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Actionable news in DX: DYNEX CAPITAL Inc,

SECURITIES AND EXCHANGE COMMISSION

(1) Amounts disclosed for collateral received by or posted to the same counterparty include cash and the fair value of MBS up to and not exceeding the net amount of the asset or liability presented in the balance sheet. The fair value of the actual collateral received by or posted to the same counterparty may exceed the amounts presented.
September 30, 2017December 31, 2016
Type of Derivative InstrumentsBalance Sheet LocationFair ValueFair Value (1)
Interest rate swapsDerivative assets$368
$28,534
TBA securitiesDerivative assets

$368
$28,534
Interest rate swapsDerivative liabilities$
$(6,922)
TBA securitiesDerivative liabilities(133)
$(133)$(6,922)
(1)Refer to Note 1 regarding information on a change in the CME rulebook. Amounts reported on the consolidated balance sheet as of September 30, 2017 for its interest rate swaps reflect the netting of the derivative asset or liability with the related collateral received or posted, respectively. The net amounts comparable to September 30, 2017 for the derivative asset and derivative liabilities as of December 31, 2016 were $104 and $(576), respectively.
September 30, 2017
Weighted-Average:
Years to Maturity:Net Notional Amount (1)Pay Rate (2)Life Remaining (in Years)Fair Value
< 3 years$3,110,000
1.39%0.9$368
>3 and < 6 years1,160,000
1.66%4.2
>6 and < 10 years1,175,000
2.45%8.1
Total$5,445,000
1.68%3.2$368
December 31, 2016
Weighted-Average:
Years to Maturity:Net Notional Amount (1)Pay Rate (2)Life Remaining (in Years)Fair Value
< 3 years$595,000
0.73%2.3$4,348
>3 and < 6 years1,185,000
1.47%4.38,631
>6 and < 10 years1,250,000
2.42%8.98,633
Total$3,030,000
1.58%5.3$21,612
(1) The net notional amounts included in the tables above represent pay-fixed interest rate swaps, net of receive-fixed interest rate swaps and include $2,425,000 and $2,725,000 of pay-fixed forward starting interest rate swaps as of September 30, 2017 and December 31, 2016, respectively.
(1)Notional amount represents the par value (or principal balance) of the underlying Agency MBS.
(2)Cost basis represents the forward price to be paid for the underlying Agency MBS as if settled.
(3)Market value is the current fair value of the TBA contract and represents the estimated fair value of the underlying Agency security as of the end of the period.
(4)Net carrying value represents the difference between the market value and the cost basis of the TBA contract as of the end of the period and is included on the consolidated balance sheets within "derivative assets (liabilities)".
Type of Derivative InstrumentNotional Amount as of December 31, 2016AdditionsSettlements,Terminations,or Pair-OffsNotional Amount as of September 30, 2017
Receive-fixed interest rate swaps$425,000
$
$(325,000)$100,000
Pay-fixed interest rate swaps3,455,000
3,010,000
(920,000)5,545,000
TBA securities
3,814,000
(3,164,000)650,000
Three Months EndedNine Months Ended
September 30,September 30,
Type of Derivative Instrument2017201620172016
Receive-fixed interest rate swaps$(99)$(2,976)$746
$11,301
Pay-fixed interest rate swaps(611)2,555
(18,799)(59,912)
TBA securities6,703

8,419

Eurodollar futures
2,830

(13,542)
Gain (loss) on derivative instruments, net$5,993
$2,409
$(9,634)$(62,153)
Offsetting of Assets
Gross Amount of Recognized AssetsGross Amount Offset in the Balance SheetNet Amount of Assets Presented in the Balance SheetGross Amount Not Offset in the Balance Sheet (1)Net Amount
Financial Instruments Received as CollateralCash Received as Collateral
September 30, 2017
Interest rate swaps$368
$
$368
$
$
$368
TBA securities





