Business context and reporting period
Registrant clarification: The supplied filing is New York Mortgage Trust, Inc. (NYSE/Nasdaq ticker NYMT), not ADAMAS TRUST, INC. It is the company’s Form 10-K for the fiscal year ended December 31, 2016; fourth-quarter figures are also included.
NYMT is a mortgage REIT investing in residential and multifamily mortgage assets. During 2016 it continued shifting capital from Agency mortgage-backed securities toward credit-sensitive residential and multifamily investments. It acquired the remaining interests in RiverBanc and related entities, internalizing multifamily investment management.
Financial results and key metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Interest income | $319.3 million | $336.8 million |
| Interest expense | $254.7 million | $260.7 million |
| Net interest income | $64.6 million | $76.2 million |
| Other income | $41.2 million | $45.8 million |
| Net income attributable to common stockholders | $54.7 million | $67.0 million |
| Basic and diluted EPS | $0.50 | $0.62 |
| Common dividends declared per share | $0.96 | $1.02 |
| Net cash from operating activities | $53.8 million | $36.3 million |
Fourth-quarter 2016 net interest income was $14.8 million and net income attributable to common stockholders was $9.7 million, or $0.09 per share. The company declared a $0.24-per-share common dividend for the quarter.
At December 31, 2016, total assets were $9.0 billion, total liabilities $8.1 billion, and total stockholders’ equity $851.2 million. Assets and liabilities include consolidated securitization entities; approximately $7.3 billion of assets and $6.9 billion of liabilities belonged to consolidated VIEs. Common book value was $6.13 per share. Cash and cash equivalents were $83.6 million.
Portfolio net interest margin was 2.93% for 2016, down from 3.68% in 2015. Overall leverage was approximately 1.4-to-1, excluding Consolidated K-Series and residential CDO debt as specified by the company; leverage on short-term or callable financing was approximately 1.1-to-1. Repurchase-agreement borrowings were $773.1 million at a 1.92% weighted average rate, compared with $577.4 million at 0.71% for repurchase agreements and FHLBI advances at year-end 2015.
Material changes versus prior period
- Common net income fell 18% and EPS declined from $0.62 to $0.50. Net interest income decreased $11.5 million, primarily due to weaker Agency IO and Agency RMBS results, higher financing costs, and lower distressed-loan discount accretion. Multifamily net interest income increased approximately $7.0 million.
- Other income declined $4.6 million. Lower realized gains on distressed loans and smaller multifamily fair-value gains were partly offset by improved Agency IO hedging results and a $5.0 million gain from remeasuring previously held RiverBanc-related interests.
- Capital allocated to multifamily investments rose to 46.4% from 41.4% of the reported allocation; distressed residential fell to 30.3% from 37.3%. The company reported acquiring $314.7 million of residential and multifamily credit assets and reducing net capital allocated to Agency RMBS and Agency IOs by about $47.9 million.
- The company acquired $188.3 million of non-Agency RMBS backed by re-performing and non-performing loans and funded additional multifamily preferred equity investments. It sold loans with a $74.9 million carrying value for $91.6 million, recognizing a $16.7 million gain before tax.
- Common dividends declined to $0.96 per share from $1.02. The filing classifies 2016 dividends for tax purposes as $0.44 ordinary income and $0.52 return of capital per share.
Outlook, commentary, risks and unusual items
- Management intended to continue the portfolio shift toward multifamily and residential credit assets in 2017, citing a difficult hedging and earnings environment for Agency RMBS. It expected to continue quarterly common dividends in the near term, but stated that the board reviews the policy quarterly and payments are not assured.
- Management said existing cash, financing availability and operating cash flows were expected to meet liquidity needs for at least 12 months. This outlook depends on financing access, collateral values and market conditions.
- Major risks include rising or volatile rates, yield-curve changes, prepayment volatility (particularly for IO securities), credit losses, widening spreads, short-term repo rollover and margin-call risk, counterparty exposure, and illiquid or model-valued investments. Multifamily concentration and subordinate/first-loss exposure add credit sensitivity. The company also cited REIT qualification, Investment Company Act exemption, regulatory, external-manager and operating-partner risks.
- Year-end market-value sensitivity modeling estimated a $42.6 million portfolio value decline for an instantaneous 100-basis-point rate increase and an $84.4 million decline for a 200-basis-point increase; the modeled 100-basis-point decrease produced a $34.0 million increase. The model is not a forecast and excludes changes in portfolio composition and market liquidity.
- In January 2017, after year-end, NYMT issued $138.0 million principal amount of 6.25% senior convertible notes due 2022, receiving approximately $127.3 million net proceeds. Initial conversion price was approximately $7.01 per share; estimated all-in cost was approximately 8.14%.
- The RiverBanc acquisition generated $25.2 million of goodwill; management reported no impairment in its October 2016 test. Level 3 valuations and expected cash flows for credit-sensitive assets depend on significant estimates. Management and the auditor reported effective internal control over financial reporting; the audit opinion on the financial statements was unqualified. The company said pending ordinary-course legal proceedings were not expected to have a material adverse effect.
Most important facts for investors to verify
- Confirm the issuer identity: this filing is for New York Mortgage Trust, Inc., not the company named in the request metadata.
- Review the audited statements and notes for consolidated VIEs, non-recourse debt, and the distinction between reported total assets/liabilities and NYMT’s direct economic exposure.
- Track whether the credit-asset transition produces sustainable net interest income and credit returns, particularly as financing costs rise and Agency exposure declines.
- Assess the quality of distressed-loan cash-flow assumptions, delinquency trends, multifamily property performance, and Level 3 fair-value inputs.
- Evaluate liquidity under repo renewal, haircut and margin-call stress; note the $193.8 million Deutsche Bank residential-loan repo balance and the short maturities of much of the portfolio financing.
- Compare common dividends with recurring earnings and taxable income, and account for the 2017 convertible notes’ interest burden and potential share dilution.