管理層發言
Good morning, and welcome to the Third Quarter 2025 Earnings Call for Adamas Trust. A press release and supplemental financial presentation with Adamas Trust's Third Quarter 2025 results was released yesterday. Both the press release and supplemental financial presentation are available on the company's website at www.adamasreit.com. Additionally, we are hosting a live webcast of today's call, which you can access in the Events and Presentations section of the company's website. At this time, management would like me to inform you that certain statements made during the conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Adamas Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the Securities and Exchange Commission. Now at this time, I would like to introduce Jason Serrano, Chief Executive Officer. Jason, please go ahead.
Good morning. Joining me today to describe our third quarter results are Nick Mah, President; and Kristine Nario, CFO. Kristine will provide commentary on quarterly results, and Nick will follow with an update on the progress of our business plan. Before we begin, I want to thank you for being part of our first earnings call as Adamas Trust. Our company rebranding reflects a broader strategic vision, moving beyond any geographic affiliation. The name Adamas, meaning firm, unbreakable, and lasting, symbolizes a vision of strength and durability that guides our company's future. We fully embrace this theme as the third quarter marked a strategically significant period for Adamas. Earning assets rose to $0.24 per share for the quarter compared with $0.22 in Q2, marking our sixth consecutive quarterly increase. This consistent earnings growth supported a meaningful dividend increase to $0.23 per share, which highlights the strength of our capital rotation strategy into a period where the Fed restarted its easing cycle in September with a 25 basis point cut, its first rate reduction in 2025.
As treasury yields declined in the quarter across the curve with a steepening bias as inflation moderated, we took a more aggressive path to increase exposure to the agency sector. In fact, the third quarter included the highest level of quarterly net investment activity in the company's history with an increase of $1.8 billion or 20%. The strong momentum led by disciplined and deliberate rotation of our capital from multifamily exposure into highly liquid Agency RMBS and other core residential credit strategies positioned our balance sheet for greater earnings durability and long-term shareholder value. We ended the quarter with Agency RMBS representing 57% of total capital, nearly tripling our capital allocation from a year earlier. This rotation was designed to enhance liquidity and drive higher earnings for distribution, attractive market spreads. We are pleased with the high-quality portfolio we have aggregated over the past two years.
As announced on our previous earnings call, we also strengthened our position within the housing investment ecosystem in the third quarter by acquiring the remaining 50% interest in Constructive loans, a leading business purpose loan platform. With housing affordability near historical lows and supply constraints persisting, we expect the national homeownership rate to remain pressured, gradually reverting from the mid-60s percent range today towards the level last seen three decades ago. We view this dynamic as a long-term opportunity, creating a sustained tailwind for business purpose lending. Adamas is committed to realizing the constructive full potential and translating that growth into lasting value for our stockholders. We are encouraged by the strong results of the strategic pivot we made a couple of years ago to strengthen earnings stability, evident in the continued expansion of our Agency RMBS portfolio and the compelling growth trajectory of Constructive's origination business.
We continue to believe Adamas equity represents a compelling value opportunity as shares trade at a meaningful discount of 30% of adjusted book value. Considering the adjusted book value of just Adamas' Agency RMBS position alone, our shares are still discounted by 17% to this holding. We believe this clearly highlights the depth and durability of value embedded within our platform. After a historically active quarter for Adamas, the momentum generated to further advance earnings assets in the fourth quarter is obtainable given a full quarter of interest income that we can generate. We look forward to further demonstrating Adamas' value with continued improvement to our recurring earnings. At this time, I'll pass the call over to Kristine to provide our third quarter financial highlights.
Thank you, Jason, and good morning, everyone. I'll cover the key factors behind our third quarter financial results. Overall, the third quarter marked another period of strong earnings growth and balance sheet expansion. As Jason noted, we increased our investment portfolio to $10.4 billion from $8.6 billion last quarter. This growth, along with continued rotation into interest-earning assets, drove the 9% sequential increase in earnings assets per share. Adjusted net interest income per share rose 7% quarter-over-quarter and 47% year-over-year to $0.47, reflecting our continued investment in agency securities, partially offset by higher corporate debt interest expense from the senior unsecured notes issuance in July. Our net interest spread remained stable at 150 basis points, reflecting the offsetting impact of lower financing costs and a decline in asset yields. We improved our average financing cost by 15 basis points benefiting from lower base rates and more favorable securitization financing following the redemption of higher-cost securitizations.
