Ellington Financial Inc. Reports First Quarter 2024 Results
Highlights
-
Net income attributable to common stockholders of
$26.9 million , or$0.32 per common share.1-
$43.0 million , or$0.51 per common share, from the investment portfolio.-
$40.9 million , or$0.48 per common share, from the credit strategy. -
$2.1 million , or$0.03 per common share, from the Agency strategy.
-
-
$8.7 million , or$0.10 per common share, from Longbridge.
-
-
Adjusted Distributable Earnings2 of
$23.7 million , or$0.28 per common share. -
Book value per common share as of
March 31, 2024 of$13.69 , including the effects of dividends of$0.43 per common share for the quarter. -
Dividend yield of 13.3% based on the
May 6, 2024 closing stock price of$11.71 per share, and monthly dividend of$0.13 per common share declared onMay 7, 2024 . -
Recourse debt-to-equity ratio3 of 1.8:1 as of
March 31, 2024 , adjusted for unsettled purchases and sales. Including all non-recourse borrowings, which primarily consist of securitization-related liabilities, debt-to-equity ratio of 8.3:14. -
Cash and cash equivalents of
$187.5 million as ofMarch 31, 2024 , in addition to other unencumbered assets of$544.5 million .
First Quarter 2024 Results
"Steady performance from our non-QM and residential transition loan businesses, together with strong returns from our secondary CLO, CMBS, and non-Agency RMBS portfolios, drove
"We continue to focus on deploying the uninvested capital we held at year end following the closing of the Arlington merger. Our credit portfolio grew sequentially during the first quarter, driven by an expanding RTL portfolio and opportunistic CLO purchases. We also grew our commercial mortgage bridge loan portfolio, after five consecutive quarters of payoffs exceeding new originations in that portfolio. With borrowers finally more realistic about commercial real estate property valuations, we are seeing strong origination flow from our affiliate Sheridan, which has also sourced two NPLs for us so far in 2024.
"We also achieved some key portfolio objectives during the quarter. First, we successfully completed our inaugural securitization of proprietary reverse mortgage loans from Longbridge, thereby converting repo financing into term, non-mark-to-market financing at attractive terms. We expect that this securitization marks the beginning of an ongoing program for our proprietary reverse mortgage business, similar to the program we have established in our non-QM businesses. Second, we continued to cull lower-yielding securities from our portfolio, selling Agency and non-Agency RMBS and CMBS in order to free up capital for higher yielding opportunities. The culling of these securities, which are generally financed with higher leverage, drove down our overall leverage ratios, despite the capital deployment mentioned above.
"Following quarter-end, we completed our first non-QM securitization of the year, taking advantage of the tightest yield spreads we've seen in the past two years, and booking a significant gain as a result.
"We continue to work hard to get more fully invested in our higher-yielding strategies, drive origination profits at Longbridge, and work through the few sub-performing loans in our commercial bridge loan portfolio, as we build back up Adjusted Distributable Earnings. We continue to be patient on deployment, balancing the dual goals of growing earnings in the near term while preserving dry powder to capitalize on opportunistic situations as they arise."
Financial Results
Investment Portfolio Summary
Our investment portfolio generated net income attributable to common stockholders of
Credit Performance
Our total long credit portfolio, excluding non-retained tranches of consolidated non-QM securitization trusts, increased to
Strong net interest income5 and net gains on non-Agency RMBS, interest rate hedges, and investments in loan originators drove the positive results in the credit strategy in the first quarter. These gains were partially offset by net losses on credit hedges, negative operating income on certain commercial non-performing mortgage loans and REO, and net losses on residential REO liquidations. We also had a net loss on the Great Ajax common shares we had purchased in connection with last year's terminated merger, which was partially offset by a net gain on the fixed payer interest rate swap hedges that we hold against those shares.
In addition, we saw a further uptick in delinquencies in our residential and commercial mortgage loan portfolios, and while those portfolios continue to experience low levels of realized credit losses and strong overall credit performance, we are monitoring developments closely and diligently working out a handful of non-performing commercial mortgage assets. Loans in non-accrual status, as well as negative operating income on certain REOs, continued to weigh on our Adjusted Distributable Earnings during the quarter.
During the quarter, the net interest margin6 on our credit portfolio increased to 2.86% from 2.66%, driven by higher asset yields, partially offset by a higher cost of funds. We continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate.
Agency Performance
Our total long Agency RMBS portfolio decreased by 22% quarter over quarter to
Despite lower interest rate volatility during the quarter, Agency RMBS lagged a broader rally in credit as market consensus for the timing of the first
Average pay-ups on our specified pools increased to 0.89% as of
During the quarter, the asset yields on our Agency RMBS increased while our borrowing costs were roughly unchanged. At the same time, we continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate, and the impact of this benefit increased quarter over quarter. As a result, the net interest margin5 on our Agency RMBS, excluding the Catch-up Amortization Adjustment, increased to 1.50% from 0.69% quarter over quarter.
Longbridge Summary
Our Longbridge portfolio generated net income attributable to common stockholders of
Our Longbridge portfolio, excluding non-retained tranches of a consolidated securitization trust, decreased by 20% sequentially to
Corporate/Other Summary
Our results for the quarter also reflect a net loss, driven by the increase in interest rates, on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured long-term debt and our preferred equity, partially offset by a net gain on our senior notes, also driven by the increase in interest rates.
