nymt_10q-033109.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
  
   
OF THE SECURITIES EXCHANGE ACT OF 1934
  
       
   
For the quarterly period ended March 31, 2009
  
       
   
OR
  
       
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
  
   
OF THE SECURITIES EXCHANGE ACT OF 1934
  

For the transition period from                to ____________
 
Commission file number 001-32216
 
NEW YORK MORTGAGE TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter)

Maryland
47-0934168
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)

52 Vanderbilt Avenue, Suite 403, New York, New York 10017
(Address of Principal Executive Office) (Zip Code)
 
(212) 792-0107
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filers” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one.):

Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer x
Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No x

The number of shares of the registrant’s common stock, par value $.01 per share, outstanding on May 6, 2009 was 9,320,094
 
NEW YORK MORTGAGE TRUST, INC.
 
FORM 10-Q
 
 
PART I. Financial Information
2
Item 1. Condensed Consolidated Financial Statements (unaudited)
2
CONDENSED CONSOLIDATED BALANCE SHEETS
2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
3
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
24
Item 3. Quantitative and Qualitative Disclosures about Market Risk
39
Item 4. Controls and Procedures
44
PART II. OTHER INFORMATION
44
Item 1A.  Risk Factors
44
Item 6. Exhibits
44
SIGNATURE
45

 
PART I.  FINANCIAL INFORMATION
 
Item 1.  Condensed Consolidated Financial Statements (unaudited)
 
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(amounts in thousands, except share and per share amounts)
(unaudited)
 
   
March 31, 2009
    
December 31, 2008
  
ASSETS
            
Cash and cash equivalents
   $ 44,990     $ 9,387  
Restricted cash
     4,249       7,959  
Investment securities - available for sale, at fair value (including pledged securities of $305,004 and $456,506, respectively)
     313,630       477,416  
Receivable for securities sold
     18,203       —  
Accounts and accrued interest receivable
     2,800       3,095  
Mortgage loans held in securitization trusts (net)
     335,980       348,337  
Derivative assets
     9       22  
Prepaid and other assets
     1,502       1,230  
Assets related to discontinued operation
     4,784       5,854  
Total Assets
   $ 726,147     $ 853,300  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Liabilities:
                
Financing arrangements, portfolio investments
   $ 276,182     $ 402,329  
Collateralized debt obligations
     323,645       335,646  
Derivative liabilities
     4,007       4,194  
Payable for securities purchased
     8,998       —  
Accounts payable and accrued expenses
     4,001       3,997  
Subordinated debentures (net)
     44,687       44,618  
Convertible preferred debentures (net)
     19,739       19,702  
Liabilities related to discontinued operation
     3,371       3,566  
Total liabilities
     684,630       814,052  
Commitments and Contingencies
                
Stockholders’ Equity:
                
Common stock, $0.01 par value, 400,000,000 authorized, 9,320,094 and 9,320,094, shares issued and outstanding, respectively
     93       93  
Additional paid-in capital
     149,112       150,790  
Accumulated other comprehensive loss
     (6,628 )     (8,521 )
Accumulated deficit
     (101,060 )     (103,114 )
Total stockholders’ equity
     41,517       39,248  
Total Liabilities and Stockholders’ Equity
   $ 726,147     $ 853,300  

See notes to condensed consolidated financial statements.
 
2
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(amounts in thousands, except per share amounts)
(unaudited)
 
   
For the Three Months Ended March 31,
  
   
2009
    
2008
  
REVENUE:
            
Interest income-investment securities and loans held in securitization trusts
   $ 8,585     $ 13,253  
Interest expense-investment securities and loans held in securitization trusts
     3,130       10,514  
Net interest income from investment securities and loans held in securitization trusts
     5,455       2,739  
Interest expense – subordinated debentures
     (824 )     (959 )
Interest expense – convertible preferred debentures
     (537 )     (506 )
Net interest income
     4,094       1,274  
OTHER EXPENSE:
                
Provision for loan losses
     (629 )     (1,433 )
Impairment loss on investment securities
     (119 )     —  
Realized gain (loss) on securities and related hedges
     123       (19,848 )
Total other expense
     (625 )     (21,281 )
EXPENSE:
                
Salaries and benefits
     541       313  
Professional fees
     341       352  
Management fees
     182       109  
Insurance
     92       180  
Other
     414       477  
Total expenses
     1,570       1,431  
INCOME (LOSS) FROM CONTINUING OPERATIONS
     1,899       (21,438 )
Income from discontinued operation - net of tax
     155       180  
NET INCOME (LOSS)
   $ 2,054     $ (21,258 )
Basic income (loss) per common share
   $ 0.22     $ (4.19 )
Diluted income (loss) per common share
   $ 0.22     $ (4.19 )
Dividends declared per share common share
   $ 0.18     $ —  
Weighted average shares outstanding-basic
     9,320       5,070  
Weighted average shares outstanding-diluted
     11,820       5,070  

See notes to condensed consolidated financial statements.
 
3
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 
For the three months ended March 31, 2009
 
(dollar amounts in thousands)
(unaudited)
 
 
   
Common 
Stock
    
Additional 
Paid-In 
Capital
    
Accumulated Deficit
    
Accumulated
Other 
Comprehensive
Income (Loss)
    
Comprehensive 
Income 
    
Total
  
Balance, January 1, 2009
   $ 93     $ 150,790     $ (103,114 )   $ (8,521 )         $ 39,248  
Net income
     —       —       2,054       —     $ 2,054       2,054  
Dividends declared
     —       (1,678 )     —       —       —       (1,678 )
Increase in net unrealized gain on investment available for sale securities
     —       —       —       1,478       1,478       1,478  
Increase in derivative instruments utilized for cash flow hedge
     —       —       —       415       415       415  
Comprehensive income
     —       —       —       —     $ 3,947          
Balance, March 31, 2009
   $ 93     $ 149,112     $ (101,060 )   $ (6,628 )           $ 41,517  
 
 
See notes to condensed consolidated financial statements.
 
4
 
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(dollar amounts in thousands)
(unaudited)
 
   
For the Three Months Ended March 31,
  
   
2009
    
2008
  
Cash Flows from Operating Activities:
            
Net income (loss)
   $ 2,054     $ (21,258 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                
Depreciation and amortization
     353       332  
(Accretion) Amortization of (discount) premium on investment securities and mortgage loans held in securitization trusts
     (98 )     224  
(Gain)loss on securities and related hedges
     (123 )     19,848  
Impairment loss on investment securities
     119       —  
Provision for loan losses
     629       1,109  
Lower of cost or market adjustments
     103       86  
Changes in operating assets and liabilities:
                
Accounts and accrued interest receivable
     303       724  
Prepaid and other assets
     (281 )     540  
Due to loan purchasers
     (19 )     500  
Accounts payable and accrued expenses
     (1,687 )     (3,039 )
Payments received on loans held for sale
     961       1,782  
Net cash provided by operating activities:
     2,314       848  
                 
Cash Flows from Investing Activities:
                
Decrease in restricted cash
     3,710       6,146  
Purchases of investment securities
     (7,728 )     (801,746 )
Proceeds from sale of investment securities
     144,502       587,704  
Principal repayments received on mortgage loans held in securitization trusts
     11,492       30,754  
Principal paydown on investment securities - available for sale
     19,510       25,602  
Net cash provided (used in) by investing activities
     171,486       (151,540 )
                 
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 )
(Decrease) increase in financing arrangements
     (126,147 )     115,934  
Collateralized debt obligation paydowns
     (12,050 )     (30,623 )
Net cash (used in) provided by financing activities
     (138,197 )     153,196  
Net Increase in Cash and Cash Equivalents
     35,603       2,504  
Cash and Cash Equivalents - Beginning of Period
     9,387       5,508  
Cash and Cash Equivalents - End of Period
   $ 44,990     $ 8,012  
                 
