Filing identity and period
Important metadata discrepancy: The supplied filing is New York Mortgage Trust, Inc. (NYSE? No—NASDAQ: NYMT), not Adamas Trust, Inc. It is a Form 10-Q for the quarter ended March 31, 2020, filed May 26, 2020. The company is a mortgage and residential-housing-focused REIT. The filing says the submission was delayed by COVID-19-related operational and valuation work disruptions.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
| Metric | Q1 2020 / March 31, 2020 | Comparable / prior date |
|---|---|---|
| Interest income | $210.6 | $148.0 in Q1 2019 |
| Net interest income | $47.1 | $26.2 in Q1 2019 |
| Portfolio net interest margin | 2.92% | 2.40% in Q1 2019 |
| Net loss attributable to common stockholders | $(598.7); $(1.71) per basic and diluted share | Net income of $38.2; $0.22 basic and $0.21 diluted per share in Q1 2019 |
| Comprehensive loss attributable to common stockholders | $(740.8) | Comprehensive income of $51.3 in Q1 2019 |
| Cash flows | Operating +$20.2; investing +$1,608.4; financing $(1,404.1) | Cash, cash equivalents and restricted cash increased $224.5 during the quarter |
| Total assets / liabilities / equity | $4,718.3 / $2,717.9 / $2,000.5 | $23,483.4 / $21,278.3 / $2,205.0 at December 31, 2019 |
| Cash and liquidity | $172.5 unrestricted cash; $346.1 including restricted cash; $527.3 unencumbered investment securities | Restricted cash included $169.5 of net cash margin provided to repo counterparties |
| Borrowings and leverage | $1,428.1 repurchase agreements; $133.5 convertible notes; $45.0 subordinated debentures. Overall leverage 0.8x; portfolio leverage 0.7x | Repurchase agreements were $3,105.4 and leverage ratios were 1.5x and 1.4x, respectively, at year-end |
The quarterly loss reflected severe market dislocation: non-interest loss was $622.0 million, including $396.8 million of unrealized losses, $147.9 million of realized losses, a $54.1 million loss on deconsolidation of multi-family securitizations, and $25.2 million goodwill impairment. The company reported approximately $301.7 million of net losses on asset sales and a $44.1 million net loss on terminating interest-rate swaps.
Material changes and unusual items
- In March, the company sold approximately $2.0 billion of assets, including Agency securities and multi-family positions, and reduced repurchase-agreement financing by about $1.7 billion from year-end. It also terminated swaps with $495.5 million notional value.
- Sale of first-loss positions and certain other securities caused deconsolidation of $17.4 billion of multi-family loans and $16.6 billion of related CDOs. This accounting change largely explains the sharp decline in reported total assets and liabilities; it should not be read as an equivalent reduction in the company’s directly owned economic assets.
- The company issued 85.1 million common shares in January and February for net proceeds of $511.9 million. Shares outstanding increased from 291.4 million at year-end to 377.5 million at March 31.
- Common and preferred dividends were suspended in March to conserve capital. Preferred dividends of $10.3 million had accumulated by March 31; the filing does not establish when distributions would resume.
- Adoption of fair-value accounting elections for certain loans and investments produced a $12.3 million increase to opening equity. Fair-value movements on these assets thereafter affected earnings.
Outlook, risks and management commentary
- Management expected second-quarter net interest income to decrease significantly following the late-quarter portfolio reduction. It gave no specific earnings or distribution guidance.
- Management expected a defensive posture on new investments until there was greater clarity on economic conditions. It planned to emphasize more stable, longer-term financing, while noting that future financing access and terms were uncertain.
- After early-April asset-sale settlement, additional residential-loan financing and repayment of $562.9 million of securities repos, the company reported approximately $200 million cash, a 0.6x portfolio leverage ratio and $1.5 billion of unencumbered investment portfolio as of April 7. It said it was current on repo payments and no longer needed forbearance agreements. By May 26, it had one investment-securities repo counterparty remaining.
- The company disclosed it had been out of compliance with market-capitalization covenants under two residential-loan repo agreements during Q1; amendments were made, and it reported compliance with the amended covenants as of May 26.
- Management believed cash, financing availability and operating cash flows would meet liquidity needs for at least 12 months, but warned that COVID-19 could drive further margin calls, asset losses, borrower delinquencies, defaults and financing constraints. As of April 30, 17.2% of residential borrowers whose servicing it controlled had requested payment deferral; one multi-family operating partner, representing 1.1% of that investment portfolio, had requested relief.
- Management reported no COVID-related contingency recorded at March 31 and did not expect current litigation to have a material adverse effect. It also stated disclosure controls were effective and no material change in internal control occurred during the quarter.
Most important facts for investors to verify
- Confirm the intended issuer: this filing is for New York Mortgage Trust, Inc., not Adamas Trust, Inc.
- Review subsequent liquidity, repo balances, collateral requirements and covenant compliance; distinguish unrestricted cash from restricted margin cash.
- Assess whether the suspended common and preferred dividends resume, and how accrued preferred dividends and REIT distribution requirements are handled.
- Evaluate the quality and sensitivity of fair-value estimates, particularly Level 3 residential loans and multi-family investments, and the possibility of further marks or credit losses.
- Track borrower payment deferrals, delinquencies and defaults, as well as management’s expected significant Q2 reduction in net interest income.