NEW YORK MORTGAGE TRUST INC - Quarter Report: 2006 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended March 31, 2006.
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
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
1301
Avenue of the Americas, New York, New York 10019
(Address
of principal executive office) (Zip Code)
(212)
634-9400
(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
þ
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filers” and “large accelerated filers” in Rule 12b-2 of the Exchange Act. (check
one):
Large
Accelerated Filer o
|
Accelerated
Filer þ
|
Non-Accelerated
Filer 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
þ
The
number of shares of the registrant’s common stock, par value $.01 per share,
outstanding on May 1, 2006 was 17,918,618.
NEW
YORK MORTGAGE TRUST, INC.
FORM
10-Q
Part
I. FINANCIAL INFORMATION
|
|
Item
1. Consolidated Financial Statements:
|
|
Consolidated
Balance Sheets
|
|
Consolidated
Statements of Operations
|
|
Consolidated
Statements of Cash Flows
|
|
Consolidated
Statements of Stockholders' Equity
|
|
Notes
to Consolidated Financial Statements
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
|
Forward
Looking Financial Statement Effects
|
|
General
|
|
Strategic
Overview
|
|
Description
of Business
|
|
Known
Material Trends and Commentary
|
|
Significance
of Estimates and Critical Accounting Policies
|
|
Overview
of Performance
|
|
Summary
of Operations and Key Performance Measurements
|
|
Financial
Highlights for the First Quarter of 2006
|
|
Results
of Operations and Financial Condition
|
|
Off-Balance
Sheet Arrangements
|
|
Liquidity
and Capital Resources
|
|
Inflation
|
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
|
Interest
Rate Risk
|
|
Credit
Spread Exposure
|
|
Fair
Values
|
|
Item
4. Controls and Procedures
|
|
Part
II. OTHER INFORMATION
|
|
Item
1. Legal Proceedings
|
|
Item
6. Exhibits
|
|
Signatures
|
2
PART
I: FINANCIAL INFORMATION
NEW
YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Dollar
amounts in thousands)
|
March
31, (unaudited)2006 |
December
31, 2005 |
|||||
ASSETS
|
|||||||
Cash
and cash equivalents
|
$
|
5,549
|
$
|
9,056
|
|||
Restricted
cash
|
3,287
|
5,468
|
|||||
Investment
securities - available for sale
|
485,483
|
716,482
|
|||||
Receivable
for securities sold
|
197,856
|
—
|
|||||
Due
from loan purchasers
|
101,201
|
121,813
|
|||||
Escrow
deposits - pending loan closings
|
2,947
|
1,434
|
|||||
Accounts
and accrued interest receivable
|
17,219
|
14,866
|
|||||
Mortgage
loans held for sale
|
114,254
|
108,271
|
|||||
Mortgage
loans held in securitization trusts
|
740,546
|
776,610
|
|||||
Mortgage
loans held for investment
|
—
|
4,060
|
|||||
Prepaid
and other assets
|
18,683
|
16,505
|
|||||
Derivative
assets
|
10,741
|
9,846
|
|||||
Property
and equipment, net
|
7,010
|
6,882
|
|||||
TOTAL
ASSETS
|
$
|
1,704,776
|
$
|
1,791,293
|
|||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
LIABILITIES:
|
|||||||
Financing
arrangements, portfolio investments
|
$
|
1,056,744
|
$
|
1,166,499
|
|||
Financing
arrangements, loans held for sale/for investment
|
210,046
|
225,186
|
|||||
Collateralized
debt obligations
|
220,532
|
228,226
|
|||||
Due
to loan purchasers
|
1,631
|
1,652
|
|||||
Accounts
payable and accrued expenses
|
15,645
|
22,794
|
|||||
Subordinated
debentures
|
45,000
|
45,000
|
|||||
Derivative
liabilities
|
585
|
394
|
|||||
Payable
for securities purchased
|
60,000
|
—
|
|||||
Other
liabilities
|
890
|
584
|
|||||
Total
liabilities
|
1,611,073
|
1,690,335
|
|||||
COMMITMENTS
AND CONTINGENCIES (Note 13)
|
|||||||
STOCKHOLDERS’
EQUITY:
|
|||||||
Common
stock, $0.01 par value, 400,000,000 shares authorized, 18,191,996
shares
issued and 17,918,618 outstanding at March
31, 2006 and 18,258,221 shares issued and 17,953,674 outstanding
at
December 31, 2005
|
182
|
183
|
|||||
Additional
paid-in capital
|
104,996
|
107,573
|
|||||
Accumulated
other comprehensive (loss)/income
|
(971
|
)
|
1,910
|
||||
Accumulated
deficit
|
(10,504
|
)
|
(8,708
|
)
|
|||
Total
stockholders’ equity
|
93,703
|
100,958
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
1,704,776
|
$
|
1,791,293
|
See
notes
to consolidated financial statements.
3
NEW
YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(dollar
amounts in thousands, except per share data)
(unaudited)
|
For
the Three Months Ended
March 31, |
||||||
|
2006
|
|
2005
|
||||
REVENUE:
|
|||||||
Interest
income:
|
|||||||
Investment
securities and loans held in securitization trusts
|
$
|
17,584
|
$
|
12,863
|
|||
Loans
held for investment
|
—
|
1,661
|
|||||
Loans
held for sale
|
5,042
|
2,593
|
|||||
Total
interest income
|
22,626
|
17,117
|
|||||
Interest
expense:
|
|||||||
Investment
securities and loans held in securitization trusts
|
14,079
|
8,620
|
|||||
Loans
held for investment
|
—
|
1,144
|
|||||
Loans
held for sale
|
3,315
|
1,848
|
|||||
Subordinated
debentures
|
885
|
78
|
|||||
Total
interest expense
|
18,279
|
11,690
|
|||||
Net
interest income
|
4,347
|
5,427
|
|||||
OTHER
INCOME (EXPENSE):
|
|||||||
Gain
on sales of mortgage loans
|
4,070
|
4,321
|
|||||
Brokered
loan fees
|
2,777
|
2,000
|
|||||
Loss
on sale of current period securitized loans
|
(773
|
)
|
—
|
||||
Gain
on sale of securities and related hedges
|
—
|
377
|
|||||
Realized
loss on investment securities
|
(969
|
)
|
—
|
||||
Miscellaneous
income
|
119
|
114
|
|||||
Total
other income (expense)
|
5,224
|
6,812
|
|||||
EXPENSES:
|
|||||||
Salaries,
commissions and benefits
|
6,341
|
7,143
|
|||||
Brokered
loan expenses
|
2,168
|
1,519
|
|||||
Occupancy
and equipment
|
1,326
|
2,135
|
|||||
Marketing
and promotion
|
787
|
1,400
|
|||||
Data
processing and communications
|
661
|
518
|
|||||
Office
supplies and expenses
|
605
|
573
|
|||||
Professional
fees
|
1,281
|
744
|
|||||
Travel
and entertainment
|
182
|
215
|
|||||
Depreciation
and amortization
|
565
|
343
|
|||||
Other
|
367
|
377
|
|||||
Total
expenses
|
14,283
|
14,967
|
|||||
LOSS
BEFORE INCOME TAX BENEFIT
|
(4,712
|
)
|
(2,728
|
)
|
|||
Income
tax benefit
|
2,916
|
2,690
|
|||||
NET
LOSS
|
$
|
(1,796
|
)
|
$
|
(38
|
)
|
|
Basic
and diluted loss per share
|
$
|
(0.10
|
)
|
$
|
0.00
|
||
Weighted
average shares outstanding-basic and diluted
|
17,967
|
17,797
|
See
notes
to consolidated financial statements.
4
NEW
YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
For
the Three Months Ended March 31,
2006
(dollar
amounts in thousands)
(unaudited)
Common
Stock
|
Additional
Paid-In
Capital
|
Stockholders'
Deficit
|
Accumulated
Other
Comprehensive
(Loss)/
Income
|
Comprehensive
(Loss)/
Income
|
Total
|
||||||||||||||
BALANCE, JANUARY
1, 2006 --
Stockholders'
Equity
|
183
|
$
|
107,573
|
$
|
(8,708
|
)
|
$
|
1,910
|
—
|
$
|
100,958
|
||||||||
Net
loss
|
—
|
—
|
(1,796
|
)
|
—
|
$
|
(1,796
|
)
|
(1,796
|
)
|
|||||||||
Dividends
declared
|
—
|
(2,547
|
)
|
—
|
—
|
—
|
(2,547
|
)
|
|||||||||||
Repurchase
of common stock
|
(1
|
)
|
(299
|
)
|
—
|
—
|
—
|
(300
|
)
|
||||||||||
Vested
restricted stock
|
—
|
241
|
—
|
—
|
—
|
241
|
|||||||||||||
Vested
performance shares
|
—
|
24
|
—
|
—
|
—
|
24
|
|||||||||||||
Vested
stock options
|
—
|
4
|
—
|
—
|
—
|
4
|
|||||||||||||
Decrease
in net unrealized gain on
available for sale securities
|
—
|
—
|
—
|
(7,562
|
)
|
(7,562
|
)
|
(7,562
|
)
|
||||||||||
Increase
in net unrealized gain on derivative
instruments
|
—
|
—
|
—
|
4,681
|
4,681
|
4,681
|
|||||||||||||
Comprehensive
loss
|
—
|
—
|
—
|
—
|
$
|
(4,677
|
)
|
—
|
|||||||||||
BALANCE,
MARCH 31, 2006 --
Stockholders'
Equity
|
182
|
$
|
104,996
|
$
|
(10,504
|
)
|
$
|
(971
|
)
|
|
$
|
93,703
|
See
notes
to consolidated financial statements.
5
NEW
YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(dollar
amounts in thousands)
(unaudited)
|
For
the Three Months Ended
March
31,
|
||||||
|
2006
|
2005
|
|||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
Net
loss
|
$
|
(1,796
|
)
|
$
|
(38
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|||||||
Depreciation
and amortization
|
565
|
343
|
|||||
Amortization
of premium on investment securities and mortgage loans
|
446
|
1,185
|
|||||
Loss
on sale of current period securitized loans
|
773 | — | |||||
Realized
loss on sale of investment securities
|
969
|
—
|
|||||
Gain
on sale of securities and related hedges
|
—
|
(377
|
)
|
||||
Purchase
of mortgage loans held for sale
|
(213,367 | ) | — | ||||
Origination
of mortgage loans held for sale
|
(422,247
|
)
|
(426,768
|
)
|
|||
Proceeds
from sales of mortgage loans
|
628,314
|
411,670
|
|||||
Restricted
stock compensation expense
|
264
|
997
|
|||||
Stock
option grants - compensation expense
|
4
|
9
|
|||||
Deferred
tax benefit
|
(2,916
|
)
|
(2,690
|
)
|
|||
Change
in value of derivatives
|
(125
|
)
|
(977
|
)
|
|||
(Increase)
decrease in operating assets:
|
|||||||
Due
from loan purchasers
|
20,612
|
(11,436
|
)
|
||||
Escrow
deposits - pending loan closings
|
(1,513
|
)
|
(6,206
|
)
|
|||
Accounts
and accrued interest receivable
|
(2,353
|
)
|
2,508
|
||||
Prepaid
and other assets
|
583
|
(1,021
|
)
|
||||
Increase
(decrease) in operating liabilities:
|
|||||||
Due
to loan purchasers
|
(21
|
)
|
64
|
||||
Accounts
payable and accrued expenses
|
(5,861
|
)
|
124
|
||||
Other
liabilities
|
307
|
110
|
|||||
Net
cash provided by (used in) operating activities
|
2,638
|
(32,503
|
)
|
||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Restricted
cash
|
2,181
|
1,926
|
|||||
Purchase
of investment securities
|
(124,896
|
)
|
(2,355
|
)
|
|||
Purchase
of mortgage loans held in securitization trusts
|
—
|
(167,874
|
)
|
||||
Principal
repayments received on mortgage loans held in securitization
trusts
|
40,405
|
5,600
|
|||||
Proceeds
from sale of investment securities
|
159,040
|
—
|
|||||
Origination
of mortgage loans held for investment
|
—
|
|
(136,393
|
)
|
|||
Principal
paydown on investment securities
|
54,475
|
86,656
|
|||||
Payments
received on loans held for investment
|
—
|
3,816
|
|||||
Purchases
of property and equipment
|
(626
|
)
|
(526
|
)
|
|||
Net
cash provided by (used in) investing activities
|
130,579
|
(209,150
|
)
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Repurchase
of common stock
|
(299
|
)
|
—
|
||||
Change
in financing arrangements, net
|
(132,591
|
)
|
220,293
|
||||
Dividends
paid
|
(3,834
|
)
|
(4,347
|
)
|
|||
Issuance
of subordinated debentures
|
—
|
25,000
|
|||||
Net
cash (used in) provided by financing activities
|
(136,724
|
)
|
240,946
|
||||
NET
DECREASES IN CASH AND CASH EQUIVALENTS
|
(3,507
|
)
|
(707
|
)
|
|||
CASH
AND CASH EQUIVALENTS - Beginning of period
|
9,056
|
7,613
|
|||||
CASH
AND CASH EQUIVALENTS - End of period
|
$
|
5,549
|
$
|
6,906
|
|||
SUPPLEMENTAL
DISCLOSURE
|
|||||||
Cash
paid for interest
|
$
|
22,688
|
$
|
15,408
|
|||
NON
CASH FINANCING ACTIVITIES
|
|||||||
Dividends
declared to be paid in subsequent period
|
$
|
2,547
|
$
|
4,529
|
|||
NON CASH INVESTING ACTIVITIES | |||||||
Non-cash
purchase of investment securities
|
$ | 60,000 | — |
See
notes
to consolidated financial statements.
6
NEW
YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2006 (Unaudited)
1. |
Summary
of Significant Accounting
Policies
|
Organization
-
New
York Mortgage Trust, Inc. (“NYMT” or the “Company”) is a fully-integrated,
self-advised, residential mortgage finance company formed as a Maryland
corporation in September 2003. The Company earns net interest income from
residential mortgage-backed securities and fixed-rate and adjustable-rate
mortgage loans and securities originated through its wholly-owned subsidiary,
The New York Mortgage Company, LLC (“NYMC”) or acquired from third parties. The
Company also earns net interest income from its investment in and the
securitization of certain adjustable rate mortgage loans that meet the Company’s
investment criteria. Licensed, or exempt from licensing, in 44 states and the
District of Columbia and through a network of 27 full-service loan origination
locations and 26 satellite loan origination locations, NYMC originates a wide
range of mortgage loans, with a primary focus on prime, residential mortgage
loans.
The
Company is organized and conducts its operations to qualify as a real estate
investment trust (“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.
On
January 9, 2004, the Company capitalized New York Mortgage Funding, LLC (“NYMF”)
as a wholly-owned subsidiary of the Company. NYMF is a qualified REIT
subsidiary, or QRS, in which the Company accumulates mortgage loans that the
Company intends to securitize.
On
March
30, 2006 the NYMT completed its fourth loan securitization transaction of
approximately $277.4 million of high-credit quality, first-lien, adjustable
rate
mortgage (“ARM”) loans, 24% of which were self-originated through NYMC. The
securitization is comprised of approximately $274.6 million of certificates
issued by New York Mortgage Trust 2006-1 (the "Trust"). The
terms
of this securitization were structured to meet the criteria for sale as required
in SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of
Liabilities.
As a
result of this transaction, the Company recorded a $0.4 million servicing asset
related to self-originated loans.
As
used
herein, references to the “Company,” “NYMT,” “we,” “our” and “us” refer to New
York Mortgage Trust, Inc., collectively with its subsidiaries.
Basis
of Presentation -
The
accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with the instructions to
Form 10-Q. As permitted by the rules and regulations of the Securities and
Exchange Commission (the “SEC”), the financial statements contain certain
condensed financial information and exclude certain footnote disclosures
normally included in audited consolidated financial statements prepared in
accordance with United States generally accepted accounting principles (“GAAP”).
In the opinion of management, the accompanying financial statements contain
all
adjustments, including normal recurring accruals, necessary to fairly present
the accompanying financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company’s Annual Report on Form 10-K, for the year ended December 31,
2005. Operating results for the interim period are not necessarily indicative
of
the results that may be expected for the fiscal year ending December 31,
2006. Certain
prior period amounts have been reclassified to conform to current period
classifications, including the reclassification of $1.7 million of Interest
income - Loans held for investment, for the quarter ended March 31, 2005, to
Interest income - Invesment securities and loans held in securitization
trusts. In addition, there was a reclassification of $1.1 million of
Interest expense - Loans held for invesment, for the quarter ended March 31,
2005, to Interest expense - Investment securities and loans held in
securitization trusts.
All
intercompany transactions and balances have been eliminated.
Upon
the
closing of the Company’s IPO, of the 2,750,000 shares exchanged for the equity
interests of NYMC, 100,000 shares were held in escrow through December 31,
2004
and were available to satisfy any indemnification claims the Company may have
had against the contributors of NYMC for losses incurred as a result of defaults
on any residential mortgage loans originated by NYMC and closed prior to the
completion of the IPO. As of December 31, 2004, the amount of escrowed shares
was reduced by 47,680 shares, representing $493,000 for estimated losses on
loans closed prior to the Company’s IPO. Furthermore, the contributors of NYMC
entered into a new escrow agreement which extended the escrow period to December
31, 2005 for the remaining 52,320 shares. On or about December 31, 2005, the
escrow period was extended for an additional year to December 31, 2006. There
have been no additional losses with respect to the escrow agreement recorded
during the three month period ended March 31, 2006.
7
Use
of Estimates -
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets
and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company’s estimates and assumptions primarily arise
from risks and uncertainties associated with interest rate volatility,
prepayment volatility and credit exposure. Although management is not currently
aware of any factors that would significantly change its estimates and
assumptions in the near term, future changes in market conditions may occur
which could cause actual results to differ materially.
Cash
and Cash Equivalents -
Cash
and cash equivalents include cash on hand, amounts due from banks and overnight
deposits. The Company maintains its cash and cash equivalents in highly rated
financial institutions, and at times these balances exceed insurable
amounts.
Restricted
Cash -
Restricted cash is held by counterparties as collateral for hedging instruments,
a warehouse facility and two letters of credit related to the Company’s lease of
its corporate headquarters
Investment
Securities Available for Sale -
The
Company’s investment securities are residential mortgage-backed securities
comprised of Ginnie Mae (“GNMA”) and “AAA”- rated adjustable-rate securities,
including adjustable-rate loans that have an initial fixed-rate period.
Investment securities are classified as available for sale securities and are
reported at fair value with unrealized gains and losses reported in other
comprehensive income (“OCI”). Realized gains and losses recorded on the sale of
investment securities available for sale are based on the specific
identification method and included in gain on sale of securities and related
hedges. Purchase premiums or discounts on investment securities are accreted
or
amortized to interest income over the estimated life of the investment
securities using the interest method. Investment securities may be subject
to
interest rate, credit and/or prepayment risk.
When
the
fair value of an available for sale security is less than amortized cost,
management considers whether there is an other-than-temporary impairment in
the
value of the security (e.g., whether the security will be sold prior to the
recovery of fair value). Management considers at a minimum the following factors
that, both individually or in combination, could indicate the decline is
“other-than-temporary:” 1) the length of time and extent to which the market
value has been less than book value; 2) the financial condition and near-term
prospects of the issuer; or 3) the intent and ability of the Company to retain
the investment for a period of time sufficient to allow for any anticipated
recovery in market value. If, in management’s judgment, an other-than-temporary
impairment exists, the cost basis of the security is written down to the
then-current fair value, and the unrealized loss is transferred from accumulated
other comprehensive income as an immediate reduction of current earnings (i.e.,
as if the loss had been realized in the period of impairment). Even though
no
credit concerns exist with respect to an available for sale security, an other-
than-temporary impairment may be evident if management determines that the
Company does not have the intent and ability to hold an investment until a
forecasted recovery of the value of the investment.
As
of
December 31, 2005, management concluded that the decline in value of certain
of
the available for sale securities was other-than-temporary based on the intent
of the Company to potentially sell such securities rather than retain them
for a
time sufficient to allow for anticipated recovery in market value. Accordingly,
the cost basis of those securities of $395.7 million was written down to fair
value and an unrealized loss of $7.4 million was transferred from accumulated
other comprehensive income as an impairment loss on investment
securities during the year ended December 31, 2005.
During
the quarter ended March 31, 2006 these securities were sold which resulted
in an
additional loss of approximately $1.0 million, due to a decline in the value
of
such securities subsequent to the year end.
Due
from Loan Purchasers and Escrow Deposits - Pending Loan Closings
-
Amounts
due from loan purchasers are a receivable for the principal and premium due
to
us for loans sold and shipped but for which payment has not yet been received
at
period end. Escrow deposits pending loan closing are advance cash fundings
by us
to escrow agents to be used to close loans within the next one to three business
days.
8
Mortgage
Loans Held for Sale -
Mortgage loans held for sale represent originated mortgage loans held for sale
to third party investors. The loans are initially recorded at cost based on
the
principal amount outstanding net of deferred direct origination costs and fees.
The loans are subsequently carried at the lower of cost or market value. Market
value is determined by examining outstanding commitments from investors or
current investor yield requirements, calculated on an aggregate loan basis,
less
an estimate of the costs to close the loan, and the deferral of fees and points
received, plus the deferral of direct origination costs. Gains or losses on
sales are recognized at the time title transfers to the investor which is
typically concurrent with the transfer of the loan files and related
documentation and are based upon the difference between the sales proceeds
from
the final investor and the adjusted book value of the loan sold.
Mortgage
Loans Held in Securitization Trusts -
Mortgage loans held in securitization trusts are certain ARM mortgage loans
transferred to the NYMT 2005-1, the NYMT 2005-2 and the NYMT 2005-3 that have
been securitized into sequentially rated classes of beneficial interests.
Mortgage loans held in securitization trusts are recorded at amortized cost,
using the same accounting principles as that used for mortgage loans held for
investment. Currently the Company has retained 100% of the
securities issued by NYMT 2005-1 and the NYMT 2005-2 and the securities have
been financed as a secured borrowing under repurchase agreements. For our
third securitization, NYMT 2005-03, we sold investment grade securities to
third
parties, which are recorded as collateralized debt obligations on the
accompanying consolidated balance sheet.
Mortgage
Loans Held for Investment -
The
Company may retain the adjustable-rate mortgage loans originated that meet
specific investment criteria and portfolio requirements. Loans originated and
retained in the Company’s portfolio are serviced through a subservicer.
Servicing is the function primarily consisting of collecting monthly payments
from mortgage borrowers, and disbursing those funds to the appropriate loan
investors.
Mortgage
loans held for investment are recorded net of deferred loan origination fees
and
associated direct costs and are stated at amortized cost. Net loan origination
fees and associated direct mortgage loan origination costs are deferred and
amortized over the life of the loan as an adjustment to yield. This amortization
includes the effect of projected prepayments.
Interest
income is accrued and recognized as revenue when earned according to the terms
of the mortgage loans and when, in the opinion of management, it is collectible.
The accrual of interest on loans is discontinued when, in management’s opinion,
the interest is not collectible in the normal course of business, but in no
case
when payment becomes greater than 90 days delinquent. Loans return to accrual
status when principal and interest become current and are anticipated to be
fully collectible.
Mortgage
Servicing Rights
- When
the Company sells loans in securitizations of residential mortgage loans, it
may, depending on the structure of the securitization, capitalize mortgage
servicing rights ("MSRs") that are initially measured at fair value based on
defined interest rate risk strata. When the Company sells certain loans and
retains the servicing rights, it allocates the cost basis of the loans between
the assets sold and the MSRs based on their relative fair values on the date
of
sale. Generally, MSRs a result from certain loan securitizations structured
as
real estate mortgage investment conduits (“REMIC”).
The
Company estimates the fair value of its MSRs based on the present value of
future expected cash flows estimated using management’s best estimates of key
assumptions, including prepayment speeds, forward yield curves, and discount
rates commensurate with the risk involved. Periodic changes in fair value are
recorded to income or expense for the period.
For
the
period ended March 31, 2006, mortgage servicing rights were created as a result
of our securitization of $277.4 million of mortgage loans through New York
Mortgage Trust 2006-1 on March 30, 2006. The value of these servicing rights
is
$0.4 million at March 31, 2006 and is included as a component of “Other assets”
on the Company’s consolidated balance sheet.
Credit
Risk and Allowance for Loan Losses -
The
Company limits its exposure to credit losses on its portfolio of residential
adjustable-rate mortgage-backed securities by purchasing securities that are
guaranteed by a government-sponsored or federally-chartered corporation (FNMA,
FHLMC or GNMA) (collectively “Agency Securities”) or that have a “AAA”
investment grade rating by at least one of two nationally recognized rating
agencies, Standard & Poor’s, Inc. or Moody’s Investors Service, Inc. at the
time of purchase.
The
Company seeks to limit its exposure to credit losses on its portfolio of
residential adjustable-rate mortgage loans held for investment (including
mortgage loans held in the securitization trusts) by originating and investing
in loans primarily to borrowers with strong credit profiles, which are evaluated
by analyzing the borrower’s credit score (“FICO” is a credit score, ranging from
300 to 850, with 850 being the best score, based upon the credit evaluation
methodology developed by Fair, Isaac and Company, a consulting firm specializing
in creating credit evaluation models), employment, income and assets and related
documentation, the amount of equity in and the value of the property securing
the borrower’s loan, debt to income ratio, credit history, funds available for
closing and post-closing liquidity.
9
The
Company estimates an allowance for loan losses based on management’s assessment
of probable credit losses in the Company’s investment portfolio of residential
mortgage loans. Mortgage loans are collectively evaluated for impairment as
the
loans are homogeneous in nature. The allowance is based upon management’s
assessment of various credit-related factors, including current economic
conditions, the credit diversification of the portfolio, loan-to-value ratios,
delinquency status, historical credit losses, purchased mortgage insurance
and
other factors deemed to warrant consideration. If the credit performance of
mortgage loans held for investment deviates from expectations, the allowance
for
loan losses is adjusted to a level deemed appropriate by management to provide
for estimated probable losses in the portfolio.
The
allowance will be maintained through ongoing provisions charged to operating
income and will be reduced by loans that are charged off. As of March 31, 2006
the allowance for loan losses is insignificant. Determining the allowance for
loan losses is subjective in nature due to the estimation required.
Property
and Equipment, Net -
Property and equipment have lives ranging from three to ten years, and are
stated at cost less accumulated depreciation and amortization. Depreciation
is
determined in amounts sufficient to charge the cost of depreciable assets to
operations over their estimated service lives using the straight-line method.
Leasehold improvements are amortized over the lesser of the life of the lease
or
service lives of the improvements using the straight-line method.
Financing
Arrangements, Portfolio Investments—
Portfolio investments are typically financed with repurchase agreements, a
form
of collateralized borrowing which is secured by the Company’s portfolio
securities on the balance sheet. Such financings are recorded at their
outstanding principal balance with any accrued interest due recorded as an
accrued expense.
Financing
Arrangements, Loans Held for Sale/for Investment—
Loans
held for sale or for investment are typically financed with warehouse lines
that
are collateralized by loans we originate or purchase from third parties.
Such financings are recorded at their outstanding principal balance with any
accrued interest due recorded as an accrued expense.
Collateralized
Debt Obligations -
CDOs are
debt securities that are issued by the Company through an “on balance sheet”
securitization and typically secured by ARM loans. For financial reporting
purposes, the ARM loans and restricted cash held as collateral are recorded
as
assets of the Company and the CDO is recorded as the Company’s debt. The
transaction includes interest rate caps held by the securitization trust and
recorded as an asset or liability of the Company.
Subordinated
Debentures -
Subordinated debentures are trust preferred securities that are fully guaranteed
by the Company with respect to distributions and amounts payable upon
liquidation, redemption or repayment. These securities are classified as
subordinated debentures in the liability section of the Company’s consolidated
balance sheet.
Derivative
Financial Instruments -
The
Company has developed risk management programs and processes, which include
investments in derivative financial instruments designed to manage market risk
associated with its mortgage banking and its mortgage-backed securities
investment activities.
All
derivative financial instruments are reported as either assets or liabilities
in
the consolidated balance sheet at fair value. The gains and losses associated
with changes in the fair value of derivatives not designated as hedges are
reported in current earnings. If the derivative is designated as a fair value
hedge and is highly effective in achieving offsetting changes in the fair value
of the asset or liability hedged, the recorded value of the hedged item is
adjusted by its change in fair value attributable to the hedged risk. If the
derivative is designated as a cash flow hedge, the effective portion of change
in the fair value of the derivative is recorded in OCI and is recognized in
the
statement of operations when the hedged item affects earnings. The Company
calculates the effectiveness of these hedges on an ongoing basis, and, to date,
has calculated effectiveness of approximately 100%. Ineffective portions, if
any, of changes in the fair value or cash flow hedges are recognized in
earnings. (See Note 16 below).
10
Risk
Management -
Derivative transactions are entered into by the Company solely for risk
management purposes. The decision of whether or not an economic risk within
a
given transaction (or portion thereof) should be hedged for risk management
purposes is made on a case-by-case basis, based on the risks involved and other
factors as determined by senior management, including the financial impact
on
income, asset valuation and restrictions imposed by the Internal Revenue Code
among others. In determining whether to hedge a risk, the Company may consider
whether other assets, liabilities, firm commitments and anticipated transactions
already offset or reduce the risk. All transactions undertaken to hedge certain
market risks are entered into with a view towards minimizing the potential
for
economic losses that could be incurred by the Company. Under Statement of
Financial Accounting Standards No. 133, “Accounting for Derivative Instruments
and Hedging Activities” (“SFAS No. 133”), the Company is required to formally
document its hedging strategy before it may elect to implement hedge accounting
for qualifying derivatives. Accordingly, all qualifying derivatives are intended
to qualify as fair value, or cash flow hedges, or free standing derivatives.