Supplemental Disclosure
                
Cash paid for interest
   $ 4,033     $ 11,689  
Non Cash Investing Activities                 
Purchase of investment securities    $ 8,998     $ —  
Proceeds from sale of investment securities    $ 18,203     $ —  
Non Cash Financing Activities
                
Dividends declared to be paid in subsequent period
   $ 1,678     $ —  

5
NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(unaudited)

 
1. 
Organization and 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 “RMBS” and RMBS issued by a GSE as “Agency RMBS”. We also invest, although to a lesser extent, in certain alternative real estate related and financial assets that present greater credit risk and less interest rate risk than our current RMBS investments and prime ARM loans.  We refer to our investment in these alternative assets as our “alternative investment strategy.” 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 conducts its business through the parent company, NYMT, and several subsidiaries, including special purpose subsidiaries established for loan securitization purposes, a taxable REIT subsidiary ("TRS") and a qualified REIT subsidiary ("QRS").  The Company conducts certain of its operations related to its alternative investment strategy through its wholly-owned TRS, Hypotheca Capital, LLC (“HC”), in order to utilize some or all of a net operating loss carry-forward held in HC that resulted from the Company's exit from the mortgage lending business.  Prior to March 31, 2007, the Company conducted substantially all of its mortgage lending business through HC.   The Company's wholly-owned QRS, New York Mortgage Funding, LLC (“NYMF”), currently holds certain mortgage-related assets under our principal investment strategy for regulatory compliance purposes.  The Company also may conduct certain of its operations related to its alternative investment strategy through NYMF.  The Company consolidates all of its subsidiaries under generally accepted accounting principals in the United States of America (“GAAP”).

The Company is organized and conducts its operations to qualify as a REIT for federal income tax purposes. As such, the Company will generally not be subject to federal income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by the due date of its federal income tax return and complies with various other requirements.

Basis of Presentation - The condensed consolidated balance sheets at March 31, 2009 and December 31, 2008, the condensed consolidated statements of operations for the three months ended March 31, 2009 and 2008, and the condensed consolidated statements of cash flows for the three months ended March 31, 2009 and 2008 are unaudited.  In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows have been made.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with Article 10 of Regulation S-X and the instructions to Form 10-Q.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission (“SEC”).  The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the operating results for the full year.
 
The accompanying condensed consolidated financial statements include our accounts and those of our consolidated subsidiaries.  All significant intercompany amounts have been eliminated.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.
 
6
New Accounting Pronouncements - In June 2007, the Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Award.  EITF Issue No. 06-11 requires that the tax benefit related to dividend equivalents paid on restricted stock units that 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 adopted the provisions of EITF Issue No. 06-11 during the first quarter of 2009.  The adoption of EITF Issue No. 06-11 did not have a material effect on the Company’s condensed consolidated financial statements.
 
In December 2007, the Financial Accoounting Statements Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations and issued SFAS No. 141(R) Business Combinations.  SFAS No. 141(R) broadens the guidance of SFAS No. 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses.  It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations; and it stipulates that acquisition related costs be generally expensed rather than included as part of the basis of the acquisition.  SFAS No. 141(R) expands required disclosures to improve the ability to evaluate the nature and financial effects of business combinations.  SFAS No. 141(R) is effective for all transactions the Company closes, on or after January 1, 2009.  The Company adopted SFAS No. 141(R) as of January 1, 2009 and it has not had a material impact on the Company’s condensed consolidated financial statements.
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51.  SFAS No. 160 requires a noncontrolling interest in a subsidiary to be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest to be identified in the consolidated financial statements.  SFAS No. 160 also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation.  SFAS No. 160 is effective for the Company on January 1, 2009 and most of its provisions will apply prospectively.  The Company adopted SFAS No. 160 as of January 1, 2009 and it has not had a material impact on the Company’s condensed consolidated financial statements.
 
In February 2008, the FASB issued FASB Staff Position (“FSP”) 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, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS No. 140”) unless certain criteria are met, including that the transferred asset must be readily obtainable in the marketplace.  The Company adopted FSP as of January 1, 2009 and it had no impact on the Company’s condensed consolidated financial statements.
 
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 the Company issues for fiscal years beginning after November 15, 2008, with early application encouraged.  Because SFAS No. 161 requires only additional disclosures concerning derivatives and hedging activities, adoption of SFAS No. 161 did not affect the Company’s financial condition, results of operations or cash flows. The Company adopted SFAS No. 161 in the first quarter of 2009 and expanded the footnote disclosure included in the condensed consolidated financial statements (see note 4).
 
In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement). The FSP requires the initial proceeds from the sale of our convertible preferred debentures to be allocated between a liability component and an equity component.  The resulting discount would be amortized using the effective interest method over the period the debt is expected to remain outstanding as additional interest expense.  The FSP is effective for our fiscal year beginning on January 1, 2009 and requires retroactive application. The Company adopted FSP as of January 1, 2009 and it had no impact on the Company’s condensed consolidated financial statements.
 
On October 10, 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.  SFAS FSP No. 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key consideration in determining the fair value of a financial asset when the market for that financial asset is not active.  The issuance of FSP SFAS No. 157-3 did not have any impact on the Company’s determination of fair value for its financial assets.
 
7
In April 2009, the FASB issued FSP SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP No. 157-4”), to provide additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased as well as on identifying circumstances that indicate that a transaction is not orderly. FSP No. 157-4 provides additional guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased when compared with normal market activity for the asset or liability (or similar assets or liabilities). FSP No. 157-4 further amends SFAS 157 to require the disclosure in interim and annual periods of the inputs and valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, during the period.  FSP No. 157-4 is effective for the Company’s interim and annual reporting periods ending after June 15, 2009, and should be applied prospectively. The Company is currently evaluating the impact the adoption of FSP No. 157-4 will have on the Company’s financial statements.
 
In April 2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, which provides additional guidance on the recognition, presentation and disclosure of losses in earnings for the impairment of investments in debt securities when changes in fair value of those securities are not regularly recognized in earnings (other-than-temporary impairment for debt securities).  This FSP also requires additional disclosures regarding expected cash flows, credit losses, and aging of securities with unrealized losses. Under this FSP, an other than temporary impairment is taken if the Company intends or is forced to sell the related debt security before its anticipated recovery with any impairment charge recognized in the statements of income. Realized credit losses are also recognized in the statement of operations. The FSP is effective for the Company’s interim and annual reporting periods ending after June 15, 2009, and should be applied prospectively. The Company is currently evaluating the impact the adoption of FSP SFAS No. 115-2 and FSP SFAS No. 124-2 will have on the Company’s financial statements.
 
In April 2009, the FASB issued FSP SFAS No. 107-1 and APB No. 28-1, Interim Disclosures about Fair Value of Financial Instruments, to require 1) disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements and 2) disclosures in summarized financial information at interim periods. This FSP does not affect the ongoing requirement to report non-fair-value amounts on the face of the financial statements. This FSP further requires that an entity disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments and a description of changes in the method(s) and significant assumptions, if any, during the period. The FSP is effective for the Company’s interim and annual reporting periods ending after June 15, 2009, and should be applied prospectively. The Company is currently evaluating the impact the adoption of FSP SFAS No. 107-1 and APB No. 28-1 will have on the Company’s financial statements.
 
