Q1 2025 New York Mortgage Trust Inc Earnings Call
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the New York Mortgage Trust first quarter 2025 results conference call. During today's presentation, all parties are in a listen-only mode. Following the presentation, the conference will be open for questions. If you have a question, please press the star followed by 11 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.
Good morning, ladies and gentlemen, thank you for standing by welcome to the New York Mortgage Trust first quarter 2025 results conference call.
During todays presentation, all parties are in a listen only mode.
Following the presentation the conference will be opened for questions.
You have a question. Please press star followed by one 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.
Operator: This conference is being recorded on Thursday, May 1, 2025.
This conference is being recorded on Thursday may one 2025.
Kristi Mussallem: I would now like to turn the call over to Kristi Mussallem, Investor Relations. Please go ahead.
Christine: I would now like to turn the call over to Christine The Salem Investor Relations. Please go ahead.
Kristi Mussallem: Good morning and welcome to the first quarter 2025 earnings call for New York mortgage. A press release and supplemental financial presentation with New York Mortgage Trust first quarter 2025 results was released yesterday. Both the press release and supplemental financial presentation are available on the company's website at www.nymtrust.com. Additionally, we're hosting a live webcast of today's call which you can access in the events and presentation section of the company's website.
Christine: Good morning, and welcome to the first quarter of 2025 earnings call for New York Mortgage Trust, a press release and supplemental financial presentation with New York Mortgage Trust's first quarter 2025 results was released yesterday.
Christine: Both the press release and supplemental financial presentation are available on the company's website at Www Dot NY Amtrust dotcom.
Christine: Additionally, we are hosting a live webcast of todays call, but you can access in the events and presentations section of the company's website.
Kristi Mussallem: At this time, management would like me to inform you that certain statements made during the conference which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although New York Mortgage Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, It can give no assurance that its expectations will be Factors and risk that could cause actual results to differ materially from expectations are detailed in yesterday's press release. and from time to time and the company's filings with the Securities and Exchange.
Christine: At this time management would like mix and 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.
Christine: 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.
Christine: Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release.
Christine: And from time to time in the company's filings with the Securities and Exchange Commission.
Jason Serrano: Now, at this time, I would like to introduce Jason Serrano, Chief Executive Officer. Jason, please go ahead. Good morning. Thank you for joining New York Mortgage Trust's first quarter earnings call. Joining me today is Nick Mah, President and Kristine Nario, CFO. We are happy to spend time with you this Thursday morning as we share our first quarter recap and insights into our Q2 activity. Kristine will provide commentary on first quarter results and Nick will provide an update to our portfolio positioning and so forth.
Speaker Change: No at this time I would like to introduce Jason Serrano, Chief Executive Officer, Jason. Please go ahead.
Speaker Change: Good morning. Thank you for joining your mortgage Trust's first quarter earnings call. Joining me today is Nick <unk>, President and Kristina <unk> CFO.
Speaker Change: We are happy to spend time with you. This Thursday morning, as we share our first quarter recap and insights into our Q2 activity Christine will provide commentary on our first quarter results and Nick will provide an update to our portfolio positioning and focus.
Jason Serrano: This was a pivotal quarter for New York Mortgage Trust. During the first quarter, a more favorable market environment provided attractive entry points, and we capitalized on these conditions by meaningfully increasing investment activity. We began the quarter focused on raising interest income through portfolio optimization. As the quarter progressed, we unlocked company excess liquidity, and as a result, doubled last quarter's investment pace. Consequently, we are pleased to report that reoccurring earnings in the first quarter increased to a level consistent with the company's dividend of $0.20 per share. This achievement reflects the success of the strategic portfolio restructuring initiated two years ago, where we focused on sustainably enhancing interest income through investments in high-liquid agency RMBS and through short-duration credit assets in the residential BPLC.
Speaker Change: This was a pivotal quarter for New York Mortgage Trust.
Speaker Change: During the first quarter, a more favorable market environment provided attractive entry points and we capitalized on these conditions.
Speaker Change: Increasing investment activity.
Speaker Change: We began the quarter focused on raising interest income through portfolio optimization as the quarter progressed, we unlock company excess liquidity and as a result doubled last quarter's definite piece. Consequently, we are pleased to report that recurring earnings in the first quarter increased to a level consistent with the company's dividend of <unk> 20 per share.
Speaker Change: This achievement reflects the success of the strategic portfolio restructuring initiated two years ago, where we focused on sustainably enhancing interest income through investments in highly liquid agency MBS MTO short duration credit assets in the residential BPL sector.
Jason Serrano: What may come as a surprise, despite high investment deployment, company excess liquidity increased in the quarter. This was accomplished by taking prompt action in January before volatility took hold when we locked in $83 million senior unsecured five-year note, followed by completing two securitizations in the BPL sector later in the quarter. Thus, after adding $1.8 billion investments, we ended the quarter with $407 million in excess liquidity, an increase of nearly 20% from the previous quarter.
