Business context and reporting period
The supplied filing is New York Mortgage Trust, Inc. (NYSE-listed Nasdaq ticker: NYMT), not Adamas Trust, Inc. It is a REIT that invests in mortgage-related and residential housing assets, including multifamily credit, residential loans, non-Agency RMBS and leveraged Agency RMBS. This is its annual Form 10-K for the fiscal year ended December 31, 2018; it is not a standalone fourth-quarter filing.
Financial performance and condition
| Metric | 2018 | 2017 |
|---|---|---|
| Interest income | $455.8 million | $366.1 million |
| Interest expense | $377.1 million | $308.1 million |
| Net interest income | $78.7 million | $58.0 million |
| Portfolio net interest margin | 2.53% | 2.73% |
| Net income attributable to common stockholders | $79.2 million; $0.62 basic EPS | $76.3 million; $0.68 basic EPS |
| Comprehensive income attributable to common stockholders | $51.5 million | $80.2 million |
| Common dividends declared per share | $0.80 | $0.80 |
- Total assets were $14.74 billion and total liabilities $13.56 billion at year-end. These figures include substantial consolidated securitization VIE balances; the company states it generally has no obligation for the non-recourse liabilities of those entities.
- Stockholders’ equity was $1.18 billion; common book value was $5.65 per share, down from $6.00. Management reported a 7.5% annual economic return.
- Cash and cash equivalents were $103.7 million. Operating cash flow was $24.2 million; investing cash use was $642.5 million and financing cash provided was $621.2 million. Cash, cash equivalents and restricted cash increased $3.0 million.
- Repurchase agreements financing portfolio investments totaled $1.54 billion, with a 3.41% weighted-average rate and 62-day average maturity. Residential-loan financing arrangements totaled $587.9 million. Overall leverage was about 2.0:1; short-term/callable leverage was about 1.8:1.
- Management reported $262.5 million of unencumbered securities alongside cash as available liquidity, and believed liquidity sources would meet requirements for at least 12 months.
Material changes versus the prior comparable period
- Common-stockholder net income rose $2.9 million, but basic EPS fell from $0.68 to $0.62 as weighted-average basic shares increased from 111.8 million to 127.2 million.
- Net interest income increased $20.7 million, driven by larger Agency, multifamily and residential credit portfolios. Funding costs rose: portfolio average cost of funds increased to 3.20% from 2.95%, while net interest margin narrowed.
- Other income declined $8.5 million. Lower realized gains on distressed loan sales and larger realized losses on securities and hedges were partly offset by increased unrealized multifamily gains and gains on residential loans carried at fair value.
- Available-for-sale securities rose to $1.51 billion from $1.41 billion. Residential mortgage loans carried at fair value increased to $737.5 million from $87.2 million, reflecting significant purchases; loans accounted for at carrying value declined to $228.5 million from $331.5 million.
- Common equity issuance provided $260.1 million net cash proceeds in 2018; 43.7 million shares were issued through public offerings and the ATM program. A further 14.49 million shares were issued in January 2019 for $83.8 million net proceeds.
- Accumulated other comprehensive income of $5.6 million became a loss of $22.1 million, primarily reflecting $38.3 million of unrealized Agency RMBS losses. These losses were described as temporary, not credit-related.
Outlook, risks and unusual items
- Management expected to continue quarterly common dividends in the near term, but the board reviews the policy quarterly; dividends are not guaranteed. The declared 2018 amount was $0.80 per share.
- The company is shifting toward credit-sensitive multifamily and single-family residential assets. It began internalizing management of its distressed residential loan strategy and gave Headlands notice that its management agreement would expire June 30, 2019; Headlands would continue managing existing loans and retain fee and purchase-related rights as specified in the agreement.
- Interest-rate sensitivity modeling estimated that a 100-basis-point rise would reduce next-12-month net interest income by $12.1 million, and a 200-basis-point rise by $24.0 million; a 100-basis-point decline was estimated to increase it by $13.7 million. Modeled fair-value declines were $74.5 million for +100 basis points and $160.4 million for +200 basis points. These are scenario estimates, not forecasts.
- Key risks include short-term repo refinancing and margin calls, rising funding costs or a flattening/inverted yield curve, asset-value and credit-spread volatility, loan defaults and delinquencies, prepayment uncertainty, illiquid and Level 3 valuations, and dependence on GSE mortgage guarantees and REIT/Investment Company Act compliance.
- Unusual items include a $2.8 million impairment on real estate under development, of which $1.4 million was attributable to the company; a $12.3 million realized loss on sales of available-for-sale securities; and fourth-quarter common-stockholder income of $3.7 million, versus $24.6 million in fourth-quarter 2017. Fourth-quarter 2018 included a $15.5 million unrealized loss on securities and related hedges.
- The Clusters apartment property was sold in February 2019 and the company was deconsolidating it; the filing says any sale gain or loss would be allocated to non-controlling interests. The company also announced redemption of a multifamily resecuritization, scheduled for March 2019.
- The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls. Ordinary-course legal proceedings were not expected to have a material adverse effect.
Important facts investors should verify
- Confirm the issuer identity: the provided filing is for New York Mortgage Trust, Inc., despite the request metadata naming Adamas Trust, Inc.
- Review the full statements and notes for the quality and repeatability of earnings, especially fair-value gains, loan-sale gains/losses, accretion assumptions and credit-loss estimates.
- Assess common book value, share-count growth and the effect of the 2018 and January 2019 equity raises on per-share economics.
- Verify liquidity, repo maturities, collateral haircuts, covenant compliance and refinancing plans, including residential-loan facilities.
- Examine distressed-loan performance: fair-value portfolio delinquency was materially higher than a year earlier, and credit and valuation assumptions are significant.
- Track the Headlands transition, its ongoing fees and rights over existing loans, and whether internalization changes costs or investment performance.
- Confirm subsequent events, dividend decisions and multifamily property/securitization exits in later filings.