Steve Mumma - Chairman, Chief Executive Officer and President.

David Walrod - Ladenburg Steven DeLaney - JMP Securities.

Welcome to the New York Mortgage Trust Second Quarter 2015 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 Wednesday, August 5, 2015.

A press release with New York Mortgage Trust's second quarter 2015 results was released yesterday. The press release is available on the company's Web site 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 Web site.

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 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, for opening remarks, I would like to introduce Steve Mumma, Chairman, CEO and President.

Steve, please go ahead..

Thank you, operator. Good morning, everyone, and thank you for being on the call. Company released its second quarter results after the market closed yesterday, and included in the press release are several tables that I will be referring to during this call.

During the second quarter the company continues to build out its credit residential strategy by investing additional capital in this multifamily and distressed residential loan portfolios. It enhanced the Company's capital base with the issuance of $90 million in Series C preferred stock.

Consistent with our focus on credit assets we’re pleased to announce the expansion of our credit residential strategy into a new product category, a targeted second lien mortgage program.

The Company is in the process of finalizing a strategic relationship with a nationally recognized residential loan originator whereby we will be a primary investor in the program.

We anticipate targeting higher credit-quality borrowers that are currently underserved and believe that the program will provide us with an opportunistic way to expand our portfolio with credit assets that we expect will generate attractive risk-adjusted returns.

We'll begin to purchase closed loans in the third quarter of 2015 and anticipate that the program will provide material contributions to our net interest income margins before the end of 2015. As the program is finalized and builds out, we will provide additional details.

The Company did exit the second quarter with over $75 million in excess liquidity and we expect to invest that excess liquidity in the third quarter primarily in distressed residential loans and the new second lien mortgage program.

The Company generated earnings of $0.20 per share for the second quarter of 2015, which was below our expectations and was primarily attributable to lower than expected loan sale activity in our distressed loan portfolio and underperformance by our Agency RMBS and Agency IO portfolios.

The Agency RMBS and Agency IO portfolios suffered interest rate spread compressions mainly due to elevated CPRs which we believe will subside as we head into the end of the year.

The Agency IO strategy has generated attractive returns for our portfolio over time and we expect this portfolio's performance to be turn to its historical norms in the future periods. The lower than expected returns from loan sale activities in our distressed residential loan portfolio continues to be more a function of timing than price execution.

In response to this, we have adjusted our processes and anticipate more-timely sales execution during the third quarter of 2015.

Finally, as we expand our credit residential strategy through the introduction of our second lien mortgage program, we expect our net interest margin to increase ratably and provide a comparatively greater contribution to earnings than realized gains on credit assets as we head into 2016. Now let me recap some of the second quarter activity.

Our net income attributable common stockholders of $21.5 million or $0.20 per common share. Our net interest income was $20.3 million and our net interest margin was 391 basis points.

We issued and sold 1.4 million shares of common stock at an average price of $7.79 per share under our aftermarket offering program resulting in net proceeds to the company of approximately $11 million.

We issued 3.6 million shares of 7.875% Series C cumulative redeemable preferred stock for total gross proceeds of $90 million and net proceeds of approximately $87 million. We completed the sale of our final CLO positions realizing a gain of approximately $3.2 million, a little history for our shareholders.

These securities that we sold this quarter along with another position we sold in 2011 were purchased in April 2009 for total purchase price of $9 million, for $46 million in regional phase bonds or $0.20 on a dollar per [COG].

Overly for the respective holding period of these securities they have generated gross sale proceeds of approximately $43 million on average sales price of just under $93 per bond resulting in gross earnings recognition of $34 million as either amortization income or gain on sale.

This does not include the interest coupon we also ran on those bonds during the respective period. This was our first invested in credit sensitive assets post the 2009 recap of our company and the first time we used an external advisor which at the time was JMP Securities.

We sold or refinanced the distressed residence loan during the period for carrying value of $16.6 for aggregate proceeds of approximately $20 million which resulted in net realized gains before income tax of approximately $3.6 million.

Our book value per common share was $6.80 at June 30 as compared to $7.03 for March 31, 2015, a decrease of 3% for the previous quarter or 3.4% economic annualized return for the quarter when including the change in book value in the dividend payment.

We declared second quarter dividend in the $0.27 per common share that was played on July 27, 2015 marking its 13th consecutive quarter at this level.

