Adamas Trust's Q3 2025: Contradictions Emerge on Capital Allocation, Agency Exposure, and Leverage

Business Commentary:

* Financial Growth and Earnings Durability: - Adamas Trust reported an EAD (Earnings Available for Distribution) of $0.24 per share for Q3 2025, marking a 6th consecutive quarterly increase. - Growth was driven by a strategic capital rotation strategy into the agency sector, which enhanced liquidity and drove higher earnings.

• Agency Portfolio Expansion:
• The company's Agency RMBS portfolio increased to 57% of total capital, nearly tripling its allocation from a year earlier.

• This expansion was due to a deliberate rotation of capital from multifamily exposure into highly liquid Agency RMBS and other core residential credit strategies.

• Constructive Loan Acquisition and Integration:

• Adamas Trust acquired the remaining 50% interest in Constructive loans, now owning the business purpose loan platform in full.

• The acquisition strengthens Adamas' presence within the housing investment ecosystem, as it expects the national homeownership rate to remain pressured.

• Dividend Increase and Capital Allocation:

• Adamas increased its dividend to $0.23 per share, reflecting the strength of its capital rotation strategy and the Fed's easing cycle.
• The company balanced capital allocation between agency and credit investments, taking a measured approach to agency allocation moving forward.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted EAD (EDA) rose to $0.24/share (vs $0.22 in Q2), a dividend increase to $0.23, record quarterly net investment activity (+$1.8B, 20%), Agency RMBS at 57% of capital (nearly triple vs a year ago), and adjusted book value up ~2.5%–3% quarter‑to‑date.

Q&A:

• Question from Melissa Lobo (UBS): How are developments with the GSEs impacting your capital allocation thinking and what regulatory factors are affecting positioning in the BPL space?
  Response: We're not planning for a removal of the GSE guarantee; while reform could be a tailwind for non‑QM, we run the business without assuming it and remain opportunistic.

• Question from Melissa Lobo (UBS): Why did you acquire the remaining 50% of Constructive and what does that mean for ongoing capital allocation and your ~50% agency target?
  Response: Acquiring 100% gives control of origination, underwriting and distribution to scale Constructive; capital allocation remains opportunistic rather than fixed to a strict agency ratio.

• Question from Melissa Lobo (UBS): Can you provide an update on book value quarter‑to‑date?
  Response: Adjusted book value is up approximately 2.5%–3% as of October 28.

• Question from Bose George (Keefe, Bruyette, & Woods): Is the book value increase driven by agencies, credit, or both?
  Response: Both contributed; rates fell and agency spreads tightened meaningfully while non‑agency/whole‑loan marks improved but to a lesser degree.

• Question from Bose George (Keefe, Bruyette, & Woods): Appropriate leverage for the credit piece after rising to 0.9x from 0.5x, and is agency leverage at a steady run rate?
  Response: Credit leverage will flex with securitization access — below 1x is low and will fluctuate; agency leverage target/comfortable level is ~8x.

• Question from Jason Weaver (JonesTrading Institutional Services, LLC): With agency allocation above target, where will capital from mezz/bridge reductions be deployed and will buybacks increase given the discount?
  Response: Allocation is opportunistic to maximize ROE — can shift to whole loans/Constructive origination; buybacks are a considered, incremental tool but balanced against long‑term capital needs; Q3 favored asset purchases.

• Question from Jason Weaver (JonesTrading Institutional Services, LLC): You noted a 32% payoff on the mezz; will paydown pace remain elevated or normalize (e.g., ~$25M/quarter)?
  Response: Payoff activity may run slightly above historical average in the near term as the portfolio seasons, but long‑term we expect it to trend toward the historical average.

Contradiction Point 1

Capital Allocation and Agency Exposure Target

It involves the company's strategic capital allocation and agency exposure targets, which are crucial for understanding the company's financial strategy and investor expectations.

