nymt_10q-033113.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ____________
Commission file number 001-32216
NEW YORK MORTGAGE TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland
|
47-0934168
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
275 Madison Avenue, New York, New York 10016
(Address of Principal Executive Office) (Zip Code)
(212) 792-0107
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o
|
Accelerated Filer x
|
Non-Accelerated Filer o
|
Smaller Reporting Company o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
The number of shares of the registrant’s common stock, par value $.01 per share, outstanding on May 3, 2013 was 63,730,730.
NEW YORK MORTGAGE TRUST, INC.
FORM 10-Q
PART I. Financial Information |
2
|
|
Item 1. Condensed Consolidated Financial Statements
|
2
|
|
Condensed Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012
|
2
|
|
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012
|
3
|
|
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2013 and 2012
|
4
|
|
Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2013
|
5
|
|
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012
|
6
|
|
Unaudited Notes to the Condensed Consolidated Financial Statements
|
7
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
40
|
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk
|
66
|
|
Item 4. Controls and Procedures
|
71
|
PART II. OTHER INFORMATION |
72
|
|
Item 1A. Risk Factors
|
72
|
|
Item 6. Exhibits
|
72
|
SIGNATURES |
73
|
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value (including pledged securities of $945,300 and $954,656, respectively)
|
|
$ |
1,033,917 |
|
|
$ |
1,034,711 |
|
Investment securities available for sale, at fair value held in securitization trusts
|
|
|
76,407 |
|
|
|
71,159 |
|
Residential mortgage loans held in securitization trusts (net)
|
|
|
180,713 |
|
|
|
187,229 |
|
Distressed residential mortgage loans held in securitization trust (net)
|
|
|
59,898 |
|
|
|
60,459 |
|
Multi-family loans held in securitization trusts, at fair value
|
|
|
5,376,150 |
|
|
|
5,442,906 |
|
Derivative assets
|
|
|
238,338 |
|
|
|
246,129 |
|
Cash and cash equivalents
|
|
|
15,888 |
|
|
|
31,777 |
|
Receivables and other assets
|
|
|
88,379 |
|
|
|
86,031 |
|
Total Assets (1)
|
|
$ |
7,069,690 |
|
|
$ |
7,160,401 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Financing arrangements, portfolio investments
|
|
$ |
878,824 |
|
|
$ |
889,134 |
|
Residential collateralized debt obligations
|
|
|
174,619 |
|
|
|
180,979 |
|
Multi-family collateralized debt obligations, at fair value
|
|
|
5,243,071 |
|
|
|
5,319,573 |
|
Securitized debt
|
|
|
117,671 |
|
|
|
117,591 |
|
Derivative liabilities
|
|
|
4,291 |
|
|
|
5,542 |
|
Payable for securities purchased
|
|
|
241,584 |
|
|
|
245,931 |
|
Accrued expenses and other liabilities
|
|
|
35,697 |
|
|
|
34,434 |
|
Accrued expenses, related parties
|
|
|
485 |
|
|
|
211 |
|
Subordinated debentures
|
|
|
45,000 |
|
|
|
45,000 |
|
Total liabilities (1)
|
|
|
6,741,242 |
|
|
|
6,838,395 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 400,000,000 authorized, 49,966,230 and 49,575,331 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively
|
|
|
500 |
|
|
|
496 |
|
Common stock subscribed
|
|
|
1,178 |
|
|
|
- |
|
Additional paid-in capital
|
|
|
344,007 |
|
|
|
355,006 |
|
Accumulated other comprehensive income
|
|
|
18,964 |
|
|
|
18,088 |
|
Accumulated deficit
|
|
|
(36,201 |
) |
|
|
(51,584 |
) |
Total stockholders' equity
|
|
|
328,448 |
|
|
|
322,006 |
|
Total Liabilities and Stockholders' Equity
|
|
$ |
7,069,690 |
|
|
$ |
7,160,401 |
|
(1) Our condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company is the primary beneficiary of these VIEs. As of March 31, 2013 and December 31, 2012, assets of consolidated VIEs totaled $5,719,880 and $5,786,569, respectively, and the liabilities of consolidated VIEs totaled $5,555,329 and $5,636,650, respectively. See Note 7 for further discussion.
See notes to condensed consolidated financial statements.
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(unaudited)
|
|
For the Three Months
Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
INTEREST INCOME:
|
|
|
|
|
|
|
Investment securities and other
|
|
$ |
11,153 |
|
|
$ |
5,584 |
|
Multi-family loans held in securitization trusts
|
|
|
45,318 |
|
|
|
12,200 |
|
Residential mortgage loans held in securitization trusts
|
|
|
1,306 |
|
|
|
1,344 |
|
Distressed residential mortgage loans held in securitization trusts
|
|
|
1,439 |
|
|
|
- |
|
Total interest income
|
|
|
59,216 |
|
|
|
19,128 |
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
Investment securities and other
|
|
|
1,629 |
|
|
|
452 |
|
Multi-family collaterized debt obligations
|
|
|
41,659 |
|
|
|
11,574 |
|
Residential collaterized debt obligations
|
|
|
298 |
|
|
|
359 |
|
Securitized debt
|
|
|
2,092 |
|
|
|
- |
|
Subordinated debentures
|
|
|
467 |
|
|
|
499 |
|
Total interest expense
|
|
|
46,145 |
|
|
|
12,884 |
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
13,071 |
|
|
|
6,244 |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
(283 |
) |
|
|
(230 |
) |
Realized (loss) gain on investment securities and related hedges, net
|
|
|
(3,162 |
) |
|
|
1,069 |
|
Realized gain on distressed residential mortgage loans held in securitization trusts
|
|
|
136 |
|
|
|
- |
|
Unrealized gain (loss) on investment securities and related hedges, net
|
|
|
2,456 |
|
|
|
(872 |
) |
Unrealized gain on multi-family loans and debt held in securitization trusts, net
|
|
|
7,051 |
|
|
|
2,023 |
|
Other income (including $19 and $0 from related parties, respectively)
|
|
|
180 |
|
|
|
374 |
|
Total other income
|
|
|
6,378 |
|
|
|
2,364 |
|
|
|
|
|
|
|
|
|
|
General, administrative and other expenses (including $874 and $309 to related parties, respectively)
|
|
|
3,935 |
|
|
|
2,718 |
|
Total general, administrative and other expenses
|
|
|
3,935 |
|
|
|
2,718 |
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS BEFORE INCOME TAXES
|
|
|
15,514 |
|
|
|
5,890 |
|
Income tax expense
|
|
|
131 |
|
|
|
- |
|
NET INCOME
|
|
|
15,383 |
|
|
|
5,890 |
|
Net income attributable to noncontrolling interest
|
|
|
- |
|
|
|
51 |
|
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$ |
15,383 |
|
|
$ |
5,839 |
|
|
|
|
|
|
|
|
|
|
Basic income per common share
|
|
$ |
0.31 |
|
|
$ |
0.42 |
|
Diluted income per common share
|
|
$ |
0.31 |
|
|
$ |
0.42 |
|
Dividends declared per common share
|
|
$ |
0.27 |
|
|
$ |
0.25 |
|
Weighted average shares outstanding-basic
|
|
|
49,611 |
|
|
|
13,998 |
|
Weighted average shares outstanding-diluted
|
|
|
49,611 |
|
|
|
13,998 |
|
See notes to condensed consolidated financial statements.
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
(unaudited)
|
|
For the Three Months
Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$ |
15,383 |
|
|
$ |
5,839 |
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in net unrealized gain on available for sale securities
|
|
|
192 |
|
|
|
4,214 |
|
Increase in fair value of derivative instruments utilized for cash flow hedges
|
|
|
684 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME
|
|
|
876 |
|
|
|
4,325 |
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$ |
16,259 |
|
|
$ |
10,164 |
|
See notes to condensed consolidated financial statements.
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Dollar amounts in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Balance, December 31, 2012
|
|
$ |
496 |
|
|
$ |
- |
|
|
$ |
355,006 |
|
|
$ |
(51,584 |
) |
|
$ |
18,088 |
|
|
$ |
322,006 |
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,383 |
|
|
|
- |
|
|
|
15,383 |
|
Stock issuance, net
|
|
|
4 |
|
|
|
- |
|
|
|
2,492 |
|
|
|
- |
|
|
|
- |
|
|
|
2,496 |
|
Common stock subscribed
|
|
|
- |
|
|
|
1,178 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,178 |
|
Dividends declared
|
|
|
- |
|
|
|
- |
|
|
|
(13,491 |
) |
|
|
- |
|
|
|
- |
|
|
|
(13,491 |
) |
Increase in net unrealized gain on available for sale securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
192 |
|
|
|
192 |
|
Increase in fair value of derivative instruments utilized for cash flow hedges
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
684 |
|
|
|
684 |
|
Balance, March 31, 2013
|
|
$ |
500 |
|
|
$ |
1,178 |
|
|
$ |
344,007 |
|
|
$ |
(36,201 |
) |
|
$ |
18,964 |
|
|
$ |
328,448 |
|
See notes to condensed consolidated financial statements.
