Page
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements (unaudited):
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statement of Stockholders' Equity			5
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures about Market Risk			57
Item 4. Controls and Procedures			62
Part II. Other Information			63
Item 1. Legal Proceedings			63
Item 1A. Risk Factors			63
Item 6. Exhibits			63
Signatures			64

 

2

---

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollar amounts in thousands, except per share data)

(unaudited)

 

			March 31, 2008			December 31, 2007
ASSETS
Cash and cash equivalents		$	8,012		$	5,508
Restricted cash			1,369			7,515
Investment securities - available for sale			512,550			350,484
Accounts and accrued interest receivable			2,778			3,485
Mortgage loans held in securitization trusts			398,323			430,715
Derivative assets			104			416
Property and equipment (net)			55			62
Prepaid and other assets			1,828			2,200
Assets related to discontinued operation			6,755			8,876
Total Assets		$	931,774		$	809,261
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements, portfolio investments		$	431,648		$	315,714
Collateralized debt obligations			386,535			417,027
Derivative liabilities			1,169			3,517
Accounts payable and accrued expenses			1,809			3,752
Subordinated debentures			45,000			45,000
Convertible preferred debentures			19,590			-
Liabilities related to discontinued operation			4,912			5,833
Total liabilities			890,663			790,843
Commitments and Contingencies
Stockholders' Equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 18,640,209 shares issued and outstanding at March 31, 2008 and 3,635,854 shares issued and outstanding at December 31, 2007			186			36
Additional paid-in capital			155,817			99,339
Accumulated other comprehensive loss			(14,627	)		(1,950	)
Accumulated deficit			(100,265	)		(79,007	)
Total stockholders' equity			41,111			18,418
Total Liabilities and Stockholders' Equity		$	931,774		$	809,261

 

See notes to condensed consolidated financial statements.

3

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(amounts in thousands, except per share data)

(unaudited)

		For the Three Months Ended March 31,
		2008			2007
REVENUES:
Interest income on investment securities and loans held in securitization trusts		$	13,253		$	13,713
Interest expense on investment securities and loans held in securitization trusts			10,514			13,084
Net interest income on investment securities and loans held in securitization trusts			2,739			629
Interest expense - subordinated debentures			959			882
Interest expense - convertible preferred debentures			506			—
Net interest income (loss)			1,274			(253	)
OTHER EXPENSE:
Loan losses			(1,433	)		—
Loss on securities and related hedges			(19,848	)		—
Total other expense			(21,281	)		—
EXPENSES:
Salaries and benefits			313			345
Marketing and promotion			39			23
Data processing and communications			63			37
Professional fees			352			100
Depreciation and amortization			75			68
Other			589			74
Total expenses			1,431			647
Loss from continuing operations			(21,438	)		(900	)
Income (loss) from discontinued operation - net of tax			180			(3,841	)
NET LOSS		$	(21,258	)	$	(4,741	)
Basic and diluted loss per share		$	(2.10	)	$	(1.31	)
Weighted average shares outstanding-basic and diluted			10,140			3,616

 

See notes to condensed consolidated financial statements.

4

---

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 

 

						For the Three Months Ended March 31, 2008
						Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
			(dollar amounts in thousands)
			(unaudited)
Balance, January 1, 2008 - Stockholders' Equity					$	36		$	99,339		$	(1,950	)	$	(79,007	)	$	18,418
Comprehensive Income:
Net loss															(21,258	)		(21,258	)
Other comprehensive loss:
Increase in net unrealized loss on available for sale securities												(11,454	)					(11,454	)
Increase in net unrealized loss on derivative instruments												(1,223	)					(1,223	)
Common Stock Issuance						150			56,478									56,628
Balance, March 31, 2008 - Stockholders' Equity					$	186		$	155,817		$	(14,627	)	$	(100,265	)	$	41,111

 

See notes to condensed consolidated financial statements.

5

---

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited)

 

			For the Three Months Ended March 31,
			2008			2007
			(dollar amounts in thousands)
Cash Flows from Operating Activities:
Net loss		$	(21,258	)	$	(4,741	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization			332			490
Amortization of premium on investment securities and mortgage loans held in securitization trusts			224			564
Origination of mortgage loans held for sale			—			(300,863	)
Proceeds from sales or repayments of mortgage loans			1,782			345,205
Restricted stock compensation expense			—			287
Loss of securities and related hedges			19,848			—
Gain on sale of retail lending segment			—			(5,585	)
Loan losses			1,195			2,971
Change in value of derivatives			—			119
Changes in operating assets and liabilities:
Due from loan purchasers			—			26,948
Escrow deposits - pending loan closings			—			3,303
Accounts and accrued interest receivable			724			199
Prepaid and other assets			540			2,044
Due to loan purchasers			500			(4,656	)
Accounts payable and accrued expenses			(3,039	)		(74	)
Other liabilities			—			(103	)
Net cash provided by operating activities:			848			65,989
Cash Flows from Investing Activities:
Restricted cash			6,146			172
Purchases of investment securities			(801,746	)		—
Proceeds from sale of investment securities			587,704			—
Principal repayments received on mortgage loans held in securitization trusts			30,754			43,809
Principal paydown on investment securities - available for sale			25,602			41,945
Purchases of property and equipment			—			(369	)
Disposal of fixed assets			—			485
Net cash (used in) provided by investing activities			(151,540	)		86,042
Cash Flows from Financing Activities:
Proceeds from common stock issued (net)			56,628			—
Proceeds from convertible preferred debentures  (net)			19,590			—
Payments made for termination of swaps			(8,333	)		—
Increase (decrease) in financing arrangements			115,934			(454,756	)
Collateralized debt obligation borrowings			—			315,908
Collateralized debt obligation paydowns			(30,623	)		(11,501	)
Common stock dividends paid			—			(917	)
Net cash provided by (used in) financing activities			153,196			(151,266	)

 

See notes to condensed consolidated financial statements.

6

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)

(unaudited)

 

		For the Three Months Ended March 31,
		2008			2007
		(dollar amounts in thousands)
Net Increase in Cash and Cash Equivalents			2,504			765
Cash and Cash Equivalents - Beginning of Period			5,508			969
Cash and Cash Equivalents - End of Period		$	8,012		$	1,734
Supplemental Disclosure
Cash paid for interest		$	11,689		$	16,171
Non Cash Financing Activities
Dividends declared to be paid in subsequent period		$	—		$	909

 

See notes to condensed consolidated financial statements.

 

7

---

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

1.	Summary of Significant Accounting Policies

Organization - New York Mortgage Trust, Inc. together with its consolidated subsidiaries (“NYMT”, the “Company”, “we”, “our”, and “us”) is a self-advised real estate investment trust, or REIT, in the business of investing in residential adjustable rate mortgage-backed securities issued by a United States government-sponsored enterprise (“GSE” or “Agency”), such as the Federal National Mortgage Association (“Fannie Mae”), or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), prime credit quality residential adjustable-rate mortgage (“ARM”) loans, or prime ARM loans, and non-agency mortgage-backed securities. We refer to residential adjustable rate mortgage-backed securities throughout this Quarterly Report on Form 10-Q as “MBS” and MBS issued by a GSE as “Agency MBS”. We seek attractive long-term investment returns by investing our equity capital and borrowed funds in such securities. Our principal business objective is to generate net income for distribution to our stockholders resulting from the spread between the interest and other income we earn on our interest-earning assets and the interest expense we pay on the borrowings that we use to finance these assets, which we refer to as our net interest income.

 

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.

 

Until March 31, 2007, the Company operated a mortgage lending business through its wholly-owned subsidiary, Hypotheca Capital, LLC (“HC”) (formerly known as The New York Mortgage Company, LLC).

 

On March 31, 2007, we completed the sale of substantially all of the operating assets related to HC's retail mortgage lending platform to IndyMac Bank, F.S.B. (“Indymac”), a wholly-owned subsidiary of Indymac Bancorp, Inc. On February 22, 2007, we completed the sale of substantially all of the operating assets related to HC's wholesale mortgage lending platform to Tribeca Lending Corp. (“Tribeca Lending”), a wholly-owned subsidiary of Franklin Credit Management Corporation.

