Broadmark Realty Capital (BRMK)

Nevin Boparai General Counsel
Jeffrey Pyatt President, CEO & Director
David Schneider CFO, Treasurer & Principal Accounting Officer
Stephen Laws Raymond James
Steve Delaney and JMP Securities
Call transcript
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Good afternoon, and welcome to Broadmark Realty Capital Fourth Quarter and Full Year 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there'll be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Nevin Boparai from Broadmark General Counsel. ahead. go Please

Nevin Boparai

you Capital's Thank conference us for today Good quarter for and Realty fourth earnings full Broadmark afternoon. joining year call. XXXX

we website package to issued available our in addition press Section have is afternoon, filed on Investors our In results, which a www.broadmark.com. additional with the supplemental the detail at on this release

a statements. reminder include may forward-looking remarks As made call on today's conference

We cause do subject new to undertake in those risks actual may results are that from statements to statements to Forward-looking discussed information obligation uncertainties today. not any forward-looking events. update materially differ and or our future of light

recent detailed more filings. our a the release company's factors please discussion For most that earnings may and affect SEC of the quarter for to refer this results, our to

be are is Chief call, most filings. will certain conference by earnings in Financial comments some David to information and we measures. Schneider. questions. open More the financial also your measures Executive these and the release reconciliations Pyatt, call after This Chief prepared SEC to this up call financial financial contained Officer, will about make GAAP non-GAAP non-GAAP we Management Jeff will measures Officer, our and comparable discussing directly afternoon's hosted which During Broadmark's

the turn over I'll call Now, to Jeff.

Jeffrey Pyatt

and the sheet funding to our our begin I'll I'll to and for on you your some look afternoon, families then and the turn our call quarter financial Thank and loan provide safe We of and all healthy. as balance some full discussing welcome This share fourth key Nevin, to and our detail on David XXXX to we call. have updates additional you, opportunities that exciting year portfolio, XXXX enhancements thoughts on sources. growth hope results, and earnings our by and performance remained over ahead,

years. lending year call full company, any year has it was questions. concluded as for a team our overcame the the over will presented residential up the We originations emerged we In work believe $XXX we the a not while well on generated underwriting, excellent pre-COVID We by construction, combination quarters. it significant primarily reducing surpassing expected. amendments, so balance level We your Through XX-plus of the feel just public of stronger focused of a our than open which sheet members, for provided the of COVID. last platform, our of us then and us we of our challenges first of fourth strength, served And disciplined many million and risk validation we the quarter, ever.

difficult low acute the over housing has than for But housing changed Much year. is In acceleration an flexibility, this to the rates. construction normalize. with opportunities mortgage activity financial urgent XXXX, out typically construction record and need past quarter inventory, our a more addition, our market accomplished loan but in a were million, only was resilience, We year. an to holiday also began performance Broadmark's are due our and of lifted, This speaks our power in total the holds exceptional when in finished even production We ability half primarily of not we $XXX nimble year season. result demonstrates as potential the slower a It originations with and to the lending due than be second believe environment. to seek new platform. the and tight a more in historically ever, of challenging also to

of demand bottleneck we trends for temporary caused pandemic we have on focused always the the fund. long-term While in the projects types creating are markets population in been secular construction, which

lower on Washington in by the costs the of growth. some growth best as focused historically DC, country, states, plus with supported have We trends XX and markets job

and seven loans, top residential out XX% states of deficits. the in lend XX largest Our the portfolio housing with we is

market, the investment continue are activities. near We seen at has entrants, significant to remain our world review a suited new aggressively highly additional future. as we as capital which past best construction in look competitive however, interest lending and forward in year, those yields extend over that are in We committees lenders states are the credit well updates of note inflows existing that and zero attractive additional the on lending. to efforts Our rates effectively to pursuing sharing

require view appropriate disciplined, and we will competition our a pricing the risk of that business historically to our from heightened continue will validation to relative markets levels our quarter-to-quarter. we this we While originations as note we our across variability and remain as drive in model, interest intense been, types. to project us can It investor increased have evaluate

