New York Mortgage Trust, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust fourth quarter and full year 2022 results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. If you have a question, please press the star followed by 1-1 on your touchtone phone. If you would like to withdraw your question, please press star 1-1 again. 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 Thursday, February 23, 2023. A press release and supplemental financial presentation with New York Mortgage Trust fourth quarter and full year 2022 results was released yesterday. Both the press release and supplemental financial presentation are available on the company's website at www.nymtrust.com. Additionally, we are hosting a live webcast of today's call, which you can access in the events and presentation section of the company's website. At this time, management would like me to inform you that certain statements made during the conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although New York Mortgage Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the Securities and Exchange Commission. Now, at this time, I would like to introduce Jason Serrano, Chief Executive Officer. Jason, please go ahead.

Thank you. Thanks, everybody, for joining the fourth quarter earnings call. I'm joined today by our CFO, Christine Nario, and President Nick Ma. Nick worked alongside of me since 2004 at Fortress, then at Blackstone, and more recently at Oak Hill. He joined New York Mortgage Trust in 2018, and after four years in the managing director role, I'm excited to have Nick join the senior management ranks as president at the end of this year, end of 2022, sorry, and be available to you today and on future calls. I'm eager to speak to you today about our fourth quarter results, along with a brief first quarter update. I will also discuss how we aligned the company with the market and why we feel primed for growth in a high return distress environment. I'll initially provide commentary around these points and hand over to Christine and Nick to provide greater detail around our financials and portfolio management. Now, we have been documenting our take on the market roadmap, which is on page seven for a few quarters now. We believe our market calls have aligned well with actual quarterly progression. An honest assessment from investors in our sector throughout the second half of 2022, and even thus far in 2023, likely contains a high degree of buyer's remorse. The market shift started in April 2022 with the Caucas Fed, laid out the game plan for historic rate increase due to inflation not witnessed since the 70s. In one month, the market went from historic securitization financing efficiency to market dislocation as common bond investors brushed off the years of missing out and instead sat on the sidelines. In the mid-second quarter of last year, we took decisive action to eliminate near-term investment pipelines. At the time, we were generating over $1 billion of new acquisitions per quarter. We ended the third quarter with $119 million of investments in mostly short-duration BPLs and followed up in the last quarter with just $106 million. Producing our portfolio pipeline took great effort. We have the ability to add multiples of our fourth-quarter investment activity on our balance sheet Today, Nick will discuss this in more detail. However, at this time, we don't see a great risk-reward proposition to aggregate in this market. We believe opportunity costs of capital right now is extremely high and prudent to wait for better entry points. In many ways, we see this first quarter to be an inferior buyer's market than that of the third quarter of last year. Our story is much more than avoiding significant losses with acquisitions from the second half of last year. In fact, we avoided tying up capital on losing propositions and human capital on managing these assets through a distressed environment to minimize downside risk. However, we have a clear plan to drive EPS higher with portfolio growth through this year and can do so without dilution to our investors and incurring costly debt. The question is timing of this redeployment and what are the near-term catalysts that create the opportunity for us. While it's difficult to determine the day, what seems apparent is that we are right now in the right season. While there are many data points and telling graphs one can use to judge timing of the market reset, I watched the data supporting these two graphs on page eight more closely. The graph on the left shows the U.S. consumer has abruptly been squeezed out of new loans and credit card products. Credit is what drove our economy in 2022, evidenced by nearly $1 trillion of credit card debt that has been added by U.S. consumers, which is a record high. Deeply rising credit card balances coupled with higher interest rate paid on such debt is crushing household budgets, as high inflation deteriorates savings that many amassed during the pandemic. Personal savings rate, now at 2.7%, is one of the lowest points ever. Only 2006 and 2007 witnessed such vapor thin levels. A large poll by Bankrate recently showed only 57% of Americans can afford $1,000 emergency expense. Now that the borrowing merry-go-round has ended, Many Americans will be looking through their monthly expenses and rejecting payments which present low utility to everyday life, including selective payment defaults that present little to no near-term consequence. Thus, it