Derivative assets$368
$
$368
$
$
$368
December 31, 2016:
Interest rate swaps$28,534
$
$28,534
$(6,449)$(22,085)$
TBA securities





Derivative assets$28,534
$
$28,534
$(6,449)$(22,085)$
Offsetting of Liabilities
Gross Amount of Recognized LiabilitiesGross Amount Offset in the Balance SheetNet Amount of Liabilities Presented in the Balance SheetGross Amount Not Offset in the Balance Sheet (1)Net Amount
Financial Instruments Posted as CollateralCash Posted as Collateral
September 30, 2017
Interest rate swaps$
$
$
$
$
$
TBA securities133

133

(63)70
Derivative liabilities$133
$
$133
$
$(63)$70
December 31, 2016:
Interest rate swaps$6,922
$
$6,922
$(6,913)$
$9
TBA securities





Derivative liabilities$6,922
$
$6,922
$(6,913)$
$9
(1) Amounts disclosed for collateral received by or posted to the same counterparty include cash and the fair value of MBS up to and not exceeding the net amount of the asset or liability presented in the balance sheet. The fair value of the actual collateral received by or posted to the same counterparty may exceed the amounts presented.
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date.
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 either directly observable or indirectly observable through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 – Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management’s best estimate of how market participants would price the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
September 30, 2017
Fair ValueLevel 1 - Unadjusted Quoted Prices in Active MarketsLevel 2 - Observable InputsLevel 3 - Unobservable Inputs
Assets:
Mortgage-backed securities$2,921,444
$
$2,913,877
$7,567
Interest rate swaps368

368

Total assets carried at fair value$2,921,812
$
$2,914,245
$7,567
Liabilities:



TBA securities133

133

Total liabilities carried at fair value$133
$
$133
$
December 31, 2016
Fair ValueLevel 1 - Unadjusted Quoted Prices in Active MarketsLevel 2 - Observable InputsLevel 3 - Unobservable Inputs
Assets:
Mortgage-backed securities$3,212,084
$
$3,201,157
$10,927
Interest rate swaps28,534

28,534

Total assets carried at fair value$3,240,618
$
$3,229,691
$10,927
Liabilities:
Interest rate swaps$6,922
$
$6,922
$
Total liabilities carried at fair value$6,922
$

$6,922
$
Level 3 Fair Value
Non-Agency CMBSNon-Agency RMBSTotal
Balance as of December 31, 2016$9,669
$1,258
$10,927
Unrealized loss included in OCI (1)(1,422)16
(1,406)
Principal payments(3,896)(133)(4,029)
Accretion2,075

2,075
Balance as of September 30, 2017$6,426
$1,141
$7,567
September 30, 2017December 31, 2016
Carrying ValueFair ValueCarrying ValueFair Value
Assets:
Mortgage-backed securities$2,921,444
$2,921,444
$3,212,084
$3,212,084
Mortgage loans held for investment, net (1)16,523
13,674
19,036
15,971
Derivative assets368
368
28,534
28,534
Liabilities:



Repurchase agreements (2)$2,519,230
$2,519,230
$2,898,952
$2,898,952
Non-recourse collateralized financing (1)5,706
5,722
6,440
6,357
Derivative liabilities133
133
6,922
6,922
(1) The Company determines the fair value of its mortgage loans held for investment, net and its non-recourse collateralized financing using internally developed cash flow models with inputs similar to those used to estimate the fair value of the Company's Level 3 non-Agency MBS.
(2)The carrying value of repurchase agreements generally approximates fair value due to their short term maturities.
Three Months Ended
September 30,
20172016
SharesWeighted Average Grant Date Fair Value Per ShareSharesWeighted Average Grant Date Fair Value Per Share
Restricted stock outstanding as of beginning of period353,103
$7.01
561,089
$7.54
Restricted stock granted