Subsequent to the quarter-end we entered into a contribution agreement with certain of our investment with RiverBanc multi-family investors in conjunction with a filing of a public offering on Form S11 that is currently on file with the SEC. Further details I would ask you to go to the SEC Web site under the stock symbol RMI to review the S11 filing.

RMI is currently in the marketplace and I have not able to speak a detail about this transaction.

Included in our press release is capital allocation table in a net interest spread table these tables disclose balance sheet amount by [total] net interest income activity including interest income, interest expense, weighted average yields and weighted average earning asset balances.

Also included in the disclosure is historical CPR table which will assist in the performance of overall filing. Our net interest income was $20.3 million for the quarter as I said previously a decrease of $1.3 million in the previous quarter. Our net interest margin was 391 basis points a decrease of 24 basis points from the previous quarter.

The decrease is both net interest margin and basis for are primarily due to elevated CPRs on our agency MBS and agency IO portfolio and lower average earning assets for the period. PCRs were up approximately 15% overall from the previous quarter with our six grade agency MBS and our agency IO portfolio the main reason for the yield decrease.

Total other income decreased by $5.4 million in the three months ended June 30, 2015 as compared to the same period in 2014. The change in total other income was primarily driven by several factors, a decrease in realized gains on investment securities and related hedges of $2.6 million.

Our agency IO portfolio had an increase of 5.8 million unrealized losses on its derivative instruments for the three months as compared to the same period in June 2014. The increase in realized losses is generated by Agency IO portfolio was partially offset by realized gains from our CLO sales totaling 3.2 million for the period ending June 30, 2015.

An increase in net unrealized gain on investment securities related hedges of 6 million for the three months ended June 30, 2015 as compared to same period in 2014 primarily related to our Agency IO portfolio. The increase in net unrealized activity was partially offset by the realized loss previously discussed above.

The agency IO portfolio strategy is structured and hedged to primarily generate net interest margin on the portfolio such that over time the unrealized and realized gain loss activity associated with the strategy will offset each other and result in those significant gain or loss.

During the second quarter additionally our Agency IO portfolio was negatively impacted by the increased prepayment level I previously spoke about. A decrease in net unrealized gains and our multi-family loans in debt held of securitization trust of 14.6 million for the three months ended June 30, 2015 as compared to the same period in 2014.

But the portfolio continues to perform very well the yields have gotten to level where fairly tighting is less likely as compared to the previous two years. An increase in realized gains under distressed residential loan portfolio of 3.2 million for the three months ended June as compared to the same period of 2014.

This still understand there were minimal gains in the second quarter of 2014 as the first quarter had a large gain of approximately $40 million. I say this to point at the timing issues of sales activity which we are trying to manage and have more timely deliverables to make the earnings statement more consistent throughout the year.

An increase in other income of $2.1 million was due primarily to an increase in income from our common and preferred investment in RiverBanc Multi-Family Inc and investing commercial real estate assets and debt investments and the income generated from our 20% ownership of RiverBanc the external manager.

We have total expenses of $9.1 million for the quarter an increase of $1.6 million during the same quarter in the previous year, of the $1.6 million increase almost all of it $1.4 million is related to the increase in our distressed residential portfolio which had the corresponding increase in expenses from higher servicing cost, workout cost and due diligent cost.

We continue to focus on investing credit assets such as residential to stress loans and multi-family direct lending mezzanine loans and preferred equity investment. In addition as I spoke earlier we are launching an initiative in a second lien residential mortgage product which we believe will be our next significant business silo heading into 2016.

The company continues to run as a very conservative leverage ratio with overall ratio less than 1.4 times equity. We continue to monitor the FHA -- the FHFA and the outcome of this decision as it relates to our continued membership as a captive insurance company and the Federal Home Loan Bank system.

While we’re hopeful for a positive outcome as we believe the region C can be a positive contribution to the overall mortgage market liquidity as well as develop innovative products that are instrumental increasing homeownership for all.

We endeavor as a company to manage the portfolio investments that will deliver stable distributions to our stockholders over diverse economic conditions and not focus on the result of any single quarter.

We continue to believe our current portfolio coupled with improved loan sales execution our distressed loan portfolio and the full development of our -- the full deployment of our excess liquidity can generate annual earnings that are reflective of our current dividend policy. Thank you for your continued support.

Our 10-Q will be filed on or about August 7th with the Securities and Exchange Commission that will be available on our Web site thereafter. Operator you can please open for questions..