Speaker Change: Maybe it comes as a surprise despite high investment deployment company excess liquidity increased in the quarter. This was accomplished by taking prompt action in January before volatility took fold when we locked in $83 million senior unsecured five year note followed by completing two securitizations in the BPL sector later in the quarter, thus after adding one point.
Speaker Change: $8 billion investments, we ended the quarter with $407 million of excess liquidity, an increase of nearly 20% from the previous quarter.
Jason Serrano: We are entering the second quarter from a position of strength. As we continue to grow, our balance sheet primarily focused on agency RMBS to maintain liquidity. Now, given the wider spreads after quarter end, the return potential of the portfolio has increased. Nick will further elaborate on this point later. Also, over the last 12 months, we have been able to reduce our run rate G&A through operational efficiencies, which has helped support our dividend coverage. In addition, we believe there is near-term opportunity to generate additional revenue by leveraging our platform for service fee income in the year.
Speaker Change: We're entering the second quarter from a position of strength.
Speaker Change: As we continue to grow our balance sheet, primarily focus on agency MBS to maintain liquidity now given the wider spreads after quarter end. The return potential of the portfolio has increased Nick will further elaborate on this point later.
Christine: Also over the last 12 months, we've been able to reduce our run rate G&A through operational efficiencies, which has helped support our dividend coverage. In addition, we believe there is near term opportunity to generate additional revenue by leveraging our platform for service fee income in the year before I pass the call over to Christine to discuss the Companys financial results.
Jason Serrano: Before I pass the call over to Kristine to discuss the company's financial results, I wanted to highlight two slides from our quarterly investor supplement available on our website. Page 8 is essentially the same slide from last quarter, but it was correct to point out the interplays between federal deficit spending and trade wars back in February. Its significance surprised the macro markets with intense volatility that ensued. The trade wars could bring about a stagflationary shock, lowering consumer confidence and, with it, consumption. inventory building the second quarter will likely mask this effect, thus the impact may not be seen until the summer.
Christine: I wanted to highlight two slides from our quarterly Investor supplement available on our website page eight is essentially the same slide from last quarter, but was correct to point out the interplay between federal deficit spending and trade wars back in February its significance surprised the macro markets with intense volatility doesn't suit the trade wars could bring about a stack.
Christine: <unk> shock lowering consumer confidence and with it consumption.
Christine: Inventory building the second quarter will likely masked this effect thus the impact may not be seen until the summer.
Jason Serrano: In the REIT sector, the importance of choices made to drive earnings as far back as last year and up to this pivotal quarter for the economy cannot be understated. Reflecting some broader macro concern, the portfolio request leverage ratio at the company reduced to 0.5 times in Q1 from 1.1 times last quarter. Agency RBS investments are now over 50% of company assets. Backed by 20 years of experience and proven expertise in navigating distressed mortgage markets, our team has made strategic changes to capitalize on heightened investment opportunities and market dislocation. With that said, noted on page 10 of our supplemental, we believe NYMT's equity is significantly undervalued, trading in the low to mid-60s percent of book value.
Christine: In the REIT sector, the importance of choices made to drive earnings as far back as last year and at this pivotal quarter for the economy cannot be understated, reflecting some broader macro concern the portfolio recourse leverage ratio at the company reduced the 0.5 times in Q1 from one one times last quarter Agency <unk>.
Christine: MBS investments are now over 50% of company assets.
Christine: By 20 years of experience and proven expertise in navigating distressed mortgage markets. Our team has made strategic changes to capitalize and heightened investment opportunities and market dislocation with that said noted on page 10 of our supplemental we believe <unk> equity significantly undervalued trading in the low to mid 60.
Jason Serrano: Strikingly, NYMT's equity trades at a 10 percent discount to a smaller quarter of company assets of just cash and agency RMB assets. With full dividend support and real growth capacity through liquidity on balance sheet, we believe MYMT shares present exceptional value, and I can tell you our entire team is motivated to demonstrate this point.
Christine: Percent of book value strikingly Mlp's equity trades at a 10% discount to a smaller cohort of company assets of just cash and agency MBS.
Christine: With full dividend support and real growth capacity towards liquidity on balance sheet. We believe <unk> shares present exceptional value and I can tell you our entire team is motivated to demonstrate this point.
Kristine Nario: At this time, we'll pass the call over to Kristine to provide our first quarter financial highlights. Kristine? Thank you, Jason. Good morning. I'll cover the key factors behind a first quarter financial.
Christine: At this time will pass the call over to Christine to provide our first quarter financial highlights Christine.
Christine: Thank you Jason good morning, all.
Christine: Cover the key factors behind our first quarter financial results.
Kristine Nario: As we begin the new year, we are pleased to introduce a new non-GAAP financial Earnings available for distribution. for places that are previously reported undepreciated. Following two years of strategic portfolio repositioning, including divesting joint venture, equity investments, and multifamily property. and acquiring interest earning assets like agency RMBS and business purpose We believe EAD better reflects our current income generating capability to support the company's EOD is defined as gap net income, excluding realized and unrealized gains and loss. Derivative gains and losses, other than net interest benefit from interest rate swaps, real estate impairments, non-cash items, and certain other non-recurring As I discussed in last quarter's earnings We are pleased with the progress we've made in expanding our balance sheet, rotating real property exposure into assets that generate interest income and reducing GNP.
