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8-K - 8-K - Apollo Residential Mortgage, Inc. | d722719d8k.htm |
EX-99.2 - EX-99.2 - Apollo Residential Mortgage, Inc. | d722719dex992.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE | NYSE: AMTG | |
CONTACT: Hilary Ginsberg (212) 822-0767 |
APOLLO RESIDENTIAL MORTGAGE, INC. REPORTS
FIRST QUARTER 2014 FINANCIAL RESULTS
New York, NY, May 6, 2014 - Apollo Residential Mortgage, Inc. (the Company) (NYSE: AMTG) today reported financial results for the quarter ended March 31, 2014.
First Quarter 2014 Financial Highlights
| Net income allocable to common stock and participating securities of $24.4 million, or $0.76 per common share comprised of: |
| Operating earnings(1) of $0.53 per common share; |
| Realized net losses of $(0.79) per common share; |
| Unrealized net gains of $1.03 per common share; and |
| Equity award plan expenses of $(0.01) per common share |
| Estimated taxable income of $0.44 per common share |
| Declared a $0.40 dividend per common share for the quarter |
First Quarter 2014 Other Highlights
| Entered into an agreement to provide funding to a third party to facilitate the purchase of residential properties with a view towards reselling the properties to homeowners and providing seller financing in the form of mortgage loans and/or bond-for-title contracts |
| $3.4 billion RMBS portfolio consisted of Agency RMBS with an estimated fair value of $2.1 billion and non-Agency RMBS with an estimated fair value of $1.3 billion |
| RMBS, securitized mortgage loan and other credit investment portfolio had a 2.8% effective net interest rate spread and a 15.1% effective levered asset yield at March 31, 2014(1) |
| Leverage multiple of 3.8x |
| Book value per common share of $18.64 at March 31, 2014 |
(1) | Reflects a non-GAAP financial measure (i.e., a measure that is not calculated in accordance with U.S. Generally Accepted Accounting Principles.) See Reconciliations of Non-GAAP Financial Measures in this press release. |
AMTG had another solid quarter of operating results, as the mortgage-backed securities markets showed signs of stability, said Michael Commaroto, the Chief Executive Officer of the Company. The Companys book value per common share increased 2.1% in the first quarter, bolstered by strong underlying performance from both the Agency and non-Agency RMBS portfolio. In addition, during the quarter the Company began executing on a new credit strategy whereby AMTG entered into an agreement with a third party to fund the purchase of residential properties with a view towards selling the properties to homeowners and providing seller financing. As the Company scales this new business, we continue to explore additional residential mortgage credit strategies in our efforts to expand AMTGs credit investment portfolio.
Portfolio Summary (Table 1)
The following table sets forth additional detail regarding the Companys investments as of March 31, 2014:
Principal Balance |
Unamortized Premium (Discount), Net(1) |
Amortized Cost (2) | Estimated Fair Value |
Unrealized Gain/(Loss) |
Weighted Average Coupon |
Weighted Average Yield (3) |
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($ amounts in thousands) |
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Agency RMBS: |
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30-Year Mortgages |
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3.5% |
$ | 182,911 | $ | 11,694 | $ | 194,605 | $ | 184,027 | $ | (10,578 | ) | 3.50 | % | 2.54 | % | |||||||||||||
4.0% |
1,406,999 | 103,328 | 1,510,327 | 1,461,460 | (48,867 | ) | 4.00 | % | 2.89 | % | ||||||||||||||||||
4.5% |
311,011 | 23,455 | 334,466 | 333,498 | (968 | ) | 4.50 | % | 3.19 | % | ||||||||||||||||||
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1,900,921 | 138,477 | 2,039,398 | 1,978,985 | (60,413 | ) | 4.03 | % | 2.91 | % | |||||||||||||||||||
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15-Year Mortgages |
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3.0% |
51,592 | 1,382 | 52,974 | 53,016 | 42 | 3.00 | % | 2.49 | % | |||||||||||||||||||
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Agency IOs (4) |
| | 44,014 | 47,959 | 3,945 | 3.95 | % | 5.69 | % | |||||||||||||||||||
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Agency Inverse IOs(4) |
| | 15,200 | 14,711 | (489 | ) | 5.99 | % | 15.73 | % | ||||||||||||||||||
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Total Agency RMBS |
1,952,513 | 139,859 | 2,151,586 | 2,094,671 | (56,915 | ) | 4.05 | % | 3.05 | % | ||||||||||||||||||
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Non-Agency RMBS |
1,506,579 | (293,288 | ) | 1,213,291 | 1,298,541 | 85,250 | 1.27 | % | 6.89 | % | ||||||||||||||||||
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Total RMBS |
3,459,092 | (153,429 | ) | 3,364,877 | 3,393,212 | 28,335 | 2.99 | % | 4.43 | % | ||||||||||||||||||
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Securitized Mortgage Loans |
