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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Cys Investments, Inc. | NYSE:CYS | NYSE | Ordinary Share |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 7.31 | 0.00 | 01:00:00 |
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Maryland
|
20-4072657
|
(State or other jurisdiction of
incorporation or organization)
|
(IRS Employer
Identification No.)
|
500 Totten Pond Road, 6
th
Floor, Waltham, Massachusetts
|
02451
|
(Address of principal executive offices)
|
(Zip Code)
|
Large accelerated filer
|
x
|
Accelerated filer
|
¨
|
Non-accelerated filer
|
¨
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
¨
|
|
|
Emerging growth company
|
¨
|
Class
|
October 26, 2017
|
Common Stock ($0.01 par value)
|
155,010,011
|
|
|
September 30, 2017
|
|
December 31, 2016*
|
||||
|
(Unaudited)
|
|
|
||||
Assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
804
|
|
|
$
|
1,260
|
|
Investments in securities, at fair value:
|
|
|
|
||||
Agency mortgage-backed securities (including pledged assets of $10,291,015 and $10,233,165, respectively)
|
12,092,527
|
|
|
12,599,045
|
|
||
U.S. Treasury securities (including pledged assets of $620,730 and $44,469, respectively)
|
1,017,964
|
|
|
49,686
|
|
||
Receivable for securities sold and principal repayments
|
157,730
|
|
|
409,849
|
|
||
Receivable for cash pledged as collateral
|
—
|
|
|
600
|
|
||
Interest receivable
|
33,385
|
|
|
31,825
|
|
||
Derivative assets, at fair value
|
107,588
|
|
|
142,556
|
|
||
Other investments
|
8,028
|
|
|
8,028
|
|
||
Other assets
|
3,511
|
|
|
2,419
|
|
||
Total assets
|
$
|
13,421,537
|
|
|
$
|
13,245,268
|
|
Liabilities and stockholders' equity:
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Repurchase agreements
|
$
|
10,383,226
|
|
|
$
|
9,691,544
|
|
Payable for securities purchased
|
1,264,639
|
|
|
1,881,963
|
|
||
Payable for cash received as collateral
|
77,326
|
|
|
91,503
|
|
||
Accrued interest payable
|
34,007
|
|
|
27,908
|
|
||
Accrued expenses and other liabilities
|
4,058
|
|
|
6,170
|
|
||
Dividends payable
|
43,158
|
|
|
4,410
|
|
||
Derivative liabilities, at fair value
|
6,586
|
|
|
6,051
|
|
||
Total liabilities
|
$
|
11,813,000
|
|
|
$
|
11,709,549
|
|
Stockholders' equity:
|
|
|
|
||||
Preferred Stock, $0.01 par value, 50,000 shares authorized:
|
|
|
|
||||
7.75% Series A Cumulative Redeemable Preferred Stock, (3,000 shares issued and outstanding, respectively, $75,000 in aggregate liquidation preference)
|
$
|
72,369
|
|
|
$
|
72,369
|
|
7.50% Series B Cumulative Redeemable Preferred Stock, (8,000 shares issued and outstanding, respectively, $200,000 in aggregate liquidation preference)
|
193,531
|
|
|
193,531
|
|
||
Common Stock, $0.01 par value, 500,000 shares authorized (154,990 and 151,435 shares issued and outstanding, respectively)
|
1,550
|
|
|
1,514
|
|
||
Additional paid in capital
|
1,975,476
|
|
|
1,944,908
|
|
||
Retained earnings (accumulated deficit)
|
(634,389
|
)
|
|
(676,603
|
)
|
||
Total stockholders' equity
|
$
|
1,608,537
|
|
|
$
|
1,535,719
|
|
Total liabilities and stockholders' equity
|
$
|
13,421,537
|
|
|
$
|
13,245,268
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Interest income:
|
|
|
|
|
|
|
|
||||||||
Agency RMBS
|
$
|
78,809
|
|
|
$
|
68,602
|
|
|
$
|
229,063
|
|
|
$
|
224,101
|
|
Other
|
152
|
|
|
1,059
|
|
|
299
|
|
|
1,868
|
|
||||
Total interest income
|
78,961
|
|
|
69,661
|
|
|
229,362
|
|
|
225,969
|
|
||||
Interest expense:
|
|
|
|
|
|
|
|
||||||||
Repurchase agreements
|
31,971
|
|
|
17,265
|
|
|
79,374
|
|
|
50,062
|
|
||||
FHLBC Advances
|
—
|
|
|
214
|
|
|
—
|
|
|
4,049
|
|
||||
Total interest expense
|
31,971
|
|
|
17,479
|
|
|
79,374
|
|
|
54,111
|
|
||||
Net interest income
|
46,990
|
|
|
52,182
|
|
|
149,988
|
|
|
171,858
|
|
||||
Other income (loss):
|
|
|
|
|
|
|
|
||||||||
Net realized gain (loss) on investments
|
(5,215
|
)
|
|
18,155
|
|
|
(91,090
|
)
|
|
55,716
|
|
||||
Net unrealized gain (loss) on investments
|
36,337
|
|
|
(36,540
|
)
|
|
151,114
|
|
|
154,661
|
|
||||
Net unrealized gain (loss) on FHLBC Advances
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,299
|
)
|
||||
Other income
|
38
|
|
|
308
|
|
|
124
|
|
|
1,158
|
|
||||
Net realized and unrealized gain (loss) on investments, FHLBC Advances and other income
|
31,160
|
|
|
(18,077
|
)
|
|
60,148
|
|
|
210,236
|
|
||||
Swap and cap interest expense
|
(6,948
|
)
|
|
(12,493
|
)
|
|
(23,709
|
)
|
|
(45,670
|
)
|
||||
Net realized and unrealized gain (loss) on derivative instruments
|
22,117
|
|
|
63,625
|
|
|
2,781
|
|
|
(121,434
|
)
|
||||
Net gain (loss) on derivative instruments
|
15,169
|
|
|
51,132
|
|
|
(20,928
|
)
|
|
(167,104
|
)
|
||||
Total other income (loss)
|
46,329
|
|
|
33,055
|
|
|
39,220
|
|
|
43,132
|
|
||||
Expenses:
|
|
|
|
|
|
|
|
||||||||
Compensation and benefits
|
2,994
|
|
|
3,619
|
|
|
9,774
|
|
|
11,049
|
|
||||
General, administrative and other
|
2,140
|
|
|
2,608
|
|
|
7,004
|
|
|
7,390
|
|
||||
Total expenses
|
5,134
|
|
|
6,227
|
|
|
16,778
|
|
|
18,439
|
|
||||
Net income (loss)
|
$
|
88,185
|
|
|
$
|
79,010
|
|
|
$
|
172,430
|
|
|
$
|
196,551
|
|
Dividends on preferred stock
|
(5,203
|
)
|
|
(5,203
|
)
|
|
(15,609
|
)
|
|
(15,609
|
)
|
||||
Net income (loss) available to common stockholders
|
$
|
82,982
|
|
|
$
|
73,807
|
|
|
$
|
156,821
|
|
|
$
|
180,942
|
|
Net income (loss) per common share basic & diluted
|
$
|
0.54
|
|
|
$
|
0.49
|
|
|
$
|
1.03
|
|
|
$
|
1.19
|
|
Dividends declared per common share
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.75
|
|
|
$
|
0.76
|
|
|
|
Cumulative Redeemable Preferred Stock
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Series A
|
|
Series B
|
|
Common Stock Par Value
|
|
Additional Paid-in Capital
|
|
Retained Earnings (Accumulated Deficit)
|
|
Total
|
||||||||||||
Balance, December 31, 2015
|
|
$
|
72,369
|
|
|
$
|
193,531
|
|
|
$
|
1,517
|
|
|
$
|
1,946,419
|
|
|
$
|
(519,222
|
)
|
|
$
|
1,694,614
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
196,551
|
|
|
196,551
|
|
||||||
Issuance of common stock
|
|
—
|
|
|
—
|
|
|
4
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
||||||
Amortization of share based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,046
|
|
|
—
|
|
|
3,046
|
|
||||||
Repurchase of common stock
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
(5,509
|
)
|
|
—
|
|
|
(5,516
|
)
|
||||||
Preferred dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,609
|
)
|
|
(15,609
|
)
|
||||||
Common dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(115,101
|
)
|
|
(115,101
|
)
|
||||||
Balance, September 30, 2016
|
|
$
|
72,369
|
|
|
$
|
193,531
|
|
|
$
|
1,514
|
|
|
$
|
1,943,952
|
|
|
$
|
(453,381
|
)
|
|
$
|
1,757,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Balance, December 31, 2016
|
|
$
|
72,369
|
|
|
$
|
193,531
|
|
|
$
|
1,514
|
|
|
$
|
1,944,908
|
|
|
$
|
(676,603
|
)
|
|
$
|
1,535,719
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
172,430
|
|
|
172,430
|
|
||||||
Issuance of common stock
|
|
—
|
|
|
—
|
|
|
36
|
|
|
27,775
|
|
|
—
|
|
|
27,811
|
|
||||||
Amortization of share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,140
|
|
|
—
|
|
|
3,140
|
|
||||||
Repurchase of common stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(347
|
)
|
|
—
|
|
|
(347
|
)
|
||||||
Preferred dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,609
|
)
|
|
(15,609
|
)
|
||||||
Common dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(114,607
|
)
|
|
(114,607
|
)
|
||||||
Balance, September 30, 2017
|
|
$
|
72,369
|
|
|
$
|
193,531
|
|
|
$
|
1,550
|
|
|
$
|
1,975,476
|
|
|
$
|
(634,389
|
)
|
|
$
|
1,608,537
|
|
|
Nine Months Ended September 30,
|
||||||
|
2017
|
|
2016
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income (loss)
|
$
|
172,430
|
|
|
$
|
196,551
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
||||
Amortization of share-based compensation
|
3,140
|
|
|
3,046
|
|
||
Amortization of premiums and discounts on investment securities
|
41,512
|
|
|
60,586
|
|
||
Amortization of premiums on interest rate cap contracts
|
13,125
|
|
|
13,125
|
|
||
Net realized (gain) loss on investments
|
91,090
|
|
|
(55,716
|
)
|
||
Net unrealized (gain) loss on investments
|
(151,114
|
)
|
|
(154,661
|
)
|
||
Net unrealized (gain) loss on derivative instruments
|
22,378
|
|
|
94,000
|
|
||
Net unrealized (gain) loss on FHLBC Advances
|
—
|
|
|
1,299
|
|
||
Change in assets and liabilities:
|
|
|
|
||||
Interest receivable
|
(1,560
|
)
|
|
1,290
|
|
||
Other assets
|
(1,092
|
)
|
|
(1,736
|
)
|
||
Accrued interest payable
|
6,099
|
|
|
(11,067
|
)
|
||
Accrued expenses and other liabilities
|
(2,112
|
)
|
|
2,028
|
|
||
Net cash provided by (used in) operating activities
|
193,896
|
|
|
148,745
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Purchase of available-for-sale investment securities
|
(7,048,383
|
)
|
|
(13,900,075
|
)
|
||
Proceeds from sale of available-for-sale investment securities
|
5,595,394
|
|
|
13,902,132
|
|
||
Proceeds from sale of other investments
|
—
|
|
|
42,000
|
|
||
Proceeds from paydowns of available-for-sale investment securities
|
1,009,741
|
|
|
1,383,532
|
|
||
Change in assets and liabilities:
|
|
|
|
||||
Receivable for securities sold and principal repayments
|
252,119
|
|
|
1,082,246
|
|
||
Receivable for cash pledged as collateral
|
600
|
|
|
(41,713
|
)
|
||
Payable for securities purchased
|
(617,324
|
)
|
|
(1,051,498
|
)
|
||
Payable for cash received as collateral
|
(14,177
|
)
|
|
(7,652
|
)
|
||
Net cash provided by (used in) investing activities
|
(822,030
|
)
|
|
1,408,972
|
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from repurchase agreements
|
106,859,520
|
|
|
76,708,876
|
|
||
Repayments of repurchase agreements
|
(106,167,838
|
)
|
|
(76,076,011
|
)
|
||
Proceeds from FHLBC Advances
|
—
|
|
|
2,175,000
|
|
||
Repayments of FHLBC Advances
|
—
|
|
|
(4,275,000
|
)
|
||
Net proceeds from issuance of common shares
|
27,811
|
|
|
—
|
|
||
Net payments from repurchase of common stock
|
(347
|
)
|
|
(5,516
|
)
|
||
Dividends paid
|
(91,468
|
)
|
|
(92,856
|
)
|
||
Net cash provided by (used in) financing activities
|
627,678
|
|
|
(1,565,507
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
(456
|
)
|
|
(7,790
|
)
|
||
Cash and cash equivalents - Beginning of period
|
1,260
|
|
|
9,982
|
|
||
Cash and cash equivalents - End of period
|
$
|
804
|
|
|
$
|
2,192
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Interest paid (excluding interest paid on interest rate swaps)
|
$
|
71,526
|
|
|
$
|
53,474
|
|
Net interest paid on interest rate swaps
|
$
|
12,332
|
|
|
$
|
44,248
|
|
Income taxes paid
|
$
|
1,499
|
|
|
$
|
—
|
|
Supplemental disclosures of non-cash flow information:
|
|
|
|
||||
Dividends declared, not paid
|
$
|
43,158
|
|
|
$
|
42,264
|
|
Accounting Standard
|
|
Description
|
|
Required Date of Adoption
|
|
Anticipated Effect on the Financial Statements
|
ASU 2017-09
Compensation - Stock Compensation (Topic 718); Scope of Modification Accounting
|
|
On May 10, 2017, the FASB issued ASU 2017-09, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718, (Compensation - Stock Compensation). Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification.