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(unaudited)
|
|
For the Three Months Ended
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net income
|
|
$ |
15,383 |
|
|
$ |
5,890 |
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Net amortization
|
|
|
3,738 |
|
|
|
2,309 |
|
Realized loss (gain) on investment securities and related hedges, net
|
|
|
3,162 |
|
|
|
(1,069 |
) |
Realized gain on distressed residential mortgage loans held in securitization trusts
|
|
|
(136 |
) |
|
|
- |
|
Unrealized (gain) loss on investment securities and related hedges, net
|
|
|
(2,456 |
) |
|
|
872 |
|
Unrealized gain on loans and debt held in multi-family securitization trusts
|
|
|
(7,051 |
) |
|
|
(2,023 |
) |
Net decrease in loans held for sale
|
|
|
331 |
|
|
|
11 |
|
Provision for loan losses
|
|
|
283 |
|
|
|
230 |
|
Income from investment in limited partnership
|
|
|
- |
|
|
|
(370 |
) |
Interest distributions from investment in limited partnership
|
|
|
- |
|
|
|
154 |
|
Amortization of stock based compensation, net
|
|
|
160 |
|
|
|
58 |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables and other assets
|
|
|
(2,957 |
) |
|
|
(4,180 |
) |
Accrued expenses and other liabilities and accrued expenses, related parties
|
|
|
1,429 |
|
|
|
4,346 |
|
Net cash provided by operating activities
|
|
|
11,886 |
|
|
|
6,228 |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
3,032 |
|
|
|
568 |
|
Proceeds from sales of investment securities
|
|
|
1,254 |
|
|
|
1,201 |
|
Purchases of investment securities
|
|
|
(46,753 |
) |
|
|
(7,980 |
) |
Proceeds from mortgage loans held for investment
|
|
|
9 |
|
|
|
796 |
|
Proceeds from investment in limited partnership
|
|
|
136 |
|
|
|
3,796 |
|
Purchases of other assets
|
|
|
(1,992 |
) |
|
|
- |
|
Net receipts on other derivative instruments settled during the period
|
|
|
3,554 |
|
|
|
3,574 |
|
Principal repayments received on residential mortgage loans held in securitization trusts
|
|
|
6,277 |
|
|
|
4,988 |
|
Principal repayments received on distressed residential mortgage loans held in securitization trust
|
|
|
1,197 |
|
|
|
- |
|
Principal repayments received on multi-family loans held in securitization trusts
|
|
|
13,023 |
|
|
|
3,240 |
|
Principal paydowns on investment securities - available for sale
|
|
|
33,330 |
|
|
|
4,986 |
|
Purchases of loans held in multi-family securitization trusts
|
|
|
- |
|
|
|
(21,682 |
) |
Net cash provided by (used in) investing activities
|
|
|
13,067 |
|
|
|
(6,513 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
(Payments of) proceeds from financing arrangements
|
|
|
(10,310 |
) |
|
|
5,711 |
|
Stock issuance
|
|
|
2,338 |
|
|
|
- |
|
Costs associated with common stock issued
|
|
|
(2 |
) |
|
|
- |
|
Dividends paid
|
|
|
(13,384 |
) |
|
|
(4,878 |
) |
Payments made on residential collateralized debt obligations
|
|
|
(6,386 |
) |
|
|
(5,019 |
) |
Payments made on multi-family collateralized debt obligations
|
|
|
(13,019 |
) |
|
|
(3,240 |
) |
Payments made on securitized debt
|
|
|
(79 |
) |
|
|
- |
|
Net cash used in financing activities
|
|
|
(40,842 |
) |
|
|
(7,426 |
) |
Net Decrease in Cash and Cash Equivalents
|
|
|
(15,889 |
) |
|
|
(7,711 |
) |
Cash and Cash Equivalents - Beginning of Period
|
|
|
31,777 |
|
|
|
16,586 |
|
Cash and Cash Equivalents - End of Period
|
|
$ |
15,888 |
|
|
$ |
8,875 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
56,720 |
|
|
|
1,164 |
|
Cash paid for income taxes
|
|
$ |
196 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Non-Cash Investment Activities:
|
|
|
|
|
|
|
|
|
Purchase of investment securities not yet settled
|
|
$ |
241,584 |
|
|
$ |
245,294 |
|
Consolidation of multi-family loans held in securitization trusts
|
|
$ |
- |
|
|
$ |
1,139,573 |
|
Consolidation of multi-family collateralized debt obligations
|
|
$ |
- |
|
|
$ |
1,117,891 |
|
|
|
|
|
|
|
|
|
|
Non-Cash Financing Activities:
|
|
|
|
|
|
|
|
|
Dividends declared to be paid in subsequent period
|
|
$ |
13,491 |
|
|
$ |
3,544 |
|
Common stock subscribed included in receivables and other assets
|
|
$ |
1,178 |
|
|
$ |
- |
|
See notes to condensed consolidated financial statements.
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(unaudited)
1. Organization
New York Mortgage Trust, Inc., together with its consolidated subsidiaries (“NYMT,” the “Company,” “we,” “our” and “us”), is a real estate investment trust, or REIT, in the business of acquiring, investing in, financing and managing primarily mortgage-related assets and, to a lesser extent, financial assets. Our objective is to manage a portfolio of investments that will deliver stable distributions to our stockholders over diverse economic conditions. We intend to achieve this objective through a combination of net interest margin and net realized capital gains from our investment portfolio. Our portfolio includes investments in mortgage-related and financial assets, including Agency RMBS, consisting of fixed-rate, adjustable-rate and hybrid adjustable-rate RMBS, Agency IOs, consisting of interest only and inverse interest only RMBS that represent the right to the interest component of the cash flow from a pool of mortgage loans, multi-family CMBS and residential mortgage loans, including loans sourced from distressed markets.
The Company conducts its business through the parent company, NYMT, and several subsidiaries, including special purpose subsidiaries established for residential loan and CMBS securitization purposes, taxable REIT subsidiaries ("TRSs") and qualified REIT subsidiaries ("QRSs"). The Company consolidates all of its subsidiaries under generally accepted accounting principles in the United States of America (“GAAP”).
The Company is organized and conducts its operations to qualify as a REIT for federal income tax purposes. As such, the Company will generally not be subject to federal income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by the due date of its federal income tax return and complies with various other requirements.
2. Summary of Significant Accounting Policies
Definitions – The following defines certain of the commonly used terms in these financial statements: “RMBS” refers to residential adjustable-rate, hybrid adjustable-rate, fixed-rate, interest only and inverse interest only and principal only mortgage-backed securities; “Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of mortgage loans issued or guaranteed by a federally chartered corporation (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or an agency of the U.S. government, such as the Government National Mortgage Association (“Ginnie Mae”); “non-Agency RMBS” refers to RMBS backed by prime jumbo and Alternative A-paper (“Alt-A”) mortgage loans; “IOs” refers collectively to interest only and inverse interest only mortgage-backed securities that represent the right to the interest component of the cash flow from a pool of mortgage loans issued or guaranteed by a GSE or an agency of the U.S. government; “POs” refers to mortgage-backed securities that represent the right to the principal component of the cash flow from a pool of mortgage loans; “ARMs” refers to adjustable-rate residential mortgage loans; “multi-family CMBS” refers to commercial mortgage-backed securities backed by commercial mortgage loans on multi-family properties, as well as IO or PO securities that represent the right to a specific component of the cash flow from a pool of commercial mortgage loans; and “CLO” refers to collateralized loan obligations.
Basis of Presentation – The accompanying condensed consolidated balance sheet as of December 31, 2012 has been derived from audited financial statements. The accompanying condensed consolidated balance sheet as of March 31, 2013, the accompanying condensed consolidated statements of operations for the three months ended March 31, 2013 and 2012, the accompanying condensed consolidated statements of comprehensive income for the three months ended March 31, 2013 and 2012, the accompanying condensed consolidated statement of equity for the three months ended March 31, 2013 and the accompanying condensed consolidated statements of cash flows for the three months ended March 31, 2013 and 2012 are unaudited. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with Article 10 of Regulation S-X and the instructions to Form 10-Q. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the operating results for the full year.
The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications – Certain prior period amounts have been reclassified in the accompanying condensed consolidated financial statements to conform to current period presentation.
Principles of Consolidation and Variable Interest Entities – The accompanying condensed consolidated financial statements of the Company include the accounts of all its subsidiaries which are majority-owned, controlled by the Company or a variable interest entity (“VIE”) where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company consolidates a VIE when it is the primary beneficiary of such VIE. As primary beneficiary, it has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE. The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE.
Investment Securities Available for Sale – The Company's investment securities, where the fair value option has not been elected and which are reported at fair value with unrealized gains and losses reported in Other Comprehensive Income (“OCI”), include Agency RMBS, non-Agency RMBS and CLOs. Our investment securities are classified as available for sale securities. Realized gains and losses recorded on the sale of investment securities available for sale are based on the specific identification method and included in realized gain (loss) on sale of securities and related hedges in the accompanying condensed consolidated statements of operations. Purchase premiums or discounts on investment securities are amortized or accreted to interest income over the estimated life of the investment securities using the effective yield method. Adjustments to amortization are made for actual prepayment activity.
When the fair value of an investment security is less than its amortized cost as of the balance sheet date, the security is considered impaired. The Company assesses its impaired securities on at least a quarterly basis, and designates such impairments as either “temporary” or “other-than-temporary.” If the Company intends to sell an impaired security, or it is more likely than not that it will be required to sell the impaired security before its anticipated recovery, then it must recognize an other-than-temporary impairment through earnings equal to the entire difference between the investment’s amortized cost and its fair value as of the balance sheet date. If the Company does not expect to sell an other-than-temporarily impaired security, only the portion of the other-than-temporary impairment related to credit losses is recognized through earnings with the remainder recognized as a component of other comprehensive income (loss) on the accompanying condensed consolidated balance sheets. Impairments recognized through other comprehensive income (loss) do not impact earnings. Following the recognition of an other-than-temporary impairment through earnings, a new cost basis is established for the security, which may not be adjusted for subsequent recoveries in fair value through earnings. However, other-than-temporary impairments recognized through earnings may be accreted back to the amortized cost basis of the security on a prospective basis through interest income. The determination as to whether an other-than-temporary impairment exists and, if so, the amount considered other-than-temporarily impaired is subjective, as such determinations are based on both factual and subjective information available at the time of assessment. As a result, the timing and amount of other-than-temporary impairments constitute material estimates that are susceptible to significant change.