To
this end, terms of the hedges are matched closely to the terms of hedged items
with the intention of minimizing ineffectiveness.
In
the
normal course of its mortgage loan origination business, the Company enters
into
contractual interest rate lock commitments to extend credit to finance
residential mortgages. These commitments, which contain fixed expiration dates,
become effective when eligible borrowers lock-in a specified interest rate
within time frames established by the Company’s origination, credit and
underwriting practices. Interest rate risk arises if interest rates change
between the time of the lock-in of the rate by the borrower and the sale of
the
loan. Under SFAS No. 133, the IRLCs are considered undesignated or free-standing
derivatives. Accordingly, such IRLCs are recorded at fair value with changes
in
fair value recorded to current earnings. Mark to market adjustments on IRLCs
are
recorded from the inception of the interest rate lock through the date the
underlying loan is funded. The fair value of the IRLCs is determined by the
interest rate differential between the contracted loan rate and the currently
available market rates as of the reporting date.
To
mitigate the effect of the interest rate risk inherent in providing IRLCs from
the lock-in date to the funding date of a loan, the Company generally enters
into forward sale loan contracts (“FSLC”). The FSLCs in place prior to the
funding of a loan are undesignated derivatives under SFAS No. 133 and are marked
to market through current earnings.
Derivative
instruments contain an element of risk in the event that the counterparties
may
be unable to meet the terms of such agreements. The Company minimizes its risk
exposure by limiting the counterparties with which it enters into contracts
to
banks, investment banks and certain private investors who meet established
credit and capital guidelines. Management does not expect any counterparty
to
default on its obligations and, therefore, does not expect to incur any loss
due
to counterparty default. These commitments and option contracts are considered
in conjunction with the Company’s lower of cost or market valuation of its
mortgage loans held for sale.
The
Company uses other derivative instruments, including treasury, agency or
mortgage-backed securities forward sale contracts which are also classified
as
free-standing, undesignated derivatives and thus are recorded at fair value
with
the changes in fair value recognized in current earnings.
Once
a
loan has been funded, the Company’s primary risk objective for its mortgage
loans held for sale is to protect earnings from an unexpected charge due to
a
decline in value. The Company’s strategy is to engage in a risk management
program involving the designation of FSLCs (the same FSLCs entered into at
the
time of rate lock) to hedge most of its mortgage loans held for sale. The FSLCs
have been designated as qualifying hedges for the funded loans and the notional
amount of the forward delivery contracts, along with the underlying rate and
critical terms of the contracts, are equivalent to the unpaid principal amount
of the mortgage loan being hedged. The FSLCs effectively fix the forward sales
price and thereby offset interest rate and price risk to the Company.
Accordingly, the Company evaluates this relationship quarterly and, at the
time
the loan is funded, classifies and accounts for the FSLCs as cash flow
hedges.
Interest
Rate Risk -
The
Company hedges the aggregate risk of interest rate fluctuations with respect
to
its borrowings, regardless of the form of such borrowings, which require
payments based on a variable interest rate index. The Company generally intends
to hedge only the risk related to changes in the benchmark interest rate (London
Interbank Offered Rate (“LIBOR”) or a Treasury rate).
In
order
to reduce such risks, the Company enters into swap agreements whereby the
Company receives floating rate payments in exchange for fixed rate payments,
effectively converting the borrowing to a fixed rate. The Company also enters
into cap agreements whereby, in exchange for a fee, the Company is reimbursed
for interest paid in excess of a certain capped rate.
11
To
qualify for cash flow hedge accounting, interest rate swaps and caps must meet
certain criteria, including:
•
|
the
items to be hedged expose the Company to interest rate risk; and
|
•
|
the
interest rate swaps or caps are expected to be and continue to be
highly
effective in reducing the Company’s exposure to
interest rate risk.
|
The
fair
values of the Company’s interest rate swap agreements and interest rate cap
agreements are based on market values provided by dealers who are familiar
with
the terms of these instruments. Correlation and effectiveness are periodically
assessed at least quarterly based upon a comparison of the relative changes
in
the fair values or cash flows of the interest rate swaps and caps and the items
being hedged.
For
derivative instruments that are designated and qualify as a cash flow hedge
(i.e. hedging the exposure to variability in expected future cash flows that
is
attributable to a particular risk), the effective portion of the gain or loss
on
the derivative instruments are reported as a component of OCI and reclassified
into earnings in the same period or periods during which the hedged transaction
affects earnings. The remaining gain or loss on the derivative instruments
in
excess of the cumulative change in the present value of future cash flows of
the
hedged item, if any, is recognized in current earnings during the period of
change.
With
respect to interest rate swaps and caps that have not been designated as hedges,
any net payments under, or fluctuations in the fair value of, such swaps and
caps, will be recognized in current earnings.
Termination
of Hedging Relationships -
The
Company employs a number of risk management monitoring procedures to ensure
that
the designated hedging relationships are demonstrating, and are expected to
continue to demonstrate, a high level of effectiveness. Hedge accounting is
discontinued on a prospective basis if it is determined that the hedging
relationship is no longer highly effective or expected to be highly effective
in
offsetting changes in fair value of the hedged item.
Additionally,
the Company may elect to undesignate a hedge relationship during an interim
period and re-designate upon the rebalancing of a hedge profile and the
corresponding hedge relationship. When hedge accounting is discontinued, the
Company continues to carry the derivative instruments at fair value with changes
recorded in current earnings.
Other
Comprehensive Income -
Other
comprehensive income is comprised primarily of net income (loss) from changes
in
value of the Company’s available for sale securities, and the impact of deferred
gains or losses on changes in the fair value of derivative contracts hedging
future cash flows.
Gain
on Sale of Mortgage Loans -
The
Company recognizes gain on sale of loans sold to third parties as the difference
between the sales price and the adjusted cost basis of the loans when title
transfers. The adjusted cost basis of the loans includes the original principal
amount adjusted for deferrals of origination and commitment fees received,
net
of direct loan origination costs paid.
Loan
Origination Fees and Direct Origination Cost -
The
Company records loan fees, discount points and certain incremental direct
origination costs as an adjustment of the cost of the loan and such amounts
are
included in gain on sales of loans when the loan is sold. Accordingly, salaries,
compensation, benefits and commission costs have been reduced by $6.4 million
and $9.6 million for the three
months periods ended March 31, 2006 and 2005, respectively, because such amounts
are considered incremental direct loan origination costs.
Brokered
Loan Fees and Expenses -
The
Company records commissions associated with brokered loans when such loans
are
closed with the borrower. Costs associated with brokered loans are expensed
when
incurred.
Loan
Commitment Fees -
Mortgage loans held for sale: fees received for the funding of mortgage loans
to
borrowers at pre-set conditions are deferred and recognized at the date at
which
the loan is sold. Mortgage loans held for investment: such fees are deferred
and
recognized into interest income over the life of the loan based on the effective
yield method.
Employee
Benefit Plans -
The
Company sponsors a defined contribution plan (the “Plan”) for all eligible
domestic employees. The Plan qualifies as a deferred salary arrangement under
Section 401(k) of the Internal Revenue Code. Under the Plan, participating
employees may defer up to 15% of their pre-tax earnings, subject to the annual
Internal Revenue Code contribution limit. The Company matches contributions
up
to a maximum of 25% of the first 5% of eligible compensation. Employees vest
immediately in their contribution and vest in the Company’s contribution at a
rate of 25% after two full years and then an incremental 25% per full year
of
service until fully vested at 100% after five full years of service. The
Company’s total contributions to the Plan were $0.1 million for each three month
period ended March 31, 2006 and 2005.
12
Stock
Based Compensation - Until
January 1, 2006, the Company followed the provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation” (“SFAS No. 123”) and SFAS No. 148,
“Accounting for Stock-Based Compensation, Transition and Disclosure” (“SFAS No.
148”). The provisions of SFAS No. 123 allow companies either to expense the
estimated fair value of stock options or to continue to follow the intrinsic
value method set forth in Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB No. 25”) and disclose the pro
forma effects on net income (loss) had the fair value of the options been
expensed. The Company, since its inception, has elected not to apply APB
No. 25
in accounting for its stock option incentive plans and has expensed stock
based
compensation in accordance with SFAS No. 123.
In
December, 2004 the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123R, “Share-Based Payment,” (“SFAS No. 123R”) which will require all companies
to measure compensation costs for all share-based payments, including employee
stock options, at fair value. This statement became effective for the Company
on
January 1, 2006. The adoption of SFAS No. 123R did not have a material
impact on
the Company’s financial statements.
Marketing
and Promotion -
The
Company charges the costs of marketing, promotion and advertising to expense
in
the period incurred.
Income
Taxes -
The
Company operates so as to qualify as a REIT under the requirements of the
Internal Revenue Code. Requirements for qualification as a REIT include various
restrictions on ownership of the Company’s stock, requirements concerning
distribution of taxable income and certain restrictions on the nature of assets
and sources of income. A REIT must distribute at least 90% of its taxable income
to its stockholders of which 85% plus any undistributed amounts from the prior
year must be distributed within the taxable year in order to avoid the
imposition of an excise tax. The remaining balance may extend until timely
filing of the Company’s tax return in the subsequent taxable year. Qualifying
distributions of taxable income are deductible by a REIT in computing taxable
income.
The
Company’s QRS is subject to federal and state income taxes. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax base upon the change in tax status.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax
assets and liabilities of a change in tax rates is recognized in income in
the
period that includes the enactment date.
Earnings
Per Share -
Basic
earnings per share excludes dilution and is computed by dividing net income
available to common stockholders by the weighted-average number of shares of
common stock outstanding for the period. Diluted earnings per share reflects
the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
Company.
New
Accounting Pronouncements
-In
March 2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial
Assets an amendment of FASB Statement No. 140.” Effective at the beginning of
the first quarter of 2006, the Company adopted the newly issued statement and
elected the fair value option to subsequently measure its mortgage servicing
rights (“MSRs”). Under the fair value option, all changes in the fair value of
MSRs are reported in the statement of operations. The initial implementation
of
SFAS 156 did not have a material impact on the Company’s financial
statements.
In
May
2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections.” SFAS
154 changes the requirements for the accounting for and reporting of a change
in
accounting principle. Previous guidance required that most voluntary changes
in
accounting principle be recognized by including in net income of the period
of
the change the cumulative effect of changing to the new accounting principle.
SFAS 154 requires retrospective application to prior periods’ financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. Management believes SFAS 154 will have no impact on the Company’s
financial statements.
In
February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid
Financial Instruments”. Key provisions of SFAS 155 include: (1) a broad
fair value measurement option for certain hybrid financial instruments that
contain an embedded derivative that would otherwise require bifurcation;
(2) clarification that only the simplest separations of interest payments
and principal payments qualify for the exception afforded to interest-only
strips and principal-only strips from derivative accounting under paragraph
14
of FAS 133 (thereby narrowing such exception); (3) a requirement that
beneficial interests in securitized financial assets be analyzed to determine
whether they are freestanding derivatives or whether they are hybrid instruments
that contain embedded derivatives requiring bifurcation; (4) clarification
that concentrations of credit risk in the form of subordination are not embedded
derivatives; and (5) elimination of the prohibition on a QSPE holding
passive derivative financial instruments that pertain to beneficial interests
that are or contain a derivative financial instrument. In general, these changes
will reduce the operational complexity associated with bifurcating embedded
derivatives, and increase the number of beneficial interests in securitization
transactions, including interest-only strips and principal-only strips, required
to be accounted for in accordance with FAS 133. Management does not believe
that
SFAS 155 will have a material effect on the financial condition, results of
operations, or liquidity of the Company.
13
2. |
Investment
Securities Available For
Sale
|
Investment
securities available for sale consist of the following as of March 31, 2006
and
December 31, 2005 (dollar amounts in thousands):
|
March
31, 2006
|
|
December
31, 2005
|
||||
Amortized
cost
|
$
|
493,045
|
$
|
720,583
|
|||
Gross
unrealized gains
|
19
|
1
|
|||||
Gross
unrealized losses
|
(7,581
|
)
|
(4,102
|
)
|
|||
Fair
value
|
$
|
485,483
|
$
|
716,482
|
The
amortized cost balance at December 31, 2005 included approximately $388.3
million of certain lower-yielding mortgage (with rate resets of less than two
years) agency securities that the Company had concluded it no longer had the
intent to hold until their values recovered. Upon
such
determination, the Company recorded an unrealized impairment loss of $7.4
million for the three months ended December 31, 2005. For the three months
ended
March 31, 2006, all of such designated securities were sold at an additional
loss of $1.0 million.
None
of
the remaining securities with unrealized losses have been deemed to be
other-than-temporarily impaired. The Company has the intent and believes it
has
the ability to hold such investment securities until recovery of their amortized
cost. Substantially all of the Company’s investment securities available for
sale are pledged as collateral for borrowings under financing arrangements
(Note
9).
The
following table sets forth the stated reset periods and weighted average yields
of our investment securities at March 31, 2006 (dollar amounts in
thousands):
Less
than
6
Months
|
More
than 6 Months
To
24 Months
|
More
than 24 Months
To
60 Months
|
Total
|
||||||||||||||||||||||
|
Carrying
Value
|
Weighted
Average
Yield
|
Carrying
Value
|
Weighted
Average
Yield
|
Carrying
Value
|
Weighted
Average
Yield
|
Carrying
Value
|
Weighted
Average
Yield
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Agency
REMIC CMO Floating Rate
|
$
|
125,928
|
6.14
|
%
|
$
|
—
|
—
|
$
|
—
|
—
|
$
|
125,928
|
6.14
|
%
|
|||||||||||
Private
Label ARMs
|
3,981
|
5.67
|
%
|
58,513
|
5.91
|
%
|
297,061
|
5.87
|
%
|
359,555
|
5.88
|
%
|
|||||||||||||
Total
|
$
|
129,909
|
6.12
|
%
|
$
|
58,513
|
5.91
|
%
|
$
|
297,061
|
5.87
|
%
|
$
|
485,483
|
5.94
|
%
|
The
following table sets forth the stated reset periods and weighted average yields
of our investment securities at December 31, 2005 (dollar amounts in
thousands):
Less
than
6
Months
|
More
than 6 Months
To
24 Months
|
More
than 24 Months
To
60 Months
|
Total
|
||||||||||||||||||||||
|
Carrying
Value
|
Weighted
Average
Yield
|
Carrying
Value
|
Weighted
Average
Yield
|
Carrying
Value
|
Weighted
Average
Yield
|
Carrying
Value
|
Weighted
Average
Yield
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Agency
REMIC CMO Floating Rate
|
$
|
13,535
|
5.45
|
%
|
$
|
—
|
—
|
$
|
—
|
—
|
$
|
13,535
|
5.45
|
%
|
|||||||||||
FHLMC
Agency ARMs
|
—
|
—
|
91,217
|
3.82
|
%
|
—
|
—
|
91,217
|
3.82
|
%
|
|||||||||||||||
FNMA
Agency ARMs
|
—
|
—
|
297,048
|
3.91
|
%
|
—
|
—
|
297,048
|
3.91
|
%
|
|||||||||||||||
Private
Label ARMs
|
—
|
—
|
57,605
|
4.22
|
%
|
257,077
|
4.57
|
%
|
314,682
|
4.51
|
%
|
||||||||||||||
Total
|
$
|
13,535
|
5.45
|
%
|
$
|
445,870
|
3.93
|
%
|
$
|
257,077
|
4.57
|
%
|
$
|
716,482
|
4.19
|
%
|
14
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, 2006 and December 31, 2005:
March
31, 2006
|
|||||||||||||||||||
Less
than 12 Months
|
12
Months or More
|
Total
|
|||||||||||||||||
|
Fair
Vaue
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
|||||||||||||
|
|
|
|
|
|
|
|||||||||||||
Agency
REMIC CMO Floating Rate
|
$
|
56,987
|
$
|
115
|
$
|
2,040
|
$
|
5
|
$
|
59,027
|
$
|
120
|
|||||||
Private
Label ARMs
|
82,899
|
880
|
255,715
|
6,581
|
338,614
|
7,461
|
|||||||||||||
Total
|
$
|
139,886
|
$
|
995
|
$
|
257,755
|
$
|
6,586
|
$
|
397,641
|
$
|
7,581
|
December
31, 2005
|
|||||||||||||||||||
Less
than 12 Months
|
12
Months or More
|
Total
|
|||||||||||||||||
|
Fair
Vaue
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
|||||||||||||
|
|
|
|
|
|
|
|||||||||||||
Agency
REMIC CMO Floating Rate
|
$
|
11,761
|
$
|
19
|
$
|
—
|
$
|
—
|
$
|
11,761
|
$
|
19
|
|||||||
Private
Label ARMs
|
48,642
|
203
|
270,124
|
3,880
|
318,766
|
4,083
|
|||||||||||||
Total
|
$
|
60,403
|
$
|
222
|
$
|
270,124
|
$
|
3,880
|
$
|
330,527
|
$
|
4,102
|
3. |
Mortgage
Loans Held For Sale
|
Mortgage
loans held for sale consist of the following as of March 31, 2006 and December
31, 2005 (dollar amounts in thousands):
|
March
31, 2006
|
December
31, 2005
|
|||||
Mortgage
loans principal amount
|
$
|
114,064
|
$
|
108,244
|
|||
Deferred
origination costs - net
|
190
|
27
|
|||||
Mortgage
loans held for sale
|
$
|
114,254
|
$
|
108,271
|
Substantially
all of the Company’s mortgage loans held for sale are pledged as collateral for
borrowings under financing arrangements (Note 10).
4. |
Mortgage
Loans Held in Securitization
Trusts
|
Mortgage
loans held in securitization trusts consist of the following as of March 31,
2006 and December 31, 2005 (dollar amounts in thousands):
March
31, 2006
|
December
31, 2005
|
||||||
Mortgage
loans principal amount
|
$
|
735,625
|
$
|
771,451
|
|||
Deferred
origination costs - net
|
4,921
|
5,159
|
|||||
Total
mortgage loans held in securitization trusts
|
$
|
740,546
|
$
|
776,610
|
Substantially
all of the Company’s mortgage loans held in securitization trusts are pledged as
collateral for borrowings under financing arrangements (Note 9) or for the
collateralized debt obligation (Note 11).
15
As
of
March 31, 2006, we had seven delinquent loans totaling $3.6 million categorized
as mortgage loans held in securitization trusts. The table below shows
delinquencies in our loan portfolio as of March 31, 2006 (dollar amounts in
thousands):
Days
Late
|
Number
of Delinquent Loans
|
Total
Dollar
Amount
|
%
of Loan
Portfolio
|
|||||||
30-60
|
3
|
$
|
1,774.8
|
0.24
|
%
|
|||||
61-90
|
1
|
74.3
|
0.01
|
%
|
||||||
90+
|
3
|
$
|
1,771.0
|
0.24
|
%
|
As
of
December 31, 2005, we had four delinquent loans totaling $2.0 million
categorized as Mortgage loans held in securitization trusts. The table below
shows delinquencies in our loan portfolio as of December 31, 2005 (dollar
amounts in thousands):
Days
Late
|
Number
of Delinquent Loans
|
Total
Dollar
Amount
|
%
of Loan
Portfolio
|
|||||||
30-60
|
1
|
$
|
193.1
|
0.02
|
%
|
|||||
61-90
|
—
|
—
|
—
|
|||||||
90+
|
3
|
$
|
1,771.0
|
0.23
|
%
|
5. |
Mortgage
Loans Held For Investment
|
The
Company had no mortgage loans held for investment at March 31, 2006 and at
December 31, 2005 mortgage loans held for investment consist of the following
(dollar amounts in thousands):
|
December
31, 2005
|
|||
Mortgage
loans principal amount
|
$
|
4,054
|
||
Deferred
origination costs - net
|
6
|
|||
Total
mortgage loans held for investment
|
$
|
4,060
|
All
of
the Company’s mortgage loans held for investment at December 31, 2005 were sold
during the first quarter of 2006, with a loss of $0.8 million recognized at
the
time of sale.
Substantially
all of the Company’s mortgage loans held for investment were pledged as
collateral for borrowings under financing arrangements at December 31, 2005
(Note 9).
6. |
Sale
of Mortgage Loans Through
Securitization
|
On
March
30, 2006, the Company sold residential mortgage loans to the Trust in
a securitization transaction structured as a sale under SFAS 140. In
this securitization, the Company retained servicing responsibilities and
subordinated interests. The Company receives annual servicing fees of
approximately 0.21% of the outstanding balance of mortgage loans and rights
to
future cash flows arising after the senior investors in the securitization
trust
have received their stated return. The investors and the securitization
trust have no recourse to the Company’s other assets. The interests that
continue to be held by the Company are subordinate to investor’s interests.
Their value is subject to credit, prepayment and interest rate risks on the
transferred financial assets. The Company recognized a pre-tax loss of $0.8
million on this securitization of residential mortgage loans.
7. |
Property
and Equipment - Net
|
Property
and equipment consist of the following as of March 31, 2006 and December 31,
2005 (dollar amounts in thousands):
|
March
31, 2006
|
December
31, 2005
|
|||||
Office
and computer equipment
|
$
|
6,795
|
$
|
6,292
|
|||
Furniture
and fixtures
|
2,296
|
2,306
|
|||||
Leasehold
improvements
|
1,531
|
1,429
|
|||||
Total
premises and equipment
|
10,622
|
10,027
|
|||||
Less:
accumulated depreciation and amortization
|
(3,612
|
)
|
(3,145
|
)
|
|||
Property
and equipment - net
|
$
|
7,010
|
$
|
6,882
|
16
8. |
Derivative
Instruments and Hedging
Activities
|
The
Company enters into derivatives to manage its interest rate and market risk
exposure associated with its mortgage banking and its mortgage-backed securities
investment activities. In the normal course of its mortgage loan origination
business, the Company enters into contractual IRLCs to extend credit to finance
residential mortgages. To mitigate the effect of the interest rate risk inherent
in providing IRLCs from the lock-in date to the funding date of a loan, the
Company generally enters into FSLCs. With regard to the Company’s
mortgage-backed securities investment activities, the Company uses interest
rate
swaps and caps to mitigate the effects of major interest rate changes on net
investment spread.
The
following table summarizes the estimated fair value of derivative assets and
liabilities as of March 31, 2006 and December 31, 2005 (dollar amounts in
thousands):
|
March
31, 2006
|
December
31, 2005
|
|||||
Derivative
Assets:
|
|||||||
Interest
rate caps
|
$
|
4,162
|
$
|
3,340
|
|||
Interest
rate swaps
|
6,043
|
6,383
|
|||||
Interest
rate lock commitments - loan commitments
|
—
|
123
|
|||||
Forward
loan sale contracts - loan commitments
|
108
|
—
|
|||||
Forward
loan sale contracts - mortgage loans held for sale
|
93
|
—
|
|||||
Forward
loan sale contracts - TBA securities
|
335
|
—
|
|||||
Total
derivative assets
|
$
|
10,741
|
$
|
9,846
|
|||
Derivative
Liabilities:
|
|||||||
Forward
loan sale contracts - loan commitments
|
—
|
(38
|
)
|
||||
Forward
loan sale contracts - mortgage loans held for sale
|
—
|
(18
|
)
|
||||
Forward
loan sale contracts - TBA securities
|
—
|
(324
|
)
|
||||
Interest
rate lock commitments - loan commitments
|
(352
|
)
|
—
|
||||
Interest
rate lock commitments - mortgage loans held for sale
|
(233
|
)
|
(14
|
)
|
|||
Total
derivative liabilities
|
$
|
(585
|
)
|
$
|
(394
|
)
|
The
notional amounts of the Company’s interest rate swaps, interest rate caps and
forward loan sales contracts as of March 31, 2006 were $652.0 million, $1.8
billion and $182.7 million, respectively.
The
notional amounts of the Company’s interest rate swaps, interest rate caps and
forward loan sales contracts as of December 31, 2005 were $645.0 million, $1.9
billion and $201.8 million, respectively
The
Company estimates that over the next twelve months, approximately $4.4 million
of the net unrealized gains on the interest rate swaps will be reclassified
from
accumulated OCI into earnings.
9. |
Financing
Arrangements, Portfolio Investments
|
The
Company has entered into repurchase agreements with third party financial
institutions to finance its residential mortgage-backed securities and mortgage
loans held in the securitization trusts. The repurchase agreements are
short-term borrowings that bear interest rates based on a spread to LIBOR,
and
are secured by the residential mortgage-backed securities and mortgage loans
held in the securitization trusts which they finance. At March 31, 2006, the
Company had repurchase agreements with an outstanding balance of $1.1 billion
and a weighted average interest rate of 4.80%. As of December 31, 2005, the
Company had repurchase agreements with an outstanding balance of $1.2 billion
and a weighted average interest rate of 4.37%. At March 31, 2006 and December
31, 2005 securities and mortgage loans pledged as collateral for repurchase
agreements had estimated fair values of $1.1 billion and $1.2 billion,
respectively. As of March 31, 2006 all of the repurchase agreements will mature
within 30 days, with weighted average days to maturity equal to 17 days. The
Company has available to it $5.6 billion in commitments to provide financings
through such arrangements with 23 different counterparties.
The
follow table summarizes outstanding repurchase agreement borrowings secured
by
portfolio investments as of March 31, 2006 and December 31, 2005 (dollars
amounts in thousands):
Repurchase
Agreements by Counterparty
|
|||||||
|
|
|
|||||
Counterparty
Name
|
March
31, 2006
|
December
31, 2005
|
|||||
Barclays
Bank
|
$
|
47,165
|
$
|
—
|
|||
Citigroup
Global Markets Inc.
|
200,000
|
200,000
|
|||||
Countrywide
Securities Corporation
|
—
|
109,632
|
|||||
Credit
Suisse First Boston LLC
|
—
|
148,131
|
|||||
Deutsche
Bank Securities Inc.
|
80,845
|
205,233
|
|||||
HSBC
|
278,365
|
163,781
|
|||||
J.P.
Morgan Securities Inc.
|
40,355
|
37,481
|
|||||
Merrill
Lynch Government Securities Inc.
|
150,571
|
—
|
|||||
WaMu
Capital Corp
|
—
|
158,457
|
|||||
West
LB
|
259,443
|
143,784
|
|||||
Total
Financing Arrangements, Portfolio Investments
|
$
|
1,056,744
|
$
|
1,166,499
|
17
10.
|
Financing
Arrangements, Mortgage Loans Held for Sale or
Investment
|
Financing
arrangements secured by mortgage loans held for sale or for investment consist
of the following as of March 31, 2006, and December 31, 2005 (dollar amounts
in
thousands):
|
March
31, 2006
|
December
31, 2005
|
|||||
$250
million master repurchase agreement with Greenwich Capital Financial
Products, Inc, expiring on December 4, 2006 bearing interest at one-month
LIBOR plus spreads from 0.75% to 1.25% depending on collateral (5.44%
at
March 31, 2006 and 5.137% at December 31, 2005). Principal repayments
are
required 120 days from the funding date(a)
|
$
|
392
|
$
|
81,577
|
|||
$200
million master repurchase agreement with CSFB expiring on March
30, 2007
bearing interest at daily LIBOR plus spreads from 0.75% to 2.000%
depending on collateral (5.74% at March 31, 2006 and 4.3413% at
December
31, 2005). Principal repayments are required 90 days from the funding
date.
|
101,688
|
143,609
|
|||||
$300
million master repurchase agreement with Deutsche Bank Structured
Products, Inc. expiring on December 13, 2006 bearing interest at
1 month
Libor plus spreads from .625% to 1.25% depending on collateral
(5.5% at
March 31, 2006). Principal payments are due 120 days from the repurchase
date.
|
107,966
|
─
|
|||||
|
$
|
210,046
|
$
|
225,186
|
(a)
|
This
credit facility, with Greenwich Capital Financial Products, Inc.,
requires
the Company to transfer specific collateral to the lender under repurchase
agreements; however, due to the rate of turnover of the collateral
by the
Company, the counterparty has not taken title to or recorded their
interest in any of the collateral transferred. Interest is paid to
the
counterparty based on the amount of outstanding borrowings and on
the
terms provided. This facility was renewed on January 6, 2006 and
expires
December 4, 2007.
|
The
lines
of credit are secured by all of the mortgage loans held by the Company, except
for the loans held in securitization trusts. The lines contain various covenants
pertaining to, among other things, maintenance of certain amounts of net worth,
periodic income thresholds and working capital. As of March 31, 2006, the
Company was in compliance with all covenants with the exception of the net
income covenants on all three facilities and waivers have been obtained
from these institutions. As these annual agreements are negotiated for renewal,
these covenants may be further modified. The agreements are each renewable
annually, but are not committed, meaning that the counterparties to the
agreements may withdraw access to the credit facilities at any
time.
11.
|
Collateralized
Debt Obligations
|
The
Company’s CDO is secured by ARM loans pledged as collateral. The ARM loans are
recorded as an asset of the Company and the CDO is recorded as the Company’s
debt. The transaction includes an amortizing interest rate cap contract with
a
notional amount of $222.1 million which is held by the trust and recorded as
an
asset of the Company. The interest rate cap limits the interest rate exposure
on
these transactions. As of March 31, 2006 and December 31, 2005, we have CDO
outstanding of $220.5 million and $228.2 million, respectively. As of March
31,
2006 the current weighted average interest rate on this CDOs was 5.07%. The
CDO
is collateralized by ARM loans with a principal balance of $227.8
million.
18
12.
|
Subordinated
Debentures
|
On
September 1, 2005 the Company closed a private placement of $20.0 million of
trust preferred securities to Taberna Preferred Funding II, Ltd., a pooled
investment vehicle. The securities were issued by NYM Preferred Trust II and
are
fully guaranteed by the Company with respect to distributions and amounts
payable upon liquidation, redemption or repayment. These securities have a
fixed
interest rate equal to 8.35% up to and including July 30, 2010, at which point
the interest rate is converted to a floating rate equal to one-month LIBOR
plus
3.95% until maturity. The securities mature on October 30, 2035 and may be
called at par by the Company any time after October 30, 2010. In accordance
with
the guidelines of SFAS No. 150 “Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity”, the issued preferred stock
of NYM Preferred Trust II has been classified as subordinated debentures in
the
liability section of the Company’s consolidated balance sheet.
