New York Mortgage Trust, Inc.

to our second quarter earnings call. Joining me today is Nick Ma, President, and Christine Nario, CFO. With the U.S. economy that is showing a sequential slowdown of organic growth, where personal savings draw down as a factor stabilize GDP, obvious concerns point to an inflection point in the economy at a time where consumer debt is at the highest level ever and demonstrating evidence that the U.S. consumer is tapped out. Our preparation for a slowdown began after the first rate hike in March 2022, which typically predicts the end of a growth cycle. At this time, we installed a large-scale portfolio rotation plan where we have provided updates to this portfolio adjustment each of the past seven quarters. To execute our goal to de-risk the portfolio from longer-term credit and transition to a higher level of liquidity, we focused on high current interest oriented strategies. We understood a reduction to our balance sheet would occur, and consequently, company earnings would dip in this period. We are pleased to show elevated second quarter adjusted interest income of $84 million, which is a 63% increase from the same period last year. We are still working to improve company income and find ourselves in a great liquidity position to add to this momentum over subsequent quarters. While the timing of our balance sheet reduction began in 2022, and frankly could have been better time by delaying such activity for up to two to three quarters, we believe being directionally correct outweighs the loss of earnings potential of being early. balance sheet flexibility created in this period could bring about multi-year benefit. As a reminder, a year ago, we started the phase for balance sheet growth. First, an early goal with the best real property holdings, mostly related to our multifamily JV equity portfolio, which admittedly took longer to sell and was the primary factor in recent book volatility, which has been disappointing. Given recent sales progress, the portfolio is now immaterial to our book, less than 1% of total company holdings. Second, We raised company current interest income, which has been a priority. In the past, we had high allocation strategies with attractive total returns, but exhibited low current cash income. As an example, in the multifamily mezzanine lending sector, where we originated loans with double digit returns, contained a feature of a partial or total interest pick. While the market today provides an exciting backdrop to reestablish pipelines for multifamily mezzanine investments, we are focused on new funding model for future originations. We are happy to announce we are pursuing a joint venture constructed for MMT-originated multifamily medicine loans with a third-party capital provider, which allows up to $300 million of funding. While this venture is still subject to final negotiations of a definitive agreement with a third party, we are hopeful of an early September launch date. Third, we want it to remain liquid, but also increase company income. Our core strategy is intended to achieve this goal by allocating capital to agency RMBS and short-duration business purpose loans. For different reasons, both investments' return of principal is accelerated in a near-term economic slowdown, which allows NYMT to organically raise cash on balance sheet. Furthermore, we anticipated MBS liquidity to spike after the first rate cut, which should be well-timed for pursuing opportunities with enhanced returns. Finally, maintaining minimal levels of recourse mark-to-market leverage in the credit space is an absolute goal for NYMT. As the broader market demonstrated, initial exuberance for potential accelerated rate cuts, and an excellent opportunity to pursue non-recourse term funding structures as tighter spreads have developed. We continue to take advantage of pricing this market for funding needs. I also want to mention that we're seeing opportunities with our own capital structure. As reinvestments accelerate and we continue to build out interest income, we evaluate opportunities to repurchase shares at a significant discount against our high-performing book that contains elevated concentrations of agency and cash on balance sheet. Lastly, we also look for additional accretive funding sources, and seek to properly time the execution to maximize earnings impact. On balance sheet, we opportunistically issued 60 million senior unsecured notes at a nine and one eighths rate in the quarter for additional funding anticipation of wider spread opportunity in the agency space. Furthermore, given our extensive experience previously managing third party capital at scale, we've evaluated several opportunities focused on the right elements to seek external funding. Page eight of our supplemental illustrates our thought process related to this utilization. We look for the overlap of three factors, areas of team expertise and proven track record, strategies that provide compelling risk-adjusted returns at scale, and investments needs of third parties and our own balance sheet. As an example, delayed recognition of return or a low rate of current cash income will be a factor in seeking third-party capital. We are focused on current cash income. As such, we see our multifamily Medellin Loan Strategy as a great fit for external capital funding. We are one of the largest originators of these loans over the past decade and carry an impeccable track record in a market where we have witnessed a significant pullback of regional bank lending when capital solutions are required against a $500 billion of CR loans reaching maturity in each of the next four years. We are excited to utilize our platform backed by a third-party cap provider who is focused on attractive total return opportunities. We are encouraged that our portfolio reconstruction which began just over two years ago, is well situated for an accommodative monetary policy response from the Fed. We believe this decision will enable the company to generate sustainable earnings on a variety of on and off balance sheet options. At this time, I'll pass the call over to Christine to discuss our financials. Christine?

