New York Mortgage Trust Inc (NYMT) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the New York Mortgage Trust fourth quarter conference call.

(Operator Instructions).

This conference is being recorded today, Wednesday, March 3, 2010.

I would now like to turn the conference over to Scott Eckstein of the Financial Relations Board.

Please go ahead.

Thank you, Operator.

Good morning everyone, and welcome to the New York Mortgage Trust fourth 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'd like to be added to the Company's quarterly distribution list, please contact Samantha Alfonso 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 give you know assurance that such expectations will be attained.

Factors and risks that could cause actual results to differ materially from expectations are detailed in the 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'd like to introduce Steve Mumma, Chief Executive Officer and 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 during the question-and-answer period at the end of the call.

The fourth quarter completed one of the most successful years in our Company's history.

Solid earnings dramatically improved book value, significant portfolio restructuring, excess liquidity and tools all in place to help us build into 2010.

Here is some of the fourth quarter and full-year highlights.

The Company earned $4.2 million, or $0.45 per common share, for the three months ended December 31, 2009, and $11.7 million, or $1.25, per common share for the full year 2009.

The net portfolio interest margin increased to 433 basis points, up from 413 basis points in the previous quarter and 131 basis points for the fourth quarter 2008.

Portfolio averaged 351 basis points throughout the year of 2009.

The Company declared $0.91 per common stock dividend for the year.

The Company ended the year with a book value of $6.69 per common share included a net unrealized gain of $11.8 million.

This being comprised of a $14.7 million gain in our investment portfolio, offset by a $2.9 million loss in our hedging instruments.

But most importantly, approximately $13 million of the $14.7 million gain on our portfolio was from securities purchased during 2009.

We ended the year with $24.5 million in cash, $85.6 million in unincumbered securities, which includes $25.2 million in Agency RMBS, a significant improvement in liquidity from the previous year.

Now I would like to go into some further details of the Company's performance.

The Company's earnings for the fourth quarter as I said previously was $4.2 million, or $0.45 per common share, versus a net loss of $5.1 million, or $0.55 per common share for the fourth quarter of 2008.

For the 12 months we ended December 31, 2009, was $11.7 million in earnings, or $1.25 per common share, as compared to a net loss of $24.1 million, or $2.91 per common share for the year-ended December 31, 2008.

The Company declared and paid a fourth quarter dividend of $0.25 per common share, and believes this rate is sustainable for the foreseeable future.

The Company had net interest margin of $3.9 million for the fourth quarter 2009 as compared to $1.9 million for the fourth quarter 2008.

For the 12 months ended December 31, 2009, the Company had $16.9 million in net interest margin, or an improvement of $9 million over the same period for the previous year.

This coming with a portfolio that is less leveraged in an overall smaller balance sheet.

The Company had $2.7 million in realized gains from the sale of approximately $93 million of Agency ARMs during the fourth quarter 2009.

The sale allowed the Company to capitalize on historically high prices for Agency ARMs, while reducing our exposure to what we felt at the time were uncertain market conditions that were possible for the first quarter of 2010.

In addition, these capital gains will not be required tax distribution as it will be offset by capital losses realized in previous years, thereby becoming directly accretive to book value.

The Company added additional loan loss reserves of approximately $0.8 million for the fourth quarter and $2.3 million for the 12 months ended December 31, 2009.

The Company continues to follow its policy of completing third-party market evaluations for all properties that go over 60 days delinquent, and then reserving an amount that represents a discount to that value less expenses used to dispose of the properties.

The Company had total expenses of $1.8 million for the fourth quarter, a decrease of $0.2 million versus the fourth quarter 2008, and for the 12 months ended December 31, 2009, the Company has total expenses of $6.9 million, unchanged from the previous year.

Our net portfolio margin averaged 433 basis points during the quarter ended December 31, 2009, an increase of 20 basis points from the previous quarter and an improvement over the 130 basis points -- 133 basis points from the fourth quarter 2008.

The improvement in net margin throughout 2009 was due to several factors.

Exiting the lower-margin Agency CMO floaters in the first quarter, adding the CLO notes during the beginning of the second quarter, the addition of approximately $27 million in non-Agency RMBS all continued to perform well, as well as the securitization on balance sheet securitization.

The Company's average earning assets for the fourth quarter were approximately $477 million, as compared to $571 million for the quarter ended September 30, 2009.

Average earning assets have decreased by approximately $400 million during the year since 2008, while we've increased interest margin to record levels, both in terms of basis points as well as dollars.

At December 31, 2009, the Company had total assets of $489 million, as compared to total assets of $853 million for December 31, 2008.

Included in total assets December 31, 2009 were $177 million in investment securities and $276 million in mortgage loans held on securitization trust.

The Company had total liabilities of $426 million at December 31, 2009, as compared to $814 million as of December 31, 2008.

