New York Mortgage Trust(NYMT) - 2018 Q4 - Annual Report

PART I Business New York Mortgage Trust, Inc. is a REIT investing in and managing a diversified portfolio of mortgage-related and residential housing assets - The company's investment portfolio is diversified across several mortgage-related asset classes, with a strategic focus on credit-sensitive assets[23][24][29] - A key strategic initiative has been the internalization of investment management functions, beginning with its distressed residential loan strategy in 2018 and multi-family investments in 2016[25] Leverage Ratios as of December 31, 2018 | Metric | Ratio | | :--- | :--- | | Overall Target Leverage Ratio | ~2.4 to 1 | | Actual Overall Leverage Ratio | ~2.0 to 1 | | Leverage on Short-Term/Callable Debt | ~1.8 to 1 | - The company employs a diverse funding mix, relying on short-term repurchase agreements (30 days), longer-term repurchase agreements (1-2 years), and long-term financings like securitizations and convertible notes[26][51] - To manage risk, the company utilizes various derivative instruments, including interest rate swaps to hedge variable cash flows from borrowings and TBAs to manage market value risk in its Agency investment strategy[57][58][59] Risk Factors The company faces a wide range of risks that could adversely affect its business, financial condition, and results of operations - Business and operational risks include the potential for declines in asset market values, which can trigger margin calls and reduce earnings, sensitivity to interest rate changes, which can compress net interest margins, and unpredictable prepayment rates on mortgage assets, which can affect yields[71][76][79] - Credit-related risks are significant due to the company's focus on credit-sensitive assets, including greater risks of loss from high-yield or subordinated securities, delinquencies on multi-family properties, and potential underestimation of losses on distressed assets[85][86][124] - Financing risks stem from a heavy reliance on short-term repurchase agreements, which may not be available on favorable terms, and the use of leverage can exacerbate losses, with margin calls potentially harming liquidity[138][142][143] - Regulatory and tax risks include uncertainty surrounding the future of Fannie Mae and Freddie Mac, which could impact Agency RMBS, and maintaining REIT qualification imposes significant operational constraints, with failure leading to severe adverse tax consequences[153][163] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - As of the filing date, there are no unresolved comments from the SEC staff[183] Properties The company does not own any materially important physical properties, operating primarily from leased offices - The company's main offices are leased, with the headquarters at 275 Madison Avenue, New York, NY[184] Legal Proceedings Management believes no current legal proceedings will have a material adverse effect on the company's operations or financial condition - As of the report date, there are no legal proceedings expected to have a material adverse effect on the company[185] Mine Safety Disclosures This item is not applicable to the company's business - Mine safety disclosures are not applicable[186] PART II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ, with consistent quarterly dividends and available securities for future issuance under equity compensation plans Quarterly Common Stock Prices and Dividends (2017-2018) | Period | High ($) | Low ($) | Quarter End ($) | Dividend/Share ($) | | :--- | :--- | :--- | :--- | :--- | | 2018 | | | | | | Q4 | 6.31 | 5.62 | 5.89 | 0.20 | | Q3 | 6.48 | 6.05 | 6.08 | 0.20 | | Q2 | 6.23 | 5.83 | 6.01 | 0.20 | | Q1 | 6.16 | 5.45 | 5.93 | 0.20 | | 2017 | | | | | | Q4 | 6.49 | 5.92 | 6.17 | 0.20 | | Q3 | 6.41 | 6.10 | 6.15 | 0.20 | | Q2 | 6.62 | 6.07 | 6.22 | 0.20 | | Q1 | 6.82 | 6.10 | 6.17 | 0.20 | - As of December 31, 2018, there were 3,865,174 securities remaining available for future issuance under the company's equity compensation plans[194] Selected Financial Data This section provides a five-year summary of historical financial data, highlighting net income, dividends, and asset growth Selected Statement of Operations Data (in thousands, except per share data) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net interest income ($ thousands) | $78,728 | $57,986 | $64,638 | | Net income attributable to Company's common stockholders ($ thousands) | $79,186 | $76,320 | $54,651 | | Basic earnings per common share ($) | $0.62 | $0.68 | $0.50 | | Diluted earnings per common share ($) | $0.61 | $0.66 | $0.50 | | Dividends declared per common share ($) | $0.80 | $0.80 | $0.96 | Selected Balance Sheet Data (in thousands) | | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | | :--- | :--- | :--- | :--- | | Total assets ($ thousands) | $14,737,638 | $12,056,285 | $8,951,631 | | Total liabilities ($ thousands) | $13,557,345 | $11,080,284 | $8,100,469 | | Total equity ($ thousands) | $1,180,293 | $976,001 | $851,162 | - The consolidated balance sheets include significant assets