New York Mortgage Trust Inc (NYMT) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust fourth-quarter and full-year 2013 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 is being recorded on Wednesday, March 5, 2014.

A press release with NYMT's fourth-quarter and full-year 2013 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 presentations 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 and President. Steve, please go ahead.

Thank you, operator. Good morning, everyone, and thanks for being on the call. The Company released its earnings after the market closed yesterday and included in the press release are several tables that I will be referring to during this call.

Our performance in 2013 validated the hard work we have done over the last three years, which is to develop a diversified credit focused portfolio strategy that we believed would help mitigate interest rate exposure if and when rates started to rise. The second quarter this year was that test. Then the market saw 10 year treasury rates increase by over 100 basis points in six weeks, eventually topping 3% during the third quarter and ending the year at 3.02%.

During the last six months of the year, the market dealt with a budget crisis, tapering, and the new Fed chairman, all of which added volatility and risk to the markets. During this period, our book value remained very stable, falling less than 3% for the entire year and essentially flat for the last six months while generating significant income for our shareholders.

Our focus on credit strategies, both in the multifamily sector and distressed residential loans, proved to pay significant dividends in 2013, with the multifamily CMBS securities substantially improving in value while delivering stable, predictable returns.

During the year, we added $95 million in multifamily investments, including $72 million in first loss CMBS securities and $23 million in direct preferred and mezzanine debt financing on multifamily properties.

In addition to our multifamily credit investments, we added $218 million in our distressed residential loans, bringing our total investment to $265 million. Both of these strategies we believe will continue to deliver stable returns in 2014.

We continue to pursue innovative ways to finance our portfolio, focusing on structures that reduce and/or eliminate exposure back to the Company's liquidity. We completed three distressed residential loans and one CMBS structured financing for total proceeds of $192 million during 2013, bringing total structured financings to seven over the last two years.

We are actively looking for new opportunities, investment opportunities in 2014, including ways to participate in the next generation of nonqualified mortgage loans, or non-QM; multifamily opportunities through direct lending relationships; and other residential-related investments.

In addition, we are working on several financing solutions that we believe will reduce our direct lending exposure to financial banks and broker-dealers, as the new Dodd Frank rules that become effective in 2014 will bring leverage and capital pressure to many of our lending partners.

Now, for some fourth-quarter highlights. We had net income attributable to common stockholders of $21.8 million, or $0.34 a share, for the quarter as compared to $9.4 million or $0.19 per share for the quarter ended December 31, 2012. Our net interest income rose to $18.2 million for the quarter, an increase of $6.9 million over the quarter ended December 31, 2012 and a $2.7 million increase over the previous quarter ended September 30, 2013.

Our portfolio net interest margin increased to 410 basis points from 359 basis points from the previous quarter and 333 basis points from the fourth quarter of 2012. Book value per common share ended at $6.33 at December 31, 2013 as compared to $6.32 for the quarter ended September 30, 2013.

We invested $30.4 million in first loss PO securities issued by Freddie Mac sponsored multifamily K-Series securitizations. And we declared a fourth-quarter dividend of $0.27 per common share that was paid on January 27, 2014.

For the full year 2013, I would like to go through some highlights. Our net income attributable to common stockholders was $65.4 million or $1.11 per share for the year ended December 31, 2013 as compared to $28.3 million or $1.08 per share for the year ended December 31, 2012.

Our net interest income rose to $60.5 million for the year ended December 31, 2013, as our earning assets averaged $1.6 million for the fourth quarter, a record for the Company, which was an increase of approximately $300 million from the fourth quarter the previous year.

We received net proceeds of approximately $100 million through common stock offerings and our aftermarket program, as well as $72 million through a preferred stock offering during the second quarter. We deployed substantially all these proceeds in credit-related investments during the second and third quarter.

We invested an aggregate of approximately $95 million in multifamily CMBS, first mortgage loan, mezzanine loan, and preferred equity investments, and $218 million in distressed residential mortgage loans during the year.