Thank you, Jason. Good morning. Today, I will focus my commentary on the main drivers of our second quarter financial results. I will also be highlighting some Some of the information from the quarterly comparative financial information section included in slides 27 to 36 of the supplemental presentation. Our financial snapshot on slide 12 covers key portfolio metrics for the quarter, and slide 26 summarizes the financial results for the quarter. The company had undepreciated loss per share of 25 cents in the second quarter as compared to undepreciated loss per share of 68 cents in the first quarter. We experienced a solid momentum in our portfolio acquisitions in the first half of the year as we continue to utilize our excess liquidity and rotate our lower yielding multifamily real property exposure into business purpose loans and agency RMBS, increasing our investment portfolio on a net basis by approximately 0.6 billion and 0.8 billion during the second quarter and year to date, respectively, ending at 5.9 billion as of June 30. As a result, Net interest income contribution increased to 21 cents in the current quarter from 20 cents in the first quarter. Our quarterly adjusted net interest income, a non-GAAP financial measure, also increased by 1.1 million to 27.3 million in the second quarter from 26.2 million in the first quarter. And as detailed in slide 27, our net interest spread has steadily increased over the last few quarters, growing by two basis points during the quarter and 31 basis points year to date. Our interest rate swaps also continue to benefit our portfolio, reducing our average financing costs by 75 and 78 basis points during the quarter and year to date, respectively. We have also reduced our net loss from real estate from $16.4 million to $13.1 million, primarily due to the disposition of two multifamily properties, which resulted in deconsolidation. We continue to make progress in the disposition of our multifamily real estate assets, and after quarter end, disposed of four underperforming assets. We expect earnings to improve without the negative drag from these assets in the range of 2 to 2.5 million per quarter. Volatility and interest rates continue to impact valuation of our investments. During the quarter, we recognized 16.5 million or 18 cents per share of unrealized losses due to lower asset prices, primarily in our agency RMBS portfolio, as a result of increases in interest rates in the final days of the quarter, which has subsequently reversed. However, these unrealized losses were mostly offset by 17 cents per share in gains recognized in our derivative instruments, primarily consisting of interest rate swaps. We also recognize 7.5 million, or 8 cents per share of losses, primarily incurred on foreclosed properties or REO still on balance sheet, which are carried at lower of cost or market due to lower valuations during the quarter. We had total G&A expenses of $11.6 million down from $13.1 million in the previous quarter, primarily due to decreases in compensation costs and non-recurring professional fees. We had portfolio operating expenses of $7.4 million, which declined slightly from the prior quarter. We also incurred a one-time expense of 4.6 million related to the issuance of senior unsecured notes and a residential securitization, which Nick will touch on later. Adjusted book value per share ended at 11.02, down 4.3% from the first quarter. The main drivers are 29 cents in basic loss per share, our declared dividend of 20 cents per share, a $0.05 per share reduction in cumulative depreciation and amortization add-back attributable to a consolidated multifamily property for which impairment was recognized during the quarter. As of quarter end, the company's recourse leverage ratio and portfolio recourse leverage ratio move higher to 2.1 times and 2 times respectively, from 1.7 times and 1.6 respectively as of March 31. due to the continued expansion of our agency RMBS strategy and the issuance of $60 million in unsecured notes in June. Our portfolio recourse leverage on our credit book stands at 0.5 times up from 0.3 times at March 31 due to acquisitions during the quarter partially funded by recourse repurchase financing. However, we do not expect portfolio recourse leverage in our credit book to exceed one time intend to continue to prioritize procuring longer-term and non-mark-to-market financing arrangements for certain parts of our credit portfolio. We paid a 20 cents per share common dividend unchanged from the prior quarter. We continue to evaluate our dividend policy each quarter and look at the 12- to 18-month projection of not only our net interest income, but also realized gains or capital gains that can be generated from an investment portfolio. We remain committed to maintaining an attractive current yield for our shareholders, and we expect underappreciated earnings per share to move closer to the current dividend as we continue to rotate excess liquidity for reinvestment and assets that generate recurring income while optimizing expenses. I will now turn it over to Nick to go over the market and strategy update. Nick?

