Maryland
|
47-0934168
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
Large Accelerated Filer o
|
Accelerated Filer o
|
Non-Accelerated Filer o
|
Smaller Reporting Company x
|
PART I. Financial Information
|
2
|
2
|
|
Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010
|
2
|
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2011 and June 30, 2010
|
3
|
Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2011
|
4
|
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and June 30, 2010
|
5
|
Unaudited Notes to the Condensed Consolidated Financial Statements
|
6
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
30
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk
|
54
|
Item 4. Controls and Procedures
|
59
|
PART II. OTHER INFORMATION
|
60
|
Item 1A. Risk Factors
|
60
|
Item 6. Exhibits
|
60
|
SIGNATURES
|
61
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
ASSETS
|
(unaudited)
|
|||||||
Investment securities available for sale, at fair value (including pledged
securities of $115,595 and $38,475, respectively) |
$ | 150,477 | $ | 86,040 | ||||
Mortgage loans held in securitization trusts (net)
|
217,085 | 228,185 | ||||||
Mortgage loans held for investment
|
5,113 | 7,460 | ||||||
Investments in limited partnership and limited liability company
|
20,350 | 18,665 | ||||||
Cash and cash equivalents
|
6,885 | 19,375 | ||||||
Reverse repurchase agreements
|
18,000 | - | ||||||
Receivable for securities sold
|
- | 5,653 | ||||||
Derivative assets
|
14,671 | - | ||||||
Subscription receivable
|
10,638 | - | ||||||
Receivables and other assets
|
12,359 | 8,916 | ||||||
Total Assets
|
$ | 455,578 | $ | 374,294 | ||||
LIABILITIES AND EQUITY
|
||||||||
Liabilities:
|
||||||||
Financing arrangements, portfolio investments
|
$ | 96,370 | $ | 35,632 | ||||
Collateralized debt obligations
|
209,674 | 219,993 | ||||||
Derivative liabilities
|
2,444 | 1,087 | ||||||
Payable for securities purchased
|
15,674 | - | ||||||
Accrued expenses and other liabilities
|
4,027 | 4,095 | ||||||
Subordinated debentures (net)
|
45,000 | 45,000 | ||||||
Total liabilities
|
373,189 | 305,807 | ||||||
Commitments and Contingencies
|
||||||||
Equity:
|
||||||||
Stockholders' equity
|
||||||||
Common stock, $0.01 par value, 400,000,000 authorized, 9,450,599 and 9,425,442,
shares issued and outstanding, respectively |
$ | 95 | $ | 94 | ||||
Common stock subscribed
|
10,638 | - | ||||||
Additional paid-in capital
|
131,316 | 135,300 | ||||||
Accumulated other comprehensive income
|
17,344 | 17,732 | ||||||
Accumulated deficit
|
(77,936 | ) | (84,639 | ) | ||||
Total stockholders' equity
|
81,457 | 68,487 | ||||||
Noncontrolling interest
|
932 | - | ||||||
Total equity
|
82,389 | 68,487 | ||||||
Total Liabilities and Equity
|
$ | 455,578 | $ | 374,294 |
For the Three Months
|
For the Six Months
|
|||||||||||||||
Ended June 30,
|
Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
INTEREST INCOME
|
$ | 6,482 | $ | 5,185 | $ | 10,176 | $ | 11,406 | ||||||||
INTEREST EXPENSE:
|
||||||||||||||||
Investment securities and loans held in securitization trusts
|
711 | 1,284 | 1,429 | 2,676 | ||||||||||||
Subordinated debentures
|
470 | 673 | 936 | 1,432 | ||||||||||||
Convertible preferred debentures
|
- | 538 | - | 1,200 | ||||||||||||
Total interest expense
|
1,181 | 2,495 | 2,365 | 5,308 | ||||||||||||
NET INTEREST INCOME
|
5,301 | 2,690 | 7,811 | 6,098 | ||||||||||||
OTHER INCOME (EXPENSE):
|
||||||||||||||||
Provision for loan losses
|
(391 | ) | (600 | ) | (1,024 | ) | (602 | ) | ||||||||
Income from investment in limited partnership
and limited liability company
|
499 | - | 1,283 | - | ||||||||||||
Realized gain on investment securities
and related hedges
|
3,283 | 1,291 | 5,474 | 2,098 | ||||||||||||
Unrealized loss on investment securities
and related hedges
|
(695 | ) | - | (735 | ) | - | ||||||||||
Total other income
|
2,696 | 691 | 4,998 | 1,496 | ||||||||||||
General, administrative and other expenses
|
3,454 | 2,107 | 5,747 | 3,963 | ||||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
4,543 | 1,274 | 7,062 | 3,631 | ||||||||||||
Income tax expense
|
363 | - | 363 | - | ||||||||||||
INCOME FROM CONTINUING OPERATIONS
|
4,180 | 1,274 | 6,699 | 3,631 | ||||||||||||
Income from discontinued operation - net of tax
|
9 | 268 | 4 | 579 | ||||||||||||
NET INCOME
|
4,189 | 1,542 | 6,703 | 4,210 | ||||||||||||
Net income attributable to noncontrolling interest
|
20 | - | 20 | - | ||||||||||||
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ | 4,169 | $ | 1,542 | $ | 6,683 | $ | 4,210 | ||||||||
Basic income per common share
|
$ | 0.44 | $ | 0.16 | $ | 0.71 | $ | 0.45 | ||||||||
Diluted income per common share
|
$ | 0.44 | $ | 0.16 | $ | 0.71 | $ | 0.45 | ||||||||
Dividends declared per common share
|
$ | 0.22 | $ | 0.18 | $ | 0.40 | $ | 0.43 | ||||||||
Weighted average shares outstanding-basic
|
9,447 | 9,419 | 9,440 | 9,419 | ||||||||||||
Weighted average shares outstanding-diluted
|
9,447 | 11,919 | 9,440 | 11,919 |
Common
Stock
|
Common
Stock |
Additional
Paid-In |
Accum-
ulated
Deficit |
Accum-
ulated
OtherCompre-
hensive
Income/
(Loss)
|
Non-
controlling |
Compre-
hensive
Income |
Total
|
||||||||||||||||||
Balance, December 31, 2010
|
$ | 94 | $ | - | $ | 135,300 | $ | (84,639 | ) | $ | 17,732 | $ | - | $ | - | $ | 68,487 | ||||||||
Net income
|
- | - | - | 6,703 | - | (20 | ) | 6,703 | 6,683 | ||||||||||||||||
Restricted stock issuance
|
1 | - | 176 | - | - | - | - | 177 | |||||||||||||||||
Common stock subscribed
|
- | 10,638 | - | - | - | - | - | 10,638 | |||||||||||||||||
Costs associated with issuance of common stock
|
- | - | (381 | ) | - | - | - | - | (381 | ) | |||||||||||||||
Dividends declared
|
- | - | (3,779 | ) | - | - | - | - | (3,779 | ) | |||||||||||||||
Increase in non-controlling interests related to consolidation of interest in a mortgage loan held for investment
|
- | - | - | - | - | 952 | - | 952 | |||||||||||||||||
Reclassification adjustment for net gain included in net income
|
- | - | - | - | (3,885 | ) | - | (3,885 | ) | (3,885 | ) | ||||||||||||||
Increase in net unrealized gain on available for sale securities
|
- | - | - | - | 3,088 | - | 3,088 | 3,088 | |||||||||||||||||
Increase in fair value of derivative instruments utilized for cash flow hedges
|
- | - | - | - | 409 | - | 409 | 409 | |||||||||||||||||
Comprehensive income
|
- | - | - | - | - | - | $ | 6,315 | - | ||||||||||||||||
Balance, June 30, 2011
|
$ | 95 | $ | 10,638 | $ | 131,316 | $ | (77,936 | ) | $ | 17,344 | $ | 932 | $ | 82,389 |
For the Six Months Ended
June 30,
|
||||||||
2011
|
2010
|
|||||||
Cash Flows from Operating Activities:
|
||||||||
Net income
|
$ | 6,703 | $ | 4,210 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
68 | 485 | ||||||
Net accretion on investment securities and mortgage loans held in securitization trusts
|
342 | (1,372 | ) | |||||
Realized gain on securities and related hedges
|
(5,474 | ) | (2,098 | ) | ||||
Unrealized loss on securities and related hedges
|
735 | - | ||||||
Payments received on loans held for sale
|
14 | 16 | ||||||
Provision for loan losses
|
1,024 | 602 | ||||||
Income from investment in limited partnership and limited liability company
|
(1,283 | ) | - | |||||
Distributions from investment in limited partnership
|
383 | - | ||||||
Stock issuance
|
177 | 95 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Receivables and other assets
|
(749 | ) | (260 | ) | ||||
Accrued expenses and other liabilities
|
1,452 | (358 | ) | |||||
Net cash provided by operating activities
|
3,392 | 1,320 | ||||||
Cash Flows from Investing Activities:
|
||||||||
Restricted cash
|
(2,828 | ) | 690 | |||||
Purchases of reverse repurchase agreements
|
(18,000 | ) | - | |||||
Purchases of investment securities
|
(87,585 | ) | - | |||||
Issuance of mortgage loans held for investment
|
(2,520 | ) | - | |||||
Purchase of investment in limited liability company
|
(5,322 | ) | - | |||||
Proceeds from investment in limited partnership
|
4,517 | - | ||||||
Proceeds from mortgage loans held for investment
|
4,989 | - | ||||||
Proceeds from sales of investment securities
|
26,286 | 4,961 | ||||||
Principal repayments received on mortgage loans held in securitization trusts
|
10,039 | 25,491 | ||||||
Principal paydowns on investment securities - available for sale
|
8,811 | 32,328 | ||||||
Net cash (used in) provided by investing activities
|
(61,613 | ) | 63,470 | |||||
Cash Flows from Financing Activities:
|
||||||||
Proceeds from (payments of) financing arrangements
|
60,738 | (24,791 | ) | |||||
Dividends paid
|
(5,475 | ) | (4,710 | ) | ||||
Payments made on collateralized debt obligations
|
(10,358 | ) | (25,772 | ) | ||||
Capital contributed by noncontrolling interest
|
932 | - | ||||||
Costs associated with common stock subscribed
|
(106 | ) | - | |||||
Net cash provided by (used in) financing activities
|
45,731 | (55,273 | ) | |||||
Net (Decrease) Increase in Cash and Cash Equivalents
|
(12,490 | ) | 9,517 | |||||
Cash and Cash Equivalents - Beginning of Period
|
19,375 | 24,522 | ||||||
Cash and Cash Equivalents - End of Period
|
$ | 6,885 | $ | 34,039 | ||||
Supplemental Disclosure:
|
||||||||
Cash paid for interest
|
$ | 2,301 | $ | 4,823 | ||||
Non-Cash Investment Activities:
|
||||||||
Sale of investment securities not yet settled
|
$ | - | $ | 28,013 | ||||
Purchase of investment securities not yet settled
|
$ | 15,674 | $ | - | ||||
Non-Cash Financing Activities:
|
||||||||
Dividends declared to be paid in subsequent period
|
$ | - | $ | 1,695 | ||||
Common stock subscribed included in subscription receivable
|
$ | 10,638 | $ | - |
1.
|
Summary of Significant Accounting Policies
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Carrying
Value
|
|||||||||||||
Agency RMBS
|
$
|
115,051
|
$
|
3,434
|
$
|
(749
|
)
|
$
|
117,736
|
|||||||
Non-Agency RMBS
|
7,199
|
—
|
(1,408
|
)
|
5,791
|
|||||||||||
CLOs
|
9,056
|
17,894
|
—
|
26,950
|
||||||||||||
Total
|
$
|
131,306
|
$
|
21,328
|
$
|
(2,157
|
)
|
$
|
150,477
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Carrying
Value
|
|||||||||||||
Interest only securities included in Agency RMBS:
|
||||||||||||||||
Fannie Mae
|
$
|
26,349
|
$
|
903
|
$
|
(65
|
)
|
$
|
27,187
|
|||||||
Freddie Mac
|
18,788
|
609
|
(279
|
)
|
19,118
|
|||||||||||
Ginnie Mae
|
17,710
|
388
|
(405
|
)
|
17,693
|
|||||||||||
Total
|
$
|
62,847
|
$
|
1,900
|
$
|
(749
|
)
|
$
|
63,998
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Carrying
Value
|
|||||||||||||
Agency RMBS
|
$
|
45,865
|
$
|
1,664
|
$
|
—
|
$
|
47,529
|
||||||||
Non-Agency RMBS
|
10,071
|
80
|
(1,166
|
)
|
8,985
|
|||||||||||
CLOs
|
11,286
|
18,240
|
—
|
29,526
|
||||||||||||
Total
|
$
|
67,222
|
$
|
19,984
|
$
|
(1,166
|
)
|
$
|
86,040
|
June 30, 2011
|
Less than
6 Months
|
More than
6 Months
to 24 Months
|
More than
24 Months
|
Total
|
||||||||||||
Carrying
Value
|
Carrying
Value
|
Carrying
Value
|
Carrying
Value
|
|||||||||||||
Agency RMBS
|
$ | 51,087 | $ | 41,695 | $ | 24,954 | $ | 117,736 | ||||||||
Non-Agency RMBS
|
5,791 | — | — | 5,791 | ||||||||||||
CLO
|
26,950 | — | — | 26,950 | ||||||||||||
Total
|
$ | 83,828 | $ | 41,695 | $ | 24,954 | $ | 150,477 |
December 31, 2010
|
Less than
6 Months
|
More than
6 Months
to 24 Months
|
More than
24 Months
|
Total
|
||||||||||||
Carrying
Value
|
Carrying
Value
|
Carrying
Value
|
Carrying
Value
|
|||||||||||||
Agency RMBS
|
$ | 25,816 | $ | 5,313 | $ | 16,400 | $ | 47,529 | ||||||||
Non-Agency RMBS
|
8,985 | — | — | 8,985 | ||||||||||||
CLO
|
29,526 | — | — | 29,526 | ||||||||||||
Total
|
$ | 64,327 | $ | 5,313 | $ | 16,400 | $ | 86,040 |
June 30, 2011
|
Less than 12 Months
|
Greater than 12 Months
|
Total
|
|||||||||||||||||||||
Carrying
Value
|
Gross
Unrealized
Losses
|
Carrying
Value
|
Gross
Unrealized
Losses
|
Carrying
Value
|
Gross
Unrealized
Losses
|
|||||||||||||||||||
Non-Agency RMBS
|
$
|
—
|
$
|
—
|
$
|
5,791
|
$
|
1,408
|
$
|
5,791
|
$
|
1,408
|
||||||||||||
Total
|
$
|
—
|
$
|
—
|
$
|
5,791
|
$
|
1,408
|
$
|
5,791
|
$
|
1,408
|
December 31, 2010
|
Less than 12 Months
|
Greater than 12 Months
|
Total
|
|||||||||||||||||||||
Carrying
Value
|
Gross
Unrealized
Losses
|
Carrying
Value
|
Gross
Unrealized
Losses
|
Carrying
Value
|
Gross
Unrealized
Losses
|
|||||||||||||||||||
Non-Agency RMBS
|
$
|
—
|
$
|
—
|
$
|
6,436
|
$
|
1,166
|
$
|
6,436
|
$
|
1,166
|
||||||||||||
Total
|
$
|
—
|
$
|
—
|
$
|
6,436
|
$
|
1,166
|
$
|
6,436
|
$
|
1,166
|
|
June 30,
2011
|
December 31,
2010
|
||||||
Mortgage loans principal amount
|
$
|
218,605
|
$
|
229,323
|
||||
Deferred origination costs – net
|
1,377
|
1,451
|
||||||
Reserve for loan losses
|
(2,897)
|
(2,589)
|
||||||
Total
|
$
|
217,085
|
$
|
228,185
|
Six Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Balance at beginning of period
|
$
|
2,589
|
$
|
2,581
|
||||
Provisions for loan losses
|
769
|
493
|
||||||
Transfer to real estate owned
|
(16)
|
(383)
|
||||||
Charge-offs
|
(445)
|
(218)
|
||||||
Balance at the end of period
|
$
|
2,897
|
$
|
2,473
|
June 30,
2011
|
December 31,
2010
|
|||||||
Balance at beginning of period
|
$
|
740
|
$
|
546
|
||||
Write downs
|
(47)
|
(193)
|
||||||
Transfer from mortgage loans held in securitization trusts
|
218
|
1,398
|
||||||
Disposal
|
(175)
|
(1,011)
|
||||||
Balance at the end of period
|
$
|
736
|
$
|
740
|
Number of
Delinquent
Loans
|
Total
Dollar
Amount
|
% of
Loan
Portfolio
|
|||||||||||
30-60 |
2
|
$
|
1,274
|
0.58
|
%
|
||||||||
61-90 |
2
|
3,255
|
1.48
|
%
|
|||||||||
90+ |
36
|
17,552
|
7.99
|
%
|
|||||||||
Real estate owned through foreclosure
|
4
|
945
|
0.43
|
%
|
Days Late
|
Number of
Delinquent
Loans
|
Total
Dollar
Amount
|
% of
Loan
Portfolio
|
||||||||||
30-60 |
7
|
$
|
2,515
|
1.09
|
%
|
||||||||
61-90 |
4
|
4,362
|
1.89
|
%
|
|||||||||
90+ |
35
|
18,191
|
7.90
|
%
|
|||||||||
Real estate owned through foreclosure
|
3
|
894
|
0.39
|
%
|
Assets
|
June 30,
2011
|
December 31,
2010
|
||||||
Cash
|
$ | 1,463 | $ | 152 | ||||
Mortgage loans held for sale (net)
|
13,053 | 18,072 | ||||||
Other assets
|
465 | 478 | ||||||
Total Assets
|
$ | 14,981 | $ | 18,702 | ||||
Liabilities & Partners’ Equity
|
||||||||
Other liabilities
|
$ | 162 | $ | 37 | ||||
Partners’ equity
|
14,819 | 18,665 | ||||||
Total Liabilities and Partners’ Equity
|
$ | 14,981 | $ | 18,702 |
Three Months Ended
|
Six Months Ended
|
|||||||
Statement of Operations
|
June 30,
2011
|
June 30,
2011
|
||||||
Interest income
|
$ | 353 | $ | 761 | ||||
Realized gain
|
179 | 785 | ||||||
Total Income
|
532 | 1,546 | ||||||
Other expenses
|
(85 | ) | (315 | ) | ||||
Net Income
|
$ | 447 | $ | 1,231 |
Derivatives Designated as Hedging Instruments
|
Balance Sheet Location
|
June 30,
2011
|
December 31,
2010
|
|||||||
Interest Rate Swaps
|
Derivative Liabilities
|
$
|
678
|
$
|
1,087
|
Six Months Ended June 30,
|
||||||||
Derivatives Designated as Hedging Instruments
|
2011
|
2010
|
||||||
Accumulated other comprehensive income (loss) for derivative instruments:
|
||||||||
Balance at beginning of the period
|
$
|
(1,087
|
)
|
$
|
(2,905
|
)
|
||
Unrealized gain on interest rate caps
|
—
|
306
|
||||||
Unrealized gain on interest rate swaps
|
409
|
555
|
||||||
Reclassification adjustment for net gains (losses) included in net income for hedges
|
—
|
—
|
||||||
Balance at the end of the period
|
$
|
(678
|
)
|
$
|
(2,044
|
)
|
Derivative Not Designated as Hedging Instruments
|
Balance Sheet Location
|
June 30,
2011
|
December 31,
2010
|
|||||||
TBA security
|
Derivative Asset
|
$
|
14,361
|
$
|
—
|
|||||
U.S. Treasury futures
|
Derivative Asset
|
86
|
—
|
|||||||
Eurodollar futures
|
Derivative Liabilities
|
1,766
|
—
|
|||||||
Call options
|
Derivative Asset
|
224
|
—
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Interest Rate Caps:
|
||||||||||||||||
Interest expense-investment securities
and loans held in securitization trusts
|
$ | — | $ | 94 | $ | — | $ | 217 | ||||||||
Interest expense-subordinated debentures
|
— | — | — | 92 | ||||||||||||
Interest Rate Swaps:
|
||||||||||||||||
Interest expense-investment securities
and loans held in securitization trusts
|
223 | 662 | 503 | 1,387 |
June 30, 2011
|
December 31, 2010
|
|||||||||||||||
Maturity (1)
|
Notional
Amount
|
Weighted
Average
Fixed Pay
Interest Rate
|
Notional
Amount
|
Weighted
Average
Fixed Pay
Interest Rate
|
||||||||||||
Within 30 Days
|
$
|
740
|
3.03
|
%
|
$
|
24,080
|
2.99
|
%
|
||||||||
Over 30 days to 3 months
|
1,720
|
3.03
|
2,110
|
3.03
|
||||||||||||
Over 3 months to 6 months
|
3,140
|
3.02
|
2,280
|
3.03
|
||||||||||||
Over 6 months to 12 months
|
15,570
|
3.02
|
5,600
|
3.03
|
||||||||||||
Over 12 months to 24 months
|
9,190
|
2.93
|
16,380
|
3.01
|
||||||||||||
Over 24 months to 36 months
|
—
|
—
|
8,380
|
2.93
|
||||||||||||
Over 36 months to 48 months
|
—
|
—
|
—
|
—
|
||||||||||||
Total
|
$
|
30,360
|
2.99
|
%
|
$
|
58,830
|
3.00
|
%
|
(1)
|
The Company enters into scheduled amortizing interest rate swap transactions whereby the Company pays a fixed rate of interest and receives one month LIBOR.
