Adamas Q3 Book Value Drops as Rate Volatility Hits Agency Mortgage Assets

Adamas Trust Inc. (NASDAQ: ADAM) reported a sharp decline in third-quarter 2026 book value as rising interest rates and wider mortgage spreads reduced the valuation of its Agency mortgage securities, outweighing gains from hedging positions. The mortgage REIT recorded a GAAP loss attributable to common stockholders of $171.0 million, or $1.89 per share, while non-GAAP earnings available for distribution remained sufficient to cover its higher quarterly dividend.

GAAP book value fell 21.9% from the previous quarter to $7.93 per share at September 30, while adjusted book value declined 19.6% to $8.88 per share. Including the $0.30-per-share dividend, the company generated a negative quarterly economic return of 19.0%, or negative 16.9% based on adjusted book value.

The valuation decline reflected $471.9 million of net unrealized losses, primarily from the effect of higher interest rates on Agency residential mortgage-backed securities and residential loans. Those losses were partly offset by $299.0 million of net gains on derivatives, including interest-rate swaps and U.S. Treasury futures.

Adamas said it responded to market volatility by using short positions in to-be-announced Agency securities to reduce spread and convexity exposure. The company had $2.86 billion of TBA short positions at quarter-end. By October 26, it had cut those positions by approximately $2.2 billion, or 76%, reflecting management’s assessment that tail risks from Agency mortgage spread widening had receded.

Distributable earnings cover increased dividend

Earnings available for distribution, a non-GAAP measure, totaled $27.0 million, or $0.30 per share, compared with $0.30 per share in the second quarter and $0.24 a year earlier. The result matched the third-quarter common dividend of $0.30 per share, which increased 11.1% sequentially and marked the seventh consecutive quarter in which EAD covered the payout.

GAAP net interest income decreased 2.8% from the second quarter to $48.8 million. Adjusted net interest income rose 2.4% to $51.5 million, supported by continued growth in Agency investments and business-purpose rental loans. That growth was partially offset by runoff in business-purpose bridge loans and multifamily investments, as well as higher interest expense following the issuance of senior unsecured notes.

The company’s non-GAAP net interest spread narrowed to 1.40% from 1.48% in the prior quarter. Yields on average interest-earning assets declined as the portfolio shifted away from higher-yielding bridge and multifamily assets toward lower-yielding Agency securities and U.S. Treasury investments. Average financing costs were unchanged at 4.55%.

Mortgage banking income declined to $10.9 million from $16.2 million in the second quarter. Adamas attributed the decrease to lower origination volume, reduced valuations of interest-rate lock commitments and business-purpose rental loans, and an increase in Constructive Loans’ repurchase reserve for legacy loans made to one borrower before Adamas acquired the platform. A $1.5 million release from an acquisition-related indemnification holdback partially offset the reserve increase.

Agency and rental-loan investments drive activity

Adamas acquired $1.55 billion of single-family investments during the quarter, including $1.2 billion of Agency assets and $390 million of business-purpose loans. After acquisitions, repayments, valuation changes and the TBA short positions, the investment portfolio stood at approximately $9.6 billion at quarter-end.

The portfolio included $4.89 billion of net Single-Family Agency exposure and $2.54 billion of business-purpose rental loans. The rental-loan portfolio’s unpaid principal balance increased to $2.57 billion from $2.28 billion in the second quarter. Loans more than 60 days delinquent represented 1.4% of that portfolio, compared with 1.5% in the prior quarter. Adamas said 98% of rental loans had loan-to-value ratios below 80%, while 99% had debt-service coverage ratios above 1.0 times.

Constructive originated $406 million of business-purpose loans during the quarter, down from $428 million in the second quarter. Rental loans accounted for 84% of originations and bridge loans for 16%. The company said all third-quarter originations were covered by purchase arrangements designed to establish future trading prices shortly after borrowers locked their rates.

The business-purpose bridge portfolio continued to run off as competition compressed yields. Its unpaid principal balance declined to $440 million from $540 million in the second quarter and $919 million a year earlier. Adamas said it is reallocating capital from that portfolio toward opportunities in its core strategies.

The multifamily portfolio had an asset value of $162 million and a third-quarter annualized payoff rate of 55%. Management expects redemptions to continue, providing capacity to rotate capital into higher-yielding investments.

Liquidity supports further deployment

Adamas ended the quarter with $447 million of excess liquidity capacity, consisting of $259 million of available cash and an estimated $188 million of additional financing capacity for unencumbered or under-levered assets. The company’s non-GAAP portfolio economic recourse leverage ratio declined to 4.4 times from 5.2 times, while its Agency portfolio ratio fell to 5.9 times from 8.3 times. The quarter-end net TBA short position reduced those leverage measures.

During the quarter, Adamas completed a $341 million rental-loan securitization, a $115 million re-securitization of non-Agency RMBS and a $90 million offering of 9.600% senior unsecured notes due in 2031. After quarter-end, it issued another $313 million rental-loan securitization with a 6.40% effective cost.

Management said the repricing of mortgage assets had created attractive investment opportunities and indicated that Adamas would continue deploying capital in its core strategies while maintaining disciplined portfolio management. The company also highlighted risks from further interest-rate and spread volatility, changes in prepayment and credit performance, leverage and liquidity exposure, financing availability, collateral impairment, and the ongoing integration and operation of Constructive.