Steven R. Mumma - Chairman, Chief Executive Officer and President.

Douglas Harter - Crédit Suisse AG, Research Division Steven C. Delaney - JMP Securities LLC, Research Division David M. Walrod - Ladenburg Thalmann & Co. Inc., Research Division Michael R. Widner - Keefe, Bruyette, & Woods, Inc., Research Division.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust First Quarter 2015 Results Conference Call. [Operator Instructions] This conference is being recorded on Wednesday, May 6, 2015. A press release with New York Mortgage Trust's first quarter 2015 results was released yesterday.

This 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 selection 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's Mortgage Trust believes the expectations reflected in any of the 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 SEC. Now at this time, for opening remarks, I would like to introduce Steve Mumma, Chairman, Chief Executive Officer and President. Steve, please go ahead..

an increase in income from our 67% ownership interest in RB Multifamily Investors, which is an entity that invests in commercial real estate JV and debt-like investments and is managed by RiverBanc, our external manager; and additionally, we had an increase in income related to our 20% ownership of RiverBanc as the external manager, which gets the income from the RB Multifamily Investors.

We had total expenses of $10.8 million for the quarter ending March 31, 2015, an increase of $3.3 million for the same period last year.

The increase was primarily related to an increase in base management and incentive fees, which was driven by an increase in assets under management by our external managers, primarily in commercial and distressed residential loans; and the $3.2 million incentive fee earned by RiverBanc from the sale of the CMBS security during the period.

The increase in incentive fee earned by RiverBanc was partially offset by a decrease in incentive fees by Headlands and Midway, our other 2 external managers. The $0.7 million increase in expenses related to distressed residential loans was primarily due to increased asset size as it relates to the servicing of those assets.

We continue to focus on investing in credit assets, such as residential distressed -- residential loans and multifamily investments, including Freddie Mac first loss securities, direct lending mezzanine loans and preferred equity investments, which represented approximately 68% of our current capital.

The company continues to run on the consumer leverage ratio, with the overall ratio less than 1.5x equity. If and when there is a final determination of the Federal Home Loan Bank membership, we will better be able to decide how we will continue to finance certain of our real estate-related investment strategies.

We believe permanent access to the Federal Home Loan Bank system would be beneficial overall to the mortgage-backed market, reducing our and our members' reliance on short-term funding from financial institutions.

In the event the outcome is unfavorable, we will continue to utilize the securitization market and seek new ways to extend our liability maturities that rely less on callable financing structures. I said this before, but I believe this is an important point when analyzing our company's results.

We manage our business over a 12 to 18 months and not by quarter. Our business is not only a net interest margin-focused business, but a strategy that relies both on net interest income, as well as realized gains from credit investment opportunities.

This strategy, while less predictable over short periods, we believe will allow our portfolio to better navigate the interest rate environment in the future.

We intend to maintain a disciplined approach throughout 2015 by deploying capital to assets that satisfy our long-term investment objectives, and believe that our current portfolio is well positioned to take advantage of new interest earnings and capital gain opportunities. Thank you for your continued support.

Our 10-Q will be filed on or about May 8 with the SEC. It will be available on our website thereafter. Operator, if you'd please open for questions..

[Operator Instructions] And our first question comes from the line of Doug Harter with Crédit Suisse..

Great. Steve, I was hoping you could touch on a little bit more about some of those comments about the FHLB. You did take some advances.

I guess, how are you planning to use your membership in the interim sort of while we're still sort of waiting on a final rule from the FHFA?.

Yes. I think our thought process is, we would use the line to fund when we would consider very liquid assets. And we would use the line to fund very short term in nature, 30 out to maybe 90-day repo on most of our agents -- our agency securities will be our primary focus.

If we thought we would put any kind of loans on the financing schedule, which we can do, we would make sure that we had a committed backup line that would be able to accept those assets in a short period of time. But until we get through a more certain outcome, I think that's the prudent thing to do..

Got it.

And then with some certainty there, then you could look to use that and possibly get bigger savings down the line from some other assets?.

Yes, absolutely. I mean, I think the most important aspect of the membership -- and keep in mind, the members do pay. We are equity members of the FHLB, and we still are susceptible to haircuts and still have mark-to-market. But the biggest advantage is getting longer-term financial access and not having a partner.

We have a partner who's permanently in place to fund their members as opposed to what's going to the Street, where we can extend our liabilities through interest rate swaps, but we're still beholding to the 30-day repo or shorter-term financing market.

And even the warehouse lines that we get for our loans, typically are 1- to 2-year in nature, but they're not permanent financing vehicles, while the FHLB would allow us to fund certain parts of our portfolio for 3, 5 and 7 years, which would match much more nicely with our loan portfolio and much more cheaply than the securitization market..

