New York Mortgage Trust Inc (NYMT) 2009 Q3 法說會逐字稿

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

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

Following the presentation the conference will be open for questions.

(Operator Instructions).

This conference is being recorded today, Wednesday, November 4th of 2009.

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

Scott Eckstein, Financial Relations Board.

Please go ahead, sir.

Thank you, operator.

Good morning, everyone, and welcome to the New York Mortgage Trust third quarter 2009 results conference call.

The Press Release was distributed yesterday after the close of market.

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 Alfonzo 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, they can give no assurance that its expectations will be obtained.

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 Steve Mumma, Chief Executive Officer, President and Chief Financial Officer.

Steve, please go ahead.

Thank you, Scott.

Good morning, everyone, and thank you for being on the call.

Jim Fowler, our Chairman, is also on the call and will be available at the end of my discussions to field any questions.

The third quarter, a Company record in many ways, validates the hard work and dedication from the New York Mortgage Trust Team.

I'd like to go over some of the highlights for the quarter.

The Company earned $2.9 million, or $0.31 per common share, for the three months ended September 30th, 2009 and $7.5 million, or $0.80 per common share, for the nine months ended September 30th, 2009, both records for the Company.

The net portfolio interest margin increased to 413 basis points, up from 361 basis points in the previous quarter, a confirmation of the investment strategy rotation away from leverage to more opportunistic credit sensitive investments.

As I discussed at our second quarter earnings call, the Company began a program to invest approximately $25 million in non-agency RMBS, which the Company substantially completed in the third quarter.

The securities were purchased at an average price of 60% of current par value with an approximate long-term risk adjusted yield range of between 16% to 18%.

The $9 million CLO investment made in the first quarter continues to exceed all expectations with all traunches cash flowing interest as well as experienced a significant market recovery in valuation during the third quarter.

Our book value increased to $6.17, or a 26% increase over the book value at June 30th, 2009 of $4.89, the increase in book value, coming both from earnings as well as valuation improvements from all asset classes in the Company's portfolio, including a $4 million increase in our CLO investment.

Now, I'd like to go through some more detail of the performance.

As I said before, the Company's earnings for the third quarter of 2009 were $2.9 million, or $0.31 per common share, as compared to $1 million, or $0.11 per common share, for the third quarter of 2008.

For the nine months ended September 30, 2009 the Company earned $7.5 million, or $0.80 per common share, as compared to a net loss of $19 million, or $2.39 per common share, for the same period previous year.

The Company declared and paid a third quarter dividend of $0.25 per common share, an increase of $0.02 per share over the previous quarter, and a rate that we feel is sustainable for the foreseeable future.

The Company has paid a total of $0.66 year-to-date in dividends.

The Company had net interest margin of $4.7 million for the third quarter of 2009 as compared to $2.2 million for the third quarter of 2008.

For the nine months ended September 30th, 2009 the Company had $12.9 million in net interest margin, or an improvement of $7 million over the previous year.

More importantly, these improvements have come with less leverage in an overall smaller balance sheet.

The Company had additional loan loss reserves of approximately $0.5 million for the quarter ended September 30th, 2009 and $1.4 million for the nine months ended September 30th, 2009.

The Company continues to follow its policy of completing third-party market valuations for all properties 60 days plus delinquent and then reserving at a discount to this value that approximate carrying costs through foreclosure.

These market valuations are updated every six months when necessary.

Company had total expenses of $1.9 million for the third quarter, an increase of approximately $0.4 million from the third quarter of 2008.

For the nine months ended September 30th, 2009 the Company had total expenses of $5 million, as compared to $4.8 million for the same period in the previous year.

The increase in expenses was primarily related to performance-based compensation and management fees on our alternative investment.

As I said before, our portfolio net interest margin averaged 413 basis points for the quarter ended September 30th, 2009 as compared to 361 basis points the previous quarter and 136 basis points for the quarter ended September 30th, 2008.