confident us of expertise that edge are in long run will lender to reputation give an We and our a continue the our choice competitors. as over

believe we drive We continue conservative gains. also a to and operate with fragmented even growth, we construction highly in earnings market, market can and large

significant our will Next, enhancements made help capital today, shortly, facility. believe revolving to structure discuss credit us and David Earlier will we our growth. unlock we the announced some that we've key completion of

our credit capital previously duration work loans, nature we fund funding to more have to up short our reserves discussed in manage freeing facility cash we the will loan regard as we our our needed have cash historically use business, quarter-to-quarter, of our to to With believe these outcomes large existing the will cases, office inspection to will for significant turn, our construction the as some COVID process. on time these This our to of work efficiently benefited delays. from allow best growth through process Given resolution will have reputation we halts, a maintain from But through as new which current reliable grow portfolio, we of work how portfolio. projects. process the to take stated We've through project produce completion projects, the that some Broadmark, we some from that always builders partner our of delayed issues. we multiple construction effects it and our and continue the of in closures to permitting us

believe underwriting management these and that prudent take changed, protected significantly need it. value sell portfolio by and in project projects of event, our we Importantly, the has we unlikely active to a and the remain not over we

the The we to the standing as continue principal outcome shareholders, effort As in default fourth we our population in result approach loans collection principal our remain work update, and our XX% quarter to we outstanding. for of find interest XXXX, reduced by the that third will the quarter, find management company long relative resolutions generally an default of economic and to borrowers in preservation. but its with in best to default continue confident in full and

social at Lastly, and governance were for better our responsibility looking our forefront on initiatives efforts, ways progress to corporate of key always environmental, the we our objectives. and communicate are

We section on vibrant, communication. on team-oriented environment, XX-K in a a centered capital, our have human highlighting the our create added to measures open take upcoming we

statistics equality publish reflect our and We team, diversity inclusion. think we will also the will our commitment which on of to well on

as review over Lastly, are that, internally fellow the and with you we to I'll to turn we our aligned financials. managed fully it David shareholders' remind that always, interests. With

David Schneider

good everyone. and Jeff Thanks, afternoon,

us our have I'd non-GAAP earnings replaced attention begin, to our aligns with recent REIT to core we SEC change mortgage and This in change Before which peers, measure, with earnings, your we distributable with earnings. a call like guidance.

that changed calculation this for one prior on addressing but We presented we will will core that earnings. quarters not please has I except call, note item shortly, be earnings explain our when from distributable

are Slide results of operating earnings our detailed Our on XX presentation.

per in per of diluted million, For the The the loans reported a fee interest and was resolution $X.XX fourth of income than the quarter $X.X Adjusting quarter non-cash basis, share our was $X.XX per for quarter total million, or status. non-recurring a $XX.X million. income and driven reflects share. million. for a fourth common diluted by was items, On $XX.X in income the of net million, share. the were Interest GAAP income default net approximately XXXX, of interest income costs common earnings the fourth fourth distributable primarily expected loans from we impact $XX.X revenue collection higher of on of this other quarter our and increase $XX.X of on

the this per income On and approximately For share. year net of common income we million XXXX, million. net $XXX.X basis, GAAP $XX.X diluted a the full a total per of revenue reflects $X.XX share reported of

year for the Our loans $XX.X on million for million, full was $X.XX were distributable or the full and million. per our year was $XX.X Interest income $XX.X earnings XXXX income share. diluted common fee

