New York Mortgage Trust Inc (NYMT) 2011 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 2011 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 Thursday, August 4, 2011.

A press release with NYMTs second-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 for today's call which you can 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 meeting 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 expectations will be attained.

Factors and risks that could cause actual results to -- material differently 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. For this call I'd like to start with our second-quarter highlights followed by a more in-depth discussion of our second-quarter performance including our current investments and close with thoughts on the future.

For our second-quarter highlights, the Company earned $4.2 million or $0.44 per common share for the quarter ended June 30, 2011 as compared to $1.5 million or $0.16 per common share for the quarter ended June 30, 2010, at an increase of $0.17 per common share from the first quarter of 2011. The Company also had year-to-date earnings of $6.7 million or $0.71 per common share.

Core earnings per share, which we consider to be earnings before securities gains on our CLO notes, was approximately $0.24 per common share after giving effect for the incentive fee. Net interest income for the three months ended June 30, 2011 was $5.3 million as compared to $2.7 million for the same period the previous year and $2.5 million from the first quarter of 2011 or an increase of $2.8 million.

The Company had a weighted average net portfolio interest margin of 644 basis points for the second quarter of 2011, an increase of 267 -- 276 basis points from the previous quarter and an increase of 274 basis points from the second quarter of 2010.

The net portfolio margin benefited by two major factors. First were the investments in our Midway Mortgage Residential Portfolio which has a focus on agency I/O securities. And secondly, the Company was fully invested during the entire second quarter in our portfolio strategy.

The Company ended the quarter with an adjusted book value of $7.44 per common share, including the 1.5 million shares issued on July 1, 2011 as compared to $7.54 per common share as of March 31, 2011 and $7.27 per common share as of December 31, 2010. The Company declared a second-quarter dividend of $0.22 per common share that was paid on June 27.

In July the Company issued total of 1.725 million shares of our common stock at an offering price of $7.50 for which we received total net proceeds of $11.9 million. We invested $6.9 million during the quarter in commercial mortgage assets which were sourced and managed by RiverBanc LLC.

We invested $10 million during the second quarter and $5 million in July in our Midway Residential Mortgage Portfolio which is externally managed by the Midway Group bringing our total net investment in this portfolio to $39.5 million.

Now for some specifics on the quarterly performance. The increase in net interest income and net interest -- and net income is due in part to earnings derived from our Midway Residential portfolio as well as gains of $2.5 million from the sale of certain CLO notes, but both were significant contributors in the second quarter.

During the second quarter of 2011 the Company also earned approximately $450,000 from the investment in our limited partnership including $350,000 of interest income. This amount is included in other income as an investment, is accounted for under the equity method.

The limited partnership is our distressed residential portfolio investment which currently has approximately $13 million in loans. This portfolio will continue to contribute both interest income as well as capital gains as we go through the resolution of these loans.

The Company had a $2.5 million realized gain from the sale of $5.4 million of our CLO securities during the quarter. And for the six months the Company received $8.1 million in net proceeds realized with a realized gain of approximately $4.7 million. CLO notes sold were purchased in 2009 for approximately an amortized cost of 2 -- of $0.23 per dollar. The notes were sold as they were the lowest yielding class and it met our price and overall return objective.

The Company added approximately $400,000 during the quarter to our loan-loss reserve related to our securitized loan portfolio bringing the reserves to a total of $2.9 million or 133 basis points of outstanding loans or approximately 14% of loans greater than 60 days delinquency category.

The Company had total expenses for the quarter of $3.5 million, an increase of approximately $1.3 million from the second quarter of June 30, 2010 and an increase of $1.2 million from the first quarter of 2011. The increase was due primarily to a $1.4 million increase in management fees to Harvest Capital, Midway and RiverBanc including $1.1 million related to management fees payable to Midway which is directly related to the performance of our assets managed by the Midway Group.

The Company's average interest earnings assets for the second quarter were approximately $342 million as compared to $310 million for the first quarter of 2011 and $318 million for the quarter ended December 31, 2010. As of June 30, 2011 the investment securities portfolio totaled approximately $150 million consisting of approximately $54 million in agency ARMs, $64 million in the Midway Residential portfolio which is primarily invested in agency I/O securities, $7 million in non-agency RMBS and $27 million in CLO notes.

We had approximately $34.5 million net investment managed by the Midway group during the quarter referred to as our Midway Residential Mortgage Portfolio. The Midway Residential Mortgage Portfolio investments include residential agency I/O securities and are included in our balance sheet in the investment securities available for sale category.

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

As we disclosed in our press release, base CR portfolio had an asset yield of approximately 3.25% and experienced a 19% CPR rate during the second quarter. The Midway Residential Mortgage Portfolio had a portfolio of approximately 28% at an average of CPR rate of 8% during the quarter. In addition, our CLO notes had a quarterly yield of approximately 34%.

The investment security portfolio was financed in part with approximately $96 million of repurchase agreements with an average cost of approximately 63 basis points. The increasing cost of these agreements was due to the addition of the Midway portfolio which includes agency interest-only securities.

The repo rate for the interest-only securities was approximately 79 basis points during the quarter as compared to 25 basis points for the agency ARM portfolio. The Company had repo outstanding with five counterparties at the end of the quarter.