____________________ | ||||
1 |
Includes |
|||
2 |
Adjusted Distributable Earnings is a non-GAAP financial measure. See "Reconciliation of Net Income (Loss) to Adjusted Distributable Earnings" below for an explanation regarding the calculation of Adjusted Distributable Earnings. |
|||
3 |
Excludes |
|||
4 |
Excludes |
|||
5 |
Excludes any interest income and interest expense items from interest rate hedges, net credit hedges and other activities, net. |
|||
6 |
Net interest margin represents the weighted average asset yield less the weighted average secured financing cost of funds on such assets. It also includes the effect of actual and accrued periodic payments on interest rate swaps used to hedge the assets. |
|||
7 |
HMBS assets are consolidated for GAAP reporting purposes, and HMBS-related obligations are accounted for on the balance sheet as secured borrowings. The fair value of HMBS assets less the fair value of the HMBS-related obligations approximate fair value of the HMBS MSR Equivalent. |
Credit Portfolio(1)
The following table summarizes our credit portfolio holdings as of
|
|
|
|
|
||||||||
($ in thousands) |
|
Fair Value |
|
% |
|
Fair Value |
|
% |
||||
Dollar denominated: |
|
|
|
|
|
|
|
|
||||
CLOs(2) |
|
$ |
59,243 |
|
1.4 |
% |
|
$ |
33,920 |
|
0.8 |
% |
CMBS |
|
|
22,393 |
|
0.5 |
% |
|
|
45,432 |
|
1.1 |
% |
Commercial mortgage loans and REO(3)(4) |
|
|
366,320 |
|
8.7 |
% |
|
|
330,296 |
|
7.9 |
% |
Consumer loans and ABS backed by consumer loans(2) |
|
|
83,194 |
|
2.0 |
% |
|
|
83,130 |
|
2.0 |
% |
Other loans and ABS(5) |
|
|
19,674 |
|
0.5 |
% |
|
|
10,314 |
|
0.3 |
% |
Corporate debt and equity and corporate loans |
|
|
31,140 |
|
0.8 |
% |
|
|
29,720 |
|
0.7 |
% |
Debt and equity investments in loan origination-related entities(6) |
|
|
35,967 |
|
0.9 |
% |
|
|
38,528 |
|
0.9 |
% |
Non-Agency RMBS |
|
|
210,132 |
|
5.0 |
% |
|
|
253,522 |
|
6.1 |
% |
Non-QM loans and retained non-QM RMBS(7) |
|
|
1,989,390 |
|
47.3 |
% |
|
|
2,037,914 |
|
48.9 |
% |
Residential transition loans and other residential mortgage loans and REO(3) |
|
|
1,199,246 |
|
28.5 |
% |
|
|
1,113,816 |
|
26.8 |
% |
Forward MSR-related investments |
|
|
160,009 |
|
3.8 |
% |
|
|
163,336 |
|
3.9 |
% |
Non-Dollar denominated: |
|
|
|
|
|
|
|
|
||||
CLOs(2) |
|
|
5,496 |
|
0.1 |
% |
|
|
4,234 |
|
0.1 |
% |
Corporate debt and equity |
|
|
185 |
|
— |
% |
|
|
189 |
|
— |
% |
RMBS(8) |
|
|
20,423 |
|
0.5 |
% |
|
|
19,674 |
|
0.5 |
% |
Total long credit portfolio |
|
$ |
4,202,812 |
|
100.0 |
% |
|
$ |
4,164,025 |
|
100.0 |
% |
Less: Non-retained tranches of consolidated securitization trusts |
|
|
1,407,035 |
|
|
|
|
1,424,804 |
|
|
||
Total long credit portfolio excluding non-retained tranches of consolidated securitization trusts |
|
$ |
2,795,777 |
|
|
|
$ |
2,739,221 |
|
|
(1) |
This information does not include |
|
(2) |
Includes equity investments in securitization-related vehicles. |
|
(3) |
In accordance with |
|
(4) |
Includes equity investments in unconsolidated entities holding commercial mortgage loans and REO. |
|
(5) |
Includes equity investment in an unconsolidated entity which purchases certain other loans for eventual securitization. |
|
(6) |
Includes corporate loans to certain loan origination entities in which we hold an equity investment. |
|
(7) |
Retained non-QM RMBS represents RMBS issued by non-consolidated Ellington-sponsored non-QM loan securitization trusts, and interests in entities holding such RMBS. |
|
(8) |
Includes an equity investment in an unconsolidated entity holding European RMBS. |
Agency RMBS Portfolio
The following table(1) summarizes our Agency RMBS portfolio holdings as of
|
|
|
|
|
||||||||
($ in thousands) |
|
Fair Value |
|
% |
|
Fair Value |
|
% |
||||
Long Agency RMBS: |
|
|
|
|
|
|
|
|
||||
Fixed rate |
|
$ |
609,806 |
|
92.0 |
% |
|
$ |
798,211 |
|
93.5 |
% |
Floating rate |
|
|
5,043 |
|
0.8 |
% |
|
|
5,130 |
|
0.6 |
% |
Reverse mortgages |
|
|
36,912 |
|
5.6 |
% |
|
|
37,171 |
|
4.4 |
% |
IOs |
|
|
10,811 |
|
1.6 |
% |
|
|
12,712 |
|
1.5 |
% |
Total long Agency RMBS |
|
$ |
662,572 |
|
100.0 |
% |
|
$ |