146,694 | (43,570 | ) | 103,124 | 110,307 | 7,183 | 5.80 | % | 7.90 | % | ||||||||||||||||||
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Other Investment Securities |
11,796 | 37 | 11,833 | 12,290 | 457 | 3.56 | % | 3.66 | % | |||||||||||||||||||
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Warehouse Loans |
3,017 | | 3,017 | 3,017 | | 5.15 | % | 5.15 | % | |||||||||||||||||||
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Total Portfolio |
$ | 3,620,599 | $ | (196,962 | ) | $ | 3,482,851 | $ | 3,518,826 | $ | 35,975 | 3.10 | % | 4.53 | % | |||||||||||||
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(1) | A portion of the purchase discount on non-Agency RMBS is not expected to be recognized as interest income, and is instead viewed as a credit discount. At March 31, 2014, our non-Agency RMBS had gross discounts of $293,440, which included credit discounts of $76,620 and other-than-temporary impairments (OTTI) of $10,391. |
(2) | Amortized cost is reduced by unrealized losses that are classified as OTTI. The Company recognized OTTI of $1,171 on RMBS and $2,185 on Securitized Mortgage Loans for the three months ended March 31, 2014. |
(3) | Weighted average yield at the date presented incorporates estimates for future prepayment assumptions on all RMBS and loss assumptions on non-Agency RMBS. |
(4) | Agency IOs and Agency Inverse IOs are interest only (IO) securities that have no principal balance and bear interest based on a notional balance. The notional balance is used solely to determine interest distributions on interest-only class of securities. At March 31, 2014, the Companys Agency IOs had a notional balance of $434,342 and the Companys Agency Inverse IOs had a notional balance of $69,421. |
As of March 31, 2014, the average cost basis of the Companys Agency RMBS pass-through portfolio was 107.2% of par value and the average cost basis of the Companys non-Agency RMBS portfolio was 80.5% of par value.
The Agency RMBS pass-through portfolio experienced prepayments at an average one month constant prepayment rate (CPR) for the quarter ended March 31, 2014 of 4.8%. Including Agency IOs and Agency Inverse IOs securities, the Agency RMBS portfolio experienced prepayments at an average one month CPR of 4.9% for the quarter ended March 31, 2014.
Portfolio Financing
At March 31, 2014, the Company had master repurchase agreements with 24 counterparties (one of which became accessible to the Company beginning on May 1, 2014) and had outstanding repurchase borrowings with 17 counterparties totaling $2.9 billion.
2
(Table 2)
The following table sets forth the Companys borrowings at March 31, 2014:
($ amounts in thousands) |
Balance | Weighted Average Borrowing Rate |
Weighted Average Remaining Maturity |
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Repurchase agreement borrowings: |
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Agency RMBS |
$ | 1,861,066 | 0.37 | % | 27days | |||||||
Non-Agency RMBS(1) |
987,675 | 2.08 | 162days | |||||||||
Other investment securities |
10,603 | 1.83 | 115days | |||||||||
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Total repurchase agreements |
$ | 2,859,344 | 0.97 | % | 74days | |||||||
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Securitized debt |
40,281 | 4.00 | % | 57 months | (2) | |||||||
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Total borrowings |
$ | 2,899,625 | 1.01 | % | ||||||||
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(1) | Includes $28,234 of repurchase borrowings collateralized by $47,614 non-Agency RMBS that are eliminated from the Companys consolidated balance sheet in consolidation with the variable interest entity associated with the Companys securitization transaction. |
(2) | Securitized debt, which represents non-recourse senior securities sold to third parties in connection with a securitization transaction, has a final contractual maturity of May 2047. Weighted average remaining maturity represents the estimated final maturity of the security based on the final underwritten repayment of principal. The actual maturity of the securitized debt may differ significantly from this estimate given that actual interest collections, mortgage prepayments and/or losses on liquidation of mortgages may differ significantly from those underwritten. |
(Table 3)
The Companys derivative instruments consisted of the following at March 31, 2014:
($ amounts in thousands) | Notional Amount |
Estimated Fair Value |
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Swaps assets |
$ | 957,000 | $ | 29,585 | ||||
Swaptions assets |
1,275,000 | 3,494 | ||||||
Swaps (liabilities) |
730,000 | (4,984 | ) | |||||
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Total derivative instruments |
$ | 2,962,000 | $ | 28,095 | ||||
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(Table 4)
The following table summarizes the average fixed-pay rate and average maturity for the Companys Swaps at March 31, 2014:
Term to Maturity ($ amounts in thousands) |
Notional Amount |
Average Fixed Pay Rate |