On
March
15, 2005 the Company closed a private placement of $25.0 million of trust
preferred securities to Taberna Preferred Funding I, Ltd., a pooled investment
vehicle. The securities were issued by NYM Preferred Trust I and are fully
guaranteed by the Company with respect to distributions and amounts payable
upon
liquidation, redemption or repayment. These securities have a floating interest
rate equal to three-month LIBOR plus 3.75%, resetting quarterly (8.28%
at March 31, 2006). The securities mature on March 15, 2035 and may be
called at par by the Company any time after March 15, 2010. NYMC entered into
an
interest rate cap agreement to limit the maximum interest rate cost of the
trust
preferred securities to 7.5%. The term of the interest rate cap agreement is
five years and resets quarterly in conjunction with the reset periods of the
trust preferred securities. The interest rate cap agreement is accounted for
as
a cash flow hedge transaction in accordance with SFAS No.133. In accordance
with
the guidelines of SFAS No. 150 “Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity”, the issued preferred stock
of NYM Preferred Trust I has been classified as subordinated debentures in
the
liability section of the Company’s consolidated balance sheet.
13. |
Commitments
and Contingencies
|
Loans
Sold to Investors -
Generally, the Company is not exposed to significant credit risk on its loans
sold to investors. In the normal course of business, the Company is obligated
to
repurchase loans which do not meet certain terms set by investors. Such loans
are then generally repackaged and sold to other investors.
Loans
Funding and Delivery Commitments -
At
March 31, 2006 and December 31, 2005 the Company had commitments to fund loans
with agreed-upon rates totaling $262.9 million and $238.4 million, respectively.
The Company hedges the interest rate risk of such commitments and the recorded
mortgage loans held for sale balances primarily with FSLCs, which totaled $182.7
million and $201.8 million at March 31, 2006 and December 31, 2005,
respectively. The remaining commitments to fund loans with agreed-upon rates
are
anticipated to be sold through optional delivery contract investor programs.
The
Company does not anticipate any material losses from such sales.
Net
Worth Requirements -
NYMC is
required to maintain certain specified levels of minimum net worth to maintain
its approved status with FannieMae, Freddie Mac, HUD and other investors. As
of
May 1, 2006 NYMC is in compliance with all minimum net worth
requirements.
Outstanding
Litigation -
The
Company is involved in litigation arising in the normal course of business.
Although the amount of any ultimate liability arising from these matters cannot
presently be determined, the Company does not anticipate that any such liability
will have a material effect on its consolidated financial
statements.
Leases
-
The
Company leases its corporate offices and certain retail facilities and equipment
under short-term lease agreements expiring at various dates through 2011. All
such leases are accounted for as operating leases. Total rental expense for
property and equipment amounted to $1.3 million and $2.1 million for the three
months ended March 31, 2006 and 2005, respectively. In March 2005, the Company
entered into a sub-lease for its former headquarters space at 304 Park Avenue
in
New York. The sub-lease tenant has contractual terms for less than the Company’s
remaining contractual obligation. This transaction was completed in late March
2005. Accordingly, during the first quarter of 2005, the Company recognized
a
charge of $0.8 million to earnings.
Letters
of Credit -
NYMC
maintains a letter of credit in the amount of $100,000 in lieu of a cash
security deposit for an office lease dated June 1998 for the Company’s former
headquarters located at 304 Park Avenue South in New York City. The sole
beneficiary of this letter of credit is the owner of the building, 304 Park
Avenue South LLC. This letter of credit is secured by cash deposited in a bank
account maintained at Signature Bank.
19
Subsequent
to the move to a new headquarters location in New York City in July 2003, in
lieu of a cash security deposit for the office lease, we entered into an
irrevocable transferable letter of credit in the amount of $313,000 with
PricewaterhouseCoopers, LLP (sublandlord), as beneficiary. This letter of credit
is secured by cash deposited in a bank account maintained at HSBC
bank.
On
February 15, 2005, the Company entered into an irrevocable standby letter of
credit in an initial amount of $500,000 with the beneficiary being CCC Atlantic,
L.L.C., the landlord of the Company’s leased facility at 500 Burton Avenue,
Northfield, New Jersey. The letter of credit serves as security for leased
office property, initially occupied by employees of our branches doing business
as Ivy League Mortgage, L.L.C. The letter of credit is secured by cash held
by
the Company equal to the initial amount of the letter of credit which will
be
reduced at each of the first four annual anniversary dates by $50,000,
thereafter to remain at a value of $250,000 until termination on April 1, 2015.
The letter of credit and cash has been reduced to $450,000 as of March 31,
2006.
14. |
Related
Party Transactions
|
Steven
B.
Schnall owns a 48% membership interest and Joseph V. Fierro owns a 12%
membership interest in Centurion Abstract, LLC (“Centurion”), which provides
title insurance brokerage services for certain title insurance providers. From
time to time, NYMC refers its mortgage loan borrowers to Centurion for
assistance in obtaining title insurance in connection with their mortgage loans,
although the borrowers have no obligation to utilize Centurion’s services. When
NYMC’s borrowers elect to utilize Centurion’s services to obtain title
insurance, Centurion collects various fees and a portion of the title insurance
premium paid by the borrower for its title insurance. Centurion received $500
in
fees and other amounts from NYMC borrowers for the three months ended March
31,
2006. NYMC does not economically benefit from such referrals.
15. |
Concentrations
of Credit Risk
|
The
Company has originated loans predominantly in the eastern United States. Loan
concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers with similar characteristics, which would cause
their ability to meet contractual obligations to be similarly impacted by
economic or other conditions. At March 31, 2006 and December 31, 2005, there
were geographic concentrations of credit risk exceeding 5% of the total loan
balances within mortgage loans held for sale as follows:
|
March
31, 2006
|
December
31, 2005
|
|||||
California
|
14.7
|
%
|
0.0
|
%
|
|||
New
York
|
13.7
|
%
|
43.0
|
%
|
|||
Massachusetts
|
13.5
|
%
|
17.8
|
%
|
|||
Florida
|
12.2
|
%
|
9.7
|
%
|
|||
Illinois
|
6.3
|
%
|
1.7
|
%
|
|||
Connecticut
|
5.3
|
%
|
5.7
|
%
|
|||
New
Jersey
|
3.7
|
%
|
5.1
|
%
|
At
March
31, 2006 and December 31, 2005, there were geographic concentrations of credit
risk exceeding 5% of the total loan balances within mortgage loans held in
securitization trusts and mortgage loans held for investment as
follows:
|
March
31, 2006
|
December
31, 2005
|
|||||
New
York
|
24.2
|
%
|
32.7
|
%
|
|||
Massachusetts
|
13.9
|
%
|
19.4
|
%
|
|||
California
|
10.1
|
%
|
14.1
|
%
|
|||
New
Jersey
|
4.0
|
%
|
5.8
|
%
|
|||
Florida
|
3.9
|
%
|
5.4
|
%
|
16. |
Fair
Value of Financial
Instruments
|
Fair
value estimates are made as of a specific point in time based on estimates
using
market quotes, present value or other valuation techniques. These techniques
involve uncertainties and are significantly affected by the assumptions used
and
the judgments made regarding risk characteristics of various financial
instruments, discount rates, estimates of future cash flows, future expected
loss experience, and other factors.
20
Changes
in assumptions could significantly affect these estimates and the resulting
fair
values. Derived fair value estimates cannot be necessarily substantiated by
comparison to independent markets and, in many cases, could not be necessarily
realized in an immediate sale of the instrument. Also, because of differences
in
methodologies and assumptions used to estimate fair values, the Company’s fair
values should not be compared to those of other companies.
Fair
value estimates are based on existing financial instruments and do not attempt
to estimate the value of anticipated future business and the value of assets
and
liabilities that are not considered financial instruments. Accordingly, the
aggregate fair value amounts presented below do not represent the underlying
value of the Company.
The
fair
value of certain assets and liabilities approximate cost due to their short-term
nature, terms of repayment or interest rates associated with the asset or
liability. Such assets or liabilities include cash and cash equivalents, escrow
deposits, unsettled mortgage loan sales, and financing arrangements. All forward
delivery commitments and option contracts to buy securities are to be
contractually settled within six months of the balance sheet date.
The
following describes the methods and assumptions used by the Company in
estimating fair values of other financial instruments:
a.
Investment
Securities Available for Sale -
Fair
value is generally estimated based on market prices provided by five to seven
dealers who make markets in these financial instruments. If the fair value
of a
security is not reasonably available from a dealer, management estimates the
fair value based on characteristics of the security that the Company receives
from the issuer and based on available market information.
b.
Mortgage
Loans Held for Sale -
Fair
value is estimated using the quoted market prices for securities backed by
similar types of loans and current investor or dealer commitments to purchase
loans.
c.
Mortgage
Loans Held for Investment -
Mortgage loans held for investment are recorded at amortized cost. Fair value
is
estimated using pricing models and taking into consideration the aggregated
characteristics of groups of 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 quoted market
prices for securities backed by similar types of loans.
d.
Mortgage
Loans Held in Securitization Trusts - Mortgage
loans held in securitization trusts are recorded at amortized cost. Fair value
is estimated using pricing models and taking into consideration the aggregated
characteristics of groups of 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 quoted market
prices for securities backed by similar types of loans.
e.
Interest
Rate Lock Commitments -
The
fair value of IRLCs is estimated using the fees and rates currently charged
to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of IRLCs is
determined in accordance with SAB 105.
f.
Forward
Sale Loan Contracts -
The
fair value of these instruments is estimated using current market prices for
dealer or investor commitments relative to the Company’s existing
positions.
21
The
following tables set forth information about financial instruments, except
for
those noted above for which the carrying amount approximates fair value (dollar
amounts in thousands):
|
March
31, 2006
|
|||||||||
|
Notional
Amount
|
Carrying
Amount
|
Estimated
Fair Value |
|||||||
Investment
securities available for sale
|
$
|
493,045
|
$
|
485,483
|
$
|
485,483
|
||||
Mortgage
loans held in the securitization trusts
|
735,626
|
740,546
|
737,730
|
|||||||
Mortgage
loans held for sale
|
114,064
|
114,254
|
114,362
|
|||||||
Commitments
and contingencies:
|
||||||||||
Interest
rate lock commitments
|
262,913
|
(585
|
)
|
(585
|
)
|
|||||
Forward
loan sales contracts
|
182,702
|
536
|
536
|
|||||||
Interest
rate swaps
|
652,000
|
6,043
|
6,043
|
|||||||
Interest
rate caps
|
1,791,431
|
4,162
|
4,162
|
December
31, 2005
|
||||||||||
Notional
Amount
|
Carrying
Amount
|
Estimated
Fair Value |
||||||||
Investment
securities available for sale
|
$
|
719,701
|
$
|
716,482
|
$
|
716,482
|
||||
Mortgage
loans held for investment
|
4,054
|
4,060
|
4,079
|
|||||||
Mortgage
loans held in the securitization trusts
|
771,451
|
776,610
|
775,311
|
|||||||
Mortgage
loans held for sale
|
108,244
|
108,271
|
109,252
|
|||||||
Commitments
and contingencies:
|
||||||||||
Interest
rate lock commitments - loan commitments
|
130,320
|
123
|
123
|
|||||||
Interest
rate lock commitments - mortgage loans held for sale
|
108,109
|
(14
|
)
|
(14
|
)
|
|||||
Forward
loan sales contracts
|
201,771
|
(380
|
)
|
(380
|
)
|
|||||
Interest
rate swaps
|
645,000
|
6,383
|
6,383
|
|||||||
Interest
rate caps
|
1,858,860
|
3,340
|
3,340
|
17.
|
Income
Taxes
|
A
reconciliation of the statutory income tax provision (benefit) to the effective
income tax provision for the periods ended March 31, 2006 and December 31,
2005,
is as follows (dollar amounts in thousands).
|
March
31, 2006
|
December
31, 2005
|
|||||
Tax
at statutory rate (35%)
|
$
|
(1,649
|
)
|
$
|
(4,861
|
)
|
|
Non-taxable
REIT income
|
(668
|
)
|
(2,038
|
)
|
|||
Transfer
pricing of loans sold to nontaxable parent
|
11
|
555
|
|||||
State
and local taxes
|
(608
|
)
|
(1,731
|
)
|
|||
Change
in tax status
|
─
|
(453
|
)
|
||||
Miscellaneous
|
(2
|
)
|
(21
|
)
|
|||
Total
provision (benefit)
|
$
|
(2,916
|
)
|
$
|
(8,549
|
)
|
The
income tax benefit for the period ended March 31, 2006 is comprised of the
following components (dollar amounts in thousands):
|
Deferred
|
Total
|
|||||
Regular
tax benefit
|
|
|
|||||
Federal
|
$
|
(2,308
|
)
|
$
|
(2,308
|
)
|
|
State
|
(608
|
)
|
(608
|
)
|
|||
Total
tax benefit
|
$
|
(2,916
|
)
|
$
|
(2,916
|
)
|
The
income tax benefit for the period ended March 31, 2005 is comprised of the
following components (dollar amounts in thousands):
Deferred
|
Total
|
||||||
Regular
tax benefit
|
|||||||
Federal
|
$
|
(2,133
|
)
|
$
|
(2,133
|
)
|
|
State
|
(557
|
)
|
(557
|
)
|
|||
Total
tax benefit
|
$
|
(2,690
|
)
|
$
|
(2,690
|
)
|
22
The
major
sources of temporary differences and their deferred tax effect at March 31,
2006
are as follows (dollar amounts in thousands):
Deferred
tax asset:
|
|
|||
Net
operating loss carry forward
|
$
|
12,445
|
||
Restricted
stock, performance shares and stock option expense
|
252
|
|||
Rent
expense
|
68
|
|||
Management
compensation
|
6
|
|||
Loss
on sublease
|
176
|
|||
Mark
to market adjustments
|
59
|
|||
Total
deferred tax asset
|
13,006
|
|||
Deferred
tax liabilities:
|
||||
Depreciation
|
231
|
|||
Total
deferred tax liability
|
231
|
|||
Net
deferred tax asset
|
$
|
12,775
|
The
major
sources of temporary differences and their deferred tax effect at December
31,
2005 are as follows (dollar amounts in thousands):
Deferred
tax asset:
|
||||
Net
operating loss carry forward
|
$
|
9,560
|
||
Restricted
stock, performance shares and stock option expense
|
125
|
|||
Rent
expense
|
120
|
|||
Management
compensation
|
98
|
|||
Loss
on sublease
|
181
|
|||
Mark
to market adjustments
|
94
|
|||
Total
deferred tax asset
|
10,178
|
|||
Deferred
tax liabilities:
|
||||
Depreciation
|
319
|
|||
Total
deferred tax liability
|
319
|
|||
Net
deferred tax asset
|
$
|
9,859
|
The
net
deferred tax asset is included in prepaid and other assets on the accompanying
consolidated balance sheet. Although realization is not assured, management
believes it is more likely than not that all the deferred tax assets will
be
realized. The net operating loss carry forward expires at various intervals
between 2012 and 2026.
18. |
Segment
Reporting
|
The
Company operates in two reportable segments:
•
|
Mortgage
Portfolio Management—
long-term investment in high-quality, adjustable-rate mortgage
loans and
residential mortgage-backed securities;
and
|
•
|
Mortgage
Lending—
mortgage loan originations as conducted by
NYMC.
|
Our
mortgage portfolio management segment primarily invests in adjustable-rate
FNMA,
FHLMC and “AAA”— rated residential mortgage-backed securities and high-quality
mortgages that are originated by our mortgage operations or that may be acquired
from third parties. The Company’s equity capital and borrowed funds are used to
invest in residential mortgage-backed securities, thereby producing net interest
income.
The
mortgage lending segment originates residential mortgage loans through the
Company’s taxable REIT subsidiary, NYMC. Loans are originated through NYMC’s
retail and internet branches and generate gain on sale revenue when the loans
are sold to third parties or revenue from brokered loans when the loans are
brokered to third parties.
23
Three
Months Ended March 31, 2006
|
||||||||||
(dollar
amounts in thousands)
|
||||||||||
Mortgage
Portfolio
Management
Segment
|
Mortgage
Lending Segment |
Total
|
||||||||
REVENUE:
|
||||||||||
Interest
income:
|
||||||||||
Investment
securities and loans held in securitization trusts
|
$
|
17,584
|
$
|
—
|
$
|
17,584
|
||||
Loans
held for sale
|
—
|
5,042
|
5,042
|
|||||||
Total
interest income
|
17,584
|
5,042
|
22,626
|
|||||||
Interest
expense:
|
||||||||||
Investment
securities and loans held in securitization trusts
|
14,079
|
—
|
14,079
|
|||||||
Loans
held for sale
|
—
|
3,315
|
3,315
|
|||||||
Subordinated
debentures
|
—
|
885
|
885
|
|||||||
Total
interest expense
|
14,079
|
4,200
|
18,279
|
|||||||
Net
interest income
|
3,505
|
842
|
4,347
|
|||||||
OTHER
INCOME (EXPENSE):
|
||||||||||
Gain
on sales of mortgage loans
|
—
|
4,070
|
4,070
|
|||||||
Brokered
loan fees
|
—
|
2,777
|
2,777
|
|||||||
Loss
on sale of current period securitized loans
|
—
|
(773
|
)
|
(773
|
)
|
|||||
Realized
loss on investment securities
|
(969
|
)
|
—
|
(969
|
)
|
|||||
Miscellaneous
income
|
—
|
119
|
119
|
|||||||
Total
other income (expense)
|
(969
|
)
|
6,193
|
5,224
|
||||||
EXPENSES:
|
||||||||||
Salaries,
commissions and benefits
|
250
|
6,091
|
6,341
|
|||||||
Brokered
loan expenses
|
—
|
2,168
|
2,168
|
|||||||
Occupancy
and equipment
|
1
|
1,325
|
1,326
|
|||||||
Marketing
and promotion
|
8
|
779
|
787
|
|||||||
Data
processing and communication
|
56
|
605
|
661
|
|||||||
Office
supplies and expenses
|
14
|
591
|
605
|
|||||||
Professional
fees
|
94
|
1,187
|
1,281
|
|||||||
Travel
and entertainment
|
8
|
174
|
182
|
|||||||
Depreciation
and amortization
|
—
|
565
|
565
|
|||||||
Other
|
64
|
303
|
367
|
|||||||
Total
expenses
|
495
|
13,788
|
14,283
|
|||||||
INCOME
(LOSS) BEFORE INCOME TAX BENEFIT
|
2,041
|
(6,753
|
)
|
(4,712
|
)
|
|||||
Income
tax benefit
|
—
|
2,916
|
2,916
|
|||||||
NET
INCOME (LOSS)
|
$
|
2,041
|
$
|
(3,837
|
)
|
$
|
(1,796
|
)
|
||
Segment
assets
|
$
|
1,452,567
|
$
|
252,209
|
$
|
1,704,776
|
||||
Segment
equity (deficit)
|
$
|
96,279
|
$
|
(2,576
|
) |
$
|
93,703
|
24
Three
Months Ended March 31, 2005
|
||||||||||
(dollar
amounts in thousands)
|
||||||||||
Mortgage
Portfolio Management Segment
|
Mortgage
Lending Segment |
Total
|
||||||||
REVENUE:
|
||||||||||
Interest
income:
|
||||||||||
Investment
securities and loans held in securitization trusts
|
$
|
12,863
|
$
|
—
|
$
|
12,863
|
||||
Loans
held for investment
|
1,661
|
—
|
1,661
|
|||||||
Loans
held for sale
|
—
|
2,593
|
2,593
|
|||||||
Total
interest income
|
14,524
|
2,593
|
17,117
|
|||||||
Interest
expense:
|
||||||||||
Investment
securities and loans held in securitization trusts
|
8,620
|
—
|
8,620
|
|||||||
Loans
held for investment
|
1,144
|
—
|
1,144
|
|||||||
Loans
held for sale
|
—
|
1,848
|
1,848
|
|||||||
Subordinated
debentures
|
—
|
78
|
78
|
|||||||
Total
interest expense
|
9,764
|
1,926
|
11,690
|
|||||||
Net
interest income
|
4,760
|
667
|
5,427
|
|||||||
OTHER
INCOME (EXPENSE):
|
||||||||||
Gain
on sales of mortgage loans
|
—
|
4,321
|
4,321
|
|||||||
Brokered
loan fees
|
—
|
2,000
|
2,000
|
|||||||
Gain
on sale of securities
|
377
|
—
|
377
|
|||||||
Miscellaneous
income
|
—
|
114
|
114
|
|||||||
Total
other income (expense)
|
377
|
6,435
|
6,812
|
|||||||
EXPENSES:
|
||||||||||
Salaries,
commissions and benefits
|
508
|
6,635
|
7,143
|
|||||||
Brokered
loan expenses
|
—
|
1,519
|
1,519
|
|||||||
Occupancy
and equipment
|
3
|
2,132
|
2,135
|
|||||||
Marketing
and promotion
|
53
|
1,347
|
1,400
|
|||||||
Data
processing and communication
|
9
|
509
|
518
|
|||||||
Office
supplies and expenses
|
2
|
571
|
573
|
|||||||
Professional
fees
|
86
|
658
|
744
|
|||||||
Travel
and entertainment
|
1
|
214
|
215
|
|||||||
Depreciation
and amortization
|
3
|
340
|
343
|
|||||||
Other
|
171
|
206
|
377
|
|||||||
Total
expenses
|
836
|
14,131
|
14,967
|
|||||||
INCOME
(LOSS) BEFORE INCOME TAX BENEFIT
|
4,301
|
(7,029
|
)
|
(2,728
|
)
|
|||||
Income
tax benefit
|
—
|
2,690
|
2,690
|
|||||||
NET
INCOME (LOSS)
|
$
|
4,301
|
$
|
(4,339
|
)
|
$
|
(38
|
)
|
||
Segment
assets
|
$
|
1,619,934
|
$
|
236,451
|
$
|
1,856,385
|
||||
Segment
equity
|
$
|
105,965
|
$
|
8,693
|
$
|
114,658
|
19.
|
Stock
Incentive Plan
|
Pursuant
to the 2004 Stock Incentive Plan (the “2004 Plan”), eligible employees, officers
and directors were offered the opportunity to acquire shares of the Company’s
common stock through the grant of options and the award of restricted stock
under the 2004 Plan. In connection with the Plan, the Company also awarded
shares of stock to certain of its employees conditioned upon satisfaction of
certain performance criteria related to the November 2004 acquisition of
Guaranty Residential Lending. The maximum number of options that could be issued
under the 2004 Plan was 706,000 shares and the maximum number of restricted
stock awards that could be granted under the 2004 Plan was 794,250.
2005
Stock Incentive Plan
At
the
Annual Meeting of Stockholders held on May 31, 2005, the Company’s stockholders
approved the adoption of the Company’s 2005 Stock Incentive Plan (the “2005
Plan”). The 2005 Plan replaces the 2004 Plan, which was terminated on the same
date. The 2005 Plan provides that up to 936,111 shares of the Company’s common
stock may be issued thereunder. That number of shares represents 711,895 shares
of common stock, or (4% of the 17,797,375 shares of common stock outstanding
at
March 10, 2005), plus 224,216 shares of common stock remaining from the 2004
Plan. The number of shares available for issuance under the 2005 Plan will
be
increased by (a) 6% of the number of additional shares of the Company’s common
stock issued between March 10, 2005 and May 31, 2006 (other than shares issued
under the 2004 Plan or 2005 Plan) and (b) the number of shares covered by 2004
Plan awards that are forfeited or terminated after March 10, 2005.
Options
The
Company has issued stock options to employees under shares-based compensation
plans. The 2004 Plan provides for the exercise price of options to be determined
by the Compensation Committee of the Board of Directors (“Compensation
Committee”) but not to be less than the fair market value on the date the option
is granted. Options expire ten years after the grant date. As of March 31,
2006,
591,500 options have been granted pursuant to the 2004 Plan with a vesting
period of two years with a contractual term of 10 years.
The
Company accounts for the fair value of its grants in accordance with SFAS
No.
123-R. The compensation cost charged against income during the three months
ended March 31, 2006 and 2005 was $4,000 and $9,188, respectively. As of
March
31, 2006, these was $136,000 of total unrecognized compensation cost related
to
nonvested share-based compensation awards granted under the stock option
plans
which is expected to be recognized over a weighted average period of 8.5
years.
No cash was received for the exercise of stock options during the three month
periods ended March 31, 2006 and March 31, 2005.
A
summary
of the status of the Company's options as of March 31, 2006 and changes during
the three month period then ended is presented below:
|
Number
of
Options
|
Weighted
Average
Exercise
Price
|
|||||
Outstanding
at beginning of year, January 1, 2006
|
541,500
|
$
|
9.56
|
||||
Granted
|
—
|
$
|
—
|
||||
Forfeited
|
10,000
|
9.83
|
|||||
Exercised
|
—
|
—
|
|||||
Outstanding
as of March 31, 2006
|
531,500
|
$
|
9.55
|
||||
Options
exercisable as of March 31, 2006
|
413,167
|
$
|
9.48
|
||||
Weighted-average
fair value of options granted during the period
|
—
|
$
|
N/A
|
A
summary
of the status of the Company's options as of March 31, 2005 and changes during
the three month period then ended is presented below:
|
Number
of
Options
|
Weighted
Average
Exercise
Price
|
|||||
Outstanding
at beginning of year, January 1, 2005
|
591,500
|
$
|
9.58
|
||||
Granted
|
—
|
$
|
—
|
||||
Forfeited
|
—
|
—
|
|||||
Exercised
|
—
|
—
|
|||||
Outstanding
as of March 31, 2005
|
591,500
|
$
|
9.58
|
||||
Options
exercisable as of March 31, 2005
|
314,833
|
$
|
9.36
|
||||
Weighted-average
fair value of options granted during the period
|
—
|
$
|
N/A
|
The
following table summarizes information about stock options at March 31,
2006:
Options
Outstanding
|
|||||||||||||||||||
Weighted-
|
|||||||||||||||||||
Average
|
|||||||||||||||||||
Remaining
|
Options
Exercisable
|
Fair
Value
|
|||||||||||||||||
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
of
Options
|
||||||||||||||
Range
of Exercise Prices
|
Outstanding
|
Life
(Years)
|
Price
|
Exercisable
|
Price
|
Granted
|
|||||||||||||
$9.00
|
176,500
|
8.2
|
$
|
9.00
|
176,500
|
$
|
9.00
|
$
|
0.39
|
||||||||||
$9.83
|
355,000
|
8.7
|
9.83
|
236,667
|
9.83
|
0.29
|
|||||||||||||
Total
|
531,500
|
8.5
|
$
|
9.55
|
413,167
|
$
|
9.48
|
$
|
0.33
|
The
following table summarizes information about stock options at March 31,
2005:
Options
Outstanding
|
|||||||||||||||||||
Weighted-
|
|||||||||||||||||||
Average
|
|||||||||||||||||||
Remaining
|
Options
Exercisable
|
Fair
Value
|
|||||||||||||||||
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
of
Options
|
||||||||||||||
Range
of Exercise Prices
|
Outstanding
|
Life
(Years)
|
Price
|
Exercisable
|
Price
|
Granted
|
|||||||||||||
$9.00
|
176,500
|
9.2
|
$
|
9.00
|
176,500
|
$
|
9.00
|
$
|
0.39
|
||||||||||
$9.83
|
415,000
|
9.7
|
9.83
|
138,333
|
9.83
|
0.29
|
|||||||||||||
Total
|
591,500
|
9.5
|
$
|
9.58
|
314,833
|
$
|
9.35
|
$
|
0.35
|
The
fair
value of each option grant is estimated on the date of grant using the Binomial
option-pricing model with the following weighted-average
assumptions:
Risk-free
interest rate
|
4.5
|
%
|
||
Expected
volatility
|
10
|
%
|
||
Expected
life
|
10
years
|
|||
Expected
dividend yield
|
10.48
|
%
|
The
risk-free interest rate is based on the U.S. Treasury yield in effect at
the
time of grant and the expected volatility was based on estimated volatility
of
the Company’s shares for a period equal to the stock option’s expected life. The
expected life of options was estimated to be the contractual term of the
options.
Restricted
Stock
As
of
March 31, 2006, the Company has awarded 555,178 shares of restricted stock
under
the 2005 Plan, of which 334,120 shares have fully vested. As of March 31,
2006
the remaining shares of restricted stock awarded under the 2004 Plan are
subject
to vesting periods between 3 and 30 months. During the three months ended
March
31, 2006, the Company recognized non-cash compensation expense of $241,000
relating to the vested portion of restricted stock grants. Dividends are
paid on
all restricted stock issued, whether those shares are vested or not. In general,
unvested restricted stock is forfeited upon the recipient’s termination of
employment.