Meanwhile, our yield on average interest-earning assets declined by 15 basis points, reflecting our continued emphasis on lower-yielding agency securities and business purpose loan rental loans relative to shorter duration business purpose loan bridge loans. During the quarter, we recorded $54.9 million in net unrealized gains, primarily driven by improved valuations in our Agency RMBS and residential loan portfolios. These gains were partially offset by $13 million of losses on derivative instruments, primarily interest rate swaps, and $5.6 million of realized losses mainly related to conversions of residential loans into foreclosed properties that remain on our balance sheet as well as short payoffs on nonperforming business purpose loan bridge loans. Importantly, the realized losses on the residential loans were fully offset by the reversal of previously recognized unrealized losses on the same assets, resulting in minimal total P&L impact.
As Jason discussed earlier, we completed the acquisition of the remaining 50% interest in Constructive, giving us full ownership of this leading business purpose loan originator. For the quarter, Constructive generated $14.1 million in mortgage banking income related to origination and sale activity and incurred $3.8 million in direct loan origination costs and $8 million in direct G&A expenses, resulting in a $2.3 million return. On a consolidated basis, the Constructive segment reported a net loss of $3.8 million, reflecting the transitional integration costs and allocations that we expect to decline over time. As integration progresses and efficiencies are realized, we believe Constructive is positioned to become a meaningful driver of earnings growth. General and administrative expenses increased during the quarter from $23.3 million from $11.8 million, primarily due to the consolidation of Constructive and higher incentive compensation accrual.
Portfolio operating expenses declined, reflecting lower servicing fees on our business purpose loan bridge portfolio as balances continue to decline. We also incurred $7.9 million of nonrecurring costs related to the issuance of senior unsecured notes and two residential loan securitizations, which were fully expensed during the quarter due to our fair value election. GAAP and adjusted book value per share ended the quarter at $9.20 and $10.38, respectively, representing increases of 1% and 1.2% compared to June 30. Our recourse leverage ratio increased to 5x and portfolio recourse leverage to 4.7x, up from 3.8x and 3.6x, respectively, primarily reflecting financing activity to support Agency RMBS acquisitions, the consolidation of Constructive and the issuance of senior unsecured notes. Portfolio recourse leverage on our credit and other investments increased to 0.9x from 0.5x, driven by lower equity allocation.
Overall, our strategic repositioning has strengthened our ability to generate consistent recurring income. With continued balance sheet growth and the integration of Constructive, we remain focused on delivering sustained earnings growth and stable returns for our stockholders. With that, I'll turn it over to Nick for a market and strategy update.
Thanks, Christine. This quarter, we achieved a record level of investment activity for the firm, surpassing the previous high reached in the first quarter. In total, we acquired $2.3 billion of residential investments, primarily concentrated in Agency RMBS and whole loans. Within our core strategies, we deployed $1.8 billion in Agency RMBS, $260 million in business purpose loan rental, and $262 million in business purpose loan bridge. During the quarter, we had meaningful inflows of capital from multiple sources, which we channeled towards funding our elevated investment volume. Key sources of this capital include $115 million baby bond issuance in July, two securitizations executed at competitive advance rates and asset resolutions across both our core and non-core portfolios. Following the quarter's acquisitions, our overall investment portfolio has risen above $10 billion. Strong and sustained asset growth over the past few quarters have contributed to steadily increasing recurring earnings.
This has culminated in a key milestone of raising our dividend. With a solid base of productive assets, our goal of continued portfolio expansion will power future earnings growth. Interest rate volatility has declined steadily since April, serving as a major tailwind for agency spreads. This was especially pronounced in the third quarter as current coupon agency spreads tightened by 20 basis points to 126 basis points. While agency spreads to treasuries have normalized over the quarter, agency spreads to swaps have tightened but still remain compelling by historical standards. After a record quarter of agency purchases, our agency portfolio currently stands at $6.7 billion. Despite the increased pace of investments, agency leverage has declined from 8.6x to 7.8x. In terms of portfolio construction, we have continued to target 5 and 5.5 coupon spec pools with lower pay-ups. Given the mix of current purchases, the average coupon of our agency portfolio declined slightly from 5.59% to 5.51% in the quarter.
Going forward, we plan to target production coupons to maintain a modest carry and lower duration profile. In the third quarter, we surpassed our 50% target capital allocation to agencies. Since the first quarter of 2023, we strategically built and scaled our Agency RMBS portfolio, capitalizing on attractive spread levels while achieving broad diversification from our credit assets. Today, with spreads tighter and the portfolio more balanced between agencies and credit, we intend to take a more measured approach to agency allocation in the future. Our expectation is that while agency allocation will continue to grow in the near term, it will come at a more deliberate pace. The residential securitization markets were highly active in the third quarter with $57 billion worth of issuance. Strong investor appetite supported steady deal flow across the full spectrum of residential credit, tightening spreads and maintaining a well-functioning market throughout the quarter.
