Q3 2025 Adamas Trust Earnings Call

Speaker #2: Good morning ladies and gentlemen , and thank you for standing by . Welcome to the Adams Trust , third quarter 2020 results conference call .

Speaker #2: During today's presentation , all parties will be in a listen only mode . Following the presentation , the be open for questions . If you have a question , please press the star followed by one one on your touchtone phone .

Speaker #2: If you'd like to withdraw your question, please press star one one again. If you're using speaker equipment, we do ask that you please lift the handset before making your selection.

Speaker #2: This conference is being recorded on Thursday , October 30th , 2025 . I would now like to turn the call over to Kristi Mussallem Investor Relations .

Speaker #2: Please go ahead .

Speaker #3: Good morning and welcome to the Third Quarter 2020 earnings Call for Adam Trust . A press release and supplemental financial presentation with Adam Trust's third quarter 2020 results was released yesterday .

Speaker #3: Both the press release and supplemental financial presentation are available on the company's website at . 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 .

Speaker #3: 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 .

Speaker #3: Although Adams 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 .

Speaker #3: 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 .

Speaker #3: Now , at this time , I would like to introduce Jason Serrano chief Executive officer Jason , please go ahead .

Speaker #4: Good morning . Joining me today to describe our third quarter results are Nick Ma , president and Kristine Nario CFO . Christine will provide commentary on quarterly results , and Nick will follow with an update on the progress of our business plan .

Adjusted net interest income per share Rose 7%, quarter over quarter, and 47% year-over-year to 47 cents reflecting our continued investment in agency securities.

partially offset by higher corporate, debt interest expense from the senior unsecured notes is shown in July

Our net interest, spread remains stable at 150 basis, points reflecting the offsetting impact of lower financing costs and the 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 BPL, rental loans, relative to Shorter duration, BPL Bridge loans.

during the quarter, we recorded 54.9 million in

Net unrealized gains primarily driven by improved valuations in our agency rnbs and residential loan portfolios.

These gains were partially offset by 13. Million of losses on derivative instruments primarily interest rates swaps and 5.6 million of real life losses, mainly related to conversions of residential loans into foreclosed properties, remain on, our balance sheet, as well as short payoffs and non-performing, BPL, Bridge loans.

Patient 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, construct of generated, 14.1 million and Mortgage Banking income related, to origination and sale activity and incurred 3.8 million in direct loan, origination costs, and 8 million in direct GNA expenses. Resulting in a 2.3 million return

On a Consolidated basis that 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 instructive is positioned to become a meaningful driver of earnings growth.

G&A expenses, increase during the quarter from 23.3 million from 11.8 million primarily due to the consolidation of constructive and higher incentive compensation approval.

Portfolio, operating expenses decline, reflecting lower servicing fees on our BPL Bridge portfolio as balances continue to decline.

We also encourage 7.9 million of non-recurring costs related to the issuance of senior unsecured notes and 2 residential loan securitizations, which were fully expensed during the quarter due to our fair value election.

Gap and adjusted book value per share at the end of the quarter were $9.20 and $10.38, respectively. This represents increases of 1% and 1.2% compared to June 30.

Our records leverage ratio, increase to 5 times and portfolio recourse. Leverage to 4.7 times up from 3.8 times and 3.6 times respectively primarily reflecting financing activity to support agency. Rmbs Acquisitions, the consolidation of constructive and the issuance of senior unsecured notes.

Portfolio recourse leverage and our credit and other Investments. Increased to 0.9 times from 0.5 times 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 and 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, rnbs and hellos.

Within our core strategies, we deployed 1.8 billion in agency, rnbs, 260 million in BPL, rental, and 262 million in BPL Bridge.

During the quarter, we had meaningful inflows of capital from multiple sources, which we Channel towards funding. Our elevated investment volume.

Key sources of this Capital include 115 million baby. Bond issuance, in July 2, security, and executed at competitive. Advanced 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 dollars.

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 rates and volatility have 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 Titan by 20 basis points to 126 basis points,

While agencies 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 are agency. Portfolio. Currently stands at 6.7 billion.

Despite the

increased pace of Investments agency. Leverage has declined from 8.6 times to 7.8 times.

In terms of portfolio construction, we have continued to Target, 5, and 5, and a half. Coupon spec, pools with lower payoffs.

9% 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 Spritz 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.

Residential securitization markets were highly active in the third quarter with 57 billion dollars 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 2 security visions.

The first was a 370 million relever securitization of re-performing and Performing loans.

And the second was a 275 million securitization of BPL, rental loans.

We achieved attractive pricing and structure for both deals.

During the quarter AAA spreads in BPL, rental. And in broader, non-qm securitization 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.

