New York Mortgage Trust Inc (NYMT) 2007 Q1 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by.

Welcome to the New York Mortgage Trust First Quarter Conference Call.

(OPERATOR INSTRUCTIONS)

I would now like to turn the conference over to Mr.

Scott Eckstein of the Financial Relations Board.

Please go ahead sir.

Thank you operator.

Good morning everyone and welcome to New York Mortgage Trust Conference Call to discuss its first quarter operating results.

Our press release was distributed yesterday after the close of the market and is available on the company's website at www.nymtrust.com in the investor relations section.

Additionally we are hosting a live webcast of today's call, which you can access in the same section or through www.earnings.com.

At this time management would like me to inform you that certain statements made during the conference, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although New York Mortgage Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.

Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the SEC.

Now at this time, for opening remarks I would like to introduce David Akre, Vice Chairman and Co-Chief Executive Officer.

David, please go ahead.

Thank you Scott.

Good morning everyone.

With me today are Steve Mumma our Co-CEO, President, and CFO, and Brad Howe our EVP and General Counsel.

A quick recap on where we are.

On February 22nd we closed on the sale of our wholesale lending platform to Tribeca Lending.

On March 31st we closed on the sale of our retail-lending platform to IndyMac Bank.

These sales resulted in a net gain of approximately $5.2 million.

Strategically these transactions will ultimately eliminate our taxable REIT subsidiary's losses, providing New York Mortgage Trust the opportunity to stabilize book value and re-implement our portfolio strategy.

Looking at the first quarter results, our portfolio operations resulted in a net loss of $900,000 as compared with net income of $1.1 million in the first quarter a year ago.

Our portfolio margin remains slightly positive and should begin to improve in the coming months.

On a consolidated basis, which includes the result of our discontinued mortgage lending operations, we reported a net loss of $4.7 million as compared to a net loss of $1.8 million for the first quarter a year ago.

Included in this quarter's loss is a gain of $5.2 million from the IndyMac sale.

Steve Mumma can elaborate on this in a few minutes.

As far as loans held for sale in our discontinued mortgage lending operation, we had $60 million remaining at quarter end as compared to $107 million at year-end.

Currently we are actually below $40 million.

We will continue to sell off these loans and manage EPD and repurchase requests until all are gone.

By the way, we are taking a much more disciplined approach these days on repurchase requests.

I can go into a little bit more detail in the Q&A.

On the good news frond, EPD and repurchase requests have slowed considerably in the last 45 days.

For the quarter we repurchased a total of $5.5 million of loans, all of which were underwritten to alt A guidelines, not sub-prime.

We reported $14 million of pending repurchase requests at quarter end, against which the company has taken a reserve of $1.7 million.

Although we don't know what lies ahead, we feel there is little doubt that we are out of the woods as it relates to EPDs, part of the reason being the $3.3 million of reserves we had on the books at quarter end.

We were actually looking at putting money back to work as a way of re-implementing our portfolio strategy.

Before I wrap up, let me go into some detail about the portfolio strategy going forward.

That strategy will simply be the exact same strategy we've used over the past three years, a combination of managing an interest rate spread book focused on the short end of the curve and building a credit sensitive position by purchasing and securitizing prime, high-quality loans.

The only difference from before is now we can commit new capital to the portfolio, capital that will come from the liquidation for loans held for sale in our discontinued lending operations.

For those of you new to our story, we've done four securitizations to date using loans we've originated or purchased with total credit loses over more than two years of only $57,000.

We are very confident this strategy is build for the long-term, is one on which we can execute, and with increased capital should help our earnings over the short and long-term.

Portfolio delinquencies performed relatively well over the quarter with 90 day plus delinquencies of 1.18%.

This is up slightly from the previous quarter but we don't expect any losses on any of these loans.

We do very thorough monitoring on every delinquent loan in the portfolio.

And one final item I'd like to mention is strategic alternatives.

We announced back in October that we were reviewing our strategic alternatives.

That process brought about the exit from the mortgage lending business, a very good result in my opinion.

We are now continuing the process as it relates to New York Mortgage Trusts, the public company.

And everyone should just know that we are principally concerned with shareholder value and increasing shareholder value going forward.

With that I'd like to turn the call over to Steve Mumma.

Thank you Dave and good morning everyone.

As Dave mentioned a few moments ago, until March 31, 2007 the company operated two segments, the mortgage portfolio segment and a mortgage-lending segment.