The Company’s investment securities available for sale also include its investment in a wholly owned account referred to as our Agency IO portfolio. These investments primarily include interest only and inverse interest only securities sometimes referred to as IO’s that represent the right to the interest component of the cash flow from a pool of mortgage loans that are guaranteed or issued by a GSE or government agency. The Company has elected the fair value option for these investment securities, which also measures unrealized gains and losses through earnings in the accompanying condensed consolidated statements of operations, as the Company believes this accounting treatment more accurately and consistently reflects their results of operations. The Agency IO portfolio also includes derivative investments not designated as hedging instruments for accounting purposes, with unrealized gains and losses recognized through earnings in the accompanying condensed consolidated statements of operations.
Investment Securities Available for Sale Held in Securitization Trusts – The Company’s investment securities available for sale held in securitization trusts are comprised of multi-family CMBS consisting of first loss tranche PO securities, a first loss floating rate security and certain IOs issued from four Freddie Mac-sponsored multi-family K-Series securitizations. The Company’s multi-family CMBS investments are held in RB Commercial Trust 2012-RS1 (the “2012-RS1 Trust”) and New York Mortgage Securitization Trust 2012-1 (the “NYMST 2012-1 Trust”) pursuant to a re-securitization transaction and a collateralized recourse financing transaction completed during the year ended December 31, 2012 (see Notes 7 and 12).
The Company's investment securities available for sale held in securitization trusts, where the fair value option has not been elected are reported at fair value with unrealized gains and losses reported in OCI. Realized gains and losses recorded on the sale of investment securities available for sale held in securitization trusts are based on the specific identification method and included in realized gain (loss) on sale of securities and related hedges in the accompanying condensed consolidated statements of operations. Purchase premiums or discounts are amortized or accreted to interest income over the estimated life of the investment securities using the effective yield method.
Residential Mortgage Loans Held in Securitization Trusts – Residential mortgage loans held in securitization trusts are comprised of certain ARM loans transferred to New York Mortgage Trust 2005-1, New York Mortgage Trust 2005-2 and New York Mortgage Trust 2005-3 that have been securitized into sequentially rated classes of beneficial interests. The Company accounted for these securitization trusts as financings which are consolidated into the Company’s financial statements. Residential mortgage loans held in securitization trusts are carried at their unpaid principal balances, net of unamortized premium or discount, unamortized loan origination costs and allowance for loan losses. Interest income is accrued and recognized as revenue when earned according to the terms of the mortgage loans and when, in the opinion of management, it is collectible. The accrual of interest on loans is discontinued when, in management’s opinion, the interest is not collectible in the normal course of business, but in no case when payment becomes greater than 90 days delinquent. Loans return to accrual status when principal and interest become current and are anticipated to be fully collectible.
Distressed residential Mortgage Loans Held in Securitization Trust – Distressed residential mortgage loans held in securitization trust are comprised of a pool of performing and re-performing, fixed and adjustable rate, residential mortgage loans (the “distressed residential mortgage loans”) acquired in the fourth quarter of 2012 and transferred to NYMT Residential 2012-RP1, LLC (“NYMT Residential 2012-RP1”) as part of a securitization transaction. The Company accounted for this securitization trust as a financing which is consolidated into the Company’s financial statements. Distressed residential mortgage loans held in securitization trust are carried at their unpaid principal balances, net of unamortized discount, and allowance for loan losses. Interest income is accrued and recognized as revenue when earned according to the terms of the mortgage loans and when, in the opinion of management, it is collectible. The accrual of interest on loans is discontinued when, in management’s opinion, the interest is not collectible in the normal course of business, but in no case when payment becomes greater than 90 days delinquent. Loans return to accrual status when principal and interest become current and are anticipated to be fully collectible.
Allowance for Loan Losses – We establish an allowance for loan losses based on management's judgment and estimate of credit losses inherent in our portfolio of residential mortgage loans held in securitization trusts and our distressed residential mortgage loans held in securitization trust.
Estimation involves the consideration of various credit-related factors, including but not limited to, macro-economic conditions, current housing market conditions, loan-to-value ratios, delinquency status, historical credit loss severity rates, purchased mortgage insurance, the borrower's current economic condition and other factors deemed to warrant consideration. Additionally, we look at the balance of any delinquent loan and compare that to the current value of the collateralizing property. We utilize various home valuation methodologies including appraisals, broker pricing opinions, internet-based property data services to review comparable properties in the same area or consult with a realtor in the property's area.
Multi-Family Loans Held in Securitization Trusts – Multi-family loans held in securitization trusts are comprised of multi-family mortgage loans held in four Freddie Mac-sponsored multi-family K-Series securitizations (the “Consolidated K-Series”). Based on a number of factors, we determined that we were the primary beneficiary of each VIE within the Consolidated K-Series, met the criteria for consolidation and, accordingly, have consolidated these Freddie Mac-sponsored multi-family K-Series securitizations, including their assets, liabilities, interest income and expense in our accompanying condensed consolidated financial statements. The Company has elected the fair value option on each of the assets and liabilities held within the Consolidated K-Series, which requires that changes in valuations in the assets and liabilities of the Consolidated K-Series be reflected in the Company's accompanying condensed consolidated statement of operations, as the Company believes this accounting treatment more accurately and consistently reflects their results of operations.
Interest income is accrued and recognized as revenue when earned according to the terms of the mortgage loans and when, in the opinion of management, it is collectible. The accrual of interest on loans is discontinued when, in management’s opinion, the interest is not collectible in the normal course of business, but in no case when payment becomes greater than 90 days delinquent. Loans return to accrual status when principal and interest become current and are anticipated to be fully collectible.
Cash and Cash Equivalents – Cash and cash equivalents include amounts due from banks and overnight deposits. The Company maintains its cash and cash equivalents in highly rated financial institutions, and at times these balances exceed insurable amounts.
Receivables and Other Assets – Receivables and other assets as of March 31, 2013 and December 31, 2012 include restricted cash held by third parties of $43.5 million and $46.5 million, respectively. Included in restricted cash is $24.2 million and $25.8 million held in our Agency IO portfolio to be used for trading purposes and $17.4 million and $19.8 million held by counterparties as collateral for hedging instruments as of March 31, 2013 and December 31, 2012, respectively. Interest receivable on multi-family loans held in securitization trusts is also included in the amounts of $19.8 million and $18.3 million as of March 31, 2013 and December 31, 2012, respectively.
Financing Arrangements, Portfolio Investments – The Company finances the majority of its agency securities purchases using repurchase agreements. Under a repurchase agreement, an asset is sold to a counterparty to be repurchased at a future date at a predetermined price, which represents the original sales price plus interest. The Company accounts for these repurchase agreements as financings under Accounting Standards Codification (“ASC”) 860, Transfers and Servicing. Under ASC 860, for these transactions to be treated as financings, they must be separate transactions and not linked. If the Company finances the purchase of its agency securities with repurchase agreements with the same counterparty from which the securities are purchased and both transactions are entered into contemporaneously or in contemplation of each other, the transactions are presumed under GAAP to be part of the same arrangement, or a "Linked Transaction," unless certain criteria are met. None of the Company’s repurchase agreements are accounted for as linked transactions.
Residential Collateralized Debt Obligations (“Residential CDOs”) – We use Residential CDOs to permanently finance our residential mortgage loans held in securitization trusts. For financial reporting purposes, the ARM loans held as collateral are recorded as assets of the Company and the Residential CDOs are recorded as the Company’s debt. The Company has completed four residential mortgage loan securitizations since inception, the first three were accounted for as a permanent financing and the fourth was accounted for as a sale and accordingly, is not included in the Company’s accompanying condensed consolidated financial statements.
Multi-Family Collateralized Debt Obligations (“Multi-Family CDOs”) – We consolidated the Consolidated K-Series including their debt, referred to as Multi-Family CDOs, in our accompanying condensed consolidated financial statements. The Multi-Family CDOs permanently finance the multi-family mortgage loans held in the Consolidated K-Series securitizations. For financial reporting purposes, the loans held as collateral are recorded as assets of the Company and the Multi-Family CDOs are recorded as the Company’s debt. We refer to both the Residential CDOs and Multi-Family CDOs as CDOs in this report.
Securitized Debt – In May 2012, the 2012-RS1 Trust, a wholly-owned subsidiary of the Company, completed a re-securitization of multi-family CMBS. As part of the re-securitization transaction, the 2012-RS1 Trust issued the notes, which are secured by the multi-family CMBS contributed to the 2012-RS1 Trust.
In November 2012, the Company’s wholly-owned subsidiary, RB Commercial Mortgage LLC (“RBCM”) entered into a master repurchase agreement with a three-year term for the purpose of financing certain multi-family CMBS. As part of the master repurchase agreement, NYMST 2012-1 Trust issued notes, which are secured by the multi-family CMBS transferred to NYMST 2012-1 Trust.
The multi-family CMBS contributed to the 2012-RS1 Trust and NYMST 2012-1 Trust are comprised collectively of the Company’s interests in the first loss tranche PO securities, first loss floating rate security and certain IOs issued by seven Freddie Mac-sponsored multi-family K-Series securitizations.
