New York Mortgage Trust Inc (NYMT) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust third 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 opened for questions. (Operator Instructions) This conference call is being recorded on Wednesday, November 3rd, 2010 at 9:00 a.m. Eastern Standard Time.

A press release with NYMT's third quarter 2010 results was released yesterday. This 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, the 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 the New York Mortgage Trust believes the expectations reflected in any forward-looking statements are based on responsible 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. Good morning, everyone, and thank you for being on the call.

Jim Fowler, our Chairman, and Fred Starker, our newly-appointed CFO, are also present and will be available for questions at the end of this call.

Now, I'd like to go over and review the third quarter activities. The Company invested $10 million in a limited partnership that was formed for the purpose of acquiring, servicing, selling or otherwise disposing of first-lien residential mortgage loans. During the third quarter, the partnership purchased a $10 million pool of residential mortgage loans. The loans have approximately five years of seasoning, are currently performing and have a loan to value ratio greater than 100%. The loans were purchased at a significant discount, which we believe will result in accretive risk-adjusted returns to the Company.

In the second quarter, the Company made a commitment to invest up to $750,000 in a commercial mortgage originator, New Bridger Funding LLC. To date, the Company has invested approximately $600,000. The Company anticipates accumulating credit securities either from CMBS securitizations or from mezzanine financing from direct credit counterparties from this origination platform.

The Company earned $1.6 million or $0.17 per common share for the three months ended September 30th, 2010, as compared to $2.9 million or $0.31 per share for the period ended September 30th, 2009. The Company declared and paid a $0.18 common stock dividend for the third quarter in October, 2010.

The Company ended the quarter with a book value of $7.16 per common share, and after giving effect for the $0.18 third quarter dividend declared subsequent to the quarter end, the book value was $6.98, as compared to $6.90 per common share at the end of June 30th and $6.69 per common share as of December 31st, 2009. The book value for September 30th, 2010 includes a net unrealized gain of $1.53 per common share, comprised of $1.70 per share of net unrealized gains from our investment portfolio offset by $0.17 per common share of unrealized losses related to our hedging instrument.

The net portfolio interest margin decreased by seven basis points to 363 basis points from the previous quarter of 370 basis points and a decrease of 62 basis points from the beginning of the year for the quarter ending--the previous fourth quarter.

The Company had a net interest margin of $2.2 million for the third quarter of 2010, as compared to $4.7 million for the third quarter of 2009. The decrease of $2.5 million was due mainly to a decrease of $227 million in average earning assets from September 30th, 2009 to September 30th, 2010.

The Company also earned $150,000 during the third quarter of 2010 related to net interest income from our investment in the limited partnership. The investment--this interest income, however, is reflected in other income, as this investment will be counted for under the equity [lessen].

The Company had $1.9 million in realized from a sale of approximately $7.9 million of non-agency securities during the quarter. The Company will continue to sell opportunistically the non-agency portfolio accumulated during--accumulated in 2009 during the remainder of 2010.

The Company added $734,000 to our loan loss reserves during the quarter, as delinquent loans more than 60 days increased by $2.9 million to a total of $20 million. Total reserves represent 118 basis points of all outstanding loans and approximately 14% of the loans greater than 60 days.

The Company had total expenses of $2.2 million for the third quarter ended September 30th, 2010, an increase of approximately $347,000 from the third quarter of--ending September 30th, 2009. The increase was due mainly to increased incentive fees of approximately $400,000 related to realized gains from the sale of alternative assets purchased in 2009 and the performance of our CLO investment made in 2009. It should be noted that the alternative investments have added significantly to both our earnings, as well as book value growth, to the Company since 2009.

The Company's average earning assets for the third quarter were approximately $344 million, as compared to $394 million for the quarter ended June 30th, 2010 and $477 million for the quarter ended December 31st, 2009. As of September 30th, 2010, the Company had total assets of $404 million, compared to $489 million as of December 31st, 2009.