 

In connection with the sale of the assets of our wholesale mortgage origination platform assets on February 22, 2007 and the sale of the assets of our retail mortgage lending platform on March 31, 2007, we classified our mortgage lending business as a discontinued operation in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. As a result, we have reported revenues and expenses related to the mortgage lending business as a discontinued operation and the related assets and liabilities as assets and liabilities related to the discontinued operation for all periods presented in the accompanying condensed consolidated financial statements, except for the condensed consolidated statements of cash flows. Certain assets and liabilities, not assigned to Indymac or Tribeca Lending will become part of the ongoing operations of NYMT and accordingly, have not been classified as a discontinued operation in accordance with the provisions of SFAS No. 144 (See note 7).

 

While the Company sold substantially all of the assets of its wholesale and retail mortgage lending platforms and exited the mortgage lending business as of March 31, 2007, it retains certain assets and liabilities associated with the former line of business. Among the assets are mortgage loans held for sale and the related principal and interest receivable balances. The liabilities include costs associated with the disposal of the mortgage loans held for sale, potential repurchase and indemnification obligations on previously sold mortgage loans and remaining lease payment obligations on real and personal property not assigned as part of these transactions.

 

Basis of Presentation - The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. In the opinion of the Company’s management, all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included. The nature of the Company’s business is such that the results of any interim period information are not necessarily indicative of results for a full year.

8

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

As used herein, references to the “Company,” “NYMT,” “we,” “our” and “us” refer to New York Mortgage Trust, Inc., collectively with its subsidiaries.

 

The Board of Directors declared a one for five reverse stock split of our common stock, as of October 9, 2007, decreasing the number of common shares then outstanding to approximately 3.6 million. Prior period share amounts and earnings per share disclosures have been restated to reflect the reverse stock split.

 

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s estimates and assumptions primarily arise from risks and uncertainties associated with interest rate volatility, prepayment volatility and credit exposure on our loan losses, available for sale investments and derivative assets and liabilities. Although management is not currently aware of any factors that would significantly change its estimates and assumptions in the near term, future changes in market conditions may occur which could cause actual results to differ materially.

 

Cash and Cash Equivalents - Cash and cash equivalents include cash on hand, 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.

 

Restricted Cash - Restricted cash is held by counterparties as collateral for hedging instruments, amounts held as collateral for two letters of credit related to the Company’s lease of office space, including its corporate headquarters and amounts held in an escrow account to support warranties and indemnifications related to the sale of the retail mortgage lending platform to Indymac.

 

Investment Securities Available for Sale - The Company's investment securities are residential mortgage-backed securities comprised of  Fannie Mae, Freddie Mac and “AAA”- rated adjustable-rate securities, including adjustable-rate loans that have an initial fixed-rate period. Investment securities are classified as available for sale securities and are reported at fair value with unrealized gains and losses reported in other comprehensive income (“OCI”). The fair values for all securities in this classification are based on unadjusted price quotes for similar securities in active markets. Realized gains and losses recorded on the sale of investment securities available for sale are based on the specific identification method and included in gain (loss) on sale of securities and related hedges. Purchase premiums or discounts on investment securities are accreted or amortized to interest income over the estimated life of the investment securities using the interest method. Investment securities may be subject to interest rate, credit and/or prepayment risk.

 

When the fair value of an available for sale security is less than amortized cost, management considers whether there is an other-than-temporary impairment in the value of the security (e.g., whether the security will be sold prior to the recovery of fair value). Management considers at a minimum the following factors that, both individually or in combination, could indicate the decline is “other-than-temporary:” 1) the length of time and extent to which the fair value has been less than book value; 2) the financial condition and near-term prospects of the issuer; or 3) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. If, in management's judgment, an other-than-temporary impairment exists, the cost basis of the security is written down to the then-current fair value, and the unrealized loss is transferred from accumulated other comprehensive income as an immediate reduction of current earnings (i.e., as if the loss had been realized in the period of impairment). Even though no credit concerns exist with respect to an available for sale security, an other-than-temporary impairment may be evident if management determines that the Company does not have the intent and ability to hold an investment until a forecasted recovery of the value of the investment.

9

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

Accounts and Accrued Interest Receivable - Accounts and accrued receivable includes interest receivable for investment securities and mortgage loans held in securitization trusts.

 

Mortgage Loans Held in Securitization Trusts - Mortgage loans held in securitization trusts are 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. Mortgage loans held in securitization trusts are carried at their unpaid principal balances, including unamortized premium or discount, unamortized loan origination costs and allowance for loan losses. In accordance with SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities-a replacement of FASB statement No. 125, Securitized ARM loans and ARM loans collateralizing debt are accounted for as loans and are not considered investments subject to classification under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. See Collateralized Debt Obligations below for further description.

 

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.

 

Loan Loss Reserves on Mortgage Loans Held in Securitization Trusts- We establish a reserve for loan losses based on management's judgment and estimate of credit losses inherent in our portfolio of mortgage loans held in securitization trusts.

 

Estimation involves the consideration of various credit-related factors including but not limited to, macro-economic conditions, the current housing market conditions, loan-to-value ratios, delinquency status, historical credit loss severity rates, purchased mortgage insurance, the borrower's credit 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 property. We utilize various internet-based property data services to review comparable properties in the same area or consult with a realtor in the property's area.

Comparing the current loan balance to the property’s current value determines the current loan-to-value (“LTV”) ratio of the loan. Generally, we estimate that the a first lien on a property that goes into a foreclosure process, resulting in real estate owned (“REO”), results in the property being disposed of at approximately 68% of the property’s current value, after expenses. This estimate is based on management's long term experience. It is possible we may realize less or more than that given today’s difficult real estate market conditions. Thus, for a first lien loan that is 60 or more days delinquent, we will adjust the property value down to approximately 68% of the property’s current value and compare that to the current balance of the loan. The difference determines the base reserve taken for that loan. This base reserve for a particular loan may be adjusted if we are aware of specific circumstances that may affect the outcome of the loss mitigation process for that loan. Predominately, however, we use the base reserve number for our reserve.

 

The loan loss reserves will be maintained through ongoing provisions charged to operating income and will be reduced by loans that are charged off. As of March 31, 2008 the allowance for loan losses held in securitization trusts totaled $3.1 million. The allowance for loan losses was $1.6 million at December 31, 2007. Determining the allowance for loan losses is subjective in nature due to the estimation required.

 

Property and Equipment, (Net) - Property and equipment have lives ranging from three to ten years, and are stated at cost less accumulated depreciation and amortization. Depreciation is determined in amounts sufficient to charge the cost of depreciable assets to operations over their estimated service lives using the straight-line method. Leasehold improvements are amortized over the lesser of the life of the lease or service lives of the improvements using the straight-line method.

10

---

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

Financing Arrangements, Portfolio Investments- Portfolio investments are typically financed with repurchase agreements, a form of collateralized borrowing which is secured by portfolio securities on the balance sheet.  Such financings are recorded at their outstanding principal balance with any accrued interest due recorded as an accrued expense (see note 5).

 

Collateralized Debt Obligations (“CDO”) - We use CDOs to permanently finance our loans held in securitization trusts.  For financial reporting purposes, the ARM loans and restricted cash held as collateral are recorded as assets of the Company and the CDO is recorded as the Company’s debt. The transaction includes interest rate caps which are held by the securitization trust and recorded as an asset or liability of the Company.

 

The Company, as transferor, securitizes mortgage loans and securities by transferring the loans or securities to entities (“Transferees”) which generally qualify under GAAP as “qualifying special purpose entities” (“QSPE's”) as defined under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities-a replacement of SFAS No. 125 (“Off Balance Sheet Securitizations”). The QSPEs issue investment grade and non-investment grade securities. Generally, the investment grade securities are sold to third party investors, and the Company retains the non-investment grade securities. If a transaction meets the requirements for sale recognition under GAAP, and the Transferee meets the requirements to be a QSPE, the assets transferred to the QSPE are considered sold, and gain or loss is recognized. The gain or loss is based on the price of the securities sold and the estimated fair value of any securities and servicing rights retained over the cost basis of the assets transferred net of transaction costs. If subsequently the Transferee fails to continue to qualify as a QSPE, or the Company obtains the right to purchase assets out of the Transferee, then the Company may have to include in its financial statements such assets, or potentially, all the assets of such Transferee (see note 6).