Thank you, Christine. As Jason discussed, Readings of softening inflation and signs of a cooling labor market have heightened expectations for potential rate cuts later this year. The active growth of the portfolio over the past several quarters aligns with what is likely a more favorable period for fixed income assets in the near future. We have made meaningful progress in our goal of achieving a higher rate of recurring net interest income through the deployment of our available capital. In the quarter, we had 934 million of total acquisitions, representing a 54% increase from the prior quarter. We are pleased to have growing volumes in our core strategies of agency RMBS and BPL loans. In agency RMBS, we purchased 467 million in the quarter, and we continue to be opportunistic in the cadence of our deployment activity. More than half of the quarter's agency purchases, or 252 million, occurred in late June when treasury yields and mortgage spreads moved wider. In BPLs, we purchased 412 million of loans in the quarter. BPL acquisitions were split across 344 million of BPL bridge loans and 68 million of BPL rental loans. In BPL bridge loans, we continue to drive higher volumes through our partnership of originators And we'll expect this trend to continue in the third quarter. Delving first into agency and RMBS, current coupon mortgage spreads widened by 10 basis points to 148 basis points in the quarter. The minor difference in quarter-over-quarter spread levels belied the larger intra-quarter moves in both spreads and rates. In conjunction with issuing a senior unsecured corporate bond deal in late June, we took advantage of relatively higher spreads late in the quarter to increase the pace of acquisitions. Having no near-term corporate maturities or other obligations afforded us the flexibility to focus our available capital on portfolio growth. At $2.6 billion of market value, the agency RMBS portfolio represents 44% of our asset portfolio and 20% of our capital allocation. Strategically, we continue to target higher carry assets. In the quarter, we predominantly purchased 6% coupon lower payout spec pools, increasing the spec pool portfolio WAC by three basis points to 5.87%. Agency RMBS remains a core strategy for us at these historically wider spread levels. We believe that agency RMBS is a liquid asset class that can outperform through a future rate easing cycle. It also can exhibit resiliency through a recessionary environment, at which time we can rotate the capital into discounted higher return opportunities. We intend to increase our exposure in this sector as it aligns with our broader portfolio management strategy. On BPL Bridge Loans, we have been expanding our pipeline of future loan purchases. To date, we have purchased from 15 different originator and aggregator companies, and we are currently actively buying from eight of them. From the beginning, we have chosen to participate in the BPL Bridge business with a light operating model by being an investor and not an originator in the BPL Bridge space. Over the past few years, buying from external sellers has allowed us the flexibility to scale up and down with the market opportunity. Furthermore, we bear a lower operational cost while still being able to gain exposure to assets at compelling coupons. More importantly, however, we have avoided subsectors such as multifamily bridge and more involved projects like ground-up construction. It is at these fringes where default management tends to be difficult for loss avoidance. Our reasons for being selective are for downside protection and to maximize liquidity and financeability of the loans that we buy. Tangentially, our tighter credit criteria has coincided with the advent of rated securitizations, where financing execution on our type of collateral profile has been superior. In the quarter, we executed our first rated BPL Bridge securitization, which was the third such deal in history. Overall, our $244 million deal provided a higher advance rate and a savings of over 80 basis points on overall rate than what was available on whole loan repo. Execution of our rated securitization has also delivered a comparable advance rate to our unrated deal that we did in the first quarter. but also an approximate 65 basis points of savings on overall rate. Our intent is to use the rated securitization structure as the preferred source of financing for our BPL bridge business on a go-forward basis. Also, this year, we restarted the purchases of 30-year BPL rental loans after pausing the program in 2022 due to the rising rate environment. Given the improvement in securitization market execution and the evolving economic landscape, we are comfortable selectively adding some duration in the residential credit portfolio today. The pace of purchases should arrive at the critical mass for securitization later this year. Moving on to multifamily, starting first with JV Equity. With the JV Equity portfolio now at $39 million, This constitutes less than 1% of our overall portfolio, and we now have limited exposure of this asset class on our balance sheet. We continue to make progress relating to dispositions of this portfolio, and we aim to free up the remaining capital to rotate into our core strategies. In our supplemental presentation, we have isolated the cross-collateralized mezzanine lending asset, which was historically, at certain point, combined with our JV equity category. This asset is one mezzanine loan over 13 properties with a cross-collateralization benefit to NYMT. We also provided additional information on the loan on page 21. The cross-collateralized mezzanine lending position has many similarities in profile compared to our mezzanine lending book. The average adjusted LTVs are in the 80s, and the average portfolio coupons are in the low double digits. An even more favorable trait is that 100% of the cross-collateralized mezzanine lending properties have senior debt above us that is either a low fixed rate or is hedged with an existing interest rate cap. This has the benefit of maintaining lower and predictable senior debt service payments that are accretive to the underlying property NOI. Across the mezzanine portfolio in general, the collateral performance continues to be remarkable. We have not experienced a principal loss to date on any mezzanine or cross-collateralized mezzanine lending position since our initial investment into this asset class in 2012. Currently in the portfolio, there is only one delinquent loan and only one other loan that was either restructured or extended. Mezzanine loans are held at fair value with marks reflective of the status and performance of the loan. As Jason discussed, mezzanine lending may be a better fit for third party capital instead of the REIT balance sheet, as the asset generally generates a higher total return than a current return. Our strong track record, along with our deep experience in sourcing and managing this asset class, provides us with the ability to raise and deploy third party capital to take advantage of what we see as compelling future opportunities in this space. We will now open the call for Q&A.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Our first question comes from Doug Harder with UBS.

