New York Mortgage Trust, Inc. (NASDAQ:NYMT) Q1 2025 Earnings Call Transcript

New York Mortgage Trust, Inc. (NASDAQ:NYMT) Q1 2025 Earnings Call Transcript May 1, 2025

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the New York Mortgage Trust First Quarter 2025 Results Conference Call. During today’s presentation, all parties are in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions] This conference is being recorded on Thursday, May 1, 2025. I would now like to turn the call over to Kristi Mussallem, Investor Relations. Please go ahead.

Kristi Mussallem: Good morning, and welcome to the first quarter 2025 earnings call for New York Mortgage Trust. A press release and supplemental financial presentation with New York Mortgage Trust’s first quarter 2025 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 Presentations section of the company’s website. At this time, management would like me to inform you that certain statements made during the conference call, which are not historical, may be deemed forward-looking statements within the 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’s first quarter earnings call. Joining me today is Nick Mah, President; and Kristine Nario, CFO. We are happy to spend time with you this Thursday morning as we share our first-quarter recap and insights into our Q2 activity. Kristine will provide commentary on first-quarter results, and Nick will provide an update to our portfolio positioning and focus. This was a pivotal quarter for our New York Mortgage Trust. During the first quarter, a more favorable market environment provided attractive entry points, and we capitalized on these conditions by meaningfully increasing investment activity. We began the quarter focused on raising interest income through portfolio optimization.

As the quarter progressed, we unlocked company excess liquidity and as a result, doubled last quarter’s investment pace. Consequently, we are pleased to report that recurring earnings in the first quarter increased to a level consistent with the company’s dividend of $0.20 per share. This achievement reflects the success of the strategic portfolio restructuring initiated two years ago, where we focused on sustainably enhancing interest income through investments in high-liquid Agency RMBS and through short-duration credit assets in the residential BPL sector. What maybe comes as a surprise, despite high investment deployment, company excess liquidity increased in the quarter. This was accomplished by taking prompt action in January before volatility took hold when we locked in $83 million senior unsecured five-year note, followed by completing two securitizations in the BPL sector later in the quarter thus, after adding $1.8 billion of investments, we ended the quarter with $407 million of excess liquidity, an increase of nearly 20% from the previous quarter.

Q&A Session

We are entering the second quarter from a position of strength. As we continue to grow our balance sheet, primarily focused on Agency RMBS to maintain liquidity. Now, given the wider spreads after quarter-end, the return potential of the portfolio has increased. Nick will further elaborate on this point later. Also, over the last 12 months, we have been able to reduce our run-rate G&A through operational efficiencies, which has helped support our dividend coverage. In addition, we believe there is near-term opportunity to generate additional revenue by leveraging our platform for service fee income in the year. Before I pass the call over to Kristine to discuss the company’s financial results, I wanted to highlight two slides from our quarterly investor supplement available on our website.

Page 8 is essentially the same slide from last quarter, while it was correct to point out the interplays between federal deficit spending and trade wars back in February, its significance surprised the macro markets with intense volatility that ensued. The trade wars could bring about a stagflationary shock, lowering consumer confidence and with it consumption. Inventory building in the second quarter will likely mask this effect, thus, the impact may not be seen until the summer. In the REIT sector, the importance of choices made to drive earnings as far back as last year and up to this pivotal quarter for the economy cannot be understated reflecting some broader macro concern, the portfolio recourse leverage ratio at the company reduced to 0.5 times in Q1 from 1.1 times last quarter.

Agency RMBS investments are now over 50% of company assets, backed by 20 years of experience and proven expertise in navigating distressed mortgage markets, our team has made strategic changes to capitalize on heightened investment opportunities amid market dislocation. With that said, noted on Page 10 of our supplemental, we believe NYMT’s equity significantly undervalued trading in the low-to mid-60s percent of book value. Strikingly, NYMT’s equity trades at a 10% discount to a smaller cohort of company assets of just cash and Agency RMBS. With full dividend support and real growth capacity through liquidity on balance sheet, we believe NYMT shares present exceptional value, and I can tell you our entire team is motivated to demonstrate this point.

At this time, I’ll pass the call over to Christine to provide our first quarter financial highlights. Christine?

Kristine Nario: Thank you, Jason. Good morning. I’ll cover the key factors behind our first quarter financial results. As we begin the new year, we are pleased to introduce a new non-GAAP financial measure, earnings available for distribution or EAD, which replaces our previously reported undepreciated earnings. Following two years of strategic portfolio repositioning, including divesting joint-venture equity investments in multifamily properties and acquiring interest-earning assets like Agency RMBS and business purpose loans, we believe EAD better reflects our current income-generating capability to support the company’s dividend. EAD is defined as GAAP net income, excluding realized and unrealized gains and losses, derivative gains and losses other than net interest benefit from interest rate swaps, real estate impairments, non-cash items, and certain other non-recurring items.