Our $36 million of CMOs, which were purchased during the first quarter of 2009 for $7 million, are valued at approximately $27 million at June 30, 2011, an increase in value of $4.7 million from December 31, 2010. The CLO notes are backed by 211 loans from over 30 different credit sectors. The CLO managers continue to improve credit quality by diversifying across a broader range of industries.

Our investment portfolio also includes approximately $217 million of loan (inaudible) and securitization trusts from our on balance sheet securitization. These loans had an average coupon of 2.71% and an average yield of 2.60% for the second quarter. These loans are permanently financed with approximately $210 million of collateralized debt obligations which had an average interest cost of 63 basis points or net interest margin to us of -- in excess of 199 basis points.

The Company's net investment in our on balance sheet securitization is approximately $8.1 million. All of the loans in our securitization are now through their reset period with 73% resetting in six months off of the six-month LIBOR index and 24% resetting off a one-year index either LIBOR or CMT, the constant maturity treasury.

As of June 30, 2011 the securitizations had approximately $21 million in the greater than 60 days category -- delinquent category were 38 loans, as compared to approximately $23 million in the greater than 60-day delinquent category or 39 loans as of December 31, 2010. There were four OREO properties totaling $736,000 as of June 30, up from three properties or $741,000 at December 31, 2010.

The Company added approximately $400,000 to the loan-loss reserve during the quarter bringing the total reserves to $2.9 million. Approximately 83% of the loans that are delinquent are currently under some type of short-term modification plan as the Company continues to work with these borrowers to rehabilitate their credit.

On June 28 we entered into an underwriting agreement related to the [offering] sale of 1.5 million shares of our common stock at a public offering price of $7.50 per share. On July 14, 2011 we issued an additional 225,000 shares of common stock to the underwriter pursuant to the exercise of an over-allotment option.

We received total net proceeds of $11.9 million from the issuance. We've invested $5 million of those proceeds in our Midway Residential portfolio since the end of the quarter and expect to invest the balance in agency RMBS or a commercial mortgage portfolio.

On April 11, as we previously stated, we announced that one of our wholly-owned subsidiaries, RB Commercial Mortgage, had entered into a multi-year investment management agreement with RiverBanc LLC. Out of this agreement RiverBanc will source, structure and manage investments secured by commercial real estate that will be funded by the Company on a flow basis.

We expect to invest in both mezzanine loans and preferred equity for all commercial property types on a nationwide basis. RiverBanc will focus on middle market opportunities in amounts as low as $2 million secured by properties valued at $10 million or greater.

We will also participate in structured investments such as acquisitions of seasoned or distressed loan portfolios, net lease properties or subordinate commercial mortgage-backed securities. During the quarter we invested approximately $6.9 million in commercial mortgage assets.

As we head into the second half of the year we will continue to focus both on residential and commercial opportunities and continue to invest in securities that we believe will deliver loss adjusted yields in the mid-teens. Our 10-Q will be filed on or about August 5 with the SEC, it will be available on our website thereafter. Jim, Fred and I would now like to take any questions you may have. Operator, if you could please take the first question.

(Operator Instructions). Jason Weaver, Sterne, Agee.

Good morning, guys, congratulations on the quarter.

Thanks, Jason.

Concerning your net interest margin, and I think you mentioned, Steve, that it was probably largely driven by the yield on the Midway portfolio at something like 28%, I'd just like your thoughts on how sustainable do you think that is going forward and what a baseline level is? And also how that may be affected by changing volatility in the mortgage market?

Sure. Clearly when you invest in those types of securities there's going to be more volatility relative to an agency ARM portfolio. One of the reasons we went with the Midway Group is they've had extensive experience in managing these types of securities over 10 years in a fund, that's demonstrated over time they've been able to do a very good job of hedging that type of volatility.

Our expectation getting into that transaction was, as we've stated previously, in the high to mid-teens in the residential portfolio. Clearly the out-performance is directly attributable to the prepayment speeds.

We would have initially anticipated going into those various types of investments, that speeds would be in the mid- to high-teens on those types of securities. They came in at 8 CPR. Through July they continue to pay in that type of range and I think that's attributable to a couple factors that we all know about.

And not unlike many of the REITs in terms of their experience in the second quarter. It's clear that the borrower -- that the majority of borrowers who are borrowing money out there are distressed and unable to refinance. And part of Midway -- one of the things we liked about Midway is they go to great lengths trying to identify securities that have characteristics that they think will have better prepayment behavior in varying interest rate environments.

So on a long-term sustainable basis we don't think that 28% is indicative. However, we do think that the overall return on that portfolio will continue to be in the high-teens.

Very good, thank you very much.

(Operator Instructions). Presenters, I'm showing no additional questioners in the queue. I'd like to turn the program back over to Mr. Mumma for any closing comments.

Well, thanks very much for being on the call. We appreciate it. We had a great second quarter, look forward to the third quarter and we look forward to speaking to you in the future. Thank you very much.

Thank you. Ladies and gentlemen, this does conclude today's program. Thank you for your participation and have a wonderful day. Attendees, you may disconnect at this time.