|
|
Effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017.
Early adoption is permitted, including adoption in any interim period.
|
|
Not expected to have a significant impact on the consolidated financial statements.
|
ASU 2017-05
Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
|
|
On February 22, 2017, the FASB issued ASU 2017-05, which clarifies the scope of the Board’s recently established guidance on nonfinancial asset derecognition (ASC 610-20) as well as the accounting for partial sales of nonfinancial assets. The ASU conforms the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard (ASC 606, as amended).
The FASB issued the ASU in response to stakeholder feedback indicating that (1) the meaning of the term “in-substance nonfinancial asset” is unclear because the Board’s new revenue standard does not define it and (2) the scope of the guidance on nonfinancial assets is confusing and complex and does not specify how a partial sales transaction should be accounted for or which model entities should apply.
|
|
January 1, 2018. The effective date of the new guidance aligns with the requirements in the new revenue standard. If the entity decides to early adopt the ASU’s guidance, it must also early adopt ASC 606-Revenue from Contracts with Customers (and vice versa).
|
|
Not expected to have a significant impact on the consolidated financial statements.
|
Accounting Standard
|
|
Description
|
|
Required Date of Adoption
|
|
Anticipated Effect on the Financial Statements
|
ASU 2017-01
Business Combinations (Topic 805) Clarifying the Definition of a Business
|
|
On January 5, 2017, the FASB issued ASU 2017-01 to clarify the definition of a business in ASC 805. The FASB issued the ASU in response to stakeholder feedback that the definition of a business in ASC 805 is being applied too broadly. In addition, stakeholders said that analyzing transactions under the current definition is difficult and costly. Concerns about the definition of a business were among the primary issues raised in connection with the Financial Accounting Foundation’s post-implementation review report on FASB Statement No. 141(R), Business Combinations (codified in ASC 805). The amendments in the ASU are intended to make application of the guidance more consistent and cost-efficient. Real estate is less likely to be a "business" which will lead to more capitalization of transaction costs-vs-expensing.
|
|
January 1, 2018 (early adoption permitted).
|
|
Not expected to have a significant impact on the consolidated financial statements.
|
ASU 2016-15
Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15")
(a consensus of the Emerging Issues Task Force)
|
|
On August 26, 2016, the FASB issued ASU 2016-15, which amends ASC 230, Statement of Cash Flows ("ASC 230), to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASC 230 lacks consistent principles for evaluating the classification of cash payments and receipts in the statement of cash flows. This has led to diversity in practice and, in certain circumstances, financial statement restatements. Consequently, the FASB issued ASU 2016-15 with the intent of reducing diversity in practice with respect to certain types of cash flows.
|
|
January 1, 2018 (early adoption is permitted). Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively if retrospective application would be impracticable.
|
|
Not expected to have a significant impact on the consolidated financial statements.
|
ASU 2016-02
Leases (Topic 842)
|
|
The amendments require lessees to recognize a right-of-use asset and a liability to make lease payments in the balance sheets for most leases. The accounting for lessors is largely unchanged.
|
|
January 1, 2019 (early adoption permitted).
|
|
Not expected to have a significant impact on the consolidated financial statements.
|
ASU 2016-01
Financial Instruments - Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities
|
|
The amendments address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.
|
|
January 1, 2018 (early adoption permitted for a provision related to presentation of instrument-specific credit risk of liabilities accounted for under the fair value option).
|
|
Not expected to have a significant impact on the consolidated financial statements.
|
September 30, 2017
|
|
|
|
|
|
|
|
|
||||||||
Asset Type
|
|
Amortized Cost
|
|
Gross Unrealized Loss
|
|
Gross Unrealized Gain
|
|
Fair Value
|
||||||||
Fannie Mae Certificates
|
|
|
|
|
|
|
|
|
||||||||
Fixed Rate
|
|
$
|
8,543,463
|
|
|
$
|
(11,584
|
)
|
|
$
|
59,758
|
|
|
$
|
8,591,637
|
|
ARMs
|
|
284,260
|
|
|
(1,412
|
)
|
|
1,355
|
|
|
284,203
|
|
||||
Total Fannie Mae
|
|
8,827,723
|
|
|
(12,996
|
)
|
|
61,113
|
|
|
8,875,840
|
|
||||
Freddie Mac Certificates
|
|
|
|
|
|
|
|
|
||||||||
Fixed Rate
|
|
2,971,394
|
|
|
(9,150
|
)
|
|
18,282
|
|
|
2,980,526
|
|
||||
ARMs
|
|
204,953
|
|
|
(211
|
)
|
|
784
|
|
|
205,526
|
|
||||
Total Freddie Mac
|
|
3,176,347
|
|
|
(9,361
|
)
|
|
19,066
|
|
|
3,186,052
|
|
||||
Ginnie Mae Certificates
|
|
|
|
|
|
|
|
|
||||||||
Fixed Rate
|
|
1,614
|
|
|
(37
|
)
|
|
—
|
|
|
1,577
|
|
||||
ARMs
|
|
28,668
|
|
|
—
|
|
|
390
|
|
|
29,058
|
|
||||
Ginnie Mae Certificates - ARMs
|
|
30,282
|
|
|
(37
|
)
|
|
390
|
|
|
30,635
|
|
||||
Total Agency RMBS
|
|
12,034,352
|
|
|
(22,394
|
)
|
|
80,569
|
|
|
12,092,527
|
|
||||
U.S. Treasuries
|
|
1,019,028
|
|
|
(1,064
|
)
|
|
—
|
|
|
1,017,964
|
|
||||
Total
|
|
$
|
13,053,380
|
|
|
$
|
(23,458
|
)
|
|
$
|
80,569
|
|
|
$
|
13,110,491
|
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2016
|
|
|
|
|
|
|
|
|
||||||||
Asset Type
|
|
Amortized Cost
|
|
Gross Unrealized Loss
|
|
Gross Unrealized Gain
|
|
Fair Value
|
||||||||
Fannie Mae Certificates
|
|
|
|
|
|
|
|
|
||||||||
Fixed Rate
|
|
$
|
9,505,262
|
|
|
$
|
(81,783
|
)
|
|
$
|
36,622
|
|
|
$
|
9,460,101
|
|
ARMs
|
|
301,029
|
|
|
(2,668
|
)
|
|
1,571
|
|
|
299,932
|
|
||||
Total Fannie Mae
|
|
9,806,291
|
|
|
(84,451
|
)
|
|
38,193
|
|
|
9,760,033
|
|
||||
Freddie Mac Certificates
|
|
|
|
|
|
|
|
|
|
|
||||||
Fixed Rate
|
|
2,799,604
|
|
|
(55,624
|
)
|
|
7,659
|
|
|
2,751,639
|
|
||||
ARMs
|
|
50,641
|
|
|
(514
|
)
|
|
606
|
|
|
50,733
|
|
||||
Total Freddie Mac
|
|
2,850,245
|
|
|
(56,138
|
)
|
|
8,265
|
|
|
2,802,372
|
|
||||
Ginnie Mae Certificates
|
|
|
|
|
|
|
|
|
||||||||
Fixed Rate
|
|
1,856
|
|
|
(54
|
)
|
|
—
|
|
|
1,802
|
|
||||
ARMs
|
|
34,390
|
|
|
—
|
|
|
448
|
|
|
34,838
|
|
||||
Total Ginnie Mae
|
|
36,246
|
|
|
(54
|
)
|
|
448
|
|
|
36,640
|
|
||||
Total Agency RMBS
|
|
12,692,782
|
|
|
(140,643
|
)
|
|
46,906
|
|
|
12,599,045
|
|
||||
U.S. Treasuries
|
|
49,952
|
|
|
(266
|
)
|
|
—
|
|
|
49,686
|
|
||||
Total
|
|
$
|
12,742,734
|
|
|
$
|
(140,909
|
)
|
|
$
|
46,906
|
|
|
$
|
12,648,731
|
|
|
|
Unrealized loss positions
|
||||||||||||||||||||||
|
|
Less than 12 Months
|
|
Greater than 12 months
|
|
Total
|
||||||||||||||||||
As of
|
|
Fair value
|
|
Unrealized loss
|
|
Fair value
|
|
Unrealized loss
|
|
Fair value
|
|
Unrealized loss
|
||||||||||||
September 30, 2017
|
|
$
|
3,669,574
|
|
|
$
|
(23,348
|
)
|
|
$
|
24,878
|
|
|
$
|
(110
|
)
|
|
$
|
3,694,452
|
|
|
$
|
(23,458
|
)
|
December 31, 2016
|
|
9,264,265
|
|
|
(140,909
|
)
|
|
—
|
|
|
—
|
|
|
9,264,265
|
|
|
(140,909
|
)
|
|
|
September 30, 2017
|
|
December 31, 2016
|
||||||||||||
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
||||||||
