Business context and reporting period
The supplied filing is New York Mortgage Trust, Inc. (NYSE: NYMT), not Adamas Trust, Inc. It is a REIT investing in single-family and multifamily residential credit assets, including residential and business-purpose loans, structured multifamily investments, and mortgage securities. This Form 10-K covers the fiscal year ended December 31, 2021; it is not a quarterly report.
Financial performance and position
| Metric | FY 2021 / Dec. 31, 2021 | Comparable period |
|---|---|---|
| Interest income | $206.9 million | $350.2 million in 2020 |
| Net interest income | $123.6 million | $127.1 million in 2020 |
| Portfolio net interest margin | 3.07% | 2.59% in 2020 |
| Net income attributable to common stockholders | $144.2 million; $0.38 per diluted share | Net loss of $329.7 million; $(0.89) per diluted share in 2020 |
| Net unrealized gains | $95.6 million | Net unrealized losses of $160.2 million in 2020 |
| Operating cash flow | $138.9 million | $110.8 million in 2020 |
| Cash, cash equivalents and restricted cash | $337.9 million | $304.5 million in 2020 |
| Total assets | $5.64 billion | $4.66 billion in 2020 |
| Company stockholders’ equity | $2.34 billion; book value $4.70 per common share | $2.30 billion; $4.71 per share in 2020 |
| Common dividends declared | $0.40 per share | $0.23 per share in 2020 |
Interest expense was $83.2 million, versus $223.1 million in 2020. Total liabilities were $3.21 billion, including $554.3 million of repurchase agreements, $1.52 billion of collateralized debt obligations, $137.9 million of convertible notes, $96.7 million of senior unsecured notes, and $709.4 million of mortgages payable on real estate. Much of the CDO and property mortgage debt is non-recourse. Company recourse leverage was approximately 0.4x equity; portfolio recourse leverage, based on repurchase agreements, was 0.2x.
At year-end, the company reported $289.6 million of cash and cash equivalents, $431.2 million of unencumbered investment securities, $973.6 million of unencumbered residential loans, and $300.8 million of unencumbered preferred equity investments. Net cash, cash equivalents and restricted cash increased by $33.4 million during 2021.
Material changes versus 2020
- Common-stockholder results recovered to $144.2 million of income from a $329.7 million loss. The improvement primarily reflected a $255.8 million swing in net unrealized gains/losses and a $169.5 million improvement in realized gains/losses.
- Net interest income declined modestly despite higher portfolio margin. Management attributed the decline to lower average interest-earning assets following 2020 asset sales and to faster prepayments; higher-yielding business-purpose loan growth partly offset the effect.
- The investment portfolio shifted toward residential loans and multifamily credit/property investments. The company acquired or originated approximately $2.1 billion of investments and sold $432.6 million of investment securities. Total investment portfolio carrying value increased to approximately $3.60 billion from $3.15 billion.
- Investment securities available for sale fell to $200.8 million from $724.7 million. The company had no Agency RMBS or securities repurchase-agreement borrowings at year-end.
- Real estate, net increased to $1.02 billion from $50.5 million, largely reflecting consolidation of multifamily joint ventures and acquisitions. Related mortgages payable also increased; the company states it has no obligation for repayment of these non-recourse mortgages.
- The company issued $100 million of 5.75% senior unsecured notes and raised $210.7 million net through Series F and G preferred offerings, using the preferred proceeds to redeem Series C and B shares. It reported that the replacements reduced the cost of the redeemed preferred capital.
Outlook, commentary, risks and unusual items
Management said it expects to pursue growth in residential and business-purpose loans and structured multifamily investments, emphasizing higher-yielding credit assets and longer-term or less mark-to-market financing. It described a more active investment posture in a higher-interest-rate environment, while anticipating continued market volatility in 2022 amid inflation, COVID-19 variants, and expected Federal Reserve rate increases. Management believes available cash, financing and operating cash flows will meet liquidity needs for at least 12 months, but cautioned that future financing access and terms are not assured. No numerical earnings or dividend guidance was provided.
- Interest-rate sensitivity analysis estimated that an immediate 100-basis-point increase would reduce projected 12-month net interest income by $5.3 million; a 200-basis-point increase by $8.4 million. Estimated portfolio fair value would decline by $68.1 million and $126.5 million, respectively. The company had no hedges in place at year-end.
- COVID-19 market disruption in 2020 led to substantial asset sales, margin calls, realized losses, unrealized losses, and termination of interest-rate swaps. In 2021, pricing recovery contributed to unrealized gains; fair-value changes remain a source of earnings volatility.
- Credit, liquidity and valuation risks include borrower defaults, delinquencies, prepayments, concentrated geographic exposures, less-liquid subordinated securities, collateral margin calls, refinancing and counterparty risk, and reliance on models and unobservable inputs. Less than 1% of residential loans were in active COVID-19 assistance plans; one multifamily loan, representing 1.3% of preferred equity and mezzanine investments, was delinquent in distributions.
- Subsequent events: the $138.0 million convertible notes were repaid at maturity in January 2022; the company completed residential- and business-purpose-loan securitizations; and the board authorized a common-stock repurchase program of up to $200 million in February 2022.
- The auditor issued an unqualified opinion on the financial statements and internal controls. It identified fair-value measurements of residential loans and certain Consolidated SLST securities as critical audit matters because of limited market data and sensitivity to assumptions. The company reported no legal proceedings expected to have a material adverse effect.
Most important facts for investors to verify
- Confirm the reporting entity: the provided filing is for New York Mortgage Trust, Inc., not Adamas Trust, Inc.
- Review the audited financial statements and notes for the composition, recourse status, maturities, covenants and refinancing requirements of debt, including the effects of the January 2022 convertible-note repayment and subsequent securitizations.
- Assess the quality and performance of residential loans, multifamily investments and subordinated securities, including delinquency, geographic concentration, collateral values and partner redemption or put rights.
- Examine the assumptions underlying Level 3 fair values and the sensitivity of earnings and book value to interest rates, credit spreads, defaults, prepayments and liquidity.
- Check the sustainability of the $0.40 annual common dividend against recurring cash generation, REIT distribution needs, preferred dividends and capital requirements; the board sets dividends at its discretion.
- Track execution of the planned portfolio growth and financing strategy, and confirm the terms and use of proceeds from the authorized share repurchase program.