Restricted stock vested



Restricted stock outstanding as of end of period353,103
$7.01
561,089
$7.54
Nine Months Ended
September 30,
20172016
SharesWeighted Average Grant Date Fair Value Per ShareSharesWeighted Average Grant Date Fair Value Per Share
Restricted stock outstanding as of beginning of period553,396
$7.55
696,597
$8.54
Restricted stock granted138,166
6.76
214,878
6.28
Restricted stock vested(338,459)7.80
(350,386)8.76
Restricted stock outstanding as of end of period353,103
$7.01
561,089
$7.54
Three Months Ended
($ in thousands, except per share amounts)September 30, 2017June 30, 2017
GAAP net income (loss) to common shareholders$7,503
$(10,073)
Less:
Accretion of de-designated cash flow hedges (1)(48)(73)
Change in fair value of derivative instruments, net (2)(3,222)15,801
Loss on sale of investments, net5,211
3,709
Fair value adjustments, net(23)(30)
Core net operating income to common shareholders$9,421
$9,334


Weighted average common shares outstanding49,832
49,218
Core net operating income per common share$0.19
$0.19
(2) Amount represents net realized and unrealized gains and losses on derivatives and excludes net periodic interest costs related to these instruments.
Agency CMBSAgency RMBSCMBS IO(2)Non-Agency Other (3)Total
($ in thousands)30-Year Fixed (1)Adjustable-Rate
Balance as of December 31, 2016$1,144,555
$
$1,201,205
$754,546
$111,778
$3,212,084
Purchases234,094
544,050

71,803

849,947
Principal payments(45,217)(1,549)(172,650)
(20,263)(239,679)
Sales(37,215)(1,111)(727,841)
(50,871)(817,038)
(Amortization) accretion(3,587)(128)(8,568)(112,580)2,279
(122,584)
Change in fair value14,859
(1,903)11,636
16,698
(2,576)38,714
Balance as of September 30, 2017$1,307,489
$539,359
$303,782
$730,467
$40,347
$2,921,444
(1)Does not include TBA securities accounted for as "derivative assets (liabilities)" on our consolidated balance sheet.
September 30, 2017December 31, 2016
Amortized CostFair ValueAmortized CostFair Value
RMBS:
Agency RMBS, 30 year fixed-rate$541,262
$539,359
$
$
TBA securities, 30 year fixed-rate (1)683,813
683,680


Agency RMBS - adjustable rate305,265
303,782
1,214,324
1,201,205
Non-Agency RMBS1,113
1,142
33,548
33,562
1,531,453
1,527,963
1,247,872
1,234,767
CMBS and CMBS IO:
Fixed-rate Agency CMBS$1,314,925
$1,307,489
$1,166,454
$1,144,555
Non-Agency CMBS36,328
39,205
72,749
78,216
Agency CMBS IO394,380
401,808
411,737
411,898
Non-Agency CMBS IO322,735
328,659
346,155
342,648
2,068,368
2,077,161
1,997,095
1,977,317
Total MBS portfolio including TBA securities$3,599,821
$3,605,124
$3,244,967
$3,212,084
(1)TBA securities are accounted for as "derivative assets (liabilities)" on our consolidated balance sheet at their net carrying value which represents the difference between the market value and the cost basis of the TBA contract as of the end of the period.
September 30, 2017December 31, 2016
($ in thousands)Par ValueAmortized CostMonths to Estimated Maturity (1)Par ValueAmortized CostMonths to Estimated Maturity (1)
Year of Origination:
2008 and prior$41,058
$37,869
38$57,771
$53,161
34
2009 to 2012135,326
138,475
26193,061
198,916
33
2013 to 201420,324
20,701
8542,760
43,176
95
2015661,113
664,321
102683,680
687,214
111
2016254,375
256,161
113254,781
256,736
122
2017230,821
233,728
119