 

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 condensed consolidated balance sheet.

Convertible Preferred Debentures - As of March 31, 2008, there were 1.0 million shares of our Series A Preferred Stock outstanding, with an aggregate redemption value of $20.0 million. On January 18, 2008, the Company issued 1.0 million shares of its Series A Cumulative Redeemable Convertible Preferred Stock, which we refer to as our Series A Preferred Stock, to JMP Group Inc. and certain of its affiliates for an aggregate purchase price of $20.0 million. The Series A Preferred Stock entitles the holders to receive a cumulative dividend of 10% per year, subject to an increase to the extent any future quarterly common stock dividends exceed $0.10 per share. The Series A Preferred Stock is convertible into shares of the Company's common stock based on a conversion price of $4.00 per share of common stock, which represents a conversion rate of five shares of common stock for each Series A Preferred Stock. The Series A Preferred Stock matures on December 31, 2010, at which time any outstanding shares must be redeemed by the Company at the $20.00 per share liquidation preference. Pursuant to SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, because of this mandatory redemption feature, the Company classifies these securities as  a liability on its balance sheet.

 

Derivative Financial Instruments - The Company has developed risk management programs and processes, which include investments in derivative financial instruments designed to manage market risk associated with its mortgage banking and its mortgage-backed 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, investment banks and certain private investors who meet established credit and capital guidelines.

 

The Company uses other derivative instruments, including treasury, Agency or mortgage-backed securities forward sale contracts which are also classified as free-standing, undesignated derivatives and thus are recorded at fair value with the changes in fair value recognized in current earnings.

11

---

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

Interest Rate Risk - The Company hedges the aggregate risk of interest rate fluctuations with respect to its borrowings, regardless of the form of such borrowings, which require payments based on a variable interest rate index. The Company generally intends to hedge only the risk related to changes in the benchmark interest rate either the (London Interbank Offered Rate (“LIBOR”) or a Treasury rate).

 

In order to reduce such risks, the Company enters into swap agreements whereby the Company receives floating rate payments in exchange for fixed rate payments, effectively converting the borrowing to a fixed rate. The Company also enters into cap agreements whereby, in exchange for a fee, the Company is reimbursed for interest paid in excess of a certain capped rate.

 

To qualify for cash flow hedge accounting, interest rate swaps and caps must meet certain criteria, including:

 

·

the items to be hedged expose the Company to interest rate risk; and

 

·

the interest rate swaps or caps are expected to be and continue to be highly effective in reducing the Company's exposure to interest rate risk.

 

The fair values of the Company's interest rate swap agreements and interest rate cap agreements are based on values provided by dealers who are familiar with the terms of these instruments. Correlation and effectiveness are periodically assessed at least quarterly based upon a comparison of the relative changes in the fair values or cash flows of the interest rate swaps and caps and the items being hedged.

For derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instruments are 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.

With respect to interest rate swaps and caps that have not been designated as hedges, any net payments under, or fluctuations in the fair value of, such swaps and caps, will be recognized in current earnings.

 

Termination of Hedging Relationships - The Company employs a number of 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.

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. Under the Plan, participating employees may defer up to 15% of their pre-tax earnings, subject to the annual Internal Revenue Code contribution limit. The Company may match contributions up to a maximum of 25% of the first 5% of salary. Employees vest immediately in their contribution and vest in the Company’s contribution at a rate of 25% after two full years and then an incremental 25% per full year of service until fully vested at 100% after five full years of service. The Company’s total contributions to the Plan were $0 for the three months ended March 31, 2008 and $18,495 for the three months ended March 31, 2007.

12

---

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

Stock Based Compensation - The Company accounts for its stock options and restricted stock grants in accordance with the SFAS No. 123 R, Share-Based Payment , (“SFAS No. 123 R”) which requires all companies to measure compensation for all share-based payments, including employee stock options, at fair value (see note 13).

Income Taxes - The Company operates so 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. 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.

 

HC is a taxable REIT subsidiary and therefore subject to corporate Federal 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 base upon the change in tax status. 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 (see note 11).

 

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.

 

Loan Loss Reserves on Repurchase Requests and Mortgage Under Indemnification Agreements- We establish reserves for loans we have been requested to repurchase from investors and for loans subject to indemnification agreements. Generally loans wherein the borrowers do not make each of all the first three payments to the new investor once the loan has been sold, require us, under the terms of purchase and sale agreement entered into with the investor, to repurchase the loan. 

For the three months ended March 31, 2008, we repurchased no mortgage loans and received $0.3 million of new repurchase requests. As of March 31, 2008, we had pending repurchase requests totaling approximately $4.7 million in unpaid principal balances, against which the Company has taken a reserve of approximately $0.7 million. The reserve is based on historical settlement rates, property value securing the loan in question and specific settlement discussion with third parties. The Company intends to address the approximately $4.7 million in outstanding repurchase requests by attempting to enter into settlement agreements.

 

13

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

New Accounting Pronouncements - On January 1, 2008, the Company adopted SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements.

 

The changes to previous practice resulting from the application of SFAS 157 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.  The definition of fair value retains the exchange price notion used in earlier definitions of fair value.  SFAS 157 clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability.  The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the asset or owes the liability.  SFAS 157 provides a consistent definition of fair value which focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs.  In addition, SFAS 157 provides a framework for measuring fair value, and establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date (see note 10).

On January 1, 2008, the Company adopted SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which provides companies with an option to report selected financial assets and liabilities at fair value.

The objective of SFAS No. 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159 establishes presentation and disclosure requirements and requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. SFAS No. 159 also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. The Company’s adoption of SFAS 159 did not have a material impact on the condensed consolidated financial statements as the Company did not elect the fair value option for any of its existing financial assets or liabilities as of January 1, 2008.

 

In June 2007, the EITF reached consensus on Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards. EITF Issue No. 06-11 requires that the tax benefit related to dividend equivalents paid on restricted stock units, which are expected to vest, be recorded as an increase to additional paid-in capital. The Company currently accounts for this tax benefit as a reduction to income tax expense. EITF Issue No. 06-11 is to be applied prospectively for tax benefits on dividends declared in fiscal years beginning after December 15, 2008, and the Company expects to adopt the provisions of EITF Issue No. 06-11 beginning in the first quarter of 2009. The Company does not expect the adoption of EITF Issue No. 06-11 to have a material effect on its financial condition, results of operations or cash flows.

 

In February 2008, the FASB issued SFAS No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. SFAS No. 140-3 requires an initial transfer of a financial asset and a repurchase financing that was entered into contemporaneously or in contemplation of the initial transfer to be evaluated as a linked transaction under SFAS No. 140 unless certain criteria are met, including that the transferred asset must be readily obtainable in the marketplace. FSP No. 140-3 is effective for fiscal years beginning after November 15, 2008, and will be applied to new transactions entered into after the date of adoption. Early adoption is prohibited. The Company is currently evaluating the impact of adopting FSP No. 140-3 on its financial condition and cash flows. Adoption of FSP No. 140-3 will have no effect on the Company’s results of operations.

 

 In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities, and is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early application encouraged. The Company will adopt SFAS No. 161 in the first quarter of 2009. Because SFAS No. 161 requires only additional disclosures concerning derivatives and hedging activities, adoption of SFAS No. 161 will not affect the Company’s financial condition, results of operations or cash flows.