853,224 |
|
100.0 |
% |
(1) |
This information does not include |
Longbridge Portfolio
Longbridge originates reverse mortgage loans, including home equity conversion mortgage loans, or "HECMs," which are insured by the FHA and which are eligible for inclusion in GNMA-guaranteed HECM-backed MBS, or "HMBS." Upon securitization, the HECMs remain on our balance sheet under GAAP, and Longbridge retains the mortgage servicing rights associated with the HMBS, or the "HMBS MSR Equivalent." Longbridge also originates "proprietary reverse mortgage loans," which are not insured by the FHA, and Longbridge has typically retained the associated MSRs. We have securitized some of the proprietary reverse mortgage loans originated by Longbridge, and we have retained certain of the securitization tranches in compliance with credit risk retention rules. The following table(1) summarizes loan-related assets in the Longbridge segment as of
|
|
|
|
|
||||
|
|
(In thousands) |
||||||
HMBS assets(2) |
|
$ |
8,713,835 |
|
|
$ |
8,511,682 |
|
Less: HMBS liabilities |
|
|
(8,619,463 |
) |
|
|
(8,423,235 |
) |
HMBS MSR Equivalent |
|
|
94,372 |
|
|
|
88,447 |
|
Unsecuritized HECM loans(3) |
|
|
111,617 |
|
|
|
102,553 |
|
Proprietary reverse mortgage loans(4) |
|
|
365,372 |
|
|
|
329,575 |
|
Reverse MSRs |
|
|
29,889 |
|
|
|
29,580 |
|
Unsecuritized REO |
|
|
2,228 |
|
|
|
2,219 |
|
Total |
|
|
603,478 |
|
|
|
552,374 |
|
Less: Non-retained tranches of consolidated securitization trust |
|
|
(162,482 |
) |
|
|
— |
|
Total, excluding non-retained tranches of consolidated securitization trust |
|
$ |
440,996 |
|
|
$ |
552,374 |
|
(1) |
This information does not include financial derivatives or loan commitments. |
|
(2) |
Includes HECM loans, related REO, and claims or other receivables. |
|
(3) |
As of |
|
(4) |
Includes |
The following table summarizes Longbridge's origination volumes by channel for the three-month periods ended
($ In thousands) |
|
|
|
|
||||||||||||
Channel |
|
Units |
|
New Loan
|
|
% of New
|
|
Units |
|
New Loan
|
|
% of New
|
||||
Retail |
|
381 |
|
$ |
51,639 |
|
25 |
% |
|
363 |
|
$ |
47,868 |
|
18 |
% |
Wholesale and correspondent |
|
983 |
|
|
153,246 |
|
75 |
% |
|
1,223 |
|
|
214,314 |
|
82 |
% |
Total |
|
1,364 |
|
$ |
204,885 |
|
100 |
% |
|
1,586 |
|
$ |
262,182 |
|
100 |
% |
(1) |
Represents initial borrowed amounts on reverse mortgage loans. |
Financing
Our recourse debt-to-equity ratio3 decreased to 1.8:1 at
The following table summarizes our outstanding borrowings and debt-to-equity ratios as of
|
|
|
|
|
||||||
|
|
Outstanding
|
|
Debt-to-
|
|
Outstanding
|
|
Debt-to-
|
||
|
|
(In thousands) |
|
|
|
(In thousands) |
|
|
||
Recourse borrowings(3)(4) |
|
$ |
2,996,346 |
|
1.9:1 |
|
$ |
3,510,945 |
|
2.3:1 |
Non-recourse borrowings(4) |
|
|
10,188,612 |
|
6.6:1 |
|
|
9,847,903 |
|
6.4:1 |
Total Borrowings |
|
$ |
13,184,958 |
|
8.5:1 |
|
$ |
13,358,848 |
|
8.7:1 |
Total Equity |
|
$ |
1,553,156 |
|
|
|
$ |
1,535,612 |
|
|
Recourse borrowings excluding |
|
|
|
1.8:1 |
|
|
|
2.0:1 |
||
Total borrowings excluding |
|
|
|
8.3:1 |
|
|
|
8.4:1 |
(1) |
Includes borrowings under repurchase agreements, other secured borrowings, other secured borrowings, at fair value, and unsecured debt, at par. |
|
(2) |
Recourse and overall debt-to-equity ratios are computed by dividing outstanding recourse and overall borrowings, respectively, by total equity. Debt-to-equity ratios do not account for liabilities other than debt financings. |
|
(3) |
Excludes repo borrowings at certain unconsolidated entities that are recourse to us. Including such borrowings, our debt-to-equity ratio based on total recourse borrowings is 2.0:1 and 2.4:1 as of |
|
(4) |
All of our non-recourse borrowings are secured by collateral. In the event of default under a non-recourse borrowing, the lender has a claim against the collateral but not any of the other assets held by us or our consolidated subsidiaries. In the event of default under a recourse borrowing, the lender's claim is not limited to the collateral (if any). |
The following table summarizes our operating results by strategy for the three-month period ended
