New York Mortgage Trust Inc (NYMT) 2017 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 2017 Results Conference Call.

(Operator Instructions) This conference is being recorded on Thursday, May 4, 2017.

A press release with New York Mortgage Trust First Quarter 2017 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 & Presentations section of the company's website.

At this time, management would like to -- 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 Securities and Exchange Commission.

Now at this time, I would like to introduce Steve Mumma, Chairman and CEO.

Steve, please go ahead.

Thank you, operator.

Good morning, everyone, and thank you for being on the call.

Kevin Donlon, our President and Senior Executive heading up our multifamily business, will also be on the call and will be available to answer questions at the end of the presentation.

Included in our 8-K filing yesterday was our earnings press release for the 2017 first quarter results.

The company delivered a solid 2.4% economic return for the quarter or 9.8% on an annualized basis.

Overall, markets generally rallied during the first quarter, with credit spreads tightening for many higher-yielding assets, including our multifamily and distressed residential assets where we saw significant improvement in credit spreads from the fourth quarter of 2016.

The company was also able to take advantage of a greater buy-side demand for distressed residential loans during the first quarter, completing the sale of approximately $51 million in loans for a realized pretax gain of $12 million.

Collectively, these developments helped the company generate GAAP net earnings of $0.14 per share and comprehensive income of $0.17 per share for the first quarter.

As previously announced, the company received approximately $127 million in net proceeds from its convertible notes offering in January 2017.

The company has utilized these proceeds to help fund its acquisition of its targeted assets during the quarter, which included approximately $113 million of multifamily credit assets and approximately $41 million in distressed residential securities.

Of significance, included in the CMBS investments during the first quarter was a $29 million investment in a first-loss Freddie K-Series securitization, which marks our first new investment in the K-Series securitization in over 3 years.

These new investments had very little impact on our first quarter results, though, as approximately $104 million of the new investments settled toward the end of first quarter.

We anticipate these investments will provide a greater contribution to the company's earnings in the second quarter, which we should -- which should more than offset the interest expense associated with the convertible debt offering.

The following are some specific highlights for the quarter.

We had net interest income attributable to common stockholders of $16 million or $0.14 per share, and comprehensive income to common stockholders of $18.9 million or $0.17 per share.

We had net interest income of $13.9 million and portfolio net interest margin of 270 basis points, up 7 basis points from the previous quarter.

The book value per common share was $6.08 as of March 31, 2017, delivering an economic return of 2.4% for the quarter or an annualized economic return of 9.8%.

We declared a first quarter dividend of $0.20 per common share that was paid on April 25, 2017.

We completed the issuance of $138 million of 6.25 convertible notes due in 5 years that resulted in net proceeds for the company of approximately $127 million and with an all-in cost of approximately 8.24%.

We sold a pool of distressed mortgage residential loans with a carrying value of approximately $51 million for aggregate proceeds of $63 million, which resulted in a net realized gain before income taxes of approximately $12 million.

During the quarter, we reduced our investments in agency-related assets by $47 million while increasing assets to our credit portfolio by net of $87 million after the sale of the $51 million in distressed residential loans.

The market continues to be highly competitive for assets that are an investment focus, with demand far outstripping supply.

For the quarter ending March 31, 2017, we reported net income attributable to common stockholders of $16 million, an increase of $6.3 million from the fourth quarter of 2016, that is primarily due to an increase in other income in the first quarter as a result of increased sales activity in our distressed residential loans and an increase in net unrealized gains primarily due to improved pricing and credit spread tightening.

We generated net interest income of $13.9 million, or a decrease of $900,000, from the fourth quarter of 2016.

The portfolio net interest margin was 270 basis points for the first quarter as compared to 263 basis points for the fourth quarter of 2016.

The decrease in net interest income in dollars was primarily driven by the increase in net interest expense of $2 million, which was related to the issuance of our convertible notes in January 2017, which was offset by an increase in net interest income of $1.1 million from our agency portfolio, which was primarily due to the decrease in prepayment rates as compared to the fourth quarter of 2016 and an increase in net interest income of $1.1 million from our multifamily portfolio, which was due to the increase in average earning assets as it relates to that asset class during the quarter.

We also had a decrease in net interest income of approximately $1.2 million from our distressed residential portfolio, which was due to a decrease in asset yields as well as an increase of financing costs for the quarter.

For the quarter ended March 31, 2017, we recognized other income of $16.7 million, which was primarily due to the following: a net realized and unrealized gain of approximately $2.6 million from our multifamily CMBS investment, a net realized loss of $900,000 from our Agency IO portfolio.

We also had net realized gains of $12 million from the sale of pool of our distressed residential loans, and we had $2.8 million of other income delivered from our multifamily investments, primarily from the unconsolidated entities or joint venture investments.

Our total general and administrative expenses for the quarter were approximately $10.2 million, up from $7.2 million for the fourth quarter of 2016.

This increase was due to the increase of $1.8 million in incentive fees, which was related to the gain on sale from our distressed residential loans of $12.7 million -- of $12 million.

We also had an increase in employee compensation of approximately $800,000, which was related to the estimated increase in bonus and stock compensation from the increase in employees from the internalization of the RiverBanc employees that occurred in May of 2016, which was not included in the first quarter of 2016.

The company will continue to focus -- as we look forward, the company will continue to focus on residential and multifamily credit assets, which we will -- believe will allow us to deliver sustainable, positive economic returns over the long term, and we look forward to your continued support and speaking to you in our second quarter earnings call.

Our 10-Q will be filed on or about Wednesday, May 10th with the SEC and will be available on our website thereafter.

