ADAMAS TRUST, INC. quarterly report, Q1 FY2021

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SEC Filing Summary

Issuer identification: The request identifies ADAMAS TRUST, INC., but the supplied Form 10-Q is for NEW YORK MORTGAGE TRUST, INC. (NYSE: NYMT). The summary below covers the filing provided, not an Adamas Trust filing.

Business context and reporting period

Unaudited quarterly results for the three months ended March 31, 2021, compared with the same period in 2020. New York Mortgage Trust is a REIT investing in residential and multi-family mortgage-related assets, including residential loans, mortgage securities, preferred equity and mezzanine loans. The filing says results are not necessarily indicative of full-year performance.

Financial performance and position

  • Net interest income: $30.3 million, down from $47.1 million year over year. Portfolio net interest margin was 2.42%, versus 2.92%; average interest-earning assets fell to $2.85 billion from $4.83 billion.
  • Earnings: Net income attributable to the Company was $52.2 million; income attributable to common stockholders was $41.9 million, or $0.11 per diluted share. Comprehensive income attributable to common stockholders was $44.8 million. The prior-year quarter reported a $598.4 million Company-attributable loss and a $1.71 per-share common loss.
  • Non-interest results: Net non-interest income was $39.7 million, including $26.2 million of unrealized gains and $7.1 million of realized gains. The year-ago period included $396.8 million of unrealized losses, a $54.1 million loss on deconsolidating the Consolidated K-Series, and $25.2 million of goodwill impairment.
  • Expenses: General, administrative and operating expenses totaled $19.2 million, up from $13.9 million, partly reflecting costs associated with consolidated apartment-property VIEs and increased business-purpose-loan activity.
  • Balance sheet at March 31: Total assets were $4.73 billion; total liabilities $2.41 billion; Company stockholders’ equity $2.31 billion. Cash and cash equivalents were $291.0 million. Residential loans were $3.21 billion, investment securities $596.3 million, and equity investments $260.1 million.
  • Cash flows: Operating activities provided $25.1 million; investing activities used $28.5 million; financing activities provided $19.5 million. Cash, cash equivalents and restricted cash ended at $320.6 million.
  • Debt and leverage: Repurchase agreements were $537.0 million; CDOs $1.53 billion; convertible notes $136.0 million; and subordinated debentures $45.0 million. Management reported total leverage of 0.3x and portfolio leverage of 0.2x, excluding specified non-recourse CDO and VIE debt from its leverage measures. The $138 million principal amount of 6.25% convertible notes matures January 2022.
  • Book value and distributions: Book value was $4.71 per common share; quarterly common dividend declared was $0.10 per share. Preferred dividends were $10.3 million for the quarter.

Material changes versus the prior comparable period

  • The sharp earnings swing primarily reflects the recovery in asset prices and the absence of the exceptional 2020 losses, including COVID-related market losses and the K-Series deconsolidation. The year-over-year comparison is also affected by the 2020 asset sales and resulting smaller portfolio.
  • Net interest income declined as average interest-earning assets were lower following 2020 portfolio sales, including disposal of the higher-yielding K-Series first-loss positions. Management said higher financing costs on certain newer, longer-term financings also weighed on income.
  • During Q1 2021, the Company bought approximately $347.3 million of residential loans and sold approximately $118.3 million of investment securities. It also redeemed a non-Agency RMBS re-securitization with $14.7 million outstanding principal, returning the securities to the Company.
  • Assets and liabilities of consolidated VIEs totaled $2.01 billion and $1.59 billion, respectively, at quarter end. Consolidation includes underlying VIE assets and debt that management describes as non-recourse to the Company in specified cases.

Outlook, commentary and risks

  • Management described improving financial and mortgage-market conditions in Q1, with tighter credit spreads and stable financing-market liquidity, but noted sharply rising long-term interest rates. It intends to maintain a defensive approach to new investments, focus on credit assets, selectively realize gains, and favor longer-term or more committed financing where available.
  • Management said available cash, financing arrangements and operating cash flows are expected to meet liquidity needs for at least the next 12 months, based on current conditions. This is not a guarantee; the Company said future financing access, terms and timing are uncertain.
  • At March 31, approximately 1.5% of residential-loan borrowers were in active COVID-19 relief plans. One multi-family investment was delinquent in distributions and another was in forbearance; together, these represented 4.0% of the preferred-equity and mezzanine-loan portfolio.
  • COVID-19’s future effects remain uncertain. Key risks include interest-rate and credit-spread changes, asset valuation and model uncertainty, borrower defaults and delinquencies, prepayments, margin calls, counterparty and refinancing risk, and possible constraints on dividends. The Company had no interest-rate hedges outstanding at quarter end; its sensitivity analysis estimated a $17.7 million decline in next-12-month net interest income under an instantaneous 200-basis-point rate increase.
  • Subsequent financing: On April 27, 2021, the Company issued $100 million of 5.75% senior unsecured notes due April 2026. The notes carry covenants, including minimum net asset value and leverage-related requirements.
  • The Company reported compliance with repurchase-agreement covenants and effective disclosure controls as of March 31. It reported no material changes to the risk factors in its prior Form 10-K and no current litigation expected to have a material adverse effect.

Important facts for investors to verify

  • Confirm the intended issuer: the supplied filing is New York Mortgage Trust’s 10-Q, not an Adamas Trust filing.
  • Review the composition and credit performance of the residential-loan portfolio, including delinquency, forbearance and geographic concentrations.
  • Assess the quality and sensitivity of Level 3 fair-value estimates, particularly assumptions for defaults, loss severity, prepayments and discount rates.
  • Review liquidity and refinancing exposure, including repurchase-agreement collateral and margin-call terms, and the January 2022 convertible-note maturity.
  • Evaluate the effect of rate changes on earnings and asset values given the absence of hedges, as well as the covenants on the April 2021 notes.
  • Distinguish Company-recourse debt from consolidated VIE debt and assess the sustainability of common and preferred dividends against earnings, liquidity and REIT distribution requirements.