Q3 2021 New York Mortgage Trust Inc Earnings Call

Good morning, ladies and gentlemen.

Thank you for standing by Wolfgang to the New York Mortgage Trust third quarter 2021 results conference call.

During todays presentation, all parties will be in a listen only mode.

Following the presentation the conference will be open for questions.

If you have a question. Please press the star followed by the one on your Touchtone phone.

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This conference is being recorded on Tuesday November two 2021.

Our press release and supplemental financial presentation, with New York Mortgage Trust third quarter 'twenty 'twenty. One results was released this morning.

Both the press release and supplemental financial presentation are available on the company's website at www Dot and White and trust dotcom.

Additionally, we are hosting a live webcast of todays 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 maybe 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 Exchange Commission.

Now at this time I would like to introduce Steve Mumma, Chairman and CEO. Please go ahead Steve.

Thank you operator.

Good morning, everyone and thank you for being on the call Jason Serrano, our president will be speaking to our investment portfolio and Christine <unk>, our CFO, who will be speaking in more detail about our financial results.

We will all be speaking to our supplemental financial presentation that was released this morning and is available on our website.

We will now questions following the conclusion of our presentation.

The company continued to deliver solid results in the third quarter with GAAP earnings per share of 10 cents and comprehensive earnings per share of eight cents.

The numbers of the quarter were negatively impacted by nonrecurring onetime charges, including $3 $4 million in expenses related to the early redemption of our 7% and seven eight series C preferred stock, which was refinanced into a $6 seven eight series F preferred stock.

Our cost of capital by 100 basis points.

Additionally, we called a 'twenty 'twenty residential securitization that resulted in the acceleration of $1 $6 million of deferred debt issuance costs.

The loan pools refinanced in August lowered our cost of debt by approximately 210 basis points.

We expect to continue to raise the company's cost of funds with future structured transactions.

This trend will have a positive impact on our earnings going forward.

Now turning to page six of the supplemental presentation, you'll see our investment portfolio totaled $3 $3 billion and our market capitalization was $2 2 billion the.

The portfolio was up approximately $100 million from our market, coupled with our market capitalization unchanged from the previous quarter.

Our capital is currently allocated 74% of single family and 20% to multifamily.

With 6% and other assets, which is largely attributable to our liquidity position.

We continue to focus on credit investments as we believe we can generate better risk adjusted returns with more stable funding.

On slide seven we highlight some of our key developments during the quarter.

We declared a <unk> <unk> common stock dividend.

Our book value was $4 74 unchanged from the previous quarter, and we generated a quarterly economic rate of return of two 1%.

As I said before we redeemed our 2020, that's one securitization for $204 million in July and issued $256 million in our 2021 dash one securitization in August lowering the average cost of funds by 210 basis points. We also redeemed $105 million of our seven.

708 series C preferred stock and replaced with $139 million of 6% and seven eight series F preferred stock again, lowering our cost of capital by 100 basis points.

We continue to focus on longer term financing options to fund our growing business to help us navigate the ever changing financial landscape.

On slide nine we cover key portfolio metrics on a quarter on a quarter over quarter comparison.

Our net interest margin for the third quarter was $3 two 5% an increase of 28 basis points from the previous quarter.

Our portfolio weighted average asset yield at $6, three 9% an improvement of eight basis points and our funding cost improving by 20 basis points ending at $3 one 4%.

This was largely due to our refinancing of the 2021 securitization that I previously spoke about.

Our leverage ratio remains low at three times at two three times and our liquidity remains strong as we go into the fourth quarter.

Now I'd like to turn the presentation over to Christine <unk>, our CFO Christine.

Steve Good morning, everyone and thank you again for being on the call and discussing the financial results for the quarter I will be using some of the information from the quarterly comparative financial information section included in slides 23 to 30 of the supplemental presentation.

Slide 10 summarizes our activity in the third quarter, we acquired residential loans for $371 million funded multifamily joint venture and mezzanine lending investments for 53 million and $43 million, respectively, and purchased $29 million of investment securities.

Residential loans for proceeds totaling $50 million and non agency RMB S. N C. M. B S for proceeds totaling 133 million. We also had total repayments of approximately $307 million primarily from our residential loans that were purchased at a discount.

We had net income of $37 million and comprehensive income of $31 5 million attributable to our common stockholders. Our book value ended at $4 74 unchanged from the previous quarter.

Slide 11 details our financial results, we had net interest income of 31 million relatively flat as compared to the previous quarter.

Continued investment in higher yielding business purpose loans during the quarter.

<unk> to the $1 7 million increase in single family interest income offset by a $1 5 million decrease in multifamily interest income due to sales of C. M. B S. Early in the quarter and payoffs related to our mezzanine lending investments accounted for as loans.

Although there was a decrease in mezzanine investments accounted for as loans are mezzanine investments accounted for as equity increased during the period.

We're meeting $6 2 million in preferred return during the quarter had these mezzanine lending investments qualified for a loan accounting treatment under GAAP. It would have contributed 39 basis points in net interest margin.

Interest expense on single family portfolio decreased by <unk> six.

$6 million, primarily due to the completion of a new R. P. L strategy launched securitization in the third quarter, replacing are redeemed 2020, Rpms strategy securitization at a lower cost. In addition, we recognized a full quarter impact of 58 basis points and interest cost savings related to our BPL securitization.

<unk> that closed in the latter part of the second quarter.

We had non interest income of $49 4 million, mostly from net unrealized gains of $30 1 million due to continued improvement in pricing on our assets, particularly our residential loans and investment in consolidated epilepsy.

We also generated $8 3 million of net realized gains primarily from the sale of MBS and non agency RBS and residential loan prepayment activity. In addition, as discussed earlier, our mezzanine investments accounted for as equity contributed $6 2 million of preferred return we also.

Other income of $8 million, which is primarily related to $2 1 million of income recognized by an equity investment that invest in residential operating properties, partially offset by the $1 6 million of loss related to the redemption of the 2020 RPF strategies loan securitization for an.

This debt issuance costs remaining at the time of redemption.

Included on.

And our results for the quarter is a net loss activity related to multifamily apartment properties in which the company has equity investments because of certain control provisions. We consolidate these properties in our financial statements in accordance with GAAP. We received variable distributions from these equity investments on a pro rata pro rata basis and <unk>.

Management fees based upon property performance. We also participate in allocation of excess cash upon sale of multifamily real estate assets. We pursue these investments for the potential participation in value appreciation of the underlying real estate. These.

These properties generated operating income of 4 million and incurred interest expense and operating expenses of $1 1 million $8 5 million respectively.

After reflecting the share in the losses to the Noncontrolling interest of <unk> 4 million <unk> 4 million in total these multifamily apartment properties incurred a net loss of $5 3 million for the quarter. It should be noted that the net loss. In these properties includes a $5 7 million of depreciation expense and amortization of lease.

Intangibles related to the real estate.

We had total G&A expenses of $12 5 million relatively flat compared to the previous quarter, we had portfolio operating expenses of $7 million, which increased primarily due to the growth of the business purpose loan portfolio, Jason will now go over the market and strategy update Jason.

Thank you Christine and good morning, I was speaking.

Page 13.

Okay.

While home price appreciation you somewhat from a record setting pace not much was accomplished.

U S housing supply deficit.

$5 5 million homes needed to meet short midterm demand only 1.2 million homes are now on the block for sale, which is over 1 million units short of the past 20 year average Additionally, supply chain and labor constraints coffee new home construction around 1 million units.

Okay demand continuing to outpace supply we expect U S.

<unk> credit risk remain range bound through 2020 of higher home prices are required to meet that demand.

We believe short term lending for housing remodeling and kicks off flip socket provides one of the best way.

Play.

Supply and demand imbalance here over the past year, we focused on ramping up at $753 million portfolio, while maintaining strong credit characteristics.

Currently while more of a niche market for scratches on sectors thoughts hockey space for us.

Resources, given the ability to buy a new mortgage.

At a 6% discount on average deposits with nearly half a billion dollars of loans purpose. We are providing we provide great flexibility to generate.

Double digit return with discounts.

Paul.

Lastly, our origination in the multifamily sector provides tremendous value with new mezzanine loans and <unk> opportunities also had a double digit return with single family housing supply issues and higher population mobility trends soccer, probably you'll see a vacancy rate to eight faltering that fits with the national average.

The building a fundamental strength of the multifamily market is hard to ignore.

Long pipeline to take advantage of the swap them out yet.

Going to page 14.

A key value proposition of online to use to find an approach where we can offer an efficient process supported by technology to do more with originators with solid sponsors any suffers.

Because of these relationships fostered over several years and proven capability. We can compete on more demand suddenly just price, which is a key aspect of our portfolio.

In the quarter, we added $505 million of new investments.

Growth was observed at all of course, we're always in the BPL sector. We added new origination pipeline that will allow us to continue increasing assets on balance sheet.

In the mortgage originators are still trying to work all technical origination areas from 2000, Twenty's record origination volume and with our multifamily lending tailored lungs, and JV solutions are meeting the needs of mid sized multifamily sponsors in the south southeast led the way as you know our processing record volumes for <unk>.

<unk>.

Going to page 15, our debt structure on the funding side of the equation, we primarily focus on strategies that do not rely on short term callable mark to market leverage to generate attractive returns.

To the extent that Leverages as part of the strategy, we utilized turned securitization market.