Included in total assets as of December 30th, 2010 were $99 million in investment securities, $236 million in mortgage loans held in securitization trust and the $10 million investment in a limited partnership which owns residential mortgage loans.

The Company had total liabilities of $337 million as of September 30th, compared to $426 million as of December 31st, 2009. Included in the liabilities as of September 30th, 2010 were $38.5 million of agency RMBS repurchase agreements, $228 million of permanently financed collateralized debt obligations related to our on balance sheet securitizations, $20 million in convertible preferred debentures, and $45 million in subordinated debt. The Company intends to repurchase the $20 million of convertible preferred debentures on the December 31st, 2010 maturity date as per the agreement.

As of September 30th, 2010, the investment portfolio totaled $99 million and consisted of $51 million of Fannie Mae agency hybrid ARMs, $24 million in non-agency residential securities and $24 million of CLO notes.

Our residential MBS portfolio had an average coupon during the third quarter of 3.9% and a yield of 5.46%. The RMBS portfolio had an average CPR rate of 26%, down from 36% on the previous quarter. The residential MBS portfolio was financed in part with $38.5 million of repurchase agreements with an average cost of 31 basis points. The average [outcome] on the outstanding repurchase agreement was approximately 6%, and the Company currently has four counterparties outstanding with repo.

Our $46 million of CLO notes [paid today] which were purchased during the first quarter of 2009 for $9 million are currently valued at $24 million at September 30, 2010, an increase of over $2 million from June 30th, 2010. The CLOs are currently backed by 150 different loans from 30 different credit sectors. This is up from 74 different loans when we purchased the securities in April of 2009.

This increase has substantially reduced the exposure by customer on the outstanding credit. The CLO structure continues to cash flow to all bonds, including the equity piece of the CLO structure, and is actively managed by the [J&P Credit Company].

The investment portfolio also includes $236 million of loans held in securitization trust for on balance sheet securitizations. These loans had an average coupon of 3.46% and an average yield of 3.30% for the third quarter. The loans are permanently financed with $228 million of collateralized debt obligations, which had an average interest cost of 94 basis points resulting in a net margin excess spread of 236 basis points. The Company's net investments of the on balance sheet securitization is approximately $8.7 million.

As of September 30th, 2010, the securitization had $20 million in greater than 60-days delinquency or 41 loans, as compared to $17.1 million and 36 loans as of December 31st, 2009. We had two REO properties totaling $0.3 million at September 30th, 2010. The Company added $734,000 to loan loss reserves and ended the quarter with $2.8 million in reserves.

The Company continues to pursue investments away from mortgage-backed securities that we believe will deliver superior returns over an extended period of time. However, as we've said in the past, these investments require extensive due diligence and analysis, with many resulting in rejection. The Company anticipates adding investment in both distressed residential loans and commercial credits during the fourth quarter of this year.

Our 10-Q will be filed on or about November 5th with the SEC and will be available on our website thereafter.

Jim, Fred and I will now like to take any questions you may have. Operator, if you could please open the line for questions.

Thank you. (Operator Instructions)

Our first question comes from Matthew Howlett of Macquarie.

Hey, guys. Thanks for taking my questions. Congratulations, again, on pretty good results.

Steve, just to follow-on on what you expect in the fourth quarter. You said you're going to--you're looking to make acquisitions both in commercial and residential distressed area. Presumably on the commercial area, is that a--would that be a new CMBS deal that you're expecting from Bridger that you said last quarter that was--that you expected to close in the second half?

And on the residential side, should we expect more acquisitions to come through this new LLC or would you look to deploy capital outside of the LLC?

So, the first question, the commercial, we would look to be putting assets on the books in the fourth quarter that will be in two forms. One would be in the mezzanine financing of a direct credit of a commercial loan that would be contributed to a securitization. The actual components would be an A-note with a B-note attached to it, and we would take the B-note of that direct credit.

As well as loans that--if these loans will be contributed to a securitization that gets closed in the fourth quarter, we would then try to participate in the credit pieces of that securitization.

Okay.

So, the securitization could come, maybe, in the first quarter or close in time after--?

