Filing summary
Entity discrepancy: The request identifies ADAMAS TRUST, INC., but the supplied 10-Q is for New York Mortgage Trust, Inc. (NYMT). The summary below reflects the filing text and should not be attributed to Adamas without verification.
Business context and reporting period
NYMT is a mortgage-focused REIT that acquires, finances, and manages mortgage-related and other financial assets, with an objective of providing stable shareholder distributions. This unaudited 10-Q covers the three months ended March 31, 2013; comparative operating results are for the three months ended March 31, 2012. The company reports one operating segment.
Reported assets and liabilities include consolidated variable-interest entities (VIEs), notably four Freddie Mac-sponsored multifamily K-Series securitizations. NYMT says its economic interest in the K-Series is principally its first-loss securities, not ownership of or recourse to all consolidated underlying assets and debt.
Financial performance and position
| Metric | Q1 2013 | Comparable period / prior date |
|---|---|---|
| Interest income | $59.2 million | $19.1 million in Q1 2012 |
| Net interest income | $13.1 million | $6.2 million in Q1 2012 |
| Other income | $6.4 million | $2.4 million in Q1 2012 |
| Net income attributable to common stockholders | $15.4 million | $5.8 million in Q1 2012 |
| Basic and diluted EPS | $0.31 | $0.42 in Q1 2012 |
| Dividend declared per common share | $0.27 | $0.25 in Q1 2012; $0.27 in Q4 2012 |
| Portfolio net interest spread | 3.48% | 6.58% in Q1 2012; 3.33% in Q4 2012 |
| Net cash from operating activities | $11.9 million | $6.2 million in Q1 2012 |
| Cash and cash equivalents | $15.9 million | $31.8 million at December 31, 2012 |
| Total assets | $7.07 billion | $7.16 billion at December 31, 2012 |
| Total liabilities | $6.74 billion | $6.84 billion at December 31, 2012 |
| Stockholders’ equity | $328.4 million | $322.0 million at December 31, 2012 |
Net interest spread is the company’s reported weighted-average cash yield on interest-earning assets less cost of funds; it is not a net interest margin measure stated on the income statement. The filing reports a $15.9 million decrease in cash during Q1: operating cash provided was $11.9 million, investing cash provided was $13.1 million, and financing cash used was $40.8 million.
At March 31, 2013, financing included $878.8 million of repurchase-agreement borrowings (weighted-average rate 0.48%), $174.6 million of residential CDOs, $5.24 billion of multifamily CDOs, $117.7 million of securitized debt, and $45.0 million of subordinated debentures. The multifamily CDO balance relates to consolidated K-Series VIEs. NYMT reported overall leverage of approximately 3.2-to-1, excluding the K-Series and residential CDOs, and callable/short-term leverage of approximately 2.7-to-1.
Available liquidity included $15.9 million cash, $88.6 million of unencumbered investment securities, and $24.2 million in Agency IO overnight deposits available for related margin calls. The company stated these resources represented 12.5% of its portfolio-investment financing arrangements.
Material changes versus the prior comparable period
- Net income attributable to common stockholders rose $9.5 million, while EPS declined from $0.42 to $0.31. The filing attributes the earnings increase principally to larger equity and asset balances; weighted-average shares increased from 14.0 million to 49.6 million.
- Net interest income increased $6.8 million, primarily reflecting a $1.1 billion increase in average interest-earning assets. The reported spread was substantially lower than a year earlier, reflecting a reduced relative emphasis on the IO strategy and more levered Agency RMBS and other investments.
- Other income increased $4.0 million. Multifamily-loan and debt fair-value gains were $7.1 million versus $2.0 million in Q1 2012; these gains were partly offset by realized investment-security and hedge losses. Fair-value results can therefore materially affect reported earnings.
- General, administrative, and other expenses increased $1.2 million to $3.9 million, including higher management fees as externally managed assets grew.
- Q1 2013 results are not fully comparable with Q1 2012: consolidation of the multifamily K-Series expanded from one securitization in Q1 2012 to four by year-end 2012, bringing substantial loan interest income and related debt expense onto the consolidated statements.
Outlook, commentary, risks, and unusual items
- Management said it expected to continue quarterly cash dividends in the near term, subject to quarterly Board review and factors including liquidity, earnings, REIT requirements, and business prospects. No specific earnings or spread guidance was provided. Q1’s $0.27 dividend was paid April 25, 2013.
- Management described low financing costs and strong demand for Agency RMBS, but noted that strong demand had reduced asset yields. It expected rates to remain low in the near term amid modest growth, while anticipating higher rates over the longer term; it also warned that low rates may sustain elevated prepayments.
- Key risks include short-term repurchase financing renewal and margin-call risk; interest-rate, spread, prepayment, credit, and fair-value risk; counterparty exposure; and changes in government policy affecting Fannie Mae, Freddie Mac, and mortgage markets. A modeled 100-basis-point rate increase reduced estimated next-12-month net interest income by $5.7 million; a 100-basis-point decrease reduced it by $8.5 million. These are model estimates, not forecasts.
- Multifamily CMBS and multifamily loans were significant Level 3 fair-value positions relying on internal models and unobservable inputs. Management cautioned that different assumptions could materially change valuations.
- After quarter-end, NYMT closed a common-stock offering on May 3, 2013, issuing 13.6 million shares for approximately $94.5 million of net proceeds. It also disclosed a planned May 2013 purchase of multifamily CMBS for approximately $41 million.
- The company reported no material adverse effect expected from pending litigation, no mortgage-loan repurchases in Q1, and no material internal-control changes; management concluded disclosure controls were effective at March 31, 2013.
Most important facts for investors to verify
- Confirm issuer identity: the supplied filing is NYMT’s 10-Q, not an Adamas Trust filing.
- Review how K-Series VIE consolidation affects reported assets, debt, interest income, earnings, and comparability; distinguish these gross consolidated balances from NYMT’s stated first-loss economic exposure.
- Assess reliance on short-term repo financing, collateral haircuts, counterparty exposures, and the adequacy of available liquidity under adverse market or margin-call conditions.
- Evaluate the sustainability of the $0.27 dividend against recurring earnings and cash generation, given fair-value gains and elevated leverage.
- Check the effect of the May 2013 equity issuance on share count, book value per share, leverage, and the announced multifamily CMBS investment.
- Review credit quality and valuation assumptions for Level 3 multifamily assets, distressed residential loans, and first-loss CMBS, including geographic concentrations and delinquencies.