BPL 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 his BPL, rental loans, from constructive,

In aggregate 98% of our BPL, rental loans have prepayment penalties to help mitigate the negative convexity of the portfolio.

We also prioritize acquiring loans with strong dscr ratios.

Targeting property related cash flow coverage as a buffer against credit deterioration.

Our credit selection criteria remains restrictive on DPL. Rental loans with dcr's less than 1.

With only 1% of our BPL rental loan portfolio, falling into that category.

Overall, our BPL rental strategy, continues to perform well with 60 plus days. Delinquency is, hovering at 1.3%.

We see the potential for this asset class to outperform across a range of economic outcomes.

The BPL Bridge Market remains highly competitive.

Robust securitization markets have enabled, New Market, entrants, and repeat, issuers to access that Capital through revolving Bond structures.

This increased Capital availability, coupled with increasing. Investor demand has intensified competition for assets within the BPL 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, the reinvestment periods in 2026.

In the quarter, the BPL Bridge portfolio declined by 4% to 919 million.

As the BPL break, portfolio shrinks we are actively working to reduce delinquent loan exposure, while maintaining discipline credit standards to exclude outlier risk profiles on our go forward purchases.

We expect that near-term, BPL, bridge allocations will continue to decline.

And we will deploy and recycle Capital to agency rnbs or BPL rental.

We maintain flexibility to increase portfolio exposure. If more favorable market conditions return,

Within our multi family segment. As Christine noted, we successfully completed the exit of our joint venture portfolio during the quarter.

The full wind down of the JV Equity book, allows our multifamily team to focus exclusively on advancing. The resolution of our mezzanine lending portfolio.

With occupancy rates and 92% and only 1 asset in the portfolio that is non-performing.

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 atomists in the third quarter.

The constructive business has not missed a step.

Origination volumes remain 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 BPL, rental loans. Comprising, 94% of total production with BPL 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, originations demonstrating the continuation of constructive broad Market access.

We expect constructive to play an increasingly important role in Adams's, profitability and strategic positioning in 2026 and Beyond.

I will now turn the call back to the operator for Q&A.

At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced to withdraw your question. Please. Press star 1 1 again.

Please stand by while we compile the Q&A roster.

Our first question comes from Doug Carter with UBS. Please go ahead.

Good morning. It's Ashley Melissa Lobo on for Doug today. Um I was hoping you could talk to us about how, you know, developments with the gsc's are impacting your thinking around capital allocations and what are some of the regulatory factors that are impacting how you position in the, in the BPL space?

Yeah, thank you for the question. So I think overall, um,

You know, there's been a lot of talk about uh, you know, GS to reform. What that could mean for the sector as a whole. Um, I think every component of the mortgage uh, sector particularly in the 9q space. Um, has you know, we create a massive Tailwind for for opportunities. Um, however, I think that, you know, we're more balanced on what we think that opportunity would look like for the company, um, given that, you know, that there's a lot needs to happen for, you know, a full, um, uh, you know, uh, removal of the guarantee, uh, and what that would do to, you know, the The credibility to, um, the mortgage check there and borrow the United States. Um, you know, we know the ministrations goal is to reduce, uh, increase of the housing affordability and re reduce rates and I think that would go, uh, in the opposite direction. Uh, with a guarantee that has been removed. So I think overall, um, you know, we're continuing to run our business. Um, without you know, planning for that particular event to happen.

However, we know if it does, there's there will be a Tailwind, um, particularly in areas, um, you know, in the non-qm space, uh, you know, constructive, uh, we believe would be able to access many new channels in that, uh, that situation. But again, you know, that that's not something that we see as being a, you know, a primary opportunity for us at the moment.

The color on great. Thank you. And and just if you could expand on, you know, the decision to buy the rest of the originated constructive. Um, and what, what that means for ongoing Capital, allocation, I think you mentioned a 50% Target right to agency, still? Um, how how does that, you know, how should we think about that going forward?

And so the, the taking the 100% of the business was uh, was a function of of, you know, controlling some of the underwriting aspects, um, as well as distribution. So, uh, in that end, uh, we thought it would be necessary to take that and also we, we saw, uh, you know, uh, great opportunity and origination volume to increase. Um, particularly with, you know, capitalizing the company, um, you know, throughout this. So, uh, we think it's an excellent opportunity. We think there's lots of, um, new development and products that could be offered through the company. Uh, we think we have, uh, an excellent management team and experienced management team that's been, uh, looking at non-qm and uh, and and, you know, BPL opportunities for, you know, over a decade. So, um, we are, we're excited, uh, to take the next step with with constructive.

Great. Thank you.

Just provide an update for us on how book value is hearing quarter to date.

