Available-for-Sale Securities, at Fair Value
|6 Months Ended|
Jun. 30, 2011
|Available for Sale Securities at Fair Value [Abstract]|
|Available-for-Sale Securities, at Fair Value||
Available-for-Sale Securities, at Fair Value
The following table presents the Company's available-for-sale, or AFS, investment securities by collateral type, which were carried at their fair value as of June 30, 2011 and December 31, 2010:
At June 30, 2011 and December 31, 2010, the Company pledged investment securities with a carrying value of $4.1 billion and $1.1 billion, respectively, as collateral for repurchase agreements. See Note 9 - Repurchase Agreements.
At June 30, 2011 and December 31, 2010, the Company did not have any securities purchased from and financed with the same counterparty that did not meet the conditions of ASC 860, Transfers and Servicing, to be considered linked transactions and therefore classified as derivatives.
The following tables present the amortized cost and carrying value (which approximates fair value) of AFS securities by collateral type as of June 30, 2011 and December 31, 2010:
The following tables present the carrying value of the Company's AFS investment securities by rate type as of June 30, 2011 and December 31, 2010:
When the Company purchases a credit-sensitive AFS security at a significant discount to its face value, the Company often does not amortize into income a significant portion of this discount that the Company is entitled to earn because it does not expect to collect it due to the inherent credit risk of the security. The Company may also record an other-than-temporary impairment, or OTTI, for a portion of its investment in the security to the extent the Company believes that principal losses will exceed the discount. The amount of principal that the Company does not amortize into income is designated as a credit reserve on the security, with unamortized net discounts or premiums amortized into income over time using the interest method in accordance with ASC 320.
The following table presents the changes for the six months ended June 30, 2011 and June 30, 2010 of the unamortized net discount and designated credit reserves on non-Agency AFS securities.
The following table presents the components comprising the carrying value of AFS securities not deemed to be other than temporarily impaired by length of time the securities had an unrealized loss position as of June 30, 2011 and December 31, 2010. At June 30, 2011, the Company held 862 AFS securities, of which 241 were in an unrealized loss position for less than twelve consecutive months and 15 were in an unrealized loss position for more than twelve consecutive months. At December 31, 2010, the Company held 373 AFS securities, of which 108 were in an unrealized loss position for less than twelve months and 5 were in an unrealized loss position for more than twelve consecutive months.
Evaluating AFS Securities for Other-than-Temporary Impairments
The Company has adopted the provisions of ASC 320 to evaluate AFS securities for OTTI. This evaluation requires us to determine whether there has been a significant adverse quarterly change in the cash flow expectations for a security. The Company compares the amortized cost of each security in an unrealized loss position against the present value of expected future cash flows of the security. The Company also considers whether there has been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security is greater than the present value of expected future cash flows, an other-than-temporary credit impairment has occurred. If the Company does not intend to sell and is not more likely than not required to sell the security, the credit loss is recognized in earnings and the balance of the unrealized loss is recognized in other comprehensive income (loss). If the Company intends to sell the security or will be more likely than not required to sell the security, the full unrealized loss is recognized in earnings.
The Company recorded a $0.3 million other-than-temporary credit impairment during the quarter ended June 30, 2011 on one non-Agency RMBS where the future expected cash flows was less than its amortized cost. As of June 30, 2011, the impaired security had cumulative losses of 37.2%, three-month prepayment speed of 0.11, 60+ day delinquency of 14.1% of the pool balance, and weighted average FICO score of 691.
The following table presents the OTTI included in earnings as of June 30, 2011 and June 30, 2010:
Gross Realized Gains and Losses
Gains and losses from the sale of AFS securities are recorded as realized gains (losses) within gain on investment securities, net in the Company's consolidated statements of income. For the three and six months ended June 30, 2011, the Company sold AFS securities for $24.4 million and $95.8 million with an amortized cost of $24.3 million and $94.1 million, for a net realized gain of $0.1 million and $1.7 million, respectively.
The following table presents the gross realized gains and losses on sales of AFS securities for the three and six months ended June 30, 2011 and 2010:
Tabular disclosure of available-for-sale securities which consist of all investments in certain debt and equity securities neither classified as trading or held-to-maturity securities. A debt security represents a creditor relationship with an enterprise. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt.
Reference 1: http://www.xbrl.org/2003/role/presentationRef