2. 
Investment Securities - Available for Sale
 
Investment securities available for sale consist of the following as of March 31, 2009 (dollar amounts in thousands):
 
   
Amortized
Cost
    
Unrealized
Gains
    
Unrealized
Losses
    
Carrying
Value
  
Agency Hybrid ARM Securities
   $ 248,467       3,007       —     $ 251,474  
Agency REMIC CMO Floaters
     33,135       142       —       33,277  
Private Label CMO Floaters
     23,836       —       (4,499 )     19,337  
Collateralized Loan Obligations
     8,998       —       —       8,998  
NYMT Retained Securities
     677       —       (133 )     544  
  Total
   $ 315,113       3,149       (4,632 )   $ 313,630  

8

Investment securities available for sale consist of the following as of December 31, 2008 (dollar amounts in thousands):
 
   
Amortized
Cost
    
Unrealized
Gains
    
Unrealized
Losses
    
Carrying
Value
  
Agency Hybrid Arm Securities
   $ 256,978     $ 1,316     $ (98 )   $ 258,196  
Agency REMIC CMO Floaters
     197,675       —       —       197,675  
Private Label Floaters
     25,047       —       (4,101 )     20,946  
NYMT Retained Securities
     677       —       (78 )     599  
  Total
   $ 480,377     $ 1,316     $ (4,277 )   $ 477,416  

The Company commenced its alternative investment strategy by purchasing $46.0 million face amount of CRATOS CLO I collateralized loan obligations (“CLO”) on March 31, 2009 at a purchase price of approximately $9.0. This transaction closed on April 7, 2009. This marks the Company’s first investment under its alternative investment strategy.
 
During March 2009, the Company determined that the Agency CMO floaters in its portfolio were no longer producing acceptable returns and initiated a program for the purpose of disposing of these securities. As of March 31, 2009, the Company had sold approximately $159.5 million in current par value of Agency CMO floaters for a net gain of approximately $0.1 million.  The remaining securities totaling $34.3 million in current par value were sold during April 2009 and resulted in an additional net gain of $22,760.  As a result of this sale program, the Company incurred an additional impairment of $0.1 million in the quarter ended March 31, 2009 as the Company no longer had the intent to hold the Agency CMO floaters.  This loss will be offset by a gain of $0.1 million realized in the second quarter of 2009 as a result of the sale.
 
Moreover, because the sale of these Agency CMO floaters occurred prior to filing of our Annual Report on Form 10-K for the year ended December 31, 2008, the Company determined that the unrealized losses related to our Agency CMO floaters were considered to be other than temporarily impaired as of December 31, 2008 and incurred a $4.1 million impairment charge for the quarter ended December 31, 2008.  In addition, we also determined that $6.1 million in current par value of non-agency RMBS, which includes $2.5 million in current par value of retained residual interest, had suffered an other-than-temporary impairment and, accordingly, recorded an impairment charge of $1.2 million for the quarter and year ended December 31, 2008.
 
All RMBS securities held in investment securities available for sale, including Agency RMBS and 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 No. 157 (see note 10).
 
9
The following tables set forth the stated reset periods and weighted average yields of our investment securities at March 31, 2009 (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 Hybrid ARM Securities
   $ —       —     $ 62,844       3.59 %   $ 188,630       4.02 %   $ 251,474       3.92 %
Agency REMIC CMO Floaters
     33,277       6.39 %     —       —       —       —       33,277       6.39 %
Private Label CMO Floaters
     19,337       14.23 %     —       —       —       —       19,337       14.23 %
Collateralized Loan Obligations
     8,998       25.28 %     —       —       —       —       8,998       25.28 %
NYMT Retained Securities (1)
     475       15.00 %     69       19.10 %     —       —       544       15.52 %
Total/Weighted average
   $ 62,087       11.64 %   $ 62,913       3.61 %   $ 188,630       4.02 %   $ 313,630       5.45 %
 
 
(1)
The NYMT retained securities includes $0.1 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, 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 Hybrid ARM Securities
   $ —       —     $ 66,910       3.69 %   $ 191,286       4.02 %   $ 258,196       3.93 %
Agency REMIC CMO Floaters
     197,675       8.54 %     —       —       —       —       197,675       8.54 %
Private Label CMO Floaters
     20,946       14.25 %     —       —       —       —       20,946       14.25 %
NYMT Retained Securities (1)
     530       8.56 %     —       —       69       16.99 %     599       15.32 %
Total/Weighted average
   $ 219,151       9.21 %   $ 66,910       3.69 %   $ 191,355       4.19 %   $ 477,416       6.51 %

 
(1)
The NYMT retained securities includes $0.1 million of residual interests related to the NYMT 2006-1 transaction.
 
10
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, 2009.  (dollar amounts in thousands):
 
 
Greater than 12 months
and less than 18 months
  
Total
  
 
Carrying
Value
  
Gross
Unrealized
Losses
  
Carrying
Value
  
Gross
Unrealized
Losses
  
Non-Agency floaters
     19,337       4,499       19,337       4,499  
NYMT Retained Securities
     475       133       475       133  
Total
   $ 19,812     $ 4,632     $ 19,812     $ 4,632  

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 December 31, 2008.
 
   
Less than 12 Months
    
Total
  
   
Carrying
Value
    
Gross
Unrealized
Losses
    
Carrying
Value
    
Gross
Unrealized
Losses
  
Agency Hybrid ARM securities
     9,406       98       9,406       98  
Non-Agency floaters
     18,119       4,101       18,119       4,101  
NYMT retained security
     530       78       530       78  
Total
   $ 28,055     $ 4,277     $ 28,055     $ 4,277  

As of March 31, 2009 and the date of this filing, we have the intent and 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.  In assessing the Company’s ability to hold its impaired RMBS, it considers the significance of each investment and the amount of impairment, as well as the Company’s current and anticipated leverage capacity and liquidity position.  In addition, the Company anticipates collecting all principal repayments owed on its non agency RMBS.  Given the uncertain state of the financial markets, 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 RMBS investment securities available for sale are pledged as collateral for borrowings under financing arrangements (see note 5).
 
3. 
Mortgage Loans Held in Securitization Trusts (net)
 
Mortgage loans held in securitization trusts (net) consist of the following as of March 31, 2009 and December 31, 2008 (dollar amounts in thousands):
 
   
March 31,
2009
    
December 31,
2008
  
Mortgage loans principal amount
   $ 335,538     $ 347,546  
Deferred origination costs – net
     2,122       2,197  
Reserve for loan losses
     (1,680 )     (1,406 )
Total
   $ 335,980     $ 348,337  

11
 
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, 2009 and 2008 (dollar amounts in thousands).
 
   
March 31,
  
   
2009
    
2008
  
Balance at beginning of period
   $ 1,406     $ 1,647  
Provisions for loan losses
     629       1,433  
Charge-offs
     (355 )     —  
Balance of the end of period
   $ 1,680     $ 3,080  

All of the Company’s mortgage loans held in securitization trusts are pledged as collateral for the collateralized debt obligations (“CDO”) issued by the Company (see note 6).  As of March 31, 2009, the Company’s net investment in the securitization trusts, which is the maximum amount of the Company’s investment that is at risk to loss and represents the difference between the carrying amount of the loans and the amount of CDO’s outstanding, was $12.4 million.
 
The following tables set forth delinquent loans in our securitization trusts as of March 31, 2009 and December 31, 2008 (dollar amounts in thousands):
 
March 31, 2009
                  
Days Late
  
Number of
Delinquent
Loans
    
Total
Dollar Amount
    
% of Loan
Portfolio
  
30-60
    
7
     $ 4,686       1.40%  
61-90
    
4
       1,262       0.38%  
90+
    
12
       4,672       1.39%  
Real estate owned through foreclosure
    
3
       816       0.24%  

December 31, 2008
                  
Days Late
  
Number of
Delinquent
Loans
    
Total
Dollar Amount
    
% of Loan
Portfolio
  
30-60
    
3
     $ 1,363       0.39%  
61-90
    
1
       263       0.08%  
90+
    
13
       5,734       1.65%  
Real estate owned through foreclosure
    
4
       1,927       0.55%  

4. 
Derivative Instruments and Hedging Activities
 
The Company enters into derivatives instruments to manage its interest rate risk exposure. These derivative instruments include interest rate swaps and caps entered into to reduce interest expense costs related to our repurchase agreements, collateralized debt obligations and our subordinated debentures.  These derivative instruments are comprised of interest rate swaps and interest rate caps for the periods presented and are accounted for in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS 133”).  The Company’s interest rate swaps are designated as cash flow hedges against the benchmark interest rate risk associated with its short term repurchase agreements.  There were no costs incurred at the inception of our interest rate swaps, under which the Company agrees to pay a fixed rate of interest and receive a variable interest rate based on one month LIBOR, on the notional amount of the interest rate swaps.  The Company’s interest rate swap notional amounts are based on an amortizing schedule fixed at the start date of the transaction.  The Company’s interest rate cap transactions are designated as cashflow hedges against the bench mark interest rate risk associated with the collateralized debt obligations and the subordinated debentures.  The interest rate cap transactions were initiated with an upfront premium that is being amortized over the life of the contract.
 
