New York Mortgage Trust Inc (NYMT) 2018 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 2018 Results Conference Call.

(Operator Instructions).

This conference is being recorded on Friday, May 4, 2018.

A press release with New York Mortgage Trust First Quarter 2018 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 & 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 that 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, and good morning, everyone, and thank you for being on the call.

Included the 8-K filing yesterday was our earnings press release for the first quarter 2018 results.

The company delivered a GAAP net income of $0.21 per common share, and had comprehensive loss of $0.01 per share for the first quarter.

Our book value per common share was $5.79, a decrease of 3.5% from December 31, 2017, resulting in an economic loss for the quarter of 17 basis points or less than 1% on an annualized basis.

Company did continue to benefit from our multifamily credit strategy, particularly, the company's K-Series investments, which contributed nicely to both our net interest income as well as our portfolio valuation improvements from continued credit spread tightening, which helped offset some of the valuation pressure from our Agency RMBS portfolio.

Company's net interest margin for the first quarter expanded by 47 basis points from the prior quarter to 286 basis points.

All this in the backdrop of what is currently a very challenging market environment for fixed-income strategies, where short-term liability costs are rising, overall, interest rate volatility is increasing, resulting in higher hedging costs and placing downward pressure on some of our strategies.

On the acquisition side, the quarter was relatively quiet.

We continue to grow our credit portfolio, adding approximately $34 million in multifamily in second mortgages.

The build in credit assets remains gradual as the demand for credit assets continues to be highly competitive.

I would like to now go over some of the highlights for the period ending March 31, 2018.

We had net income attributable to common shareholders of $23.7 million or $0.21 per basic common share.

We had a comprehensive income loss of $0.8 million or $0.01 per share, which was primarily the result of a decrease in valuation for our Agency RMBS strategy.

We had net interest income of $19.8 million and portfolio net interest margin of 286 basis points.

We declared our first quarter dividend of $0.20 per common share that was paid on April 26, 2018.

At March 31, we continue to have over 80% of our capital invested in credit-related strategies, including 53% of our capital or $501 million in multifamily strategy and 30%, or $283 million in capital in our distressed residential loan strategy.

We had a total invested assets of approximately $2.6 billion.

We continue to maintain a conservative leverage ratio with callable leverage to equity at 1.5x and total debt leverage to equity at 1.8x, unchanged from the previous quarter.

As I said, we generated net interest income of $19.8 million and had net interest portfolio -- net interest margin of 286 basis points for the quarter ended March 31, as compared to net interest income of $15 million and the portfolio net interest margin of 239 basis points for the quarter ended December 31, 2017.

The $4.8 million increase in net interest income in the first quarter was primarily driven by an increase in average earnings assets in our Agency RMBS strategy, which had an increase of approximately $237 million and contributed $0.8 billion in additional net interest margin.

In addition, we had an increase of $3.3 million in net interest margin related to our distressed residential portfolio.

The improvement in net interest margin was largely attributable to changes in expected cash flows, resulting from decreased loan sale activity during the period.

For the quarter ended March 31, 2018, we recognized other income of $21 million as compared to other income of $25.2 million for the quarter ended December 31, 2017.

This $4.2 million decrease was comprised of several components, including a $6.1 million decrease in unrealized gains, related to our multifamily strategy, which were not losses but just a lesser amount of gains for the quarter.

A $5.8 million decrease in gain on sale related to our distressed residential portfolio, we had very limited sales activity during the quarter, and a net unrealized and realized loss of $0.7 million related to our continued exit from our Agency IO strategy.

These were all offset by $9 million unrealized gains related to our interest rate swap hedge.

For the quarter ended March 31, 2018, the company had $5.5 million in general and administrative expenses as compared to $4.3 million from the previous quarter.

The previous quarter, being the fourth quarter of 2017, included an incentive fee recovery of approximately $700,000, which resulted in lower expense in the fourth quarter, but our actual run rate going forward would be approximately $5 million to $5.5 million a quarter in expenses.