I'd Now accounting this to to items two quarter. like call for your attention

is in losses whereas for First, This to outstanding time loan losses amount under X, credit of the December status. distributable in part XXXX, company's a connection for earnings was naturally expected of for where variability this current our a credit in in the earnings, focused we we have the loans, application and earnings. requires we allowance the historical entire change potential adoption, in on a losses, model the a our how with portfolio, we added is past incurred accounting us part full retrospective with This no adoption, quarters. credit core we January not losses was recorded our losses of across the to a $XXX,XXX. matter remove as CECL in evaluate loans loss distributable did we item for on CECL XXXX. on or in In provision treatment adoption, as fourth from future potential an for calculation as losses remote, provision credit prior default CECL recover do and realize and a adopted is quarter, our This increase true-up the earnings. with significant resulted principal approximately we from model credit core it quarters repaid. line expect not non-cash Furthermore, and CECL of at of item

With basis our the realized portfolio. points fourth amount on approximately representing principal quarter the were X total outstanding of $XXX,XXX, loan losses

year compensation of the $X.X quarter and our end fourth a reflects of personnel regular for of added million Second, costs. expense combination

legal stated, XXXX. than be professional by previously corporate that in and substantial made the our will and we expense compensation beginning internalizing progress cost in expect functions, we we G&A and have savings more increase offset fees As on in

our see expect G&A fourth risk of to to are than With run XXXX, further total continue quarter, million. for per the compensation success in the amendments of $XXX.X less internalization. volumes, originations presentation, presented reducing value which expense Page quarter regard to million and reached the earnings origination cash which X and on rate the of $X total We in a reflects

with pace quarterly timing prior and to based As quarter reiterate the of on this that the volumes still New that the our as legacy we expect pandemic, We borrowers origination to greater origination the we regard may with we us will believe Jeff of quarter over related many COVID-XX portfolio recent mentioned, to volumes loan work Year. closings, succeeded to to continue our the credit, COVID capacity we delays. from provide moderate somewhat our With structure the enhancements vary from start resulting address but to defaults capital long-term.

this LTEs. confident As our will time, are stated, take our historical ability we some given to in economic are we outcomes very generate but and record positive track previously low

expect and to future, you of provide updates we approximately per continue near earnings loans to quarter the are non-accrual of share the resolutions drag from earnings in remind resulting $X.XX should We decrease per as achieved. further on that status distributable

to balance sheet. turning Now our

debt detailed As of presentation, we no XX, the cash XX, XXXX. and December as Slide of earnings $XXX.X on million in had

$XXX we position of which million as through competitive our While very $XXX well pipeline, we believe million. seeing is a current landscape, as are to our the in liquidity work range we

want I unlock exciting the believe two opportunity new help us will developments comment potential. take we Next, growth that on to to

First, credit leading recently of syndicate finalized a we banks. a with facility million revolving as diverse touched on Jeff earlier, $XXX

balance sized to facility historically we've specifically, of debt, credit modestly million to that allowing optimize cash. percentage management, will loans existing we expect us $XXX over operated as us quarters, a enable our our business. the cash and More allow facility coming While reduce we believe to greater grow us without will cash this our fund approximately additional our we deploy this by

in January financial XXXX, gives capital our increased statement optionality additional we and flexibility. registration Second, us filed which shelf

new on inclusive XX%, interest to yields loan Broadmark’s range Let in XX% we the me premium loans typically provide fees. originations context additional some produce. and of

our appropriate. managed. To internally to that we when our are we of ensure we look to are last that reiterate laid will follows. is is our Given maximum the effectively. continued that only of for aligned capital that can Those put Maximize allow that the goal capital of to to confident we will the principles to we resolution default, as our urgent shareholders. and deployed facility principles given incredibly work short-term capital registration distinction in earnings accretive statement. opportunities raise as deployment our the we on for set us ensure of operating for alignment loans we existing loans various of another are want growth manner I contractual nature growth. achieve the significant continue place, area a housing capital power through through and including with capital sources, Furthermore, of now fully quarter, with recent the to shelf available credit deployment time demand sufficient And earnings, currently is shareholders, construction, in new This are our which helps believe identify and conclude, finally, we out ahead, through

few to Now, for the Jeff I'd turn closing a comments. call like to back

Jeffrey Pyatt

members, support. in partners XXXX. shareholders continued to achievements proud We are our want your gratitude team we other and to deepest recap, To of our our that extend challenging for a and environment

year, continuing XXXX leaving beyond. positioned optimal we look capital well to as enhance made the execute progress and to to structure into ahead Over us provide our we've past significant flexibility, and

the and now very we continue on will questions. lie as housing excited the to up This construction. meet the much open origination and are needed prepared We Operator? focus about ahead for line remarks, that opportunities demand for our completes activity, we


now Randy Go begin session. Security. question-and-answer the [Operator Our from Riley from first B. is Instructions] will We question ahead. Binner