2. Investment Securities - Available for Sale

 

Investment securities available for sale consist of the following as of March 31, 2008 and December 31, 2007 (dollar amounts in thousands):

 

			March 31, 2008			December 31, 2007
Amortized cost		$	524,004		$	350,484
Gross unrealized losses			(11,454	)		—
Fair value		$	512,550		$	350,484

 

 

14

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

 

During March 2008, news of security liquidations increased the volatility of many financial assets, including those held in our portfolio. Specifically, the significant liquidation of MBS by several large financial institutions in early March 2008 caused a significant decline in the fair market value of our MBS portfolio. Specifically, the fair market value of the Agency MBS in our portfolio, including Agency ARM MBS and CMO Floaters that we pledge as collateral for borrowings under our repurchase agreements, declined during the March 2008 market disruption. As a result of the significant decline in the fair value of our Agency securities, as determined by the lenders under our repurchase agreements, the haircut required by our lenders to obtain new or additional financing on these securities experienced, in some cases, a significant increase. For example, as of March 31, 2008, the average haircut on the CMO Floaters in our portfolio was 12% , as compared to 5% at December 31, 2007. As a result of the combination of lower fair values on our Agency securities and rising haircut requirements to finance those securities, we elected to improve our liquidity position by selling approximately $592.8 million of Agency MBS securities, including $516.4 million of Agency ARM MBS and $76.4 million of CMO Floaters from our portfolio in March 2008. The sales resulted in a realized loss of $15.0 million.

As result of the timing of these sales occurring prior to the release of our December 31, 2007 results, the Company determined that the unrealized losses on our entire MBS securities portfolio were considered to be other than temporarily impaired as of December 31, 2007 and incurred an $8.5 million impaired charge for the quarter ending December 31, 2007.

As of March 31, 2008 and the date of this filing, we have the intent, and believe we have the ability, to hold our portfolio of securities which are currently in unrealized loss positions until recovery of their amortized cost, which  may be until maturity.  Given the uncertain state of the market for such securities, should conditions change that would require us to sell securities at a loss, we may no longer be able to assert that we have the ability to hold our remaining securities until recovery, and we would then be required to record impairment charges related to these securities. Substantially all of the Company's investment securities available for sale are pledged as collateral for borrowings under financing arrangements (see note 5).

 

All securities held in Investment Securities Available for Sale, including Agency, investment and non-investment grade securities, are based on unadjusted price quotes for similar securities in active markets and are categorized as level 2 per SFAS 157 (see note 10).

 

The following tables set forth the stated reset periods and weighted average yields of our investment securities at March 31, 2008: (dollar amounts in thousands):

			Less than 6 Months							More than 6 Months to 24 Months							More than 24 Months to 60 Months							Total
			Carrying Value			Weighted Average Yield				Carrying Value			Weighted Average Yield				Carrying Value			Weighted Average Yield				Carrying Value			Weighted Average Yield
Agency REMIC CMO floaters		$	224,262			4.12	%		$	—			—			$	—			—			$	224,262			4.12	%
Agency Hybrid ARM securities			—			—				—			—				261,778			4.22	%			261,778			4.22	%
Non-Agency floaters			23,683			7.44	%			—			—				—			—				23,683			7.44	%
NYMT Retained Securities			—			—				2,154			5.27	%			673			12.75	%			2,827			9.45	%
Total/Weighted average		$	247,945			4.50	%		$	2,154			5.27	%		$	262,451			4.31	%		$	512,550			4.41	%

 

The NYMT retained securities includes $0.7 million of residual interests related to the NYMT 2006-1 transaction.

 

The following table sets forth the stated reset periods and weighted average yields of our investment securities at December 31, 2007 (dollar amounts in thousands):

 

		Less than 6 Months							More than 6 Months to 24 Months						More than 24 Months to 60 Months							Total
		Carrying Value			Weighted Average Yield				Carrying Value			Weighted Average Yield			Carrying Value			Weighted Average Yield				Carrying Value			Weighted Average Yield
Agency REMIC CMO Floating Rate		$	318,689			5.55	%		$	—			—		$	—			—			$	318,689			5.55	%
Non-Agency Floaters			28,401			5.50	%			—			—			—			—				28,401			5.50	%
NYMT Retained Securities			2,165			6.28	%			—			—			1,229			12.99	%			3,394			10.03	%
Total/Weighted Average		$	349,255			5.55	%		$	—			—		$	1,229			12.99	%		$	350,484			5.61	%

 

The NYMT retained securities includes $1.2 million of residual interests related to the NYMT 2006-1 transaction.

15

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

The following table presents the Company's investment securities available for sale in an unrealized loss position, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2008. There were no unrealized positions as of December 31, 2007 as the Company incurred an $8.5 million impairment charge (dollar amounts in thousands):

		March 31, 2008
		Less than 12 Months						12 Months or More						Total
		Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses
Agency REMIC CMO floaters		$	224,262		$	5,170		$	—		$	—		$	224,262		$	5,170
Agency Hybrid ARM securities			261,778			1,197			—			—			261,778			1,197
Non-Agency floaters			23,683			4,520			—			—			23,683			4,520
NYMT retained securities			2,827			567			—			—			2,827			567
Total		$	512,550		$	11,454		$	—		$	—		$	512,550		$	11,454

3 . Mortgage Loans Held in Securitization Trusts

 

Mortgage loans held in securitization trusts consist of the following as of March 31, 2008 and December 31, 2007 (dollar amounts in thousands): 

 

		March 31, 2008			December 31, 2007
Mortgage loans principal amount		$	398,875		$	429,629
Deferred origination costs - net			2,528			2,733
Reserve for loan losses			(3,080	)		(1,647	)
Total mortgage loans held in securitization trusts		$	398,323		$	430,715

 

Reserve for Loan losses - The following table presents the activity in the Company's reserve for loan losses on mortgage loans held in securitization trusts for the three months ended March 31, 2008 and 2007 (dollar amounts in thousands).  

 

		March 31,
		2008			2007
Balance at beginning of period		$	1,647		$	—
Provisions for loan losses			1,433			—
Charge-offs			—			—
Balance of the end of period		$	3,080		$	—

 

The increase in loan loss provisions were due to $0.8 million of new delinquent loans and $0.6 million related to an increase in existing loan provisions. The reserves were adjusted higher for certain existing loans as a result of further real estate valuation deterioration.

16

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

All of the Company's mortgage loans held in securitization trusts are pledged as collateral for the CDO (see note 6). The Company’s net investment in the loans held in securitization trusts, or the difference between the purchase cost of the loans and the amount of CDO outstanding, was $14.9 million, of which the Company had a $3.1 million reserve or a net investment of $11.8 million.

 

The following tables set forth delinquent loans in our portfolio as of March 31, 2008 and December 31, 2007 (dollar amounts in thousands):

 

March 31, 2008
Days Late			Number of Delinquent Loans			Total Dollar Amount			% of Loan Portfolio
30-60			2		$	1,052			0.26	%
61-90			1			397			0.10	%
90+			11			7,653			1.92	%
Real estate owned through foreclosure			6		$	4,807			1.21	%

 

December 31, 2007

Days Late		Number of Delinquent Loans			Total Dollar Amount			% of Loan Portfolio
30-60			—		$	—			—	%
61-90			2			1,859			0.43	%
90+			12			6,910			1.61	%
Real estate owned through foreclosure			4		$	4,145			0.96	%

17

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

 

4 . Derivative Instruments and Hedging Activities

The Company enters into derivatives to manage its interest rate and market risk exposure associated with its MBS investment activities and its subordinated debentures. These derivatives include interest rate swaps and caps to mitigate the effects of major interest rate changes on net investment spread.

 

During the three months ended March 31, 2008, the Company terminated a total of $517.7 million notional intrest rate swaps resulting in a realized loss of $4.8 million.

The following table summarizes the estimated fair value of derivative assets and liabilities as of March 31, 2008 and December 31, 2007 (see Note 10) (dollar amounts in thousands):

 

		March 31, 2008			December 31, 2007
Derivative Assets:
Interest rate caps		$	104		$	416
Total derivative assets		$	104		$	416
Derivative Liabilities:
Interest rate swaps		$	1,169		$	3,517
Total derivative liabilities		$	1,169		$	3,517

 

The notional amounts of the Company's interest rate swaps and interest rate caps as of March 31, 2008 were $168.1 million and $717.7 million, respectively.

 

The notional amounts of the Company's interest rate swaps and interest rate caps as of December 31, 2007 were $220.0 million and $749.6 million, respectively.

 

The Company estimates that over the next 12 months, approximately $0.7 million of the net unrealized losses on the interest rate swaps will be reclassified from accumulated OCI into earnings.