$1,343,017
$1,351,255
97$1,232,053
$1,239,203
97
(1) Months to estimated maturity is an average weighted by the amortized cost of the investment.
September 30, 2017December 31, 2016
($ in thousands)Amortized CostFair ValueRemaining WAL (1)Amortized CostFair ValueRemaining WAL (1)
Year of Origination:
2010$7,157
$7,364
15
$9,456
$9,858
19
201127,848
29,353
20
35,130
36,897
23
201277,728
79,667
23
102,378
103,675
27
2013109,705
111,451
29
128,891
129,011
33
2014179,440
182,447
36
201,802
200,260
39
2015177,176
180,448
41
198,016
194,886
45
201684,943
86,048
48
82,219
79,959
87
201753,118
53,689
54



$717,115
$730,467
37
$757,892
$754,546
42
September 30, 2017
Weighted Average Based on Par
CouponParFair Value (1)(3)Amortized Cost/Cost Basis (2)(3)Loan Balance (4)Loan Age(in months)(4)3 Month CPR (4)(5)Duration (6)
($ in thousands)
30-year fixed-rate:
3.0%$248,773
$249,981
$250,632
$233,336
10
2.5%6.34
4.0%273,326
289,378
290,630
240,621
2
%4.38
TBA 4.0%650,000
683,680
683,813
n/an/an/a3.32
Total 30-year fixed-rate$1,172,099
$1,223,039
$1,225,075
$237,150
6
1.2%4.21
Adjustable-rate:
3.1% (7)$294,254
$303,782
$305,265
$270,208
72
17.1%2.21
Total Agency RMBS (including TBA securities)$1,466,353
$1,526,821
$1,530,340
$249,066
30
6.9%3.81
(3)The net carrying value of TBA securities, which is the difference between the market value and the cost basis of the TBA securities, was $(0.1) million as of September 30, 2017 and is included on the consolidated balance sheet within "derivative liabilities".
(4)TBAs are excluded from this calculation as they do not have a defined weighted-average loan balance or age until mortgages have been assigned to the pool.
(7)Coupon of adjustable-rate Agency RMBS represents the weighted average coupon based on amortized cost.
September 30, 2017December 31, 2016
($ in thousands)Par ValueAmortized CostFair ValuePar ValueAmortized CostFair Value
Adjustable-rate Agency RMBS by MTR:
0-12 MTR$47,126
$48,440
$49,580
$335,476
$355,069
$353,887
13-36 MTR2,875
3,057
3,030
225,272
237,642
235,137
37-60 MTR157,359
164,286
162,810
151,578
160,948
157,945
Greater than 60 MTR86,894
89,482
88,362
444,932
460,665
454,236
Total adjustable-rate Agency RMBS$294,254
$305,265
$303,782
$1,157,258
$1,214,324
$1,201,205
Nine Months Ended
($ in thousands)September 30, 2017
Balance as of December 31, 2016 (1)$21,612
Net receipt on termination(3,126)
Periodic net cash payments(3,364)
Settlement of variation margin (2)3,300
Change in fair value(14,955)
Accrued interest payable(3,099)
Balance as of September 30, 2017 (1)$368
September 30, 2017December 31, 2016
($ in thousands)Fair ValueAmount PledgedRelated BorrowingsFair ValueAmount PledgedRelated Borrowings
Non-Agency CMBS:
AAA$
$
$
$35,405
$35,313
$32,266
AA14,013


14,127
14,105
11,665
A18,366
18,365
15,625
18,614
18,549
15,831
Below A/Not Rated6,826


10,070
9,873
7,119
$39,205
$18,365
$15,625
$78,216
$77,840
$66,881
Non-Agency CMBS IO:
AAA$273,308
$273,302
$232,717
$290,092
$289,608
$246,412
AA44,474
43,797
37,694
46,986
45,995
40,026
A753
753
663



