Steve Mumma - Chairman, Chief Executive Officer Jason Serrano - President.

Good morning ladies and gentlemen and thank you for standing by. Welcome to New York Mortgage Trust, First Quarter 2019 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 Tuesday, May 07, 2019. A press release with New York Mortgage Trust's first quarter 2019 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 can be accessed 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 meanings 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 your host, Steve Mumma, Chairman and Chief Executive Officer. Please begin sir. .

Thank you, operator. Good morning everyone and thank you for being on the call. Jason Serrano our President will also be speaking this morning. The company delivered as solid start for the year, posting GAAP basic earnings per share of $0.22 and comprehensive earnings per share of $0.29 for the first quarter.

Our book value per common share ended at $5.75, a 1.8% increase from the end of previous quarter, resulting in a total economic return of for the quarter of 5.3% or 21.2% on an annualized basis.

The company expanded both net interest income and net interest margin in the first quarter, generating $26.2 million of net interest income, a single quarter record for the company and a 20% increase over the prior quarter, and net interest margin of 240 basis points, an improvement of 10 basis points over the prior quarter.

The company completed two accretive common equity offerings during the first quarter, raising approximately $185 million, an increase in the company's common equity market capitalization to approximately $1.1 billion.

The company efficiently deployed these capital proceeds into credit assets, adding $433 million in the quarter, bringing our total investment portfolio to $3.8 billion.

Consistent with our investment objectives, we opportunistically sold two early acquisition multi-family first loss securities, neither of which was wholly-owned by the company, resulting in a realized gain of $16.8 million and a net gain to the company of $3.1 million.

As of March 31, 2019 we had over 88% of our capital invested in credit related strategies, almost but equally between our multi-family and residential loan credit strategies. We had told invested assets of approximately $3.8 billion and total capital including common and preferred stock of $1.4 billion, both up 45% from March 31, 2018.

Our common debt to equality leverage ratio was 1.6x and our total debt to equity leverage ratio was approximately 1.8x and continues to be conservatively managed.

The company’s earnings not only benefited from the spread tightening during the quarter, but were also spurred by the impact for the full quarter of the company’s $944 million of fourth quarter credit investments, much of which was funded in December.

I would like now to introduce Jason Serrano, our newly appointed President; a person with an extensive successful career and more importantly, a great addition to our team.

Jason?.

Thanks Steve and good morning. After listening to Steve for many quarters, I’m pleased to be on this side of the table today.

As I stated earlier in a Press Release, I'm truly excited and honored to be part of the New York Mortgage Trust Family and immediately look forward to building on the firm's great success, further developing the platform here at NYMT in order to closely monitor opportunities across the residential credit spectrum, and identify outsized returns that’s marked with a priority with my hire along with a number of folks recently brought onboard.

Today’s credit market is extremely competitive against a broader economy that we believe is showing signs of slowing, but it's imperative to compete on different dimensions rather than simply providing the highest market price to buy assets. Instead we search for value in subsectors where we see limited competition due to a variety of factors.

We depend on our deep sourcing network developed over two decades to seek areas with high credit or operational complexity that limits market competition. To execute this plan we need large investments notably in human capital, data aggregation and technology at the company.

With a multi-dimensional approach, we can lower barriers into entry into certain niche markets, while also seeking new or developing asset classes for additional return, in order to help avoid stretching for yield and sacrificed downside protection.

With this plan, I'm pleased to say that we began to internalize all third party manage residential loan holdings. We expect this transition to be fully completed by the end of the second quarter, which will help to reduce the overall management cost.

Also in a quarter which is typically a slower period for the residential credit markets, we invested in $433 million of assets comprised of $172 million multi-family and $261 million single family residential credit, adding to the $194 million purchased in this fourth quarter of 2018.

Additionally we created healthy and diverse pipeline of new investment opportunities that we expect to fund over the second quarter of this year.

