Business context and reporting period
The supplied filing is New York Mortgage Trust, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2018; it does not appear to be an Adamas Trust, Inc. filing. New York Mortgage Trust is a REIT that acquires, finances and manages mortgage-related and residential housing-related assets. Its portfolio includes Agency and non-Agency securities, multifamily investments, and residential mortgage loans.
Financial results and position
- Revenue and earnings: Interest income was $108.9 million, up from $78.4 million; interest expense rose to $89.1 million from $64.5 million. Net interest income increased to $19.8 million from $13.9 million. Other income was $21.0 million versus $16.7 million, and net income attributable to common stockholders was $23.7 million, or $0.21 per basic share ($0.20 diluted), compared with $16.0 million, or $0.14 per share, a year earlier.
- Drivers and margins: Portfolio net interest margin was 2.86%, compared with 2.70%. Management attributed higher net interest income principally to growth in average Agency RMBS and multifamily interest-earning assets. Other income included $11.7 million of net unrealized gains on investment securities and related hedges and $7.5 million of net unrealized gains in the consolidated multifamily securitizations.
- Cash flow: Operating activities provided $7.1 million and investing activities provided $36.3 million; financing activities used $92.6 million. Cash, cash equivalents and restricted cash fell by $49.1 million to $66.3 million, including $65.5 million of cash and cash equivalents. Financing outflows included debt repayments and $28.4 million of dividends paid.
- Assets and equity: Total assets were $11.8 billion versus $12.1 billion at year-end; total liabilities were $10.8 billion versus $11.1 billion. Company stockholders’ equity was $949.0 million, down from $971.9 million. Book value per common share was $5.79, versus $6.00 at year-end, reflecting dividends and a $24.5 million decline in fair value of available-for-sale securities recorded in other comprehensive income.
- Debt and liquidity: Portfolio repurchase-agreement borrowings were $1.29 billion, with a 2.51% weighted-average rate and 55-day average maturity. Management reported $65.5 million of cash plus $300.5 million of unencumbered securities available to address collateral and liquidity needs. It reported an overall leverage ratio of approximately 1.8-to-1 and short-term financing leverage of approximately 1.5-to-1, subject to the exclusions described in the filing. Consolidated multifamily CDOs were $8.95 billion; these principally correspond to consolidated securitization assets and are not equivalent to corporate recourse debt.
Material changes versus the prior comparable period
- Common-stockholder net income increased $7.7 million year over year. Net interest income rose $5.8 million and total other income rose $4.2 million, while general, administrative and operating expenses declined $1.5 million.
- Results included significantly higher unrealized valuation gains, but realized gains on distressed residential loan activity fell: the filing reports a $0.8 million net realized loss in Q1 2018 versus an $12.0 million net realized gain in Q1 2017.
- Comprehensive results differed sharply from earnings: comprehensive loss attributable to common stockholders was $0.8 million, compared with comprehensive income of $18.9 million in Q1 2017, chiefly due to available-for-sale security valuation losses.
- Riverchase Landing sold its multifamily property in March 2018, redeemed the Company’s preferred equity investment and was deconsolidated. The sale generated a $2.3 million gain recorded in other income and allocated to non-controlling interests. The Clusters remained classified as held for sale; management anticipated a third-party sale in 2018.
- The Company continued its exit from the Agency IO strategy. Available-for-sale securities declined to $1.40 billion from $1.41 billion, with sales, principal paydowns and unrealized losses partly offset by Agency fixed-rate purchases.
Guidance, outlook, commentary and risks
No numerical earnings or portfolio guidance was provided. Management said it expects to continue quarterly common dividends in the near term, while the Board will reassess them quarterly. The declared Q1 common dividend was $0.20 per share. Management believed cash, financing availability and operating cash flows would meet liquidity requirements for at least the next 12 months.
Management described continued multifamily and residential market strength and tighter credit spreads, which supported credit-asset values but made new investments less attractive on current returns. The Federal Reserve raised its target rate by 25 basis points in March 2018 and signaled further increases; management warned that policy uncertainty and market volatility could widen spreads, lower asset prices or raise hedging costs.
- Short-term, largely uncommitted repo financing creates rollover, margin-call and forced-sale risks. Repo borrowings had an aggregate amount at risk of approximately $183.6 million; no single counterparty exposure exceeded approximately $59.1 million.
- Interest-rate sensitivity modeling estimated that an instantaneous +100 basis-point move would reduce next-12-month net interest income by $10.4 million; a +200 bp move by $21.5 million; and a -100 bp move would increase it by $8.1 million. Separate modeled fair-value sensitivity was a $44.9 million decline at +100 bp and a $102.6 million decline at +200 bp. Actual outcomes may differ.
- Credit, prepayment, valuation-model and counterparty risks are material, particularly for distressed residential loans, first-loss multifamily securities and Level 3 fair-value assets. The filing notes that assumptions and estimates could materially affect results and financial condition.
- Management reported compliance with applicable financing covenants and no material change to the risk factors in the 2017 Form 10-K. It reported no legal proceedings expected to have a material adverse effect. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Confirm the issuer identity: the provided text is for New York Mortgage Trust, Inc., not Adamas Trust, Inc.
- Assess the sustainability of earnings by separating net interest income and realized activity from fair-value gains, especially the multifamily securitization and derivative marks.
- Review repo maturity, collateral haircuts, margin requirements, counterparty exposure and liquidity under adverse market conditions.
- Examine the quality and performance of distressed residential loans, including delinquency trends, recovery assumptions and geographic concentrations.
- Track the planned sale of The Clusters, dividend coverage and the effect of preferred dividends and convertible-note dilution on common-stockholder returns.