New York Mortgage Trust Inc (NYMT) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust second-quarter 2010 results 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 on Wednesday, August 4, 2010.

A press release with New York Mortgage Trust's second quarter 2010 results was released yesterday. The press 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 also access in the investor relations section of the Company's website.

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 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, Operator, and good morning, everyone, and thank you for being on the call. Jim Fowler, our Chairman, is also on the call and will be available for the Q&A period at the end of this session.

First I'd like to go over some second-quarter highlights. During the second quarter the Company made a commitment to invest up to $750,000 in the commercial mortgage originator, New Bridger Funding LLC, a company historically that has originated over $5 billion in commercial mortgages that have gone into over 35 CMBS securitized deals. We expect this investment will bring not only profitability to the Company but also opportunities to invest in credit pieces off of CMBS deals originated in the current period. The Company also has warrants to purchase up to 73% of the company's equity. To date the Company has invested $400,000 in Bridger.

The Company entered into a revised management agreement with JMP Securities, which we believe better aligns all interests, including increasing the incentive payout hurdle to 13%, up from 8% of the previous contract.

The Company completed the outsourcing of the accounting and human resource functions which we believe will save money and free up time and efforts from other team members of the Company.

Now some financial overview highlights. The Company earned $1.5 million or $0.16 per common share for the three months ended June 30th, 2010, as compared to $2.5 million or $0.27 per share for the period ended June 30th, 2009.

The Company declared and paid an $0.18 common stock dividend for the second quarter. The Company ended the quarter with a book value of $6.90 per common share as compared to $4.89 per common share June 30th, 2009, and $6.69 per common share at the end of the previous year.

The book value for June 30th, 2010 includes net unrealized gains of $1.44 per share comprised of $1.65 per share of unrealized gains from our investment portfolio, off by $0.21 per share of unrealized losses related to our hedging instrument.

The net portfolio interest margin decreased by 55 basis points to 370 basis points during the quarter and a 9 basis point increase over the second quarter of 2009.

The Company had net interest margin of $2.7 million for the second quarter of 2010 as compared to $4.2 million for the second quarter of 2009. The decrease of $1.5 million was due mainly to the decrease of $207 million in average earning assets from June 30th, 2009 to June 30th, 2010.

In addition, during the second quarter of 2010 our Fannie Mae agency portfolio experiencing more than tripling of CPR speeds as compared to the first quarter of 2010. This increase was due to the Fannie Mae delinquent loan buyback program and resulted in an additional $300,000 of amortization expense as compared to the first quarter of 2010.

The Company had $1.2 million in realized gains during the period. Those gains were the result of the sale of $1.8 million in non-agency RMBS and $28 million of agency ARMs during the period.

The Company will continue to sell opportunistically the non-agency portfolio that we accumulated in 2009 throughout the 2010 year. The Company added $600,000 to loan loss reserves during the quarter as total delinquent loans greater than 60 days increased by $1.8 million from the year end.

Our total reserves represent 99 basis points of our outstanding loans and approximately 27% of our net exposure to the on balance sheet securitization.

The Company had total expenses of $2.1 million for the second quarter ended June 30th, 2010, an increase of approximately $500,000 from the second quarter of June 30th, 2009. This increase was due mainly to increased management fees attributable to the build-out of our alternative asset strategy in 2009, including the purchase of the CLO notes.

Year-to-date expenses are approximately $4 million or a quarterly run rate of approximately $2 million. It should be noted that these alternative investments have added significantly to both our earnings as well as book value growth to the Company. And as we go throughout 2010, the comparables will be more comparable as the incentive fee starts to come in at the fourth quarter of 2009.

As I stated earlier, the Company entered into an outsourcing agreement in April for our accounting, treasury and human resource process. This will lead to a more predictable expense with a shift of a fixed cost basis away from a variable cost basis which would include salary, bonus and employee benefits for the related employees.

The Company's average earning assets for the second quarter were approximately $394 million as compared to $478 million for the quarter ended December 31st, 2009, and $600 million for the quarter ended June 30th, 2009. We expect our average earning assets will run at lower levels as compared to previous periods as we continue to focus on investment opportunities that rely less on leverage.

As of June 30th, 2010, the Company had total assets of $439 million as compared to $489 million as of December 31st, 2009. Included in total assets as of June 30th, 2010 were $116 million in investment securities and $250 million in loans held in securitization trusts.

The Company had total liabilities of $374 million as of June 30th, 2010 as compared to $426 million as of December 31st, 2009. Included in the liabilities as of June 30th, 2010 were $60 million of agency RMBS repurchase agreements, $241 million of permanently financed collateralized debt related to our on balance sheet securitization, $20 million in convertible preferred and $45 million in subordinated debt.