Upon the sale of almost of our entire mortgage lending operating assets on March 31, 2007, and the sale of our wholesale mortgage origination platform assets on February 22, 2007, the company exited the mortgage lending business and accordingly will no longer report segment information.

The company did record a net gain of $5.2 million from the sale of the retail mortgage platform to IndyMac Bank.

In connection with these asset sales, we have classified our mortgage segment as discontinued with all reported revenue expenses and all related assets and liabilities now classified as a discontinued operation.

Although certain of those assets will remain with the continuing company, for financial statement purposes, they will be reported as discontinued such as loan sales for sale and warehouse funding on those loans.

Looking at our first quarter 2007 results on a consolidated basis, we reported a net loss of $4.7 million as compared with a net loss of $1.8 million for the first quarter of 2006.

The increase in net losses attributable to a decrease in gain on sale of revenues of approximately $1.7 million, an increase in loan losses of $3.2 million, and a decrease in net interest income from our investment portfolio of approximately $2.9 million.

The company did not record a tax benefit for the first quarter of 2007 as compared to recording a tax benefit of $2.9 million for the first quarter of 2006.

Of note, total residential originations for the first quarter of 2007, including broker loans, was approximately $436 million as compared to $614 million for the same period of 2006 and $586 million for the previous quarter of last year.

From a continuing operations standpoint, which has been historically presented as a mortgage portfolio management segment, we reported a net loss of $900,000 compared with net income of $1.1 million for the first quarter of 2006.

The decline in earnings in our mortgage portfolio management segment was largely the result of increased liability costs associated with the sale of approximately $313 million of previously retained securitization securities and a decrease in average invested portfolio assets of $100 million from the previous quarter of 2006 and a decrease of approximately $500 million from the first quarter of 2006.

The sale of the securitizations did result in freeing up of approximately $15 million in working capital, which allowed us to better manage our EPD exposure.

During the quarter, net interest margin in mortgage portfolio averaged two basis points.

That's a decrease from nine basis points from the fourth quarter of 2006 and down from 71 basis points in the first quarter of 2006.

The net duration gap between the average (inaudible) assets and our liabilities of approximately five months and the credit characteristics of the portfolio remain strong and total delinquencies representing 1.61% of our portfolio and delinquencies greater than 90 days representing 1.18% of our portfolio.

Furthermore, credit losses since the inception of our portfolio have been $57,000.

It should be noted that one loan represents 32% of the entire delinquencies and over 50% of the 90 plus days.

This loan has a LTV of 65% and we anticipate no loss from this position of this loan.

And hopefully we'll be out of this loan during the second quarter of this year.

Our mortgage portfolio assets totaled $991 million as of March 31st.

Our leverage portfolio is comprised largely of prime adjustable rate mortgage loans that we've either originated or acquired from third parties.

The portfolio paid at a CPR rate or constant prepayment rate in the first quarter at 19% as compared to 18% for the same period the previous year.

For the three months ended March 31, 2007, we recognized gains of sales of mortgage loans totaling $2.3 million compared with $4.1 million for the first quarter of 2006 and $3.6 million for the fourth quarter of 2006.

The decrease is attributable to our reduced volume of loan originations as well as an increase in scrutiny of loans by investors that resulted from the industry wide increase in EPDs.

As a result, many former investors are either not purchasing loans or purchasing them at reduced prices.

At March 31, 2007, we had loan losses of $1.2 million related to mortgage loans held for sale and another $2.1 million in reserves from indemnifications and repurchase requests outstanding.

Let me now hit some key points regarding our balance sheet.

As of March 31st, we had $1.16 billion in total assets of which $447 million are related to investment securities, $544 million are related to mortgage loans held in securitization trusts, and $127 million of assets related to discontinued operations.

As of April 1st, we will be primarily be funding our portfolio with reverse repurchase agreements and collateralized debt obligations.

As of March 31, 2007, we had approximately $98.6 million of outstanding warehouse lines and anticipate the balance going to zero by the end of the second quarter.

We will enter into new warehouse agreements for our securitization effort going forward in the coming quarter.

We had approximately $501.9 million of collateralized debt obligations outstanding as of March 31st.

During the three months ended March 31, 2007, we sold approximately $313 million of previously retained securitizations resulting in the permanent financing of these securitized loans.

CDO issuance replaced short-term repurchase agreements freeing up approximately $15 million in working capital.

As a result of the sale of the retail mortgage-lending platform, our total employees have decreased to 35 people as of March 31, 2007, as compared to 616 employees at the end of December.