The improvement in net margin was due to several factors, exiting the lower yielding, agency CMO floaters in the first quarter, the addition of the higher yielding CLO notes in the beginning of the second quarter and the addition of approximately $24.1 million in non-agency RMBS that was completed during the third quarter.

Company's average earnings assets for the third quarter were approximately $571 million, as compared to $601 million for the quarter ended June 30th, 2009.

Average earnings assets have decreased by approximately $270 million since December 31st, 2008, while increasing net interest margin to record levels.

As of September 30th, 2009 Company had total assets of approximately $608 million, as compared to $853 million for December 31st, 2008.

Included in the total assets at September 30th, 2009 were $283 million in investment securities and $291 million in mortgage loans held for securitization trust.

Company had total liabilities of $550 million as of September 30, 2009, as compared to $814 million as of December 31st, 2008.

Included in the liabilities as of September 30th were $195 million of MBS repurchase agreements, $280 million of permanent finance collateralized debt obligations related to our on-balance sheet securitization, $20 million in convertible preferred debentures and $45 million in subordinated debt.

As of September 30th, 2009 the residential MBS portfolio totaled approximately $269 million and consisted of $224 million of agency harbored ARM MBS and $45 million of non-agency MBS, including $24 million of recently purchased securities that were purchased at 60% of current par value and have risk adjusted yield of approximately 17%.

In addition, the Company owns $13 million of market value CLO notes originally purchased for $9 million and currently yielding approximately 22%.

Subsequent to September 30th, 2009 the Company sold approximately $98 million in agency RMBS for a realized gain of $2.7 million.

The sale allowed the Company to capitalize on historically high prices for agency ARMs, while freeing up capital to redeploy more opportunistic investments.

In addition, these capital gains will not be required tax distribution, as they will be offset by capital loss -- realized capital losses in previous years, thereby becoming directly added to the book value if the Company elects not to distribute.

Our residential MBS portfolio had an average coupon during the third quarter of 4.37% and an average yield of 4.19%, as compared to an average coupon of 3.81% in the previous quarter and an average yield of 3.98%.

The RMBS portfolio had an average CPR rate for the third of approximately 20%, unchanged from the previous quarter.

The improvement in net margin in the RMBS portfolio was due to the addition of the $24 million of non-agency RMBS, which had an average coupon interest coupon of 5.35% and an average yield for the quarter of approximately $0.20 after taking effect of the prepayments.

Residential MBS portfolio was financed in part with $195 million of repurchase agreements, which had an average cost for the quarter of 57 basis points and, after giving effect of our interest rate swaps, of 147 basis points, or 1.47%.

Average share cut in our outstanding repos remains unchanged from the second quarter to approximately 6.4%.

We had outstanding repos with five counter parties and our overall leverage is down to 2.5 to one, down from 6.8 to one as of December 31st, 2008.

As of September 30th, 2009 the Company had $22 million of cash on hand, as well as $74 million of unencumbered securities including $16 million in agency MBS securities.

In addition, the investment portfolio includes $290 million of loans held on securitization transfer on balance sheet securitization.

These loans had an average coupon of 5.0% and an average yield of 4.85% for the third quarter ending September 30th, 2009.

These loans are primarily financed with $280 million of collateralized debt obligations, which had an interest cost for the quarter of 1.03%, resulting in a net interest margin or excess spread of 382 basis points for those investments.

The Company's net investment in our in our on balance sheet securitization is approximately $11 million after deducting $2.3 million in loan loss reserves.

Securitizations had $16.4 million in greater than 60-day delinquencies, or 31 loans as of September 30th, 2009, as compared to $12.9 million for the previous quarter.

There were three REO properties holding 1.3 as of September 30th, 2009 as compared to three properties holding 1.2 for the previous quarter.

The Company has been successful in negotiating short-term repayment plans with several of our delinquent borrowers that results in bringing a large percentage of our past-due loans current over the ensuing six to 12 months.

