||||
Cash and cash equivalents at end of period | $ | 917,224 | $ | 496,674 |
Six Months Ended | |||||||
June 30, | |||||||
2013 | 2012 | ||||||
Supplemental Disclosure of Cash Flow Information: | (unaudited) | ||||||
Cash paid for interest | $ | 50,108 | $ | 10,438 | |||
Cash (received) paid for taxes | $ | (4,252 | ) | $ | 3,635 | ||
Noncash Investing and Financing Activities: | |||||||
Distribution of Silver Bay common stock | $ | 343,481 | $ | — | |||
Cashless exercise of warrants | $ | 75 | $ | — | |||
Cash dividends declared but not paid at end of period | $ | 113,378 | $ | 87,061 | |||
Reconciliation of mortgage loans held-for-sale: | |||||||
Mortgage loans held-for-sale at beginning of period | $ | 58,607 | $ | 5,782 | |||
Purchases of mortgage loans held-for-sale | 954,027 | 6,618 | |||||
Proceeds from sales of mortgage loans held-for-sale | (25,404 | ) | — | ||||
Proceeds from repayment of mortgage loans held-for-sale | (9,649 | ) | (1,026 | ) | |||
Realized and unrealized (losses) gains on mortgage loans held-for-sale | (19,380 | ) | 4 | ||||
Mortgage loans held-for-sale at end of period | $ | 958,201 | $ | 11,378 |
June 30, 2013 | |||||||||||||||||||||||
Gross Amounts Not Offset with Financial Assets (Liabilities) in the Condensed Consolidated Balance Sheets (1) | |||||||||||||||||||||||
(in thousands) | Gross Amounts of Recognized Assets (Liabilities) | Gross Amounts Offset in the Condensed Consolidated Balance Sheets | Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheets | Financial Instruments | Cash Collateral (Received) Pledged | Net Amount | |||||||||||||||||
Assets | |||||||||||||||||||||||
Derivative assets | $ | 723,246 | $ | (23,895 | ) | $ | 699,351 | $ | (46,028 | ) | $ | (189,927 | ) | $ | 463,396 | ||||||||
Total Assets | $ | 723,246 | $ | (23,895 | ) | $ | 699,351 | $ | (46,028 | ) | $ | (189,927 | ) | $ | 463,396 | ||||||||
Liabilities | |||||||||||||||||||||||
Repurchase agreements | $ | (14,903,155 | ) | $ | — | $ | (14,903,155 | ) | $ | 14,903,155 | $ | — | $ | — | |||||||||
Derivative liabilities | (69,923 | ) | 23,895 | (46,028 | ) | 46,028 | — | — | |||||||||||||||
Total Liabilities | $ | (14,973,078 | ) | $ | 23,895 | $ | (14,949,183 | ) | $ | 14,949,183 | $ | — | $ | — |
December 31, 2012 | |||||||||||||||||||||||
Gross Amounts Not Offset with Financial Assets (Liabilities) in the Condensed Consolidated Balance Sheets (1) | |||||||||||||||||||||||
(in thousands) | Gross Amounts of Recognized Assets (Liabilities) | Gross Amounts Offset in the Condensed Consolidated Balance Sheets | Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheets | Financial Instruments | Cash Collateral (Received) Pledged | Net Amount | |||||||||||||||||
Assets | |||||||||||||||||||||||
Derivative assets | $ | 463,027 | $ | (947 | ) | $ | 462,080 | $ | (129,294 | ) | $ | 85,798 | $ | 418,584 | |||||||||
Total Assets | $ | 463,027 | $ | (947 | ) | $ | 462,080 | $ | (129,294 | ) | $ | 85,798 | $ | 418,584 | |||||||||
Liabilities | |||||||||||||||||||||||
Repurchase agreements | $ | (12,624,510 | ) | $ | — | $ | (12,624,510 | ) | $ | 12,624,510 | $ | — | $ | — | |||||||||
Derivative liabilities | (130,241 | ) | 947 | (129,294 | ) | 129,294 | — | — | |||||||||||||||
Total Liabilities | $ | (12,754,751 | ) | $ | 947 | $ | (12,753,804 | ) | $ | 12,753,804 | $ | — | $ | — |
(1) | Amounts presented are limited in total to the net amount of assets or liabilities presented in the condensed consolidated balance sheets by instrument. Excess cash collateral or financial assets that are pledged to counterparties may exceed the financial liabilities subject to a master netting arrangement or similar agreement, or counterparties may have pledged excess cash collateral to the Company that exceed the corresponding financial assets. These excess amounts are excluded from the table above, although separately reported within restricted cash, due from counterparties, or due to counterparties in the Company's condensed consolidated balance sheets. |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Mortgage loans held-for-investment in securitization trust | $ | 401,347 | $ | — | |||
Accrued interest receivable | 1,428 | — | |||||
Total Assets | $ | 402,775 | $ | — | |||
Collateralized borrowings in securitization trust | 363,012 | — | |||||
Accrued interest payable | 715 | — | |||||
Accrued expenses | 92 | — | |||||
Total Liabilities | $ | 363,819 | $ | — |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(in thousands) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Income: | |||||||||||||||
Gain on contribution of entity | $ | 1,016 | $ | — | $ | 2,255 | $ | — | |||||||
Real estate related revenues | — | 83 | — | 87 | |||||||||||
Total income | 1,016 | 83 | 2,255 | 87 | |||||||||||
Expenses: | |||||||||||||||
Management fees | — | — | — | — | |||||||||||
Real estate related expenses | — | 181 | — | 198 | |||||||||||
Other operating expenses | — | 83 | (138 | ) | 116 | ||||||||||
Total expenses | — | 264 | (138 | ) | 314 | ||||||||||
Income (loss) from discontinued operations | $ | 1,016 | $ | (181 | ) | $ | 2,393 | $ | (227 | ) |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Mortgage-backed securities: | |||||||
Agency | |||||||
Federal Home Loan Mortgage Corporation | $ | 4,056,456 | $ | 3,608,272 | |||
Federal National Mortgage Association | 5,867,736 | 5,130,965 | |||||
Government National Mortgage Association | 2,016,636 | 2,272,866 | |||||
Non-Agency | 2,951,487 | 2,654,851 | |||||
Total mortgage-backed securities | $ | 14,892,315 | $ | 13,666,954 |
June 30, 2013 | |||||||||||
(in thousands) | Agency | Non-Agency | Total | ||||||||
Face Value | $ | 13,791,266 | $ | 4,994,692 | $ | 18,785,958 | |||||
Unamortized premium | 809,226 | — | 809,226 | ||||||||
Unamortized discount | |||||||||||
Designated credit reserve | — | (1,386,607 | ) | (1,386,607 | ) | ||||||
Net, unamortized | (2,359,641 | ) | (1,222,618 | ) | (3,582,259 | ) | |||||
Amortized Cost | 12,240,851 | 2,385,467 | 14,626,318 | ||||||||
Gross unrealized gains | 101,471 | 577,151 | 678,622 | ||||||||
Gross unrealized losses | (401,494 | ) | (11,131 | ) | (412,625 | ) | |||||
Carrying Value | $ | 11,940,828 | $ | 2,951,487 | $ | 14,892,315 |
December 31, 2012 | |||||||||||
(in thousands) | Agency | Non-Agency | Total | ||||||||
Face Value | $ | 11,934,492 | $ | 4,503,999 | $ | 16,438,491 | |||||
Unamortized premium | 749,252 | — | 749,252 | ||||||||
Unamortized discount | |||||||||||
Designated credit reserve | — | (1,290,946 | ) | (1,290,946 | ) | ||||||
Net, unamortized | (1,929,811 | ) | (996,490 | ) | (2,926,301 | ) | |||||
Amortized Cost | 10,753,933 | 2,216,563 | 12,970,496 | ||||||||
Gross unrealized gains | 276,293 | 448,403 | 724,696 | ||||||||
Gross unrealized losses | (18,123 | ) | (10,115 | ) | (28,238 | ) | |||||
Carrying Value | $ | 11,012,103 | $ | 2,654,851 | $ | 13,666,954 |
June 30, 2013 | |||||||||||
(in thousands) | Agency | Non-Agency | Total | ||||||||
Adjustable Rate | $ | 170,682 | $ | 2,543,467 | $ | 2,714,149 | |||||
Fixed Rate | 11,770,146 | 408,020 | 12,178,166 | ||||||||
Total | $ | 11,940,828 | $ | 2,951,487 | $ | 14,892,315 |
December 31, 2012 | |||||||||||
(in thousands) | Agency | Non-Agency | Total | ||||||||
Adjustable Rate | $ | 188,429 | $ | 2,334,950 | $ | 2,523,379 | |||||
Fixed Rate | 10,823,674 | 319,901 | 11,143,575 | ||||||||
Total | $ | 11,012,103 | $ | 2,654,851 | $ | 13,666,954 |
Six Months Ended June 30, | |||||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||||
(in thousands) | Designated Credit Reserve | Unamortized Net Discount | Total | Designated Credit Reserve | Unamortized Net Discount | Total | |||||||||||||||||
Beginning balance at January 1 | $ | (1,290,946 | ) | $ | (996,490 | ) | $ | (2,287,436 | ) | $ | (782,606 | ) | $ | (540,969 | ) | $ | (1,323,575 | ) | |||||
Acquisitions | (158,955 | ) | (365,348 | ) | (524,303 | ) | (553,552 | ) | (479,435 | ) | (1,032,987 | ) | |||||||||||
Accretion of net discount | 886 | 71,625 | 72,511 | 250 | 62,768 | 63,018 | |||||||||||||||||
Realized credit losses | 22,658 | — | 22,658 | 17,908 | — | 17,908 | |||||||||||||||||
Reclassification adjustment for other-than-temporary impairments | (1,662 | ) | — | (1,662 | ) | (8,751 | ) | — | (8,751 | ) | |||||||||||||
Transfers from (to) | 30,883 | (30,883 | ) | — | — | — | — | ||||||||||||||||
Sales, calls, other | 10,529 | 98,478 | 109,007 | 4,653 | 13,338 | 17,991 | |||||||||||||||||
Ending balance at June 30 | $ | (1,386,607 | ) | $ | (1,222,618 | ) | $ | (2,609,225 | ) | $ | (1,322,098 | ) | $ | (944,298 | ) | $ | (2,266,396 | ) |
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 | |||||||||||||||||
June 30, 2013 | $ | 8,461,815 | $ | (405,056 | ) | $ | 62,024 | $ | (7,569 | ) | $ | 8,523,839 | $ | (412,625 | ) | ||||||||
December 31, 2012 | $ | 2,548,995 | $ | (18,610 | ) | $ | 52,689 | $ | (9,628 | ) | $ | 2,601,684 | $ | (28,238 | ) |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(in thousands) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Cumulative credit loss at beginning of period | $ | (15,142 | ) | $ | (9,377 | ) | $ | (15,561 | ) | $ | (5,102 | ) | |||
Additions: | |||||||||||||||
Other-than-temporary impairments not previously recognized | — | (2,644 | ) | — | (6,128 | ) | |||||||||
Increases related to other-than-temporary impairments on securities with previously recognized other-than-temporary impairments | (1,426 | ) | (1,832 | ) | (1,662 | ) | (2,623 | ) | |||||||
Reductions: | |||||||||||||||
Decreases related to other-than-temporary impairments on securities paid down | 231 | 250 | 231 | 250 | |||||||||||
Decreases related to other-than-temporary impairments on securities sold | 1,291 | — | 1,946 | — | |||||||||||
Cumulative credit loss at end of period | $ | (15,046 | ) | $ | (13,603 | ) | $ | (15,046 | ) | $ | (13,603 | ) |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(in thousands) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Gross realized gains | $ | 52,439 | $ | 560 | $ | 75,665 | $ | 11,663 | |||||||
Gross realized losses | (1 | ) | (1,629 | ) | (4,297 | ) | (1,629 | ) | |||||||
Total realized gains on sales, net | $ | 52,438 | $ | (1,069 | ) | $ | 71,368 | $ | 10,034 |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Unpaid principal balance | $ | 1,101,389 | $ | 56,976 | |||
Fair value adjustment | (143,188 | ) | 1,631 | ||||
Carrying value | $ | 958,201 | $ | 58,607 |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Unpaid principal balance | $ | 405,519 | $ | — | |||
Fair value adjustment | (4,172 | ) | — | ||||
Carrying value | $ | 401,347 | $ | — |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Restricted cash balances held by trading counterparties: | |||||||
For securities trading activity | $ | 9,000 | $ | 9,000 | |||
For derivatives trading activity | 80,140 | 208,669 | |||||
As restricted collateral for repurchase agreements | 596,479 | 84,307 | |||||
685,619 | 301,976 | ||||||
Restricted cash balance pursuant to letter of credit on office lease | 346 | 346 | |||||
Total | $ | 685,965 | $ | 302,322 |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Accrued Interest Receivable: | |||||||
U.S. Treasuries | $ | 1,101 | $ | 1,119 | |||
Mortgage-backed securities: | |||||||
Agency | |||||||
Federal Home Loan Mortgage Corporation | 13,660 | 11,888 | |||||
Federal National Mortgage Association | 19,732 | 17,101 | |||||
Government National Mortgage Association | 8,880 | 8,962 | |||||
Non-Agency | 3,926 | 3,296 | |||||
Total mortgage-backed securities | 46,198 | 41,247 | |||||
Mortgage loans held-for-sale | 5,353 | 247 | |||||
Mortgage loans held-for-investment in securitization trust | 1,428 | — | |||||
Total | $ | 54,080 | $ | 42,613 |
(in thousands) | June 30, 2013 | |||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||
Trading instruments | Fair Value | Notional | Fair Value | Notional | ||||||||||||
Inverse interest-only securities | $ | 245,195 | $ | 1,798,972 | $ | — | $ | — | ||||||||
Interest rate swap agreements | 142,317 | 18,485,000 | — | — | ||||||||||||
Credit default swap agreements | — | — | (8,198 | ) | 1,630,404 | |||||||||||
Swaptions | 225,810 | 6,250,000 | — | — | ||||||||||||
TBAs | 61,156 | 2,813,000 | (22,568 | ) | 2,892,000 | |||||||||||
Put and call options for TBAs | 24,873 | 210,000 | — | — | ||||||||||||
Constant maturity swaps | — | — | (14,058 | ) | 19,000,000 | |||||||||||
Forward purchase commitment | — | — | (1,204 | ) | 29,229 | |||||||||||
Total | $ | 699,351 | $ | 29,556,972 | $ | (46,028 | ) | $ | 23,551,633 |
(in thousands) | December 31, 2012 | |||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||
Trading instruments | Fair Value | Notional | Fair Value | Notional | ||||||||||||
Inverse interest-only securities | $ | 304,975 | $ | 1,909,351 | $ | — | $ | — | ||||||||
Interest rate swap agreements | — | — | (129,055 | ) | 14,070,000 | |||||||||||
Credit default swap agreements | 52,906 | 438,440 | — | — | ||||||||||||
Swaptions | 102,048 | 4,950,000 | — | — | ||||||||||||
TBAs | 1,917 | 2,414,000 | (239 | ) | 139,000 | |||||||||||
Forward purchase commitment | 234 | 56,865 | — | — | ||||||||||||
Total | $ | 462,080 | $ | 9,768,656 | $ | (129,294 | ) | $ | 14,209,000 |
(in thousands) | Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 | ||||||||||||||
Trading instruments | Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||
Inverse interest-only securities | $ | 1,895,789 | $ | — | $ | 1,908,919 | $ | — | ||||||||
Interest rate swap agreements | 17,655,220 | — | 16,267,624 | — | ||||||||||||
Credit default swaps | — | 764,914 | — | 602,283 | ||||||||||||
Swaptions | 5,748,352 | — | 5,646,133 | — | ||||||||||||
TBAs | 1,959,495 | 1,234,769 | 1,588,630 | 783,227 | ||||||||||||
Put and call options for TBAs | 130,901 | — | 65,812 | — | ||||||||||||
Constant maturity swaps | — | 5,532,967 | — | 2,781,768 | ||||||||||||
Short treasuries | — | 26,703 | — | 13,425 | ||||||||||||
Forward purchase commitment | — | 297,207 | — | 174,920 |
(in thousands) | ||||||||||||||||||
Trading Instruments | Location of Gain/(Loss) Recognized in Income on Derivatives | Amount of Gain/(Loss) Recognized in Income on Derivatives | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||||
Risk Management Instruments | ||||||||||||||||||
Interest Rate Contracts | ||||||||||||||||||
Investment securities - RMBS | Gain (loss) on other derivative instruments | $ | 116,709 | $ | (22,350 | ) | $ | 104,057 | $ | (24,987 | ) | |||||||
Investment securities - U.S. Treasuries and TBA contracts | Gain (loss) on interest rate swap and swaption agreements | 409 | (5,697 | ) | 320 | (7,345 | ) | |||||||||||
Mortgage loans held-for-sale | (Loss) gain on mortgage loans held-for-sale | (20,302 | ) | (39 | ) | (20,015 | ) | (26 | ) | |||||||||
Repurchase agreements | Gain (loss) on interest rate swap and swaption agreements | 259,417 | (55,317 | ) | 278,478 | (69,862 | ) | |||||||||||
Credit default swaps - Receive protection | Gain (loss) on other derivative instruments | (4,220 | ) | (1,225 | ) | (9,862 | ) | (25,526 | ) | |||||||||
Non-Risk Management Instruments | ||||||||||||||||||
Credit default swaps - Provide protection | Gain (loss) on other derivative instruments | — | 752 | — | 8,972 | |||||||||||||
Inverse interest-only securities | Gain (loss) on other derivative instruments | (40,149 | ) | 15,245 | (38,920 | ) | 25,060 | |||||||||||
Other TBA positions | Gain (loss) on other derivative instruments | (10,057 | ) | — | (9,654 | ) | — | |||||||||||
Total | $ | 301,807 | $ | (68,631 | ) | $ | 304,404 | $ | (93,714 | ) |
(notional and dollars in thousands) | |||||||||||||||||||
June 30, 2013 | |||||||||||||||||||
Determination Date | Average Strike Swap Rate | Notional Amount | Fair Value | Upfront Premium Paid | Unrealized Gain/(Loss) | ||||||||||||||
August 2013 | 0.837 | % | $ | 8,000,000 | $ | (3,497 | ) | $ | — | $ | (3,497 | ) | |||||||
September 2013 | 0.981 | % | 5,000,000 | (6,527 | ) | — | (6,527 | ) | |||||||||||
November 2013 | 0.900 | % | 1,000,000 | (670 | ) | — | (670 | ) | |||||||||||
December 2013 | 0.890 | % | 5,000,000 | (3,364 | ) | — | (3,364 | ) | |||||||||||
Total | 0.892 | % | $ | 19,000,000 | $ | (14,058 | ) | $ | — | $ | (14,058 | ) |
(notional in thousands) | |||||||||||||
June 30, 2013 | |||||||||||||
Swaps Maturities | Notional Amount | Average Fixed Pay Rate | Average Receive Rate | Average Maturity (Years) | |||||||||
2013 | $ | 500,000 | 0.523 | % | 0.274 | % | 0.15 | ||||||
2014 | 900,000 | 0.316 | % | 0.277 | % | 0.54 | |||||||
2015 | 4,000,000 | 0.386 | % | 0.278 | % | 1.53 | |||||||
2016 | 2,650,000 | 0.579 | % | 0.276 | % | 2.67 | |||||||
2017 and Thereafter | 9,435,000 | 0.999 | % | 0.277 | % | 4.58 | |||||||
Total | $ | 17,485,000 | 0.746 | % | 0.277 | % | 3.26 |
(notional in thousands) | |||||||||||||
December 31, 2012 | |||||||||||||
Swaps Maturities | Notional Amount | Average Fixed Pay Rate | Average Receive Rate | Average Maturity (Years) | |||||||||
2013 | $ | 2,275,000 | 0.713 | % | 0.315 | % | 0.56 | ||||||
2014 | 1,675,000 | 0.644 | % | 0.311 | % | 1.57 | |||||||
2015 | 2,770,000 | 0.908 | % | 0.313 | % | 2.43 | |||||||
2016 | 1,940,000 | 0.874 | % | 0.323 | % | 3.46 | |||||||
2017 and Thereafter | 3,910,000 | 0.960 | % | 0.313 | % | 4.72 | |||||||
Total | $ | 12,570,000 | 0.850 | % | 0.315 | % | 2.85 |
(notional in thousands) | |||||||||||||
June 30, 2013 | |||||||||||||
Swaps Maturities | Notional Amount | Average Fixed Pay Rate | Average Receive Rate | Average Maturity (Years) | |||||||||
2015 | $ | 1,000,000 | 0.799 | % | 0.280 | % | 1.78 | ||||||
Total | $ | 1,000,000 |
(notional in thousands) | |||||||||||||
December 31, 2012 | |||||||||||||
Swaps Maturities | Notional Amount | Average Fixed Pay Rate | Average Receive Rate | Average Maturity (Years) | |||||||||
2015 | $ | 1,000,000 | 0.799 | % | 0.350 | % | 2.28 | ||||||
Total | $ | 1,000,000 |
(notional in thousands) | |||||||||||||
December 31, 2012 | |||||||||||||
Swaps Maturities | Notional Amount | Average Fixed Pay Rate | Average Receive Rate | Average Maturity (Years) | |||||||||
2014 | $ | 500,000 | 0.399 | % | 0.356 | % | 1.78 | ||||||
Total | $ | 500,000 |
June 30, 2013 | ||||||||||||||||||||||||
(notional and dollars in thousands) | Option | Underlying Swap | ||||||||||||||||||||||
Swaption | Expiration | Cost | Fair Value | Average Months to Expiration | Notional Amount | Average Fixed Pay Rate | Average Receive Rate | Average Term (Years) | ||||||||||||||||
Payer | < 6 Months | $ | 28,213 | $ | 4,639 | 2.15 | $ | 2,750,000 | 3.13 | % | 3M Libor | 8.2 | ||||||||||||
Payer | ≥ 6 Months | 133,710 | 221,171 | 49.35 | 3,500,000 | 3.94 | % | 3M Libor | 10.0 | |||||||||||||||
Total Payer | $ | 161,923 | $ | 225,810 | 46.65 | $ | 6,250,000 | 3.58 | % | 3M Libor | 9.2 |
December 31, 2012 | ||||||||||||||||||||||||
(notional and dollars in thousands) | Option | Underlying Swap | ||||||||||||||||||||||
Swaption | Expiration | Cost | Fair Value | Average Months to Expiration | Notional Amount | Average Fixed Pay Rate | Average Receive Rate | Average Term (Years) | ||||||||||||||||
Payer | < 6 Months | $ | 3,983 | $ | 30 | 5.38 | $ | 300,000 | 4.00 | % | 3M Libor | 10.0 | ||||||||||||
Payer | ≥ 6 Months | 129,925 | 102,018 | 53.38 | 4,650,000 | 3.74 | % | 3M Libor | 9.7 | |||||||||||||||
Total Payer | $ | 133,908 | $ | 102,048 | 53.38 | $ | 4,950,000 | 3.75 | % | 3M Libor | 9.8 |
(notional and dollars in thousands) | ||||||||||||||||||||
June 30, 2013 | ||||||||||||||||||||
Protection | Maturity Date | Average Implied Credit Spread | Current Notional Amount | Fair Value | Upfront (Payable)/Receivable | Unrealized Gain/(Loss) | ||||||||||||||