Christine: As we begin the new year, we are pleased to introduce our new non-GAAP financial measure earnings available for distribution or <unk>.
Christine: Which replaces our previously reported unappreciated Rx.
Christine: Following two years of strategic portfolio repositioning, including divesting joint venture equity investments in multifamily properties and acquiring interest, earning assets like agency MBS and business purpose loans, we believe better reflects our current income generating capability to support the company's dividend.
Christine: <unk> is defined as GAAP net income, excluding realized and unrealized gains and losses.
Christine: Derivative gains and losses other than that insurance benefit from interest rate swaps real estate impairments noncash items and certain other nonrecurring items.
Christine: As I discussed in last quarter's earnings call. We are pleased with the progress we've made in expanding our balance sheet rotating real property exposure into assets that generate interest income and reducing G&A.
Kristine Nario: Our efforts resulted in an increase in EAD per share to $0.20 in the first quarter of 2025 compared to $0.16 in the fourth quarter of 2020. This strategic shift also contributed to an increase in quarterly EPS contribution from adjusted net interest income to $0.40 per share up from $0.36 per share in the prior quarter and $0.29 per share a year. representing an increase of 11% quarter over quarter and 38% year over Our net interest spread was 132 basis points for the compared to 137 basis points in the prior reflecting a growing allocation in agency RMBS, which carry lower yields relative to On a positive note, our average financing costs improved by five base benefiting from lower base rates and improved terms on repurchase agreements, as well as more advantageous financing terms achieved through securitizations completed during the Relative to repurchase.
Christine: Efforts resulted in an increase in <unk> per share to 20 cents in the first quarter of 2025 compared to 16 cents in the fourth quarter of 2024.
Christine: This strategic shift also contributed to an increase in quarterly EPS contribution from adjusted net interest income $2 40 per share up from 36 cents per share in the prior quarter and 29 cents per share a year ago, representing an increase of 11% quarter over quarter.
Christine: <unk> and 38% year over year.
Christine: Our net interest spread was 132 basis points for the quarter.
Christine: Compared to 137 basis points in the prior quarter.
Christine: Selecting a growing allocation and agency RBS, which carry lower yields relative to business purpose loans.
Christine: On a positive note our average financing cost improved by five basis points benefiting from lower base rates and improved terms on our repurchase agreements as well as more advantageous financing terms achieved through securitizations completed during the quarter relative to repurchase financing.
Kristine Nario: We recognized net unrealized gains totaling $118.2 million during Primarily attributable to higher valuations in our agency RMBS portfolio and residential loan. These gains were largely a result of a decline in interest. which more than offsets the impact of spread. Partially offsetting these gains were unrealized losses of approximately $71.3 million from our derivative. We also recorded modest net realized losses of approximately $2.3 million from investment activity. with 26.8 million in realized losses from sales of investment securities, largely offset by realized gains of 24.5 million from Additionally, we recognize losses of approximately $14.3 million related to conversion of loans to foreclosed properties that we still hold on the balance.
Christine: We recognized net unrealized gains totaling $118 2 million during the quarter, primarily attributable to higher valuations in our agency MBS portfolio and residential loan book.
Christine: These gains were largely a result of a decline in interest rates, which more than offset the impact of spread widening.
Christine: Partially offsetting these gains were unrealized losses of approximately $71 3 million from our derivative instruments, mainly interest rate swaps. We also recorded modest net realized losses of approximately $2 3 million from investment activity with $26 8 million in realized.
Christine: Losses from sales of investment securities largely offset by realized gains of $24 5 million from derivative instruments.
Christine: Additionally, we recognized losses of approximately $14 3 million related to conversion of loans to foreclosed properties, we still hold on the balance sheet.
Kristine Nario: These losses were largely offset by the reversal of previously recognized unrealized losses associated The disposition of our multifamily joint venture equity investments in prior quarters further contributed to the reduction in negative earnings dragged from real estate, with net real estate losses declining from $5.9 million in the fourth quarter of 2024 to $2.2 million in the current General and administrative expenses increased slightly during the quarter, primarily due to non-recurring employee severance costs related to the company's restructuring.
Christine: These losses were largely offset by the reversal of previously recognized unrealized losses associated with the loans.
Christine: The disposition of our multifamily joint venture equity investments in prior quarters further contributed to the reduction in negative earnings drag from real estate with net real estate losses declining from $5 9 million in the fourth quarter of 2024 to $2 2 million in the current quarter.
Christine: General and administrative expenses increased slightly during the quarter, primarily due to nonrecurring employee severance costs related to the companys restructuring initiatives.
Kristine Nario: While portfolio operating expenses remain We also incurred $5.4 million in debt issuance costs related to the issuance of senior unsecured notes and completion of two securitizations which were fully expensed during the quarter due to our fair valuals. Gap book value and adjusted book value per share increased to $9.37 and $10.43, respectively, representing a 1% increase compared to December 31. A recourse leverage ratio and portfolio recourse leverage ratio increased to 3.4 times and 3.2 times respectively from three times and 2.9 times at year-end. primarily due to the issuance of senior unsecured notes and continued financing activity related to agency RMBS activities.
