New York Mortgage Trust Inc (NYMT) 2012 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 2012 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, May 3, 2012.

A press release with NYMT's first-quarter 2012 results was released yesterday. The press release is available on the Company's website at www.NYMTrust.com. Additionally, we are hosting a live webcast of today's call which you can access in the Events and Presentation section of the Company's website.

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

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

The Company released its earnings after the market close yesterday and included in the press release are several tables that I will refer to during this call. I'd like to go through the first-quarter Company highlights where as follows. The Company earned $5.8 million or $0.42 per common share for the quarter ended March 31, 2012, as compared to $2.5 million or $0.27 per common share for the quarter ended March 31, 2011.

We had net income per share of $0.33 after excluding $0.9 million of net unrealized losses related to our agency IOs, investment strategy and $2 million in unrealized gains related to the fair value adjustment for the Company's multifamily loan sales and securitization trust.

Net interest income for the three months ended March 31, 2012, was $6.2 million, up from $2.5 million for the same period the previous year, and an increase of $800,000 from the previous quarter. The Company had weighted average portfolio margin of 658 basis points for the first quarter of 2012, an increase of 38 basis points from the fourth quarter of 2011.

The Company ended the quarter with a book value of $6.49 per share as compared to $6.12 per common share December 31, 2011. Included in our press release is a detailed analysis of book value transition from December 31, 2011, through March 31, 2012. The Company declared to pay the first quarter dividend of $0.25 per common share.

As part of the portfolio detail activity, I will go through the review. The Company [bended] approximately $22 million in a Freddie Mac K-series security in the early part of the first quarter of 2012, which represented 100% of the privately placed first loss tranche of a multifamily mortgage loan securitization.

Based on a number of factors, the Company determined the K-03 series was a veritable interest entity or VIE and that as of January 4, 2012, it was a primary beneficiary of the K-03 series.

As a result, the Company is required to consolidate the K-03 series with its underlying multifamily loans, its related debt, interest income and interest expense in our financial statements. The Company also elected the fair value option for the K-03 series which requires that changes in valuations in the assets and liabilities will be reflected in the Company's statement of operations instead of as an adjustment to the stockholders' equity similar to other investment securities.

As a result of this consolidation of the K-03 series, the balance sheet includes $1.2 billion in multifamily mortgage loans held in securitization trusts, $1.1 [million] (see press release) in multifamily collateralized debt obligation. In addition the statement of operations includes $11 million of interest income and $10.4 million in interest expense.

The Company also recognized a $2 million unrealized gain in the statement of operations as a result of the fair value accounting method election.

While the accounting requirements [re-create] additional disclosures as well as increased balances in our financial statements the net economic exposure to the Company will be driven by the actual security that the Company owns which the actual security at the end of March 31, 2012, had approximate market value of $24.3 million which was an increase of $2 million from the beginning of the period when we purchased the security and the security also contributed approximately $600,000 to the net interest margin during the period.

Both our agency arm and agency IO portfolios remained relatively flat in terms of portfolio size during the period. Our agency ARM portfolio -- our agency portfolio experienced CPR spends that were flat for the fourth quarter with the ARMs paying at approximately 18% CPR for the period and the agency IO portfolio paying approximately 20% during the period.

We do anticipate a marginal increase of CPRs going into the second quarter based on two factors. Seasonality, which typically peaks during the early spring -- during the late spring and early summer months, as well as the continued impact of the implementation of the HARP II program. However, we have mentioned in this press release as well as the fourth-quarter press release that we do not expect significant exposure to the HARP II program.

As I previously mentioned we funded approximately $22 million in additional purchase of a Freddie Mac K-series credit piece bringing our total exposure to $45 million in the K series, which includes $35 million in credit securities of principal-only nature and $6 million in interest-only strips off the same deals that we owned the credit security piece.

