New York Mortgage Trust Q3 2024 Earnings Report

New York Mortgage Trust EPS Results

• Actual EPS: $0.39
• Consensus EPS: $0.06
• Beat/Miss: Beat by +$0.33
• One Year Ago EPS: $0.12

New York Mortgage Trust Revenue Results

• Actual Revenue: $108.36 million
• Expected Revenue: $22.10 million
• Beat/Miss: Beat by +$86.26 million
• YoY Revenue Growth: N/A

New York Mortgage Trust Announcement Details

• Quarter: Q3 2024
• Date: 10/30/2024
• Time: After Market Closes
• Conference Call Date: Thursday, October 31, 2024
• Conference Call Time: 9:00AM ET

New York Mortgage Trust (NASDAQ:NYMT) acquires, invests in, finances, and manages mortgage-related single-family and multi-family residential assets in the United States. Its targeted investments include residential loans, including business purpose loans; structured multi-family property investments, such as preferred equity in, and mezzanine loans to owners of multi-family properties; non-agency residential mortgage-backed securities (RMBS); agency RMBS; commercial mortgage-backed securities (CMBS); single-family rental properties; and other mortgage, residential housing, and credit-related assets. The company also qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. New York Mortgage Trust, Inc. was incorporated in 2003 and is headquartered in New York, New York.

New York Mortgage Trust Q3 2024 Earnings Call Transcript

Key Takeaways

• The company shifted its strategy from relying on total‐return monetization to building recurring interest income, driving Q3 EPS to $0.36 and undepreciated EPS to $0.39 versus a $0.25 loss in Q2.
• Portfolio size increased by $1 billion (17% QoQ, over 33% YTD) without tapping excess liquidity, boosting adjusted interest income to $100 million in Q3 (39% YTD growth) and adjusted net interest income by 22% YTD.
• Allocation to high‐coupon, short‐duration credit loans and Agency RMBS grew, with the Agency book reaching ~$3 billion (42% of assets), supported by six securitizations in 2024 that lowered funding costs and secured term financing.
• Exposure to volatile multifamily JV equity was reduced to $19 million, and ~$300 million of expected mezzanine loan redemptions will be redeployed into higher‐yielding core strategies.
• Adjusted book value per share ended at $10.87 (down 1.4% QoQ), the $0.20 dividend was maintained, and leverage remained prudent (2.6× recourse, 2.5× portfolio recourse) with lower financing costs via interest rate swaps.

Presentation

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust Third 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. Session.

[Operator]

This conference is being recorded on Thursday, October 31, 2024. I would now like to turn the call over to Kristi Musalem, Investor Relations. Please go ahead.

[Kristi Mussallem, AVP - Investor Relations at New York Mortgage Trust]

Good morning, and thank you all for joining New York Mortgage Trust Third Quarter 2024 Earnings Call. A press release and supplemental financial presentation with New York Mortgage Trust's 3rd 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 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.

[Kristi Mussallem, AVP - Investor Relations at New York Mortgage Trust]

Although New York Mortgage Trust believes the expectations reflected in these 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, Chief Executive Officer at New York Mortgage Trust]

Hi, good morning. Thank you for joining New York Mortgage Trust 3rd quarter earnings call. Joining me today is Nick Ma, President and Christine Herriot, CFO. The company reported sharply higher levels of income in the 3rd quarter with earnings per share at $0.36 The improved earnings were a result of a portfolio plan, which began over a year ago. The internal view was to build a consistent foundation of reoccurring earnings through interest income versus the previous strategy of relying on the monetization of total returns to support our dividend.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

Thus, we began decreasing exposure to assets that contain either no carry or very low level of current interest, primarily found within our multifamily portfolio and rotated that capital into high coupon short duration credit loans and Agency RBS at wider spreads. With this activity, we believe we could obtain the dual benefit of meeting equity return targets set for our capital, while also maintaining the flexibility for future capital mobilization. Said simply, we wanted to retain option value of raising our earnings power through the higher return opportunities in event of subsequent market dislocation. As we've stated previously, we are concerned about a slowing U. S.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

Economy and the consequences it may bring to certain sectors that we monitor. Last quarter, we shared a graph of record high U. S. Consumer debt against a depressed consumer savings rate. Today, on Page 8 of our supplemental, we show a similar predicament, but on a much larger scale.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

The federal government is running a large primary deficit despite very low unemployment, which is historically a rare bet. Ultimately, we are concerned about persistently high U. S. Debt levels and its potential to crowd out private market trades. With that said, the market is performing extremely well today.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