is all but certain that delinquencies will dramatically increase in a variety of asset classes, especially with loans originated over the past 18 months, to low FICO score borrowers. Overall, consumption is challenged and will significantly weigh on GDP in 2023. The graph to the right shows a tight S-curve relationship between existing home supply and HPA recorded in the year. For the past two years, the market reached historically low supply at less than two months of homes inventory on the market. Today, we still have very low supply levels at approximately three months. Supply is in check and should keep national prices positive in the near term. As I discussed, the consumer is under significant pressure. Thus, it should not be a surprise to see supply to pick up from homeowners struggling to make ends meet for equity extraction. However, when observing the demand side, housing affordability is painfully high. U.S. mortgage rates more than doubled from the mid-3% range to above 7% in 2022. Housing expense to income is now approximately 35% higher than last year. New homebuyers, an essential demographic for home price growth, are faced with even worse affordability. Not surprisingly, after two years of double-digit HPA and rent growth in the market in 2022, this is half in the previous year. On the ground, conversations should even create greater volatility in large traditional speculative markets such as Phoenix, Las Vegas, and in smaller markets like Boise and Salt Lake. In these markets, we see property investors willing to accept prices equal to their basis of two years ago, suggesting a home price decline of 25% for these investors. Thus, we see significant home price pressure in these markets in the year despite historically tight housing supply. In summary, unsecured debt and high LTV products, particularly in the late 2021 and 2022 vintage, will likely significantly underperform. Housing supply will most likely be pushed higher with a constrained buyer base. New construction and other types of pro forma underwriting will lead supply as these sales are often more distressed as these homeowners are not a traditional long-term holder. Delinquencies will follow. Financing will become more constrained, which we see as a likely catalyst for the opportunity we are focused on. Now, switching over to the quarterly results, which you can find on page 9, we ended the quarter with undepreciated loss per share of negative 12%. In this quarter, we introduced adjusted book value per share, mostly to capture the market – mark the market change on our debt, most of which is in securitization form. and other non-cash items. Christine will elaborate further about these measures, but as some of you pointed out earlier, we thought it would be helpful for consistency to disclose adjusted book value, which declined by 4.8% quarter-to-quarter. After effect of our previously declared 10-cent dividend, quarterly economic return on adjusted book value was negative 2.4%. Nearly all book value lost in the quarter were unrealized and expected to be reversed over time. We ended the year with 2.6% G&A expense ratio, which we believe is one of the lowest in the market for the complexities of the sectors we are engaged in. Our low-cost platform is deliberate. We focus on our costs and believe we can obtain additional savings in 2023. As far as quarterly investment activity, our plan was to reduce risk and focus inwardly, as we bought some of our debt in the secondary market as well as common shares. With a full team effort in both single-family and multi-family business, We also strengthen our asset management platform, which we believe will lead us through the distressed opportunity set. We'll have more details around this next quarter at some new pieces of our platform being assembled now. Finally, after issuing a term securitization in November, we reduced our leverage ratio to 0.3 times and ended the quarter with $224 million of cash. Our cash balances will jump around a bit. The goal is to limit cash holdings and drag by underleveraging our portfolio. We want to avoid incurring additional financing costs with additional drawdowns on our facilities without reinvestment targets. Page 10 shows this relationship. We can raise up to $644 million of cash by utilizing financing options available to us with our own portfolio. Thus, we can drive EPS higher without dilution to shareholders in an equity raise and also avoid expensive corporate debt placement. By taking this additional asset-based financing, our portfolio leverage would increase to 0.4 times or 0.5 times at the company level. Thus, we have the flexibility here to obtain incremental financing while also keeping our leverage at market-leading low multiples. Additional upside exists to our short duration portfolio. We have the luxury of reinvesting our asset turnover at higher yields available today, which the EPS illustration does not capture. We intentionally focused on organic fundraisers through our portfolio to drive earnings higher in a market which presents superior risk-adjusted returns. With a catalyst that may trigger a downturn now in view, we firmly see our differentiated patient approach as a winning one, where our stockholders will benefit from a steadfast path to seeking value in a disrupted environment. At this time, I'll pass it over to Christine to provide a deeper dive on our financial results and then to Nick on the portfolio. Christine?