As of June 30th, 2010, the investment portfolio totaled $116 million and consisted of $60 million of agency hybrid ARMs, $34 million in non-agency RMBS and $22 million in CLO notes.

Our residential MBS portfolio had an average coupon during the second quarter of approximately 4.55% and a yield of 6.36%. The RMBS portfolio had an average CPR rate for the second quarter of 36% up from 15% in the previous quarter. This increase was largely attributable to the increase in our Fannie Mae ARM portfolio which saw fees go from 15% in the first quarter to an average of 48% in the second quarter. This increase, as I said previously, was due to the Fannie Mae delinquent loan buyback program. We would expect the Fannie Mae speed to come back down to a more normalized range of between 25 and 30 CPR for the third quarter.

The residential MBS portfolio was financed in part with $60 million of repurchase agreements which had an average cost of 31 basis points and an average haircut of 5.7%.

We had repos outstanding with four different counterparties at the end of the quarter.

Our non-agency RMBS portfolio which we purchased in 2009 has an average cost of 0.60% with an average 8% credit support, or an implied overall credit support of 48%.

Securities had an average coupon of 5.2% or an 8.6% cash-on-cash return prior to including any amortization of this account related to those securities.

Our $46 million of CLO notes which we purchased during the first quarter of 2009 were valued at $22 million at June 30th, 2010, unchanged from March 31st, 2010.

The CLOs are currently backed by 136 loans from over 30 different credit sectors. This is up from 74 different loans from when we purchased the loans in 2009. This increase in counterparties will substantially reduce the risk to any one counterparty.

The CLO structure continues to cash flow to all bonds in the deal and is adequately managed by JMP Credit.

The investment portfolio also includes $250 million of loan sale and securitization trusts for our on balance sheet securitizationd. These loans have an average coupon of 4.06% and an average yield of 3.94% during the second quarter.

These loans are permanently financed with $241 million of collateralized debt obligations which had an average interest cost of 91 basis points during the quarter or an excess spread of 303 basis points.

The Company's net investment in our on balance sheet securitization is approximately $9.4 million.

As of June 30th, 2010, the securitizations had $18.9 million in greater than 60-day delinquencies or 41 loans as compared to $17.1 million of greater than 60-day delinquencies or 36 loans as of December 31st, 2009.

There are two REO properties totaling $0.7 million as of June 30th, and the Company added $600,000 to loan reserves during the quarter to bring the total reserves number to $2.5 million.

The Company continues to pursue investments away from the MBS securities that we believe will deliver superior returns over an extended period of time. However, these investments require extensive due diligence and analysis with many resulting in rejection. The Company's investment in Bridger in April should bring investment opportunities in the second half of this year.

The Company is also in a later-stage review of several investments which we expect to add to our third-quarter profitability. Our 10-Q will be filed tomorrow with the SEC and be available on our website thereafter.

Jim and I will now be able to take any questions that you have, and Operator, if you could please open for the first question.

Thank you. (Operator Instructions) One moment for our first question. Our first question comes from Matthew Howlett of Macquarie. One moment.

Again, congratulations on the partnership with Bridger. In terms of the pipeline in the back half of the year, you talked about potentially participating in a CMBS transaction from them. I know there has been some -- a few deals, one-off deals. There is I think one in the market from Goldman now. I mean, as you look at the back of the year, I mean where are we in terms of timing? How big is the deal going to be? I mean, you're looking at taking some of the B pieces. I noticed in the most recent Goldman deal there's 3.5% to BB. I mean, what can we assume in terms of the size of the deal, where your capital would be, how much you need, and what type of ROE, what type of pricing are you seeing in those below investment grade pieces?

Yes. I mean, Bridger right now is originating commercial loans, and what they would be doing is contributing it to a larger deal, so we would be looking to co-invest in the credit pieces in that deal. We expect that deal to come -- right now the deal is probably projected to come sometime either late in the third quarter or early in the fourth quarter. We would look to put anywhere between $10 million and $15 million investments in individual securitization as it relates to the credit pieces, and we would anticipate the ROEs to be in the high teens to low 20s yields.

Great. And then just going forward, I mean you look at what this -- I mean, are you counting on this being a regular issuance? I mean, would they -- I know they --?

Yes, Matt. Bridger right now as I get geared up and the whole industry gets geared up, if you look at the first couple of securitizations that's been done, there's actually been three. There's been an RBS deal. There's been a JPMorgan deal. There's been [that by] the Goldman deal. The majority of those deals have been anchored by large loan balances that have been existing on the balance sheet of the companies with some other contributory loans coming from other parties that are participants in the deal.

So the composition of these deals right now are fairly chunky with large loans. We think the deals over time are going to be more distributed with a lower average balance of loans on some of these CMBS deals. And there are several people that are now gearing up to get into the CMBS market, and we think the origination platform is going to start to increase in volume.