12
The Company documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities, and upon entering into hedging transactions, documents the relationship between the hedging instrument and the hedged liability.  The Company assesses, both at inception of a hedge and on an on-going basis, whether or not the hedge is “highly effective,” in accordance with FAS 133.
 
The Company discontinues hedge accounting on a prospective basis and recognizes changes in the fair value through earnings when:  (i) it is determined that the derivative is no longer effective in offsetting cash flows of a hedged item (including forecasted transactions); (ii) it is no longer probable that the forecasted transaction will occur; or (iii) it is determined that designating the derivative as a hedge is no longer appropriate.  The Company’s derivative instruments are carried on the Company’s balance sheet at fair value, as assets, if their fair value is positive, or as liabilities, if their fair value is negative.  Since the Company’s derivative instruments are designated as “cash flow hedges,” changes in their fair value are recorded in other comprehensive (loss) income provided that the hedges are effective.  A change in fair value for any ineffective amount of the Company’s derivative instruments would be recognized in earnings.  The Company has not recognized any change in the value of its existing derivative instruments through earnings as a result of ineffectiveness of the hedge.

The following table presents the fair value of derivative instruments and their location in the Company’s condensed consolidated balance sheets at March 31, 2009 and December 31, 2008, respectively (amounts in thousands):
 
Derivative Designated as Hedging
Instruments Under SFAS 133
  
Balance Sheet Location
  
March 31, 2009
    
December 31, 2008
  
Interest Rate Caps
  
Derivative Assets
   $ 9     $ 22  
Interest Rate Swaps
  
Derivative Liabilities
   $ 4,007     $ 4,194  

The following table presents the impact of the Company’s derivative instruments, on the Company’s accumulated other comprehensive income (loss) for the three months ended March 31, 2009 and 2008 (amounts in thousands):

Derivative Designated as Hedging Instruments Under SFAS 133
  
March 31, 2009
    
March 31, 2008
  
Accumulated other comprehensive loss for derivative instruments:
            
Balance at beginning of the period
   $ (5,560 )   $ (1,951 )
Unrealized gain (losses) on interest rate caps
     229       (54 )
Unrealized gain (losses) on interest rate swaps
     187       (1,169 )
Reclassification adjustment for net losses included in net income for hedges
     —       —  
Balance at the end of the period
   $ (5,144 )   $ (3,174 )

The Company estimates that over the next 12 months, approximately $1.6 million of the net unrealized gains on the interest rate swaps will be reclassified from accumulated other comprehensive income (loss) into earnings.
 
The following table details the impact of the Company’s interest rate swaps and interest rate caps included in interest expense for the three months ended March 31, 2009 and 2008 (amounts in thousands):
 
Derivative Designated as Hedging Instruments Under SFAS 133
  
March 31, 2009
    
March 31, 2008
  
Interest Rate Caps:
            
Interest expense-investment securities and loans held in securitization trusts
   $ 160     $ 189  
Interest expense-subordinated debentures
     81       (1 )
Interest Rate Swaps:
                
Interest expense-investment securities and loans held in securitization trusts
     853       (16 )

 
13
Interest Rate Swaps - The Company is required to pledge assets under a bi-lateral margin arrangement, including either cash or Agency RMBS, as collateral for its interest rate swaps, which collateral requirements vary by counterparty and change over time based on the market value, notional amount, and remaining term of the interest rate swap (“Swap”).  In the event the Company was unable to meet a margin call under one of its Swap agreements, thereby causing an event of default or triggering an early termination event under one of its Swap agreements, the counterparty to such agreement may have the option to terminate all of such counterparty’s outstanding Swap transactions with the Company. In addition, under this scenario, any close-out amount due to the counterparty upon termination of the counterparty’s transactions would be immediately payable by the Company pursuant to the applicable agreement.  The Company was in compliance with all margin requirements under its Swap agreements as of March 31, 2009 and December 31, 2008.  The Company had $4.0 million and $4.2 million of restricted cash related to margin posted for Swaps as of March 31, 2009 and December 31, 2008, respectively.
 
The use of interest rate swaps exposes the Company to counterparty credit risks in the event of a default by a Swap counterparty. If a counterparty defaults under the applicable Swap agreement the Company may be unable to collect payments to which it is entitled under its Swap agreements, and may have difficulty collecting the assets it pledged as collateral against such Swaps.  The Company currently has in place with all outstanding swap counterparties bi-lateral margin agreements thereby requiring a party to post collateral to the Company for any valuation deficit.  This arrangement is intended to limit the Company’s exposure to losses in the event of a counterparty default.
 
The following table presents information about the Company’s interest rate swaps as of March 31, 2009 and December 31, 2008 (amounts in thousands):
 
   
March 31, 2009
    
December 31, 2008
  
Maturity (1)
  
Notional Amount
    
Weighted Average Fixed Pay Interest Rate
    
Notional Amount
    
Weighted Average Fixed Pay Interest Rate
  
Within 30 Days
   $ 2,700       2.99 %     $ 2,960       3.00 %  
Over 30 days to 3 months
     5,070       2.99         5,220       3.00    
Over 3 months to 6 months
     7,410       2.99         7,770       2.99    
Over 6 months to 12 months
     12,210       2.99         13,850       2.99    
Over 12 months to 24 months
     69,060       3.01         48,640       2.99    
Over 24 months to 36 months
     13,370       3.02         34,070       3.03    
Over 36 months to 48 months
     19,270       3.07         7,560       3.01    
Over 48 monhts
     —       —         17,200       3.08    
     Total
   $ 129,090       3.00 %     $ 137,270       3.00 %  

(1)
The Company enters into scheduled amortizing interest rate swap transactions whereby the Company pays a fixed rate of interest and receives one month LIBOR.

Interest Rate Caps – Interest rate caps are designated by the Company as cash flow hedges against interest rate risk associated with the Company’s collateralized debt obligations and the subordinated debentures. The interest rate caps associated with the collateralized debt obligations are amortizing contractual notional schedules determined at origination and had $457.6 million and $434.4 million outstanding as of March 31, 2009 and December 31, 2008, respectively.  These interest rate caps are utilized to cap the interest rate on the collateralized debt obligations at a fixed-rate when one month LIBOR exceeds a predetermined rate.  In addition, the Company has an interest rate cap contract on $25.0 million of subordinated debentures that effectively caps three month LIBOR at 3.75% until March 31, 2010.
 
5. 
Financing Arrangements, Portfolio Investments
 
The Company has entered into repurchase agreements with third party financial institutions to finance its RMBS portfolio.  The repurchase agreements are short-term borrowings that bear interest rates typically based on a spread to LIBOR, and are secured by the securities which they finance.  At March 31, 2009, the Company had repurchase agreements with an outstanding balance of $276.2 million and a weighted average interest rate of 0.99%.  As of December 31, 2008, the Company had repurchase agreements with an outstanding balance of $402.3 million and a weighted average interest rate of 2.62%.  At March 31, 2009 and December 31, 2008, securities pledged by the Company as collateral for repurchase agreements had estimated fair values of $305.0 million and $456.5 million, respectively.  All outstanding borrowings under our repurchase agreements mature within 30 days.  As of March 31, 2009, the average days to maturity for all repurchase agreements are 17 days.  The Company had outstanding repurchase agreements with seven different financial institutions as of March 31, 2009 as compared to six as of December 31, 2008.
 