As these are all temporary plans, these loans are reported through the securitization trust in the respective delinquency categories.

To be exact, we currently have approximately -- to be exact, we currently have 18 loans totaling $8 million of unpaid principle balance engaged in some type of temporary repayment plan.

The Company continues to monitor all delinquent loans diligently updating property values, reviewing borrower personal situations for possible assistance and, if necessary, disposing of the properties as soon as possible.

All of these measures have enabled us to minimize losses to date on our loan held in securitization trust.

In closing, the Company has positioned -- repositioned its securities portfolio and has established the building blocks to continue the successful transition to a more diversified investment strategy that depends on less leverage.

Now, I'd like to open the floor for questions for both Jim and myself to answer.

Operator, if you could please take the first question.

(Operator Instructions).

Matthew Howlett, Fox-Pitt Kelton.

Guys, congratulations this quarter once again.

Good job.

In terms of the strategy going forward, you continue to rotate the portfolio away from agency MBS and towards -- into non-agency type products.

I estimate with the sale of the agency this quarter you could be somewhere between $30 million to $40 million in excess capital.

Where do you see the point at near term or longer-term out?

You've been focused so far to date into triple A non-agency market.

Markets really appreciated recently.

Would you be looking at other spots in that market?

I think we're looking at several areas.

I mean, we continue to look at opportunities in a non-agency space.

There's no question that the -- many of the securities that we bought in the early part of the summer have realized significant price appreciation.

I mean, we're looking at the CMPS possibilities and we're looking at other opportunities that currently aren't in securitized form that we possibly may be involved with in the future.

So we think there's some great opportunities out there.

The market's had a lot of activity and a lot of price appreciation in many of the factors but we still have a securitization market that has not got back on its feet from 18 months ago that we're looking at possibly seeing if there's going to be opportunities there.

And we're going to take our time in making these investments because we're more looking at the returns over the six to 12 months as opposed to the next three months.

Great, right, absolutely, I'll agree with you there and then in terms of the triple A assets that you've purchased, the $24 million or so since the beginning of the year, those are un-levered, correct?

That's correct.

And you have, correct me if I'm wrong, six counter parties today on the agency side.

Have you spoke with them or even interested at some point of applying a little bit of leverage, whether it's through Re-REMIC or whether it's through repo down the road?

I mean, one of the things we're definitely looking at is there will be -- there's no question that liquidity has come back to the market, especially in the third quarter.

You're starting to see liquidity providers in a non-agency space.

We would contemplate doing those types of trades.

We would make sure that the securities that we would put on leverage, one would be on a low lever basis in terms in the amount of leverage that we put on the securities and it would be put on securities that we felt very safe in terms of predicting the performance over the near future.

I don't think we're going to get back to the marketplace where people were putting eight to 10 times on non-agency securities.

But leverage is available out there.

It's available to us if we want it.

We have not elected to use it today.

Right.

It's a lot of upside rate there and then, Steve, when would you go back in the agency MBS market and you're really under leveraged there, particularly given all your unencumbered securities?

I mean, maybe if you're looking past March next there could be a backup in yield.

I mean, do you need to see dollar prices come down to look at -- to grow that portfolio again?

I think what we need to get comfortable with is the impact that the Federal programs have on the dollar price of the securities.

As rates start to move back up, you'll get some pricing in our opinion, some pressure on some of the pricing.

It's just a matter of we need to maintain certain levels to be re-compliant as well as 40 Act compliant and those are probably the levels that we'll maintain in the short term and, if we feel like there's opportunities in this space, we'll get back in, but we just felt like it, dollar prices above 105 that we were better served putting the money somewhere else.

Great and just last question, on -- is there any relevance to the possible extension of the NOL carry back and to guys if there is anything to do with the legacy company or not?

Thanks again and congratulations.

Thank you.

Yes, as far as the NOL goes, I mean there's no question.