and liabilities from Consolidated VIEs, for which the company is the primary beneficiary. As of December 31, 2018, assets of Consolidated VIEs totaled $11.98 billion and liabilities totaled $11.19 billion[199][200] Management's Discussion and Analysis of Financial Condition and Results of Operations The company achieved strong net income and economic return in 2018, driven by asset growth and a strategic shift towards credit assets - Key events in 2018 included raising $171.3 million in net proceeds from two public offerings and $89.0 million from an at-the-market program, acquiring $1.2 billion in credit assets, and adding 18 professionals to support growth[208] Capital Allocation by Strategy (as of Dec 31, 2018) | Strategy | Net Capital Allocated ($ thousands) | % of Total | | :--- | :--- | :--- | | Multi-Family Credit | $619,252 | 52.5% | | Residential Credit | $544,947 | 46.2% | | Agency RMBS | $135,514 | 11.5% | | Other | ($119,420) | (10.2)% | | Total | $1,180,293 | 100.0% | - Net interest income increased by $20.7 million in 2018 compared to 2017, primarily due to a larger average asset base in the Agency RMBS and multi-family portfolios[244][245] - Total other income decreased by $8.5 million year-over-year, mainly due to a $26.7 million decrease in realized gains on distressed residential mortgage loans and a $15.6 million increase in net realized losses from the liquidation of the Agency IO portfolio, partially offset by an $18.7 million increase in unrealized gains on multi-family assets[245] - The company's liquidity position remains strong, with $103.7 million in cash and cash equivalents and $262.5 million in unencumbered securities as of December 31, 2018, representing 23.7% of its financing arrangements[338][346] Quantitative and Qualitative Disclosures About Market Risk The company actively manages market risks including interest rate, liquidity, prepayment, credit, and fair value risk through various strategies Net Interest Income Sensitivity (Next 12 Months as of Dec 31, 2018) | Change in Interest Rates (bps) | Change in Net Interest Income ($ thousands) | | :--- | :--- | | +200 | $(24,035) | | +100 | $(12,064) | | -100 | $13,716 | Portfolio Fair Value Sensitivity (as of Dec 31, 2018) | Change in Interest Rates (bps) | Change in Fair Value ($ thousands) | Net Duration | | :--- | :--- | :--- | | +200 | $(160,365) | 2.72 | | +100 | $(74,506) | 2.51 | | Base | - | 2.00 | | -100 | $46,511 | 1.37 | - The company manages liquidity risk from its reliance on repurchase agreements by maintaining sufficient liquid assets. As of December 31, 2018, it held $103.7 million in cash and $262.5 million in unencumbered securities to meet potential margin calls[338][370] - Credit risk is managed through a detailed due diligence process before acquiring assets, including loan-level cash flow re-underwriting, site inspections, and analysis of macroeconomic factors[377][379] Financial Statements and Supplementary Data This section incorporates the company's consolidated financial statements, related notes, and the independent auditor's report by reference - The company's audited consolidated financial statements for the fiscal year ended December 31, 2018, are included in the report[393] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - There were no disagreements with accountants on accounting and financial disclosure[394] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2018[395] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018, a conclusion audited by Grant Thornton LLP[396][397] Other Information The company reports no other information for this item - No other information was reported under this item[401] PART III Directors and Executive Officers of the Registrant and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2019 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2019 Proxy Statement[403] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2019 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2019 Proxy Statement[404] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the 2019 Proxy Statement and Item 5 of this Form 10-K - Information regarding security ownership is incorporated by reference from the 2019 Proxy Statement[405] Certain Relationships and Related Party Transactions and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2019 Proxy Statement - Information regarding related party transactions and director independence is incorporated by reference from the 2019 Proxy Statement[407] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2019 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the 2019 Proxy Statement[408] PART IV Exhibits, Financial Statement Schedules This section lists the company's financial statements, schedules, and exhibits filed as part of the Form 10-K - This part contains the company's audited consolidated financial statements and a schedule of Mortgage Loans on Real Estate[411] - An exhibit index is provided, listing all required filings under Item 601 of Regulation S-K, including corporate governance documents, material contracts, and certifications[413]