We financed a portion of these investments and the credit sensitive investments through three securitizations of distressed residential loans for approximate proceeds of $137 million and one multifamily CMBS-backed three-year privately placed term repo for approximately $55 million. We declared a total of $1.08 in dividends during 2013.

Subsequent to year end, we completed a public offering of 11.5 million shares in January of 2014, resulting in net proceeds to the Company of approximately $76 million. In addition, we sold a distressed residential mortgage loan pool that had a carrying value of approximately $29 million for aggregate proceeds of approximately $36.9 million in January, resulting in a net realized gain of approximately $7.5 million before income taxes.

As I previously mentioned, our net interest income was up substantially, both in terms of quarter to quarter and year over year. The primary reason for the improved margin in the fourth quarter was a significant decrease in CPRs in our MBS and IO portfolio, as well as continued additions to our credit assets in the portfolio during the quarter.

Included in our press release is a table listing CPRs by investment category in our securities portfolio for the last five quarters. As you can see, during the fourth quarter, the average portfolio'ed CPR was 10% as compared to 15% from the previous quarter, or down 33%, with a significant increase coming in both our agency arm and IO portfolios.

The increase in the year-over-year net interest income was primarily due to the increase in overall earning assets of approximately $300 million and improved net interest margin as we continue to transition to more higher-yielding lower levered credit asset strategies.

Also included in our press release is a table for the last five quarters of our quarterly average earning assets with the related yields on assets, liabilities, and net margins.

Total net other income was $11.6 million and $29.1 million for the quarter and year ended December 31, 2013, respectively. The results included $9.1 million and $35.1 million in unrealized gains related to our CMBS portfolio for the quarter and year ended, respectively.

Pricing and market conditions continue to tighten throughout the year for our multifamily first loss CMBS securities. This asset class resulted in being one of the top performing fixed income asset classes for the year of 2013.

In addition, we had $500,000 and $1.6 million in gains related to our distressed residential investments for the quarter and year ended December 31, 2013. This strategy involves components of both interest income and capital gains, capital gains which is included in our other income and are derived from refinancings, workouts, and resales. The majority of the income included in 2013 was from loan refinancings.

As I previously mentioned, we sold loans for total proceeds of approximately $36.9 million, resulting in a gross profit of $7.5 million in January of 2014. These sales, while profitable, are far less predictable than the interest income and results in more volatile quarter-to-quarter earnings performance. However, as we grow this portfolio, we believe these activities will become more regular and less volatile to our quarterly earnings on a go-forward basis.

Our [IO] strategy had a negative contribution of other income of approximately $5.3 million loss for the 12 months ended December 31, 2013, while it was flat in the most recent fourth quarter, with significant improvements in the overall performance over the last six months. We continue to believe this strategy will benefit us in a rising rate environment.

Expenses were $6.3 million and $19.9 million for the quarter and year ended December 31, an increase of $3.3 million and $8.5 million as compared to the previous quarter and year end, respectively. The majority of the increase in these expenses were due to management fees and distressed residential loan activities. The management fees increased by $1.6 million and $3.1 million for the quarter and year ended December 31, as compared to the previous year. This is directly attributable to the growth in our equity base as we continued to invest the majority of those proceeds in credit sensitive strategies that are managed by RiverBanc and Headlands Asset Management.

Distressed residential loan expenses increased by $1.3 million and $3.9 million for the quarter and year ended December 31, 2013. This increase is related to significant growth in the investment during the year. The distressed residential loan strategy typically has higher costs as loan servicing, resolution processing is more operationally intensive than performing loans. But given our purchase price, we believe these costs will be more than offset by the overall performance of this strategy.

The Company ended the year with a book value of $6.33 per share as compared to $6.50 per common share at December 31, 2012. While down is never good, the decrease of less than 3% on the year where many experienced double-digit declines is a testament to our investment strategy.

Also included in our press release is the capital allocation table that we have included now for several quarters that details our assets, liabilities, and equity by investment silo.

