ADAMAS TRUST, INC. quarterly report, Q2 FY2020

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Filing identity and reporting period

Important discrepancy: The request identifies ADAMAS TRUST, INC., but the supplied Form 10-Q is for New York Mortgage Trust, Inc. (NYSE/ Nasdaq ticker NYMT). This summary reflects the filing text provided, which covers the quarter and six months ended June 30, 2020.

NYMT is a mortgage REIT investing in residential and multifamily mortgage-related assets. The financial statements are unaudited.

Financial performance and position

  • Second-quarter results: Net interest income was $28.5 million, versus $25.7 million in Q2 2019. Net income attributable to common stockholders was $107.5 million, or $0.28 per share, compared with $16.5 million, or $0.08 per share. The quarter included $102.9 million of net unrealized gains, following market recovery from the first-quarter dislocation. Comprehensive income attributable to common stockholders was $190.1 million, or $0.50 per share.
  • First-half results: Net interest income was $75.6 million, compared with $51.9 million in the first half of 2019. NYMT reported a $491.2 million net loss attributable to common stockholders, or a $1.35 loss per share, versus $54.7 million of income a year earlier. Net non-interest loss was $517.6 million, including $293.9 million in unrealized losses, $148.9 million in realized losses, a $54.1 million loss on deconsolidation of multifamily securitizations, and $25.2 million goodwill impairment.
  • Assets and equity: Total assets were $4.62 billion at June 30, down from $23.48 billion at year-end 2019, largely because NYMT sold its first-loss interests and deconsolidated $17.4 billion of multifamily loans and $16.6 billion of related debt. Stockholders’ equity was $2.16 billion. Book value per common share was $4.35, up from $3.89 at March 31, but down from $5.78 at year-end 2019.
  • Cash flow and liquidity: For the first half, operating cash flow was $38.5 million, investing cash flow was $2.02 billion, and financing cash use was $1.78 billion. Cash, cash equivalents and restricted cash ended at $403.2 million, including $371.7 million unrestricted cash. NYMT also reported $812.5 million of unencumbered securities and $243.0 million of unencumbered residential loans.
  • Debt and leverage: Repurchase agreements totaled $963.1 million, versus $3.11 billion at year-end. Reported overall leverage was 0.5x equity and portfolio leverage 0.4x, excluding specified non-recourse securitized obligations. Other reported debt included $134.1 million of convertible notes, $45.0 million of subordinated debentures, and $109.0 million of securitized debt; consolidated residential CDOs were $1.12 billion, primarily non-recourse.
  • Margins: Portfolio net interest margin was 2.43% in Q2 2020 versus 2.16% in Q2 2019; for the first half it was 2.64% versus 2.27%. These portfolio measures exclude certain financing costs, including convertible notes and subordinated debentures.

Material changes versus comparable periods

  • Q2 common earnings improved year over year, principally reflecting asset-price recovery and lower financing costs. Interest income fell sharply as multifamily securitizations were deconsolidated; reported totals are therefore affected by a major change in the consolidated asset base.
  • First-half results swung from profit to substantial loss amid COVID-related market dislocation, asset sales, swap termination losses, valuation changes, deconsolidation and goodwill impairment.
  • During the first half, NYMT sold approximately $2.1 billion of assets and raised $511.9 million net through common-stock offerings, issuing 85.1 million shares. It terminated $495.5 million notional of interest-rate swaps, recognizing a $44.1 million net loss.
  • Common dividends were suspended for Q1 and reinstated at $0.05 per share for Q2. Preferred dividends were temporarily suspended and later reinstated, including declared arrears.

Outlook, risks and unusual items

  • Management expected adverse economic and market conditions to persist through 2020 and described near-term returns as highly sensitive to sufficient government support. It planned a defensive investment posture and greater emphasis on longer-term financing with reduced mark-to-market exposure; no earnings or dividend guidance was provided.
  • COVID-19 caused severe spread widening, asset-price declines, illiquidity and unusually large margin calls. In March, NYMT paused funding margin calls while negotiating with counterparties, then sold assets and reduced financing; it reported being current on repurchase obligations by April 7. At June 30, investment-securities repurchase agreements were $87.6 million with one counterparty, while residential-loan repurchase agreements were $876.9 million.
  • Residential-loan repurchase agreements remain subject to margin calls and financial covenants. NYMT was out of compliance with market-capitalization covenants in March, amended agreements in March and April, and reported compliance as of August 7, 2020.
  • Credit risks include rising borrower delinquencies, forbearance, defaults, rental weakness and reduced property values. At June 30, 9.6% of residential loans were 90+ days delinquent; one multifamily operating partner, representing 1.1% of the preferred-equity and mezzanine portfolio, was delinquent on distributions.
  • Management said existing cash, financing availability and operating cash flows were expected to meet liquidity needs for at least 12 months, while cautioning that additional financing access was not assured. Fair-value estimates rely in part on significant unobservable inputs and may change materially.
  • Subsequent event: In July, NYMT completed a residential-loan securitization generating approximately $242.9 million net proceeds and used about $230.6 million to repay a residential-loan repurchase agreement.

Important facts for investors to verify

  1. Confirm the issuer: the supplied filing is NYMT, not Adamas Trust, Inc.
  2. Assess how much of Q2 earnings came from unrealized valuation gains and whether those gains persisted after June 30.
  3. Review the quality, delinquency trends and fair-value assumptions for residential loans and multifamily investments.
  4. Track repurchase-agreement renewals, collateral haircuts, margin-call exposure, covenant compliance and the shift toward term securitizations.
  5. Evaluate the effects of the 85.1 million-share issuance on per-share book value and future earnings, and whether common and preferred dividends remain sustainable.