Which help to significantly lower our mark to market repo.

By 90% since the end of 2019.

Markets are in full swing availabilities, arguably arguably greater than prior to the pandemic. However, we believe running one of the lowest portfolio.

In the market now at.

One pound, while still being able to deliver an attractive dividend provide excellent excellent risk adjusted returns.

Or we can organically grow our balance sheet and.

And in dividend by simply reinvesting our cash on balance sheet and through utilization of the securitization market.

No.

Moving to page 16 or single family over here.

As in prior quarters here, we show a cross section of our residential.

I view that is now 74% of our capital allocation and predominantly in residential loans. The average LTV of 65% across all loan types is not reporting over here is that it shows the consistency across our investment platform to speak value without sacrificing quality.

Off the market.

We prefer to give up some yield with better loan characteristics for a more consistent total return profile over a multiyear period.

As I already discussed highly.

Highlights of our strategies in the detail and scratch in that space.

I'd like to spend a moment to discuss the 85 851 million of loans on our balance sheet.

Our appeal, we stopped pursuing a RPI market's about two years ago due to excess liquidity that we're bidding that we were bidding into which are priced out investors, we're calling a double digit return without taking on some kind of risky market based on our modeling assumptions. However, our portfolio continues to benefit from strong returns.

And it booked I can't can't be replicated tomorrow.

We invested in space in two forms through our pls.

And through the epilepsy transaction shown at the bottom.

Securities.

T with a portfolio of RTL loans sold by Freddie Mac that contained staples 10 year financing.

H P. A while these securities.

She purchased back in 2019 2019 to Delever at a faster rate, providing considerable downside protection and upside optionality with respect to a potential deal call strong credit performance supports further potential for book value upside with respect to our issued securitizations.

On page 17.

Yeah, starting with the right side of this page 66% of the RTL loans are now current.

Which accelerated price accretion from 89.

Our purchase price to now $97.

This result, we can now pull these loans into a rated securitization providing attractive forward.

In the high teens against a 65% LTV loan pool.

So our scratching at loan portfolio consistently printed above 30% CPR, which is a similar trend to general agency originations.

We believe similar prepayment trends through our scratching our book demonstrates the quality of loans youre buying construction market and the technical nature of the defects created a ton of origination.

We are well compensated here as the average price discount of our prepaid loans is five to seven points below par.

A quick recap of the discount is why we continue to focus on this market.

Now shifting over to the left side of this page 17 that story is straightforward, we continue to add or details and scratch and dent portfolio.

We are pleased that our loss rate on bolt socket zero percent. So if you want to describe a few years ago.

Yeah.

With larger portfolios in the securitization market is supportive of our appeal book.

After redeeming a previously issued securitization we were able to issue reissue another deal in the market last court, the tightest financing costs ever in the unrated space, allowing us to save 210 basis points of coupons.

With our growing residential loan pipeline, we expect to become a more frequent issuer in the securitization market.

Hum tendency working a few deals at the moment look forward to sharing more about this this execution team.

Turning to page 18 on the detail market are.

Our BPL portfolio is now 753 million with a.

Just over 1700 loans on balance sheet, despite a material increase to market competition over the past two years, we have been able to maintain our yield in the sector with an average coupon of over 9% the strong credit experience borrowers that focus on low cost quick turnaround.

Yes.

Much like our HELOC much like a HELOC there are a lot of moving parts operationally with these long.

Draw scheduled interim cash activity payoff requests because of our dedicated operations team that manages the loans from boarding to pay off.

Offer added value support through our origination partners in this space are helping with the asset management process. Here again, we can win business here on another dimension other than market price.

Turning to page 19 of our multifamily overview.

Our multifamily book mezzanine lending and JV opportunities is now 20% of our castle as mentioned earlier, we have focused on lending to 150 to 300.

Unit volume style low rise properties in secondary and tertiary markets with past eight years with no losses on any investment made here to date.

Our deep credit underwriting of the market property and sponsors creates an opportunity to provide funding solutions across multifamily capital structure with these solutions, we worked to creatively structure a deal that meets sponsors needs as well as ours with a vast experience and strong reputation in this market. We are a preferred partner and expect to materially grow this business.

In the near term by closely work by working closely with relationships fostered over several years.

On page 20.

Our credit characteristics and coupons have been consistent for many years in the sector and has and so has performance with a geographic footprint in the south southeast United States occupancy rates remain high and supported by population shifts favoring these regions due to the due to higher property valuation, we have seen an increase to loan.

The off requests in our portfolio, how long is a structure with minimum return rules for additional income in these cases in the last quarter 60 million paid off at a 12, 6% lifetime IRR for 100 basis points above their contractual coupons.

In summary on page 21.

But we.

We offer our investors a diversified strategy that takes advantages of our opportunities across the residential market and cap structure with a focus on preserving book value, we can efficiently move and move in and move out of markets when risk proposition changes.

Excited about our ability to provide attractive risk adjusted returns.

Vessels with minimal portfolio leverage.

With that I'll pass it back to Steve. Thank you.

Thank you, Jason and Christine operator could you. Please open it up for questions.

As a reminder pass your question you will need to press star one on your telephone.

So enjoy your question press the pound key piece standby, while we compile the Q&A roster.

Yeah.

Our first question comes from the line of Bose George from T. B W. Your line is open.

Hey, everyone. Good morning.

Wanted to ask about the.

The BPL space, we've seen a lot of acquisitions in that space and you've noted historically, but you didn't really want to do that just curious if the activity in the space.

Intensified competition and change anything in terms of returns or how you source them all.

Yes, so we have seen a number of those deals are on.

And Oh and I forgot.

Muslim that's been out there.

We're finding that we can win business here.

Through our <unk>.

Operational platform, which I described earlier as well as our relationships we used it all back in 2019, and the fact that we were kind of an early entry back into the market in 2020 will help support some of these originators when.

They weren't originating loans so.

With that that experience and our background, we were able to contain and maintain our our pipeline.

We are evaluating other platforms.

And really look to move into this market to have an operation light type of model.

In that market.

And we believe over time will generally trend to a.

And industrial loan product, which is quickly.

Quickly called DSC all loans.

Which is a more of a 30 year term market for US is that we will bridge loan.

So those.

There is a transition that I think the market will start seeing over the course of the next year.

And therefore, we're looking for ways to play that transition most of them.

Just staying with him at the BPL sector.

Okay, no that makes sense and then.

Actually could you just remind me what.

You have a repo funded is there room to take the week go down further.

Yes, we are working on.

Gradations in the space, which would.

I'll take.

Take one of our our one of our largest lines, we have today on down roughly 80% so.

We.

The securitization that we were looking to complete will rule.

Mood and reduce our current repo that's minimal on our balance sheet.

Further reduce it.

Based on those conditions.

Hopefully we can.

We will be able to talk more about that next level.

Okay, great. Thanks.

Your next question comes from the line of Stephen Laws from Raymond James Your line is open.

Hi, good morning.

It's sort of a follow up I think that those but you guys have made a lot of progress.

The quarter on reducing financing costs, both on the AR securitization as well as the lower cost preferreds.

And I think that's probably.

It really kicks into earnings here in the coming quarters is that largely.

Accomplished mainly what you can do there or is there more opportunities here to keep pushing down the cost of capital on them.

Overall portfolio financing costs.

Jason why don't you take it.

Yes, so with respect to the loan pools.

<unk>.

<unk>, we're considering would lower our overall financing costs.

The market, we entered last quarter for that unrated.

The transaction was the lowest of financing costs.

Market has seen at 187 basis points.

It is a bit wider today than that point, we still see in the space roughly.

The market is about 75 navigate two points higher, but thats still competitive to kind of repo cost out there.

And and advance rates are roughly the same so our goal is to continue to.

Reduce our repo.

Repo exposure, which would lower our financing costs as well as on a corporate basis, we do have.

A.

A process that is callable.

And that is something that we are looking at as well, so theres some opportunity or on our corporate balance sheet as well for our interest costs that can help them.

Lower the cost of top horticultural balance sheet.

Great. Thanks, Jason and then Kristina appreciate the comments around the RVO.

The real estate operating real estate that you provided.

And I may have been writing the numbers down I apologize I missed this but I think you said it was a $5 3 million loss.

Four reflecting appreciation, but can you give did you provide an outlook or how we should think about that.

Maybe over the next 12 months as we look out.

From either improvements there or are those assets you look to exit.

Well the $5 $3 million is isn't that lots as you indicated but note that the majority of that loss is really related to depreciation expense and amortization of lease intangibles related to that real estate in terms of the outlook I mean, the way we look at these investments it's really.

We pursue these floor value appreciation and so really the exit upon sale is when we get the benefit of a gain on that so that's how we kind of look at this investment but in terms of estimate for the year.

I don't have that in front of me and I could get back to you if you'd like.

Oh Thats fine.

The timing of when those things may happen I guess is a cell phone.

Yes, Steve I think so.

Cause of accounting requirements. We consolidate these we still look at all of these investors what our actual net dollar investment is in these properties and so we evaluate them more on a on a net basis as opposed to a gross basis that gross basis as Christine mentioned generates a lot of depreciation expense. So there is going to be a negative component.

In our earnings going forward, that's going to be related to these properties that we will spend as that grows in size, because we are increasing our pace and our JV investing in to the extent that we fall into the control category for accounting.