|
|
Investment Portfolio |
|
Longbridge |
|
Corporate/
|
|
Total |
|
Per
|
||||||||||||||||||
(In thousands except per share amounts) |
|
Credit |
|
Agency |
|
Investment
|
|
|
|
|
||||||||||||||||||
Interest income and other income (1) |
|
$ |
84,269 |
|
|
$ |
7,069 |
|
|
$ |
91,338 |
|
|
$ |
12,132 |
|
|
$ |
1,877 |
|
|
$ |
105,347 |
|
|
$ |
1.24 |
|
Interest expense |
|
|
(43,121 |
) |
|
|
(9,763 |
) |
|
|
(52,884 |
) |
|
|
(8,558 |
) |
|
|
(4,597 |
) |
|
|
(66,039 |
) |
|
|
(0.77 |
) |
Realized gain (loss), net |
|
|
(6,379 |
) |
|
|
(12,154 |
) |
|
|
(18,533 |
) |
|
|
— |
|
|
|
— |
|
|
|
(18,533 |
) |
|
|
(0.22 |
) |
Unrealized gain (loss), net |
|
|
3,466 |
|
|
|
797 |
|
|
|
4,263 |
|
|
|
(8,356 |
) |
|
|
1,829 |
|
|
|
(2,264 |
) |
|
|
(0.03 |
) |
Net change from reverse mortgage loans and HMBS obligations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27,515 |
|
|
|
— |
|
|
|
27,515 |
|
|
|
0.32 |
|
Earnings in unconsolidated entities |
|
|
2,226 |
|
|
|
— |
|
|
|
2,226 |
|
|
|
— |
|
|
|
— |
|
|
|
2,226 |
|
|
|
0.03 |
|
Interest rate hedges and other activity, net(2) |
|
|
8,259 |
|
|
|
16,123 |
|
|
|
24,382 |
|
|
|
15,712 |
|
|
|
(5,538 |
) |
|
|
34,556 |
|
|
|
0.41 |
|
Credit hedges and other activities, net(3) |
|
|
(4,449 |
) |
|
|
— |
|
|
|
(4,449 |
) |
|
|
(592 |
) |
|
|
— |
|
|
|
(5,041 |
) |
|
|
(0.06 |
) |
Income tax (expense) benefit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(61 |
) |
|
|
(61 |
) |
|
|
— |
|
Investment related expenses |
|
|
(2,973 |
) |
|
|
— |
|
|
|
(2,973 |
) |
|
|
(10,263 |
) |
|
|
— |
|
|
|
(13,236 |
) |
|
|
(0.16 |
) |
Other expenses |
|
|
(170 |
) |
|
|
— |
|
|
|
(170 |
) |
|
|
(18,836 |
) |
|
|
(11,413 |
) |
|
|
(30,419 |
) |
|
|
(0.36 |
) |
Net income (loss) |
|
|
41,128 |
|
|
|
2,072 |
|
|
|
43,200 |
|
|
|
8,754 |
|
|
|
(17,903 |
) |
|
|
34,051 |
|
|
|
0.40 |
|
Dividends on preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,654 |
) |
|
|
(6,654 |
) |
|
|
(0.08 |
) |
Net (income) loss attributable to non-participating non-controlling interests |
|
|
(185 |
) |
|
|
— |
|
|
|
(185 |
) |
|
|
(38 |
) |
|
|
(4 |
) |
|
|
(227 |
) |
|
|
— |
|
Net income (loss) attributable to common stockholders and participating non-controlling interests |
|
|
40,943 |
|
|
|
2,072 |
|
|
|
43,015 |
|
|
|
8,716 |
|
|
|
(24,561 |
) |
|
|
27,170 |
|
|
|
0.32 |
|
Net (income) loss attributable to participating non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(255 |
) |
|
|
(255 |
) |
|
|
— |
|
Net income (loss) attributable to common stockholders |
|
$ |
40,943 |
|
|
$ |
2,072 |
|
|
$ |
43,015 |
|
|
$ |
8,716 |
|
|
$ |
(24,816 |
) |
|
$ |
26,915 |
|
|
$ |
0.32 |
|
Net income (loss) attributable to common stockholders per share of common stock |
|
$ |
0.48 |
|
|
$ |
0.03 |
|
|
$ |
0.51 |
|
|
$ |
0.10 |
|
|
$ |
(0.29 |
) |
|
$ |
0.32 |
|
|
|
||
Weighted average shares of common stock and convertible units(4) outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
85,269 |
|
|
|
||||||||||||
Weighted average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
84,468 |
|
|
|
(1) |
Other income primarily consists of rental income on real estate owned, loan origination fees, and servicing income. |
|
(2) |
Includes |
|
(3) |
Other activities include certain equity and other trading strategies and related hedges, and net realized and unrealized gains (losses) on foreign currency. |
|
(4) |
Convertible units include |
The following table summarizes our operating results by strategy for the three-month period ended
|
|
Investment Portfolio |
|
Longbridge |
|
Corporate/
|
|
Total |
|
Per
|
||||||||||||||||||
(In thousands except per share amounts) |
|
Credit |
|
Agency |
|
Investment
|
|
|
|
|
||||||||||||||||||
Interest income and other income (1) |
|
$ |
74,769 |
|
|
$ |
11,580 |
|
|
$ |
86,349 |
|
|
$ |
10,930 |
|
|
$ |
1,996 |
|
|
$ |
99,275 |
|
|
$ |
1.38 |
|
Interest expense |
|
|
(43,503 |
) |
|
|
(12,923 |
) |
|
|
(56,426 |
) |
|
|
(7,819 |
) |
|
|
(3,454 |
) |
|
|
(67,699 |
) |
|
|
(0.94 |
) |
Realized gain (loss), net(2) |
|
|
(19,064 |
) |
|
|
(11,075 |
) |
|
|
(30,139 |
) |
