ADAM

Business Context and Reporting Period

Company: New York Mortgage Trust, Inc. (NYMT)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: NYMT is a self-advised Real Estate Investment Trust (REIT) focused on acquiring and managing residential mortgage-backed securities (RMBS), prime adjustable-rate mortgage (ARM) loans held in securitization trusts, and collateralized loan obligations (CLOs). In 2009, the Company executed a strategic repositioning to transition from a portfolio heavily weighted toward leveraged Agency RMBS to a more diversified mix including non-Agency RMBS and CLOs, aiming to introduce credit risk elements while reducing overall leverage.

Key Financial Metrics

Material Changes vs. Prior Period

• Turnaround in Profitability: The Company reported a net income of $11.7 million in 2009, a significant improvement from a net loss of $24.1 million in 2008. This was driven by improved operating conditions, a portfolio restructuring that increased yields, and significantly lower borrowing costs due to the low interest rate environment.
• Portfolio Restructuring: In Q1 2009, NYMT disposed of approximately $193.8 million of Agency CMO floaters. Concurrently, it increased its non-Agency RMBS position by approximately $27.5 million (par value) and purchased discounted CLO notes. This reduced the portfolio's reliance on interest rate risk and introduced credit risk.
• Deleveraging: Total assets decreased by approximately 43% from 2008 to 2009, primarily due to the reduction in Agency RMBS and the paydown of securitization trust loans. Repurchase agreement borrowings dropped from $402.3 million to $85.1 million. The leverage ratio for the Agency RMBS portfolio was 1:1 at year-end 2009, down from significantly higher levels in prior years.
• Realized Gains: In 2009, the Company recorded realized gains of $3.3 million on securities and hedges, contrasting with realized losses of $20.0 million in 2008, which were largely attributed to the March 2008 market disruption.

Guidance, Outlook, and Risks

Management Commentary & Outlook: Management expects the portfolio to remain weighted toward RMBS and prime ARM loans in the near term, with continued diversification into non-Agency RMBS and other assets as opportunities arise. The Company aims to maintain a maximum leverage ratio of 6 to 8 times for Agency RMBS and 4 to 5 times overall. Management believes existing cash balances and cash flows will meet liquidity requirements for at least the next 12 months.

Key Risks and Contingencies:

• Series A Preferred Stock Redemption: The Company has $20.0 million of Series A Preferred Stock outstanding, which must be redeemed on December 31, 2010. As of the filing date, the common stock was trading below the $8.00 conversion price, making conversion unlikely and necessitating a cash redemption.
• Interest Rate and Prepayment Risk: The Company faces risks related to mismatches between asset repricing and liability costs. Rising interest rates could decrease net interest income and asset values. Conversely, falling rates could accelerate prepayments, forcing the amortization of premiums faster than anticipated.
• Repurchase Obligations: Related to the discontinued mortgage lending business, there were approximately $2.0 million in unresolved repurchase requests as of December 31, 2009, against which the Company held a reserve of $0.3 million.
• Advisory Agreement: The Company relies on Harvest Capital Strategies LLC (HCS) for asset management. Termination of this agreement without cause could result in a significant termination fee.

Investor Verification Checklist

• Liquidity for Redemption: Verify the Company's ability to generate or raise the $20.0 million required to redeem the Series A Preferred Stock by December 31, 2010, given the current trading price of common stock is below the conversion threshold.
• Non-Agency RMBS Performance: Monitor the credit performance and delinquency rates of the newly acquired non-Agency RMBS and CLO assets, which carry higher credit risk than the previously held Agency securities.
• Repurchase Request Resolution: Track the status of the $2.0 million in unresolved repurchase requests from the discontinued lending operations to ensure the $0.3 million reserve remains adequate.
• Dividend Sustainability: Assess whether the net interest income spread can sustain the declared dividend rate of $0.91 per share in 2009, particularly if interest rate spreads compress or prepayment speeds accelerate.
• Advisory Fee Impact: Review the impact of the base and incentive fees paid to HCS on net income, noting the $1.3 million in total fees paid in 2009.