There's plenty of liquidity within the warehouse financing and securitization markets. Nick will further discuss our activity here of meeting our leverage objectives to minimize recourse mark to market financing risk with credit investments. On Page 9, we show some important developments related to our balance sheet growth. We increased our portfolio by $1,000,000,000 or 17% from last quarter. Stepping back, the company's portfolio grew over 1 third year to date.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

Admittedly, we were underinvested earlier in the year and consequently did not achieve our earnings potential. With 20 years of buy side experience in these markets, our management team was in touch with large opportunities throughout the year to accelerate growth. However, we felt it was extremely important to maintain the course of a deliberate approach to balance sheet growth by prioritizing investments containing fundamentally stable income and did not veer from our objective. Despite a measured pace of capital deployment each quarter, we have finally seen the momentum of the cumulative impact to our growth. We had over $100,000,000 of adjusted interest income in the 3rd quarter, a 39% year to date increase and a 22% year to date increase to adjusted net interest income.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

Notably, we accomplished substantial portfolio growth without depleting our excess liquidity. At the end of the Q3, we had $408,000,000 or $6,000,000 more than that of the Q1 of this year. With strong loan liquidity, we see tremendous opportunity for the company to build on quarterly earnings, particularly without having near term corporate debt maturities to contend with. We are excited about extracting full earnings potential of our capital by continuing to rotate assets, particularly from future expected redemptions received on nearly $300,000,000 in our multifamily mezzanine lending book. Lastly, I wanted to wrap up my comments by discussing company book value.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

While Christine will comment on the details of the relatively flat quarterly move, I wanted to highlight the composition of our book, particularly against a ninethirty trading market cap, which is shown on Page 10 of the supplemental. To start, our balance sheet is very different from recent past and contains a solid foundation to build off of. At the end of the Q3, dollars 5.80 per share is attributed to cash and capital allocated to the Agency RMBS trades. We believe that a capital allocation of approximately 25% to 35% for the company in the Agency sector in the near term will provide downside support to our market cap from potential broader market dislocation. Additionally, dollars 3.22 per share is attributed to BPL bridge loans that is now mostly term finance inefficient securitizations.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

As Nick will show, performance has been excellent providing a steady source of recurring income to the company. After that, we show a total of $0.21 per share attributed to the multifamily JV equity book. This strategy has been the primary source of previous book value volatility. However, after recent dispositions, which Christine will discuss, dollars 19,000,000 remaining exposure is immaterial to the company today. Finally, the remainder of our asset less corporate financings is $1.64 per share, an additional $1.55 per share above book value can be potentially gained after consideration of our asset holdings maturing at par.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

By maintaining a medium to long term view to shareholder value, we believe we are well positioned for growth in 2025, supported by strong balance sheet and a growing income base. At this time, I'll pass the call over to Christine to discuss our financial highlights. Christine?

[Kristine Nario, Chief Financial Officer at New York Mortgage Trust]

Thank you, Jason. Good morning. I will focus my commentary on the main drivers of our Q3 financial results and refer to the quarterly comparative financial information section of our supplemental. As Jason highlighted, our continued focus on investing in assets that provide recurring income resulted in undepreciated earnings per share of $0.39 in the 3rd quarter as compared to undepreciated loss per share of $0.25 in the 2nd quarter. Our earnings were positively impacted by valuation improvements on our residential loan and bond portfolios due to changes in interest rates, contributing $1.07 per share of unrealized gains, which were partially offset by $0.67 per share in losses recognized in our derivative instruments, primarily consisting of interest rate swaps.

[Kristine Nario, Chief Financial Officer at New York Mortgage Trust]

With the intent of rotating our investment portfolio into interest income earning assets, our investment portfolio increased on a net basis by approximately $1,000,000,000 $1,800,000,000 during the Q3 year to date, respectively, ending at $6,900,000,000 as of September. As a result, net interest income contribution increased to $0.22 in the current quarter from $0.21 in the 2nd quarter and $0.18 a year ago. Our quarterly adjusted net interest income also increased by $1,400,000 to $28,700,000 in the 3rd quarter from $27,300,000 in the 2nd quarter. And as detailed in Slide 27, our yield on average interest earning assets have steadily increased over the last few quarters, growing by 23 basis points during the quarter and 48 basis points year to date. Net interest spread was slightly lower in the quarter, but has increased by 30 basis points year to date.