|
Repurchase Agreements by Counterparty
|
||||||||
June 30,
2011
|
December 31,
2010
|
|||||||
Counterparty Name
|
||||||||
Cantor Fitzgerald
|
$ | 11,925 | $ | 4,990 | ||||
Credit Suisse First Boston LLC
|
11,675 | 12,080 | ||||||
Jefferies & Company, Inc.
|
8,405 | 9,476 | ||||||
JPMorgan Chase & Co.
|
44,995 | — | ||||||
South Street Securities LLC
|
19,370 | 9,086 | ||||||
Total Financing Arrangements, Portfolio Investments
|
$ | 96,370 | $ | 35,632 |
Three Months
Ended June 30,
|
Six Months
Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenues
|
$ | 57 | $ | 388 | $ | 101 | $ | 747 | ||||||||
Expenses
|
48 | 120 | 97 | 168 | ||||||||||||
Income from discontinued operation-net of tax
|
$ | 9 | $ | 268 | $ | 4 | $ | 579 |
June 30,
2011
|
December 31,
2010
|
|||||||
New York
|
37.8
|
%
|
37.9
|
%
|
||||
Massachusetts
|
25.5
|
%
|
25.0
|
%
|
||||
New Jersey
|
8.9
|
%
|
8.7
|
%
|
||||
Florida
|
5.7
|
%
|
5.6
|
%
|
a.
|
Investment Securities Available for Sale (RMBS) - Fair value for the RMBS in our portfolio is based on quoted prices provided by dealers who make markets in similar financial instruments. The dealers will incorporate common market pricing methods, including a spread measurement to the Treasury curve or interest rate swap curve as well as underlying characteristics of the particular security including coupon, periodic and life caps, collateral type, rate reset period and seasoning or age of the security. If quoted prices for a security are not reasonably available from a dealer, the security will be re-classified as a Level 3 security and, as a result, management will determine the fair value based on characteristics of the security that the Company receives from the issuer and based on available market information. Management reviews all prices used in determining valuation to ensure they represent current market conditions. This review includes surveying similar market transactions, comparisons to interest pricing models as well as offerings of like securities by dealers. The Company's investment securities that are comprised of RMBS are valued based upon readily observable market parameters and are classified as Level 2 fair values.
|
b.
|
Investment Securities Available for Sale (CLO) - The fair value of the CLO notes, prior to December 31, 2010, was based on management’s valuation determined using a discounted future cash flows model that management believes would be used by market participants to value similar financial instruments. At each of June 30, 2011 and December 31, 2010, the fair value of the CLO notes was based on quoted prices provided by dealers who make markets in similar financial instruments. The CLO notes were previously classified as Level 3 fair values and were re-classified as Level 2 fair values in the fourth quarter of 2010.
|
c.
|
Investment Securities Available for Sale (Midway) - The fair value of other investment securities available for sale, such as IOs and U.S. Treasury securities, is based on quoted prices provided by dealers who make markets in similar financial instruments. The Company’s IOs and U.S. Treasury securities are classified as Level 2 fair values.
|
d.
|
Derivative Instruments - The fair value of interest rate swaps, caps, options, futures and TBAs are based on dealer quotes. The Company’s derivatives are classified as Level 1 and 2 fair values.
|
Measured at Fair Value on a Recurring Basis
at June 30, 2011
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Assets carried at fair value:
|
||||||||||||||||
Investment securities available for sale:
|
||||||||||||||||
Agency RMBS
|
$
|
—
|
$
|
117,736
|
$
|
—
|
$
|
117,736
|
||||||||
Non-Agency RMBS
|
—
|
5,791
|
—
|
5,791
|
||||||||||||
CLO
|
—
|
26,950
|
—
|
26,950
|
||||||||||||
Derivative Asset
|
—
|
14,671
|
—
|
14,671
|
||||||||||||
Total
|
$
|
—
|
$
|
165,148
|
$
|
—
|
$
|
165,148
|
Liabilities carried at fair value:
|
||||||||||||||||
Derivative liabilities (interest rate swaps and
Eurodollar futures)
|
$
|
1,766
|
$
|
678
|
$
|
—
|
$
|
2,444
|
||||||||
Total
|
$
|
1,766
|
$
|
678
|
$
|
—
|
$
|
2,444
|
Measured at Fair Value on a Recurring Basis
at December 31, 2010
|
||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets carried at fair value: | ||||||||||||||||
Investment securities available for sale:
|
||||||||||||||||
Agency RMBS
|
$ | — | $ | 47,529 | $ | — | $ | 47,529 | ||||||||
Non-Agency RMBS
|
— | 8,985 | — | 8,985 | ||||||||||||
CLO
|
— | 29,526 | — | 29,526 | ||||||||||||
Total
|
$ | — | $ | 86,040 | $ | — | $ | 86,040 | ||||||||
Liabilities carried at fair value:
|
||||||||||||||||
Derivative liabilities (interest rate swaps)
|
$ | — | $ | 1,087 | $ | — | $ | 1,087 | ||||||||
Total
|
$ | — | $ | 1,087 | $ | — | $ | 1,087 |
Six Months Ended
June 30,
|
||||||||
2011
|
2010
|
|||||||
Balance at beginning of period
|
$
|
—
|
$
|
17,599
|
||||
Total gains (realized/unrealized)
|
||||||||
Included in earnings (1)
|
—
|
954
|
||||||
Included in other comprehensive income/(loss)
|
—
|
3,071
|
||||||
Balance at the end of period (2)
|
$
|
—
|
$
|
21,624
|
(1)-
|
Amounts included in interest income.
|
(2)-
|
The CLOs were re-classified from Level 3 to Level 2 fair values during the fourth quarter of 2010 due to management determining that there is a reliable market for these assets based upon quoted prices provided by dealers who make markets in similar investments.
|
Assets Measured at Fair Value on a Non-Recurring Basis
at June 30, 2011
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Mortgage loans held for investment
|
$
|
—
|
$
|
—
|
$
|
5,113
|
$
|
5,113
|
||||||||
Mortgage loans held for sale – included in
discontinued operations (net)
|
—
|
—
|
3,796
|
3,796
|
||||||||||||
Mortgage loans held in securitization trusts –
impaired loans (net)
|
—
|
—
|
7,083
|
7,083
|
||||||||||||
Real estate owned held in securitization trusts
|
—
|
—
|
736
|
736
|
Assets Measured at Fair Value on a Non-Recurring Basis
at December 31, 2010
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Mortgage loans held for investment
|
$
|
—
|
$
|
—
|
$
|
7,460
|
$
|
7,460
|
||||||||
Mortgage loans held for sale – included in
discontinued operations (net)
|
—
|
—
|
3,808
|
3,808
|
||||||||||||
Mortgage loans held in securitization trusts –
impaired loans (net)
|
—
|
—
|
6,576
|
6,576
|
||||||||||||
Real estate owned held in securitization trusts
|
—
|
—
|
740
|
740
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30, 2011
|
June 30, 2010
|
June 30, 2011
|
June 30, 2010
|
|||||||||||||
Mortgage loans held in securitization trusts –
impaired loans (net)
|
$ | 393 | $ | 491 | $ | 798 | $ | 493 |
June 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
Value
|
Estimated
Fair Value
|
Carrying
Value
|
Estimated
Fair Value
|
|||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents
|
$ | 6,885 | $ | 6,885 | $ | 19,375 | $ | 19,375 | ||||||||
Investment securities available for sale
|
150,477 | 150,477 | 86,040 | 86,040 | ||||||||||||
Mortgage loans held in securitization trusts (net)
|
217,085 | 195,106 | 228,185 | 206,560 | ||||||||||||
Derivative assets
|
14,671 | 14,671 | — | — | ||||||||||||
Assets related to discontinued operation-mortgage
loans held for sale (net)
|
3,796 | 3,796 | 3,808 | 3,808 | ||||||||||||
Mortgage loans held for investment
|
5,113 | 5,113 | 7,460 | 7,460 | ||||||||||||
Reverse repurchase agreements
|
18,000 | 18,000 | — | — | ||||||||||||
Receivable for securities sold
|
— | — | 5,653 | 5,653 |
Financial liabilities:
|
||||||||||||||||
Financing arrangements, portfolio investments
|
$
|
96,370
|
$
|
96,370
|
$
|
35,632
|
$
|
35,632
|
||||||||
Collateralized debt obligations
|
209,674
|
176,733
|
219,993
|
185,609
|
||||||||||||
Derivative liabilities
|
2,444
|
2,444
|
1,087
|
1,087
|
||||||||||||
Payable for securities purchased
|
15,674
|
15,674
|
—
|
—
|
||||||||||||
Subordinated debentures (net)
|
45,000
|
37,799
|
45,000
|
36,399
|
Period
|
Declaration Date
|
Record Date
|
Payment Date
|
Cash
Dividend
Per Share
|
||||||
Second Quarter 2011
|
May 31, 2011
|
June 10, 2011
|
June 27, 2011
|
$
|
0.22
|
|||||
First Quarter 2011
|
March 18, 2011
|
March 31, 2011
|
April 26, 2011
|
0.18
|
||||||
Fourth Quarter 2010
|
December 20, 2010
|
December 30, 2010
|
January 25, 2011
|
0.18
|
||||||
Third Quarter 2010
|
October 4, 2010
|
October 14, 2010
|
October 25, 2010
|
0.18
|
||||||
Second Quarter 2010
|
June 16, 2010
|
July 6, 2010
|
July 26, 2010
|
0.18
|
||||||
First Quarter 2010
|
March 16, 2010
|
April 1, 2010
|
April 26, 2010
|
0.25
|
For the Three Months Ended
June 30,
|
For the Six Months Ended
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income – Basic
|
$ | 4,169 | $ | 1,542 | $ | 6,683 | $ | 4,210 | ||||||||
Net income from continuing operations
|
4,160 | 1,274 | 6,679 | 3,631 | ||||||||||||
Net income from discontinued operations (net of tax)
|
9 | 268 | 4 | 579 | ||||||||||||
Effect of dilutive instruments:
|
||||||||||||||||
Convertible preferred debentures
|
— | 538 | — | 1,200 | ||||||||||||
Net income – Dilutive
|
4,169 | 2,080 | 6,683 | 5,410 | ||||||||||||
Net income from continuing operations
|
4,160 | 1,812 | 6,679 | 4,831 | ||||||||||||
Net income from discontinued operations (net of tax)
|
$ | 9 | $ | 268 | $ | 4 | $ | 579 | ||||||||
Denominator:
|
||||||||||||||||
Weighted average basis shares outstanding
|
9,447 | 9,419 | 9,440 | 9,419 | ||||||||||||
Effect of dilutive instruments:
|
||||||||||||||||
Convertible preferred debentures
|
— | 2,500 | — | 2,500 | ||||||||||||
Weighted average dilutive shares outstanding
|
9,447 | 11,919 | 9,440 | 11,919 | ||||||||||||
EPS:
|
||||||||||||||||
Basic EPS
|
$ | 0.44 | $ | 0.16 | $ | 0.71 | $ | 0.45 | ||||||||
Basic EPS from continuing operations
|
0.44 | 0.14 | 0.71 | 0.39 | ||||||||||||
Basic EPS from discontinued operations (net of tax)
|
— | 0.02 | — | 0.06 | ||||||||||||
Dilutive EPS
|
$ | 0.44 | $ | 0.16 | $ | 0.71 | $ | 0.45 | ||||||||
Dilutive EPS from continuing operations
|
0.44 | 0.14 | 0.71 | 0.39 | ||||||||||||
Basic EPS from discontinued operations (net of tax)
|
— | 0.02 | — | 0.06 |
2011 | 2010 | |||||||||
Number of
Non-vested
Restricted
Shares
|
Weighted
Average Per Share
Grant Date
Fair Value (1)
|
Number of
Non-vested
Restricted
Shares
|
Weighted
Average Per Share
Grant Date
Fair Value (1)
|
|||||||
Non-vested shares at January 1
|
28,999
|
$
|
5.43
|
60,665
|
$
|
5.28
|
||||
Granted
|
14,084
|
7.10
|
4,000
|
7.50
|
||||||
Forfeited
|
—
|
—
|
—
|
—
|
||||||
Vested
|
—
|
—
|
—
|
—
|
||||||
Non-vested shares as of June 30
|
43,083
|
$
|
5.98
|
64,665
|
$
|
5.42
|
||||
Weighted-average fair value of
restricted stock granted during
the period
|
14,084
|
$
|
7.10
|
4,000
|
$
|
7.50
|
(1)
|
The grant date fair value of restricted stock awards is based on the closing market price of the Company’s common stock at the grant date.