As I discussed in last quarter’s earnings call, we are pleased with the progress we’ve made in expanding our balance sheet, rotating real property exposure into assets that generate interest income and reducing G&A. Our efforts resulted in an increase in EAD per share to $0.20 in the first quarter of 2025 compared to $0.16 in the fourth quarter of 2024. This strategic shift also contributed to an increase in quarterly EPS contribution from adjusted net interest income to $0.40 per share, up from $0.36 per share in the prior quarter and $0.29 per share a year ago, representing an increase of 11% quarter-over-quarter and 38% year-over-year. Our net interest spread was 132 basis points for the quarter compared to 137 basis points in the prior quarter, reflecting a growing allocation in Agency RMBS, which carry lower yields relative to business purpose loans.

On a positive note, our average financing costs improved by five basis points, benefiting from lower base rates and improved terms on repurchase agreements as well as more advantageous financing terms achieved through securitizations completed during the quarter relative to repurchase financing. We recognized net unrealized gains totaling $118.2 million during the quarter, primarily attributable to higher valuations in our Agency RMBS portfolio and residential loan book. These gains were largely a result of a decline in interest rates, which more than offset the impact of spread widening. Partially offsetting these gains were unrealized losses of approximately $71.3 million from our derivative instruments, mainly interest-rate swaps. We also recorded modest net realized losses of approximately $2.3 million from investment activity, with $26.8 million in realized losses from sales of investment securities, largely offset by realized gains of $24.5 million from derivative instruments.

Additionally, we recognized losses of approximately $14.3 million related to conversion of loans to foreclosed properties that we still hold on the balance sheet. These losses were largely offset by the reversal of previously recognized unrealized losses associated with the loans. The disposition of our MultiFamily joint-venture equity investments in prior quarters further contributed to the reduction in negative earnings drag from real estate, with net real estate losses declining from $5.9 million in the fourth quarter of 2024 to $2.2 million in the current quarter. General and administrative expenses increased slightly during the quarter, primarily due to non-recurring employee severance costs related to the company’s restructuring initiatives, while portfolio operating expenses remained flat.

We also incurred $5.4 million in debt issuance costs related to the issuance of senior unsecured notes and completion of two securitizations, which were fully expensed during the quarter due to our fair value election. GAAP book-value and adjusted book value per share increased to $9.37 and $10.43, respectively, representing a 1% increase compared to December 31, 2024. Our recourse leverage ratio and portfolio recourse leverage ratio increased to 3.4 times and 3.2 times, respectively, from 3 times and 2.9 times at year-end, primarily due to the issuance of senior unsecured notes and continued financing activity related to Agency RMBS acquisitions. Portfolio recourse leverage on our credit and other investments declined to 0.5 times from 1.1 times, reflecting the successful completion of two residential loan securitizations during the quarter.

Finally, the restructuring and repositioning of our investment portfolio in recent years have meaningfully enhanced our ability to generate recurring income in support of our current dividend of $0.20 per share, which remains unchanged for the sixth consecutive quarter. With that, I’ll turn it over to Nick to go over the market and strategy update. Nick?

Nick Mah: Thanks, Kristine. In the first quarter, the market experienced spread widening in Agency RMBS and Residential Credit. Treasury rates crept higher in the first couple of weeks of the year, but trended lower by the end of the quarter. We took advantage of the higher spreads in interest rate gyrations to meaningfully increase our quarterly purchases concentrated in Agency RMBS. We bought approximately $1.5 billion of Agency RMBS in the quarter. This was almost four times more investments in this sector than the prior quarter and 53% more than our last historical peak of Agency RMBS purchases in the third quarter of 2023. The heightened acquisition pace contributed to the considerable expansion of EAD this quarter. Within Residential Credit, we purchased $397 million of whole loans.

More specifically, we acquired $232 million of Bridge and $163 million of Rental loans within the BPL sector. Consistent with prior quarters, investment activity tilted more towards Bridge loans, but Rental loans have now become a regular portion of our volume since the restart of our purchase program in the first quarter of 2024. We like the credit profile of BPL-Rental, and we were comfortable adding duration to the portfolio during a period where rates would trend lower. We completed a $254 million securitization of rental loans in the first quarter, which was our second deal issued in this asset class in the last five months. In the first quarter, we funded our purchase pipeline primarily with proceeds from a combination of an unsecured bond issuance in January, securitization financings, and the continued resolution of non-core assets.