In December 2012, NYMT Residential LLC, a wholly-owned subsidiary of the Company, completed a securitization transaction with a three-year term for the purpose of financing distressed residential mortgage loans. As part of the securitization transaction, NYMT Residential 2012-RP1 issued a note, which is secured by the distressed residential mortgage loans transferred to NYMT Residential 2012-RP1. The distressed residential mortgage loans serving as collateral for the note are performing and re-performing, fixed and adjustable-rate, fully-amortizing, interest only and balloon, seasoned mortgage loans secured by first liens on one to four family properties.
The Company has consolidated the 2012-RS1 Trust, NYMST 2012-1 Trust and NYMT Residential 2012-RP1 on its accompanying condensed consolidated financial statements (see Note 7). Costs related to issuance of securitized debt which include underwriting, rating agency, legal, accounting and other fees are reflected as deferred charges. Such costs are included on the Company’s accompanying condensed consolidated balance sheets in receivables and other assets in the amount of $2.4 million and $2.6 million as of March 31, 2013 and December 31, 2012, respectively. These deferred charges are amortized as an adjustment to interest expense using the effective interest method.
Subordinated Debentures – Subordinated debentures are trust preferred securities that are fully guaranteed by the Company with respect to distributions and amounts payable upon liquidation, redemption or repayment. These securities are classified as subordinated debentures in the liability section of the Company’s accompanying condensed consolidated balance sheets.
Derivative Financial Instruments – The Company has developed risk management programs and processes, which include investments in derivative financial instruments designed to manage interest rate and prepayment risk associated with its securities investment activities.
Derivative instruments contain an element of risk in the event that the counterparties may be unable to meet the terms of such agreements. The Company minimizes its risk exposure by limiting the counterparties with which it enters into contracts to banks and investment banks who meet established credit and capital guidelines.
The Company invests in To-Be-Announced securities (“TBAs”) through its Agency IO portfolio. TBAs are forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced.” Pursuant to these TBA transactions, we agree to purchase or sell, for future settlement, Agency RMBS with certain principal and interest terms and certain types of underlying collateral, but the particular Agency RMBS to be delivered is not identified until shortly before the TBA settlement date. For TBA contracts that we have entered into, we have not asserted that physical settlement is probable, therefore we have not designated these forward commitments as hedging instruments. Realized and unrealized gains and losses associated with these TBAs are recognized through earnings as other income (expense) in the accompanying condensed consolidated statements of operations.
For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instruments in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change.
For instruments that are not designated or qualify as a cash flow hedge, such as our use of U.S. Treasury securities or financial futures and options on financial futures contracts, any realized and unrealized gains and losses associated with these instruments are recognized through earnings as other income (expense) in the accompanying condensed consolidated statement of operations.
Termination of Hedging Relationships – The Company employs risk management monitoring procedures to ensure that the designated hedging relationships are demonstrating, and are expected to continue to demonstrate, a high level of effectiveness. Hedge accounting is discontinued on a prospective basis if it is determined that the hedging relationship is no longer highly effective or expected to be highly effective in offsetting changes in fair value of the hedged item.
Additionally, the Company may elect to un-designate a hedge relationship during an interim period and re-designate upon the rebalancing of a hedge profile and the corresponding hedge relationship. When hedge accounting is discontinued, the Company continues to carry the derivative instruments at fair value with changes recorded in current earnings.
Revenue Recognition – Interest income on our investment securities and on our mortgage loans is accrued based on the outstanding principal balance and their contractual terms. Premiums and discounts associated with investment securities and mortgage loans at the time of purchase or origination are amortized into interest income over the life of such securities using the effective yield method. Adjustments to amortization are made for actual prepayment activity.
Interest income on our credit sensitive securities, such as our CLOs and certain of our CMBS that were purchased at a discount to par value, is recognized based on the security’s effective interest rate. The effective interest rate on these securities is based on management’s estimate from each security of the projected cash flows, which are estimated based on the Company’s assumptions related to fluctuations in interest rates, prepayment speeds and the timing and amount of credit losses. On at least a quarterly basis, the Company reviews and, if appropriate, makes adjustments to its cash flow projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in the yield/interest income recognized on these securities.
Based on the projected cash flows from the Company’s first loss principal only multi-family CMBS purchased at a discount to par value, a portion of the purchase discount is designated as non-accretable purchase discount or credit reserve, which partially mitigates the Company’s risk of loss on the mortgages collateralizing such multi-family CMBS, and is not expected to be accreted into interest income. The amount designated as a credit reserve may be adjusted over time, based on the actual performance of the security, its underlying collateral, actual and projected cash flow from such collateral, economic conditions and other factors. If the performance of a security with a credit reserve is more favorable than forecasted, a portion of the amount designated as credit reserve may be accreted into interest income over time. Conversely, if the performance of a security with a credit reserve is less favorable than forecasted, the amount designated as credit reserve may be increased, or impairment charges and write-downs of such securities to a new cost basis could result.
With respect to interest rate swaps that have not been designated as hedges, any net payments under, or fluctuations in the fair value of, such swaps will be recognized in current earnings.
Other Comprehensive Income (Loss) – Other comprehensive income (loss) is comprised primarily of income (loss) from changes in value of the Company’s available for sale securities, and the impact of deferred gains or losses on changes in the fair value of derivative contracts hedging future cash flows.
Employee Benefits Plans – The Company sponsors a defined contribution plan (the “Plan”) for all eligible domestic employees. The Plan qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code of 1986 (as amended, or the “Internal Revenue Code”). The Company made no contributions to the Plan for the three months ended March 31, 2013 and 2012.
Stock Based Compensation – Compensation expense for equity based awards and stock issued for services are recognized over the vesting period of such awards and services based upon the fair value of the stock at the grant date.
Income Taxes – The Company operates in such a manner as to qualify as a REIT under the requirements of the Internal Revenue Code. Requirements for qualification as a REIT include various restrictions on ownership of the Company’s stock, requirements concerning distribution of taxable income and certain restrictions on the nature of assets and sources of income. A REIT must distribute at least 90% of its taxable income to its stockholders of which 85% plus any undistributed amounts from the prior year must be distributed within the taxable year in order to avoid the imposition of an excise tax. Distribution of the remaining balance may extend until timely filing of the Company’s tax return in the subsequent taxable year. Qualifying distributions of taxable income are deductible by a REIT in computing taxable income.
Certain activities of the Company are conducted through TRSs and therefore are subject to federal and various state and local income taxes. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740, Income Taxes, provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. In situations involving uncertain tax positions related to income tax matters, we do not recognize benefits unless it is more likely than not that they will be sustained. ASC 740 was applied to all open taxable years as of the effective date. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based on factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof. The Company will recognize interest and penalties, if any, related to uncertain tax positions as income tax expense.
Earnings Per Share – Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.
Segment Reporting – ASC 280, Segment Reporting, is the authoritative guidance for the way public entities report information about operating segments in their annual financial statements. We are a REIT focused on the business of acquiring, investing in, financing and managing primarily mortgage-related assets and currently operate in only one reportable segment.
Summary of Recent Accounting Pronouncements
Balance Sheet (ASC 210)
In January 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (ASC 210), Balance Sheet. The update addresses implementation issues about ASU 2011-11 and applies to derivatives accounted for in accordance with ASC 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with ASC 210 or ASC 815 or subject to an enforceable master netting arrangement or similar agreement. The guidance was effective January 1, 2013 and was applied retrospectively. The adoption of ASU 2013-01 had an effect on our disclosures but did not have an effect on our accompanying condensed consolidated financial condition or results of operations.
Comprehensive Income (ASC 220)
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 requires registrants to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”) by component. In addition, an entity is required to present significant amounts reclassified out of AOCI by the respective line items of net income. ASU No. 2013-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The impact of these amendments are reflected beginning with this Quarterly Report on Form 10-Q for the period ending March 31, 2013. As the new standard does not change the current requirements for reporting net income or other comprehensive income in the accompanying condensed consolidated financial statements, our condensed consolidated financial position and results of operations were not impacted.