|
·
|
changes in our business and strategies;
|
·
|
our ability to successfully diversify our investment portfolio and identify suitable assets to invest in;
|
·
|
the effect of the Federal Reserve’s and the U.S. Treasury’s actions and programs, including future purchases or sales of Agency RMBS by the Federal Reserve or Treasury, on the liquidity of the capital markets and the impact and timing of any further programs or regulations implemented by the U.S. Government or its agencies;
|
·
|
any changes in laws and regulations affecting the relationship between Fannie Mae, Freddie Mac or Ginnie Mae and the U.S. Government;
|
·
|
increased prepayments of the mortgages and other loans underlying our investment securities;
|
·
|
the volatility of the markets for our targeted assets;
|
·
|
increased rates of default and/or decreased recovery rates on our assets;
|
·
|
mortgage loan modification programs and future legislative action;
|
·
|
the degree to which our hedging strategies may or may not protect us from, or expose us to, credit, prepayment or interest rate risk;
|
·
|
changes in the availability, terms and deployment of capital;
|
·
|
changes in interest rates and interest rate mismatches between our assets and related borrowings;
|
·
|
our ability to maintain existing financing agreements, obtain future financing arrangements and the terms of such arrangements;
|
·
|
changes in economic conditions generally and the mortgage, real estate and debt securities markets specifically;
|
·
|
legislative or regulatory changes;
|
·
|
changes to GAAP; and
|
·
|
the other important factors identified, or incorporated by reference into this report, including, but not limited to those under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” and “Risk Factors,” and those described under the caption “Risk Factors” in each of our Annual Report on Form 10-K for the year ended December 31, 2010 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and any other documents we file with the SEC.
|
·
|
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by the U.S. Congress. This legislation aims to restore responsibility and accountability to the financial system. It is unclear how this legislation may impact the borrowing environment, investing environment for RMBS and other targeted assets, interest rate swaps and other derivatives as much of the legislation’s implementation remains to be defined by regulators.
|
·
|
In November 2010, the U.S. Federal Reserve announced a program to purchase an additional $600 billion of longer-term U.S. Treasury securities, which concluded at the end of the second quarter of 2011. We believe this program created continued strong demand for Agency RMBS and likely helped to keep Agency RMBS at premium prices. We expect the program’s termination will cause a decrease in demand for these securities, which likely would reduce their market price, although we have yet to observe any significant decline in demand for these securities.
|
·
|
As part of its plan to sell off a $142 billion portfolio of mortgage-backed securities it purchased during the financial crisis, in March 2011, the U.S. Treasury Department announced plans to begin selling those securities. The U.S. Treasury's investments are primarily 30-year, fixed-rate mortgage securities guaranteed by either Fannie Mae or Freddie Mac that were purchased in late 2008 and 2009. The U.S. Treasury is aiming to sell off about $10 billion each month (in addition to principal pay-downs) and made the decision to begin selling these securities in light of the general improvement in the U.S. economy.
|
June 30, 2011
|
Par
Value
|
Carrying
Value
|
% of
Portfolio
|
|||||||||
Agency RMBS
|
$ | 542,567 | $ | 117,736 | 78.2 | % | ||||||
Non-Agency RMBS
|
8,010 | 5,791 | 3.8 | % | ||||||||
CLO
|
35,550 | 26,950 | 17.9 | % | ||||||||
Total | $ | 586,127 | $ | 150,477 | 100.0 | % |
June 30, 2011
|
Par
Value
|
Carrying
Value
|
% of
Portfolio
|
|||||||||
Interest only securities included in Agency RMBS: | ||||||||||||
Fannie Mae
|
$ | 173,966 | $ | 27,187 | 42.5 | % | ||||||
Freddie Mac
|
133,574 | 19,118 | 29.9 | % | ||||||||
Ginnie Mae
|
184,148 | 17,693 | 27.6 | % | ||||||||
Total | $ | 491,688 | $ | 63,998 | 100.0 | % |
December 31, 2010
|
Par
Value
|
Carrying
Value
|
% of
Portfolio
|
|||||||||
Agency RMBS
|
$ | 45,042 | $ | 47,529 | 55.3 | % | ||||||
Non-Agency RMBS
|
11,104 | 8,985 | 10.4 | % | ||||||||
CLO
|
45,950 | 29,526 | 34.3 | % | ||||||||
Total | $ | 102,096 | $ | 86,040 | 100.0 | % |
As of June 30, 2011
|
As of December 31, 2010
|
|||||||||||||
Range of
Outstanding Balance
|
Number
of Loans
|
Maturity
Date
|
Total
Principal
|
Number
of Loans
|
Maturity
Date
|
Total
Principal
|
||||||||
$0 - $500
|
23
|
11/2014 – 6/2018
|
$
|
10,225
|
11
|
11/2014 - 11/2017
|
$
|
5,404
|
||||||
$500 - $2,000
|
91
|
12/2013 – 11/2018
|
124,042
|
72
|
5/2013 - 12/2017
|
95,704
|
||||||||
$2,000 - $5,000
|
89
|
10/2012 – 9/2019
|
268,076
|
88
|
8/2012 - 11/2017
|
276,265
|
||||||||
$5,000 - $10,000
|
8
|
6/2012 – 3/2016
|
47,065
|
11
|
11/2011 - 3/2016
|
77,366
|
||||||||
+$10,000
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||
Total
|
211
|
$
|
449,408
|
182
|
$
|
454,739
|
Industry
|
Number
of Loans
|
Outstanding
Balance
|
% of
Outstanding
Balance
|
||||||
Healthcare, Education and Childcare
|
22
|
|
$ 57,675
|
12.83%
|
|||||
Retail Store
|
14
|
33,489
|
7.45%
|
||||||
Telecommunications
|
16
|
29,939
|
6.66%
|
||||||
Electronics
|
14
|
29,809
|
6.63%
|
||||||
Chemicals, Plastics and Rubber
|
12
|
23,719
|
5.28%
|
||||||
Personal, Food & Misc. Services
|
13
|
22,160
|
4.93%
|
||||||
Leisure, Amusement, Motion Pictures & Entertainment
|
10
|
21,386
|
4.76%
|
||||||
Diversified Conglomerate Service
|
13
|
20,969
|
4.67%
|
||||||
Hotels, Motels, Inns and Gaming
|
5
|
17,190
|
3.83%
|
||||||
Aerospace & Defense
|
9
|
16,987
|
3.78%
|
||||||
Utilities
|
5
|
16,785
|
3.73%
|
||||||
Beverage, Food & Tobacco
|
7
|
16,731
|
3.72%
|
||||||
Personal & Non-Durable Consumer Products
|
6
|
15,075
|
3.35%
|
||||||
Diversified/Conglomerate Mfg
|
6
|
14,718
|
3.27%
|
||||||
Printing & Publishing
|
5
|
14,572
|
3.24%
|
||||||
Containers, Packaging and Glass
|
6
|
13,228
|
2.94%
|
||||||
Finance
|
6
|
9,091
|
2.02%
|
||||||
Mining, Steel, Iron and Non-Precious Metals
|
4
|
8,790
|
1.96%
|
||||||
Banking
|
3
|
8,423
|
1.87%
|
||||||
Automobile
|
6
|
8,328
|
1.85%
|
||||||
Machinery (Non-Agriculture, Non-Construction & Non-Electric)
|
4
|
7,396
|
1.65%
|
||||||
Cargo Transport
|
2
|
6,116
|
1.36%
|
||||||
Farming & Agriculture
|
3
|
5,364
|
1.19%
|
||||||
Textiles & Leather
|
5
|
5,313
|
1.18%
|
||||||
Ecological
|
3
|
4,814
|
1.11%
|
||||||
Insurance
|
2
|
4,496
|
1.00%
|
||||||
Grocery
|
3
|
4,471
|
0.99%
|
||||||
Buildings and Real Estate
|
2
|
4,216
|
0.94%
|
||||||
Personal Transportation
|
1
|
2,494
|
0.55%
|
||||||
Broadcasting & Entertainment
|
2
|
2,262
|
0.50%
|
||||||
Diversified Natural Resources, Precious Metals and Minerals
|
1
|
2,244
|
0.50%
|
||||||
Oils & Gas
|
1
|
1,158
|
0.26%
|
||||||
211
|
|
$ 449,408
|
100.00%
|
Industry
|
Number
of Loans
|
Outstanding
Balance
|
% of
Outstanding
Balance
|
||||||
Healthcare, Education and Childcare
|
19
|
|
$ 52,537
|
11.55%
|
|||||
Retail Store
|
10
|
29,388
|
6.46%
|
||||||
Electronics
|
10
|
29,148
|
6.41%
|
||||||
Telecommunications
|
13
|
26,410
|
5.81%
|
||||||
Leisure, Amusement, Motion Pictures & Entertainment
|
10
|
22,316
|
4.91%
|
||||||
Personal, Food & Misc. Services
|
10
|
21,179
|
4.66%
|
||||||
Chemicals, Plastics and Rubber
|
9
|
20,962
|
4.61%
|
||||||
Beverage, Food & Tobacco
|
9
|
18,666
|
4.10%
|
||||||
Utilities
|
5
|
17,035
|
3.75%
|
||||||
Aerospace & Defense
|
7
|
16,468
|
3.62%
|
||||||
Insurance
|
3
|
16,245
|
3.57%
|
||||||
Hotels, Motels, Inns and Gaming
|
5
|
15,389
|
3.38%
|
||||||
Farming & Agriculture
|
5
|
14,983
|
3.29%
|
||||||
Cargo Transport
|
3
|
14,372
|
3.16%
|
||||||
Diversified/Conglomerate Mfg
|
6
|
13,914
|
3.06%
|
||||||
Personal & Non-Durable Consumer Products
|
5
|
13,774
|
3.03%
|
||||||
Printing & Publishing
|
4
|
11,944
|
2.63%
|
||||||
Diversified/Conglomerate Service
|
5
|
10,841
|
2.38%
|
||||||
Broadcasting & Entertainment
|
4
|
10,037
|
2.21%
|
||||||
Ecological
|
4
|
8,763
|
1.93%
|
||||||
Finance
|
3
|
7,803
|
1.72%
|
||||||
Containers, Packaging and Glass
|
4
|
7,635
|
1.68%
|
||||||
Machinery (Non-Agriculture, Non-Construction & Non-Electronic)
|
4
|
7,482
|
1.65%
|
||||||
Personal Transportation
|
3
|
7,306
|
1.61%
|
||||||
Buildings and Real Estate
|
3
|
6,970
|
1.53%
|
||||||
Banking
|
2
|
6,750
|
1.48%
|
||||||
Automobile
|
5
|
6,544
|
1.44%
|
||||||
Mining, Steel, Iron and Non-Precious Metals
|
3
|
5,466
|
1.20%
|
||||||
Textiles & Leather
|
3
|
4,359
|
0.96%
|
||||||
Grocery
|
2
|
3,994
|
0.88%
|
||||||
Oil & Gas
|
3
|
3,808
|
0.84%
|
||||||
Diversified Natural Resources, Precious Metals and Minerals
|
1
|
2,251
|
0.49%
|
||||||
182
|
|
$ 454,739
|
100.00%
|
# of Loans
|
Par Value
|
Coupon
|
Carrying Value
|
||||||||
June 30, 2011
|
535
|
$
|
218,605
|
2.93
|
%
|
$
|
217,085
|
||||
December 31, 2010
|
559
|
$
|
229,323
|
3.16
|
%
|
$
|
228,185
|
||||
Average
|
High
|
Low
|
||||||||||
General Loan Characteristics:
|
||||||||||||
Original Loan Balance (dollar amounts in thousands)
|
$
|
443
|
$
|
2,950
|
$
|
48
|
||||||
Current Coupon Rate
|
2.93
|
%
|
7.25
|
%
|
1.38
|
%
|
||||||
Gross Margin
|
2.37
|
%
|
4.13
|
%
|
1.13
|
%
|
||||||
Lifetime Cap
|
11.28
|
%
|
13.25
|
%
|
9.13
|
%
|
||||||
Original Term (Months)
|
360
|
360
|
360
|
|||||||||
Remaining Term (Months)
|
286
|
294
|
253
|
|||||||||
Average Months to Reset
|
3
|
12
|
1
|
|||||||||
Original Average FICO Score
|
729
|
818
|
593
|
|||||||||
Original Average LTV
|
70.46
|
%
|
95.00
|
%
|
13.94
|
%
|
% of Outstanding
Loan Balance
|
Weighted Average Gross Margin (%)
|
|||||||
Index Type/Gross Margin:
|
||||||||
One Month LIBOR
|
3%
|
1.69%
|
||||||
Six Month LIBOR
|
73%
|
2.40%
|
||||||
One Year LIBOR
|
16%
|
2.26%
|
||||||
One Year Constant Maturity Treasury
|
8%
|
2.65%
|
||||||
Total
|
100%
|
Description |
Interest Rate %
|
Final Maturity
|
||||||||||||||||||||||||||
Property
Type
|
Balance
|
Loan
Count
|
Max
|
Min
|
Avg
|
Min
|
Max
|
Periodic Payment Terms (months)
|
Prior Liens |
Original
Amount of
Principal
|
Current
Amount of
Principal
|
Principal
Amount of Loans Subject to Delinquent Principal or Interest
|
||||||||||||||||
Single
|
<= $100
|
14
|
3.88
|
2.50
|
3.04
|
12/01/34
|
11/01/35
|
360
|
N/A
|
$
|
1,770
|
$
|
1,029
|
$
|
-
|
|||||||||||||
Family
|
<=$250
|
69
|
4.63
|
2.50
|
3.17
|
09/01/32
|
12/01/35
|
360
|
N/A
|
14,955
|
12,721
|
713
|
||||||||||||||||
<=$500
|
94
|
4.13
|
2.50
|
3.00
|
07/01/33
|
01/01/36
|
360
|
N/A
|
36,018
|
32,660
|
6,429
|
|||||||||||||||||
<=$1,000
|
36
|
3.63
|
1.50
|
2.83
|
08/01/33
|
12/01/35
|
360
|
N/A
|
28,997
|
26,861
|
2,655
|
|||||||||||||||||
>$1,000
|
21
|
3.25
|
2.75
|
2.88
|
01/01/35
|
11/01/35
|
360
|
N/A
|
37,357
|
36,829
|
10,162
|
|||||||||||||||||
Summary
|
234
|
4.63
|
1.50
|
3.02
|
09/01/32
|
01/01/36
|
360
|
N/A
|
119,097
|
110,100
|
19,959
|
|||||||||||||||||
2-4 |
<= $100
|
1
|
3.75
|
3.75
|
3.75
|
02/01/35
|
02/01/35
|
360
|
N/A
|
80
|
72
|
75
|
||||||||||||||||
FAMILY
|
<=$250
|
7
|
3.75
|
2.75
|
3.16
|
12/01/34
|
07/01/35
|
360
|
N/A
|
1,415
|
1,206
|
-
|
||||||||||||||||
<=$500
|
15
|
7.25
|
2.13
|
3.18
|
09/01/34
|
01/01/36
|
360
|
N/A
|
5,554
|
5,195
|
254
|
|||||||||||||||||
<=$1,000
|
-
|
-
|
-
|
-
|
01/00/00
|
01/00/00
|
360
|
N/A
|
-
|
-
|
-
|
|||||||||||||||||
>$1,000
|
-
|
-
|
-
|
-
|
01/00/00
|
01/00/00
|
360
|
N/A
|
-
|
-
|
-
|
|||||||||||||||||
Summary
|
23
|
7.25
|
2.13
|
3.20
|
09/01/34
|
01/01/36
|
360
|
N/A
|
7,049
|
6,473
|
329
|
|||||||||||||||||
Condo
|
<= $100
|
13
|
3.38
|
2.75
|
2.91
|
01/01/35
|
12/01/35
|
360 |
N/A
|
1,640
|
855
|
-
|
||||||||||||||||
<=$250
|
72
|
3.88
|
2.50
|
3.10
|
02/01/34
|
01/01/36
|
360 |
N/A
|
14,094
|
12,392
|
266
|
|||||||||||||||||
<=$500
|
64
|
3.88
|
1.50
|
2.99
|
09/01/32
|
12/01/35
|
360 |
N/A
|
22,861
|
20,757
|
272
|
|||||||||||||||||
<=$1,000
|
18
|
3.88
|
1.63
|
2.88
|
