New York Mortgage Trust Inc (NYMT) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by and welcome to the New York Mortgage Trust fourth quarter and full year 2007 results conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be opened for questions.

(OPERATOR INSTRUCTIONS).

This conference is being recorded today, Tuesday, April 1 of 2008.

Now I'd like to turn the call over to Scott Eckstein with Financial Relations Board.

Please go ahead, sir.

Thank you, Operator.

Good morning, everyone, and welcome to the New York Mortgage Trust's fourth quarter and full year 2007 results conference call.

A press release was distributed earlier today.

If you did not receive a copy, the release 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.

If you would like to be added to the Company's quarterly distribution list, please contact Samantha Alphonso at 212-827-3746.

At this time, management would like me to inform you that certain statements made during the conference call 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 the 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 Jim Fowler, Chairman of the Board.

Jim, please go ahead.

Thank you, Scott.

Good morning, and welcome to the New York Mortgage Trust earnings call to discuss fourth quarter 2007 and full year 2007 results.

In 2008, New York Mortgage Trust is a significantly different company than it was in the years 2007 and prior.

While management will spend some time discussing the results from the most recently concluded quarter and year, we will spend considerably more time discussing recent events related to capital raises, securities purchases and sales, and liquidity management.

Prior to turning the call over to Co-Chief Executive Officers Steve Mumma and David Akre, I would like to make some brief comments on the market environment over the first quarter of 2008.

On January 18, JMP closed on its $20 million investment into New York Mortgage Trust that allowed management to purchase approximately $200 million of agency hybrid ARM MBS and enter into associated hedges.

Then, in early February, New York Mortgage Trust raised approximately $57 million of net proceeds and an equity raising transaction that allowed the Company to invest in approximately $570 million of the same agency hybrid ARM MBS on a hedged basis.

However, it was not long after this transaction investment program that a combination of unforeseen events, the collapse of some mortgage-centric hedge funds, and the well-chronicled difficulties of a large mortgage REIT and investment bank resulted in significant volatility in credit spreads and a dramatic contraction of liquidity that materially impacted New York Mortgage Trust.

During this past month, as management will discuss in detail, it undertook a number of transactions to manage liquidity during a period when credit spreads widened materially at the same time as repo advance rates or haircuts were declining.

While these transactions were not without expense, they were undeniably necessary as our counterparties required increased equity in our borrowing lines that varied across the types of bonds in our portfolio.

We believe by responding early and aggressively, as we will detail, we have sufficient liquidity to operate our business in the current environment and we expect to remain profitable with a low double digit return on equity based upon conservative leverage and other assumptions.

Further, as we will describe, we have significant equity invested in some of our agency MBS that should continue pre-paying rapidly, allowing us to deploy this capital into higher return agency MBS that should, all else being equal, provide an internal earnings growth rate as equity returns marginally improve and also result in a net asset value near the recent [pike] issuance price.

As we go forward, while we can see evidence of improvement in credit spreads and liquidity in the agency MBS market segment, we remain mindful that markets may again become volatile if any unexpected events occur that create acute imbalances between the supply and demand for mortgage securities.

Thinking this, given that we are a small company, it is likely we will manage our balance sheet with less leverage and more liquidity than might other agency MBS REIT's during this period when markets are volatile.

JMP continues to believe New York Mortgage Trust is an excellent platform to take advantage of opportunities in the mortgage markets, and we remain committed to executing on our growth strategies.

Now I would like to turn the call over to New York Mortgage Trust management, who will discuss the operating results and portfolio activities.

Joining me from New York Mortgage Trust is David Akre, Vice Chairman and Co-CEO; Steve Mumma, Co-CEO, President and Chief Financial Officer; and Lynne Tracey, a Controller.

Steve, let me turn it over to you for your comments.

Thank you, Jim.

Good morning, everyone.

The last six months have been a very busy time for the Company with both some positive and negative developments.

After recapping our 2007 results, I will spend time going over the first quarter [2000] activities that Jim alluded to.

First, the 2007 results.

For the quarter ended December 31, 2007, we reported a net loss of $15.6 million or $4.30 per share as compared to a net loss of $20.7 million or $5.70 per share for the quarter ended September 30, 2007.

For the year ended December 31, 2007, we reported a net loss of $55.3 million or $15.23 per share as compared with a net loss of $15 million or $1.07 per share for the same period in 2006.