Despite a record amount of purchases, we ended the quarter with a higher available cash balance than what we had at the end of 2024. We have a nice runway to utilize our capital to further grow the portfolio at attractive levels due to the recent market turmoil. In the near-to-medium term, we expect further bouts of volatility as this complex geopolitical situation finds its eventual equilibrium. So far in the second quarter, we are deploying our liquidity to invest in assets at these compelling returns, but we are doing so at a more measured pace versus the first quarter. We seek to preserve some capital for better entry points and new opportunities that we expect to arise in the future. More importantly, we want to highlight our flexibility to shift capital allocation into either Agency RMBS or Residential Credit depending on market conditions.

Over several quarters, we created this optionality by limiting credit leverage and expanding into more liquid Agency RMBS. With this flexibility, we can better navigate the evolving market turbulence while pursuing continued portfolio growth. As was the case in the first quarter, we currently see better value in Agency RMBS relative to Residential Credit. The substantial widening of Agency spreads under the backdrop of an increasing possibility of a recession presents an ideal environment to invest in the sector. Back in the first quarter, which feels like ages ago, current coupon Agency spreads widened from 135 basis points to 143 basis points. This coincided with our initial sizable ramp-up of Agency RMBS purchases. This price action was soon overshadowed by larger moves that we have seen thus far in the second quarter.

Agency current coupon spreads to treasuries blew out from 143 basis points to 163 basis points in the first three weeks of April, a 20-basis-point swing. Swap spreads were also sharply moving into more negative territory. In spread to swaps terms, spreads moved from 181 basis points to 213 basis points, a larger 32 basis points spread widening in that same time period. Recently, volatility has subsided and spreads have settled lower, although still high by historical standards. Also, the repo markets continue to operate in a healthy manner, unlike what we experienced in March of 2020. This further bolsters our desire to continue to increase our Agency RMBS capital allocation in the future. Factoring in the Fed’s rate cuts thus far, a greater portion of the coupon stack now offers an attractive carry profile.

In the first quarter, we primarily targeted 5.5% coupon specs with some allocation to 5s. However, we will likely allocate more to 5s than 5.5s in the near term. We aim to optimize the overall expected return and EAD contribution of the agency portfolio, while maintaining a healthier convexity profile if rates do decline from here, especially if we encounter a U.S. economic slowdown. In the BPL sector, we have seen stable pricing on BPL-Bridge loans through the recent volatility. Competition for BPL-Bridge loans has steadily increased with rated securitizations becoming more commonplace. This has led to stickier purchase yields due to the locked-in nature of the financing. Under these market conditions, our goal is to maintain our disciplined credit selection process, which will likely limit any additional equity capital allocation to BPL-Bridge in the near term.

We do intend to have a pipeline of investments in BPL-Bridge as we fully utilize the $706 million of revolving securitization debt that we have available. In BPL-Rental, we have seen spread winding commensurate with other longer duration assets, and we’ll continue to pursue investments here. The securitization markets continue to function well despite some modest spread widening in AAAs and a steeper credit curve. We still favor this credit sector versus BPL-Bridge due to the winding yields and strong liquidity given the deeper set of institutional investors that participate in these loans. In Multi-Family, our capital allocation to this sector has declined from 27% at the beginning of last year to 19% at the end of this first quarter. We have reduced our JV equity exposure to less than 1% of our overall portfolio over this time period.

Within the combined Multi-Family Mezzanine loan portfolio, we experienced sizable resolution activity year-to-date, with 10% of the book paying off thus far. We have invested to pay off proceeds into our core residential strategies. We believe that the structural elements in our portfolio, like the equity buildup due to seasoning can provide a strong impetus for robust payoff rates in 2025 despite a murkier economic outlook. Overall, our disciplined approach to balance sheet growth over the past several quarters enabled us to reach an important goal this quarter to meet our dividend rate with our recurring earnings. We are eager to build on this momentum for the future. I will now pass the call back to the operator for Q&A.

Operator: [Operator Instructions] Randy Binner from B. Riley Securities. Your line is now open.

Tim D’Agostino: Hi. Thank you for taking the question. This is Tim D’Agostino on for Randy Binner. Congrats on the quarter. With more commentary and changes at FHFA and the GSEs, we’d love to hear your thoughts on the impact on your business and the mortgage market with the potential GSE reform. Thank you.