As I mentioned earlier, we expect the comp to continue to slow down, however with low interest rates, historically low rental and vacancy rates, housing inventory levels at historical lows and not to mention improving demand metrics, we believe selective investments in residential credit across multi-family and single-family provides an excellent opportunity to invest capital and build on record quarterly earnings results for these in this first quarter.

With that I'll pass it back to you Steve. .

Thank you. Jason will be available for questions at the end of the presentation. So let’s go through our earnings performance for the first quarter. We had $38.2 million in GAAP net income and $51.3 million in comprehensive net income.

We generated net interest income of $26.2 million, an increase of 20% from the prior quarter and a portfolio net margin of 240 basis points for the quarter, an increase of 10 basis points from the prior quarter.

Our average earnings assets totaled $3.3 billion for the quarter, an increase of $571 million from the previous quarter and was the main driver for the 20% increase in net interest margin. We would expect average earning assets in the second quarter to increase by approximately 15%, further increasing our total net interest margin.

We had $1 billion in agency securities with $158 million in equity allocated to the strategy. This investment is not a core focus for the company, but does provide liquidity and rapid investment allocation needs. We continue to have significant contributions to our net income away for our net invest margin.

We recognize other income of approximately $31 million for the quarter, including realized gains of $16.8 million on a sale of two first loss multi-family investments. Realized gains were offset by corresponding unrealized gain reversal included in our comprehensive income, resulting in a net overall gain for the company of $3.1 million.

We had total net gains of $11 million from our distressed and other residential loans held at fair value, which was comprised of $7.9 million of unrealized gains and $3.1 million of realized gains during the period. We had an unrealized loss of $14.6 million from our interest rate swaps at Californian’s trading instruments.

This was as a result of the interest rate rally during the quarter. We had unrealized gains of $9.4 million on a consolidated K-Series investments, driven primarily by tightening credit spreads and also in the second – secondary of the rallying interest rates.

We had a loss of extinguishment of debt of $2.9 million which was related to the repayment of outstanding notes from our 2012 multi-family CMBS re-securitization. Like all these notes we eliminated debt that costs approximately 10%, freed up approximately $127 million in collateral.

Of which we sold a portion for approximately $57 million that resulted in a net gain to the company of $3.1 million.

The other [inaudible] in our other income totaled $7.7 million and is mostly related to our multi-family businesses, including $3.7 million in unrealized gains on joint venture equity investments, a $2.8 million gain on redemption of a preferred equity investment and the required consolidated variable interest entity recognized a $1.6 million gain from the sale of a multi-family apartment controlled by us.

This gain is offset by expenses and a non-controlling interest that after given effect results in net gain of the company of only $41,000. For the quarter ended March 31, 2009 the company had $8.9 million in general and administrative expenses as compared to $9.6 million in the previous quarter.

The decrease is primarily related to a decrease of management fees as the company is in the process of exiting the external management of certain of our distressed residential loans. We would anticipate no more management fees after the second quarter.

In March 2019 we declared a $0.20 per share dividend in our common stock, our ninth quarter in a row at this level. Over the course of the last nine months our residential multi-family teams collectively required more than $1.5 billion in credit investments.

Moreover we have raised more than $450 million in common equity over the past year, substantially all of which was deployed in timely manner with minimal long term drag on our operating performance.

We believe the company is well positioned to be a market leader in multi-family and residential credit investing, with improved access to capital markets, our relatively conservative profile of approximately 2x leverage in our capital base, and an investment team that continues to find and deliver value to our shareholders.

We appreciate your continued support. Our 10-Q will be filed on or about May 10 of this week with the SEC and will be available thereafter on our website. Operator, now if you could please open up for questions. Jason and I will be available to answer any questions listeners may have. .

Thank you. [Operator Instructions] Our first question comes from Eric Hagen of KBW. Your line is open. .

Thank you, good morning.

Per the opening comments, what kind of – can you just shed some light on the kinds of technology investment that you are making?.