It should be noted that all per share amounts reflect the [1-for-5] reverse stock split that occurred in October of last year.

Included in the loss for the year were the following non-cash charges -- $18.4 million deferred tax valuation allowance that took place in the third quarter of this year -- of the last year; $8.5 million fourth quarter impairment charge related to our available for sale MBS security investment portfolio; a $3.6 million interest rate swap charge from a reclassification from hedge accounting to an earnings flow through the income statement; and a $1.6 million loan loss reserve for the loans held in securitization trust.

As of December 31, 2007, the Company had total assets of approximately $809 million as compared to $1.3 billion for the period ended December 31, 2006 for total liabilities of $791 million for the year ended December 31, 2007 versus $1.25 billion as of December 31, 2006.

The Company exited the mortgage origination business in March of 2007, which accounted for approximately $200 million of the decrease in assets and approximately $182 million in the decrease in liabilities from the previous year.

As of December 31, 2007, the Company had approximately $8 million in loans held for sale, net of reserves, with no outstandings for financings related to those loans.

As of December 31, 2007, the investment portfolio consisted of approximately $350 million of MBS securities, of which $325 million consisted of agency MBS.

The portfolio had an average coupon of 5.95% and a yield of 5.61%, the majority of which we set off for one month LIBOR.

The MBS portfolio was financed in part with $316 million of repurchase agreements with an average cost of 5.02% at the end of the year.

In addition, the investment portfolio included $431 million of loans held in securitization trust.

The loans had an average coupon of 5.74% and a yield of 5.47%.

The loans were permanently financed with $417 million of collateralized debt obligations with an average cost of 5.25% at year end.

The Company's debt investment for the on-balance sheet securitization is approximately $14 million, net of loan loss reserves.

The Company also had $45 million of subordinated debentures outstanding with an average rate of 8.04% at year end.

The Company's year end book value was $5.07 per share.

Portfolio net margin increased to 46 basis points in the fourth quarter ending December 31, 2007 as compared to 34 basis points in the previous quarter ending September 30, 2007.

The Company's average earning assets for the quarter ending December 30, 2007 totaled $799 million as compared to $866 million for the quarter ended September 30, 2007.

The portfolio's costs and pre-payment rate or CPR was 14% during the fourth quarter as compared to 20% in the third quarter.

For the year ended December 31, 2007, the CPR averaged 19% and was unchanged from the previous year of 2006.

The company's loan total securitization trust paid at an average rate of 20% during the fourth quarter as compared to 8% for the MBS portfolio securities.

The Company ended the quarter with eight employees and is currently at that same number today.

Now I would like to go over the events that have taken place in the first quarter of 2008.

As we disclosed in December 2007, the Company entered into a transaction with JMP Group and certain of its affiliates to sell $20 million in convertible preferred securities.

On January 18 of 2008, the Company closed the $20 million offering, invested the proceeds in approximately $200 million of agency hybrid ARM securities financed with approximately $190 million of repurchase agreements.

On February 21 of 2008, the Company completed a private placement of 15 million shares of common stock, receiving net proceeds of approximately $57 million.

The proceeds were invested in approximately $530 million of agency RMBS and were financed with approximately $476 million of repurchase agreements.

Most of these investments were hedged partially with interest rate swaps resulting in a net hedge spread of approximately 140 basis points.

In closing February, management felt like it was well on its way to building a successful long-term investment portfolio business.

In early March, the market started seeing signs of severe stress in the credit markets, including funding issues with a large mortgage REIT, a large hedge fund collapse, and finally, a large broker-dealer being essentially absorbed by a money center bank.

All these events contributed to a difficult investing and financing market in March.

The collapse of the large hedge fund in early March had a direct impact on our business, as the fund held over $20 billion in agency's CMO floating rate securities that were being liquidated at distressed prices.

It should be noted that this collapse occurred prior to any financial liquidity measures provided into the market by the Fed that were given to both banks and broker-dealers, as well as the GSE's to try to improve the liquidity of the Street to financing these types of securities.

The Company had approximately $300 million of similar CMO agency floating rate securities at the end of February in 2008.

And after this collapse, we experienced a rapid decline in prices -- as large as up to 15% -- in addition to notifications that haircuts on the securities that were being financed were going to increase.

