Business context and reporting period
The supplied filing is New York Mortgage Trust, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2012, filed May 4, 2012. This does not match the request metadata naming ADAMAS TRUST, INC.; verify the intended issuer. New York Mortgage Trust is a REIT investing primarily in mortgage-related assets, including Agency RMBS, Agency IOs, multi-family CMBS and residential mortgage loans.
The company began consolidating the Freddie Mac K-03 multi-family securitization in January 2012. This substantially increased reported assets and liabilities and makes comparisons with prior periods less direct.
Financial results and position
| Metric | Q1 2012 | Comparable period / prior date |
|---|---|---|
| Total interest income | $19.1 million | $3.7 million in Q1 2011 |
| Net interest income | $6.2 million | $2.5 million in Q1 2011 |
| Net income attributable to common stockholders | $5.8 million; $0.42 per share | $2.5 million; $0.27 per share in Q1 2011 |
| Net interest spread | 6.58% adjusted portfolio margin | 3.68% in Q1 2011; 6.20% in Q4 2011 |
| Operating cash flow | $6.2 million provided | $1.3 million used in Q1 2011 |
| Cash and cash equivalents | $8.9 million | $16.6 million at December 31, 2011 |
| Total assets / total liabilities | $1.84 billion / $1.75 billion | $682.7 million / $596.4 million at December 31, 2011 |
| Stockholders’ equity | $92.0 million; book value $6.49 per share | $85.3 million at December 31, 2011 |
Other income was $2.4 million, including a $2.0 million unrealized gain associated with K-03. General and administrative and other expenses were $2.7 million. The company declared a $0.25-per-share quarterly dividend, paid April 25, 2012. Cash declined by $7.7 million during the quarter after investing and financing outflows.
Debt and funding included $118.4 million of repurchase borrowings at a 1.30% weighted-average rate, $194.8 million of residential CDOs, $1.13 billion of multi-family CDOs at a 5.41% weighted-average rate, and $45.0 million of subordinated debentures. Repurchase agreements matured within 30 days; average maturity was 18 days. The stated leverage ratio for the RMBS investment portfolio was 1.3 to 1.
Material changes versus prior period
- Common-stockholder income rose 132% year over year, supported by higher net interest income, Agency IO investments and the K-03 unrealized gain. Per-share income increased 56%; weighted-average shares also increased materially, to 14.0 million from 9.4 million.
- K-03 consolidation added approximately $1.16 billion of multi-family loan assets and $1.13 billion of related CDO liabilities to the March 31 balance sheet. The company says its maximum K-03 loss exposure is its $24.3 million investment, not the full consolidated debt.
- Available-for-sale securities fell to $182.0 million from $200.3 million, while the multi-family securitization became the largest reported asset category.
- Residential loans in securitization trusts declined to $200.8 million from $206.9 million. The allowance for loan losses was $3.0 million, down from $3.3 million.
Outlook, commentary and risks
Management said it expected low short-term rates to persist while anticipating that rates could rise over the longer term. It cited improving multi-family conditions and favorable Agency RMBS financing, but described commercial real-estate financing as uneven. Management expected to continue quarterly dividends in the near term, subject to board review; no earnings or dividend-per-share forecast was provided. It believed available cash, financing and operating cash flows would meet liquidity needs for at least 12 months.
- Management identified interest-rate, prepayment, credit-spread, fair-value, liquidity and counterparty risks. Repo lenders can demand additional collateral, decline to renew short-term funding or require repayment.
- Cash was $8.9 million; the company also reported $36.9 million of unencumbered securities and $11.6 million of restricted cash available for Agency IO margin needs. It stated it was in compliance with margin requirements at quarter-end.
- Prepayments were rising: the overall portfolio CPR averaged 16.6%, versus 9.6% in Q1 2011. Management warned that faster prepayments could reduce yields and harm Agency IO performance; HARP II could contribute to faster refinancing.
- Fair-value estimates for CMBS and K-03 rely partly on Level 3 models and unobservable inputs. K-03 fair-value changes flow through earnings, creating potential earnings volatility.
- The company reported 37 delinquent residential loans totaling about $20.1 million; $15.8 million were under modified payment plans. Residential loan exposure was geographically concentrated, particularly in New York and Massachusetts.
- Management disclosed an IRS examination of a subsidiary for tax years 2009 and 2010, a $0.3 million reserve for potential loan-sale repurchase obligations, and no litigation expected to have a material adverse effect. A planned approximately $23.7 million multi-family investment was pending, not completed.
- On May 4, 2012, the board increased the common and aggregate stock ownership limits from 5.0% to 9.9%. Disclosure controls were reported effective, with no material change in internal control during the quarter.
Important facts for investors to verify
- Confirm whether this New York Mortgage Trust filing, rather than an ADAMAS TRUST filing, is the intended document.
- Assess earnings excluding the $2.0 million K-03 fair-value gain and other unrealized items; the company’s disclosed non-GAAP measure was $4.7 million, or $0.33 per share.
- Review the economic exposure and valuation assumptions for K-03, including the stated $24.3 million maximum exposure despite balance-sheet consolidation of over $1 billion of related debt.
- Evaluate near-term repo refinancing, collateral and margin-call capacity against cash, unencumbered securities, and the short maturities of borrowings.
- Monitor prepayment speeds, residential delinquencies, geographic concentration, dividend sustainability, and the status of the proposed multi-family investment.