Receive | 9/20/2013 | 460.00 | $ | (45,000 | ) | $ | (91 | ) | $ | (3,127 | ) | $ | (3,218 | ) | ||||||
12/20/2013 | 181.91 | (105,000 | ) | (116 | ) | (3,225 | ) | (3,341 | ) | |||||||||||
6/20/2016 | 105.50 | (100,000 | ) | (1,722 | ) | (260 | ) | (1,982 | ) | |||||||||||
12/20/2016 | 496.00 | (25,000 | ) | 245 | (4,062 | ) | (3,817 | ) | ||||||||||||
6/20/2018 | 247.35 | (1,300,000 | ) | (22,858 | ) | 21,277 | (1,581 | ) | ||||||||||||
5/25/2046 | 356.00 | (55,404 | ) | 16,344 | (25,758 | ) | (9,414 | ) | ||||||||||||
Total | 247.81 | $ | (1,630,404 | ) | $ | (8,198 | ) | $ | (15,155 | ) | $ | (23,353 | ) |
(notional and dollars in thousands) | ||||||||||||||||||||
December 31, 2012 | ||||||||||||||||||||
Protection | Maturity Date | Average Implied Credit Spread | Current Notional Amount | Fair Value | Upfront Payable | Unrealized Gain/(Loss) | ||||||||||||||
Receive | 9/20/2013 | 460.00 | $ | (45,000 | ) | $ | (264 | ) | $ | (3,127 | ) | $ | (3,391 | ) | ||||||
12/20/2013 | 181.91 | (105,000 | ) | (198 | ) | (3,225 | ) | (3,423 | ) | |||||||||||
6/20/2016 | 105.50 | (100,000 | ) | (1,940 | ) | (260 | ) | (2,200 | ) | |||||||||||
12/20/2016 | 496.00 | (25,000 | ) | 527 | (4,062 | ) | (3,535 | ) | ||||||||||||
5/25/2046 | 297.60 | (163,440 | ) | 54,781 | (71,114 | ) | (16,333 | ) | ||||||||||||
Total | 254.06 | $ | (438,440 | ) | $ | 52,906 | $ | (81,788 | ) | $ | (28,882 | ) |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Face Value | $ | 1,798,972 | $ | 1,909,351 | |||
Unamortized premium | — | — | |||||
Unamortized discount | |||||||
Designated credit reserve | — | — | |||||
Net, unamortized | (1,524,333 | ) | (1,620,966 | ) | |||
Amortized Cost | 274,639 | 288,385 | |||||
Gross unrealized gains | 4,165 | 21,616 | |||||
Gross unrealized losses | (36,956 | ) | (8,737 | ) | |||
Carrying Value | $ | 241,848 | $ | 301,264 |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Property and equipment at cost | $ | 1,937 | $ | 1,034 | |||
Accumulated depreciation (1) | (507 | ) | (251 | ) | |||
Net property and equipment | 1,430 | 783 | |||||
Mortgage servicing rights, at fair value | 1,452 | — | |||||
Prepaid expenses | 1,065 | 1,411 | |||||
Current income tax receivable | — | 4,323 | |||||
Deferred tax assets | — | 44,184 | |||||
Intangible assets | 1,600 | — | |||||
Servicing advances | 4,881 | — | |||||
Other receivables (2) | 3,458 | 31,885 | |||||
Total other assets | $ | 13,886 | $ | 82,586 |
(1) | Depreciation expense for the three and six months ended June 30, 2013 was $141,978 and $255,605, respectively. |
(2) | The majority of other receivables at December 31, 2012 are amounts due from the Company's transfer agent for cash proceeds received upon exercise of warrants by warrantholders on December 31, 2012. |
(in thousands) | Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 | |||||
Balance at beginning of period | $ | — | $ | — | |||
Additions | 1,497 | 1,497 | |||||
Changes in fair value due to: | |||||||
Changes in fair value assumptions | — | — | |||||
Other changes in fair value | (45 | ) | (45 | ) | |||
Balance at end of period | $ | 1,452 | $ | 1,452 |
(in thousands) | Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 | |||||
Servicing fee income | $ | 215 | $ | 215 | |||
Ancillary fee income | 30 | 30 | |||||
$ | 245 | $ | 245 |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Accrued expenses | $ | 12,043 | $ | 13,295 | |||
Deferred tax liabilities | 8,508 | — | |||||
Income taxes payable | 1,320 | — | |||||
Other | 1,631 | — | |||||
Total other liabilities | $ | 23,502 | $ | 13,295 |
Level 1 | Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date under current market conditions. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity. |
Level 2 | Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full-term of the assets or liabilities. |
Level 3 | Unobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities, including risk. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation. |
Recurring Fair Value Measurements | |||||||||||||||
At June 30, 2013 | |||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets | |||||||||||||||
Available-for-sale securities | $ | — | $ | 14,892,315 | $ | — | $ | 14,892,315 | |||||||
Trading securities | 1,001,172 | — | — | 1,001,172 | |||||||||||
Mortgage loans held-for-sale | — | 520,008 | 438,193 | 958,201 | |||||||||||
Mortgage loans held-for-investment in securitization trust | — | 401,347 | — | 401,347 | |||||||||||
Derivative assets | 61,156 | 638,195 | — | 699,351 | |||||||||||
Mortgage servicing rights | — | — | 1,452 | 1,452 | |||||||||||
Total assets | $ | 1,062,328 | $ | 16,451,865 | $ | 439,645 | $ | 17,953,838 | |||||||
Liabilities | |||||||||||||||
Collateralized borrowings in securitization trust | $ | — | $ | 363,012 | $ | — | $ | 363,012 | |||||||
Derivative liabilities | 22,568 | 23,460 | — | 46,028 | |||||||||||
Total liabilities | $ | 22,568 | $ | 386,472 | $ | — | $ | 409,040 |
Recurring Fair Value Measurements | |||||||||||||||
At December 31, 2012 | |||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets | |||||||||||||||
Available-for-sale securities | $ | — | $ | 13,665,083 | $ | 1,871 | $ | 13,666,954 | |||||||
Trading securities | 1,002,062 | — | — | 1,002,062 | |||||||||||
Equity securities | 335,638 | — | — | 335,638 | |||||||||||
Mortgage loans held-for-sale | — | 58,607 | — | 58,607 | |||||||||||
Derivative assets | 1,917 | 460,163 | — | 462,080 | |||||||||||
Total assets | $ | 1,339,617 | $ | 14,183,853 | $ | 1,871 | $ | 15,525,341 | |||||||
Liabilities | |||||||||||||||
Derivative liabilities | $ | 239 | $ | 129,055 | $ | — | $ | 129,294 | |||||||
Total liabilities | $ | 239 | $ | 129,055 | $ | — | $ | 129,294 |
Level 3 Recurring Fair Value Measurements | ||||||||||||
Three Months Ended June 30, 2013 | ||||||||||||
Assets | ||||||||||||
(in thousands) | Available-For-Sale Securities | Mortgage Loans Held-For-Sale | Mortgage Servicing Rights | |||||||||
Beginning of period level 3 fair value | $ | 4,500 | $ | 123,235 | $ | — | ||||||
Gains/(losses) included in net income: | ||||||||||||
Realized gains (losses) | — | (1) | 422 | — | ||||||||
Unrealized gains (losses) | — | (12,749 | ) | (2) | (45 | ) | ||||||
Total net gains/(losses) included in net income | — | (12,327 | ) | (45 | ) | |||||||
Other comprehensive income | — | — | — | |||||||||
Purchases | — | 330,583 | 1,497 | |||||||||
Sales | — | — | — | |||||||||
Settlements | — | (3,298 | ) | — | ||||||||
Gross transfers into level 3 | — | — | — | |||||||||
Gross transfers out of level 3 | (4,500 | ) | — | — | ||||||||
End of period level 3 fair value | $ | — | $ | 438,193 | $ | 1,452 | ||||||
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | $ | — | $ | (12,749 | ) | (3) | $ | — |
Level 3 Recurring Fair Value Measurements | ||||||||||||
Six Months Ended June 30, 2013 | ||||||||||||
Assets | ||||||||||||
(in thousands) | Available-For-Sale Securities | Mortgage Loans Held-For-Sale | Mortgage Servicing Rights | |||||||||
Beginning of period level 3 fair value | $ | 1,871 | $ | — | $ | — | ||||||
Gains/(losses) included in net income: | ||||||||||||
Realized gains (losses) | 74 | (1) | 422 | — | ||||||||
Unrealized gains (losses) | — | 1,174 | (2) | (45 | ) | |||||||
Total net gains/(losses) included in net income | 74 | 1,596 | (45 | ) | ||||||||
Other comprehensive income | 1,426 | — | — | |||||||||
Purchases | — | 440,067 | 1,497 | |||||||||
Sales | — | — | — | |||||||||
Settlements | — | (3,470 | ) | — | ||||||||
Gross transfers into level 3 | 3,000 | — | — | |||||||||
Gross transfers out of level 3 | (6,371 | ) | — | — | ||||||||
End of period level 3 fair value | $ | — | $ | 438,193 | $ | 1,452 | ||||||
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | $ | — | $ | 1,174 | (3) | $ | — |
(1) | For the three and six months ended June 30, 2013, the realized gains on available-for-sale securities represent net (premium amortization)/discount accretion recorded in interest income on the condensed consolidated statements of comprehensive (loss) income. |
(2) | For the three and six months ended June 30, 2013, the change in unrealized gains or losses on mortgage loans held-for-sale was recorded in (loss) gain on mortgage loans held-for-sale on the condensed consolidated statements of comprehensive (loss) income. |
(3) | For the three and six months ended June 30, 2013, the change in unrealized gains or losses on mortgage loans held-for-sale that were held at the end of the reporting period were recorded in (loss) gain on mortgage loans held-for-sale on the condensed consolidated statements of comprehensive (loss) income. |
As of June 30, 2013 | |||||||||||||
(in thousands) | Fair Value | Valuation Technique | Unobservable Input (1) | Input Range | |||||||||
Mortgage servicing rights: | |||||||||||||
$ | 1,452 | Discounted cash flow | Constant prepayment speed | 3 | - | 6 | % | ||||||
Delinquency | 8 | - | 15 | % | |||||||||
Discount rate | 10 | - | 15 | % |
(1) | Significant increases/(decreases) in any of the inputs in isolation may result in significantly lower/(higher) fair value measurement. A change in the assumption used for the probability of default may be accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates. |
Changes included in the Condensed Consolidated Statements of Comprehensive (Loss) Income | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(in thousands) | |||||||||||||||
Interest income: | |||||||||||||||
Interest income on mortgage loans held-for-sale (1) | $ | 4,794 | $ | 126 | $ | 6,112 | $ | 195 | |||||||
Interest income on mortgage loans held-for-investment in securitization trust (1) | 4,369 | — | 6,023 | — | |||||||||||
Interest expense: | |||||||||||||||
Interest expense on collateralized borrowings in securitization trust | (2,169 | ) | — | (2,987 | ) | — | |||||||||
Other income: | |||||||||||||||
Realized gain (loss) on mortgage loans held-for-sale (2) | 297 | (22 | ) | 235 | (22 | ) | |||||||||
Unrealized gain (loss) on mortgage loans held-for-sale (2) | (15,137 | ) | 70 | (1,039 | ) | 26 | |||||||||
Unrealized loss on mortgage loans held-for-investment in securitization trust (3) | (16,755 | ) | — | (24,757 | ) | — | |||||||||
Unrealized gain on collateralized borrowings in securitization trust (3) | 18,313 | — | 32,604 | — | |||||||||||
Realized gain on equity securities (4) | 13,725 | — | 13,725 | — | |||||||||||
Unrealized loss on equity securities (4) | (13,725 | ) | — | (5,882 | ) | — | |||||||||
Total included in net income | $ | (6,288 | ) | $ | 174 | $ | 24,034 | $ | 199 | ||||||
Change in fair value due to credit risk | $ | — | $ | — | $ | — | $ | — |
(1) | Interest income on mortgage loans held-for-sale and mortgage loans held-for-investment in securitization trust is measured by multiplying the unpaid principal balance on the loans by the coupon rate and the number of days of interest due. |
(2) | Realized gain (loss) and unrealized (loss) gain on mortgage loans held-for-sale is recorded in (loss) gain on mortgage loans held-for-sale on the condensed consolidated statements of comprehensive (loss) income. |
(3) | Unrealized losses on mortgage loans held-for-investment in securitization trust and unrealized gains on collateralized borrowings in securitization trust are recorded in other income on the condensed consolidated statements of comprehensive (loss) income. |
(4) | Realized gains and unrealized losses on equity securities are recorded in gain on investment securities on the condensed consolidated statements of comprehensive (loss) income. |
June 30, 2013 | December 31, 2012 | ||||||||||||||
(in thousands) | Unpaid Principal Balance | Fair Value (1) | Unpaid Principal Balance | Fair Value (1) | |||||||||||
Mortgage loans held-for-sale | |||||||||||||||
Total loans | $ | 1,101,388 | $ | 958,201 | $ | 56,976 | $ | 58,607 | |||||||
Nonaccrual loans | $ | 49,468 | $ | 28,889 | $ | — | $ | — | |||||||
Loans 90+ days past due | $ | 30,408 | $ | 18,090 | $ | — | $ | — | |||||||
Mortgage loans held-for-investment in securitization trust | |||||||||||||||
Total loans | $ | 405,519 | $ | 401,347 | $ | — | $ | — | |||||||
Nonaccrual loans | $ | — | $ | — | $ | — | $ | — | |||||||
Loans 90+ days past due | $ | — | $ | — | $ | — | $ | — | |||||||
Collateralized borrowings in securitization trust | |||||||||||||||
Total borrowings | $ | 391,458 | $ | 363,012 | $ | — | $ | — |
(1) | Excludes accrued interest receivable. |
• | AFS securities, trading securities, equity securities, mortgage loans held-for-sale, mortgage loans held-for-investment in securitization trust, MSRs, derivative assets and liabilities, and collateralized borrowings in securitization trust are recurring fair value measurements; carrying value equals fair value. See discussion of valuation methods and assumptions within the Fair Value Measurements section of this footnote. |
• | Cash and cash equivalents and restricted cash have a carrying value which approximates fair value because of the short maturities of these instruments. The Company categorizes the fair value measurement of these assets as Level 1. |
• | The carrying value of repurchase agreements that mature in less than one year generally approximates fair value due to the short maturities. The Company holds $200.0 million of repurchase agreements that are considered long-term. The Company's long-term repurchase agreements have floating rates based on an index plus a spread and the credit spread is typically consistent with those demanded in the market. Accordingly, the interest rates on these borrowings are at market and thus carrying value approximates fair value. The Company categorizes the fair value measurement of these liabilities as Level 1. |
June 30, 2013 | December 31, 2012 | ||||||||||||||
(in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||
Assets | |||||||||||||||
Available-for-sale securities | $ | 14,892,315 | $ | 14,892,315 | $ | 13,666,954 | $ | 13,666,954 | |||||||
Trading securities | 1,001,172 | 1,001,172 | 1,002,062 | 1,002,062 | |||||||||||
Equity securities | — | — | 335,638 | 335,638 | |||||||||||
Mortgage loans held-for-sale | 958,201 | 958,201 | 58,607 | 58,607 | |||||||||||
Mortgage loans held-for-investment in securitization trust | 401,347 | 401,347 | — | — | |||||||||||
Cash and cash equivalents | 917,224 | 917,224 | 821,108 | 821,108 | |||||||||||
Restricted cash | 685,965 | 685,965 | 302,322 | 302,322 | |||||||||||
Derivative assets | 699,351 | 699,351 | 462,080 | 462,080 | |||||||||||
Mortgage servicing rights | 1,452 | 1,452 | — | — | |||||||||||
Liabilities | |||||||||||||||
Repurchase agreements | $ | 14,903,155 | $ | 14,903,155 | $ | 12,624,510 | $ | 12,624,510 | |||||||
Collateralized borrowings in securitization trust | 363,012 | 363,012 | — | — | |||||||||||
Derivative liabilities | 46,028 | 46,028 | 129,294 | 129,294 |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Short-term | $ | 14,703,155 | $ | 12,424,510 | |||
Long-term | 200,000 | 200,000 | |||||
Total | $ | 14,903,155 | $ | 12,624,510 |
(dollars in thousands) | June 30, 2013 | December 31, 2012 | ||||||||||||
Collateral Type | Amount Outstanding | Weighted Average Borrowing Rate | Amount Outstanding | Weighted Average Borrowing Rate | ||||||||||
U.S. Treasuries | $ | 1,000,000 | 0.08 | % | $ | 997,500 | 0.30 | % | ||||||
Agency RMBS AFS | 11,828,514 | 0.46 | % | 10,171,385 | 0.54 | % | ||||||||
Non-Agency RMBS | 1,421,285 | 2.23 | % | 1,177,675 | 2.50 | % | ||||||||
Agency derivatives | 219,235 | 1.07 | % | 228,241 | 1.16 | % | ||||||||
Mortgage loans held-for-sale | 434,121 | 2.69 | % | 49,709 | 2.46 | % | ||||||||
Total | $ | 14,903,155 | 0.67 | % | $ | 12,624,510 | 0.72 | % |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Within 30 days | $ | 4,751,482 | $ | 3,038,229 | |||
30 to 59 days | 2,937,677 | 3,528,393 | |||||
60 to 89 days | 889,141 | 1,731,595 | |||||
90 to 119 days | 1,553,211 | 849,621 | |||||
120 to 364 days | 3,571,644 | 2,279,172 | |||||
Open maturity (1) | 1,000,000 | 997,500 | |||||
One year and over (2) | 200,000 | 200,000 | |||||
Total | $ | 14,903,155 | $ | 12,624,510 |
(1) | Repurchase agreements collateralized by U.S. Treasuries include an open maturity period (i.e., rolling 1-day maturity) renewable at the discretion of either party to the agreements. |
(2) | One year and over includes repurchase agreements with maturity dates ranging from June 26, 2015 to July 27, 2016. |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Available-for-sale securities, at fair value | $ | 14,153,148 | $ | 12,810,355 | |||
Trading securities, at fair value | 1,001,172 | 1,002,062 | |||||
Mortgage loans held-for-sale | 475,028 | 52,529 | |||||
Cash and cash equivalents | 15,000 | 10,000 | |||||
Restricted cash | 596,479 | 84,307 | |||||
Due from counterparties | 15,373 | 36,917 | |||||
Derivative assets, at fair value | 239,293 | 291,054 | |||||
Total | $ | 16,495,493 | $ | 14,287,224 |
June 30, 2013 | December 31, 2012 | ||||||||||||||||||||||||||
(dollars in thousands) | Amount Outstanding | Net Counterparty Exposure (1) | Percent of Equity | Weighted Average Days to Maturity | Amount Outstanding | Net Counterparty Exposure (1) | Percent of Equity | Weighted Average Days to Maturity | |||||||||||||||||||
Barclays Capital Inc. | $ | 1,408,599 | $ | 240,632 | 6 | % | 64.6 | $ | 1,127,888 | $ | 257,858 | 7 | % | 90.3 | |||||||||||||
All other counterparties (2) (3) | 12,494,556 | 1,345,743 | 35 | % | 88.6 | 10,499,122 | 1,403,268 | 41 | % | 84.0 | |||||||||||||||||
Total | $ | 13,903,155 | $ | 1,586,375 | $ | 11,627,010 | $ | 1,661,126 |
(1) | Represents the net carrying value of the securities sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest. At June 30, 2013 and December 31, 2012, the Company had $62.8 million and $291.7 million, respectively, in payables due to broker counterparties for unsettled securities purchases. The payables are not included in the amounts presented above. |
(2) | Excludes $1.0 billion of repurchase agreements collateralized by U.S. Treasuries with a rolling 1-day maturity. |
(3) | Represents amounts outstanding to 19 and 21 counterparties at June 30, 2013 and December 31, 2012, respectively. |
Declaration Date | Record Date | Payment Date | Cash Dividend Per Share | |||||
June 18, 2013 | June 28, 2013 | July 23, 2013 | $ | 0.31 | ||||
March 18, 2013 | April 2, 2013 | April 24, 2013 | $ | 0.32 | ||||
December 17, 2012 | December 31, 2012 | January 18, 2013 | $ | 0.55 | ||||
September 12, 2012 | September 24, 2012 | October 22, 2012 | $ | 0.36 | ||||
June 12, 2012 | June 22, 2012 | July 20, 2012 | $ | 0.40 | ||||
March 14, 2012 | March 26, 2012 | April 20, 2012 | $ | 0.40 | ||||
December 14, 2011 | December 27, 2011 | January 20, 2012 | $ | 0.40 | ||||
September 14, 2011 | September 26, 2011 | October 20, 2011 | $ | 0.40 | ||||
June 14, 2011 | June 24, 2011 | July 20, 2011 | $ | 0.40 | ||||
March 2, 2011 | March 14, 2011 | April 14, 2011 | $ | 0.40 | ||||
December 8, 2010 | December 17, 2010 | January 20, 2011 | $ | 0.40 | ||||
September 13, 2010 | September 30, 2010 | October 21, 2010 | $ | 0.39 | ||||
June 14, 2010 | June 30, 2010 | July 22, 2010 | $ | 0.33 | ||||
March 12, 2010 | March 31, 2010 | April 23, 2010 | $ | 0.36 | ||||
December 21, 2009 | December 31, 2009 | January 26, 2010 | $ | 0.26 |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Available-for-sale securities, at fair value | |||||||
Unrealized gains | $ | 678,622 | $ | 724,696 | |||
Unrealized losses | (412,625 | ) | (28,238 | ) | |||
Accumulated other comprehensive income | $ | 265,997 | $ | 696,458 |
(in thousands) | Affected Line Item in the Condensed Consolidated Statements of Comprehensive (Loss) Income | Amount Reclassified out of Accumulated Other Comprehensive Income | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||||