And our next question comes from the line of Steve Delaney with JMP Securities..

So when we look at the quarter, you did a great job kind of just laying out some of the timing issues, I guess. I wanted to ask about this large $300-million-plus NPL acquisition. I think you purchased that in December. And you noted that you had just -- you just recently boarded those loans.

Could you kind of describe, as you look at -- as you put -- bring in a large pool like that, and I think it was 3,000 loans or something, can you talk about the timeframe over the next couple of quarters, sort of the process and the timeframe for the revenue ramp that we'll likely see over the next few quarters when you bring in a large pool like that?.

Sure. And keep in mind that transferring of service can stay under the new CFP regulations. It's a very tedious process, both from the seller's standpoint -- so the seller of these loans, which was the financial institution, is subject to make sure that the person buying these loans is qualified to service these assets.

So first and foremost, you have to meet that test and your service needs to meet that test.

Second, there is a very detailed process that you need to go through from a legal standpoint to ensure that the handoff is properly done and then any borrowers, any process of any type of modification or type of servicing assistance that's carried through to the new purchase of the asset.

So we had over 3,800 mortgages, actually, that were transferred, Steve. And so that process, we put a task force in place shortly after we bought the loan, and it took almost 12 weeks to complete that process.

And most of those 12 weeks, 10 weeks of the 12 weeks was set on testing the process and making sure that the information coming over was accurate and making sure that when it got boarded, it will be reflected properly and the borrowers would have immediate access to the financial information, it would be seemless to the pervious servicer.

That being said, as anybody is used to any type of routine, especially when they're using an automated payment system on a monthly basis, they get the letter notifying -- identifying the new buyer of their mortgage, notifying them when the new payment process is going to change, however, that doesn't mean it changes seamlessly.

So there's a lot of follow-up phone calls in making sure that the money is sent to the correct place. So that boarding took place and transfer took place in the early part of March. We're talking about doing a securitization on those loans, which probably will take place at the end of this quarter, the second quarter or early the third quarter.

And primarily, the reason for the delay is to make sure that we have the right -- the boarding information comes over properly and that the delinquencies don't pop up because of some timing issues, not through delinquencies, just paying the delays.

So we, from an interest-carrying standpoint, we've been very happy with the close of cash that have come in from the servicing in the interim period. We don't expect that to change long term. We do expect it to be a little bump in the short term.

And then over time, as you start to board the borrowers, you get a better sense of their creditworthiness in various options that we can use to improve their credit and enhance their ability to refinance their mortgage, and then start to capitalize on some of the gains that we seek to get from the loans that we're buying.

It's probably in the process of 3 to 6 months before we start doing that..

Yes, that's very helpful. And the securitization, you, I think, had some. Early on in this, you found some very attractive profit financing.

When you mentioned securitization on the RPL, NPLs, are you thinking more the standard type of non-rated deal we're seeing with like 50% senior sub, with 50% UPB subordination, LIBOR plus-400, something on that range?.

Yes.

I think today's RPL market -- Steve, not NPL, these are RPLs?.

RPLs..

And these are about 95% to 98% current. We would expect the advance rate on these would be in the 70s. And we would expect the interest rate would be somewhere right around LIBOR plus-400 or approximately sub-400. So the typical structure that's done is 3 years with 2 1-year extensions, however, there are some people talking about looking at 4 years.

So there seems to be ample buyers out there for that firm piece of paper. So we're pretty confident we can get a nice securitization done.

But the previous question about the Federal Home Loan Bank, there is loans that we have purchased that we believe could be financed through the Federal Home Loan Bank system, which will result in lower earnings and less legal costs in terms of doing securitizations.

Not all the loans, obviously, would qualify, but many of the borrowers have good credit and have good LTVs and good underwritings. So some of those loans, I think, will definitely be available to be financed in the system..

Great. Great, okay, that's good color. I had no idea it was that large of an RPL versus NPL percentage. That's good to know.

Switching gears, when you talk about the quarter, and I totally get what you're talking about, about some of the lumpiness, and I think we calculated the last 4 quarters have been -- if we average, I mean, it's been like $0.34 -- excuse me, $0.37 a quarter.

When you look at -- when you talk about the quarter, though, one of the things you mentioned was we had a lot of rate volatility in the first quarter, big swings, 40 basis points or so in the 10-year, and you mentioned weaker results from the Midway IO strategy.

That, by its nature, that investment would seemingly have less predictable returns than some of the other things you're doing.

And I'm just curious if, given where you are with other activities you're having going on with multifamily, with the NPL business, do you still see the IO strategy as something that adds long-term value to the story?.

Yes, Steve, absolutely. I mean, I think if you look over the last 24 months, the amount of capital we've committed to that strategy has been fairly flat, and to the extent that it's gone up, it's really to see accumulated earnings in the strategy. We still think there is upside to that strategy.