|
|
(27 |
) |
|
|
28,175 |
|
|
|
(1,991 |
) |
|
|
(0.03 |
) |
Unrealized gain (loss), net |
|
|
28,364 |
|
|
|
57,043 |
|
|
|
85,407 |
|
|
|
15,661 |
|
|
|
(5,604 |
) |
|
|
95,464 |
|
|
|
1.32 |
|
Net change from reverse mortgage loans and HMBS obligations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
28,903 |
|
|
|
— |
|
|
|
28,903 |
|
|
|
0.40 |
|
Earnings in unconsolidated entities |
|
|
2,547 |
|
|
|
— |
|
|
|
2,547 |
|
|
|
— |
|
|
|
— |
|
|
|
2,547 |
|
|
|
0.04 |
|
Interest rate hedges and other activity, net(3) |
|
|
(20,238 |
) |
|
|
(30,067 |
) |
|
|
(50,305 |
) |
|
|
(25,684 |
) |
|
|
9,730 |
|
|
|
(66,259 |
) |
|
|
(0.92 |
) |
Credit hedges and other activities, net(4) |
|
|
(4,525 |
) |
|
|
— |
|
|
|
(4,525 |
) |
|
|
— |
|
|
|
1,463 |
|
|
|
(3,062 |
) |
|
|
(0.04 |
) |
Income tax (expense) benefit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(129 |
) |
|
|
(129 |
) |
|
|
— |
|
Investment related expenses |
|
|
(3,169 |
) |
|
|
— |
|
|
|
(3,169 |
) |
|
|
(6,386 |
) |
|
|
— |
|
|
|
(9,555 |
) |
|
|
(0.13 |
) |
Other expenses(5) |
|
|
(1,877 |
) |
|
|
— |
|
|
|
(1,877 |
) |
|
|
(18,940 |
) |
|
|
(37,352 |
) |
|
|
(58,169 |
) |
|
|
(0.81 |
) |
Net income (loss) |
|
|
13,304 |
|
|
|
14,558 |
|
|
|
27,862 |
|
|
|
(3,362 |
) |
|
|
(5,175 |
) |
|
|
19,325 |
|
|
|
0.27 |
|
Dividends on preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,104 |
) |
|
|
(6,104 |
) |
|
|
(0.08 |
) |
Net (income) loss attributable to non-participating non-controlling interests |
|
|
(586 |
) |
|
|
— |
|
|
|
(586 |
) |
|
|
6 |
|
|
|
(5 |
) |
|
|
(585 |
) |
|
|
(0.01 |
) |
Net income (loss) attributable to common stockholders and participating non-controlling interests |
|
|
12,718 |
|
|
|
14,558 |
|
|
|
27,276 |
|
|
|
(3,356 |
) |
|
|
(11,284 |
) |
|
|
12,636 |
|
|
|
0.18 |
|
Net (income) loss attributable to participating non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(139 |
) |
|
|
(139 |
) |
|
|
— |
|
Net income (loss) attributable to common stockholders |
|
$ |
12,718 |
|
|
$ |
14,558 |
|
|
$ |
27,276 |
|
|
$ |
(3,356 |
) |
|
$ |
(11,423 |
) |
|
$ |
12,497 |
|
|
$ |
0.18 |
|
Net income (loss) attributable to common stockholders per share of common stock |
|
$ |
0.18 |
|
|
$ |
0.20 |
|
|
$ |
0.38 |
|
|
$ |
(0.04 |
) |
|
$ |
(0.16 |
) |
|
$ |
0.18 |
|
|
|
||
Weighted average shares of common stock and convertible units(6) outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
72,136 |
|
|
|
||||||||||||
Weighted average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
71,338 |
|
|
|
(1) |
Other income primarily consists of rental income on real estate owned, loan origination fees, and servicing income. |
|
(2) |
In Corporate/Other, represents the |
|
(3) |
Includes |
|
(4) |
Other activities include certain equity and other trading strategies and related hedges, and net realized and unrealized gains (losses) on foreign currency. |
|
(5) |
In Corporate/Other, includes Arlington merger-related expenses of |
|
(6) |
Convertible units include |
About
Conference Call
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A dial-in replay of the conference call will be available on
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should," "would," "could," "goal," "objective," "will," "may," "seek" or similar expressions or their negative forms, or by references to strategy, plans, or intentions. Forward-looking statements are based on our beliefs, assumptions and expectations of our future operations, business strategies, performance, financial condition, liquidity and prospects, taking into account information currently available to us. These beliefs, assumptions, and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations and strategies may vary materially from those expressed or implied in our forward-looking statements. The following factors are examples of those that could cause actual results to vary from our forward-looking statements: changes in interest rates and the market value of our investments, market volatility, changes in mortgage default rates and prepayment rates, our ability to borrow to finance our assets, changes in government regulations affecting our business, our ability achieve the cost savings and efficiencies, operating efficiencies, synergies and other benefits, including the increased scale, and avoid potential business disruption from our recently completed merger with