The CMBS portfolio not only contributed to an increase in net margins but also contributed approximately $0.20 in book value recovery during the period as credit spreads tightened from the beginning of the year. We earned approximately $201 million in residential mortgage loans held in securitization trust for our on balance sheet residential securitizations, financed with approximately $195 million of collateralized debt obligations for a net investment of approximately $6 million.

These loans had an average yield of 2.68% for the first quarter with a corresponding financing cost of 62 basis points for a net interest spread of 206 basis points. The Company added approximately $230,000 during the quarter for loan loss reserves, bringing the reserve total to $3 million or approximately 147 basis points on the outstanding loans or 16% of day loans for greater than 60 day category delinquency.

The majority of the increase on loan reserves during the period were related to updated broker price opinions or BPO appraisals that we conduct on a quarterly basis when evaluating the reserves on the delinquent loans in our portfolio.

Our CLO securities continued to contribute nicely to our net interest margin as well as adding approximately $0.20 for book value recovery benefiting from the exciting credit tightening that we experienced in our credit CMBS securities.

The CLO manager continues to do a -- actively manage the securitization by -- continued to diversify the collateral and upgrading the credit quality in the deals. The Company has approximately $5 million investment rating in our distressed residential loan portfolio, down from $8.5 million at the end of last year. The majority of these loans are out for sale or in the process of being settled and we anticipate exiting this strategy in the near future.

We continue to focus on the residential and multifamily credit investments that rely more on credit decisions and less on leverage that we believe will deliver high risk adjusted returns. The Company expects to purchase another Freddie Mac K-series first law of security along with its related interest only stripped in the second quarter of 2012 for approximately $24 million.

We continue to analyze several structure financing transactions that we believe will enhance returns on this credit portfolio, while not exposing the Company to additional callable leverage risk to the Company. Our focus remains on the residential market where we seek to deliver risk adjusted returns in the mid- to high teens.

The Company recently announced a new chairman, Doug Neal, who spent the last 20 years working as an investment banker raising capital and advising on strategic transactions for the residential and the commercial REIT companies. The Company looks forward to capitalizing on Doug's experience and in his contributions to the Company in the future.

I would also like to thank Jim Fowler who stepped down as Chairman in April of 2012 for his last for years in working with the Company through, arguably, one of the most difficult financial periods in the history. Our 10-Q will be filed on or about May 4 with the SEC and will be available on our website thereafter.

Fred and I would now like to take any questions you may have. Operator, please open up for the first question.

(Operator Instructions). Boris Pialloux, National Securities.

First, I would like to know what was the interest rates on the K-03 for the liabilities, because I think you're indicating the 4.3% for the assets yield but for the liability yield for the, I guess, the $1.1 billion.

Sure. It's -- you know the -- well, the liability yield is approximately -- I don't have the number right in front of me because I don't -- it is for the overall securitization. But it is approximately 23 basis points lower than the assets. The actual structure itself -- the actual cash flows of the deal are matched and the yields are being driven by the fair market values.

You know, it is unfortunate that it increases our balance sheet dramatically. But what is really driving the return is the yield on the credit security that we bought and as we have said in the past that the approximate yield what we buy these credit pieces is in the 14 to high 15s risk adjusted loss adjusted returns.

Yes. In my (multiple speakers)

Think about the return for that part, yes.

Exactly and my understanding is the known equity piece of the securitization deal are guaranteed by Freddie Mac. Am I correct?

The way these case securities have worked to date is Freddie Mac wraps at top 92.5% of these deals and we invest in the 7.5% bottom piece that is not guaranteed by Freddie Mac. (multiple speakers). we represent the first piece. And those pieces typically are purchased at significant discounts and at approximately $0.28 on the $1.00. So you are buying a credit piece on cents on a dollar and then you are going to receive a PO return over time and be paid at the maturity.

But what you're doing is you are incorporating assumptions and losses over time. So it's -- our intent to manage that as being the credit owner we would participate in a special servicing of these deals and oversight that allows us to help minimize or mitigate losses to the deal potentially.