Sure, so you know what’s lacking in the mortgage market generally speaking is you know automations and analytics that can basically go through you know the entire spectrum of mortgage investment assets that are out there, including the entire you know residential mortgage market outstanding loans about $10 trillion.

So what we have done and continue to do is take data, aggregate that data so we can sift through the market and reverse enquire into the loan pools or bonds that we find fitting for our investment opportunities. So it's more a form of using harnessing technology with having data to basically assess the market all a whole..

That’s excellent! Well, that’s great. Thank you. And how should we think about the pace of loan sales going forward, either in the form of distress residential or in the commercial credit segment, just assuming that credit spreads remain kind of at their fairly tight range right now. Thanks. .

Yeah, I would say the two securities that we sold in multi-family Eric were first of all securities. They were one of the first three that we had purchased back in 2011. So they had – you know they had less time to go to maturity. We saw those as very aggressive, we thought at a very aggressive yield.

We own less than 100% of both those, so we spent a lot of time in asset management and we just felt like the – it made more sense for the party that owned the majority of those investments to own them in their entirety, because we had a shared control agreement with them.

And so they provide – I think by them combining it into their total investment they create more liquidity for them, removed an asset that we spent and the amount of time on relative to the economic value that’s generated for us, so we thought it was time to exit those strategies.

So you know we're not looking openly looking to sell assets out the multi-family portfolio. They are either being prepaid away from us or opportunistic if we get a reverse inquiry as a very aggressive yield level on a particular asset, we obviously will consider that.

As it relates to our loan business, you know we have about $1 billion of loans across distress and newly originated. I think in every quarter we're going to have some amount of loans that we're going to be putting out for sale.

Primarily a large portion of those loans will be distressed, you know the strategy involves discounted loans that we are trying to asset manage and create value and to capture that value you want to monetize it by doing sales.

So you would expect – I would expect to sell between $100 million and $150 million of loans a quarter, you know as we go into the future. At the same time as we’re selling loans, we’re also trying to accumulate probably $250 million to $300 million of loans a quarter.

So that's the goal we may not always hit it every quarter, but that's clearly the goal and as we have complete control now of all the loans in our portfolio, the timing of the sales will be up to us and I think that will be more predictable in terms of generating sales periodically through the quarters. .

And I’ll also add that, sales could also include just organic recovery of the assets as well, whether it’s a refinancing program through the portfolio or working through securitizations of the pool as well. So it could be organically as well as selling to the broader market. .

Yeah, that's helpful color. One more from me if you don't mind. What does the supply outlook look like for the RPL, MPL market this year? What are current yields you are seeing in that market, I guess in both kind of nodes in the market and how much leverage are you guys comfortable using, specifically I guess in the MPL space. Thanks. .

Right. So first I’d like to define what RPL, the definition of RPL that the market uses very different terminology for an RPL loan depending on who you are really speaking to.

So what we focus on are loans that have, recently had some kind of payment issues and are you know we believe can be corrected through better servicing and more you know affordable loans.

So in that case we call that self-performing loans where it’s not truly a re-performing loan at this point in time, but a loan that we expect to be re-performing in the near term. So to that end, you know the broader market, you know we are expecting about $50 billion to $60 billion supply. You know that would MPLs and RPLs just on loans.

However, what we are focusing on is a sub-sector of that asset class where we can bring a bar to a stated, to a current loan and look to either securitized or monetized over time.

So to that end, you know return that we're seeing this market, you know we believe we can generate double digit returns on the asset class based on you know a projection of being able to get – take the borrower to a performing loan obligation and then look to sell to where the liquidity in the market is, where it becomes a re-performing loan or the loans contractually are occurring for 12 months.

So you know the returns in that market again – you know well the returns as a stated earlier are double digit levered returns, but the leverage we're looking to deploy is roughly you know anywhere from 75% to 85% advance rate on the loan and then we have optionality to securitize down the line if we see fit. .

