ADAMAS TRUST, INC. (ADAM) stock intrinsic value fair value estimate & owner earnings analysis

WHAT THE BUSINESS IS Adamas Trust (formerly New York Mortgage Trust) is a mortgage real estate investment trust. At the end of 2025 it owned $6.9 billion of mortgage securities, mostly guaranteed by government agencies, and $4.4 billion of residential loans. It paid for them mainly with $6.8 billion of short-term repurchase and warehouse borrowing, $2.4 billion of loan securitizations, $360 million of senior notes and $45 million of subordinated debentures, plus preferred stock carried at $540 million. Its own loan book (excluding loans held in the Freddie Mac securitizations it consolidates) had $3.2 billion of unpaid principal: $1.53 billion of rental loans to property investors, $828 million of short-term bridge loans to investors who renovate and resell homes, $543 million of performing home loans and $332 million of re-performing loans. In July 2025 it bought the rest of Constructive Loans, which originates investor loans and then sells or keeps them. The company earns the gap between what its assets yield and what its borrowing and preferred stock cost, minus overhead and minus loans that go bad. Recourse borrowing rose from 3.0 times equity at the end of 2024 to 5.0 times at the end of 2025. HOW WE MEASURED EARNINGS We started from cash from operations. We took out working-capital timing, stock compensation, upkeep spending on the remaining rental properties and the dividends on the preferred stock, which are paid before common shareholders. We charged the write-down of premiums the company pays above face value on bonds and loans, because that money is lost as borrowers repay. We also counted the cash the company receives on interest-rate swaps that hedge its borrowing cost as earnings. This is a lender, so we now also deduct the losses it actually takes when loans go bad. Cash from operations does not show these, because the principal comes back (or fails to come back) through investing cash flows. We count as credit losses the net realized losses on its residential loans and foreclosed homes (payoffs below cost, foreclosure and resale losses, sales of non-performing loans, loan charge-offs) and credit write-downs on non-agency mortgage bonds. Gains on loans paid off early are netted against these within the same year; in a year with a net gain we deduct nothing, and we never add the gain. We do not count losses from selling Treasury or agency bonds, write-downs of agency interest-only strips (which lose value when borrowers refinance), swap terminations, paper price changes on loans still held, or the forced sales of March 2020. Those come from interest-rate and funding swings, not from borrowers failing to pay, and we carry them in the bear case instead. We also leave out the real estate write-downs of $89.5 million in 2023 and $48.9 million in 2024, mostly on the apartment joint ventures, a strategy the company has exited, and carry that history in the bear case. Credit losses deducted on this basis were zero from 2016 through 2022, when payoff gains on loans bought at a discount exceeded losses. They were $14.4 million in 2023, $29.3 million in 2024 and $30.7 million in 2025, mostly losses on foreclosed homes and discounted payoffs of non-performing bridge loans. Owner earnings per common share (adjusted for the 2023 one-for-four reverse split) were: 2016 $0.77, 2017 $0.37, 2018 $0.78, 2019 $0.94, 2020 $0.38, 2021 $0.54, 2022 -$0.05, 2023 -$0.60, 2024 -$0.73, 2025 $0.40. The ten-year median is about $0.39. That decade includes the zero-rate years, the 2020 funding crisis and the 2022-2024 rate shock and apartment write-downs, so we treat it as a full cycle. Our earlier estimate did not deduct loan losses. Doing so lowers 2025 from $0.73 to $0.40 a share and lowers every case below. WHAT IS CHANGING Total assets were $12.6 billion at the end of 2025 and $13.0 billion at June 30, 2026. Net interest income was $98.6 million in the first half of 2026, against $69.5 million a year earlier, and cash from operations was $89.2 million against $65.0 million. Credit losses have not eased: from the filed figures we estimate about $18 million of realized losses on loans and foreclosed homes in the first half of 2026, about the same as in the first half of 2025. The loss-prone bridge book shrank from $1.18 billion to $828 million of principal during 2025, while rental loans roughly doubled. At June 30, 2026, common equity was about $932 