I think if you look at our investment in Midway over the last 3 years, the quarters where they have the most difficulty is when you have a high-volatile interest rate environment, so the second quarter of 2013, the third quarter of 2012 and this first quarter.

And really, when you see the 10-year go from above 2% to almost down to 1.60% in January, that, coupled with the FHA announcement that they're going to reduce insurance MIP premiums on GNMAs, increase projected CPR speeds.

So while our actual CPR speeds in our portfolio from the fourth quarter to first quarter were largely unchanged, the projection of future speeds in the Ginny Mae part of the book impacted the pricing on those securities negatively.

And Midway employs an actively managed modeling system to hedge, and so when you have shocks like that for the model you have to recalibrate your model. But when those shocks occur, they are painful and they are punitive.

Now you're seeing some recovery in the IO pricing, especially the last 2 weeks, with rates now up around 218 [ph] over 10 years, so we expect some pricing recovery. But there is some volatility, and it is unfortunate that it introduces some volatility to our earnings.

And quite frankly, there is probably $0.02 to $0.03 of this quarter that unexpectedly came in late in the quarter that we did not predict because of the product market process. We think going forward, Steve, they will be a less and less percentage of the total investment, however, we still think that the investment itself will deliver nice results.

And there's a couple of things that we're working on with them that we believe will enhance the return away from the IO strategy. And some of the ways that they hedge the portfolio, we think we may be able to generate using more REIT-eligible type assets that will be beneficial long term for us..

And our next question comes from the line of David Walrod from Ladenburg..

A couple of questions.

The capital you've been raising through the ATM and through the preferred, would you say that's supporting existing activity? Or are there new areas of investment that you've got your eye on that you kind of wanted to get loaded up for?.

There's a couple -- there's 2 or 3 new areas we're looking at that we think that we're going to have some opportunities to invest capital between $20 million and $50 million. That could be very interesting. That would be new for us. Some of the capital is pre-existing. We came out of the fourth quarter fully levered with that purchase of $328 million.

We didn't have much dry powder. We have a pipeline of mezzanine financing in the CMBS that we're going to fund over the next 45 days, and some of that capital will be used for.

And then the RB Multifamily investment sub that we've owned 67% of is an entity that we put in place that will focus on assets that have yields lower than we can put on our books from a cost of capital standpoint, but we still think are attractive assets. And we're hopeful over time that, that entity will generate a cost of capital worth 7% to 8%.

So they'll be able to look at investments that we pass on.

And they also invest in JV equity, but we've made an investment in that company that we intend to limit how much more we're going to put into the company, but we hope the company is going to grow away from our capital, and thereby, driving additional revenues to RiverBanc, the external manager, which we own 20% of, which will drive additional value back to our company for our shareholders..

Okay, great. That's helpful. Second question, the management fees for your external managers, they're about $6.8 million and you had $3.2 million of incentive fees.

So is the run rate of kind of base management fees in the $3.5 million to $4 million range at this time? Or is there other -- were there other incentive fees in this quarter?.

No, that's right, David. That's right..

Okay. The last question, I don't know if you can discuss this or not, but you drew down a $120 million roughly on the FHLB.

How big is your line?.

We said $200 million, and that's really aligned that we -- when we went to a separate line, we set it at $200 million, which is about 1/3 of our agency repo book. We have -- we can get access to our lines, if we want that.

But as I said to Doug, when we look at the FHLB line, until we get better comfort that it's a permanent line, we'll probably focus on funding the agency securities. We may fund a small pool of loans.

But then again, if we do the loans, we'll make sure that we have a committed backup line that we can move the loan to the backup line in the event the outcome is negative. We did have to execute a letter that said that we would be willing to move our liabilities within 30 days from a negative occurrence.

So that puts you in a position that you better make sure that you have a home for any assets that you're currently funding, and then if you become a member in 2015..

[Operator Instructions] Our next question comes from the line of Mike Widner with KBW..

Let me just ask a follow-up, just want to make sure I understand, and I think we've gone through this before, but kind of through it again, I guess. Over on the income statement, you've got $13.6 million gain on the multifamily. And that -- I assume that's all related to the Series-K stuff, and you've had pretty consistent gains on there.

I just wonder if you could talk just a little more about, how do we think about that line item there? And then you also break out, in the first table in the schedule, just the pure net interest spread on the multifamily. So I just wonder if you could remind me about how to think about those 2 different components of that..

Sure. So the majority of the multifamily investments that we have are in Freddie Mac first loss PO securities that we bought at a discount. And so over time, we're accreting them up on a loss and adjusted-yield basis. So over time, the cost bases will go up on those assets.