14
As of March 31, 2009, our Agency ARM RMBS are financed with $227.4 million of repurchase agreement funding with an advance rate of 93% that implies a haircut of 7%, our Agency CMO floaters are financed with $41.7 million of repurchase agreement financing with an advance rate of 89% that implies a haircut of 11%, and the non-Agency CMO floater was financed with $7.1 million of repurchase agreements funding with an advance rate of 80% that implies a 20% haircut.
 
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, 2009, the Company had $45.0 million in cash and $16.4 million in unencumbered securities, including $11.8 million in Agency RMBS, to meet additional haircut or market valuation requirements.
 
6. 
Collateralized Debt Obligations
 
The Company’s CDOs, which are recorded as liabilities on the Company’s balance sheet, are secured by ARM loans pledged as collateral, which are recorded as assets of the Company.  As of March 31, 2009 and December 31, 2008, the Company had CDOs outstanding of $323.6 million and $335.6 million, respectively.  As of March 31, 2009 and December 31, 2008, the current weighted average interest rate on these CDOs was 0.90% and 0.85%, respectively.  The CDOs are collateralized by ARM loans with a principal balance of $335.5 million and $347.5 million at March 31, 2009 and December 31, 2008, respectively.  The Company retained the owner trust certificates, or residual interest for three securitizations, and, as of March 31, 2009 and December 31, 2008, had a net investment in the securitizations trusts after loan loss reserves of $12.4 million and $12.7 million, respectively.
 
The CDO transactions include amortizing interest rate cap contracts with an aggregate notional amount of $457.6 million as of March 31, 2009 and an aggregate notional amount of $456.9 million as of December 31, 2008, which are recorded as an asset of the Company.  The interest rate caps are carried at fair value and totaled $8,358 as of March 31, 2009 and $18,575 as of December 31, 2008, respectively.  The interest rate cap reduces interest rate risk exposure on these transactions.
 
7. 
Discontinued Operation
 
In connection with the sale of our mortgage origination platform assets during the quarter ended March 31, 2007, we classified our mortgage lending segment as a discontinued operation in accordance with the provisions of 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 segment as a discontinued operation and the related assets and liabilities as assets and liabilities related to a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements.  Certain assets, such as the deferred tax asset, and certain liabilities, such as subordinated debt and liabilities related to leased facilities not assigned to Indymac, will become part of our ongoing operations and accordingly, we have not included these items as part of the discontinued operation in accordance with the provisions of SFAS No. 144.
 
15
Balance Sheet Data
 
The components of assets related to the discontinued operation as of March 31, 2009 and December 31, 2008 are as follows (dollar amounts in thousands):
 
   
March 31,
2009
    
December 31,
2008
  
Accounts and accrued interest receivable
   $ 18     $ 26  
Mortgage loans held for sale(net)
     4,313       5,377  
Prepaid and other assets
     453       451  
Total assets
   $ 4,784     $ 5,854  

The components of liabilities related to the discontinued operation as of March 31, 2009 and December 31, 2008 are as follows (dollar amounts in thousands):
 
   
March 31,
2009
    
December 31,
2008
  
Due to loan purchasers
   $ 527     $ 708  
Accounts payable and accrued expenses
     2,844       2,858  
Total liabilities
   $ 3,371     $ 3,566  

Statements of Operations Data
 
The statements of operations of the discontinued operation for the three months ended March 31, 2009 and 2008 are as follows (dollar amounts in thousands):
 
   
For the Three Months Ended 
  
     March 31,  
   
2009
    
2008
  
Revenues
   $ 290     $ 171  
Expenses
     135       (9 )
Income from discontinued operation –  net of tax
   $ 155     $ 180  

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 did not repurchase any loans during the three months ended March 31, 2009.
 
The Company periodically receives repurchase requests, each of which management reviews to determine, based on management’s experience, whether such requests may reasonably be deemed to have merits.  As of March 31, 2009, we had a total of $1.7 million of unresolved repurchase requests that management concluded may reasonably be deemed to have merit, against which the Company has a reserve of approximately $0.4 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.
 
Outstanding Litigation - The Company is at times subject to various legal proceedings arising in the ordinary course of business. As of March 31, 2009, 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.
 
Leases - The Company leases its corporate offices and certain office space related to our discontinued mortgage lending operation and equipment under short-term lease agreements expiring at various dates through 2013.  All such leases are accounted for as operating leases.  Total rental expense for property and equipment amounted to $49,170 for the three months ended March 31, 2009.
 
16
Letters of Credit – The Company maintains a letter of credit in the amount of $178,200 in lieu of a cash security deposit for its current corporate headquarters, located at 52 Vanderbilt Avenue in New York City, for its landlord, Vanderbilt Associates I, L.L.C, as beneficiary.  This letter of credit is secured by cash deposited in a bank account maintained at JP Morgan Chase bank.
 
9. 
Concentrations of Credit Risk
 
At March 31, 2009 and December 31, 2008, 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, 2009
    
December 31, 2008
  
New York
     31.0 %       30.7%  
Massachusetts
     17.5 %       17.2 %  
Florida
     7.8 %       7.8 %  
California
     7.5 %       7.2 %  
New Jersey
     6.1 %       6.0 %  

10. 
Fair Value of Financial Instruments
 
The Company adopted SFAS No. 157 effective January 1, 2008, and accordingly, all assets and liabilities measured at fair value 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 SFAS No. 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 (RMBS) - Fair value for the RMBS in our portfolio is generally based on quoted prices provided by dealers who make markets in similar 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 quoted prices for a security are not reasonably available from a dealer, the security will be re-classified as a Level 3 security and, as a result, management will determine 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.

17
b. Investment Securities Available for Sale (CLO) - The fair value of the CLO notes, as of March 31, 2009, was based on the purchase price for the CLO notes on March 31, 2009.  In the future, the fair value of these assets will be determined by management by using a discounted future cash flows model that management believes would be used by market participants to value similar financial instruments. If a reliable market for these assets develops in the future, management will consider quoted prices provided by dealers who make markets in similar financial instruments in determining the fair value of the CLO notes.The CLO notes are classified as Level 3 fair values.

c. 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, by SFAS No. 157 valuation hierarchy, the Company’s financial instruments carried at fair value as of March 31, 2009 and December 31, 2008 on the condensed consolidated balance sheet (dollar amounts in thousands):

   
Asset Measured at Fair Value on a Recurring Basis at March 31, 2009
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Assets carried at fair value:
                                
Investment securities available for sale
  
$
—
    
$
304,632
    
$
8,998
    
$
313,630
  
Derivative assets (interest rate caps)
    
—
      
9
      
—
      
9
  
Total
  
$
—
    
$
304,641
    
$
8,998
    
$
313,639
  

Liabilities carried at fair value:
                        
Derivative liabilities (interest rate swaps)
  
$ 
—
    
$ 
4,007
    
$ 
—
    
 $
4,007
  
Total
  
$
—
    
$
4,007
    
$
—
    
$
4,007
  

18

   
Asset Measured at Fair Value on a Recurring Basis at December 31, 2008
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Assets carried at fair value:
                                
Investment securities available for sale
  
$
—
    
$
477,416
    
$
—
    
$
477,416
  
Derivative assets (interest rate caps)
    
—
      
22
      
—
      
22
  
Total
  
$
—
    
$
477,438
    
$
—
    
$
477,438
  

Liabilities carried at fair value:
                        
Derivative liabilities (interest rate swaps)
  
$ 
—
    
$ 
4,194
    
$
—
    
$ 
4,194
  
Total
  
$
—
    
$
4,194
    
$
—
    
$
4,194
  
 
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 time 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.
 