A
summary
of the status of the Company's non-vested restricted stock as of March 31,
2006
and changes during the three month period then ended is presented
below:
|
Number
of
Nonvested
Restricted
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||
Nonvested
shares at beginning of year, January 1, 2006
|
221,058
|
$
|
9.33
|
||||
Granted
|
—
|
$
|
—
|
||||
Forfeited
|
—
|
—
|
|||||
Exercised
|
—
|
—
|
|||||
Nonvested
shares as of March 31, 2005
|
221,058
|
$
|
9.33
|
||||
Weighted-average
fair value of restricted stock granted during the period
|
—
|
$
|
N/A
|
A
summary
of the status of the Company's non-vested restricted stock as of March 31,
2005
and changes during the three month period then ended is presented
below:
|
Number
of
Nonvested
Restricted
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||
Nonvested
shares at beginning of year, January 1, 2005
|
367,803
|
$
|
9.23
|
||||
Granted
|
—
|
$
|
—
|
||||
Forfeited
|
—
|
—
|
|||||
Exercised
|
—
|
—
|
|||||
Nonvested
shares as of March 31, 2005
|
367,803
|
$
|
9.23
|
||||
Weighted-average
fair value of restricted stock granted during the period
|
—
|
$
|
N/A
|
Performance
Based Stock Awards
In
November 2004, the Company acquired 15 full-service and 26 satellite retail
mortgage banking offices located in the Northeast and Mid-Atlantic states
from
General Residential Lending, Inc. (“GRL”). Pursuant to that transaction, the
Company has committed to award 236,256 shares of the Company’s stock to
certain employees of those branches. Of these committed shares, 206,256 were
performance based stock awards granted upon attainment of predetermined
production levels and 30,653 were restricted stock awards. As of March 31,
2006,
the awards range in vesting periods from 3 to 12 months with a share price
set
at the December 2, 2004 grant date market value of $9.83 per share. During
the
three months ended March 31, 2006, the Company recognized non-cash compensation
expense of $23,700 relating to performance based stock awards. Unvested issued
performance share awards have no voting rights and do not earn
dividends.
A
summary
of the status of the Company's non-vested performance based stock awards
as of
March 31, 2006 and changes during the three month period then ended is presented
below:
|
Number
of
Nonvested
Performance
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||
Nonvested
shares at beginning of year, January 1, 2006
|
61,078
|
$
|
9.83
|
||||
Granted
|
—
|
$
|
—
|
||||
Forfeited
|
5,555
|
9.83
|
|||||
Exercised
|
775
|
—
|
|||||
Nonvested
shares as of March 31, 2005
|
54,748
|
$
|
9.83
|
||||
Weighted-average
fair value of performance stock granted during the period
|
—
|
$
|
N/A
|
A
summary
of the status of the Company's non-vested performance based stock awards
as of
March 31, 2005 and changes during the three month period then ended is presented
below:
|
Number
of
Nonvested
Performance
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||
Nonvested
shares at beginning of year, January 1, 2005
|
206,256
|
$
|
9.83
|
||||
Granted
|
—
|
$
|
—
|
||||
Forfeited
|
2,077
|
—
|
|||||
Exercised
|
—
|
—
|
|||||
Nonvested
shares as of March 31, 2005
|
204,179
|
$
|
9.83
|
||||
Weighted-average
fair value of performance stock granted during the period
|
—
|
$
|
N/A
|
25
20. |
Subsequent
Events
|
On
May 1,
2006, NYMT made an equity contribution to NYMC totaling $4.9 million. This
contribution resulted in a Net Worth in NYMC above the $1.0 million minimum
net
worth required by HUD
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q contains certain forward-looking statements.
Forward looking statements are those which are not historical in nature. They
can often be identified by their inclusion of words such as “will,”
“anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar
expressions. Any projection of revenues, earnings or losses, capital
expenditures, distributions, capital structure or other financial terms is
a
forward-looking statement. Certain statements regarding the following
particularly are forward-looking in nature:
•
|
our
business strategy;
|
|
•
|
future
performance, developments, market forecasts or projected
dividends;
|
|
•
|
projected
acquisitions or joint ventures; and
|
|
•
|
projected
capital expenditures.
|
It
is
important to note that the description of our business in general and our
investment in mortgage loans and mortgage-backed securities holdings in
particular, is a statement about our operations as of a specific point in time.
It is not meant to be construed as an investment policy, and the types of assets
we hold, the amount of leverage we use, the liabilities we incur and other
characteristics of our assets and liabilities 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
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
limited operating history with respect to our portfolio strategy;
|
|
•
|
our
proposed portfolio strategy may be changed or modified by our
management
without advance notice to stockholders, and that we may suffer
losses as a
result of such modifications or changes;
|
|
•
|
impacts
of a change in demand for mortgage loans on our net income and
cash
available for
distribution;
|
26
•
|
our
ability to originate prime and high-quality adjustable-rate and
hybrid
mortgage loans for our portfolio;
|
|
•
|
risks
associated with the use of leverage;
|
|
•
|
interest
rate mismatches between our mortgage-backed securities and our
borrowings
used to fund such purchases;
|
|
•
|
changes
in interest rates and mortgage prepayment rates;
|
|
•
|
effects
of interest rate caps on our adjustable-rate mortgage-backed
securities;
|
|
•
|
the
degree to which our hedging strategies may or may not protect us
from
interest rate volatility;
|
|
•
|
potential
impacts of our leveraging policies on our net income and cash available
for distribution;
|
|
•
|
our
board’s ability to change our operating policies and strategies without
notice to you or stockholder approval;
|
|
•
|
the
other important factors identified, or incorporated by reference
into this
report, including, but not limited to those under the captions
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and “Quantitative and Qualitative Disclosures about Market
Risk”, and those described under the caption “Part I. Item 1A. Risk
Factors” in our Annual Report on Form 10-K filed March 16,
2006.
|
We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the events described
by
our forward-looking events might not occur. We qualify any and all of our
forward-looking statements by these cautionary factors. In addition, you should
carefully review the risk factors described in other documents we file from
time
to time with the Securities and Exchange Commission.
This
Quarterly Report on Form 10-Q contains market data, industry statistics and
other data that have been obtained from, or compiled from, information made
available by third parties. We have not independently verified their
data.
General
New
York
Mortgage Trust, Inc. (“NYMT,” the “Company,” “we,” “our” and “us”), a real
estate investment trust (“REIT”) for federal income tax purposes, is engaged in
the origination of and investment in residential mortgage loans throughout
the
United States. The Company, through its wholly owned taxable REIT subsidiary,
The New York Mortgage Company, LLC (“NYMC”), originates a broad spectrum of
residential loan products with a focus on high credit quality, or prime loans.
In addition to prime loans, NYMC also originates jumbo loans, alternative-A
loans, sub-prime loans and home equity or second mortgage loans through its
retail and wholesale origination branch network. The Company’s mortgage
investment portfolio is comprised of securitized, high credit quality,
adjustable and hybrid ARM loans, the majority of which it expects, over time,
will be originated by NYMC. NYMC, which originates residential mortgage loans
through a network of 27 full-service loan origination locations and 26 satellite
loan origination locations, is presently licensed or authorized to do business
in 44 states and the District of Columbia.
Strategic
Overview
We
are
considered an “active” mortgage REIT in that NYMC, our taxable REIT subsidiary,
originates loans that may either be held in portfolio, aggregated and
subsequently securitized for long-term investment or sold to third parties
for
gain on sale revenue. When we aggregate and securitize residential mortgage
loans for investment, the leveraged portfolio is comprised largely of prime
adjustable-rate mortgage loans that we originate or obtain from third parties
and that meet our investment objectives and portfolio requirements, including
adjustable-rate loans that have an initial fixed-rate period, which we refer
to
as hybrid mortgage loans. We believe that our ability to originate mortgage
loans as the basis for our portfolio will enable us to build a portfolio that
generates a higher return than the returns realized by “passive” mortgage
investors that do not have their own origination capabilities, because the
cost
to originate and retain such mortgage loans for securitization is generally
less
than the premiums paid to purchase similar assets from third parties. Our
portfolio loans are held at the REIT level or New York Mortgage Funding, LLC
(“NYMF”), our qualified REIT subsidiary (“QRS”).
27
NYMC
also
originates and sells loans to third parties for gain on sale revenue rather
than
aggregating lower cost assets, depending on market conditions. We also,
depending on market conditions, retain in our portfolio selected adjustable-rate
and hybrid mortgage loans that we originate. Generally, we sell to third parties
the fixed-rate loans and any adjustable-rate and hybrid mortgage loans that
we
originate that do not meet our investment criteria or portfolio requirements.
We
rely on our own underwriting criteria with respect to the mortgage loans we
retain and rely on the underwriting criteria of the institutions to which we
sell our loans with respect to the loans we sell. We believe our ability to
originate and sell loans for gain on sale revenue is another advantage of being
an active mortgage REIT.
We
earn
net interest income from purchased residential mortgage-backed securities and
adjustable-rate mortgage loans and securities originated through NYMC. We have
acquired and will seek to acquire additional assets that will produce
competitive returns, taking into consideration the amount and nature of the
anticipated returns from the investment, our ability to pledge the investment
for secured, collateralized borrowings and the costs associated with
originating, financing, managing, securitizing and reserving for these
investments.
Funding
Diversification.
We
strive to maintain and achieve a balanced and diverse funding mix to finance
our
investment assets and portfolio. As of March 31, 2006, we have $0.75 billion
of
commitments under our secured warehouse lines of credit, and up to $5.6 billion
to provide repurchase agreement financing through 23 different counterparties.
During 2005, we further diversified our sources of financing with the issuance
of $45 million of trust preferred securities classified as subordinated
debentures.
We
also
securitize mortgage loans through the creation of either collateralized debt
obligations (“CDO”) or a real estate mortgage investment conduit (“REMIC”). For
the securitizations we create, we may hold either 100% of the resultant
securities or only certain subordinated tranches of the securities created
(selling higher-rated tranches to third parties). When we hold 100% of the
resultant securities, we create an asset with better liquidity and longer-term
financing at better rates as opposed to financing whole loans through warehouse
lines. When we sell to third parties the higher rated tranches of securities,
the securitization eliminates short-term financing risk on those tranches sold
to third parties (reducing the asset to liability duration gap, which is the
difference between the estimated maturities or live of our earning assets and
related financing facilities) and the mark-to-market pricing risk inherent
in
financing through repurchase agreements or warehouse lines of credit, thereby
the underlying assets are not subject to margin calls.
Risk
Management.
As a
mortgage lender and a manager of mortgage loan investments, we must mitigate
key
risks inherent in these businesses, principally credit risk and interest rate
risk.
High
Credit Quality Investment Portfolio.
We
retain in our portfolio only selected, high-quality loans that we originate
or
may opportunistically acquire. As a result, our investment portfolio consists
of
high-quality loans that we have either securitized for our own portfolio or
that
collateralize our CDO financings. High credit quality creates significant
portfolio liquidity and provides for financing opportunities that are generally
available on favorable terms. When we retain loans for investment, either whole
loans being aggregated for securitization or CDOs in which we retain all
resultant securities or below A-rated tranches, we retain the risk of potential
credit losses relative to the agency or higher rated securities we may purchase
from time-to-time. Since commencing our portfolio investment operations, we
have
not experienced any credit losses in our portfolio.
We
believe that our credit performance is reflective of the high credit quality
of
the loans we originate or acquire for securitization, our prudent in-house
underwriting, property valuation methods and review, our overall investment
policies and prudent management of our delinquent loan portfolio. We believe
that our delinquencies of 0.49% of the total par balance of our investment
portfolio of residential loans at March 31, 2006 reflect strong credit
characteristics and the credit culture of our underwriting and investment
philosophy. The weighted average seasoning of loans in our investment portfolio
of mortgage loans was approximately 12 months at March 31, 2006.
Interest
Rate Risk Management.
Another
primary risk to our investment portfolio of mortgage loans and mortgage-backed
securities is interest rate risk. We have a match funding philosophy in which
we
use hedging instruments to fix or cap the interest rates on our short-term,
CDO
and other financing arrangements that finance our investment portfolio of
mortgage loans and securities. We hedge our financing costs in an attempt to
maintain a net duration gap of less than one year; as of March 31, 2006, our
net
duration gap was approximately 10 months.
Other
Risk Considerations:
Our
business is affected by a variety of economic and industry factors. Management
periodically reviews and assesses these factors and their potential impact
on
our business. The most significant risk factors management considers while
managing the business and which could have a material adverse effect on our
financial condition and results of operations are:
28
•
|
a
decline in the market value of our assets due to rising interest
rates;
|
|
•
|
an
adverse impact on our earnings from a decrease in the demand for
mortgage
loans due to, among other things, a period of rising interest
rates;
|
|
•
|
our
ability to originate prime adjustable-rate and hybrid mortgage loans
for
our portfolio;
|
|
•
|
increasing
or decreasing levels of prepayments on the mortgages underlying our
mortgage-backed securities;
|
|
•
|
our
ability to obtain financing to fund and hold mortgage loans prior
to their
sale or securitization;
|
|
•
|
the
overall leverage of our portfolio and the ability to obtain financing
to
leverage our equity;
|
|
•
|
the
potential for increased borrowing costs and its impact on net
income;
|
|
•
|
the
concentration of our mortgage loans in specific geographic regions;
|
|
•
|
our
ability to use hedging instruments to mitigate our interest rate
and
prepayment risks;
|
|
•
|
a
prolonged economic slow down, a lengthy or severe recession or declining
real estate values could harm our operations;
|
|
•
|
if
our assets are insufficient to meet the collateral requirements of
our
lenders, we might be compelled to liquidate particular assets at
inopportune times and at disadvantageous prices;
|
|
•
|
if
we are disqualified as a REIT, we will be subject to tax as a regular
corporation and face substantial tax liability; and
|
|
•
|
compliance
with REIT requirements might cause us to forgo otherwise attractive
opportunities.
|
Description
of Businesses
Mortgage
Lending
Our
mortgage lending operations are important to our financial results as they
either produce the loans that will ultimately collateralize the mortgage
securities that we will hold in our portfolio or provide us the flexibility
to
sell the loans for gain on sale revenue. We primarily originate prime,
first-lien, residential mortgage loans and, to a lesser extent, second lien
mortgage loans, home equity lines of credit, and bridge loans. For the three
months ended March 31, 2006 and 2005, we originated $535.9 million and $426.8
million in mortgage loans for sale to third parties, respectively. We recognized
gains on sales of mortgage loans totaling $4.1 million and $4.3 million for
the
three months ended March 31, 2006 and 2005, respectively.
For
the
three months ended March 31, 2006 and 2005, we retained $3.1 million and
originated and retained $136.4 million of such loans, respectively. When we
retain loans that we originate (directly or those subsequently securitized
through a structure that is deemed a financing for GAAP purposes), we are not
able to recognize gain on sale revenues (and thus higher GAAP net income) as
we
would have if such loans were sold to third parties. Instead, the value of
the
gain on sale revenue benefits of our investment portfolio in the form of a
lower cost asset and thus incrementally higher yield during the lives of
retained loans. We estimate that the foregone premium we would have otherwise
received had retained loans been sold to third parties is approximately $44,500
and $2.5 million for the three months ended March 31, 2006 and 2005,
respectively.
We
may
also originate high quality, adjustable-rate mortgage loans for securitizations
that are structured and deemed as a sale for GAAP purposes. For the three months
ended March 31, 2006, we originated $66.7 million of loans that were
subsequently securitized in New York Mortgage Trust 2006-1. Such loans are
deemed sold for GAAP purposes and net gain on sale revenues are recognized
as if
the loans were sold to a third party. No such loans were originated for the
three months ended March 31, 2005.
We
also
sold broker loans to third party mortgage lenders for which we receive a broker
fee. For the three months ended March 31, 2006 and 2005, we originated $183.4
million and $109.4 million in brokered loans, respectively. We recognized net
brokering income totaling $0.6 million and $0.5 million during the three months
ended March 31, 2006 and 2005, respectively.
NYMC
originates all of the mortgage loans we sell or broker and some of the loans
that we retain for investment. On mortgages to be sold, we underwrite, process
and fund the mortgages originated by NYMC.
Mortgage
Portfolio Management
Our
mortgage portfolio, consisting primarily of residential mortgage-backed
securities and mortgage loans held for investment, currently generates a
substantial portion of our earnings. In managing our investment in a mortgage
portfolio, we:
•
|
invest
in assets generated from our self-origination of high-credit quality,
single-family, residential mortgage loans;
|
|
|
•
|
invest
in mortgage-backed securities originated by others, including ARM
securities and collateralized mortgage obligation floaters (“CMO
Floaters”);
|
•
|
generally
operate as a long-term portfolio investor;
|
|
•
|
finance
our portfolio by entering into repurchase agreements and as we aggregate
mortgage loans for investment, issuing mortgage-backed bonds from
time to
time; and
|
|
•
|
generate
earnings from the return on our mortgage securities and spread income
from
our mortgage loan portfolio.
|
29
A
significant risk to our operations, relating to our portfolio management, is
the
risk that interest rates on our assets will not adjust at the same times or
amounts that rates on our liabilities adjust. Even though we retain and invest
in ARMs, many of the hybrid ARM loans in our portfolio have fixed rates of
interest for a period of time ranging from two to seven years. Our funding
costs
are generally not constant or fixed. As a result, we use derivative instruments
(interest rate swaps and interest rate caps) to mitigate, but not eliminate,
the
risk of our cost of funding increasing or decreasing at a faster rate than
the
interest on our investment assets.
Known
Material Trends and Commentary
According
to the March
13,
2006
Mortgage
Finance Forecast of the Mortgage Bankers Association (“MBA”), the MBA estimated
that lenders originated $2.8 trillion in mortgage loans in 2005. In the March
13, 2006 forecast, the MBA projects that mortgage loan volumes will decrease
to
$2.2 trillion in 2006 due to a less than expected increase in mortgage
rates.
Total U.S. 1-to-4-Family Mortgage Originations |
2005
|
2006
Forecast |
Forecasted
Percentage
Change
|
|||||||
(dollar
amounts in billions)
|
||||||||||
Purchase
mortgages
|
$
|
1,486
|
$
|
1,432
|
(3.6
|
)%
|
||||
Refinancings
|
1,290
|
811
|
(37.1
|
)%
|
||||||
Total
|
$
|
2,776
|
$
|
2,243
|
(19.2
|
)%
|
Source:
March 13, 2006 Mortgage Finance Forecast of the MBA
The
following table summarizes the Company’s loan origination volume and
characteristics for the three months ended March 31, 2006 relative to our prior
year historical origination production. For the three months ended March 31,
2006, our total loan originations decreased 9.9% over the comparable period
for
2005. This decrease contrasts favorably with the decrease forecasted in the
March 13, 2006 Mortgage Finance Forecast of the MBA, which estimates an industry
decrease for the period of 20.3% for total originations:
Our
Total Mortgage Originations
NYMC
Total Mortgage
Originations
|
||||||||||
2005
|
2006
|
Percentage
Change
From
Prior Year
|
||||||||
(dollar
amounts in millions)
|
||||||||||
1st
Quarter
|
$
|
672.5
|
$
|
605.6
|
(9.9
|
)%
|
||||
2nd
Quarter
|
939.7
|
|||||||||
3rd
Quarter
|
1,002.2
|
|||||||||
4th
Quarter
|
822.9
|
|||||||||
Full
Year
|
$
|
3,437.3
|
With
regard to purchase mortgage originations, statistics from the MBA since 1990
indicate that the volume of purchase mortgages year-after-year steadily
increases throughout various economic and interest rate cycles. While management
is unable to predict borrowing habits, we believe that historical trends
indicate that the purchase mortgage market is relatively stable. For the three
months ended March 31, 2006, our purchase mortgage originations have decreased
by $21.9 million or 5.7% over the comparable period for the prior year. This
decrease compares unfavorably to the 1.7% increase forecasted by the March
13,
2006 Mortgage Finance Forecast of the MBA for total U.S. 1-to-4-family purchase
mortgage originations for the period.
30
Our
Total Purchase Mortgage Originations
NYMC
Total Purchase
Mortgage
Originations
|
||||||||||
2005
|
2006
|
Percentage
Change
From
Prior Year
|
||||||||
(dollar
amounts in millions)
|
||||||||||
1st
Quarter
|
$
|
381.0
|
$
|
359.1
|
(5.7
|
)%
|
||||
2ndQuarter
|
601.7
|
|||||||||
3rd
Quarter
|
569.8
|
|||||||||
4th
Quarter
|
433.0
|
|||||||||
Full
Year
|
$
|
1,985.5
|
For
the
three months ended March 31, 2006, our originations of mortgage refinancings
have decreased by $45.0 million or 15.4% versus the comparable period for the
prior year. This 15.4% decrease in our origination of mortgage refinancings
compares favorably to the 39.8% decrease for total U.S. 1-to-4-family refinance
mortgage originations for the period estimated in the March 13, 2006 Mortgage
Finance Forecast of the MBA.
Our
Total Refinance Mortgage Originations
NYMC
Total Refinance
Mortgage
Originations
|
||||||||||
2005
|
2006
|
Percentage
Change
From
Prior Year
|
||||||||
(dollar
amounts in millions)
|
||||||||||
1st
Quarter
|
$
|
291.5
|
$
|
246.5
|
(15.4
|
)%
|
||||
2nd
Quarter
|
338.0
|
|||||||||
3rd
Quarter
|
432.4
|
|||||||||
4th
Quarter
|
389.9
|
|||||||||
Full
Year
|
$
|
1,451.8
|
In
the
March 13, 2006 forecast, the MBA projected that mortgage loan volumes will
decrease to $2.2 trillion in 2006, primarily due to an expected continued
decline in the volume of loan refinancings. We believe that our concentration
on
purchase loan originations, which for the three months ended March 31, 2006
represents 59.3% of NYMC’s total residential mortgage loan originations as
measured by principal balance, has caused our loan origination volume to be
less
susceptible to the industry-wide decline in origination volume that has resulted
from rising interest rates. We believe that the market for mortgage loans for
home purchases is less susceptible than the refinance market to downturns during
periods of increasing interest rates, because borrowers seeking to purchase
a
home do not generally base their decision to purchase on changes in interest
rates alone, while borrowers that refinance their mortgage loans often make
their decision as a direct result of changes in interest rates. Consequently,
while our referral-based marketing strategy may cause our overall loan
origination volume during periods of declining interest rates to lag our
competitors who rely on mass marketing and advertising and who therefore capture
a greater percentage of loan refinance applications during those periods, we
believe this strategy generally enables us to sustain stronger home purchase
loan origination volumes than those same competitors during periods of flat
to
rising interest rates. In addition, we believe that our referral-based business
results in relatively higher gross margins and lower advertising costs and
loan
generation expenses than most other mortgage companies whose business is not
referral-based.
During
the three months ended March 31, 2006, the
yield curve has remained relatively flat and may, during the course of the
year,
remain flat or further flatten. The flattening of the yield curve is driven
by
increasing short-term interest rates without a corresponding increase in
long-term interest rates. If the yield curve continues to flatten, this
will likely cause higher warehouse borrowing costs for our mortgage banking
operations as well as additional compression in our net interest margin at
the
REIT.
Liquidity.
We
depend on the capital markets to finance the mortgage loans we originate. In
the
short-term, we finance our mortgage loans using “warehouse” lines of credit and
“aggregation” lines provided by commercial and investment banks. As we execute
our business plan of securitizing self-originated or purchased mortgage loans,
we have issued bonds from our loan securitizations and will own such bonds
although we may sell the bonds to large, institutional investors at some point
in the future. These bonds and some of our mortgage loans may be financed with
repurchase agreements with well capitalized commercial and investment banks.
Commercial and investment banks have provided significant liquidity to finance
our operations through these various financing facilities. While management
cannot predict the future liquidity environment, we are currently unaware of
any
material reason to prevent continued liquidity support in the capital markets
for our business. See “Liquidity and Capital Resources” below for further
discussion of liquidity risks and resources available to us.
Significance
of Estimates and Critical Accounting Policies
We
prepare our financial statements in conformity with accounting principles
generally accepted in the United States of America, or GAAP, many of which
require the use of estimates, judgments and assumptions that affect reported
amounts. These estimates are based, in part, on our judgment and assumptions
regarding various economic conditions that we believe are reasonable based
on
facts and circumstances existing at the time of reporting. The results of these
estimates affect reported amounts of assets, liabilities and accumulated other
comprehensive income at the date of the consolidated financial statements and
the reported amounts of income, expenses and other comprehensive income during
the periods presented.
31
Changes
in the estimates and assumptions could have a material effect on these financial
statements. Accounting policies and estimates related to specific components
of
our consolidated financial statements are disclosed in the notes to our
financial statements. In accordance with SEC guidance, those material accounting
policies and estimates that we believe are most critical to an investor’s
understanding of our financial results and condition and which require complex
management judgment are discussed below.
Revenue
Recognition.
Interest
income on our residential mortgage loans and mortgage-backed securities is
a
combination of the interest earned based on the outstanding principal balance
of
the underlying loan/security, the contractual terms of the assets and the
amortization of yield adjustments, principally premiums and discounts, using
generally accepted interest methods. The net GAAP cost over the par balance
of
self-originated loans held for investment and premium and discount associated
with the purchase of mortgage-backed securities and loans are amortized into
interest income over the lives of the underlying assets using the effective
yield method as adjusted for the effects of estimated prepayments. Estimating
prepayments and the remaining term of our interest yield investments require
management judgment, which involves, among other things, consideration of
possible future interest rate environments and an estimate of how borrowers
will
react to those environments, historical trends and performance. The actual
prepayment speed and actual lives could be more or less than the amount
estimated by management at the time of origination or purchase of the assets
or
at each financial reporting period.
Fair
Value.
Generally, the financial instruments we utilize are widely traded and there
is a
ready and liquid market in which these financial instruments are traded. The
fair values for such financial instruments are generally based on market prices
provided by five to seven dealers who make markets in these financial
instruments. If the fair value of a financial instrument is not reasonably
available from a dealer, management estimates the fair value based on
characteristics of the security that the Company receives from the issuer and
on
available market information.
In
the
normal course of our mortgage loan origination business, we enter into
contractual interest rate lock commitments, or (“IRLCs”), to extend credit to
finance residential mortgages. Mark-to-market adjustments on IRLCs are recorded
from the inception of the interest rate lock through the date the underlying
loan is funded. The fair value of the IRLCs is determined by an estimate of
the
ultimate gain on sale of the loans net of estimated net costs to originate
the
loan. To mitigate the effect of the interest rate risk inherent in issuing
an
IRLC from the lock-in date to the funding date of a loan, we generally enter
into forward sale loan contracts, or (“FSLCs”). Since the FSLCs are committed
prior to mortgage loan funding and thus there is no owned asset to hedge, the
FSLCs in place prior to the funding of a loan are undesignated derivatives
under
SFAS No. 133 and are marked to market with changes in fair value recorded to
current earnings.
Impairment
of and Basis Adjustments on Securitized Financial Assets. As
previously described herein, we regularly securitize our mortgage loans and
retain the beneficial interests created. In addition, we may purchase such
beneficial interests from third parties. Such assets are evaluated for
impairment on a quarterly basis or, if events or changes in circumstances
indicate that these assets or the underlying collateral may be impaired, on
a
more frequent basis. We evaluate whether these assets are considered impaired,
whether the impairment is other-than-temporary and, if the impairment is
other-than-temporary, recognize an impairment loss equal to the difference
between the asset’s amortized cost basis and its fair value. These evaluations
require management to make estimates and judgments based on changes in market
interest rates, credit ratings, credit and delinquency data and other
information to determine whether unrealized losses are reflective of credit
deterioration and our ability and intent to hold the investment to maturity
or
recovery. This other-than-temporary impairment analysis requires significant
management judgment and we deem this to be a critical accounting estimate.
We
recorded an impairment loss of $7.4 million during 2005, because we concluded
that we no longer had the intent to hold certain lower-yielding mortgage-backed
securities until their values recovered. During the quarter ended March 31,
2006
these securities were sold and we incurred an additional loss of approximately
$1.0 million.
Loan
Loss Reserves on Mortgage Loans. We
evaluate a reserve for loan losses based on management’s judgment and estimate
of credit losses inherent in our portfolio of residential mortgage loans held
for sale and mortgage loans held in securitization trusts. The estimation
involves the consideration of various credit-related factors including, but
not
limited to, current economic conditions, the credit diversification of the
portfolio, loan-to-value ratios, delinquency status, historical credit losses,
purchased mortgage insurance and other factors deemed to warrant consideration.
If the credit performance of our mortgage loans held for investment or held
in
the securitization trusts deviates from expectations, the allowance for loan
losses is adjusted to a level deemed appropriate by management to provide for
estimated probable losses in the portfolio. Two critical assumptions used in
estimating the loan loss reserve are frequency and severity. Frequency is the
assumed rate of default or the expected rate at which loans may go into
foreclosure over the life of the loans. Severity represents the expected rate
of
realized loss upon disposition/resolution of the collateral that has gone into
foreclosure. Based on the performance and credit characteristics of the loan
portfolio as of March 31, 2006, management maintained a loan loss reserve of
$12,000.
32
Securitizations.
We
create
securitization entities as a means of either:
|
·
|
creating
securities backed by mortgage loans which we will continue to hold
and
finance that will be more liquid than holding whole loan assets; or
|
|
·
|
securing
long-term collateralized financing for our residential mortgage loan
portfolio and matching the income earned on residential mortgage
loans
with the cost of related liabilities, otherwise referred to a match
funding our balance sheet.
|
Residential
mortgage loans are transferred to a separate bankruptcy-remote legal entity
from
which private-label multi-class mortgage-backed notes are issued. On a
consolidated basis, for securitizations accounted for as secured financings
as
defined by SFAS No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,
no gain
or loss is recorded in connection with the securitizations. Generally, for
securitizations accounted for as a sale, a gain or loss is recorded in
connection with the securitization based on the difference between the cost
of
the securitized assets and related structuring costs to the proceeds realized
from the resultant sales of securities.
Each
securitization entity is evaluated in accordance with Financial Accounting
Standards Board Interpretation, or FIN, 46(R), Consolidation
of Variable Interest Entities. When we
have
determined that we are the primary beneficiary of the securitization
entities, the securitization entities are consolidated into our
consolidated balance sheet subsequent to securitization. Residential
mortgage loans transferred to securitization entities collateralize the
mortgage-backed notes issued, and, as a result, those investments are not
available to us, our creditors or stockholders. All discussions relating
to securitizations are on a consolidated basis and do not necessarily reflect
the separate legal ownership of the loans by the related bankruptcy-remote
legal
entity.
