New York Mortgage Trust Inc (NYMT) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the New York Mortgage Trust first quarter 2014 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 Wednesday, May 7, 2014.

A press release with NYMT's first quarter 2014 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 for 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 this 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 the forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. The 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. As the operator said, the Company released its first quarter results after the market closed yesterday. Included in the press release are several tables that I will be referring to during this call.

Our first quarter performance continued on the success of 2013, generating $21.3 million in net income attributable to common stockholders, including $8.2 million in realized gains related to our distressed residential loan strategy and the continued valuation improvements in our CMBS strategy, totaling $4.9 million in unrealized gains during the quarter. Our focus on both the multifamily sector and distressed residential loans continued to pay significant returns, as it has for the last 18 months.

We closed two accretive capital raises, one in January resulting in $76 million in proceeds to the Company and the second in April, resulting in approximately $110 million in proceeds to the Company.

We continue to focus our investment strategy in distressed residential loans and the multifamily sector. More recently, the focus in our multifamily strategy has been towards direct investing, as compared to the Freddie Mac K-Series credit securities, as the pricing and competition for these instruments has led to less attractive returns relative to other opportunities.

As I've discussed many times in the past, the importance for innovative financing solutions to fund our portfolio are critical components to our success, both in profitability and risk management. To this end, we continue to seek new ways to complete structured financing, expand our counterparty exposure beyond traditional lenders and continue to access fixed income public capital markets.

Asset gathering in the first quarter has been more difficult, as an increased supply of investable capital focuses more and more on credit-sensitive assets, which just put upward pressure on pricing on certain of our investment strategies. While this is a positive side effect to our existing portfolio, incremental additions become more challenging. We believe, however, that our capable team of asset managers can prudently invest all of our excess liquidity into our core strategy with minimum pressure to our long-term returns.

Now, for some first quarter highlights. We had net income attributable to common stockholders of $21.3 million, or $0.29 per share, for the quarter as compared to $15.4 million or $0.31 per share for the quarter ended March 31, 2013.

Our net interest income rose to $19.8 million for the quarter, an increase of $6.8 million over the quarter ended March 31, 2013, and a $1.7 million increase over the previous quarter ended December 31, 2013.

Portfolio net interest margin increased to 439 basis points as compared to 410 basis points the previous quarter ended December 31, 2013.

Book value per common share increased to $6.48 at March 31, 2014, from $6.33 for common shares at December 31, 2013. The book value at March 31 does not reflect and include the 14.5 million shares issued subsequent to March 31 at a $7.36 net price to the Company.

We declared a fourth quarter dividend of $0.27 per common share. That was paid at April 25, our eighth consecutive quarter of $0.27 per share.

Our net interest income was $1.7 million higher from the previous quarter ended December 31, 2013, with substantially unchanged averaged earning assets.

Our net margin improved by 29 basis points , comprised of a 41-basis point increase in our asset yield, offset by a 12-basis point increase in the cost of our liabilities net of hedging.

The increase in asset yield was due mainly to a decrease in CPRs in our MBS portfolio, including the IO strategy, which resulted in decreased premium amortization and improved asset yields in our distressed residential loan portfolio.

Also, as we transition to a higher percentage of credit assets as compared to our lower margin agency portfolio, we would anticipate increasing margins, offset by lower portfolio leverage.

Included in our press release is a table listing CPRs by investment category for the last five quarters. As can be seen in this table, our securities portfolio CPR average decreased below 10 CPR, which we had not experienced since the fourth quarter of 2011.

Prepayment speeds in the second quarter continued to be muted as compared to historical standards.

A $6.8 million increase in net interest margins from the previous year's quarter is due to the growth in our equity capital and a corresponding increase in average assets.

Included in our press release is a table that details the last five quarters, including average earning assets, portfolio asset yields, liabilities, costs net of hedging and net interest margins.

As you can see, the Company's increased average assets by approximately $200 million while also increasing the net margin to 4.39% from 3.48% for the quarter ended March 31, 2013.

Total net other income was $13.5 million for the quarter ended March 31, 2014. The results included $8.2 million in realized gains from the sale of refinancing of certain loans in our distressed residential loan portfolio, $4.9 million in unrealized gains in our CMBS portfolio, primarily Freddie Mac K-Series securities, and net realized and unrealized gains from our IO portfolio of $300,000.

The sale of approximately $36 million of loans during the first quarter was our first substantial sale in 12 months, as our focus has been on asset accumulation. Going forward, we anticipate a more systematic selling process, which should result in more consistent contributions to our earnings going forward.