And Eric from a supply standpoint, just to give you a sense, I mean we are including banks, agencies and other sellers in the first quarter. I mean we sell well over $10 billion of sales transactions out in the marketplace.

So you know if you think about us trying to accumulate $250 million to $350 million loans a quarter, you know we try to be very selective in the loans that we are looking at to acquire and to what Jason’s – further Jason's point you know we don't really focus on MPL loans.

We are looking at loans that generate cash flows and we're looking at ways to monetize those cash flows over a period of time on a levered basis that results in a double digital total rate of return. .

That's really helpful color gentlemen. Thank you. .

Great..

Thank you. And our next question comes from Stephen Laws of Raymond James. Your line is open. .

Hi, good morning, thanks for taking my questions. I guess first to start with you know, Steve that was an active quarter raising capital. You did two deals January and February you know and I'm not sure if you're active with your ATM during the quarter. I haven't had a chance look at the Q yet.

But can you maybe talk about how we should think about the quarterly. I mean the financial results look very good versus my estimates.

You know how fully deployed were you during the quarter? Were there pockets when you were under-utilizing your capital base just given the multiple capital raises? Can you talk about the efficiency of your capital deployment during the first quarter?.

Yes.

So I mean I think the best indication or the easiest indication is if you look at where we ended at the end of the period in total assets, total portfolio assets, its $3.8 billion and if you look at our average earning assets for the quarter of $3.2 billion, it sort of gives you an indication that that capital raise at the end of February, we were deploying it into capital, mostly funding in March.

So the benefit of that capital deployment was you know partially felt in the first quarter, but mostly you were going to see the benefit of that in the second quarter and that's why I said that we would expect you know at a minimum an increase of about 15% of net margin in terms of dollars, just from the pure fact of getting the full benefit of being fully invested for that quarter.

You know so anytime you raise capital there is a delay. I mean we try to have a pretty aggressive pipeline of investing and so we're raising capital, I would say partially into already pre-allocated commitments to one extent.

And so if we raise $100 million, we probably have at least 50% of that spoken for in terms of commitment that we can buy assets on and then with a good idea of what we are going to put the rest of it in a timely basis. .

Great, that’s helpful color, thanks Steve. Thinking about the agency assets, I know you mentioned use of liquidity.

I know it’s only about, I believe around 12% of the firm’s capital allocated to agency RMBS, but certainly returns in that asset class aren’t as attractive as they were even six months ago and the curve is flat in there and we are seeing that come through in your portfolio and net interest margin on the agency RMBS.

Do you operate that portfolio any differently now in the current flatter curve environment? You know how much risk are you taking there? I’d assume not much given the narrow spread.

I assume we got a lot of hedges in place, but can you talk a little bit more about those assets and that part of the portfolio in this environment when returns are pretty low for that asset class. .

Yeah, look the one thing when we go to disclose our various investments investment, you know it’s somewhat misleading, because misleading in the sense that when we look at our portfolio we think about it in total.

While we look at each silo as an investment, we are looking at a total rate of return of the portfolio, and so when you look at these silos you come to the conclusion that we're only leveraging the agency around 6x and so that return looks very low.

And so the way I look at it is, we look across the entire company, so having that portfolio, lower levered lease collateral available to meet margin costs that may otherwise come from other asset categories, and so holistically I am really focusing on the total column of what the company is doing, and so less focus on individual silos, but more focus on the total rate of return and the contribution that each silo does have.

But the agency portfolio looks like it's under delivering primarily just because we've lower levered that return because we are putting leverage in other places where we want to get the less liquid stuff out on longer term financing arrangements and gives us more flexibility at the agency portfolio.

So you know we don’t really look – it is a drag when you look at the total return of the portfolio, but we also think it's a necessary component when you are running certain types of investments in our multi-family residential. .

Right and I guess it’s a lot less for Ag if you’re having a lot of cash to it, so.

Yes, that’s right. .

