New York Mortgage Trust Inc (NYMT) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust first quarter 2011 results conference call. (Operator instructions.) This conference is being recorded on Wednesday, May 4th, 2011.

A press release with New York Mortgage Trust's first quarter 2011 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 access in the Investor Relations section of the Company's website.

At this time, management would like for 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 the 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 and President. Steve, please go ahead.

Thank you, operator. And good morning, everyone, and thank you for being on the call. Jim Fowler, our Chairman, and Fred Starker, our CFO, are also present and will be available for questions at the end of this call.

I'd like to go over some of the highlights from the first quarter ending March 31st, 2011. During the quarter, the Company earned $2.5 million, or $0.27 per common share, for the quarter ended March 31st, 2011 as compared to $2.7 million, or $0.28 per share, for the quarter ended March 31st, 2010, but more importantly, an increase of $0.16 per share from the fourth quarter of 2010.

The Company ended the quarter with a book value of $7.54 per common share as compared to $7.27 per common share at December 31st, 2010. The book value for March 31st, 2011 includes a net unrealized gain of $2.07 per common share comprised of $2.16 from our investment portfolio unrealized gains offset by $0.09 per common share of unrealized losses related to the hedging instruments.

The Company had a weighted average net portfolio interest margin of 368 basis points for the first quarter of 2011, an increase of 15 basis points from the previous quarter. The Company declared a dividend of $0.18 per common share, and that dividend was paid on April 26th, 2011.

During the quarter, the Company invested $24.5 million in our Midway Residential Mortgage Portfolio, which is externally managed by the Midway Group and focuses on achieving long-term capital appreciation on our investments across various interest rate cycles, primarily through the investments in the hedged portfolio of mortgage related securities, contract rights, and derivatives.

The Company had a net interest margin of $2.5 million for the first quarter of 2011 as compared to $3.4 million for the first quarter of 2010. The decrease of $0.9 million was due primarily to a decrease in assets of $115 million in the quarterly average earning interest assets as compared from March 31st, 2010 to March 31st, 2011.

The net interest margin for the first quarter, though, did increase $500,000 from the fourth quarter of 2010. This increase was due to both an increase in our earning assets from an investment standpoint as well as the redemption of the preferred securities in the fourth quarter of 2010.

The Company also earned approximately $784,000 from the investment in a limited partnership, including $400,000 in interest income. This partnership with Headlands Management is an investment in a distressed loan portfolio. These amounts of money are included in other income in our income statement, as this investment is accounted for under the equity method.

The Company had $2.2 million in realized gains from the sale of $5 million of our CLO securities during the quarter. Subsequent to March 31st, 2011, the Company sold an additional $5.4 million in CLO notes, resulting in an additional gain of $2.5 million which will be reflected in the second quarter results.

The total of $10.4 million in CLO notes sold were purchased in 2009 for an approximate cost of $0.23 on a dollar. The proceeds from the sales were redeployed in our Midway Residential Portfolio.

The Company added approximately $425,000 to our loan loss reserve related to our securitized loan portfolio, bringing the reserve total to $2.6 million or 115 basis points of outstanding loans, or approximately 11% of the loans created in 60 days.

The Company added total expenses for the quarter of $2.3 million, an increase of approximately $437,000 from the first quarter ended March 31st, 2010. The increase was primarily due to a $600,000 increase in management fees to Harvest Capital, of which $500,000 of that increase was related to the sale of the CLO securities as per the terms of our advisory agreement that's in place.

The increase in management fees was partially offset by a decrease of $200,000 in salaries and benefits and other expenses.

The Company's average earning assets for the quarter were approximately $310 million as compared to $318 million for the quarter ended December 31st, 2010.

As of March 31st, 2011, the Company had total assets of approximately $482 million as compared to $374 million as of December 31st, 2010. Included in the total assets of March 31st were approximately $119 million in investment securities, $223 million in mortgage loans held in securitization trusts, $17 million in our limited partnership invested in residential loans, and approximately $85 million related to hedging transactions on our Midway Residential Portfolio.

The Company had total liabilities of approximately $411 million at March 31st, 2011 as compared to $306 million as of December 31st, 2010. Included in the liabilities as of March 31st, 2011 are approximately $47 million in RMBS repurchase agreements, $82 million related to US Treasuries sold short for hedging purposes in our Midway portfolio, $215 million in permanently financed collateralized debt, and $45 million in our subordinated trust preferred securities.