Christine: Portfolio operating expenses remained flat.
Christine: Also incurred $5 4 million in debt issuance costs related to the issuance of senior unsecured notes and completion of two securitizations, which are fully expense during the quarter due to a fair value election.
Christine: GAAP book value and adjusted book value per share increased to $9 37 and.
Christine: And $10 43, respectively, representing a 1% increase compared to December 31, 2020 for a.
Christine: Our recourse leverage ratio and portfolio recourse leverage ratio increased to three four times and three two times, respectively from three times and two nine times at year end.
Christine: Primarily due to the issuance of senior unsecured notes and continued financing activity related to agency MBS acquisitions.
Kristine Nario: Portfolio recourse leverage on our credit and other investments declined 2.5 times from 1.1 times, reflecting the successful completion of two residential loan securitization.
Christine: Portfolio recourse leverage on our credit and other investments declined 2.5 times from one one times, reflecting the successful completion of two residential loan securitizations during the quarter.
Nick Mah: Finally, the restructuring and repositioning of our investment portfolio in recent years have meaningfully enhanced our ability to generate recurring income in support of our current dividend of $0.20 per share, which remains unchanged for the sixth consecutive For more information visit www.FEMA.gov With that, I'll turn it over to Nick to go over the market and strategy update. Thanks, Kristine. In the first quarter, the market experience spread widening in agency RMBS and residential credit. Treasury rates crept higher in the first couple weeks of the year, but trended lower by the end of the quarter. We took advantage of the higher spreads and interest rate gyrations to meaningfully increase our quarterly purchases concentrated in agency RMBI.
Christine: Finally, the restructuring and repositioning of our investment portfolio in recent years have meaningfully enhance our ability to generate recurring income in support of our current dividend of <unk> 20 per share, which remains unchanged for the sixth consecutive quarter with that I'll turn it over to next to go over the market and strategy update.
Christine: Nick.
Nick: Thanks, Christine and the first quarter the market experienced spread widening in agency MBS residential credit.
Nick: Treasury rates crept higher in the first couple of weeks or a year, but trended lower by the end of the quarter.
Nick: We took advantage of the higher spreads and interest rate gyrations to meaningfully increase our quarter, we purchases concentrated in agency RBS.
Nick Mah: We bought approximately 1.5 billion of agency RMBs in the quarter. This was almost four times more investments in this sector than in the prior quarter, and 53% more than our last historical peak of agency RMBS purchases in the third quarter of 2023. The heightened acquisition pace contributed to the considerable expansion of EAD this quarter. Within residential credit, we purchased $397 million of whole loans. More specifically, we acquired $232 million of bridge and $163 million of rental loans within the BPL sector. Consistent with prior quarters, investment activity tilted more towards bridge loans, but rental loans have now become a regular portion of our volume since the restart of our purchase program in the first quarter of 2024.
Nick: We bought approximately $1 5 billion of agency MBS in the quarter.
Nick: This was almost four times more investments in this sector than in the prior quarter and 53% more than our last historical peak of agency MBS purchases in the third quarter of 2023.
Nick: The heightened acquisition pace contributed to the considerable expansion of AAV this quarter.
Nick: Within residential credit, we purchased $397 million of whole loans more specifically, we acquired $232 million of bridge and 163 million of rental loans within the BPL sector.
Nick: Consistent with prior quarters, the investment activity tilted more towards bridge loans, but rental loans have now become a regular portion of our volume since the restart of our purchase program in the first quarter of 2024.
Nick Mah: We like the credit profile of BPL Rental, and we were comfortable adding duration to the portfolio during a period where rates would trend lower. We completed a $254 million securitization of rental loans in the first quarter, which was our second deal issued in this asset class in the last five months. In the first quarter, we funded our purchase pipeline primarily with proceeds from a combination of an unsecured bond issuance in January, securitization financings, and the continued resolution of non-core assets. Despite a record amount of purchases, we ended the quarter with a higher available cash balance than what we had at the end of 2024.
Nick: We like the credit profile of PPL rental and we were comfortable adding duration to the portfolio during a period where rates would trend lower.
Nick: We completed a $254 million securitization of rental loans in the first quarter, which was our second deal issued in this asset class in the last five months.
Nick: In the first quarter, we funded our purchase pipeline, primarily with proceeds from a combination of an unsecured bond issuance in January securitization financings and the continued resolution of noncore assets.
Nick: Despite a record amount of purchases we ended the quarter with a higher available cash balance than what we had at the end of 2024.
Nick Mah: We have a nice runway to utilize our capital to further grow the portfolio at attractive levels due to the recent market turmoil. In the near to medium term, we expect further bouts of volatility as this complex geopolitical situation finds its eventual equilibrium. So far in the second quarter, we are deploying our liquidity to invest in assets at these compelling returns, but we are doing so at a more measured pace versus the first quarter. We seek to preserve some capital for better entry points and new opportunities that we expect to arise in the future. More importantly, we want to highlight our flexibility to shift capital allocation into either agency RMBS or residential credit, depending on market conditions.