Less than one year
|
|
$
|
24,878
|
|
|
$
|
24,988
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Greater than one year through five years
|
|
6,801,743
|
|
|
6,763,508
|
|
|
3,765,037
|
|
|
3,744,614
|
|
||||
Greater than five years through ten years
|
|
6,283,870
|
|
|
6,264,884
|
|
|
8,864,309
|
|
|
8,978,537
|
|
||||
Greater than ten years
|
|
—
|
|
|
—
|
|
|
19,385
|
|
|
19,583
|
|
||||
Total
|
|
$
|
13,110,491
|
|
|
$
|
13,053,380
|
|
|
$
|
12,648,731
|
|
|
$
|
12,742,734
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Available-for-sale investments, at cost
|
$
|
822,503
|
|
|
$
|
7,041,173
|
|
|
$
|
5,686,484
|
|
|
$
|
13,846,416
|
|
Proceeds from sale of available-for-sale investments
|
817,288
|
|
|
7,059,328
|
|
|
5,595,394
|
|
|
13,902,132
|
|
||||
Net realized gain (loss) on sale of available-for-sale investments
|
$
|
(5,215
|
)
|
|
$
|
18,155
|
|
|
(91,090
|
)
|
|
55,716
|
|
||
|
|
|
|
|
|
|
|
||||||||
Gross gain on sale of available-for-sale investments
|
$
|
220
|
|
|
$
|
21,363
|
|
|
11,093
|
|
|
63,489
|
|
||
Gross (loss) on sale of available-for-sale investments
|
(5,435
|
)
|
|
(3,208
|
)
|
|
(102,183
|
)
|
|
(7,773
|
)
|
||||
Net realized gain (loss) on sale of available-for-sale investments
|
$
|
(5,215
|
)
|
|
$
|
18,155
|
|
|
$
|
(91,090
|
)
|
|
$
|
55,716
|
|
(in thousands)
|
|
September 30, 2017
|
|
December 31, 2016
|
||||
Principal balance
|
|
$
|
12,684,568
|
|
|
$
|
12,285,204
|
|
Unamortized premium
|
|
374,852
|
|
|
458,709
|
|
||
Unamortized discount
|
|
(6,040
|
)
|
|
(1,179
|
)
|
||
Gross unrealized gains
|
|
80,569
|
|
|
46,906
|
|
||
Gross unrealized losses
|
|
(23,458
|
)
|
|
(140,909
|
)
|
||
Fair value
|
|
$
|
13,110,491
|
|
|
$
|
12,648,731
|
|
September 30, 2017
|
|
September 30, 2016
|
||||||||||||
Trade Date
|
|
Transaction
|
|
Notional
|
|
Trade Date
|
|
Transaction
|
|
Notional
|
||||
April 2017
|
|
Terminated
|
|
$
|
(500,000
|
)
|
|
January 2016
|
|
Terminated
|
|
$
|
(500,000
|
)
|
April 2017
|
|
Opened
|
|
500,000
|
|
|
May 2016
|
|
Terminated
|
|
(2,200,000
|
)
|
||
May 2017
|
|
Terminated
|
|
(500,000
|
)
|
|
May 2016
|
|
Opened
|
|
1,700,000
|
|
||
May 2017
|
|
Opened
|
|
500,000
|
|
|
September 2016
|
|
Terminated
|
|
(500,000
|
)
|
||
June 2017
|
|
Opened
|
|
100,000
|
|
|
Net Decrease
|
|
|
|
$
|
(1,500,000
|
)
|
|
August 2017
|
|
Opened
|
|
425,000
|
|
|
|
|
|
|
|
|||
August 2017
|
|
Terminated
|
|
(500,000
|
)
|
|
|
|
|
|
|
|||
September 2017
|
|
Opened
|
|
500,000
|
|
|
|
|
|
|
|
|||
September 2017
|
|
Terminated
|
|
(500,000
|
)
|
|
|
|
|
|
|
|||
Net Increase
|
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
||||||||||||||
Derivative and Other Hedging Instruments - Assets
|
|
Consolidated Balance Sheets
|
|
Notional
|
|
Fair Value
|
|
Notional
|
|
Fair Value
|
||||||||
Interest Rate Swaps
|
|
Derivative assets, at fair value
|
|
$
|
6,475,000
|
|
|
$
|
79,300
|
|
|
$
|
6,450,000
|
|
|
$
|
80,608
|
|
Interest Rate Caps
|
|
Derivative assets, at fair value
|
|
2,500,000
|
|
|
27,860
|
|
|
2,500,000
|
|
|
42,532
|
|
||||
TBA Derivatives
|
|
Derivative assets, at fair value
|
|
650,200
|
|
|
428
|
|
|
2,417,000
|
|
|
19,416
|
|
||||
Total derivative assets at fair value
|
|
|
|
$
|
9,625,200
|
|
|
$
|
107,588
|
|
|
$
|
11,367,000
|
|
|
$
|
142,556
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Derivative and Other Hedging Instruments - Liabilities
|
|
Consolidated Balance Sheets
|
|
Notional
|
|
Fair Value
|
|
Notional
|
|
Fair Value
|
||||||||
Interest Rate Swaps
|
|
Derivative liabilities, at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest Rate Caps
|
|
Derivative liabilities, at fair value
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
TBA Derivatives
|
|
Derivative liabilities, at fair value
|
|
2,140,300
|
|
|
(6,586
|
)
|
|
1,870,000
|
|
|
(6,051
|
)
|
||||
Total derivative liabilities at fair value
|
|
|
|
$
|
2,140,300
|
|
|
$
|
(6,586
|
)
|
|
$
|
1,870,000
|
|
|
$
|
(6,051
|
)
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
Derivative Instrument Type
|
|
Location of Gain (Loss) on Derivative Instruments
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Interest rate swaps and caps
|
|
Swap and cap interest expense
|
|
$
|
(6,948
|
)
|
|
$
|
(12,493
|
)
|
|
$
|
(23,709
|
)
|
|
$
|
(45,670
|
)
|
Interest rate swaps, caps and TBA Derivatives
|
|
Net realized and unrealized gain (loss) on derivative instruments
|
|
22,117
|
|
|
63,625
|
|
|
2,781
|
|
|
(121,434
|
)
|
||||
Interest rate swaps, caps and TBA Derivatives
|
|
Net gain (loss) on derivative instruments
|
|
$
|
15,169
|
|
|
$
|
51,132
|
|
|
$
|
(20,928
|
)
|
|
$
|
(167,104
|
)
|
(in thousands)
|
September 30, 2017
|
|
|
December 31, 2016
|
|
||
Outstanding repurchase agreements
|
$
|
10,383,226
|
|
|
$
|
9,691,544
|
|
Interest accrued thereon
|
$
|
24,018
|
|
|
$
|
16,170
|
|
Weighted-average borrowing rate
|
1.27
|
%
|
|
0.89
|
%
|
||
Weighted-average remaining maturity (in days)
|
62
|
|
|
53
|
|
||
Fair value of pledged collateral
(1)
|
$
|
10,850,607
|
|
|
$
|
10,198,641
|
|
(1)
|
Collateral for repo borrowings consists of Agency RMBS and U.S. Treasuries.
|
|
Remaining contractual maturity
|
|||||||||||||||
September 30, 2017
|
|
Up to 30 days
|
|
30-90 days
|
|
Greater than 90 days
|
|
Total
|
||||||||
Agency RMBS
|
|
$
|
3,937,870
|
|
|
$
|
2,602,081
|
|
|
$
|
3,246,315
|
|
|
$
|
9,786,266
|
|
U.S. Treasuries
|
|
596,960
|
|
|
—
|
|
|
—
|
|
|
596,960
|
|
||||
Total
|
|
$
|
4,534,830
|
|
|
$
|
2,602,081
|
|
|
$
|
3,246,315
|
|
|
$
|
10,383,226
|
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2016
|
|
|
|
|
|
|
|
|
||||||||
Agency RMBS
|
|
$
|
4,113,286
|
|
|
$
|
3,694,937
|
|
|
$
|
1,883,321
|
|
|
$
|
9,691,544
|
|
Total
|
|
$
|
4,113,286
|
|
|
$
|
3,694,937
|
|
|
$
|
1,883,321
|
|
|
$
|
9,691,544
|
|
September 30, 2017
|
|
|
||||||||||||||
Asset Type
|
|
Repurchase Agreements
|
|
Derivative Instruments
*
|
|
Forward Settling Trades (TBAs)
|
|
Total
|
||||||||
Agency RMBS - fair value
|
|
$
|
10,254,745
|
|
|
$
|
34,269
|
|
|
$
|
2,001
|
|
|
$
|
10,291,015
|
|
U.S. Treasuries - fair value
|
|
595,862
|
|
|
34,227
|
|
|
—
|
|
|
630,089
|
|
||||
Accrued interest on pledged securities
|
|
28,880
|
|
|
190
|
|
|
11
|
|
|
29,081
|
|
||||
Cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total
|
|
$
|
10,879,487
|
|
|
$
|
68,686
|
|
|
$
|
2,012
|
|
|
$
|
10,950,185
|
|
December 31, 2016
|
|
|
||||||||||||||
Asset Type
|
|
Repurchase Agreements
|
|
Derivative Instruments
*
|
|
Forward Settling Trades (TBAs)
|
|
Total
|
||||||||
Agency RMBS - fair value
|
|
$
|
10,197,244
|
|
|
$
|
33,311
|
|
|
$
|
2,610
|
|
|
$
|
10,233,165
|
|
U.S. Treasuries - fair value
|
|
1,397
|
|
|
45,730
|
|
|
—
|
|
|
47,127
|
|
||||
Accrued interest on pledged securities
|
|
27,730
|
|
|
87
|
|
|
7
|
|
|
27,824
|
|
||||
Cash
|
|
—
|
|
|
600
|
|
|
—
|
|
|
600
|
|
||||
Total
|
|
$
|
10,226,371
|
|
|
$
|
79,728
|
|
|
$
|
2,617
|
|
|
$
|
10,308,716
|
|
September 30, 2017
|
|
|
||||||||||||||
Asset Type
|
|
Repurchase Agreements
|
|
Derivative Instruments
*
|
|
Forward Settling Trades (TBAs)
|
|
Total
|
||||||||
Agency RMBS - fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. Treasuries - fair value
|
|
—
|
|
|
12,994
|
|
|
—
|
|
|
12,994
|
|
||||
Accrued interest on pledged securities
|
|
—
|
|
|
67
|
|
|
—
|
|
|
67
|
|
||||
Cash
|
|
—
|
|
|
77,326
|
|
|
—
|
|
|
77,326
|
|
||||
Total
|
|
$
|
—
|
|
|
$
|