Thank you. [Operator Instructions]. Our first question comes from the line of Michael Widner with KBW. Your line is now open.

Your question please?.

This is Eric on for Mike. When you guys run different projections and stress scenarios for you investments to anticipate trends, shocks things like that to prepay speeds defaults lost severities, et cetera.

Can you share how about the assumptions puts change over the next year or so? More specifically how do you expect credit overall to perform not just under the first fed rate height but perhaps a series of heights in 2016 and the possible headwind to the economy as a result with that..

We've positioned and we have positioned the portfolio over the last three years with the expectation that at some point rates are going to rise. And that expectation is been built around the fact that rates will increase is because the economy is doing well and improving.

I think the economy while is not doing great is not doing poorly and I think right now it continues to matter forward because there is so much liquidity in the marketplace, it's almost impossible for it to go backward.

We do believe that credit is a cycle and we do believe as we've gotten in and out of securities some of those investments that we've made historically such as CLO, such as Freddie Mac first K loss security, we were able to get attractive yields from a combination of two things, market liquidity and the overall liquidity.

As credit continues to improve we start to look at the last dollar invested in our re-performing portfolio, continue to think those yields are attractive however the dollar prices are getting higher and higher.

One of the reasons why we’re starting to focus at other newly originated products is we do think that the borrowers balance sheet is improving, we do think that the current underwriting standards that we’ll write out loans too, will be fully documented and we do believe that we’ll be indentify, what we believe are good risk adjusted returns for our products, we absolutely won varied scenarios of risks, anytime you are taking a second position in a mortgage lien or anytime you are investing in a credit sensitive asset you have to be sensitive to what the overall economy is doing.

We think there will be a cycle there. We think we’re at the early part of this cycle. And we hope to gather and cash for our large portion of that cycle in the coming 12 months to 18 months, 24 months and we’ll continue to evaluate. So while I don't like to get in specifically how we run those scenarios, we’re absolutely running many scenarios.

We do think if the Fed continues to raise rates, look, they need to raise rates at some point, do I think rates are going to 300 basis points? Absolutely not, do I think they are going to raise rates over the next 18 months? Yes, do I think it's going up by 100 basis points? Probably, but I don't think they are going to raise it in the vacuum, the ADP number that came out this morning was massively understated from what expectations were, 185 versus 237, I think if the employment number comes out and is below 200 then Fed is not doing anything in September.

And I think the Fed alluded the assumptions, they just keep getting mix singles on how the economy is doing. And that’s what we’re trying to figure out where we want to participate.

We do think the combination of our entry point in the credit on the second lien program and our ability to create structures around those assets will deliver some interesting yields back to our portfolio..

Any volume predictions for the second lien program at this point?.

Because of second lien program we released the new program, and we know there is other people out there talking about putting it and we know there is incremental programs across the country. We have expectations today but really based on discussions that are not based on imparable evidence.

We do know that there is dirt of this product and I would better be able to speak to that as expectations after the third quarter. We would anticipate having loans closed in the third quarter and we would anticipate those loans have to be one or two loans start to generate meaningful amount of invested dollars..

Our next question comes from the line of David Walrod with Ladenburg. Your line is now open.

Your question please?.

On the $75 million of excess liquidity.

Can you give us some thoughts to how much you -- were able to deploy in July and how quickly you think you'll be able to deploy the rest of that?.

Sure a good part of that is the liquidity is really two functions we had outlined cash available on hand for most of that cash has been invested.

We still have excess liquidity because we can leverage up some of the assets that are under leverage today to look at our agency portfolio was really under levered and we have some loans that we finance with cash and we can put out warehouse lines to get some additional leverage.

But we have some dry powder and primarily for the second lien program, but we'd like to think that this thing is going to ramp up substantially we don’t know. But the thing is going to start to percolate this month fleet and we'll start closing loans going into September and get a better sense of volume. But we're pretty excited about this program..

And then secondly, in your press release you talked about the asset sales and how you changed some of your processes in order to I guess remove some of lumpiness and have more consistent closes.

Can you talk about some of the changes you made?.

As the company's portfolio is increased substantially going into this year. So we were running at $200 million to $250 million that were almost 600 million. Our loan sales average size has increase and so as this loan sales size has increased, you selling to more competitive markets which require more due diligence and the additional documentation.