Other-than-temporary-impairments on AFS securities | Total other-than-temporary impairment losses | $ | 1,426 | $ | 4,476 | $ | 1,662 | $ | 8,751 | |||||||||
Realized (gains) losses on sales of AFS securities | Gain on investment securities | (45,143 | ) | 2,846 | (63,918 | ) | (7,145 | ) | ||||||||||
$ | (43,717 | ) | $ | 7,322 | $ | (62,256 | ) | $ | 1,606 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in thousands) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Other operating expenses: | |||||||||||||||
General and administrative | $ | 7,603 | $ | 3,311 | $ | 12,315 | $ | 6,372 | |||||||
Directors and officers' insurance | 201 | 175 | 402 | 289 | |||||||||||
Professional fees | 1,375 | 433 | 3,023 | 809 | |||||||||||
Subservicing expenses | 307 | — | 307 | — | |||||||||||
Total other operating expenses | $ | 9,486 | $ | 3,919 | $ | 16,047 | $ | 7,470 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in thousands, except share data) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Numerator: | |||||||||||||||
Net income from continuing operations | $ | 387,621 | $ | 24,185 | $ | 529,960 | $ | 76,031 | |||||||
Income (loss) from discontinued operations | 1,016 | (181 | ) | 2,393 | (227 | ) | |||||||||
Net income attributable to common stockholders | $ | 388,637 | $ | 24,004 | $ | 532,353 | $ | 75,804 | |||||||
Denominator: | |||||||||||||||
Weighted average common shares outstanding | 365,199,790 | 214,764,586 | 335,395,275 | 200,784,364 | |||||||||||
Weighted average restricted stock shares | 389,510 | 45,993 | 208,422 | 48,720 | |||||||||||
Basic weighted average shares outstanding | 365,589,300 | 214,810,579 | 335,603,697 | 200,833,084 | |||||||||||
Dilutive weighted average warrants | 467,903 | — | 1,073,347 | — | |||||||||||
Diluted weighted average shares outstanding | 366,057,203 | 214,810,579 | 336,677,044 | 200,833,084 | |||||||||||
Basic Earnings Per Share: | |||||||||||||||
Continuing operations | $ | 1.06 | $ | 0.11 | $ | 1.58 | $ | 0.38 | |||||||
Discontinued operations | — | — | 0.01 | — | |||||||||||
Net income | $ | 1.06 | $ | 0.11 | $ | 1.59 | $ | 0.38 | |||||||
Diluted Earnings Per Share: | |||||||||||||||
Continuing operations | $ | 1.06 | $ | 0.11 | $ | 1.57 | $ | 0.38 | |||||||
Discontinued operations | — | — | 0.01 | — | |||||||||||
Net income | $ | 1.06 | $ | 0.11 | $ | 1.58 | $ | 0.38 |
• | Agency RMBS (which includes inverse interest-only Agency securities classified as Agency Derivatives for purposes of U.S. GAAP), meaning RMBS whose principal and interest payments are guaranteed by the Government National Mortgage Association (or Ginnie Mae), the Federal National Mortgage Association (or Fannie Mae), or the Federal Home Loan Mortgage Corporation (or Freddie Mac); |
• | Non-Agency RMBS, meaning RMBS that are not issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac; |
• | Prime nonconforming residential mortgage loans, credit sensitive mortgage loans and mortgage servicing rights; and |
• | Other financial assets comprising approximately 5% to 10% of the portfolio. |
As of | ||||||||||||||
June 30, 2013 | March 31, 2013 | December 31, 2012 | September 30, 2012 | June 30, 2012 | ||||||||||
Agency RMBS | 80.5 | % | 80.2 | % | 81.0 | % | 83.7 | % | 81.7 | % | ||||
Non-Agency RMBS | 19.5 | % | 19.8 | % | 19.0 | % | 16.3 | % | 18.3 | % |
Three Months Ended | ||||||||||||||
June 30, 2013 | March 31, 2013 | December 31, 2012 | September 30, 2012 | June 30, 2012 | ||||||||||
Average annualized yields (1) | ||||||||||||||
Agency RMBS | 2.7 | % | 2.9 | % | 2.9 | % | 3.1 | % | 3.3 | % | ||||
Non-Agency RMBS | 9.1 | % | 9.2 | % | 9.5 | % | 9.6 | % | 9.6 | % | ||||
Aggregate RMBS | 3.7 | % | 4.0 | % | 4.0 | % | 4.2 | % | 4.6 | % | ||||
Cost of financing (2) | 1.2 | % | 1.1 | % | 1.1 | % | 1.1 | % | 1.0 | % | ||||
Net interest spread | 2.5 | % | 2.9 | % | 2.9 | % | 3.1 | % | 3.6 | % |
(1) | Average annualized yield incorporates future prepayment, credit loss and other assumptions, all of which are estimates and subject to change. |
(2) | Cost of financing includes swap interest rate spread. |
As of | ||||||||||||||
June 30, 2013 | March 31, 2013 | December 31, 2012 | September 30, 2012 | June 30, 2012 | ||||||||||
Average annualized yields (1) | ||||||||||||||
Agency RMBS | 2.8 | % | 2.9 | % | 2.9 | % | 2.8 | % | 3.3 | % | ||||
Non-Agency RMBS | 9.1 | % | 9.2 | % | 9.4 | % | 9.6 | % | 9.6 | % | ||||
Aggregate RMBS | 3.8 | % | 3.8 | % | 4.0 | % | 3.8 | % | 4.5 | % | ||||
Cost of financing (2) | 1.2 | % | 1.1 | % | 1.2 | % | 1.1 | % | 1.0 | % | ||||
Net interest spread | 2.6 | % | 2.7 | % | 2.8 | % | 2.7 | % | 3.5 | % |
(1) | Average annualized yield incorporates future prepayment, credit loss and other assumptions, all of which are estimates and subject to change. |
(2) | Cost of financing includes swap interest rate spread. |
• | changes in interest rates and the market value of our target assets; |
• | changes in prepayment rates of mortgage loans comprising and underlying our target assets; |
• | the timing of credit losses within our portfolio; |
• | our exposure to adjustable-rate and negative amortization mortgage loans comprising and underlying our target assets; |
• | the state of the credit markets and other general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; |
• | the concentration of the credit risks we are exposed to; |
• | legislative and regulatory actions affecting the mortgage and derivative industries or our business; |
• | the availability of target assets for purchase at attractive prices; |
• | the availability of financing for our target assets, including the availability of repurchase agreement financing; |
• | declines in home prices; |
• | increases in payment delinquencies and defaults on the mortgages comprising and underlying our target assets; |
• | changes in liquidity in the market for real estate securities, the re-pricing of credit risk in the capital markets, inaccurate ratings of securities by rating agencies, rating agency downgrades of securities, and increases in the supply of real estate securities available-for-sale; |
• | changes in the values of securities we own and the impact of adjustments reflecting those changes on our statements of comprehensive (loss) income and balance sheets, including our stockholders' equity; |
• | our ability to generate the amount of cash flow we expect from our target assets; |
• | changes in our investment, financing and hedging strategies and the new risks that those changes may expose us to; |
• | changes in the competitive landscape within our industry, including changes that may affect our ability to retain or attract personnel; |
• | our ability to build and maintain successful relationships with mortgage loan originators; |
• | our ability to acquire mortgage loans in connection with our securitization plans; |
• | our ability to securitize the mortgage loans that we acquire; |
• | our ability to successfully diversify our business into new asset classes and manage the new risks they may expose us to; |
• | our ability to manage various operational risks associated with our business; |
• | our ability to maintain appropriate internal controls over financial reporting; |
• | our ability to establish, adjust and maintain appropriate hedges for the risks in our portfolio; |
• | our ability to maintain our REIT qualification for U.S. federal income tax purposes; and |
• | limitations imposed on our business due to our REIT status and our status as exempt from registration under the 1940 Act. |
Level 1 | Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date under current market conditions. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity. |
Level 2 | Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full-term of the assets or liabilities. |
Level 3 | Unobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities, including risk. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation. |
(dollars in thousands) | June 30, 2013 | December 31, 2012 | |||||||||||
Agency | |||||||||||||
Fixed Rate | $ | 11,770,146 | 77.8 | % | $ | 10,823,674 | 77.5 | % | |||||
Hybrid ARMs | 170,682 | 1.1 | % | 188,429 | 1.3 | % | |||||||
Total Agency | 11,940,828 | 78.9 | % | 11,012,103 | 78.8 | % | |||||||
Agency Derivatives | 241,848 | 1.6 | % | 301,264 | 2.2 | % | |||||||
Non-Agency | |||||||||||||
Senior | 2,443,731 | 16.1 | % | 2,132,272 | 15.3 | % | |||||||
Mezzanine | 498,963 | 3.3 | % | 518,466 | 3.7 | % | |||||||
Interest-only securities | 8,793 | 0.1 | % | 4,113 | — | % | |||||||
Total Non-Agency | 2,951,487 | 19.5 | % | 2,654,851 | 19.0 | % | |||||||
Total | $ | 15,134,163 | $ | 13,968,218 |
As of June 30, 2013 | ||||||||||||||||||
Agency RMBS AFS | Agency Derivatives | Total Agency RMBS | ||||||||||||||||
(dollars in thousands) | Fixed Rate | Hybrid ARMs | ||||||||||||||||
High LTV (predominantly MHA) | $ | 3,112,951 | $ | — | $ | — | $ | 3,112,951 | 26 | % | ||||||||
$85K Max Pools | 2,457,037 | — | — | 2,457,037 | 20 | % | ||||||||||||
Home equity conversion mortgages | 1,836,735 | — | — | 1,836,735 | 15 | % | ||||||||||||
Other low loan balances | 1,706,882 | — | — | 1,706,882 | 14 | % | ||||||||||||
2006 and subsequent vintages | 900,280 | 38,556 | — | 938,836 | 8 | % | ||||||||||||
Low FICO | 739,034 | — | — | 739,034 | 6 | % | ||||||||||||
Seasoned (2005 and prior vintages) | 304,809 | 119,736 | 166,475 | 591,020 | 5 | % | ||||||||||||
Pre-pay lock-out or penalty-based | 499,220 | 12,390 | — | 511,610 | 4 | % | ||||||||||||
2006 and subsequent vintages - discount | 213,198 | — | 75,373 | 288,571 | 2 | % | ||||||||||||
Total | $ | 11,770,146 | $ | 170,682 | $ | 241,848 | $ | 12,182,676 | 100 | % |
As of December 31, 2012 | ||||||||||||||||||
Agency RMBS AFS | Agency Derivatives | Total Agency RMBS | ||||||||||||||||
(dollars in thousands) | Fixed Rate | Hybrid ARMs | ||||||||||||||||
High LTV (predominantly MHA) | $ | 2,904,683 | $ | — | $ | — | $ | 2,904,683 | 27 | % | ||||||||
$85K Max Pools | 2,262,443 | — | — | 2,262,443 | 20 | % | ||||||||||||
Home equity conversion mortgages | 1,906,957 | — | — | 1,906,957 | 17 | % | ||||||||||||
Other low loan balances | 1,720,319 | — | — | 1,720,319 | 16 | % | ||||||||||||
2006 and subsequent vintages | 200,390 | 44,987 | — | 245,377 | 2 | % | ||||||||||||
Low FICO | 781,855 | — | — | 781,855 | 7 | % | ||||||||||||
Seasoned (2005 and prior vintages) | 345,412 | 129,940 | 207,869 | 683,221 | 5 | % | ||||||||||||
Pre-pay lock-out or penalty-based | 541,495 | 13,502 | — | 554,997 | 4 | % | ||||||||||||
2006 and subsequent vintages - discount | 160,120 | — | 93,395 | 253,515 | 2 | % | ||||||||||||
Total | $ | 10,823,674 | $ | 188,429 | $ | 301,264 | $ | 11,313,367 | 100 | % |
As of June 30, 2013 | |||||||||||||||
(in thousands) | Principal and Interest Securities | Interest-Only Securities | Total | ||||||||||||
Senior | Mezzanine | ||||||||||||||
Face Value | $ | 3,932,358 | $ | 702,444 | $ | 359,890 | $ | 4,994,692 | |||||||
Unamortized discount | |||||||||||||||
Designated credit reserve | (1,270,976 | ) | (115,631 | ) | — | (1,386,607 | ) | ||||||||
Unamortized net discount | (694,622 | ) | (176,459 | ) | (351,537 | ) | (1,222,618 | ) | |||||||
Amortized Cost | $ | 1,966,760 | $ | 410,354 | $ | 8,353 | $ | 2,385,467 |
As of December 31, 2012 | |||||||||||||||
(in thousands) | Principal and Interest Securities | Interest-Only Securities | Total | ||||||||||||
Senior | Mezzanine | ||||||||||||||
Face Value | $ | 3,685,422 | $ | 753,084 | $ | 65,493 | $ | 4,503,999 | |||||||
Unamortized discount | |||||||||||||||
Designated credit reserve | (1,179,811 | ) | (111,135 | ) | — | (1,290,946 | ) | ||||||||
Unamortized net discount | (718,101 | ) | (216,459 | ) | (61,930 | ) | (996,490 | ) | |||||||
Amortized Cost | $ | 1,787,510 | $ | 425,490 | $ | 3,563 | $ | 2,216,563 |
(in thousands, except share data) | Three Months Ended | Six Months Ended | ||||||||||||||
Income Statement Data: | June 30, | June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Interest income: | (unaudited) | (unaudited) | ||||||||||||||
Available-for-sale securities | $ | 134,651 | $ | 104,319 | $ | 264,943 | $ | 188,533 | ||||||||
Trading securities | 1,261 | 1,250 | 2,525 | 2,300 | ||||||||||||
Mortgage loans held-for-sale | 4,794 | 126 | 6,112 | 195 | ||||||||||||
Mortgage loans held-for-investment in securitization trust | 4,369 | — | 6,023 | — | ||||||||||||
Cash and cash equivalents | 250 | 209 | 557 | 377 | ||||||||||||
Total interest income | 145,325 | 105,904 | 280,160 | 191,405 | ||||||||||||
Interest expense: | ||||||||||||||||
Repurchase agreements | 22,553 | 15,527 | 45,571 | 26,994 | ||||||||||||
Collateralized borrowings in securitization trust | 2,169 | — | 2,987 | — | ||||||||||||
Total interest expense | 24,722 | 15,527 | 48,558 | 26,994 | ||||||||||||
Net interest income | 120,603 | 90,377 | 231,602 | 164,411 | ||||||||||||
Other-than-temporary impairment losses | (1,426 | ) | (4,476 | ) | (1,662 | ) | (8,751 | ) | ||||||||
Other income: | ||||||||||||||||
Gain on investment securities | 50,863 | 1,789 | 77,831 | 11,720 | ||||||||||||
Gain (loss) on interest rate swap and swaption agreements | 259,826 | (61,014 | ) | 278,798 | (77,207 | ) | ||||||||||
Gain (loss) on other derivative instruments | 62,283 | (7,577 | ) | 45,621 | (16,480 | ) | ||||||||||
(Loss) gain on mortgage loans held-for-sale | (35,142 | ) | 10 | (20,819 | ) | (22 | ) | |||||||||
Other income | 1,810 | — | 8,099 | — | ||||||||||||
Total other income (loss) | 339,640 | (66,792 | ) | 389,530 | (81,989 | ) | ||||||||||
Expenses: | ||||||||||||||||
Management fees | 12,591 | 7,610 | 17,352 | 14,353 | ||||||||||||
Securitization deal costs | — | — | 2,028 | — | ||||||||||||
Other operating expenses | 9,486 | 3,919 | 16,047 | 7,470 | ||||||||||||
Total expenses | 22,077 | 11,529 | 35,427 | 21,823 | ||||||||||||
Income from continuing operations before income taxes | 436,740 | 7,580 | 584,043 | 51,848 | ||||||||||||
Provision for (benefit from) income taxes | 49,119 | (16,605 | ) | 54,083 | (24,183 | ) | ||||||||||
Net income from continuing operations | 387,621 | 24,185 | 529,960 | 76,031 | ||||||||||||
Income (loss) from discontinued operations | 1,016 | (181 | ) | 2,393 | (227 | ) | ||||||||||
Net income attributable to common stockholders | $ | 388,637 | $ | 24,004 | $ | 532,353 | $ | 75,804 | ||||||||
Basic earnings per weighted average common share: | ||||||||||||||||
Continuing operations | $ | 1.06 | $ | 0.11 | $ | 1.58 | $ | 0.38 | ||||||||
Discontinued operations | — | — | 0.01 | — | ||||||||||||
Net income | $ | 1.06 | $ | 0.11 | $ | 1.59 | $ | 0.38 | ||||||||
Diluted earnings per weighted average common share: | ||||||||||||||||
Continuing operations | $ | 1.06 | $ | 0.11 | $ | 1.57 | $ | 0.38 | ||||||||
Discontinued operations | — | — | 0.01 | — | ||||||||||||
Net income | $ | 1.06 | $ | 0.11 | $ | 1.58 | $ | 0.38 | ||||||||
Dividends declared per common share | $ | 0.31 | $ | 0.40 | $ | 0.63 | $ | 0.80 | ||||||||
Weighted average number of shares of common stock: | ||||||||||||||||
Basic | 365,589,300 | 214,810,579 | 335,603,697 | 200,833,084 | ||||||||||||
Diluted | 366,057,203 | 214,810,579 | 336,677,044 | 200,833,084 |
(in thousands) | Three Months Ended | Six Months Ended | ||||||||||||||
Income Statement Data: | June 30, | June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Comprehensive (loss) income: | ||||||||||||||||
Net income | $ | 388,637 | $ | 24,004 | $ | 532,353 | $ | 75,804 | ||||||||
Other comprehensive (loss) income: | ||||||||||||||||
Unrealized (loss) gain on available-for-sale securities, net | (534,713 | ) | 117,604 | (430,461 | ) | 261,514 | ||||||||||
Other comprehensive (loss) income | (534,713 | ) | 117,604 | (430,461 | ) | 261,514 | ||||||||||
Comprehensive (loss) income | $ | (146,076 | ) | $ | 141,608 | $ | 101,892 | $ | 337,318 |
(in thousands) | June 30, 2013 | December 31, 2012 | ||||||
Balance Sheet Data: | ||||||||
(unaudited) | ||||||||
Available-for-sale securities | $ | 14,892,315 | $ | 13,666,954 | ||||
Total assets | $ | 19,640,751 | $ | 16,813,944 | ||||
Repurchase agreements | $ | 14,903,155 | $ | 12,624,510 | ||||
Total stockholders' equity | $ | 3,834,123 | $ | 3,450,577 |
Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 | ||||||||||||||||
Agency | Non-Agency | Consolidated | Agency | Non-Agency | Consolidated | ||||||||||||
Gross Yield/Stated Coupon | 4.2 | % | 2.7 | % | 4.0 | % | 4.2 | % | 2.8 | % | 4.0 | % | |||||
Net (Premium Amortization)/Discount Accretion | (1.5 | )% | 6.4 | % | (0.3 | )% | (1.4 | )% | 6.3 | % | (0.2 | )% | |||||
Net Yield (1) | 2.7 | % | 9.1 | % | 3.7 | % | 2.8 | % | 9.1 | % | 3.8 | % |
Three Months Ended June 30, 2012 | Six Months Ended June 30, 2012 | ||||||||||||||||
Agency | Non-Agency | Consolidated | Agency | Non-Agency | Consolidated | ||||||||||||
Gross Yield/Stated Coupon | 4.7 | % | 2.7 | % | 4.3 | % | 4.7 | % | 2.8 | % | 4.3 | % | |||||
Net (Premium Amortization)/Discount Accretion | (1.7 | )% | 6.9 | % | 0.1 | % | (1.6 | )% | 6.9 | % | 0.2 | % | |||||
Net Yield (1) | 3.0 | % | 9.6 | % | 4.4 | % | 3.1 | % | 9.7 | % | 4.5 | % |
(1) | These yields have not been adjusted for cost of delay and cost to carry purchase premiums. |
Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 | ||||||||||||||||||||||
(dollars in thousands) | Agency | Non-Agency | Total | Agency | Non-Agency | Total | |||||||||||||||||
Average amortized cost | $ | 12,216,046 | $ | 2,358,645 | $ | 14,574,691 | $ | 11,642,500 | $ | 2,300,230 | $ | 13,942,730 | |||||||||||
Coupon interest | 128,136 | 16,119 | 144,255 | 245,496 | 31,853 | 277,349 | |||||||||||||||||
Net (premium amortization)/discount accretion | (46,825 | ) | 37,221 | (9,604 | ) | (84,917 | ) | 72,511 | (12,406 | ) | |||||||||||||
Interest income | $ | 81,311 | $ | 53,340 | $ | 134,651 | $ | 160,579 | $ | 104,364 | $ | 264,943 | |||||||||||
Net asset yield | 2.7 | % | 9.1 | % | 3.7 | % | 2.8 | % | 9.1 | % | 3.8 | % |
Three Months Ended June 30, 2012 | Six Months Ended June 30, 2012 | ||||||||||||||||||||||
(dollars in thousands) | Agency | Non-Agency | Total | Agency | Non-Agency | Total | |||||||||||||||||
Average amortized cost | $ | 7,503,643 | $ | 1,984,559 | $ | 9,488,202 | $ | 6,522,125 | $ | 1,835,357 | $ | 8,357,482 | |||||||||||
Coupon interest | 87,616 | 13,570 | 101,186 | 153,795 | 25,680 | 179,475 | |||||||||||||||||
Net (premium amortization)/discount accretion | (30,988 | ) | 34,121 | 3,133 | (53,960 | ) | 63,018 | 9,058 | |||||||||||||||
Interest income | $ | 56,628 | $ | 47,691 | $ | 104,319 | $ | 99,835 | $ | 88,698 | $ | 188,533 | |||||||||||
Net asset yield | 3.0 | % | 9.6 | % | 4.4 | % | 3.1 | % | 9.7 | % | 4.5 | % |
Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 | ||||||||||||||||||||||
(dollars in thousands) | Agency(1) | Non-Agency | Total | Agency(1) | Non-Agency | Total | |||||||||||||||||
Average available-for-sale securities held (2) | $ | 12,216,046 | $ | 2,358,645 | $ | 14,574,691 | $ | 11,642,500 | $ | 2,300,230 | $ | 13,942,730 | |||||||||||
Total interest income | $ | 81,311 | $ | 53,340 | $ | 134,651 | $ | 160,579 | $ | 104,364 | $ | 264,943 | |||||||||||
Yield on average investment securities | 2.7 | % | 9.1 | % | 3.7 | % | 2.8 | % | 9.1 | % | 3.8 | % | |||||||||||
Average balance of repurchase agreements | $ | 11,849,280 | $ | 1,254,343 | $ | 13,103,623 | $ | 11,288,756 | $ | 1,274,469 | $ | 12,563,225 | |||||||||||
Total interest expense (3) (4) | $ | 14,037 | $ | 7,356 | $ | 21,393 | $ | 27,867 | $ | 15,171 | $ | 43,038 | |||||||||||
Average cost of funds (4) | 0.5 | % | 2.3 | % | 0.7 | % | 0.5 | % | 2.4 | % | 0.7 | % | |||||||||||