We're gonna have to consolidate which will then put additional.

Expense pressure on the P&L, but it doesn't really put any pressure back to the company from an actual cash flow standpoint. So we will continue going forward to spend more time disclosing that information in describing it and how it actually impacts of the actual earnings in the company, but for this quarter. It was five.

<unk> hundred 23 man on a 377 million shares a little over a penny a share.

<unk> on the actual earnings.

Great appreciate the color there Steve.

And then lastly, just touching base on the BPL no leverage on those assets. If you looked at something like a CLO, where you could have a replenishment period that helps offset the shorter duration of those loans are there other type structures, where you would consider adding some financing.

Are you really just happy running that that BPL portfolio with no leverage for the foreseeable future.

Yes, sorry.

We actually do have leveraging a third our BPL loans, we did a securitization.

This year.

As a revolving structure.

So it allows us to replenish the along the way.

As they.

Pay off.

That's a financing balance of around $180 million that we have.

Related to that litigation so.

That's a deal that we've been utilizing them.

And with.

With new investments in payoffs coming on what we're continuing to add back to that that box utilization.

Great I appreciate the.

Correction there thanks Susan.

North.

Your next question comes from the line of Doug Harter from Credit Suisse. Your line is open.

Thanks.

You guys execute on our securitization and take down the repo.

Yeah substantially.

How do you think about kind of replenishing that.

Do you think you have the ability to kind of grow the asset base as you do that and kind of ramp.

Pro line back up or just kind of thoughts around that.

Yes, what's interesting is that the balance that we're looking to do as an asset class that is.

We're no longer active in.

At the moment due to pricing, which is the RTL space. So you know.

We're looking at a rated securitization and the RTL space, which would reduce our repo balance there.

But it would not be replenishment.

That particular concept because that strategy is something we've moved on from price alone.

Correct back to us.

An interesting place for us but.

What we're going to be doing.

And.

Basically looking at the detail on scrap and scratching at market.

She even DSD, our loans as a way of growing our loans, although the initial loan book.

And in this case, we'd be taking loans from our RPM repo account in.

Some of those loans in a reconciliation so.

Matter of fact that cash would be minimal.

But that is not something we're looking to replace.

Every level I guess.

Can you just you know.

Those two kind of asset classes, where you're looking to grow.

Kind of given the nice returns, but you know kind of the offset.

But they seem to be very short duration.

Yeah.

Talk about your your ability or confidence to be able to grow those those short duration assets.

Yes, we have a number of originating partners.

They are in the market that we've been on.

We think we can do more with those partners that we've been working with have strategies with them. So to increase our portfolio pipeline, which is really starting to.

Show it off in the fourth quarter here.

But.

There are.

We're looking at to lock up pipelines in the space and to reduce the variability with respect to our pipelines.

And in this market.

The market is a great market and you're right to point out that it was a shorter duration.

Reinvestment of that cash that comes back on an annual basis becomes challenging.

We believe the market will end up kind of pushing into a longer duration type of market for these types of loans.

In previous years.

Flip market was a.

Contractor that sold the home on therefore paid.

Paid off alone.

From some of the pipelines, we're seeing 40%.

More of the loans are now.

Going into a weighted what's all going into a three year term.

You can think of their fix and flip loans versus selling the home and beacon came off that.

We think there's ways to take advantage of that but particularly with our own portfolio and we capture that power back up for a longer duration loans. So those are the types of things when you're looking at.

We have been looking at for the last six months, if not longer and we think we could be close to executing something in that space.

Shortly which would add duration to our portfolio and reduce the green basketball.

Time lines that we've put in place.

And then just to follow up on that can you just talk about how you know how how.

The yields might change as you go from kind of the.

Order duration fixed and flip to kind of a longer term.

Longer term asset.

Yes, so the yields that were the coupons are obviously hiring short dated fix and flip loans than what we're seeing obviously in a 30 year kind of D C. Our investor loans.

But the.

Yeah.

Argued that the securitization market.

Acceptance of those loans is probably the greatest out of all the markets that we're looking at so.

Execution that we're seeing in the spaces.

Excellent for these types of loans picking up four 5% loan and.

Loan pool, dropping two securitization or hesitancy in the space is something that in fact you.

You don't want to build a book here and not have enough size to execute through securitization that we hold in our repo for a long period of time. So therefore, we have not entered the space until we feel confident that we can originate or.

We're buying off loans due to execute securitization with a short term temporary.

We're getting more comfortable with that with the pipelines that we're working on right now.

And that's something that we're going to evaluate in the quarter, but.

For example, if that happens we would be able to kind of move into the securitization space, there and unlock value with respect to our current portfolio.

Things that are that are refinancing as well as the loans that we're seeing are available to us that we have not moved on simply because the risk of being able to accumulate enough loans personalization. So we feel that the moment that there's enough loans there.

With the kind of quality that we're looking for to execute a securitization.

In that case, we look we'll move to questions.

Very helpful. Thank you.

Your next question comes from the line of Eric Hagen.

B T I G. Your language.

Hey, good morning, a couple.

Couple of questions here, so from the perspective of an equity investor with assets.

My commentary.

Yes, yes.

Yes, so from the perspective of an equity investor with assets feeling like they're.

Maybe more or less price for very low credit losses already what would you say is the upside.

And the scratch and dent in re performing loan opportunity.

And then the second question is in the commercial Mezz loans Whats your risk attachment point or you know how much credit subordination do you have in those loans and the same question effectively applies to the preferred equity like how much credit cushion is beneath your preferreds listen those investments.

Yes, so with respect to the RPM and scratching at loans I guess the question is what is the upside remaining in that portfolio.

Forgive me for quite a while since we've got the question yeah. So.

That's a portfolio on scratching outside where given the size, we can look to a securitization for those types of loans.

As we wait.

<unk>.

No.

We're very lightly levered.

Sure.

We're experiencing about a 30% CPR on our portfolio pardon me hasn't T. A move that book and securitization or something to the fact that the durations have shortened on that portfolio, given what the refinance activity and being able to take off.

Six points.

Discount.

Over.

The last six months has been something that you'd rather do outside of securitization there for this.

You wouldn't benefit from the longer duration term debt outstanding.

Equity return.

There is still upside there and that we own those loans that were just not on our balance sheet and we still.

Refinance rate, where the CPR rate activity.

We will continue to ramp at a high rate.

To the extent that we are.

We can move a portion of those loans into securitization, we believe that the the equity returns on that pool will getting the coupon on those loans can generate a double digit return to installation. So that's really a timing make that decision or.

We sell loans in our portfolio sale to generate.

Kind of an equity return on those models.

And on BPL.

RP all that.

A market where at this point, it's mature for us.

Loans have been revalued higher given the.

Two thirds of the portfolio is current on their payments from where we bought 12 months.

Almost double.

As well as the fab.

That.

The FICO scores continue to improve the borrower's credit continues to improve and the ltvs are in the 65% range today, which is a very strong portfolio for securitization.

It would be one of the kind of lower LTV RTL securitizations done in the market. So we feel pretty good about the ability to finance those loans for securitization.

We believe that the equity return upon supervision of those loans is off double digits. So.

The point there to add leveraged through a securitization market.

Now the return of those loans over the course of.

The remaining life.

And then multifamily if you turn to page 19.

Average LTV that we originate two is about 80%.

And for JV equities and 82% range.

So our credit subordination there would be.

The 20%.

And the cap structure.

That's the extent that we are.

In providing the mezz loan with a 5% coupon of 170 <unk> level feel that's a very attractive level again have not received have not incurred a dollar of loss in this portfolio.

At the beginning of last.

Six seven years originations of these types of loans.

And we are today, we are seeing a.

One of the largest increases to pipeline activity in the quarter that we'd seen.

The history of the company, where we're seeing a lot of opportunity there.

Investors are coming into the South Southeast program, I'd say look and take advantage of that.

The rental rate increases.

And then when you.

Pushing that market given the mobility of tenants moving into those markets.

And.

Picking out a mezz loan.

Our JV with us it is something that is becoming more attractive.

Given our.

Our footprint in that market and understanding those all of those assets in that bucket itself.

We're very busy and.

It's continuing to grow that part of the book substantially over the next quarter.

Okay. Thank you.

Your next question comes from the line of Christopher Nolan from that in the Solomon Your line is open.

Steve given the prospect of a fed paper and.

Alrighty fed tightenings in 2022, how do you think the impact of scratch and dent in the ppm markets.

Jason you want to take you want me to.

Okay. So.

Got it.

The first impact we will see it on the sterilization market and then obviously.

One of the things that we're seeing.

Flattening of the curve flattening of the curve typically.

As a negative for securitization from Oklahoma.

Repo financing as well, while we don't.

Utilize repo financing the market does and hull and the fact that you can't efficiently financier assets.

As as well as you did prior.

With a flattening of the curve.

And in that case, we have.

Part of the reason, we're not as aggressive.

In the space.

Other market participants are simply because we are looking for better price points on this market.

And do you expect.

The efficiency of the repo markets will cause.

Prices too.

They come down from where they are today and our various asset classes.

So.

We see just basically over.

Excess liquidity in the market in various aspects of the market to take RPM market, which has recently been a player there today.

And that can come back to us in a positive way with respect to pricing.

The curve continues to flatten and theres more opportunity for us to buy loans at a.

Cheaper dollar value than what's currently offer today, so we see it as more of an opportunity than <unk>.