Unidentified Analyst

evening. from to Pretty Randy Colin ask Thanks this facility. Johnson this just is credit the taking new B. questions. for my on solid. on Riley, Hi, I wanted for

on is revolver? that the the $XXX reduce that cash a take think coming kind balance to similar Or I but that? on relying of liquidity thinking that might replace amount of million cash sheet for kind mentioned imply it you of draw by you revolver Does smaller quarters. your in amount down about balance then

David Schneider

place Thanks, a the now to It's a million. consistent in excited great have of is in yes, today. And sure. straight with announced million the $XXX messaging credit Yes, question. past, facility $XXX that our current earlier are so And that we and very in our Colin. off near-term, for first,

As of the million on December $XXX XX, we about had sheet. balance

it then working we forward. about the But balance kind cash of sheet going facility how deploy less in that we us that got the think, new view sheet, hold capital to on cash drawing on use credit we'll million I balance facility. that as kind It re-evaluate our So, a of without we've $XXX we that can on into XXXX, allows solution. of and originations

Unidentified Analyst

ask quarter. That LTV up sense. read on Or the it should appetite? yet? then that higher just And in a noticed little slightly much that thanks. risk you weighted maybe makes want -- the to not Okay, the into just I we the think that in average Do really reflects picked new origination a bit

David Schneider

let I Colin, I'll I'll changed has haven't comments. if take additional Jeff and stab, our jump a any in we mean, of he underwriting. any

we loans. versus an feel the weren't felt that differences able uptick. fourth in loans seasonality. originated a, I we LTVs. $XXX think about that bit we over of XX% to standing and though, quarters when by our originating be impacted We the just maybe might little put But good usually this which confident by a quarter, we're any the million were We previous in about quarter, were really QX

we good, but felt risk change So, no appetite. in

Jeffrey Pyatt

loans, of my sense. been a come out. of if land Colin, that working our are Hope is ours. where that go bring we building portion been usually of it portfolio get land math, the down. down quite When we makes that's an apartment, that did and that you maximum we doing building home, to the would bit, has when XX% a a to closer we've guess that we vertical, And drop lot

Unidentified Analyst

questions. my taking for Thanks Yes.

David Schneider

Colin. Thanks,


from from is Our Laws Raymond Go question ahead. James. next Stephen

Stephen Laws

afternoon. first, I Jeff, from talk I or as about David, maybe, standpoint. good modeling if you think guess Hi, maybe a

Atlantic origination bit I I and cash mix near-term the last more. pipeline, we that down the the a that, a loans with I'm pace your increased it going of little quarters. has But should of couple hasn't quarters? Mid coupled think guess, about increased of in southeast up the As and little surprised And about think repayments growth how in balance versus coming

So, can portfolio capital recycle you having those new as expanding year? regions about you Or as those it how other markets? mix regions? two Is talk deploy there limited this we think a should of growing into within just about capital the

