New York Mortgage Trust Inc (NYMT) 2014 Q4 法說會逐字稿

A press release with New York Mortgage Trust fourth quarter and full year 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 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 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 and Litigation Reform Act of 1995. Although New York Mortgage believes the expectations reflected in any forward-looking statements are based on reasonable assumption, 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 this call. Today I have Kristine Nario, our CFO joining me. Kristine and I will be available for questions at the end of this call. The Company released it's fourth quarter and full-year results after the market closed yesterday. Including the press release, there are several tables that I will be referring to during this call.

The company's portfolio and investment strategy produced strong results in the fourth quarter and full-year 2014 with net income per share higher by approximately 24% and 33% respectively over the corresponding prior year periods. Despite the volatile interest rate environment that persisted throughout a significant portion of the 2014, our focus on investing a credit-sensitive assets has allowed us to avoid a great deal of risk associated with trying to predict the interest rate moves.

We continue to build out our portfolio of credit-sensitive assets in 2014. We purchased approximately $455 million in credit-sensitive assets including approximately $405 million in distressed residential loans and approximately $32 million of equity and debt securities in a multi-family focus invested entity that is managed by RiverBanc and approximately $18 million of mezzanine loans and preferred equity investments.

Consistent with our strategy produce returns through a combination of net interest margin and net realized gains we sold two first large multi-family securities and sold a refinance residential loans during 2014 producing total realized gains of $39 million and $14 million, respectively.

We are pleased with our investment portfolio's performance in 2014 which has helped to increase book value per common share every quarter since June of 2013 including a 12% increase in 2014. And contributed to a total economic return of approximately 29% for the year. I would like to recap some of the fourth quarter and full year highlights now.

For the quarter ending December 31, 2014 we had net income attributable to common stockholders of $40.5 million or $0.42 per common share as compared to $21.8 million or $0.34 per common share for the quarter ending December 31, 2013. For the year-ended December 31, 2014 we had net interest income attributable to common stock of $130.4 million or $1.48 per share as compared to $65.4 million or $1.11 per share for the previous year.

Net interest income of $18.8 million for the quarter ended December 31, 2014 as compared to $18.5 million for the quarter ended December 31 the previous year and $19.3 million for the quarter ending September 30, 2014. It should be noted that we purchased over $367 million in loans late in the fourth quarter which had a minimal contribution to net interest income for 2014. For the year-end December 31, 2014 we had net interest income of $77.8 million as compared to 60.5 for the previous year.

Net interest margin for the quarter was 432 basis points as compared to 428 basis points the previous quarter and the year-ago fourth quarter net interest margin was 410 basis points. We realized the gain to $22.7 million on a sale of one of you are multi-family CMBS loss securities during the quarter bring the total realized gain for the year to approximately $39.1 million.

We sold refinanced or worked out distressed loans with a carrying values of $29 million for the quarter and $81 million for the year resulting in net realized gains of $4.9 million for the quarter and $14.4 million for the year. We continue to benefit from price movements in our CMBS portfolio which resulted in unrealized gains of $13.9 million and $56.9 million for the quarter and year-end under December 31, 2014.

(Inaudible) multi-family first loss securities continue to attract additional investors throughout the year driving down yields which all to be led to our decision to sell to our position. We purchased approximately $405 million in distressed residential loans including $328 million of distressed loans in the fourth quarter. In addition, we invested $32 million in a multi-family focus investment entity externally managed by RiverBanc which we own a 20% stake in.

This company will focus on investments outside the core strategy of New York Mortgage Trust. Book value per common share was $7.07 dollars at December 31, 2014 as compared to $6.33 per common share at December 31st, 2013, an increase of $0.74 or 12% for the year.

We declared and paid a fourth quarter dividend of $0.27 per common share making this the 11th consecutive quarter at this level. We raised the total of approximately $297 million in three accretive public offerings over the course of the year bringing our total market capitalization including our preferred stock to approximately $900 million.

Now I will go over through some portfolio highlights. Included is our press release are three tables related to our portfolio performance, an historical quarterly table detailing asset yield, liability yield and net margin and basis points, a table that discloses yield by significant asset category for the quarter and the year and historical CPR table by security type.

Our net interest income as I said before was $18.8 million for the quarter, down approximately a $0.5 million from the previous quarter. Our net interest margin was 432 basis points during the quarter, up 4 basis points from the previous. The decrease was mainly due to decline in the average earning assets for the quarter. The company sold a CMBS security late in the third quarter which negatively impacted the overall debt dollar margin for the fourth quarter. However the company invested an approximately $328 million in distressed residential loans with an average coupon of 6.41% which settled late in December, this should positively impact net margin in the following quarters.

Our portfolio CPRs were down across all investment categories during the quarter with the overall portfolio speed averaging 11.1% versus 13.1% for the previous quarter. Our total other income increased by $27.3 million and $76.1 million for the three and 12 months period ended December 31, 2014, respectively, as compared to the same periods in 2013.

