Exhibit 99.1
New York Mortgage Trust Earnings Q1 2013 Earnings Call
Event Date: 05/08/2013
Company Name: New York Mortgage Trust
Event Description:Q1 2013 Earnings Call
Source: New York Mortgage Trust
For more event information and transcripts, visit <a href="bloomberg:EVTS%20%2FD%3AF%2D4134598%3CGO%3E">EVTS</a>
Q1 2013 Earnings Call
MANAGEMENT DISCUSSION SECTION
Operator:
Good morning, ladies and gentlemen, and thank you for standing by. Welcome to
the New York Mortgage Trust First Quarter 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, May
8, 2013.
A press release with NYMT's first quarter 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 & 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
Litigation Reform Act of 1995. Although New York Mortgage Trust believes that
the expectations reflected in any forward-looking statements are based on
reasonable assumptions, it can give no assurance that expectations will be
attained.
Factors and risks that could cause actual results to differ materially from
expectations are detailed in the 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.
Steven R. Mumma:
Thank you, operator. Good morning, everyone, and thank you for being on the
call. Fred Starker, our CFO, is also president, and available for questions
at the end of the call.
The company released its earnings after the market closed yesterday. Included
in the press release were several tables that I will be referring to you
during this call. The company earned $15.4 million or $0.31 per common share
for the quarter ended March 31, 2013 as compared to $5.8 million or $0.42 per
common share for the period ended March 31, 2012.
Our net interest income rose to $13.1 million for the quarter, an increase of
$1.6 million from the quarter ending December 31, 2012. Our portfolio net
interest margin averaged 348 basis points during the quarter, an increase of
15 basis points from the previous quarter.
We declared and paid a first quarter dividend of $0.21 per share per common
share, $0.27 per common share. Our book value ended at $6.55 at March 31,
2013 compared to $6.50 at December 31, 2012 or an increase of $0.05 per
share. Subsequent to March 31, the company issued 13.6 million shares of
common stock, raising approximately $94.5 million in proceeds.
Now, I'd like to go some additional details regarding our quarterly
performance as well as our future plan. Our net interest income for the three
months ended March 31, 2013 was $13.1 million, up approximately $6.8 million
for the same period the previous year and up approximately $1.6 million from
the fourth quarter of 2012. The increase in net interest income was primarily
due to an increase of $1.1 billion in average earning assets at March 31,
2013 as compared to the first quarter of 2012.
The increase in average earning assets was to the deployment of net proceeds
totaling approximately $232 million from four public equity offerings we
completed in 2012 and increases in our borrowings and repurchase agreement
that we used to require additional agency RMBS.
The company's portfolio in net margin was 348 basis points for the - during
quarter ended March 31, 2013 as compared to a net margin of 333 basis points
for the quarter ended December 31, 2012 and 658 basis points for the quarter
ending March 31, 2012.
The increase in net margin in the first quarter of 2013 from the fourth
quarter was attributable to our investments in our credit assets. The
decrease in net margin from the period ended March 31, 2012 was largely
attributable to a decreased emphasis in our agency ARM strategy as a
percentage of our invested equity as well as an increased position in our
levered agency RMBS strategy and increased investments in other levered
investments.
The increase in other income includes a $5 million increase in net unrealized
gains in our multi-family loans and debt held and securitization trust, an
increase in unrealized gains on our investments securities related hedges of
$3.3 million which was partially offset by an increase in realized loss on
investment securities and related hedges of $4.2 million that's primarily
related to our agency IO portfolio.
The increased unrealized gains from our investment in multi-family loans and
debt held securitization adjust was due to the improved credit spreads as
well as significant increase in our investment in this asset class as
compared to the previous period.
Credit spreads on these assets benefited from improved market conditions as
well as greater demand by investors, resulting in significant increase in
evaluations for our investment. The increase in expenses is due to an
increase of $0.5 million in other expenses and $0.5 million in management
fees as well as an increase of $100,000 in salaries benefits and directors
comp and approximately $100,000 increase in professional fees.
These increases in all categories are largely a result of the growth of the
equity of the company and as a percentage of equity, our expense ratios
continue to decline.
The company, as I said before, ended with the book value of $6.55 as compared
to $6.50. Included in our press release is a detailed analysis of the book
value transition for the period. Also included in the press release is our
portfolio allocation table that details assets and liabilities by investment
silo as of March 31, 2013. The company did not have material changes in those
allocations during the quarter. However, on May 3rd, the company closed in an
equity offering raising approximately $94.5 million and we expect to invest
approximately $41 million and first loss K-Series deal including both PO and
IO security in May.