million, or about $10.37 a share, behind $540 million of preferred stock. THE RECORD ON CAPITAL This business has repeatedly lost shareholder capital in funding and rate shocks. In 2020 it sold about $2.5 billion of assets, mostly in response to the market disruption in the first half of that year. It lost $61.5 million on securities sales, $73.1 million on swap terminations, $54.1 million on the sale of its multi-family first-loss securities and $18.1 million on loan sales. From 2022 to 2024 came the rate shock and the apartment write-downs. Nothing like a brand or a cost advantage protects its returns once the current portfolio rolls over, so every case lets earnings fade in the long run. BASE CASE - $5.76 per share Before credit losses, we estimate the current portfolio earns about $80 million a year for common shareholders, roughly $0.87 a share. That reflects the first-half 2026 pace of net interest income, less the cash from apartment investments that are being sold off. Take away credit losses of about $33 million a year, in line with 2024, 2025 and the first half of 2026, and owner earnings are about $0.51 a share in 2026 and $0.50 in 2027. From 2028 to 2035 we assume $0.42, as a normal cycle in mortgage spreads pulls earnings back toward the ten-year median. After 2035, earnings fade 3% a year, in line with the company's record of losing capital per share. Growth check: owner earnings went from -$0.73 to +$0.40 a share in 2025. Our 2026 figure of $0.51 is a far smaller step, and it rests on the larger portfolio already on the balance sheet, where net interest income was up 42% in the first half. No case assumes the balance sheet grows beyond its June 2026 size, so no case has to hold back capital to fund growth. The company keeps rolling its repurchase and securitization debt, so no debt is subtracted. BEAR CASE - $1.66 per share Credit losses rise to about $43 million in 2026 as more non-performing bridge loans are resolved, cutting owner earnings to $0.40. Tighter spreads take earnings to $0.30 in 2027 and 2028. In 2029 comes a funding or spread shock like those of 2020 and 2022, and this company has lived through two in six years. At 5 times recourse leverage with preferred stock ranking first, the whole loss falls on common shareholders. We model a loss year of -$0.60 a share, the same as 2023. Earning power afterward is cut to $0.15 a share, much as 2020 cut 2019's $0.94 to $0.38, with a 6% yearly fade after 2035. As happened in 2020, the company survives and keeps rolling its debt, so no debt is subtracted. Common shareholders are left with a much smaller claim, but the company is still worth more than it owes. BULL CASE - $11.05 per share Earnings before credit losses hold near the first-half 2026 pace of about $95 million a year. Credit losses ease to about $22 million as the bridge book keeps shrinking, since it fell 30% in 2025, and the rental loans that replace it season. Owner earnings hold near $0.78-0.80 a share through 2035 and fade 2% a year afterward. We did not include the balance sheet growing further, because that would need new capital. Debt is rolled, not subtracted. WHAT THE SHARES APPEAR TO BE WORTH Our central value of about $5.76 is well below the $10.37 book value per share. Over a full cycle, and after the loans that go bad, this business has earned only about $0.39 a share a year on roughly $10 of equity. Credit losses falling back toward the near-zero levels of 2016-2022 while earnings held near the first-half 2026 pace would point to the bull case. Another margin-call episode at today's higher leverage would push value toward the bear case. WHAT WE COULD NOT RECONCILE The half-year filings do not separate loan-sale timing at Constructive from swap receipts, so 2026 is estimated from full-year patterns and the first-half income figures. The company also owns the first-loss pieces of Freddie Mac securitizations, carried at $151.5 million at the end of 2025. Losses on the loans behind them show up only as changes in the value of those pieces, not as realized losses, so they are not in our credit-loss figures. About 10% of those underlying loans were 90 or more days delinquent at the end of 2025. MARGIN-OF-SAFETY PRICE $3.00, about 48% below the base case. The margin is wide because of the leverage, the rising credit losses on bridge loans, the history of lost capital and the preferred stock ranking ahead of common. At that price, base-case owner earnings of about $0.51 would be a yield of roughly 17%.