New York Mortgage Trust, Inc. — Q2 2011 Form 10-Q
Entity note: The filing identifies the registrant as New York Mortgage Trust, Inc., not ADAMAS TRUST, INC. The summary below covers the filing provided. Reporting period ended June 30, 2011; financial statements are unaudited.
Business context
NYMT is a mortgage-focused REIT seeking income from the spread between earnings on mortgage-related investments and financing costs. It was diversifying from a primarily leveraged Agency RMBS and residential-loan portfolio into Midway’s residential mortgage strategy and a new commercial mortgage strategy.
Financial performance and position
| Metric | Q2 2011 / June 30, 2011 | Comparable period / prior balance |
|---|---|---|
| Interest income | $6.482 million | $5.185 million in Q2 2010 |
| Net interest income | $5.301 million | $2.690 million in Q2 2010 |
| Net income attributable to common stockholders | $4.169 million; $0.44 per share | $1.542 million; $0.16 per share in Q2 2010 |
| Six-month common-stockholder income | $6.683 million; $0.71 per share | $4.210 million; $0.45 per share in first half 2010 |
| Management-reported net interest spread | 6.44% in Q2 2011 | 3.70% in Q2 2010; 3.68% in Q1 2011 |
| Total assets | $455.6 million | $374.3 million at December 31, 2010 |
| Total liabilities / total equity | $373.2 million / $82.4 million | $305.8 million / $68.5 million at December 31, 2010 |
| Cash and cash equivalents | $6.9 million | $19.4 million at December 31, 2010 |
Q2 other income was $2.7 million, including approximately $2.5 million of profit before incentive fees from CLO sales and $0.5 million of income from partnership and LLC investments; it also included $0.7 million of unrealized losses on securities and related hedges. Q2 loan-loss provision was $0.4 million, and general, administrative and other expenses were $3.5 million, up from $2.1 million. For the first half, operating cash flow was $3.4 million, investing cash flow was negative $61.6 million, and financing cash flow was positive $45.7 million; cash fell by $12.5 million.
At June 30, debt included $96.4 million of short-term repurchase financing (weighted-average rate 0.63%), $209.7 million of CDOs (0.57%), and $45.0 million of subordinated debentures (approximately 4.10%). The RMBS repo leverage ratio was 1.2:1. Management cited $33.6 million of unencumbered securities and stated that cash, financing availability, and operating cash flows were expected to meet liquidity needs for at least 12 months. Repo borrowings matured within 30 days.
Material changes and notable items
- Q2 common income rose $2.6 million year over year, driven primarily by higher net interest income and realized CLO-sale gains; higher management fees, other expenses, tax, and unrealized losses partly offset the increase.
- Investment securities available for sale increased to $150.5 million from $86.0 million at year-end 2010, with Agency RMBS comprising 78.2% of the portfolio at quarter-end. Mortgage loans in securitization trusts declined to $217.1 million from $228.2 million.
- Management attributed the higher spread chiefly to Midway’s performance in a low-prepayment environment. Overall portfolio CPR was 8.8%, versus 20.5% in Q2 2010.
- The company declared a Q2 dividend of $0.22 per share, versus $0.18 in Q2 2010. First-half dividends declared were $0.40 per share, versus $0.43 in first-half 2010.
- A public offering of 1.725 million shares closed after quarter-end, generating $11.9 million of net proceeds. The company reported investing $5.0 million in Midway and expected to allocate the balance to Agency RMBS and its commercial mortgage portfolio.
Outlook, risks and contingencies
Management expected short-term interest rates and financing costs to remain near historically low levels into 2012, while anticipating further capital contributions to Midway and the commercial strategy. It expected continued quarterly dividends in the near term, but emphasized that dividends are discretionary and subject to board review and business, liquidity, earnings, and REIT considerations. No specific earnings or dividend guidance was provided.
- Key exposures include interest-rate and spread movements, prepayments—especially for interest-only securities—credit losses, valuation changes, and short-term repo renewal, haircut, and margin-call risks. A modeled 100-basis-point rate increase reduced net interest income by $0.807 million; a 100-basis-point decrease reduced it by $5.670 million for the modeled six-month period. These are scenario estimates, not forecasts.
- Mortgage credit remains a risk: 40 securitized loans totaling about $22.1 million were delinquent at quarter-end; 83% of that balance was under modified payment plans. The allowance was $2.9 million, or 133 basis points of outstanding principal. Loan exposure was geographically concentrated, particularly in New York (37.8%) and Massachusetts (25.5%).
- Unresolved mortgage-loan repurchase requests considered potentially meritorious totaled $2.0 million, against a reserve of approximately $0.3 million. Management did not expect current litigation to have a material adverse effect.
- Management noted uncertainty around U.S. government and GSE policy, the end of Federal Reserve Treasury purchases, and possible U.S. credit-rating or housing-finance changes. These could affect Agency RMBS values, financing, and market liquidity.
- Management reported effective disclosure controls as of June 30, 2011, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for New York Mortgage Trust, Inc., despite the request metadata naming ADAMAS TRUST, INC.
- Assess how repeatable Q2 earnings are without CLO-sale gains and under different prepayment conditions; review Midway’s realized and unrealized performance and fee structure.
- Review short-term repo maturities, collateral haircuts, unencumbered liquidity, and potential margin needs against the company’s liquidity outlook.
- Track delinquency resolution, loss reserves, geographic concentration, and the adequacy of the repurchase-request reserve.
- Review post-quarter share issuance, use of proceeds, future capital allocation, and whether dividends remain supported by earnings and liquidity.