Risk given our cash and low.

Leverage.

In the space, an ability to really kind of step into this market and cheaper valuation in the future.

So in that case, where would you think to take leverage up.

Event that you do have an opportunity to buy assets in a more attractive price point.

Yes, the leverage would be more would be outside of the repo markets.

And because we're not using repo.

So a market participant with.

We generate a better.

Short term levered return on that.

Please note that repo market pullback in extent that.

The curve flattens, then there is an opportunity for us to kind of step on a cheaper valuations when we would look to use our current non mark to market.

In our facility for the sterilization market for those loans.

Sent that we are we've added a large pool, we can pump.

We would use our repo lines.

Gestation period.

We don't sit here thoughts, but that would be honest return visits.

I don't believe it will be material impacts were.

Our current leverage.

So that would be how we would use it.

Great. Thank you.

Okay.

Your next question comes from the line of Jason Stewart from Jones trading your line is open.

Thanks. Good morning, maybe you could talk a little bit about how you evaluate the whole loan bid in RPM versus doing a securitization and maybe whether how that that sort of logic and thought process might change as you consider redeploying the capital into other areas.

The multifamily sector.

Yes.

These have been very strong in the ortho space.

A lower or a lack of supply available.

Purchases Fannie Freddie.

Cut the supply, which is a big big supply source for the market.

Well I haven't been as active in the past.

As well so the supply that is out there.

Hum.

Seen a run up in pricing.

In areas, where really you know.

The buyer is an unlevered buyer at this point, where it would not be.

More of an insurance company type of paid versus.

We did generate a double digit return.

Loans in that space.

Overtime, we believe that that market will lighten up and will be better opportunity for us to look at.

Back into that space.

Absolutely.

Our opportunity in the multifamily space.

Sure.

As I said earlier, we have record.

So I think pipelines in that area.

Given our conservative underwriting and the sponsors that we've been working with purpose seven years I suppose.

There's opportunity for us to look at our kind of portfolio opportunities.

The south and as well as single opportunity, which has been doing COVID-19 past seven years.

We can grow our portfolio.

Through some.

Some of them.

Some of the cross qualification opportunities as well.

So.

Absolutely we would expect the capitalization.

What percent of our book could be allocated more heavily towards multifamily schools in the next quarter.

Yeah, Thanks for that and I guess my question is more so is there an opportunity for you to hit that hold on bid instead of re securitizing and then redeploying that capital.

Yeah.

Hitting the whole number that's available in the market today.

We just don't see it.

Yeah, we don't see it as an attractive opportunity.

The types of scenarios you have to run to generate that return you have to make.

Chocolate or all of the positive aspects of the housing market today for long period of time, we're not comfortable with so you just don't see an opportunity to.

So you generate a double digit return on asset class without short term price volatility.

We're very focused on.

Protecting our book value is almost market.

So we just.

We're kind of a pause today on that asset class even though.

To your point, you could potentially take a whole pull down supersized immediately.

And earn that NIM over that tradition today, we just don't see.

Double digit return by pursuing that even if you could just split them quicker quantum might not pulling supervising.

Which.

Which is not possible, but that we just don't see that much of a terminal.

Okay, Okay fair enough and then in the multifamily side, maybe you could talk about the types of projects that youre seeing a little bit more of a marginal competition for and where you see the sweet spot of me you mentioned secondary and tertiary markets in the southeast the size play a part in that as a geography, I mean, where do you see the sweet spot for where you're deploying capital in terms of.

Project specific characteristics characteristics.

Yes. So if you look at page 20 of our multifamily sector gets Congress state breakdown of where we are and what I love about this market here is that we have we try to stay in front of where the migration is going for example, Nashville was a hot market across a couple of years ago, and we've transferred them.

<unk> marketplace Chattanooga outside of it.

National and.

Texas, Florida, and the southeast probably what I'd say is.

There's been a very exciting opportunity across them at market as it relates to new market entrants moving in and taking down collateral picking on pools.

Stapled financing you can get from putting math upon refinancing.

We attracted in the 3% range on same refinancing so there's still an opportunity there to for sponsors to lever.

You know these these are low rise.

Project on.

Today, we offer meso JV financing in some ways that we've looked at it.

As an alternative to kind of equity contribution.

And we there are especially with on the JV side that theres opportunities for us.

Fees on other parts of the business outside of just a collection of interest, which we're evaluating them.

We're selling.

So operating more of that.

As a partner to the sponsor versus just a lender that's something we've been evaluating.

Pursuing as well.

But the markets in general I mean.

Yeah.

Markets like Austin.

Austin, Texas has obviously been extremely.

Hot market lots of each.

Appraisal increase there lots of growth rate.

Rental rates and we're seeing a lot of our booking refinance out on that.

That market company because of the.

The gains in critical.

Critical side, but where.

We're in.

Not only are we haven't.

The tertiary markets there, but we're also in the asset classes that are class B plus transitional type of assets.

That either have some type of.

Management overhaul that can add value to the property or some kind of deferred maintenance projects that need to be.

Hospital helps with.

With deferred maintenance projects that they're looking for to.

The complete so that's where we've kind of found our sweet spots in this market.

Great. That's helpful. Thank you.

Okay.

Your next question comes from the line of Matthew Howlett from B Riley from B Riley Your line is open.

Thanks, guys. Thanks for taking my question just two questions on the funding did you say you are in.

Unsecured.

That that was callable here was that the convertible or upcoming will be callable at some time in the future and then two on the securitization are you are you now at critical mass, where you've got to start issuing off your own shelf.

I mean is it is it your biggest not assured issue now they were named in Dell improved funding costs over time versus selling it into a conduit.

Yes.

This is all for our own shelf.

We continue as rough round shelf, both in the BPL space in the <unk> space.

I'll, let Jason go into for that but as it relates to carnival side, we have a callable preferred that's still outstanding with a 7% and three quarter coupon we have a five year.

Convertible debt.

Instrument issued by the company, that's going to mature in January of 2022.

So there'll be some changeover in capital structure, if there's opportunities there.

But I'll, let Jason speak for the securitization sorry, Jason.

Yeah. So on the securitization side, we do have a shelf.

The Michigan deal got it.

<unk>.

Softwood different kickers.

Her name is relating to the asset class.

And so we're we're able to do this ourselves.

The company has been able to issue through their own shop for number of years. So we typically don't fall into a permanent deal.

Yes.

Got it okay. So the names out there you have your own shelf gotcha and.

And I guess the final question on when we all recognize the the balance sheet has got a lot of room here to grow here.

For modeling purposes, I sort of look at it.

Four of $5 billion, Mark any vessel portfolio, what's what can you tell us in terms of how to think about the cadence for growth in that investment portfolio over the next 12 months.

Yes, I think over the next 12 months and certainly we have plenty of room to grow the balance sheet without adding additional capital I mean, we've said before.

We're sitting at three $3 billion, we certainly have room to go to $4 billion pretty easily from a capital standpoint.

Had tremendous asset purchase.

The success. This year, we've just seen a huge amount of prepayments coming from a lot of asset classes.

And so it's been difficult growing that portfolio. We are working on some transactions hopefully that we can talk about.

Our fourth quarter call that to accelerate some of the pipeline opportunities.

So go ahead too.

Yes, I think you covered it I mean, we put $505 million in the third quarter.

We do expect.

Those type of numbers given our pipeline.

The refinancing activity wall.

From a total capital growth is in <unk>.

Obviously, it hurts copper broke but you know it.

It does Tom with respect to either.

The discount on a scratch and dent, our multifamily prepayments that have yield maintenance.

Causes.

I'll kill them.

At this time as well so.

In our space prepaying, joining a positive aspect to return.

That's by design.

Some of the asset classes, we are considering.

We will have a longer duration kind of whole period on those loans, which would allow growth to be become more regular.

Great and.

Traditional institutions.

Looking at the NIM.

Distributions as affirmed the investment versus a discount off a whole lot of balance sheet.

The likelihood of it. So those are the types of opportunities, we're looking at but to <unk> point earlier, we do have a pipeline.

Multifamily I said earlier it's.

<unk> strong and it was a number of.

Pipeline.

Strategies that we've talked to some of our origination partners on the BPL side won't be a few outside that.

We're excited about and hopefully we can talk more about that in the first quarter I'm not sure.

That's a good way to think about the excess capital position of the company is one in which the portfolio could easily meet or exceed four 4 billion.

That's correct.

Absolutely that's correct.

Yes.

Yes go ahead.

No. We're we're excited about here is that we can increase our EPS simply by deploying more cash on the balance sheet and.

And taking some of the late Levered after coffee house and moving those into the securitization, which would put the RTL deals I described earlier.

Those are.

Put them.

I know, it's you know those are kind of organic growth opportunities, but we don't depend on it.

Our party capital.

Simply just 5%.

The deals that we just talked about in fourth quarter. So from our standpoint, we can control the growth here without meeting.

You know kind of third party or a capital market event for us.

Yes.

Terrific. Thanks, a lot.

Thanks Dino.

Sure.

Good question.

I would now like turn the call back over to you.

Mr. Steve Mueller.

Okay.

Thank you operator, and thank you everyone for being on the call are we all look forward to speaking about the fourth quarter and our year.

In 2021, thanks, everyone be safe.

Today's conference call you May now disconnect. Thank you for participating.

Okay.