And as you mark those to market, you'll be shifting some mark-to-market to the interest income line, everything else being equal.

The second thing that's happened pretty much consistently for the last 24 months is that we continue to see an increase in participation in the Freddie Mac K-Series investments, which has caused the yield to continue to be driven into tighter and tighter amounts, which is one of the reasons why we stopped investing in the K-Series in 2013 and started to be a net seller.

The 3 -- the 4 assets that we sold to date have been focused around assets that had more seasoning and/or floating rate assets. And we felt like, when we look at our portfolio, we felt that there was better opportunities, given where these yield -- given where these assets were trading.

So we bought those assets in high double-digits and sold those assets in single digits.

So I think when we look at our investment thesis, to the extent that we can capture gains with taking out almost 1,000 basis points of realized gains, something we have to look at very seriously depending on where we think we can go in the future, and that's really what was done.

And so we focused more of our energy on mezzanine and preferred investments in the multifamily space. But again, that space continues to be very competitive and many, many new members have entered that space. So we're looking at other areas now to try to deploy our investment strategy.

And I think the one thing we've continued to focus on is loans, securitization market continues to develop, the re-performing market, pricing has gotten tighter, which has helped -- been helpful for us. But it's still a very competitive landscape..

Yes, that makes sense. I appreciate that. So if I just -- thinking about that $13.6 million line item specifically, just trying to make sure I'm thinking about it the right way, I mean, I would think that there is some level of spread tightening in there. CMBS has been the serious case, but in more sort of demand.

I would imagine that there's some level of just sort of -- as rates fall, bond prices rise, but I'm not quite sure how much is -- as yields come down, the bond prices rise. So there's just sort of a valuation gain that naturally comes with that. And then I think, as you talked about, there's sort of a discount accretion, if you will, in there too.

So just -- I mean, are each of those components sort of in there and how prevalent are each of those?.

Well, the majority of the interest income generated in the multifamily column is accretion income. You can get a sense of that in our cash flow statement. But from a mark-to-market standpoint, there will be a point where the tightening slows or stops, right? And so that, therefore, you'll have less and less mark-to-market gains.

The one thing we don't do in our portfolio is we don't mark-to-market our distressed residential loan, so there is unrealized gains in those loans that aren't really reflected in our earnings statement or our book value.

So as we monetize and sell those loans over time, you're going to see more gains coming from that portfolio and probably less gains coming from the CMBS just because of the run that the CMBS portfolio has had..

Well, yes, I appreciate that. And I guess, specifically, what I'm trying to think about for projection purposes is, again, very specifically, with regard to the $13.6 million on the multifamily, 10-year rates were down somewhere in the order of 40 basis points, Q-over-Q, just day-to-day. Obviously, that's backed up since then.

I'm just trying to figure out if some portion of that -- obviously, the spread tightening won't go on forever, but that's harder to predict. But we can see where interest rates have moved Q-over-Q and where they are today. I mean, obviously, they're much further back up.

And so anyway, I'm just trying to figure out how much of that might be just purely marketing the bonds to market, not the spread tightening or widening, so not much as just the rate move in the part of the curve that insolences those, if that makes sense..

It does make sense. But I will tell you that the -- to date, the majority of the price appreciation has been from spread tightening and not bond movement. Because we entered into these investments, say, we're 10-year out, they're basically, they are 10-year term loans with no prepay options. The loans are assumable, but you can't prepay them.

So there's very little prepayment risk. All the risk is at the back end from a rollover risk. So when you look at these bonds from a prepayment standpoint, you have no prepayment risk, so you will ride this bond down the curve. So these bonds are now 2.5 years old, so they're now 7.5 years.

But if you look at the majority of the price appreciation today, it's been driven by tightening. And one of our thesis 2.5 years ago was we didn't know when rates were going to go up, but we did feel like these curve assets were going to tighten.

And we felt like if rates were to go up, that this was one asset class that would perform well because if rates are going up, the economy is improving and therefore, the credit market is improving. And quite frankly, the best performing asset class in the last 2.5 years has been multifamily. So it's been a great transaction for us.

And one of the reasons why we sold some of those first CMBS securities was that they were getting 3 to 4 years -- some of the loans were getting 3 to 4 years of maturity, and we think that when you look at the risk of these loans, they're probably backloaded risk, and so we're sensitive to the maturity of these assets.

And through securitizations or sales, we'll try to mitigate as much of that risk as we can to our investors. But I think the majority of the price appreciation is on spread tightening..

Thank you. And I'm showing no further questions at this time. I would like to turn the back -- the call back over to Steve Mumma..

Thank you very much, operator. Thank you, everyone, for being on the call. We look forward to talking about our second quarter results in early August. Thank you..

This concludes today's conference. You may all disconnect. Thank you..