Over the next couple of quarters we anticipate our total employee headcount to decrease to less than 10 people.

Looking ahead and managing our mortgage portfolio investments, we will invest in mortgage-backed securities originated by others, including ARM securities and collateralized mortgage obligation floaters.

In addition, we intend to add credit sensitive securities through our own securitizations as well as selective purchases from third parties.

We will generally operate as a long-term portfolio investor.

We anticipate financing our portfolio by entering into repurchase agreements through warehouse facilities or loan aggregations for issuing collateralized debt obligations relating to our securitizations.

We will seek to generate earnings from the return on our mortgage securities and spread income from our mortgage loan portfolio.

For the first time in over a year, this quarter we'll be able to reinvest our prepayments from the portfolio back into our investment portfolio, thereby stabilizing the spread of the portfolio and increasing earnings over time.

For additional information, you may access our 10-Q, which will be filed later today with the SEC or visit our website at www.nymtrust.com, or at the SEC website www.sec.gov.

On that note, I will turn the call back over for questions.

Thank you gentlemen.

(OPERATOR INSTRUCTIONS) Our first question is from the line of Mr.

Steve Delaney with JMP Securities.

Please go ahead.

Good morning Dave, Steve.

How are you all?

Good morning Steve.

Good.

Let me start with the net interest spread.

You'd reported two basis points for the quarter.

And could you give us, since the Q's not out, could you give us for the quarter the yield and cost?

I know you put in the press release a 611 figure.

But I think that was a spot yield as of March 31.

Right.

Right.

The average yield for the period, Steve, on all the assets is at 536 with the cost of funds of 534 resulting in a net spread of two basis points.

Okay.

So the 611 in your press release, is that before amortization?

The 611 is really a future.

It's a yield going forward where you're basically running the price, the mark-to-market price and the securities.

And it's anticipating the reset of the assets.

So as a lot of our securities are going to be resetting in the next six months, the yield is influenced by the forward rate as opposed to backward looking.

Where these yields are just based on the last three months.

Right.

And you cost of funds is pretty much stabilized, right?

Yes.

It's going to go up slightly because of the issuance of the CDOs.

We've increased the liability cost.

We will, since that was a permanent financing, we'll be able to increase the leverage without incurring any additional risks.

Right.

Now on your -- you talk about that 33%.

And that's a positive.

But isn't a lot of that just the agency floaters?

I mean there's not much pick up there like it would be on a 3-1 hybrid.

No, we do have a decent percent, about 22% of the -- well 22% is going to be 3-1s that are refinancing over the next three to four months.

So two-thirds of the 33% are going to be 3-1s that are resetting, initial reset.

Exactly.

And what's happened -- we have experienced a lot of refinancings from the resets over the last three months.

But primarily all those refinancings have been put back into working capital for the mortgage company, not the portfolio.

I mean that's one of the frustrations is the average size of our portfolio continually decreases.

So as we stabilize that decrease, that's going to help the margins.

Okay.

Thank you.

That's good.

And I guess the second piece, on your deferred tax asset, the Q is not out yet.

Obviously there's nothing in the P&L that indicated that you did anything other than just not take a benefit in this quarter.

That's correct.

One of your peers last week, who has shut down and sold the TRS has made the decision to right-off their deferred tax asset.

And I guess I just wondered if there's anything you can say about your conversations with Deloitte & Touche as to the stability of that?

Now I recall on your year-end call, you talked about strategies.

You can have the TRS, the NOL is preserved there and you're going to try to have strategies to utilize and burn it up.

But can you confirm for us that deferred tax asset at this point is not under review and is going to be a valid asset on your books?

Well, I think the fact that you're issuing GAAP financial statements and for FAS 109, a 1048, by that definition it's under review by the auditor.

We are responsible for delivering to them justification for any asset on the books, including the deferred tax asset.

So we feel comfortable for the fact that we haven't taken a larger reserve against it.

And we will be able to utilize it within the timeframe required for it to be an asset on our balance sheet.

Okay.

So are you saying that Deloitte & Touche, in addition to the year-end work -- are you saying that the scope of their work that they do applying -- I guess that's not they're because they're un-audited interim statements.

That's right.

But is it safe to say -- are you suggesting that they did review the status of that asset as of March 31?

All the balances and the financial statement are reviewed.

Okay.

Great.

Thanks Steve.

Thank you.

Our next question comes from the line of Mr.