Okay.

[music].

Okay.

Yeah.

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Okay.

Okay.

[music].

[music].

Good morning, ladies and gentlemen, and thank you for standing by Wolfgang to the New York mortgage Trust's third quarter 2021 results conference call.

During todays presentation, all parties will be in a listen only mode. Following the presentation. The conference will be open for questions.

If you have a question. Please press the star followed by the one on your Touchtone phone.

If you would like to withdraw your question. Please press the pound key.

If you are using speaker equipment, we do ask that you. Please lift the handset before making your selection.

This conference is being recorded on Tuesday November two 2021.

Our press release and supplemental financial presentation, with New York Mortgage Trust third quarter 'twenty 'twenty. One results was released this morning.

Both the breadth release and supplemental financial presentation are available on the company's website at www Dot and White and trust dotcom.

Finally, we are hosting a live webcast of todays call, which you can access in the events and crushing station 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 maybe 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 yesterdays press release and from time to time in the company's filings with the Securities Exchange Commission.

Now at this time I would like to introduce Steve Mumma, Chairman and CEO. Please go ahead Steve.

Thank you operator.

Good morning, everyone and thank you for being on the call Jason Serrano, our president will be speaking to our investment portfolio and Christine <unk>, our CFO, who will be speaking in more detail about our financial results.

We will all be speaking to our supplemental financial presentation that was released this morning and is available on our website.

We will now questions following the conclusion of our presentation.

The company continued to deliver solid results in the third quarter with GAAP earnings per share of <unk> 10 cents and comprehensive earnings per share of <unk>.

The numbers of the quarter were negatively impacted by nonrecurring onetime charges, including $3 $4 million in expenses related to the early redemption of our 770 <unk> series C preferred stock, which was refinanced into a $6 seven eight series F preferred stock lower cost of capital by 100 basis.

<unk>.

Additionally, we call. It a 2020 residential securitization that resulted in the acceleration of $1 $6 million of deferred debt issuance costs.

The loan pools refinance in August lowering our cost of debt by approximately 210 basis points.

We expect to continue to raise the company's cost of funds with future structured transactions.

This trend will have a positive impact on our earnings going forward.

Yes.

Now turning to page six of the supplemental presentation, you'll see our investment portfolio totaled $3 $3 billion and our market capitalization was $2 2 billion.

Portfolio was up approximately $100 million from our market, coupled with our market capitalization unchanged from the previous quarter.

Capital is currently allocated 74% of single family and 20% to multifamily.

With 6% and other assets, which is largely attributable to our liquidity position.

We continue to focus on credit investments as we believe we can generate better risk adjusted returns with more stable funding.

On slide seven we highlight some of our key developments during the quarter.

We declared a <unk> <unk> common stock dividend our book value was $4 74 unchanged from the previous quarter and we generated a quarterly economic rate of return of two 1%.

As I said before we redeemed our 2020, that's one securitization for $204 million in July and issued $256 million and our 2021 dash one securitization in August lowering the average cost of funds by 210 basis points. We also redeemed $105 million of our <unk>.

708 series C preferred stock and replaced it with a $139 million of $6 700 series F preferred stock again, lowering our cost of capital by 100 basis points.

We continue to focus on longer term financing options to fund our growing business to help us navigate the ever changing financial landscape.

On slide nine we cover key portfolio metrics on a quarter on a quarter over quarter comparison.

Our net interest margin for the third quarter was $3 two 5% an increase of 28 basis points from the previous quarter.

Our portfolio weighted average asset yield at $6, three 9% an improvement of eight basis points and our funding cost improving by 20 basis points ending at $3 one 4%.

This was largely due to our refinancing of the 2021 securitization that I previously spoke about.

Our leverage ratio remains low at three times at three times and our liquidity remains strong as we go into the fourth quarter.

Now I'd like to turn the presentation over to Christine <unk>, our CFO Christine.

Steve Good morning, everyone and thank you again for being on the call and discussing the financial results for the quarter I will be using some of the information from the quarterly comparative financial information section included in slides, 23% to 30 of the supplemental presentation.

Slide 10 summarizes our activity in the third quarter, we acquired residential loans for $371 million funded multifamily joint venture and mezzanine lending investments for $53 million and $43 million, respectively, and purchased $29 million of investment securities.

Residential loans for proceeds totaling $50 million and non agency RMB SMC MBS for proceeds totaling $133 million. We also had total repayments of approximately $307 million primarily from our residential loans that were purchased at a discount.

We had net income of $37 million and comprehensive income of $31 5 million attributable to our common stockholders. Our book value ended at $4 74 unchanged from the previous quarter.

Slide 11 details our financial results, we had net interest income of 31 million relatively flat as compared to the previous quarter.

Our continued investment in higher yielding business purpose loans during the quarter contributed to the $1 7 million increase in single family interest income offset by a $1 5 million decrease in multifamily interest income due to sales of <unk> early in the quarter and payoffs related to our mezzanine lending investments accounted.

For us loans.

Although there was a decrease in mezzanine investments accounted for as loans are mezzanine investments accounted for as equity increased during the period.

Contributing $6 2 million in preferred return during the quarter has these mezzanine lending investments qualified for a loan accounting treatment under GAAP. It would have contributed 39 basis points in net interest margin.

Interest expense on single family portfolio decreased by <unk>.

$6 million, primarily due to the completion of our new <unk> strategy loan securitization in the third quarter, replacing are redeemed 2020, Rpms strategy securitization at a lower cost. In addition, we recognized a full quarter impact of 58 basis points and interest cost savings related to our BPL securitization.

<unk> that closed in the latter part of the second quarter.

We had non interest income of $49 4 million, mostly from net unrealized gains of $30 1 million due to continued improvement in pricing on our assets, particularly our residential loans and investment in consolidated epilepsy.

We also generated $8 3 million of net realized gains primarily from the sale of see MBS and non agency MBS and residential loan prepayment activity. In addition, as discussed earlier, our mezzanine investments accounted for as equity contributed $6 2 million of preferred return we also.

<unk> other income of $8 million, which is primarily related to $2 1 million of income recognized by an equity investment that invest in residential operating properties, partially offset by the $1 6 million of loss related to the redemption of the 2020 RPF strategies loan securitization for an <unk>.

Ties debt issuance costs remaining at the time of redemption.

Included.

In our results for the quarter is a net loss activity related to multifamily apartment properties in which the company has equity investments because of certain control provisions. We consolidate these properties in our financial statements in accordance with GAAP, we receive variable distributions from these equity investments on a pro rata pro rata basis in <unk>.

Management fees based upon property performance. We also participate in allocation of excess cash upon sale of multifamily real estate assets. We pursue these investments for the potential participation in value appreciation of the underlying real estate. These.

These properties generated operating income of $4 million and incurred interest expense and operating expenses of $1 1 million $8 5 million respectively.

After reflecting the share in the losses to the Noncontrolling interest of $4 million 4 million in total these multifamily apartment properties incurred a net loss of $5 3 million for the quarter. It should be noted that the net loss. In these properties includes a $5 7 million of depreciation expense and amortization of lease.

Intangibles related to the real estate.

We had total G&A expenses of $12 5 million relatively flat compared to the previous quarter, we had portfolio operating expenses of $7 million, which increased primarily due to the growth of the business purpose loan portfolio.

Jason will now go over the market and strategy update Jason.

Thank you Christine and good morning, I was speaking.

On page 13.

Sure.

While home price appreciation you somewhat from a record setting pace not much was accomplished our.

The current U S cotton supply deficit.

$5 5 million homes needed to meet short mid term demand only $1 2 million homes are now in the market for sale, which is over 1 million units short of the past 20 year average Additionally, supply chain and labor constraints, Kathy New home construction around 1 million unit.

Okay demand continuing to outpace apparel, we expect U S housing credit risks remain range bound through 2020 of higher home prices are required to meet outside the mall.

We believe short term lending for housing remodeling and kick some clips app that provides one of the best way.

Okay.

The supply and demand imbalance here over the past year, we focused on ramping up $753 million portfolio, while maintaining strong credit characteristics.

Secondly, while more of a niche market disruptions one sector is still in its office space for us to spend our resources.

Given the ability to buy new mortgage obligations at a 6% discount on average deposits.

Only a half a billion dollars of loans purpose we are.

Provided we provide great flexibility to generate a double digit return with discounts.

Lastly, our origination effort in the multifamily sector provides tremendous value with new mezzanine loans <unk> opportunities also had a double digit return with single family housing supply issues and higher population mobility trends occupy youll see vacancy rates.

Paul.

This gets us kind of the national average.

Building, a fundamental strength of the multifamily market is hard to ignore and a strong pipeline to take advantage of the swap them out to you.

Going to page 14.

A key value proposition of online to find an approach where we can offer an efficient process supported by technology to do more with originators or sell the sponsors and the sectors.

These relationships fostered over several years and proven capability. We can compete on more dimensions, not just price, which is a key aspect of our portfolio growth.

In the quarter, we added $505 million of new investments.

Both was observed at all of course, we're always in the BPL sector. We added new origination pipelines that will allow us to continue increasing assets on balance sheet.

In our mortgage originators are still trying to work all technical origination areas from 2000, Twenty's record origination volume and we can multifamily lending tailored lungs, and JV solutions are meeting the needs of mid sized multifamily sponsors in the south southeast of the U S.

As you know our processing record volumes for our pipeline.