19
The following table presents assets measured at fair value on a non-recurring basis as of March 31, 2009 and December 31, 2008 on the condensed consolidated balance sheet (dollar amounts in thousands):

   
Assets Measured at Fair Value on a Non-Recurring Basis
at March 31, 2009
    
Losses for the Three Months Ended
 
   
Level 1
    
Level 2
    
Level 3
    
Total
    
March 31, 2009
  
Mortgage loans held for sale (net)
   $ —     $ —     $ 4,313     $ 4,313     $ 103  
Mortgage loans held n securitization trusts (net) – impaired loans
   $ —     $ —     $ 5,874     $ 5,874     $ 629  

   
Assets Measured at Fair Value on a Non-Recurring Basis
at December 31, 2008
    
Losses for the Three Months Ended
 
   
Level 1
    
Level 2
    
Level 3
    
Total
    
March 31, 2008
  
Mortgage loans held for sale (net)
   $ —     $ —     $ 5,377     $ 5,377     $ 398  
Mortgage loans held n securitization trusts (net) – impaired loans
   $ —     $ —     $ 2,958     $ 2,958     $ 1,433  

Mortgage Loans Held in Securitization Trusts (net) –Impaired Loans – Impaired mortgage loans in the securitization trusts are recorded at amortized cost less of specific loan loss reserves. Impaired loan value is based on net realizable value taking into consideration the aggregated characteristics of the loans such as, but not limited to, collateral type, index, interest rate, margin, length of fixed-rate period, life cap, periodic cap, underwriting standards, age and credit estimated using the estimated market prices for similar types of loans.

Mortgage Loans Held for Sale (net) –The fair value of mortgage loans held for sale (net) are estimated by the Company based on the price that would be received if the loans were sold as whole loans taking into consideration the aggregated characteristics of the loans such as, but not limited to, collateral type, index, interest rate, margin, length of fixed interest rate period, life cap, periodic cap, underwriting standards, age and credit.
 
11. 
Segment Reporting
 
Until March 31, 2007, the Company operated two reportable segments, the mortgage portfolio management segment and the mortgage lending segment.  Upon the sale of substantially all the mortgage lending operating assets on March 31, 2007, the Company exited the mortgage lending business and accordingly, no longer reports segment information.
 
12. 
Capital Stock and Earnings per Share
 
The Company had 400,000,000 shares of common stock, par value $0.01 per share, authorized with 9,320,094 shares issued and outstanding as of March 31, 2009, and 9,320,094 shares issued and outstanding as of December 31, 2008.  The Company had 200,000,000 shares of preferred stock, par value $0.01 per share, authorized, including 2,000,000 shares of Series A Cumulative Convertible Redeemable Preferred Stock (“Series A Preferred Stock”) authorized.  As of March 31, 2009 and December 31, 2008, the Company had issued and outstanding 1,000,000 and 1,000,000 shares, respectively, of Series A Preferred Stock.  Of the common stock authorized, 103,111 shares were reserved for issuance as restricted stock awards to employees, officers and directors pursuant to the 2005 Stock Incentive Plan.  As of March 31, 2009, 103,111 shares remain reserved for issuance under the 2005 Plan.
 
20
On February 21, 2008, the Company completed the issuance and sale of 7.5 million shares of its common stock in a private placement at a price of $8.00 per share.  This private offering of the Company’s common stock generated net proceeds to the Company of $56.5 million after payment of private placement fees and expenses. The Company filed a resale shelf registration statement on Form S-3 on April 4, 2008, registering for resale the 7.5 million shares issued in February 2008, which became effective on April 18, 2008.
 
The Board of Directors declared a one-for-two reverse stock split of the Company’s common stock, effective on May 27, 2008, decreasing the number of shares then outstanding to approximately 9.3 million. All per share and share amounts provided in the quarterly report have been restated to give effect the reverse stock splits.
 
The following table presents cash dividends declared by the Company on its common stock from January 1, 2008 through March 31, 2009.
 
Period
  
Declaration Date
  
Record Date
  
Payment Date
  
Cash
Dividend
Per Share
  
First Quarter 2009
  
March 25, 2009
  
April 6, 2009
  
April 27, 2009
  
$
0.18
  
                     
Fourth Quarter 2008
  
December 23, 2008
  
January 7, 2009
  
January 26, 2009
  
$
0.10
  
Third Quarter 2008
  
September 26, 2008
  
October 10, 2008
  
October 27, 2008
    
0.16
  
Second Quarter 2008
  
June 30, 2008
  
July 10, 2008
  
July 25, 2008
    
0.16
  
First Quarter 2008
  
April 21, 2008
  
April 30, 2008
  
May 15,2008
    
0.12
  

The following table presents cash dividends declared by the Company on its Series A Preferred Stock from January 1, 2008 through March 31, 2009.
 
Period
  
Declaration Date
  
Record Date
  
Payment Date
  
Cash
Dividend
Per Share
  
First Quarter 2009
  
March 25, 2009
  
March 31, 2009
  
April 30, 2009
  
$
0.50
  
                     
Fourth Quarter 2008
  
December 23, 2008
  
December 31, 2008
  
January 30,2009
  
$
0.50
  
Third Quarter 2008
  
September 26, 2008
  
September 30, 2008
  
October 30, 2008
    
0.50
  
Second Quarter 2008
  
June 30, 2008
  
June 30, 2008
  
July 30, 2008
    
0.50
  
First Quarter 2008
  
April 21, 2008
  
March 31, 2008
  
April 30,2008
    
0.50
  

The Company calculates basic net income (loss) per share by dividing net income (loss) for the period by the weighted-average shares of common stock outstanding for that period.  Diluted net income (loss) per share takes into account the effect of dilutive instruments, such as convertible preferred stock, stock options and unvested restricted or performance stock, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding.
 
21
The following table presents the computation of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):
 
   
For the Three Months
Ended March 31
  
   
2009
    
2008
  
Numerator:
            
Net income (loss) – Basic
   $ 2,054     $ (21,258 )
Net income (loss) from continuing operations
     1,899       (21,438 )
Net income from discontinued operation (net of tax)
     155       180  
Effect of dilutive instruments:
                
Convertible preferred debentures (1)
     537       506  
Net income  (loss) – Dilutive
     2,591       (21,258 )
Net income (loss) from continuing operations
     2,436       (21,438 )
Net income from discontinued operation (net of tax)
   $ 155     $ 180  
Denominator:
                
Weighted average basis shares outstanding
     9,320       5,070  
Effect of dilutive instruments:
                
Convertible preferred debentures (1)
     2,500       2,028  
Weighted average dilutive shares outstanding
     11,820       5,070  
Net Income Per Share:
                
Basic EPS
   $ 0.22     $ (4.23 )
Basic income (loss) per common share from continuing operations
     0.20       (4.19 )
Basic income per common share from discontinued operation (net of tax)
     0.02       0.04  
Dilutive EPS
   $ 0.22     $ (4.23 )
Dilutive income (loss) per common share from continuing operations
     0.21       (4.19 )
Dilutive income per common share from discontinued operation (net of tax)
     0.01       0.04  

(1) – Amounts are excluded from dilutive calculation if it is anti-dilutive.

13. 
Convertible Preferred Debentures (net)
 
As of March 31, 2009, there were 1.0 million shares of our Series A Preferred Stock outstanding, with an aggregate redemption value of $20.0 million and current dividend payment rate of 10% per year, subject to adjustment.  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 No. 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, and accordingly, the corresponding dividend as an interest expense.
 
We issued these shares of 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 $0.20 per share.  The Series A Preferred Stock is convertible into shares of the Company’s common stock based on a conversion price of $8.00 per share of common stock, which represents a conversion rate of two and one-half (2 ½) shares of common stock for each share of Series A Preferred Stock.
 
14. 
Related Party Transactions
 
On January 18, 2008, the Company entered into an advisory agreement with Harvest Capital Strategies LLC (“HCS”) (formerly known as JMP Asset Management LLC), pursuant to which HCS is responsible for implementing and managing the Company’s investments in alternative real estate-related and financial assets, which is referred to in this report to as the “alternative investment strategy.” The Company entered into the advisory agreement concurrent and in connection with its private placement of Series A Preferred Stock to JMP Group Inc. and certain of it affiliates. HCS is a wholly-owned subsidiary of JMP Group Inc. Pursuant to Schedule 13D’s filed with the SEC, as of December 31, 2008, HCS and JMP Group Inc. beneficially owned approximately 16.8% and 12.2%, respectively, of the Company’s common stock, and 100%, collectively, of it Series A Preferred Stock.
 