Average Maturity (Years) |
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Greater than 1 year up to 3 years |
$ | 160,000 | 1.39 | % | 2.7 | |||||||
Greater than 3 years up to 5 years |
949,000 | 1.00 | 3.4 | |||||||||
Greater than 5 years |
578,000 | 2.13 | 8.7 | |||||||||
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Total |
$ | 1,687,000 | 1.43 | % | 5.2 | |||||||
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3
(Table 5)
At March 31, 2014, the Companys Swaptions had an aggregate notional amount of $1.3 billion. The following table presents information about the Companys Swaptions at March 31, 2014:
($ amounts in thousands) |
Option | Underlying Swap | ||||||||||||||
Fixed-Pay Rate for Underlying Swap |
Fair Value | Weighted Average Months Until Option Expiration |
Notional Amount |
Swap Terms (Years) |
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3.00 3.25% |
$ | 252 | 3 | $ | 100,000 | 10.0 | ||||||||||
3.26 3.50% |
133 | 2 | 275,000 | 10.0 | ||||||||||||
3.51 3.75% |
171 | 3 | 300,000 | 10.0 | ||||||||||||
3.76 4.00% |
2,915 | 9 | 500,000 | 10.0 | ||||||||||||
4.01 4.41% |
23 | 5 | 100,000 | 10.0 | ||||||||||||
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$ | 3,494 | 5 | $ | 1,275,000 | 10.0 | |||||||||||
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Estimated Taxable Income
Estimated taxable income for the quarter ended March 31, 2014 was $0.44 per common share, or $0.09 lower than the Companys operating earnings per common share. This difference primarily reflects estimated tax to GAAP timing differences associated with: (i) discount accretion on certain non-Agency RMBS and (ii) the amount of income the Company recognized in connection with its February 2013 securitization transaction. With respect to the timing difference arising from the Companys non-Agency RMBS, bonds that are locked-out from receiving principal payments (until the more senior bonds in the securitization structure are repaid) generate significantly less income for tax purposes than under GAAP. This timing difference is expected to begin to reverse as the bonds that are currently locked-out begin receiving principal payments. With respect to timing differences arising from the securitization transaction, the securitization was treated as a sale for tax purposes and, effectively, treated as financing for GAAP purposes, whereby the Company consolidates the securitization trust under GAAP. As a result of these differences, for tax purposes no interest income is recognized on the Companys securitized mortgage loans and no interest expense is recognized for the Companys securitized debt; instead, interest income is recognized on the subordinated bonds received from the Companys consolidated trust.
Book Value
The Companys book value per common share at March 31, 2014 was $18.64 as compared to book value per common share of $18.26 at December 31, 2013.
Teleconference and Website Presentation Details:
The Company will be hosting a conference call to discuss its financial results on Wednesday, May 7, 2014 at 10:00 a.m. Eastern Time. Members of the public who are interested in participating in the Companys first quarter 2014 earnings teleconference call should dial from the U.S., (877) 445-0818, or from outside the U.S., (724) 498-0351, shortly before 10:00 a.m. and reference the Apollo Residential Mortgage, Inc. Teleconference Call (number 22670483). Please note the teleconference call will be available for replay beginning at 1:00 p.m. on Wednesday, May 7, 2014, and ending at midnight on Wednesday, May 14, 2014. To access the replay, callers from the U.S. should dial (855) 859-2056 and callers from outside the U.S. should dial (404) 537-3406, and enter conference identification number 22670483.
Webcast:
The conference call will also be available on the Companys website at www.apolloresidentialmortgage.com. To listen to a live broadcast, please go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. A replay of the call will also be available for 30 days on the Companys website.
4
Supplemental Information
The Company provides a supplemental information package to offer more transparency into its financial results and make its reporting more informative and easier to follow. The supplemental package is available in the investor relations section of the Companys website at www.apolloresidentialmortgage.com.
About Apollo Residential Mortgage, Inc.
Apollo Residential Mortgage, Inc. is a real estate investment trust that invests in and manages residential mortgage-backed securities and other residential mortgage assets throughout the United States. The Company is externally managed and advised by ARM Manager, LLC, a Delaware limited liability company and an indirect subsidiary of Apollo Global Management, LLC (NYSE:APO), a leading global alternative investment manager with approximately $161.2 billion of assets under management at December 31, 2013.
Additional information can be found on the Companys website at www.apolloresidentialmortgage.com.