|
|||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
|||||||
(UNAUDITED) |
|||||||
|
Three-Month Period Ended |
||||||
|
|
|
|
||||
(In thousands, except per share amounts) |
|
|
|
||||
NET INTEREST INCOME |
|
|
|
||||
Interest income |
$ |
101,520 |
|
|
$ |
98,690 |
|
Interest expense |
|
(70,464 |
) |
|
|
(70,699 |
) |
Total net interest income |
|
31,056 |
|
|
|
27,991 |
|
Other Income (Loss) |
|
|
|
||||
Realized gains (losses) on securities and loans, net |
|
(17,208 |
) |
|
|
(22,475 |
) |
Realized gains (losses) on financial derivatives, net |
|
3,478 |
|
|
|
9,437 |
|
Realized gains (losses) on real estate owned, net |
|
(1,372 |
) |
|
|
(3,773 |
) |
Unrealized gains (losses) on securities and loans, net |
|
5,573 |
|
|
|
147,273 |
|
Unrealized gains (losses) on financial derivatives, net |
|
30,365 |
|
|
|
(81,957 |
) |
Unrealized gains (losses) on real estate owned, net |
|
(679 |
) |
|
|
2,710 |
|
Unrealized gains (losses) on other secured borrowings, at fair value, net |
|
(12,524 |
) |
|
|
(52,687 |
) |
Unrealized gains (losses) on unsecured borrowings, at fair value |
|
1,829 |
|
|
|
(1,954 |
) |
Net change from reverse mortgage loans, at fair value |
|
205,497 |
|
|
|
208,661 |
|
Net change related to HMBS obligations, at fair value |
|
(177,982 |
) |
|
|
(179,758 |
) |
Bargain purchase gain |
|
— |
|
|
|
28,175 |
|
Other, net |
|
7,508 |
|
|
|
2,988 |
|
Total other income (loss) |
|
44,485 |
|
|
|
56,640 |
|
EXPENSES |
|
|
|
||||
Base management fee to affiliate, net of rebates |
|
5,730 |
|
|
|
5,660 |
|
Investment related expenses: |
|
|
|
||||
Servicing expense |
|
5,688 |
|
|
|
5,328 |
|
Debt issuance costs related to Other secured borrowings, at fair value |
|
3,113 |
|
|
|
— |
|
Other |
|
4,435 |
|
|
|
4,227 |
|
Professional fees |
|
2,970 |
|
|
|
7,411 |
|
Compensation and benefits |
|
14,643 |
|
|
|
33,173 |
|
Other expenses |
|
7,076 |
|
|
|
11,925 |
|
Total expenses |
|
43,655 |
|
|
|
67,724 |
|
Net Income (Loss) before Income Tax Expense (Benefit) and Earnings from Investments in Unconsolidated Entities |
|
31,886 |
|
|
|
16,907 |
|
Income tax expense (benefit) |
|
61 |
|
|
|
129 |
|
Earnings (losses) from investments in unconsolidated entities |
|
2,226 |
|
|
|
2,547 |
|
Net Income (Loss) |
|
34,051 |
|
|
|
19,325 |
|
Net Income (Loss) attributable to non-controlling interests |
|
482 |
|
|
|
724 |
|
Dividends on preferred stock |
|
6,654 |
|
|
|
6,104 |
|
Net Income (Loss) Attributable to Common Stockholders |
$ |
26,915 |
|
|
$ |
12,497 |
|
Net Income (Loss) per Common Share: |
|
|
|
||||
Basic and Diluted |
$ |
0.32 |
|
|
$ |
0.18 |
|
Weighted average shares of common stock outstanding |
|
84,468 |
|
|
|
71,338 |
|
Weighted average shares of common stock and convertible units outstanding |
|
85,269 |
|
|
|
72,136 |
|
|
|||||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||||
(UNAUDITED) |
|||||||
|
As of |
||||||
(In thousands, except share and per share amounts) |
|
|
|
||||
ASSETS |
|
|
|
||||
Cash and cash equivalents |
$ |
187,467 |
|
|
$ |
228,927 |
|
Restricted cash |
|
6,343 |
|
|
|
1,618 |
|
Securities, at fair value |
|
1,328,848 |
|
|
|
1,518,377 |
|
Loans, at fair value |
|
12,644,232 |
|
|
|
12,306,636 |
|
Loan commitments, at fair value |
|
3,917 |
|
|
|
2,584 |
|
Forward MSR-related investments, at fair value |
|
160,009 |
|
|
|
163,336 |
|
Mortgage servicing rights, at fair value |
|
29,889 |
|
|
|
29,580 |
|
Investments in unconsolidated entities, at fair value |
|
125,366 |
|
|
|
116,414 |
|
Real estate owned |
|
19,999 |
|
|
|
22,085 |
|
Financial derivatives–assets, at fair value |
|
150,343 |
|
|
|
143,996 |
|
Reverse repurchase agreements |
|
183,607 |
|
|
|
173,145 |
|
Due from brokers |
|
17,099 |
|
|
|
51,884 |
|
Investment related receivables |
|
200,059 |
|
|
|
480,249 |
|
Other assets |
|
75,422 |
|
|
|
77,099 |
|