3. Investment Securities Available For Sale
Investment securities available for sale consist of the following as of March 31, 2013 and December 31, 2012 (dollar amounts in thousands):
March 31, 2013:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Carrying
Value
|
|
Agency RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency ARMs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
74,185
|
|
|
$
|
287
|
|
|
$
|
(92)
|
|
|
$
|
74,380
|
|
Fannie Mae
|
|
|
156,529
|
|
|
|
685
|
|
|
|
(87)
|
|
|
|
157,127
|
|
Ginnie Mae
|
|
|
22,279
|
|
|
|
—
|
|
|
|
(128)
|
|
|
|
22,151
|
|
Total Agency ARMs
|
|
|
252,993
|
|
|
|
972
|
|
|
|
(307)
|
|
|
|
253,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency Fixed Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
|
49,071
|
|
|
|
4
|
|
|
|
(259)
|
|
|
|
48,816
|
|
Fannie Mae
|
|
|
572,477
|
|
|
|
157
|
|
|
|
(4,863)
|
|
|
|
567,771
|
|
Total Agency Fixed Rate
|
|
|
621,548
|
|
|
|
161
|
|
|
|
(5,122)
|
|
|
|
616,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency IOs (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
|
41,565
|
|
|
|
249
|
|
|
|
(3,048)
|
|
|
|
38,766
|
|
Fannie Mae
|
|
|
58,837
|
|
|
|
1,068
|
|
|
|
(4,324)
|
|
|
|
55,581
|
|
Ginnie Mae
|
|
|
35,493
|
|
|
|
715
|
|
|
|
(2,272)
|
|
|
|
33,936
|
|
Total Agency IOs
|
|
|
135,895
|
|
|
|
2,032
|
|
|
|
(9,644)
|
|
|
|
128,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Agency RMBS
|
|
|
1,010,436
|
|
|
|
3,165
|
|
|
|
(15,073)
|
|
|
|
998,528
|
|
Non-Agency RMBS
|
|
|
3,126
|
|
|
|
111
|
|
|
|
(522)
|
|
|
|
2,715
|
|
CLOs
|
|
|
14,534
|
|
|
|
18,140
|
|
|
|
—
|
|
|
|
32,674
|
|
Total
|
|
$
|
1,028,096
|
|
|
$
|
21,416
|
|
|
$
|
(15,595)
|
|
|
$
|
1,033,917
|
|
December 31, 2012:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Carrying
Value
|
|
Agency RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency ARMs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
80,106
|
|
|
$
|
341
|
|
|
$
|
(83
|
)
|
|
$
|
80,364
|
|
Fannie Mae
|
|
|
169,020
|
|
|
|
659
|
|
|
|
(118
|
)
|
|
|
169,561
|
|
Ginnie Mae
|
|
|
24,127
|
|
|
|
—
|
|
|
|
(129
|
)
|
|
|
23,998
|
|
Total Agency ARMs
|
|
|
273,253
|
|
|
|
1,000
|
|
|
|
(330
|
)
|
|
|
273,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency Fixed Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
|
49,899
|
|
|
|
24
|
|
|
|
(162)
|
|
|
|
49,761
|
|
Fannie Mae
|
|
|
578,300
|
|
|
|
1,166
|
|
|
|
(1,283)
|
|
|
|
578,183
|
|
Total Agency Fixed Rate
|
|
|
628,199
|
|
|
|
1,190
|
|
|
|
(1,445)
|
|
|
|
627,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency IOs (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
|
38,025
|
|
|
|
92
|
|
|
|
(3,217
|
)
|
|
|
34,900
|
|
Fannie Mae
|
|
|
40,858
|
|
|
|
656
|
|
|
|
(5,266
|
)
|
|
|
36,248
|
|
Ginnie Mae
|
|
|
30,530
|
|
|
|
738
|
|
|
|
(3,044
|
)
|
|
|
28,224
|
|
Total Agency IOs
|
|
|
109,413
|
|
|
|
1,486
|
|
|
|
(11,527
|
)
|
|
|
99,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Agency RMBS
|
|
|
1,010,865
|
|
|
|
3,676
|
|
|
|
(13,302)
|
|
|
|
1,001,239
|
|
Non-Agency RMBS
|
|
|
3,291
|
|
|
|
—
|
|
|
|
(604)
|
|
|
|
2,687
|
|
CLOs
|
|
|
13,495
|
|
|
|
17,290
|
|
|
|
—
|
|
|
|
30,785
|
|
Total
|
|
$
|
1,027,651
|
|
|
$
|
20,966
|
|
|
$
|
(13,906)
|
|
|
$
|
1,034,711
|
|
(1) Included in investment securities available for sale are Agency IOs. Agency IOs are measured at fair value through earnings.
Investment securities available for sale held in securitization trust consist of the following as of March 31, 2013 and December 31, 2012 (dollar amounts in thousands):
March 31, 2013:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Carrying
Value
|
|
CMBS
|
|
$
|
69,817
|
|
|
$
|
6,608
|
|
|
$
|
(18)
|
|
|
$
|
76,407
|
|
Total
|
|
$
|
69,817
|
|
|
$
|
6,608
|
|
|
$
|
(18)
|
|
|
$
|
76,407
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Carrying
Value
|
|
CMBS
|
|
$
|
68,426
|
|
|
$
|
3,006
|
|
|
$
|
(273)
|
|
|
$
|
71,159
|
|
Total
|
|
$
|
68,426
|
|
|
$
|
3,006
|
|
|
$
|
(273)
|
|
|
$
|
71,159
|
|
During the three months ended March 31, 2013, the Company received total proceeds of approximately $1.3 million, realizing approximately $0.1 million of net losses from the sale of investment securities available for sale. During the three months ended March 31, 2012, the Company received total proceeds of approximately $1.2 million, realizing approximately $1.1 million of net losses from the sale of investment securities available for sale.
Actual maturities of our available for sale securities are generally shorter than stated contractual maturities (which range up to 30 years), as they are affected by the contractual lives of the underlying mortgages, periodic payments and prepayments of principal. As of March 31, 2013 and December 31, 2012, based on management’s estimates, the weighted average life of the Company’s available for sale securities portfolio was approximately 4.39 and 4.83 years, respectively.
The following tables set forth the stated reset periods of our investment securities available for sale as of March 31, 2013 and December 31, 2012 (dollar amounts in thousands):
March 31, 2013
|
|
Less than
6 Months
|
|
|
More than
6 Months
To 24 Months
|
|
|
More than
24 Months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
Agency RMBS
|
|
$
|
114,074
|
|
|
$
|
12,202
|
|
|
$
|
872,252
|
|
|
$
|
998,528
|
|
Non-Agency RMBS
|
|
|
2,397
|
|
|
|
318
|
|
|
|
—
|
|
|
|
2,715
|
|
CLOs
|
|
|
32,674
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,674
|
|
Total
|
|
$
|
149,145
|
|
|
$
|
12,520
|
|
|
$
|
872,252
|
|
|
$
|
1,033,917
|
|
December 31, 2012
|
|
Less than
6 Months
|
|
|
More than
6 Months
To 24 Months
|
|
|
More than
24 Months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
Agency RMBS
|
|
$
|
91,633
|
|
|
$
|
15,559
|
|
|
$
|
894,047
|
|
|
$
|
1,001,239
|
|
Non-Agency RMBS
|
|
|
2,687
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,687
|
|
CLOs
|
|
|
30,785
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,785
|
|
Total
|
|
$
|
125,105
|
|
|
$
|
15,559
|
|
|
$
|
894,047
|
|
|
$
|
1,034,711
|
|
The following tables set forth the stated reset periods of our investment securities available for sale held in securitization trusts as of March 31, 2013 and December 31, 2012 (dollar amounts in thousands):
March 31, 2013
|
|
Less than
6 Months
|
|
|
More than
6 Months
To 24 Months
|
|
|
More than
24 Months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
CMBS
|
|
$
|
23,729
|
|
|
$
|
—
|
|
|
$
|
52,678
|
|
|
$
|
76,407
|
|
Total
|
|
$
|
23,729
|
|
|
$
|
—
|
|
|
$
|
52,678
|
|
|
$
|
76,407
|
|
December 31, 2012
|
|
Less than
6 Months
|
|
|
More than
6 Months
To 24 Months
|
|
|
More than
24 Months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
|
Carrying
Value
|
|
CMBS
|
|
$
|
22,215
|
|
|
$
|
—
|
|
|
$
|
48,944
|
|
|
$
|
71,159
|
|
Total
|
|
$
|
22,215
|
|
|
$
|
—
|
|
|
$
|
48,944
|
|
|
$
|
71,159
|
|
The following tables present the Company's investment securities available for sale in an unrealized loss position reported through OCI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2013 and December 31, 2012 (dollar amounts in thousands):
March 31, 2013
|
|
Less than 12 Months
|
|
|
Greater than 12 months
|
|
|
Total
|
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
Agency RMBS
|
|
$
|
568,792
|
|
|
$
|
(5,390)
|
|
|
$
|
4,605
|
|
|
$
|
(38)
|
|
|
$
|
573,397
|
|
|
$
|
(5,428)
|
|
Non-Agency RMBS
|
|
|
—
|
|
|
|
—
|
|
|
|
1,140
|
|
|
|
(522)
|
|
|
|
1,140
|
|
|
|
(522)
|
|
Total
|
|
$
|
568,792
|
|
|
$
|
(5,390)
|
|
|
$
|
5,745
|
|
|
$
|
(560)
|
|
|
$
|
574,537
|
|
|
$
|
(5,950)
|
|
December 31, 2012
|
|
Less than 12 Months
|
|
|
Greater than 12 months
|
|
|
Total
|
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
Agency RMBS
|
|
$ |
513,731 |
|
|
$ |
(1,749 |
) |
|
$ |
6,158 |
|
|
$ |
(26 |
) |
|
$ |
519,889 |
|
|
$ |
(1,775 |
) |
Non-Agency RMBS
|
|
|
— |
|
|
|
— |
|
|
|
2,687 |
|
|
|
(604 |
) |
|
|
2,687 |
|
|
|
(604 |
) |
Total
|
|
$ |
513,731 |
|
|
$ |
(1,749 |
) |
|
$ |
8,845 |
|
|
$ |
(630 |
) |
|
$ |
522,576 |
|
|
$ |
(2,379 |
) |
The following tables present the Company's investment securities available for sale held in securitization trusts in an unrealized loss position reported through OCI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2013 and December 31, 2012 (dollar amounts in thousands):
March 31, 2013
|
|
Less than 12 Months
|
|
|
Greater than 12 months
|
|
|
Total
|
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
CMBS
|
|
$
|
815
|
|
|
$
|
(18)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
815
|
|
|
$
|
(18)
|
|
Total
|
|
$
|
815
|
|
|
$
|
(18)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
815
|
|
|
$
|
(18)
|
|
December 31, 2012
|
|
Less than 12 Months
|
|
|
Greater than 12 months
|
|
|
Total
|
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Losses
|
|
CMBS
|
|
$
|
16,357
|
|
|
$
|
(273)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,357
|
|
|
$
|
(273)
|
|
Total
|
|
$
|
16,357
|
|
|
$
|
(273)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,357
|
|
|
$
|
(273)
|
|
For the three months ended March 31, 2013 and 2012, the Company did not have unrealized losses in investment securities that were deemed other-than-temporary.