Operator, if you can please open up for questions for Kevin and I. Thank you.

(Operator Instructions) Our first question or comment comes from the line of Jessica Levi-Ribner from FBR.

You alluded to seeing some of the demand for the assets that you're looking for kind of outstrip supply, but you did buy the first loss piece in a K-Series.

What's, kind of, the dynamics there, and what changed where you felt like you could go back into the market for that?

And do you think that, that could persist in the next couple of quarters?

Yes, so we were very active in '12 -- 2012 and '13 in that first loss piece.

We've continued to monitor the market.

We felt in '13, '14 and '15 that the spreads -- the yields on those assets came to levels that we thought we had better opportunities elsewhere.

As we got towards the end of '16, we started to get -- enter the market and tried to become active again in that first loss piece.

We were very close to winning an investment in the latter part of 2016, and because of that, we were awarded the opportunity to invest in a first loss piece in the first quarter of 2017.

And -- primarily because the spreads that we think -- the spreads have widened out to the point where we think it makes sense for us to get involved in that process again.

We've also, in 2016, started buying other bonds and those structures, the C bond primarily, which is the bond that sits right above the first loss piece.

And so we've tried to be as active as possible in that particular instrument, which represents the balance of those investments that we made in the first quarter, would've been in that type of security.

There's a very long lead time in investing in those securities, Jessica.

We committed a tremendous amount of time in review of the collateral, and so you're committing probably 90 days of work to get into a single investment.

So it's a tremendous amount of work in getting those investments.

Okay.

And then just one on the multifamily side, if you could talk a little bit about what you're seeing in terms of loan pricing dynamics and the demand?

And maybe even competition in the space that you're in?

Sure.

I'll let Kevin answer that, if that's okay.

When you say loan pricing demand, we don't do any senior loans, so everything we're doing is on the mezzanine and preferred equity.

And it's competitive.

I mean, you see everything from 9% to 12%.

I think we look for and we always have looked for slightly smaller deals, slightly more off-market deals to try to get the yields that we've been collecting, which right now are averaging around 12%, but it's as aggressive as ever.

I say this almost on every call, when we lose deals, we are typically losing it to common equity rather than to other mezzanine or preferred equity lenders.

A lot of cash is in the market, so a lot of people with this excess cash are just using it as equity and just putting a greater equity into deal as opposed to carving out a piece of that equity into the mezzanine level, which is where we try to participate.

Our next question or comment comes from the line of Mickey Schleien from Ladenburg.

Just curious whether you'd be interested in investing in the Agency RMBS market should spreads widen sufficiently down the road.

And if you could give us a sense of how much those spreads would have to widen for you to get excited about that opportunity?

Yes, Mick.

Yes, I mean, we look at that market and -- 2 things at that market for us today.

One, we have a Fed that's indicated they're on the move.

So We have a rate environment that is, in our opinion, hard to predict.

And so while you can step in and put these investments on your book and hedge them, we just feel like the delta hedging that you're going to have to do over the life cycle of these loans as we're in a Fed environment would be difficult, and we think that we have better opportunities today in credit.

Now, that's not to say -- and in the future, if we think we can generate what we believe are predictable returns in an agency strategy, we absolutely would get back in that strategy.

But today, we just don't think -- for us, we think we have better opportunities in credit-related assets.

Our next question or comment comes from the line of David Walrod from JonesTrading.

A couple of questions.

First, can you give us an update on your second lien program?

Sure.

Yes, look, we continue to try to be active in that second lien program.

We are about $25 million in invested assets at the end of the second -- at the end of the first quarter.

It continues to roll out very slowly.

We've brought on some additional originators.

We hope that, that -- we brought in a very large one that's going to start up very shortly, so we hope that's going to increase the volume.

We're still dealing with the interest rate environment that has access to low first-rate funds.

We think -- again, what we've said for the last 18 months, we think that this program will be more beneficial if you got long-term rates up another -- if you got 30-year mortgage rates in the mid-to-high 4s is where we think that program will start to be significant.

We have it in place.

We have a process in place.

We spent the money for it.

We continue to monitor it.

We like the assets that we've accumulated.

They're higher-yielding, lower-dollar priced assets, which we think have good credit criteria related to it.

It's just a matter of getting critical mass, which we haven't done yet.

So we continue to look at that model and hopeful that it will work.

But we will make an assessment at some point in '17 whether it makes sense to continue to pursue it.

You mentioned that you had about $100 million settled at the end of the quarter.

Would you say, as of the end of the quarter, that you could -- you're fully deployed?

Or do you still have more dry powder?

Yes.

No, I mean, look, if we -- in a fully levered, balance sheet, I mean, if you look at our capital allocation tables, we have just slightly below $2 billion in assets.

And depending on the make of those assets, we could go up to $2.3 billion to $2.4 billion in credit-like assets.

And if it was first loss pieces, it would probably be less than -- it would probably be closer to $2.3 billion, and if it's not first loss but other assets, closer to $2.4 billion.

But yes, I think we can add between $250 million and $400 million more in assets without increasing equity and having sufficient liquidity in the balance sheet to do so.

Great.

And then my last question is just on your -- the pipeline for asset sales, how should we think about that for the next couple of quarters?

We've spent a lot of time in 2016 discussing with our manager on how important it is to have routine sales, and we feel pretty comfortable that we have a good pipeline of sales in place today that we'd like to see sales.

We're expecting to see sales every quarter this year.

(Operator Instructions) Ladies and gentlemen, thank you for participating in today's conference.

This concludes the program.

You may now disconnect.

Everyone have a wonderful day.