Nick: We have a nice runway to utilize our capital to further grow the portfolio at attractive levels due to the recent market turmoil.
Nick: In the near to medium term, we expect further bouts of volatility as this complex geopolitical situation finds its eventual equilibrium.
Nick: So far in the second quarter, we are deploying our liquidity to invest in assets of these compelling returns, but we are doing so at a more measured pace versus the first quarter.
Nick: We seek to preserve some capital for better entry points and new opportunities that we expect to arise in the future.
Nick: More importantly, we want to highlight our flexibility to shift capital allocation into either agency MBS or residential credit depending on market conditions.
Nick Mah: Over several quarters, we created this optionality by limiting credit leverage and expanding into more liquid agency RMBF. With this flexibility, we can better navigate the evolving market turbulence while pursuing continued portfolio growth. As was the case in the first quarter, we currently see better value in agency RMBS relative to residential credit. The substantial widening of agency spreads under the backdrop of an increasing possibility of a recession presents an ideal environment to invest in the For more information visit www.FEMA.gov Back in the first quarter, which feels like ages ago, current coupon agency spreads widened from 135 basis points to 143 basis points.
Nick: Over several quarters, we created this optionality by limiting credit leverage and expanding into more liquid agency RBS.
Nick: With this flexibility, we can better navigate the evolving market turbulence, while pursuing continued portfolio growth.
Nick: As was the case in the first quarter, we currently see better value in agency MBS relative to residential credit the.
Nick: The substantial widening of agency spreads under the backdrop of an increasing possibility of a recession presents an ideal environment to invest in this sector.
Nick: Back to the first quarter, which feels like ages ago current coupon agency spreads widen from 135 basis points to 143 basis points. This coincide with our initial sizable ramp up of agency MBS purchases.
Nick Mah: This coincided with our initial sizable ramp-up of agency RMBS purchases. This price action was soon overshadowed by larger moves that we have seen thus far in the second quarter. Agency current coupon spreads to treasuries blew out from 143 basis points to 163 basis points in the first three weeks of April, a 20 basis point swing. Swap spreads were also sharply moving into more negative territory. In spread to swaps terms, spreads moved from 181 basis points to 213 basis points, a larger 32 basis points spread widening in that same time period. Recently, volatility has subsided and spreads have settled lower, although still high by historical standards.
Nick: This price action was soon overshadowed by larger moves that we've seen thus far in the second quarter.
Nick: Agency current coupon spreads to treasuries blew out from 143 basis points to 163 basis points in the first three weeks of April a 20 basis point swing.
Nick: Swap spreads were also sharply moving into more negative territory.
Nick: And spread to swaps terms spreads moved from 181 basis points to 213 basis points, a larger 32 basis points spread widening in that same time period.
Nick: <unk> volatility has subsided and spreads have settled lower although still high by historical standards also the repo markets continue to operate in a healthy matter. Unlike what we experienced in March of 2020.
Nick Mah: Also, the repo markets continue to operate in a healthy manner, unlike what we experienced in March of 2020. This further bolsters our desire to continue to increase our agency RMBS capital allocation in the future. Factoring the Fed's rate cuts thus far, a greater portion of the coupon stack now offers an attractive carry profile. In the first quarter, we primarily targeted 5.5% coupon specs, with some allocations of 5. However, we will likely allocate more to fives than five and a half in the near term. We aim to optimize the overall expected return and EAD contribution of the agency portfolio while maintaining a healthier convexity profile if rates do decline from here, especially if we encounter a U.S.
Nick: This further bolsters our desire to continue to increase our agency RBS capital allocation in the future and.
Nick: Factoring in the fed's rate cuts, thus far but a greater portion of the coupon stack now offers an attractive carry profile.
Nick: In the first quarter were primarily targeted at five 5% coupon specs with some allocation to fives. However, we will likely allocate more to five spent five and a half in the near term.
Nick: We aim to optimize the overall expected return and AAV contribution of the agency portfolio, while maintaining a healthier convexity profile if rates do decline from here, especially if we encounter a U S economic slowdown.
Nick Mah: economic slowdown. In the BPL sector, we have seen stable pricing on BPL bridge loans through the recent volatility. Competition for BPL bridge loans has steadily increased, with rated securitizations becoming more commonplace. This has led to stickier purchase yields due to the locked-in nature of the financing. Under these market conditions, our goal is to maintain our disciplined credit selection process. which will likely limit any additional equity capital allocation to BPL Bridge in the near term. We do intend to have a pipeline of investments in BPL Bridge as we fully utilize the $706 million of revolving securitization debt that we have available.
Nick: And the BPL sector, we are seeing stable pricing from BPL bridge loans through the recent volatility competition.
Nick: Competition for BPL British loans has steadily increased with rated securitizations, becoming more commonplace.