[Kristine Nario, Chief Financial Officer at New York Mortgage Trust]

Our interest rate swaps also continue to benefit our portfolio, reducing average financing costs by 63 and 72 basis points during the quarter year to date, respectively. We continue to make progress in the disposition of our multifamily real estate assets held on balance sheet. During the quarter, we disposed of 6 multifamily real estate assets received and received net proceeds of approximately 34 point $7,000,000 and realized $13,600,000 of net gains to the company. These dispositions had a secondary positive impact that we will benefit from in subsequent quarters. With these dispositions, we reduced the negative drag from these properties, consequently decreasing our net loss from real estate from $13,100,000 to $7,500,000 during the quarter.

[Kristine Nario, Chief Financial Officer at New York Mortgage Trust]

We are actively working to dispose of additional multifamily properties, and we expect earnings to improve without the negative drag from these assets in the range of $1,000,000 to $1,500,000 per quarter. Although total G and A expenses were essentially flat as compared to the previous quarter, the growth in our residential loan book resulted in an expected increase in portfolio operating expenses of $1,100,000 We also incurred debt issuance expenses of $2,400,000 related to the issuance of 2 securitization deals, which were fully expensed in the current quarter and not amortized over a longer time horizon due to our fair value election. GAAP book value increased by 1.4% during the quarter and adjusted book value per share ended $10.87 down 1.4 from the 2nd quarter. Adjusted book value was lower due to a reduction in the fair value of our amortized cost liabilities caused by decreases in interest rates and a reduction in cumulative depreciation and amortization add back related to our multifamily property. As of quarter end, the company's recourse leverage ratio and portfolio recourse leverage ratio moved higher to 2.6 times and 2.5 times, respectively, from 2.1 times and 2 times, respectively, as of June 30, due to our continued financing of investment securities, primarily Agency RMBS.

[Kristine Nario, Chief Financial Officer at New York Mortgage Trust]

Our portfolio recourse leverage in our credit and other investments stands at 0.8x, up from 0.5x at June 30 due to acquisitions during the quarter, partially funded by recourse repurchase financing. With our utilization of securitized financing for our credit assets, we do not expect to see a linear increase in our credit portfolio recourse leverage with the growth in our credit book. We paid a $0.20 per common share dividend, unchanged from the prior quarter. We remain committed to maintaining an attractive current yield for our shareholders. And as we continue to rotate excess liquidity into reinvestment in assets that generate recurring income, while optimizing expenses and growing fee revenue through 3rd party joint venture arrangements, we expect recurrent earnings to move closer to the current dividend.

[Kristine Nario, Chief Financial Officer at New York Mortgage Trust]

I will now turn it over to Nick to go over the market and strategy update. Nick?

[Nicholas Mah, President at New York Mortgage Trust]

Thanks, Christine. The long awaited Fed pivot materialized in September with a sizable 50 basis points cut closing out an overall positive quarter for fixed income markets. Recently, however, volatility has increased due to robust labor market data. We are well positioned with the diversified mix of Agency RMBS and credit investments to navigate this evolving market. As Jason mentioned earlier, we also have meaningful capability and capacity to take advantage of market opportunities ahead.

[Nicholas Mah, President at New York Mortgage Trust]

We made over $1,000,000,000 of residential investments in the Q3 led by $372,000,000 of Agency RMBS, dollars 378,000,000 of short duration BPL bridge loans and $232,000,000 of 30 year BPL rental loans. We have achieved 7 consecutive quarters of increasing whole loan purchases. This steady uptick in capital deployment has been directly correlated with the growth and durability of overall adjusted interest income. Alongside the growth of our whole loan investments, we were also a more active issuer of securitizations this year. We have now completed a total of 6 securitizations in 2024 across several sectors, making this our most active year of issuance in the firm's history.

[Nicholas Mah, President at New York Mortgage Trust]

Not only have base rates been trending lower, but a healthy economy has been germane to lower credit spreads. Overall execution of these deals has improved compared to conventional repo financing. Terming out financing of our loans into non mark to market securitizations will contribute to more stable liquidity management in the future. In executing our BPL bridge securitizations, we currently have $706,000,000 of revolving debt that we can recycle to fund future purchases. We also have access to additional financing from $2,200,000,000 of available whole loan repo capacity.