4. Residential Mortgage Loans Held in Securitization Trusts (Net) and Real Estate Owned
Residential mortgage loans held in securitization trusts (net) consist of the following as of March 31, 2013 and December 31, 2012, respectively (dollar amounts in thousands):
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
Mortgage loans principal amount
|
|
$
|
182,757
|
|
|
$
|
189,009
|
|
Deferred origination costs – net
|
|
|
1,161
|
|
|
|
1,198
|
|
Reserve for loan losses
|
|
|
(3,205
|
)
|
|
|
(2,978
|
)
|
Total
|
|
$
|
180,713
|
|
|
$
|
187,229
|
|
Allowance for Loan losses - The following table presents the activity in the Company's allowance for loan losses on residential mortgage loans held in securitization trusts for the three months ended March 31, 2013 and 2012, respectively (dollar amounts in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Balance at beginning of period
|
|
$
|
2,978
|
|
|
$
|
3,331
|
|
Provisions for loan losses
|
|
|
280
|
|
|
|
210
|
|
Transfer to real estate owned
|
|
|
(53)
|
|
|
|
(435
|
)
|
Charge-offs
|
|
|
—
|
|
|
|
(127
|
)
|
Balance at the end of period
|
|
$
|
3,205
|
|
|
$
|
2,979
|
|
On an ongoing basis, the Company evaluates the adequacy of its allowance for loan losses. The Company’s allowance for loan losses as of March 31, 2013 was $3.2 million, representing 175 basis points of the outstanding principal balance of residential loans held in securitization trusts as of March 31, 2013, as compared to 158 basis points as of December 31, 2012. As part of the Company’s allowance for loan adequacy analysis, management will assess an overall level of allowances while also assessing credit losses inherent in each non-performing residential mortgage loan held in securitization trusts. These estimates involve the consideration of various credit related factors, including but not limited to, current housing market conditions, current loan to value ratios, delinquency status, the borrower’s current economic and credit status and other relevant factors.
Real Estate Owned – The following table presents the activity in the Company’s real estate owned held in residential securitization trusts for the three months ended March 31, 2013 and the year ended December 31, 2012, respectively (dollar amounts in thousands):
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
Balance at beginning of period
|
|
$
|
732
|
|
|
$
|
454
|
|
Write downs
|
|
|
(3)
|
|
|
|
(124
|
)
|
Transfer from mortgage loans held in securitization trusts
|
|
|
18
|
|
|
|
1,569
|
|
Disposal
|
|
|
(96)
|
|
|
|
(1,167
|
)
|
Balance at the end of period
|
|
$
|
651
|
|
|
$
|
732
|
|
Real estate owned held in residential securitization trusts are included in receivables and other assets on the accompanying condensed balance sheets and write downs are included in provision for loan losses in the statement of operations for reporting purposes.
All of the Company’s mortgage loans and real estate owned held in residential securitization trusts are pledged as collateral for the Residential CDOs issued by the Company.
Delinquency Status of Our Residential Mortgage Loans Held in Securitization Trusts
As of March 31, 2013, we had 33 delinquent loans with an aggregate principal amount outstanding of approximately $18.3 million categorized as Residential Mortgage Loans Held in Securitization Trusts (net). Of the $18.3 million in delinquent loans, $13.6 million, or 74%, are under some form of modified payment plan. The table below shows delinquencies in our portfolio of residential mortgage loans held in securitization trusts, including real estate owned (“REO”) through foreclosure, as of March 31, 2013 (dollar amounts in thousands):
March 31, 2013
Days Late |
|
Number of Delinquent
Loans
|
|
|
Total
Dollar Amount
|
|
|
% of Loan
Portfolio
|
|
30 |
- |
60
|
|
|
1
|
|
|
$
|
246
|
|
|
|
0.13
|
%
|
61 |
- |
90
|
|
|
2
|
|
|
$
|
506
|
|
|
|
0.28
|
%
|
90 |
+ |
|
|
|
30
|
|
|
$
|
17,593
|
|
|
|
9.56
|
%
|
Real estate owned through foreclosure |
|
|
4
|
|
|
$
|
1,222
|
|
|
|
0.66
|
%
|
As of December 31, 2012, we had 35 delinquent loans with an aggregate principal amount outstanding of approximately $19.5 million categorized as Residential Mortgage Loans Held in Securitization Trusts (net). Of the $19.5 million in delinquent loans, $15.2 million, or 78%, were under some form of modified payment plan. The table below shows delinquencies in our portfolio of residential mortgage loans held in securitization trusts, including REO through foreclosure, as of December 31, 2012 (dollar amounts in thousands):
December 31, 2012
Days Late |
|
Number of Delinquent
Loans
|
|
|
Total
Dollar Amount
|
|
|
% of Loan
Portfolio
|
|
30 |
- |
60
|
|
|
3
|
|
|
$
|
751
|
|
|
|
0.39
|
%
|
61 |
- |
90
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
%
|
90 |
+ |
|
|
|
32
|
|
|
$
|
18,762
|
|
|
|
9.85
|
%
|
Real estate owned through foreclosure |
|
|
4
|
|
|
$
|
1,421
|
|
|
|
0.75
|
%
|
The geographic concentrations of credit risk exceeding 5% of the total loan balances in our residential mortgage loans held in securitization trusts and real estate owned held in residential securitization as of March 31, 2013 and December 31, 2012 are as follows:
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
New York
|
|
|
36.4%
|
|
|
|
37.8
|
%
|
Massachusetts
|
|
|
25.4%
|
|
|
|
25.2
|
%
|
New Jersey
|
|
|
9.8%
|
|
|
|
9.5
|
%
|
Florida
|
|
|
5.3%
|
|
|
|
5.1
|
%
|
Connecticut
|
|
|
5.1%
|
|
|
|
5.0
|
%
|
5. Distressed Residential Mortgage Loans Held in Securitization Trust (Net)
Distressed residential mortgage loans held in securitization trust (net) consist of the following as of March 31, 2013 and December 31, 2012, respectively (dollar amounts in thousands):
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
Unpaid principal balance
|
|
$ |
90,731 |
|
|
$ |
91,831 |
|
Unamortized discount
|
|
|
(30,833 |
) |
|
|
(31,372 |
) |
Reserve for loan losses
|
|
|
— |
|
|
|
— |
|
Total
|
|
$ |
59,898 |
|
|
$ |
60,459 |
|
Distressed Residential Mortgage Loan Characteristics
The geographic concentrations of credit risk exceeding 5% of the total loan balances in our distressed residential mortgage loans held in securitization trust as of March 31, 2013 and December 31, 2012, respectively, are as follows:
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
California
|
|
|
24.4
|
%
|
|
|
24.1
|
%
|
Texas
|
|
|
7.1
|
%
|
|
|
7.0
|
%
|
Florida
|
|
|
6.6
|
%
|
|
|
6.5
|
%
|
Maryland
|
|
|
5.6
|
%
|
|
|
5.5
|
%
|
The Company’s distressed residential mortgage loans held in securitization trust are pledged as collateral for the Securitized Debt issued by the Company (see Note 12).
6. Multi-Family Loans Held in Securitization Trusts
The Company has elected the fair value option on the assets and liabilities held within the Consolidated K-Series, which requires that changes in valuations in the assets and liabilities of the Consolidated K-Series be reflected in the Company's statement of operations. We first consolidated one of the Freddie-Mac-sponsored multi-family K-Series securitizations included in the Consolidated K-Series for the quarter ended March 31, 2012, while two other K-series securitizations included in the Consolidated K-Series were first consolidated in our financial statements during the quarter ended June 30, 2012. The fourth and final K-Series securitization included in the Consolidated K-Series was consolidated during the quarter ended December 31, 2012. Our investment in the Consolidated K-Series is limited to the multi-family CMBS comprised of first loss tranche PO securities and/or certain IOs issued by these K-Series securitizations with an aggregate net carrying value of $133.1 million and $123.3 million at March 31, 2013 and December 31, 2012, respectively.
