Business context and reporting period
The supplied filing is New York Mortgage Trust, Inc. (NYSE: NYMT), not Adamas Trust, Inc. It is an unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. NYMT is a mortgage-focused REIT investing in residential and multifamily mortgage assets, securities, and related real estate investments. Its stated objective is stable stockholder distributions.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Interest income | $82.6 million | $94.9 million | $256.0 million | $285.7 million |
| Net interest income | $18.3 million | $19.3 million | $60.2 million | $59.0 million |
| Net income | $25.6 million | $39.7 million | $73.8 million | $94.2 million |
| Net income attributable to common stockholders | $22.4 million | $38.3 million | $66.0 million | $89.9 million |
| Basic and diluted EPS | $0.20 | $0.42 | $0.61 | $1.06 |
Q3 net interest spread was 3.54%, versus 4.28% a year earlier; the nine-month spread was 3.87%, versus 4.43%. The filing attributes pressure in part to smaller Agency RMBS and Agency IO portfolios, higher prepayments, and reduced multifamily assets. Q3 results also included a $23.9 million pretax gain on sales of distressed residential loans.
At September 30, 2015, total assets were $9.36 billion, down from $10.54 billion at December 31, 2014; stockholders’ equity was $910.6 million, up from $817.9 million. Reported common book value was $6.82 per share. Cash and cash equivalents were $123.8 million. The company reported $158.7 million of unencumbered investment securities and said cash and identified liquid resources represented 52.3% of financing arrangements.
Total liabilities were $8.45 billion, including $7.01 billion of multifamily CDOs associated with consolidated securitizations and $586.1 million of portfolio financing arrangements. Separately, management reported overall leverage of approximately 1.1x equity and callable-debt leverage of approximately 0.8x, excluding specified consolidated K-Series and residential CDO obligations from the overall measure. Portfolio financing arrangements carried a 0.52% weighted-average rate; distressed-loan repo borrowings were $185.5 million at 2.69% and matured December 17, 2015.
For the first nine months, operating cash flow was $28.6 million, investing cash flow was $279.7 million, and financing cash outflow was $260.2 million. Cash increased by $48.2 million to $123.8 million. Investing inflows included $232.1 million of distressed-loan repayments, sales and refinancings; financing outflows included $87.1 million of common dividends and $6.0 million of preferred dividends paid.
Material changes versus prior comparable periods
- Common-stockholder income fell $15.9 million in Q3 and $23.8 million over nine months year over year; EPS declined from $0.42 to $0.20 for Q3 and from $1.06 to $0.61 for nine months.
- Q3 total other income fell $12.9 million year over year. A $26.4 million increase in realized gains on distressed-loan sales was outweighed by lower securities gains, less favorable multifamily fair-value changes, and higher derivative-related losses.
- Distressed-loan carrying value declined to $509.4 million from $582.7 million at year-end. The portfolio’s share of loans 90 or more days delinquent increased to 11.0% from 4.0%; current loans fell to 80.5% from 88.2%.
- Multifamily loan and CDO balances fell partly because a February sale of a first-loss security generated $44.3 million proceeds and a $1.5 million gain, and deconsolidated approximately $1.1 billion of loans and $1.0 billion of CDOs.
- Cash dividends on common stock were reduced to $0.24 per share for Q3 from $0.27 in the prior quarter and year-earlier quarter. The company issued $86.9 million net proceeds of Series C preferred stock; common shares outstanding rose to 109.4 million from 105.1 million at year-end.
Outlook, commentary, risks, and unusual items
Management expected existing cash, financing availability, and operating cash flows to meet liquidity needs for at least 12 months, and said it expected to refinance or roll over the $185.5 million distressed-loan repo before its December 2015 maturity. It anticipated continuing quarterly common dividends in the near term, while emphasizing that the board reviews the policy quarterly and that payment is not assured.
Management characterized multifamily housing conditions as favorable and expected modest improvement in single-family housing, but noted third-quarter credit-spread widening had reduced values, particularly for multifamily CMBS. It cited volatile rates and markets, uncertain Federal Reserve policy, mortgage prepayments, credit losses, financing availability, margin calls, and possible changes to Fannie Mae and Freddie Mac as key risks. The company relies in part on short-term, uncommitted repo funding; a collateral decline or lender nonrenewal could require additional collateral, asset sales, or repayment under pressure.
Fair values for multifamily loans, CDOs, and certain CMBS rely on Level 3 models and significant estimates. Distressed-loan income and gains depend on uncertain borrower workouts, sales, refinancings, and collateral outcomes, and management cautioned that results can be uneven. The company reported no material change in risk factors, effective disclosure controls, and no current litigation expected to have a material adverse effect.
Important facts for investors to verify
- Confirm issuer identity: the provided filing names New York Mortgage Trust, Inc., despite request metadata naming Adamas Trust, Inc.
- Review the source and sustainability of the $23.9 million Q3 distressed-loan sale gain and whether comparable sales can recur.
- Track distressed-loan delinquencies, expected cash collections, loan-loss provisions, and the accretable-yield assumptions supporting interest income.
- Verify refinancing of the December 2015 distressed-loan repo and continuing access to repo and FHLBI funding, including collateral and margin requirements.
- Assess valuation sensitivity of Level 3 multifamily assets and liabilities, and the effect of credit-spread and interest-rate changes on book value and earnings.
- Monitor dividend coverage and policy after the common dividend reduction, preferred dividend obligations, and additional equity issuance or dilution.