[Nicholas Mah, President at New York Mortgage Trust]

With a combination of revolving securitizations and repo, we can more efficiently utilize leverage and fund future investments. As we mentioned previously, our conservative loan selection criteria also fits well within the parameters of rated BPL Bridge securitizations. We have now completed 2 rated BPL Bridge deals, executing on our second one in the 3rd quarter with a $238,000,000 size at a 5.65 percent effective cost of funds. This represents 112 basis points lower effective cost compared to our inaugural rated BPL bridge deal issued in the 2nd quarter and more than 140 basis points lower effective cost compared to repo. These incremental cost savings will aid in bolstering future net interest income.

[Nicholas Mah, President at New York Mortgage Trust]

We have restarted our BPL rental program this year and recently issued our 1st securitization in this sector since 2022. We were dormant in the BPL rental asset class for several quarters during a period of tightening monetary policy where the market experienced heightened pricing volatility. However, at the end of the Fed hiking cycle came into view, we pivoted to increasing our exposure to BPL rental loans. Generally, BPL rental loans have prepayment protection through prepayment penalties, which can be beneficial in a declining rate environment. Like our philosophy in BPL Bridge, we target high quality loans with strong characteristics and shy away from the incremental yield at the periphery of credit eligibility.

[Nicholas Mah, President at New York Mortgage Trust]

We will continue to opportunistically participate in this strategy on a go forward basis with a goal of continuing to finance these assets through securitization. In Agency RMBS, current coupon mortgage spreads declined from 148 basis points to 129 basis points in the quarter as interest rate volatility declined. Given the decline in spreads, we have slowed the pace of acquisitions with a 20% drop in agency purchase volume quarter over quarter. Overall, however, the portfolio is still growing. The agency RMBS book is now almost $3,000,000,000 which constitutes 42% of our asset portfolio and 23% of our capital allocation.

[Nicholas Mah, President at New York Mortgage Trust]

We expect the portfolio to continue to grow as Agency RMBS remains a core strategy for us in the near term. The strategy trades at historically wide spreads and provides diversification for the credit portfolio. Furthermore, the liquidity in our Agency RMBS strategy allows us to rotate from this asset class when other opportunities arise or to lean into the strategy when spreads move wider. Our target assets are still current coupon spec pools due to the favorable carry profile, but we have also started to diversify our purchases to include some Belly coupons as well. The weighted average coupon of spec pools purchased was 5.34 this quarter across a mix of 6, 5 and 4.5 coupon specs.

[Nicholas Mah, President at New York Mortgage Trust]

In BPL Bridge, we have invested over $4,500,000,000 to date since the inception of our strategy in 2019. We are focused on traditional credit profiles within this sector. Because of this, we have been rewarded by improving credit fundamentals along with preferential execution and bond investor interest in our rated securitization program. We experienced a steady increase in our portfolio size through our acquisition pipeline with delinquencies continuing to decline on both an absolute and percentage basis. We continue to avoid niche strategies such as ground up construction and multifamily lending, with these assets accounting for only 18% of our overall BPL Bridge portfolio.

[Nicholas Mah, President at New York Mortgage Trust]

The percentage of these niche sectors in our portfolio continues to decline given the focus on more traditional Bridge product for our ongoing acquisitions. In multifamily, we expect continued redemptions in our mezzanine lending and cross collateralized mezzanine lending portfolios. The strength of the portfolio lies in our borrowers having a combination of fixed rate senior debt or hedged floating rate senior debt, keeping financing costs lower and supporting overall NOI at the property level. In the Q3, our combined mezzanine lending and cross collateralized mezzanine lending portfolio redeemed at an approximately 6% rate. We will reallocate this and future redemption proceeds into our core strategies to further drive interest income growth.

[Nicholas Mah, President at New York Mortgage Trust]

As we noted last quarter, we look forward to deploying capital into multifamily strategies through 3rd party capital partnerships. We are proactively building a pipeline of investments in parallel to onboarding a JV partner in this space. We will now open up the call for Q and A. Operator?

[Operator]

Thank you. At this time, we will conduct the question and answer session. Our first question comes from the line of Bose George with KBW. Your line is now open.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, everyone. Good morning. Actually in terms of your book value, you noted that the JV piece now is pretty small. So do you feel like your book value is largely bottomed or is there stuff in the multifamily piece that we should keep an eye on as well?