The condensed balance sheets of the Consolidated K-Series at March 31, 2013 and December 31, 2012, respectively, are as follows (dollar amounts in thousands):
Balance Sheets
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Multi-family loans held in securitization trusts
|
|
$ |
5,376,150 |
|
|
$ |
5,442,906 |
|
Receivables
|
|
|
19,810 |
|
|
|
18,342 |
|
Total Assets
|
|
$ |
5,395,960 |
|
|
$ |
5,461,248 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Multi-family CDOs
|
|
$ |
5,243,071 |
|
|
$ |
5,319,573 |
|
Accrued expenses
|
|
|
19,488 |
|
|
|
18,022 |
|
Total Liabilities
|
|
|
5,262,559 |
|
|
|
5,337,595 |
|
Equity
|
|
|
133,401 |
|
|
|
123,653 |
|
Total Liabilities and Equity
|
|
$ |
5,395,960 |
|
|
$ |
5,461,248 |
|
The condensed statements of operations of the Consolidated K-Series for the three months ended March 31, 2013 and 2012, respectively, are as follows (dollar amounts in thousands):
Statements of Operations
|
|
Three Months Ended
March 31, 2013
|
|
|
Three Months Ended
March 31, 2012
|
|
Interest income
|
|
$ |
45,318 |
|
|
$ |
12,200 |
|
Interest expense
|
|
|
41,659 |
|
|
|
11,574 |
|
Net interest income
|
|
|
3,659 |
|
|
|
626 |
|
Unrealized gain on multi-family loans and debt held in securitization trusts
|
|
|
7,051 |
|
|
|
2,023 |
|
Net Income
|
|
$ |
10,710 |
|
|
$ |
2,649 |
|
The geographic concentrations of credit risk exceeding 5% of the total loan balances related to our CMBS investments included in investment securities available for sale and Multi-family loans held in securitization trusts as of March 31, 2013 and December 31, 2012, respectively, are as follows:
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
Texas
|
|
|
14.0
|
%
|
|
|
14.0
|
%
|
California
|
|
|
13.6
|
%
|
|
|
13.6
|
%
|
Florida
|
|
|
7.4
|
%
|
|
|
7.4
|
%
|
New York
|
|
|
6.8
|
%
|
|
|
6.8
|
%
|
Georgia
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
Washington
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
7. Use of Special Purpose Entities and Variable Interest Entities
A Special Purpose Entity (“SPE”) is an entity designed to fulfill a specific limited need of the company that organized it. SPEs are often used to facilitate transactions that involve securitizing financial assets or re-securitizing previously securitized financial assets. The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying securitized financial assets on improved terms. Securitization involves transferring assets to an SPE to convert all or a portion of those assets into cash before they would have been realized in the normal course of business through the SPE’s issuance of debt or equity instruments. Investors in an SPE usually have recourse only to the assets in the SPE and depending on the overall structure of the transaction, may benefit from various forms of credit enhancement, such as over-collateralization in the form of excess assets in the SPE, priority with respect to receipt of cash flows relative to holders of other debt or equity instruments issued by the SPE, or a line of credit or other form of liquidity agreement that is designed with the objective of ensuring that investors receive principal and/or interest cash flow on the investment in accordance with the terms of their investment agreement.
The Company has evaluated its CMBS investments in eight Freddie-Mac sponsored K-Series securitizations to determine whether they are VIEs. In addition, the Company also evaluated its financings transactions, such as its Residential CDOs completed in 2005, its multi-family CMBS re-securitization transaction completed in May 2012, its collateralized recourse financing transaction completed in November 2012 and its distressed residential mortgage loan securitization transaction completed in December 2012 (collectively, the “Financing VIEs”) and concluded that the entities created to facilitate each of the transactions are VIEs.
The Company then completed an analysis of whether the Financing VIEs should be consolidated by the Company, based on consideration of its involvement in each of the Financing VIEs, including the design and purpose of the SPE, and whether its involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of the Financing VIEs. In determining whether the Company would be considered the primary beneficiary, the following factors were assessed:
|
·
|
whether the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE; and
|
|
·
|
whether the Company has a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE.
|
The Company has determined that it has a variable interest in the Consolidated K-Series for which it is the primary beneficiary and has a controlling financial interest and, accordingly, has consolidated their assets, liabilities, income and expenses in the accompanying condensed consolidated financial statements (see Notes 2 and 6).
Also, based on its evaluation of the factors discussed above, including its involvement in the purpose and design of the entity, the Company determined that the Financing VIEs met the criteria for consolidation and, accordingly, consolidated the Financing VIEs created to facilitate these transactions.
The following table presents a summary of the assets and liabilities of these Financing VIEs. Intercompany balances have been eliminated for purposes of this presentation.
Assets and Liabilities of Consolidated VIEs as of March 31, 2013:
|
|
Financing
|
|
|
Non-financing
|
|
|
|
|
|
|
Multi-family CMBS re-securitization
|
|
|
Collateralized Recourse Financing
|
|
|
Distressed
Residential Mortgage
Loan Securitization
|
|
|
Residential Mortgage Loan Securitization
|
|
|
Multi-family CMBS
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value held in securitization trusts
|
|
$ |
24,227 |
|
|
$ |
52,180 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
76,407 |
|
Residential mortgage loans held in securitization trusts (net)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
180,713 |
|
|
|
- |
|
|
|
180,713 |
|
Distressed residential mortgage loans held in securitization trust (net)
|
|
|
- |
|
|
|
- |
|
|
|
59,898 |
|
|
|
- |
|
|
|
- |
|
|
|
59,898 |
|
Multi-family loans held in securitization trusts, at fair value
|
|
|
1,319,091 |
|
|
|
2,575,849 |
|
|
|
- |
|
|
|
- |
|
|
|
1,481,210 |
|
|
|
5,376,150 |
|
Receivables and other assets
|
|
|
5,338 |
|
|
|
11,548 |
|
|
|
3,823 |
|
|
|
1,305 |
|
|
|
4,698 |
|
|
|
26,712 |
|
Total assets
|
|
$ |
1,348,656 |
|
|
$ |
2,639,577 |
|
|
$ |
63,721 |
|
|
$ |
182,018 |
|
|
$ |
1,485,908 |
|
|
$ |
5,719,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential collateralized debt obligations
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
174,619 |
|
|
$ |
- |
|
|
$ |
174,619 |
|
Multi-family collateralized debt obligations, at fair value
|
|
|
1,287,731 |
|
|
|
2,507,858 |
|
|
|
- |
|
|
|
- |
|
|
|
1,447,482 |
|
|
|
5,243,071 |
|
Securitized debt
|
|
|
26,971 |
|
|
|
52,000 |
|
|
|
38,700 |
|
|
|
- |
|
|
|
- |
|
|
|
117,671 |
|
Accrued expenses and other liabilities
|
|
|
4,675 |
|
|
|
10,435 |
|
|
|
257 |
|
|
|
20 |
|
|
|
4,581 |
|
|
|
19,968 |
|
Total liabilities
|
|
$ |
1,319,377 |
|
|
$ |
2,570,293 |
|
|
$ |
38,957 |
|
|
$ |
174,639 |
|
|
$ |
1,452,063 |
|
|
$ |
5,555,329 |
|
Assets and Liabilities of Consolidated VIEs as of December 31, 2012:
|
|
Financing
|
|
|
Non-financing
|
|
|
|
|
|
|
Multi-family CMBS re-securitization
|
|
|
Collateralized Recourse Financing
|
|
|
Distressed
Residential Mortgage
Loan Securitization
|
|
|
Residential Mortgage Loan Securitization
|
|
|
Multi-family CMBS
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value held in securitization trusts
|
|
$ |
22,611 |
|
|
$ |
48,548 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
71,159 |
|
Residential mortgage loans held in securitization trusts (net)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
187,229 |
|
|
|
- |
|
|
|
187,229 |
|
Distressed residential mortgage loans held in securitization trust (net)
|
|
|
- |
|
|
|
- |
|
|
|
60,459 |
|
|
|
- |
|
|
|
- |
|
|
|
60,459 |
|
Multi-family loans held in securitization trusts, at fair value
|
|
|
1,335,862 |
|
|
|
2,610,276 |
|
|
|
- |
|
|
|
- |
|
|
|
1,496,768 |
|
|
|
5,442,906 |
|
Receivables and other assets
|
|
|
5,372 |
|
|
|
11,797 |
|
|
|
3,187 |
|
|
|
1,425 |
|
|
|
3,035 |
|
|
|
24,816 |
|
Total assets
|
|
$ |
1,363,845 |
|
|
$ |
2,670,621 |
|
|
$ |
63,646 |
|
|
$ |
188,654 |
|
|
$ |
1,499,803 |
|
|
$ |
5,786,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential collateralized debt obligations
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
180,979 |
|
|
$ |
- |
|
|
$ |
180,979 |
|
Multi-family collateralized debt obligations, at fair value
|
|
|
1,306,760 |
|
|
|
2,547,015 |
|
|
|
- |
|
|
|
- |
|
|
|
1,465,798 |
|
|
|
5,319,573 |
|
Securitized debt
|
|
|
26,891 |
|
|
|
52,000 |
|
|
|
38,700 |
|
|
|
- |
|
|
|
- |
|
|
|
117,591 |
|
Accrued expenses and other liabilities
|
|
|
4,706 |
|
|
|
10,609 |
|
|
|
259 |
|
|
|
15 |
|
|
|
2,918 |
|
|
|
18,507 |
|
Total liabilities
|
|
$ |
1,338,357 |
|
|
$ |
2,609,624 |
|
|
$ |
38,959 |
|
|
$ |
180,994 |
|
|
$ |
1,468,716 |
|
|
$ |
5,636,650 |
|
Multi-Family CMBS Re-securitization Transaction
In May 2012, the Company completed a re-securitization of multi-family CMBS through the 2012-RS1 Trust. This re-securitization transaction resulted in the Company consolidating as a VIE the SPE that was created to facilitate the transaction and to which the underlying assets in connection with the re-securitization were transferred. As part of the re-securitization transaction, the 2012-RS1 Trust, issued a Class A Senior Note (the "Class A Note") in the initial aggregate principal face of $35 million. The holders of the Class A Note have no recourse to the general credit of the Company, but the Company does have the obligation, under certain circumstances, to repurchase assets from the 2012-RS1 Trust upon the breach of certain representations and warranties in relation to the CMBS contributed to the 2012-RS1 Trust. In the absence of such a breach, the Company has no obligation to provide any other explicit or implicit support to the 2012-RS1 Trust (see Note 12).
The Company engaged in the re-securitization transaction primarily for the purpose of obtaining non-recourse financing on a portion of its multi-family CMBS portfolio. As a result of engaging in this transaction, the Company remains economically exposed to the first loss position on the underlying multi-family CMBS transferred to the 2012-RS1 Trust.