Included in liabilities at December 31, 2009 were $85 million in RMBS repurchase agreements, and $267 million of permanently financed collateralized debt obligations related to our on balance sheet securitizations.

In addition we had $20 million in convertible preferred securities, as well as $45 million in trust preferred subordinated debentures.

As of December 31, 2009, the residential MBS portfolio totaled approximately $177 million, consisting of $116 million of agency hybrid arms, $43 million of non-Agency RMBS, including $28 million of recently added securities that were purchased at an average price of 60% of current par value.

In addition, the Company owns $18 million of CLO notes, originally purchased for $9 million, currently yielding approximately 28%.

Our residential MBS portfolio had an average coupon during the fourth quarter of 4.78% and a yield of 6.46%.

The RMBS portfolio had an average CPR rate for the third quarter of 20%, unchanged from the previous quarter, and had an average annual CPR rate of approximately 18%.

Given the recent announcement by Fannie Mae regarding the buyback of delinquent loans, we do expect speeds to increase over the next 4 months, but do not expect a material impact to our overall results as our exposure to this sector has been reduced since the fourth quarter sale.

Residential MBS portfolio was financed of par of $85 million of repurchase agreements, with an average cost of 25 basis points, and after giving the effect our interest rate locked an average cost at approximately 3.03%.

Average (inaudible) repos has remained consistent to the last three quarters of the year of around 6%, and we currently have repos outstanding with five different counterparties.

Our leverage ratio at the end of the year is 1.4 to 1 as compared to 6.8 to 1 at December 31, 2008.

Our non-agency RMBS portfolio that we purchased during 2009 has an average cost of approximately 60%, with a 9% average support or implied credit support of almost 49% of the securities.

Securities had an average coupon of 5.33%, or 8.7% on an invested cash prior to taking into consideration any amortized discount.

Our $46 million of CLOs, which were purchased during the first quarter at an average cost of 20% of par, has doubled in market value since that purchase.

CLO today is backed by 111 different loans covering 17 different industry sectors, mostly comprised of middle market corporate credits.

This structure continues to be accurately managed by JMP Credit.

Additionally the investment portfolio consists of $276 million of loans held on securitization trust for our on balance sheet securitization.

These loans had an average coupon of 4.89% and an average yield of 4.73% for the fourth quarter.

The loans are primarily financed with $267 million as collateralized debt obligations, which had an average cost of 90 basis points, or a net interest margin of 383 basis points for the fourth quarter.

The Company's net investment in our on balance sheet securitization, or the amount at risk, is approximately $10 million.

Securitizations had $17 million in greater-than-60-day delinquencies or 36 loans, at December 31, as compared to $16 million for the previous quarter.

There were two REO properties totaling $0.7 million at December 31, as compared to three properties totaling $1.3 million in the previous quarter.

The Company continues to work with its delinquent borrowers in negotiating short-term repayment plans, which should bring a large percentage of our past-due loans currently -- to current over the ensuing six to 12 months.

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

As of December 31, 2009, the Company had $25 million in cash on hand, $85 million in unincumbered securities and $25 million -- including $25 million in Agency RMBS.

In closing, the Company completed 2009 with a strong balance sheet, including a low-leveraged, high-yielding investment portfolio, which is positioned to perform in improving economic environments as well as excess liquidity that gives us the ability to look for investments that will both build on our earnings, as well as book value for 2010.

Jim and I now would be available to take questions.

Operator, If you could please take the first question?

(Operator Instructions).

Our first question comes from the line of Matthew Howlett with Macquarie Capital.

Please go ahead.

Hey Jim, hey Steve, thanks for taking my question.

Good job turning the Company around this year.

Looking towards the capital employment in 2010, you talk about focusing on more credit (inaudible) assets when opportunities arise, presumably unlevered-type trades.

What's the outlook there, the non-agency credit markets rallied, certainly the CLO trade was a great trade you did in April, that's rallied.

What are you looking for going forward?

Would it be more the new-issue-type stuff that would start coming out or do you think does more opportunity in the non-agency side here with these prices?

We spent the last two months looking at several different types of investment possibilities, ranging from looking at participating in new securitizations, be it working with an originator to develop a product that we feel comfortable in the credit, as well as looking at possibly going together and pooling with buying some distressed loan packages and trying to rehabilitate those loans to a special servicer, to CMBS-type securities as well as very southern buckets of agency securities.

So we do look at the decurrent non-agency market and we think the non-levered investment opportunities, given the types of securities we've purchased during the year of 2009, is probably not available today to get the types of returns we're looking for.

We do think that one leverage has come back to the marketplace and there is financing available to buy non-agency securities to date under favorable market conditions or terms, and we are looking at possibly buying some of the higher credit quality non-agency pieces that we would put a couple terms of leverage on that would produce returns in the 12% to 17% ROE.

Got you.

So part of it could include some use of the securitization markets, whether it's Re-REMIC or just new-issue to find its loan packages or distressed loans and so forth?

That's correct.