 

18

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

5 .Financing Arrangements, Portfolio Investments

The Company has entered into repurchase agreements with third party financial institutions to finance its mortgage-backed securities portfolio. The repurchase agreements are short-term borrowings that bear interest rates based on a spread to LIBOR, and are secured by the mortgage-backed securities which they finance. At March 31, 2008, the Company had repurchase agreements with an outstanding balance of $431.6 million and a weighted average interest rate of 3.00%. As of December 31, 2007, the Company had repurchase agreements with an outstanding balance of $315.7 million and a weighted average interest rate of 5.02%. At March 31, 2008 and December 31, 2007, securities pledged as collateral for repurchase agreements had estimated fair values of $481.7 million and $337.4 million, respectively. All outstanding borrowings under our repurchase agreements mature within 30 days. As of March 31, 2008, the average days to maturity for all repurchase agreements are 25 days. The Company had outstanding repurchase agreements with six different financial institutions as of March 31, 2008 as compared to four as of December 31, 2007. In the event we are unable to obtain sufficient short-term financing through repurchase agreements or otherwise, or our lenders start to require additional collateral, we may have to liquidate our investment securities at a disadvantageous time, which could result in losses. Any losses resulting from the disposition of our investment securities in this manner could have a material adverse effect on our operating results and net profitability.

As of March 31, 2008, our Agency ARM MBS are financed with $230.2 million of repurchase agreement funding equating to an advance rate of 94% that implies a haircut of 6%, our Agency CMO floaters are financed with $180.7 million of repurchase agreement financing equating to an advance rate of 88% that implies a haircut of 12% and the non-Agency CMO floater was financed with $20.8 million of repurchase agreements funding equating to an advance rate of 90% or a 10% haircut. As discussed in Note 2 above, we experienced a combination of declining fair market value for the securities in our portfolio and increasing haircut requirement in March 2008 that resulted in our selling approximately $592.8 million of Agency MBS in our portfolio during March 2008. We undertook thse actions to reduce our leverage and improve our liquidity position. We cannot assure you that the haircuts on the securities in our MBS portfolio will not increase from their current haircut average. A material increase in haircuts on these securities may result in securities sales similar to those in March 2008 that would likely negatively affect our profitability, liquidity and the results of operations.

 

As of March 31, 2008, the Company had $8.0 million in cash and $29.9 million in unencumbered securities including $24.6 million in Agency MBS to meet additional haircut or market valuation requirements.

19

---

 

21

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

Statements of Operations Data

 

The statements of operations of the discontinued operation for the three months ended March 31, 2008 and 2007 are as follows (dollar amounts in thousands):

 

		For the Three Months Ended
		March 31,
		2008			2007
Revenues:
Net interest income		$	153		$	596
Gain on sale of mortgage loans			—			2,337
Loan losses			(398	)		(3,161	)
Brokered loan fees			—			2,135
Gain on sale of retail lending segment			—			5,160
Other income			416			27
Total net revenues			171			7,094
Expenses:
Salaries, commissions and benefits			50			5,006
Brokered loan expenses			—			1,723
Occupancy and equipment			(136	)		1,312
General and administrative			77			2,894
Total expenses			(9	)		10,935
Income (loss) before income tax (provision) benefit			180			(3,841	)
Income tax (provision) benefit			—			—
Income (loss) from discontinued operations - net of tax		$	180		$	(3,841	)

Gain on Sale of Mortgage Loans - The Company recognizes gain on sale of loans sold to third parties as the difference between the sales price and the adjusted cost basis of the loans when title transfers. The adjusted cost basis of the loans includes the original principal amount adjusted for deferrals of origination and commitment fees received, net of direct loan origination costs paid.

22

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

Loan Origination Fees and Direct Origination Costs - The Company records loan fees, discount points and certain incremental direct origination costs as an adjustment of the cost of the loan and such amounts are included in gain on sales of loans when the loan is sold.

  

Brokered Loan Fees and Expenses - The Company records commissions associated with brokered loans when such loans are closed with the borrower. Costs associated with brokered loans are expensed when incurred.

Loan Commitment Fees - Fees received for the funding of mortgage loans to borrowers at pre-set conditions are deferred and recognized at the date at which the loan is sold.

Other Income (Expense) - Includes $0.4 million of penalty payments related to the corporate headquarters moving delays (see note 8 - Leases).

Income tax (provision) benefit - During the quarter ended September 30, 2007 management determined that the Company would likely not be able to utilize the deferred tax asset and accordingly recorded a 100% valuation allowance. The Company continued to reserve 100% of deferred tax benefit in the quarter ended March 31, 2008 as the facts continue to support the Company's inability to utilize the deferred tax asset.

 

8 . Commitments and Contingencies

 

Loans Sold to Investors  - For loans originated and sold by our discontinued mortgage lending business, the Company is not exposed to long term credit risk.  In the normal course of business however, the Company is obligated to repurchase loans based on violations of representations and warranties in the sale agreement, or early payment defaults.  The Company repurchased no loans for the three months ended March 31, 2008.

As of March 31, 2008 we had a total of $4.7 million of unresolved repurchase requests, against which the Company has a reserve of approximately $0.7 million. The reserve is based on one or more of the following factors, including historical settlement rates, property value securing the loan in question and specific settlement discussion with third parties. The Company has entered into a preliminary settlement agreement pertaining to approximately $4.0 million of these outstanding loan repurchase requests. The settlement is subject to final approval by the counterparty’s creditor committee.

 

Outstanding Litigation - The Company is at times subject to various legal proceedings arising in the ordinary course of business other than as described below, the Company does not believe that any of its current legal proceedings, individually or in the aggregate, will have a material adverse effect on its operations, financial condition or cash flows.

 

On December 13, 2006, Steven B. Yang and Christopher Daubiere (“Plaintiffs”), filed suit in the United States District Court for the Southern District of New York against HC and us, alleging that we failed to pay them, and similarly situated employees, overtime in violation of the Fair Labor Standards Act (“FLSA”) and New York State law.  The Plaintiffs, each of whom were former employees in our discontinued mortgage lending business, purported to bring a FLSA “collective action” on behalf of similarly situated loan officers in our now discontinued mortgage lending business and sought unspecified amounts for alleged unpaid overtime wages, liquidated damages, attorney’s fee and costs.

On December 30, 2007 we entered into an agreement in principle with the Plaintiffs to settle this suit. The terms of the settlement remain subject to court approval. We anticipate closing of the settlement during the 2008 second quarter. The Company has reserved $1.4 million for the proposed settlement. As of March 31, 2008, there have been no material developments or changes in the settlement terms.

 

Leases - The Company leases its corporate offices and certain office space related to our discontinued mortgage lending operation not assumed by IndyMac and equipment under short-term lease agreements expiring at various dates through 2010. All such leases are accounted for as operating leases. Total rental (income) expense for property and equipment amounted to $(0.1) million and $1.1 million for the three months ended March 31, 2008 and 2007, respectively. As of March 31, 2008, the Company had been reimbursed for $0.4 million by Indymac representing the reduction in escrow from the non performance of vacating the premise as described below.

 

Pursuant to an Assignment and Assumption of Sublease and an Escrow Agreement, each with Lehman Brothers Holdings Inc. (“Lehman”) (collectively, the “Agreements”), the Company assigned and Lehman has assumed the sublease for the Company's corporate headquarters at 1301 Avenue of the Americas. Pursuant to the Agreements, Lehman funded an escrow account, containing $3.2 million for the benefit of HC. The escrow amount is reduced by $0.2 million for each month the Company remains in the leased space beginning February 1, 2008. As of March 31, 2008, the escrow has been reduced by $0.4 million due to penalties. The entire remaining amount held in the escrow account will be released to the Company when it vacates the leased space. Pursuant to the provisions of the sale transaction with IndyMac, IndyMac pays rent equal to the Company’s cost, including any penalties and foregone bonuses resulting from the delayed vacation of the leased premises for as long as IndyMac continues to occupy and use the leased space at the Company's corporate headquarters. The Company anticipates that IndyMac will vacate the space by July 2008.