08/01/33
|
10/01/35
|
360 |
N/A
|
12,698
|
12,324
|
-
|
|||||||||||||||||
>$1,000
|
10
|
3.00
|
2.75
|
2.83
|
01/01/35
|
09/01/35
|
360 |
N/A
|
14,914
|
14,605
|
-
|
|||||||||||||||||
CO-OP
|
Summary
|
177
|
3.88
|
1.50
|
3.01
|
09/01/32
|
01/01/36
|
360 |
N/A
|
66,207
|
60,933
|
538
|
||||||||||||||||
<= $100
|
4
|
3.00
|
2.50
|
2.75
|
10/01/34
|
08/01/35
|
360
|
N/A
|
443
|
319
|
-
|
|||||||||||||||||
<=$250
|
18
|
3.38
|
2.25
|
2.88
|
10/01/34
|
12/01/35
|
360
|
N/A
|
4,011
|
3,166
|
212
|
|||||||||||||||||
<=$500
|
26
|
4.00
|
1.38
|
2.88
|
08/01/34
|
12/01/35
|
360
|
N/A
|
10,724
|
9,466
|
-
|
|||||||||||||||||
<=$1,000
|
12
|
3.00
|
2.75
|
2.77
|
12/01/34
|
10/01/35
|
360
|
N/A
|
9,089
|
8,867
|
-
|
|||||||||||||||||
>$1,000
|
4
|
2.75
|
2.25
|
2.63
|
11/01/34
|
12/01/35
|
360
|
N/A
|
5,659
|
5,290
|
-
|
|||||||||||||||||
Summary
|
64
|
4.00
|
1.38
|
2.82
|
08/01/34
|
12/01/35
|
360
|
N/A
|
29,926
|
27,108
|
212
|
|||||||||||||||||
PUD
|
<= $100
|
1 |
2.75
|
2.75
|
2.75
|
07/01/35
|
07/01/35
|
360
|
N/A
|
100
|
90
|
-
|
||||||||||||||||
<=$250
|
18 |
3.50
|
2.50
|
2.94
|
01/01/35
|
12/01/35
|
360
|
N/A
|
3,797
|
3,558
|
273
|
|||||||||||||||||
<=$500
|
11 |
3.50
|
2.75
|
3.08
|
08/01/32
|
12/01/35
|
360
|
N/A
|
3,949
|
3,702
|
770
|
|||||||||||||||||
<=$1,000
|
4 |
3.50
|
2.75
|
3.13
|
05/01/37
|
10/01/35
|
360
|
N/A
|
2,832
|
2,611
|
-
|
|||||||||||||||||
>$1,000
|
3 |
3.04
|
2.75
|
2.93
|
04/01/34
|
12/01/35
|
360
|
N/A
|
4,148
|
4,030
|
-
|
|||||||||||||||||
Summary
|
37 |
3.50
|
2.50
|
2.99
|
08/01/32
|
12/01/35
|
360
|
N/A
|
14,826
|
13,991
|
1,043
|
|||||||||||||||||
Summary
|
<= $100
|
33
|
3.88
|
2.50
|
2.97
|
10/01/34
|
12/01/35
|
360
|
N/A
|
4,033
|
2,365
|
75
|
||||||||||||||||
<=$250
|
184
|
4.63
|
2.25
|
3.09
|
09/01/32
|
01/01/36
|
360
|
N/A
|
38,272
|
33,043
|
1,464
|
|||||||||||||||||
<=$500
|
210
|
7.25
|
1.38
|
3.00
|
08/01/32
|
01/01/36
|
360
|
N/A
|
79,106
|
71,780
|
7,725
|
|||||||||||||||||
<=$1,000
|
70
|
3.88
|
1.50
|
2.85
|
08/01/33
|
12/01/35
|
360
|
N/A
|
53,616
|
50,663
|
2,655
|
|||||||||||||||||
>$1,000
|
38
|
3.25
|
2.25
|
2.84
|
04/01/34
|
12/01/35
|
360
|
N/A
|
62,078
|
60,754
|
10,162
|
|||||||||||||||||
Grand Total |
535
|
7.25
|
1.38
|
2.93
|
08/01/32
|
01/01/36
|
360
|
N/A
|
$
|
237,105
|
$
|
218,605
|
$
|
22,081
|
Current
Principal
|
Premium
|
Loan Reserve
|
Net Carrying
Value
|
|||||||||||||
Balance, January 1, 2011
|
$
|
229,323
|
$
|
1,451
|
$
|
(2,589)
|
$
|
228,185
|
||||||||
Principal repayments
|
(10,659)
|
—
|
—
|
(10,659)
|
||||||||||||
Provision for loan losses
|
—
|
—
|
(769)
|
(769)
|
||||||||||||
Transfer to real estate owned
|
(234)
|
—
|
16
|
(218)
|
||||||||||||
Charge-offs
|
175
|
—
|
445
|
620
|
||||||||||||
Amortization for premium
|
—
|
(74)
|
—
|
(74)
|
||||||||||||
Balance, June 30, 2011
|
$
|
218,605
|
$
|
1,377
|
$
|
(2,897)
|
$
|
217,085
|
Loan Summary
|
June 30,
2011
|
|||
Number of Loans
|
112 | |||
Aggregate Current Loan Balance
|
$ | 18,614 | ||
Average Current Loan Balance
|
$ | 166 | ||
Weighted Average Original Term (Months)
|
374 | |||
Weighted Average Remaining Term (Months)
|
318 | |||
Weighted Average Gross Coupon (%)
|
6.76 | % | ||
Weighted Average Original Loan-to-Value of Loan (%)
|
86.17 | % | ||
Average Cost-to-Principal of Asset at Funding (%)
|
70.44 | % | ||
Fixed Rate Mortgages (%)
|
66.20 | % | ||
Adjustable Rate Mortgages (%)
|
33.80 | % | ||
First Lien Mortgages (%)
|
100.00 | % |
Loan Summary
|
December 31,
2010
|
|||
Number of Loans
|
159 | |||
Aggregate Current Loan Balance
|
$ | 26,953 | ||
Average Current Loan Balance
|
$ | 170 | ||
Weighted Average Original Term (Months)
|
377 | |||
Weighted Average Remaining Term (Months)
|
326 | |||
Weighted Average Gross Coupon (%)
|
6.80 | % | ||
Weighted Average Original Loan-to-Value of Loan (%)
|
86.60 | % | ||
Average Cost-to-Principal of Asset at Funding (%)
|
66.99 | % | ||
Fixed Rate Mortgages (%)
|
69.63 | % | ||
Adjustable Rate Mortgages (%)
|
30.37 | % | ||
First Lien Mortgages (%)
|
100.00 | % |
Assets
|
||||
Investment securities available for sale, at fair value (including pledged securities of $57,644)
|
$ | 63,998 | ||
Reverse repurchase agreements
|
18,000 | |||
Derivative asset
|
14,671 | |||
Receivables and other assets
|
4,110 | |||
Total Assets
|
$ | 100,779 | ||
Liabilities & Equity
|
||||
Liabilities:
|
||||
Financing arrangements, portfolio investments
|
$ | 44,995 | ||
Derivative liabilities
|
1,766 | |||
Payable for securities purchased
|
15,674 | |||
Accrued expenses and other liabilities
|
1,057 | |||
Total Liabilities
|
63,492 | |||
Equity
|
37,287 | |||
Total Equity
|
37,287 | |||
Total Liabilities and Equity
|
$ | 100,779 |
Three Months Ended
|
Six Months Ended
|
|||||||
Statement of Operations
|
June 30, 2011
|
June 30, 2011
|
||||||
Interest income
|
$ | 3,657 | $ | 3,938 | ||||
Interest expense
|
93 | 122 | ||||||
Net Interest Income
|
3,564 | 3,816 | ||||||
Other income (expense)
|
||||||||
Realized gain on investment securities and related hedges
|
725 | 765 | ||||||
Unrealized loss on investment securities and related hedges
|
(695 | ) | (735 | ) | ||||
General, administrative and other expenses
|
(1,102 | ) | (1,152 | ) | ||||
Net Income
|
$ | 2,492 | $ | 2,694 |
For the Three Months
Ended June 30,
|
For the Six Months
Ended June 30,
|
|||||||||||||||||||||||
2011
|
2010
|
Difference
|
2011
|
2010
|
Difference
|
|||||||||||||||||||
Net interest income
|
$ | 5,301 | $ | 2,690 | $ | 2,611 | $ | 7,811 | $ | 6,098 | $ | 1,713 | ||||||||||||
Total other income
|
2,696 | 691 | 2,005 | 4,998 | 1,496 | 3,502 | ||||||||||||||||||
General, administrative and other expenses
|
3,454 | 2,107 | 1,347 | 5,747 | 3,963 | 1,784 | ||||||||||||||||||
Income from continuing operations before income taxes
|
4,543 | 1,274 | 3,269 | 7,062 | 3,631 | 3,431 | ||||||||||||||||||
Income tax expense
|
363 | — | 363 | 363 | — | 363 | ||||||||||||||||||
Income from continuing operations
|
4,180 | 1,274 | 2,906 | 6,699 | 3,631 | 3,068 | ||||||||||||||||||
Income from discontinued operation - net of tax
|
9 | 268 | (259 | ) | 4 | 579 | (575 | ) | ||||||||||||||||
Net income
|
$ | 4,189 | $ | 1,542 | $ | 2,647 | $ | 6,703 | $ | 4,210 | $ | 2,493 | ||||||||||||
Net income attributable to noncontrolling interest
|
20 | — | 20 | 20 | — | 20 | ||||||||||||||||||
Net income attributable to common stockholders
|
$ | 4,169 | $ | 1,542 | $ | 2,627 | $ | 6,683 | $ | 4,210 | $ | 2,473 | ||||||||||||
Basic income per common share
|
$ | 0.44 | $ | 0.16 | $ | 0.28 | $ | 0.71 | $ | 0.45 | $ | 0.26 | ||||||||||||
Diluted income per common share
|
$ | 0.44 | $ | 0.16 | $ | 0.28 | $ | 0.71 | $ | 0.45 | $ | 0.26 |
For the Three Months Ended
June 30,
|
For the Six Months Ended
June 30,
|
|||||||||||||||||||||||
General, Administrative
and Other Expenses:
|
2011
|
2010
|
% Change
|
2011
|
2010
|
% Change
|
||||||||||||||||||
Salaries and benefits
|
$ | 454 | $ | 284 | 59.9 | % | $ | 912 | $ | 817 | 11.6 | % | ||||||||||||
Professional fees
|
429 | 303 | 41.6 | % | 765 | 585 | 30.8 | % | ||||||||||||||||
Management fees
|
2,095 | 740 | 183.1 | % | 3,135 | 1,204 | 160.4 | % | ||||||||||||||||
Other
|
476 | 780 | (39.0 | ) % | 935 | 1,357 | (31.1 | ) % | ||||||||||||||||
Total
|
$ | 3,454 | $ | 2,107 | 63.9 | % | $ | 5,747 | $ | 3,963 | 45.0 | % |
For the Three Months Ended June 30,
|
||||||||||||||||||||||
2011
|
2010
|
|||||||||||||||||||||
Average
Balance (1)
|
Amount
|
Yield/
Rate (2)
|
Average
Balance (1)
|
Amount
|
Yield/
Rate (2)
|
|||||||||||||||||
($ Millions) | ($ Millions) | |||||||||||||||||||||
Interest income:
|
||||||||||||||||||||||
Interest income
|
$
|
341.7
|
$
|
6,482
|
7.59
|
%
|
$
|
393.8
|
$
|
5,185
|
5.28
|
%
|
||||||||||
Interest expense:
|
||||||||||||||||||||||
Investment securities and loans
|
$
|
248.0
|
$
|
711
|
1.15
|
%
|
$
|
317.4
|
$
|
1,284
|
|
1.58
|
%
|
|||||||||
Subordinated debentures
|
45.0
|
470
|
4.18
|
%
|
45.0
|
673
|
5.85
|
%
|
||||||||||||||
Convertible preferred debentures
|
—
|
—
|
—
|
%
|
20.0
|
538
|
10.53
|
%
|
||||||||||||||
Interest expense
|
$
|
293.0
|
1,181
|
1.61
|
%
|
$
|
382.4
|
2,495
|
2.55
|
%
|
||||||||||||
Net interest income
|
$
|
5,301
|
5.98
|
%
|
$
|
2,690
|
2.73
|
%
|
For the Six Months Ended June 30,
|
||||||||||||||||||||||
|
2011
|
2010
|
||||||||||||||||||||
Average
Balance (1)
|
Amount
|
Yield/
Rate (2)
|
Average
Balance (1)
|
Amount
|
Yield/
Rate (2)
|
|||||||||||||||||
($ Millions)
|
($ Millions)
|
|||||||||||||||||||||
Interest income: | ||||||||||||||||||||||
Interest income
|
$ | 325.9 | $ | 10,176 | 6.24 | % | $ | 409.5 | $ | 11,406 | 5.57 | % | ||||||||||
Interest expense:
|
||||||||||||||||||||||
Investment securities and loans
|
$ | 257.1 | $ | 1,429 | 1.11 | % | $ | 330.8 | $ | 2,676 | 1.60 | % | ||||||||||
Subordinated debentures
|
45.0 | 936 | 4.16 | % | 45.0 | 1,432 | 6.29 | % | ||||||||||||||
Convertible preferred debentures
|
— | — | — | % | 20.0 | 1,200 | 11.87 | % | ||||||||||||||
Interest expense
|
$ | 302.1 | 2,365 | 1.57 | % | $ | 395.8 | 5,308 | 2.65 | % | ||||||||||||
Net interest income
|
$ | 7,811 | 4.67 | % | $ | 6,098 | 2.92 | % |
(1)
|
Our average balance of Interest Earning Assets is calculated each period as the daily average balance for the period of our Interest Earning Assets, excluding unrealized gains and losses. Our average balance of interest bearing liabilities is calculated each period as the daily average balance for the period of our financing arrangements (portfolio investments), CDOs, subordinated debentures and convertible preferred debentures.
|
(2)
|
Our net yield on Interest Earning Assets is calculated by dividing our interest income from our Interest Earning Assets for the period by our average Interest Earning Assets during the same period. Our interest expense rate is calculated by dividing our interest expense from our interest bearing liabilities for the period by our average interest bearing liabilities. The interest expense includes interest incurred on interest rate swaps.
|
Quarter Ended
|
Average
Interest
Earning
Assets (1) ($ millions)
|
Weighted
Average
Coupon (2)
|
Weighted
Average
Cash Yield
on Interest
Earning
Assets (3)
|
Cost of
Funds (4)
|
Net
Interest
Spread (5)
|
Constant
Prepayment
Rate
(CPR) (6)
|
|||||||
June 30, 2011
|
$
|
341.7
|
4.28%
|
7.59%
|
1.15%
|
6.44%
|
8.8%
|
||||||
March 31, 2011
|
$
|
310.2
|
3.19%
|
4.76%
|
1.08%
|
3.68%
|
9.6%
|
||||||
December 31, 2010
|
$
|
318.0
|
3.24%
|
4.98%
|
1.45%
|
3.53%
|
13.8%
|
||||||
September 30, 2010
|
$
|
343.5
|
3.76%
|
5.29%
|
1.66%
|
3.63%
|
21.1%
|
||||||
June 30, 2010
|
$
|
393.8
|
4.22%
|
5.28%
|
1.58%
|
3.70%
|
20.5%
|
||||||
March 31, 2010
|
$
|
425.1
|
4.50%
|
5.85%
|
1.60%
|
4.25%
|
18.6%
|
||||||
December 31, 2009
|
$
|
476.8
|
4.75%
|
5.78%
|
1.45%
|
4.33%
|
18.1%
|
||||||
September 30, 2009
|
$
|
571.0
|
4.98%
|
5.60%
|
1.47%
|
4.13%
|
22.5%
|
(1)
|
Our average Interest Earning Assets is calculated each quarter as the daily average balance of our Interest Earning Assets for the quarter, excluding unrealized gains and losses.
|
(2)
|
The Weighted Average Coupon reflects the weighted average rate of interest paid on our Interest Earning Assets for the quarter, net of fees paid. The percentages indicated in this column are the interest rates that will be effective through the interest rate reset date, where applicable, and have not been adjusted to reflect the purchase price we paid for the face amount of the security.
|
(3)
|
Our Weighted Average Cash Yield on Interest Earning Assets was calculated by dividing our annualized interest income from Interest Earning Assets for the quarter by our average Interest Earning Assets.
|
(4)
|
Our Cost of Funds was calculated by dividing our annualized interest expense from our Interest Earning Assets for the quarter by our average financing arrangements, portfolio investments and CDOs.
|
(5)
|
Net Interest Spread is the difference between our Weighted Average Cash Yield on Interest Earning Assets and our Cost of Funds.
|
(6)
|
Our Constant Prepayment Rate, or CPR, is the proportion of principal of our pool of loans that were paid off during each quarter.