And some of that timing was not expected in terms of closing which is caused problems for us so we've gone back and readdress our sales pool information as well as the way our pools look more homogenous. Now we think we'll get better price execution on a more predictable timely basis.

And so for example we put out pools in the second quarter of $30 million to $40 million and find out that the seller with the best price wants to kick out 75% of the loan which makes no sense of selling the pool.

So we pull the pool back, now was that buyer real buyer? Apparently not, and so we'll be more careful going forward on who we target the sales to and how we conduct the auctions of the sale..

And my last question, you touched on the FHLB at the end of your prepared remarks. Did you start seeing -- did you see the advances from FHLB or is that something you're looking to do going forward..

No we do have advances, we were currently financing our agency portfolio. We love to put some long and most of the financings are 30 days or less only because we have execute letter that gives them the right to throw us out in 30 days in the event FHFA ruling comes back negative for captive insurers specially REIT.

We're trying to figure out a way that we can create some longer term liabilities with them that give us some kind of quick back at them for cost.

I don’t know if that will ever happen, we'd love to have some kind of final ruling, we are working with some association to try to get some lobbyist actions going to assist our cost but that will take a long time and we really don’t have any reasons to pine on this situation.

But we do have funding, we do have borrowings about a third of repo book is with the FHLB right now..

Thank you. [Operator Instructions]. Our next question comes from the line of Steven DeLaney with JMP Securities. Your line is now open. Your question please..

I just tapped on a little bit ago and apologize if you've addressed some of this in advance. But I'm excited about your second mortgage opportunity as far as the product that you've designed.

Is this going to be a fixed term loan product or more of a floating rate line of credit product?.

At this point we would prefer not to talk about our product and so we get it out in the marketplace is going to be a very competitive product. It will qualify for most of the needs that the regulators are looking for and that’s really why I want to talk about.

We were absolutely put out the program guidelines as we go into the third quarter at least generally speaking but it will be a product that I think will be very attractive as an alternative for additional financing for our borrowers looking to buy a home at a home purchase price puts an outside of an agency confirming loans but he cannot qualify for a jumbo mortgage with the large providers today..

So it sounds like it's a, it's a prime or near prime type of targeted borrower, correct?.

That will be correct..

And as that grows, can you give us a sense on where capital will most likely be reallocated from. I know you have some excess liquidity currently.

But as you burn through that, looking at your allocation as we add another column into your investment table, sort of where is that lag, if that goes up what comes down?.

Over the last three years what has come down is our agency portfolio. And I think we would continue let that silo decrease until such times spread become more attractive for us. We have not purchased a Freddie Mac K-Series first launch piece since 2013. While we like the asset class with the deals we can do better elsewhere.

One of the reasons why we have made a separate investment in the company RMI is to try to generate a second currency as capital that's less than our currency so they could be more competitive in the marketplace, so I would think that we’ll put less dollars in the Freddie Mac K like investments unless the yields expand and put more dollars towards new originations like products.

So the seconds will be the first program that we’re doing, but we’re also looking at other products that could reach currently doing -- non[QM] first, it's something that we’re looking at and probably will start investing in at some point in late 2015 or '16, but we'd like to focus currently on the second's program..

And as you look down the road there, do you see any opportunity with respect to the new product.

Is there a securitization market opportunity there? Your discussions with the Home Loan Bank I personally don't know whether they consider taking second mortgage loans, I was curious whether you'd gone down that road with them?.

Look the product descriptions they do have -- they do and this is the Federal Home Loan Bank system, there is a underwriting guidelines to finance second lien mortgages, we’ll absolutely as we've done with all the other asset classes especially around credit look to eventually create some kind of permanent financing structure for those assets, whether it would be a securitization longer-term loan from the Federal Home Loan Bank system or some other form of capital transactions which we haven't thought of, but yes we’re absolutely working on that and have partners right now have they are look for us..

I'm showing no further questions in the phone queue at this time. I would like to hand the program back over to Mr. Steve Mumma for any concluding remarks..

Thank you operator, thank you everyone for being on the call. Thank you for supporting the company. We’re very excited about this new program. We look to build a strong business model and finish up 2015 and have the tailwinds at us going into 2016. Thank you. I look forward to talking to you in November..

Ladies and gentlemen thank you very much for your participation. This does conclude the program. You may now disconnect. Everyone have a wonderful day..