Please go ahead.

Thanks. Can you just talk a little bit more about the decision to kind of continue to hold a high level of liquidity and the trade-offs that you see there, the potential for wider spreads at some point in the future, but kind of offsetting that is the strong securitization markets you talked about, kind of where you see returns today and, you know, kind of how that would compare to kind of the returns you think you might see in the future?

Yeah, I'll start that. Jason, the opportunity that we see in front of us today has, you know, there's a, I'd call it two different avenues you can go down. One in which, you know, there's a core asset class that's available that has the double-digit, you know, team type of equity returns after financing or securitization. You know, that is more limited in total scale given, you know, just general lack of production in the market, lack of transaction activity as well. There is a growing area in the market that is generally new to the market, you know, from the previous, you know, let's call it three to four years, which is a larger scale of what's called multifamily middle market origination activity and ground-up activity. So when we do see volume in the market, we have to be careful on which part of the market we're focused on and where we're being selective in our growth. So the purchase path, the pace that we're utilizing is in the consideration of the selective nature of the assets that we're seeing available and the growth pattern that takes place there. On the agency side, it's been very volatile over the past six months. We've been very selective on when to enter into the market. We do want to grow our, as Nick mentioned, grow our portfolio in that space, but we're looking for better opportunities to leg in over the course of the year. Spreads have moved out wider just recently, and we took advantage of that in large form, and we'll continue to look for this pricing of the market to leg in. So we want to be patient. Assets we're buying today have a five-year consequence, and we're looking at more of a medium-term to long-term value proposition for our excess capital today.

Great. Appreciate it. Thank you, Jason.

Thank you. Our next question comes from Jason Weaver with Jones Trading. Please go ahead.

Hey, good morning. Along with some of the softer economic data we've seen as of late, I think we've had a 70 basis point rally in the 10-year, and then we're talking about possible rate cuts coming up with high probability of them being priced in right now. Nick, you said you were focusing on the 6.0 coupon sector and agencies, and I'm just curious about what you think about how you're thinking about prepay risk going forward. I did see one comment from A famous fixed income investor yesterday that expects the 10-year trade in the low threes by this time next year, so taking that into account.

Yeah, I think clearly there has been a fair amount of movement in terms of expectation of rates, and I would say generally speaking, this has been positive. to the agency space in general as interest rate volatility and the spectrum of potential interest rate paths in the future declining. So we do think that there is an ability for spreads to tighten from here in the longer term. Clearly, there's going to be pockets of time where things widen out and tighten in. So as Jason alluded to, we try to be optimistic on that. To answer your question, yeah, we have been targeting the 6% coupons because of the higher carry profile. We do have in our residential credit book more discounted assets there due to a different kind of coupon profile that has the ability to accrete if rates continue to come down and spreads continue to tighten. With that said, though, we are continuously looking at our agency strategy, and I think that we're going to start gravitating a little bit more towards belly coupons as well, so diversifying a little bit given the size of the agency portfolio has grown to where it is today.

Got it. Thank you for that. And then, Jason, I appreciate your comments regarding the repositioning of the portfolio and focusing more towards on current income. I was wondering, with taking that into account, How do you think about the sustainability of the dividend and then also the visibility of the sustainability of the dividend within your reporting as you complete that transition?