The increase was primarily driven by an increase in realized gain on our investment securities and related hedges of $24.1 million and $52.8 million for the three and 12 months periods ended December 31, 2014, respectively. The company sold two first loss PO securities in certain IO securities in the third and fourth quarters of 2014 resulting in realized gains of $22.7 million and $39.1 million for the three and 12 months periods ended December 31, 2004.

In addition, we realized gains from our company's agency IO portfolio strategy increased by $1.4 million and $13.7 million for the three and 12 month periods as compared to the same periods in 2013. An increase in unrealized loss on investment securities and related hedges of $6.1 million and $13.1 billion for the three and 12 months periods of 2014 ending December 31, 2014 as compared to the same periods in 2013 which were primarily related to our agency IO strategy.

The Agency IO actively managed strategy resulting in both unrealized and realized gains and losses, over time we expect the unrealized and realized activities of the agency IO strategy to offset and result in no material income or loss.

An increase in realized gains on distressed residential loans of 4.4 and 12.8 for the three and 12 months ended December 31 as compared to the previous period's year. The realized gains are deliberated derived from loan refinancing workouts and re-sales with the majority of the realized gains on these assets in 2014 being attributable to loan re-sales during the first and fourth quarters. Loan turnover is much more difficult to predict and schedule resulting in uneven recognition over time. We target asset sales and amounts for the year and not for the quarter. As the portfolio grows, we would expect these activities to increase and begin to reduce some of the earnings volatility between quarters. An increase in net unrealized gains and multi-family loans and debt held at securitization trust of 4.7 and 25.4 for the three and 12 months ended December 31, 2014 respectively as compared to the same periods in 2013 which is primarily due to improved pricing in our multi-family CMBS investments that has been driven in part by greater market demand for this product.

We had an increase in general and administrative and other expenses of $7.5 million and $20.5 million for the quarter and year-ended December 31 as compared to the previous year. These increases were primarily due to an increase of $1.5 million in salaries benefits and the director's compensation for the 12 months ended December 31 as compared to 2013 mostly due to an increase in performance based compensation.

The $6.5 million and $16.4 million increase in base management and incentive fees for the three and 12 months periods ended December 31, 2014 as compared to the same periods in 2013 is primarily due to incentive fees earned by RiverBanc from the sale of the multi-family CMBS securities during the period and for the full year.

It should be noted that the CMBS strategy delivered over a 40% return to our shareholders on invested capital basis. The $1.2 million increase in expenses related to the distressed residential loans in the fourth quarter of 2014 as compared to the prior period is largely due to upfront due diligence costs related to our December purchase of a large pool of loans.

The $2.6 million increase in the year-over-year in our distressed residential res loans strategies relate to upfront due diligence costs referred to above and a higher average balance of loans outstanding during the year thereby resulting in higher servicing costs, worked out costs and due diligence costs. Also included is our press release is our capital allocation tables that details assets, liability and equity by investments as of December 31, 2014.

We continue to focus on investing in credit assets such as multi-family investments including Freddie Mac first loss securities, direct mezzanine loans and preferred equity investments as well as residential distressed loans which represented approximately 71% of our current invested capital. Our investments in our agency securities continue to decrease resulting in overall leverage of the company to decrease to 1.4 from 2.4 times the previous year. We maintain leverage targets for each investment category and accordingly as we shift between strategies our overall leverage ratios will change. We will continue to focus on longer-term funding strategies for both our CMBS and distressed loaned residential loan strategies.

We anticipate securitizing our December residential loan purchase sometime in the first half of 2015. I have said this before, but I believe this is important point when analyzing our company's results. Focus on the entire return of the portfolio, not on the individual components. Our business is not a net interest margin-focused business but it's a strategy that will rely on both interest income as well as realized gains from credit investment opportunities.

We believe this strategy allows our portfolio to better navigate the changing economic and interest rate environment. This strategy over the last two years has resulted in an average annualize total rate of return to our shareholders of 26.7%. We intend to maintain this disciplined approach for 2015 by deploying capital to assets that satisfy our longer-term return investments and believe that our current portfolio is well-positioned to take advantage of new interest earning and capital gain opportunities.

Thank you for your continued support. We will file our 10-K on or about February 27th with the SEC and it will be available on our website thereafter.

Operator, if you could please open this call for questions. Thank you.

(Operator Instructions). Ben Zucker, JMP Securities.

On the 3Q call you guys highlighted the opportunity in distressed residential loans on the 3Q additions of $38 million in your own words not a huge number. However now we see this acquisitions of a pool of re-performing loans and the allocated capital to this asset silo jumped sequentially to 29% and I was just wondering how you view the current opportunities in this segment whether future deals will lean more towards these larger pool acquisitions or any kind of idea how much capital you guys would ideally have allocated to this segment over the course of the year, it would be very helpful even if it's just directionally or relative.

Yes. I think we're constantly looking at different asset classes, Ben, to figure out where the best opportunities are for. I think that the Freddie Mac first loss pieces became very difficult for us to invest in as, you know, in 2011 and 2012 we were probably one of five people bidding on these bonds and now we're probably one of 20 people bidding on these bonds.