While in Asia PNR debt structure on the funding side of the equation, we primarily focus on strategies that do not relying on short term callable mark to market leverage to generate attractive returns.

To the extent that Leverages part of the strategy, we utilize term securitization market.

Which helped to significantly lower our mark to market repo volume.

By 90% since the end of 2019.

Markets are in full swing availabilities, arguably arguably greater than prior to the pandemic. However, we believe running one of the lowest portfolio.

In the market now.

One homes, while still being able to deliver an attractive dividend providing excellent excellent risk adjusted returns.

More we can organically grow our balance sheet and.

And dividend by simply reinvesting our cash on balance sheet and through utilization of the securitization market.

Yes.

Moving to page 16, or chemo family over here.

As in prior quarters here, we show a cross section of our residential strategy that is now 74% of our capital allocation and predominately in residential loans. The average LTV at 65% across all loan types is not reporting over here is that it shows the consistency across our investment platform to seek value without sacrificing.

Pricing quality across the market.

We prefer to give up some yield with better loan characteristics for a more consistent return profile over a multiyear period.

As I've already discussed highlight of our strategies in the detail and scratch and space.

I'd like to spend a moment to discuss the 84 $851 million of loans on our balance sheet.

RPM, we stopped pursuing RPI market's about two years ago due to excess liquidity that we're bidding that we were bidding into which priced out investors, calling a double digit return without taking on some kind of risky market based modeling assumptions. However, our portfolio continues to benefit from strong returns.

In a book that can't be replicated in this environment.

We invested in space in two forms through our pls.

And through the <unk> transaction shown at the bottom.

Securities outflows T with a portfolio of RTL will unfold by Freddie Mac that contained staples 10 year financing.

While these securities.

<unk> purchased back in 2019, 2019 to Delever at a faster rate, providing considerable downside protection and upside optionality with respect with a potential vehicle strong credit performance supports further potential for book value upside with respect to our issued securitizations.

On page 17.

Starting with the right side of this page, 56% of the RTL loans are now clients, which accelerated price accretion from 89.

Our purchase price to now $97.

This result, we can now pull these loans into a rated securitization providing attractive forward.

In the high teens against a 65% LTV loan pool.

Our expected net loan portfolio consistently printed above a 30% CPR, which is a similar trend to general agency originations.

We believe similar prepayment trends through our scratching input demonstrate the quality of loans youre buying construction market and the technical nature of the defects created a ton of origination.

We are well compensated here as the average price discount of our prepaid loans is five to seven points below par.

A quick recapture the discount is why we continue to focus on this market.

Now shifting over to the left side of this page 17. The story is straightforward, we continue to add our details and scratch and dent portfolio.

And are pleased that our loss rate on bolt socket is zero percent since we launched the strategy of Covid as well.

Larger portfolios in the securitization market is supportive of our RTL book.

After redeeming a previously issued securitization we were able to issue reissue another deal in the market last quarter, the tightest financing costs ever in the unrated space, allowing us to save 210 basis point coupon.

With our growing residential loan pipeline, we expect to become a more frequent issuer in the traditional market.

Hum tendency working a few deals at the moment look forward to sharing more about this this execution team.

Turning to page 18 on the detail market are.

Our BPL portfolio is now $753 million with.

Just over 1700 loans on balance sheet, despite a material increase to market competition in the past two years, we have been able to maintain our yield in the sector with an average coupon of over 9% the strong credit experience borrowers and a focus on low cost quick turnaround.

Yes.

Much like our HELOC much like the HELOC there are a lot of moving parts operationally with these long.

Through our scheduled interim cash activity payoff requests because of our dedicated operations team that manages the loans from boarding to pay off we are.

Offer added value support through our origination partners in this space are helping with the asset management process. Here again, we can win business here on another dimension other than market price.

Turning to page 19 of our multifamily overview.

Our multifamily book mezzanine lending and JV opportunities is now 20% of our capital as mentioned earlier, we have focused on lending to a 150 to 300.

Unit Garden style low rise properties in secondary and tertiary markets with past eight years with no losses on any investment made here to date.

Our deep credit underwriting of the market property and sponsors creates an opportunity to provide funding solutions across multifamily capital structure with these solutions, we worked to creatively structure a deal that meets sponsors need as well as ours with a vast experience and strong reputation in this market. We are a preferred partner and expect to materially grow this business.

In the near term by closely work by working closely with relationships fostered over several years.

On page 20.

Our credit characteristics and coupons have been consistent for many years in this sector and has and so has performance with a geographic footprint in the southeast United States occupancy rates remain high supported by population shifts favoring these regions due to the due to higher <unk>.

The valuations we have seen an increase to loan payoff requests in our portfolio. Our loans are structured with minimum return rules for additional income in these cases in the last quarter 60 million paid off at a 12, 6% lifetime, IRR or 100 basis points above the contractual coupons.

In summary on page 21.

We offer our investors a diversified strategy that takes advantages of our opportunities across the residential market and cap structure.

With a focus on preserving book value, we can efficiently move and move in and move out of markets when risk proposition changes. We're excited about our ability to provide attractive risk adjusted returns for investors with minimal petroleum leverage.

With that I'll pass it back to Steve.

Yes.

Thank you, Jason and Christine operator could you. Please open it up for questions.

As a reminder to ask a question you will need to press star one on your telephone.

So we enjoy your question press the pound key P standby, while we compile the Q&A roster.

Yeah.

Our first question comes from the line of Bose George from TB doubled.

Your line is open.

Hey, everyone. Good morning.

What I ask about the the BPL space, we've seen a lot of acquisitions in that space and you've noted historically you didn't really want to do that just curious if the activity in the space.

<unk> intensified the competition and changed anything in terms of returns or how you source of oil.

Yes, so we have seen a number of those deals are on.

<unk> and <unk>.

We have evaluated.

Most of them that's been out there.

We're finding that we can win business here.

Through our operational platform, which I described earlier as well as relationships.

Back in 2019, and the fact that we were kind of.

An early entry back into the market in 2020 will help support some of these originators when they were originating loans. So quickly that that experience and my background, we were able to contain and maintain or our pipeline.

Evaluating other platforms.

And really look to move into this market through private operationally light type of model in that market.

And we believe over time, we will.

Generally trying to.

And industrial loan product, which is.

Quickly called DSC all loans.

Which is a more of a 30 year term market for us is that when were bridge loans.

So those.

There is a transition that I think the market will start seeing over the course of the next year.

And therefore, we're looking for ways to play that transition more slowdown.

Just staying with them with the BPL sector.

Okay, no that makes sense and then.

Actually could you just remind me what.

You have a repo funded is there room to take the week go down further.

Yes, we are working on.

Realizations in the space, which would.

I'll.

Take one of our one of our largest lines we have today.

Roughly 80% so.

Yes.

<unk>.

The securitization that we were looking to complete will rule.

Remove and reduce our current repo that's minimal on our balance sheet.

Further reduce it.

Based on those conditions.

And hopefully we.

We will be able to talk more about that much work.

Okay, great. Thanks.

Your next question comes from the line of Stephen Laws from Raymond James Your line is open.

Hi, good morning.

It's sort of a follow up I think that those but you guys have made a lot of progress in the quarter on reducing financing costs, both on the AR securitization as well as the lower cost preferreds.

And I think that's probably true.

Really kicks into earnings here in the coming quarters is that largely.

You accomplished mainly what you can do there or is there more opportunities here to keep pushing down the cost of capital.

Overall portfolio financing costs.

Jason why don't you take.

Yes, so with respect to the loan pools.

The Securitizations were considering was lower our overall financing costs.

The market.

Entered last quarter for about unrated.

PL transaction was the lowest ranking call.

Market has seen at 187 basis points.

It is a bit wider today than that point, we still see in the space roughly.

The market is about 75 basis points higher, but thats still competitive to kind of repo cost author.

And and advance rates are roughly the same so our goal is to continue.

Reduce our.

Repo exposure, which would lower our financing costs as well as on a corporate basis, we do have.

A.

A process that is callable.

And that is something that we are looking at as well so theres some opportunity.

Our corporate balance sheet as well for our interest costs that can help.

Lower the cost of capital across our balance sheet.

Great. Thanks, Jason and then Kristina I appreciate the comments around the RVO.

Real estate operating real estate that you provided.

And I may have been writing the numbers down to apologize I missed this but I think you said it was a $5 3 million loss.

Before reflecting appreciation, but can you give did you provide an outlook or how we should think about that.

Maybe over the next 12 months as we look out.

From either improvements there or are those assets you look to exit.

Well the $5 $3 million is the net loss as you indicated but note that.

Majority of that loss is really related to depreciation expense and amortization of lease intangibles related to that real estate in terms of the outlook I mean, the way we look at these investments it's really.

We pursue these for value appreciation and so really the exit upon sale is when we get the benefit of a gain on that so that's how we kind of look at this investment but in terms of estimate for the year.

I don't have that in front of me and I could get back to you if you'd like.

That's fine.

Steve timing of when that May happen I guess is the cell phone.

Yes, Steve I think so because of accounting requirements. We consolidate these we still look at all of these investors.

What our actual net dollar investment is in these properties and so we evaluate them more on a on a net basis as opposed to a gross basis that gross basis as Christine mentioned generates a lot of depreciation expense. So there is going to be a negative component in our earnings going forward thats going to be related to these properties that we will spend.