90,387
|
|
|
$
|
—
|
|
|
$
|
90,387
|
|
December 31, 2016
|
|
|
||||||||||||||
Asset Type
|
|
Repurchase Agreements
|
|
Derivative Instruments
*
|
|
Forward Settling Trades (TBAs)
|
|
Total
|
||||||||
Agency RMBS - fair value
|
|
$
|
—
|
|
|
$
|
3,016
|
|
|
$
|
1,293
|
|
|
$
|
4,309
|
|
U.S. Treasuries - fair value
|
|
—
|
|
|
29,937
|
|
|
—
|
|
|
29,937
|
|
||||
Accrued interest on pledged securities
|
|
—
|
|
|
1,788
|
|
|
4
|
|
|
1,792
|
|
||||
Cash
|
|
—
|
|
|
90,779
|
|
|
724
|
|
|
91,503
|
|
||||
Total
|
|
$
|
—
|
|
|
$
|
125,520
|
|
|
$
|
2,021
|
|
|
$
|
127,541
|
|
September 30, 2017
|
|
Assets
|
|
Liabilities
|
||||
Interest rate swap contracts
|
|
$
|
79,300
|
|
|
$
|
—
|
|
Interest rate cap contracts
|
|
27,860
|
|
|
—
|
|
||
TBA derivatives
|
|
428
|
|
|
6,586
|
|
||
Total derivative assets and liabilities
|
|
107,588
|
|
|
6,586
|
|
||
Derivatives not subject to a Master Netting Agreement
|
|
78,084
|
|
|
—
|
|
||
Total assets and liabilities subject to a Master Netting Agreement
|
|
$
|
29,504
|
|
|
$
|
6,586
|
|
|
|
|
|
|
||||
December 31, 2016
|
|
Assets
|
|
Liabilities
|
||||
Interest rate swap contracts
|
|
$
|
80,608
|
|
|
$
|
—
|
|
Interest rate cap contracts
|
|
42,532
|
|
|
—
|
|
||
TBA derivatives
|
|
19,416
|
|
|
6,051
|
|
||
Total derivative assets and liabilities
|
|
142,556
|
|
|
6,051
|
|
||
Derivatives not subject to a Master Netting Agreement
|
|
75,033
|
|
|
—
|
|
||
Total assets and liabilities subject to a Master Netting Agreement
|
|
$
|
67,523
|
|
|
$
|
6,051
|
|
Assets
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets
|
|
|
||||||||||
As of
|
|
Description
|
|
Amount of Assets Presented in the Consolidated Balance Sheets
|
|
Instruments Available for Offset
|
|
Collateral Received
(1)
|
|
Net Amount
(2)
|
||||||||
September 30, 2017
|
|
Derivative assets
|
|
$
|
29,504
|
|
|
$
|
317
|
|
|
$
|
26,531
|
|
|
$
|
2,656
|
|
December 31, 2016
|
|
Derivative assets
|
|
67,523
|
|
|
3,145
|
|
|
49,801
|
|
|
14,577
|
|
Liabilities
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets
|
|
|
||||||||||
As of
|
|
Description
|
|
Amount of Liabilities Presented in the Consolidated Balance Sheets
|
|
Instruments Available for Offset
|
|
Collateral Pledged
(1)
|
|
Net Amount
(2)
|
||||||||
September 30, 2017
|
|
Derivative liabilities
|
|
$
|
6,586
|
|
|
$
|
317
|
|
|
$
|
6,269
|
|
|
$
|
—
|
|
September 30, 2017
|
|
Repurchase agreements and FHLBC Advances
|
|
10,383,226
|
|
|
—
|
|
|
10,383,226
|
|
|
—
|
|
||||
December 31, 2016
|
|
Derivative liabilities
|
|
6,051
|
|
|
3,145
|
|
|
2,906
|
|
|
—
|
|
||||
December 31, 2016
|
|
Repurchase agreements and FHLBC Advances
|
|
9,691,544
|
|
|
—
|
|
|
9,691,544
|
|
|
—
|
|
(1)
|
Collateral consists of Agency RMBS, U.S. Treasuries and Cash and cash equivalents. Excess collateral pledged is not shown for financial reporting purposes.
|
(2)
|
Net amount represents the net amount receivable from (in the case of assets) and payable to (in the case of liabilities) the counterparty in the event of default.
|
|
|
|
Level 1: Generally includes only unadjusted quoted prices that are available in active markets for identical financial instruments as of the reporting date.
|
|
|
|
Level 2: Pricing inputs include quoted prices in active markets for similar instruments, quoted prices in less active or inactive markets for identical or similar instruments where multiple price quotes can be obtained, and other observable inputs, such as interest rates and yield curves.
|
|
|
|
Level 3: Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. These inputs require significant judgment or estimation by management when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2.
|
September 30, 2017
|
Fair Value Measurements Using
|
||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Agency RMBS
|
$
|
—
|
|
|
$
|
12,092,527
|
|
|
$
|
—
|
|
|
$
|
12,092,527
|
|
U.S. Treasuries
|
1,017,964
|
|
|
—
|
|
|
—
|
|
|
1,017,964
|
|
||||
Derivative assets
|
—
|
|
|
107,588
|
|
|
—
|
|
|
107,588
|
|
||||
Other investments
|
—
|
|
|
—
|
|
|
8,028
|
|
|
8,028
|
|
||||
Total
|
$
|
1,017,964
|
|
|
$
|
12,200,115
|
|
|
$
|
8,028
|
|
|
$
|
13,226,107
|
|
Liabilities
|
|
|
|
|
|
|
|
||||||||
Derivative liabilities
|
—
|
|
|
6,586
|
|
|
—
|
|
|
6,586
|
|
||||
Total
|
$
|
—
|
|
|
$
|
6,586
|
|
|
$
|
—
|
|
|
$
|
6,586
|
|
December 31, 2016
|
Fair Value Measurements Using
|
||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Agency RMBS
|
$
|
—
|
|
|
$
|
12,599,045
|
|
|
$
|
—
|
|
|
$
|
12,599,045
|
|
U.S. Treasuries
|
49,686
|
|
|
—
|
|
|
—
|
|
|
49,686
|
|
||||
Derivative assets
|
—
|
|
|
142,556
|
|
|
—
|
|
|
142,556
|
|
||||
Other investments
|
—
|
|
|
—
|
|
|
8,028
|
|
|
8,028
|
|
||||
Total
|
$
|
49,686
|
|
|
$
|
12,741,601
|
|
|
$
|
8,028
|
|
|
$
|
12,799,315
|
|
Liabilities
|
|
|
|
|
|
|
|
||||||||
FHLBC Advances
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Derivative liabilities
|
—
|
|
|
6,051
|
|
|
—
|
|
|
6,051
|
|
||||
Total
|
$
|
—
|
|
|
$
|
6,051
|
|
|
$
|
—
|
|
|
$
|
6,051
|
|
Level 3 Fair Value Reconciliation
|
|
|
|
||||
(In thousands)
|
Three and Nine Months Ended September 30,
|
||||||
Other investments
|
2017
|
|
2016
|
||||
Beginning balance Level 3 assets
|
$
|
8,028
|
|
|
$
|
8,028
|
|
Change in net unrealized gain (loss)
|
—
|
|
|
—
|
|
||
Gross purchases
|
—
|
|
|
—
|
|
||
Gross sales
|
—
|
|
|
—
|
|
||
Net gain (loss) on sales
|
—
|
|
|
—
|
|
||
Transfers into (out of) Level 3
|
—
|
|
|
—
|
|
||
Ending balance Level 3 assets
|
$
|
8,028
|
|
|
$
|
8,028
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net income (loss)
|
$
|
88,185
|
|
|
$
|
79,010
|
|
|
$
|
172,430
|
|
|
$
|
196,551
|
|
Less dividends on preferred shares
|
(5,203
|
)
|
|
(5,203
|
)
|
|
(15,609
|
)
|
|
(15,609
|
)
|
||||
Net income (loss) available to common stockholders
|
82,982
|
|
|
73,807
|
|
|
156,821
|
|
|
180,942
|
|
||||
Less dividends paid:
|
|
|
|
|
|
|
|
||||||||
Common shares
|
(38,516
|
)
|
|
(37,599
|
)
|
|
(113,910
|
)
|
|
(114,312
|
)
|
||||
Unvested shares
|
(232
|
)
|
|
(254
|
)
|
|
(697
|
)
|
|
(789
|
)
|
||||
Undistributed earnings (loss)
|
44,234
|
|
|
35,954
|
|
|
42,214
|
|
|
65,841
|
|
||||
Basic weighted-average shares outstanding:
|
|
|
|
|
|
|
|
||||||||
Common shares
|
151,562
|
|
|
150,378
|
|
|
150,981
|
|
|
150,520
|
|
||||
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
||||||||
Distributed earnings
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.75
|
|
|
$
|
0.76
|
|
Undistributed earnings (loss)
|
0.29
|
|
|
0.24
|
|
|
0.28
|
|
|
0.43
|
|
||||
Basic earnings (loss) per common share
|
$
|
0.54
|
|
|
$
|
0.49
|
|
|
$
|
1.03
|
|
|
$
|
1.19
|
|
Diluted weighted-average shares outstanding:
|
|
|
|
|
|
|
|
||||||||
Common shares
|
151,562
|
|
|
150,378
|
|
|
150,981
|
|
|
150,520
|
|
||||
Net effect of dilutive stock options
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
|
151,562
|
|
|
150,378
|
|
|
150,981
|
|
|
150,520
|
|
||||
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
||||||||
Distributed earnings
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.75
|
|
|
$
|
0.76
|
|
Undistributed earnings
|
0.29
|
|
|
0.24
|
|
|
0.28
|
|
|
0.43
|
|
||||
Diluted earnings (loss) per common share
|
$
|
0.54
|
|
|
$
|
0.49
|
|
|
$
|
1.03
|
|
|
$
|
1.19
|
|
(1)
|
For the
three and nine months ended
September 30, 2017
and
2016
, the Company had no stock options outstanding.