Nick: This has led to stickier purchase yields due to the locked in nature of the financing.
Nick: Under these market conditions, our goal is to maintain our disciplined credit selection process, which will likely limit any additional equity capital allocation to BPL bridge in the near term.
Nick: We do intend to have a pipeline of investments and BPL bridge as we fully utilize the $706 million of revolving securitization debt that we have available.
Nick Mah: In BPL Rental, we have seen spread winding commensurate with other longer duration assets, and we'll continue to pursue investments here. The securitization markets continue to function well, despite some modest spread winding in AAAs and a steeper credit curve. We still favor this credit sector versus BPL bridge due to the winding yields and strong liquidity, given the deeper set of institutional investors that participate in these loans. In multifamily, our capital allocation to this sector has declined from 27% at the beginning of last year to 19% at the end of this first quarter. We have reduced our JV equity exposure to less than 1% of our overall portfolio over this time period.
Nick: And PPL rental we've seen spread widening commensurate with other longer duration assets and we'll continue to pursue investments here.
Nick: The securitization markets continue to function well, despite some modest spread widening in triple A's and a steeper credit curve, we still favor this credit sector versus PPO bridge due to the widening yields and strong liquidity given the deeper set of institutional investors that participated in these loans.
Nick: Multifamily our capital allocation to the sector has declined from 27% at the beginning of last year to 19% at the end of this first quarter.
Nick: We have reduced our JV equity exposure to less than 1% of our overall portfolio over this time period.
Nick Mah: Within the combined multifamily mezzanine loan portfolio, we experience sizable resolution activity year-to-date, with 10% of the book paying off thus far. We have invested the payoff proceeds into our core residential strategy. We believe that the structural elements in our portfolio, like the equity buildup due to seasoning, can provide a strong impetus for robust payoff rates in 2025, despite the markier economic outlook.
Nick: Within the combined multifamily mezzanine loan portfolio, we experience sizable resolution activity year to date with 10% of the book paying off thus far with.
Nick: We have invested to payout proceeds into our core residential strategies.
Nick: We believe that the structural elements in our portfolio like the equity buildup due to seasoning can provide a strong impetus for robust payoff rates in 2025, despite the mark to your economic outlook.
Nick Mah: Overall, our disciplined approach to balance sheet growth over the past several quarters enabled us to reach an important goal this quarter, to meet our dividend rate with our recurring earnings. We are eager to build on this momentum for the future.
Nick: Overall, our disciplined approach to balance sheet growth over the past several quarters enabled us to reach an important goal this quarter to meet our dividend rate with our recurring earnings.
Nick: Eager to build on this momentum for the future.
Operator: I will now pass the call back to the operator for Q&A. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, please press the star followed by 11 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.
Nick: I will now pass the call back to the operator for Q&A.
Speaker Change: Thank you at this time, we will conduct a question and answer session.
Speaker Change: A reminder to ask a question. Please press the star followed by one one on your Touchtone phone.
Speaker Change: If you would like to withdraw your question. Please press the pound key.
Speaker Change: If you are using speaker equipment, we do ask that you. Please lift the headset handset excuse me before making your selection. Please standby, while we compile the Q&A roster.
Operator: Please stand by while we compile the Q&A raw file.
Randy Breiner: Randy Breiner from B.
Randy Bryan: Randy Bryan.
Tim D'agostino: Reilly Securities, your line is now open. Hi, thank you for taking the question. This is Tim D'Agostino on for Randy Binner. Congrats on the quarter. With more commentary and changes at FHFA and the GSTs, we'd love to hear your thoughts on the impact on your business and the mortgage market with the potential GST reform. Thank you. Yeah, thanks for your question. So, you know, what we do outside on the credit side, outside of the GSE landscape in more investor loan type of credit applications, obviously within the agency space, that's an impact in the agency R&B as market.
Randy Bryan: From B Riley Securities. Your line is now open.
Randy Bryan: Yeah.
Tim D'agostino: Hi, Thank you for taking the question. This is Tim D'agostino on for Randy Binner, Congrats on the quarter.
Randy Bryan: With more commentary and changes.
Speaker Change: HSA and the Gst's, we'd love to hear your thoughts on the impact on your business and the mortgage market with the potential GSE reform. Thank you.
Speaker Change: Thanks for your question so.
Speaker Change: What we do outside on the credits outside of the GSE.
Speaker Change: Land scape.
Speaker Change: <unk>.
Speaker Change: More investor loan type of credit applications.
Speaker Change: Obviously within the agency space, that's an impact.
Jason Serrano: You know, I think overall, you know, there's a lot of considerations that have to take place for GSE reform. It generates liquidity issues. And also, you know, there's also like interplays between even You know, different risk-based pricing that could come about with a private issuance, such as like geography, which doesn't really come up and is not an issue with GSE current issuance. So, you know, I think overall, with the mandate of creating, you know, home ownership and also financeability for that, you know, with a homeownership rate that's actually has moved down a little bit, about 60 basis points, just, you know, from year over year from last quarter.
Speaker Change: And the agency MBS market.
Speaker Change: I think overall there.