Total Assets |
$ |
15,132,600 |
|
|
$ |
15,315,930 |
|
LIABILITIES |
|
|
|
||||
Securities sold short, at fair value |
$ |
165,118 |
|
|
$ |
154,303 |
|
Repurchase agreements |
|
2,517,747 |
|
|
|
2,967,437 |
|
Financial derivatives–liabilities, at fair value |
|
40,425 |
|
|
|
61,776 |
|
Due to brokers |
|
62,646 |
|
|
|
62,442 |
|
Investment related payables |
|
32,329 |
|
|
|
37,403 |
|
Other secured borrowings |
|
180,918 |
|
|
|
245,827 |
|
Other secured borrowings, at fair value |
|
1,569,149 |
|
|
|
1,424,668 |
|
HMBS-related obligations, at fair value |
|
8,619,463 |
|
|
|
8,423,235 |
|
Unsecured borrowings, at fair value |
|
270,936 |
|
|
|
272,765 |
|
Base management fee payable to affiliate |
|
5,730 |
|
|
|
5,660 |
|
Dividend payable |
|
15,168 |
|
|
|
11,528 |
|
Interest payable |
|
25,177 |
|
|
|
22,933 |
|
Accrued expenses and other liabilities |
|
74,638 |
|
|
|
90,341 |
|
Total Liabilities |
|
13,579,444 |
|
|
|
13,780,318 |
|
EQUITY |
|
|
|
||||
Preferred stock, par value |
|
355,551 |
|
|
|
355,551 |
|
Common stock, par value |
|
85 |
|
|
|
83 |
|
Additional paid-in-capital |
|
1,540,857 |
|
|
|
1,514,797 |
|
Retained earnings (accumulated deficit) |
|
(363,034 |
) |
|
|
(353,360 |
) |
Total Stockholders' Equity |
|
1,533,459 |
|
|
|
1,517,071 |
|
Non-controlling interests |
|
19,697 |
|
|
|
18,541 |
|
Total Equity |
|
1,553,156 |
|
|
|
1,535,612 |
|
TOTAL LIABILITIES AND EQUITY |
$ |
15,132,600 |
|
|
$ |
15,315,930 |
|
SUPPLEMENTAL PER SHARE INFORMATION: |
|
|
|
||||
Book Value Per Common Share (3) |
$ |
13.69 |
|
|
$ |
13.83 |
|
(1) |
Derived from audited financial statements as of |
|
(2) |
Common shares issued and outstanding at |
|
(3) |
Based on total stockholders' equity less the aggregate liquidation preference of our preferred stock outstanding. |
Reconciliation of Net Income (Loss) to Adjusted Distributable Earnings
We calculate Adjusted Distributable Earnings as
Adjusted Distributable Earnings is a supplemental non-GAAP financial measure. We believe that the presentation of Adjusted Distributable Earnings provides information useful to investors, because: (i) we believe that it is a useful indicator of both current and projected long-term financial performance, in that it excludes the impact of certain current-period earnings components that we believe are less useful in forecasting long-term performance and dividend-paying ability; (ii) we use it to evaluate the effective net yield provided by our investment portfolio, after the effects of financial leverage and by Longbridge, to reflect the earnings from its reverse mortgage origination and servicing operations; and (iii) we believe that presenting Adjusted Distributable Earnings assists investors in measuring and evaluating our operating performance, and comparing our operating performance to that of our residential mortgage REIT and mortgage originator peers. Please note, however, that: (I) our calculation of Adjusted Distributable Earnings may differ from the calculation of similarly titled non-GAAP financial measures by our peers, with the result that these non-GAAP financial measures might not be directly comparable; and (II) Adjusted Distributable Earnings excludes certain items that may impact the amount of cash that is actually available for distribution.
In addition, because Adjusted Distributable Earnings is an incomplete measure of our financial results and differs from net income (loss) computed in accordance with
Furthermore, Adjusted Distributable Earnings is different from REIT taxable income. As a result, the determination of whether we have met the requirement to distribute at least 90% of our annual REIT taxable income (subject to certain adjustments) to our stockholders, in order to maintain our qualification as a REIT, is not based on whether we distributed 90% of our Adjusted Distributable Earnings.
In setting our dividends, our Board of Directors considers our earnings, liquidity, financial condition, REIT distribution requirements, and financial covenants, along with other factors that the Board of Directors may deem relevant from time to time.