Sure. Uh as of October 28th, uh we see adjusted Book value up somewhere between 2.5% to 3%.

Thank you very much.

Thank you.

Our next question comes from Bose George with KBW. Please go ahead.

Hey everyone, good morning. Um actually just want to follow up on the book, value question. You know is the increase coming from both sides? This quarter, the agencies and credit or more on 1 with the versus the other

Uh, it's, it's coming from, it's coming from both sides. We have seen, uh, thus far, as of October 28th that rates have come down generally, uh, spreads have on the agency side, have have come in on the non agency or hole in side. Has come in, but not as much. But overall uh positive Trends on both sides.

Okay, great thanks. And then in terms of Leverage, you know your leverage on the credit side, you know, remains low, but it went up to 0.9 from 0.5 was an appropriate level of Leverage for that piece. And then on the agency side is leverage kind of you know, where the Run rate there is 7. You know, kind of the where, where does this quarter

Yeah, so, uh, the way we think about leverage is, um, you know, balancing it with the opportunity that we have. And, you know, as we mentioned, you know, accessing the security market to us is important. So, the leverage will ebb and flow based on the accessibility, um, and our ramp, uh, with respect to our DSCR, uh, channels. And, um, so you would see it bounce around a little bit, um, you know, due to the, you know, the timing of those securities.

um, we think you know below 1 time is is is actually quite low for uh, you know, just a credit read in general and um, you know, we we've

Uh, looked to utilize Asian markets. Um, as a primary source of financing for our our, our credit book uh over the long term and you know, you should expect us to continue doing uh utilizing that path. Um and so in that end, it's a pree efficient model for us to to finance to generate Roe our home loan position.

Um, and what was the second part of your question? Um, on the agency side, The Leverage which should be expected to kind of remain roughly the same.

Yeah, the The Leverage in on the agency side, you know, it it, um, you know, we we're looking to keep that, you know, around 8 times and uh, so this is, you know, a comfortable level for us.

Okay, great. Thanks.

Our next question comes from Jason Weaver with Jones Trading. Please go ahead.

Hey guys. Good morning. Thanks for taking my question.

Uh, given Nick's comments that Capital allocated to agencies above Target and will be more measured ahead. Uh, what are you? Thinking is possible evidence for deployment for the capital coming back from the mes and Bridge Investments and would share repurchase become a bigger part of the strategy, given the discount.

The opportunity is more balanced uh between what we see in the credit side and agency side. Um, again you know we're we're looking to maximize Roe based on availability of of the opportunity. We're not wedded to a certain ratio of agency versus credit honor, balance sheet. It's all it's very much opportunistic, um, to the extent that, you know, we see, you know, spreads continue to tighten in on agency side. Um, and, you know, we will, uh, look, uh, to, uh, look look to allocate more on the, the hole on side of the equation. And particular, you know, we're excited about the advancement of constructive and, um, and seeing a higher uh, uh, origination volumes there. And we think there's Avenues to increase it from here. So, um, you know, that's going to be a focal point for us as well. Um, the share repurchase side, you know, in the last 2 quarters we did access that. And and did look to um take advantage of where our uh shares traded in the Market at a discount. But you know I would say you know it it we think of it as an incremental level

Of investment strategies. Just like, you know, another Avenue to allocate Capital. Um, you know, we are very conscious about the the equity, uh, shrinkage caused by the repurchase and not being able to, you know, produce long-term, uh, um, you know, uh, Returns on that Capital that's been, uh, used for repurchases. So we balanced that with the opportunity again. Last 2 quarters, uh, first quarter second quarter. We took advantage of that uh in this quarter third quarter. Uh we we, you know, with our historic purchases in the market. We thought that

Um, you know, the balance went to the the asset portfolio. So, you know, it's something that's considered. Um, but we do look at the long-term impact of, you know, taking our uh, capital and um, and and, and, and removing it, you know, with with the Sherry purchase versus the asset opportunity.

Got it. Thank you. Um, and then just to clarify, you know, with the size of the I think you said 32% pay down on the meds, um, and you expect that to remain elevated going forward. Is it a more muted Pace or are we still looking at, you know, 25 or or so million coming back every quarter.

I I think that the historical average is is a good barometer. I think we made Trend uh slightly higher as uh the seasoning of the portfolio starts to take hold and also uh the continued conversations that are our team has with with the various borrowers, but I think from a long time, I I don't expect that. The long-term average is is going to be, uh, in the future once everything's resolved. It's going to be 2 different. Uh, but for the next 3, quarters, it may be a little bit higher.

Got it. All right, I appreciate the color guy.

Thank you. 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 a fourth quarter results with you. In February, have a great day.

Thank you for your participation in today's conference.