Speaker Change: There's a lot of considerations to have to take place.
Speaker Change: For GSE reform.
Speaker Change: If you'd like to bring higher mortgage rates liquidity issues and also.
There is also like interplay between even.
Speaker Change: <unk>.
Speaker Change: Different risk based pricing that could come about with private.
Speaker Change: With a private issuance such as like geography, which doesn't really come up and is not an issue with GSE current insurance so.
Speaker Change: I think overall with the mandate of.
Speaker Change: Creating.
Speaker Change: Ownership and also.
Speaker Change: Finance ability for that with a homeownership rate that's actually.
Speaker Change: Move down a little bit about 60 basis points.
Speaker Change: Justin.
Speaker Change: From year over year from last quarter I think.
Jason Serrano: I think, you know, it's just going to take some time for this to come about and, you know, we don't see it happening, you know, under the Trump administration next four years. It's just the timeline to actually move off to a private, particularly with increasing, taking a 3% capital for the GSEs, which is required. Calabria did mention earlier that, you know, when he was FHA Director, that it would, the GSEs could be released under a consent decree, but, you know, activities that would have to take place to manage that transition would be, would take years.
Speaker Change: It's just going to take some time for this to come about and we don't see it happening under the Trump administration. The next four years.
Speaker Change: It's just the timeline to actually move off to a private particularly with increasing.
Speaker Change: Taking a 3% capital for that for the GSE is which is required.
Speaker Change: <unk> did mention earlier that.
Speaker Change: When he was FHA for director that it would be.
<unk> could be released under a consent decree, but activities that would have to take place to manage that transition would be it would take years. So.
Tim D'agostino: So, in the near term and medium term, we don't see that being an influence in our activity. Okay, great. Thank you so much and congrats on the quarter.
Speaker Change: In the near term and medium term, we don't see that being an influence in our activities.
Speaker Change: Yeah.
Speaker Change: Okay, great. Thank you so much and congrats on the quarter.
Operator: One moment for our next question.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Doug Harder: Our next question comes from Doug Harder of UBS. Your line is now open.
Speaker Change: Our next question comes from Doug Doug Harter of UBS. Your line is now open.
Marissa Lobo: I'm Marissa Lobo on for Doug. I was hoping you could give us an update on book value performance so far in the second quarter. Sure. As of April month end, which was yesterday, we estimate that adjusted book value is down approximately 1.5%. Got it. Thanks for that.
Speaker Change: Marissa <unk> on for Doug I was hoping you could give us an update on book value performance the second quarter.
Speaker Change: Sure.
Speaker Change: April month end, which was yesterday.
Speaker Change: We estimate that adjusted book value is down approximately one 5%.
Speaker Change: Sure.
Jason Serrano: And secondly, and you spoke a bit about the capital allocation strategy. Given the current market volatility and opportunity set, is the core still agency RMBS and BPL, or is there appetite for expanding the credit investment? Yeah, I would say that within our core strategies, our core strategies, we are still interested in agency RMBS in particular, as we noted a little bit earlier. Within BPLs, we do see robust activity. We are on the margin preferring BPL rental over BPL bridge. Relating to other potential asset classes that may creep into our core strategies, we understand right now that the market is fluid.
Speaker Change: Got it thanks for that.
Speaker Change: Secondly, you spoke a bit about the capital allocation strategy.
Speaker Change: Given the current market volatility and opportunity set is the core still agency RMB S&P PLO as their appetite for expanding the credit investments that.
Speaker Change: Yes, I would say that within our core strategies. Our core strategies. We are still interested in agency MBS in particular, as we noted a little bit earlier.
Speaker Change: We then be Pls, we do see robust activity.
Speaker Change: We are on the margin.
Speaker Change: <unk> BPL rental over a PPL bridge.
Speaker Change: Relating to other potential asset classes that may creep into our core strategies.
Speaker Change: We understand right now that the market is fluid there is credit spread widening.
Jason Serrano: There is credit spread widening. There is an increased possibility of a recession. I would say within credit, though, although we have seen spread widening, we haven't really materially, we haven't seen any material changes relating to loss assumptions or delinquency assumptions that one would assume if the possibility of a recession is higher. Given our backgrounds in investing in distressed assets, historically, we would need to see more of that occur for us to be excited about deploying additional capital within residential credit, just given where the market is today. Within agency RMBS, we still see historically wide spreads, and this particular asset class does outperform in recessionary scenarios.
Speaker Change: There is an increased possibility of a recession I would say within credit, though although we are seeing spread widening we havent really materially we haven't seen any material changes relating to loss assumptions, our delinquency assumptions that one would assume if the possibility of recession was higher.
Speaker Change: Given our backgrounds in investing in distressed assets historically.
Speaker Change: We would need to see more of that occur for us to be.
Speaker Change: Cited about deploying additional capital within residential credit just given where the market is today within agency MBS, we still see historically wide spreads.
Speaker Change: And this particular asset class, but does outperform in recessionary scenarios. So those two things caused us to be very excited about deploying additional capital at least in the near term with agency MBS.