Below A/Not Rated10,124
10,124
8,907
5,570
5,536
4,761
$328,659

$327,976
$279,981
$342,648
$341,139
$291,199
Non-Agency RMBS:
Below A/Not Rated$1,142
$
$
$33,562
$31,952
$26,149
$1,142
$
$
$33,562
$31,952
$26,149
($ in thousands)September 30, 2017December 31, 2016
Agency CMBS$(7,436)$(22,295)
Non-Agency CMBS2,877
5,467
Agency CMBS IO7,428
161
Non-Agency CMBS IO5,924
(3,507)
Agency RMBS(3,386)(13,119)
Non-Agency RMBS29
14
De-designated cash flow hedges450
670
Accumulated other comprehensive income (loss)$5,886
$(32,609)
Three Months Ended
September 30,
20172016
($ in thousands)AmountYieldAmountYield
CMBS:
Coupon and scheduled amortization$9,976
2.90 %$7,903
3.19 %
Prepayment adjustments (1)176
0.01 %(154)(0.02)%
$10,152
2.91 %$7,749
3.17 %
Average balance (2)$1,352,681


$974,240


CMBS IO:

Coupon and scheduled amortization$6,841
3.73 %$6,895
3.81 %
Prepayment adjustments (1)1,209
0.16 %546
0.07 %
$8,050
3.89 %$7,441
3.88 %
Average balance (2)$734,282
$724,859
RMBS:

Coupon and scheduled amortization$4,693
2.19 %$6,689
1.92 %
Prepayment adjustments (1)(124)(0.01)%(982)(0.07)%
$4,569
2.18 %$5,707
1.85 %
Average balance (2)$856,705


$1,390,401


Total MBS interest income and effective yield:$22,771
2.94 %$20,897
2.75 %
Total average balance (2):$2,943,668
$3,089,500
Nine Months Ended
September 30,
20172016
AmountYieldAmountYield
CMBS:
Coupon and scheduled amortization$28,991
2.93 %$24,241
3.23 %
Prepayment adjustments (1)2,255
0.17 %1,016
0.10 %
$31,246
3.10 %$25,257
3.33 %
Average balance (2)$1,308,811


$990,440


CMBS IO:



Coupon and scheduled amortization$21,059
3.75 %$21,279
3.79 %
Prepayment adjustments (1)3,619
0.48 %1,363
0.18 %
$24,678
4.23 %$22,642
3.97 %
Average balance (2)$749,343


$748,097
RMBS:





Coupon and scheduled amortization$15,341
2.02 %$21,525
1.91 %
Prepayment adjustments (1)(1,753)(0.17)%(1,104)(0.07)%
$13,588
1.84 %$20,421
1.84 %
Average balance (2)$1,014,283


$1,499,309




Total MBS interest income and effective yield:$69,512
2.96 %$68,320
2.79 %
Total average balance (2):$3,072,437
$3,237,846
Three Months Ended
September 30, 2017 vs. September 30, 2016
Increase (Decrease) in Interest IncomeDue to Change In
($ in thousands)Average BalanceCoupon and Scheduled AmortizationPrepayment Adjustments (1)
CMBS$2,402
$2,013
$59
$330
CMBS IO609
134
(188)663
RMBS(1,137)(2,069)74
858
Total$1,874
$78
$(55)$1,851
Nine Months Ended
September 30, 2017 vs. September 30, 2016
Increase (Decrease) in Interest IncomeDue to Change In
($ in thousands)Average BalanceCoupon and Scheduled AmortizationPrepayment Adjustments (1)
CMBS$5,989
$4,800
$(50)$1,239
CMBS IO2,036
57
(277)2,256
RMBS(6,833)(6,488)304
(649)
Total$1,192
$(1,631)$(23)$2,846
Three Months EndedNine Months Ended
September 30,September 30,
($ in thousands)2017201620172016
Interest expense on repurchase agreement borrowings$9,910
$5,800
$26,269
$17,440
Interest expense on FHLB advances
343

1,118
Accretion of de-designated cash flow hedges (1)(48)(99)(220)(152)
Non-recourse collateralized financing27
24
73
72
Total interest expense$9,889
$6,068
$26,122
$18,478