In addition, the company anticipates ultimately deploying the remaining
proceeds into distressed residential loans or other multi-family credit
sensitive assets. As we accumulate significant credit sensitive assets, we
will continue to seek alternative financing solutions similar to our 2012
transactions which we believe enhance the yield while creating more permanent
financing, reducing callable leverage risks back to our company.
Our portfolio of fees were largely unchanged with weighted average CPRs for
the first quarter at 12.9% versus 12.5% for the previous quarter. Our Agency
ARM portfolio fees increased to 20.8% from 14.5%, our agency fixed rate
portfolio's fees increase from 3.8% - to 3.8% from 2% from previous period,
but overall [indiscernible] increased.
Our IO portfolio remains largely unchanged at 21.6 CPR percent and this rate
is essentially unchanged over the last six quarters.
Our multi-family Freddie Mac K-Series investments remain largely unchanged
during the quarter with $209 million invested in CMBS assets. Our balance
sheet and income statement, we flagged much large received activities due to
GAAP economy requirements related to consolidation rules. A certain of these
investments due to ownership percentages and special servicing rights require
us to consolidate.
Included in our earnings press release as well as our 10-K, our discussions
including financial tables as well as footnotes disclosed the impact of this
requirement. It should be noted the company has no additional risk outside of
our actual investment of $209 million other than accounting disclosure
requirement. As I mentioned earlier, we intend to fund approximately $41
million in May of similar type securities.
Late in the fourth quarter of 2012, we closed on approximately $50 million in
distressed residential loans that we financed through a securitization. The
intention of this investment is to generate both net interest income as well
as capital gains, with the material portion of the return coming from capital
gains.
As these loans were newly bordered onto our platform, the first quarter saw
very little in capital gains. However, we anticipate this transaction as well
as potential future transactions to contribute significantly to the company's
performance in the coming quarters.
We continue to benefit from the equity ownership in three legacy
securitization, which are backed by approximately $181 million of residential
mortgage loans as financed with approximately $175 million in collateralized
debt obligation. These loans have an average yield of 2.89% with the
corresponding financing cost of 66 basis points or a net interest margin of
233 basis points, which we retain as the company holder of the equity.
The company added approximately $283,000 to our loan loss reserves related to
this activity, bringing our total reserves to $3.2 million or 175 basis
points of outstanding loans, but more importantly 18% of our loans that are
delinquent more than 60 days.
Our CLO securities remain a solid investment with continued market valuation
improvement. Over the past 18 months, we have constructed a portfolio of
diversified financial assets that we believe will benefit from improving
credit metrics. This strategy will focus on the total rate of return rather
than strictly net interest margin.
Since first implementing this strategy, we've invested approximately $157
million or 48% of our equity capital as of March 31, 2013 into credit
sensitive assets such as the multi-family CMBS. This is by Freddie Mac
K-Series securitizations as well as distressed residential mortgage loans
that we believe are capable of producing strong returns for the company's
portfolio as U.S. economic conditions improve.
During the 2013 first quarter, this strategy produced solid quarterly
earnings of $0.31 per share despite the challenging environment for agency
RMBS. Of the $31 in net income per share for the quarter, $0.14 per share was
contributed by unrealized gains of our multi-family CMBS strategy, which
benefited from improved evaluations driven by credit spreads tightening
during the quarter.
In addition, although not a significant contributor to the earnings in the
first quarter, we believe the valuations of pool of distressed loans which we
acquired in December of 2012 have improved during the past four months and we
anticipate that these assets will contribute in the meaningful way for our
total return in 2013.
For the balance of 2013, our focus will be on continuing to build out the
investment portfolio with credit sensitive assets that rely on asset
selection revenue and leverage that generate a significant part of the
returns.
Our 10-Q will be filed on or about May 10 with the SEC will be available on
our website thereafter.
Fred and I now would like to take any questions that you may have. And
operator, please take the first question.
Q&A
Operator:
Thank you. [Operator Instructions] Our first question comes from Chris Donat
from Sandler O'Neill.
<Q>: Good morning guys, this is actually Rob [indiscernible] filling in for
Chris this morning. How are you.
<A - Steven Mumma>: Good Rob, how are you doing?
