New York Mortgage Trust, Inc. (NASDAQ:NYMT) Q4 2024 Earnings Call Transcript

New York Mortgage Trust, Inc. (NASDAQ:NYMT) Q4 2024 Earnings Call Transcript February 20, 2025

Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust Fourth Quarter 2024 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. If you are using this speaker equipment, we do ask that you please lift the headset before making your selection. This conference is being recorded on Thursday, February 20, 2025. I would now like to turn the conference over to Christy Moussalem, Investor Relations. Please go ahead.

Christy Moussalem: Welcome to the fourth quarter 2024 earnings call for New York Mortgage Trust. A press release and supplemental financial presentation with New York Mortgage Trust fourth quarter 2024 results was released yesterday. Both the press release and supplemental financial presentation are 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 and presentation section of the company’s website.

Christy Moussalem: At this time, management would like me to inform you that certain statements made during the conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although New York Mortgage Trust believes 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, I would like to introduce Jason Serrano, Chief Executive Officer. Jason, please go ahead.

Jason Serrano: Good morning. Thank you for joining New York Mortgage Trust Fourth Quarter Earnings Call. Joining me today is Nick Mah, President, and Kristine Nario, CFO. As I discuss a full year recap and insights into 2025, Kristine will provide commentary on fourth quarter results, and Nick will follow with an update to our portfolio positioning and focus. After a restricted monetary campaign by the Fed that began in early 2022 to slow inflation, the policy stance reversed in 2024 with 100 basis points of rate cuts. However, mortgage rates remained elevated as the market focused on the supply side of heavy treasury issuance for years to come. With the new administration, the market will be attempting to assess the benefits of the new policies against the current forecast of slowing macroeconomic data.

For example, the benefits of onshoring manufacturing jobs and deregulation to spur economic growth may be neutralized by a slowing economy reinforced by cuts to the federal budget. We will look directly at the US housing fundamentals. The market continues to show signs of resiliency with strong fundamentals. Due to low average mortgage rates held by US homeowners, of just over 4%, the higher rate environment will continue to keep housing demand in check. Stable housing trends and the presence of a positive sloping yield curve have the potential to enhance company earnings. This can be achieved by focusing on sustainable recurring income through strategic deployment of excess liquidity. With this goal in 2024, the company’s portfolio grew by 44% relative to the same time in 2023, driven by $4.1 billion of acquisitions and primarily liquid agency bonds and through higher spread bridge loans.

As a result, the adjusted interest income rose 60% year over year. After consideration of financing costs, adjusted net interest income contributed $0.36 to EPS in Q4, a $0.10 improvement from a year earlier. Strong balance sheet growth in 2024 was necessary following a period of low investment activity for the company. This period also allowed us to execute a significant portfolio restructuring centered around divestment of our underperforming multifamily JV equity holdings. We explained back in early 2022 that the effort would take time to complete and that we would be patient in our approach to focus on medium to long-term value for our shareholders. We are happy to note that we reached the final stages of this plan last year. In 2024, we issued six securitizations and kicked off 2025 with an issuance of a detailed bridge securitization.

Alongside an $83 million baby bond issuance earlier in January, we continue to pursue attractive funding strategies to allow for prudent growth in our investment portfolio. Our goal is to focus on accessing nonrecourse non-mark-to-market leverage so we can efficiently access the company’s excess liquidity totaling $343 million at the end of the year. Despite substantial growth in our portfolio, we were able to control costs with an expense reduction plan to keep our G&A just above 3%. We believe our execution in the year provides the company with increased portfolio flexibility to pursue and optimize returns in 2025. And we look forward to accomplishing this task over the year. Given this dynamic, we believe the NYMT share price presents compelling value with embedded upside as our recurring earnings continue to improve.