In addition to the decline in prices in floaters, agency hybrid ARM prices also declined as mortgage spreads started to widen.

Understanding that we were a small company, we made a decision to deliver our balance sheet in response to these events.

Beginning on March 7, the Company sold over the next three weeks approximately $599 million of agency MBS, including $516 million of agency hybrid ARMs and $83 million of agency CMO floating rate securities.

These sales resulted in a loss of approximately $15 million.

Additionally, as a result of these sales of MBS, the Company terminated approximately $300 million of interest rate swaps at a loss of approximately $2 million.

The approximate value of the MBS portfolio as of March 31, 2008 totaled $507 million and is financed with $432 million of repurchase agreements.

As a result of these sales, the Company's MBS portfolio leverage was reduced to approximately 7 to 1 from approximately a high of 10 to 1.

The Company ended the quarter with approximately $8 million in cash and $24 million in unencumbered agency MBS securities.

Our increased liquidity resulting from the deleveraging leaves us well positioned to respond to challenges, should they occur.

The Company has approximately $43 million in capital invested in haircuts we purchased for repurchase financing, which represents an average advance rate of 91%.

Currently, our agency portfolio has an average advance rate of 93% or a 7% haircut as it relates to the ARM securities with a range of 5% to 10%.

The agency CMO portfolio has an average advance rate of 88% or a 12% haircut with the range going from 7% up to 20%.

We have one non-agency security on finance and that has a current haircut of 10%.

As our CMO portfolio pays down, as it is largely based on support cash flows off of gross coupons of higher than 6%, this will release significant amounts of capital that are tied up in these haircuts and will allow us to reinvest those proceeds into higher yielding, better leveraged agency ARM securities.

I would like to turn the call over to Dave now, who will go through some statistics relating to our loan sales securitization trust as well as other corporate issues.

Thanks very much, Steve, and good morning, everybody.

Some details now on the rest up the portfolio, that being the approximate $401 million of prime hybrid ARMs held in securitization trusts that are permanently financed with collateralized debt obligations.

Just as a reminder, these are 2005 vintage, mostly full doc loans with an average LTV at origination of 69%; average credit score of 738; and currently, the 60-day plus delinquents are 2.28% -- that's as of the March 25th remittance reports.

In addition to that, there is approximately $4.8 million of REO.

Not reflected in those numbers, however, is $3.9 million of REO that we've sold recently.

Portfolio delinquencies, while having increased since December, have remained basically flat for the last three months, January through March.

The good news is our portfolio continues to pay down at a relatively healthy clip, especially looking at the reinvestment environment.

Keep in mind when looking at the delinquency statistics that the numerator is basically flat while the denominator is decreasing.

CPRs or constant pre-payment rates for one month for the 2005 NYMT securitizations were 19% with a three month average of 24%.

In 2005, we made tremendous progress relative to legacy issues associated with our discontinued mortgage lending business.

Most prominent of these were the loan repurchase requests for loans sold by the former lending business.

As of December 31, 2007, pending repurchase requests totaled $4.4 million, against which we had a reserve of $455,000 versus $7 million as of September 30, and $25 million as of June 30.

So you can see there's been quite a bit of progress there.

While there is a possibility of future repurchase requests, all but one of the settlements we've entered into to eliminate repurchase requests include all future claims.

During the first quarter 2008, we did not repurchase any loans as compared to one loan in the fourth quarter and no loans in the third quarter of 2007.

Also, we have approximately $6 million net of reserves of loans held for cash and the discontinued lending operation.

We are -- that's down from $8.0 million at December 31 and we are trying to incentivize borrowers to refinance.

In December 30 of 2007, we agreed to settle a class action suit filed by former employees of our discontinued mortgage lending business relative to overtime pay.

We've reserved approximately $1 million in the fourth quarter of 2007 for this settlement, and expect finalization on this issue in the first half of 2008.

During the second quarter of 2008, we expect to vacate our current space in New York under the terms of an agreement with Lehman Brothers, in which Lehman will pay us approximately $3.2 million and take over the space.

That payment has been put in escrow and is subject to a decrease of $200,000 per month starting February 1, 2008 for each month we don't vacate.

As of February 1, 2008, IndyMac, who is occupying the space with us, is paying us a $200,000 monthly penalty for not vacating the space.

To date, IndyMac has paid us $600,000 in penalties.