The distressed residential pool market has also become very competitive. We probably bid on over I would say 15 to 20 large pool balances during the year. The December purchase is actually the largest one we bid on all year, we ended up winning that. I think there is a combination of factors why there was several large bid list in the marketplace from October, November, December and I think the number of bidders on this pool had been reduced because the other participants had already won pools which gave us a -- I wouldn't say an advantage but gave us a better opportunity to win the pool.

We liked the distressed loan pool; we have been very deliberate in terms of what we want, what profile we're looking for to buy. So we will continue to focus a lot of our energy on the distressed residential loan pool because I think the total rate of return for that portfolio looks very promising relative to some of the other asset classes.

We have spent more time at the end of the second half of the year investing in multi-family more directly with mezzanine and preferred investments and like I said we see today an entity that's going to focus on delivering JV equity to multi-family projects so it's a part that doesn't exist, it's an investment class that we don't have directly in our balance sheet but we want to see this company to hopefully hope that it standalone and raises its own capital because we think that type of capital is going to different capital class and we think that the cost of capital for direct CMBS investing is lower than a multi-mix of residential and CMBS, but I would expect to see the residential portfolio continue to gain a larger part of our equity base as we go into 2015.

One other thing I would tell you, as we go into the residential trade please understand that you will see a decline in our yields, you will see a decline in the margins but on a relative basis since you're going to add more leverage on the residential investment the total rate of return will still be in the lines of what we expect to make.

David Walrod, Ladenburg.

I just wanted to I guess the RiverBanc. Just a couple clarifications so this is a new -- so own 20% of this new entity and then what is your ownership percentage of RiverBanc from the previous agreement?

So we own 20% of RiverBanc the manager. The company that we have ceded is a combination of equity and preferred so we are about a 60% owner of the capital structure today. We would anticipate the decrease overtime as they build out their capital base. This is just a newly formed company this year and is approximately $80 million in assets and we expect that to grow over time with some point to eventually get critical mass and possibly go out and look at some other form of capital market raising, but we look at that as the compliment the types of investments that New York Mortgage Trust does, we like the mezzanine part of the stack. There is parts of the investments in the other company that will be a little bit higher up the LTV and/or equity straight equity which is more suited for that type of company's investment strategy versus our strategy. So 20% we own of RiverBanc.

So I got that. So the new entity is going to be investing in--

It's going to be JV equity focused on multi-family properties largely in the South-East as well as certain types of mezzanine debt. And when I say that mezzanine debt may have a larger component of an equity kicker so it's more equity looking than it is debt looking, so we tend to invest in mezzanine debt that has a higher (inaudible) bond type aspect that generates more current income than a total rate of return income.

Sam Choe, Credit Suisse.

You guys kind of touched upon this in the first question you received but I was just wondering if you could provide more detail on your medium plans to add assets to your investment portfolio and maybe kind of provide more color on how you think about leverage going forward?

Sure. I think given the size of the company you know, so when we bought that, we bought the loan pool in November and settled in December, we immediately raised capital to support that loan purchase. You know, I think as we go forward we would -- our typical loan purchase size is between 20 million and 50 million, so we try to match as best we can capital raising opportunities with asset classes. So that's a difficult thing to it, right, and so I think given the company's size today and given our portfolio size we're less interested in growing the company to get scale as opposed to opportunistically growing the company. So I think that you will probably see less large chunks of growth as opposed to more consistent smaller growth internally generated growth for one and that's sort of suits us better in bidding in smaller pools now.

We will continue to look at large purchases and those large purchases will be maybe with a partner, but those large purchases also gives us securitization. So the way we would look at any kind of residential loan investment is we would fund it short-term with a warehouse line but then move it over to a securitization, it's got a three to five-year maturity horizon which sort of matches up with our worked out period.

Okay. So it's safe to assume that you guys are going to increase leverage going forward?

That's right. So if you look at our CMBS silo strategy, it's about a one-to-one leverage ratio to assets even less than that. And if you look at the residential it's about 2.5 to 1 and so as we do more residential investment the 2.5 we will do more residential investing and probably less CMBS investing given where the market yields are today, so that could change, but as it stands today yes I would say you would see our leverage ratio tick up but it's still going to be a leverage ratio that's less than three to one.

And most of that leverage is going to be done in securitizations which has very little scallability back to the company. So again the focus of us when we're investing in credit asset is to reduce as much possible the mark-to-market callability risk back to the company.

Okay. I also had a question about your performance base compensation. I was wondering if you could give maybe like more -- or quantify this as a percentage of the compensation expense for 2014 if you have that on hand.

Yes, I don't have it on hands, but I the guess off the top of my head which is not out of the blue guess it's about 50/50 I would guess. And the exception that we receive from a performance that's exactly is (inaudible) is after deducting all expenses paid to any other external managers. So we're truly getting a return to the shareholders is what we're engaged on is the performance to our shareholders not on any particular asset class.

Thank you. And I'm showing no further questions in the queue. I would like to turn the conference back over to Mr. Steve Mumma for any closing remarks.

Thank you again, operator, and thank you everyone for being on the call and supporting the company over the last couple of years. We look forward to 2015 and we plan to continue what we have done in the past and we'll talk to you in May of next year. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of your day.