As illustrated on page ten of our Q4 supplemental, NYMT shares traded at a 41% discount to adjusted book value at year-end. Market capitalization was 90% covered by the company’s cash and the agency bond portfolio loan. With $388 million of book value or $4.29 per share potential upside to year-end market capitalization. Furthermore, the company’s balance sheet holds $272 million or $3.05 per share, a net discount to par assets. This can be recaptured through paydowns reversing the health discount. With additional income growth through access to the excess liquidity and utilization of our securitization market, we see significant value upside to our current market capitalization levels, especially after consideration of a 13% plus dividend yield.

At this time, I’ll pass the call over to Kristine to provide fourth quarter financial highlights. Kristine?

Kristine Nario: Thanks, Jason. Good morning. I’ll cover the key factors behind our fourth quarter financial results and reference the comparative financials section in our supplemental. The company had an undepreciated loss per share of $0.44 in the fourth quarter, as compared to undepreciated earnings per share of $0.39 in the third quarter. Our ongoing commitment to investing in assets that generate recurring income has led to an increase in quarterly adjusted net interest income EPS contribution to $0.36 per share in the fourth quarter compared to $0.32 per share in the third quarter and $0.26 per share a year ago. This represents a 12.5% increase in the fourth quarter compared to the third quarter and a 38% increase year over year.

Additionally, as detailed in slide twenty-five, our net interest spread has shown improvement over recent quarters, increasing by five basis points in the quarter and thirty-five basis points year to date. Moreover, our interest rate swaps have continued to benefit our portfolio, reducing our average financing costs by thirty-eight basis points for the quarter and sixty-one basis points year to date. Our earnings were primarily affected by higher benchmark interest rates, which reduced the fair valuation of our residential loan and bond portfolios. During the quarter, we recognized net unrealized losses totaling $131.6 million due to lower asset prices, primarily in our agency RMBS portfolio and residential loan book. These unrealized losses were partially offset by $92 million in gains from our derivative instruments, mainly interest rate swaps.

Additionally, we recognized losses of $9.9 million or $0.11 per share primarily from foreclosed properties that still remain on the balance sheet, which are carried at lower of cost or market due to lower valuations compared to their previous carrying costs. We are nearing the completion of our divestment of multifamily JV equity with only four assets remaining, totaling $21 million as of December 31. During the quarter, we successfully disposed of five multifamily real estate assets, resulting in net gains of $4.9 million attributable to the company. These transactions have also created a secondary positive impact that will benefit us in future quarters by reducing the negative earnings drag from these properties on a go-forward basis. In the quarter, these dispositions decreased our net loss from real estate from $7.5 million to $5.9 million.

Total G&A expenses remained essentially unchanged compared to the previous quarter, and portfolio operating expenses decreased by $1.5 million primarily due to reduced expenses associated with our nonperforming residential loan portfolio. Additionally, we incurred debt issuance expenses of $1.9 million related to a BPL rental securitization. These expenses were fully recognized in the current quarter rather than amortized over a longer period due to our fair value election. GAAP book value decreased by 5.6% during the quarter and adjusted book value per share ended at $10.35, down 4.8% from the third quarter. Our adjusted book value per share was positively impacted by the reduction in the fair value of our amortized cost liabilities primarily due to the increase in rates.

As of quarter-end, the company’s recourse leverage ratio and portfolio recourse leverage ratio moved higher to three times and 2.9 times from 2.6 times and 2.5 times respectively as of September 30, due to our continued financing of investment securities, primarily agency RMBS. Our portfolio recourse leverage on our credit and other investments rose to 1.1 times from 0.8 times at September 30, resulting from partial recourse repurchase financing of fourth quarter acquisitions. Given our continued use of securitized financing for our credit assets, we expect the growth in our credit portfolio recourse leverage to be slower than the growth in our credit book. We are dedicated to ensuring a competitive current yield for our shareholders and have maintained a dividend of $0.20 per common share, unchanged for five quarters.

We also issued $82.5 million of unsecured notes in January of this year, which were earmarked and have now been fully deployed into asset acquisitions. The significant portfolio restructuring over the past three years has enhanced our ability to generate recurring earnings that align closely with the current dividend. I will now turn it over to Nick to go over the market and strategy update. Nick?