Against this backdrop, Adamas successfully priced two securitizations. The first was a $370 million relevered securitization of reperforming and performing loans. And the second was a $275 million securitization of business purpose loan rental loans. We achieved attractive pricing and structure for both deals. During the quarter, AAA spreads in business purpose loan rental and in broader non-QM securitizations tightened by 10 to 20 basis points to around 130 basis points, providing a favorable environment of continued deal issuance for the rest of the year. This securitization market supports our expanding whole loan activity and strengthens the strategic fit of Constructive to our business. Business purpose loan rental has grown to our largest concentration of residential credit exposure at $1.16 billion, reflecting a 24% quarter-over-quarter growth. This remains our core strategy with the greatest growth potential as Adamas sources the majority of its business purpose loan rental loans from Constructive.
In aggregate, 98% of our business purpose loan rental loans have prepayment penalties to help mitigate the negative convexity of the portfolio. We also prioritize acquiring loans with strong debt service coverage ratios, targeting property-related cash flow coverage as a buffer against credit deterioration. Our credit selection criteria remain restrictive on business purpose loan rental loans with debt service coverage ratios less than 1, with only 1% of our business purpose loan rental loan portfolio falling into that category. Overall, our business purpose loan rental strategy continues to perform well with 60-plus days delinquencies hovering at 1.3%. We see the potential for this asset class to outperform across a range of economic outcomes. The business purpose loan bridge market remains highly competitive. Robust securitization markets have enabled new market entrants and repeat issuers to access debt capital through revolving bond structures.
This increased capital availability, coupled with increasing investor demand, has intensified competition for assets within the business purpose loan bridge market. This has, in turn, applied pressure to both purchase volumes and available pass-through rates. Maintaining our credit selection standards, we have intentionally reduced acquisition volumes ahead of our revolving securitizations exiting their reinvestment periods in 2026. In the quarter, the business purpose loan bridge portfolio declined by 4% to $919 million. As the business purpose loan bridge portfolio shrinks, we are actively working to reduce delinquent loan exposure while maintaining disciplined credit standards to exclude outlier risk profiles on our go-forward purchases. We expect that near-term business purpose loan bridge allocations will continue to decline, and we will deploy recycled capital to Agency RMBS or business purpose loan rental.
We maintain flexibility to increase portfolio exposure if more favorable market conditions return. Within our multifamily segment, as Christine noted, we successfully completed the exit of our joint venture portfolio during the quarter. The full wind down of the joint venture equity book allows our multifamily team to focus exclusively on advancing the resolution of our mezzanine lending portfolio. Performance metrics remain strong with occupancy rates at 92% and only one asset in the portfolio that is nonperforming. The mezzanine portfolio generated a 32.4% payoff rate in the quarter, well above the historical average of 25.8%. We expect payoff activity to continue as the portfolio continues to season. Finally, we are pleased to announce the successful integration of Constructive into Adamas in the third quarter. The Constructive business has not missed a step. Origination volumes remained strong through the transition, reaching $439 million in the third quarter, 9% higher than the prior quarter.
Originations over the last 12 months were heavily weighted towards business purpose loan rental loans, comprising 94% of total production with business purpose loan bridge accounting for the remaining share. Given the strength of the securitization market, competition for loans are more pronounced. Our near-term objectives are to continue prioritizing origination quality by enhancing underwriting standards and streamlining origination processes while maintaining a diversified distribution network. In the quarter, Adamas purchased less than half of Constructive's originations, demonstrating the continuation of Constructive's broad market access. We expect Constructive to play an increasingly important role in Adamas' profitability and strategic positioning in 2026 and beyond. I will now turn the call back to the operator for Q&A.
Our first question comes from Melissa Lobo with UBS, who is representing Doug Harter today. Could you please discuss how recent developments with the GSEs are influencing your approach to capital allocation? Additionally, what regulatory factors are shaping your position in the business purpose loan space?
Thank you for the question. Overall, there has been significant discussion about GSE reform and its potential impact on the entire sector. Every part of the mortgage sector, especially in the non-QM area, could benefit greatly from this. However, we maintain a balanced perspective on what those opportunities might look like for our company, considering the complexities surrounding the full removal of the guarantee and its effects on credit availability for the mortgage sector and borrowers nationwide. The administration aims to enhance housing affordability and lower rates, which may actually be undermined by the removal of the guarantee. Therefore, we are continuing to operate our business without specifically planning for that scenario. However, if it occurs, we recognize that there could be advantages, particularly in the non-QM segment, allowing us to tap into many new channels. Still, we don’t view this as a primary opportunity for us at this time.