David Schneider

joining. how Thanks, bit Stephen, I'll regions. talk for Jeff, about a I'll little more let a about and Jeff the Stephen, talk liquidity, bit about little

mentioned of of liked driver $XXX had think balance I we would you seen. have to higher XX. the on of yes, bit that And December expect. saw that than think that $XXX fourth sheet quarter, in That's a million higher obviously the run almost levels our little We mean, the have would So I I a We point, as million little we higher we to bit rate prepayments. payoffs. is cash in than your saw pre-COVID than which

that So residential there. that, upcoming attack it's so QX us. significant do any that have significant there's don't with we got the in we front facility as about loans take place, in the right that of the much I and we of now, continuing did competition basically good go kind there's quarter. necessary out the really loans, lot that in pipeline, good knowing is to are credit changes, of and we out a feel that as rein very Residential, just to single But put free And want quarters, liquidity. offset the hot and that now we originations family think

we deploy quarters. and our possible the And upcoming to the in of as going do in pick front as that's collateral much best ultimately, capital that see competitors market We we're continue spots the and to us. ensure enter

Jeffrey Pyatt

Thanks way, your to hear nice voice. joining us. think, I by for And the Steven,

to four and Atlantic other certainly to Mid in close, both each they the And I expect future. think grow see over in The guys southeast I very this and competitive. of think regional I are year, and very the the course their continue to sights. the have all that,

So, you'll and picks see eye so think an I on that them up. keep

Stephen Laws

be short-term call. they're Great. Jeff, remaining When and or the the on timing the And good $XXX resolving the about yes, typically to I defaults, million appreciate think comments. loans. I

do it'll other that imagine Where's today and level? normalized compared talk can you to maybe we $XXX I'd get of of you more some back think loans. resolutions timing of that from about But they where to here, quickly, resolved kind if So, where million? fairly possible a the get at to kind are

David Schneider

And would QX Yes. I total defaults reduced outstanding Sure. from XX% so say, we think in Stephen, I QX. by our about

or love in to be was I XX% default QX. of trying by XX% to rate we'd attack in XX% yes, think, residential I complete, point, I for a think think this doing are XX% rate a your complete run similar QX. collateralized that is good properties. the nearly the We're quarter, So, of to portfolio current loans But

So, those catching we good on feel still some about of up numbers. those. We're

a it bit little more take time. So, will

want a not bringing we having I it. want That's by kind good progress. goal of of the to first where normalized the goal rate down it normalized But XXXX. It's think think, obviously, quarter, rate to is end at that be our not going a to at a a rate default I now. of we XX% XXXX. run made get think -- I in to with if we're keep We we're right

our think the the interest and some million earnings. dropped of the income. that's we on accrual million, the $XX status, the of $XX saw by resolution, and loans about not for probably Based or I pickup pickup driver You default pretty significantly, in off

million We $XXX non-accrual $XXX at of that So, we're in December working about on XX, drag. XX. million it as September from $X.XX to dropped

happening we're in were in status, that not to So, as did defaults we get for three current. total we'd quickly as like, bought plus QX, continuing defaults we some but it's that default back

been economic just away, continuing each that drag individual the on has for we that earnings just successful can down, we're chipping outcome default, best So, to bring finding loan which today. at and

continue loans We most, if interest not on resolution. and principal to on get all

those hairier see working XXXX. some bit that us So, a going to be there's little are you'll the time. takes that And loans, ones in through always more

Stephen Laws

It want a private REIT, days month this Last the Great. ago. on newsletter pace to that question, pretty I five from there have have months that last about? fund? the six looks to few like the picked a or five touch good months you first seems growth up another feel good of been pretty the growth good over four or it like the pretty, Is solid

David Schneider

a pace lot up months. of really last seen four the in Yes, or picked three We've we've interest. the

think of I $XX of as at assets million management under we were January.

time private the a from coming of when in pandemic. that's obviously, March we REIT So the long middle launched the

sheet of much REIT. pick environment, we're how we're state up there. positive we get of the and going private in current got some pipeline in looking we're REIT. that definitely working current got the bring on month at a got each to to want At to we've We've from We've in evaluate private interest. the So, ton where cash through that, lot involved the capital a in folks balance

we'll best So of evaluate what's to capital. source continue the

there's top it. cash interest credit have it's right got dropping we capital kind now finally, in facility facility use that to monitor statement, down, we that to But a between now significant place. luxury that we'll credit is giant cash. just we're REIT. and source different balance up the happy loans can to priority when toolbox continue need making of got now come think say registration we've I we allows I long of tools, and But private way. a that We've think the the that many the free us to And the the as