|
Years Ending December 31,
|
|
Lease Commitments
|
||
2017 (remaining)
|
|
$
|
89
|
|
2018
|
|
363
|
|
|
2019
|
|
373
|
|
|
2020
|
|
383
|
|
|
2021
|
|
393
|
|
|
Thereafter
|
|
606
|
|
|
|
|
$
|
2,207
|
|
•
|
Forward-Looking Statements,
|
•
|
Executive Overview,
|
•
|
Trends and Recent Market Activity,
|
•
|
Financial Condition,
|
•
|
Summary Financial Data,
|
•
|
Results of Operations,
|
•
|
Off-Balance Sheet Arrangements,
|
•
|
Liquidity and Capital Resources,
|
•
|
Quantitative and Qualitative Disclosures about Short-Term Borrowings, and
|
•
|
Inflation
|
•
|
the effect of movements in interest rates on our assets, liabilities, and hedging instruments, and our net income;
|
•
|
our investment, financing and hedging strategies;
|
•
|
the effect of U.S. government and foreign central bank actions on interest rates and the housing and credit markets, government sponsored entities and the economy;
|
•
|
the effect of actual or proposed actions of the U.S. Federal Reserve (the "Fed"), the Federal Housing Finance Agency (the "FHFA") and the Fed Open Market Committee (the "FOMC") with respect to monetary policy, interest rates, inflation, unemployment or reducing the purchase of assets by the Fed;
|
•
|
the effect of regulations that prevent or restrict the use of Agency RMBS or U.S. Treasuries as collateral for borrowings;
|
•
|
the supply and availability of Agency RMBS;
|
•
|
the effect of increased prepayment rates on the value of our assets;
|
•
|
our ability to convert our assets into cash and cash equivalents or extend the financing terms related to our assets;
|
•
|
the effect of widening credit spreads or shifts in the yield curve on the value of our assets and investment strategy;
|
•
|
the types of indebtedness we may incur;
|
•
|
our ability to achieve anticipated benefits from interest rate swaps and caps;
|
•
|
our ability to quantify risks based on historical experience;
|
•
|
our ability to be taxed as a real estate investment trust ("REIT") and to maintain an exemption from registration under the Investment Company Act of 1940, as amended (the "Investment Company Act");
|
•
|
the tax limitations of capital loss carryforwards;
|
•
|
our assessment of counterparty risk and/or the rise of counterparty defaults;
|
•
|
our ability to meet short-term liquidity requirements with our cash flow from operations and borrowings;
|
•
|
the effect of rising interest rates on unemployment, inflation and mortgage supply and demand;
|
•
|
our liquidity;
|
•
|
our borrowing costs;
|
•
|
changes in our investment guidelines and the composition of our investment portfolio;
|
•
|
our asset valuation policies; and
|
•
|
our dividend distribution policy.
|
•
|
the factors referenced in this Quarterly Report;
|
•
|
changes in our investment, financing and hedging strategies;
|
•
|
the liquidity of our portfolio and our ability to borrow to finance our assets;
|
•
|
the adequacy of our cash flow from operations and borrowings to meet our short- and long-term liquidity requirements;
|
•
|
unanticipated changes in our industry, interest rates, the credit markets, the general economy or the real estate market;
|
•
|
changes in interest rates and the market value of our Agency RMBS;
|
•
|
changes in the prepayment rates on the mortgage loans underlying our Agency RMBS;
|
•
|
actions by the U.S. government or the Fed that impact the value of our Agency RMBS, interest rates or the economy;
|
•
|
changes in regulations affecting our business;
|
•
|
changes in the U.S. government's credit rating or ability to pay its debts;
|
•
|
our ability to maintain our qualification as a REIT for federal income tax purposes;
|
•
|
our ability to maintain our exemption from registration under the Investment Company Act and the availability of such exemption in the future; and
|
•
|
risks associated with investing in real estate assets, including changes in business conditions and the general economy.
|
(1)
|
TBAs are excluded from this calculation as they do not have a defined weighted-average loan balance or age until mortgages have been assigned to the pool.
|
(2)
|
The Constant Prepayment Rate ("CPR") represents the 3-month CPR of the Company’s Agency RMBS held at
September 30, 2017
and
December 31, 2016
. The CPR experienced by the Company during the period may differ. Securities with no prepayment history are excluded from this calculation.
|
(3)
|
Duration measures the market price volatility of financial instruments as interest rates change, using Dollar Value of One Basis Point, or "DV01", methodology. We generally calculate duration using various third-party financial models and empirical data. Different models and methodologies can produce different estimates of duration for the same securities. Duration estimates in the table are calculated utilizing Yield Book® software and may reflect adjustments based on our judgment.
|
(4)
|
Includes $400.6 million of forward settling transactions at December 31, 2016.
|
(5)
|
Coupon represents the weighted-average coupon of Agency Hybrid ARMs.
|
*
|
Includes TBA Derivatives with a fair value of
$(0.2) billion
and $(308.8) million at
September 30, 2017
and
December 31, 2016
, respectively.
|
|
|
|
|
|
|
Weighted-Average
|
|
|
||||||||||
September 30, 2017
|
|
Number of Contracts
|
|
Notional (000's)
|
|
Rate
|
|
Maturity
|
|
Duration
|
|
Fair Value (000's)
|
||||||
Interest Rate Swaps
|
|
22
|
|
$
|
6,475,000
|
|
|
1.41
|
%
|
|
April 2021
|
|
(3.15
|
)
|
|
$
|
79,300
|
|
Interest Rate Caps
|
|
5
|
|
2,500,000
|
|
|
1.28
|
%
|
|
January 2020
|
|
(1.89
|
)
|
|
27,860
|
|
||
|
|
27
|
|
$
|
8,975,000
|
|
|
1.38
|
%
|
|
December 2020
|
|
(2.80
|
)
|
|
$
|
107,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest Rate Swaps
|
|
17
|
|
$
|
6,450,000
|
|
|
1.23
|
%
|
|
January 2020
|
|
(2.72
|
)
|
|
$
|
80,608
|
|
Interest Rate Caps
|
|
5
|
|
2,500,000
|
|
|
1.28
|
%
|
|
January 2020
|
|
(1.94
|
)
|
|
42,532
|
|
||
|
|
22
|
|
$
|
8,950,000
|
|
|
1.24
|
%
|
|
January 2020
|
|
(2.50
|
)
|
|
$
|
123,140
|
|
September 30, 2017
|
|
|
|
|
|
Weighted-Average
|
||||||
Original Days to Maturity by Collateral Type
|
|
Repo Borrowings Outstanding
|
|
Percentage of Total
|
|
Interest Rate
|
|
Remaining Days to Maturity
|
|
Original Days to Maturity
|
||
Agency RMBS
|
|
|
|
|
|
|
|
|
|
|
||
≤ 30 Days
|
|
$
|
2,522,264
|
|
|
24%
|
|
1.31%
|
|
14
|
|
26
|
> 30 to ≤ 60 Days
|
|
458,851
|
|
|
4%
|
|
1.28%
|
|
7
|
|
44
|
|
> 60 Days
|
|
6,805,151
|
|
|
66%
|
|
1.34%
|
|
88
|
|
179
|
|
Subtotal
|
|
$
|
9,786,266
|
|
|
94%
|
|
1.33%
|
|
65
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
||
U.S. Treasuries
|
|
|
|
|
|
|
|
|
|
|
||
≤ 30 Days
|
|
$
|
596,960
|
|
|
6%
|
|
0.33%
|
|
9
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
||
Total
|
|
$
|
10,383,226
|
|
|
100%
|
|
1.27%
|
|
62
|
|
126
|
December 31, 2016
|
|
|
|
|
|
Weighted-Average
|
||||||
Original Days to Maturity by Collateral Type
|
|
Repo Borrowings Outstanding
|
|
Percentage of Total
|
|
Interest Rate
|
|
Remaining Days to Maturity
|
|
Original Days to Maturity
|
||
Agency RMBS
|
|
|
|
|
|
|
|
|
|
|
||
≤ 30 Days
|
|
$
|
651,032
|
|
|
7%
|
|
0.83%
|
|
5
|
|
11
|
> 30 to ≤ 60 Days
|
|
1,135,428
|
|
|
12%
|
|
0.89%
|
|
16
|
|
45
|
|
> 60 Days
|
|
7,905,084
|
|
|
81%
|
|
0.90%
|
|
63
|
|
139
|
|
Total
|
|
$
|
9,691,544
|
|
|
100%
|
|
0.89%
|
|
53
|
|
119
|
September 30, 2017
|
|
|
|
|
||||
Settle Date
|
|
Face Value
|
|
Payable
|
||||
October 2017
|
|
$
|
786,213
|
|
|
$
|
796,827
|
|
November 2017
|
|
450,000
|
|
|
467,812
|
|
||
|
|
$
|
1,236,213
|
|
|
$
|
1,264,639
|
|
December 31, 2016
|
|
|
|
|
||||
Settle Date
|
|
Face Value
|
|
Payable
|
||||
January 2017
|
|
$
|
1,376,248
|
|
|
$
|
1,418,658
|
|
February 2017
|
|
450,045
|
|
|
463,305
|
|
||
|
|
$
|
1,826,293
|
|
|
$
|
1,881,963
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(dollars in thousands, except per share data)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Income Statement Data:
|
|
|
|
|
|
|
|
||||||||
Interest income
|
$
|
78,961
|
|
|
$
|
69,661
|
|
|
$
|
229,362
|
|
|
$
|
225,969
|
|
Interest expense
|
31,971
|
|
|
17,479
|
|
|
79,374
|
|
|
54,111
|
|
||||
Net interest income
|
46,990
|
|
|
52,182
|
|
|
149,988
|
|
|
171,858
|
|
||||
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net realized and unrealized gain (loss) on investments, FHLBC Advances and other income
|
31,160
|
|
|
(18,077
|
)
|
|
60,148
|
|
|
210,236
|
|
||||
Net gain (loss) on derivative instruments
|
15,169
|
|
|
51,132
|
|
|
(20,928
|
)
|
|
(167,104
|
)
|
||||
Total other income (loss)
|
46,329
|
|
|
33,055
|
|
|
39,220
|
|
|
43,132
|
|
||||
Expenses:
|
|
|
|
|
|
|
|
||||||||
Compensation and benefits
|
2,994
|
|
|
3,619
|
|
|
9,774
|
|
|
11,049
|
|
||||
General, administrative and other
|
2,140
|
|
|
2,608
|
|
|
7,004
|
|
|
7,390
|
|
||||
Total expenses
|
5,134
|
|
|
6,227
|
|
|
16,778
|
|
|
18,439
|
|
||||
Net income (loss)
|
$
|
88,185
|
|
|
$
|
79,010
|
|
|
$
|
172,430
|
|
|
$
|
196,551
|
|
Dividends on preferred stock
|
(5,203
|
)
|
|
(5,203
|
)
|
|
(15,609
|
)
|
|
(15,609
|
)
|
||||
Net income (loss) available to common stockholders
|
$
|
82,982
|
|
|
$
|
73,807
|
|
|
$
|
156,821
|
|
|
$
|
180,942
|
|
Net income (loss) per common share basic & diluted
|
$
|
0.54
|
|
|
$
|
0.49
|
|
|
$
|
1.03
|
|
|
$
|
1.19
|
|
Dividends per common share
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.75
|
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
||||||||
Key Balance Sheet Metrics
|
|
|
|
|
|
|
|
||||||||
Average settled Debt Securities
(1)
|
$
|
11,335,599
|
|
|
$
|
11,725,021
|
|
|
$
|
11,034,025
|
|
|
$
|
11,840,707
|
|
Average total Debt Securities
(2)
|
$
|
12,722,188
|
|
|
$
|
13,596,739
|
|
|
$
|
12,570,245
|
|
|
$
|
13,271,207
|
|
Average repurchase agreements and FHLBC Advances
(3)
|
$
|
9,820,318
|
|
|
$
|
10,223,051
|
|
|
$
|
9,505,921
|
|
|
$
|
10,378,241
|
|
Average Debt Securities liabilities
(4)
|
$
|
11,206,907
|
|
|
$
|
12,094,769
|
|
|
$
|
11,042,141
|
|
|
$
|
11,808,741
|
|
Average stockholders' equity
(5)
|
$
|
1,570,974
|
|
|
$
|
1,749,543
|
|
|
$
|
1,558,118
|
|
|
$
|
1,733,149
|
|
Average common shares outstanding
(6)
|
152,487
|
|
|
151,414
|
|
|
151,930
|
|
|
151,552
|
|
||||
Leverage ratio (at period end)
(7)
|
7.02:1
|
|
|
6.96:1
|
|
|
7.02:1
|
|
|
6.96:1
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(dollars in thousands, except per share data)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Hedge Ratio
(8)
|
86
|
%
|
|
93
|
%
|
|
86
|
%
|
|
93
|
%
|
||||
Book value per common share (at period end)
(9)
|
$
|
8.60
|
|
|
$
|
9.79
|
|
|
$
|
8.60
|
|
|
$
|
9.79
|
|
Weighted-average amortized cost of Agency RMBS and U.S. Treasuries
(10)
|
$
|
103.01
|
|
|
$
|
103.72
|
|
|
$
|
103.01
|
|
|
$
|
103.72
|
|
|
|
|
|
|
|
|
|
||||||||
Key Performance Metrics*
|
|
|
|
|
|
|
|
||||||||
Average yield on settled Debt Securities
(11)
|
2.79
|
%
|
|
2.38
|
%
|
|
2.77
|
%
|
|
2.54
|
%
|
||||
Average yield on total Debt Securities including Drop Income
(12)
|
2.71
|
%
|
|
2.36
|
%
|
|
2.70
|
%
|
|
2.52
|
%
|
||||
Average cost of funds
(13)
|
1.30
|
%
|
|
0.68
|
%
|
|
1.11
|
%
|
|
0.70
|
%
|
||||
Average cost of funds and hedge
(14)
|
1.59
|
%
|
|
1.17
|
%
|
|
1.45
|
%
|
|
1.28
|
%
|
||||
Adjusted average cost of funds and hedge
(15)
|
1.39
|
%
|
|
0.99
|
%
|
|
1.24
|
%
|
|
1.13
|
%
|
||||
Interest rate spread net of hedge
(16)
|
1.20
|
%
|
|
1.21
|
%
|
|
1.32
|
%
|
|
1.26
|
%
|
||||
Interest rate spread net of hedge including Drop Income
(17)
|
1.32
|
%
|
|
1.37
|
%
|
|
1.46
|
%
|
|
1.39
|
%
|
||||
Operating expense ratio
(18)
|
1.31
|
%
|
|
1.42
|
%
|
|
1.44
|
%
|
|
1.42
|
%
|
||||
Total stockholder return on common equity
(19)
|
6.50
|
%
|
|
5.13
|
%
|
|
12.24
|
%
|
|
12.71
|
%
|
||||
CPR (weighted-average experienced 1-month)
(20)
|
9.5
|
%
|
|
14.0
|
%
|
|
8.4
|
%
|
|
11.4
|
%
|
(1)
|
The average settled Debt Securities is calculated by
averaging
the month end cost basis of settled Debt Securities during the period.