Net interest income | $ | 67,274 | $ | 45,984 | $ | 113,258 | $ | 132,712 | $ | 89,193 | $ | 221,905 | |||||||||||
Net interest rate spread | 2.2 | % | 6.8 | % | 3.0 | % | 2.3 | % | 6.7 | % | 3.1 | % |
Three Months Ended June 30, 2012 | Six Months Ended June 30, 2012 | ||||||||||||||||||||||
(dollars in thousands) | Agency(1) | Non-Agency | Total | Agency(1) | Non-Agency | Total | |||||||||||||||||
Average available-for-sale securities held (2) | $ | 7,503,643 | $ | 1,984,559 | $ | 9,488,202 | $ | 6,522,125 | $ | 1,835,357 | $ | 8,357,482 | |||||||||||
Total interest income | $ | 56,628 | $ | 47,691 | $ | 104,319 | $ | 99,835 | $ | 88,698 | $ | 188,533 | |||||||||||
Yield on average investment securities | 3.0 | % | 9.6 | % | 4.4 | % | 3.1 | % | 9.7 | % | 4.5 | % | |||||||||||
Average balance of repurchase agreements | $ | 7,255,312 | $ | 1,073,773 | $ | 8,329,085 | $ | 6,309,389 | $ | 978,478 | $ | 7,287,867 | |||||||||||
Total interest expense (3) (4) | $ | 8,215 | $ | 6,189 | $ | 14,404 | $ | 13,759 | $ | 11,294 | $ | 25,053 | |||||||||||
Average cost of funds (4) | 0.5 | % | 2.3 | % | 0.7 | % | 0.4 | % | 2.3 | % | 0.7 | % | |||||||||||
Net interest income | $ | 48,413 | $ | 41,502 | $ | 89,915 | $ | 86,076 | $ | 77,404 | $ | 163,480 | |||||||||||
Net interest rate spread | 2.5 | % | 7.3 | % | 3.7 | % | 2.7 | % | 7.4 | % | 3.8 | % |
(1) | Excludes inverse interest-only securities which are classified as derivatives under U.S. GAAP. For the three and six months ended June 30, 2013, our average annualized yield on our Agency RMBS, including inverse interest-only securities, was 2.7% and 2.8%, respectively, compared to 3.3% and 3.4% for the same periods in 2012. |
(2) | Excludes change in realized and unrealized gains/(losses). |
(3) | Cost of funds by investment type is based on the underlying investment type of the RMBS AFS assigned as collateral. |
(4) | Cost of funds does not include the accrual and settlement of interest associated with interest rate swaps. In accordance with GAAP, those costs are included in loss on interest rate swap and swaption agreements in the condensed consolidated statements of comprehensive (loss) income. For the three and six months ended June 30, 2013, our average cost of funds, including interest spread expense associated with interest rate swaps and including inverse interest-only securities (see footnote 1 above), was 1.2% and 1.2%, respectively, compared to 1.0% and 1.0% for the same periods in 2012. |
(in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net interest spread | $ | (19,395 | ) | $ | (7,655 | ) | $ | (33,411 | ) | $ | (12,371 | ) | |||
Early termination and option expiration losses | (3,983 | ) | (7,275 | ) | (62,675 | ) | (18,540 | ) | |||||||
Change in unrealized gain (loss) on interest rate swap and swaption agreements, at fair value | 283,204 | (46,084 | ) | 374,884 | (46,296 | ) | |||||||||
Gain (loss) on interest rate swap and swaption agreements | $ | 259,826 | $ | (61,014 | ) | $ | 278,798 | $ | (77,207 | ) |
June 30, 2013 | ||||||||||||||||||||||||||||||
(dollars in thousands, except purchase price) | Principal/Current Face | Net (Discount)/ Premium | Amortized Cost | Unrealized Gain | Unrealized Loss | Carrying Value | Weighted Average Coupon Rate | Weighted Average Purchase Price | ||||||||||||||||||||||
Principal and interest securities: | ||||||||||||||||||||||||||||||
Fixed | $ | 11,049,746 | $ | 799,709 | $ | 11,849,455 | $ | 84,027 | $ | (392,830 | ) | $ | 11,540,652 | 4.05 | % | $ | 107.98 | |||||||||||||
Hybrid/ARM | 161,036 | 8,164 | 169,200 | 1,818 | (336 | ) | 170,682 | 3.74 | % | $ | 106.24 | |||||||||||||||||||
Total P&I Securities | 11,210,782 | 807,873 | 12,018,655 | 85,845 | (393,166 | ) | 11,711,334 | 4.04 | % | $ | 107.96 | |||||||||||||||||||
Interest-only securities | ||||||||||||||||||||||||||||||
Fixed | 766,034 | (687,812 | ) | 78,222 | 10,839 | (2,815 | ) | 86,246 | 4.30 | % | $ | 13.23 | ||||||||||||||||||
Fixed Other (1) | 1,814,450 | (1,670,476 | ) | 143,974 | 4,787 | (5,513 | ) | 143,248 | 1.68 | % | $ | 9.37 | ||||||||||||||||||
Total | $ | 13,791,266 | $ | (1,550,415 | ) | $ | 12,240,851 | $ | 101,471 | $ | (401,494 | ) | $ | 11,940,828 |
(in thousands) | Carrying Value | ||
0-12 months | $ | 161,450 | |
13-36 months | 3,925 | ||
37-60 months | 5,307 | ||
Greater than 60 months | — | ||
Total | $ | 170,682 |
As of June 30, 2013 | |||||||||||||||||||||||||||
(in thousands) | Principal/current face | Accretable purchase discount | Credit reserve purchase discount | Amortized cost | Unrealized gain | Unrealized loss | Carrying value | ||||||||||||||||||||
Principal and interest securities: | |||||||||||||||||||||||||||
Senior | $ | 3,932,358 | $ | (694,622 | ) | $ | (1,270,976 | ) | $ | 1,966,760 | $ | 483,675 | $ | (6,704 | ) | $ | 2,443,731 | ||||||||||
Mezzanine | 702,444 | (176,459 | ) | (115,631 | ) | 410,354 | 92,912 | (4,303 | ) | 498,963 | |||||||||||||||||
Total P&I Securities | 4,634,802 | (871,081 | ) | (1,386,607 | ) | 2,377,114 | 576,587 | (11,007 | ) | 2,942,694 | |||||||||||||||||
Interest-only securities | 359,890 | (351,537 | ) | — | 8,353 | 564 | (124 | ) | 8,793 | ||||||||||||||||||
Total | $ | 4,994,692 | $ | (1,222,618 | ) | $ | (1,386,607 | ) | $ | 2,385,467 | $ | 577,151 | $ | (11,131 | ) | $ | 2,951,487 |
June 30, 2013 | ||
AAA | — | % |
AA | — | % |
A | — | % |
BBB | 0.4 | % |
BB | 1.1 | % |
B | 8.1 | % |
Below B | 85.9 | % |
Not rated | 4.5 | % |
Total | 100.0 | % |
At June 30, 2013 | |||||||||||
Non-Agency Principal and Interest (P&I) RMBS Characteristics | Senior Bonds | Mezzanine Bonds | Total P&I Bonds | ||||||||
Carrying Value (in thousands) | $ | 2,443,731 | $ | 498,963 | $ | 2,942,694 | |||||
% of Non-Agency Portfolio | 83.0 | % | 17.0 | % | 100.0 | % | |||||
Average Purchase Price (1) | $ | 51.08 | $ | 57.45 | $ | 52.16 | |||||
Average Coupon | 1.8 | % | 1.4 | % | 1.7 | % | |||||
Average Fixed Coupon | 5.5 | % | 5.6 | % | 5.5 | % | |||||
Average Floating Coupon | 1.0 | % | 1.2 | % | 1.1 | % | |||||
Average Hybrid Coupon | 4.4 | % | — | % | 4.4 | % | |||||
Collateral Attributes | |||||||||||
Avg Loan Age (months) | 81 | 100 | 85 | ||||||||
Avg Loan Size (in thousands) | $ | 246 | $ | 189 | $ | 237 | |||||
Avg Original Loan-to-Value | 77.0 | % | 75.5 | % | 76.7 | % | |||||
Avg Original FICO (2) | 616 | 637 | 620 | ||||||||
Current Performance | |||||||||||
60+ day delinquencies | 35.1 | % | 30.0 | % | 34.2 | % | |||||
Average Credit Enhancement (3) | 11.4 | % | 26.2 | % | 13.9 | % | |||||
3-Month CPR (4) | 3.6 | % | 5.9 | % | 4.0 | % |
(1) | Average purchase price utilized carrying value for weighting purposes. If current face were utilized for weighting purposes, the average purchase price for senior, mezzanine, and total non-Agency RMBS, excluding our non-Agency interest-only portfolio, would be $47.62, $55.39, and $48.80, respectively, at June 30, 2013. |
(2) | FICO represents a mortgage industry accepted credit score of a borrower, which was developed by Fair Isaac Corporation. |
(3) | Average credit enhancement remaining on our non-Agency RMBS portfolio, which is the average amount of protection available to absorb future credit losses due to defaults on the underlying collateral. |
(4) | Three-month CPR is reflective of the prepayment speed on the underlying securitization; however, it does not necessarily indicate the proceeds received on our investment tranche. Proceeds received for each security are dependent on the position of the individual security within the structure of each deal. |
Non-Agency RMBS Characteristics | June 30, 2013 | |||||||||||||||||||
(dollars in thousands) | Senior Bonds | Mezzanine Bonds | Total Bonds | |||||||||||||||||
Loan Type | Carrying Value | % of Senior Bonds | Carrying Value | % of Mezzanine Bonds | Carrying Value | % of Non-Agency Portfolio | ||||||||||||||
Prime | $ | 39,278 | 1.6 | % | $ | 12,593 | 2.5 | % | $ | 51,871 | 1.8 | % | ||||||||
Alt-A | 93,499 | 3.8 | % | 25,139 | 5.0 | % | 118,638 | 4.0 | % | |||||||||||
POA | 200,725 | 8.2 | % | 9,418 | 1.9 | % | 210,143 | 7.1 | % | |||||||||||
Subprime | 2,110,229 | 86.4 | % | 451,813 | 90.6 | % | 2,562,042 | 87.1 | % | |||||||||||
$ | 2,443,731 | 100.0 | % | $ | 498,963 | 100.0 | % | $ | 2,942,694 | 100.0 | % |
Non-Agency RMBS Characteristics | June 30, 2013 | |||||||||||||||||||
(dollars in thousands) | Senior Bonds | Mezzanine Bonds | Total Bonds | |||||||||||||||||
Coupon Type | Carrying Value | % of Senior Bonds | Carrying Value | % of Mezzanine Bonds | Carrying Value | % of Non-Agency Portfolio | ||||||||||||||
Fixed Rate | $ | 389,275 | 15.9 | % | $ | 18,745 | 3.8 | % | $ | 408,020 | 13.9 | % | ||||||||
Hybrid or Floating | 2,054,456 | 84.1 | % | 480,218 | 96.2 | % | 2,534,674 | 86.1 | % | |||||||||||
$ | 2,443,731 | 100.0 | % | $ | 498,963 | 100.0 | % | $ | 2,942,694 | 100.0 | % |
Non-Agency RMBS Characteristics | June 30, 2013 | |||||||||||||||||||
(dollars in thousands) | Senior Bonds | Mezzanine Bonds | Total Bonds | |||||||||||||||||
Loan Origination Year | Carrying Value | % of Senior Bonds | Carrying Value | % of Mezzanine Bonds | Carrying Value | % of Non-Agency Portfolio | ||||||||||||||
2006+ | $ | 1,951,144 | 79.8 | % | $ | 40,271 | 8.1 | % | $ | 1,991,415 | 67.7 | % | ||||||||
2002-2005 | 488,785 | 20.0 | % | 451,923 | 90.5 | % | 940,708 | 31.9 | % | |||||||||||
Pre-2002 | 3,802 | 0.2 | % | 6,769 | 1.4 | % | 10,571 | 0.4 | % | |||||||||||
$ | 2,443,731 | 100.0 | % | $ | 498,963 | 100.0 | % | $ | 2,942,694 | 100.0 | % |
June 30, 2013 | |||||||||||||||
(in thousands) | Unpaid Principal Balance | Fair Value - Purchase Price | Fair Value - Unrealized | Carrying Value | |||||||||||
Prime nonconforming residential mortgage loans | $ | 528,067 | $ | (5,872 | ) | $ | (2,187 | ) | $ | 520,008 | |||||
Credit sensitive residential mortgage loans | 573,322 | (136,303 | ) | 1,174 | 438,193 | ||||||||||
Mortgage loans held-for-sale | $ | 1,101,389 | $ | (142,175 | ) | $ | (1,013 | ) | $ | 958,201 |
(dollars in thousands) | June 30, 2013 | December 31, 2012 | ||||||||||||||||||
Collateral Type | Amount Outstanding | Weighted Average Borrowing Rate | Weighted Average Haircut on Collateral Value | Amount Outstanding | Weighted Average Borrowing Rate | Weighted Average Haircut on Collateral Value | ||||||||||||||
U.S. Treasuries | $ | 1,000,000 | 0.08 | % | 0.3 | % | $ | 997,500 | 0.30 | % | 0.5 | % | ||||||||
Agency RMBS AFS | 11,828,514 | 0.46 | % | 5.4 | % | 10,171,385 | 0.54 | % | 5.6 | % | ||||||||||
Non-Agency RMBS | 1,421,285 | 2.23 | % | 34.7 | % | 1,177,675 | 2.50 | % | 35.5 | % | ||||||||||
Agency derivatives | 219,235 | 1.07 | % | 27.3 | % | 228,241 | 1.16 | % | 26.5 | % | ||||||||||
Mortgage loans held-for-sale | 434,121 | 2.69 | % | 10.2 | % | 49,709 | 2.46 | % | 10.8 | % | ||||||||||
Total | $ | 14,903,155 | 0.67 | % | 8.3 | % | $ | 12,624,510 | 0.72 | % | 8.4 | % |
(dollars in thousands) | Quarterly Average Repurchase Balances (1) | End of Period Balance Repurchase Agreements (1) | Maximum Balance of Any Month-End for Repurchase Agreements (1) | Repurchase Agreements to Equity Ratio | |||||||||||
For the Three Months Ended June 30, 2013 | $ | 13,362,585 | $ | 13,903,155 | $ | 13,903,155 | 3.6 | :1.0 | (2) | ||||||
For the Three Months Ended March 31, 2013 | $ | 12,287,326 | $ | 12,439,565 | $ | 12,460,525 | 3.1 | :1.0 | (3) | ||||||
For the Three Months Ended December 31, 2012 | $ | 12,725,330 | $ | 11,627,010 | $ | 13,073,597 | 3.4 | :1.0 | (4) | ||||||
For the Three Months Ended September 30, 2012 | $ | 11,271,401 | $ | 13,036,827 | $ | 13,036,827 | 3.8 | :1.0 | (5) | ||||||
For the Three Months Ended June 30, 2012 | $ | 8,526,166 | $ | 9,440,941 | $ | 9,440,941 | 4.3 | :1.0 |
(1) | Includes repurchase agreements collateralized by RMBS AFS, residential mortgage loans held-for-sale and Agency derivatives and excludes repurchase agreements collateralized by U.S. Treasuries and collateralized borrowings in securitization trust. |
(2) | Due to the rising rate environment during the three months ended June 30, 2013, we reduced leverage on our Agency RMBS and held a higher amount of cash on hand in order to protect stockholders' equity from a near term widening of spreads and rates in the marketplace. However, over a longer timeframe, we will likely continue to target an overall debt-to-equity ratio of 4.0:1.0 to 4.5:1.0. |
(3) | On March 22, 2013, we completed a capital raise of approximately $762.9 million in net proceeds. Due to the timing of the capital raise within the quarter, the net proceeds were only partially invested, on a leveraged basis, as of March 31, 2013. With a higher targeted allocation to non-Agency RMBS for additional capital, we targeted a fully deployed debt-to-equity ratio of 4.0:1.0 to 4.5:1.0. |
(4) | During the three months ended December 31, 2012, we sold Agency RMBS with an amortized cost of $3.1 billion. Due to higher Agency RMBS valuation and inherently tighter spreads during the quarter, we chose to delay deployment of a portion of these proceeds and reduce leverage in order to protect stockholders' equity from a near term widening of spreads in the marketplace. However, we continue to target an overall debt-to-equity ratio of 4.0:1.0 to 4.5:1.0. |
(5) | In September 2012, warrantholders exercised 16.2 million shares generating proceeds of $175.7 million, which were invested on a leveraged basis. With a higher targeted allocation to Agency RMBS and residential properties for additional capital, we targeted a fully deployed debt-to-equity ratio of 4.0:1.0 to 4.5:1.0. |
(dollars in millions, except per share amounts) | Book Value | Common Shares Outstanding | Book Value Per Common Share | |||||||
Stockholders' equity at March 31, 2013 - basic | $ | 4,065.1 | 362.1 | $ | 11.23 | |||||
GAAP net income: | ||||||||||
Core Earnings, net of tax benefit of $0.2 million (1) | 78.1 | |||||||||
Realized gains, net of tax expense of $8.9 million | 83.4 | |||||||||
Unrealized mark-to-market gains, net of tax expense of $40.4 million | 226.1 | |||||||||
Discontinued operations | 1.0 | |||||||||
Total GAAP net income | 388.6 | |||||||||
Other comprehensive loss | (534.7 | ) | ||||||||
Dividend declaration | (113.4 | ) | ||||||||
Other | 1.0 | 1.0 | ||||||||
Balance before capital transactions | 3,806.6 | 363.1 | ||||||||
Repurchase of common stock | (10.5 | ) | (1.0 | ) | ||||||
Net proceeds from issuance of common stock | 0.2 | 0.1 | ||||||||
Proceeds from issuance of common stock through warrant exercise | 37.8 | 3.5 | ||||||||
Stockholders' equity at June 30, 2013 - basic | 3,834.1 | 365.7 | 10.48 | |||||||
Warrants outstanding (2) | — | 0.3 | (0.01 | ) | ||||||
Stockholders' equity at June 30, 2013 - diluted | $ | 3,834.1 | 366.0 | $ | 10.47 |
(1) | Core Earnings is a non-GAAP measure that we define as net income, excluding impairment losses, gains or losses on sales of securities and termination of interest rate swaps, unrealized gains or losses on trading securities, interest rate swaps and swaptions, certain gains or losses on other derivative instruments, certain non-recurring gains and losses related to discontinued operations, and certain non-recurring upfront costs related to securitization transactions. As defined, Core Earnings includes interest income associated with our inverse interest-only securities, or Agency derivatives, and premium income or loss on credit default swaps. Core Earnings is provided for purposes of comparability to other peer issuers. |
(2) | Using the treasury stock method, 0.3 million shares would be considered outstanding and dilutive to book value per share at June 30, 2013. |
June 30, 2013 | December 31, 2012 | ||||||||||||||||||||
(dollars in thousands) | Amount Outstanding | Net Counterparty Exposure(1) | Percent of Funding | Amount Outstanding | Net Counterparty Exposure(1) | Percent of Funding | |||||||||||||||
North America | $ | 8,982,439 | $ | 791,280 | 49.8 | % | $ | 7,550,085 | $ | 958,119 | 57.4 | % | |||||||||
Europe (2) | 3,817,889 | 679,910 | 42.8 | % | 3,032,331 | 593,184 | 35.6 | % | |||||||||||||
Asia (2) | 2,102,827 | 118,005 | 7.4 | % | 2,042,094 | 116,245 | 7.0 | % | |||||||||||||
Total | $ | 14,903,155 | $ | 1,589,195 | 100.0 | % | $ | 12,624,510 | $ | 1,667,548 | 100.0 | % |
(1) | Represents the net carrying value of the securities or mortgage loans sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest. At June 30, 2013 and December 31, 2012, we had $62.8 million and $291.7 million, respectively, in payables due to broker counterparties for unsettled security purchases. The payables are not included in the amounts presented above. |
(2) | Exposure to European and Asian domiciled banks and their U.S. subsidiaries. |
(dollars in thousands) | |||||||||||||||||
As of June 30, 2013 | |||||||||||||||||
Expiration Date | Committed | Amount Outstanding | Unused Capacity | Total Capacity | Eligible Collateral | ||||||||||||
September 26, 2013 | (1) | Yes | $ | 413,787 | $ | — | $ | 413,787 | Prime nonconforming residential mortgage loans | ||||||||
May 13, 2014 | (2) | No | 20,334 | 79,666 | 100,000 | Prime nonconforming residential mortgage loans | |||||||||||
May 22, 2014 | (3) | No | — | 200,000 | 200,000 | Prime nonconforming residential mortgage loans | |||||||||||
Credit sensitive residential mortgage loans |
(1) | The facility is set to mature on the stated expiration date, or securitization date of respective collateral, whichever comes first. |
(2) | The facility is set to mature on the stated expiration date, unless extended pursuant to its terms. |
(a) | As of the last business day of each calendar quarter, Total Indebtedness to Net Worth must be less than the specified Threshold Ratio in the Repurchase Agreement. As of June 30, 2013, our debt to net worth, as defined, was 3.8:1.0 while our threshold ratio, as defined, was 6.0:1.0. |
(b) | As of the last business day of each calendar quarter, Liquidity must be greater than 100 bps of Total Assets, or $196.4 million at June 30, 2013, and the aggregate amount of Unrestricted Cash or Cash Equivalents must be greater than 75 bps of Total Assets, or $147.3 million at June 30, 2013. As of June 30, 2013, our liquidity, as defined, was $917.2 million and our total unrestricted cash and cash equivalents, as defined, was $451.7 million. |
(c) | As of the last business day of each calendar quarter, Net Worth must be greater than $1 billion. As of June 30, 2013, our net worth, as defined, was $3.8 billion. |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Available-for-sale securities, at fair value | $ | 14,153,148 | $ | 12,810,355 | |||
Trading securities, at fair value | 1,001,172 | 1,002,062 | |||||
Mortgage loans held-for-sale | 475,028 | 52,529 | |||||
Cash and cash equivalents | 15,000 | 10,000 | |||||
Restricted cash | 596,479 | 84,307 | |||||
Due from counterparties | 15,373 | 36,917 | |||||
Derivative assets, at fair value | 239,293 | 291,054 | |||||
Total | $ | 16,495,493 | $ | 14,287,224 |
(in thousands) | June 30, 2013 | December 31, 2012 | |||||
Within 30 days | $ | 4,751,482 | $ | 3,038,229 | |||
30 to 59 days | 2,937,677 | 3,528,393 | |||||
60 to 89 days (1) | 889,141 | 1,731,595 | |||||
90 to 119 days | 1,553,211 | 849,621 | |||||
120 to 364 days (2) | 3,571,644 | 2,279,172 | |||||
Open maturity (3) | 1,000,000 | 997,500 | |||||
One year and over (4) | 200,000 | 200,000 | |||||
Total | $ | 14,903,155 | $ | 12,624,510 |
(1) | 60 to 89 days includes the amounts outstanding under the secured loan facility. |
(2) | 120 to 364 days includes the amounts outstanding under the uncommitted mortgage loan warehouse facility. |