Average balance of repurchase agreements$2,616,250
$2,536,562
$2,736,834
$2,623,225
Average balance of FHLB advances
263,000

308,022
Average balance of non-recourse collateralized financing5,817
7,386
6,058
7,892
Average balance of borrowings$2,622,067
$2,806,948
$2,742,892
$2,939,139
Cost of funds (2)1.48%0.85%1.26%0.83%
(2)Cost of funds is calculated by dividing annualized interest expense by the total average balance of borrowings outstanding during the period.
($ in thousands)Three Months Ended September 30, 2017 vs. September 30, 2016Nine Months Ended September 30, 2017 vs. September 30, 2016
Change in borrowing rates on repurchase agreements and FHLB advances$4,169
$8,927
Change in average balance of repurchase agreements and FHLB advances(402)(1,216)
Decrease (increase) in accretion of de-designated cash flow hedges51
(68)
Decrease in non-recourse collateralized financing and other interest expense3
1
Total change in interest expense$3,821
$7,644
Three Months EndedNine Months Ended
September 30,September 30,
($ in thousands)2017201620172016
Interest expense$9,889
$6,068
$26,122
$18,478
Add: net periodic interest costs of derivative instruments (1)1,131
155
3,099
2,321
Less: de-designated hedge accretion (2)48
99
220
152
Adjusted interest expense$11,068
$6,322
$29,441
$20,951
(2)Amount recorded as a portion of "interest expense" in accordance with GAAP related to accretion of the balance remaining in accumulated other comprehensive income as a result of our discontinuation of cash flow hedge accounting effective June 30, 2013.
Three Months Ended
September 30,
20172016
($ in thousands)AmountYieldAmountYield
Interest income$23,103
2.95%$21,135
2.75%
Interest expense9,889
1.48%6,068
0.85%
Net interest income/spread13,214
1.47%15,067
1.90%
Average interest earning assets (1)$2,960,595
$3,110,884
Average balance of borrowings (2)$2,622,067
$2,806,948
Nine Months Ended
September 30,
20172016
($ in thousands)AmountYieldAmountYield
Interest income$70,378
2.97%$69,040
2.80%
Interest expense26,122
1.26%18,478
0.83%
Net interest income/spread$44,256
1.71%$50,562
1.97%
Average interest earning assets (1)$3,090,313
$3,260,510
Average balance of borrowings (2)$2,742,892
$2,939,139
Three Months EndedNine Months Ended
September 30,September 30,
($ in thousands)2017201620172016
Net interest income$13,214
$15,067
$44,256
$50,562
Add: drop income3,902

5,253

Add: net periodic interest costs (1)(1,131)(155)(3,099)(2,321)
Less: de-designated hedge accretion (2)(48)(99)(220)(152)
Adjusted net interest income$15,937
$14,813
$46,190
$48,089
Three Months Ended
September 30,
($ in thousands)20172016
Type of Derivative InstrumentNet Periodic Interest CostsChange inFair Value (1)(2)TotalNet Periodic Interest CostsChange in Fair Value (1)Total
Interest rate swaps$(1,131)$421
$(710)$(155)$(266)$(421)
TBA securities
6,703
6,703



Eurodollar futures



2,830
2,830
Loss on derivative instruments, net$(1,131)$7,124
$5,993
$(155)$2,564
$2,409
Nine Months Ended
September 30,
20172016
Type of Derivative InstrumentNet Periodic Interest CostsChange inFair Value (1)(2)TotalNet Periodic Interest CostsChange in Fair Value (1)Total
Interest rate swaps$(3,099)$(14,954)$(18,053)$(2,321)$(46,290)$(48,611)
TBA securities
8,419
8,419