What we've seen since the beginning of this investment is we've seen many loans come into Bridger for possible origination with many of the borrowers not forced to make a decision and the borrowers sitting on the sidelines looking at spreads coming in and yields going down and waiting. We're now starting to see as we come towards the end of the summer more of these borrowers looking to lock in rates and starting to move forward with transactions.

Okay, great.

I mean, the frustrating thing for us honestly is we were looking at something done in August and it's just not going to happen because the volumes just aren't there. So part of the frustration we had in the second quarter is many things that we were working on in the first quarter that we thought were going to come for an investment in dollars from us just didn't work out properly.

We continue to look at doing some type of MBS securitization where you're going to be working with a jumbo originator. The execution of that deal is difficult right now because of the rating agencies in getting that deal through. There was one deal to date done by Redwood, and so we're looking at some other avenues that possibly may result in a securitization that may not be rated but it will be smaller in size but we think will be attractive ROEs for us. But again that's a lot of work, and hopefully one of the -- we can get these transactions to come in and land.

Well, it sounds like you have a number of things in the pipeline. It's just a question of timing. And then on that front, I mean what -- excess capital has been a drag in your earnings for quite some time?

We have over $35 million to $40 million of investable cash that we haven't put to work yet. It's frustrating for us. We look at the investment opportunities in the securities which we can put to work -- we could put to work, but we're just uncomfortable that we -- for our size and our company and our strategy, longer term we don't think it's the right transaction to put on the books. So we've sacrificed three months of earnings which we think will be offset by what we're going to be putting on the books in the second half of the year.

Makes sense. And then you mentioned possibly rotating out of some of the non-agency, even agency at certain prices, to rotate into some of the lower -- the low teens yield to the higher teens yield. I mean, will that --?

Well, when we looked at it, if you look at the opportunities that exist today in the marketplace, and we look at our non-agency portfolio, we entered that stuff at around $0.60 on the dollar. To the extent that we can exit these bonds in the high 80s and low 90s, and a lot of these securities, we're going to do that, and we have done that. When we look at the low yields, when we look at the mid to upper teens yields on some of these investments, that's with a non-levered return.

I mean, there's a possibility at some point in the future you'll be able to get leverage in some form on some of these securities that we will enter into without leverage. So while we think the initial returns will be in the high teens, we're also working on other types of financing vehicles that could give us a nice kick to the ROE at some point in the future. But I don't really want to put any numbers to that because these again are theoretical discussions we're having with counterparties.

Great. And then just one question shifting to the legacy non-agency securitizations. I mean, those continue to produce cash flows and are performing well. I mean, what can you give us an update on, I think you said 42 non-performing loans in terms of workouts, mod programs? I know you're working those loans hard. You said it's had a lot reserves.

Yeah.

What can you tell us in terms of what to expect?

If you look at the 42 loans, there is probably 35% to 40% of those loans that are in some form of short-term modification program that we work with to rehabilitate the credit. Many of the loans are actually -- 100% of our loans will have all gone through a rate reset by the time we get to the end of year of 2010. Our first securitization went through a rate reset in February and March. Our second securitization is going through a rate reset in May, June and July, a little bit in August.

So what you're seeing is many of our borrowers' rates are resetting down from 5.50% to the mid 3%'s, so that's going to give them some cash flow relief, so we think there will be some help there. And I think as the market stabilizes from a property value standpoint, we'll start to see some improvements in delinquencies.

Where we've seen some residual pickups in our portfolio in the securitizations, they've centered around our third securitization which was done at the end of 2005. And clearly if you look at the performance of our three deals, the first securitization, which was closed in February of '05, performance has been outstanding, the second securitization has been very good, and the third securitization, while compared to the first two is worse, but relative to the marketplace is still doing very well.

In the third securitization there was a smattering of wholesale loans and loans produced in Florida. Those have been the ones that have caused the most difficulty to the portfolio and have resulted in probably the largest loss per loan. I mean, typically our loan losses as they relate in other areas of the country have been more concentrated on the timing of getting them into foreclosure and sold as opposed to property devaluation.

Right.

And in the case of Florida, you're dealing more with a case of property devaluation.

Great.

Now, we're pursing avenues of deed in lieu, helping the borrower out, anything we can do to try to get this property back to where we can minimize the loss to the securitization.

Gotcha.

And help out the borrower.

Gotcha. Well, great. You've got a lot on your plate. Congratulations. Thanks again.

Thanks, Matt.

Thank you. (Operator Instructions) I'm showing no further questions, sir.

Okay, operator. I think we will end the call at this point, and thank you very much. Thank you, everyone, and we look forward to talking about our progress in the third quarter of 2010.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all now disconnect. Thank you and have a nice day.