The realized gain in the REITs, we have realized capital losses from 2008 when we de-levered the portfolio that will offset those gains, but many of the securities that we currently have invested in, specifically the non-agencies were done on our TRS, which has an existing NOL on it that we will be able to offset the interest income from those securities against that NOL over time.

[Peter Portel] with Pegasus, please go ahead.

Hey, guys, good quarter.

I've got a couple questions.

The Cratos investment, it sounds like you wrote that up $13 million.

Is that accurate?

That's correct.

How did you come about those numbers?

Can you give us some color?

Sure.

It's a combination and we will be filing the third quarter Q probably on Friday of this week and you'll see that the Cratos investment remains in a level three category, which is based on some observations, as well as management's estimates.

But the reality of it is we did see activity in actual trades done in those securities, those specific securities, during the third quarter, which helped validate the prices where we carried those values.

Okay and some color where you see this portfolio going and the plans for the portfolio?

You know I think the -- as it relates to Cratos-type investments, we'd like that investment from the beginning because of the overall package where the -- we had a relationship with JMP Securities that owns the investment management team of Cratos.

We saw of opportunities like that we would probably make additional investments in those types of securities.

Buying outright CLOs, where we don't have direct relationship with the manager, probably less so, but I would not say it's impossible.

It would always depend on the opportunities of what we thought the risk-rewards were and we just continue to look at other residential related types of investments to put on the books that deal with less short-term leverage and more credit sensitive issues.

It sounds like a pretty conservative balance sheet.

What was the point of the shelf?

You've got plenty of excess capital.

I think it's part of any company's transition through life.

The Company was not in a situation really until June where we started getting activity in the stock where we were trading above book value to put a shelf in place.

And it's something that we want to have in place.

If we find an opportunity where we think we need more capital and that capital is going to be both accretive to earnings, as well as book value, we want to have the ability to move on it and you can't move on it when you're a Company of our size without getting a shelf in place because there's some timing involved on it.

And, what we've learned over time is that the window to raise capital open and close fairly quickly.

So right now it's just we've made a submission to the SEC for filing.

It's under review.

It has not been approved yet so it's something that we'll put up there and we'll hope to draw down over time when there's opportunities.

So, just to be clear, there's no current plan to do an offering but if you find a--

I think what we're able to say, given the status of our shelf filing, is that its been filed as a description of our intentions would be to possibly use a shelf but we're not really at liberty to say anything other than that.

And just a final question, earnings and the dividend, it seems as though we've earned well in excess of the dividend paid out.

Do you expect five dividends this year or a special at the end of the year?

Well, one of the advantages of our Company to date, what you could call as an advantage today, but owning in a mortgage company we generated some significant NOLs over the last five years.

Some of those NOLs we're going to be able to recapture with the earnings of assets that we booked down on our TRS.

The other advantage of generating earnings in a TRS is that it's not a required distribution for REIT status purposes.

So we will maintain so that what that means is the Company will have the ability to make a determination that, if they feel like there's better use of capital reinvesting it into book value and growing book value as opposed to diviting it out, we will be able to do that.

Okay.

All right that answers my questions.

Thanks, guys.

(Operator Instructions).

John Wimsatt, KBW Asset Management.

Hey, guys, nice quarter.

Just want to talk for a second about the decision to sell the agency mortgages.

I mean, I think I understand it in -- I mean, I obviously understand what you guys are trying to do but I just want to sort of talk through it a little bit.

What was sort of the return threshold or whatever it was to make the decision to sell those and the ability to redeploy and I don't know if you said exactly how much capital you freed up through that?

Right well, you know, we look at the portfolio, we look at where the Company is going and what we want to -- where we want to put our investments and we're sitting with an agency ARM portfolio that probably has $100 million more ARMs than we actually need to have to be -- you know, for REIT purposes and 40 at compliance, at prices that are at or near the historically high prices.

