Business context and reporting period
The supplied filing is New York Mortgage Trust, Inc.’s Form 10-Q for the quarter ended June 30, 2014, filed August 7, 2014. This does not match the requested company name, ADAMAS TRUST, INC.; confirm the intended issuer before relying on this summary. NYMT is a mortgage-focused REIT investing in Agency mortgage-backed securities, multifamily credit, distressed residential loans and related assets. Its financial statements consolidate certain securitization trusts and include their assets and debt.
Financial results and position
| Metric | Q2 2014 / June 30, 2014 | Comparable period / prior year-end |
|---|---|---|
| Interest income | $95.5 million | $68.8 million in Q2 2013 |
| Net interest income | $19.9 million | $13.9 million in Q2 2013 |
| Net income attributable to common stockholders | $30.3 million; $0.34 per share | $11.2 million; $0.19 per share in Q2 2013 |
| Six-month common net income | $51.6 million; $0.63 per share | $26.6 million; $0.49 per share in 2013 |
| Net interest spread | 4.60% | 3.48% in Q2 2013 |
| Cash and cash equivalents | $71.1 million | $31.8 million at December 31, 2013 |
| Total assets / liabilities | $10.24 billion / $9.54 billion | $9.90 billion / $9.42 billion at December 31, 2013 |
| Stockholders’ equity / common book value per share | $694.2 million / $6.83 | $480.7 million equity at December 31, 2013; common book value was $6.33 at that date |
| Cash flow, six months | $16.5 million operating; $52.5 million investing; $(29.6) million financing; cash increased $39.3 million | Operating cash flow $28.2 million in first half 2013 |
Q2 total other income was $20.0 million, including a $20.0 million unrealized gain on multifamily loans and debt held in securitization trusts. Six-month other income included $24.9 million of such unrealized gains and $8.6 million realized gains on distressed residential loans. Results therefore include material fair-value and realized-gain contributions, not solely recurring interest income. The filing does not present a single consolidated operating-margin measure.
Material changes versus comparable periods
- Q2 common earnings rose $19.1 million year over year; six-month common earnings increased $25.0 million. Management attributed higher net interest income largely to portfolio growth and greater allocation to higher-yielding credit-sensitive investments. It reported net interest spread up 112 basis points for Q2 and 102 basis points for the first half versus 2013.
- Management said tighter credit spreads and stronger demand improved valuations of existing credit-sensitive assets, but made new multifamily CMBS and distressed-loan investments less attractive on current returns.
- Common shares outstanding increased to 90.7 million from 64.1 million at year-end, following January and April offerings that generated about $185.7 million net proceeds in total. Weighted-average Q2 shares were 89.7 million versus 59.0 million a year earlier.
- Repurchase-agreement borrowings declined to $668.4 million from $791.1 million at year-end; the weighted-average rate declined to 0.44% from 0.49%. The multifamily CDO balance rose to $8.11 billion from $7.87 billion, principally within consolidated securitizations.
- Common dividends remained $0.27 per share quarterly. The Series B preferred dividend was $0.484375 per share quarterly.
Outlook, risks, contingencies and unusual items
- Management expected modest near-term improvement in single-family housing, but anticipated slowing gains during the remainder of 2014. It planned to remain selective and opportunistic in new credit-sensitive investments and focus on assets where returns depend more on asset selection than leverage.
- Management stated that cash, financing availability and operating cash flows were expected to meet liquidity needs for at least 12 months. This is an expectation, not a guarantee. Short-term, generally uncommitted repo funding exposes the company to renewal, collateral-value and margin-call risk. At June 30, repo borrowings had an average 8.0% haircut; aggregate amount at risk was about $64.7 million.
- Liquidity resources included $71.1 million cash, $156.1 million unencumbered securities and $42.3 million in restricted overnight deposits available for Agency IO portfolio margin calls. A separate $204.6 million payable for securities purchased related to TBA transactions.
- Interest-rate sensitivity estimates showed next-12-month net interest income changes of +$6.1 million for a 100-basis-point rise, +$5.3 million for a 200-basis-point rise, and $(18.9) million for a 100-basis-point decline. Estimated portfolio market value changed $(39.3) million at +100 basis points, $(80.5) million at +200 basis points, and +$19.9 million at −100 basis points. These are model scenarios, not forecasts; management cautioned that actual results may differ.
- Key exposures include interest rates, prepayments (particularly for Agency IOs), credit losses, spread movements, valuation uncertainty in Level 3 assets and liabilities, funding availability, counterparty default, and changes in housing or government policy. The company reported $8.49 billion of Level 3 fair-value assets and $8.11 billion of Level 3 liabilities, primarily tied to consolidated multifamily securitizations.
- Multifamily fair-value gains depended on internal models and significant unobservable inputs. Management noted that assumptions or valuation methods could materially affect reported fair values. The $24.9 million first-half multifamily net unrealized gain was noncash.
- Residential-loan credit indicators included 34 delinquent loans totaling approximately $18.1 million at June 30; 31 loans were at least 90 days delinquent. The allowance was $3.2 million. Distressed-loan results are sensitive to estimates of collections, defaults, collateral values and resolution timing.
- Management reported no material change in previously disclosed risk factors, no material adverse effect expected from current litigation, and no loan repurchases during the first half. Disclosure controls were deemed effective, with no material change in internal control reported.
Important facts for investors to verify
- Confirm the issuer: the filing is for New York Mortgage Trust, Inc., not ADAMAS TRUST, INC.
- Separate recurring net interest performance from fair-value gains, realized loan gains and other potentially variable items; review how much is attributable to consolidated securitization entities.
- Assess dilution from the 2014 equity offerings against per-share earnings, book value and investment returns; verify the reported $6.83 common book value per share.
- Review repo renewal and margin-call exposure, collateral haircuts, liquid resources, TBA obligations and the effect of adverse interest-rate scenarios.
- Examine Level 3 valuation assumptions, multifamily loan performance, distressed-loan recoveries, delinquency trends and allowance adequacy.
- Verify dividend sustainability against recurring earnings, liquidity, REIT distribution requirements and the board’s stated quarterly review.