Could you elaborate on the decision to acquire the remainder of the origination constructive and how that impacts ongoing capital allocation? I believe you mentioned a 50% target for the agency. How should we view that moving forward? Yes. So the opportunity for us was we first initially took the first 50% was to really understand the business. It was a slow approach to full acquisition, but we wanted to look at how the market was developing, and this was multiple years ago on the opportunity. So the advancement of the full acquisition of the company was a result of seeing some long-term tailwinds that would help Constructive growth, particularly in homeownership rates and affordability, et cetera. The other side was we really want to step in a position to control the outcomes of origination and product development. Taking 100% of the business was a function of controlling some of the underwriting aspects as well as distribution.
So in that end, we thought it would be necessary to take that, and we saw a great opportunity in origination volume to increase, particularly with capitalizing the company through Adamas. So we think it's an excellent opportunity. We believe there's lots of new development and products that could be offered through the company. We think we have an excellent management team, an experienced management team that's been looking at non-QM and business purpose lending opportunities for over a decade. So we're excited to take the next step with Constructive.
分析師問答
Great. And if you could just provide an update for us on how book value is faring quarter-to-date?
Sure. As of October 28, we see adjusted book value up somewhere between 2.5% to 3%.
Actually, just one follow-up on the book value question. Is the increase coming from both sides this quarter, the agencies and credit, or more on one versus the other?
It's coming from both sides. We have seen as of October 28 that rates have generally decreased. Spreads on the agency side have narrowed. On the non-agency or whole loan side, they have also narrowed, but not to the same extent. Overall, we are observing positive trends on both sides.
Okay. Great. And then in terms of leverage, your leverage on the credit side remains low, but it went up to 0.9 from 0.5. What's an appropriate level of leverage for that piece? And then on the agency side, is the leverage kind of where the run rate there is kind of where it is this quarter?
Yes. We view leverage as a balance with the opportunities available to us. Accessing the securitization market is essential, and our leverage will vary depending on how accessible it is and our progress with our debt service coverage ratio. You may notice fluctuations related to the timing of those securitizations. We consider a leverage level below 1x to be quite low for a credit REIT in general. We aim to use securitization markets as a primary financing source for our credit portfolio over the long term, and you can expect us to continue on this path. It serves as an efficient model for financing and generating returns on equity from our home loan position. What was the second part of your question?
On the agency side, the leverage should be expected to kind of remain roughly the same.
Yes. The leverage on the agency side, we're looking to keep that around 8x. And so this is a comfortable level for us.
Given Nick's comments that capital allocated to agencies is above target and will be more measured ahead, what are you thinking as possible avenues for deployment for the capital coming back from the mezzanine and bridge investments? And would share repurchase become a bigger part of the strategy given the discount?
Yes. So on the capital allocation side, we saw a tremendous opportunity in the quarter to advance our balance sheet with respect to the agency book. We were looking for certain events to happen for some spread tightening. We saw that there's still a depth of supply in the Agency RMBS market against pretty robust demand in the market for the asset. So ROE still remained above 15%, which is accretive for many avenues of capital. Therefore, we took part of that story in the quarter with historic purchases for the company. Going forward, with agency spreads now below 120 basis points, the opportunity is more balanced between what we see in the credit side and agency side. Again, we're looking to maximize ROE based on the availability of the opportunity. We're not wedded to a certain ratio of agency versus credit on our balance sheet. It's very much opportunistic. To the extent that we see spreads continue to tighten on the agency side, we will look to allocate more on the whole loan side of the equation.
In particular, we're excited about the advancement of Constructive and seeing higher origination volumes there, and we think there are avenues to increase it from here. So that's going to be a focal point for us as well. On the share repurchase side, in the last two quarters, we did access that and did look to take advantage of where our shares trade in the market at a discount. But I would say we think of it as an incremental investment strategy as like another avenue to allocate capital. We are very conscious about the equity shrinkage caused by the repurchase and not being able to produce long-term returns on that capital that's been used for repurchases. So we balance that with the opportunity. Again, last two quarters, first quarter and second quarter, we took advantage of that. In this quarter, third quarter, with our historic purchases in the market, we thought that the balance went to the asset portfolio. So it's something that's considered, but we do look at the long-term impact of taking our capital and removing it with the share repurchase versus the asset opportunity.
Got it, and just to clarify the size of the paydown on the mezzanine, which you mentioned is 32%. Do you expect that to remain elevated going forward? Will it be a more muted pace, or should we still anticipate about $25 million coming back each quarter?
I think that the historical average is a good barometer. I think we may trend slightly higher as the seasoning of the portfolio starts to take hold and also the continued conversations that our team has with the various borrowers. But I think from a long term, I don't expect that the long-term average is going to be too different. However, for the next few quarters, it may be a little bit higher.
I'm showing no further questions at this time. I'd like to turn it back to Jason Serrano for closing remarks.
Yes. Thank you for joining us this morning. We look forward to discussing our fourth quarter results with you in February. Have a great day.
Thank you for your participation in today's conference. This concludes the program. You may now disconnect.