Okay and also how do you monitor what is going on in the multifamily business? Because my understanding is there is a lot of constructions and a lot of deliveries in term of multifamily in certain areas like Seattle. Do you look at loans by geography or how do you actually try to segment your investment process?

That's a great question. And when we -- before we get into any of these K series investments, Kevin Donlon and RiverBanc Group, who is responsible for going in and analyzing these credits, will go out and do a full due diligence on every single loan that is going to be in the deal. So for the K 13 -- so we own several bonds. In many of these bonds that we owned we are buying them directly as a private placement for Freddie Mac, so prior to purchasing the security as well as the one that is going to settle this quarter that we are possibly going to purchase this quarter, we will have gone out and done a complete due diligence on the loans prior to the securitization, done a complete credit score of each individual property at the property level. And then, we are going to submit our bid for those securities based on that analysis.

So it is a very detailed analysis. It is not a matter of going into a model and making some assumptions across a broad flat. It is specific on each individual property. So we are very sensitive to the locations of the property. They are visiting approximately 50% of those properties in person from a dollar-ready standpoint and then having consultants going out and visiting the remaining properties for doing the full underwriting of the financials. So it is an very detailed analysis, and that analysis would continue throughout the ownership of those securities on a quarterly basis with updates. And to the extent that we see economic numbers changing on a particular property, we would start to increase the oversight and make sure that we understand what is going on with the property.

Okay, and then also last question. I mean I understand that you are -- you may not reinvest more in K-03 series because you would have to bring that on balance sheet. So would you actually focus on K-05? And second is, would you -- you -- I get you are looking to lever the returns, what type of haircut would you get for these types of investments?

Sure. As it relates to the K series bonds what's really triggering -- it's the own -- it's the percent ownership we have with those securities and the rights that go along with that ownership. So there are several hurdles that you have to go through from an accounting standpoint to see if you have to consolidate. But to the extent that we are buying 100% of the bottom credit piece or have the majority of that credit piece which goes along with the majority. If you have the majority of oversight of the special service or at the end of day you are probably going to be forced to consolidate on your balance sheet.

I mean, we tried to identify transactions that are economically advantageous to the Company, and then we will look at the accounting impacts. We want to make sure that we are getting the right securities to deliver consistent returns. It's probably -- it's cumbersome with some of the accounting disclosures and where we will start to increase those disclosures and make sure that the reader and the investor understand what our real true investment economic risk is.

So that is how we look at that security, and that is what will drive whether we consolidate any future purchases or not is a percent of that particular security that we own.

And then the second question (technical difficulty) from a structured financing standpoint. So there are two things. We can go out and get short-term leverage on the securities, typical haircut is approximately 20% to 30%, depending on dealer. But what we would look to do on a permanent basis if we were going to put permanent leverage on, is some kind of structured financing where you are getting an advance rate against the collateral that you are going to either put it in some form of trust where there is no lookback to the Company so you are in a permanent defeasance of that debt. So you are going to lock in a yield and, in essence, create a new security.

And/or we may do some kind of extended term funding that you probably get an advanced rate of between 55% and 60%. The intent here on these particular assets is not to do a leverage ratio that is some multiple of the balance but a subset of the balance. So what we're trying to do is -- so increase or put some form of structured leverage on transaction that takes it from a mid-teens returns up into the high teens or low 20s return without taking additional, what we would consider, unusually large increase in credit exposure.

And just to finish, you mentioned that you had like in Q2 you already had like $24 million in new CMBS. Am I correct?

It is a transaction that we are in the process of trying to close. Yes.

Okay (multiple speakers). Thank you very much. I really appreciate.

Thank you, Boris, for your questions.

(Operator Instructions). And gentlemen, there appear to be no further questions in queue at this time.

Thank you, operator, and thank you, everyone, for being on the call. At this point we will talk to you after the second quarter. We will be presenting at the JP conference in May in a couple of weeks. And thank you very much.

Thank you, gentlemen, and thank you, everyone, for your participation. That does conclude your program. Thank you and have a great day. You may disconnect your lines at this time.