Finally, let me mention that we plan on filing a registration statement on Form S-3 within a few days to register the private shares sold in February of 2008.

Now that the 10-K is filed, we are able to move forward on that.

Now, to close the comments, let me turn it back over to Steve.

Thank you, Dave.

On March 18, 2008, the Company announced that in light of the realized losses incurred from the asset sales and termination of related interest rate hedges, the Company was withdrawing its earnings per share guidance issued for 2008 of $0.45 to $0.55 per common share, which was initially provided to the market on January 24, 2008.

The Company estimates the second quarter 2008 net income per share to be in the range of $0.08 to $0.10 per share.

This estimate is based upon the Company's current and assumed liquidity position, investment portfolio margins, principal reinvestment plans, and its securitized loan portfolio delinquency and loss performance.

The risks to this earning investment include increased haircut requirements and/or agency MBS margin [calls] that result in security sales, reduced access to financing or an unexpected increase in delinquency or loss rates in our securitized loan portfolio.

For additional information, you can access our 10-K, which was filed yesterday with the SEC or at our website at www.nymtrust.com or at the SEC website, www.sec.gov.

I'd now like to open it up for questions.

Operator, if you could please queue in the questions, we would appreciate it.

(OPERATOR INSTRUCTIONS).

Chuck Griege, Blue Lion Capital.

I was wondering, you kind of went through the haircuts very quickly and I was hoping you could just recap the haircuts you're getting on your portfolio.

That's my first question.

Sure.

We have three major categories.

I'll go one category at a time.

We have agency ARMs, hybrid ARMs.

The average haircut on our portfolio of $250 million is 7%.

That's really representative of four borrowers at 5% and one borrower at 10%.

The haircuts seem to be settling in around 5% of those securities.

That would be up from 3% two months ago or 30 days ago.

Agency CMO floating rate securities -- those haircuts have ranged from 7% out to 20% and they're really bond-specific.

Our average haircut is 12% on those securities.

Those haircuts were probably up from 5% in February.

And then third, our last category would be non-agency CMOs, which we have one security out on repo.

That haircut is 10%; that's up from 5% 30 days ago.

I think the other important thing to note on these haircuts, not only does the haircut put pressure on the overall market, but the price declines in some of these securities have been significant.

So, combining the haircut increase with price declines in some of the asset categories such as CMO floaters, you see lending rates drop by over 20%.

So it's been very difficult for companies to manage through this liquidity.

Okay.

So, as of today on the agency hybrid side, you've got five counterparties.

That's right.

One of which is really whacking you here.

It doubled the rate.

That's correct.

What's your ability to move that?

We're in the process to move -- we clearly are looking to always optimize our financing rates, but one of the things -- you're coupling two things -- one, we're a small company ramping up our portfolio, so we brought on -- we had four counterparts lending us money at the end of last year.

We increased that up to 10 counterparties during the month of February.

We currently stand at six counterparties.

I think a lot of our counterparties are in a wait-and-see mode.

So the ability to move securities around, while we can do that, is not as easy said as done.

The other issue we have is these haircut increases get sprung on you the day you do your roll.

We're not getting any advantage in terms of them coming to us and saying, you know, in two weeks we're going to increase your haircut.

It's, the morning you go out and roll your repo, the customer is reviewing your account and saying, okay, we think your haircuts are going to be X.

So, your ability to manage that haircut increase and respond to that is a very short time period.

But over time, we will clearly try to bring on additional counterparties to best optimize our haircuts.

Back in January, how many counterparties did you guys have?

Prior to bringing in the capital from JMP, the convertible preferred, we had four counterparties.

And how many counterparties did you have in February?

In February, we had financings with eight outstanding and 10 in total.

And currently, we have six counterparties with financing outstanding.

We have another three that we have had borrowings with.

And we're in the process of bringing another three probably onboard this month.

Okay.

It just seems -- the 10% haircut on agency, however, just seems ridiculous.

I can't agree more.

I mean, absolutely.

I mean, you could argue with some of the haircuts on the agency CMO floating rate securities that are at 15% in my mind is ridiculous, when they're also marking them down by 10 points.

Well, yes, I'm looking at your -- the carrying value, that's your estimate of fair value or is that your cost?

No, the carrying value is estimated fair value.