22
Pursuant to the advisory agreement, HCS is responsible for managing investments made by HC and NYMF, as well as any additional subsidiaries acquired or formed in the future to hold investments made on the Company’s behalf by HCS. The Company refers to these subsidiaries in its periodic reports filed with the Securities and Exchange Commission as the “Managed Subsidiaries.” On March 31, 2009, the Company commenced its alternative investment strategy by purchasing approximately $9.0 million in collateralized loan obligations. The Company’s investment in these assets was completed in connection with the acquisition by JMP Group Inc. of the investment adviser of the collateralized loan obligations. The Company expects that, from time to time in the future, certain of its alternative investments will take the form of a co-investment alongside or in conjunction with JMP Group Inc. or certain of its affiliates. In accordance with investment guidelines adopted by the Company’s Board of Directors, any subsequent alternative investments by the Managed Subsidiaries must be approved by the Board of Directors and must adhere to investment guidelines adopted by the Board of Directors. The advisory agreement provides that HCS will be paid a base advisory fee that is a percentage of the “equity capital” (as defined in the advisory agreement) of the Managed Subsidiaries, which may include the net asset value of assets held by the Managed Subsidiaries as of any fiscal quarter end, and an incentive fee upon the Managed Subsidiaries achieving certain investment hurdles. For the year ended December 31, 2008, HCS earned a base advisory fee of approximately $0.7 million on the net proceeds to the Company from its private offerings in each of January 2008 and February 2008. For the three months ended March 31, 2009, HCS earned a base advisory fee of approximately $0.2 million.  As of March 31, 2009, HCS was managing approximately $9.0 million of assets on the Company’s behalf.
 
15. 
Income Taxes
 
At March 31, 2009, the Company had approximately $65.6 million of net operating loss carryforwards which may be used to offset future taxable income. The carryforwards will expire in 2024 through 2028. The Internal Revenue Code places certain limitations on the annual amount of net operating loss carryforwards that can be utilized if certain changes in the Company’s ownership occur. The Company may have undergone an ownership change within the meaning of IRC section 382 that would impose such a limitation, but a final conclusion has not been made. Management does not believe that the limitation would cause a significant amount of the Company's net operating losses to expire unused.


23
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 is general and our investment in real estate-related and certain alternative assets 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 portfolio strategy and operating strategy may be changed or modified by our management without advance notice to you or stockholder approval and we may suffer losses as a result of such modifications or changes;
 
 
·
our ability to successfully implement and grow our alternative investment strategy and to identify suitable alternative assets;
 
 
·
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 interest-earning assets and our borrowings used to fund such purchases;
 
 
·
changes in interest rates and mortgage prepayment rates;
 
 
·
changes in the financial markets and economy generally, including the continued or accelerated deterioration of the U.S. economy;
 
 
·
effects of interest rate caps on our adjustable-rate mortgage-backed securities;
 
24
 
·
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 operation including, among other things, litigation, repurchase obligations on the sales of mortgage loans and property leases;
 
 
·
actions taken by the U.S. and foreign governments, central banks and other governmental and regulatory bodies for the purpose of stabilizing the financial credit and housing markets, and economy generally, including loan modification programs;
 
 
·
changes to the nature of the guarantees provided by Fannie Mae and Freddie Mac; 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 in Part I, Item 1A – “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2008, and the various other factors identified in any other documents filed by us with the SEC.
 
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 SEC.
 
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, that invests primarily in real estate-related assets, including residential adjustable-rate mortgage-backed securities, which includes collateralized mortgage obligation floating rate securities (“RMBS”), and prime credit quality residential adjustable-rate mortgage (“ARM”) loans (“prime ARM loans”), and to a lesser extent, in certain alternative real estate-related and financial assets that present greater credit risk and less interest rate risk than our historical investments in RMBS and prime ARM loans.  Beginning in August 2007, our investment strategy focused on investments in RMBS issued or guaranteed by a U.S. government agency, such as the Government National Mortgage Association, (“Ginnie Mae”), or by a U.S. Government-sponsored entity, such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). We sometimes refer in this Quarterly Report on Form 10-Q to RMBS issued by a U.S. government agency or U.S. Government-sponsored entity as “Agency RMBS” and our historic investment strategy as our “principal investment strategy.”
 
In January 2008, we formed a strategic relationship with JMP Group Inc., a full-service investment banking and asset management firm, and certain of its affiliates (collectively, the “JMP Group”), for the purpose of improving our capitalization and diversifying our investment strategy away from a strategy exclusively focused on investments in Agency RMBS, in part to achieve attractive risk-adjusted returns, and to potentially utilize all or part of a net operating loss carry-forward that resulted from our exit from the mortgage lending business in 2007. In connection with this strategic relationship and the investment by JMP Group Inc. and certain of its affiliates in $20 million of our Series A Preferred Stock, we entered into an advisory agreement with Harvest Capital Strategies LLC (“HCS”), formerly known as JMP Asset Management LLC, pursuant to which HCS is responsible for implementing and managing our investments in alternative real estate-related and financial assets.  Pursuant to the advisory agreement, HCS is responsible for managing investments made by two of our wholly-owned subsidiaries, Hypotheca Capital, LLC (“HC,” also 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 HCS. We refer to these subsidiaries in our periodic reports filed with the SEC as the “Managed Subsidiaries.”  Due to market conditions and other factors in 2008, we elected to forgo making investments in alternative real estate-related and financial assets and instead, exclusively focused our resources and efforts on preserving capital and investing in Agency RMBS.  However, on March 31, 2009, we commenced our alternative investment strategy by opportunistically investing in $9.0 million of collateralized loan obligations. We sometimes refer in this report to our investment in certain alternative real estate-related and financial assets, or equity interests therein, including, without limitation, certain non-Agency RMBS and other non-rated mortgage assets, commercial mortgage-backed securities, commercial real estate loans, collateralized loan obligations and other investments, as our “alternative investment strategy” and such assets as our “alternative assets.”
 
25
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.  Because we intend to continue to qualify as a REIT for federal income tax purposes and to operate our business so as to be exempt from regulation under the Investment Company Act of 1940, we will be required to invest a substantial majority of our assets in qualifying real estate assets, such as agency RMBS, mortgage loans and other liens on and interests in real estate.
 
Recent Events
 
Commencement of Alternative Investment Strategy
 
On March 31, 2009, we commenced our alternative investment strategy by purchasing $9 million of discounted notes issued by Cratos CLO I, Ltd. (the “CLO”), a collateralized loan obligation.  The purchase of these assets closed on April 7, 2009.  As of March 31, 2009, the CLO’s portfolio was comprised of approximately $466 million, par amount of senior secured corporate loans, extended to more than 74 different borrowers and is diversified by industry, geography and borrower classification.  Our investment in the CLO was completed in connection with the acquisition of the CLO’s investment adviser by JMP Group Inc., and is the type of transaction contemplated by the advisory agreement and our alternative investment strategy.

Our investment in the CLO was conducted through HC.  HC maintains an approximately $65.6 million net operating loss carry-forward.  We expect to utilize a portion of this net operating loss carry forward to offset taxable income generated by these alternative assets. Pursuant to the advisory agreement, our investment in these assets will be managed by HCS.

Restructuring of Principal Investment Portfolio

As of December 31, 2008, our principal investment portfolio included approximately $197.7 million of collateralized mortgage obligation floating rate securities issued by Fannie Mae or Freddie Mac, which we refer to as Agency CMO floaters.  Following a review of our principal investment portfolio, we determined in March 2009 that the Agency CMO floaters held in our portfolio were no longer producing acceptable returns, and as a result, we decided to initiate a program to dispose of these securities on an opportunistic basis overtime.  As of March 31, 2009, we had sold approximately $159.5 million in current par value of Agency CMO floaters under this program resulting in a net gain of approximately $0.1 million.  As of the date of this report, we had sold all of our Agency CMO floaters, or approximately $228.0 million in current par value of Agency CMO floaters, under this program resulting in a net gain of approximately $0.1 million. 