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

Yes, thank you. As we noted in prior quarters, the book value volatility stemmed from our JV equity book. As we noted, we have $19,000,000 remaining in that position. And in that position, there's 7 total assets on the 7, 4 of them we have near term near site visibility into resolutions. Our current holding value represents the price we're receiving in those LOIs.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

And then the remaining 3 is roughly about $1,400,000 of total value. So when you look through where that volatility has come from, it's been centered around the JV equity book and the fact that we're very close to actually winding down nearly all the assets with remaining value of $1,400,000 after these LOIs are in place. We see that book value that volatility led given this portfolio has now moved on.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thanks. And then actually can we just get an update on book value quarter to date, any changes?

[Nicholas Mah, President at New York Mortgage Trust]

Sure. As of this week, we see adjusted book value down somewhere between 1% to 2%.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thanks.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Jason Stewart with Janney Montgomery Scott. Your line is now open.

[Jason Stewart, Director & Equity Research Analyst at Janney Montgomery Scott]

Hey, good morning. Thanks for taking the question. Jason, maybe Nick, could you just give us a high level take on where you see gross ROE by strategy and maybe specifically on the agency side and the BPL side?

[Nicholas Mah, President at New York Mortgage Trust]

Sure. So I'll start with the BPL Bridge side since we've done a few securitizations recently this year and have a pretty decent color in terms of where things are pricing out. So execution there continues to be very robust just given the advent of rated RTL securitizations this particular year. So for that particular strategy, we do see 20 plus percent type gross ROEs on that on a levered basis. On the agency side, there's been a fair amount of volatility.

[Nicholas Mah, President at New York Mortgage Trust]

So ended the quarter relatively tight on a z spread basis. It has widened out to today a little bit wider. So I would say that ROEs there are somewhere in the mid teens. In terms of some of the other strategies that we have, we mentioned DPL rental strategy, which we've also had recent securitization prints. We see that something in the mid to high teens type ROEs.

[Jason Stewart, Director & Equity Research Analyst at Janney Montgomery Scott]

Okay. Thanks. And then on the agency side, given that you mentioned the volatility, I mean, spreads are wider. So ROE is probably at the higher end of that range. Have you shifted capital allocation at all into that leaning into the widening?

[Nicholas Mah, President at New York Mortgage Trust]

Yes. So I mean, you're seeing it from our activity that we're pretty market driven on the agency strategy. The trend line will still be higher. We intend to grow this portfolio, but we don't have to do it all in one particular quarter. So last particular quarter, as spreads have tightened in, we have the emphasized agencies now with wider spreads, we expect to be more active in the agency space.

[Jason Stewart, Director & Equity Research Analyst at Janney Montgomery Scott]

Okay. Just one last question on the overall, just macro, just curious your take. I know multifamily on the JV side is down to something pretty nominal, but how is this increase in volatility rate volatility impacted CRE and maybe especially multifamily deal activity?

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

Yes. So on the deal activity side, it certainly has slowed overall activity in the market, purchase activity of properties. We have a putting together final touches of a JV agreement where we're focused on adding mezzanine loans to a with third party capital that we noted last quarter that could be up to about $300,000,000 And what we're seeing overall relating to our pipelines in that asset class for that 3rd party capital is that it's definitely lower year over year quarter over quarter. I think this latest rate move higher, deal activity was starting to be positive quarter over quarter and then all of a sudden those who did not lock in fixed rate coupons or didn't have the hedges in place, We saw properties come off market and purchases that ended up just moving away. So I think overall, particularly with respect to election, there's not a lot of folks in this space that want to put long term duration risk on their balance sheet and then looking forward towards looking at what are the economic plans of whoever is in office and what that would mean for rates and deficit growth etcetera to then step into the market as a whole.

[Jason Serrano, Chief Executive Officer at New York Mortgage Trust]

So the market is I think has been basically been curved a little bit as it relates to the timing of activity. We're not going to see a lot of activity in November in this space. And then generally December cyclically is a low month. So I think you're going to see robust activity back into January February given the slowdown in the last 2 months of this year.

[Jason Stewart, Director & Equity Research Analyst at Janney Montgomery Scott]

Great. Thanks guys. Appreciate it.

[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, Chief Executive Officer at New York Mortgage Trust]

Thank you for your time this morning. We look forward to sharing our Q4 financial results early next year. Have a great day.

[Operator]

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

Participants

Executives

• Kristi Mussallem, AVP - Investor Relations
• Jason Serrano, Chief Executive Officer
• Kristine Nario, Chief Financial Officer
• Nicholas Mah, President

Analysts

• Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)
• Jason Stewart, Director & Equity Research Analyst at Janney Montgomery Scott