Derivative
Financial Instruments -
The
Company has developed risk management programs and processes, which include
investments in derivative financial instruments designed to manage market risk
associated with its mortgage banking and its mortgage-backed securities
investment activities.
All
derivative financial instruments are reported as either assets or liabilities
in
the consolidated balance sheet at fair value. The gains and losses associated
with changes in the fair value of derivatives not designated as hedges are
reported in current earnings. If the derivative is designated as a fair value
hedge and is highly effective in achieving offsetting changes in the fair value
of the asset or liability hedged, the recorded value of the hedged item is
adjusted by its change in fair value attributable to the hedged risk. If the
derivative is designated as a cash flow hedge, the effective portion of change
in the fair value of the derivative is recorded in OCI and is recognized in
the
income statement when the hedged item affects earnings. The Company calculates
the effectiveness of these hedges on an ongoing basis, and, to date, has
calculated effectiveness of approximately 100% of the hedges. Ineffective
portions, if any, of changes in the fair value or cash flow hedges are
recognized in earnings.
New
Accounting Pronouncements -
In March
2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets an
amendment of FASB Statement No. 140.” Effective at the beginning of the first
quarter of 2006, the Company adopted the newly issued statement and elected
the
fair value option to subsequently measure its mortgage servicing rights
(“MSRs”). Under the fair value option, all changes in the fair value of MSRs are
reported in the statement of operations. The initial implementation of SFAS
156 did not have a material impact on the Company’s financial
statements.
In
May
2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections.” SFAS
154 changes the requirements for the accounting for and reporting of a change
in
accounting principle. Previous guidance required that most voluntary changes
in
accounting principle be recognized by including in net income of the period
of
the change the cumulative effect of changing to the new accounting principle.
SFAS 154 requires retrospective application to prior periods’ financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. Management believes SFAS 154 will have no impact on the Company’s
financial statements.
In
February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid
Financial Instruments”. Key provisions of SFAS 155 include: (1) a broad
fair value measurement option for certain hybrid financial instruments that
contain an embedded derivative that would otherwise require bifurcation;
(2) clarification that only the simplest separations of interest payments
and principal payments qualify for the exception afforded to interest-only
strips and principal-only strips from derivative accounting under paragraph
14
of FAS 133 (thereby narrowing such exception); (3) a requirement that
beneficial interests in securitized financial assets be analyzed to determine
whether they are freestanding derivatives or whether they are hybrid instruments
that contain embedded derivatives requiring bifurcation; (4) clarification
that concentrations of credit risk in the form of subordination are not embedded
derivatives; and (5) elimination of the prohibition on a QSPE holding
passive derivative financial instruments that pertain to beneficial interests
that are or contain a derivative financial instrument. In general, these changes
will reduce the operational complexity associated with bifurcating embedded
derivatives, and increase the number of beneficial interests in securitization
transactions, including interest-only strips and principal-only strips, required
to be accounted for in accordance with FAS 133. Management does not believe
that
SFAS 155 will have a material effect on the financial condition, results of
operations, or liquidity of the Company.
33
Overview
of Performance
For
the
three months ended March 31, 2006, we reported a net loss of $1.8 million,
as
compared to a net loss of $38,000 for the three months ended March 31, 2005.
Our
revenues were driven largely from interest income on investments in mortgage
loans and mortgage securities (our “mortgage portfolio management” segment) and
gain on sale income from loan originations sold to third parties (our “mortgage
lending” segment) during the period. The change in net income is attributed to a
decrease in gain on sale revenues and a decrease in net interest income from
our
investment portfolio. Net income was further impacted by a $0.8 million loss
on
sale of securitized loans and a $1.0 million realized loss on the sale of
impaired investment securities.
Summary
of Operations and Key Performance Measurements
For
the
three months ended March 31, 2006, our net income was dependent upon our
mortgage portfolio management operations and the net interest income
(interest income on portfolio assets net of the interest expense and
hedging costs associated with the financing of such assets) generated from
our
portfolio of mortgage loans held for investment, mortgage loans held in
securitization trusts and residential mortgage-backed securities in our
portfolio management segment. The following table presents the components of
our
net interest income from our investment portfolio of mortgage securities and
loans for the three months ended March 31, 2006:
Amount
|
Average
Outstanding
Balance
|
Effective
Rate
|
||||||||
Net
Interest Income Components:
|
($
in thousands)
|
($
in millions)
|
||||||||
Interest
Income
|
|
|
|
|||||||
Investment
securities and loans held in securitization trusts
|
$
|
17,940.9
|
$
|
1,478.6
|
4.85
|
%
|
||||
Amortization
of premium
|
(356.9
|
)
|
—
|
(0.10
|
)%
|
|||||
Total
interest income
|
$
|
17,584.0
|
$
|
1,478.6
|
4.75
|
%
|
||||
Interest
Expense
|
||||||||||
Repurchase
agreements
|
$
|
15,976.9
|
$
|
1,393.8
|
4.59
|
%
|
||||
Interest
rate swaps and caps
|
(1,897.9
|
)
|
—
|
(0.55
|
)%
|
|||||
Total
interest expense
|
$
|
14,079.0
|
$
|
1,393.8
|
4.04
|
%
|
||||
Net
Interest Income
|
$
|
3,505.0
|
0.71
|
%
|
The
key
performance measures for our portfolio management activities are:
•
|
net
interest spread on the portfolio;
|
|
•
|
characteristics
of the investments and the underlying pool of mortgage loans including
but
not limited to credit quality, coupon and prepayment rates;
and
|
|
•
|
return
on our mortgage asset investments and the related management of interest
rate risk.
|
For
the
three months ended March 31, 2006, our net income was also dependent upon our
mortgage lending operations and originations from our mortgage lending segment,
which includes the mortgage loan sales (“mortgage banking”) and mortgage
brokering activities on residential mortgages sold or brokered to third parties.
Our mortgage banking activities generate revenues in the form of gains on sales
of mortgage loans to third parties and ancillary fee income and interest income
from borrowers. Our mortgage brokering operations generate brokering fee
revenues from third party buyers. When we retain a portion of our loan
originations for our investment portfolio, we do not realize the gain on sale
premiums we would have otherwise recognized had these loans been sold to third
parties and such loans retained on our balance sheet at cost. As a result,
revenues in our mortgage banking segment are lower than if we sold the loans
to
third parties and the book value of these assets on our balance sheet, which
are
accounted for on a cost basis, may differ from their fair market
value.
34
A
breakdown of our loan originations for the three months ended March 31, 2006
is
as follows:
Description
|
Number
of
Loans
|
Aggregate
Principal
Balance
($
in millions)
|
Percentage
of
Total
Principal
|
Weighted
Average
Interest
Rate
|
Average
Loan
Size
|
|||||||||||
Purchase
mortgages
|
|
|
1,669
|
|
$
|
359.1
|
|
|
59.3
|
%
|
|
6.97
|
%
|
$
|
215,162
|
|
Refinancings
|
|
|
838
|
|
|
246.5
|
|
|
40.7
|
%
|
|
6.69
|
%
|
|
294,146
|
|
Total
|
|
|
2,507
|
|
$
|
605.6
|
|
|
100.0
|
%
|
|
6.86
|
%
|
|
241,569
|
|
Adjustable
rate or hybrid
|
|
|
923
|
|
$
|
287.3
|
|
|
47.4
|
%
|
|
6.71
|
%
|
|
311,297
|
|
Fixed
rate
|
|
|
1,584
|
|
|
318.3
|
|
|
52.6
|
%
|
|
6.99
|
%
|
|
200,439
|
|
Total
|
|
|
2,507
|
|
$
|
605.6
|
|
|
100.0
|
%
|
|
6.86
|
%
|
|
241,569
|
|
Bankered
|
|
|
1,895
|
|
$
|
422.2
|
|
|
69.7
|
%
|
|
6.99
|
%
|
|
222,821
|
|
Brokered
|
|
|
612
|
|
|
183.4
|
|
|
30.3
|
%
|
|
5.55
|
%
|
|
299,621
|
|
Total
|
|
|
2,507
|
|
$
|
605.6
|
|
|
100.0
|
%
|
|
6.86
|
%
|
$
|
241,569
|
|
The
key
performance measures for our origination activities are:
•
|
dollar
volume of mortgage loans originated;
|
|
•
|
relative
cost of the loans originated;
|
|
•
|
characteristics
of the loans, including but not limited to the coupon and credit
quality
of the loan, which will indicate their expected yield;
and
|
|
•
|
return
on our mortgage asset investments and the related management of interest
rate risk.
|
Management’s
discussion and analysis of financial condition and results of operations, along
with other portions of this report, are designed to provide information
regarding our performance and these key performance measures.
Three
Months Ended March 31, 2006 Financial Highlights:
•
|
Completion
of our fourth securitization totaling $277.4 million in residential
mortgage loans.
|
•
|
Consolidated
net loss totaled $1.8 million.
|
•
|
Net
income for the Company’s Mortgage Portfolio Management segment totaled
$2.0 million.
|
•
|
Declared
a first quarter 2006 cash dividend of $0.14 per common share payable
on
April 26, 2006 to stockholders of record as of April 6,
2006.
|
Financial
Condition
Balance
Sheet Analysis - Asset Quality
Investment
Portfolio Related Assets
Mortgage
Loans Held in Securitization Trusts and Mortgage Loans Held for Investment.
Our
portfolio consists of adjustable-rate mortgage loans that we originated or
purchased opportunistically and that met our investment criteria and portfolio
requirements. These loans are classified as “mortgage loans held for investment”
during a period of aggregation and until the portfolio reaches a size sufficient
for us to securitize such loans. Once securitized into sequentially rated
classes, the loans are accounted for as secured financings as defined by SFAS
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and are classified as “mortgage loans
held in securitization trusts.”
At
March
31, 2006, we did not have any mortgage loans held for investment due to the
New
York Mortgage Trust 2006-1 (“NYMT 2006-1”) securitization transaction of $277.4
million of loans which occurred March 30, 2006. As this securitization was
accounted for as a sale, any retained securities we own as a result of the
securitization are held as an available for sale investment
security.
During
2005, we securitized loan investments in three different
securitizations:
|
·
|
New
York Mortgage Trust 2005-1 (“NYMT 2005-1”), February 25, 2005; $419.0
million of loans
|
|
·
|
New
York Mortgage Trust 2005-2 (“NYMT 2005-2), July 28, 2005; $242.9 million
of loans
|
|
·
|
New
York Mortgage Trust 2005-3 (“NYMT 2005-3), December 20, 2005; $235.0
million of loans
|
35
The
following table details Mortgage Loans Held in Securitization Trusts at March
31, 2006 (dollar amounts in thousands):
Category
|
Par
Value
|
Coupon
|
Carrying
Value
|
Yield
|
|||||||||
Mortgage
Loans Held in Securitization Trusts
|
$
|
735,625
|
5.24
|
%
|
$
|
740,546
|
5.96
|
%
|
At
March
31, 2006, mortgage loans held in securitization trusts totaled $740.5 million,
or 43.4% of total assets. Of this mortgage loan investment portfolio 100% are
traditional or hybrid ARMs and 75.4% are ARM loans that are interest only.
On
our hybrid ARMs, interest rate reset periods are predominately five years or
less and the interest-only/amortization period is typically 10 years, which
mitigates the “payment shock” at the time of interest rate reset. No loans in
our investment portfolio of mortgage loans are option-ARMs or ARMs with negative
amortization.
For
loans
held in secuitizations accounted for as a financing, we are exposed to credit
risk on the underlying mortgage loans. The same is true for loans in a
securitization accounted for as a sale and for which we own the most subordinate
class of securities. The following table sets forth the composition of our
loans held in securitizaion trusts as of March 31, 2006.
Characteristics
of Our Mortgage Loans Held in Securitization (dollar amounts in
thousands):
#
of Loans
|
Par
Value
|
Carrying
Value
|
||||||||
Mortgage
loans held in securitization trusts
|
1,538
|
$
|
735,625
|
$
|
740,546
|
|||||
Mortgage
loans sold in REMIC trusts
|
503 | 277,403 | — | |||||||
Total
loans with credit risk exposure
|
2,041
|
$
|
1,013,028
|
$
|
740,546
|
Average
|
High
|
Low
|
||||||||
General
Loan Characteristics:
|
||||||||||
Original
Loan Balance
|
$
|
504
|
$
|
3,500
|
$
|
25
|
||||
Coupon
Rate
|
5.45
|
%
|
7.75
|
%
|
3.00
|
%
|
||||
Gross
Margin
|
2.37
|
%
|
7.01
|
%
|
1.13
|
%
|
||||
Lifetime
Cap
|
11.09
|
%
|
13.75
|
%
|
9.00
|
%
|
||||
Original
Term (Months)
|
360
|
360
|
360
|
|||||||
Remaining
Term (Months)
|
348
|
360
|
316
|
Percentage
|
||||
Arm Loan Type | ||||
Traditional
ARMs
|
3.7
|
%
|
||
2/1
Hybrid ARMs
|
4.0
|
%
|
||
3/1
Hybrid ARMs
|
22.8
|
%
|
||
5/1
Hybrid ARMs
|
67.9
|
%
|
||
7/1
Hybrid ARMs
|
1.6
|
%
|
||
Total
|
100.0
|
%
|
||
Percent
of ARM loans that are interest only
|
74.4
|
%
|
||
Weighted
average length of interest only period
|
7.7
years
|
Percentage
|
||||
Traditional
ARMs - Periodic Caps
|
||||
None
|
58.7
|
%
|
||
1%
|
14.1
|
%
|
||
Over
1%
|
27.2
|
%
|
||
Total
|
100.0
|
%
|
Hybrid
ARMs - Initial Cap
|
Percentage
|
|||
3.00%
or less
|
21.3
|
%
|
||
3.01%-4.00%
|
7.5
|
%
|
||
4.01%-5.00%
|
70.1
|
%
|
||
5.01%-6.00%
|
1.1
|
%
|
||
Total
|
100.0
|
%
|
36
FICO Scores |
Percentage
|
|||
650
or less
|
4.1
|
%
|
||
651
to 700
|
18.1
|
%
|
||
701
to 750
|
34.1
|
%
|
||
751
to 800
|
40.0
|
%
|
||
801
and over
|
3.7
|
%
|
||
Total
|
100.0
|
%
|
||
Average
FICO Score
|
736
|
Percentage
|
||||
Loan
to Value (LTV)
|
||||
50%
or less
|
9.4
|
%
|
||
50.01%-60.00%
|
9.2
|
%
|
||
60.01%-70.00%
|
28.3
|
%
|
||
70.01%-80.00%
|
50.9
|
%
|
||
80.01%
and over
|
2.2
|
%
|
||
Total
|
100.0
|
%
|
||
Average
LTV
|
69.4
|
%
|
Percentage
|
||||
Property
Type
|
||||
Single
Family
|
54.7
|
%
|
||
Condominium
|
20.9
|
%
|
||
Cooperative
|
7.8
|
%
|
||
Planned
Unit Development
|
13.3
|
%
|
||
Two
to Four Family
|
3.3
|
%
|
||
Total
|
100.0
|
%
|
Percentage
|
||||
Occupancy
Status
|
||||
Primary
|
86.3
|
%
|
||
Secondary
|
9.5
|
%
|
||
Investor
|
4.2
|
%
|
||
Total
|
100.0
|
%
|
Percentage
|
||||
Documentation
Type
|
||||
Full
Documentation
|
67.0
|
%
|
||
Stated
Income
|
22.1
|
%
|
||
Stated
Income/ Stated Assets
|
9.2
|
%
|
||
No
Documentation
|
1.1
|
%
|
||
No
Ratio
|
0.6
|
%
|
||
Total
|
100.0
|
%
|
Percentage
|
||||
Loan
Purpose
|
||||
Purchase
|
56.4
|
%
|
||
Cash
out refinance
|
25.7
|
%
|
||
Rate
& term refinance
|
17.9
|
%
|
||
Total
|
100.0
|
%
|
37
Percentage
|
||||
Geographic
Distribution: 5% or more in any one state
|
||||
NY
|
24.2
|
%
|
||
MA
|
13.9
|
%
|
||
CA
|
10.1
|
%
|
||
Other
(less than 5% individually)
|
51.8
|
%
|
||
Total
|
100.0
|
%
|
Delinquency
Status
As
of
March 31, 2006, we had seven delinquent loans totaling $3.6 million categorized
as mortgage loans held in securitization trusts as compared to four delinquent
loans totaling $2.0 million at December 31, 2005. The table below shows
delinquencies in our loan portfolio as of March 31, 2006 (dollar amounts in
thousands):
Days Late |
Number
of Delinquent Loans
|
Total
Dollar
Amount
|
%
of
Loan
Portfolio
|
|||||||
30-60
|
|
|
3
|
|
$
|
1,774.8
|
|
|
0.24
|
%
|
61-90
|
|
|
1
|
|
|
74.3
|
|
|
0.01
|
%
|
90+
|
|
|
3
|
|
$
|
1,771.0
|
|
|
0.24
|
%
|
Interest
is recognized as revenue when earned according to the terms of the mortgage
loans and when, in the opinion of management, it is collectible. The accrual
of
interest on loans is discontinued when, in management’s opinion, the interest is
not collectible in the normal course of business, but in no case beyond when
payment on a loan becomes 90 days delinquent. Interest collected on loans for
which accrual has been discontinued is recognized as income upon
receipt.
We
establish an allowance for loan losses based on our estimate of credit losses
inherent in the Company’s investment portfolio of residential loans held for
investment. Our portfolio of mortgage loans held for investment is collectively
evaluated for impairment as the loans are homogeneous in nature. The allowance
is based upon management’s assessment of various factors affecting our mortgage
loan portfolio, including current economic conditions, the makeup of the
portfolio based on credit grade, loan-to-value ratios, delinquency status,
historical credit losses, purchased mortgage insurance and other factors that
management believes warrant consideration. The allowance is maintained through
ongoing provisions charged to operating income and is reduced by loans that
are
charged off. Determining the allowance for loan losses is subjective in nature
due to the estimation required and the potential for imprecision. As of March
31, 2006 and December 31, 2005 our allowance for loan losses totaled
$12,000.
Investment
Securities - Available for Sale. Our
securities portfolio consists of agency securities or AAA-rated residential
mortgage-backed securities. At March 31, 2006, we had no investment securities
in a single issuer or entity (other than a government sponsored agency of the
U.S. Government) that had an aggregate book value in excess of 10% of our total
assets. The following table sets forth the credit characteristics of our
securities portfolio as of March 31, 2006.
Characteristics
of Our Investment Securities (dollar amounts in
thousands):
|
|
Sponsor
or
Rating
|
|
Par
Value
|
|
Carrying
Value
|
|
%
of
Portfolio
|
|
Coupon
|
|
Yield
|
|
||||||
Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Agency
REMIC Floatings
|
|
|
FNMA/FHLMC/GNMA
|
|
$
|
125,754
|
|
$
|
125,928
|
|
|
26
|
%
|
|
6.13
|
%
|
|
6.14
|
%
|
Private
Label Floaters
|
|
|
AAA
|
|
|
3,981
|
|
|
3,981
|
|
|
1
|
%
|
|
5.47
|
%
|
|
5.67
|
%
|
Private
Label ARMs
|
|
|
AAA
|
|
|
334,077
|
|
|
329,901
|
|
|
68
|
%
|
|
4.83
|
%
|
|
5.77
|
%
|
NYMT
Retained Securities
|
|
|
AAA-BBB
|
|
|
23,769
|
|
|
23,624
|
|
|
5
|
%
|
|
5.67
|
%
|
|
6.18
|
%
|
NYMT
Retained Securities
|
Below
Investment Grade
|
2,774
|
2,049
|
0
|
%
|
5.68
|
%
|
16.62
|
%
|
||||||||||
Total/Weighted
Average
|
|
|
|
|
$
|
490,355
|
|
$
|
485,483
|
|
|
100
|
%
|
|
5.21
|
%
|
|
5.94
|
%
|
38
The
following table sets forth the interest rate repricing characteristics of our
securities portfolio as of March 31, 2006 (dollar amounts in
thousands):
Interest
Rate Repricing
|
Carrying
Value
|
%
of
Portfolio
|
Weighted
Average
Coupon
|
|||||||
<
6 Months
|
|
$
|
129,909
|
|
|
27
|
%
|
|
6.11
|
%
|
<
24 Months
|
|
|
58,513
|
|
|
12
|
%
|
|
4.90
|
%
|
<
60 Months
|
|
|
297,061
|
|
|
61
|
%
|
|
4.89
|
%
|
Total
|
|
$
|
485,483
|
|
|
100
|
%
|
|
5.21
|
%
|
The
following table sets forth the stated reset periods and weighted average yields
of our investment securities at March 31, 2006 (dollar amounts in
thousands):
|
|
Less
than
6
Months
|
|
More
than 6 Months
To
24 Months
|
|
More
than 24 Months
To
60 Months
|
|
Total
|
|
||||||||||||||||
|
|
Carrying
Value
|
|
Weighted
Average
Yield
|
|
Carrying
Value
|
|
Weighted
Average
Yield
|
|
Carrying
Value
|
|
Weighted
Average
Yield
|
|
Carrying
Value
|
|
Weighted
Average
Yield
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Agency
REMIC Floaters
|
|
$
|
125,928
|
|
|
6.14
|
%
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
—
|
|
$
|
125,928
|
|
|
6.14
|
%
|
Private
Label Floaters
|
|
|
3,981
|
|
|
5.67
|
%
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
3,981
|
|
|
5.67
|
%
|
|
Private
Label ARMs
|
|
|
—
|
|
|
—
|
|
|
51,737
|
|
|
5.89
|
%
|
|
278,164
|
|
|
5.75
|
%
|
|
329,901
|
|
|
5.77
|
%
|
NYMT
Retained Securities
|
|
|
—
|
|
|
—
|
|
|
6,776
|
|
|
5.65
|
%
|
|
18,897
|
|
|
7.69
|
%
|
|
25,673
|
|
|
7.17
|
%
|
Total
|
|
$
|
129,909
|
|
|
6.12
|
%
|
$
|
58,513
|
|
|
5.86
|
%
|
$
|
297,061
|
|
|
5.87
|
%
|
$
|
485,483
|
|
|
5.94
|
%
|
Mortgage
Lending Related Assets
Mortgage
Loans Held for Sale.
Mortgage
loans that we have originated but do not intend to hold for investment and
are
held pending sale to investors are classified as “mortgage loans held for sale.”
We had mortgage loans held for sale of $114.3 million at March 31, 2006 as
compared to $108.3 million at December 31, 2005. We use warehouse lines of
credit and loan aggregation facilities to finance our mortgage loans held for
sale. Fluctuations in mortgage loans held for sale, warehouse lines of credit,
due to/from loan purchasers and related accounts are dependent on factors such
as loan production, seasonality and our investor’s ability to purchase loans on
a timely basis.
Due
from Purchasers. We
had
amounts due from loan purchasers totaling $101.2 million at March 31, 2006
as
compared to $121.8 million at December 31, 2005. Amounts due from loan
purchasers are a receivable for the principal and premium due to us for loans
that have been shipped but for which payment has not yet been received at period
end.
Escrow
Deposits - Pending Loan Closings.
We had
escrow deposits pending loan closing of $2.9 million at March 31, 2006 as
compared to $1.4 million at December 31, 2005. Escrow deposits pending loan
closings are advance cash fundings by us to escrow agents to be used to close
loans within the next one to three business days.
Non-Loan
or Investment Assets
Cash
and
Cash Equivalents.
We
had
unrestricted cash and cash equivalents of $5.5 million at March 31, 2006 versus
$9.1 million at December 31, 2005.
Prepaid
and Other Assets. Prepaid
and other assets totaled $18.7 million as of March 31, 2006 versus $16.5 million
at December 31, 2005. Prepaid and other assets as of March 31, 2006 consisted
primarily of a deferred tax benefit of $13.0 million and loans held by us which
are pending remedial action (such as updating loan documentation) or which
do
not currently meet third-party investor criteria.
Property
and Equipment, Net -
Property and equipment totaled $7.0 million as of March 31, 2006 and have
estimated lives ranging from three to ten years, and are stated at cost less
accumulated depreciation and amortization. Depreciation is determined in amounts
sufficient to charge the cost of depreciable assets to operations over their
estimated service lives using the straight-line method. Leasehold improvements
are amortized over the lesser of the life of the lease or service lives of
the
improvements using the straight-line method.
39
Balance
Sheet Analysis - Financing Arrangements
Financing
Arrangements, Mortgage Loans Held for Sale/for Investment.
We
had
debt outstanding on our financing facilities that finance our mortgage loans
held for sale and mortgage loans held for investment of $210.0 million at March
31, 2006 as compared to $225.2 million at December 31, 2005. As of March 31,
2006, the current weighted average borrowing rate on these financing facilities
is 5.49%. The fluctuations in mortgage loans - held-for-sale and short-term
borrowings are dependent on loans we have originated during the period as well
as loans we have sold outright.
Financing
Arrangements, Portfolio Investments. We
have
arrangements to enter into repurchase agreements, a form of collateralized
borrowings, with 23 different financial institutions providing a total line
capacity of $5.6 billion. As of March 31, 2006 and December 31, 2005, there
were
$1.1 billion and $1.2 billion, respectively, of outstanding borrowings under
our
repurchase agreements. Our repurchase agreements typically have terms of less
than one year. As of March 31, 2006, the current weighted average interest
rate
on our borrowings under these financing facilities is 4.80%.
Collateralized
Debt Obligations. The
Company’s CDO is secured by ARM loans pledged as collateral. The ARM loans are
recorded as an asset of the Company and the CDO is recorded as the Company’s
debt. The transaction includes an amortizing interest rate cap contract with
an
initial notional amount of $222.1 million which is held by the trust and
recorded as an asset of the Company. The interest rate cap limits the interest
rate exposure on these transactions. As of March 31, 2006 and December 31,
2005,
we have CDO outstanding of $220.5 million and $228.2 million, respectively.
As
of March 31, 2006 the current weighted average interest rate on this CDO was
5.07%. The CDO is collateralized by ARM loans with a principal balance of $227.8
million.
Subordinated
Debentures.
As of
March 31, 2006, we have trust preferred securities outstanding of $45.0 million.
The securities are fully guaranteed by the Company with respect to distributions
and amounts payable upon liquidation, redemption or repayment. These securities
are classified as subordinated debentures in the liability section of the
Company’s consolidated balance sheet.
$25.0
million of our subordinated debentures have a floating interest rate equal
to
three-month LIBOR plus 3.75%, resetting quarterly (8.28% at March 31, 2006).
These securities mature on March 15, 2035 and may be called at par by the
Company any time after March 15, 2010. NYMC entered into an interest rate cap
agreement to limit the maximum interest rate cost of the trust preferred
securities to 7.5%. The term of the interest rate cap agreement is five years
and resets quarterly in conjunction with the reset periods of the trust
preferred securities.
$20
million of our subordinated debentures have a fixed interest rate equal to
8.35%
up to and including July 30, 2010, at which point the interest rate is converted
to a floating rate equal to one-month LIBOR plus 3.95% until maturity. The
securities mature on October 30, 2035 and may be called at par by the Company
any time after October 30, 2010.
Derivative
Assets and Liabilities. We
generally hedge only the risk related to changes in the benchmark interest
rate
used in the variable rate index, usually a London Interbank Offered Rate, known
as LIBOR, or a U.S. Treasury rate.
In
order
to reduce these risks, we enter into interest rate swap agreements whereby
we
receive floating rate payments in exchange for fixed rate payments, effectively
converting the borrowing to a fixed rate. We also enter into interest rate
cap
agreements whereby, in exchange for a fee, we are reimbursed for interest paid
in excess of a contractually specified capped rate.
Derivative
financial instruments contain credit risk to the extent that the institutional
counterparties may be unable to meet the terms of the agreements. We minimize
this risk by using multiple counterparties and limiting our counterparties
to
major financial institutions with good credit ratings. In addition, we regularly
monitor the potential risk of loss with any one party resulting from this type
of credit risk. Accordingly, we do not expect any material losses as a result
of
default by other parties.
We
enter
into derivative transactions solely for risk management purposes. The decision
of whether or not a given transaction (or portion thereof) is hedged is made
on
a case-by-case basis, based on the risks involved and other factors as
determined by senior management, including the financial impact on income and
asset valuation and the restrictions imposed on REIT hedging activities by
the
Internal Revenue Code, among others. In determining whether to hedge a risk,
we
may consider whether other assets, liabilities, firm commitments and anticipated
transactions already offset or reduce the risk. All transactions undertaken
as a
hedge are entered into with a view towards minimizing the potential for economic
losses that could be incurred by us. Generally, all derivatives entered into
are
intended to qualify as hedges in accordance with GAAP, unless specifically
precluded under SFAS No. 133 Accounting
for Derivative Instruments and Hedging Activities. To
this
end, terms of the hedges are matched closely to the terms of hedged
items.
40
We
have
also developed risk management programs and processes designed to manage market
risk associated with normal mortgage banking and mortgage-backed securities
investment activities.
In
the
normal course of our mortgage loan origination business, we enter into
contractual interest rate lock commitments, or IRLCs, to extend credit to
finance residential mortgages. These commitments, which contain fixed expiration
dates, become effective when eligible borrowers lock-in a specified interest
rate within time frames established by our origination, credit and underwriting
practices. Interest rate risk arises if interest rates change between the time
of the lock-in of the rate by the borrower and the sale of the
loan.
To
mitigate the effect of the interest rate risk inherent in issuing an IRLC from
the lock-in date to the funding date of a loan, we generally enter into forward
sale loan contracts, or FSLCs. Once a loan has been funded, our risk management
objective for our mortgage loans held for sale is to protect earnings from
an
unexpected charge due to a decline in value of such mortgage loans. Our strategy
is to engage in a risk management program involving the designation of FSLCs
(the same FSLCs entered into at the time of the IRLC) to hedge most of our
mortgage loans held for sale.