Operating expenses for the quarter ending March 31, 2018, were $3.2 million as compared to $3.9 million for the previous quarter.

The $700,000 decrease was largely attributable to a decrease in residential -- in our distressed residential strategy as we had limited sales and purchase activity during the quarter.

The company continued to focus on our credit strategies with more than 80% of our capital allocated to this effort.

We currently are direct lenders to both multifamily and residential areas, including our second mortgage strategy as well as our now live non-QM strategy.

We will continue to maintain a disciplined approach to asset selection as we believe this is a key to positive long-term performance and remain focused on growing our credit portfolio into 2018.

We appreciate your continued support and look forward to discussing our second quarter results in the future.

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

Operator, if you could please now open up for questions.

Thank you.

(Operator Instructions) And our first question comes from the line of Sam Choe from Crédit Suisse.

I'm filling in for Doug today.

So with credit assets already trading at tighter spreads.

I was wondering if I could get your thoughts on whether the acquisition pacing for this quarter would be indicative of what we should expect in 2018?

No, I mean, hopefully not.

I mean we are working on -- we've already had a purchase in the distressed residential loan portfolio in the second quarter, and we're working on several transactions in the multifamily space.

We had a couple of things that sell-through that we thought were going to come to fruition.

On one hand, we benefit from the credit spreads tightening in the multifamily assets, but it's become very difficult to get assets because of a lot of competition bidding on it, but we are working on several things and we would like to think that our -- we have seen an increase in pace in our second mortgage program.

While that's not hundreds of millions of dollars, it is starting to increase and become significant.

It's -- hopefully, it will be closer to $100 million by the end of the second quarter in the second mortgage portfolio.

Our non-QM strategy, we have rolled out now to originators and we're starting to take locks and expect to close loans in the second quarter.

We anticipate that gaining momentum -- more momentum each quarter going throughout the year.

So we know that we are in the hunt to take another first loss of Freddie K security in 2018.

And we are -- I think the pace in the first quarter is slower than the rest of the year, and we anticipate that to accelerate.

Got it.

And you just said that for the second quarter what you've seen is there has already been some sort of pickup?

Yes, there is.

Got it.

Got it.

And then my second question, it's about the asset yield, which increased in the distressed residential portfolio.

How much of the 260 bps is sustainable going forward?

The actual yield in that portfolio, if you look at it over time, it's somewhat volatile.

And that volatility is around the accounting methodology that we use, which is distressed credit.

We have changed that methodology going forward on purchase to fair market value, which will stabilize the yield.

And I go to these explanations and they are somewhat complex, but when we have a significant sale during the quarter, you go to this pool-level analysis that ends up reclassifying some of the net margin to gain.

The actual yield of the portfolio is more indicative of what the yield is reflective in the first quarter.

In real terms, from quarter-to-quarter, you may have some volatility in net distress, because it is gain on sale.

But the pickup in yield really was an accounting pickup.

That portfolio has cash-flowed approximately in the high 5 yield since we've owned it, and this has been pretty consistent.

And our next question comes from the line of Christopher Nolan from Ladenburg Thalmann.

Quick question.

Any consideration of doing the preferred raise?

We did a preferred raise in October.

We wanted to get something done.

We thought the first quarter was going to be volatile from a rate standpoint, which it has been.

We put that capital in Agency Securities to get it deployed, but our intention is, over time, to reduce our agency exposure and continue to deploy that in credit.

So at this time, we don't really have any need or desire to do another preferred offering.

And you -- second quarter to date, how is the net interest margin tracking relative to the first quarter?

Again, the net interest margin has been somewhat volatile because of the accounting methodology in the distressed loan portfolio, which we've changed to fair market value going forward, so it should be more stable.

But I wouldn't say the 280 basis points is more indicative of our actual portfolio than the 237 that we had last quarter.

The 237 was decreased by a sale that we had in the fourth quarter that would cause a pool allocation change in the accounting and some geography change in where the income is reported, but I think the 280 basis points is much more indicative of basis points the portfolio can produce.