Last question Steve, operating expenses. Have things normalized now? How do we think about G&A from a full quarter run rate? It seems like you've got the headcount where you want it and internalization largely completed. So you know any thoughts around how G&A moves from here? I believe it's around $12.5 million for the first quarter. .

Yeah, and so when you look at the G&A, well actually the G&A that’s all we have, that's including all the other expenses, but you know if I think about the G&A, we are talking about $8.9 million of what I consider really G&A. So you would anticipate the management fees to decrease in the second quarter and go away by the third quarter.

I think the salary benefits is probably about the right run rate we've added. We have a total of 45 employees in the company today, almost doubled from a year ago.

That goes to the point of Jason's comment about the commitment we’ve made to technology, the increase in investment professionals we've added by internalizing the RPL business, we’ve expanded or going to expand our accounting and finance group to take – to help through the load on the increase business activities, but I would expect at least from a percentage of capital it will be decreasing over time as we try to increase our capital base opportunistically and I don’t see significant increases in expenses from – we want to have the same kind of employee growth this year as we had in the last 12 months for sure.

So I would expect this run rate minus the 723, you know so you're talking somewhere around $8 million a quarter in what I would consider G&A. The other expenses we have, the $3 million related to loans, you know we're in the loan business and it costs money to be in that business and that's just part of the total return of that business.

It is reported as an expense, but we look at that more as a business line expense and then the other item in the expense category, the $482,000 relating to our consolidated variable entity, that’s because of a control that we took over one multi-family property. I think that property will be gone in the second quarter, so that will drop off of there.

They are really expenses of the company and we have a very little exposure to those expenses. It’s just something from an accounting requirement where we have to put them on the face of the financials. .

Understood, great. Thanks very much for the comment Steve. .

Good. .

Thank you. And our next question comes from Christopher Nolan of Ladenburg Thalmann. Your line is open. .

Hi Steve. Jason in your comments earlier you indicated that the economy was slowing.

How does that sort of influence the strategy for the company?.

Certainly! When we look at the credit markets, we are looking for investors; we are looking for assets that provide downside protection in a market slowdown. So one of the ways of doing that is protecting yourself on the total type of leverage you are taking on the asset.

So there is financial leverage, there is operational leverage, so living both sides is helpful with that kind of expectation.

So in that case you know looking at loans to have lower LTVs or entering into finance arrangements, multi-family with lower LTVs, as well as looking to take the financial leverage to you know lower levels and market peers as well.

So when you look across our book, you know our leverage that we have outstanding on various positions is lower than I think market overall and our peers and that's one of the functions of you know the expected.

One of the results is expecting slowdowns and seeing it in some of the numbers, but you know looking at, you know taking both those into consideration is where you'll really – we benefited in a market slowdown. .

And then follow up question on leverage for NYMT. And last quarter I recall Steve saying that you expect a leverage to increase to about 2.5x to 3x on an adjusted debt to equity basis as I recall.

Is that still holding or is there an update to that?.

That’s right. I mean look, our target is 2.5x, 3x. We are stilling at 2x right now Chris. We've added capital; we added equity capital, so as we add that equity capital it just makes it that much harder to increase that leverage ratio and so we’ll continue opportunistically to add investments.

So we can run, you know we can increase our portfolio from 3.6x to 4.5x and still be well within our tolerance of leverage ratios and well within safety realms that we would operate the company in. .

And Steve, your stock price for the price of book basis is sort of roughly, you know it seems about 7% or 8% above.

Where do we look in terms of incremental equity races going forward? Any sort of change in strategy or are you guys still going to be opportunistic as you were in the past quarters?.

Look, I think we look at what's available in the market place from an investment, what kind of returns we can get on those investments and if those line up properly and our stock is trading at a point where it makes sense to do an accretive raise, that’s something we would consider and always considered. .

Okay, that’s if for me. Thank you. .

Thank you [Operator Instructions]. Your next question comes from Matt Howlett of Nomura. Your line is open. .