|
Quarter Ended June 30, 2011
|
Average
Core Interest
Earning
Assets (1)
($ millions)
|
Weighted
Average
Coupon (2)
|
Weighted
Average
Cash Yield
on Core
Interest
Earning
Assets (3)
|
Cost of
Funds (4)
|
Net
Interest
Spread (5)
|
||||||
Net Interest Spread – Interest Earning Assets
|
$
|
341.7
|
4.28%
|
7.59%
|
1.15%
|
6.44%
|
|||||
Investment in Limited Partnership
|
$
|
13.8
|
5.94%
|
9.03%
|
—%
|
9.03%
|
|||||
Investment in Limited Liability Company
|
$
|
3.1
|
4.14%
|
8.90%
|
—%
|
8.90%
|
|||||
Net Interest Spread – Core Interest Earning Assets
|
$
|
358.6
|
4.32%
|
7.65%
|
1.15%
|
6.50%
|
|||||
Quarter Ended December 31, 2010
|
Average
Core Interest
Earning
Assets (1)
($ millions)
|
Weighted
Average
Coupon (2)
|
Weighted
Average
Cash Yield
on Core
Interest
Earning
Assets (3)
|
Cost of
Funds (4)
|
Net
Interest
Spread (5)
|
||||||
Net Interest Spread – Interest Earning Assets
|
$
|
318.0
|
3.24%
|
4.98%
|
1.45%
|
3.53%
|
|||||
Investment in Limited Partnership
|
$
|
11.1
|
7.06%
|
12.19%
|
—%
|
12.19%
|
|||||
Net Interest Spread – Core Interest Earning Assets
|
$
|
329.1
|
3.41%
|
5.22%
|
1.45%
|
3.77%
|
(1)
|
Our average Core Interest Earning Assets is calculated each quarter as the daily average balance of our Core Interest Earning Assets for the quarter, excluding unrealized gains and losses.
|
(2)
|
The Weighted Average Coupon reflects the weighted average rate of interest paid on our Core Interest Earning Assets for the quarter, net of fees paid. The percentages indicated in this column are the interest rates that will be effective through the interest rate reset date, where applicable, and have not been adjusted to reflect the purchase price we paid for the face amount of the security.
|
(3)
|
Our Weighted Average Cash Yield on Core Interest Earning Assets was calculated by dividing our annualized interest income from Core Interest Earning Assets for the quarter by our average Core Interest Earning Assets.
|
(4)
|
Our Cost of Funds was calculated by dividing our annualized interest expense from our Core Interest Earning Assets for the quarter by our average financing arrangements, portfolio investments and CDOs.
|
(5)
|
Net Interest Spread is the difference between our Weighted Average Cash Yield on Core Interest Earning Assets and our Cost of Funds.
|
·
|
Interest rate risk
|
|
·
|
Liquidity risk
|
|
·
|
Prepayment risk
|
|
·
|
Credit risk
|
|
·
|
Fair value risk
|
Changes in Net Interest Income
|
|||
Changes in Interest Rates
|
|
Changes in Net Interest
Income
|
|
+200
|
$
|
(176)
|
|
+100
|
$
|
(807)
|
|
-100
|
$
|
(5,670)
|
Market Value Changes
|
||||||
Changes in
Interest Rates
|
Changes in
Market Value
|
Net
Duration
|
||||
|
(Amount in thousands)
|
|
||||
+200
|
$
|
(9,763)
|
4.25 years
|
|||
+100
|
$
|
(4,220)
|
2.76 years
|
|||
Base
|
—
|
0.89 years
|
||||
-100
|
$
|
(1,711)
|
(1.29) years
|
NEW YORK MORTGAGE TRUST, INC.
|
|||
Date: August 4, 2011
|
By:
|
/s/ Steven R. Mumma | |
Steven R. Mumma
Chief Executive Officer and President
(Principal Executive Officer)
|
Date: August 4, 2011
|
By:
|
/s/ Fredric S. Starker | |
Fredric S. Starker
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Exhibit
|
Description
|
|
3.1(a)
|
Articles of Amendment and Restatement of New York Mortgage Trust, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-11 as filed with the Securities and Exchange Commission (Registration No. 333-111668), effective June 23, 2004).
|
|
3.1(b)
|
Articles of Amendment of the Registrant (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 4, 2007).
|
|
3.1(c)
|
Articles of Amendment of the Registrant (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 4, 2007).
|
|
3.1(d)
|
Articles of Amendment of the Registrant (Incorporated by reference to Exhibit 3.1(d) to the Company’s Current Report on Form 8-K filed on May 16, 2008).
|
|
3.1(e)
|
Articles of Amendment of the Registrant (Incorporated by reference to Exhibit 3.1(e) to the Company’s Current Report on Form 8-K filed on May 16, 2008).
|
|
3.1(f)
|
Articles of Amendment of the Registrant (Incorporated by reference to Exhibit 3.1(f) to the Company’s Current Report on Form 8-K filed on June 15, 2009).
|
|
3.2
|
Bylaws of New York Mortgage Trust, Inc., as amended (Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K filed on March 4, 2011).
|
|
4.1
|
Form of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-11 as filed with the Securities and Exchange Commission (Registration No. 333-111668), effective June 23, 2004).
|
|
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 the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission 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 the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on September 6, 2005).
|
|
4.3(a)
|
Articles Supplementary Establishing and Fixing the Rights and Preferences of Series A Cumulative Redeemable Convertible Preferred Stock of the Company (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 25, 2008).
|
|
4.3(b) | Form of Series A Cumulative Redeemable Convertible Preferred Stock Certificate (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 25, 2008). | |
10.1 | Management Agreement, by and between RB Commercial Mortgage LLC and RiverBanc LLC dated as of April 5, 2011. (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 5, 2011). | |
31.1 | Section 302 Certification of Chief Executive Officer.* | |
31.2 | Section 302 Certification of Chief Financial Officer.* | |
32.1 | Section 906 Certification of Chief Executive Officer and Chief Financial Officer.** | |
Exhibit 101.INS XBRL | Instance Document *** | |
Exhibit 101.SCH XBRL
|
Taxonomy Extension Schema Document *** | |
Exhibit 101.CAL XBRL | Taxonomy Extension Calculation Linkbase Document *** | |
Exhibit 101.DEF XBRL | Taxonomy Extension Definition Linkbase Document *** | |
Exhibit 101.LAB XBRL | Taxonomy Extension Label Linkbase Document *** | |
Exhibit 101.PRE XBRL | Taxonomy Extension Presentation Linkbase Document *** | |
*
|
Filed herewith.
|
**
|
Furnished herewith. Such certification shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
|
***
|
Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2011 ( Unaudited) and December 31, 2010 (Derived from the audited balance sheet at December 31, 2010); (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2011 and 2010; (iii) Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the six months ended June 30, 2011; (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2011 and 2010; and (v) Unaudited Notes to Condensed Consolidated Financial Statements. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: August 4, 2011
|
|
/s/ Steven R. Mumma
|
|
Steven R. Mumma
|
|
Chief Executive Officer and President
(Principal Executive Officer)
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: August 4, 2011
|
|
/s/ Fredric S. Starker
|
|
Fredric S. Starker
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Date: August 4, 2011
|
/s/ Steven R. Mumma
|
|
Steven R. Mumma
Chief Executive Officer and President
(Principal Executive Officer)
|
||
Date: August 4, 2011
|
/s/ Fredric S. Starker
|
|
Fredric S. Starker
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Condensed Consolidated Balance Sheets (Parentheticals) (USD $)
In Thousands, except Share data |
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
including pledged securities of (in Dollars) | $ 115,595 | $ 38,475 |
Common stock par value (in Dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 400,000,000 | 400,000,000 |
Common stock, shares issued | 9,450,599 | 9,425,442 |
Common stock, shares outstanding | 9,450,599 | 9,425,442 |
Document And Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 02, 2011
|
|
Document and Entity Information [Abstract] | Â | Â |
Entity Registrant Name | NEW YORK MORTGAGE TRUST INC | Â |
Document Type | 10-Q | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Common Stock, Shares Outstanding | Â | 11,178,273 |
Amendment Flag | false | Â |
Entity Central Index Key | 0001273685 | Â |
Entity Current Reporting Status | Yes | Â |
Entity Voluntary Filers | No | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Well-known Seasoned Issuer | No | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
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Note 6 - Financing Arrangements, Portfolio Investments
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Jun. 30, 2011
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Repurchase Agreements, Resale Agreements, Securities Borrowed, and Securities Loaned Disclosure [Text Block] |
6.
Financing
Arrangements, Portfolio Investments
The
Company has entered into repurchase agreements with third
party financial institutions to finance its investment
portfolio. The repurchase agreements are
short-term borrowings that bear interest rates typically
based on a spread to LIBOR, and are secured by the securities
which they finance. At June 30, 2011, the Company
had repurchase agreements with an outstanding balance of
$96.4 million and a weighted average interest rate of
0.63%. As of December 31, 2010, the Company had
repurchase agreements with an outstanding balance of $35.6
million and a weighted average interest rate of
0.39%. At June 30, 2011 and December 31, 2010,
securities pledged by the Company as collateral for
repurchase agreements had estimated fair values of $115.6
million and $38.5 million, respectively. All
outstanding borrowings under our repurchase agreements
mature within 30 days. As of June 30, 2011,
the average days to maturity for all repurchase
agreements are 18 days.
The
following table summarizes outstanding repurchase agreement
borrowings secured by portfolio investments, which are
included in financing arrangements, portfolio investments on
the condensed consolidated balance sheets, as of June 30,
2011 and December 31, 2010, respectively (dollar amount in
thousands):
As
of June 30, 2011, the outstanding balance under our
repurchase agreements was funded at an advance rate of 83%
that implies an average haircut of 17%. The weighted average
“haircut” related to our repurchase agreement
financing for our Agency IOs, CLOs and other Agency RMBS was
approximately 25%, 35% and 6%, respectively, for a total
weighted average “haircut” of 17%. The amount at
risk for Credit Suisse First Boston, LLC, South Street
Securities, LLC, Jefferies & Company, Inc., Cantor
Fitzgerald and JPMorgan Chase & Co. are $0.8 million,
$0.9 million, $0.5 million, $4.3 million and $12.7 million,
respectively. As of June 30, 2011, the Company had $6.9
million in cash and $33.6 million in unencumbered investment
securities to meet additional haircut or market valuation
requirements, including $18.8 million of RMBS, of which $13.0
million are Agency RMBS. The $6.9 million of cash and the
$18.8 million in RMBS (which, collectively, represents 27.0%
of our financing arrangements, portfolio investments) are
liquid and could be monetized to pay down or collateralize
the liability immediately. |
Note 11 - Fair Value of Financial Instruments
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Jun. 30, 2011
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Fair Value Disclosures [Text Block] |
11. Fair
Value of Financial Instruments
The
Company has established and
documented processes for determining fair
values. Fair value is based upon quoted market
prices, where available. If listed prices or
quotes are not available, then fair value is based upon
internally developed models that primarily use inputs that
are market-based or independently-sourced market parameters,
including interest rate yield curves.
A
financial instrument’s categorization within the
valuation hierarchy is based upon the lowest level of input
that is significant to the fair value
measurement. The three levels of valuation
hierarchy are defined as follows:
Level 1 -
inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active
markets.
Level 2 -
inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of
the financial instrument.
Level 3 -
inputs to the valuation methodology are unobservable and
significant to the fair value measurement.
The
following describes the valuation methodologies used for the
Company’s financial instruments measured at fair value,
as well as the general classification of such instruments
pursuant to the valuation hierarchy.
The
following table presents the Company’s financial
instruments measured at fair value on a recurring basis as of
June 30, 2011 and December 31, 2010, respectively, on the
Company’s condensed consolidated balance sheets (dollar
amounts in thousands):
The
following table details changes in valuation for the Level 3
assets for the six months ended June 30, 2011 and 2010,
respectively (amounts in thousands):
Investment
securities available for sale: CLO
Any
changes to the valuation methodology are reviewed by
management to ensure the changes are
appropriate. As markets and products develop and
the pricing for certain products becomes more transparent,
the Company continues to refine its valuation
methodologies. The methods described above may
produce a fair value calculation that may not be indicative
of net realizable value or reflective of future fair
values. Furthermore, while the Company believes
its valuation methods are appropriate and consistent with
other market participants, the use of different
methodologies, or assumptions, to determine the fair value of
certain financial instruments could result in a different
estimate of fair value at the reporting date. The
Company uses inputs that are current as of each reporting
date, which may in the future include periods of market
dislocation, during which time price transparency may be
reduced. This condition could cause the
Company’s financial instruments to be reclassified from
Level 2 to Level 3 in future periods.
The
following table presents assets measured at fair value on a
non-recurring basis as of June 30, 2011 and December 31,
2010, respectively, on the Company’s condensed
consolidated balance sheets (dollar amounts in
thousands):
The
following table presents losses incurred for assets measured
at fair value on a non-recurring basis for the three and six
months ended June 30, 2011 and 2010, respectively, on the
Company’s condensed consolidated statements of
operations (dollar amounts in thousands):
The
following table presents the carrying value and estimated
fair value of the Company’s financial instruments at
June 30, 2011 and December 31, 2010, respectively (dollar
amounts in thousands):
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Note 2 - Investment Securities Available for Sale
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Jun. 30, 2011
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Available-for-sale Securities [Table Text Block] |
2.
Investment
Securities Available for Sale
Investment
securities available for sale consist of the following as of
June 30, 2011 (dollar amounts in thousands):
Securities
included in investment securities available for sale held in
our Midway Residential Mortgage Portfolio that are measured
at fair value through earnings consist of the following as of
June 30, 2011 (dollar amounts in thousands):
Investment
securities available for sale consist of the following as of
December 31, 2010 (dollar amounts in thousands):
The
following table sets forth the stated reset periods of our
investment securities available for sale at June 30, 2011
(dollar amounts in thousands):
The
following table sets forth the stated reset periods of our
investment securities available for sale at December 31, 2010
(dollar amounts in thousands):
The
following tables present the Company’s investment
securities available for sale in an unrealized loss position
reported through OCI, aggregated by investment category and
length of time that individual securities have been in a
continuous unrealized loss position, at June 30, 2011 and
December 31, 2010, respectively (dollar amounts in
thousands):
As
of June 30, 2011 and December 31, 2010, respectively, the
Company did not have unrealized losses in investment
securities that were deemed other-than-temporary.
During
the three and six months ended June 30, 2011, the Company
received total proceeds of approximately $4.3 million and
$8.1 million, respectively, realizing approximately $2.5
million and $4.7 million, respectively, of profit before
incentive fee from the sale of certain CLO
investments. During the three and six months ended
June 30, 2010, the Company received total proceeds of
approximately $29.7 million and $33.0 million, respectively,
realizing approximately $1.3 million and $2.1 million,
respectively, of profit before incentive fee from the sale of
certain Agency RMBS and non-Agency RMBS.
|
Note 8 - Discontinued Operation
|
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Jun. 30, 2011
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Discontinued Operations, Policy [Policy Text Block] |
8. Discontinued
Operation
In
connection with the sale of our mortgage origination platform
assets during the quarter ended March 31, 2007, we classified
our mortgage lending segment as a discontinued
operation. As a result, we have reported revenues
and expenses related to the segment as a discontinued
operation for all periods presented in the accompanying
condensed consolidated financial
statements. Certain assets, such as the deferred
tax asset, and certain liabilities, such as the subordinated
debentures and liabilities related to lease facilities not
sold, are part of our ongoing operations and accordingly, we
have not included these items as part of the discontinued
operation. Assets and liabilities related to the
discontinued operation are $4.0 million and $0.6 million,
respectively, at June 30, 2011 and December 31, 2010, and are
included in receivables and other assets and accrued expenses
and other liabilities in the condensed consolidated balance
sheets.
Statements
of Operations Data
The
statements of operations of the discontinued operation for
the three and six months ended June 30, 2011 and 2010,
respectively, are as follows (dollar amounts in
thousands):
|
Note 13 - Related Party Transactions
|
3 Months Ended |
---|---|
Jun. 30, 2011
|
|
Related Party Transactions Disclosure [Text Block] |
13. Related Party Transactions
Advisory
Agreements
On
January 18, 2008, the Company entered into an advisory
agreement (the “Prior Advisory Agreement”) with
Harvest Capital Strategies LLC (“HCS”) (formerly
known as JMP Asset Management LLC), pursuant to which HCS was
responsible for implementing and managing the Company’s
investments in certain real estate-related and financial
assets. The Company entered into the Prior
Advisory Agreement concurrent and in connection with its
private placement of Series A Preferred Stock to JMP Group
Inc. and certain of its affiliates. HCS is a wholly-owned
subsidiary of JMP Group Inc. Pursuant to SEC
filings as of March 16, 2011, HCS and JMP Group Inc.
collectively beneficially owned approximately 15.2% of the
Company’s common stock. In addition, until its redemption on
December 31, 2010, HCS and JMP Group Inc. collectively
beneficially owned 100% of the Company’s Series A
Preferred Stock. The Company’s Series A
Preferred Stock matured on December 31, 2010, at which
time it redeemed all the outstanding shares at
the $20.00 per share liquidation preference plus accrued
dividends of $0.5 million.