I'll start with the comments and I'll pass over to Christine. We evaluate this with our board every single month and look at the projections we have relating to our growth plan with respect to our assets as well as our liability structures and the excess spread and NIM that we're achieving on our books. You know, there are a number of parts of our portfolio that we're underperforming for our current income approach. One of those is JV equity. Another one is within the SFR space. And, you know, those asset classes, you know, are oriented as total return but, you know, don't meet the current dividend as a portfolio holding. So in those cases, you know, we're looking to, you know, rotate those assets into either a program or into other assets that can achieve our goals. So that's just one component of our portfolio that is kind of underneath the surface here that actually has real earnings potential that's kind of hidden behind the scenes. And with respect to that, I'll pass it over to Christine to kind of enumerate other items.

Yeah. Essentially, we're comfortable with our progress and continuing to move closer to our current dividend. As Jason mentioned, we've increased activity as it relates to our investing. We've rotated some of our lower-yielding assets into assets that generate recurring income. And we've also implemented measures to optimize our expenses, essentially eliminating higher operating cost strategies, such as our JV book, and we see other opportunities in lowering our operating costs.

Got it. All right. Thanks, guys. That's helpful, Keller.

Thank you. Our next question comes from Bose George with KBW. Please go ahead.

Hi. Good morning, guys. This is actually Frank Labete. It's all in for Bose. Can we get an update on adjusted book value quarter date, please?

Sure. We estimate adjusted book value to be up somewhere between 2% to 3% according to date. Awesome.

Thank you. And then to the extent the Fed does cut multiple times over the next year, how does that change your outlook for the portfolio going forward?

I think that would be a positive outcome for the portfolio, and I think we are trying to position ourselves by growing the book and by picking the assets that we are picking to be able to capitalize on that. So we believe that if the rate cuts come, and arguable as to whether or not it's going to be one or two or several more this year, but we do believe that that will lead to a repricing of the rate curve and would be positive for fixed income assets. So yeah, I think we have that firmly in mind as we are ramping up the portfolio and our asset selection is also gearing towards that eventual outcome. Thank you.

Thank you. Our next question comes from Eric Hagan with BTIG. Please go ahead.

Hey, thanks. Good morning. Just following up on maybe some of the interest rate sensitivity, I mean, I know that we don't typically think of RPLs as being very interest rate sensitive or maybe as interest rate sensitive as agency loans, but is it reasonable to expect a pickup in voluntary prepayment activity in your portfolio if rates are coming down?

And are you mentioning, are you talking about RPLs or RPLs, like transitional loans?

Sorry, the re-performing loans, the legacy re-performing loans in your portfolio. Legacy re-performing.

Yeah, we believe that at the margin there could be a higher increase in prepayments. The prepayment rate right now is somewhere in the mid-single digits. A lot of these borrowers have pretty out-of-the-money coupons relative to where on-the-run coupons are. So we believe that could increase, but not substantially. Also, RPLs have a history of potential choppy pay credit profiles. So that also creates somewhat of a cap in terms of the prepayments. But overall, as we have seen historically, when rates do come down and there are other options for these borrowers, we do expect prepayments to move up slightly.

Okay. Just a little bit more on the REGI credit portfolio. I mean, how do you think real estate values might respond to the higher cost and the more limited supply of homeowners insurance? Do you see that being a risk for housing values? And is there a way to potentially even manage that risk?

Yeah, this is Jason. So overall, that is absolutely happening, particularly in the South and also within the multifamily space as well. And that definitely is a headwind to further HPA growth. I think where you see that the concern that I have with respect to that and also taxes going higher due to increase in valuations is in the short-term rental markets. And in those markets, particularly with those slowdown of rentals throughout the month and increase in costs, you can see an increase in in supply on the market given the NOI of those short-term rental investments have waned. So I think that's part of the reason why you're seeing historical increase in supply in markets like Austin where literally over the last six months you just had a massive pickup in supply side. Supply side has kept the market intact given the high funding costs as well as the higher levels of home prices and lack of affordability. So when you look at through all that, you know, you still have, you know, the super majority part of the country that has a fixed rate mortgage that's not affected, and then incrementally that insurance cost, you know, weighs in, but it's still, you know, a smaller piece of the entire puzzle. It's where the NOI gets really impacted, and I think that's where our concerns are. Those are the markets that we're watching very carefully, and particularly within our BPL Bridgebook is where we're looking to minimize exposure.

That's interesting. Interesting comments. Thank you so much.

Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Jason Serrano for closing remarks.

Well, thank you all very much for joining us on this call, and we look forward to speaking to you about our third quarter results. Have a great day.

Thank you for your participation in today's conference.

This concludes the program.

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