(3) | Repurchase agreements collateralized by U.S. Treasuries include an open maturity period (i.e., rolling 1-day maturity) renewable at the discretion of either party to the agreements. |
(4) | One year and over includes repurchase agreements with maturity dates ranging from June 26, 2015 to July 27, 2016. |
• | Cash flows from operating activities. For the three months ended June 30, 2013, operating activities decreased our cash balances by approximately $663.8 million, primarily driven by our financial results for the quarter and purchases of mortgage loans held-for-sale. |
• | Cash flows from investing activities. For the three months ended June 30, 2013, investing activities reduced our cash balances by approximately $913.1 million. The reduction was driven by the increase in our RMBS portfolio as we continued to deploy capital from our common stock offerings and exercise of outstanding warrants. |
• | Cash flows from financing activities. For the three months ended June 30, 2013, financing activities increased our cash balance by approximately $1.4 billion, resulting from the net borrowings under repurchase agreements to fund our AFS portfolio as well as proceeds of $27.5 million received from exercise of outstanding warrants, net of common stock repurchases. |
As of June 30, 2013 | As of December 31, 2012 | |||||||||||||||||||||||||||||
Index Type | Floating | Hybrid (1) | Total | Index % | Floating | Hybrid (1) | Total | Index % | ||||||||||||||||||||||
CMT | $ | 12,696 | $ | 143,625 | $ | 156,321 | 6 | % | $ | — | $ | 154,948 | $ | 154,948 | 6 | % | ||||||||||||||
LIBOR | 2,517,777 | 30,055 | 2,547,832 | 92 | % | 2,313,283 | 28,747 | 2,342,030 | 93 | % | ||||||||||||||||||||
Other (2) | 57,560 | 12,113 | 69,673 | 2 | % | 18,334 | 8,066 | 26,400 | 1 | % | ||||||||||||||||||||
Total | $ | 2,588,033 | $ | 185,793 | $ | 2,773,826 | 100 | % | $ | 2,331,617 | $ | 191,761 | $ | 2,523,378 | 100 | % |
(1) | "Hybrid" amounts reflect those assets with greater than 12 months to reset. |
(2) | "Other" includes COFI, MTA and other indices. |
Changes in Interest Rates | |||||||||||||||
(dollars in thousands) | -100 bps | -50 bps | +50 bps | +100 bps | |||||||||||
Change in value of financial position: | |||||||||||||||
Available-for-sale securities | $ | 480,647 | $ | 250,050 | $ | (376,940 | ) | $ | (780,528 | ) | |||||
As a % of June 30, 2013 equity | 12.5 | % | 6.5 | % | (9.8 | )% | (20.3 | )% | |||||||
Trading securities | $ | 5,099 | $ | 5,099 | $ | (8,225 | ) | $ | (16,451 | ) | |||||
As a % of June 30, 2013 equity | 0.1 | % | 0.1 | % | (0.2 | )% | (0.4 | )% | |||||||
Mortgage loans held-for-sale | $ | 22,690 | $ | 14,027 | $ | (19,968 | ) | $ | (45,216 | ) | |||||
As a % of June 30, 2013 equity | 0.6 | % | 0.4 | % | (0.5 | )% | (1.2 | )% | |||||||
Mortgage loans held-for-investment in securitization trust | $ | 17,425 | $ | 10,772 | $ | (15,334 | ) | $ | (34,722 | ) | |||||
As a % of June 30, 2013 equity | 0.5 | % | 0.3 | % | (0.4 | )% | (0.9 | )% | |||||||
Derivatives, net | $ | (807,598 | ) | $ | (454,275 | ) | $ | 553,465 | $ | 1,185,881 | |||||
As a % of June 30, 2013 equity | (21.1 | )% | (11.8 | )% | 14.4 | % | 30.9 | % | |||||||
Repurchase Agreements | $ | (10,128 | ) | $ | (10,074 | ) | $ | 14,311 | $ | 28,622 | |||||
As a % of June 30, 2013 equity | (0.3 | )% | (0.3 | )% | 0.4 | % | 0.7 | % | |||||||
Collateralized borrowings in securitization trust | $ | (24,836 | ) | $ | (16,727 | ) | $ | 19,039 | $ | 41,823 | |||||
As a % of June 30, 2013 equity | (0.6 | )% | (0.4 | )% | 0.5 | % | 1.1 | % | |||||||
Total Net Assets | $ | (316,701 | ) | $ | (201,128 | ) | $ | 166,348 | $ | 379,409 | |||||
As a % of June 30, 2013 total assets | (1.6 | )% | (1.0 | )% | 0.8 | % | 1.9 | % | |||||||
As a % of June 30, 2013 equity | (8.3 | )% | (5.2 | )% | 4.4 | % | 9.9 | % | |||||||
-100 bps | -50 bps | +50 bps | +100 bps | ||||||||||||
Change in annualized net interest income: | $ | (21,263 | ) | $ | (21,414 | ) | $ | 36,292 | $ | 72,584 | |||||
% change in net interest income | (5.0 | )% | (5.1 | )% | 8.6 | % | 17.2 | % |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||
April 1, 2013 through April 30, 2013 | — | $ | — | — | 25,000,000 | ||||||||
May 1, 2013 through May 31, 2013 | — | — | — | 25,000,000 | |||||||||
June 1, 2013 through June 30, 2013 | 1,000,000 | 10.50 | 1,000,000 | 24,000,000 | |||||||||
Total | 1,000,000 | $ | 10.50 | 1,000,000 | 24,000,000 |
TWO HARBORS INVESTMENT CORP. | |||
Dated: | August 7, 2013 | By: | /s/ Thomas Siering |
Thomas Siering Chief Executive Officer, President and Director (principal executive officer) | |||
Dated: | August 7, 2013 | By: | /s/ Brad Farrell |
Brad Farrell Chief Financial Officer and Treasurer (principal accounting and financial officer) |
Exhibit Number | Exhibit Index | |
1.1 | Equity Distribution Agreement among Two Harbors Investment Corp., JMP Securities LLC and Keefe, Bruyette & Woods, Inc. dated May 25, 2012 (incorporated by reference to Exhibit 1.1 to the Registrant's Current Report on Form 8-K filed with the SEC on May 25, 2012). | |
2.1 | Agreement and Plan of Merger, dated as of June 11, 2009, by and among Capitol Acquisition Corp., Two Harbors Investment Corp., Two Harbors Merger Corp. and Pine River Capital Management L.P. (incorporated by reference to Annex A filed with Pre Effective Amendment No. 4 to the Registrant's Registration Statement on Form S-4 (File No. 333-160199) filed with the Securities and Exchange Commission ("SEC") on October 8, 2009 ("Amendment No. 4")). | |
2.2 | Amendment No. 1 to Agreement and Plan of Merger, dated as of August 17, 2009, by and among Capitol Acquisition Corp., Two Harbors Investment Corp., Two Harbors Merger Corp. and Pine River Capital Management L.P. (incorporated by reference to Annex A-2 filed with Amendment No. 4). | |
2.3 | Amendment No. 2 to Agreement and Plan of Merger, dated as of September 20, 2009, by and among Capitol Acquisition Corp., Two Harbors Investment Corp., Two Harbors Merger Corp. and Pine River Capital Management L.P. (incorporated by reference to Annex A-3 filed with Amendment No. 4). | |
3.1 | Articles of Amendment and Restatement of Two Harbors Investment Corp. (incorporated by reference to Exhibit 99.1 to Annex B filed with Amendment No. 4). | |
3.2 | Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed with the SEC on December 19, 2012). | |
3.3 | Bylaws of Two Harbors Investment Corp. (incorporated by reference to Annex C filed with Amendment No. 4). | |
4.1 | Warrant Agreement between Continental Stock Transfer & Trust Company and Capitol Acquisition Corp. (incorporated by reference to Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the SEC on March 4, 2010 ("2009 Form 10-K")). | |
4.2 | Specimen Common Stock Certificate of Two Harbors Investment Corp. (incorporated by reference to Exhibit 4.2 to Amendment No. 4). | |
4.3 | Specimen Warrant Certificate of Two Harbors Investment Corp. (incorporated by reference to Exhibit 4.3 filed with Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-160199) filed with the SEC on August 5, 2009). | |
4.4 | Supplement and Amendment to Warrant Agreement between Continental Stock Transfer & Trust Company, Capitol Acquisition Corp. and Two Harbors Investment Corp. (incorporated by reference to Exhibit 4.4 to the Registrant's 2009 Form 10-K). | |
4.5 | Second Amendment to Warrant Agreement between Two Harbors Investment Corp. and Mellon Investors Services LLC (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed with the SEC on December 13, 2010). | |
10.1* | Restated 2009 Equity Incentive Plan (incorporated by reference to Appendix A to the Registrant's Definitive Proxy Statement filed on March 8, 2013). | |
10.2* | Form of Restricted Stock Agreement under the Restated 2009 Equity Incentive Plan (incorporated by reference to Exhibit 99.2 to the Registrant's Form S-8 filed on May 28, 2013). | |
31.1 | Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith) | |
31.2 | Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith) | |
32.1 | Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith) | |
32.2 | Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith) | |
101 | Financial statements from the Quarterly Report on Form 10-Q of Two Harbors Investment Corp. for the quarter ended June 30, 2013, filed on August 7, 2013, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive (Loss) Income, (iii) the Condensed Consolidated Statements of Stockholders' Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to the Condensed Consolidated Financial Statements. (filed herewith) |
* | Management contract or compensatory agreement. |
Date: | August 7, 2013 | /s/ Thomas Siering | ||
Thomas Siering | ||||
Chief Executive Officer and President |
Date: | August 7, 2013 | /s/ Brad Farrell | ||
Brad Farrell | ||||
Chief Financial Officer and Treasurer |
Date: | August 7, 2013 | /s/ Thomas Siering | ||
Thomas Siering | ||||
Chief Executive Officer and President |
Date: | August 7, 2013 | /s/ Brad Farrell | ||
Brad Farrell | ||||
Chief Financial Officer and Treasurer |
Fair Value Fair Value, Quantitative Information about Level 3 Fair Value Measurements (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2013
|
Mar. 31, 2013
|
Dec. 31, 2012
|
|
Fair Value Inputs, Assets, Quantitative Information [Line Items] | |||
Mortgage servicing rights | $ 1,452 | $ 0 | $ 0 |
Fair Value Measurements, Valuation Techniques | Discounted cash flow | ||
Minimum [Member]
|
|||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | |||
Fair Value Inputs, Prepayment Rate | 3.00% | ||
Fair Value Inputs, Probability of Default | 8.00% | ||
Fair Value Inputs, Discount Rate | 10.00% | ||
Maximum [Member]
|
|||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | |||
Fair Value Inputs, Prepayment Rate | 6.00% | ||
Fair Value Inputs, Probability of Default | 15.00% | ||
Fair Value Inputs, Discount Rate | 15.00% |
Derivative Instruments and Hedging Activities Schedule of Inverse Interest-Only Securities Reconciliation (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Derivatives, Fair Value [Line Items] | ||
Inverse Interest-only Securities, Accrued Interest | $ 3,347 | |
Not Designated as Hedging Instrument [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Derivative, Notional Amount | 1,798,972 | 1,909,351 |
Derivative, Unamortized Premium | 0 | 0 |
Derivative, Designated Credit Reserve | 0 | 0 |
Derivative, Net, Unamortized | (1,524,333) | (1,620,966) |
Derivative, Amortized Cost Basis | 274,639 | 288,385 |
Derivative, Gross Unrealized Gains | 4,165 | 21,616 |
Derivative, Gross Unrealized Losses | (36,956) | (8,737) |
Derivative, Carrying Value | $ 241,848 | $ 301,264 |
Other Operating Expenses Schedule of Other Operating Cost and Expense, by Component (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Component of Operating Other Cost and Expense [Line Items] | ||||
General and Administrative Expense | $ 7,603 | $ 3,311 | $ 12,315 | $ 6,372 |
Directors and Officers Insurance Expense | 201 | 175 | 402 | 289 |
Professional Fees | 1,375 | 433 | 3,023 | 809 |
Subservicing Expense | 307 | 0 | 307 | 0 |
Total other operating expenses | $ 9,486 | $ 3,919 | $ 16,047 | $ 7,470 |
Stockholders' Equity Schedule of Accumulated Other Comprehensive Income (Loss) (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Schedule of Available-for-sale Securities [Line Items] | ||
Accumulated Other Comprehensive Income (Loss), Net of Tax | $ 265,997 | $ 696,458 |
Collateralized Mortgage Backed Securities [Member]
|
||
Schedule of Available-for-sale Securities [Line Items] | ||
Available-for-sale Securities, Unrealized Gains | 678,622 | 724,696 |
Available-for-sale Securities, Gross Unrealized Losses | $ (412,625) | $ (28,238) |
Accrued Interest Receivable (Notes)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Accrued Interest Receivable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans, Notes, Trade and Other Receivables Disclosure [Text Block] | Accrued Interest Receivable The following table presents the Company's accrued interest receivable by collateral type:
|
Available-for-Sale Securities, at Fair Value Available-for-Sale Securities Sold Under Agreements to Repurchase (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Assets Sold under Agreements to Repurchase [Line Items] | ||
Assets Sold under Agreements to Repurchase, Market Value | $ 16,495,493 | $ 14,287,224 |
Available-for-sale Securities [Member]
|
||
Assets Sold under Agreements to Repurchase [Line Items] | ||
Assets Sold under Agreements to Repurchase, Market Value | $ 14,153,148 | $ 12,810,355 |
Discontinued Operations
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Jun. 30, 2013
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block] | Discontinued Operations On December 19, 2012, the Company completed the contribution of its equity interests in its wholly owned subsidiary, Two Harbors Property Investment LLC, to Silver Bay. Two Harbors Property Investment LLC previously housed the Company's portfolio of single-family rental properties. As the Company will not have any significant continuing involvement in Two Harbors Property Investment LLC, all of the associated operating results were removed from continuing operations and are presented separately as discontinued operations for the three and six months ended June 30, 2013 and 2012. Summarized financial information for the discontinued operations are presented below.
In addition to the gain on contribution of entity that was recorded in 2012 in connection with the closing of the contribution, certain adjustments were agreed to be recognized in 2013. These include an installment sales gain of approximately $4.0 million from Silver Bay, a reduction of 2013 management fees payable to PRCM Advisers of $4.3 million, and an immaterial amount of additional working capital adjustments determined in accordance with the contribution agreement entered into with Silver Bay. Of these amounts, $1.0 million and $2.3 million of the installment sales gain was recorded as a gain on contribution of entity within discontinued operations for the three and six months ended June 30, 2013, and the full $4.3 million of the reduction of 2013 management fees payable to PRCM Advisers was recorded within management fees, on the condensed consolidated statements of comprehensive (loss) income for the six months ended June 30, 2013, respectively. The remaining $0.1 million recorded within discontinued operations on the condensed consolidated statements of comprehensive (loss) income for the six months ended June 30, 2013 relates to accrual adjustments for transaction expenses related to the contribution. See Note 23 - Related Party Transactions for additional information. |
Stockholders' Equity (Notes)
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Jun. 30, 2013
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Stockholders' Equity Attributable to Parent [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity | Stockholders' Equity Distributions to Stockholders The following table presents cash dividends declared by the Company on its common stock from October 28, 2009 through June 30, 2013:
Special Dividend of Silver Bay Common Stock On March 18, 2013, the Company's board of directors declared a special dividend pursuant to which the 17,824,647 shares of Silver Bay common stock the Company received in exchange for the contribution of its equity interests in Two Harbors Property Investment LLC to Silver Bay on December 19, 2012 would be distributed, on a pro rata basis, to Two Harbors stockholders of record at the close of business on April 2, 2013. The final distribution ratio for the stock dividend was determined to be 0.048825853 shares of Silver Bay common stock for each share of the Company's common stock outstanding as of April 2, 2013. The dividend was payable on or about April 24, 2013. Accumulated Other Comprehensive Income Accumulated other comprehensive income at June 30, 2013 and December 31, 2012 was as follows:
Reclassifications out of Accumulated Other Comprehensive Income The following table summarizes reclassifications out of accumulated other comprehensive income for the three and six months ended June 30, 2013 and 2012:
Public Offering On March 22, 2013, the Company completed a public offering of 50,000,000 shares of its common stock and issued an additional 7,500,000 shares of common stock pursuant to the underwriters' over-allotments at a price of $13.46 per share, for gross proceeds of approximately $774.0 million. Net proceeds to the Company were approximately $762.9 million, net of issuance costs of approximately $11.1 million. Dividend Reinvestment and Direct Stock Purchase Plan The Company sponsors a dividend reinvestment and direct stock purchase plan through which stockholders may purchase additional shares of the Company's common stock by reinvesting some or all of the cash dividends received on shares of the Company's common stock. Stockholders may also make optional cash purchases of shares of the Company's common stock subject to certain limitation detailed in the plan prospectus. An aggregate of 7.5 million shares of our common stock were originally reserved for issuance under the plan. As of June 30, 2013, 125,951 shares have been issued under the plan for total proceeds of $1.4 million. Share Repurchase Program On October 5, 2011, the Company's Board of Directors authorized a share repurchase program, which allows the Company to repurchase up to 10,000,000 shares of its common stock. On November 14, 2012, the Board of Directors authorized an increase in the share repurchase program of 15,000,000, for a total of 25,000,000 shares. Shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act or by any combination of such methods. The manner, price, number and timing of share repurchases will be subject to a variety of factors, including market conditions and applicable SEC rules. As of June 30, 2013, 1,000,000 shares had been repurchased by the Company under the program for a total cost of $10.5 million. At-the-Market Offering On May 25, 2012, the Company entered into an equity distribution agreement under which the Company may sell up to an aggregate of 20,000,000 shares of its common stock from time to time in any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 under the Securities Act. As of June 30, 2013, 7,585,869 shares of common stock have been sold under the equity distribution agreement for total accumulated net proceeds of approximately $77.6 million; however, no shares were sold during the six months ended June 30, 2013. Warrants From January 1, 2013 to April 2, 2013, warrantholders exercised 8,720,690 warrants to purchase 8,720,690 shares of the Company's common stock, at an exercise price of $11.00 per share. On April 2, 2013, the exercise price of the warrants was lowered to $10.25 per warrant share and the number of shares of the Company’s common stock issuable for each warrant share exercised was increased to 1.0727 shares. These adjustments were required under the terms of the warrant agreement as a result of the special dividend of Silver Bay common stock. Calculation of the adjustments was determined based on, among other things, the closing price of the Company’s common stock on the business day immediately preceding the ex-dividend date for the stock dividend and the fair market value of the stock dividend to be received for each share of the Company’s common stock on the ex-dividend date. From April 3, 2013 to June 30, 2013, warrantholders exercised 554,390 warrants to purchase 594,664 shares of the Company's common stock, at an exercise price of $10.25 per share. Total proceeds to the Company for warrant exercises during the six months ended June 30, 2013 were approximately $101.6 million. Additionally, certain Capitol founders holding warrants containing cashless exercise provisions exercised 100,000 warrants on a cashless basis, resulting in the surrender of 93,649 shares of common stock and the issuance of 6,351 shares of common stock during the six months ended June 30, 2013. No proceeds were received by the Company as a result of the cashless exercises. As of June 30, 2013, 4,156,349 warrants to purchase approximately 4,458,515 shares of common stock remained outstanding. |
