Business context and reporting period
Entity mismatch: The request names ADAMAS TRUST, INC., but the supplied Form 10-Q is for New York Mortgage Trust, Inc. (NASDAQ: NYMT). This summary reflects the supplied filing, for the quarter ended September 30, 2019; financial statements are unaudited.
NYMT is a mortgage and residential-housing focused REIT. It invests in residential mortgage loans and securities, multi-family credit, and preferred equity and mezzanine investments. Its stated objective is to provide long-term distributions through net interest margin and realized gains.
Financial performance and position
Amounts below are in millions, except per-share data, ratios, and where noted.
| Metric | Q3 2019 / Sep. 30, 2019 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $32.0 | $19.6 in Q3 2018 |
| Net income attributable to common stockholders | $34.8; $0.15 basic EPS | $28.0; $0.21 basic EPS in Q3 2018 |
| Nine-month common-stockholder net income / basic EPS | $89.5 / $0.44 | $75.5 / $0.63 for nine months 2018 |
| Comprehensive income attributable to common stockholders | $45.7 in Q3; $133.6 for nine months | $18.2 in Q3; $34.6 for nine months 2018 |
| Total assets | $19,759.2 | $14,737.6 at Dec. 31, 2018 |
| Cash and cash equivalents | $65.9 | $103.7 at Dec. 31, 2018 |
| Repurchase agreements | $2,559.9 | $2,131.5 at Dec. 31, 2018 |
| Stockholders’ equity / book value per common share | $1,847.5 / $5.77 | $1,179.4 company equity at Dec. 31, 2018; book value per share $5.65 |
For the nine months, operating cash flow was $26.4, investing cash flow was negative $601.8, and financing cash flow was positive $533.2. Cash, cash equivalents and restricted cash declined $42.3 to $66.8. The filing attributes investing outflows principally to asset purchases and investment funding; financing inflows included equity issuance and repurchase-agreement borrowing.
Reported total liabilities were $17,912.3, including $14,978.2 of multi-family CDOs consolidated with the K-Series trusts. These CDOs are non-recourse obligations for which NYMT says it has no obligation beyond its owned securities. Excluding non-recourse CDOs and other specified non-recourse debt, the company reported overall leverage of 1.5 times equity and callable-debt leverage of 1.4 times equity. Repurchase agreements secured by investment securities had a 3.06% weighted-average rate; residential-loan repo borrowings had a 4.05% weighted-average rate.
Net interest margin was 2.40% in Q3 2019 versus 2.55% in Q3 2018; for the nine months it was 2.26% versus 2.61%. The company declared common dividends of $0.20 per share for Q3, or $0.60 per share for the nine months.
Material changes versus prior comparable periods
- Q3 net interest income rose $12.4 million year over year, primarily reflecting growth in residential and multi-family credit assets. Total non-interest income fell $2.9 million, while expenses increased $2.4 million.
- Common-stockholder net income increased, but basic EPS declined from $0.21 to $0.15 in Q3 and from $0.63 to $0.44 for the nine months. The weighted-average basic share count rose substantially, reflecting significant equity issuance.
- Assets and equity expanded alongside portfolio growth and capital raises. Common-stock offerings generated $618.6 million net proceeds in the first nine months; the at-the-market common and preferred programs generated a further $44.1 million.
- The portfolio shifted toward residential and multi-family credit; Agency RMBS exposure declined as a share of capital. Consolidated K-Series securitizations increased from nine to twelve, with related consolidated loans and CDOs growing.
- OCI improved materially, including $44.1 million of other comprehensive income for the nine months, mainly from higher available-for-sale security values. Reported earnings also included realized gains and fair-value movements; Q3 unrealized gains were $11.1 million overall, while interest-rate swaps incurred $12.6 million of Q3 unrealized losses.
Outlook, commentary, risks and unusual items
- Management said it intends to keep expanding single-family residential and multi-family credit investments and expects to continue reducing Agency RMBS exposure. It described a conservative leverage approach and said available liquidity and expected cash flows should meet requirements for at least 12 months. These are management expectations, not guarantees.
- Management expects to continue quarterly common dividends in the near term, subject to quarterly Board review, earnings, liquidity, financial condition, business prospects, and REIT requirements. The filing does not provide formal earnings or dividend guidance.
- At September 30, available liquidity included $65.9 million cash and $637.0 million of unencumbered securities that management believed could be posted as margin or monetized. Repo funding is short term and generally uncommitted; lenders may demand additional collateral, decline renewal, or require repayment.
- Interest-rate, spread, prepayment, credit, collateral valuation, and financing-market changes may affect earnings, asset values and liquidity. A modeled immediate 100-basis-point rate increase reduced projected next-12-month net interest income by $14.5 million; a 200-basis-point increase reduced it by $28.2 million. The company cautions that model outcomes are not forecasts.
- The portfolio contains material credit and valuation exposure, including distressed loans. At September 30, fair-value residential loans included $71.3 million fair value of loans over 90 days past due and in non-accrual status. Management’s fair-value estimates rely in part on significant unobservable inputs.
- NYMT committed approximately $56.0 million to K-Series securities and deposited $66.0 million toward a Freddie Mac-sponsored residential securitization, with approximately $166.0 million expected to be funded at closing in Q4 2019.
- After quarter-end, the company raised approximately $166.7 million net from 6.9 million Series E preferred shares and increased its authorized shares. It also redeemed or repaid certain securitization debt during 2019, recognizing a $2.9 million loss on extinguishment.
- The filing reports no material change to previously disclosed risk factors, no material adverse effect expected from current litigation, effective disclosure controls, and no material internal-control changes during the quarter.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is New York Mortgage Trust, Inc., not ADAMAS TRUST, INC.
- Review whether the rise in net income can be sustained and how share issuance affects per-share earnings, book value and dividend coverage.
- Assess repo renewal and margin-call exposure, including the $328.2 million aggregate amount at risk and $637.0 million of unencumbered securities cited as liquidity.
- Examine sensitivity to interest rates and credit spreads, and the valuation assumptions for Level 3 assets and liabilities.
- Track residential-loan delinquencies, multi-family collateral performance, committed investment funding, and the post-quarter Series E preferred issuance.
- Evaluate whether cash generation, financing availability and earnings support the stated dividend policy and management’s liquidity assessment.