Adamas Trust, Inc. Q1 FY2026 earnings call

Macro Environment

• First quarter defined by heightened volatility due to geopolitical developments in the Middle East, affecting rate volatility, spread winding, and monetary policy expectations.
• Positive outlook on broader fixed income environment with Fed bias towards rate cuts later this year, improving technicals for agency MBS, and attractive value in residential credit.

Company Performance

• Delivered strong performance across all aspects of the business, generating meaningful book value growth and solid earnings expansion. Gap earnings per share of 41 cents and EDD of 29 cents per share, a 26% increase from prior quarter.
• GAAP book value increased 4% quarter-to-quarter with adjusted book value of 1.6% supported by stable credit assets, improved profitability at Constructive, positive results and payoffs of mezzanine lending portfolio, and strategic hedges.
• Investment strategy anchored in three core pillars: agency RMBS (56% of equity capital), single-family credit portfolio growth through BPL rental loans and scaled constructive platform, with constructive transitioning to profitability.
• Portfolio investment activity: Deployed over $1 billion in acquisitions in first quarter, with $510 million in agency strategy and $502 million in residential credit (BPL Rental $400 million). Agency portfolio expanded to $6.8 billion, with rotation up the coupon stack to reduce duration. BPL Rental securitization program on pace to issue 5-6 deals this year. Constructive originated $422 million of business-purpose loans in first quarter, with Atomos purchasing approximately two-thirds of production.

Financials

• GAAP net income attributable to common stockholders $36.9 million, or $0.41 per share; earnings available for distribution $0.29 per share, up 26% q-o-q and 45% y-o-y. Gap book value increased 4% to $9.98, adjusted book value rose 1.6% to $10.80.
• Issued $90 million of senior unsecured notes due 2031 and redeemed $100 million senior unsecured notes due 2026 at par, with no near-term corporate debt maturities, maintaining $199 million of available cash and $418 million of total liquidity capacity.

Agency RMBS represents 56% of the equity capital. In the first quarter, GAAP book value increased 4% quarter-to-quarter with adjusted book value of 1.6%. Adjusted net interest income increased to $48.2 million in the first quarter from $46.3 million in the fourth quarter. Net interest spread was at 145 basis points, down from 152 basis points in the fourth quarter. Constructive delivered mortgage banking income of $15.3 million for the quarter, with $9.2 million in gains on residential loans held for sale and $6.1 million in loan origination and other fees. Constructive generated approximately $2.5 million profit for the quarter on a stand-alone basis. BPL Rental remains the largest residential credit asset exposure at $1.8 billion, with minimal tail risks across key credit metrics. The multifamily portfolio had a high annualized payoff rate in the first quarter, and one property sale netted a realized gain of $13.8 million to Adamus.

Forward-looking Statements

• Priorities include EAD growth through scaling constructive platform and loan investment portfolio. Grow book value with disciplined investment selection and active portfolio management. Focus on closing valuation gap of shares with consistent execution and disciplined capital allocation.
• Expect to allocate higher percentage share of capital to BPL rental given its relative value advantage. Anticipate continued agency purchases albeit at a slower pace than in residential credit. Expect heightened resolution activity in multifamily portfolio providing additional capital to reinvest into core strategies. Estimate quarterly GNA ratio to be approximately 7% to 7.5% in 2026 depending on Constructive's origination volume.

Risks

• Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and company's filings with SEC. Amidst softening structural demand for U.S. Treasuries and escalating geopolitical tensions, hedges perform favorably but market conditions can still impact results. Market volatility can affect securitization execution and pricing of BPL rental deals.

Question and Answer

• Q: On EAD trajectory, framework on dividend coverage relative to EAD going forward and if increasing distributions is on the table.

A: Pleased by EAD performance exceeding dividend in first quarter, recognize dividend growth is key priority, focus on sustainably growing earnings while preserving book value, ongoing board discussions regarding distribution rate.

• Q: On book value gain, relative contribution from multifamily sale or strategic hedge performance.

A: Strong quarter across the board, AD at 29 cents up 26% q-o-q reflecting earnings power, benefited from derivative gains (about $87.8 million) and gain on sale of property in multifamily portfolio ($13.8 million attributable to Adamus).

• Q: On book value changes quarter to date and timeline for multifamily portfolio runoff.

A: Estimate book value up between 2% to 2.5% q-t-d. Multifamily portfolio is seasoned, with ability to accelerate maturity through control rights, pre-payment rate accelerating and expected to continue through the year.

• Q: On constructive's quarterly mortgage banking income baseline for rest of year and BPL rental securitizations.

A: Majority of mortgage banking income from gain on sale, goal to increase volume. BPL rental securitizations pricing affected by market movements (rates and spreads), but securitization market well-functioning and strong underwriting quality allowed pricing at tighter end of range.

• Q: On growing volume at constructive, need for more capital or efficiency.

A: Volumes to stabilize and grow, decline in Q1 volume due to aligning credit box with securitization and market expectations. Constructive has strong collateral profile, capital less of a concern, expanding broker and retail origination platforms, improving efficiencies and capital structure. Balance between retaining and selling production: last quarter purchased about two-thirds of production, expect upper end above 50% in next couple of quarters with other strong relationships.