Also, should we look for incremental increase in the credit -- excuse me, capital allocation to the credit-sensitive strategies?

Yes, I'd say -- we would -- we are absolutely focused on putting as much assets as possible in our credit strategies right now.

We still think there's a significant amount of opportunity.

We think it allows for more stable valuations over time.

When you're levering your RMBS portfolio 7, 8 times and you are hedging that, you still have 8:1 against your equity on price movements, which is much more -- it's much more difficult to hedge it up in any sense of perfect world, as you can see by all the book values that have come out in this quarter.

So our credit portfolio, we think, just gives us a little bit more stability and does a good job of stabilizing the overall company performance.

So, absolutely, our focus is on putting assets to work in that category.

And is there any limit in terms of how much you can allocate credit to that strategy?

No, I mean, the limit really would be governed by some prudent leverage within the company itself and clearly, as you put more credit, less liquid assets on your balance sheet, you're going to reduce your liquidity.

So you would expect -- we are 1.8x overall and 1.5x against callable.

The majority of that callable liquidity is related to our RMBS strategy.

So if we were to exit the RMBS strategy, our leverage ratios are going to trend back down towards 1x.

But yes, I mean, the limitation is really going to be on your ability to leverage and your desire to leverage those particular assets.

Right now, the ability to leverage exceeds our desire to leverage.

I mean, there's a lot more liquidity available to us that we choose to put on those assets today.

And finally how's book value tracking second quarter to date relative to the last quarter?

Well, I mean, I would say just given the rate environment, the rate environment is a little bit -- the 10 years probably 10 basis points better.

So that's helped the agency spread a little bit.

I don't think it's significantly unchanged from the quarter end.

You've seen some credit spread easing in some of the credit markets.

Although I do think in the multifamily, in particular, the Freddie K CMBS world, there doesn't seem to be a whole lot of spread easing in that market.

It continues to be very well bid every time they come out for a new issue.

(Operator Instructions) And our next question comes from the line of David Walrod from JonesTrading.

Can you discuss, I guess, your pipeline for asset sales in the next couple of quarters?

Yes.

Look, we were very disappointed that we didn't have a sale in the first quarter as I think we did a good job in 2017 of consistently having sales quarter-to-quarter.

And we were very disappointed, again, that we didn't have the sales.

We do anticipate a large sale in the second quarter that is in process as we speak, and we -- that will be -- there'll be actually be 2 sales in the second quarter.

One which should have been done in the first.

So again, I think some of that timing of actual sales will be alleviated as we transition over to fair market accounting.

So, therefore, we have a better control of valuation changes in the portfolio from sales and that will be dependent on actual outright settlements, which are difficult to predict because of all the due diligence clearing you have to go through to complete the sales.

Right.

You mentioned that you thought your second lead business could get to $100 million.

Can you give us some idea where it is right now?

Yes, sure.

We finished the quarter around $50 million, David.

We were -- we have seen the pipeline increase substantially with rates going up in here.

I think as you see less ability for borrowers to refinance their first, they're going to look to second -- other means, and we've seen a nice pickup in that business, which is something we have predicted for the last 2 years, the rate environment has just been so favorable for first lead refinance cash out that really didn't come to fruition.

But, obviously, the increase in activity in both HELOCs, which we're not active in yet, but are considering has increased dramatically and secondly lead in fixed mortgages has increased.

Our own volume is increased as well as competition for that is increased.

The portfolio is doing very well, very sound.

The credit is outstanding.

The net margin is outstanding.

And so we're very pleased with the assets we do have.

Thank you, and I'm not showing any further questions at this time.

I would now like to turn the call back over to Steve for any closing remarks.

Thank you, everyone, for being on the call.

We appreciate the continued support.

And we look forward to talking about the second quarter in early August.

Thank you.

Ladies and gentleman, thank you for participating in today's conference.

This does conclude the program, and you may all disconnect.

Everyone, have a nice day.