|
(2)
|
The average total Debt Securities is calculated by
averaging
the month end cost basis of total Debt Securities and unsettled Debt Securities (inclusive of TBA Derivatives) during the period.
|
(3)
|
The average repurchase agreements and FHLBC Advances are calculated by
averaging
the month-end repurchase agreements and FHLBC Advances balances during the period.
|
(4)
|
The average Debt Securities liabilities are calculated by
adding
the average month-end repurchase agreements and FHLBC Advances balances plus average unsettled Debt Securities (inclusive of TBA Derivatives) during the period.
|
(5)
|
The average stockholders' equity is calculated by
averaging
the month-end stockholders' equity during the period.
|
(6)
|
The average common shares outstanding are calculated by
averaging
the daily common shares outstanding during the period.
|
(7)
|
The leverage ratio is calculated by
dividing
(i) the Company's repurchase agreements and FHLBC Advances balance plus payable for securities purchased
minus
receivable for securities sold
plus
the net TBA Derivatives positions by (ii) stockholders' equity.
|
(8)
|
The Hedge ratio for the period is calculated by
dividing
Interest Rate Swaps and Interest Rate Caps notional amount by total repurchase agreements.
|
(9)
|
Book value per common share is calculated by
dividing
total stockholders' equity
less
the liquidation value of preferred stock at period end by common shares outstanding at period end.
|
(10)
|
The weighted-average amortized cost of Agency RMBS and U.S. Treasuries is calculated using the weighted-average amortized cost by security
divided
by the current face at period end.
|
(11)
|
The average yield on settled Debt Securities for the period is calculated by
dividing
total interest income by average settled Debt Securities.
|
(12)
|
The average yield on total Debt Securities including Drop Income for the period is calculated by
dividing
total interest income plus Drop Income by average total Debt Securities. Drop Income was
$7.2 million
and
$10.5 million
for the
three months ended
September 30, 2017
and
2016
, respectively. Drop Income was
$25.3 million
and
$24.8 million
for the
nine months ended
September 30, 2017
and
2016
, respectively. Drop Income is a component of our net realized and unrealized gain (loss) on investments and net realized and unrealized gain (loss) on derivative instruments in the accompanying unaudited Consolidated Statements of Operations. Drop Income is the difference between the spot price and the forward settlement price for the same security on trade date. This difference is also the economic equivalent of the assumed net interest margin (yield
minus
financing costs) of the bond from trade date to settlement date. We derive Drop Income through utilization of forward settling transactions.
|
(13)
|
The average cost of funds for the period is calculated by
dividing
repurchase agreement and FHLBC Advances interest expense by average repurchase agreements and FHLBC Advances for the period.
|
(14)
|
The average cost of funds and hedge for the period is calculated by
dividing
repurchase agreement, FHLBC Advances and swap and cap interest expense by average repurchase agreements and FHLBC Advances.
|
(15)
|
The adjusted average cost of funds and hedge for the period is calculated by
dividing
repurchase agreement, FHLBC Advances and swap and cap interest expense by average Debt Securities liabilities.
|
(16)
|
The interest rate spread net of hedge for the period is calculated by
subtracting
average cost of funds and hedge from average yield on settled Debt Securities.
|
(17)
|
The interest rate spread net of hedge including Drop Income for the period is calculated by
subtracting
adjusted average cost of funds and hedge from average yield on total Debt Securities including Drop Income.
|
(18)
|
The operating expense ratio for the period is calculated by
dividing
operating expenses by average stockholders' equity.
|
(19)
|
The total stockholder return on common equity is calculated as the change in book value
plus
dividend distributions on common stock
divided
by book value at the beginning of the period
.
|
(20)
|
T
he CPR represents the weighted-average 1-month CPR of the Company's Agency RMBS during the period.
|
*
|
All percentages are annualized except total stockholder return on common equity.
|
(In thousands)
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
Non-GAAP Reconciliation:
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net income (loss) available to common stockholders
|
$
|
82,982
|
|
|
$
|
73,807
|
|
|
$
|
156,821
|
|
|
$
|
180,942
|
|
Net realized (gain) loss on investments
|
5,215
|
|
|
(18,155
|
)
|
|
91,090
|
|
|
(55,716
|
)
|
||||
Net unrealized (gain) loss on investments
|
(36,337
|
)
|
|
36,540
|
|
|
(151,114
|
)
|
|
(154,661
|
)
|
||||
Net realized and unrealized (gain) loss on derivative instruments
|
(22,117
|
)
|
|
(63,625
|
)
|
|
(2,781
|
)
|
|
121,434
|
|
||||
Net unrealized (gain) loss on FHLBC Advances
|
—
|
|
|
—
|
|
|
—
|
|
|
1,299
|
|
||||
Core Earnings
|
$
|
29,743
|
|
|
$
|
28,567
|
|
|
$
|
94,016
|
|
|
$
|
93,298
|
|
|
Three Months Ended September 30,
|
|||||||||||||
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|||||||
Net interest income
|
$
|
46,990
|
|
|
$
|
52,182
|
|
|
$
|
(5,192
|
)
|
|
(9.9
|
)%
|
Swap and cap interest expense
|
6,948
|
|
|
12,493
|
|
|
(5,545
|
)
|
|
(44.4
|
)%
|
|||
Economic net interest income
|
$
|
40,042
|
|
|
$
|
39,689
|
|
|
$
|
353
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|||||||
Total interest expense
|
$
|
31,971
|
|
|
$
|
17,479
|
|
|
$
|
14,492
|
|
|
82.9
|
%
|
Swap and cap interest expense
|
6,948
|
|
|
12,493
|
|
|
(5,545
|
)
|
|
(44.4
|
)%
|
|||
Economic interest expense
|
$
|
38,919
|
|
|
$
|
29,972
|
|
|
$
|
8,947
|
|
|
29.9
|
%
|
|
Nine Months Ended September 30,
|
|||||||||||||
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|||||||
Net interest income
|
$
|
149,988
|
|
|
$
|
171,858
|
|
|
$
|
(21,870
|
)
|
|
(12.7
|
)%
|
Swap and cap interest expense
|
23,709
|
|
|
45,670
|
|
|
(21,961
|
)
|
|
(48.1
|
)%
|
|||
Economic net interest income
|
$
|
126,279
|
|
|
$
|
126,188
|
|
|
$
|
91
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|||||||
Total interest expense
|
$
|
79,374
|
|
|
$
|
54,111
|
|
|
$
|
25,263
|
|
|
46.7
|
%
|
Swap and cap interest expense
|
23,709
|
|
|
45,670
|
|
|
(21,961
|
)
|
|
(48.1
|
)%
|
|||
Economic interest expense
|
$
|
103,083
|
|
|
$
|
99,781
|
|
|
$
|
3,302
|
|
|
3.3
|
%
|
Change in Size
|
|
Change in Yield
|
|
Change in Size & Yield
|
|||||||||
Change in average settled
|
$
|
(389,422
|
)
|
|
Change in average yield
|
0.41
|
%
|
|
Change in average settled
|
$
|
(389,422
|
)
|
|
Q3 2016 average annualized yield
|
2.38
|
%
|
|
Q3 2016 average settled
|
$
|
11,725,021
|
|
|
Change in average yield
|
0.41
|
%
|
||
Quarterly change
|
$
|
(2,314
|
)
|
|
Quarterly change
|
$
|
12,013
|
|
|
Quarterly change
|
$
|
(399
|
)
|
|
|
|
|
|
|
Total change
|
$
|
9,300
|
|
Change in Size
|
|
Change in Rate
|
|
Change in Size & Yield
|
|||||||||
Change in average outstanding
|
$
|
(402,733
|
)
|
|
Change in average rate
|
0.62
|
%
|
|
Change in average outstanding
|
$
|
(402,733
|
)
|
|
2016 average rate
|
0.68
|
%
|
|
2016 average outstanding
|
$
|
10,223,051
|
|
|
Change in average rate
|
0.62
|
%
|
||
Quarterly change
|
$
|
(689
|
)
|
|
Quarterly change
|
$
|