 

23

---

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

Letters of Credit - HC maintains a letter of credit in the amount of $100,000 in lieu of a cash security deposit for an office lease dated June 1998 for the Company's former headquarters located at 304 Park Avenue South in New York City. The sole beneficiary of this letter of credit is the owner of the building, 304 Park Avenue South LLC. This letter of credit is secured by cash deposited in a bank account maintained at JP Morgan Chase bank.

 

HC maintains a letter of credit in the amount of $313,000 in lieu of a cash security deposit for its current corporate headquarters located at 1301 Avenue of the Amercias in New York City for its sub landlord, PricewaterhouseCoopers, LLP, as beneficiary. This letter of credit is secured by cash deposited in a bank account maintained at JP Morgan Chase bank.

Registration Rights Agreement - On February 21, 2008, the Company completed the issuance and sale of 15.0 million shares of its common stock in a private placement at a price of $4.00 per share. In connection with this private offering of our common stock, we entered into a registration rights agreement, which we refer to as the Common Stock Registration Rights Agreement, pursuant to which we were required, among other things, to file with the Securities and Exchange Commission, or SEC, a resale shelf registration statement registering for resale the 15.0 million shares sold in this private offering on or before March 12, 2008 and obtain listing for our common stock on the NASDAQ Stock Market on or before the effective date of the resale shelf registration statement. In the event we fail to satisfy these requirements, we may be subject to payment of liquidated damages to the investors in the transaction. The Company filed the resale shelf registration statement on April 4, 2008 and it became effective on April 18, 2008. As a result, we incurred a penalty fee (liquidated damages) of approximately $0.2 million which was paid on May 2, 2008 and remain subject to the penalty until we obtain NASDAQ Stock Market listing for our common stock.

 

9.  Concentrations of Credit Risk

 

At March 31, 2008 and December 31, 2007, there were geographic concentrations of credit risk exceeding 5% of the total loan balances within mortgage loans held in the securitization trusts and retained interests in our REMIC securitization, NYMT 2006-1, as follows:

 

			March 31, 2008			December 31, 2007
New York			30.5	%		31.2	%
Massachusetts			17.7	%		17.4	%
Florida			8.2	%		8.3	%
California			7.0	%		7.2	%
New Jersey			5.9	%		5.7	%

  

10 . Fair Value of Financial Instruments

The Company adopted SFAS 157 effective January 1, 2008, and accordingly all assets and liabilities measured at fair value will utilize valuation methodologies in accordance with the statement.  The Company has established and documented processes for determining fair values.  Fair value is based upon quoted market prices, where available.  If listed prices or quotes are not available, then fair value is based upon internally developed models that primarily use inputs that are market-based or independently-sourced market parameters, including interest rate yield curves.

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  The three levels of valuation hierarchy established by FAS 157 are defined as follows:

 

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The following describes the valuation methodologies used for the Company’s financial instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

 

a. Investment Securities Available for Sale - Fair value is generally based on market prices provided by five to seven dealers who make markets in these financial instruments. The dealers will incorporate common market pricing methods, including a spread measurement to the Treasury curve or Interest Rate Swap Cure as well as underlying characteristics of the particular security including coupon, periodic and life caps, collateral type, rate reset period and seasoning or age of the security. If the fair value of a security is not reasonably available from a dealer, management estimates the fair value based on characteristics of the security that the Company receives from the issuer and based on available market information. Management reviews all prices used in determining valuation to ensure they represent current market conditions. This review includes surveying similar market transactions, comparisons to interest pricing models as well as offerings of like securities by dealers. The Company’s investment securities are valued based upon readily observable market parameters and are classified as Level 2 fair values.

24

---

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

b. Interest Rate Swaps and Caps  - The fair value of interest rate swaps and caps are based on using market accepted financial models as well as dealer quotes. The model utilizes readily observable market parameters, including treasury rates, interest rate swap spreads and swaption volatility curves. The Company’s interest rate caps and swaps are classified as Level 2 fair values.

 

The following table presents the Company’s financial instruments carried at fair value, at the dates indicated below as of March 31, 2008, on the condensed consolidated balance sheet by SFAS 157 valuation hierarchy, as previously described.

		Fair Value at March 31, 2008
(In Thousands)		Level 1			Level 2			Level 3			Total
Assets:
Investment securities - available for sale		$	—		$	512,550		$	—		$	512,550
Mortgage loans held for sale (net)			—			—			6,209			6,209
Interest Rate Caps			—			104			—			104
Total assets carried at fair value		$	—		$	512,654		$	6,209		$	518,863
Liabilities:
Interest Rate Swaps		$	—		$	1,169		$	—		$	1,169
Total liabilities carried at fair value		$	—		$	1,169		$	—		$	1,169

 

The fair value of our mortgage loans held for sale (net) decreased by $0.4 million during the period that commenced on January 1, 2008 and ended on March 31, 2008. This decrease in fair value of our mortgage loans held for sale (net) is included in loan loss in our discontinued operations.

 

Any changes to the valuation methodology are reviewed by management to ensure the changes are appropriate.  As markets and products develop and the pricing for certain products becomes more transparent, the Company continues to refine its valuation methodologies.  The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.  The Company uses inputs that are current as of the measurement date, which may include periods of market dislocation, during which price transparency may be reduced.  This condition could cause the Company’s financial instruments to be reclassified from Level 2 to Level 3 in future periods.

 

 

 

25

---

 

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

 

11 . Income Taxes

 

All income tax benefits relate to HC and are included in the results of operations of the discontinued operation (see note 7).

 

Deferred taxes at March 31, 2008 include a deferred tax asset of $0.1 million and a deferred tax liability of $0.1 million which represents the tax effect of differences between tax basis and financial statement carrying amounts of assets and liabilities. The major sources of temporary differences and their deferred tax effect at March 31, 2008 are as follows (dollar amounts in thousands):

Deferred tax asset:
Net operating loss carryover		$	27,920
Restricted stock, performance shares and stock option expense			489
Mark to market adjustment			117
Sec. 267 disallowance			268
Charitable contribution carryforward			1
GAAP reserves			939
Rent expense			186
Loss on sublease			31
Gross deferred tax asset			29,951
Valuation allowance			(29,886	)
Net deferred tax asset		$	65
Deferred tax liability:
Depreciation		$	65
Total deferred tax liability		$	65

 

26

---

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(unaudited)

Deferred taxes at December 31, 2007 include a deferred tax asset of $0.1 million and a deferred tax liability of $0.1 million which represents the tax effect of differences between tax basis and financial statement carrying amounts of assets and liabilities. The major sources of temporary differences and their deferred tax effect at December 31, 2007 are as follows (dollar amounts in thousands):

Deferred tax asset:
Net operating loss carryover		$	27,434
Restricted stock, performance shares and stock option expense			489
Mark to market adjustment			86
Sec. 267 disallowance			268
Charitable contribution carryforward			1
GAAP reserves			994
Rent expense			252
Loss on sublease			50
Gross deferred tax asset			29,574
Valuation allowance			(29,509	)
Net deferred tax asset		$	65
Deferred tax liability:
Depreciation		$	65
Total deferred tax liability		$	65

The $63.1 million operating loss carry-forward expires at various intervals between 2024 and 2028. The charitable contribution carry-forward will expire in 2011.

 

During the quarter ended September 30, 2007 management determined that the Company would likely not be able to utilize the deferred tax asset and accordingly recorded a 100% valuation allowance. The Company continued to reserve 100% of deferred tax benefit in the quarter ended March 31, 2008 as the facts continue to support the Company's inability to utilize the deferred tax asset.

 

27

---

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements. Forward-looking statements are those which are not historical in nature. They can often be identified by their inclusion of words such as “will,” “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar expressions. Any projection of revenues, earnings or losses, capital expenditures, distributions, capital structure or other financial terms is a forward-looking statement. Certain statements regarding the following particularly are forward-looking in nature:

 

·

our business strategy;

 

·

future performance, developments, market forecasts or projected dividends;

 

·

projected acquisitions or joint ventures; and

 

·

projected capital expenditures.

 

It is important to note that the description of our business in general and our investment in mortgage loans and mortgage-backed securities holdings in particular, is a statement about our operations as of a specific point in time and is not meant to be construed as an investment policy. The types of assets we hold, the amount of leverage we use or the liabilities we incur and other characteristics of our assets and liabilities disclosed in this report as of a specified period of time are subject to reevaluation and change without notice.