Total general, administrative and other expenses were $7.6 million for the quarter ended March 31, 2014, as compared to $3.9 million for the quarter ended March 31, 2013. The increase in expenses was primarily due to the growth in assets managed by external managers, resulting in higher base management fees, incentive fees based on their successful performance, as well as increased servicing costs related to our distressed residential portfolio growth.

In addition, our salaries increased from the previous year's quarter, as we have internalized the majority of our accounting function, which will lead to better economies of scale going forward.

We've included a comparative expense table with additional explanations in our earnings release for your review. Also in our press release is our capital allocation table that details investment silos by assets, liabilities and equities as of March 31, 2014.

We continue to focus on investing in credit assets. As of March 31, 2014, the Company was under-invested in our credit silos as the investment closing pipeline has been extended due to increased competition. We do anticipate having all of our excess liquidity be invested in credit assets by the end of this quarter.

The Company will continue to seek investment opportunities that complement our existing portfolio strategy, while meeting our risk-returning criteria. Prudence and discipline has served us well over the last 18 months. And we will continue not to sacrifice long-term objectives for short-term financial goals.

We thank you for your continued support and look forward to speaking in the future.

Operator, if you can please open it up for questions. Thank you.

Thank you. (Operator Instructions) Our first question comes from the line of Douglas Harter from Credit Suisse. Your line is now open.

Thanks. Steve, I was hoping you could just clarify the comments you made about more challenges about sourcing product.

Sure. So we've done a tremendous amount of investing, both in the Freddie Mac K-Series bonds and are probably, if not the largest single holder of them, one of the largest. And over the last 6 months, we've seen several of our competitors get involved in the Freddie Mac K-Series and you've seen a significant decrease in yield of those assets.

And so those were larger chunks of assets that we had been investing in. We had participated in several auctions during the first quarter and were not successful (inaudible) those auctions. So we focused more of our energy towards direct lending into preferring and mezzanine financing on multifamily properties.

And while we think those assets will have similar or better returns than the Freddie Mac K-Series, it takes a little bit longer time to accumulate critical mass than going out and buying a BP for $60 million or $70 million. So that's something that we're going to transition into and have transitioned into, and would anticipate more closing going throughout the year at a much higher pace.

Secondly, the distressed residential loan portfolio, the reperforming loans that we invest in, we also saw an increase in participation from some of our competitors. So the larger bid list that we typically would be active in have gone to very aggressive pricing levels, which has suited us well on the sales side. So we've focused more of our energy in accumulating loans from smaller lists, which takes more time. And we had one large list fall away from us that we thought were going to close on in the first quarter.

So we feel very good going into the second quarter and we understand that price is a very important component when trying to generate long-term returns. And so we've tried to spend a tremendous amount of time in focusing on sourcing the right assets.

I guess if you could just square that with the fact that you did raise capital early in the second quarter. What was the impetus behind that if the sourcing has become a little more challenging?

I think at the time when we raised that capital, we had several large bids out to assets that we were going to buy, several bids out for large-asset purchases. So in a perfect world, you'd love to buy the asset and then close on the capital. But unfortunately, it's better to have the capital then buy the asset, than buy the asset and figure out how you're going to pay for it because the markets do change.

And it's one of the times where we raise capital probably with less assets in the pipeline than we thought we were going to have. And we feel comfortable that we will get that capital deployed, and long-term, it won't have any overbearing results to the Company's financial performance.

All right. Thanks for that color.

Yes.

Thank you. Our next question comes from the line of David Walrod of Ladenberg. Your line is now open.

Good morning, Steve. Just to clarify, your cash balances were a little higher this quarter. Was that due to the timing of the distressed loan sales or were you just -- to what you were just speaking about, just had a couple of deals fall through and that's why it was a little high?

It's a combination of both, David. We sold the loans. We had (inaudible) loans purchased and are settling. Those settlements are probably 6 weeks longer than you'd like to have them and it just takes time. And they've been settling into the second quarter and will continue to do so. And it's just -- it's a run-with.

It's much less predictable than buying a security. I can go out and buy $100 million of MBS and settle them in 2 days and I know exactly what I'm buying and when it's going to happen. But we like the return profile of these securities and we like the pricing points that we're able to source these assets.

And we think longer term, for being under-invested for 30 or 60 days, will be offset by the price entry levels that we're getting on the assets that we're putting on the balance sheet.