15,804
|
|
|
Quarterly change
|
$
|
(623
|
)
|
|
|
|
|
|
|
Total change
|
$
|
14,492
|
|
Change in Size
|
|
Change in Swap and Cap Net Pay Rate
|
|
Change in Size & Rate
|
|||||||||
Change in average notional outstanding
|
$
|
(312,500
|
)
|
|
Change in average rate
|
(0.23
|
)%
|
|
Change in average notional outstanding
|
$
|
(312,500
|
)
|
|
2016 average rate
|
0.54
|
%
|
|
2016 average notional outstanding
|
$
|
9,325,000
|
|
|
Change in average rate
|
(0.23
|
)%
|
||
Quarterly change
|
$
|
(419
|
)
|
|
Quarterly change
|
$
|
(5,304
|
)
|
|
Quarterly change
|
$
|
178
|
|
|
|
|
|
|
|
Total change
|
$
|
(5,545
|
)
|
Change in Size
|
|
Change in Yield
|
|
Change in Size & Yield
|
|||||||||
Change in average settled
|
$
|
(806,682
|
)
|
|
Change in average yield
|
0.23
|
%
|
|
Change in average settled
|
$
|
(806,682
|
)
|
|
2016 average yield
|
2.54
|
%
|
|
2016 average settled
|
$
|
11,840,707
|
|
|
Change in average yield
|
0.23
|
%
|
||
Change
|
$
|
(15,395
|
)
|
|
Change
|
$
|
20,162
|
|
|
Change
|
$
|
(1,374
|
)
|
|
|
|
|
|
|
Total change
|
$
|
3,393
|
|
Change in Size
|
|
Change in Rate
|
|
Change in Size & Yield
|
|||||||||
Change in average outstanding
|
$
|
(872,320
|
)
|
|
Change in average rate
|
0.41
|
%
|
|
Change in average outstanding
|
$
|
(872,320
|
)
|
|
2016 average rate
|
0.70
|
%
|
|
2016 average outstanding
|
$
|
10,378,241
|
|
|
Change in average rate
|
0.41
|
%
|
||
Change
|
$
|
(4,548
|
)
|
|
Change
|
$
|
32,547
|
|
|
Change
|
$
|
(2,736
|
)
|
|
|
|
|
|
|
Total change
|
$
|
25,263
|
|
Change in Size
|
|
Change in Swap and Cap Net Pay Rate
|
|
Change in Size & Rate
|
|||||||||
Change in average notional outstanding
|
$
|
(725,000
|
)
|
|
Change in average rate
|
(0.28
|
)%
|
|
Change in average notional outstanding
|
$
|
(725,000
|
)
|
|
2016 average rate
|
0.63
|
%
|
|
2016 average notional outstanding
|
$
|
9,700,000
|
|
|
Change in average rate
|
(0.28
|
)%
|
||
Change
|
$
|
(3,413
|
)
|
|
Change
|
$
|
(20,046
|
)
|
|
Change
|
$
|
1,498
|
|
|
|
|
|
|
|
Total change
|
$
|
(21,961
|
)
|
September 30, 2017
|
Within One Year
|
|
One to Three Years
|
|
Three to Five Years
|
|
Thereafter
|
|
Total
|
||||||||||
Repurchase agreements
|
$
|
10,383,226
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,383,226
|
|
Interest expense on repurchase agreements based on rates at September 30, 2017
|
48,083
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48,083
|
|
|||||
Long-term operating lease obligation
|
359
|
|
|
751
|
|
|
791
|
|
|
306
|
|
|
2,207
|
|
|||||
Total
|
$
|
10,431,668
|
|
|
$
|
751
|
|
|
$
|
791
|
|
|
$
|
306
|
|
|
$
|
10,433,516
|
|
Interest Rate Swaps
|
|
Weighted-Average
|
|
|
|
|
||||||||
Expiration Year
|
|
Fixed Pay Rate
|
|
Receive Rate
|
|
Net Pay Rate
|
|
Notional Amount
|
|
Fair Value
|
||||
2018
|
|
1.00%
|
|
1.32%
|
|
(0.32)%
|
|
$
|
1,500,000
|
|
|
$
|
2,950
|
|
2020
|
|
1.45%
|
|
1.30%
|
|
0.15%
|
|
1,750,000
|
|
|
20,695
|
|
||
2021
|
|
1.21%
|
|
1.31%
|
|
(0.10)%
|
|
1,700,000
|
|
|
41,051
|
|
||
2022
|
|
1.98%
|
|
1.31%
|
|
0.67%
|
|
500,000
|
|
|
513
|
|
||
2024
|
|
1.88%
|
|
1.32%
|
|
0.56%
|
|
625,000
|
|
|
10,650
|
|
||
2027
|
|
2.21%
|
|
1.32%
|
|
0.89%
|
|
400,000
|
|
|
3,441
|
|
||
Total
|
|
1.41%
|
|
1.31%
|
|
0.10%
|
|
$
|
6,475,000
|
|
|
$
|
79,300
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Rate Caps
|
|
Weighted-Average
|
|
|
|
|
||||||||
Expiration Year
|
|
Cap Rate
|
|
Receive Rate
|
|
Net Cap Pay Rate
|
|
Notional Amount
|
|
Fair Value
|
||||
2019
|
|
1.34%
|
|
0.81%
|
|
0.53%
|
|
$
|
800,000
|
|
|
$
|
5,102
|
|
2020
|
|
1.25%
|
|
1.33%
|
|
(0.08)%
|
|
1,700,000
|
|
|
22,758
|
|
||
Total
|
|
1.28%
|
|
1.16%
|
|
0.12%
|
|
$
|
2,500,000
|
|
|
$
|
27,860
|
|
Interest Rate Swaps
|
|
Weighted-Average
|
|
|
|
|
||||||||
Expiration Year
|
|
Fixed Pay Rate
|
|
Receive Rate
|
|
Net Pay Rate
|
|
Notional Amount
|
|
Fair Value
|
||||
2017
|
|
0.82%
|
|
0.94%
|
|
(0.12)%
|
|
$
|
1,000,000
|
|
|
$
|
2,316
|
|
2018
|
|
1.00%
|
|
0.91%
|
|
0.09%
|
|
1,500,000
|
|
|
4,359
|
|
||
2020
|
|
1.45%
|
|
0.86%
|
|
0.59%
|
|
1,750,000
|
|
|
23,474
|
|
||
2021
|
|
1.21%
|
|
0.89%
|
|
0.32%
|
|
1,700,000
|
|
|
48,931
|
|
||
2022
|
|
1.98%
|
|
0.88%
|
|
1.10%
|
|
500,000
|
|
|
1,528
|
|
||
Total
|
|
1.23%
|
|
0.89%
|
|
0.34%
|
|
$
|
6,450,000
|
|
|
$
|
80,608
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Rate Caps
|
|
Weighted-Average
|
|
Notional
|
|
Fair
|
||||||||
Expiration Year
|
|
Cap Rate
|
|
Receive Rate
|
|
Net Cap Pay Rate
|
|
Amount
|
|
Value
|
||||
2019
|
|
1.34%
|
|
—%
|
|
1.34%
|
|
$
|
800,000
|
|
|
$
|
8,051
|
|
2020
|
|
1.25%
|
|
—%
|
|
1.25%
|
|
1,700,000
|
|
|
34,481
|
|
||
Total
|
|
1.28%
|
|
—%
|
|
1.28%
|
|
$
|
2,500,000
|
|
|
$
|
42,532
|
|
|
|
Carrying Value as of
|
||||||
Unencumbered Liquid Assets
|
|
September 30, 2017
|
|
December 31, 2016
|
||||
Cash and cash equivalents
|
|
$
|
804
|
|
|
$
|
1,260
|
|
U.S. Treasuries
|
|
3,635
|
|
|
32,494
|
|
||
Agency RMBS
|
|
1,092,174
|
|
|
903,548
|
|
||
Total liquid assets
|
|
$
|
1,096,613
|
|
|
$
|
937,302
|
|
Unencumbered liquid assets as % of total stockholders' equity
|
|
68.2
|
%
|
|
61.0
|
%
|
|
|
September 30, 2017
|
||
Counterparty Region
|
|
Number of Counterparties
|
|
Percent of Total Outstanding Borrowings
|
North America
|
|
21
|
|
54.1%
|
Europe
|
|
8
|
|
25.9%
|
Asia
|
|
6
|
|
20.0%
|
|
|
35
|
|
100.0%
|
|
|
December 31, 2016
|
||
Counterparty Region
|
|
Number of Counterparties
|
|
Percent of Total Outstanding Borrowings
|
North America
|
|
22
|
|
60.4%
|
Europe
|
|
8
|
|
22.8%
|
Asia
|
|
5
|
|
16.8%
|
|
|
35
|
|
100.0%
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Outstanding at period end
|
$
|
10,383
|
|
|
$
|
9,621
|
|
|
$
|
10,383
|
|
|
$
|
9,621
|
|
Weighted-average rate at period end
|
1.27
|
%
|
|
0.77
|
%
|
|
1.27
|
%
|
|
0.77
|
%
|
||||
Average outstanding during period
(1)
|
$
|
9,820
|
|
|
$
|
10,111
|
|
|
$
|
9,506
|
|
|
$
|
10,086
|
|
Weighted-average rate during period
|
1.30
|
%
|
|
0.68
|
%
|
|
1.11
|
%
|
|
0.67
|
%
|
||||
Largest month end balance during period
|
$
|
10,383
|
|
|
$
|
10,787
|
|
|
$
|
10,383
|
|
|
$
|
10,787
|
|
(1)
|
Calculated based on the average month end balance of repurchase agreements and FHLBC Advances with initial maturities less than one year.
|
Interest Rate Change (bps)
|
|
Projected Change in Net Income
(1)
|
|
Projected Change in the Fair Value of Our Investments
(1)
|
|
Projected Change in Stockholders' Equity
|
|||
- 75
|
|
21.47
|
%
|
(2)(3)
|
0.35
|
%
|
|
2.84
|
%
|
- 50
|
|
17.18
|
%
|
(2)(3)
|
0.36
|
%
|
|
2.92
|
%
|
- 25
|
|
8.59
|
%
|
(2)(3)
|
0.25
|
%
|
|
2.03
|
%
|
+ 25
|
|
(10.74
|
)%
|
(2)
|
(0.40
|
)%
|
|
(3.21
|
)%
|
+ 50
|
|
(21.47
|
)%
|
(2)
|
(0.92
|
)%
|
|
(7.45
|
)%
|
+ 75
|
|
(32.21
|
)%
|
(2)
|
(1.55
|
)%
|
|
(12.56
|
)%
|
Interest Rate Change (bps)
|
|
Projected Change in Net Income
(1)
|
|
Projected Change in the Fair Value of Our Investments
(1)
|
|
Projected Change in Stockholders' Equity
|
|||
- 75
|
|
19.81
|
%
|
(2)(3)
|
0.71
|
%
|
|
5.78
|
%
|
- 50
|
|
16.23
|
%
|
(2)(3)
|
0.63
|
%
|
|
5.13
|
%
|
- 25
|
|
12.20
|
%
|
(2)(3)
|
0.38
|
%
|
|
3.10
|
%
|
+ 25
|
|
(10.08
|
)%
|
(2)
|
(0.47
|
)%
|
|
(3.83
|
)%
|
+ 50
|
|
(20.16
|
)%
|
(2)
|
(1.01
|
)%
|
|
(8.22
|
)%
|
+ 75
|
|
(30.24
|
)%
|
(2)
|
(1.63
|
)%
|
|
(13.21
|
)%
|
(1)
|
Projected changes in the table are calculated utilizing Yield Book® software and may reflect adjustments based on our judgment.