Nick Mah: Thank you, Kristine. 2024 was the firm’s most productive year in asset acquisitions. The fourth quarter activity was just as robust, with the company entering into $923 million of residential investments. Around 61% of these purchases were in residential credit investments and the rest were in agency RMBS. In the quarter, the largest sectors of residential credit investments were BPO bridge loans with $345 million of purchases, and BPO rental loans with $188 million. We expect acquisition volume to be more balanced between BPO bridge loans and BPO rental loans in 2025. Throughout 2024, relatively range-bound agency spreads allowed us to steadily deploy capital into this sector at attractive return profiles. While we try to increase the pace of acquisitions during periods of wider spreads in the market, the portfolio has been on a consistent growth trajectory over the last eight quarters.

As a core strategy, the Agency RMBS portfolio is currently $3.1 billion market value as of quarter-end, which is 42% of our asset portfolio and 23% of our net equity. We still see a favorable environment to invest in Agency RMBS given the still attractive spread levels as we enter a monetary easing cycle. We will continue to take advantage of the opportunity with our available capital. Over the quarter, current coupon mortgage spreads widened by six basis points to 135 basis points. The inter-quarter volatility was noteworthy, however, with spreads peaking at 154 basis points right before the election, before normalizing into year-end. These spread movements provided us better entry points into agency RMBS trades. Furthermore, persistently high spreads are positive for us as portfolio growth remains our goal.

Our strategy in the agencies over the course of the year was to prioritize positive carry profiles across low payout spec pools. In the quarter, we targeted close to current coupon spec pools for purchase. The positively sloping yield curve that materialized in the fourth quarter will allow us to participate in a wider range of coupons in the future and still maintain a positive NIM. In the quarter, we predominantly purchased five and a half coupon spec pools, lowering the weighted average coupon of the portfolio down slightly to 5.77% from 5.80%. The portfolio is still a relatively differentiated high coupon portfolio. We continue to favor the liquidity and return profile of the Agency RMBS. In BPO bridge loans, we have now invested over $4.8 billion in this strategy to date since 2019, bolstered by consistent purchase activity over the last few quarters.

Having executed on three BPL Bridge securitizations in 2024, we now have $706 million of revolving debt that can be recycled to fund future investments. The bridge securitization market saw deal issuance grow from $3 billion in 2023 to $8 billion in 2024, with momentum for further growth this year. 2024 also saw the emergence of rated bridge securitizations, improving the institutionalization of the asset class. The combination of efficient securitization financing and strong housing market technicals will fuel the continued growth in this market. As the US is still grappling with low housing inventories and an aging housing stock, there is a market need for fix and flip projects and its associated loans. Our target assets remain within the tight band of conservatively underwritten single-family bridge loans, minimizing ground-up construction and avoiding multifamily bridge altogether.

Our credit philosophy has resonated with bond investors and has enabled us to be a repeat issuer in the rated BPO bridge securitization space. In BPO rental, we issued a $295 million securitization in the fourth quarter, our first in the sector since 2022. We continue to allocate capital to the BPO rental strategy and expect to be a more consistent issuer of securitizations in this asset class in 2025. We source most of these loans through the same channels as our BPL bridge loans. By providing a more holistic takeout across more product lines for our originator partners, we also strengthen our overall sourcing capability. Furthermore, this aligns with our goal of increasing our duration exposure to residential credit as we enter into a potentially lower rate environment.

The recent steepening of the yield curve in the fourth quarter has already been accretive to the overall securitization economics for these loans. Expanding the asset classes that we participate in across residential credit will support the pace of growth of our investment portfolio and interest income over time. The multifamily segment was a detractor of earnings for us in 2024, but the restructuring of the portfolio has put us on a positive trajectory for the coming year. In 2024, we made significant progress winding down the JV equity book to an immaterial size relative to our broader investment portfolio. The mezzanine lending and cross-collateralized mezzanine lending assets have been stable investments for the company and provide excellent risk-adjusted returns.