The following table reconciles, for the three-month periods ended
|
|
Three-Month Period Ended |
||||||||||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||||||||
(In thousands, except per share amounts) |
|
Investment
|
|
Longbridge |
|
Corporate/
|
|
Total |
|
Investment
|
|
Longbridge |
|
Corporate/
|
|
Total |
||||||||||||||||
Net Income (Loss) |
|
$ |
43,200 |
|
|
$ |
8,754 |
|
|
$ |
(17,903 |
) |
|
$ |
34,051 |
|
|
$ |
27,862 |
|
|
$ |
(3,362 |
) |
|
$ |
(5,175 |
) |
|
$ |
19,325 |
|
Income tax expense (benefit) |
|
|
— |
|
|
|
— |
|
|
|
61 |
|
|
|
61 |
|
|
|
— |
|
|
|
— |
|
|
|
129 |
|
|
|
129 |
|
Net income (loss) before income tax expense (benefit) |
|
|
43,200 |
|
|
|
8,754 |
|
|
|
(17,842 |
) |
|
|
34,112 |
|
|
|
27,862 |
|
|
|
(3,362 |
) |
|
|
(5,046 |
) |
|
|
19,454 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Realized (gains) losses, net(1) |
|
|
29,254 |
|
|
|
— |
|
|
|
1,620 |
|
|
|
30,874 |
|
|
|
22,001 |
|
|
|
— |
|
|
|
(2,166 |
) |
|
|
19,835 |
|
Unrealized (gains) losses, net(2) |
|
|
(25,945 |
) |
|
|
449 |
|
|
|
(106 |
) |
|
|
(25,602 |
) |
|
|
(7,904 |
) |
|
|
— |
|
|
|
(6,210 |
) |
|
|
(14,114 |
) |
Unrealized (gains) losses on reverse MSRs, net of hedging (gains) losses(3) |
|
|
— |
|
|
|
(13,943 |
) |
|
|
— |
|
|
|
(13,943 |
) |
|
|
— |
|
|
|
3,178 |
|
|
|
— |
|
|
|
3,178 |
|
Negative (positive) component of interest income represented by Catch-up Amortization Adjustment |
|
|
1,297 |
|
|
|
— |
|
|
|
— |
|
|
|
1,297 |
|
|
|
(530 |
) |
|
|
— |
|
|
|
— |
|
|
|
(530 |
) |
Non-capitalized transaction costs and other expense adjustments(4) |
|
|
923 |
|
|
|
4,068 |
|
|
|
500 |
|
|
|
5,491 |
|
|
|
105 |
|
|
|
731 |
|
|
|
5,019 |
|
|
|
5,855 |
|
Bargain purchase (gain) net of expenses related to the Arlington Merger(5) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,058 |
) |
|
|
(6,058 |
) |
(Earnings) losses from investments in unconsolidated entities |
|
|
(2,226 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,226 |
) |
|
|
(2,547 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,547 |
) |
Adjusted distributable earnings from investments in unconsolidated entities(6) |
|
|
816 |
|
|
|
— |
|
|
|
— |
|
|
|
816 |
|
|
|
429 |
|
|
|
— |
|
|
|
— |
|
|
|
429 |
|
Total Adjusted Distributable Earnings |
|
$ |
47,319 |
|
|
$ |
(672 |
) |
|
$ |
(15,828 |
) |
|
$ |
30,819 |
|
|
$ |
39,416 |
|
|
$ |
547 |
|
|
$ |
(14,461 |
) |
|
$ |
25,502 |
|
Dividends on preferred stock |
|
|
— |
|
|
|
— |
|
|
|
6,654 |
|
|
|
6,654 |
|
|
|
— |
|
|
|
— |
|
|
|
6,104 |
|
|
|
6,104 |
|
Adjusted Distributable Earnings attributable to non-controlling interests |
|
|
216 |
|
|
|
(2 |
) |
|
|
225 |
|
|
|
439 |
|
|
|
280 |
|
|
|
2 |
|
|
|
211 |
|
|
|
493 |
|
Adjusted Distributable Earnings Attributable to Common Stockholders |
|
$ |
47,103 |
|
|
$ |
(670 |
) |
|
$ |
(22,707 |
) |
|
$ |
23,726 |
|
|
$ |
39,136 |
|
|
$ |
545 |
|
|
$ |
(20,776 |
) |
|
$ |
18,905 |
|
Adjusted Distributable Earnings Attributable to Common Stockholders, per share |
|
$ |
0.56 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.27 |
) |
|
$ |
0.28 |
|
|
$ |
0.55 |
|
|
$ |
0.01 |
|
|
$ |
(0.29 |
) |
|
$ |
0.27 |
(1) |
Includes realized (gains) losses on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), and foreign currency transactions which are components of Other Income (Loss) on the Condensed Consolidated Statement of Operations. |
|
(2) |
Includes unrealized (gains) losses on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), borrowings carried at fair value, MSR-related investments, and foreign currency transactions which are components of Other Income (Loss) on the Condensed Consolidated Statement of Operations. |
|
(3) |
Represents net change in fair value of the HMBS MSR Equivalent and Reverse MSRs attributable to changes in market conditions and model assumptions. This adjustment also includes net (gains) losses on certain hedging instruments, which are components of realized and/or unrealized gains (losses) on financial derivatives, net on the Condensed Consolidated Statement of Operations. |
|
(4) |
For the three-month period ended |
|
(5) |
For the three-month period ended |
|
(6) |
Includes net interest income and operating expenses for certain investments in unconsolidated entities. |
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