Known Material Trends and Commentary
 
General.  The well publicized disruptions in the credit markets that began in 2007 escalated throughout 2008 and spread to the financial markets and the greater economy.  The financial and credit markets continued to experience difficulties during most of the 2009 first quarter, but have shown signs of improvement more recently.  However, the U.S. economy exhibited signs of a continued recession during the 2009 first quarter, with gross domestic product declining for the third consecutive quarter.

26
As discussed under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations―Current Market Conditions and Known Material Trends” in our Annual Report on Form 10-K for the year ended December 31, 2008, U.S. and foreign governments, central banks and other governmental and regulatory bodies have taken or are considering taking numerous actions to address the financial and credit crisis and the global recession, such as the U.S. government’s passage of a $787 billion economic stimulus plan and the Troubled Asset Relief Program, the Homeowner Affordability and Stability Plan (“HASP”), and the Federal Reserve Bank’s (“Federal Reserve”) commitment to purchase up to $1.25 trillion of Agency RMBS.  We refer you to the caption in our Form 10-K noted in the immediately preceding sentence for more information regarding these initiatives. The outcome of these events remain highly uncertain and we cannot predict whether or when such actions may occur or what impact, if any, such actions could have on our business, results of operations and financial condition.
 
Mortgage asset values. The Federal Reserve’s announcement on January 9, 2009 that it had begun to buy Agency RMBS, combined with Federal Reserve’s announcement in March 2009 of an increase of up to $750 billion in its commitment to purchase Agency RMBS has resulted in a substantial increase in the sale prices of Agency RMBS.  We believe that the stronger backing for the guarantors of Agency RMBS, resulting from the conservatorship of Fannie Mae and Freddie Mac, along with the U.S. Treasury’s commitment to purchase senior preferred stock in these companies and the Federal Reserve’s Agency RMBS purchase program has positively impacted the value of our Agency RMBS.  However, we expect this positive impact to be partially offset in future months due expected increases in prepayment rates resulting from greater refinancing activity.

Financing markets and liquidity - Financing and liquidity markets showed signs of improvement in the 2009 first quarter.  As of March 31, 2009, we had outstanding repurchase borrowings from seven counterparties, as compared to six counterparties at December 31, 2008 and five counterparties at September 30, 2008.

Financing costs and interest rates - As of March 31, 2009, 30-day LIBOR was 0.50 % while the Fed Funds effective rate was 0.16%, as compared to 30-day LIBOR of 0.44% and a Fed Funds effective rate of 0.14% at December 31, 2008.  Because of continued uncertainty in the credit markets and U.S. economic conditions, we expect that interest rates are likely to remain at these historically low levels until such time as the economic data begin to confirm an improvement in the overall economy.

Prepayment rates.    As a result of various government initiatives, rates on conforming mortgages have declined, nearing historical lows.  Hybrid and adjustable-rate mortgage originations have declined substantially, as rates on these types of mortgages are comparable with rates available on 30-year fixed-rate mortgages.  Moreover, the recent creation of the HASP is aimed to further assist homeowners in refinancing and to reduce potential foreclosures.  Although we expect that the constant prepayment rate, or CPR, will trend upward during 2009 based on current market interest rates, future CPRs will be affected by the success of HASP and the timing and purpose of any future legislation, if any, and the resulting impact on borrowers’ ability to refinance, mortgage interest rates in the market and home values.

Presentation Format
 
In connection with the sale of substantially all of our wholesale and retail mortgage lending platform assets during the first quarter of 2007, we classified certain assets and liabilities related to our mortgage lending segment as a discontinued operation in accordance with the provisions of SFAS No. 144.  As a result, we have reported revenues and expenses related to the segment as a discontinued operation and the related assets and liabilities as assets and liabilities related to a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements.  Our continuing operations are primarily comprised of what had been our portfolio management operations.  In addition, certain assets such as the deferred tax asset, and certain liabilities, such as subordinated debt and liabilities related to leased facilities not assigned to Indymac, have become part of the ongoing operations of NYMT and accordingly, we have not classified as a discontinued operation in accordance with the provisions of SFAS No. 144.
 
The Company completed a one for two reverse stock split of its common stock in May 2008.  All share amounts and earnings per share disclosures have been restated to reflect this reverse stock split.
 
27
Significance of Estimates and Critical Accounting Policies
 
A summary of our critical accounting policies is included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008 and “Note 1 – Significant Accounting Policies” to the consolidated financial statements included therein.  There have been no significant changes to those policies during 2009.
 
Summary of Operations
 
Net Interest Spread. For the three months ended March 31, 2009, our net income was dependent upon the net interest income (the interest income on portfolio assets net of the interest expense and hedging costs associated with such assets) generated from our portfolio of RMBS and mortgage loans held in securitization trusts, which was partially offset by losses on delinquent loans held in securitization trusts and certain other expenses.  The net interest spread on our investment portfolio was 252 basis points for the quarter ended March 31, 2009, as compared to 131 basis points for the quarter ended December 31, 2008, and 85 basis points for the quarter ended March 31, 2008.
 
Financing. During the quarter ended March 31, 2009, we continued to employ a balanced and diverse funding mix to finance our investment portfolio and assets.  At March 31, 2009, our RMBS portfolio was funded with approximately $276.2 million of repurchase agreement borrowing, or approximately 40.3% of our total liabilities, at a weighted average interest rate of 0.99%.  The Company’s average haircut on its repurchase borrowings was approximately 7.7% at March 31, 2009. As of March 31, 2009, the loans held in securitization trusts were permanently financed with approximately $323.6 million of CDOs, or approximately 47.3% of our total liabilities at an average interest rate of 0.90%.  The Company has a net equity investment of $12.4 million in the securitization trusts.
 
At March 31, 2009 our leverage ratio for our RMBS investment portfolio, which we define as our outstanding indebtedness under repurchase agreements divided by the sum of stockholders’ equity and our convertible preferred debentures, was 5 to 1.  Given the continued uncertainty in the credit markets, we believe that maintaining a leverage ratio in the range of 6 to 8 times is appropriate at this time.
 
Prepayment Experience. The cumulative prepayment rate (“CPR”) on our overall mortgage portfolio averaged approximately 12% during the three months ended March 31, 2009, as compared to 13% for the three months ended March 31, 2008.  CPRs on our purchased portfolio of investment securities averaged approximately 12% for the period ended March 31, 2009, as compared to 7% for the period ended March 31, 2008.  The CPRs on our mortgage loans held in our securitization trusts averaged approximately 12% during the three months ended March 31, 2009, as compared to 24% for the period ended March 31, 2008.  When prepayment expectations over the remaining life of assets increase, we have to amortize premiums over a shorter time period resulting in a reduced yield to maturity on our investment assets.  Conversely, if prepayment expectations decrease, the premium would be amortized over a longer period resulting in a higher yield to maturity.  We monitor our prepayment experience on a monthly basis and adjust the amortization of our net premiums accordingly.
 
Financial Condition
 
As of March 31, 2009, we had approximately $726.1 million of total assets, as compared to approximately $853.3 million of total assets as of December 31, 2008.  The decrease in total assets resulted primarily from the sale of substantially all of the CMO Agency floaters totaling approximately $159.5 million, as discussed above.
 
Balance Sheet Analysis - Asset Quality
 
Investment Securities - Available for Sale - The following tables set forth the credit characteristics of our securities portfolio as of March 31, 2009 and December 31, 2008 (dollar amounts in thousands):
 
28
Credit Characteristics of Our Investment Securities
 
March 31, 2009
Sponsor or Rating
  
Par
Value
    
Carrying
Value
    
% of
Portfolio
    
Coupon
    
Yield
  
Agency REMIC CMO floaters
FNMA/
FHLMC
   $ 34,279     $ 33,277       11%       1.43%       6.39%  
Agency Hybrid Arms
FNMA
     243,456       251,474