You can always go back in the market and replace those if we'd like to but what we wanted to do was monetize some of those premiums.

They were already reflected in the book value, quite frankly, so all we've done is we've monetized the high dollar priced premiums into currency and if we so choose to in the first quarter to reinvest back into ARMS we may do so but we think we'll be better able to redeploy that capital into higher yielding assets that will make the overall performance of the Company look better.

Okay so there's not a return threshold per se, meaning it seems to me like the agency ARM trade might be in the 12%, 13% sort of return on equity range, which doesn't seem particularly attractive, given the other alternatives for you guys.

Is that part of it or is it literally just hey, we're going to -- we don't need it right now so we're going to take the gain and wait and see if we get a better opportunity?

Exactly.

I mean I -- we felt like the negatives of holding the security through year end we didn't think there was that many more positives to the security.

We felt like--

This isn't necessarily a view on prepays or anything like that?

Right.

I mean, the prepays of these securities that we sold on average were around 22% CPR on the securities that we sold and the concern was at a high [105 dollar] price you're getting the pop up into the 30s, which is not inconceivable coming into the spring, that we felt like we could get -- we'd be better served putting the money elsewhere.

Got it and did you say how much capital was against those?

The capital, you know, we probably sold $98 million and we probably had a haircut of 6% to 7% against those, so you're freeing up about $7 million of direct capital on that, so you're not freeing up a huge amount of capital but on the other hand the amount of earnings driven off that capital that's at risk if dynamics change in the marketplace we feel was greater than where we can redeploy the capital.

Okay great.

Hey, John?

This is Fowler.

The other thing you might -- you'll note when you look at the Q and another one of our thoughts on this, is that we're currently swapped at about an amount equal to the remaining balance of the hybrids so we, rather than remain -- I mean, with -- we just looked at it, as Steve said, as there's nothing really positive from here that can occur.

I mean, funding rates are zero.

Prices are very high and they're either going to prepay it at par or trade off maybe early next year depending upon what market rates do and we wanted to, you know, what we did is we sold the balance down to the swap level to improve the balance sheet protection, given what could happen on the funding side and we'll see what happens with mortgage to swap spreads as we go into the first quarter of next year but that's what -- that number that we picked wasn't random and it wasn't driven.

It was one of the catalysts was the idea that prices were very high but also we're now -- we have a balance of ARMs equal to our balance of hedges and we feel that that's a reasonable place to be, given the overall environment.

Great quarter, guys.

Thanks.

Charles Griege, Blue Lion Capital Management.

Hey, really good quarter.

A couple questions for you, can you give us any sense as to the marks on the COL at quarter end by cost?

Well, I think if you look at there was $4 million overall appreciation in the CLO from a purchase price of $9 million and what we can say generally is that the price is approved across all classes.

We own the C, D, and E notes.

Clearly the C notes had more appreciation than the D notes and the D notes had more appreciation than the E notes, but what we witnessed during the quarter, not only with that particular CLO but with many other CLOs, the market opened up and you saw fairly significant two-way flows, as well as two-way flows in those notes.

So, I mean, I think that was beneficial.

You know, the overall market liquidity has improved dramatically.

There's not doubt.

No doubt and things--

Prices that we feel very comfortable with on a valuation basis.

I agree and the prices we've seen quarter end have been just as strong, if not stronger, as have the liquidity.

And my second question would be with the sale of some of your conventional portfolio, how do you think about deploying the capital here with where prices are and the moves in the non-agency space as well over the last three to four months?

What--

Well, I think one of the (inaudible) that we have in front of us is that one we have the luxury of -- well, we look at our investment period of being between the three and six-month horizon right now and clearly prices have moved very rapidly in the last four months.

There's been a lot of money that's been raised.

The PPIP program has brought some money in that's definitely supported the non-agency market and we're looking at other possibilities.