--You know, it all depends on when the loans close. It's been somewhat frustrating for us that we anticipated closing loans in the--as early as the late second quarter and third quarter, and we just have not been successful in even getting the loans closed on a timely basis. You know, we anticipate that improving, as the market seems to be--as you've seen now, I think, eight securitizations done to date. You're starting to see a little bit of pick up in volume and loan closings, and we're hopeful that we can get some loans closed in the fourth quarter and especially see some acceleration in the first part of next year.

Great.

And as it relates to residential loans, the relationship we've started with this limited partnership, it's working with a group of individuals that have expertise in servicing distressed loans and working-out loans. So, we will make an investment within--probably an additional investment inside of that partnership, as well as making some direct investments off our balance sheet in other areas that are--that would involve residential-type lending.

Got you.

And what do you consider the firm's excess capital position? I know--you've got plenty of cash to take care of the small maturity at the end of the year, and then you're really--have all these unlevered, unpledged-type assets. So, you have at least $20 million, $25 million.

I mean, how do we look at--go about--sort of, what do you consider, really, the excess capital position of the Company as--?

--You know, we can clearly put the work, including paying for the redemption of the securities at the end of the year of between $30 million and $40 million of additional securities. You know, at that point, we'd like to think that we'll be--we'll have an earnings model that's going to generate consistent improving interest rate margins as well as net income.

And then, we'd probably look to go out and raise some type of accretive capital, be it in the form of common or some form of preferred.

Great. Well, it's a lot of [dry powder].

And then, just--one thing, though, just getting--your legacy securitizations, they continue to cash off for you. You only have $8 million invested. Is there anything that you can do with those? Could you possibly at some point call them and re-securitize them free of capital or is there upside with some of the reserves you set aside for some--in REOs or nonperformers--anything that's going on there that could be of interest down the road?

Yes, I mean, a couple of things that could be of interest.

One, I mean, there is an ability to call the first securitization. There's the--to the extent of really doing that, I'm not so sure we can get a decent execution because of where the RMBS securitization market is today. So, the loans in all three securitizations have now reset or the third securitization will be completely reset into one-year ARMs.

So, the first securitization is going to reset again in January and February and March of next year. So, you'll start to see--where you've seen our coupon spread decrease on these securitizations, in my opinion it'll be stable or increasing as we go forward into 2010. So, you'll see a little bit of pick up there.

We've seen a slight increase in delinquent loan balances, but we're working with those borrowers diligently to try to either get them back to current or giving--providing a solution that optimizes or minimizes our loss and optimizes their benefit of getting out of the hole.

So, that's--we think that's probably the best route as it relates to those assets. I don't see a possibility of re-securitizing those assets and taking out more of a gain than what we currently are getting from them from just the normal run off of the loans.

Good.

But, in the meantime, two of the three are still cash flowing, right, to your holdings? I mean, they're still drawing--.

--All three--no, all three are cash flowing.

Got you. Well, okay. Good. That's a lot of upside there. We'll wait for development.

And then, just, Steve, on the nice pick up in the non-agency yield, did those bonds, the CPRs, come in better than you thought where you had the accrual on?

Well, on CPR--as far as the non-agency portfolio, if you look at the first quarter, the CPRs in the first quarter were about 14%. In the third quarter, they were 16%. So, fairly consistent.

What we've done is as these bonds have gone up in price and approached the high 80s and low 90s in many of these securities, we've elected to sell some of them, as we think going forward as you get self-selected out of the borrowers--the borrowers who can refinance, refinancing out at the lower rates. And then, you're stuck with a diminishing pool of return because you're stuck with borrowers who are upside down and/or delinquent.

Got you.

Well, good. Great results, guys. We'll look forward to future acquisitions in the fourth quarter. Thanks, again.

Thanks, Matt.

Thank you. (Operator Instructions)

I'm showing no further questions at this time, sir.

Thank you, operator.

Let's end the call, and thank you for participating in the call. We look forward to talking to you at the end of the year.

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.