Paul Miller with Friedman, Billings, Ramsey.

Please go ahead.

Hi.

This is actually Annett Franke.

Good morning.

Hey Annett.

Good morning Annett.

Just a follow-up on Jim's question.

How much of the before tax asset is actually on the books right now and did you take evaluation allowance in the first quarter?

Yes.

The deferred tax asset on the books today is $18.4 million, unchanged from the beginning of the year.

In the first quarter we took a valuation allowance of approximately $2.1 million.

$2.1 million.

And on the early payment deferrals, can you kind of give us an indication in terms of the severity of loan losses for first liens and second liens you experienced in the first quarter?

I think you gave the numbers to us in 4Q '06.

And we just kind of wanted to see the trends here.

Nothing really has changed.

The market for non-performing seconds is still pretty abysmal.

But obviously it's a big difference between performing and non-performing.

Non-performing firsts, it depends on the LTV.

Average non-performing first bid is probably in the low to mid 70s.

Average bid on a non-performing second is tough to find.

If you get a nickel or a dime it's very good, the performing firsts probably in the low 90's and a performing second high 60's.

Okay.

Thanks.

And my last question would be on the expenses for the REIT.

The first quarter you reported about $600,000 in G&A on the REIT side and you were talking about further reductions in headcount as you go along.

What would be a good kind of run rate if you have ten people left in the REIT portfolio, the run REIT.

What would be the run rate here?

I think the long-term run rate, Annett, and that would be after we get through disposing of all the residual business related to the mortgage company.

Long term, we would say the run rate would probably be between $800,000 and $900,000 a quarter.

And if you wanted to break out those expenses -- clearly we'd try to improve on those.

But if you wanted to break those out, approximately 40% of that is compensation, 40% of that is professional fees, which include both Sar-Ox, Deloitte, and as well as DNO insurance coverage.

And then the remaining 20% is just typical G&A costs to run a business, Bloomberg's, et cetera, those types of costs.

Okay.

Good.

Thank you so much.

Thank you.

Our next question comes from the line of Jim Ackor with RBC Capital Markets.

Please go ahead.

Thank you.

Good morning guys.

Good morning.

Good morning.

I'm got a few questions here actually.

With regard to the proceeds from the sale, gross proceeds were $14 million, net proceeds of $5.2 million.

What's the difference there?

The net proceeds -- it's a net gain of 5.2 million.

The actual proceeds themselves were higher than 5.2 million.

But the gain on the transaction was 5.2 million.

And this break in the two piece -- the gross proceeds are $14 million, approximately $6 million and change of that is book value that they bought fixed assets and other prepaid assets.

We got an $8 million premium for the retail business.

And that would have been reduced by certain costs that we agreed to share one such as loan retention payments for loan officers, severance payments for employees, and M&A expenses and direct expenses related to that business.

So the actual cash received is much higher than the 5.2 million.

The 5.2 million is the net gain that was booked in the P&L.

Okay.

I got you.

With regard to a few other things, my recollection is there's some sort of like an almost like an earn out depending on the performance of certain assets acquired by IndyMac, some sort of a reserve set forth that you can ultimately recapture depending.

Well we have some escrow -- we have $2.3 million in escrow balances set up related to that transaction.

$600,000 of it is related to the book value of the assets actually transferred to the extent there's any discrepancies or issues.

That was setup to take care of that.

That actually will be resolved in the next couple of days.

We have another $600,000 that covers severance payments for temporary employees that went through a transition period.

It looks like given the amount of employees that went to Indy, that that $600,000 will be fully recoverable.

And then the remaining piece is related to reps and warranties that will be used to cover any loans that transferred to them in the pipeline that have a negative result that was not anticipated, meaning that there was some type of fraud in the loan itself.

We don't anticipate any significant losses in that either.

Okay.

It's not tied to any kind of earn out.

I was looking for the word escrow and I was having a brain cramp.

Sorry.

With regard to the rental situation in terms of where you guys are going to house your operations on a go forward basis, I also seem to recall there was a potential payment for I think it was Lehman Brothers right.

Lehman.

That is correct.

Right.

And have we got that situation resolved at this point?

Yes.

We're scheduled -- we've got the amendment now that we need to be out of the premise by July or we suffer a penalty.

We hope to be out of here sometime in July.

We will move our operations, which will need to be much smaller in scope because we're down to eight to ten people hopefully by that time.

And then Lehman will give us the payment.

The retail operations that we're currently sharing space with today will move to another location.