<Q>: Doing all right. I'm just wanted to ask a few quick ones here. So...
<A - Steven R. Mumma>: Sure.
<Q>: With 48% of your equity capital now in any credit sensitive assets, is
there a limit on how high you'd want to take this percentage?
<A - Steven R. Mumma>: I think it would depend on the type of investment,
right, to the extent that we invest in these first loss Freddie Mac K-Series
which are largely [indiscernible] securities that generate less cash but
solid GAAP earnings. There is a limit in terms of how much that percentage
would represent at an overall company balance and that limit is probably
between 30% to 35%. As it relates to the distressed residential loan
transaction, that transaction currently represents less than 10% of the
equity. We can see that transaction growing substantially to 25% to 30%, 40%
of the company overall as long as we can continue to source loans at levels
that we think makes sense for the company.
<Q>: Got it, that's helpful. Thank you. And then I know you guys really don't
give specific guidance or probably can't but on- I just want to ask questions
on the net interest margin here. So should we expect the margin to keep
rising throughout 2013 like it did in the first quarter as you continue to
deploy capital into these high yielding credit sensitive assets or is there
or should we expect sort of leveling off here?
<A - Steven R. Mumma>: I think when you look at the transition of the spread,
and keep in mind the portfolio margin you have to take with the leverage on
the company, right. With that portfolio margin, as we transition from a net
margin of probably 140 to 150 basis points in an agency trade to a net margin
and the credit rate that's substantially higher, yes, it will transition
upwards. So I think in 2012 when we grew rather rapidly, we did put a
significant portion of the raise in the mid summer into agencies and that's
why the spread dropped substantially. But I think going forward, as we focus
on credit you would expect the portfolio margin to remain in this level or
increase over time.
<Q>: Got it, that's helpful. I'll hop off. Thanks guys.
<A - Steven R. Mumma>: Thanks, Rob.
Operator:
Thank you. Our next question comes from Steve DeLaney from JMP Securities.
<Q - Steven DeLaney>: Good morning, Steve.
<A - Steven R. Mumma>: Good morning, Steve, how are you doing?
<Q - Steven DeLaney>: Good. So look, after what we've seen in the first
quarter with some problems people are having on book value marks on agency
MBS, it's encouraging to see the steady progress in the credit as opposed to
duration risk, so some good graphs on having the vision to see that. I wanted
to get into a couple of things, maybe on the credit assets falling up on what
Rob had to ask about. I just want to understand with your distressed loan
pools, that's pretty obvious that those are whole loans and I'm assuming you
see those as good assets for the SEC '40 act, am I correct on that?
<A>: That's correct because we also are acquiring the servicing along with
those loans.
<Q - Steven DeLaney>: Right, right, so you're obviously in the first loss
control position, so those are good assets. And the more you do there, the
less you have to move capital into the agency market where you're competing
with the Fed and running that risk, but now I'm not quite as clear on the
K-Series structure. GAAP requires you to put $5 billion of loans on your
books, you're grossing them up, but obviously as you show your investment of
about $200 million how should we think about the SEC '40 act treatment of the
multifamily loans underneath those K-Series?
<A>: It would be similar to the way that we treat our residential
securitizations which would tell you that you're allowed to count 40 act
treatment for those first loss provisions that you have direct touch with the
loss. So in the event of our securitization even though we have - and for the
consolidated loans, really the first loss fees that we own a 100% on, counts
as a whole full, if we don't own a 100% of the first loss fees then we don't
count that as a whole full security. So there is really four transactions
that we own less than a 100% which we don't include and it's four
transactions that we do own a 100%.
<Q - Steven DeLaney>: Okay. So the five - and those we've got to look further
behind the $5.4 billion, some of those you would be able to include the loans
and some you would not, is that what you're saying?
<A>: And that's correct, but also keep in mind from a [indiscernible]
standpoint you're not consolidating all those loans on your balance sheet
either, for the test. Right, so we're not bringing - we don't, we can't count
$5 billion since all those pools that we're consolidating we own a 100% of,
we're not getting the benefit of $5 billion of loans of being old pool, we're
only showing the benefit of the net investment we have in the transaction.
<Q - Steven DeLaney>: Okay. Well, I'll follow-up with you offline on that
just to make sure I'm clear, but I appreciate the comments on it so far. And
then Steve, the last thing I just would ask about, and this is just in a very
general sense. Help me understand how the board views the dividend policy
with respect to your dividend payout, sort of how you look at setting the
dividend. Clearly the $0.31 in GAAP EPS covers the dividend this quarter but
as you pointed out, that figure benefited through some unrealized gains. So
just how should we think about the dividend and what type of return elements
in additions to like core spread income is the board looking at and setting
the dividend right? Thanks.