Pursuant
to the Prior Advisory Agreement, HCS managed investments made
by HC and NYMF (other than certain RMBS that are held in
these entities for regulatory compliance purposes) as well as
any additional subsidiaries that were acquired or formed to
hold investments made on the Company’s behalf by HCS.
The Company sometimes refers to these subsidiaries in its
periodic reports filed with the Securities and Exchange
Commission as the “Managed
Subsidiaries.” The Prior Advisory Agreement
provided for the payment to HCS of a base advisory fee that
was equal to 1.50% per annum of the “equity
capital” (as defined in the advisory agreement) of the
Managed Subsidiaries; and an incentive fee upon the Managed
Subsidiaries achieving certain investment
hurdles. HCS was also eligible to earn an
incentive fee on the managed assets. The Prior
Advisory Agreement incentive fee was equal to 25% of the GAAP net income of the
Managed Subsidiaries attributable to the investments that are
managed by HCS that exceed a hurdle rate equal to the greater
of (a) 8.00% and (b) 2.00% plus the ten year treasury rate
for such fiscal year payable by us to HCS in cash, quarterly
in arrears; provided,
however, that a portion
of the incentive compensation may be paid in shares of our
common stock. The Prior Advisory Agreement
was terminated effective July 26, 2010 upon execution and
effectiveness of an amended and restated advisory agreement
among the Company, HC, NYMF and HCS (the “HCS Advisory
Agreement”).
Pursuant
to the HCS Advisory Agreement, HCS provides investment
advisory services to the Company and manages on the
Company’s behalf “new program assets”
acquired after the date of the HCS Advisory
Agreement. The terms for new program assets,
including the compensation payable thereunder to HCS by the
Company, will be negotiated on a transaction-by-transaction
basis
. For those new program
assets identified as “Managed Assets”, HCS will
be (A) entitled to receive a quarterly base advisory fee
(payable in arrears) in an amount equal to the product of (i)
¼ of the amortized cost of the Managed Assets as of the
end of the quarter, and (ii) 2%, and (B) eligible to earn
incentive compensation on the Managed Assets for each fiscal
year during the term of the Agreement in an amount (not less
than zero) equal to 35% of the GAAP
net income attributable to the Managed Assets for the full
fiscal year (including paid interest and realized gains),
after giving effect to all direct expenses related to the
Managed Assets, including but not limited to, the annual
consulting fee (described below) and base advisory fees, that
exceeds a hurdle rate of 13% based on the average equity of
the Company invested in Managed Assets during that particular
year. For those new program assets identified as Scheduled
Assets, HCS will receive the compensation, which may include
base advisory and incentive compensation, agreed upon between
the Company and HCS and set forth in a term sheet or other
documentation related to the transaction. HCS will
continue to be eligible to earn incentive compensation on
those assets held by the Company as of the effective date of
the HCS Advisory Agreement that are deemed to be managed
assets under the Prior Advisory Agreement. Incentive
compensation for these “legacy assets” will be
calculated in the manner prescribed in the Prior Advisory
Agreement. Lastly, during the term of the HCS Advisory
Agreement, the Company will pay HCS an annual consulting fee
equal to $1 million, subject to reduction under certain
circumstances, payable on a quarterly basis in arrears, for
consulting and support services.
For
the three and six months ended June 30, 2011, HCS earned
aggregate base advisory and consulting fees of approximately
$0.3 million and $0.5 million, respectively, and an
incentive fee of approximately $0.7 million and $1.5 million,
respectively. For the three and six months ended June
30, 2010, HCS earned aggregate base advisory and consulting
fees of approximately $0.2 million and $0.4 million,
respectively, and an incentive fee of approximately $0.6
million and $0.8 million, respectively. As of June 30,
2011, HCS was managing approximately $44.5 million of assets
on the Company’s behalf. As of June 30, 2011 and
December 31, 2010, the Company had a management fee payable
totaling $1.0 million and $0.7 million, respectively,
included in accrued expenses and other liabilities.
The
HCS Advisory Agreement has an initial term that expires on
June 30, 2012, subject to automatic annual one-year renewals
thereafter. The Company may terminate the Agreement or elect
not to renew the Agreement, subject to certain conditions and
subject to paying a termination fee equal to the product of
(A) 1.5 and (B) the sum of (i) the average annual base
advisory fee earned by HCS during the 24-month period
preceding the effective termination date, and (ii) the annual
consulting fee.
On
April 5, 2011, RBCM entered into a management agreement with
RiverBanc LLC (“RiverBanc”), pursuant to which
RiverBanc provides investment management services to RBCM.
HCS owns a 28% equity interest in RiverBanc and, accordingly,
may receive a portion of the fees paid to RiverBanc by RBCM.
For the three months ended June 30, 2011, RBCM paid
approximately $11,000 in fees to RiverBanc.
JMP
and its affiliates have, at times, co-invested with the
Company and/or made debt or equity investments in investees
they introduced to the Company. James J. Fowler, the
Company’s Chairman and the Chief Investment Officer of
HC and NYMF, is a portfolio manager for HCS and a managing
director of JMP Group Inc.
|
Note 9 - Commitments and Contingencies
|
3 Months Ended |
---|---|
Jun. 30, 2011
|
|
Commitments and Contingencies Disclosure [Text Block] |
9. Commitments
and Contingencies
Loans Sold to
Third Parties - The Company sold its discontinued
mortgage lending business in March 2007. In the
normal course of business, the Company is obligated to
repurchase loans based on violations of representations and
warranties in the loan sale agreements. The Company did
not repurchase any loans during the six months ended June 30,
2011.
The
Company periodically receives repurchase requests based on
alleged violations of representations and warranties, each of
which management reviews to determine, based on
management’s experience, whether such requests may
reasonably be deemed to have merit. As of June 30,
2011, we had a total of $2.0 million of unresolved repurchase
requests that management concluded may reasonably be deemed
to have merit and against which the Company has a reserve of
approximately $0.3 million. The reserve is based
on one or more of the following factors; historical
settlement rates, property value securing the loan in
question and specific settlement discussions with third
parties.
Outstanding
Litigation - The Company
is at times subject to various legal proceedings arising in
the ordinary course of business. As of June 30,
2011, the Company does not
believe that any of its current legal proceedings,
individually or in the aggregate, will have a material
adverse effect on its operations, financial condition or
cash flows.
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Note 7 - Collateralized Debt Obligations
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3 Months Ended |
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Jun. 30, 2011
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Schedule of Financial Instruments Owned and Pledged as Collateral [Table Text Block] |
7. Collateralized
Debt Obligations
The
Company’s CDOs, which are recorded as liabilities on
the Company’s balance sheet, are secured by ARM loans
pledged as collateral, which are recorded as mortgage loans
held in securitization trusts in the condensed consolidated
balance sheets. As of June 30, 2011 and December
31, 2010, the Company had CDOs outstanding of $209.7 million
and $220.0 million, respectively. As of June 30,
2011 and December 31, 2010, the current weighted average
interest rate on these CDOs was 0.57% and 0.65%,
respectively. The CDOs are collateralized by ARM
loans with a principal balance of $218.6 million and $229.3
million at June 30, 2011 and December 31, 2010,
respectively. The Company retained the owner trust
certificates, or residual interest, for three securitizations
and, as of June 30, 2011 and December 31, 2010, had a net
investment in the securitization trusts, after loan loss
reserves and including real estate owned, of $8.1
million and $8.9 million, respectively.
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Note 3 - Mortgage Loans Held in Securitization Trusts and Real Estate Owned
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Jun. 30, 2011
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Mortgage Loans on Real Estate, by Loan Disclosure [Text Block] |
3.
Mortgage
Loans Held in Securitization Trusts and Real Estate
Owned
Mortgage
loans held in securitization trusts (net) consist of the
following as of June 30, 2011 and December 31, 2010,
respectively (dollar amounts in thousands):
Allowance for
Loan losses - The following table presents the
activity in the Company's allowance for loan losses on
mortgage loans held in securitization trusts for the six
months ended June 30, 2011 and 2010, respectively (dollar
amounts in thousands):
On
an ongoing basis, the Company evaluates the adequacy of its
allowance for loan losses. The Company’s
allowance for loan losses at June 30, 2011 was $2.9
million, representing 133 basis points of the outstanding
principal balance of loans held in securitization trusts as
of June 30, 2011, as compared to 113 basis points as of
December 31, 2010. As part of the Company’s
allowance for loan losses adequacy analysis, management will
assess an overall level of allowances while also assessing
credit losses inherent in each non-performing mortgage loan
held in securitization trusts. These estimates involve the
consideration of various credit related factors, including
but not limited to, current housing market conditions,
current loan to value ratios, delinquency status, the
borrower’s current economic and credit status and other
relevant factors.
Real Estate
Owned – The following table presents the
activity in the Company’s real estate owned held in
securitization trusts for the six months ended June 30, 2011
and the year ended December 31, 2010 (dollar amounts in
thousands):
Real
estate owned held in securitization trusts are included in
receivables and other assets on the balance sheet and write
downs are included in provision for loan losses in the
statement of operations for reporting purposes.
All
of the Company’s mortgage loans and real estate owned
held in securitization trusts are pledged as collateral for
the collateralized debt obligations (“CDOs”)
issued by the Company. As of June 30, 2011 and
December 31, 2010, the Company’s net investment in the
securitization trusts, which is the maximum amount of the
Company’s investment that is at risk to loss and
represents the difference between the carrying amount of the
loans and real estate owned held in securitization trusts and
the amount of CDOs outstanding, was $8.1 million and $8.9
million, respectively.
Delinquency
Status of Our Mortgage Loans Held in Securitization
Trusts
As
of June 30, 2011, we had 40 delinquent loans with an
aggregate principal amount outstanding of approximately $22.1
million categorized as Mortgage Loans Held in Securitization
Trusts (net). Of the $22.1 million in delinquent
loans, $18.3 million, or 83%, are currently under some form
of modified payment plan. As these borrowers are
not current, they continue to be reported as delinquent even
though they are working towards a credit
resolution. The table below shows delinquencies in
our portfolio of loans held in securitization trusts,
including real estate owned through foreclosure (REO), as of
June 30, 2011 (dollar amounts in thousands):
As
of December 31, 2010, we had 46 delinquent loans with an
aggregate principal amount outstanding of approximately $25.1
million categorized as Mortgage Loans Held in Securitization
Trusts (net). Of the $25.1 million in delinquent
loans as of December 31, 2010, $17.8 million, or 71%, were
under some form of modified payment plan. Because
these borrowers were not current as of December 31, 2010,
they have been reported as delinquent even though they were
working towards a credit resolution. The table
below shows delinquencies in our portfolio of loans held in
securitization trusts, including real estate owned through
foreclosure (REO), as of December 31, 2010 (dollar amounts in
thousands):
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Note 4 - Investment in Limited Partnership and Limited Liability Company
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Jun. 30, 2011
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Equity Method Investments Disclosure [Text Block] |
4. Investment
in Limited Partnership and Limited Liability Company
The
Company has a non-controlling, unconsolidated limited
partnership interest in an entity that is accounted for using
the equity method of accounting. Capital
contributions, distributions, and profits and losses of the
entity are allocated in accordance with the terms of the
limited partnership agreement. The Company owns effectively
100% of the equity of the limited partnership, but has no
decision-making powers, and therefore does not consolidate
the limited partnership. Our maximum exposure to loss in this
variable interest entity is $14.8 million at June 30, 2011.
During the third and fourth quarters of 2010, HC invested, in
exchange for limited partnership interests, $19.4 million in
this limited partnership that was formed for the purpose of
acquiring, servicing, selling or otherwise disposing of
first-lien residential mortgage loans. The pool of
mortgage loans was acquired by the partnership at a
significant discount to the loans’ unpaid principal
balance.
At
June 30, 2011, the Company had an investment in this limited
partnership of $15.0 million. For the three and
six months ended June 30, 2011, the Company recognized income
from the investment in limited partnership of $0.4 million
and $1.2 million, respectively.
The
condensed balance sheet of the investment in limited
partnership at June 30, 2011 and December 31, 2010,
respectively, is as follows (dollar amounts in
thousands):
The
condensed statement of operations of the investment in
limited partnership for the three and six months ended June
30, 2011, respectively, is as follows (dollar amounts in
thousands):
During the second
quarter of 2011, RBCM invested $5.3 million in a limited
liability company that was formed for the purpose of
investing in two tranches of securities. For the six months
ended June 30, 2011, the Company recognized income from the
investment in limited liability company of $33,000.
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Note 12 - Capital Stock and Earnings per Share
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Jun. 30, 2011
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Earnings Per Share [Text Block] |
12. Capital Stock and Earnings per
Share
The
Company had 400,000,000 shares of common stock, par value
$0.01 per share, authorized, with 9,450,599 and 9,425,442
shares issued and outstanding as of June 30, 2011 and
December 31, 2010, respectively.
The
following table presents cash dividends declared by the
Company on its common stock with respect to each of the
quarterly periods commencing January 1, 2010 and ended June
30, 2011:
On
June 28, 2011, we entered into an underwriting agreement
relating to the offer and sale of 1,500,000 shares of our
common stock at a public offering price of $7.50 per share,
which shares were issued and proceeds received on July 1,
2011. On July 14, 2011, we issued an additional 225,000
shares of common stock to the underwriter pursuant to their
exercise of an over-allotment option. These proceeds were
received on July 14, 2011. We received total net proceeds of
$11.9 million from the issuance of the 1,725,000
shares.
The
Company calculates basic net
income per share by dividing net income for the period by
weighted-average shares of common stock outstanding for that
period. Diluted net income per share takes into account the
effect of dilutive instruments, such as convertible preferred
stock, stock options and unvested restricted or
performance stock, but uses the average share price for the
period in determining the number of incremental shares that
are to be added to the weighted-average number of shares
outstanding.
The
following table presents the computation of basic and diluted
net income per share for the periods indicated (in thousands,
except per share amounts):
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Note 5 - Derivatives and Other Hedging Instruments
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Jun. 30, 2011
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Derivative Instruments and Hedging Activities Disclosure [Text Block] |
5.
Derivatives
and Other Hedging Instruments
The
following table presents the fair value of derivative
instruments designated as hedging instruments and their
location in the Company’s condensed consolidated
balance sheets at June 30, 2011 and December 31, 2010,
respectively (dollar amounts in thousands):
The
following table presents the impact of the Company’s
derivative instruments on the Company’s accumulated
other comprehensive income (loss) for the six months ended
June 30, 2011 and 2010, respectively (dollar amounts in
thousands):
The
Company estimates that over the next 12 months,
approximately $0.5 million of the net unrealized losses
on the interest rate swaps will be reclassified from
accumulated other comprehensive income (loss) into
earnings.
The
following table presents the fair value of derivative
instruments held in our Midway Residential Mortgage Portfolio
that were not designated as hedging instruments and their
location in the Company’s condensed consolidated
balance sheets at June 30, 2011 and December 31, 2010,
respectively (dollar amounts in thousands):
The
use of TBAs exposes the Company to market value risk, as the
market value of the securities that the Company is required
to purchase pursuant to a TBA transaction may decline below
the agreed-upon purchase price. Conversely, the market value
of the securities that the Company is required to sell
pursuant to a TBA transaction may increase above the agreed
upon sale price.
The
Eurodollar futures swap equivalents in our Midway Residential
Mortgage Portfolio are accounted for at fair value with both
realized and unrealized gains and losses included in other
income (expense) in our condensed consolidated statements of
operations. For the three and six months ended June 30, 2011,
respectively, we recorded net realized losses of $0.2 million
and net unrealized losses of $1.8 million in our Eurodollar
futures contracts. The Eurodollar futures consist
of 2,746 contracts with expiration dates ranging between
September 2011 and June 2014 and have a fair market value
derivative liability of $1.8 million.
The following table
details the impact of the Company’s interest rate swaps
and interest rate caps included in interest expense for the
three and six months ended June 30, 2011 and 2010,
respectively (dollar amounts in thousands):
Interest Rate
Swaps and Eurodollar Futures Contracts - The
Company is required to pledge assets under a bi-lateral
margin arrangement, including either cash or Agency RMBS, as
collateral for its interest rate swaps and Eurodollar futures
contracts (“Swaps”), whose collateral
requirements vary by counterparty and change over time based
on the market value, notional amount, and remaining term of
the Swap. In the event the Company is unable to
meet a margin call under one of its Swap agreements, thereby
causing an event of default or triggering an early
termination event under one of its Swap agreements, the
counterparty to such agreement may have the option to
terminate all of such counterparty’s outstanding Swap
transactions with the Company. In addition, under this
scenario, any close-out amount due to the counterparty upon
termination of the counterparty’s transactions would be
immediately payable by the Company pursuant to the applicable
agreement. The Company believes it was in
compliance with all margin requirements under its Swap
agreements as of June 30, 2011 and December 31,
2010. The Company had $3.6 million and $1.2
million of restricted cash related to margin posted for Swaps
as of June 30, 2011 and December 31, 2010,
respectively. The restricted cash held by third
parties is included in receivables and other assets in the
accompanying condensed consolidated balance sheets.