As of March 31st, 2011, the investment portfolio totaled approximately $119 million in securities and consisted of $77 million of agency RMBS, $7 million of non-agency, and $30 million of CLO notes, and $5 million of US Treasury securities.

As I previously mentioned, the Company has an investment in a separate account managed by the Midway Group, referred to as our Midway Residential Portfolio. The Midway Residential Portfolio investments include RMBS, agency IO, and inverse IO securities, and are included in our balance sheet in the investment securities available for sale category.

Due to the hedging techniques and the related accounting requirements, we will account for these securities at fair value with changes in fair value reflected in net income instead of OCI in our equity section.

As of March 31st, 2011, the Midway Portfolio had approximately $37 million in investment securities available for sale. In addition, the portfolio also had $40 million in receivables under reverse repurchase agreements, $42 million in receivables for securities sold, and had liabilities of $13 million of agency repurchase agreements as well as $82 million of US Treasury securities sold short.

Our Residential MBS portfolio had an average coupon during the quarter of 4.45% and a yield of 6.17%. The RMBS portfolio had an average CPR rate of 17%, down from 21% the previous quarter.

The RMBS portfolio was financed in part with approximately $47 million in repurchase agreements with the average cost during the quarter of 48 basis points. The increase in cost in repurchase agreement was due to the addition of the Midway portfolio, which includes agency interest only securities.

The repo interest rate on those securities is approximately 86 basis points as compared to 34 basis points for the agency ARM portfolio. The Company had repos outstanding with five counterparties at the end of the quarter.

Our $41 million of CLOs, which were purchased during the first quarter of 2009 for $8 million, are valued at approximately $30 million as of March 31st, 2011, an increase of over $800,000 from December 31st, 2010. The CLOs are currently backed by 199 different counterparties. This is up from 91 different counterparties when we purchased the securities in April 2009, and are performing above our expectation.

The investment portfolio also includes $223 million of loans held in securitization trusts for on balance sheet securitization. These loans had an average coupon of 2.59% and an average yield of 2.51% for the first quarter. These loans are permanently financed with approximately $250 million in collateralized debt obligations, which had an average interest cost of 69 basis points, resulting in a net interest margin of 190 basis points.

The Company's net investment in the securitizations is approximately $8.6 million. All of the loans in the securitization are now through their reset period with 73% of these loans resetting off of six month LIBOR and 24% resetting off of a one-year index, either one year LIBOR or one year CMT.

As of March 31st, 2011, the securities had approximately $24 million in greater than 60 days delinquent category, or 45 loans, as compared to approximately $23 million in the greater than 60 days delinquent category, or 39 loans, at December 31st, 2010.

There were two OREO properties totaling $566,000 as of March 31st, 2011, down from three properties or $741,000 at December 31st, 2010. The Company added $425,000 to loan loss reserves, bringing the reserves to $2.6 million.

It's important to note that approximately 85% of the loans in the delinquent category are currently under some type of short-term modification plan as the Company continues to work with these borrowers to relocate their credit.

On April 5th, we entered into a multiyear investment management agreement with RiverBanc, a privately owned investment management and specialty finance company focused on high yielding investments in the commercial real estate arena. Under the investment management agreement, RiverBanc will source, structure, and manage investments secured by commercial real estate that will be funded by the Company. The Company is also eligible to receive a minority ownership interest in RiverBanc of up to 17.5%.

The investment and program is expected to provide both mezzanine and preferred equity investments for all commercial property types on a nationwide basis. RiverBanc will focus on market opportunities and pursue, on behalf of the Company, transactions in amounts as low as $200 million secured by properties valued at $10 million or greater.

In addition, we may also participate in structured investments such as acquisitions of seasoned or distressed loan portfolios, net lease properties, or subordinate commercial mortgage backed securities.

The Company invested an additional $10 million in our Midway Residential Portfolio in April of 2011, and we anticipate funding our first commercial asset in the second quarter. We continue to target investments with risk adjusted REs in the mid to high teens.

