New York Mortgage Trust, Inc. — FY 2011 Form 10-K
Issuer note: The supplied filing is for New York Mortgage Trust, Inc. (NASDAQ: NYMT), not ADAMAS TRUST, INC. It covers the fiscal year ended December 31, 2011; fourth-quarter figures are also disclosed. Annual financial statements were audited by Grant Thornton LLP.
Business context
NYMT is a mortgage-focused REIT seeking returns from net interest income and realized investment gains. During 2011 it shifted toward Agency adjustable-rate and interest-only RMBS and multi-family CMBS, using Midway and RiverBanc as external managers. It terminated its HCS advisory agreement effective December 31, 2011.
Financial and operating highlights
| Metric | FY/Q4 2011 | Comparable period |
|---|---|---|
| Net interest income | FY: $19.5 million; Q4: $5.4 million | FY 2010: $10.3 million; Q4 2010: $2.0 million |
| Net income attributable to common stockholders | FY: $4.8 million ($0.46/share); Q4: loss of $1.9 million ($0.16/share) | FY 2010: $6.8 million ($0.72/share); Q4 2010: $1.0 million ($0.11/share) |
| Interest income / expense | FY: $24.3 million / $4.8 million | FY 2010: $19.9 million / $9.6 million |
| Net interest spread | FY: 5.57% GAAP net yield; Q4: 6.20% reported portfolio spread | FY 2010: 2.76%; Q4 2010: 3.53% portfolio spread |
| Cash flow | FY operating cash flow $13.4 million; investing cash flow $(95.3) million; financing cash flow $79.1 million | FY 2010 operating $(0.3) million; investing $119.7 million; financing $(124.5) million |
| Assets, equity and liquidity | Year-end assets $682.7 million; total equity $86.3 million; cash $16.6 million | 2010 assets $374.3 million; equity $68.5 million; cash $19.4 million |
| Debt and leverage | Repo borrowings $112.7 million at 0.71%; CDOs $199.8 million at 0.68%; subordinated debentures $45.0 million at 4.35%. Repo debt/equity leverage: 1.3x. | 2010 repo borrowings $35.6 million; CDOs $220.0 million; subordinated debentures $45.0 million |
| Book value per share | $6.12 | $7.27 at year-end 2010 |
| Common dividends | $1.00 per share declared for 2011, including Q4 $0.35 | $0.79 per share declared for 2010 |
Portfolio securities at year-end had carrying value of $200.3 million: Agency RMBS $132.5 million, multi-family CMBS $41.2 million, CLOs $22.8 million and non-Agency RMBS $3.9 million. Mortgage loans in securitization trusts were $206.9 million. Year-end cash and unencumbered securities were supplemented by $16.5 million of restricted cash available for Agency IO margin calls. Management stated available liquidity and operating cash flows were expected to meet requirements for at least 12 months.
Changes versus prior period
- FY net interest income rose 89%, reflecting a wider spread, Agency IO and multi-family CMBS performance, and the removal of the 10% Series A preferred financing after its 2010 redemption.
- Despite higher net interest income, FY common-stockholder net income fell 30% to $4.8 million. The main offsets were $9.7 million of unrealized losses on Agency IO investments and related hedges and a $2.2 million HCS termination charge.
- Q4 shifted to a $1.9 million common-stockholder loss from $1.0 million income a year earlier. Agency IO-related realized and unrealized losses and the HCS termination expense weighed on results, partly offset by higher net interest income.
- Assets expanded to $682.7 million, mainly from capital raised and increased leveraged investment. Two 2011 common-stock offerings produced $29.8 million in net proceeds and increased shares outstanding.
- Book value declined from $7.27 to $6.12 per share, reflecting unrealized losses in CLOs, multi-family CMBS and Agency IOs and hedges, as well as dividends.
Outlook, risks and unusual items
- Management’s 2012 strategy targets Agency ARMs, Agency IOs and multi-family CMBS, and expresses confidence in its managers and investment pipeline. The filing provides no quantified earnings or dividend guidance.
- Management expected short-term funding costs to remain historically low while noting possible increases in prepayments. Actual prepayment speeds had not risen significantly through the final four months of 2011, but management anticipated near-term increases.
- Key risks include short-term repo refinancing and margin-call exposure; mismatches between asset and borrowing repricing; prepayment sensitivity, especially for IOs; credit and valuation risk in subordinated CMBS and CLOs; and market liquidity and counterparty risks. HARP II, Federal Reserve actions and uncertainty over the GSEs could affect prepayments, spreads and asset values.
- The $2.2 million HCS termination fee was a one-time 2011 expense; management expected approximately $1.0 million of annual G&A savings from 2012, while incentive fees remain payable on HCS “tail” assets until disposed of or matured.
- Year-end residential securitization loans included $21.0 million of delinquent loans; 86% of that amount was under modified payment plans. Loan-loss provision was $1.7 million for 2011, and the allowance ended at $3.3 million.
- NYMT reported effective disclosure controls and internal control over financial reporting. It identified no legal proceedings expected to have a material adverse effect.
Investor facts to verify
- Confirm the issuer identity and filing period: this is NYMT’s FY 2011 10-K, not an Adamas Trust filing.
- Review the composition and mark-to-market sensitivity of Agency IOs, including the impact of prepayment assumptions and related hedges.
- Assess repo maturities, lender concentration, collateral haircuts, margin-call liquidity and the large unsettled TBA purchase payable reported at year-end.
- Evaluate the credit performance, valuation assumptions and concentration of first-loss multi-family CMBS and legacy securitized residential loans.
- Verify dividend sustainability against earnings, cash flows, REIT distribution requirements and the board’s stated discretion.
- Review HCS incentive-tail obligations, external-manager fee terms and the subsequent March 2012 Midway agreement amendment, including restricted-stock compensation.