As you can see, our agency RMBS portfolio, including ARMs, fixed rate and IOs, decreased from 51% of the equity in December 2012 to 30% of the equity in December 31, 2013. Our credit sensitive investments, including multifamily and distressed residential CMBS, increased to 69% of our capital from less than 44% as of December 31, 2012. We believe these allocation shifts better position the Company to navigate through these challenging economic times and we will continue to pursue this transition in 2014.

This was a landmark year for the Company. We achieved a critical equity capital -- market cap with a market cap of approximately $500 million at year-end and now over $600 million after giving effect to the most recent capital rates. For 2013, our investment strategy delivered solid earnings, stable book value, and $1.08 in dividends to our shareholders, all of which we are very proud of. We continue to pursue opportunities, both in asset selections as well as financings that we believe will complement our current portfolio strategy.

Thank you for your support. And operator, you can now open it up for questions.

Before she opens it up, our 10-K will be filed on or about March 7 with the SEC and will be available on our website thereafter. Thank you.

(Operator Instructions). David Walrod, Ladenburg.

Good morning, Steve. The capital raise in January, I'm assuming that is initially deployed into your agency strategy. Can you talk about how quickly you anticipate deploying it into some of the more credit sensitive strategies?

Yes, I mean we used -- some of those proceeds have been deployed in credit residential. And we would anticipate the remaining of that being invested in credit assets as we go through the first quarter.

We are not really following some of that in agencies as a preliminary. We are really looking to allocate that capital directly into credit strategies as we are not 100% comfortable with mitigating the potential risk of loss in a short period of time.

Okay. When you say into residential, so are you really focused on the more distressed loan category or is that across the multifamily as well?

Yes, both, distressed residential as well as multifamily direct lending. We continue to look at some other opportunities. Now, I think 2014 will be a year when the non-QM investing will become important to many REITs, many REITs here. And right now the market is just getting defined on what that looks like, and as we get comfortable in terms of what the rating agencies will look at from a securitization standpoint and what the loans will look like, we will begin to make inroads in those investments.

Okay. Then the last question, you recognized some losses, some realized losses. Can you talk about what flowed through that line item?

Yes. That is really just -- when you look at the IO strategy, the IO strategy, and when you look at the two lines in the other income which is investments -- it has unrealized and realized gains and investment securities, primarily those related to our IO strategy activity, so they have combinations -- so they are an active manager in terms of hedging risk in the IO strategy, so they are constantly in and out of futures markets and TBA markets. So they are generating both realized and unrealized gains in that sector as well as unrealized and realized gains in the IO portfolio, so it is a combination of all of that.

Okay. Thanks so much. Have a good day.

(Operator Instructions). Richard Eckert, MLV & Company.

I just had a couple of quick questions. What kind of pricing are you seeing on multifamily assets? It seems like it is getting kind of frothy right now.

Obviously, Rich, you can tell by the unrealized gains that we have had in the past year that no question the pricing has tightened significantly since we have started investing in this in 2011. And it is something that we are looking at in 2014 and have not yet participated. We are looking to participate, but there is a level that we will stop participating and think that we can deploy capital elsewhere.

So they have come down significantly, these assets that we invest in and trade on a yield, and the yields have come in substantially from the mid teens to the low teens or less.

Okay. And on the sales of distressed single-family residential loans, can we expect to see those, I hate to say regularly are periodically, but at least one or two dispositions a quarter?

Our goal would be to start to have more regular dispositions on a quarterly basis.

Okay.

Does that mean more than one? I don't know at this time, but the goal would be to start to generate, as we have built out the portfolio to a size that we can now start to work out, I think that you will start to see more regular activity.

Okay. Fair enough. Thanks again for taking the questions.

(Operator Instructions). I am not showing any further questions at this time.

Okay, operator. Thank you very much and thank you for everyone on the call. We look forward to talking about our first-quarter earnings in early May. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a great day.