|
(3)
|
Given the historically low level of interest rates at
September 30, 2017
and
December 31, 2016
, we reduced 3-month LIBOR and our repo borrowing rates by 20, 40 and 50 bps and by 10, 20 and 30 bps for the 25, 50, and 75 bps down net income scenarios, respectively. All other interest rate-sensitive instruments were calculated in accordance with the table.
|
Period
|
|
Total Number of Shares Purchased
(1)
|
|
Average Price Paid Per Share
(1)
|
|
Dollar Value of Shares That May Yet Be Purchased
(1)
|
|||||
January 1, 2017 - January 31, 2017
|
|
—
|
|
|
$
|
—
|
|
|
$
|
155,502
|
|
February 1, 2017 - February 28, 2017
(2)
|
|
—
|
|
|
—
|
|
|
155,502
|
|
||
March 1, 2017 - March 31, 2017
|
|
—
|
|
|
—
|
|
|
155,502
|
|
||
April 1, 2017 - April 30, 2017
|
|
—
|
|
|
—
|
|
|
155,502
|
|
||
May 1, 2017 - May 31, 2017
|
|
—
|
|
|
—
|
|
|
155,502
|
|
||
June 1, 2017 - June 30, 2017
|
|
—
|
|
|
—
|
|
|
155,502
|
|
||
July 1, 2017 - July 31, 2017
|
|
—
|
|
|
—
|
|
|
155,502
|
|
||
August 1, 2017 - August 31, 2017
|
|
—
|
|
|
—
|
|
|
155,502
|
|
||
September 1, 2017 - September 30, 2017
|
|
—
|
|
|
—
|
|
|
155,502
|
|
||
Total
|
|
—
|
|
|
$
|
—
|
|
|
|
•
|
remove the requirement that the Company’s annual meeting take place during the month of May;
|
•
|
add a requirement that any stockholder requesting a special meeting agree to update the request;
|
•
|
specify that a stockholder’s special meeting request will be deemed to be revoked to the extent of any shares owned by the requesting stockholder at the time of request but subsequently disposed of prior to the special meeting;
|
•
|
clarify that notices of stockholders meetings may be given electronically;
|
•
|
provide (a) that notices apply to a stockholders entire household, as permitted by the MGCL and SEC proxy rules and (b) that a minor irregularity in providing notice of a stockholders meeting will not affect the validity of the meeting;
|
•
|
provide that the Company may postpone or cancel a stockholder meeting, for any reason as permitted by applicable law and exchange rules, by making a public announcement;
|
•
|
provide a more comprehensive treatment of, and give more explicit powers to, the chairman and inspectors of the meeting;
|
•
|
require any stockholder nominating a candidate for the Board of Directors to own shares at the record date;
|
•
|
increase the information that must be provided by a stockholder proposing business or a director nominee, including (a) a representation that the stockholder is a record holder and intends to attend the meeting (either in person or via proxy); (b) a representation as to whether the stockholder intends to solicit proxies; and (c) information relating to (i) the stockholder’s ownership of shares of any peer company, (ii) any arrangement between the stockholder and any affiliate or any other person with respect to the nomination or other reportable business, (iii) the text of the proposal or business to be brought before the stockholders meeting, (iv) any business, commercial or contractual interests of the stockholder, any affiliate of the stockholder, or the proposed nominee relating to the Company, (v) the investment strategy and prospectuses for any proponent or any affiliate of the proponent that is an entity as opposed to an individual and (vi) the identity of anyone communicating with the proponent regarding the proposal;
|
•
|
provide that any person nominated to the Board of Directors must (a) sign an undertaking relating to potential service on the Board of Directors, including an agreement not to enter into any voting commitment or undisclosed third-party compensation arrangement, and a commitment to serve a full term if elected, (b) complete an informational questionnaire, which the Company must provide within 10 days of a written request from the nominating stockholder and (c) disclose any compensation or monetary arrangements between the nominating stockholder and the nominee during the past three years;
|
•
|
permit the Board of Directors to (a) deem any inaccurate information that is submitted to not to have been submitted, and (b) request written verification of any information previously submitted by a stockholder;
|
•
|
require a stockholder proposing business or a director nominee at a stockholder meeting to (a) update any information provided by it and (b) attend the meeting (either in person or via proxy);
|
•
|
clarify the method and procedure by which a director may resign from the Board of Directors;
|
•
|
allow a meeting of the Board of Directors to be exempt from the 24-hour notice requirement in special circumstances;
|
•
|
clarify that the Company’s election to become subject to Section 3-804(c) of the MGCL has already become effective;
|
•
|
remove references to outdated provisions concerning loss of deposits and the giving of bonds by directors;
|
•
|
amend certain provisions to more closely track a director’s reliance rights set forth in MGCL Section 2-405.1(b);
|
•
|
confirm the power of the Board of Directors and stockholders to ratify prior actions or inactions by the Company and to provide that matters questioned in litigation may be ratified and that such ratification bars any claim or execution of any judgment as to the questioned matter;
|
•
|
clarify that committees of the Board of Directors may generally delegate authority to a subcommittee;
|
•
|
remove the requirement that committees keep minutes of their proceedings;
|
•
|
clarify that the chairman of the Board of Directors is not automatically an officer of the Company and make the chairman an optional, as opposed to mandatory, position;
|
•
|
remove outdated references to the giving of surety bonds by the treasurer and assistant treasurers;
|
•
|
confirm the power of the chief executive officer, the president and the chief financial officer to select the financial institutions in which the funds of the Company are deposited;
|
•
|
reflect the Company’s power to issue uncertificated shares, and make other revisions consistent with current practices with respect to uncertificated share issuances and transfers, including a provision that empowers the Board of Directors to eliminate any certificates representing outstanding certificated shares;
|
•
|
remove obsolete language regarding the closing of transfer books in lieu of fixing a record date and, to better conform to the MGCL, clarify that a meeting of shareholders may be adjourned or postponed to a date not more than 120 days after the original record date, without the need to set a new record date;
|
•
|
specifically note that director and officer indemnification and expense advance rights are vested and extend indemnification to instances where a director or officer participates in a proceeding as a witness; and
|
•
|
provide that certain types of litigation must be brought in Baltimore City Circuit Court, or if that court lacks jurisdiction, the U.S. District Court in Baltimore.
|
(a)
|
Exhibits.
|
Exhibit
Number
|
|
Description of Exhibit
|
|
|
|
3.1
(1)
|
|
|
|
|
|
3.2
(2)
|
|
|
|
|
|
3.3
(2)
|
|
|
|
|
|
3.4
(3)
|
|
|
|
|
|
3.5
(4)
|
|
|
|
|
|
3.6
(5)
|
|
|
|
|
|
3.7*
|
|
|
|
|
|
31.1*
|
|
|
|
|
|
31.2*
|
|
|
|
|
|
32.1**
|
|
|
|
|
|
32.2**
|
|
|
|
|
|
Exhibit 101.INS XBRL
|
|
Instance Document (6)
|
|
|
|
Exhibit 101.SCH XBRL
|
|
Taxonomy Extension Schema Document (6)
|
|
|
|
Exhibit 101.CAL XBRL
|
|
Taxonomy Extension Calculation Linkbase Document (6)
|
|
|
|
Exhibit 101.DEF XBRL
|
|
Additional Taxonomy Extension Definition Linkbase Document Created (6)
|
|
|
|
Exhibit 101.LAB XBRL
|
|
Taxonomy Extension Label Linkbase Document (6)
|
|
|
|
Exhibit 101.PRE XBRL
|
|
Taxonomy Extension Presentation Linkbase Document (6)
|
(1)
|
Incorporated by reference to the Registrant’s Registration Statement on Form S-11 filed with the Securities and Exchange Commission (File No. 333-142236).
|
(2)
|
Incorporated by reference to the Registrant’s Form 10-K filed with the Securities and Exchange Commission on February 10, 2010.
|
(3)
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 1, 2011.
|
(4)
|
Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 2, 2012.
|
(5)
|
Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 29, 2013.
|
(6)
|
Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at
September 30, 2017
(Unaudited) and
December 31, 2016
(Derived from the audited balance sheet at
December 31, 2016
); (ii) Consolidated Statements of Operations (Unaudited) for the
three and nine months ended
September 30, 2017
and
2016
; (iii) Consolidated Statements of Stockholders' Equity (Unaudited) for the
nine
months ended
September 30, 2017
and
2016
; (iv) Consolidated Statements of Cash Flows (Unaudited) for the
nine
months ended
September 30, 2017
and
2016
; and (v) Notes to Consolidated Financial Statements (Unaudited).
|
Dated:
October 26, 2017
|
BY:
/s/ JACK DECICCO
|
Exhibit
Number
|
|
Description
|
|
|
|
3.1
(1)
|
|
|
|
|
|
3.2
(2)
|
|
|
|
|
|
3.3
(2)
|
|
|
|
|
|
3.4
(3)
|
|
|
|
|
|
3.5
(4)
|
|
|
|
|
|
3.6
(5)
|
|
|
|
|
|
3.7*
|
|
|
|
|
|
31.1*
|
|
|
|
|
|
31.2*
|
|
|
|
|
|
32.1**
|
|
|
|
|
|
32.2**
|
|
|
|
|
|
Exhibit 101.INS XBRL
|
|
Instance Document (6)
|
|
|
|
Exhibit 101.SCH XBRL
|
|
Taxonomy Extension Schema Document (6)
|
|
|
|
Exhibit 101.CAL XBRL
|
|
Taxonomy Extension Calculation Linkbase Document (6)
|
|
|
|
Exhibit 101.DEF XBRL
|
|
Additional Taxonomy Extension Definition Linkbase Document Created (6)
|
|
|
|
Exhibit 101.LAB XBRL
|
|
Taxonomy Extension Label Linkbase Document (6)
|
|
|
|
Exhibit 101.PRE XBRL
|
|
Taxonomy Extension Presentation Linkbase Document (6)
|
(1)
|
Incorporated by reference to the Registrant’s Registration Statement on Form S-11 filed with the Securities and Exchange Commission (File No. 333-142236).
|
(2)
|
Incorporated by reference to the Registrant’s Form 10-K filed with the Securities and Exchange Commission on February 10, 2010.
|
(3)
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 1, 2011.
|
(4)
|
Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 2, 2012.
|
(5)
|
Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 29, 2013.
|
(6)
|
Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at
September 30, 2017
(Unaudited) and
December 31, 2016
(derived from the audited balance sheet at
December 31, 2016
); (ii) Consolidated Statements of Operations (Unaudited) for the
three and nine months ended
September 30, 2017
and
2016
; (iii) Consolidated Statements of Stockholders' Equity (Unaudited) for the
nine
months ended
September 30, 2017
and
2016
; (iv) Consolidated Statements of Cash Flows (Unaudited) for the
nine
months ended
September 30, 2017
and
2016
; and (v) Notes to Consolidated Financial Statements (Unaudited).
|
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