ADAMAS TRUST 2026 THIRD QUARTER CONFERENCE CALL - ADAMAS TRUST INC

Financial Performance:

• Reported GAAP net loss of $171 million ($1.89 per share), primarily driven by $472 million in unrealized mark-to-market losses on agency RMBS and residential loans due to rate volatility.
• Adjusted Book Value per share declined 19.6% to $8.88, though early Q4 trends show a 4% rebound as of October 26.
• Earnings Available for Distribution (EAD) remained strong at $0.30 per share, up 25% year-over-year, covering the dividend for the seventh consecutive quarter.
• Quarterly dividend increased by 11% to $0.30 per share, representing a 13.5% yield on September 30 adjusted book value.
• Adjusted Net Interest Income grew to $51.5 million (up $1.2 million QoQ); Agency segment contributed $39.3 million (up 7%), and Single-family credit contributed $21.3 million (up 4%).
• Total G&A expenses decreased to $24.3 million from $25.6 million in Q2 due to lower compensation and commission expenses.
• Liquidity strengthened with available cash rising 42% to $259 million and total excess liquidity capacity reaching $447 million.
• Leverage ratios were purposefully reduced: Economic recourse leverage fell to 4.8x and Agency recourse leverage to 5.9x (down from 8.3x in Q2).

Guidance and Future Outlook:

• Management expects Q4 earnings to reflect recovery as the book value recaptures Q3 declines; adjusted book value rose ~4% in early Q4.
• Anticipated growth driven by attractive entry prices in Agency RMBS and single-family credit, with expected returns in the mid-to-high teens.
• Guidance suggests capital deployment will initially pivot toward Agency RMBS to restore exposure post-hedge reduction, becoming roughly balanced with credit strategies by Q4.
• Outlook remains positive for Agency securities due to supply-demand imbalances (lower issuance) and stabilized spreads, despite elevated rate environments.
• Management plans to gradually return leverage levels to previous quarters (near 8x for Agency) as tail risks subside and market volatility normalizes.

Business Segments and Product Lines:

• Agency RMBS: Portfolio adjusted to capture higher carry and reduced convexity risk; added $1.2 billion in acquisitions during Q3; held high-quality, prepayment-protected collateral.
• Single-Family Credit: BPL Rental 60-day delinquencies declined 10bps to 1.4%; Constructive Mortgage Banking originated $406 million, with 84% in BPL Rental and 57% purchased by Adamus.
• Constructive Mortgage Banking: Reported a standalone loss of ~$1.7 million due to lower origination volumes, fair value adjustments on rate lock commitments, and a $2.6 million reserve for a legacy isolated borrower issue.
• Non-Core Runoff: Actively managing orderly runoff of BPL Bridge portfolio (down 46% YTD) and Multifamily mezzanine, redeploying capital into higher-return opportunities.
• Securitization: Successfully issued $341 million BPL Rental securitization in Q3 and an additional transaction post-quarter end, financing ~98% of the BPL Rental portfolio with long-term non-recourse capital.
• Capital Markets: Executed an ATM offering raising $4.3 million from 429,000 shares at $10.18 average price, viewed as accretive to book value.

Market and Competitive Landscape:

• Market environment characterized by sharp rate volatility, with the 10-year Treasury rising 82bps to 5.29% and MOVE index hitting ~110.
• Agency MBS spreads widened significantly (107bps to 125bps) due to a feedback loop of volatility, reduced demand, and further spread widening; Q3 was the worst quarter for the Bloomberg US MBS Index since late 2022.
• Mortgage applications down ~21% year-to-date, creating a favorable supply-demand balance for existing Agency securities.
• Constructive Mortgage Banking is gaining market share in BPL Rental by lending competitively while hedging interest rate risk through immediate investor purchase arrangements.
• Securitization markets remain open but wider, with non-agency issuance reaching ~$210 billion YTD, though structures are shifting toward investor-favorable prepayment protections.

Risks and Challenges:

• Market Volatility: Sharp interest rate rises and spread widening caused significant unrealized losses on the Agency portfolio, driven by negative convexity and duration gaps.
• Credit Reserves: One-time $2.6 million reserve established for an isolated legacy borrower relationship from pre-acquisition Constructive loans.
• Geopolitical & Inflation: Prolonged Iran conflict and energy prices pushing inflation higher, keeping long-term rate expectations elevated.
• Liquidity/Margin Calls: Management notes that 98% of BPL Rental portfolio is now financed with non-recourse debt not subject to mark-to-market margin calls, mitigating liquidity risks.
• Hedge Effectiveness: Credit and macro hedges provided less protection in Q3 than in previous quarters.

Management Commentary and Tone:

• Tone was disciplined and rational, framing the Q3 book value decline as a valuation event rather than a distress signal, emphasizing no forced liquidation of core assets.
• Management expressed high confidence in the credit book performance and the long-term earnings power of the Agency portfolio despite temporary dislocations.
• Emphasized the strategic use of TBA shorts to manage tail risk rather than as a sign of portfolio weakness, noting the positions have been largely unwound as volatility receded.
• CFO and CEO highlighted the flexibility of the balance sheet to capitalize on the current "attractive entry levels" created by market repricing.

Analyst Questions and Answers:

• Timing of Losses: Nick Ma confirmed the majority of the book value decline occurred in September before the TBA shorts were fully established, with re-hedging occurring throughout the quarter.
• Hedge Strategy: Management clarified that while TBA shorts were reduced by ~76% post-quarter, the firm will remain dynamic, maintaining tighter duration gaps and using futures/credit hedges due to unresolved geopolitical inflation risks.
• Leverage Capacity: Jason Serrano confirmed that the leverage reduction was a deliberate risk management move; leverage will return to prior levels as TBA shorts are removed and book value recovers.
• Securitization Spreads: Timothy D'Agostino asked about the 67bps widening in the Oct BPL deal; Management attributed it primarily to baseline rate increases, noting the net financing spread remained competitive.
• Legacy Reserve Issue: Doug Harder inquired about the reserve; Christine Neria confirmed it was a one-off issue regarding pre-acquisition loans, covered largely by an existing indemnification holdback.

Other Key Points:

• The company successfully maintained its dividend coverage despite a GAAP loss, demonstrating the resilience of its recurring earnings model.
• A significant portion of the $2.9 billion TBA short position (23% of gross portfolio) was established as a tactical defense against spread widening and convexity risk, which has since proven effective as the market stabilized.
• Management is actively widening the duration gap on the Agency portfolio back to ~0.6 years (from 0.3 years at quarter-end) as market conditions normalize.
• The company has no financial covenants breached and cash balances were unaffected by the unrealized mark-to-market losses.