Jason Serrano: Yes, thanks for your question. So what we do outside on the credit — outside of the GSE landscape and on more investor loan-type of credit applications, obviously, within the Agency space, that’s an impact on Agency RMBS market. And I think overall, there’s a lot of considerations that have to take place for GS reform. It could likely bring higher mortgage rates, liquidity issues and also — there’s also like interplays between even different risk-based pricing that could come about with private — with a private issuance such as like geography, which doesn’t really come up and is not an issue with GSE current issuance. So I think overall with the mandate of creating homeownership and also financeability for that with a homeownership rate that’s actually has moved down a little bit about 60 basis points just from year-over-year from last quarter, I think it’s going to take some time for this to come about and we don’t see it happening under the Trump administration in the next four years.

It’s just the timeline to actually move off to a private, particularly with increasing taking a 3% capital for the GSEs, which is required. Calabria did mention earlier that when he was FHFA Director, that it would — the GSEs could be released under a consent decree, but activities that would have to take place to manage that transition would be — would take years. So, in the near-term and medium-term, we don’t see that being an influence in our activities.

Tim D’Agostino: Okay, great. Thank you so much and congrats on the quarter.

Jason Serrano: Thank you.

Operator: One moment for our next question. Our next question comes from Doug Harter of UBS. Your line is now open. [Operator Instructions]

Ameeta Marissa Lobo: This is Ameeta Marissa Lobo on for Doug. I was hoping you could give us an update on book value performance so far in the second quarter.

Nick Mah: Sure. As of April month-end, which was yesterday, we estimate that adjusted book value is down approximately 1.5%.

Ameeta Marissa Lobo: Got it. Thanks for that. And secondly, you spoke a bit about your capital allocation strategy is given the current market volatility and opportunity set, is the core still Agency RMBS and BPL? Or is there appetite for expanding the credit investment side?

Nick Mah: Yes. I would say that within our core strategies, our core strategies, we are still interested in Agency RMBS in particular, as we noted a little bit earlier. Within BPLs, we do see robust activity. We are on the margin, preferring BPL-Rental over a BPL-Bridge. Relating to other potential asset classes that may creep into our core strategies, we understand right now that the market is fluid. There is credit spread widening. There is an increased possibility of a recession. I would say within credit though, although we have seen spread widening, we haven’t really materially — we haven’t seen any material changes relating to loss assumptions or delinquency assumptions that one would assume if the possibility of recession is higher.

Given our backgrounds in investing in distressed assets, historically, we would need to see more of that occur for us to be excited about deploying additional capital within Residential Credit, just given where the market is today. Within Agency RMBS, we still see historically wide spreads, and this particular asset class does outperform in recessionary scenarios. So those two things cause us to be very excited about deploying additional capital, at least in the near-term within Agency RMBS.

Operator: [Operator Instructions] Thank you. One moment for our next question. Our next question comes from Matthew Erdner from JonesTrading. Your line is now open.

Matthew Erdner: Hi, guys. Thanks for taking the question this morning. Congrats on a great quarter. Could you talk a little bit about the timing surrounding the Mezz and Multi-Family? In the deck, it says you expect redemptions to continue to accelerate. And then was that 10% number year-to-date or as of 3/31?

Jason Serrano: That 10% number was a year-to-date number as of early April. And with regards to the continued paydown, we do believe that the combined Multi-Family Mezzanine portfolio, we do see a healthy pipeline of continued resolutions. So, as I mentioned earlier, we do believe that the 2025 payoff rates are going to be robust. On the JV equity portfolio, which has shrunk considerably, we are making inroads in terms of resolutions over the next few months.

Matthew Erdner: Got it. That’s helpful there. And then as that capital comes back, can you kind of talk about a little more with the allocation there? Ideally, two years from now, where you would like to be, whether it would be a 70-30 Agency credit split. I guess, how are you guys thinking about it once this capital does come back?

Nick Mah: I can tell you right now from the near-term perspective, we do like Agency RMBS more. It is an evolving situation. So we are still investing in Residential Credit on the BPL side. We do expect more opportunities to materialize over the next few months, and we may shift our focus depending on where things go. So looking forward within kind of like a two-year timeframe, especially in a market like this, it’s a little bit difficult. We do know what we are excited about today. We do see a very strong pipeline in terms of being able to continue to invest, continue to grow recurring earnings, and continue to build a strong portfolio. But one of the key things that we mentioned before is that we want to have that flexibility.

We understand that in periods of dislocation like this, there could be new opportunities that will arise. There is a timeline by which the Multifamily portfolio will eventually return to proceeds. That is not immediate. And as that time slowly materializes, we will be making the decisions based on the best risk-adjusted returns that we see in the market.

Matthew Erdner: Got it. That’s helpful information. I appreciate it, guys.

Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Jason Serrano for closing remarks.

Jason Serrano: Thank you for joining the call this morning. We look forward to speaking to you on our second quarter earnings call. Have a great day.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.