Hey Steve and Jason. .

Matt, how are you doing?.

Good morning. .

Good, thanks, good morning. Just little more – on the 432 I know you bought some RPLs or some performing loans. Could you maybe just talk about a little bit more color on what each bucket consisted of and what’s the trade off right now in terms of returns, because it sounds like the multi-family is more securities and residential loans.

And on the residential side, how much of it is now part of the second lean programs, and if you can flip and maybe talk about other programs like that or new asset classes that you are moving into?.

Well, I start with the latter part of your question. We are looking at opportunities across the entire credit markets, because it’s not an area that we say we have to invest in. If we look at a pool of assets, whether it’s in second section flip or non-QM, where there is no requirements to investing.

We don’t have to fill a mandate of adding assets to our book for an operational business model that we need to continue running. So we are moving in all these markets where we see fit and where we see the opportunity, so there is no you know desire to going one sector versus another.

You know we do and have though our, again as I said early 20 years’ experience in sourcing. We have access to just about every part of this market and we do see flows across the spectrum, but there is no way that we are kind of over allocating because we see you know a kind of beta return opportunity there.

So that basically is what we are kind of looking at across the broad. When you look at the 261 million and looking at our current run rate of assets which we purchased in the first quarter, we did very little on second lean production.

Obviously that market is becoming harder, where rates have come down and HELOC’s and more aggressive first lean offerings have been available from non-accume lenders to the market, and so that was primarily portfolios purchased in the separate performing loans space, as well as new origination that you know failed some kind of Fannie Freddie criteria that we bought at discounts..

Yeah, and further you know if you think about the returns on a two different asset classes, I mean the return rules are the same when we think about it, you just get to it differently right.

And multi-family, you really are making a credit investment on newly originated loans, where in a residential we may be making investments on something that was newly originated, but many times it's something that has either some kind of credit issue with it and to an extent that it has that, then we are looking at a transaction where we have to do some form of asset managed to improve it.

In the residential space we're probably adding 6x to you know 7x leverage versus the investment, whereas in the multi-family space we are maybe adding 2x to 3x leverage on certain portion of those assets. In some cases there is no leverage. .

Right and then bigger picture question, just – this is sort of a new area for New York Mortgage Trust. I mean, you fully internalized in the second quarter. Strategically how do you think about the company going forward? You make investments in more operating style companies where you continue to build a team.

Just I mean bigger picture is a next stage in the evolution of the company. .

Yeah look, I think we are 45 professional strong today. We’ve built – we’ve doubled the capacity from almost capital asset and human resources. I think we will always look at opportunistically at new businesses models. I don't think we would focus on an origination platform to purchase just given a history of the company.

However there is other businesses that we would consider you know are looking at and it may not be something that we are currently aligned with.

So I think it’s prudent on management to always look at every possible option from investing and I think historically where New York Mortgage Trust has done very well is invest in areas where other people aren’t looking. So we will continue to do that and now we have more professionals available to the company to allow us to look under more stones. .

And I’ll also add that given the origination bonds that have come down despite the lower rates in today's market there's no shortage of opportunities for us to buy or look into originators or even service providers.

When you are an asset aggregator you have – you’re in the driver’s seat for a lot of these institutions or companies that need you know your volume to survive. So to that end you know it would not be prudent at this point to walk into one of those entities given that we actually are able to acquire and attract assets across the entire market.

So when you own an originator or service provider you're pretty much now become, you know an efficient hold into that particular entity. So we like the fact that we can go and source assets from the market as a whole, because the market doesn't perceive us as a competitor in their space. .

Right. That makes a lot of sense. Guys, thanks a lot. .

Thanks Matt. .

Thank you. And at this time there are no further questions. I'd like to turn the call back over to Ms. Steve Mumma for closing comments..

Thank you, operator, and thank you everyone for being on the call. We look forward to speaking about our second quarter earnings in August.

Have a great day!.

Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect.

Everyone have a wonderful day!.