New York Mortgage Trust, Inc. — Form 10-Q Summary
Filing identity: The filing identifies the registrant as New York Mortgage Trust, Inc., although the request metadata names ADAMAS TRUST, INC. Confirm that this is the intended filing.
Business context and reporting period
This unaudited quarterly report covers the three and nine months ended September 30, 2012. The company is a REIT investing primarily in mortgage-related assets, including Agency residential mortgage-backed securities (RMBS), Agency interest-only securities, multifamily commercial mortgage-backed securities (CMBS), and residential mortgage loans. Its stated objective is stable stockholder distributions through net interest income and realized investment gains.
Financial results and position
| Metric | Q3 2012 / Sep. 30, 2012 | Comparable period / Dec. 31, 2011 |
|---|---|---|
| Interest income | $43.8 million | $7.4 million in Q3 2011 |
| Net interest income | $8.1 million | $6.2 million in Q3 2011 |
| Net income attributable to common stockholders | $7.9 million; $0.30 per share | Q3 2011 loss of $15,000 |
| Nine-month net income attributable to common stockholders | $18.9 million; $1.01 per share | $6.7 million; $0.67 per share in 2011 |
| Total assets | $5.16 billion | $682.7 million |
| Total liabilities / stockholders’ equity | $4.94 billion / $222.0 million | $596.4 million / $85.3 million |
| Cash and cash equivalents | $41.0 million | $16.6 million |
| Operating cash flow, nine months | $15.8 million | $7.5 million in 2011 |
| Net cash used in investing / provided by financing, nine months | $(568.1) million / $576.7 million | $(81.4) million / $66.3 million in 2011 |
| Quarterly net interest spread | 4.70% | 7.15% in Q3 2011 |
The nine-month cash increase was $24.5 million. Repurchase-agreement borrowings were $580.2 million at a 0.65% weighted-average rate; reported portfolio leverage, defined as repurchase borrowings divided by stockholders’ equity, was 2.6:1. Debt also included $187.5 million of residential CDOs, $3.86 billion of multifamily CDOs, $26.1 million of securitized debt, and $45.0 million of subordinated debentures. Much of the multifamily debt corresponds to securitizations consolidated under accounting rules; the company reports its maximum exposure to loss from the Consolidated K-Series as its $89.6 million carrying investment.
The declared quarterly dividend was $0.27 per common share, versus $0.25 in Q3 2011. Book value per share was $6.52 at September 30, 2012. Common shares outstanding had increased to 34.0 million at quarter-end; after a subsequent October offering, 49,569,374 shares were outstanding on November 2.
Material changes versus prior periods
- Net income improved substantially year over year, reflecting lower unrealized losses on securities and hedges, higher realized gains, increased net interest income, and gains from fair-value changes in multifamily securitizations. Higher general and administrative expenses partly offset the improvement.
- Total assets and liabilities expanded sharply, primarily because the company consolidated the K-3, K-6, and K-18 multifamily securitizations, and because of increased Agency RMBS investment funded in part by equity offerings. The balance-sheet growth should therefore not be read as wholly organic growth.
- Net interest spread fell to 4.70% from 7.15% a year earlier. Management attributed the decline largely to a greater proportion of leveraged Agency RMBS relative to higher-spread, less-leveraged credit-sensitive assets.
- The company issued common stock in several 2012 offerings, raising approximately $128 million net during the first nine months. On October 9, 2012, it completed another offering, raising approximately $104.2 million net.
Outlook, commentary, risks, and unusual items
- No formal earnings guidance is provided. Management said it expected to continue quarterly cash dividends in the near term, subject to quarterly board review and business, earnings, liquidity, and REIT considerations.
- Management described low rates and Federal Reserve purchases of Agency MBS as supportive of financing conditions and demand, but noted economic and European-market uncertainty. It anticipated continued financial-market volatility into Q4 2012 and 2013.
- Management expected to purchase additional multifamily CMBS in Q4 2012; completion was not assured. It also said it may pursue further transactions similar to the May 2012 re-securitization.
- Key exposures include short-term, generally uncommitted repo funding; margin calls and collateral haircuts; interest-rate, spread, prepayment, credit, and fair-value risk; and counterparty risk. The company cited $63.5 million aggregate repo exposure (“amount at risk”) across nine counterparties. Failure to renew or obtain financing could force asset sales at unfavorable prices.
- Faster prepayments may reduce yields and materially harm Agency IO values. Management reported overall portfolio CPR of 15.1% in Q3 2012, down from 16.6% in Q2 2012, and noted HARP II could raise prepayments for eligible securities.
- Material valuation estimates include Level 3 multifamily loans, CDOs, and CMBS, valued using models and significant unobservable assumptions. Changes in those assumptions could materially change reported fair values and earnings.
- The company had requested CFTC no-action relief concerning potential commodity-pool-operator registration requirements for its directors and officers; relief was not assured. The filing also reports a $0.3 million reserve for possible repurchases or indemnification on previously sold loans. Management did not expect current litigation to have a material adverse effect.
- Subsequent to quarter-end, the company reported the October equity offering and a completed $21.1 million multifamily CMBS purchase, with further purchases planned. These events are not included in September 30 balances.
Important facts for investors to verify
- Confirm the registrant identity: the provided metadata says ADAMAS TRUST, INC., while the filing is for New York Mortgage Trust, Inc.
- Assess the effect of the K-Series consolidation on reported asset, debt, income, and leverage comparisons, and distinguish consolidated obligations from the company’s stated loss exposure.
- Review repo maturity, collateral, counterparty concentration, margin requirements, and available liquidity, including the extent to which reported cash and securities are restricted or pledged.
- Evaluate the sustainability of net interest income and the $0.27 dividend in light of the lower net interest spread, prepayment exposure, funding costs, and substantial share issuance.
- Review valuation sensitivity for Level 3 assets and liabilities, and monitor the outcome of the CFTC relief request and planned multifamily CMBS purchases.