And that payment was $3 million?

That payment will be 3.1 million and could be reduced potentially for any delay in moving.

The payment, unfortunately is looks for GAAP purposes I'm going to have to write-off over the life of the lease to December of 2010 because we're not going to be released from the lease itself.

So we're going to have $3.1 million plus another $1.6 million that's currently on the balance sheet related to the upfront cash received from moving in here being amortized quarter to quarter for about $400,000.

With the regard to book it looks like you guys ended the quarter at somewhere around $3.60.

That's correct.

Do you have --

After the deferred tax reduction.

Right?

Right.

DO you have any kind of sense where book value settles at this point?

Part of the primary reason of disposing of the retail lending operations was trying to stabilize that.

We hopefully are in a position now where we've seen the majority of the deterioration of our book value and we can build from here on.

It might sink a little but it should be very close to the bottom.

Okay.

And last question from me, with regard to your spread of two basis points on average in the quarter.

Can you tell us what the quarter end spread was?

Approximately two basis points.

Again hopefully this quarter we're going to start adding assets to the portfolio, which will start shoring up that spread.

We've spend the majority of our time trying to manage the EPD exposure and unwinding of these transactions.

So as the working capital we have a better idea of our working capital and means going forward.

We can start redeploying those monies back into our portfolio.

I think it was nine at year-end.

Yes.

And part of the creation of the spread was selling the CDOs.

But the CDOs allowed us to free up some additional working capital as a percent of move.

Right.

Any thoughts on portfolio leverage on a go forward basis?

One thing you'll have to make sure note of and we'll be sure to point that out, because we have some permanent financing because the $500 million now of a total portfolio of a $1 billion.

The true leverage of the portfolio really should be looked at as the repo leverage.

So we'll continue to run that at an eight to 12 times.

And that would depend on the types of credit assets we have on the books.

If we have AAA floating rate assets, we can clearly leverage that at a higher rate than if we have BB credit support pieces that we're leveraging on repo, which we're not going to leverage anywhere close to a multiple one to two times.

And what is your borrowing capacity at this point?

The borrowing capacity today from a repo standpoint is $3 billion or $4 billion of anything.

That's something we're probably going to have to look at reducing just because the Street's looking for us to use them.

And we don't have enough capacity now to use everybody.

Okay.

We have by far have [excessed] needs from a repo standpoint.

Okay.

Thanks a lot you guys.

Yes.

Thank you.

(OPERATOR INSTRUCTIONS)

Our next question comes from the line of Bill Martin with Raging Capital.

Please go ahead.

Good morning.

Good morning Bill.

Good morning.

Do you believe that your current reserves are sufficient to cover the remaining EPDs?

And if not, what additional reserve requirements, if any do you anticipate taking over the next few quarters?

No, I think we're set.

I think we've felt the majority of the pain is behind us.

We've got 3.3 in reserves at the moment.

And of the $14 million of repurchase requests, I mentioned on the call that we've taken a tougher stance on that and we're going to fight those a lot more diligently, a lot more vehemently.

We're going to kind of dig a hole or dig a line in the sand and try to hold our ground on that stuff.

So I think we're in pretty good shape.

Great.

Thanks.

Thank you.

Our next question is a follow-up question from let line of Jim Ackor.

Please go ahead.

Last question, I was wondering if you guys might be able to elaborate on any strategies.

I know you mentioned strategies to try to recapture the tax loss carry forward.

Any specific strategies that you might be considering at this point?

At this time we'd rather not comment, Jim.

As part of our strategic alternatives, that includes looking at how to best utilized the deferred tax assets.

Okay.

Fair enough.

Thanks.

Thank you.

(OPERATOR INSTRUCTIONS) Gentlemen, there are no further questions at this time.

Please continue.

All right.

Just closing comments, we've made the tough decisions and got out of the lending business.

We'll continue to wind down the lending operations and dispose of the loan inventory.

We feel good about our residual EPD exposure going forward.

We have virtually no exposure to sub-prime.

We will soon begin to deploy capital back to the portfolio.

We're very confident about our strategy and our ability to execute.

And we'd like to thank you for your interest in NTR and we look forward to next time.

Thank you.

Ladies and gentlemen this concludes the New York Mortgage First Quarter Conference Call.

If you'd like to listen to a replay of today's conference, please dial 303-590-3000 or 1-800-405-2236.

Please enter in pass code 11089893#.

ACT would like to thank you for your participation.

You may now disconnect.