 

Our forward-looking statements are based upon our management's beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to us. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us and many of which are beyond our control and that might cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

 

·

our proposed portfolio strategy may be changed or modified by our management without advance notice to stockholders and we may suffer losses as a result of such modifications or changes;

 

·

market changes in the terms and availability of repurchase agreements used to finance our investment portfolio activities;

 

·

reduced demand for our securities in the mortgage securitization and secondary markets;

 

·

interest rate mismatches between our mortgage-backed securities and our borrowings used to fund such purchases;

 

·

changes in interest rates and mortgage prepayment rates;

 

·

effects of interest rate caps on our adjustable-rate mortgage-backed securities;

 

·

the degree to which our hedging strategies may or may not protect us from interest rate volatility;

 

·

potential impacts of our leveraging policies on our net income and cash available for distribution;

 

·

our board's ability to change our operating policies and strategies without notice to you or stockholder approval;

 

·

our ability to manage, minimize or eliminate liabilities stemming from the discontinued operations including, among other things, litigation, repurchase obligations on the sales of mortgage loans and property leases; and

 

·

the other important factors identified, or incorporated by reference into this report, including, but not limited to those under the captions “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk”, and those described under the caption “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2008.

32

---

 

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the events described by our forward-looking events might not occur. We qualify any and all of our forward-looking statements by these cautionary factors. In addition, you should carefully review the risk factors described in other documents we file from time to time with the Securities and Exchange Commission.

 

General

New York Mortgage Trust, Inc. together with its consolidated subsidiaries (“NYMT”, the “Company”, “we”, “our”, and “us”) is a self-advised real estate investment trust, or REIT, in the business of investing in residential adjustable rate mortgage-backed securities issued by a United States government-sponsored enterprise (“GSE” or “Agency”), such as the Federal National Mortgage Association (“Fannie Mae”), or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), prime credit quality residential adjustable-rate mortgage (“ARM”) loans, or prime ARM loans, and non-agency mortgage-backed securities. We refer to residential adjustable rate mortgage-backed securities throughout this Quarterly Report on Form 10-Q as “MBS” and MBS issued by a GSE as “ Agency MBS”. We seek attractive long-term investment returns by investing our equity capital and borrowed funds in such securities. Our principal business objective is to generate net income for distribution to our stockholders resulting from the spread between the interest and other income we earn on our interest-earning assets and the interest expense we pay on the borrowings that we use to finance these assets, which we refer to as our net interest income. We believe that the best approach to generating a positive net interest income is to manage our liabilities, principally in the form of short-term indebtedness (maturities of one year or less), in relation to the interest rate risks of our investments. To help achieve this result, we employ repurchase agreement financing, generally short-term, and over time will combine our financings with hedging techniques, primarily interest rate swaps. We may, subject to maintaining our REIT qualification, also employ other hedging techniques from time to time, including interest rate caps, floors and swap options to protect against adverse interest rate movements.

 

As of March 31, 2008, our investment portfolio was comprised of $512.6 million in MBS, including $261.8 of Agency MBS, $224.3 million of Agency CMO floaters and $26.5 million of non-Agency MBS, of which $25.8 million are rated in the highest category by two rating agencies (either Moody's Investor Service, Inc. or Standard & Poor's, Inc.), and $398.3 million of prime ARM loans held in securitization trusts. As of March 31, 2008, we had approximately $931.8 million of total assets as compared to $809.3 million at December 31, 2007.

Implementation of Alternative Investment Strategy Under Our Advisory Agreement

Since inception, our investment portfolio strategy has focused on the acquisition of high-credit quality ARM loans and securities. Moreover, since our exit from the mortgage lending business on March 31, 2007, we have exclusively focused our resources and efforts on investing, on a leveraged basis, in MBS and, since August 2007, we have employed a portfolio strategy that focuses on investments in Agency MBS. In connection with our exit from the mortgage lending business, we have an approximately $63.1 million net operating loss carry-forward from one of our wholly-owned subsidiaries. As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007, concurrent with the issuance of our Series A Preferred Stock on January 18, 2008, we entered into an advisory agreement with JMP Asset Management LLC (“JMPAM”), an affiliate of JMP Group, Inc. Under the advisory agreement, JMPAM advises two of our wholly-owned subsidiaries, Hypotheca Capital, LLC, or HC (formerly known as The New York Mortgage Company, LLC), and New York Mortgage Funding, LLC, as well as any additional subsidiaries acquired or formed in the future to hold investments made on our behalf by JMPAM. We refer to these subsidiaries in our periodic reports filed with the Securities and Exchange Commission as the “Managed Subsidiaries.” As an advisor to the Managed Subsidiaries, we expect that JMPAM will focus on the acquisition of alternative mortgage related investments on behalf of the Managed Subsidiaries. We expect this alternative mortgage-related investment strategy to primarily take the form of equity investments in unaffiliated third party entities, or Funds, that acquire or manage a portfolio of non-Agency MBS, some or all of which may be classified as non-investment grade securities. Some of those investments may allow us to utilize all or a portion of the net operating loss carry-forward, to the extent available by law.  Although our investment strategy thus far in 2008 has focused on the acquisition of Agency MBS, JMPAM may commence investments under this alternative mortgage related investment strategy in the near future; provided, however, that the commencement of investments by JMPAM under this strategy must first be approved by our board of directors and any subsequent investment on behalf of Managed Subsidiaries must adhere to investment guidelines adopted by our board of directors. This strategy, if and when implemented, will vary from our core strategy and we can provide no assurance that we or JMPAM will be successful at implementing any alternative investment strategy.

 

Significant Events During 2008 First Quarter

 

Recent Market Volatility

Commencing mid-year 2007, the residential mortgage market in the United States began experiencing a variety of significant difficulties and changed economic conditions, including defaults, credit losses and liquidity concerns, many of which continue to exist as of the date of this report. In January and February 2008, however, mortgage-backed security industry fundamentals began to stabilize as compared to fundamentals in the third and fourth quarter of 2007. As discussed below, we received net proceeds of approximately $76.2 million from equity offerings in January and February 2008 and used substantially all of the net proceeds, in combination with borrowings under our repurchase agreements, to acquire approximately $714.1 million of Agency ARM MBS.

 

During March 2008, news of potential and actual security liquidations increased the price volatility and liquidity of many financial assets, including Agency MBS and other high-quality mortgage securities and loans. As a result, market values for, and available liquidity to finance, certain mortgage securities, including some of our Agency MBS and AAA-rated non-Agency MBS, were negatively impacted. As a response to these changed conditions, which impacted a relatively broad range of leveraged public and private companies with investment and financing strategies similar to ours, the Company undertook a number of strategic actions during March 2008 to reduce leverage and raise liquidity in the portfolio of Agency MBS. Commencing March 7, 2008 through March 17, 2008, the Company sold, in aggregate, approximately $592.8 million of Agency MBS from its investment portfolio that was comprised of $516.4 million of Agency hybrid ARM MBS and $76.4 million of Agency CMO floating rate MBS (“CMO Floaters”). These sales resulted in a loss of $15.0 million. Additionally, as a result of these sales of MBS, we terminated associated interest rate swaps that were used to hedge our liability costs with a notional balance of $297.7 million at a cost of $2.0 million. As of March 31, 2008, our MBS portfolio totaled $512.6 million and was comprised of $261.8 million of Agency hybrid ARM MBS, $224.3 million of  CMO Floaters and $25.8 million of AAA-rated non-Agency MBS. As of March 31, 2008, in aggregate, our Agency MBS portfolio was financed with $431.6 million of reverse repurchase agreement borrowings (referred to as “repo” borrowings) with an average advance rate of 91% that implies an average haircut of 9% for the entire portfolio. Within our Agency MBS portfolio, our Agency hybrid ARM MBS is financed with $230.2 million of repurchase agreements funding equating to an advance rate of 94% that implies a haircut of 6% and our Agency CMO Floaters are financed with $180.7 million of repurchase agreement financing equating to an advance rate of 88% that implies a haircut of 12%. The Company also owns $398.3 million of adjustable rate mortgages that were deemed to be of “prime” or high quality at the time of origination. These loans are permanently financed with approximately $386.5 million of collateralized debt obligations and are held in securitization trusts.