The
use of Swaps exposes the Company to counterparty credit risks
in the event of a default by a Swap counterparty. If a
counterparty defaults under the applicable Swap agreement,
the Company may be unable to collect payments to which it is
entitled under its Swap agreements, and may have difficulty
collecting the assets it pledged as collateral against such
Swaps. The Company currently has in place with all
outstanding Swap counterparties bi-lateral margin agreements
thereby requiring a party to post collateral to the Company
for any valuation deficit. This arrangement is
intended to limit the Company’s exposure to losses in
the event of a counterparty default.
The
following table presents information about the
Company’s interest rate swaps as of June 30, 2011 and
December 31, 2010, respectively (dollar amounts in
thousands):
Interest Rate
Caps – Interest rate caps are designated by the
Company as cash flow hedges against interest rate risk
associated with the Company’s CDOs and the subordinated
debentures. The interest rate caps associated with the CDOs
are amortizing contractual schedules determined at
origination. The Company had $0 and $76.0 million of notional
interest rate caps outstanding as of June 30, 2011 and
December 31, 2010, respectively. These interest
rate caps are utilized to cap the interest rate on the CDOs
at a fixed-rate when one month LIBOR exceeds a predetermined
rate. The interest rate caps expired on April 25,
2011.
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Note 15 - Stock Incentive Plan
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Jun. 30, 2011
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Disclosure of Compensation Related Costs, Share-based Payments [Text Block] |
15. Stock Incentive Plan
In
May 2010, the Company’s stockholders approved the
Company’s 2010 Stock Incentive Plan (the “2010
Plan”), with such stockholder action resulting in the
termination of the Company’s 2005 Stock Incentive Plan
(the “2005 Plan”). The terms of the 2010 Plan are
substantially the same as the 2005 Plan. However,
any outstanding awards under the 2005 Plan will continue in
accordance with the terms of the 2005 Plan and any award
agreement executed in connection with such outstanding
awards. At June 30, 2011, there are 43,083 shares of
restricted stock outstanding under the 2010 and 2005
Plan.
Pursuant
to the 2010 Plan, eligible employees, officers and directors
of the Company are offered the opportunity to acquire the
Company's common stock through the award of restricted stock
and other equity awards under the 2010 Plan. The maximum
number of shares that may be issued under the 2010 Plan is
1,190,000. Since the 2010 Plan’s adoption in May
2010, the Company’s directors have been issued 18,250
shares under the 2010 Plan in lieu of cash compensation as of
June 30, 2011.
During
the three and six months ended June 30, 2011, the Company
recognized non-cash compensation expense of approximately
$52,000 and $99,000, respectively. Dividends are
paid on all restricted stock issued, whether those shares
have vested or not. Notwithstanding certain
exceptions, non-vested restricted stock is forfeited
upon the recipient's termination of employment.
A
summary of the activity of the Company's non-vested
restricted stock for the six months ended June 30, 2011 and
June 30, 2010, respectively, is presented below:
At June 30, 2011
and 2010, the Company had unrecognized compensation expense
of $0.1 million and $0.2 million, respectively, related to
the non-vested shares of restricted common
stock. The unrecognized compensation expense at
June 30, 2011 is expected to be recognized over a weighted
average period of 2.7 years. The total fair value
of restricted shares vested during the six months ended June
30, 2011 and 2010 was $0.
|
Condensed Consolidated Statement of Stockholders’ Equity (USD $)
In Thousands |
Total
|
Common Stock [Member]
|
Common Stock Subscribed [Member]
|
Additional Paid-in Capital [Member]
|
Retained Earnings [Member]
|
Accumulated Other Comprehensive Income (Loss) [Member]
|
Noncontrolling Interest [Member]
|
Comprehensive Income [Member]
|
---|---|---|---|---|---|---|---|---|
Balance, December 31, 2010 at Dec. 31, 2010 | $ 68,487 | $ 94 | Â | $ 135,300 | $ (84,639) | $ 17,732 | Â | Â |
Net income | 6,683 | Â | Â | Â | 6,703 | Â | (20) | 6,703 |
Restricted stock issuance | 177 | 1 | Â | 176 | Â | Â | Â | Â |
Common stock subscribed | 10,638 | Â | 10,638 | Â | Â | Â | Â | Â |
Costs associated with issuance of common stock | (381) | Â | Â | (381) | Â | Â | Â | Â |
Dividends declared | (3,779) | Â | Â | (3,779) | Â | Â | Â | Â |
Increase in non-controlling interests related to consolidation of interest in a mortgage loan held for investment | 952 | Â | Â | Â | Â | Â | 952 | Â |
Reclassification adjustment for net gain included in net income | (3,885) | Â | Â | Â | Â | (3,885) | Â | (3,885) |
Increase in net unrealized gain on available for sale securities | 3,088 | Â | Â | Â | Â | 3,088 | Â | 3,088 |
Increase in fair value of derivative instruments utilized for cash flow hedges | 409 | Â | Â | Â | Â | 409 | Â | 409 |
Comprehensive income | Â | Â | Â | Â | Â | Â | Â | 6,315 |
Balance, June 30, 2011 at Jun. 30, 2011 | $ 82,389 | $ 95 | $ 10,638 | $ 131,316 | $ (77,936) | $ 17,344 | $ 932 | Â |
Note 1 - Summary of Significant Accounting Policies
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3 Months Ended | ||
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Jun. 30, 2011
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Significant Accounting Policies [Text Block] |
Organization
- New York Mortgage
Trust, Inc., together with its consolidated subsidiaries
(“NYMT,” the “Company,”
“we,” “our” and “us”), is
a real estate investment trust, or REIT, in the business of
acquiring, investing in, financing and managing primarily
mortgage-related assets. Our principal business objective is
to generate net income for distribution to our stockholders
resulting from the spread between the interest and other
income we earn on our interest-earning assets and the
interest expense we pay on the borrowings that we use to
finance our leveraged assets and our operating costs. We also
may opportunistically acquire and manage various other types
of financial assets that we believe will compensate us
appropriately for the risks associated with them.
The
Company conducts its business through the parent company,
NYMT, and several subsidiaries, including special purpose
subsidiaries established for loan securitization purposes, a
taxable REIT subsidiary ("TRS") and qualified REIT
subsidiaries ("QRS"). The Company conducts
certain of its portfolio investment operations
through its wholly-owned TRS, Hypotheca Capital, LLC
(“HC”), in order to utilize, to the extent
permitted by law, a portion of a net operating loss
carry-forward held in HC that resulted from the
Company's exit from the mortgage lending business.
Prior to March 31, 2007, the Company conducted
substantially all of its mortgage lending business
through HC. One of the
Company's wholly-owned QRSs, New York Mortgage Funding,
LLC (“NYMF”), currently holds certain
mortgage-related assets for regulatory compliance
purposes. The Company also may conduct certain other
portfolio investment operations through NYMF. The
Company utilizes its wholly-owned QRS, RB Commercial Mortgage
LLC (“RBCM”), for its investments secured by
commercial real estate and structured other investments such
as seasoned or distressed commercial loan portfolios, net
leased properties or subordinate commercial mortgage-backed
securities. The Company consolidates all of its
subsidiaries under generally accepted accounting principles
in the United States of America (“GAAP”).
The
Company is organized and conducts its operations so as to
qualify as a REIT for federal income tax purposes. As
such, the Company will generally not be subject to federal
income tax on that portion of its income that is distributed
to stockholders if it distributes at least 90% of its REIT
taxable income to its stockholders by the due date of its
federal income tax return and complies with various other
requirements.
Basis of
Presentation -
The condensed consolidated balance sheet as of December 31,
2010, has been derived from audited financial
statements. The condensed consolidated balance sheet at
June 30, 2011, the condensed consolidated statements of
operations for the three and six months ended June 30, 2011
and 2010, the condensed consolidated statement of
stockholders’ equity for the six months ended June 30,
2011 and the condensed consolidated statements of cash flows
for the six months ended June 30, 2011 and 2010 are
unaudited. In our opinion, all adjustments (which
include only normal recurring adjustments) necessary to
present fairly the Company’s financial position,
results of operations and cash flows have been
made. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted in
accordance with Article 10 of Regulation S-X and the
instructions to Form 10-Q. These condensed
consolidated financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto included in our Annual Report on Form 10-K for
the year ended December 31, 2010, as filed with the
Securities and Exchange Commission
(“SEC”). The results of operations for
the three and six months ended June 30, 2011 are not
necessarily indicative of the operating results for the full
year.
The
accompanying condensed consolidated financial statements have
been prepared on the accrual basis of accounting in
accordance with U.S. generally accepted accounting principles
(“GAAP”). The preparation of financial
statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual
results could differ from those estimates.
The
condensed consolidated financial statements of the Company
include the accounts of all subsidiaries; significant
intercompany accounts and transactions have been
eliminated.
Investment
Securities Available for Sale - The Company's
investment securities, where the fair value option has not
been elected and are reported at fair value with unrealized
gains and losses reported in other comprehensive income
(“OCI”), include residential mortgage-backed
securities (“RMBS”) that are issued by government
sponsored enterprises (“GSE”), which, together
with RMBS issued or guaranteed by other GSE’s or
government agencies, is referred to as “Agency
RMBS,” non-Agency RMBS and collateralized loan
obligations (“CLOs”). Our investment
securities are classified as available for sale securities.
Realized gains and losses recorded on the sale of investment
securities available for sale are based on the specific
identification method and included in realized gain (loss) on
sale of securities and related hedges in the condensed
consolidated statements of operations. Purchase premiums or
discounts on investment securities are amortized or accreted
to interest income over the estimated life of the investment
securities using the effective yield method. Adjustments to
amortization are made for actual prepayment activity.
When the fair value of an investment
security is less than its amortized cost at the balance sheet
date, the security is considered impaired. The Company
assesses its impaired securities on at least a quarterly
basis, and designates such impairments as either
“temporary” or
“other-than-temporary.” If the Company
intends to sell an impaired security, or it is more likely
than not that it will be required to sell the impaired
security before its anticipated recovery, then it must
recognize an other-than-temporary impairment through earnings
equal to the entire difference between the investment’s
amortized cost and its fair value at the balance sheet
date. If the Company does not expect to sell an
other-than-temporarily impaired security, only the portion of
the other-than-temporary impairment related to credit losses
is recognized through earnings with the remainder recognized
as a component of other comprehensive income (loss) on the
condensed consolidated balance sheet. Impairments
recognized through other comprehensive income (loss) do not
impact earnings. Following the recognition of an
other-than-temporary impairment through earnings, a new cost
basis is established for the security, which may not be
adjusted for subsequent recoveries in fair value through
earnings. However, other-than-temporary impairments
recognized through earnings may be accreted back to the
amortized cost basis of the security on a prospective basis
through interest income. The determination as to whether
an other-than-temporary impairment exists and, if so, the
amount considered other-than-temporarily impaired is
subjective, as such determinations are based on both factual
and subjective information available at the time of
assessment. As a result, the timing and amount of
other-than-temporary impairments constitute material
estimates that are susceptible to significant change.
The
Company’s investment securities available for sale also
includes its investment in a wholly owned account referred to
as the Midway Residential Mortgage Portfolio. The Midway
Residential Mortgage Portfolio investments include interest
only and inverse interest only securities (collectively
referred to as “IOs”) and U.S. Treasury
securities. The Midway Residential Mortgage Portfolio
investments include derivative investments not designated as
hedging instruments, unrealized gains and losses are
recognized through earnings in the condensed consolidated
statements of operations. The Company has elected the fair
value option for these investment securities which also
measures unrealized gains and losses through earnings in the
condensed consolidated statements of operations, as the
Company believes this accounting treatment more accurately
and consistently reflects their results of operations.
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.
Receivables and
Other Assets -
Receivables and other assets totaled $12.4 million as of June
30, 2011, and consist primarily of $4.3 million of restricted
cash held by third parties, $4.0 million of assets related to
discontinued operations, $1.3 million of accrued interest
receivable, $0.8 million related to escrow advances, $0.7
million of real estate owned (“REO”) in
securitization trusts, $0.6 million of prepaid expenses, $0.5
million of capitalized expenses related to equity and bond
issuance cost, $0.1 million of deferred tax asset and $0.1
million of other assets. The restricted cash held
by third parties of $4.3 million includes $4.1 million held
by counterparties as collateral for hedging instruments and
$0.2 million as collateral for a letter of credit related to
the lease of the Company’s corporate
headquarters. Receivables and other assets totaled
$8.9 million as of December 31, 2010, and consist of $4.0
million of assets related to discontinued operations, $1.4
million of restricted cash held by third parties, $1.1
million related to escrow advances, $0.7 million of real
estate owned (“REO”) in securitization trusts,
$0.6 million of capitalized expenses related to equity and
bond issuance cost, $0.6 million of accrued interest
receivable, $0.4 million of prepaid expenses and $0.1 million
of deferred tax asset. The restricted cash held by
third parties of $1.4 million includes $1.2 million held by
counterparties as collateral for hedging instruments and $0.2
million as collateral for a letter of credit related to the
lease of the Company’s corporate headquarters.
Mortgage Loans
Held in Securitization Trusts - Mortgage loans held in
securitization trusts are certain adjustable rate
mortgage ("ARM") loans transferred to New York Mortgage
Trust 2005-1, New York Mortgage Trust 2005-2 and New York
Mortgage Trust 2005-3 that have been securitized into
sequentially rated classes of beneficial interests. Mortgage
loans held in securitization trusts are carried at their
unpaid principal balances, net of unamortized premium or
discount, unamortized loan origination costs and allowance
for loan losses.
Interest
income is accrued and recognized as revenue when earned
according to the terms of the mortgage loans and when, in the
opinion of management, it is collectible. The accrual of
interest on loans is discontinued when, in management’s
opinion, the interest is not collectible in the normal course
of business, but in no case when payment becomes greater than
90 days delinquent. Loans return to accrual status when
principal and interest become current and are anticipated to
be fully collectible.
Mortgage Loans
Held for Investment - Mortgage loans held for
investment are stated at unpaid principal balance, adjusted
for any unamortized premium or discount, deferred fees or
expenses, net of valuation allowances. Interest
income is accrued on the principal amount of the loan based
on the loan’s contractual interest
rate. Amortization of premiums and discounts is
recorded using the effective yield
method. Interest income, amortization of premiums
and discounts and prepayment fees are reported in interest
income. Loans are considered to be impaired when
it is probable that, based upon current information and
events, the Company will be unable to collect all amounts due
under the contractual terms of the loan
agreement. Based on the facts and circumstances of
the individual loans being impaired, loan specific valuation
allowances are established for the excess carrying value of
the loan over either: (i) the present value of expected
future cash flows discounted at the loan’s original
effective interest rate, (ii) the estimated fair value of the
loan’s underlying collateral if the loan is in the
process of foreclosure or otherwise collateral dependent, or
(iii) the loan’s observable market price.
Allowance for
Loan Losses on Mortgage Loans Held in Securitization
Trusts - We establish an allowance for loan
losses based on management's judgment and estimate of credit
losses inherent in our portfolio of mortgage loans held in
securitization trusts.
Estimation
involves the consideration of various credit-related factors
including but not limited to, macro-economic conditions, the
current housing market conditions, loan-to-value ratios,
delinquency status, historical credit loss severity rates,
purchased mortgage insurance, the borrower's current economic
condition and other factors deemed to warrant consideration.
Additionally, we look at the balance of any delinquent loan
and compare that to the current value of the collateralizing
property. We utilize various home valuation methodologies
including appraisals, broker pricing opinions
(“BPOs”), internet-based property data services
to review comparable properties in the same area or consult
with a realtor in the property's area.
Comparing
the current loan balance to the property value determines the
current loan-to-value (“LTV”) ratio of the loan.
Generally, we estimate that a first lien loan on a property
that goes into a foreclosure process and becomes real estate
owned (“REO”), results in the property being
disposed of at approximately 84% of the current appraised
value. This estimate is based on management's experience as
well as realized severity rates since issuance of our
securitizations. During 2008, as a result of the significant
deterioration in the housing market, we revised our policy to
estimate recovery values based on current home valuations
less expected costs to dispose. These costs
typically approximate 16% of the current home value. It is
possible given continued difficult real estate market
conditions in many geographic regions that we may realize
less than that return in certain cases. Thus, for a first
lien loan that is delinquent, we will adjust the property
value down to approximately 84% of the current property value
and compare that to the current balance of the loan. The
difference determines the base provision for the loan loss
taken for that loan. This base provision for a particular
loan may be adjusted if we are aware of specific
circumstances that may affect the outcome of the loss
mitigation process for that loan. Predominately, however, we
use the base reserve number for our reserve.