Our combined portfolio of mezzanine loans has experienced high payoff rates at year-end, with 11% redeeming in the fourth quarter. Due to the seasoning of this portfolio and our loan call features, we expect the pace of payoffs to accelerate in 2025. We will reinvest this capital into higher-yielding and more liquid assets. Across both single-family and multifamily, we achieved milestones in our portfolio in 2024, and we are excited about the prospects for this upcoming year. We will now open the call for Q&A.

Operator: One moment while we compile the Q&A roster.

Q&A Session

Operator: The first question today will be coming from the line of Bose George of KBW. Your line is open.

Bose George: Good morning. Actually, I was just trying to think about sort of normalized earnings. Like, if you strip out the mark to market, you know, the unrealized gains losses, and then the foreclosure cost that you guys mentioned, you know, what would the run rate earnings, you know, look like? So yeah, what do you think the ROE is like, you know, if you pull out all that? Now that you’ve largely, you know, exited from those, you know, the JV stuff.

Kristine Nario: Well, I think the growth in earnings for 2024 with, you know, in our prepared commentary with adjusted interest income increasing to $0.36 this quarter compared to $0.26 a year ago. Along with really rotation of underperforming assets and pace of acquisitions in the fourth quarter and also really good acquisition activity here in the last few months of the year of 2025. Supports that, you know, we are getting close to aligning with our current dividend in terms of recurring earnings. We have a dividend of $0.20 of current dividend rate and anticipate that recurring earnings will align with that dividend.

Bose George: Okay. Great. And then just in terms of the excess liquidity, how would you characterize that at the moment?

Jason Serrano: I missed the last part of the question, but as it relates to our excess liquidity, you know, we continue looking to rotate that into both the agency market and within residential credit. The residential credit side, we’ve noted in the past that we’ve kept our durations shorter by accessing the BPL bridge loan markets. We think that aligns well with our view with respect to the outlook of the US housing market and the economy as a whole. You know, we are more constructive on the balance with respect to agency bond acquisitions. Earlier in this year and, like, in the short term here, due to the normalization of the interest rate curve, which has been attractive for spreads and NIMs as well as, you know, just looking at the, you know, different effects of the new administration and different policies that, you know, will likely cause some volatility with respect to some pro opt data, particularly rates.

So our goal is to, you know, help the portfolio be immunized through kind of rate volatility as well as credit weakening. And in that space, we’d like to see our portfolio, you know, shorter on the credit side and in a liquid agency market, which we see returns in the 14% to 16% range today.

Bose George: Okay. Great. Thanks.

Operator: Thank you. One moment for the next question. And our next question will be coming from the line of Doug Harter of UBS. Your line is open.

Doug Harter: Thanks. Can you talk about the G&A and portfolio expense outlook, you know, how you think that trends in 2025, if you continue to kind of deploy capital and grow the portfolio?

Kristine Nario: From a portfolio operating perspective, we did see a decrease in the quarter related to, you know, lower expenses or reduced expenses or non-performing book due to some resolutions that we’ve completed in the quarter, as well as in previous quarters. In terms of G&A, we do anticipate and see opportunities of it decreasing as we continue efforts similar to those in 2024 and in identifying and implementing further measures to further reduce our G&A cost.

Doug Harter: Great. And maybe you’re looking at a run rate or G&A of, sorry, maybe a run rate on G&A of $11 to $11.5 million per quarter.

Kristine Nario: Great.

Doug Harter: Appreciate that clarity. Any update you can give us on how book value has performed so far in the first quarter?

Nick Mah: Sure. We see as of this week that adjusted book value is up somewhere between 1% to 2%.

Doug Harter: Thank you.

Operator: Thank you. One moment for the next question. And our next question will be coming from the line of Matthew Howlett of Jones Trading. Your line is open.