Eurodollar futures



(13,542)(13,542)
Loss on derivative instruments, net$(3,099)$(6,535)$(9,634)$(2,321)$(59,832)$(62,153)
Three Months EndedNine Months Ended
September 30,September 30,
($ in thousands)2017201620172016
Average notional balance$2,668,478
$305,000
$2,011,355
$549,617
Weighted average net pay-fixed rate1.37%0.64%1.30%1.06%
Three Months EndedNine Months Ended
September 30, 2017September 30, 2017
($ in thousands)Average Cost BasisDrop Income (1)Average Cost BasisDrop Income (1)
TBA securities:
3.0% 30-year$119,528
$563
$69,539
$960
4.0% 30-year677,956
3,339
287,298
4,293
Total TBA securities$797,484
$3,902
$356,837
$5,253
Three Months Ended
September 30,
20172016
($ in thousands)Amortized cost basis soldGain (loss) on sale of investments, netAmortized cost basis soldGain (loss) on sale of investments, net
Agency RMBS$398,662
$(5,160)$
$
Agency CMBS13,484
(51)

$412,146
$(5,211)$
$
Nine Months Ended
September 30,
20172016
($ in thousands)Amortized cost basis soldGain (loss) on sale of investments, netAmortized cost basis soldGain (loss) on sale of investments, net
Agency RMBS$728,952
$(12,392)$57,188
$(3,010)
Agency CMBS206,470
523


Non-Agency CMBS34,506
1,199
34,868
(1,228)
Non-Agency RMBS16,365
42


$986,293
$(10,628)$92,056
$(4,238)
Three Months EndedNine Months Ended
September 30,September 30,
($ in thousands)2017201620172016
Agency CMBS$2,334
$(1,226)$14,859
$40,093
Non-Agency CMBS(403)(377)(2,591)2,036
Agency CMBS IO1,032
1,616
7,268
4,187
Non-Agency CMBS IO1,101
2,131
9,431
5,832
Agency RMBS2,120
(1,765)9,734
12,548
Non-Agency RMBS8
390
14
802
Unrealized gain on available-for-sale investments$6,192
$769
$38,715
$65,498
Repurchase AgreementsNet TBA Position (1)
($ in thousands)Balance Outstanding As of Quarter EndAverage Balance Outstanding For the Quarter EndedMaximum Balance Outstanding During the Quarter EndedBalance Outstanding As of Quarter EndAverage Balance Outstanding For the Quarter Ended
September 30, 2017$2,519,230
$2,616,250
$2,801,418
$683,813
$745,270
June 30, 20172,540,759
2,753,019
2,826,005
416,312
305,720
March 31, 20172,825,945
2,843,733
2,913,617


December 31, 20162,898,952
2,768,769
2,938,745


September 30, 20162,478,278
2,536,562
2,599,491


September 30, 2017
($ in thousands)Amount OutstandingEquity at Risk
Well Fargo Bank, N.A. and affiliates$349,965
$57,992
JP Morgan Securities, LLC270,883
30,803
$620,848
$88,795
December 31, 2016
($ in thousands)Amount OutstandingEquity at Risk
Well Fargo Bank, N.A. and affiliates$342,160
$62,041
South Street Financial Corporation597,394
38,770
JP Morgan Securities, LLC212,921
35,658
$1,152,475
$136,469
September 30, 2017December 31, 2016
($ in thousands)Amount OutstandingMarket Value of Collateral PledgedAmount OutstandingMarket Value of Collateral Pledged
North America$1,685,493

$1,840,749
$2,105,337
$2,309,391
Asia521,832

548,717
421,991
443,098
Europe311,905

328,537
371,624
397,351
$2,519,230
$2,718,003
$2,898,952
$3,149,840
($ in thousands)Tax Hedge Loss Deduction
2017$21,542
201821,175
201916,937
2020 - 202612,383
$72,037
($ in thousands)Payments due by period
Contractual Obligations:Total< 1 year1-3 years3-5 years> 5 years
Repurchase agreements (1)$2,557,279
$2,557,279
$
$
$
Non-recourse collateralized financing (2)5,786
1,669
2,199
1,207
711
Operating lease obligations544
214
330