We generally finance our portfolio of Agency MBS and non-Agency MBS through repurchase agreements. In connection with the 2008 market disruption, repurchase agreement lenders have tightened their lending standards and have done so in a manner that now distinguishes between “type” of Agency MBS. For example, during the month of March 2008, lenders generally increased haircuts on Agency Hybrid ARMs from 3% to 5% and in some cases up to 10%. Also, haircuts on Agency CMO Floaters increased from 5% to a range of 10% to 20%, largely dependent upon cash flow structure.

33

---

Private Placement of Common Stock

 

On February 21, 2008, we completed the issuance and sale of 15.0 million shares of our common stock to certain accredited investors (as such term is defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended, or Securities Act) at a price of $4.00 per share. This private offering of our common stock generated net proceeds to us of approximately $56.6 million after payment of private placement fees and expenses. Prior to this issuance of common stock, we had 3,640,209 shares of common stock outstanding. In connection with this transaction, we entered into a registration rights agreement ( the “Common Stock Registration Right Agreement”), pursuant to which we were required to, among other things, file a resale shelf registration statement providing for the resale of these shares.

 

 Private Placement of Convertible Preferred Stock to JMP Group Inc. and Certain of its Affiliates

 

On January 18, 2008, we issued 1.0 million shares of our Series A Cumulative Redeemable Convertible Preferred Stock, which we refer to as the Series A Preferred Stock, to JMP Group, Inc. and certain of its affiliates for an aggregate purchase price of $20.0 million. The Series A Preferred Stock entitles the holders to receive a cumulative dividend of 10% per year, subject to an increase to the extent any future quarterly common stock dividends exceed $0.10 per share. The shares of Series A Preferred Stock mature on December 31, 2010, and are convertible into shares of our common stock based on a conversion price of $4.00 per share of common stock, which represents a conversion rate of five shares of common stock for each share of Series A Preferred Stock. Under certain circumstances, the Series A Preferred Stock will automatically convert into shares of our common stock. In addition, under the terms of the Series A Preferred Stock, holders have the option to convert, at any time, their shares of Series A Preferred Stock into shares of our common stock. The Series A Preferred Stock may also be redeemed by the Company in connection with certain change of control events. The Series A Preferred Stock has voting rights that allow the holders to vote with the common stock, voting together as a single class on an “as converted” basis, and the holders have the right to appoint one additional “independent” director, as such term is defined under the rules of the NASDAQ Stock Market, to stand for election to our board of directors at our 2008 Annual Meeting of Stockholders in June 2008. At their option, the holders had the option to purchase up to an additional $20.0 million of Series A Preferred Stock, on identical terms, through April 4, 2008. The holders of the Series A Preferred Stock did not exercise the option.

Advisory Agreement with JMPAM

 

As described above, concurrent with the issuance of the Series A Preferred Stock, we entered into an advisory agreement with JMPAM. For more information on our relationship with JMPAM and the risks and conflicts related thereto, see “Our Relationship with JMPAM and the Advisory Agreement” under Item 1 and “Risks Related to the Advisory Agreement with JMPAM — There are conflicts of interest in our relationship with JMPAM, which could result in decisions that are not in the best interests of shareholders” under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007.

Changes in the Composition of the Board of Directors

 

Upon completion of the issuance and sale of the Series A Preferred Stock on January 18, 2008 and pursuant to the stock purchase agreement providing for the sale of the Series A Preferred Stock, James J. Fowler and Steven M. Abreu were appointed to our board of directors, with Mr. Fowler being appointed the non-executive chairman of our board of directors. Mr. Fowler also serves as the Chief Investment Officer of the Managed Subsidiaries. Mr. Fowler is a managing director of JMPAM and president of JMP Realty Trust, Inc., a private REIT that is externally managed by JMPAM and an investor in our Series A Preferred Stock. In addition, concurrent with the completion of the issuance and sale of the Series A Preferred Stock and pursuant to the stock purchase agreement, Steven B. Schnall, Mary Dwyer Pembroke, Jerome F. Sherman and Thomas W. White resigned as members of our board of directors, thereby reducing the size of our board of directors to seven directors. Pursuant to the stock purchase agreement providing for the sale of the Series A Preferred Stock, the holders of our Series A Preferred Stock also have the right to appoint one additional "independent" director, as such term is defined under the rules of NASDAQ Stock Market, to stand for election to our board of directors at our 2008 Annual Meeting of Stockholders to be held in June 2008.

34

---

 

·

characteristics of the investments and the underlying pool of mortgage loans including but not limited to credit quality, coupon and prepayment rates; and

 

·

return on our mortgage asset investments and the related management of interest rate risk.

Financial Condition

As of March 31, 2008, we had approximately $931.8 million of total assets, as compared to approximately $809.3 million of total assets as of December 31, 2007. The increase in total assets results primarily from an increase in mortgage-backed securities of $162.1 million and a decrease of $32.4 million in mortgage loans held in securitization trust.

 

The Company received net proceeds of approximately $19.6 million from our Series A Preferred Stock offering and $56.6 million from our common stock offering during the first quarter of 2008. The Company used substantially all of the net proceeds to purchase approximately $714.1 million of Agency MBS during January and February 2008. As discussed above under “– Significant Events During 2008 First Quarter – Recent Market Volatility,” the Company sold an aggregate of $592.8 million of Agency MBS in its portfolio during March 2008 in an effort to reduce its leverage and improve its liquidity position in response to the market disruption of March 2008.

Balance Sheet Analysis - Asset Quality

 

Investment Securities - Available for Sale - Our securities portfolio consists of Agency securities or AAA-rated residential mortgage-backed securities. At March 31, 2008 and December 31, 2007, we had no investment securities in a single issuer or entity (other than a government sponsored agency of the U.S. Government) that had an aggregate book value in excess of 10% of our total assets. The following tables set forth the credit characteristics of our securities portfolio as of March 31, 2008 and December 31, 2007 (dollar amounts in thousands):

Credit Characteristics of Our Investment Securities

 

			March 31, 2008
			Sponsor or Rating			Par Value			Carrying Value			% of Portfolio			Coupon			Yield
Agency REMIC CMO floaters			FNMA/FHLMC		$	232,435		$	224,262			44	%		3.60	%		4.12	%
Agency Hybrid Arms			FNMA/FHLMC			257,746			261,778			51	%		5.15	%		4.22	%
Non-Agency floaters			AAA			29,558			23,683			5	%		3.41	%		7.44	%
NYMT retained securities			AAA-BBB			2,169			2,154			0	%		6.93	%		5.27	%
NYMT retained securities			Below BBB			2,753			673			0	%		5.69	%		12.75	%
Total/Weighted average					$	524,661		$	512,550			100	%		4.38	%		4.41	%

 

		December 31, 2007
		Sponsor or Rating			Par Value			Carrying Value			% of Portfolio			Coupon			Yield
Agency REMIC CMO floaters			FNMA/FHLMC		$	324,676		$	318,689			91	%		5.98	%		5.55	%
Non-Agency floaters			AAA			29,764			28,401			8	%		5.66	%		5.50	%
NYMT retained securities			AAA-BBB			2,169			2,165			1	%		6.31	%		6.28	%
NYMT retained securities			Below BBB			2,756			1,229			0	%		5.68	%		12.99	%
Total/Weighted average					$	359,365		$	350,484			100	%		5.95	%		5.61	%

 

40

---

 

The following table sets forth the stated reset periods and weighted average yields of our investment securities at March 31, 2008 and December 31, 2007 (dollar amounts in thousands):

Reset/ Yield of our Investment Securities

 

Less than 6 Months

More than 6 Months To 24 Months

More than 24 Months To 60 Months

Total

March 31, 2008

Carrying Value

Weighted Average Yield

Carrying Value

Weighted Average Yield

Carrying Value

Weighted Average Yield

Carrying Value

Weighted Average Yield

Agency REMIC CMO floaters

$

224,262

4.12

%

$

—

—

$