Stephen Laws

Great. Well, comments Jeff, thank both the David, you evening. this for

David Schneider

you, Thank Appreciate it. Stephen.


and from Go JMP next from ahead. is Securities. Our Delaney question Steve

Steve Delaney

and I'm either respect Can lean you is may yet. you more a specific not thanks the it though Hi, be And here, on evening. I take a this you if accomplishment that. a type nice for revolver, of David, just with new facility. comment It's with David, me with thing? let start Thanks. might to question blanket of to to on assets? generally official referred secured a be nice Jeff even how as it secured Or on on

David Schneider

Sure. and It's the company. thanks Great blanket latter. a for it's of question, the equity in Yes, lean joining. Steve, on more the

equity like to think optimal not balance facility loans, to for that there us. incredibly covered I our on this use out lenders sense, individual helpful that in mortgage There this. It are there's just and it we that that credit loans. a put out of leans free of significant company. so So cash as draw carry made our working And where capital the just on solution being revolving can aren't And up cash we was with us as it's ton And and that credit because for get us. flexible, facilities supportive new and made have needed us. that that's really were important taken much in just that was finding sheets allows solution sense the a REITs our and to kind a something of

Steve Delaney

a guys shareholders everything they your common of would it's or flexibility, Great. having not were and assets just a seems reason assets, just that decided get in Basically would to like situation paid disaster of It then be else. not and in that liquidate, and whatever the sounds voluntarily And you're pledge stand around standing you lot so. ahead going they're to you shareholders. for full move

Idaho, quarter. noticed, Arizona. in I terms FHFA, to and you. February could. increases I something wish the all for I of everything just with But price don't year-over-year. And So top for out desk. This were put home was price finally found read Jeff on comes great. of fourth one read HPA, that's for my year-over-year Tuesday across I I [ph] four states home you. the And the for Utah in improvement fourth quarter Montana, four Thank

guys in your three So region. you mountain are

any four there density, for support a You're population those particular Thanks. obviously of one presence? But population. situation enough is not market just state Or it is large judicial one except there Montana, is state? where not the a to in simply in a three of

Jeffrey Pyatt

to referring You're Montana?

Steve Delaney

Yes, to referring Montana, I'm yes.

Jeffrey Pyatt

and have -- So, easy on it this Montana quickly state grow we pretty of with it's it as a on because for as And the is depends small. it's radar, to that the well Montana numerator denominator. our starting the size is

so… And

Steve Delaney

yes. Yes,

Jeffrey Pyatt

a We'll in reminds do good of prices there. me Idaho, we it's strong. in just look one home sort cautiously. It And we'll look all been and it. And we it use. over, at will of other But state. Steve, way when went at There’s have markets to

Steve Delaney

Well, it property. looking when don't multiple They the you I'm defaulted that's a for if value or something little and potential people it, there freight great pay shows, property. full investors, to and that's can buy a just for want are by XX% are sure get that. There private troubled homeowner. a And they improve done do

Jeffrey Pyatt

on what do. served or we tend to Yes, the focused decade another. quarter, we tough part, Steve, place one it's well the so. or And is that, there's every month, stay for us every there's last about pretty another headline And

And hot we that always that before whatever rigor we make have. sure the do want so, next it and with we same on to we spot the jump is, just methodically, we it do

Steve Delaney

you well. Thank tonight. your you both served it comments Well, for

David Schneider

Thanks, Steve.


our I remarks. the to management session. concludes turn back conference would question-and-answer This for like over closing to

Jeffrey Pyatt

next Broadmark, at of Thank look before that all have forward being you couldn't I at you part without again, to for all it quarter. We the grateful. stay you, of end you. under exciting of of us not call. if this Thank And healthy. done behalf on hope you. full our It's I I'm speaking all of have to our And with first all year belts.


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