The
following table summarizes the estimated fair value of derivative assets and
liabilities as of March 31, 2006 and December 31, 2005 (dollar amounts in
thousands):
March
31, 2006
|
December
31, 2005
|
||||||
Derivative
Assets:
|
|||||||
Interest
rate caps
|
$
|
4,162
|
$
|
3,340
|
|||
Interest
rate swaps
|
6,043
|
6,383
|
|||||
Interest
rate lock commitments - loan commitments
|
—
|
123
|
|||||
Forward
loan sale contracts - loan commitments
|
108
|
—
|
|||||
Forward
loan sale contracts - mortgage loans held for sale
|
93
|
—
|
|||||
Forward
loan sale contracts - TBA securities
|
335
|
—
|
|||||
Total
derivative assets
|
$
|
10,741
|
$
|
9,846
|
|||
Derivative
Liabilities:
|
|||||||
Forward
loan sale contracts - loan commitments
|
—
|
(38
|
)
|
||||
Forward
loan sale contracts - mortgage loans held for sale
|
—
|
(18
|
)
|
||||
Forward
loan sale contracts - TBA securities
|
—
|
(324
|
)
|
||||
Interest
rate lock commitments - loan commitments
|
(352
|
)
|
—
|
||||
Interest
rate lock commitments - mortgage loans held for sale
|
(233
|
)
|
(14
|
)
|
|||
Total
derivative liabilities
|
$
|
(585
|
)
|
$
|
(394
|
)
|
Balance
Sheet Analysis - Stockholders’ Equity
Stockholders’
equity at March 31, 2006 was $93.7 million and included $1.0 million of net
unrealized losses on available for sale securities and cash flow hedges
presented as accumulated other comprehensive income as compared to Stockholders’
equity at December 31, 2005 of $101.0 million.
Securitizations
NYMT
2006-1-During
the three month period ended March 31,2006, we completed the securitization
of
approximately $277.4 million of high-credit quality, first-lien, adjustable
rate
mortgage and hybrid adjustable rate mortgages. We accounted for this
securitization as a non-recourse sale in accordance with SFAS 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.”
41
The
amount of each class of notes, together with the interest rate and credit
ratings for each class are set forth below (dollar amounts in
thousands):
Class
|
|
|
Approximate
Principal
Amount
|
|
|
Interest
Rate (%)
|
|
|
Moody’s/Fitch
Rating
|
|
1-A-1
|
|
$
|
6,726
|
|
|
5.648
|
|
Aaa/AAA
|
|
|
2-A-1
|
|
148,906
|
|
|
5.673
|
|
Aaa/AAA
|
|
||
2-A-2
|
|
20,143
|
|
|
5.673
|
|
Aaa/AAA
|
|
||
2-A-3
|
65,756
|
5.673
|
Aaa/AAA
|
|||||||
2-A-4
|
9,275
|
5.673
|
Aa1/AAA
|
|||||||
3-A-1
|
16,055
|
5.855
|
Aaa/AAA
|
|||||||
B-1
|
3,746
|
5.683
|
Aa2/AA
|
|||||||
B-2
|
2,497
|
5.683
|
A2/A
|
|||||||
B-3
|
1,525
|
5.683
|
Baa2/BBB
|
|||||||
B-4
|
1,387
|
5.683
|
NR/BB
|
|||||||
B-5
|
694
|
5.683
|
NR/B
|
|||||||
B-6
|
693
|
5.683
|
NR
|
NR-such
rating agency has not been asked to rate these certificates.
For
the
year ended December 31, 2005, we completed three CDO transactions in which
we
securitized $896.9 million of our residential mortgage loans into a series
of
multi-class adjustable rate securities. In the first two CDOs, we elected to
retain 100% of the resultant securities and finance them through repurchase
agreements. The creation of mortgage-backed securities of our mortgage loans
in
this manner provides an asset with better liquidity and longer-term financing
at
better rates as opposed to financing whole loans through warehouse lines.
Beginning with our third CDO of self-originated mortgage loans in December
2005,
$235 million of ARM loans were permanently financed through the issuance of
securities to third parties. Because we did not retain all of the resultant
securities as in prior CDOs, this securitization eliminated the risk of
short-term financing (eliminating the asset to liability duration gap) and
the
mark-to-market pricing risk inherent in financing through repurchase agreements
or warehouse lines of credit; as a result of this permanent financing we are
not
subject to margin calls.
We
did
not account for these securitizations as sales because the transactions are
secured borrowings under SFAS 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.”
At
the
time of securitization, the weighted average loan-to-value of the mortgage
loans
in the trust was approximately 69.7% and the weighted average FICO score was
approximately 740. The weighted average current loan rate of the pool of
mortgage loans is approximately 5.92% and the weighted average maximum loan
rate
(after periodic rate resets) is 11.13%.
Prepayment
Experience
For
the
three months ended March 31, 2006, our mortgage assets paid down at an
approximate average annualized Constant Paydown Rate (“CPR”) of 18%, compared to
22% for the three months ended March 31, 2005 and 31% for the three months
ended
December 31, 2005. When prepayment experience increases, we have to amortize
our
premiums over a shorter time period, resulting in a reduced yield to maturity
on
our ARM assets. Conversely, if actual prepayment experience decreases, we would
amortize the premium over a longer time period, resulting in a higher yield
to
maturity. We monitor our prepayment experience on a monthly basis and adjust
the
amortization of the net premium, as appropriate.
Results
of Operations
Our
results of operations for our mortgage portfolio management segment during
a
given period typically reflect the net interest spread earned on our investment
portfolio of residential mortgage loans and mortgage-backed securities. The
net
interest spread is impacted by factors such as our cost of financing, the
interest rate our investments are earning and our interest hedging strategies.
Furthermore, the cost of originating loans held in our portfolio, the amount
of
premium or discount paid on purchased portfolio investments and the prepayment
rates on portfolio investments will impact the net interest spread as such
factors will be amortized over the expected term of such
investments.
Our
results of operations for our mortgage lending segment during a given period
typically reflect the total volume of loans originated and closed by us during
that period. The volume of closed loan originations generated by us in any
period is impacted by a variety of factors. These factors include:
|
•
|
The
demand for new mortgage loans.
Reduced demand for mortgage loans causes closed loan origination
volume to
decline. Demand for new mortgage loans is directly impacted by current
interest rate trends and other economic conditions. Rising interest
rates
tend to reduce demand for new mortgage loans, particularly loan
refinancings, and falling interest rates tend to increase demand
for new
mortgage loans, particularly loan refinancings.
|
•
|
Loan
refinancing and home purchase trends.
As discussed above, the volume of loan refinancings tends to increase
following declines in interest rates and to decrease when interest
rates
rise. The volume of home purchases is also affected by
interest rates,
although to a lesser extent than refinancing volume. Home purchase
trends
are also affected by other economic changes such as inflation,
improvements in the stock market, unemployment rates and other similar
factors.
|
|
•
|
Seasonality.
Historically, according to the MBA, loan originations during late
November, December, January and February of each year are typically
lower
than during other months in the year due, in part, to inclement weather,
fewer business days (due to holidays and the short month of February),
and
the fact that home buyers tend to purchase homes during the warmer
months
of the year. As a result, loan volumes tend to be lower in the first
and
fourth quarters of a year than in the second and third
quarters.
|
|
•
|
Occasional
spikes in volume resulting from isolated events.
Mortgage lenders may experience spikes in loan origination volume
from
time to time due to non-recurring events or transactions, such as
a large
mass closing of a condominium project for which a bulk end-loan commitment
was negotiated.
|
42
In
its
March 13, 2006 Mortgage Finance Forecast, the MBA estimated that closed loan
originations in the industry remained static from 2004 to 2005. A decline in
the
overall volume of closed loan originations, which is forecasted by the MBA
for
2006, may have a negative effect on our loan origination volume and net income.
We believe that our concentration on purchase loan originations has caused
our
loan origination volume to be less susceptible to the industry-wide decline
in
origination volume.
The
volume and cost of our loan production is critical to our financial results.
The
loans we produce generate gains as they are sold to third parties. Loans we
retain for securitization serve as collateral for our mortgage securities.
We do
not recognize gain on sale income on loans originated by us and retained in
our
investment portfolio as they are recorded at cost and will generate revenues
through their maturity and ultimate repayment. As the cost basis of a retained
loan is typically lower than loans purchased from third parties or already
placed in a securitization, we would expect an incremental yield increase on
these loans relative to their purchased counterparts.
The
cost
of our production is also critical to our financial results as it is a
significant factor in the gains we recognize. In addition, the type of loan
production is an important factor in recognizing gain on sale premiums.
Beginning near the end of the first quarter of 2004, our volume of FHA loans
increased. Generally, FHA loans have lower average balances and FICO scores
which are reflected in the statistics above. All FHA loans are currently and
will be in the future sold or brokered to third parties. The following table
summarizes our loan production for the quarter ended March 31, 2006 and each
quarter of 2005.
|
|
Number
of
|
|
Aggregate
Principal
Balance
|
|
Percentage
Of
Total
|
|
Weighted
Average
|
|
Average
Principal |
|
Weighted
Average
|
||||||||||
|
|
Loans
|
|
($
in millions)
|
|
Principal
|
|
Interest
Rate
|
Balance
|
LTV
|
FICO
|
|||||||||||
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
First
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARM
|
|
|
921
|
|
$
|
286.9
|
|
|
47.4
|
%
|
|
6.71
|
%
|
$
|
311,499
|
|
|
71.8
|
|
|
706
|
|
Fixed-rate
|
|
|
1,442
|
|
|
295.4
|
|
|
48.8
|
%
|
|
7.06
|
%
|
|
204,870
|
|
|
73.3
|
|
|
712
|
|
Subtotal-non-FHA
|
|
|
2,363
|
|
$
|
582.3
|
|
|
96.2
|
%
|
|
6.89
|
%
|
$
|
246,429
|
|
|
72.5
|
|
|
709
|
|
FHA
- ARM
|
|
|
2
|
|
$
|
0.4
|
|
|
0.0
|
%
|
|
5.57
|
%
|
$
|
218,325
|
|
|
93.0
|
|
|
646
|
|
FHA
- fixed-rate
|
|
|
142
|
|
|
22.9
|
|
|
3.8
|
%
|
|
6.13
|
%
|
|
161,022
|
|
|
92.7
|
|
|
650
|
|
Subtotal
- FHA
|
|
|
144
|
|
$
|
23.3
|
|
|
3.8
|
%
|
|
6.12
|
%
|
$
|
161,818
|
|
|
92.7
|
|
|
650
|
|
Total
ARM
|
|
|
923
|
|
$
|
287.3
|
|
|
47.4
|
%
|
|
6.71
|
%
|
$
|
311,297
|
|
|
71.8
|
|
|
705
|
|
Total
fixed-rate
|
|
|
1,584
|
|
|
318.3
|
|
|
52.6
|
%
|
|
6.99
|
%
|
|
200,939
|
|
|
74.7
|
|
|
708
|
|
Total
Originations
|
|
|
2,507
|
|
$
|
605.6
|
|
|
100.0
|
%
|
|
6.86
|
%
|
$
|
241,569
|
|
|
73.3
|
|
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
mortgages
|
|
|
1,599
|
|
$
|
346.9
|
|
|
57.3
|
%
|
|
7.00
|
%
|
$
|
216,918
|
|
|
77.3
|
|
|
721
|
|
Refinancings
|
|
|
764
|
|
|
235.4
|
|
|
38.9
|
%
|
|
6.71
|
%
|
|
308,195
|
|
|
65.5
|
|
|
690
|
|
Subtotal-non-FHA
|
|
|
2,363
|
|
$
|
582.3
|
|
|
96.2
|
%
|
|
6.89
|
%
|
$
|
246,429
|
|
|
72.5
|
|
|
709
|
|
FHA
- purchase
|
|
|
70
|
|
$
|
12.3
|
|
|
2.0
|
%
|
|
6.07
|
%
|
$
|
175,043
|
|
|
96.4
|
|
|
655
|
|
FHA
- refinancings
|
|
|
74
|
|
|
11.0
|
|
|
1.8
|
%
|
|
6.17
|
%
|
|
149,308
|
|
|
88.7
|
|
|
645
|
|
Subtotal
- FHA
|
|
|
144
|
|
$
|
23.3
|
|
|
3.8
|
%
|
|
6.12
|
%
|
$
|
161,818
|
|
|
92.7
|
|
|
650
|
|
Total
purchase
|
|
|
1,669
|
|
$
|
359.1
|
|
|
59.3
|
%
|
|
6.97
|
%
|
$
|
215,162
|
|
|
78.0
|
|
|
719
|
|
Total
refinancings
|
|
|
838
|
|
|
246.5
|
|
|
40.7
|
%
|
|
6.69
|
%
|
|
294,164
|
|
|
66.5
|
|
|
688
|
|
Total
Originations
|
|
|
2,507
|
|
$
|
605.6
|
|
|
100.0
|
%
|
|
6.86
|
%
|
$
|
241,569
|
|
|
73.3
|
|
|
707
|
|
43
2005:
|
||||||||||||||||||||||
Fourth
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
ARM
|
|
|
1,321
|
|
$
|
452.5
|
|
|
55.0
|
%
|
|
6.33
|
%
|
$
|
342,551
|
|
|
71.9
|
|
|
700
|
|
Fixed-rate
|
|
|
1,617
|
|
|
343.7
|
|
|
41.8
|
%
|
|
6.79
|
%
|
|
212,524
|
|
|
72.2
|
|
|
712
|
|
Subtotal-non-FHA
|
|
|
2,938
|
|
$
|
796.2
|
|
|
96.8
|
%
|
|
6.53
|
%
|
$
|
270,987
|
|
|
72.1
|
|
|
705
|
|
FHA
- ARM
|
|
|
1
|
|
$
|
0.2
|
|
|
0.0
|
%
|
|
5.80
|
%
|
$
|
157,545
|
|
|
84.6
|
|
|
655
|
|
FHA
- fixed-rate
|
|
|
194
|
|
|
26.5
|
|
|
3.2
|
%
|
|
6.06
|
%
|
|
136,820
|
|
|
93.5
|
|
|
639
|
|
Subtotal
- FHA
|
|
|
195
|
|
$
|
26.7
|
|
|
3.2
|
%
|
|
6.06
|
%
|
$
|
136,927
|
|
|
93.4
|
|
|
639
|
|
Total
ARM
|
|
|
1,322
|
|
$
|
452.7
|
|
|
55.0
|
%
|
|
6.33
|
%
|
$
|
342,411
|
|
|
72.0
|
|
|
700
|
|
Total
fixed-rate
|
|
|
1,811
|
|
|
370.2
|
|
|
45.0
|
%
|
|
6.74
|
%
|
|
204,414
|
|
|
73.7
|
|
|
707
|
|
Total
Originations
|
|
|
3,133
|
|
$
|
822.9
|
|
|
100.0
|
%
|
|
6.52
|
%
|
$
|
262,643
|
|
|
72.7
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
mortgages
|
|
|
1,949
|
|
$
|
426.8
|
|
|
51.9
|
%
|
|
6.73
|
%
|
$
|
218,995
|
|
|
78.5
|
|
|
716
|
|
Refinancings
|
|
|
989
|
|
|
369.4
|
|
|
44.9
|
%
|
|
6.29
|
%
|
|
373,447
|
|
|
64.5
|
|
|
692
|
|
Subtotal-non-FHA
|
|
|
2,938
|
|
$
|
796.2
|
|
|
96.8
|
%
|
|
6.53
|
%
|
$
|
270,987
|
|
|
72.1
|
|
|
705
|
|
FHA
- purchase
|
|
|
38
|
|
$
|
6.1
|
|
|
0.7
|
%
|
|
6.40
|
%
|
$
|
161,278
|
|
|
97.4
|
|
|
649
|
|
FHA
- refinancings
|
|
|
157
|
|
|
20.6
|
|
|
2.5
|
%
|
|
5.95
|
%
|
|
131,033
|
|
|
92.1
|
|
|
636
|
|
Subtotal
- FHA
|
|
|
195
|
|
$
|
26.7
|
|
|
3.2
|
%
|
|
6.06
|
%
|
$
|
136,927
|
|
|
93.4
|
|
|
639
|
|
Total
purchase
|
|
|
1,987
|
|
$
|
432.9
|
|
|
52.6
|
%
|
|
6.72
|
%
|
$
|
217,891
|
|
|
78.8
|
|
|
715
|
|
Total
refinancings
|
|
|
1,146
|
|
|
390.0
|
|
|
47.4
|
%
|
|
6.28
|
%
|
|
340,237
|
|
|
66.0
|
|
|
689
|
|
Total
Originations
|
|
|
3,133
|
|
$
|
822.9
|
|
|
100.0
|
%
|
|
6.52
|
%
|
$
|
262,643
|
|
|
72.7
|
|
|
703
|
|
Third
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
ARM
|
|
|
1,727
|
|
$
|
513.3
|
|
|
51.2
|
%
|
|
6.10
|
%
|
$
|
297,213
|
|
|
73.8
|
|
|
705
|
|
Fixed-rate
|
|
|
1,946
|
|
|
392.2
|
|
|
39.1
|
%
|
|
6.43
|
%
|
|
201,537
|
|
|
73.2
|
|
|
717
|
|
Subtotal-non-FHA
|
|
|
3,673
|
|
$
|
905.5
|
|
|
90.3
|
%
|
|
6.25
|
%
|
$
|
246,522
|
|
|
73.5
|
|
|
710
|
|
FHA
- ARM
|
|
|
4
|
|
$
|
0.8
|
|
|
0.1
|
%
|
|
5.80
|
%
|
$
|
217,202
|
|
|
94.7
|
|
|
642
|
|
FHA
- fixed-rate
|
|
|
700
|
|
|
95.9
|
|
|
9.6
|
%
|
|
5.72
|
%
|
|
136,954
|
|
|
92.9
|
|
|
633
|
|
Subtotal
- FHA
|
|
|
704
|
|
$
|
96.7
|
|
|
9.7
|
%
|
|
5.72
|
%
|
$
|
137,410
|
|
|
93.0
|
|
|
633
|
|
Total
ARM
|
|
|
1,731
|
|
$
|
514.1
|
|
|
51.3
|
%
|
|
6.10
|
%
|
$
|
297,028
|
|
|
73.8
|
|
|
705
|
|
Total
fixed-rate
|
|
|
2,646
|
|
|
488.1
|
|
|
48.7
|
%
|
|
6.29
|
%
|
|
184,451
|
|
|
77.1
|
|
|
700
|
|
Total
Originations
|
|
|
4,377
|
|
$
|
1,002.2
|
|
|
100.0
|
%
|
|
6.19
|
%
|
$
|
228,973
|
|
|
75.4
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
mortgages
|
|
|
2,568
|
|
$
|
558.1
|
|
|
55.7
|
%
|
|
6.39
|
%
|
$
|
217,314
|
|
|
78.1
|
|
|
719
|
|
Refinancings
|
|
|
1,105
|
|
|
347.4
|
|
|
34.6
|
%
|
|
6.01
|
%
|
|
314,402
|
|
|
66.2
|
|
|
696
|
|
Subtotal-non-FHA
|
|
|
3,673
|
|
$
|
905.5
|
|
|
90.3
|
%
|
|
6.25
|
%
|
$
|
246,522
|
|
|
73.5
|
|
|
710
|
|
FHA
- purchase
|
|
|
71
|
|
$
|
11.7
|
|
|
1.2
|
%
|
|
6.05
|
%
|
$
|
165,045
|
|
|
96.3
|
|
|
659
|
|
FHA
- refinancings
|
|
|
633
|
|
|
85.0
|
|
|
8.5
|
%
|
|
5.67
|
%
|
|
134,310
|
|
|
92.5
|
|
|
630
|
|
Subtotal
- FHA
|
|
|
704
|
|
$
|
96.7
|
|
|
9.7
|
%
|
|
5.72
|
%
|
$
|
137,410
|
|
|
93.0
|
|
|
633
|
|
Total
purchase
|
|
|
2,639
|
|
569.8
|
|
|
56.9
|
%
|
|
6.38
|
%
|
$
|
215,908
|
|
|
78.5
|
|
|
718
|
|
|
Total
refinancings
|
|
|
1,738
|
|
|
432.4
|
|
|
43.1
|
%
|
|
5.94
|
%
|
|
248,811
|
|
|
71.4
|
|
|
683
|
|
Total
Originations
|
|
|
4,377
|
|
$
|
1,002.2
|
|
|
100.0
|
%
|
|
6.19
|
%
|
$
|
228,973
|
|
|
75.4
|
|
|
703
|
|
44
Second
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARM
|
|
|
1,839
|
|
$
|
537.9
|
|
|
57.2
|
%
|
|
5.90
|
%
|
$
|
292,482
|
|
|
72.7
|
|
|
709
|
|
Fixed-rate
|
|
|
1,777
|
|
|
337.1
|
|
|
35.9
|
%
|
|
6.47
|
%
|
|
189,732
|
|
|
72.7
|
|
|
718
|
|
Subtotal-non-FHA
|
|
|
3,616
|
|
$
|
875.0
|
|
|
93.1
|
%
|
|
6.12
|
%
|
$
|
241,988
|
|
|
72.7
|
|
|
712
|
|
FHA
- ARM
|
|
|
30
|
|
$
|
4.8
|
|
|
0.5
|
%
|
|
5.34
|
%
|
$
|
159,088
|
|
|
93.7
|
|
|
611
|
|
FHA
- fixed-rate
|
|
|
449
|
|
|
59.9
|
|
|
6.4
|
%
|
|
5.97
|
%
|
|
133,408
|
|
|
92.6
|
|
|
624
|
|
Subtotal
- FHA
|
|
|
479
|
|
$
|
64.7
|
|
|
6.9
|
%
|
|
5.92
|
%
|
$
|
135,016
|
|
|
92.7
|
|
|
623
|
|
Total
ARM
|
|
|
1,869
|
|
542.7
|
|
|
57.7
|
%
|
|
5.89
|
%
|
$
|
290,341
|
|
|
72.8
|
|
|
708
|
|
|
Total
fixed-rate
|
|
|
2,226
|
|
|
397.0
|
|
|
42.3
|
%
|
|
6.39
|
%
|
|
178,371
|
|
|
75.7
|
|
|
704
|
|
Total
Originations
|
|
|
4,095
|
|
$
|
939.7
|
|
|
100.0
|
%
|
|
6.10
|
%
|
$
|
229,475
|
|
|
74.0
|
|
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
mortgages
|
|
|
2,652
|
|
$
|
587.8
|
|
|
62.6
|
%
|
|
6.21
|
%
|
$
|
221,657
|
|
|
76.4
|
|
|
720
|
|
Refinancings
|
|
|
964
|
|
|
287.2
|
|
|
30.5
|
%
|
|
5.94
|
%
|
|
297,918
|
|
|
65.1
|
|
|
695
|
|
Subtotal-non-FHA
|
|
|
3,616
|
|
$
|
875.0
|
|
|
93.1
|
%
|
|
6.12
|
%
|
$
|
241,988
|
|
|
72.7
|
|
|
712
|
|
FHA
- purchase
|
|
|
85
|
|
$
|
13.9
|
|
|
1.5
|
%
|
|
5.99
|
%
|
$
|
163,693
|
|
|
96.3
|
|
|
644
|
|
FHA
- refinancings
|
|
|
394
|
|
|
50.8
|
|
|
5.4
|
%
|
|
5.91
|
%
|
|
128,829
|
|
|
91.7
|
|
|
617
|
|
Subtotal
- FHA
|
|
|
479
|
|
$
|
64.7
|
|
|
6.9
|
%
|
|
5.92
|
%
|
$
|
135,016
|
|
|
92.7
|
|
|
623
|
|
Total
purchase
|
|
|
2,737
|
|
601.7
|
|
|
64.1
|
%
|
|
6.20
|
%
|
$
|
219,857
|
|
|
76.8
|
|
|
719
|
|
|
Total
refinancings
|
|
|
1,358
|
|
|
338.0
|
|
|
35.9
|
%
|
|
5.93
|
%
|
|
248,860
|
|
|
69.1
|
|
|
684
|
|
Total
Originations
|
|
|
4,095
|
|
$
|
939.7
|
|
|
100.0
|
%
|
|
6.10
|
%
|
$
|
228,973
|
|
|
74.0
|
|
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARM
|
|
|
1,313
|
|
$
|
355.3
|
|
|
52.8
|
%
|
|
5.61
|
%
|
$
|
270,603
|
|
|
72.7
|
|
|
708
|
|
Fixed-rate
|
|
|
1,274
|
|
|
247.8
|
|
|
36.9
|
%
|
|
6.31
|
%
|
|
194,541
|
|
|
71.4
|
|
|
719
|
|
Subtotal-non-FHA
|
|
|
2,587
|
|
$
|
603.1
|
|
|
89.7
|
%
|
|
5.90
|
%
|
$
|
233,145
|
|
|
72.2
|
|
|
712
|
|
FHA
- ARM
|
|
|
59
|
|
$
|
9.5
|
|
|
1.4
|
%
|
|
5.10
|
%
|
$
|
160,093
|
|
|
93.8
|
|
|
648
|
|
FHA
- fixed-rate
|
|
|
462
|
|
|
59.9
|
|
|
8.9
|
%
|
|
5.85
|
%
|
|
129,756
|
|
|
92.2
|
|
|
635
|
|
Subtotal
- FHA
|
|
|
521
|
|
$
|
69.4
|
|
|
10.3
|
%
|
|
5.75
|
%
|
$
|
133,191
|
|
|
92.4
|
|
|
637
|
|
Total
ARM
|
|
|
1,372
|
|
364.8
|
|
|
54.2
|
%
|
|
5.60
|
%
|
$
|
265,851
|
|
|
73.2
|
|
|
706
|
|
|
Total
fixed-rate
|
|
|
1,736
|
|
|
307.7
|
|
|
45.8
|
%
|
|
6.22
|
%
|
|
177,299
|
|
|
75.5
|
|
|
703
|
|
Total
Originations
|
|
|
3,108
|
|
$
|
672.5
|
|
|
100.0
|
%
|
|
5.88
|
%
|
$
|
216,390
|
|
|
74.3
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
mortgages
|
|
|
1,717
|
|
$
|
365.9
|
|
|
54.4
|
%
|
|
6.03
|
%
|
$
|
213,081
|
|
|
76.2
|
|
|
723
|
|
Refinancings
|
|
|
870
|
|
|
237.2
|
|
|
35.3
|
%
|
|
5.69
|
%
|
|
272,743
|
|
|
66.0
|
|
|
696
|
|
Subtotal-non-FHA
|
|
|
2,587
|
|
$
|
603.1
|
|
|
89.7
|
%
|
|
5.90
|
%
|
$
|
233,145
|
|
|
72.2
|
|
|
712
|
|
FHA
- purchase
|
|
|
95
|
|
$
|
15.1
|
|
|
2.2
|
%
|
|
5.66
|
%
|
$
|
158,699
|
|
|
97.2
|
|
|
672
|
|
FHA
- refinancings
|
|
|
426
|
|
|
54.3
|
|
|
8.1
|
%
|
|
5.78
|
%
|
|
127,503
|
|
|
91.0
|
|
|
627
|
|
Subtotal
- FHA
|
|
|
521
|
|
$
|
69.4
|
|
|
10.3
|
%
|
|
5.75
|
%
|
$
|
133,191
|
|
|
92.4
|
|
|
637
|
|
Total
purchase
|
|
|
1,812
|
|
381.0
|
|
|
56.6
|
%
|
|
6.02
|
%
|
$
|
210,230
|
|
|
77.0
|
|
|
721
|
|
|
Total
refinancings
|
|
|
1,296
|
|
|
291.5
|
|
|
43.4
|
%
|
|
5.71
|
%
|
|
225,002
|
|
|
70.7
|
|
|
683
|
|
Total
Originations
|
|
|
3,108
|
|
$
|
672.5
|
|
|
100.0
|
%
|
|
5.88
|
%
|
$
|
216,390
|
|
|
74.3
|
|
|
705
|
|
45
In
addition to market trends for loan origination volume, loan origination volume
and other operational and financial performance results were primarily dependent
on the number of offices and our level of staffing at these offices. Our
personnel costs are largely variable in that loan origination personnel are
paid
commissions on loan production volume and the related operations personnel
costs
are somewhat variable in terms of having flexibility to scale operations based
on volume levels. Our staffing levels also have a high correlation to levels
of
expense for marketing and promotion expense, office supplies, data processing
and travel and entertainment expenses. Likewise, the number of offices and
branches that we operate has a high correlation to occupancy and equipment
expense.
Other
Operational Information
For
the Three Months Ended March 31,
|
||||||||||
2006
|
2005
|
%
Change
|
||||||||
Loan
officers
|
372
|
348
|
6.9
|
%
|
||||||
Other
employees
|
380
|
462
|
(17.7
|
)%
|
||||||
Total
employees
|
752
|
810
|
(7.2
|
)%
|
||||||
|
|
|
|
|||||||
Number
of sales locations
|
53
|
63
|
(15.9
|
)%
|
Results
of Operations - Comparison of the Three Months Ended March 31, 2006, and
2005
Net
Income - Overview
Comparative
Net Income
For
the Three Months Ended March 31,
|
||||||||||
2006
|
2005
|
%
Change
|
||||||||
(dollar
amounts in thousands except per share data)
|
||||||||||
Net
(loss)/income
|
$
|
(1,796
|
)
|
$
|
(38
|
)
|
(462.6
|
)%
|
||
EPS
(Basic)
|
$
|
(0.10
|
)
|
$
|
—
|
(0.0
|
)%
|
|||
EPS
(Diluted)
|
$
|
(0.10
|
)
|
$
|
—
|
(0.0
|
)%
|
For
the
three months ended March 31, 2006, we reported a net loss of $1.8 million,
as
compared to a net loss of $38,000 for the three months ended March 31,
2005. Our revenues are driven largely from interest income on investments
in mortgage loans and mortgage securities (our “mortgage portfolio management”
segment) and gain on sale income from loan originations sold to third parties
(our “mortgage lending” segment) during the period. The change in net
income is attributed to a decrease in gain on sale income and net interest
income from our investment portfolio.