We've started looking at possible securitization opportunities that aren't here today but, given the price movements, could be here in the first quarter of next year and we'd want to be ready to move on if it does come in and we're looking at some other credit sensitive possibilities.

I mean, there's no question it takes a lot more digging right now and you may introduce some leverage to some non-agency securities if we feel comfortable with the structure of the security and we felt like the market was stable enough that you could put leverage on a transaction and not expect a 20 point drop in price in a short-term.

But realistically, given what Jim said earlier, rates realistically have one way to go and that's up.

It's kind of a tricky time to deploy capital.

Is that a fair statement?

Yes, yes.

I mean, it's no question.

I think it's always a tricky time but I think one of the strategies that we feel comfortable with is when you're dealing with a lowered leveraged balance sheet the market movement of your securities put less stress on the Company from a liquidity standpoint, which allows you to I think make different types of investment strategies and that's one of the goals of the Company.

We're still a small company and, after going through 2008 as a small Company, what we did learn was leverage can be a crushing event on a company no matter what the size is but, as a small company, it's even that much more difficult.

So I would think we'd be very prudent when it comes to adding more leverage to the Company.

Thank you, appreciate it.

Hey, Chuck, one additional comment, JMP put out its earnings today and I think they also have their 10-Q out today.

I imagine there will be a fair amount of disclosure in there under the JMP credit portion of the queue that discusses what's happening from the Cratos investments that they've made.

That could probably be also helpful in terms of understanding how well the securitization itself is going and the underlying credits, so I think we've -- I think both Steve and I, who oversee what's happening down in Atlanta are extremely pleased with how that management team is working on the underlying credits.

The companies in the CLO right now are about I'm going to say it numbers somewhere between 105 and 110 in terms of credits they have versus the 65 that were in the CLO when we acquired the notes.

It's we assumed when we did our analysis, by we, Steve and I, when we did our analysis on what we thought the outlook would be that at least one level of the notes, the Es probably would pick at some point.

We have a determination date coming up here soon in November.

It always hinges on one or two credits and decisions and the like.

It's a very -- you know, it's a complicated, as you know, but nonetheless things look good for that determination date and I think that should be one of the trickier ones to get through and, given the diversification of the portfolio, this thing is -- these notes are performing much better than we had analyzed and assumed back in April when we entered the transaction.

There should be lots of good information for you.

That's great.

My last question would be, given how much the -- it was that portion of the structured market that improved.

Do you think it's possible we could get some new issuance next year in the first half and could Cratos participate in that?

You know, I can't really comment on Cratos.

I mean, I can't comment because I don't know what they're thinking about from a business point of view but I would assume that it's a very, very experienced team.

My presumption is that there's a growth opportunity there.

I did read an article in an industry newspaper in the middle market banking segment that they are giving some thought to CLOs coming back a little but you know, coming back.

We'll have to see.

There's certainly demand in the middle market for credit.

I can't imagine it will be the same sort of leverage and all of the structured items that were in the 2006 and 2007 deals but it's not hard to think that something will come back.

But I think, as you know, I think Cratos -- well, now JMP Credits as it's been renamed and constituted, I think they'll have a very good opportunity in that marketplace because they are very, very senior, very experienced people.

Whether or not that will accrue to the benefit of New York Mortgage, from our vantage point that's just simply everything is risk adjusted return focused and we'll look at things as they're presented to us.

All right thank you very much.

Thank you and I'm showing no further questions in the queue.

I'll turn it back over to management for any closing comments.

Well, thank you everyone for your support with the Company over the last year.

We look forward to our year-end discussion and we'll talk to you in three months.

Thank you very much.

Thank you, sir.

Ladies and gentlemen, that does conclude today's New York Mortgage Trust third quarter conference call.

If you'd like to listen to a replay of today's call, please dial 303 590-3030 or 1-800 406-7325, enter the pass code 4175999.

Once again, those numbers are 303 590-3030 or 1-800 406-7325, enter the pass code 4175999.

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