Thank you, Jason. Good morning, everyone. In my comments today, I will focus my commentary on the main drivers of fourth quarter financial results. Our financial snapshot on slide 9 covers key portfolio metrics for the quarter, and slide 23 summarizes the financial results for the quarter. The company had undepreciated loss per share of 12 cents in the fourth quarter, an improvement of more than 50% as compared to undepreciated loss per share of 27 cents in the third quarter. The fair value changes related to our investment portfolio continue to have a significant impact on our earnings, and during the quarter we recognized 11 cents per share of unrealized losses, primarily due to an increase in interest rates and credit spread widening that resulted in a decline in the fair values of our residential loans and investment in consolidated SLSC. We had net interest income of $22.2 million, a contribution of 6 cents per share, down from 8 cents per share in the third quarter. The decrease can be attributed to a few factors. a decrease in average interest earning assets in our portfolio due to pay downs received during the quarter, as well as our decision to significantly curtail our investment activity starting at the end of the second quarter. In addition, financing costs in our investment portfolio were higher due to increases in base interest rates related to our repurchase agreements and as a result of residential loan securitization that we completed in the fourth quarter. While securitizations might incur greater interest expense relative to repurchase agreement financings in general, they reduce our exposure to marked market risk and allow us to better manage our liquidity. Securitizations also lock in financing costs versus floating rate repo. In that sense, if the Fed aggressively raises above expectations, it may even reduce interest expense versus repo over the medium term. Unlike in the third quarter, we had minimal sale activity. which resulted in a decrease in realized gains and other income during the quarter. Also, as previously discussed, due to increases in interest rates and continued credit spread widening, prices on a majority of the assets in our portfolio declined during the quarter. Of the $42 million of unrealized losses, $35 million, or $0.09 per share, are attributed to residential loans, seldom securitization vehicles. Unlike some of our peers, we do not mark our securitization liabilities to fair value. Therefore, there is no corresponding unrealized gain recognized in our securitization liabilities to offset unrealized losses on the assets held in the securitization. More on this point later. Total general administrative and operating expenses amounted to 68.2 million for the quarter, down from 91.6 million in the previous quarter, primarily due to, one, Reduction in amortization expense as a result of lease intangibles related to consolidated real estate being fully amortized in the prior quarter. Two, reduction in depreciation expense due to the application of held-for-sale accounting to consolidated real estate in the disposal group. And finally, due to residential loan portfolio runoff and minimal purchase activity which reduced portfolio operating expenses. Note that these numbers reflect the reclassification of interest expense related to our mortgages payable on consolidated real estate to operating expenses in the fourth quarter and in prior periods. This quarter, we introduced a new metric, adjusted book value, which is a non-GAAP financial measure replacing undepreciated book value. When presented in prior periods, undepreciated book value reflected the value for single-family rental properties and JV equity investments at their undepreciated basis. by excluding from GAAP book value the company's share of depreciation and lease intangible amortization expenses related to the operating real estate. Since we began disclosing undepreciated book value, we identified additional items as materially affecting our book value and believe they should also be incorporated to provide a more useful non-GAAP measure. Accordingly, adjusted book value begins with the same calculation as undepreciated book value and includes two additional adjustments to GAAP book value. First, we exclude the adjustment of redeemable NCI to estimated redemption value. Redeemable NCI represents third-party ownership in one of our consolidated JV structures. These third-party owners have the ability to sell their ownership interest to us once a year for cash, which then increases our ownership stake in the consolidated JV structure. However, because the corresponding real estate are not reported at fair value, Where unrealized gains or losses are taken into income, the adjustment of the redeemable NCI directly affects our GAAP book value. By excluding this adjustment, adjusted book value more closely aligns the accounting treatment applied to the real estate and reflects our JV equity investments again at their undepreciated basis. Second, we adjust our liabilities that finance our investment portfolio to fair value. Most of our assets, except our single-family and consolidated multifamily real estate, are financial instruments that are carried at fair value. However, unlike our use of fair value option for these assets, the CDOs issued by our residential loan securitizations and corporate debt that finance our investment portfolio assets are carried at amortized costs on our balance sheet. By adjusting these financing instruments to fair value, adjusted book value reflects the company's net equity and investments on a comparable fair value basis. We believe that adjusted book value provides investors a more useful and consistent measure of our value and facilitates the comparison of our financial performance to that of our peers. As Jason mentioned earlier, adjusted book value per share ended at 3.97, down 4.8% from September 30, and translated to a negative 2.4% economic return on adjusted book value during the quarter. Consistent with our efforts to further strengthen our balance sheet and reduce mark-to-market risk, we completed a securitization of our business purpose loan rental book. With the completion of this securitization as of December 31, the company's recourse leverage ratio and portfolio leverage ratio decreased to 0.3 times and 0.25 times respectively, from 0.5 times and 0.4 times respectively as of September 30. In addition, as indicated on slide 13, only 13% of our total financing arrangements which includes CDOs or securitization structures, is subject to mark-to-market margin call risk, down from 23% at September 30th. You can also see on slide 13 that we have limited corporate bond maturity exposure. We have 100 million of unsecured fixed debt due in 2026 and 45 million of subordinated bonds due in 2035. This helps us maximize our liquidity, particularly in dislocated markets. We paid a 10 cents per common share dividend which was unchanged from the prior quarter. It's been the company's policy not to provide guidance or forward dividend projections. We evaluate our dividend policy each quarter and look at the 12- to 18-month projection of not only our net interest income, but also realize our capital gains that can be generated from our investment portfolio. And with that, I will now turn it over to Nick to go over the market and strategy update. Nick?