Derivative Instruments and Hedging Activities (Notes)
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Jun. 30, 2013
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities The Company enters into a variety of derivative and non-derivative instruments in connection with its risk management activities. The Company's primary objective for executing these derivative and non-derivative instruments is to mitigate the Company's economic exposure to future events that are outside its control. The Company's derivative financial instruments are utilized principally to manage market risk and cash flow volatility associated with interest rate risk (including associated prepayment risk) related to certain assets and liabilities. As part of its risk management activities, the Company may, at times, enter into various forward contracts, including short securities, Agency to-be-announced securities, or TBAs, options, futures, swaps, caps and credit default swaps. In executing on the Company's current risk management strategy, the Company has entered into interest rate swap and swaption agreements and credit default swaps. At times, the Company may use TBAs for risk management or other purposes. The Company has also entered into a number of non-derivative instruments to manage interest rate risk, principally U.S. Treasuries and Agency interest-only securities. The following summarizes the Company's significant asset and liability classes, the risk exposure for these classes, and the Company's risk management activities used to mitigate certain of these risks. The discussion includes both derivative and non-derivative instruments used as part of these risk management activities. While the Company uses non-derivative and derivative instruments to achieve the Company's risk management activities, it is possible that these instruments will not effectively mitigate all or a substantial portion of the Company's market rate risk. In addition, the Company might elect, at times, not to enter into certain hedging arrangements in order to maintain compliance with REIT requirements. Balance Sheet Presentation The following tables present the gross fair value and notional amounts of the Company's derivative financial instruments treated as trading instruments as of June 30, 2013 and December 31, 2012.
The following table provides the average outstanding notional amounts of the Company's derivative financial instruments treated as trading instruments for the three and six months ended June 30, 2013.
Comprehensive Income Statement Presentation The Company has not applied hedge accounting to its current derivative portfolio held to mitigate the interest rate risk associated with its debt portfolio. As a result, the Company is subject to volatility in its earnings due to movement in the unrealized gains and losses associated with its interest rate swaps and its other derivative instruments. The following table summarizes the location and amount of gains and losses on derivative instruments reported in the condensed consolidated statements of comprehensive (loss) income on its derivative instruments:
For the three and six months ended June 30, 2013, the Company recognized $19.4 million and $33.4 million, respectively, of expenses for the accrual and/or settlement of the net interest expense associated with its interest rate swaps. The expenses result from generally paying a fixed interest rate on an average $17.7 billion and $16.3 billion notional, respectively, to economically hedge a portion of the Company's interest rate risk on its short-term repurchase agreements, funding costs, and macro-financing risk and generally receiving LIBOR interest. For the three and six months ended June 30, 2013, the Company terminated, had agreements mature or had options expire on a total of three and 72 interest rate swap and swaption positions of $300.0 million and $8.5 billion notional, respectively. Upon settlement of the early terminations, contractual maturities and option expirations, the Company paid $17.2 million in full settlement of its net interest spread liability and recognized $4.0 million and $62.7 million in realized losses on the swaps and swaptions, respectively, including early termination penalties. For the three and six months ended June 30, 2013, the Company terminated a total of five credit default swap positions of $115.0 million notional. Upon settlement of the early terminations, the Company paid $2,035 in full settlement of its net interest spread liability and recognized $12.4 million in realized losses on the credit default swaps, including early terminations penalties. Cash flow activity related to derivative instruments is reflected within the operating activities and investing activities sections of the condensed consolidated statements of cash flows. Derivative fair value adjustments are reflected within the unrealized (gain) loss on interest rate swaps and swaptions, unrealized loss on other derivative instruments, and (gain) loss on mortgage loans held-for-sale line items within the operating activities section of the condensed consolidated statements of cash flows. Realized losses on interest rate swap and swaption agreements are reflected within the loss on termination of interest rate swaps and swaptions line item within the operating activities section of the condensed consolidated statements of cash flows. The remaining cash flow activity related to derivative instruments is reflected within the purchases of other derivative instruments, proceeds from sales of other derivative instruments, and increase in due to counterparties, net line items within the investing activities section of the condensed consolidated statements of cash flows. Interest Rate Sensitive Assets/Liabilities Available-for-sale Securities - The Company's RMBS investment securities are generally subject to change in value when mortgage rates decline or increase, depending on the type of investment. Rising mortgage rates generally result in a slowing of refinancing activity, which slows prepayments and results in a decline in the value of the Company's fixed-rate Agency pools. To mitigate the impact of this risk, the Company maintains a portfolio of financial instruments, primarily fixed-rate interest-only securities, which increase in value when interest rates increase. In addition, the Company has initiated TBA positions, put and call options for TBAs, and constant maturity swaps to further mitigate its exposure to higher interest rates, decreased prepayment speeds and widening mortgage spreads. The objective is to reduce the risk of losses to the portfolio caused by interest rate changes and changes in prepayment speeds. As of June 30, 2013 and December 31, 2012, the Company had outstanding fair value of $95.0 million and $77.3 million, respectively, of interest-only securities in place to economically hedge its investment securities. These interest-only securities are included in AFS securities, at fair value, in the condensed consolidated balance sheets. In addition, the Company held TBA positions with $1.5 billion and $1.8 billion in long notional as of June 30, 2013 and December 31, 2012, respectively, and an additional $4.2 billion and $800.0 million in short notional as of June 30, 2013 and December 31, 2012, respectively. At June 30, 2013, $92.0 million of the Company's long notional TBA positions and $4.2 billion of the Company's short notional TBA positions were held as a means to mitigate exposure to higher interest rates and wider mortgage spreads, while the remaining $1.4 billion long notional TBA positions were held for non-risk management purposes (see "Non-Risk Management Activities" section). The Company discloses these on a gross basis according to the unrealized gain or loss position of each TBA contract regardless of long or short notional position. These contracts had a fair market value of $61.2 million and $1.9 million, included in derivative assets, at fair value, and $22.6 million and $0.2 million, included in derivative liabilities, at fair value, in the condensed consolidated balance sheet as of June 30, 2013 and December 31, 2012, respectively. As of June 30, 2013, the Company had purchased put and call options for TBAs with a total notional amount of $1.3 billion and sold put and call options for TBAs with a total notional amount of $1.5 billion. The Company paid upfront premiums of approximately $10.0 million for the options purchased and received upfront premiums of approximately $8.3 million for the options sold. Each of the options will expire by September 2013. The put and call options had a net fair market value of $24.9 million, included in derivative assets, at fair value, in the condensed consolidated balance sheet as of June 30, 2013. The Company did not hold any put or call options for TBAs as of December 31, 2012. The Company has also entered into constant maturity swaps between the 10-year interest rate swap curve and the yield to maturity on a 30-year Fannie Mae TBA to economically hedge mortgage spread widening. The Company had the following constant maturity swaps agreements in place at June 30, 2013:
The Company did not hold any constant maturity swaps as of December 31, 2012. Commitments to Purchase and/or Sell Mortgage Loans Held-for-Sale - Prior to a mortgage loan purchase, the Company may enter into forward purchase commitments with counterparties whereby the Company commits to purchasing the loans at a particular interest rate, provided the borrower elects to close the loan. These commitments to purchase mortgage loans have been defined as derivatives and are, therefore, recorded on the balance sheet as assets or liabilities and measured at fair value. Subsequent changes in fair value are recorded on the balance sheet as adjustments to the carrying value of these assets or liabilities with a corresponding adjustment recognized in current period earnings. As of June 30, 2013 and December 31, 2012, the Company had entered into commitments to purchase $29.2 million and $56.9 million of mortgage loans, respectively, subject to fallout if the loans do not close, with a fair value of $1.2 million included in derivative liabilities on the condensed consolidated balance sheet at June 30, 2013 and $0.2 million included in derivative assets on the condensed consolidated balance sheet at December 31, 2012. The Company is exposed to interest rate risk on mortgage loans from the time it commits to purchase the mortgage loan until it acquires the loan from the originator and subsequently sells the loan to a third party. Changes in interest rates impact the market price for the mortgage loans. For example, as market interest rates decline, the value of mortgage loans held-for-sale increases, and vice versa. To mitigate the impact of this risk, the Company may from time to time enter into a forward sale commitment under the Forward AAA Securities Agreement, or the Forward Agreement, with Barclays Bank PLC, or Barclays, pursuant to which Barclays would purchase certain securities issued in connection with a potential securitization transaction involving mortgage loans subject to the Forward Agreement. As of June 30, 2013, the Company had did not have any trades under the Forward Agreement. The Company may also enter into other derivative contracts to hedge the interest rate risk related to the commitments to purchase mortgage loans, such as interest rate swaps, swaptions or TBAs. Repurchase Agreements - The Company monitors its repurchase agreements, which are generally floating rate debt, in relation to the rate profile of its investment securities. When it is cost effective to do so, the Company may enter into interest rate swap arrangements to align the interest rate composition of its investment securities and debt portfolios, specifically repurchase agreements with maturities of less than 6 months. Typically, the interest receivable terms (i.e., LIBOR) of the interest rate swaps match the terms of the underlying debt, resulting in an effective conversion of the rate of the related repurchase agreement from floating to fixed. As of June 30, 2013 and December 31, 2012, the Company had the following outstanding interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) associated with the Company's short-term repurchase agreements:
The Company has also entered into interest rate swaps in combination with U.S. Treasuries to economically hedge funding cost risk. As of June 30, 2013 and December 31, 2012, the Company held $1.0 billion in fair value of U.S. Treasuries classified as trading securities and the following outstanding interest rate swaps:
As of December 31, 2012, the Company had the following outstanding interest rate swaps that were entered into in combination with TBA contracts to economically hedge mortgage interest rate exposure (or duration):
The Company did not hold any interest rate swaps entered into in combination with TBA contracts to economically hedge mortgage interest rate exposure (or duration) at June 30, 2013. As of June 30, 2013 and December 31, 2012, the Company had the following outstanding interest rate swaptions (agreements to enter into interest rate swaps in the future for which the Company would pay a fixed rate) that were utilized as macro-economic hedges:
The Company has not applied hedge accounting to its current derivative portfolio held to mitigate the interest rate risk associated with its debt portfolio. As a result, the Company is subject to volatility in its earnings due to movement in the unrealized gains and losses associated with its interest rate swaps and its other derivative instruments. Foreign Currency Risk In compliance with the Company's REIT requirements, the Company does not have exposure to foreign denominated assets or liabilities. As such, the Company is not subject to foreign currency risk. Credit Risk The Company's exposure to credit losses on its U.S. Treasuries and Agency portfolio of investment securities is limited because these securities are issued by the U.S. Department of the Treasury or GSEs. The payment of principal and interest on the Freddie Mac and Fannie Mae mortgage-backed securities are guaranteed by those respective agencies, and the payment of principal and interest on the Ginnie Mae mortgage-backed securities are backed by the full faith and credit of the U.S. Government. For non-Agency investment securities and mortgage loans, the Company may enter into credit default swaps to hedge credit risk. In future periods, the Company could enhance its credit risk protection, enter into further paired derivative positions, including both long and short credit default swaps, and/or seek opportunistic trades in the event of a market disruption (see "Non-Risk Management Activities" section). The Company also has processes and controls in place to monitor, analyze, manage and mitigate its credit risk with respect to non-Agency RMBS and mortgage loans. As of June 30, 2013, the Company held credit default swaps whereby the Company receives credit protection for a fixed premium. The maximum payouts for these credit default swaps are limited to the current notional amounts of each swap contract. Maximum payouts for credit default swaps do not represent the expected future cash requirements, as the Company's credit default swaps are typically liquidated or expire and are not exercised by the holder of the credit default swaps. The following tables present credit default swaps whereby the Company is receiving protection held as of June 30, 2013 and December 31, 2012:
Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe the Company under such contracts completely fail to perform under the terms of these contracts, assuming there are no recoveries of underlying collateral, as measured by the market value of the derivative financial instruments. As of June 30, 2013, the fair value of derivative financial instruments as an asset and liability position was $699.4 million and $46.0 million, respectively. The Company mitigates the credit risk exposure on derivative financial instruments by limiting the counterparties to those major banks and financial institutions that meet established credit guidelines; the Company also seeks to transact with several different counterparties in order to reduce the exposure to any single counterparty. Additionally, the Company reduces credit risk on the majority of its derivative instruments by entering into agreements that permit the closeout and netting of transactions with the same counterparty upon occurrence of certain events. To further mitigate the risk of counterparty default, the Company maintains collateral agreements with certain of its counterparties. The agreements require both parties to maintain cash deposits in the event the fair values of the derivative financial instruments exceed established thresholds. As of June 30, 2013, the Company has received cash deposits from counterparties of $271.9 million and placed cash deposits of $82.6 million in accounts maintained by counterparties, of which the amounts are netted on a counterparty basis and classified within restricted cash, due from counterparties, or due to counterparties on the condensed consolidated balance sheet. In accordance with ASC 815, as amended and interpreted, the Company records derivative financial instruments on its condensed consolidated balance sheet as assets or liabilities at fair value. Changes in fair value are accounted for depending on the use of the derivative instruments and whether they qualify for hedge accounting treatment. Due to the volatility of the credit markets and difficulty in effectively matching pricing or cash flows, the Company has elected to treat all current derivative contracts as trading instruments. Non-Risk Management Activities The Company has entered into certain financial instruments that are considered derivative contracts under ASC 815 that are not for purposes of hedging. These contracts are currently limited to inverse interest-only RMBS, credit default swaps and TBAs. As of June 30, 2013, we held $1.4 billion notional TBAs as a means of deploying capital until targeted investments are available, and to take advantage of temporary displacements in the marketplace. Inverse interest-only securities with a carrying value of $245.2 million, including accrued interest receivable of $3.3 million, are accounted for as derivative financial instruments in the condensed consolidated financial statements. The following table presents the amortized cost and carrying value (which approximates fair value) of inverse interest-only securities as of June 30, 2013 and December 31, 2012:
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Fair Value Fair Value, Option, Quantitative Disclosures - changes included in net income (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Fair Value, Option, Quantitative Disclosures [Line Items] | ||||
Fair Value, Option, Total Included in Net Income | $ (6,288) | $ 174 | $ 24,034 | $ 199 |
Fair Value, Option, Credit Risk, Gains (Losses) on Assets | 0 | 0 | 0 | 0 |