Comparative
Net Interest Income
For
the Three Months Ended March 31,
|
||||||||||
2006
|
2005
|
%
Change
|
||||||||
(dollar amounts in thousands) | ||||||||||
Interest
income
|
$
|
22,626
|
$
|
17,117
|
32.2
|
%
|
||||
Interest
expense
|
18,279
|
11,690
|
56.4
|
%
|
||||||
Net
interest income
|
$
|
4,347
|
$
|
5,427
|
(19.9
|
)%
|
Net
interest income contributed $4.3 million, and 5.4 million to total revenues
for
the three months ended March 31, 2006, and 2005, respectively.
Non-interest
related expenses were lower for the three months ended March 31, 2006, relative
to the same period of 2005, primarily as a result of a reduction in amortized
compensation expense related to retention bonuses and performance stock grants
issued in connection with our hiring and retention of former GRL branch
employees in November 2004. For the three months ended March 31, 2006, such
expenses were $0.1 million as compared to $1.0 million for the same prior year
period.
Comparative
Other Non-Interest Related Expense
For
the Three Months Ended March 31,
|
||||||||||
2006
|
2005
|
%
Change
|
||||||||
(dollar
amounts in thousands)
|
||||||||||
Other
non-interest related expenses
|
$
|
14,283
|
$
|
14,967
|
(4.6
|
)%
|
46
Net
Interest Income.
The
following table summarizes the changes in net interest income for the three
months ended March 31:
Yields
Earned on Mortgage Loans and Securities and Rates on Financial
Arrangements
(dollar
amounts in thousands unless otherwise noted) )
2006
|
2005
|
||||||||||||||||||
Average
Balance
|
Amount
|
Yield/
Rate
|
Average
Balance
|
Amount
|
Yield/
Rate
|
||||||||||||||
($Millions)
|
($Millions)
|
||||||||||||||||||
Interest
Income:
|
|||||||||||||||||||
Investment
securities and loans held in the securitization trusts
|
$
|
1,472.7
|
$
|
17,941
|
4.85
|
%
|
$
|
1,288.8
|
$
|
14,015
|
4.35
|
%
|
|||||||
Loans
held for investment
|
—
|
—
|
—
|
148.0
|
1,693
|
4.58
|
%
|
||||||||||||
Loans
held for sale
|
258.3
|
5,042
|
6.86
|
%
|
326.0
|
2,593
|
5.91
|
%
|
|||||||||||
Amortization
of net premium
|
5.8
|
(357
|
)
|
(0.10
|
)%
|
15.2
|
(1,185
|
)
|
(0.37
|
)%
|
|||||||||
Interest
income
|
$
|
1,736.8
|
$
|
22,626
|
5.21
|
%
|
$
|
1,778.0
|
$
|
17,116
|
3.85
|
%
|
|||||||
|
|||||||||||||||||||
Interest
Expense:
|
|||||||||||||||||||
Investment
securities and loans held in the securitization trusts
|
$
|
1,393.8
|
$
|
14,079
|
4.04
|
%
|
$
|
1,217.3
|
$
|
8,620
|
2.83
|
%
|
|||||||
Loans
held for investment
|
—
|
—
|
—
|
146.3
|
1.144
|
3.13
|
%
|
||||||||||||
Loans
held for sale
|
252.0
|
3,315
|
5.42
|
%
|
318.0
|
2,701
|
3.40
|
%
|
|||||||||||
Subordinated
debentures
|
45.0
|
885
|
7.86
|
%
|
4.7
|
75
|
6.36
|
%
|
|||||||||||
Interest
expense
|
$
|
1,690.8
|
$
|
18,279
|
4.32
|
%
|
$
|
1,686.3
|
$
|
12,540
|
2.97
|
%
|
|||||||
Net
interest income
|
$
|
46.0
|
$
|
4,347
|
0.89
|
%
|
$
|
91.7
|
$
|
4,576
|
0.88
|
%
|
For
our
portfolio investments of investment securities, mortgage loans held for
investments and loans held in securitization trusts, our net interest spread
for
each quarter since we began our portfolio investment activities
follows:
As
of the Quarter Ended
|
|
Average
Interest
Earning
Assets
($
millions)
|
|
Historical
Weighted
Average
Coupon
|
|
Yield
on
Interest
Earning
Assets
|
|
Cost
of
Funds
Net
of
Hedging
|
|
Net
Interest
Spread
|
|
|||||
March
31, 2006
|
|
$
|
1,478.6
|
|
|
4.85
|
%
|
|
4.75
|
%
|
|
4.04
|
%
|
|
0.71
|
%
|
December
31, 2005
|
$
|
1,499.0
|
4.84
|
%
|
4.43
|
%
|
3.81
|
%
|
0.62
|
%
|
||||||
September
30, 2005
|
|
$
|
1,494.0
|
|
|
4.69
|
%
|
|
4.08
|
%
|
|
3.38
|
%
|
|
0.70
|
%
|
June
30, 2005
|
|
$
|
1,590.0
|
|
|
4.50
|
%
|
|
4.06
|
%
|
|
3.06
|
%
|
|
1.00
|
%
|
March
31, 2005
|
|
$
|
1,447.9
|
|
|
4.39
|
%
|
|
4.01
|
%
|
|
2.86
|
%
|
|
1.15
|
%
|
December
31, 2004
|
|
$
|
1,325.7
|
|
|
4.29
|
%
|
|
3.84
|
%
|
|
2.58
|
%
|
|
1.26
|
%
|
September
30, 2004
|
|
$
|
776.5
|
|
|
4.04
|
%
|
|
3.86
|
%
|
|
2.45
|
%
|
|
1.41
|
%
|
Gain
on Sales of Mortgage Loans. The
following table summarizes the gain on sales of mortgage loans for each of
the
three months ended March 31, 2006 and 2005:
Gain
on Sales of Mortgage Loans
For
the three months ended March 31,
(dollar
amounts in thousands)
2006
|
2005
|
%
Change
|
||||||||
Total
bankered loan volume
|
$
|
422,247
|
$
|
563,161
|
(25.0
|
)%
|
||||
Total
bankered loan volume - units
|
1,895
|
2,645
|
(28.4
|
)%
|
||||||
|
||||||||||
Bankered
originations retained for securitization
|
$
|
69,739
|
$
|
136,393
|
(48.9
|
)%
|
||||
Bankered
originations retained for securitization - units
|
134
|
353
|
(62.0
|
)%
|
||||||
|
||||||||||
Net
bankered loan volume
|
$
|
352,508
|
$
|
426,767
|
(17.4
|
)%
|
||||
Net
bankered loan volume - units
|
1,761
|
2,292
|
(23.2
|
)%
|
||||||
|
||||||||||
Gain
on sales of mortgage loans
|
$
|
4,070
|
$
|
4,321
|
(5.8
|
)%
|
||||
Average
gain on sale premium
|
1.44
|
%
|
2.39
|
%
|
(39.7
|
)%
|
The
decrease in bankered loan volumes during the period is due to decreased
industry-wide loan origination volume, partially in response to increased
interest rates relative to the prior comparable period.
While
bankered loan volumes have decreased, the gain on sales of mortgage loans have
also decreased due to lower net market spreads as a result of lower premiums
when sold to third parties.
47
Brokered
Loan Fees. The
following table summarizes brokered loan volume, fees and related expenses
for
the three months ended March 31, 2006 and 2005:
Brokered
Loan Fees and Brokered Loan Expense
(dollar amounts in thousands) |
For
the three months ended March 31
|
|||||||||
2006
|
2005
|
%
Change
|
||||||||
Total
brokered loan volume
|
|
$
|
183,368
|
|
$
|
109,379
|
|
|
67.6
|
%
|
Total
brokered loan volume - units
|
|
|
612
|
|
|
463
|
|
|
32.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Brokered
loan fees
|
|
$
|
2,777
|
|
$
|
2,000
|
|
|
38.9
|
%
|
Brokered
loan expenses
|
|
$
|
2,168
|
|
$
|
1,159
|
|
|
42.7
|
%
|
The
increase in brokered loan volume for the three months ended March 31, 2006
relative to the comparable period of the prior year, is due to higher
originations of loan product offerings which the Company does not banker either
due to the product’s higher credit risk profile or other characteristics of the
brokered production which preclude bankering the loan. The increase in bankered
loan fees and expenses are consistant with the related increase in brokered
loan
volume.
Gain
on sale of securities and related hedges. During
the three months ended March 31, 2006, the gain on the sale of securities and
related hedges was $0.0 million as compared to $0.4 million for the three months
ended March 31, 2005.
Loss
on sale of current period securitized loans. During
the three months ended March 31, 2006, the Company recognized a loss of $0.8
million on the NYMT-2006-1 securitization of residential mortgage loans, which
was accounted for as a sale. There was no such transaction during the
three months ended March 31, 2005.
Realized
loss on investment securities. During
the three months ended March 31, 2006, the Company recognized $1.0 million
realized loss on the sale of impaired investment securities as compared to
$0.0
million for the three months ended March 31, 2005.
Expenses
Most
of
our expenses are directly correlated to our staffing levels and our number
of
offices:
(dollar
amounts in thousands)
|
For
the Three Months Ended March 31,
|
|||||||||
2006
|
2005
|
%
Change
|
||||||||
Loan
officers
|
372
|
348
|
6.9
|
%
|
||||||
Other
employees
|
380
|
462
|
(17.7
|
)%
|
||||||
Total
employees
|
752
|
810
|
(7.2
|
)%
|
||||||
|
||||||||||
Number
of sales locations
|
53
|
63
|
(15.9
|
)%
|
||||||
|
||||||||||
Salaries
and benefits
|
$
|
6,341
|
$
|
7,143
|
(11.2
|
)%
|
||||
Occupancy
and equipment
|
1,326
|
2,135
|
(37.9
|
)%
|
||||||
Marketing
and promotion
|
787
|
1,400
|
(43.8
|
)%
|
||||||
Data
processing and communications
|
661
|
518
|
27.6
|
%
|
||||||
Office
supplies and expenses
|
605
|
573
|
5.6
|
%
|
||||||
Travel
and entertainment
|
182
|
215
|
(15.3
|
)%
|
||||||
Depreciation
and amortization
|
565
|
343
|
64.7
|
%
|
Except
as
noted below, the category percentage changes noted above also have a trend
correlation to the 9.9% decrease in loan origination volume exhibited for the
three months ended March 31, 2006 relative to March 31, 2005.
Occupancy
and Equipment.
During
the three months ended March 31, 2006, we had occupancy and equipment expense
of
$1.3 million as compared to $2.1 million for the same period of 2005, a decrease
of 38.1%. The decrease was due to a non-cash charge-off of $0.8 million
related
to our sublet of our former headquarters at terms below our contractual
obligations for the premises.
Marketing
and Promotion.
During
the three months ended March 31, 2006, we had marketing and promotion expense
of
$0.8 million as compared to $1.4 million for the same period of 2005, a decrease
of 42.9%. For the three months ended March 31, 2005, marketing and promotion
expenses were higher relative to the same period of 2006 in order to
promote
newly-opened loan origination offices and the corresponding hiring of additional
loan origination personnel, particularly related to our acquisition of the
GRL
branches in mid-November 2004.
48
Professional
Fees Expense. During
the three months ended March 31, 2006, we had professional fees expense of
$1.3
million as compared to $0.7 million for the same period of 2005, an increase
of
85.7%. This increase was primarily due to increases in association dues,
professional costs related to compliance with the Sarbanes-Oxley Act of 2002
and
increases in accounting and tax services.
Off-Balance
Sheet Arrangements
Since
inception, we have not maintained any relationships with unconsolidated entities
or financial partnerships, such as entities often referred to as structured
finance or special purpose entities, established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited
purposes. Further, we have not guaranteed any obligations of unconsolidated
entities nor do we have any commitment or intent to provide funding to any
such
entities. Accordingly, we are not materially exposed to any market, credit,
liquidity or financing risk that could arise if we had engaged in such
relationships.
Liquidity
and Capital Resources
Liquidity
is a measure of our ability to meet potential cash requirements, including
ongoing commitments to repay borrowings, fund and maintain investments, pay
dividends to our stockholders and other general business needs. We recognize
the
need to have funds available for our operating businesses and our investment
in
mortgage loans until the settlement or sale of mortgages with us or with other
investors. It is our policy to have adequate liquidity at all times to cover
normal cyclical swings in funding availability and mortgage demand and to allow
us to meet abnormal and unexpected funding requirements. We plan to meet
liquidity through normal operations with the goal of avoiding unplanned sales
of
assets or emergency borrowing of funds.
We
believe our existing cash balances and funds available under our credit
facilities and cash flows from operations will be sufficient for our liquidity
requirements for at least the next 12 months. Unused borrowing capacity will
vary as the market values of our securities vary. Our investments and assets
will also generate liquidity on an ongoing basis through mortgage principal
and
interest payments, pre-payments and net earnings held prior to payment of
dividends. Should our liquidity needs ever exceed these on-going or immediate
sources of liquidity discussed above, we believe that our securities could
be
sold to raise additional cash in most circumstances. We do, however, expect
to
expand our mortgage origination operations and may have to arrange for
additional sources of capital through the issuance of debt or equity or
additional bank borrowings to fund that expansion. At March 31, 2006, we had
no
commitments for any additional financings, and we cannot ensure that we will
be
able to obtain any future additional financing at the times required and on
terms and conditions acceptable to us.
To
finance our investment portfolio, we generally seek to borrow between eight
and
12 times the amount of our equity. Our leverage ratio, defined as total
financing facilities outstanding divided by total stockholders’ equity, at March
31, 2006, was 16 to 1. We, and the providers of our finance facilities,
generally view our $45.0 million of subordinated trust preferred debentures
outstanding at March 31, 2006 as a form of equity which would result in an
adjusted leverage ratio of 11 to 1.
Under
our
warehouse facilities, we have arrangements to enter into repurchase agreements,
a form of collateralized short-term borrowing, with 23 different financial
institutions with total borrowing capacity of $5.6 billion; as of March 31,
2006
we had borrowed from seven of these firms. These agreements are secured by
our
mortgage-backed securities and bear interest rates that have historically moved
in close relationship to LIBOR. As of March 31, 2006 we had $1.1 billion in
outstanding repurchase agreements under our warehouse facilities. Under these
repurchase agreements the financial institutions lend money versus the market
value of our mortgage-backed securities portfolio, and, accordingly, an increase
in interest rates can have a negative impact on the valuation of these
securities, resulting in a potential margin call from the financial institution.
We monitor the market valuation fluctuation as well as other liquidity needs
to
ensure there is adequate collateral available to meet any additional margin
calls or liquidity requirements.
We
enter
into interest rate swap agreements to extend the maturity of our repurchase
agreements as a mechanism to reduce the interest rate risk of the securities
portfolio. At March 31, 2006 we had $652.0 million in interest rate swaps
outstanding with six different financial institutions. The weighted average
maturity of the swaps was 285 days at March 31, 2006. The impact of the interest
rate swaps extends the maturity of the repurchase agreements to one
year.
To
originate a mortgage loan, we may draw against a $200.0 million master
repurchase facility with Credit Suisse First Boston Mortgage Capital, LLC,
or
CSFB, a master repurchase facility with Greenwich Capital for $250 million
and a
$300 million facility with Deutsche Bank Structured Products, Inc. Under these
agreements, the counterparty provides financing to us for the origination or
acquisition of certain mortgage loans, which then will be sold to third parties
or contributed for future securitization to one or more trusts or other entities
sponsored by us or an affiliate. We will repay advances under this credit
facility with a portion of the proceeds from the sale of all mortgage-backed
securities issued by the trust or other entity, along with a portion of the
proceeds resulting from permitted whole loan sales. Advances under this facility
bear interest at a floating rate initially equal to LIBOR plus a spread
(starting at 0.62%) that varies depending on the types of mortgage loans
securing these facilities. Advances under these facilities are subject to lender
approval of the mortgage loans intended for origination or acquisition, advance
rates and the then ratio of our liabilities to our tangible net worth. These
facilities are not committed facilities and may be terminated at any time at
the
discretion of the counterparties. As of March 31, 2006 the outstanding balance
of the Greenwich facility was $0.4 million, the Deutsche Bank facility was
$108.0 million, and the balance of the CSFB facility was $101.7 million with
the
maximum aggregate amount available for additional borrowings of $539.9
million.
49
The
documents governing these facilities contain a number of compensating balance
requirements and restrictive financial and other covenants that, among other
things, require us to maintain a maximum ratio of total liabilities to tangible
net worth, of 15 to 1 in the case of the CSFB facility, 20 to 1 in the case
of
the Greenwich Capital facility and 15 to 1 in the case of Deutsche Bank, as
well
as to comply with applicable regulatory and investor requirements. The lines
contain various covenants pertaining to, among other things, maintenance of
certain amounts of net worth, periodic income thresholds and working capital.
As
of March 31, 2006, the Company was in compliance with all covenants with the
exception of the net income covenant on all three of the facilities and waivers
have been obtained from these institutions. As these annual agreements are
negotiated for renewal, these covenants may be further modified. The agreements
are each renewable annually, but are not committed, meaning that the
counterparties to the agreements may withdraw access to the credit facilities
at
any time.
The
agreements also contain covenants limiting the ability of our subsidiaries
to:
•
|
transfer
or sell assets;
|
|
•
|
create
liens on the collateral; or
|
|
•
|
incur
additional indebtedness, without obtaining the prior consent of the
lenders, which consent may not be unreasonably
withheld.
|
These
limits may in turn restrict our ability to pay cash or stock dividends on our
stock. In addition, under our warehouse facilities, we cannot continue to
finance a mortgage loan that we hold through the warehouse facility
if:
•
|
the
loan is rejected as “unsatisfactory for purchase” by the ultimate investor
and has exceeded its permissible warehouse period which varies by
facility;
|
|
•
|
we
fail to deliver the applicable note, mortgage or other documents
evidencing the loan within the requisite time period;
|
|
•
|
the
underlying property that secures the loan has sustained a casualty
loss in
excess of 5% of its appraised value; or
|
|
•
|
the
loan ceases to be an eligible loan (as determined pursuant to the
warehouse facility agreement).
|
We
expect
that these credit facilities will be sufficient to meet our capital and
financing needs during the next twelve months. The balances of these facilities
fluctuate based on the timing of our loan closings (at which point we may draw
upon the facilities) and the near-term subsequent sale of these loans to third
parties or the alternative financing thereof through repurchase agreements
or,
in the future, securitizations for mortgage loans we intend to retain (at which
point these facilities are paid down). The current availability under these
facilities and our current and projected levels of loan origination volume
are
consistent with our historic ability to manage our pipeline of mortgage loans,
the subsequent sale thereof and the related pay down of the
facilities.
As
of
March 31, 2006, our aggregate warehouse and repurchase facility borrowings
under
these facilities were $210.0 million and $1.1 billion, respectively, at an
average interest rate of approximately 4.94%.
Our
financing arrangements are short-term facilities secured by the underlying
investment in residential mortgage loans, the value of which may move inversely
with changes in interest rates. A decline in the market value of our investments
in the future may limit our ability to borrow under these facilities or result
in lenders requiring additional collateral or initiating margin calls under
our
repurchase agreements. As a result, we could be required to sell some of our
investments under adverse market conditions in order to maintain liquidity.
If
such sales are made at prices lower than the amortized costs of such
investments, we will incur losses.
50
Our
ability to originate loans depends in large part on our ability to sell the
mortgage loans we originate at cost or for a premium in the secondary market
so
that we may generate cash proceeds to repay borrowings under our warehouse
facilities and our repurchase agreement. The value of our loans depends on
a
number of factors, including:
•
|
interest
rates on our loans compared to market interest rates;
|
|
•
|
the
borrower credit risk classification;
|
|
•
|
loan-to-value
ratios, loan terms, underwriting and documentation; and
|
|
•
|
general
economic conditions.
|
We
make
certain representations and warranties, and are subject to various affirmative
and negative financial and other covenants, under the agreements covering the
sale of our mortgage loans regarding, among other things, the loans’ compliance
with laws and regulations, their conformity with the ultimate investors’
underwriting standards and the accuracy of information. In the event of a breach
of these representations, warranties or covenants or in the event of an early
payment default, we may be required to repurchase the loans and indemnify the
loan purchaser for damages caused by that breach. We have implemented strict
procedures to ensure quality control and conformity to underwriting standards
and minimize the risk of being required to repurchase loans. We have been
required to repurchase loans we have sold from time to time; however, these
repurchases have not had a material impact on our results of
operations.
We
intend
to make distributions to our stockholders to comply with the various
requirements to maintain our REIT status and to minimize or avoid corporate
income tax and the nondeductible excise tax. However, differences in timing
between the recognition of REIT taxable income and the actual receipt of cash
could require us to sell assets or to borrow funds on a short-term basis to
meet
the REIT distribution requirements and to avoid corporate income tax and the
nondeductible excise tax.
Certain
of our assets may generate substantial mismatches between REIT taxable income
and available cash. These assets could include mortgage-backed securities we
hold that have been issued at a discount and require the accrual of taxable
income in advance of the receipt of cash. As a result, our REIT taxable income
may exceed our cash available for distribution and the requirement to distribute
a substantial portion of our net taxable income could cause us to:
•
|
sell
assets in adverse market conditions;
|
|
•
|
borrow
on unfavorable terms; or
|
|
•
|
distribute
amounts that would otherwise be invested in future acquisitions,
capital
expenditures or repayment of debt, in order to comply with the REIT
distribution requirements.
|
Inflation
For
the
periods presented herein, inflation has been relatively low and we believe
that
inflation has not had a material effect on our results of operations. The impact
of inflation is primarily reflected in the increased costs of our operations.
Virtually all our assets and liabilities are financial in nature. Our
consolidated financial statements and corresponding notes thereto have been
prepared in accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time
due
to inflation. As a result, interest rates and other factors influence our
performance far more than inflation. Inflation affects our operations primarily
through its effect on interest rates, since interest rates typically increase
during periods of high inflation and decrease during periods of low inflation.
During periods of increasing interest rates, demand for mortgages and a
borrower’s ability to qualify for mortgage financing in a purchase transaction
may be adversely affected. During periods of decreasing interest rates,
borrowers may prepay their mortgages, which in turn may adversely affect our
yield and subsequently the value of our portfolio of mortgage
assets.
51
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market
risk is the exposure to loss resulting from changes in interest rates, credit
spreads, foreign currency exchange rates, commodity prices and equity prices.
Because we are invested solely in U.S.-dollar denominated instruments, primarily
residential mortgage instruments, and our borrowings are also domestic and
U.S.
dollar denominated, we are not subject to foreign currency exchange, or
commodity and equity price risk; the primary market risk that we are exposed
to
is interest rate risk and its related ancillary risks. Interest rate risk is
highly sensitive to many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations
and
other factors beyond our control. All of our market risk sensitive assets,
liabilities and related derivative positions are for non-trading purposes
only.
Management
recognizes the following primary risks associated with our business and the
industry in which we conduct business:
•
|
Interest
rate and market (fair value) risk
|
|
•
|
Credit
spread risk
|
|
•
|
Liquidity
and funding risk
|
|
•
|
Prepayment
risk
|
|
•
|
Credit
risk
|
Interest
Rate Risk
Our
primary interest rate exposure relates to the portfolio of adjustable-rate
mortgage loans and mortgage-backed securities we acquire, as well as our
variable-rate borrowings and related interest rate swaps and caps. Interest
rate
risk is defined as the sensitivity of our current and future earnings to
interest rate volatility, variability of spread relationships, the difference
in
re-pricing intervals between our assets and liabilities and the effect that
interest rates may have on our cash flows, especially the speed at which
prepayments occur on our residential mortgage related assets.
Changes
in the general level of interest rates can affect our net interest income,
which
is the difference between the interest income earned on interest earning assets
and our interest expense incurred in connection with our interest bearing debt
and liabilities. Changes in interest rates can also affect, among other things,
our ability to originate and acquire loans and securities, the value of our
loans, mortgage pools and mortgage-backed securities, and our ability to realize
gains from the resale and settlement of such originated loans.
In
our
investment portfolio, our primary market risk is interest rate risk. The level
of risk in our investment portfolio posed by interest rates is subject to the
sensitivity of our portfolio to movement in interest rates, including the effect
on future earnings potential, prepayments, valuations and overall liquidity.
We
attempt to manage interest rate risk by adjusting portfolio compositions,
liability maturities and utilizing interest rate derivatives including interest
rate swaps and caps. Management’s goal is to maximize the earnings potential of
the portfolio while maintaining long term stable portfolio
valuations.
We
utilize a model based risk analysis system to assist in projecting portfolio
performances over a scenario of different interest rates. The model incorporates
shifts in interest rates, changes in prepayments and other factors impacting
the
valuations of our financial securities, including mortgage-backed securities,
repurchase agreements, interest rate swaps and interest rate caps.
Based
on
the results of this model, as of March 31, 2006, an instantaneous shift of
100
basis points in interest rates would result in an approximate decrease in the
net interest spread by 25-30 basis points as compared to our base line
projections over the next year. Net interest spread is net interest income
(gross interest income less amortization) less net interest expense (interest
expense adjusted for hedging income or expense).
The
following tables set forth information about financial instruments (dollar
amounts in thousands):
March
31, 2006
|
||||||||||
|
Notional
Amount |
|
Carrying
Amount |
Estimated
Fair Value |
||||||
Investment
securities available for sale
|
$
|
493,045
|
$
|
485,483
|
$
|
485,483
|
||||
Mortgage
loans held for investment
|
—
|
—
|
—
|
|||||||
Mortgage
loans held in the securitization trusts
|
735,626
|
740,546
|
737,730
|
|||||||
Mortgage
loans held for sale
|
114,064
|
114,254
|
114,362
|
|||||||
Commitments
and contingencies:
|
||||||||||
Interest
rate lock commitments
|
262,913
|
(585
|
)
|
(585
|
)
|
|||||
Forward
loan sales contracts
|
182,702
|
536
|
536
|
|||||||
Interest
rate swaps
|
652,000
|
6,043
|
6,043
|
|||||||
Interest
rate caps
|
1,791,431
|
4,162
|
4,162
|
52
December
31, 2005
|
||||||||||
Notional
Amount
|
Carrying
Amount
|
Estimated
Fair
Value
|
||||||||
Investment
securities available for sale
|
$
|
719,701
|
$
|
716,482
|
$
|
716,482
|
||||
Mortgage
loans held for investment
|
4,054
|
4,060
|
4,079
|
|||||||
Mortgage
loans held in the securitization trusts
|
771,451
|
776,610
|
775,311
|
|||||||
Mortgage
loans held for sale
|
108,244
|
108,271
|
109,252
|
|||||||
Commitments
and contingencies:
|
|
|
|
|||||||
Interest
rate lock commitments - loan commitments
|
130,320
|
123
|
123
|
|||||||
Interest
rate lock commitments - mortgage loans held for sale
|
108,109
|
(14
|
)
|
(14
|
)
|
|||||
Forward
loan sales contracts
|
201,771
|
(380
|
)
|
(380
|
)
|
|||||
Interest
rate swaps
|
645,000
|
6,383
|
6,383
|
|||||||
Interest
rate caps
|
1,858,860
|
3,340
|
3,340
|
The
impact of changing interest rates may be mitigated by portfolio prepayment
activity that we closely monitor and the portfolio funding strategies we employ.
First, our adjustable rate borrowings may react to changes in interest rates
before our adjustable rate assets because the weighted average next repricing
dates on the related borrowings may have shorter time periods than that of
the
adjustable rate assets. Second, interest rates on adjustable rate assets may
be
limited to a “periodic cap” or an increase of typically 1% or 2% per adjustment
period, while our borrowings do not have comparable limitations. Third, our
adjustable rate assets typically lag changes in the applicable interest rate
indices by 45 days, due to the notice period provided to adjustable rate
borrowers when the interest rates on their loans are scheduled to
change.
In
a
period of declining interest rates or nominal differences between long-term
and
short-term interest rates, the rate of prepayment on our mortgage assets may
increase. Increased prepayments would cause us to amortize any premiums paid
for
our mortgage assets faster, thus resulting in a reduced net yield on our
mortgage assets. Additionally, to the extent proceeds of prepayments cannot
be
reinvested at a rate of interest at least equal to the rate previously earned
on
such mortgage assets, our earnings may be adversely affected.
Conversely,
if interest rates rise or if the differences between long-term and short-term
interest rates increase, the rate of prepayment on our mortgage assets may
decrease. Decreased prepayments would cause us to amortize the premiums paid
for
our ARM assets over a longer time period, thus resulting in an increased net
yield on our mortgage assets. Therefore, in rising interest rate environments
where prepayments are declining, not only would the interest rate on the ARM
Assets portfolio increase to re-establish a spread over the higher interest
rates, but the yield also would rise due to slower prepayments. The combined
effect could significantly mitigate other negative effects that rising
short-term interest rates might have on earnings.