As that grows in size, because we are increasing our pace and our JV investing in to the extent that we fall into the control category for accounting.

Gonna have to consolidate which will then put the additional.

Expense pressure on the P&L, but it doesn't really put any pressure back to the company from an actual cash flow standpoint. So we will continue going forward to spend more time disclosing that information in describing it and how it actually impacts of the actual earnings in the company, but for this quarter. It was.

523 man on a 377 million shares a little over a penny a share drag on the actual earnings.

Great appreciate the color there Steve.

And lastly, just touching base on the BPL no leverage on those assets. If you looked at something like a CLO, where you have a replenishment period that helps offset the shorter duration of those loans are there. There are other type structures, where you would consider adding some financing.

Are you really just happy running that the BPL portfolio with no leverage for the foreseeable future.

Yes, sorry.

We actually do have leverage against our BPL loans, we did a securitization.

This year that is.

Revolving structure.

So it allows us to replenish the along the way.

As a.

Pay off.

Thats a financing bounce around $180 million that we have relayed to us validation so that.

That's a deal that we have been utilizing them.

With.

With new investments in payoffs come home, what we're continuing to add to that that box utilization.

Great I appreciate the.

Correction there thanks, Jason.

North.

Your next question comes from the line of Doug Harter from Credit Suisse. Your line is open.

Thanks.

Execute on the securitization and take down the repo.

Substantially.

How do you think about kind of replenishing that.

Do you think.

You have the ability to kind of grow the asset base as you do that and kind of ramp.

Repo line back up or you know just kind of thoughts around that.

Yes, what's interesting is that the balance that we're looking to do as an asset class that is.

We're no longer active in.

At the moment due to pricing, which is the <unk> space. So.

We're looking at a rated securitization in the <unk> space, which would reduce our repo balance there.

But it would not be replenishment.

In particular, our accounts because that strategy is something we've moved on from central price alone.

Correct back to us.

An interesting place for us, but what we're going to be doing.

Okay.

Looking at the detail on scrap and scratching at market.

And potentially even DSR loans as a way of growing our loan our residential lumber.

And in this case, we'd be taking loans from our <unk> repo count anything to cause that.

Causing those loans in a reconciliation so.

Matter of fact that cash would be minimal.

But that is not something we're looking to take place.

Every level.

Can you just.

Those two kind of asset classes, where youre looking to grow.

Hum given the nice returns, but you know kind of the offset but they seem to be very short duration.

Yes.

Talk about your ability or confidence to be able to grow those those short duration assets.

Yes, we have a number of origination partners.

They are in the market that we've been buying loans from them.

We think we can do more with those partners that we've been working on our charges with them to to increase our portfolio pipeline, which is really starting to.

Showed itself in the fourth quarter here.

But.

There are.

We're looking at to Mark up pipelines in the space and to reduce the variability with respect to our pipeline.

In this market.

The market is a great market and you're right to point out that it was a shorter duration.

Our reinvestment of that cash comes back on annual basis becomes challenging.

We believe the market will end up kind of pushing into a longer duration type of market for these types of loans.

In previous years.

Flip market was a.

Contractor that sold the home on therefore.

Paid off alone.

From some of the pipelines, we're seeing 40%.

If not more of the loans are now.

Going into a rated Reits are going into a three year term.

You can think of there for a couple of loans versus selling the home and beacon came off that.

We think there's ways to take advantage of that particularly with our own portfolio and recapture that bar about aqua longer duration loans. So those are the types of things when you're looking at.

We have been looking at for the last six months, if not longer and we think we could be close to executing something that space.

Shortly which would add duration to our portfolio and reduce the reinvestment.

Timeline that we put in place.

And then just to follow up on that can you just talk about how you know how how the yields might change as you go from kind of the shorter.

Shorter duration fixed and flip to kind of a longer term.

Longer term asset.

Yes, so the yields that were the coupons are actually hiring on a short data to fix and flip loans.

And then what we're seeing obviously in a 30 year kind of D C. Our investor loans.

But the.

Yeah.

Arguably.

Iridization market.

Acceptance of those loans is probably the greatest out of all the markets that we're looking at so.

<unk> execution that we're seeing in the space.

<unk> is excellent for these types of loans picking up four 5% loan.

Loan pool dropping to securitization.

As noted in this space, there's something about them.

You don't want to build the book here and not have enough size to execute through securitization and holding the repo for a long period of time. So therefore, we have not entered the space until we feel confident that we can originate or.

We're buying off loans due to execute utilization with a short factory.

We're getting more comfortable with that with the pipeline that we're working on right now.

That's something that we're going to evaluate in a corner, but kicked up with that happens we would be able to kind of move into the securitization space there.

Unlock value with respect to our current portfolio of the PPP loans that are refinancing as well as the loans that we're seeing that are available to us that we have not.

Luc answer because the risk of being able to accumulate enough loans first realization. So we feel that at the moment that there's enough loans there with.

With the kind of quality that we're looking for to execute a securitization.

In that case, we look we'll move them quickly.

Very helpful. Thank you.

Your next question comes from the line of Eric Hagen.

BT IAG your language.

Hey, good morning, a couple.

Couple of questions here, so from the perspective of an equity investor with assets.

My commentary.

Yes, yes, yes.

So from the perspective of an equity investor with assets feeling like there.

Maybe more or less price for very low credit losses already what would you say is the upside.

And the scratch and dent in re performing loan opportunity.

And then the second question is in the commercial Mezz loans Whats your risk attachment point or you know how much credit subordination do you have in those loans and the same question effectively applies to the preferred equity like how much credit cushion is beneath your preferred is less in those investments.

Yes, so with respect to the RPM and scratching at loans I guess the question is what is the upside remaining in that portfolio.

Give them credit losses without the question yeah. So.

That's a portfolio on scratching on side, where given the size, we can look through a securitization for those types of loans.

As we wait.

<unk>.

Those loans are very lowly levered.

Sure.

We're experiencing about a 30% CPR on our portfolio part of the hesitancy of moving that book and just utilization or something and the fact that the duration shortened on that portfolio given with the refinance activity and getting will pick up.

Six points.

A discount.

Over the.

So the last six months has been something that we'd rather do securitization. Therefore.

You wouldn't benefit from the longer duration term debt outstanding.

Equity income so there is still upside there and that we own those loans that were just kind of a balance sheet and we still.

Refinance rate, where the CPR rate activity.

We will continue to trend.

At a high rate.

To the extent that we are.

We can move a portion of the loans into securitization, we believe that the equity returns on that pool, given the coupon on those loans can generate a double digit return to instrumentation. So that's really a timing for when you make that decision or.

We sell loans in our portfolio sale to generate.

Kind of an equity return on those models.

Yes.

On BPL.

Our RPM.

A market where at this point, it's mature for us.

The loan size.

Then revalued higher given the.

Two thirds of the portfolio is current on their payments from where we bought both months.

Almost double and as well as the fact that.

FICO scores continue to improve the borrower's credit continues to improve and the ltvs are in the 65% range today, which is a very strong portfolio for securitization.

It would be one of the kind of lower LTV RTL securitizations done in the market. So we feel pretty good about the ability to finance those loans for securitization and we believe that the equity return upon supervision of those loans is off double digits. So.

Point, there to add leverage through securitization market.

The return of those loans over the course of.

The remaining life.

And then multifamily if you turn to page 19.

Our average LTV that you originate two is about 80%.

And for JV equities and 82% range.

So our credit subordination there would be.

The 20%.

And the cap structure.

That's the extent that we are in.

Providing the mezz loan with a low 5% coupon of 170 <unk> level.

Very attractive level again have not received have not incurred a dollar of loss in this portfolio.

The beginning.

Six seven years originations of these types of loans.

And we're today, we're seeing a.

One of the largest increases to pipeline activity.

The quarter now that we've seen.

And in the history of the company.

We're seeing a lot of opportunity there.

Investors are coming into the South southeast program looking to take advantage of that.

The rental rate increases and then pushing.

Pushing that market given the mobility of tenants move into those markets.

And <unk>.

Taking out a mezz loan.

Our JV with US is something that is becoming more attractive.

Given our.

Our footprint in that market and understanding those are those apples in that bucket. So.

We're very busy and.

To continue to grow that playbook.

Over the next quarter.

Okay. Thank you.

Your next question comes from the line of Christopher Nolan from that in the Solomon Your line is open.

Steve given the prospect of a fed taper and.

Alright.

Earnings in 2022, how do you think the impact of scratch and dent in the BPL markets.

Jason you want to tell you you want me to.

Well I think so.

<unk>.

The first impact that we'll see as honest litigation market I mean, obviously.

One of the things that we're seeing is a.

As you know a flattening of the curve flattening of the curve typically.

It was a negative four securitization from Oklahoma.

Yes.

<unk> financing as well, while we don't.

Utilize repo financing the market does and hull.

The effect there.

Can't efficiently financier assets.

As well as you did prior.

With a flattening of the curve.

In that case, we have.

Part of the reason, we're not as aggressive in the space.

Other market participants are simply because we are looking for a better price point on this market.

And do you expect.

Well the efficiency of the repo markets will cause.

Prices too.

It come down from where they are today and our various asset classes.

So.

We see just basically over.

This liquidity in the market in various aspects of the market to take on RPM market, which is reason why were not a player there today.

And that can come back to us in a positive way with respect to pricing.