Interest Income on Mortgage Loans Held-for-Sale [Member] | Loans Receivable [Member]
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Fair Value, Option, Quantitative Disclosures [Line Items] | ||||
Fair Value, Option, Interest Income (Expense) | 4,794 | 126 | 6,112 | 195 |
Interest Income on Mortgage Loans Held-for-Investment [Member] | Fair Value Option, Other Eligible Items [Member]
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Fair Value, Option, Quantitative Disclosures [Line Items] | ||||
Fair Value, Option, Interest Income (Expense) | 4,369 | 0 | 6,023 | 0 |
Interest Expense on Collateralized Borrowings in Securitization Trust [Member] | Borrowings [Member]
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Fair Value, Option, Quantitative Disclosures [Line Items] | ||||
Fair Value, Option, Interest Income (Expense) | (2,169) | 0 | (2,987) | 0 |
Gain (Loss) on Mortgage Loans [Member] | Loans Receivable [Member]
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Fair Value, Option, Quantitative Disclosures [Line Items] | ||||
Fair Value, Option, Realized Gain (Loss) | 297 | (22) | 235 | (22) |
Fair Value, Option, Changes in Fair Value, Gain (Loss) | (15,137) | 70 | (1,039) | 26 |
Other Income [Member] | Fair Value Option, Other Eligible Items [Member]
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Fair Value, Option, Quantitative Disclosures [Line Items] | ||||
Fair Value, Option, Changes in Fair Value, Gain (Loss) | (16,755) | 0 | (24,757) | 0 |
Other Income [Member] | Borrowings [Member]
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Fair Value, Option, Quantitative Disclosures [Line Items] | ||||
Fair Value, Option, Changes in Fair Value, Gain (Loss) | 18,313 | 0 | 32,604 | 0 |
Marketable Securities, Gain (Loss), Excluding Other than Temporary Impairments [Member] | Equity Securities [Member]
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Fair Value, Option, Quantitative Disclosures [Line Items] | ||||
Fair Value, Option, Realized Gain (Loss) | 13,725 | 0 | 13,725 | 0 |
Fair Value, Option, Changes in Fair Value, Gain (Loss) | $ (13,725) | $ 0 | $ (5,882) | $ 0 |
Other Assets Depreciation Expense (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | |
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Jun. 30, 2013
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Jun. 30, 2013
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Jun. 30, 2012
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Depreciation Expense [Line Items] | |||
Depreciation of fixed assets | $ 142 | $ 256 | $ 46 |
Restricted Cash (Tables)
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Jun. 30, 2013
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Schedule of Restricted Cash and Cash Equivalents [Table Text Block] | The following table presents the Company's restricted cash balances as of June 30, 2013 and December 31, 2012:
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Income Taxes (Notes)
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6 Months Ended |
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Jun. 30, 2013
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Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes For the three and six months ended June 30, 2013 and 2012, the Company qualified to be taxed as a REIT under the Code for U.S. federal income tax purposes. As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S. federal income taxes on its taxable income to the extent it annually distributes its net taxable income to stockholders, does not engage in prohibited transactions, and maintains its intended qualification as a REIT. The majority of states also recognize the Company's REIT status. The Company's TRSs file separate tax returns and are fully taxed as standalone U.S. C-Corporations. It is assumed that the Company will retain its REIT status and will incur no REIT level taxation as it intends to comply with the REIT regulations and annual distribution requirements. During the three and six months ended June 30, 2013, the Company's TRSs recognized a provision for income taxes of $49.1 million and $54.1 million, respectively. The significant change in the provision for income taxes in the quarter is related to the deferred tax on unrealized gains at one of the Company's TRSs. During the three and six months ended June 30, 2012, the Company's TRSs recognized a benefit from income taxes of $16.6 million and $24.2 million, respectively. Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements of a contingent tax liability for uncertain tax positions. |
Other Operating Expenses (Notes)
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Jun. 30, 2013
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Operating Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Operating Expenses | Other Operating Expenses Components of the Company's other operating expenses for the three and six months ended June 30, 2013 and 2012, are presented in the following table:
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Stockholders' Equity Special Dividend of Silver Bay Common Stock (Details) (USD $)
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Jun. 30, 2013
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Dec. 19, 2012
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Dividends Payable [Line Items] | ||
Equity Securities, Shares | 17,824,647 | |
Distribution Ratio of Special Dividend Declared | $ 0.048825853 |
Other Operating Expenses (Tables)
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Operating Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Operating Cost and Expense, by Component [Table Text Block] | Components of the Company's other operating expenses for the three and six months ended June 30, 2013 and 2012, are presented in the following table:
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Discontinued Operations Discontinued Operations (Tables)
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures [Table Text Block] | Summarized financial information for the discontinued operations are presented below.
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Derivative Instruments and Hedging Activities (Tables)
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Schedule of Constant Maturity Swaps [Table Text Block] | The Company had the following constant maturity swaps agreements in place at June 30, 2013:
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Schedule of Interest Rate Swaps Associated with TBA Contracts [Table Text Block] | As of December 31, 2012, the Company had the following outstanding interest rate swaps that were entered into in combination with TBA contracts to economically hedge mortgage interest rate exposure (or duration):
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Schedule of Interest Rate Swaps Associated with Repurchase Agreements [Table Text Block] | As of June 30, 2013 and December 31, 2012, the Company had the following outstanding interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) associated with the Company's short-term repurchase agreements:
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Schedule of Interest Rate Swaps Associated with U.S. Treasuries and Other RMBS [Table Text Block] | As of June 30, 2013 and December 31, 2012, the Company held $1.0 billion in fair value of U.S. Treasuries classified as trading securities and the following outstanding interest rate swaps:
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Schedule of Interest Rate Swaptions [Table Text Block] | As of June 30, 2013 and December 31, 2012, the Company had the following outstanding interest rate swaptions (agreements to enter into interest rate swaps in the future for which the Company would pay a fixed rate) that were utilized as macro-economic hedges:
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Schedule of Credit Default Swaps, Receive Protection [Table Text Block] | The following tables present credit default swaps whereby the Company is receiving protection held as of June 30, 2013 and December 31, 2012:
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Schedule of Inverse Interest-Only Securities Reconciliation [Table Text Block] | s. The following table presents the amortized cost and carrying value (which approximates fair value) of inverse interest-only securities as of June 30, 2013 and December 31, 2012:
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Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block] | The following tables present the gross fair value and notional amounts of the Company's derivative financial instruments treated as trading instruments as of June 30, 2013 and December 31, 2012.
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Schedule of Average Notional Amounts of Derivative Positions [Table Text Block] | The following table provides the average outstanding notional amounts of the Company's derivative financial instruments treated as trading instruments for the three and six months ended June 30, 2013.
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Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block] | The following table summarizes the location and amount of gains and losses on derivative instruments reported in the condensed consolidated statements of comprehensive (loss) income on its derivative instruments:
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Basis of Presentation and Significant Accounting Policies (Policies)
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Basis of Presentation and Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidation, Policy [Policy Text Block] | Consolidation and Basis of Presentation The interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, or GAAP, have been condensed or omitted according to such SEC rules and regulations. Management believes, however, that the disclosures included in these interim condensed consolidated financial statements are adequate to make the information presented not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at June 30, 2013 and results of operations for all periods presented have been made. The results of operations for the three and six months ended June 30, 2013 should not be construed as indicative of the results to be expected for the full year. The condensed consolidated financial statements of the Company have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make a number of significant estimates and assumptions. These estimates include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, the period of time during which the Company anticipates an increase in the fair values of real estate securities sufficient to recover unrealized losses in those securities, and other estimates that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company's estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material. The condensed consolidated financial statements of the Company include the accounts of all subsidiaries; inter-company accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. The Company's investment in the common stock of Silver Bay was reviewed for consolidation under the applicable consolidation guidance, including voting control and variable interest entities ("VIE") models. The Company concluded that it did not have voting control of Silver Bay nor was Silver Bay considered a VIE and, therefore, consolidation of Silver Bay was not required. The legal entity used in securitization (i.e., the securitization trust), which is considered a VIE for financial reporting purposes, was also reviewed for consolidation under the applicable consolidation guidance. As the Company has both the power to direct the activities of the securitization trust that most significantly impact the entity's performance, and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, the Company consolidates the trust. The accounting is consistent with a secured financing, where the loans and securitized debt are both carried on the Company's condensed consolidated balance sheets. |
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Transfers and Servicing of Financial Assets, Servicing of Financial Assets, Policy [Policy Text Block] | Mortgage Servicing Rights, at Fair Value The MSRs acquired in conjunction with the acquisition of the Company's MSR subsidiary represent the right to service mortgage loans. As of June 30, 2013, the Company and its subsidiaries do not originate or directly service mortgage loans, and instead contract with fully licensed subservicers to handle all servicing functions for the loans underlying the Company's MSRs. However, as an owner and manager of MSRs, the Company may be obligated to fund advances of principal and interest payments due to third party owners of the loans, but not yet received from the individual borrowers. These advances are reported as servicing advances within the other assets line item on the condensed consolidated balance sheets. MSRs are reported at fair value within the other assets line item on the condensed consolidated balance sheets. Changes in the fair value of MSRs as well as servicing fee income are reported within other income on the condensed consolidated statements of comprehensive (loss) income. The related subservicing expenses are recorded in other operating expenses on the condensed consolidated statements of comprehensive (loss) income. See Note 13 - Other Assets for further discussion on MSRs. |
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Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] | Equity Incentive Plan The Company adopted an equity incentive plan in 2009 which provides incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including PRCM Advisers LLC and its affiliates. The 2009 equity incentive plan is administered by the compensation committee of the Company's board of directors. The 2009 equity incentive plan permits the granting of restricted shares of common stock, phantom shares, dividend equivalent rights and other equity-based awards. On May 21, 2013, the Company’s stockholders approved the restated 2009 equity incentive plan, which effectuated, among other changes, an increase in the number of shares available for issuance under the restated 2009 equity incentive plan by 2,800,000 shares of common stock. Other amendments provide for the possibility of making grants of equity-based compensation to the Company’s executive officers and other key employees of the Company’s external manager, PRCM Advisers LLC, upon a determination by the compensation committee, and the implementation of certain best practices of equity-based compensation. The cost of equity-based compensation awarded to employees of our manager is determined using fair value liability accounting in accordance with ASC 718, Compensation - Stock Compensation, or ASC 718, and amortized over the vesting term. |
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Offsetting Assets and Liabilities, Policy [Policy Text Block] | Offsetting Assets and Liabilities Certain of the Company's repurchase agreements are governed by underlying agreements that provide for a right of setoff in the event of default of either party to the agreement. The Company also has netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by the International Swap and Derivatives Association, or ISDA. Additionally, the Company and the counterparty are required to post cash collateral based upon the net underlying market value of the Company's open positions with the counterparty. Under GAAP, if the Company has a valid right of setoff, it may offset the related asset and liability and report the net amount. The Company presents repurchase agreements subject to master netting arrangements or similar agreements on a gross basis, and derivative assets and liabilities subject to such arrangements on a net basis, based on derivative type and counterparty, in its condensed consolidated balance sheets. Separately, the Company presents cash collateral subject to such arrangements on a net basis, based on counterparty, in its condensed consolidated balance sheets. However, the Company does not offset financial assets and liabilities with the associated cash collateral on its condensed consolidated balance sheets. The following tables present information about the Company's assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company's condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012:
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Schedule of Restricted Cash and Cash Equivalents (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
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Dec. 31, 2012
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Restricted Cash and Cash Equivalents Items [Line Items] | ||
Restricted Cash and Cash Equivalents Held By Broker Counterparties For Securities Trading Activity | $ 9,000 | $ 9,000 |
Restricted Cash and Cash equivalents Held by Broker Counterparties For Derivatives Trading Activity | 80,140 | 208,669 |
Restricted Cash and Cash Equivalents Held By Repurchase Counterparties as Restricted Collateral | 596,479 | 84,307 |
Restricted Cash and Cash Equivalents Held by Broker and Repurchase Counterparties | 685,619 | 301,976 |
Restricted Cash and Cash Equivalents, Noncurrent | 346 | 346 |
Restricted Cash and Cash Equivalents | $ 685,965 | $ 302,322 |
Income Taxes Income Taxes (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2013
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Components of Income Tax Expense (Benefit) [Line Items] | ||||
Income Tax Expense (Benefit) | $ 49,119 | $ (16,605) | $ 54,083 | $ (24,183) |
Mortgage Loans Held-for-Investment in Securitization Trust, at Fair Value Mortgage Loans Held-for-Investment in Securitization Trust, at Fair Value (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
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Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Mortgage Loans Held-for-Invesment, Unpaid Principal | $ 405,519 | $ 0 |
Mortgage Loans Held-for-Investment, Fair Value Adjustment | (4,172) | 0 |
Mortgage loans held-for-investment in securitization trust, at fair value | $ 401,347 | $ 0 |
Fair Value (Tables)
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Fair Value Inputs, Assets, Quantitative Information [Table Text Block] | The table below presents information about the significant unobservable inputs used in the fair value measurement of the Company's MSRs classified as Level 3 fair value assets at June 30, 2013:
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Fair Value, by Balance Sheet Grouping [Table Text Block] | The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at June 30, 2013 and December 31, 2012.
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Fair Value, Measurement Inputs, Disclosure [Text Block] | The following tables display the Company's assets and liabilities measured at fair value on a recurring basis. The Company often economically hedges the fair value change of its assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items, and therefore do not directly display the impact of the Company's risk management activities.
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Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block] | The table below presents the reconciliation for all of the Company's Level 3 assets and liabilities measured at fair value on a recurring basis. The Level 3 items presented below may be hedged by derivatives and other financial instruments that are classified as Level 1 or Level 2. Thus, the tables below do not fully reflect the impact of the Company's risk management activities.