Jason Serrano: Those two things cause us to be very excited about deploying additional capital, at least in the near term, within agency RMBS.
Marissa Lobo: Thank you.
Operator: One moment for our next question. Our next question comes from Matthew Erdner from Jones Training. Your line is now open. Hey, guys, thanks for taking the question this morning. Congrats on a great quarter. Could you talk a little bit about the timing surrounding the Mez and multifamily? You know, in the deck, it says you expect redemptions to continue to accelerate. And then was that 10% number year to date or as of 3.31? That 10% number was a year-to-date number as of early April. And with regards to the continued pay down, we do believe that the combined multifamily mezzanine portfolio, we do see a healthy pipeline of continued resolutions.
Speaker Change: Thank you.
Speaker Change: A moment for our next question.
Speaker Change: Our next question comes from Matthew.
Speaker Change: Character from Jones trading your line is now open.
Speaker Change: Hey, guys. Thanks for taking my question. This morning, Congrats on a great quarter could you talk a little bit about the timing surrounding the mezz in multifamily.
Speaker Change: Check it says you expect redemptions to continue to accelerate.
Speaker Change: And then was that 10% number year to date or as of $3 31.
Hi.
Speaker Change: That 10% number it was a year to date number as of early April.
Speaker Change: And with regards to.
Speaker Change: With regards to the continued pay down we do believe that.
Speaker Change: The combined multifamily mezzanine portfolio, we do see a healthy pipeline of continuing resolutions. So as I mentioned earlier, we do believe that the 2025 payoff rates are going to be robust.
Matthew Erdner: So as I mentioned earlier, we do believe that the 2025 payoff rates are going to be robust. On the JV equity portfolio, which has shrunk considerably, we are making inroads in terms of resolutions over the next few months. Got it. That's, that's helpful there.
Speaker Change: On the JV equity portfolio with <unk>.
Speaker Change: Trunk considerably.
Speaker Change: We're making inroads in terms of resolutions over the next few months.
Speaker Change: Got it that's helpful. There and then as that capital comes back and you kind of talk about a little.
Nick Mah: And then, you know, as that capital comes back, and you kind of talk about, you know, a little more with the allocation there, you know, ideally, two years from now, where'd you'd like to be, whether it be a 70-30 agency credit split, you know, I guess, how are you guys thinking about it once this capital does come back? I can tell you right now from the near-term perspective, we do like agency RMBS more. It is an evolving situation, so we are still investing in residential credit on the BPL side. We do expect more opportunities to materialize over the next few months, and we may shift our focus depending on where things go.
Speaker Change: More with the allocation there ideally two years from now where do you like to be whether it be at 70 30 agency credit split I guess, how are you guys thinking about it once this capital does come back.
Speaker Change: I can tell you right now from the from the near term perspective, we do like agency RMB is more it.
Speaker Change: It is an evolving situation. So we are still investing in residential credit on the BPL side.
Speaker Change: Do you expect.
Speaker Change: More opportunities to to materialize over the next few months.
Speaker Change: And we may shift our focus depending on where things go so looking forward within kind of like a two year timeframe, especially in a market like this it's a little bit difficult.
Nick Mah: So, looking forward within kind of like a two-year time frame, especially in a market like this, it is a little bit difficult. We do know what we are excited about today. We do see a very strong pipeline in terms of being able to continue to invest, continue to grow recurring earnings, and continue to build a strong portfolio. But one of the key things that we mentioned before is that we want to have that flexibility. We understand that in periods of dislocation like this, there could be new opportunities that will arise. There is a timeline by which the multifamily portfolio will eventually return the proceeds.
Speaker Change: We do know what we are excited about today, we do see a very strong pipeline in terms of being able to continue to invest continue to grow recurring earnings and continue to build a strong portfolio.
Speaker Change: But one of the key things that we mentioned before is that we want to have that flexibility we understand that in periods of dislocation like this.
Speaker Change: There could be new opportunities that will arise there is a timeline by which the multifocal multifamily portfolio will eventually return to proceeds.
Operator: That is not immediate, and as that time slowly materializes, we will be making the decisions based on the best risk-adjusted returns that we see in the market. Got it. That's helpful information. I appreciate it, guys. Thank you. This concludes the question and answer session.
Speaker Change: That is not an immediate and as that time.
Speaker Change: Slowly materializes, we will be making the decisions based on the best risk adjusted returns that we see in the market.
Speaker Change: Got it that's helpful information I appreciate it guys.
Speaker Change: Thank you.
Jason Serrano: I would now like to turn it back to Jason Serrano for closing remarks. Thank you for joining the call this morning. We look forward to speaking to you on our second quarter earnings call.
Speaker Change: This concludes the question and answer session I would now like to turn it back to Jason Serrano for closing remarks.
Jason Serrano: Thank you for joining the call. This morning, we look forward to speaking to you on our second quarter earnings call have a great day.
Operator: Have a great day. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Jason Serrano: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Jason Serrano: Okay.
Jason Serrano: [music].
Jason Serrano: Okay.
Jason Serrano: [music].