Matthew Howlett: Hey. Good morning, guys. Thanks for taking the question. So I’d like to kind of touch on these four remaining multifamily assets within the JV. Last quarter on the call, you guys mentioned that you had line of sight kind of into a resolution of four multifamily assets. You know, I was curious if that is these four, and if there’s any update that you can kind of provide there.

Jason Serrano: Yeah. So we have four remaining JV equity assets on our balance sheet. There’s two distinct strategies between the four. Two of the assets located in Florida, with an equity basis of about $19 million, are in the market for sale. So we had been marketing those assets and expect to sell those assets in the near term. So that’s just, you know, the line of sight in thinking of where that is going and the fact that it’s out on the market and we’ve positioned the property, we think, to receive, you know, a decent offering on those properties. Two assets that are both located in Texas, the equity basis on that is about $1.3 million. And those two, we’ve had a recent improvement in occupancy rates on those portfolios from high eighties to kind of low nineties.

We see actually improvement from there. So our view on those two properties, you know, is to kind of wait out and show the improvement in income on those units before we actually market for sale, which we think will have a better sale price in the medium term relative to selling those assets given the recent improvement in occupancy and NOI in the portfolio. So again, that’s $1.3 million and we expect to exit that over the course of the year.

Matthew Howlett: Got it. That’s very helpful color there. Thank you for that. And then, you know, kind of as we think going forward, you know, you mentioned the mezz portfolio kind of running off. You know, in an ideal scenario, what would the capital allocation be between, you know, the agency strategy and the resi credit strategy?

Jason Serrano: Yeah. And the mezzanine portfolio, we do expect to see increased prepayment activity. There’s certain call features that are embedded in those deals that we hold and can drive a higher prepayment activity, and we intend to do that throughout the course of the year. So we do expect to see that continue to increase. As I mentioned earlier, on the balance, we were more constructive related to the agencies market versus credit. So the expectation is that we would continue rolling that with a higher allocation to agency RMBS market versus, you know, single-family mortgage loans. But, you know, at the end of the day, we will be investing in both asset classes, but, you know, I think over the, particularly from last quarter, where we had our purchase price pipeline higher in the residential credit space, I think that will reverse and we’ll see higher pipelines in the agency RMBS markets.

Matthew Howlett: Awesome. Thank you for taking the questions.

Operator: Thank you. One moment for the next question. And the next question will be coming from the line of Jake Katzicus on for Eric Hagen. Your line is open.

Jake Katzicus: Hey. Good morning. Thanks for taking my questions. First one, could you talk about your outlook this year for prepayment speeds in the RPL portfolio?

Nick Mah: Sure. We think that the RPL portfolio has exhibited pretty consistent speeds through 2024. And as you may know, the speeds are relatively robust. They range anywhere between the fifties of CPR to sixties of CPR. We have seen that hold through effectively different types of rate environments as these projects are in some ways interest rate insensitive and is really driven by the fact that these projects are at that point of completion and then they eventually get sold or they get refinanced into longer-term debt. So for 2025, regardless of rate outlook, we actually do see that the prepayments will still remain relatively robust.

Jake Katzicus: Great. Thank you. And then do you see any opportunities to potentially call and relever any of your securitized debt here? And are any of the deals currently callable? Thank you.

Nick Mah: Yeah. We do have several deals that are callable today. That is a strategy that we do employ. Sometimes it is an economic decision. There are some pieces of that with the coupon rate step-ups are still cheaper than executing a new deal in the market. But then there are also benefits in terms of being able to relever and take out additional capital where you can then redeploy. So that is a decision that we make on a deal-by-deal basis and an asset class by asset class basis. So, yes, I mean, that’s going to be part of our portfolio and part of our portfolio strategy. And given the robust nature of the securitization market, really from last year going to this year, we do expect that trend to continue.

Jake Katzicus: Great. Thank you, guys.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. At this time, I’m showing no more questions in the queue. Now I’d like to turn the call back over to Jason Serrano for closing remarks. Please go ahead.

Jason Serrano: Well, thank you for your time today. We look forward to speaking to you regarding our first quarter results. Have a great day.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.