I think the new issue market is getting closer to getting to getting the point where you can have an execution.

I think you've seen some balance sheet executions.

I don't think we're there quite yet for profit executions, but I think we're getting very close.

Okay, got you.

And anything on the timing?

Is it just sort of week by week or could you announce the transaction?

No, it's a matter of what the market will give us.

We're in discussions with various parties as it relates to where we need to get pieces executed to make it profitable for everybody and have a decent return on the credit piece, so we will hopefully be in place to take advantage when the market opens up.

Great.

We'll wait for an announcement there.

And then on your excess capital position, we see the cash, $25 million in cash, the unincumbered -- the $86 million unincumbered securities.

What do you consider your excess capital position?

Is it $30 million, $40 million, $50 million if you lever up some of those securities, can you give us a general ballpark on how much capital -- ?

Yes, I think that we feel like we have excess capital to deploy between the $30 million and $40 million range, and that's really still keeping the balance sheet very liquid to defend any types of unknowns that may come about.

For example, the recent announcement of the Fannie Mae and Freddie Mac repurchase to the extent that that would cause some distress from a margin call, we have ample liquidity and we would try to keep that in place regardless of what we do going forward.

Got you, great.

After going through 2008.

Great, got you.

And then the last question, great trade with the CLO.

It looks like there's even more room to mark that up going forward.

Looks like leverage loans and default rates in the middle of markets have really fallen off.

What can you tell us about the performance of that underlying CLO, whether there is room to upward pressure on the mark there, given it's still a pretty big discount to face.

Well, yes, clearly -- there's two things.

One, the overall CLO market has improved dramatically and continues to do so through the first quarter of this year.

As it relates to this securitization, one of the things that were a positive surprise for us is that when we first purchased the securities, we anticipated interest being turned off for up to 18 months, and it has continued to pay interest on a current basis throughout the last 12 months.

The credit, when we bought it in April 2009, had approximately 72 different loans.

It now has 111, so the Management team has been very active in, one, diversifying further into different credits, lowering the individual exposure buy credit to a $2 million to $3 million range from a probably $7 million to $10 million range when we looked at the transaction.

So we're hopeful that it will continue to pay interest, and if they can get the equity turned on to the deal, clearly that will impact the E-notes, the D-notes and the C-notes even more than it currently has.

So yes, we do think the market has improved and continues to improve through the first quarter 2010.

Hey Matt, it's Fowler.

Just one point on that.

I would -- on that last point specifically, we have an observer position on the JMP Credit platform given our investment at the time we structured it, and the determination date in February, it's a pretty complicated structure and we check in on it every quarter to get an update, but they were one or two loans away from having that subordinate fee of the Management fee turned on in the February quarter.

I suspect that they think the prospects of it being turned back on in May is very high, which that's a couple of years earlier than they thought it would be turned on, at least Steve and I thought it would be turned on when we made our investment.

When that subordinate fee is turned back on, I would expect the value of our notes to appreciate pretty smartly right around that point, and as I said, it turned on one loan, I believe, in the February determination date, there's a May determination date that I think the JMP Credit team believes has high prospects of receiving that subordinate fee.

So I think very nearby we're going to see a continued increase in value of the securities that we hold.

That's great news, and you said the underlying collateral balance has increased from 75 loans to over 100, so you've been able to add presumably cheap loans over the last year into that pool?

Generally what's happened is these are rough numbers, but fairly accurate, when the 68 to 70 credits that were in the securitization, when we bought the notes, generally were in the LIBOR-plus-275 range, and over the period of time that the Company has -- that we've owned the notes, the cash that's come in has been reinvested in much better companies, much higher quality companies in the LIBOR-plus-300 to LIBOR-plus-500 at prices between say $0.95 and $0.98.

So they are now up to 111 companies in the securitization.

The overall balances of the securitization doesn't change.

It's just how is the cash that comes in through repayments and pay-offs and refinancings and the like, how is that reinvested so you've increased the companies in the portfolio by, what's that, 40%, at much higher margins and in lots of cases, discounted prices.

So the overall quality of the securitization itself has improved dramatically in the past close to a year now that we've owned the notes, so I think those guys, that team has done an excellent job on behalf of themselves and we have been significant beneficiaries of that.

Yes, something a lot of upside there.

Well guys, congratulations.

Thanks for answering my questions.

Sure, thanks, Matt.

Thanks Matt, thank you for your support in the past year.

Thank you.

(Operator Instructions).

There are no further questions in the queue.

Well, thank you, everybody, for calling in today, and we appreciate it and we will be back on the phone in -- about our first quarter results in about six to seven weeks.

Thank you very much.

Ladies and gentlemen, this concludes the New York Mortgage Trust fourth quarter conference call.

If you'd like to listen to a replay of today's conference please dial 303-590-3030 or 800-406-7325 with the access code 424-4555.

ACT would like to thank you for your participation.

You may now disconnect.