You just feel there's too much volatility to risk putting that capital to work in the agency space, given the liquidity?

Look, the agency space investment did not suit people well back in May, investing in liquidity of last year. In hindsight, it looks great. Yes, we could have invested some money at the beginning of the year and the market rallied, then we would have done fine.

But it's easy to make investments looking in a rearview mirror and we'd like to think that the short-term loss and some underinvesting is not going to be offset by the possibility of a market [turn].

Good. Last question -- you commented about you expect more consistent gains through the distressed loan sales. Can you give us any color on that?

We have about over $250 million of loans. The rotation of that portfolio is about an 18-month life from a holding period of those loans. And that's either through refinancing or resale. So as we've accumulated, you get better execution and sales and you can -- when you can do decent size pools of sale.

So as we've now gone through the loans and figured out an exit strategy of all the loans in the portfolio, we'll start to put those strategies in place and maximize the return of those portfolios. so I think we're in a position now to start generating returns. Will we sell $36 million every quarter? I don't think we know the exact number. We will be active selling in every quarter.

Okay. Appreciate the color, thanks.

Yes, sure.

Thank you. (Operator Instructions) Our next question comes from the line of Steve DeLaney at JMP Securities. Your line is now open.

Thanks. Good morning, Steve, how are you?

Good morning, Steve.

You've touched on a theme that I think we're hearing from every mortgage REIT this quarter. And that is the challenges in deploying capital, given where asset prices have moved, spreads have tightened. Just a couple of questions along that same theme.

We saw a notice or release about Freddie Mac in late April that they were going to begin to securitize manufactured housing properties in a fashion similar to multifamily. I don't know whether they're going to use the K- Series. I think I read something that said they were going to call this the M Series.

I was just curious whether you and Kevin at RiverBanc have looked at that. And given that that would be a new program that investors may not be quite as comfortable with, I was curious if that might present a more attractive opportunity than the K-Series once it gets running.

We are looking at that and I will tell you in the first quarter, Freddie Mac issued the first floating rate security that was backed by 100% of assisted living property.

Um-hum.

Historically, they would have a smattering of those properties in the K-Series deal, but probably less than 5%. There was a deal that we had looked at and tried to participate in buying that asset. And we missed miserably on the yields on that asset. So we were shocked at where the levels of the deals traded.

And we will look at this multifamily property and go through the economics and make sure it makes sense. But I think our specialty lies around multifamily and we think we still can get decent mezzanine debt execution. But we will monitor the manufactured housing and we did see that.

Okay.

We had looked at making loans to properties individually historically, but did not get comfortable with the exposure, to be honest with you.

Got it, got it. Then the last point on that is you've been a very efficient deployer of capital using your sub-advisors and finding niches in the market. Just curious, looking back to the history and roots of your mortgage trust, at some point, do you feel that it's appropriate where you would start to rebuild your own dedicated new credit production platform of some type; whether it's multifamily, whether it's on the resi side, in some sort of an NQM-type product?

I guess what I'm getting at is at what point do you feel that you're going to have to -- instead of going to the market for product, put a platform in place where you can actually directly touch the consumer or the borrower, and create your own credit?

Sure. I think that if you look at though, as it relates to our managers, we do own 22% of the RiverBanc management team. And I think that we have a good relationship with our other managers and it's worked out very well for us. But when you talk about the non-QM world, that's something that we would probably internalize and not look for an external manager as one example.

I think other investments in residentials, be it servicing -- there's components of that that we would do in-house and maybe with a combination of [Midway] as a hedger, utilize them. But yes, as we grow the Company, we will look at ways to either increase our ownership or relationship with our managers to possibly internalize. But on some of the investments, I think it's suited us very well, Steve, quite frankly.

And I'm not so sure by internalizing some of those costs, how much economies of scales you get because as you build these teams, and if you look at the expertise that we have handling our portfolios, to hire that expertise is very costly. And while I can hire an individual person to run a book, I'm not sure I'm getting the same results as having (inaudible) people running the book so --

I hear you. I think the external sub-advisors has served you very well. Listen, Steve, thanks for the time and the comments. Appreciate it.

Great, sure.

Thank you. And I'm showing no further questions at this time. I'll hand the call back over to Mr. Steve Mumma for any closing remarks.

Thank you very much for being on the call, everybody. We look forward to talking about our second quarter results in early August. Thank you very much.

Ladies and gentlemen, thanks for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.