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The Company transferred one Level 2 asset in the amount of $3.0 million into Level 3 during the three months ended March 31, 2013. The asset was deemed to be Level 3 based on the limited availability of third-party pricing. However, during the six months ended June 30, 2013, the Company transferred this asset along with two other Level 3 assets in the amount of $6.4 million into Level 2. The assets were deemed to be Level 2 based on the availability of third-party pricing and corroborating market data. The Company did not incur transfers between Level 1 and Level 2 for the six months ended June 30, 2013. Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place. |
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Fair Value, Measurement Inputs, Disclosure [Text Block] | The following tables display the Company's assets and liabilities measured at fair value on a recurring basis. The Company often economically hedges the fair value change of its assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items, and therefore do not directly display the impact of the Company's risk management activities.
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Fair Value, Option, Quantitative Disclosures [Table Text Block] | The following table summarizes the fair value option elections and information regarding the amounts recognized in earnings for each fair value option-elected item.
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The table below provides the fair value and the unpaid principal balance for the Company's fair value option-elected loans and collateralized borrowings.
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Collateralized Borrowings in Securitization Trust, at Fair Value Collateralized Borrowings in Securitization Trust, at Fair Value (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
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Dec. 31, 2012
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Debt Instrument [Line Items] | ||
Collateralized borrowings in securitization trust, at fair value | $ 363,012 | $ 0 |
Debt, Weighted Average Interest Rate | 2.19% |
Equity Incentive Plan Equity Incentive Plan (Notes)
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Equity Incentive Plan [Abstract] | |
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | Equity Incentive Plan In 2009, the Company adopted an equity incentive plan which provides incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including PRCM Advisers and affiliates and personnel of PRCM Advisers and its affiliates, and any joint venture affiliates of the Company. On May 21, 2013, the Company’s stockholders approved the restated 2009 equity incentive plan, which effectuated, among other changes, an increase in the number of shares available for issuance under the plan by 2,800,000 shares of common stock from 200,000 to 3,000,000 shares of common stock. Other amendments provide for the possibility of making grants of equity-based compensation to the Company’s executive officers and other key employees of PRCM Advisers upon a determination by the compensation committee, and the implementation of certain best practices of equity-based compensation. The restated 2009 equity incentive plan is administered by the compensation committee of the Company's board of directors. The compensation committee has the full authority to administer and interpret the restated 2009 equity incentive plan, to authorize the granting of awards, to determine the eligibility of directors, officers, advisors, consultants and other personnel, including PRCM Advisers and affiliates and personnel of PRCM Advisers and its affiliates, and any joint venture affiliates of the Company, to receive an award, to determine the number of shares of common stock to be covered by each award (subject to the individual participant limitations provided in the restated 2009 equity incentive plan), to determine the terms, provisions and conditions of each award (which may not be inconsistent with the terms of the restated 2009 equity incentive plan), to prescribe the form of instruments evidencing awards and to take any other actions and make all other determinations that it deems necessary or appropriate in connection with the restated 2009 equity incentive plan or the administration or interpretation thereof. In connection with this authority, the compensation committee may, among other things, establish performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse. The Company's restated 2009 equity incentive plan provides for grants of restricted common stock, phantom shares, dividend equivalent rights and other equity-based awards, subject to a ceiling of 3,000,000 shares available for issuance under the plan. The plan allows for the Company's board of directors to expand the types of awards available under the plan to include long-term incentive plan units in the future. The maximum number of shares with respect to which any options may be granted in any one year to any eligible person may not exceed 500,000. The maximum number of shares that may underlie grants, other than grants of options, in any one year to any eligible person may not exceed 200,000. If an award granted under the restated 2009 equity incentive plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Unless previously terminated by the Company's board of directors, no new award may be granted under the restated 2009 equity incentive plan after the tenth anniversary of the date that such plan was initially approved by the Company's board of directors. No award may be granted under the restated 2009 equity incentive plan to any person who, assuming payment of all awards held by such person, would own or be deemed to own more than 9.8% of the outstanding shares of the Company's common stock. On May 23, 2012 and May 21, 2013, the Company granted 32,021 and 36,335 shares of restricted common stock, respectively, to its independent directors pursuant to the 2009 equity incentive plan. The estimated fair value of these awards was $10.15 and $11.56 per share, respectively, based on the closing price of the Company's common stock on such date. The grants vested immediately. Additionally, on May 29, 2013, the Company granted 1,020,969 shares of restricted common stock to its executive officers and other key employees of PRCM Advisers pursuant to the restated 2009 equity incentive plan. The estimated fair value of these awards was $11.23 per share on grant date, May 29, 2013, based on the closing price of the Company's common stock on such date. However, as the cost of these awards is determined using fair value liability accounting in accordance with ASC 718, the fair value of these awards as of June 30, 2013 is $10.25 per share based on the closing price of the Company's common stock on such date. The grants will vest in three annual installments commencing on the date of the grant, as long as such individual is employed on the vesting date. For the three and six months ended June 30, 2013, the Company recognized compensation costs related to restricted stock of $975,331 and $998,768, respectively. For the three and six months ended June 30, 2012, the Company recognized compensation costs related to restricted stock of $373,276 and $433,346, respectively. |
Basis of Presentation and Significant Accounting Policies (Notes)
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Basis of Presentation and Significant Accounting Policies [Text Block] | Basis of Presentation and Significant Accounting Policies Consolidation and Basis of Presentation The interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, or GAAP, have been condensed or omitted according to such SEC rules and regulations. Management believes, however, that the disclosures included in these interim condensed consolidated financial statements are adequate to make the information presented not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at June 30, 2013 and results of operations for all periods presented have been made. The results of operations for the three and six months ended June 30, 2013 should not be construed as indicative of the results to be expected for the full year. The condensed consolidated financial statements of the Company have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make a number of significant estimates and assumptions. These estimates include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, the period of time during which the Company anticipates an increase in the fair values of real estate securities sufficient to recover unrealized losses in those securities, and other estimates that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company's estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material. The condensed consolidated financial statements of the Company include the accounts of all subsidiaries; inter-company accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. The Company's investment in the common stock of Silver Bay was reviewed for consolidation under the applicable consolidation guidance, including voting control and variable interest entities ("VIE") models. The Company concluded that it did not have voting control of Silver Bay nor was Silver Bay considered a VIE and, therefore, consolidation of Silver Bay was not required. The legal entity used in securitization (i.e., the securitization trust), which is considered a VIE for financial reporting purposes, was also reviewed for consolidation under the applicable consolidation guidance. As the Company has both the power to direct the activities of the securitization trust that most significantly impact the entity's performance, and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, the Company consolidates the trust. The accounting is consistent with a secured financing, where the loans and securitized debt are both carried on the Company's condensed consolidated balance sheets. Significant Accounting Policies Mortgage Servicing Rights, at Fair Value The MSRs acquired in conjunction with the acquisition of the Company's MSR subsidiary represent the right to service mortgage loans. As of June 30, 2013, the Company and its subsidiaries do not originate or directly service mortgage loans, and instead contract with fully licensed subservicers to handle all servicing functions for the loans underlying the Company's MSRs. However, as an owner and manager of MSRs, the Company may be obligated to fund advances of principal and interest payments due to third party owners of the loans, but not yet received from the individual borrowers. These advances are reported as servicing advances within the other assets line item on the condensed consolidated balance sheets. MSRs are reported at fair value within the other assets line item on the condensed consolidated balance sheets. Changes in the fair value of MSRs as well as servicing fee income are reported within other income on the condensed consolidated statements of comprehensive (loss) income. The related subservicing expenses are recorded in other operating expenses on the condensed consolidated statements of comprehensive (loss) income. See Note 13 - Other Assets for further discussion on MSRs. Equity Incentive Plan The Company adopted an equity incentive plan in 2009 which provides incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including PRCM Advisers LLC and its affiliates. The 2009 equity incentive plan is administered by the compensation committee of the Company's board of directors. The 2009 equity incentive plan permits the granting of restricted shares of common stock, phantom shares, dividend equivalent rights and other equity-based awards. On May 21, 2013, the Company’s stockholders approved the restated 2009 equity incentive plan, which effectuated, among other changes, an increase in the number of shares available for issuance under the restated 2009 equity incentive plan by 2,800,000 shares of common stock. Other amendments provide for the possibility of making grants of equity-based compensation to the Company’s executive officers and other key employees of the Company’s external manager, PRCM Advisers LLC, upon a determination by the compensation committee, and the implementation of certain best practices of equity-based compensation. The cost of equity-based compensation awarded to employees of our manager is determined using fair value liability accounting in accordance with ASC 718, Compensation - Stock Compensation, or ASC 718, and amortized over the vesting term. Offsetting Assets and Liabilities Certain of the Company's repurchase agreements are governed by underlying agreements that provide for a right of setoff in the event of default of either party to the agreement. The Company also has netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by the International Swap and Derivatives Association, or ISDA. Additionally, the Company and the counterparty are required to post cash collateral based upon the net underlying market value of the Company's open positions with the counterparty. Under GAAP, if the Company has a valid right of setoff, it may offset the related asset and liability and report the net amount. The Company presents repurchase agreements subject to master netting arrangements or similar agreements on a gross basis, and derivative assets and liabilities subject to such arrangements on a net basis, based on derivative type and counterparty, in its condensed consolidated balance sheets. Separately, the Company presents cash collateral subject to such arrangements on a net basis, based on counterparty, in its condensed consolidated balance sheets. However, the Company does not offset financial assets and liabilities with the associated cash collateral on its condensed consolidated balance sheets. The following tables present information about the Company's assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company's condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012:
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Refer to Note 2 to the Consolidated Financial Statements in the Company's 2012 Annual Report on Form 10-K regarding additional significant accounting policies. Recently Issued and/or Adopted Accounting Standards Offsetting Assets and Liabilities In December 2011, the Financial Accounting Standards Board, or FASB, issued ASU No. 2011-11, which amends ASC 210, Balance Sheet. The amendments in this ASU enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with ASC 210, Balance Sheet or ASC 815, Other Presentation Matters or (2) subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11 is effective for the first interim or annual period beginning on or after January 1, 2013. In January 2013, the FASB issued ASU No. 2013-01, which limits the scope of ASU 2011-11 to certain derivatives, repurchase agreements and securities lending arrangements. ASU 2013-01 is also effective for the first interim or annual period beginning on or after January 1, 2013. Adopting both ASU 2011-11 and ASU 2013-01 did not have any impact on the Company's condensed consolidated financial condition or results of operations, but did impact financial statement disclosures. Comprehensive Income In February 2013, the FASB issued ASU No. 2013-02, which amends ASC 220, Comprehensive Income. The amendments are intended to make the presentation of items within Other Comprehensive Income (OCI) more prominent. ASU 2013-02 requires reclassification adjustments between OCI and net income to be presented separately on the face of the financial statements. The new guidance does not change the requirement to present items of net income and OCI, and totals for net income, OCI and comprehensive income in a single continuous statement or two consecutive statements. ASU 2013-02 is effective for the first interim or annual period beginning on or after December 15, 2012. Adopting this ASU did not have any impact on the Company's condensed consolidated financial condition or results of operations, but did impact financial statement disclosures. |
Available-for-Sale Securities, at Fair Value (Notes)
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Available for Sale Securities, at Fair Value [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block] | Available-for-Sale Securities, at Fair Value The following table presents the Company's available-for-sale, or AFS, investment securities by collateral type, which were carried at their fair value as of June 30, 2013 and December 31, 2012:
At June 30, 2013 and December 31, 2012, the Company pledged investment securities with a carrying value of $14.2 billion and $12.8 billion, respectively, as collateral for repurchase agreements. See Note 16 - Repurchase Agreements. At June 30, 2013 and December 31, 2012, 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 following tables present the amortized cost and carrying value (which approximates fair value) of AFS securities by collateral type as of June 30, 2013 and December 31, 2012:
The following tables present the carrying value of the Company's AFS investment securities by rate type as of June 30, 2013 and December 31, 2012:
When the Company purchases a credit-sensitive AFS security at a significant discount to its face value, the Company often does not amortize into income a significant portion of this discount that the Company is entitled to earn because it does not expect to collect it due to the inherent credit risk of the security. The Company may also record an other-than-temporary impairment, or OTTI, for a portion of its investment in the security to the extent the Company believes that the amortized cost will exceed the present value of expected future cash flows. The amount of principal that the Company does not amortize into income is designated as a credit reserve on the security, with unamortized net discounts or premiums amortized into income over time to the extent realizable. The following table presents the changes for the six months ended June 30, 2013 and 2012, of the unamortized net discount and designated credit reserves on non-Agency AFS securities.
The following table presents the components comprising the carrying value of AFS securities not deemed to be other than temporarily impaired by length of time the securities had an unrealized loss position as of June 30, 2013 and December 31, 2012. At June 30, 2013, the Company held 1,732 AFS securities, of which 863 were in an unrealized loss position for less than twelve consecutive months and 35 were in an unrealized loss position for more than twelve consecutive months. Of the $8.5 billion and $2.5 billion of AFS securities in an unrealized loss position for less than twelve consecutive months as of June 30, 2013 and December 31, 2012, $8.2 billion, or 97.5%, and $2.4 billion, or 95.8%, respectively, were Agency AFS securities, whose principal and interest are guaranteed by government sponsored entities, or GSEs. At December 31, 2012, the Company held 1,493 AFS securities, of which 250 were in an unrealized loss position for less than twelve months and 47 were in an unrealized loss position for more than twelve consecutive months.
Evaluating AFS Securities for Other-Than-Temporary Impairments In order to evaluate AFS securities for OTTI, the Company determines whether there has been a significant adverse quarterly change in the cash flow expectations for a security. The Company compares the amortized cost of each security in an unrealized loss position against the present value of expected future cash flows of the security. The Company also considers whether there has been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security is greater than the present value of expected future cash flows using the original yield as the discount rate, an other-than-temporary credit impairment has occurred. If the Company does not intend to sell and is not more likely than not required to sell the security, the credit loss is recognized in earnings and the balance of the unrealized loss is recognized in other comprehensive (loss) income. If the Company intends to sell the security or will be more likely than not required to sell the security, the full unrealized loss is recognized in earnings. The Company recorded a $1.4 million and a $1.7 million other-than-temporary credit impairment during the three and six months ended June 30, 2013, respectively, on a total of four non-Agency RMBS where the future expected cash flows for each security was less than its amortized cost. As of June 30, 2013, impaired securities had weighted average cumulative losses of 10.9%, weighted average three-month prepayment speed of 6.7%, weighted average 60+ day delinquency of 35.6% of the pool balance, and weighted average FICO score of 626. At June 30, 2013, 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, therefore, only the projected credit loss was recognized in earnings. During the three and six months ended June 30, 2012, the Company recorded a $4.5 million and an $8.8 million other-than-temporary credit impairment on a total of 27 non-Agency RMBS where the future expected cash flows for each security was less than its amortized cost. The following table presents the changes in OTTI included in earnings for three and six months ended June 30, 2013 and 2012:
Cumulative credit losses related to OTTI may be reduced for securities sold as well as for securities that mature, pay down, or are prepaid such that the outstanding principal balance is reduced to zero. Additionally, increases in cash flows expected to be collected over the remaining life of the security cause a reduction in the cumulative credit loss. Gross Realized Gains and Losses Gains and losses from the sale of AFS securities are recorded as realized gains (losses) within gain on investment securities in the Company's condensed consolidated statements of comprehensive (loss) income. For the three and six months ended June 30, 2013, the Company sold AFS securities for $189.7 million and $986.4 million with an amortized cost of $137.3 million and $915.0 million, for net realized gains of $52.4 million and $71.4 million, respectively. The following table presents the gross realized gains and losses on sales of AFS securities for the three and six months ended June 30, 2013 and 2012:
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Derivative Instruments and Hedging Activities Schedule of Interest Rate Swaps Associated with U.S. Treasuries (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
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Dec. 31, 2012
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Derivative [Line Items] | ||
Trading securities, at fair value | $ 1,001,172 | $ 1,002,062 |
Interest Rate Swaps Associated with U.S. Treasuries [Member]
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Derivative [Line Items] | ||
Derivative, Notional Amount | 1,000,000 | 1,000,000 |
Interest Rate Swaps Associated with U.S. Treasuries [Member] | Derivative Maturity Over Two And Within Three Years From Balance Sheet Date [Member]
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Derivative [Line Items] | ||
Derivative, Notional Amount | $ 1,000,000 | $ 1,000,000 |
Derivative, Average Fixed Interest Rate | 0.799% | 0.799% |
Derivative, Average Variable Interest Rate | 0.28% | 0.35% |
Derivative, Weighted Average Remaining Maturity | 1.778 | 2.278 |
Variable Interest Entities Variable Interest Entities (Notes)
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Jun. 30, 2013
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Variable Interest Entities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable Interest Entities Disclosure [Text Block] | Variable Interest Entities During the six months ended June 30, 2013, the Company purchased subordinated debt and excess servicing rights from a securitization trust issued by a third party. The securitization trust is considered a VIE for financial reporting purposes and, thus, was reviewed for consolidation under the applicable consolidation guidance. Since the Company has both the power to direct the activities of the securitization trust that most significantly impact the entity's performance, and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, the Company consolidates the trust. As the Company is required to reassess VIE consolidation guidance each quarter, new facts and circumstances may change the Company's determination. This could result in a material impact to the Company's financial statements during subsequent reporting periods. The following table presents a summary of the assets and liabilities of the securitization trust:
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Other Assets (Tables)
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Other Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Servicing Assets at Fair Value [Table Text Block] | The following table summarizes activity related to MSRs, for the three and six months ended June 30, 2013.
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Schedule of Other Assets [Table Text Block] | Other assets as of June 30, 2013 and December 31, 2012 are summarized in the following table:
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Components of Servicing Revenue [Table Text Block] | The following table presents the components of servicing revenue recorded within other income on the Company's condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2013:
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Earnings Per Share (Notes)
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted earnings per share, or EPS, for the three and six months ended June 30, 2013 and 2012:
During the three and six months ended June 30, 2013, the weighted average market value per share of the Company's common stock was above the exercise price of the warrants, making the warrants dilutive. For the three and six months ended June 30, 2012, the Company assumed that no warrants would be exercised as the weighted average market value per share of the Company's common stock was below the exercise price of the warrants and the warrants would be anti-dilutive. |
Basis of Presentation and Significant Accounting Policies Offsetting Assets and Liabilities (Tables)
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Offsetting Asssets and Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Offsetting Assets and Liabilities [Table Text Block] | The following tables present information about the Company's assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company's condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012:
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Stockholders' Equity Public Offerings (Details) (USD $)
In Thousands, except Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | |||
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Mar. 31, 2013
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Dec. 31, 2012
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Class of Stock [Line Items] | |||||
Common Stock, Shares, Issued | 365,733,931 | 50,000,000 | 298,813,258 | ||
Common Stock, Shares, Issued Pursuant to the Underwriters' Over-allotments | 7,500,000 | ||||
Sale of Stock, Price Per Share | $ 13.46 | ||||
Proceeds from Issuance of Common Stock | $ 774,000 | $ 763,226 | $ 769,812 | ||
Proceeds from Issuance of Common Stock, Net | 762,900 | ||||
Payments of Stock Issuance Costs | $ 11,100 |
Mortgage Loans Held-for-Investment in Securitization Trust, at Fair Value Mortgage Loans Held-for-Investment in Securitization Trust, at Fair Value (Tables)
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Jun. 30, 2013
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Mortgage Loans Held-for-Investment, at Fair Value [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Mortgage Loans Held-for-Investment Reconciliation [Table Text Block] | The following table presents the carrying value of the Company's mortgage loans held-for-investment in securitization trust as of June 30, 2013 and December 31, 2012:
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