<A>: Sure. So we have several strategies. Well, we have two strategies - the
agency IO strategy I would characterize as a total rate of return strategy as
well as our distressed loan is a total rate of return strategy. So when we
talk and meet as a board to set the dividend policy, we're not looking at
quarter-to-quarter movement of our earnings. We're looking at a 12-month
period that we're going to report taxable income. And as we make assessments
on where we think we're going to monetize potential capital gains in these
portfolios and how these portfolios are performing, we would look adjust that
dividend policy as we go through the year. When we set our policies, the
expectation that the - as well as we can see in the immediate future that
would be an expected run rate that we would anticipate to hit over time.
<Q - Steven DeLaney>: Got it.
<A>: We're not looking at our net margin and saying, okay, our net margin is
X and therefore that's the only thing we can pay as a dividend. No because -
and especially in the distressed residential loan transaction a lot of these
gains are going to be realized over time. In our financial statements, for
example, we carry the loans at lower cost to market, so you have no benefit
of appreciation and price that's reflected either in the earnings or in the
book value on the AUCI basis but in fact these ARM prices have increased
significantly. So we know we have trap gains in these loans and we'll work
through during the coming quarters and we know that we're going to be
monetizing those gains.
<Q - Steven DeLaney>: So in the - I understand what you're saying about the
total return approach on the actively - the actively managed portfolio and
what you're saying in sort of the core agency portfolio unrealized
appreciation would go into OCI and that would only factor into your payout
calculus if you actually harvested those gains by selling the bonds.
<A>: That's right. And we're looking really - we're not really looking at the
unrealized gains in the PO portfolio to really support a dividend payout
because we [indiscernible] securities on long-term basis but we are looking
to harvest gains for the other strategy to generate dividend income because
we know there is going to be turnover in those particular strategies.
<Q - Steven DeLaney>: Okay. Thanks for the comments and congrats on a solid
quarter.
<A>: Thanks, Steve.
<Q - Steven DeLaney>: Thank you.
Operator:
Thank you. And our next question comes from Boris Pialloux from National
Securities.
<Q - Boris Pialloux>: Hi, Steve, and thanks for taking my questions. I had
two quick questions, the first one is, when you - in the agency IOs do you
count the IOs of the K-series or is that somewhat else? And the second
question is, do you have your opinion on the new risk sharing programs of the
Finance and Freddie Mac's for the summer?
<A>: Yeah, when you say that we don't include the Freddie Mac K-Series IO as
an agency IO strategy, that's strictly a residential IO strategy. The IO
related to the K-Series is included in the K-Series [indiscernible]. If
that's what you're asking?
<Q - Boris Pialloux>: And you're sure, the $128 million agency IOs is on the
residential, no K-Series IOs.
<A>: That's correct.
<Q - Boris Pialloux>: Okay.
<A>: That's correct. And if you look in our 10-K or 10-Q, well the 10-K to
10-Q will be coming out surely, you'll see - there is a table on there that
will allocate the PO and IO of Freddie Mac K-Series, so you get a sense of
what that is also. And as relates to Freddie and Fannie, we continue to
monitory - look, we're doing a loss sharing basically in the Freddie Mac
multi-family program right now, buying it privately. We'd like to participate
in those transactions, it's an ever revolving process. It's going to be
interesting how QM impacts origination and we'll see how that unfolds as we
go to the summer month. But we watch it closely and make sure that we
understand the risk and in the long term, we think there will be a transition
of this risk to the private market place is what we think is going to be
opportunities for us to participate.
<Q - Boris Pialloux>: And also like a good question about the
multi-residential. How do you view the multi-residential in some markets like
Seattle or Washington D.C.? You had lots of supply coming. Do you think at
one point it's going to have an impact on some of the CMBS K-Series fields or
they are too diversified and it wouldn't really matter?