The 2012-RS1 Trust classified the multi-family CMBS issued by the two K-Series securitizations and held by the 2012-RS1 Trust as available for sale securities as the purpose is not to trade these securities. The 2012-RS1 Trust consolidated one of the K-Series securitizations, including its assets, liabilities, interest income and expense, in its financial statements as based on a number of factors, the Company determined that it was the primary beneficiary and has a controlling financial interest in such K-Series securitization (see Note 6).
Collateralized Recourse Financing Transaction
In November 2012, the Company, through a wholly-owned subsidiary, entered into a master repurchase agreement with a three-year term for the purpose of financing certain multi-family CMBS owned by the Company. Pursuant to the terms of the master repurchase agreement (the “CMBS Master Repurchase Agreement”) by and between, a wholly-owned subsidiary of the Company, NYMST 2012-1 Trust , a special purpose entity, and U.S. Bank National Association, as indenture trustee, the Company transferred multi-family CMBS to NYMST 2012-1 Trust in exchange for gross cash proceeds of approximately $52 million before deducting expenses associated with the transaction. In connection with the transaction, the Company agreed to guarantee the due and punctual payment of the subsidiary’s obligations under the CMBS Master Repurchase Agreement (see Note 12).
The multi-family CMBS serving as collateral under the CMBS Master Repurchase Agreement are comprised of securities issued from four separate Freddie Mac-sponsored multifamily K-Series securitizations. The NYMST 2012-1 Trust classified the multi-family CMBS issued by the two K-Series securitizations and held by the NYMST 2012-1 Trust as available for sale securities as the purpose is not to trade these securities. NYMST 2012-1 Trust consolidated two of the K-Series securitizations, including its assets, liabilities, interest income and expense, in its financial statements as based on a number of factors, the Company determined that it was the primary beneficiary and has a controlling financial interest in such K-Series securitizations (see Note 6).
Distressed Residential Mortgage Loan Securitization Transaction
In December 2012, the Company, through a wholly-owned subsidiary, entered into a securitization transaction with a three-year term for the purpose of financing distressed residential mortgage loans owned by the Company. Pursuant to terms of the securitization agreements, the Company transferred the distressed residential mortgage loans to NYMT Residential LLC, a wholly-owned subsidiary of the Company, which in turn transferred the distressed residential mortgage loans to NYMT Residential 2012-RP1, a special purpose entity in exchange for gross cash proceeds of approximately $38.7 million before deducting expenses associated with the transaction (see Note 12).
This securitization transaction resulted in the Company consolidating as a VIE the SPE that was created to facilitate the transaction and to which the underlying assets in connection with the securitization were transferred.
Residential Mortgage Loan Securitization Transaction
The Company has completed four residential mortgage loan securitizations since inception, the first three were accounted for as permanent financings and have been included in the Company’s accompanying condensed consolidated financial statements.
Non-financed Multi-family CMBS
One of the Freddie Mac-sponsored multi-family K-Series securitizations included in the Consolidated K-Series is not subject to any financing as of March 31, 2013 and December 31, 2012.
Unconsolidated VIEs
The Company has evaluated its CMBS investments in four Freddie-Mac sponsored K-Series securitizations to determine whether they are VIEs and should be consolidated by the Company. Based on a number of factors, the Company determined that it has no controlling financial interest and is not the primary beneficiary of these VIEs.
8. Derivative Instruments and Hedging Activities
The Company enters into derivative instruments to manage its interest rate risk exposure. These derivative instruments include interest rate swaps, swaptions and futures. The Company may also purchase or short TBAs and U.S. Treasury securities, purchase put or call options on U.S. Treasury futures or invest in other types of mortgage derivative securities.
The following table presents the fair value of derivative instruments that were not designated as hedging instruments and their location in our accompanying condensed consolidated balance sheets at March 31, 2013 and December 31, 2012, respectively (dollar amounts in thousands):
Derivatives Not Designated
as Hedging Instruments
|
|
Balance Sheet Location
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
TBA securities (1)
|
|
Derivative assets
|
|
$
|
237,514
|
|
|
$
|
244,789
|
|
U.S. Treasury futures
|
|
Derivative assets
|
|
|
—
|
|
|
|
676
|
|
Swaptions
|
|
Derivative assets
|
|
|
645
|
|
|
|
597
|
|
Options on U.S. Treasury futures
|
|
Derivative assets
|
|
|
179
|
|
|
|
59
|
|
Interest rate swap futures
|
|
Derivative assets
|
|
|
—
|
|
|
|
8
|
|
Eurodollar futures
|
|
Derivative liabilities
|
|
|
2,370
|
|
|
|
3,798
|
|
U.S. Treasury futures
|
|
Derivative liabilities
|
|
|
829
|
|
|
|
—
|
|
Interest rate swap futures
|
|
Derivative liabilities
|
|
|
32
|
|
|
|
—
|
|
(1)
|
Open TBA purchases and sales involving the same counterparty, same underlying deliverable and the same settlement date are reflected in our accompanying condensed consolidated financial statements on a net basis. TBA sales amounting to $10.3 million and $245.6 million have been netted against TBA purchases and are included in payable for securities purchased in the accompanying condensed consolidated balance sheets at March 31, 2013 and December 31, 2012, respectively.
|
The tables below summarize the activity of derivative instruments not designated as hedges for the three months ended March 31, 2013 and 2012, respectively (dollar amounts in thousands):
|
|
Notional Amount For the Three Months Ended March 31, 2013
|
|
Derivatives Not Designated
as Hedging Instruments
|
|
December 31,
2012
|
|
|
Additions
|
|
|
Settlement,
Expiration
or Exercise
|
|
|
March 31,
2013
|
|
TBA securities
|
|
$
|
234,000
|
|
|
$
|
485,000
|
|
|
$
|
(489,000
|
)
|
|
$
|
230,000
|
|
U.S. Treasury futures
|
|
|
(172,100
|
)
|
|
|
256,700
|
|
|
|
(265,200
|
)
|
|
|
(180,600
|
)
|
Interest rate swap futures
|
|
|
(13,000
|
)
|
|
|
48,100
|
|
|
|
(69,200
|
)
|
|
|
(34,100
|
)
|
Short sales of Eurodollar futures
|
|
|
(2,852,000
|
)
|
|
|
1,000,000
|
|
|
|
(1,408,000
|
)
|
|
|
(3,260,000
|
)
|
Options on U.S. Treasury futures
|
|
|
70,000
|
|
|
|
135,000
|
|
|
|
(140,000
|
)
|
|
|
65,000
|
|
Swaptions
|
|
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
Notional Amount For the Three Months Ended March 31, 2012
|
|
Derivatives Not Designated
as Hedging Instruments
|
|
December 31,
2011
|
|
|
Additions
|
|
|
Settlement,
Expiration
or Exercise
|
|
|
March 31,
2012
|
|
TBA securities
|
|
$
|
202,000
|
|
|
$
|
295,000
|
|
|
$
|
(260,000
|
)
|
|
$
|
237,000
|
|
U.S. Treasury futures
|
|
|
(92,800
|
)
|
|
|
242,200
|
|
|
|
(297,500
|
)
|
|
|
(148,100
|
)
|
Short sales of Eurodollar futures
|
|
|
(2,422,000
|
)
|
|
|
277,000
|
|
|
|
(327,000
|
)
|
|
|
(2,472,000
|
)
|
Options on U.S. Treasury futures
|
|
|
199,500
|
|
|
|
327,000
|
|
|
|
(391,500
|
)
|
|
|
135,000
|
|
The TBAs in our Agency IO portfolio are accounted for at fair value with both realized and unrealized gains and losses included in other income (expense) in our accompanying condensed consolidated statements of operations. The use of TBAs exposes the Company to market value risk, as the market value of the securities that the Company is required to purchase pursuant to a TBA transaction may decline below the agreed-upon purchase price. Conversely, the market value of the securities that the Company is required to sell pursuant to a TBA transaction may increase above the agreed upon sale price. For the three months ended March 31, 2013, we recorded net realized losses of $1.7 million, and net unrealized losses of $0.2 million. For the three months ended March 31, 2012, we recorded net realized gains of $3.3 million and unrealized losses of $2.3 million. As of March 31, 2013, our accompanying condensed consolidated balance sheet includes TBA-related liabilities of $237.9 million included in payable for securities purchased.
The Eurodollar futures in our Agency IO portfolio are accounted for at fair value with both realized and unrealized gains and losses included in other income (expense) in our accompanying condensed consolidated statements of operations. For the three months ended March 31, 2013, we recorded net realized losses of $1.4 million, and net unrealized gains of $1.4 million in our Eurodollar futures contracts. For the three months ended March 31, 2012, we recorded net realized losses of $41,000 and net unrealized losses of $1.1 million in our Eurodollar futures contracts. The Eurodollar futures consist of 3,260 contracts with expiration dates ranging between June 2013 and March 2015.
The U.S. Treasury futures and options in our Agency IO portfolio are accounted for at fair value with both realized and unrealized gains and losses included in other income (expense) in our accompanying condensed consolidated statements of operations. For the three months ended March 31, 2013, we recorded net realized gains of $0.1 million, and net unrealized losses of $1.4 million. For the three months ended March 31, 2012, we recorded net realized losses of $1.1 million, and net unrealized gains of $1.3 million.
Swaptions are accounted for at fair value with both realized and unrealized gains and losses included in other income (expense) in our accompanying condensed consolidated statements of operations. For the three months ended March 31, 2013, we recorded unrealized gains of $0.2 million.
The following table presents the fair value of derivative instruments designated as hedging instruments and their location in the Company’s accompanying condensed consolidated balance sheets at March 31, 2013 and December 31, 2012, respectively (dollar amounts in thousands):
Derivatives Designated
as Hedging Instruments
|
|
|