Interest
rates can also affect our net return on hybrid adjustable rate (“hybrid ARM”)
securities and loans net of the cost of financing hybrid ARMs. We continually
monitor and estimate the duration of our hybrid ARMs and have a policy to hedge
the financing of the hybrid ARMs such that the net duration of the hybrid ARMs,
our borrowed funds related to such assets, and related hedging instruments
are
less than one year. During a declining interest rate environment, the prepayment
of hybrid ARMs may accelerate (as borrowers may opt to refinance at a lower
rate) causing the amount of fixed-rate financing to increase relative to the
amount of hybrid ARMs, possibly resulting in a decline in our net return on
hybrid ARMs as replacement hybrid ARMs may have a lower yield than those being
prepaid. Conversely, during an increasing interest rate environment, hybrid
ARMs
may prepay slower than expected, requiring us to finance a higher amount of
hybrid ARMs than originally forecast and at a time when interest rates may
be
higher, resulting in a decline in our net return on hybrid ARMs. Our exposure
to
changes in the prepayment speed of hybrid ARMs is mitigated by regular
monitoring of the outstanding balance of hybrid ARMs and adjusting the amounts
anticipated to be outstanding in future periods and, on a regular basis, making
adjustments to the amount of our fixed-rate borrowing obligations for future
periods.
Interest
rate changes can also affect the availability and pricing of adjustable rate
assets, which affects our origination activity and investment opportunities.
During a rising interest rate environment, there may be less total loan
origination activity, particularly for refinancings. At the same time, a rising
interest rate environment may result in a larger percentage of adjustable rate
products being originated, mitigating the impact of lower overall loan
origination activity. In addition, our focus on purchase mortgages as opposed
to
refinancings also mitigates the volatility of our origination volume as
refinancing volume is typically a function of lower interest rates, whereas,
purchase mortgage volume has historically remained relatively static during
interest rate cycles. Conversely, during a declining interest rate environment
total loan origination activity may rise with many of the borrowers desiring
fixed-rate mortgage products. Although adjustable rate product origination
as a
percentage of total loan origination may decline during these periods, the
increased loan origination and refinancing volume in the industry may produce
sufficient investment opportunities. Additionally, a flat yield curve may be
an
adverse environment for adjustable rate products because the incentive for
a
borrower to choose an adjustable rate product over a longer term fixed-rate
mortgage loan is minimized and, conversely, in a steep yield curve environment,
adjustable rate products may enjoy an above average advantage over longer term
fixed-rate mortgage loans, increasing our investment opportunities.
53
As
the
rate environment changes, the impact on origination volume and the type of
loan
product that is favored is mitigated, in part, by our ability to operate in
our
two business segments. In periods where adjustable rate product is favored,
our
mortgage portfolio management segment, which invests in such mortgage loans,
will benefit from a larger selection of loan product for its portfolio and
the
inherent lower cost basis and resultant wider net margin. Our mortgage lending
segment, regardless of whether adjustable rate or fixed rate product is favored,
will continue to originate such loans and will continue to sell to third parties
all fixed rate product; as a result, in periods where fixed rate product is
favored, our origination segment may see increased revenues as such fixed
product is sold to third parties.
Interest
rate changes may also impact our net book value as our securities, certain
mortgage loans and related hedge derivatives are marked-to-market each quarter.
Generally, as interest rates increase, the value of our fixed income
investments, such as mortgage loans and mortgage-backed securities, decreases
and as interest rates decrease, the value of such investments will increase.
We
seek to hedge to some degree changes in value attributable to changes in
interest rates by entering into interest rate swaps and other derivative
instruments. In general, we would expect that, over time, decreases in value
of
our portfolio attributable to interest rate changes will be offset to some
degree by increases in value of our interest rate swaps, and vice versa.
However, the relationship between spreads on securities and spreads on swaps
may
vary from time to time, resulting in a net aggregate book value increase or
decline. However, unless there is a material impairment in value that would
result in a payment not being received on a security or loan, changes in the
book value of our portfolio will not directly affect our recurring earnings
or
our ability to make a distribution to our stockholders.
In
order
to minimize the negative impacts of changes in interest rates on earnings and
capital, we closely monitor our asset and liability mix and utilize interest
rate swaps and caps, subject to the limitations imposed by the REIT
qualification tests.
Movements
in interest rates can pose a major risk to us in either a rising or declining
interest rate environment. We depend on substantial borrowings to conduct our
business. These borrowings are all made at variable interest rate terms that
will increase as short term interest rates rise. Additionally, when interest
rates rise, mortgage loans held for sale and any applications in process with
interest rate lock commitments, or IRLCs, decrease in value. To preserve the
value of such loans or applications in process with IRLCs, we may enter into
forward sale loan contracts, or FSLCs, to be settled at future dates with fixed
prices.
When
interest rates decline, loan applicants may withdraw their open applications
on
which we have issued an IRLC. In those instances, we may be required to purchase
loans at current market prices to fulfill existing FSLCs, thereby incurring
losses upon sale.
We
monitor our mortgage loan pipeline closely and on occasion may choose to
renegotiate locked loan terms with a borrower to prevent withdrawal of open
applications and mitigate the associated losses.
In
the
event that we do not deliver the FSLCs or exercise our option contracts, the
instruments can be settled on a net basis. Net settlement entails paying or
receiving cash based upon the change in market value of the existing instrument.
All FSLCs and option contracts to buy securities are to be contractually settled
within six months of the balance sheet date. FSLCs and options contracts for
individual loans generally must be settled within 60 days.
Our
hedging transactions using derivative instruments also involve certain
additional risks such as counterparty credit risk, the enforceability of hedging
contracts and the risk that unanticipated and significant changes in interest
rates will cause a significant loss of basis in the contract. The counterparties
to our derivative arrangements are major financial institutions and securities
dealers that are well capitalized with high credit ratings and with which we
may
also have other financial relationships. While we do not anticipate
nonperformance by any counterparty, we are exposed to potential credit losses
in
the event the counterparty fails to perform. Our exposure to credit risk in
the
event of default by a counterparty is the difference between the value of the
contract and the current market price. There can be no assurance that we will
be
able to adequately protect against the forgoing risks and will ultimately
realize an economic benefit that exceeds the related expenses incurred in
connection with engaging in such hedging strategies.
54
While
we
have not experienced any significant credit losses, in the event of a
significant rising interest rate environment and/or economic downturn, mortgage
and loan defaults may increase and result in credit losses that would adversely
affect our liquidity and operating results.
Credit
Spread Exposure
The
mortgage-backed securities we currently, and will in the future, own are also
subject to spread risk. The majority of these securities will be adjustable-rate
securities that are valued based on a market credit spread to U.S. Treasury
security yields. In other words, their value is dependent on the yield demanded
on such securities by the market based on their credit relative to U.S. Treasury
securities. Excessive supply of such securities combined with reduced demand
will generally cause the market to require a higher yield on such securities,
resulting in the use of a higher or wider spread over the benchmark rate
(usually the applicable U.S. Treasury security yield) to value such securities.
Under such conditions, the value of our securities portfolio would tend to
decline. Conversely, if the spread used to value such securities were to
decrease or tighten, the value of our securities portfolio would tend to
increase. Such changes in the market value of our portfolio may affect our
net
equity, net income or cash flow directly through their impact on unrealized
gains or losses on available-for-sale securities, and therefore our ability
to
realize gains on such securities, or indirectly through their impact on our
ability to borrow and access capital.
Furthermore,
shifts in the U.S. Treasury yield curve, which represents the market’s
expectations of future interest rates, would also affect the yield required
on
our securities and therefore their value. These shifts, or a change in spreads,
would have a similar effect on our portfolio, financial position and results
of
operations.
Market
(Fair Value) Risk
For
certain of the financial instruments that we own, fair values will not be
readily available since there are no active trading markets for these
instruments as characterized by current exchanges between willing parties.
Accordingly, fair values can only be derived or estimated for these investments
using various valuation techniques, such as computing the present value of
estimated future cash flows using discount rates commensurate with the risks
involved. However, the determination of estimated future cash flows is
inherently subjective and imprecise. Minor changes in assumptions or estimation
methodologies can have a material effect on these derived or estimated fair
values. These estimates and assumptions are indicative of the interest rate
environments as of December 31, 2005 and do not take into consideration the
effects of subsequent interest rate fluctuations.
We
note
that the values of our investments in mortgage-backed securities, and in
derivative instruments, primarily interest rate hedges on our debt, will be
sensitive to changes in market interest rates, interest rate spreads, credit
spreads and other market factors. The value of these investments can vary and
has varied materially from period to period. Historically, the values of our
mortgage loan portfolio have tended to vary inversely with those of its
derivative instruments.
The
following describes the methods and assumptions we use in estimating fair values
of our financial instruments:
Fair
value estimates are made as of a specific point in time based on estimates
using
present value or other valuation techniques. These techniques involve
uncertainties and are significantly affected by the assumptions used and the
judgments made regarding risk characteristics of various financial instruments,
discount rates, estimates of future cash flows, future expected loss experience
and other factors.
Changes
in assumptions could significantly affect these estimates and the resulting
fair
values. Derived fair value estimates cannot be substantiated by comparison
to
independent markets and, in many cases, could not be realized in an immediate
sale of the instrument. Also, because of differences in methodologies and
assumptions used to estimate fair values, the fair values used by us should
not
be compared to those of other companies.
The
fair
values of the Company’s residential mortgage-backed securities are generally
based on market prices provided by five to seven dealers who make markets in
these financial instruments. If the fair value of a security is not reasonably
available from a dealer, management estimates the fair value based on
characteristics of the security that the Company receives from the issuer and
on
available market information.
The
fair
value of loans held for investment are determined by the loan pricing sheet
which is based on internal management pricing and third party competitors in
similar products and markets.
55
The
fair
value of commitments to fund with agreed upon rates are estimated using the
fees
and rates currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present creditworthiness
of the counterparties. For fixed rate loan commitments, fair value also
considers the difference between current market interest rates and the existing
committed rates.
The
fair
value of commitments to deliver mortgages is estimated using current market
prices for dealer or investor commitments relative to our existing
positions.
The
market risk management discussion and the amounts estimated from the analysis
that follows are forward-looking statements that assume that certain market
conditions occur. Actual results may differ materially from these projected
results due to changes in our ARM portfolio and borrowings mix and due to
developments in the domestic and global financial and real estate markets.
Developments in the financial markets include the likelihood of changing
interest rates and the relationship of various interest rates and their impact
on our ARM portfolio yield, cost of funds and cash flows. The analytical methods
that we use to assess and mitigate these market risks should not be considered
projections of future events or operating performance.
As
a
financial institution that has only invested in U.S.-dollar denominated
instruments, primarily residential mortgage instruments, and has only borrowed
money in the domestic market, we are not subject to foreign currency exchange
or
commodity price risk. Rather, our market risk exposure is largely due to
interest rate risk. Interest rate risk impacts our interest income, interest
expense and the market value on a large portion of our assets and liabilities.
The management of interest rate risk attempts to maximize earnings and to
preserve capital by minimizing the negative impacts of changing market rates,
asset and liability mix, and prepayment activity.
The
table
below presents the sensitivity of the market value of our portfolio using a
discounted cash flow simulation model. Application of this method results in
an
estimation of the percentage change in the market value of our assets,
liabilities and hedging instruments per 100 basis point (“bp”) shift in interest
rates expressed in years - a measure commonly referred to as “duration”.
Positive portfolio duration indicates that the market value of the total
portfolio will decline if interest rates rise and increase if interest rates
decline. The closer duration is to zero, the less interest rate changes are
expected to affect earnings. Included in the table is a “Base Case” duration
calculation for an interest rate scenario that assumes future rates are those
implied by the yield curve as of March 31, 2006. The other two scenarios assume
interest rates are instantaneously 100 and 200 bps higher that those implied
by
market rates as of March 31, 2006.
The
use
of hedging instruments is a critical part of our interest rate risk management
strategies, and the effects of these hedging instruments on the market value
of
the portfolio are reflected in the model’s output. This analysis also takes into
consideration the value of options embedded in our mortgage assets including
constraints on the repricing of the interest rate of ARM Assets resulting from
periodic and lifetime cap features, as well as prepayment options. Assets and
liabilities that are not interest rate-sensitive such as cash, payment
receivables, prepaid expenses, payables and accrued expenses are excluded.
The
duration calculated from this model is a key measure of the effectiveness of
our
interest rate risk management strategies.
Changes
in assumptions including, but not limited to, volatility, mortgage and financing
spreads, prepayment behavior, defaults, as well as the timing and level of
interest rate changes will affect the results of the model. Therefore, actual
results are likely to vary from modeled results.
Net
Portfolio Duration
March
31, 2006
|
|
|
|
Basis
point increase
|
|
|||||
|
|
Base
|
|
+100
|
|
+200
|
|
|||
Mortgage
Portfolio
|
|
|
1.28
years
|
|
|
1.69
years
|
|
|
1.84
years
|
|
Borrowings
(including hedges)
|
|
|
0.41
years
|
|
|
0.41years
|
|
|
0.41years
|
|
Net
|
|
|
0.87
years
|
|
|
1.29
years
|
|
|
1.43
years
|
|
It
should
be noted that the model is used as a tool to identify potential risk in a
changing interest rate environment but does not include any changes in portfolio
composition, financing strategies, market spreads or changes in overall market
liquidity.
Based
on
the assumptions used, the model output suggests a very low degree of portfolio
price change given increases in interest rates, which implies that our cash
flow
and earning characteristics should be relatively stable for comparable changes
in interest rates.
56
Although
market value sensitivity analysis is widely accepted in identifying interest
rate risk, it does not take into consideration changes that may occur such
as,
but not limited to, changes in investment and financing strategies, changes
in
market spreads, and changes in business volumes. Accordingly, we make extensive
use of an earnings simulation model to further analyze our level of interest
rate risk.
There
are
a number of key assumptions in our earnings simulation model. These key
assumptions include changes in market conditions that affect interest rates,
the
pricing of ARM products, the availability of ARM products, and the availability
and the cost of financing for ARM products. Other key assumptions made in using
the simulation model include prepayment speeds and management’s investment,
financing and hedging strategies, and the issuance of new equity. We typically
run the simulation model under a variety of hypothetical business scenarios
that
may include different interest rate scenarios, different investment strategies,
different prepayment possibilities and other scenarios that provide us with
a
range of possible earnings outcomes in order to assess potential interest rate
risk. The assumptions used represent our estimate of the likely effect of
changes in interest rates and do not necessarily reflect actual results. The
earnings simulation model takes into account periodic and lifetime caps embedded
in our ARM Assets in determining the earnings at risk.
Liquidity
and Funding Risk
Liquidity
is a measure of our ability to meet potential cash requirements, including
ongoing commitments to repay borrowings, fund and maintain investments, pay
dividends to our stockholders and other general business needs. We recognize
the
need to have funds available for our operating businesses and our investment
in
mortgage loans until the settlement or sale of mortgages with us or with other
investors. It is our policy to have adequate liquidity at all times to cover
normal cyclical swings in funding availability and mortgage demand and to allow
us to meet abnormal and unexpected funding requirements. We plan to meet
liquidity through normal operations with the goal of avoiding unplanned sales
of
assets or emergency borrowing of funds.
Our
mortgage lending operations require significant cash to fund loan originations.
Our warehouse lending arrangements, including repurchase agreements, support
the
mortgage lending operation. Generally, our warehouse mortgage lenders allow
us
to borrow between 96% and 100% of the outstanding principal. Funding for the
difference - generally 2% of the principal - must come from other cash inflows.
Our operating cash inflows are predominately from cash flow from mortgage
securities, principal and interest on mortgage loans, third party sales of
originated loans that do not fit our portfolio investment criteria, and fee
income from loan originations. Other than access to our financing facilities,
proceeds from equity offerings have been used to support
operations.
Loans
financed with warehouse, aggregation and repurchase credit facilities are
subject to changing market valuations and margin calls. The market value of
our
loans is dependent on a variety of economic conditions, including interest
rates
(and borrower demand) and end investor desire and capacity. There is no
certainty that market values will remain constant. To the extent the value
of
the loans declines significantly, we would be required to repay portions of
the
amounts we have borrowed. The derivative financial instruments we use also
subject us to “margin call” risk based on their market values. Under our
interest rate swaps, we pay a fixed rate to the counterparties while they pay
us
a floating rate. When floating rates are low, on a net basis we pay the
counterparty and visa-versa. In a declining interest rate environment, we would
be subject to additional exposure for cash margin calls. However, the asset
side
of the balance sheet should increase in value in a further declining interest
rate scenario. Most of our interest rate swap agreements provide for a
bi-lateral posting of margin, the effect being that on either side of the
valuation for such swaps, the counterparty can call/post margin. Unlike typical
unilateral posting of margin only in the direction of the swap counterparty,
this provides us with additional flexibility in meeting our liquidity
requirements as we can call margin on our counterparty as swap values
increase.
Incoming
cash on our mortgage loans and securities is a principal source of cash. The
volume of cash depends on, among other things, interest rates. The volume and
quality of such incoming cash flows can be impacted by severe and immediate
changes in interest rates. If rates increase dramatically, our short-term
funding costs will increase quickly. While many of our loans are hybrid ARMs,
they typically will not reset as quickly as our funding costs creating a
reduction in incoming cash flow. Our derivative financial instruments are used
to mitigate the effect of interest rate volatility.
We
manage
liquidity to ensure that we have the continuing ability to maintain cash flows
that are adequate to fund operations and meet commitments on a timely and
cost-effective basis. Our principal sources of liquidity are the repurchase
agreement market, the issuance of CDOs, whole loan financing facilities as
well
as principal and interest payments from ARM Assets. We believe that our
liquidity level is in excess of that necessary to satisfy our operating
requirements and we expect to continue to use diverse funding sources to
maintain our financial flexibility.
57
Prepayment
Risk
When
borrowers repay the principal on their mortgage loans before maturity or faster
than their scheduled amortization, the effect is to shorten the period over
which interest is earned, and therefore, reduce the cash flow and yield on
our
ARM Assets. Furthermore, prepayment speeds exceeding or lower than our
reasonable estimates for similar assets, impact the effectiveness of any hedges
we have in place to mitigate financing and/or fair value risk. Generally, when
market interest rates decline, borrowers have a tendency to refinance their
mortgages. The higher the interest rate a borrower currently has on his or
her
mortgage the more incentive he or she has to refinance the mortgage when rates
decline. Additionally, when a borrower has a low loan-to-value ratio, he or
she
is more likely to do a “cash-out” refinance. Each of these factors increases the
chance for higher prepayment speeds during the term of the loan.
We
generally do not originate loans that provide for a prepayment penalty if the
loan is fully or partially paid off prior to scheduled maturity. We mitigate
prepayment risk by constantly evaluating our ARM portfolio at a range of
reasonable market prepayment speeds observed at the time for assets with a
similar structure, quality and characteristics. Furthermore, we stress-test
the
portfolio as to prepayment speeds and interest rate risk in order to develop
an
effective hedging strategy.
For
the
three months ended March 31, 2006, our mortgage assets paid down at an
approximate average annualized Constant Paydown Rate (“CPR”) of 18%, compared to
31% for the three months ended December 31, 2005, and 22% for the three months
ended March 31, 2005. When prepayment experience increases, we have to amortize
our premiums over a shorter time period, resulting in a reduced yield to
maturity on our ARM Assets. Conversely, if actual prepayment experience
decreases, we would amortize the premium over a longer time period, resulting
in
a higher yield to maturity. We monitor our prepayment experience on a monthly
basis and adjust the amortization of the net premium, as
appropriate.
Credit
Risk
Credit
risk is the risk that we will not fully collect the principal we have invested
in mortgage loans or securities. As previously noted, we are predominately
a
high-quality loan originator and our underwriting guidelines are intended to
evaluate the credit history of the potential borrower, the capacity and
willingness of the borrower to repay the loan, and the adequacy of the
collateral securing the loan.
We
mitigate credit risk by directly underwriting our own loan originations and
re-underwriting any loans originated through our correspondent networks. With
regard to the purchased mortgage security portfolio, we rely on the guaranties
of FNMA, FHLMC, GNMA or the AAA/Aaa rating established by the Rating
Agencies.
With
regard to loan originations, factors such as FICO score, LTV, debt-to-income
ratio, and other borrower and collateral factors are evaluated. Credit
enhancement features, such as mortgage insurance may also be factored into
the
credit decision. In some instances, when the borrower exhibits strong
compensating factors, exceptions to the underwriting guidelines may be
approved.
Our
loan
originations are concentrated in geographic markets that are generally supply
constrained. We believe that these markets have less exposure to sudden declines
in housing values than those markets which have an oversupply of housing. In
addition, in the supply constrained housing markets we focus on, housing values
tend to be high and, generally, underwriting standards for higher value homes
require lower LTVs and thus more owner equity further mitigating credit risk.
Finally, the higher housing value/mortgage loan financing markets allow for
more
cost efficient origination volume in terms of dollars and units. For our
mortgage securities that are purchased, we rely on the Fannie Mae, Freddie
Mac,
Ginnie Mae and AAA-rating of the securities supplemented with additional due
diligence.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that we file or submit
under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms
of the SEC, and that such information is accumulated and communicated to our
management timely. An evaluation was performed under the supervision and with
the participation of our management, including our Co-Chief Executive Officers
and our Chief Financial Officer, of the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of March 31, 2006. Based upon that evaluation, our
management, including our Co-Chief Executive Officers and our Chief Financial
Officer, concluded that our disclosure controls and procedures were effective
as
of March 31, 2006.
Changes
in Internal Control Over Financial Reporting.
There
has been no change in our internal control over financial reporting during
the
quarter ended March 31, 2006 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
58
PART
II-OTHER INFORMATION
Item
1. Legal Proceedings
From
time
to time, we are involved in legal proceedings in the ordinary course of
business. We do not believe that any of our current legal proceedings,
individually or in the aggregate, will have a material adverse effect on our
operations or financial condition.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds.
ISSUER
PURCHASES OF EQUITY SECURITIES
Period
|
Total
Number of Shares
Purchased(1)
|
Average
Price
Paid
per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plan(2)
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Publicly
Announced
Plan
|
|||||||||
1/1/2006
to 1/31/2006
|
¾
|
¾
|
¾
|
$
|
10,000,000
|
||||||||
2/1/2006
to 2/28/2006
|
¾
|
¾
|
¾
|
¾
|
|||||||||
3/1/2006
to 3/31/2006
|
67,000
|
4.43
|
67,000
|
9,703,190
|
|||||||||
Total
|
(1) |
All
of shares purchased by the Company during the three months ended
March 31,
2006 were purchased through it’s previously publicly announced plan,
through a broker on the open market.
|
(2) |
The
Company announced in Form 8-K on November 10, 2005 that its Board
of
Directors approved a share repurchase plan authorizing the Company
to
repurchase up to $10.0 million of the Company’s outstanding common stock.
The plan, funded from available capital, provides that the Company,
at
management’s discretion, is authorized to repurchase shares of Company
common stock from time to time, in the open market or through privately
negotiated transactions through December 31, 2015. The plan may be
temporarily or permanently suspended or discontinued at any time.
|
Item
6. Exhibits
No.
|
Description
|
3.1
|
Articles
of Amendment and Restatement of the Registrant (incorporated by reference
to Exhibit 3.01 to our Registration Statement on Form S-11/A filed
on June
18, 2004 (Registration No. 333-111668)).
|
3.2(a)
|
Bylaws
of the Registrant (incorporated by reference to Exhibit 3.02 to our
Registration Statement on Form S-11/ A filed on June 18, 2004
(Registration No. 333-111668)).
|
3.2(b)
|
Amendment No. 1 to bylaws of Registrant (incorporated by reference to Exhibit 3.2(b) to Registrant’s Annual Report on Form 10-K filed on March 16, 2006) |
4.1
|
Form
of Common Stock Certificate (incorporated by reference to Exhibit
4.01 to
our Registration Statement on Form S-11/ A filed on June 18, 2004
(Registration No. 333-111668)).
|
4.2(a)
|
Junior
Subordinated Indenture between The New York Mortgage Company, LLC
and
JPMorgan Chase Bank, National Association, as trustee, dated September
1,
2005 (incorporated by reference to Exhibit 4.1 to our Current Report
on
Form 8-K filed on September 6, 2005).
|
4.2(b)
|
Amended
and Restated Trust Agreement among The New York Mortgage Company,
LLC,
JPMorgan Chase Bank, National Association, Chase Bank USA, National
Association and the Administrative Trustees named therein, dated
September
1, 2005 (incorporated by reference to Exhibit 4.2 to our Current
Report on
Form 8-K filed on September 6, 2005).
|
10.1 | Summary of 2005 Cash Bonuses Paid to Executive Officers |
10.110
|
Amendment
No. 1 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of April 29, 2005.
|
10.111
|
Amendment
No. 2 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of May 10, 2005.
|
10.112
|
Amendment
No. 3 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of July 18, 2005.
|
10.113
|
Amendment
No. 4 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of August 5, 2005.
|
10.114
|
Amendment
No. 5 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of September 6, 2005.
|
10.115
|
Amendment
No. 6 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of November 14, 2005.
|
59
10.116
|
Amendment
No. 7 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of March 14, 2006.
|
10.117
|
Amendment
No. 8 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of March 24, 2006.
|
10.118
|
Amendment
No. 9 to Amended and Restated Master Repurchase Agreement among
Credit Suisse First Boston Mortgage Capital LLC, The New York Mortgage
Company, LLC, New York Mortgage Funding, LLC and New York Mortgage
Trust,
Inc. dated as of May 10, 2006.
|
31.1
|
Certification
of Co-Chief Executive Officer pursuant to Rule 13a - 14(a)/15d-14(a)
of
the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of Co-Chief Executive Officer pursuant to Rule 13a - 14(a)/15d-14(a)
of
the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002.
|
31.3
|
Certification
of Chief Financial Officer pursuant to Rule 13a - 14(a)/15d-14(a)
of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of Co-Chief Executive Officers pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(This
exhibit shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject
to the
liability of that section. Further, this exhibit shall not be deemed
to be
incorporated by reference into any filing under the Securities Act
of
1933, as amended, or the Securities Exchange Act of 1934, as
amended.).
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (This exhibit
shall not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or otherwise subject to the liability
of
that section. Further, this exhibit shall not be deemed to be incorporated
by reference into any filing under the Securities Act of 1933, as
amended,
or the Securities Exchange Act of 1934, as
amended).
|
60
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date: May 10, 2006 | |||
/s/ Steven B. Schnall | |||
Steven B. Schnall |
|||
Chairman, President and Co-Chief Executive Officer |
Date: May 10, 2006 | |||
/s/ David A. Akre | |||
David A. Akre |
|||
Vice Chairman and Co-Chief Executive Officer |
Date: May 10, 2006 | |||
/s/ Michael I. Wirth | |||
Michael I. Wirth |
|||
Executive Vice President and Chief Financial Officer |
61
EXHIBIT
INDEX
No.
|
Description
|
3.1
|
Articles
of Amendment and Restatement of the Registrant (incorporated by
reference
to Exhibit 3.01 to our Registration Statement on Form S-11/A filed
on June
18, 2004 (Registration No. 333-111668)).
|
3.2(a)
|
Bylaws
of the Registrant (incorporated by reference to Exhibit 3.02 to
our
Registration Statement on Form S-11/ A filed on June 18, 2004
(Registration No. 333-111668)).
|
3.2(b)
|
Amendment No. 1 to bylaws of Registrant (incorporated by reference to Exhibit 3.2(b) to Registrant’s Annual Report on Form 10-K filed on March 16, 2006) |
4.1
|
Form
of Common Stock Certificate (incorporated by reference to Exhibit
4.01 to
our Registration Statement on Form S-11/ A filed on June 18, 2004
(Registration No. 333-111668)).
|
4.2(a)
|
Junior
Subordinated Indenture between The New York Mortgage Company, LLC
and
JPMorgan Chase Bank, National Association, as trustee, dated September
1,
2005 (incorporated by reference to Exhibit 4.1 to our Current Report
on
Form 8-K filed on September 6, 2005).
|
4.2(b)
|
Amended
and Restated Trust Agreement among The New York Mortgage Company,
LLC,
JPMorgan Chase Bank, National Association, Chase Bank USA, National
Association and the Administrative Trustees named therein, dated
September
1, 2005 (incorporated by reference to Exhibit 4.2 to our Current
Report on
Form 8-K filed on September 6, 2005).
|
10.1 | Summary of 2005 Cash Bonuses Paid to Executive Officers |
10.110
|
Amendment
No. 1 to Amended and Restated Master Repurchase Agreement among
Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage
Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of April 29, 2005.
|
10.111
|
Amendment
No. 2 to Amended and Restated Master Repurchase Agreement among
Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage
Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of May 10, 2005.
|
10.112
|
Amendment
No. 3 to Amended and Restated Master Repurchase Agreement among
Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage
Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of July 18, 2005.
|
10.113
|
Amendment
No. 4 to Amended and Restated Master Repurchase Agreement among
Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage
Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of August 5, 2005.
|
10.114
|
Amendment
No. 5 to Amended and Restated Master Repurchase Agreement among
Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage
Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of September 6, 2005.
|
10.115
|
Amendment
No. 6 to Amended and Restated Master Repurchase Agreement among
Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage
Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of November 14,
2005.
|
10.116
|
Amendment
No. 7 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of March 14, 2006.
|
10.117
|
Amendment
No. 8 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of March 24, 2006.
|
10.118
|
Amendment
No. 9 to Amended and Restated Master Repurchase Agreement among Credit
Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
Inc.
dated as of May 10, 2006
|
31.1
|
Certification
of Co-Chief Executive Officer pursuant to Rule 13a - 14(a)/15d-14(a)
of
the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of Co-Chief Executive Officer pursuant to Rule 13a - 14(a)/15d-14(a)
of
the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002.
|
31.3
|
Certification
of Chief Financial Officer pursuant to Rule 13a - 14(a)/15d-14(a)
of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of Co-Chief Executive Officers pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(This
exhibit shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject
to the
liability of that section. Further, this exhibit shall not be deemed
to be
incorporated by reference into any filing under the Securities Act
of
1933, as amended, or the Securities Exchange Act of 1934, as
amended.).
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (This exhibit shall not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of that section. Further, this
exhibit
shall not be deemed to be incorporated by reference into any filing
under
the Securities Act of 1933, as amended, or the Securities Exchange
Act of
1934, as amended.).
|
62