The
allowance for loan losses will be maintained through ongoing
provisions charged to operating income and will be reduced by
loans that are charged off. As of June 30, 2011 and December
31, 2010, the allowance for loan losses held in
securitization trusts totaled $2.9 million and $2.6
million, respectively.
Investment
in Limited
Partnership and Limited Liability Company – The
Company has equity investments in a limited partnership and a
limited liability company. In circumstances where
the Company has a non-controlling interest but either owns a
significant interest or is able to exert influence over the
affairs of the enterprise, the Company utilizes the equity
method of accounting. Under the equity method of
accounting, the initial investment is increased each period
for additional capital contributions and a proportionate
share of the entity’s earnings and decreased for cash
distributions and a proportionate share of the entity’s
losses.
Management
periodically reviews its investments for impairment based on
projected cash flows from the entity over the holding
period. When any impairment is identified, the
investments are written down to recoverable amounts.
Financing
Arrangements, Portfolio Investments - Investment
securities available for sale are typically financed with
repurchase agreements, a form of collateralized borrowing
which is secured by the securities on the balance
sheet. Such financings are recorded at their
outstanding principal balance with any accrued interest due
recorded as an accrued expense.
Revenue
Recognition - Interest income on our 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.
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.
Collateralized
Debt Obligations (“CDO”) - We use CDOs to
permanently finance our loans held in securitization trusts.
For financial reporting purposes, the ARM loans held as
collateral are recorded as assets of the Company and the CDO
is recorded as the Company’s debt. The Company has
completed four securitizations since inception, the first
three were accounted for as a permanent financing and the
fourth was accounted for as a sale and accordingly, not
included in the Company’s financial
statements.
Subordinated
Debentures (Net) - Subordinated debentures are trust
preferred securities that are fully guaranteed by the Company
with respect to distributions and amounts payable upon
liquidation, redemption or repayment. These securities
are classified as subordinated debentures in the liability
section of the Company’s condensed consolidated balance
sheet.
Convertible
Preferred Debentures (Net) - The Company issued $20.0
million in Series A Convertible Preferred Stock that matured
on December 31, 2010. The outstanding shares were
redeemed by the Company at the $20.00 per share liquidation
preference plus accrued dividends on December 31,
2010.
Derivative
Financial Instruments - The Company has developed risk
management programs and processes, which include investments
in derivative financial instruments designed to manage
interest rate and prepayment risk associated with its
securities investment activities.
Derivative
instruments contain an element of risk in the event that the
counterparties may be unable to meet the terms of such
agreements. The Company minimizes its risk exposure by
limiting the counterparties with which it enters into
contracts to banks and investment banks who meet established
credit and capital guidelines. Management does not expect any
counterparty to default on its obligations and, therefore,
does not expect to incur any loss due to counterparty
default. In addition, all outstanding interest rate swap
agreements have bi-lateral margin call capabilities, meaning
the Company will require margin for interest rate swaps
that are in the Company’s favor, minimizing any
amounts at risk.
The
Company invests in To Be Announced securities
(“TBAs”) through its Midway Residential Mortgage
Portfolio. TBAs are forward-settling purchases and sales of
Agency RMBS where the underlying pools of mortgage loans are
“To-Be-Announced.” Pursuant to these
TBA transactions, we agree to purchase or sell, for future
delivery, Agency RMBS with certain principal and interest
terms and certain types of underlying collateral, but the
particular Agency RMBS to be delivered is not identified
until shortly before the TBA settlement date. For
TBA contracts that we have entered into, we have not asserted
that physical settlement is probable, therefore we have not
designated these forward commitments as hedging instruments.
Realized and unrealized gains and losses associated with
these TBAs are recognized through earnings in the condensed
consolidated statements of operations.
Termination of
Hedging Relationships - The Company employs a number
of risk management monitoring procedures to ensure that the
designated hedging relationships are demonstrating, and are
expected to continue to demonstrate, a high level of
effectiveness. Hedge accounting is discontinued on a
prospective basis if it is determined that the hedging
relationship is no longer highly effective or expected to be
highly effective in offsetting changes in fair value of the
hedged item.
Additionally,
the Company may elect to un-designate a hedge relationship
during an interim period and re-designate upon the
rebalancing of a hedge profile and the corresponding hedge
relationship. When hedge accounting is discontinued, the
Company continues to carry the derivative instruments at fair
value with changes recorded in current earnings.
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. With respect to interest rate risk, the
Company generally intends to hedge the risk related to
changes in the benchmark interest rate (London Interbank
Offered Rate (“LIBOR”). The Company applies hedge
accounting for certain interest rate hedges utilizing the
cash flow hedge criteria.
In
order to reduce such interest rate risk, 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 premium, the Company is reimbursed for interest paid in
excess of a certain capped rate.
To
qualify for cash flow hedge accounting, interest rate swaps
and caps must meet certain criteria, including:
●
the items to be hedged expose the Company to interest rate
risk; and
●
the interest rate swaps or caps are expected to be highly
effective in reducing the Company's exposure to interest rate
risk.
The
fair values of the Company's interest rate swap agreements
and interest rate cap agreements are based on values provided
by dealers who are familiar with the terms of these
instruments. Correlation and effectiveness are periodically
assessed at least quarterly based upon a comparison of the
relative changes in the fair values or cash flows of the
interest rate swaps and caps and the items being
hedged.
For
derivative instruments that are designated and qualify as a
cash flow hedge (i.e. hedging the exposure to variability in
expected future cash flows that is attributable to a
particular risk), the effective portion of the gain or loss
on the derivative instruments are reported as a component of
OCI and reclassified into earnings in the same period or
periods during which the hedged transaction affects earnings.
The remaining gain or loss on the derivative instruments in
excess of the cumulative change in the present value of
future cash flows of the hedged item, if any, is recognized
in current earnings during the period of change.
In
addition to utilizing interest rate swaps and caps, we may
purchase or sell short U.S. Treasury securities or enter into
Eurodollar or other futures contracts or options to help
mitigate the potential impact of changes in interest rates on
the performance of the Midway Residential Mortgage Portfolio.
We may borrow U.S. Treasury securities to cover short sales
of U.S. Treasury securities under reverse repurchase
agreements. For instruments that are not designated or
qualify as a cash flow hedge, such as our use of U.S.
Treasury securities or Eurodollar futures contracts, any
realized and unrealized gains and losses associated with
these instruments are recognized through earnings in the
condensed consolidated statement of operations.
With
respect to a Eurodollar futures contract, initial margin
deposits are made upon entering into futures contracts and
can be either cash or securities. During the period the
futures contract is open, changes in the value of the
contract are recognized as unrealized gains or losses by
marking to market on a daily basis to reflect the market
value of the contract at the end of each day’s trading.
Variation margin payments are made or received periodically,
depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Company records a
realized gain or loss equal to the difference between the
proceeds of the closing transaction and the Company’s
basis in the contract.
The
Company uses TBAs to hedge interest rate risk and the
aggregate risk of prepayments associated with its Midway
Residential Mortgage Portfolio. For example, we may utilize
TBAs to hedge the interest rate or yield spread risk inherent
in our long Agency RMBS by taking short positions in TBAs
that are similar in character. In a TBA transaction, we would
agree to purchase or sell for future delivery, Agency RMBS
with certain principal and interest terms and certain types
of underlying collateral, but the particular Agency RMBS to
be delivered is not identified until shortly before the TBA
settlement date. The Company typically does not take delivery
of TBAs, but rather settles with its trading counterparties
on a net basis. TBAs are liquid and have quoted market prices
and represent the most actively traded class of RMBS.
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 thereby, reduce the yield for mortgage assets
purchased at a premium to their then current balance.
Conversely, mortgage assets purchased for less than their
then current balance exhibit higher yields due to faster
prepayments. Generally, when market interest rates decline,
borrowers have a tendency to refinance their mortgages,
thereby increasing prepayments.
In
an increasing prepayment environment, the timing difference
between the actual cash receipt of principal paydowns and the
announcement of the principal paydown may result in
additional margin requirements from our repurchase agreement
counterparties.
We
mitigate prepayment risk by constantly evaluating our
mortgage assets relative to prepayment speeds observed for
our mortgage assets, including the investments in our Midway
Residential Mortgage Portfolio. The Midway
Residential Mortgage Portfolio is designed to outperform in a
rising rate or slower prepayment environment, off-setting
possible exposures in our other mortgage related assets.
Furthermore, we stress-test the portfolio as to prepayment
speeds and interest rate risk in order to further develop or
make modifications to our hedge balances.
Other
Comprehensive Income (Loss) - Other comprehensive
income (loss) is comprised primarily of income (loss)
from changes in value of certain of the Company’s available for sale
securities and the impact of deferred gains or losses on
changes in the fair value of certain derivative contracts
that hedges future cash flows.
Employee
Benefits Plans - The Company sponsors a defined
contribution plan (the “Plan”) for all eligible
domestic employees. The Plan qualifies as a deferred salary
arrangement under Section 401(k) of the Internal Revenue
Code. Under the Plan, participating employees may defer up to
15% of their pre-tax earnings, subject to the annual Internal
Revenue Code contribution limit. The Company may match
contributions up to a maximum of 25% of the first 5% of
salary. Employees vest immediately in their contribution and
vest in the Company’s contribution, if any, 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 made no contributions to
the Plan for the six months ended June 30, 2011 and
2010.
Stock Based
Compensation - Compensation expense for equity based
awards is recognized over the vesting period of such awards,
based upon the fair value of the stock at the grant
date.
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 distribution balance may extend
until the timely filing of the Company’s tax return in
the subsequent taxable year. Qualifying distributions of
taxable income are deductible by a REIT in computing taxable
income.
HC
is a taxable REIT subsidiary and therefore subject to
corporate federal income taxes. Accordingly, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax base upon the change in
tax status. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the
enactment date.
Accounting
Standards Codification Topic 740 Accounting for Income Taxes
(“ASC 740”) provides guidance for how uncertain
tax positions should be recognized, measured, presented, and
disclosed in the financial statements. ASC 740 requires the
evaluation of tax positions taken or expected to be taken in
the course of preparing the Company’s tax returns to
determine whether the tax positions are
“more-likely-than-not” of being sustained by the
applicable tax authority. In situations involving uncertain
tax positions related to income tax matters, we do not
recognize benefits unless it is more likely than not that
they will be sustained. ASC 740 was applied to all open
taxable years as of its effective date. Management’s
determinations regarding ASC 740 may be subject to review and
adjustment at a later date based on factors including, but
not limited to, an ongoing analysis of tax laws, regulations
and interpretations thereof. The Company will recognize
interest and penalties, if any, related to uncertain tax
positions as income tax expense.
Earnings Per
Share - Basic earnings per share excludes dilution and
is computed by dividing net income available to common
stockholders by the weighted-average number of shares of
common stock outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of
the Company.
Loans Sold to
Third Parties – The Company sold its
discontinued mortgage lending business in March
2007. In the normal course of business, the
Company is obligated to repurchase loans based on violations
of representations and warranties in the loan sale
agreements. The Company did not repurchase any loans
during the six months ended June 30, 2011 and
2010.
The Company periodically receives
repurchase requests based on alleged violations of
representations and warranties, each of which management
reviews to determine, based on management’s experience,
whether such requests may reasonably be deemed to have
merit. As of June 30, 2011, we had a total of $2.0
million of unresolved repurchase requests that
management concluded may reasonably be deemed to have merit,
against which the Company has a reserve of approximately $0.3
million. The reserve is based on one or more of
the following factors; historical settlement rates, property
value securing the loan in question and specific settlement
discussions with third parties.
A Summary of
Recent Accounting Pronouncements Follows:
Receivables
(ASC 310)
In
April 2011, the FASB issued ASU No. 2011-02, Receivables
(Topic 310): A Creditor’s Determination of
Whether a Restructuring is a Troubled Debt
Restructuring. ASU 2011-02 clarifies
whether loan modifications constitute troubled debt
restructuring. In evaluating whether a
restructuring constitutes a troubled debt restructuring, a
creditor must separately conclude that both of the following
exist: (a) the restructuring constitutes a
concession; and (b) the debtor is experiencing financial
difficulties. ASU 2011-02 is effective for the
first interim and annual period beginning on or after June
15, 2011, and should be applied retrospectively to the
beginning of the annual period of adoption. We are
assessing the impact of ASU 2011-02 on our financial
condition, results of operations and disclosures.
Transfers
and Servicing (ASC 860)
In
April 2011, the FASB issued ASU No. 2011-03, Transfers and
Servicing (Topic 860): Reconsideration of Effective Control
for Repurchase Agreements. ASU 2011-03 is intended to
improve financial reporting of repurchase agreements
(“repos”) and other agreements that both entitle
and obligate a transferor to repurchase or redeem financial
assets before their maturity. In a typical repo transaction,
an entity transfers financial assets to a counterparty in
exchange for cash with an agreement for the counterparty to
return the same or equivalent financial assets for a fixed
price in the future. FASB Accounting Standards Codification
(“Codification”) Topic 860, Transfers and
Servicing, prescribes when an entity may or may not
recognize a sale upon the transfer of financial assets
subject to repo agreements. That determination is based, in
part, on whether the entity has maintained effective control
over the transferred financial assets. The amendments to the
Codification in this ASU are intended to improve the
accounting for these transactions by removing from the
assessment of effective control the criterion requiring the
transferor to have the ability to repurchase or redeem the
financial assets. The guidance in the ASU is effective for
the first interim or annual period beginning on or after
December 15, 2011. The guidance should be applied
prospectively to transactions or modifications of existing
transactions that occur on or after the effective date. Early
adoption is not permitted. We are assessing the impact of ASU
2011-03 on our financial condition, results of operations and
disclosures.
Fair
Value Measurements (ASC 820)
In May 2011, the
FASB issued ASU No. 2011-04, Fair Value
Measurements (Topic 820): Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in US GAAP and
International Financial Reporting Standards
(“IFRS”). ASU 2011-04 represents the
converged guidance of the FASB and the IASB (the
“Boards”) on fair value measurements. The
collective efforts of the Boards and their staffs, reflected
in ASU 2011-04, have resulted in common requirements for
measuring fair value and for disclosing information about
fair value measurements, including a consistent meaning of
the term “fair value.” The Boards have concluded
the common requirements will result in greater comparability
of fair value measurements presented and disclosed in
financial statements prepared in accordance with GAAP and
IFRSs. The amendments in this ASU are required to be applied
prospectively, and are effective for interim and annual
periods beginning after December 15, 2011. We do not expect
that the adoption of ASU 2011-04 will have a significant
impact on our financial condition, results of operations and
disclosures.
Comprehensive
Income (ASC 220)
In June 2011, the
FASB issued ASU No. 2011-05, Comprehensive
Income (Topic 220): Presentation of Comprehensive
Income, which amends current comprehensive income
guidance. ASU 2011-05 eliminates the option to present the
components of other comprehensive income as part of the
statement of shareholders’ equity. Instead, the Company
must report comprehensive income in either a single
continuous statement of comprehensive income which contains
two sections, net income and other comprehensive income, or
in two separate but consecutive statements. ASU 2011-05 will
be effective for public companies during the interim and
annual periods beginning after December 15, 2011 with early
adoption permitted. The adoption of ASU 2011-05 will not have
an impact on our financial position, results of operations
and disclosures as it only requires a change in the format of
the current presentation.
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Note 10 - Concentrations of Credit Risk
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Jun. 30, 2011
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Concentration Risk Disclosure [Text Block] |
10. Concentrations of Credit Risk
At
June 30, 2011 and December 31, 2010, respectively, there were
geographic concentrations of credit risk exceeding 5% of the
total loan balances within the mortgage loans held in the
securitization trusts and the real estate owned as
follows:
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Note 14 - Income Taxes
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3 Months Ended |
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Jun. 30, 2011
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Income Tax Disclosure [Text Block] |
14. Income Taxes
At
December 31, 2010, the Company had approximately $58 million
of net operating loss carryforwards which may be available to
offset future taxable income. The carryforwards will expire
in 2024 through 2029. The Internal Revenue Code places
certain limitations on the annual amount of net operating
loss carryforwards that can be utilized if certain changes in
the Company’s ownership occur. The Company believes
that it has undergone an ownership change within the meaning
of IRC section 382 that would impose such a limitation. The
Company is assessing the amount of such limitation; however,
at this time, management believes that the limitation would
cause a significant amount of the Company’s net
operating loss to expire unused.
During
the six months ended June 30, 2011, the Company’s
taxable REIT subsidiary recorded approximately $0.4 million
of income tax expense for income attributable to the
subsidiary. The Company’s estimated taxable income
differs from the federal statutory rate as a result of state
and local taxes, non-taxable REIT income and a valuation
allowance.
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