Filing summary
Entity and period: The request metadata identifies ADAMAS TRUST, INC., but the supplied Form 10-Q is for New York Mortgage Trust, Inc. (NYMT). It covers the quarter and nine months ended September 30, 2016; the financial statements are unaudited. Confirm the filing is for the intended company.
Business context and portfolio
NYMT is a mortgage-focused REIT seeking distributions from net interest income and realized gains. It reported $9.36 billion in assets and $863.1 million in total equity at quarter-end. A substantial portion of reported assets and liabilities reflects consolidated Freddie Mac multifamily securitization trusts: $7.22 billion of loans and $6.91 billion of related debt. Management said it was shifting capital toward residential and multifamily credit assets and intended, subject to market conditions, to continue reducing Agency RMBS exposure.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Interest income | $79.5 million | $82.6 million | $240.9 million | $256.0 million |
| Net interest income | $15.5 million | $18.3 million | $49.8 million | $60.2 million |
| Net income attributable to common stockholders | $20.0 million | $22.4 million | $45.0 million | $66.0 million |
| Basic and diluted EPS | $0.18 | $0.20 | $0.41 | $0.61 |
| Portfolio net interest margin | 2.82% | 3.54% | 3.04% | 3.87% |
For the nine months, operating cash flow was $44.6 million, investing cash flow was negative $2.8 million, and financing cash flow was negative $38.4 million. Cash and cash equivalents were $65.3 million, up from $62.0 million at December 31, 2015. The company declared common dividends of $0.24 per share for Q3, unchanged from the prior two quarters of 2016; it also paid preferred dividends.
Balance sheet, debt and liquidity
At September 30, 2016, total liabilities were $8.50 billion, compared with $8.18 billion at year-end 2015. Financing arrangements for portfolio investments were $671.8 million, up from $577.4 million; their weighted average rate was 1.27%, versus 0.71% at year-end. Residential CDOs were $96.1 million, securitized debt $232.4 million, and subordinated debentures $45.0 million. Multifamily CDOs were $6.91 billion, primarily obligations of consolidated securitization trusts. Management reported overall leverage of about 1.3-to-1 excluding specified CDOs, and short-term leverage of about 1.0-to-1.
Management stated that cash, financing availability and operating cash flows were expected to meet liquidity needs for at least 12 months. It reported $65.3 million of cash, $41.1 million in Agency IO overnight deposits classified within restricted cash, and $53.1 million of unencumbered securities it believed could be used for margin or liquidity needs. These sources are subject to financing terms, collateral values and market conditions.
Changes, outlook and key risks
- Common-stockholder income declined 10.6% in Q3 and 31.9% for the nine-month period year over year. Management attributed lower net interest income in part to seasoning of distressed loans, reduced Agency asset balances and higher financing costs; multifamily investments partly offset these effects.
- Q3 distressed-loan sales generated approximately $6.7 million of realized gain, while total realized gains on distressed residential loans were $12.0 million for the nine months, down from $31.5 million. The nine-month results also included a $5.0 million gain from remeasurement of previously held interests in acquired businesses.
- On May 16, NYMT acquired the remaining interests in RiverBanc, RBMI and RBDHC, internalizing multifamily investment management. Acquisition accounting included $25.0 million of provisional goodwill and $3.7 million of provisional intangible assets; management cited expected synergies. RiverBanc’s prior management agreement was terminated.
- In October 2016, after quarter-end, NYMT repaid $55.9 million of notes under its 2013 collateralized financing and received approximately $181.9 million of multifamily CMBS collateral back.
- Management expected to continue quarterly common dividends in the near term, but said the board would reassess each quarter. No quantified earnings or financial guidance was provided.
- Key exposures include interest-rate and spread movements, prepayments (particularly for Agency IOs), borrower credit losses, valuation estimates for Level 3 assets, repo renewal and margin-call risk, and counterparty risk. Management reported that repo borrowings were short term, with an average 20 days to maturity, and the $182.8 million distressed-loan repo facility was due December 15, 2016; it expected to refinance or roll the borrowing.
- Market-risk models estimated that a 100-basis-point rate increase would reduce portfolio market value by $38.6 million, while a 100-basis-point decrease would increase it by $26.3 million. The filing cautions that actual results may differ materially from model estimates. Management reported effective disclosure controls and no material changes in internal control; it reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is NYMT’s, not an Adamas Trust, Inc. filing.
- Review the composition and sensitivity of earnings, including distressed-loan gains, acquisition remeasurement gains, and fair-value changes versus recurring net interest income.
- Check the status and terms of refinancing the $182.8 million repo facility due December 15, 2016, and the October repayment and collateral transfer.
- Assess whether the shift toward credit assets and multifamily investments changes portfolio risk, financing needs, or expected distributions.
- Evaluate dividend coverage and liquidity against repo maturities, collateral haircuts, margin requirements, and restricted cash.
- Review Level 3 valuation assumptions, distressed-loan performance and delinquencies, and the provisional acquisition goodwill and intangible valuations.