If the curve continues to flatten them, there's more opportunity for us to buy loans at a cheap.

EBITDA value than what's currently offer today, so we see it as more of an opportunity than <unk>.

Given our cash and low.

Leverage.

On the space, an ability to really kind of step into this market and cheaper valuation in the future.

So in that case, where would you think to take leverage up in the.

Event that you do have an opportunity to buy assets at a more attractive price point.

Yes, the leverage would be more would be outside the paper markets.

And because we're not using repo.

So a mark.

Would could.

We generate a better.

Short term levered return on that.

Takes longer repo market pullback in extent that.

The curve flattened then there is an opportunity for us to kind of flipping them cheaper valuations when we would look to use our current non mark to market.

In our facility for the securitization market for those loans.

Sent that we are we've added a large pool, we can pump.

We would use our repo lines.

Gestation periods.

Do you want to characterize what that would be honest short term basis.

I don't believe it will be material impact.

Our current leverage.

So that would be how we would use it.

Great. Thank you.

Okay.

Your next question comes from the line of Jason Stewart from Jones trading your line is open.

Thanks. Good morning, maybe you could talk a little bit about how you evaluate the whole loan bid in RPM versus doing a securitization and maybe whether how that sort of logic and thought process might change as you consider redeploying the capital into other areas.

And like the multifamily sector.

Yes.

This has been very strong on the ortho space.

A lower or a lack of supply available.

Purchased Fannie Freddie.

Cut the supply, which is a declining supply source for the market.

Well thanks <unk>.

I haven't been as active in the past.

As well so the supply that is out there it's all good.

We've seen a run up in pricing.

And areas where really.

The buyer is an unlevered buyer at this point, where it would not be.

More of an insurance company type of paid versus.

Rebid.

Our generated double digit return.

Loans in that space.

Overtime, we believe that that market will lighten up and will be better opportunity for us to look back into that space.

Absolutely.

Our opportunity in the multifamily space.

Sure.

And as I said earlier, we had record.

On a sudden pipelines in that area.

Given our conservative underwriting and the sponsors that we've been working with for over seven years and I suppose.

There is opportunity for us to look at our kind of portfolio opportunities.

The south and as well as single opportunity, which has been doing for Paas revenues.

We can grow our portfolio.

Through some.

Some of our cross cloud adoption opportunities as well.

So.

Absolutely as you would expect the capitalization.

The percent of our book to be allocated more heavily towards multifamily schools in the next in the next quarter.

Okay. Thanks for that and I guess my question is more so is there an opportunity for you to hit that hold on bid instead of re securitizing and then redeploying that capital.

Hitting the whole number that's available in the market today.

We just don't we don't see it as an attractive opportunity.

The types of <unk>.

Scenarios, you have to run to generate that return.

Chocolate or all of the positive aspects of the housing market today for long periods of time, we're not comfortable with so you just don't see an opportunity to.

So you generate a double digit return on asset class without short term price volatility.

We're very focused on.

Protecting our book value is in this market.

So.

We're kind of a path today on that asset class even though.

To your point, you could potentially take a whole pull down securitized immediately.

And earn that NIM over that tradition today, we just don't see double digit return, but our concern that even if you could just split them quicker.

My God pulling super positive.

One day.

Which is not possible but.

We just don't see double digit return.

Okay, Okay fair enough and then in the multifamily side.

Maybe you could talk about the types of projects that youre seeing a little bit more of a marginal competition for and where you see the sweet spot of me you mentioned secondary and tertiary markets in the southeast the.

The size play a part in that as a geography, I mean, where do you see the sweet spot for where you're deploying capital in terms of project specific characteristics characteristics.

Yes. So if you look at page 20 of our multifamily sector. It gives kind of a state breakdown of where we are and what I love about this market here is that we have.

Tried to stay in front of where the migration is going.

For example, Nashville was a hot market for US a couple of years ago and.

We've transferred in and moved out of the marketplace Chattanooga outside of Nashville, and.

Texas, Florida, and the southeast probably once it is done.

So exciting opportunity across them at market as it relates to new market entrants moving in and taking down collateral taking on pools.

Naples, financings and get from putting them out upon refinancing.

Track within the 3% range on home refinancing so there's still an opportunity there to for sponsors to lever.

These are low rise.

Project.

Today, we offer meso JV financing in some ways that you know we've looked at it.

As an alternative to kind of equity contribution.

And there are especially with on the JV side that theres opportunities for us.

Fees on other parts of the business outside of just a collection of interest, which we're evaluating and pursuing.

So operating more of that.

As a partner to the sponsor versus just a lender that's something we've been evaluating.

Pursuing as well.

But the markets and so on.

General I mean.

The markets like.

Austin, Texas has obviously been extremely.

Hot market lots of appraisal.

Appraisal increase there lots of growth rate.

Rental rates.

We're seeing a lot of our book being refinanced out of that.

That market company because of.

The gains in critical side, but we're.

We're in.

Not only Oems.

The tertiary markets there, but we're also in asset classes that are.

B plus transitional type of assets.

Either have some type of.

Management overhaul that can add value to the property or some kind of deferred maintenance projects that need to be.

Hospital helps with that.

Deferred maintenance projects that they're looking for.

So that's where we've kind of found our sweet spots in this market.

Great. That's helpful. Thank you.

Yeah.

Your next question comes from the line of Matthew Howlett from B Riley from B Riley Your line is open.

Thanks, guys. Thanks for taking my question just two questions on the funding did you say you are an unsecured.

That that was callable here was that the convertible or upcoming will be callable at some time in the future and then two on the securitization are you are you now at critical mass, where you've got to start issuing off your own shelf.

Is it your biggest not assure issue I know they were named in Dell improved funding costs over time versus selling it into a conduit.

Yes.

We've issued offer own shelf.

And we continue as rough round shelf, both in the BPL space in the <unk> space.

I'll, let Jason go into for that but as it relates to carnival side, we have a callable preferred that's still outstanding with a 7% and three quarter coupon we have a five year.

The convertible debt.

Instrument issued by the company, that's going to mature in January of 2022.

So there'll be some changeover in capital structure, if there's opportunities there.

But I'll, let Jason speak for the securitization sorry, Jason.

Yes, so on the securitization side, we do have a shelf that we even issuing buildup.

Got it.

Shelf with different.

Her name is relating to the asset class.

And so we're we're able to do this ourselves.

The company has been able to issue through their own shelf for number of years, but we typically don't fall into a kind of a deal.

Yes.

Got it okay. So the names out there you have your own shelf gotcha and.

And I guess the final question on when we all know you recognized the the balance sheet has got a lot of room to grow here what is for model purposes, and you sort of look at it.

Four of $5 billion Mark in the vessel portfolio, what's what can you tell us in terms of how to think about the cadence for growth in that investment portfolio over the next 12 months.

Yes, I think over the next 12 months certainly we have plenty of room to grow the balance sheet without adding additional capital I mean, we've said before.

We're sitting at three $3 billion, we certainly have room to go to $4 billion pretty easily from a capital standpoint, we've had tremendous asset purchase.

The success. This year, we've just seen a huge amount of prepayments coming from a lot of asset classes.

And so it's been difficult growing that portfolio. We are working on some transactions hopefully that we can talk about.

Our fourth quarter call that should accelerate some of the pipeline opportunities.

So go ahead too.

Yes, I think you covered it I mean, we put $505 million.

In the third quarter.

We do expect.

Those type.

Couple of numbers given our pipeline.

The refinancing activity wall.

From a total capital growth is obviously software growth with it.

It does Tom with respect to either with.

With a discount on a scratch and dent our multifamily prepayments that have yield maintenance.

Clauses.

At this time as well so.

In our space prepayments generally a positive aspect to return.

That's by design.

Some of the asset class that we're considering.

We will have a longer duration kind of whole period on those loans, which would allow growth to be become more regular.

And you have.

Traditional institutions.

Looking at the NIM.

Distributions as a form of the investment versus a discount off of our balance sheet.

Lightly levered and so those are the types of opportunities, we're looking at but to your point.

Point earlier, we do have a pipeline.

Multifamily I said earlier no change.

Strong and with a number of.

Pipeline.

Strategies that we've talked to some of our origination partners on the BPL side won't be a few outside that.

We're excited about and hopefully we can talk more about that in the first quarter I'm not sure.

Congrats on a good way to think about the excess capital position of the company is one in which the portfolio could easily meet or exceed four 4 billion.

That's correct.

Absolutely that's correct.

Yes.

Yes go ahead.

No. We're we're excited about here is that we can increase our EPS simply by deploying more cash on our balance sheet and and taking some of the light levered after coffee house and moving those into the securitization, which would put the RTL deals I described earlier.

Those are.

Put them.

I know, it's you know those are kind of organic growth opportunities, but we don't depend on it.

Party capital.

<unk> pursuing.

The deal that we just talked about in fourth quarter.

From our standpoint, we can control the growth here without needing a.

Kind of third party or a capital markets event for us.

Yes.

Terrific. Thanks, a lot.

Thanks Dino.

Question.

There are no question at this time.

I would now like turn the call back over to Mr. Steve Moore.

Focusing remarks.

Thank you operator, and thank you everyone for being on the call are we all look forward to speaking about the fourth quarter in a year.

In 2021, thanks, everyone be safe.

Today's conference call you May now disconnect. Thank you for participating.