Our 10-Q will be filed on or about May 6th with the SEC, and will be available on our website thereafter. In addition, we will be presenting at the JMP conference on Monday, May 9th in San Francisco.

Jim, Fred, and I would now like to take any questions you may have. Operator, please open for questions. Thank you.

Thank you, sir. (Operator instructions.)

Operator, if we have no further questions, let's close the call. Thank you.

We have one question, sir, from Matthew Howlett of Macquarie.

Thanks for taking my question. Hey, Steve, just real quickly maybe the securitized portfolio. I mean, it's been cash flowing for a while. It's very seasoned. I think you said you only have $8 million of invested capital left in there.

I mean, how do we -- the loan loss provision, how do we look at that going forward? I mean, you can't lose more than your invested capital, yet it's still cash flowing. But, it's still sort of a strain on your reported income, GAAP income. How should we model that and sort of look at that from an economic perspective going forward for the Company?

Well, I mean, if you look at it, we're running about 190 basis points on $200 million, or 2%. So, right now, given where the rates are, we're earning about $4.2 million in interest income. And we're looking at a reserve rate of -- just take the last four quarters of approximately $2 million. So, we're still net positive $2 million in carry on the $8.6 million. So, we still look at it as a favorable investment.

We've looked at possibly monetizing the net equity investment. But, at the end of the day, it's tough to get more value than we think that we're going to earn over time.

Also, as we look at the reserves that we put in place against these delinquent loans, as we continue to work with the borrowers, we feel like we're on top of these borrowers. We feel like we can -- we've done a great job of minimizing our losses on the properties. We've instigated some policies that we feel like that we can help the borrowers out and/or get them out of the houses on a more timely basis where it's more beneficial for us as well as the borrowers.

So, we still think it's going to contribute positively to the earnings over time.

Great. And then, Steve, just a larger picture question. I mean, it took the Company a while to really get capital in place and these deals and these investments going. Do you feel much better in 2011 we're going to see really the full run rate power of the Company?

Yes. The first quarter, you're starting to see the signs of the -- you're going to start seeing some momentum in the net margin. We've made the investments in the Midway Group, which was in the latter part of the first quarter. We've made additional investments. We're going to get the commercial real estate business up and running.

So, we ran with $30 million to $40 million of excess liquidity through 2010. We're going to run a much tighter liquidity in 2011 and be fully invested. So, I think you'll see that start to show through in the second quarter. And clearly, as we get into the third quarter when we have more commercial assets deployed, you'll start seeing a more predictable net interest margin.

Great. Well, we're looking forward to it.

Thank you.

The next question is from Chris Biles of CJB Capital.

Hi. Good morning, guys. I have two questions. One, I think I missed what you said, Steve, regarding the Cratos CLO portfolio as far as how much you've liquidated and what remains.

Sure. We initially purchased $45.95 million. We've sold $10.4 million of that investment.

Okay. And --.

It remains at about $36 million.

Understood. Okay. And any plans to further harvest or monetize that?

I think we'll look at the opportunities. We sold the lowest yielding of the three securities that we owned in that portfolio, and felt like there'd been a recovery in the price that was -- we felt like we could redeploy that capital in investments that would bring a higher return.

We think we probably have some more room to run on the other securities remaining, as the spreads in those securities are much higher. And as the ratings of those securities collapse to be the same, we think we're going to get more benefit from those securities. But, we will continue to look at opportunities on those securities versus where we can redeploy them in other investment.

Given the nice move in the values or the prices of the bonds, any updated book value number kind of more recent than quarter end number one?

No. I mean, we had a nice move from year-end, and that was internally generated book value. I mean, the securities continue to perform very well. The trustee reports would indicate from month to month that the portfolio continues to be more diversified.

The triggering points that would cause interest rates to fail continue to improve and are far above the trigger point. So, you would anticipate -- the most recent credit upgrades were in January by S&P. I think Moody's is going to go back through and look at these for review at some point. But, we would anticipate that continuing to contribute to book value increases. But, I -- not at this point we're going to talk about numbers.

Thank you.

Okay.

Thank you, sir. And I'm showing no further questions at this time. I'd like to turn the call over to management for any closing remarks.

Well, thank you very much. And we look forward to speaking at the conference next week as well as talking about our second quarter results in early August. Thank you very much.

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