Total$2,563,609
$2,559,162
$2,529
$1,207
$711
Our business and investment strategy including our ability to generate acceptable risk-adjusted returns and our target investment allocations;
Our views on the effect of actual or proposed actions of the U.S. Federal Reserve and the FOMC with respect to monetary policy (including the targeted Federal Funds Rate), and the potential impact of these actions on interest rates, inflation or unemployment;
The effect of regulatory initiatives of the Federal Reserve (including the FOMC) and other financial regulators;
Our financing strategy including our target leverage ratios, our use of TBA dollar roll transactions, and anticipated trends in financing costs, and our hedging strategy including changes to the derivative instruments to which we are a party, and changes to government regulation of hedging instruments and our use of these instruments;
Our investment portfolio performance, including the fair value, yields, and forecasted prepayment speeds of our investments;
Our liquidity and ability to access financing, and the anticipated availability and cost of financing;
The competitive environment in the future, including competition for investments and the availability of financing;
Estimates of future interest expenses, including related to the Company's repurchase agreements and derivative instruments;
The status of regulatory rule-making or review processes and the status of reform efforts and other business developments in the repurchase agreement financing market;
Market, industry and economic trends, how these trends and related economic data may impact the behavior of market participants and financial regulators; and
changes in interest rates and interest rate spreads, including the repricing of interest-earning assets and interest-bearing liabilities;
our investment portfolio performance particularly as it relates to cash flow, prepayment rates and credit performance;
uncertainty concerning the long-term fiscal health and stability of the United States;
the cost and availability of financing, including the future availability of financing due to changes to regulation of, and capital requirements imposed upon, financial institutions;
the quality of performance of third-party servicer providers of our loans and loans underlying our securities;
changes to the market for interest rate swaps and other derivative instruments, including changes to margin requirements on derivative instruments;
uncertainty regarding continued government support of the U.S financial system and U.S. housing and real estate markets; or to reform the U.S. housing finance system including the resolution of the conservatorship of Fannie Mae and Freddie Mac;
ownership shifts under Section 382 that further limit the use of our tax NOL carryforward; and
September 30, 2017December 31, 2016
Percentage Change inPercentage Change in
Parallel Shift in Interest RatesMarket Value of Investments (1)Shareholders' EquityNet Interest Income and Net Periodic Interest Costs (2)Market Value of Investments (1)Shareholders' EquityNet Interest Income and Net Periodic Interest Costs (2)
+100(1.3)%(9.1)%
10.3%(0.6)%(4.4)%(42.4)%
+50(0.5)%(3.7)%5.6%(0.3)%(1.9)%(20.7)%
-500.3%2.1%(7.2)%0.2%1.2%18.7%
(1)Includes changes in market value of our investments and derivative instruments, including TBA securities, but excludes changes in market value of our financings because they are not carried at fair value on our balance sheet. The projections for market value do not assume any change in credit spreads.
(2)Includes changes in net interest income as well as net periodic interest costs on our interest rate swaps recorded in "gain (loss) on derivatives instruments, net".
September 30, 2017December 31, 2016
Basis Point Change inPercentage Change in
2-year UST10-year USTMarket Value of Investments (1)Shareholders' EquityMarket Value of Investments (1)Shareholders' Equity
+25+50(0.5)%(3.6)%0.1%0.5%
+25+0(0.1)%(0.6)%(0.4)%(2.5)%
+50+25(0.3)%(2.3)%(0.5)%(3.2)%
+50+100(1.2)%(8.1)%0.1%0.4%
-10-50(0.2)%1.5%(0.3)%(2.3)%
(1)Includes changes in market value of our investments and derivative instruments, including TBA securities, but excludes changes in market value of our financings because they are not carried at fair value on our balance sheet. The projections for market value do not assume any change in credit spreads.

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