How are GSE developments affecting capital allocation decisions, and what regulatory factors are impacting your position in the BPL space? - Melissa Lobo (UBS)

2025Q3: We are not planning our business for the full removal of GSE guarantees but acknowledge potential tailwinds in non-QM opportunities if it happens. Constructive would benefit from increased channels, but GSE reform is not our primary focus. We continue running our business as usual. - Jason Serrano(CEO)

Can you explain the equity allocation strategy, particularly regarding agency RMBS and long-term positioning? - Douglas Michael Harter (UBS)

2025Q2: The target equity allocation for agency RMBS is below 50% over time. - Jason T. Serrano(CEO)

Contradiction Point 2

Focus on Agency RMBS and BPLs

It involves shifts in the company's strategic focus and investment priorities, which are crucial for understanding the company's direction and potential growth areas.

Is the book value increase this quarter driven by agencies and credit, or is it primarily driven by one? - Bose George(KBW)

2025Q3: Our core strategies remain focused on Agency RMBS. Within BPLs, we prefer BPL-Rental over BPL-Bridge. - Nick Mah(President)

What is your current capital allocation strategy given market volatility? Is Agency RMBS and BPL still the core, or are you expanding credit investments? - Ameeta Marissa Lobo(UBS)

2025Q1: We see historically wide spreads in Agency RMBS and are excited about potential capital deployment in this asset class. - Nick Mah(President)

Contradiction Point 3

Capital Allocation and Agency Exposure

It involves the company's strategy regarding capital allocation and agency exposure, which are crucial for understanding the company's financial management and risk profile.

Can you elaborate on the decision to buy the remaining 50% of Constructive and its capital allocation implications, particularly the 50% agency exposure target? - Melissa Lobo(UBS)

2025Q3: We are excited about the prospects for the business. We think this acquisition gives us an opportunity to control our own product offerings and really capitalize on the capital allocation we have available. - Jason Serrano(CEO)

Can you outline the key factors driving your fourth quarter financial results and reference the comparative financial section in the supplemental? - Kristine Nario

2024Q4: This quarter, we added $14 million of capital to our agency portfolio and reduced our non-agency portfolio by approximately $20 million. These actions are consistent with our strategy to maintain capital efficiency ratios and to continue to drive towards our target of 50% agency exposure. - Kristine Nario(CFO)

Contradiction Point 4

Impact of GSE Reform on Business Activity

It highlights differing perspectives on how potential GSE reform might influence the company's activities, which could impact strategic planning and investor expectations.

How are GSE developments affecting capital allocation decisions, and what regulatory factors impact your BPL position? - Melissa Lobo(UBS)

2025Q3: Constructive would benefit from increased channels, but GSE reform is not our primary focus. We continue running our business as usual. - Jason Serrano(CEO)

How do changes at FHFA and GSEs impact your business and the mortgage market, given potential GSE reform? - Tim D'Agostino(B. Riley Securities)

2025Q1: Jason Serrano: Changes in the GSE landscape and potential reform may bring higher mortgage rates, liquidity issues, and risk-based pricing changes. However, a full transition to a private system will likely take years. GSE reform is unlikely to significantly influence our activities in the near and medium term. - Jason Serrano(CEO)

Contradiction Point 5

Leverage Levels

It involves the company's strategic approach to leverage, which is a critical factor in assessing the company's financial risk and sustainability.

What is the appropriate level of leverage for the credit and agency sides? - Bose George(KBW)

2025Q3: We prefer to keep credit leverage below 1x due to efficient securitization financing. For agency, we aim to sustain leverage around 8x. - Jason Serrano(CEO)

Are you maintaining leverage targets within established ranges? - Kristine Nario

2024Q4: We maintain our leverage target of 4x to 6x agency exposure and 1x to 1.5x non-agency exposure, and we are pleased that our leverage ratios for both agency and non-agency balances remain within these target ranges. - Kristine Nario(CFO)