<A>: Like, it will always matter because we're in the first slot position, so
a dollar loss is a dollar loss to us. We have significant diversification now
we own approximately $8.5 million of loans backing these multifamily
projects. And as you say, they are in markets that are getting - there is a
lot of construction in some of these markets. We do a lot of due diligence
and try to - and I think the Freddie Mac program in general is fairly
conservative and that's one of the reasons why we like their securities. So
we think that gives us some sense of protection, but there is no question
every margin goes through cycles and as it gets overbuild, it comes under
pressure. However, if you look at the last five years the amount of
apartment, multi-family construction has been under trend and it's now above
trend, but still if you look at the cumulative units under construction still
below demand as you can tell by the occupancy rates are so low and so we like
that factor. The other statistics that recently was reported last week is the
homeownership continues to decline, which we still believe is going to be a
factor going forward where the aging population will seek to be a renter as
opposed to a homeowner to continue their lifestyle.
So we still like those dynamics, we look at these transactions, the yields
have come in significantly, we start doing these investments so that's a
factor in our investment strategy. And there may be a point time where we
think the yields have gone too tight and we step away from the transaction
but we've started investing in 2008 and we own 2008 securities, 2009, 2010,
2011 and 2012. So we have a nice spread of properties from a depreciation
standpoint but we do are keenly aware of the deal that we're settling in May
has slightly tighter ratios than the previous - than the deals that we did in
from 2008, so we do monitor that.
<Q - Boris Pialloux>: Okay. Thank you for the color.
<A>: Thanks.
Operator:
Thank you. [Operator Instructions] Our next question comes from David Walrod
from Ladenburg.
<Q - David Walrod>: Good morning Steve.
<A>: David, how are you doing?
<Q - David Walrod>: I am doing well. Couple of things. Obviously a lot has
been asked already. You commented that you deployed $41 million. Are you
going to be deploying $41 million in the K-Series by the end of the month.
What's the timing of deploying the rest of the capital that you raised? And
if you could kind of give us an idea. I know you've kind of briefly touched
on it but maybe flush out a little bit what opportunities you're seeing for
deploying that excess capital?
<A>: We'd like to - these credit though the one difference between the credit
strategy and the agency strategy is, agency strategy can deploy very quickly
and the credit strategy, we look to try to line up capital raising with
credit opportunities. So we'd like to think that our credit opportunities are
going to deploy reasonably close to when we raise capital. And reasonably
close is defined within - in my opinion within 30 to 90 days and we'd like it
to be shorter than the 90 days but these credit transactions while you're
thinking that you're thinking that you'll handle all of them, sometimes when
you get to the close, take a little handholding but we have a pretty good
runway of thought in terms of what we can put on the balance sheet from a
credit standpoint. And we'd like to put the majority of that capital as quick
as possible in the credit sensitive assets.
<Q - David Walrod>: Do you think the end of the quarter is realistic or do
you think it will stretch to the third quarter?
<A>: You're trying to pin me down with the data. I can't - I'm not sure if I
understand [indiscernible].
<A>: I'd like to say that temperature will still be warm when we get to the
securities and investing in credit assets but now, we would like to think
that we would have a substantial part of that invested by the end of the
quarter.
<Q - David Walrod>: Okay. Thanks and you're thinking K-Series, distressed
loans or any thought there?
<A>: Yeah, I mean the K-Series have a much further rise in. So we'll probably
just settle this one K-Series on a primary market. It's possible that we may
source a secondary piece but the rest will be generally in either in
distressed residential loans or in direct lending to multi-family which we
started doing at the end of the fourth quarter and did one loan in the first
quarter. That's a little bit slower ramp up but I could see putting $5
million to $10 million to work in direct lending and for the multi-family
space in a preferred equity position.
<Q - David Walrod>: Okay. Great. And then the margins in the K-Series, I mean
is it safe to say that they are compressing a little bit from where they were
6 or 12 months ago?
<A>: Absolutely. It's safe to say that they've compressed since the yearend
just from - general credit spreads have come in and I think we've seen more
competition looking at these asset classes which is driven in spreads and
yes, they have come in. No question, they've come in and started [ph].
<Q - David Walrod>: Okay.
<A>: Okay. Thanks.
Operator:
Thank you. And I'm showing no further questions at this time.
Steven R. Mumma:
All right. Operator, that's fine. Thank you very much for everybody on the
call. I appreciate your questions. When you look forward to talking about our
story at the end of the second quarter and we will continue to judiciously
deploy the capital and assets that we think will benefit the shareholders.
Thank you for being on the call.
Operator:
Ladies and gentlemen, thank you for participating in today's conference. This
concludes our program for today. You may now disconnect, and have a wonderful
day.
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