That estimate is based on a combination of where we see prices transacting as well as the market values being placed on those securities when we go to the repo market.

Okay.

Can you talk little bit about -- your presentation here doesn't really -- it shows your yield on the assets, but it doesn't give you a sense as to the cost of the liabilities.

The average rate of the liabilities at the end of the month, at the end of March, yesterday, was 3%.

That's a LIBOR rate of about [plus] -- 20 basis points over LIBOR.

Now, our experience rate during the quarter was probably close to LIBOR flat.

We did see, over the last couple of weeks of March, as our repo's rolled during that time period, spreads widen out to 10 to 20 to 25 basis points on some of the borrowings.

And that spread widening did not seem to be asset type specific, but just in general, building to get credit.

So we think those spreads as you go past the quarter end, as you get through some of the funding programs that the Fed has put into place and people start to utilize them more efficiently, you'll see less pressure on those spreads.

And we think that that will transact down towards a LIBOR flat to LIBOR plus 5 lending rate over (multiple speakers).

So your liability costs should come down and there should be a better bid in the market, which would help not only pricing, but you would think, hopefully, the haircuts?

Yes.

I think one of the things that disappoints probably ourselves as well as other participants is that the Fed has gone out of its way to provide liquidity at haircuts that range between 3% and 5% for the asset categories that we hold; yet the haircuts that are being given to us are far higher.

And that's the one thing that we'd like to see improve over time.

And are you guys communicating this to the Fed?

Yes.

We are, yes.

Because that's certainly counter to what they want to see happen.

Absolutely.

Absolutely.

And I think the response that we get is consistent to that.

There's tremendous volatility in the marketplace and uncertainty, and they want to protect themselves, which I understand.

However, a 5% pass-through rate for the Fed and a 15% haircut to us, 10% seems to be exorbitant, given the pricing they're putting on the collateral.

If I understand what you're saying right, if you look at your total portfolio today, including your loans held in securitization, the weighted average yield is [4.6] and your cost is around 3?

Or is that excluding the securitization (multiple speakers) [funds]?

Yes, the securitization costs right now run around LIBOR plus 38.

So, LIBOR is around 2.70.

So it's not far from 3% -- 3.10, let's say -- or going down to 3.10% in April.

So the net margin improvement over the second quarter, we felt comfortable, we felt very comfortable in February and we think that given the size of our [quota], we'll still be profitable and we think the margins will improve during the second quarter.

So, we're talking about a spread here over 100 BPS?

That's correct.

Comfortable.

Yes.

And I guess that's before premium amortization?

That's right.

Now, keep in mind the $8.5 million impairment charge that we took in the fourth quarter, which was largely due to the sales of CMO securities which were securities we had on the balance sheet at the end of the year with unrealized losses, we ended up taking an impairment charge.

That lowered the price of that security to a discount of 98.

So, the actual premium cost this year, my guess is going to be a positive contribution to net income, not a negative contribution, because of that write-down.

That will largely offset the premium cost of the agency ARM portfolio.

And can you give us a sense as to what your operating costs are here, prospectively, first quarter?

Sure.

The operating costs, we're estimating at around -- the core operating costs of the Company is around $750,000 per quarter; $250,000 per month.

That cost is slightly reduced because currently we're living rent-free.

IndyMac is sharing this space with us, and as part of the agreement, they pay 100% of the rent of the space, as well as we're receiving a $200,000 per month penalty, starting on February 1.

So we think our costs will be slightly below $750,000 for the first quarter.

As we get out of this space, in the second quarter, we'll increase that slightly with the cost of our own costs of getting space.

But that cost will be minimal.

But we won't be receiving the $200,000 penalty from Indy; we'll be amortizing the remaining money that we receive from Lehman over the life of the lease.

So, prospectively, what do you see your (multiple speakers) --?

I would figure (multiple speakers) to get run rates around $750,000 per quarter.

Okay.

Thanks.

I'll jump back in queue.

(OPERATOR INSTRUCTIONS).

And we have no additional questions at this time.

I'd like to turn it back to management for any closing remarks.

Thanks very much, everybody.

We look forward to talking to you in a very short period of time -- a couple of weeks.

Thank you.

The first quarter.

Ladies and gentlemen, this does conclude our conference for today.

I'd like to thank you for your participation, for using ATT teleconferencing.

You may now disconnect.