Forward-Looking Statements
Certain statements contained in this press release constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Companys control. These forward-looking statements include information about possible or assumed future results of the Companys business, financial condition, liquidity, results of operations, plans and objectives, including information about the ability of the Company to generate attractive returns while attempting to mitigate risk. When used in this release, the words believe, expect, anticipate, estimate, plan, continue, intend, should, may or similar expressions are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. For a further list and description of such risks and uncertainties, see the Companys Annual Report on Form 10-K for the year ended December 31, 2013 and other reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Companys beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
5
Apollo Residential Mortgage, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(in thousandsexcept per share data)
March 31, 2014 | December 31, 2013 | |||||||
Assets: |
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Cash |
$ | 110,671 | $ | 127,959 | ||||
Restricted cash |
38,038 | 67,458 | ||||||
RMBS, at fair value (of which $3,118,497 and $3,317,060 were pledged as collateral, respectively) |
3,393,212 | 3,503,326 | ||||||
Securitized mortgage loans (transferred to a consolidated VIE), at fair value |
110,307 | 110,984 | ||||||
Other investment securities, at fair value (of which $12,290 and $11,515 were pledged as collateral, respectively) |
12,290 | 11,515 | ||||||
Investment related receivable (of which $108,064 and $21,959 were pledged as collateral, respectively) |
108,165 | 24,887 | ||||||
Interest receivable |
9,576 | 10,396 | ||||||
Deferred financing costs, net |
920 | 882 | ||||||
Derivative instruments, at fair value |
33,079 | 53,315 | ||||||
Other assets |
3,964 | 854 | ||||||
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Total Assets |
$ | 3,820,222 | $ | 3,911,576 | ||||
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Liabilities and Stockholders Equity |
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Liabilities: |
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Borrowings under repurchase agreements |
2,859,344 | 3,034,058 | ||||||
Non-recourse securitized debt, at fair value |
41,226 | 43,354 | ||||||
Investment related payable |
95,288 | | ||||||
Obligation to return cash held as collateral |
20,667 | 38,654 | ||||||
Accrued interest payable |
6,935 | 8,708 | ||||||
Derivative instruments, at fair value |
4,984 | 4,610 | ||||||
Payable to related party |
4,501 | 5,444 | ||||||
Dividends payable |
16,266 | 16,812 | ||||||
Accounts payable and accrued expenses |
1,405 | 2,335 | ||||||
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Total Liabilities |
3,050,616 | 3,153,975 | ||||||
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Stockholders Equity: |
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Preferred stock, $0.01 par value, 50,000,000 shares authorized, 6,900,000 shares issued and outstanding ($172,500 aggregate liquidation preference) |
69 | 69 | ||||||
Common stock, $0.01 par value, 450,000,000 shares authorized, 32,040,533 and 32,038,970 shares issued and outstanding, respectively |
320 | 320 | ||||||
Additional paid-in-capital |
792,469 | 792,010 | ||||||
Accumulated deficit |
(23,252 | ) | (34,798 | ) | ||||
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Total Stockholders Equity |
769,606 | 757,601 | ||||||
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Total Liabilities and Stockholders Equity |
$ | 3,820,222 | $ | 3,911,576 | ||||
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6
Apollo Residential Mortgage, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(in thousands except per share data)
Three months ended March 31, |
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2014 | 2013 | |||||||
Interest Income: |
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RMBS |
$ | 35,825 | $ | 36,914 | ||||
Securitized mortgage loans |
2,246 | 1,333 | ||||||
Other |
109 | | ||||||
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Total Interest Income |
38,180 | 38,247 | ||||||
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Interest Expense: |
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Repurchase agreements |
(6,826 | ) | (5,907 | ) | ||||
Securitized debt |
(442 | ) | (310 | ) | ||||
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Total Interest Expense |
(7,268 | ) | (6,217 | ) | ||||
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Net Interest Income |
30,912 | 32,030 | ||||||
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Other Income/(Loss): |
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Realized gain/(loss) on sale of RMBS, net |
(11,810 | ) | 15,795 | |||||
Unrealized gain/(loss) on RMBS, net |
50,647 | (33,048 | ) | |||||
Unrealized gain/(loss) on securitized debt |
10 | (872 | ) | |||||
Unrealized gain on securitized mortgage loans, net |
1,054 | 2,848 | ||||||
Unrealized gain on other investment securities |
122 | | ||||||
Loss on derivative instruments, net (includes ($18,718) and $1,659 of unrealized (losses)/gains, respectively) |
(37,190 | ) | (5,798 | ) | ||||
Other, net |
18 | 25 | ||||||
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Other Income/(Loss), net |
2,851 | (21,050 | ) | |||||
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Operating Expenses: |
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General and administrative (includes ($459) and ($399) of non-cash stock based compensation, respectively) |
(3,095 | ) | (2,851 | ) | ||||
Management fee related party |
(2,786 | ) | (2,789 | ) | ||||
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Total Operating Expenses |
(5,881 | ) | (5,640 | ) | ||||
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Net Income |
$ | 27,882 | $ | 5,340 | ||||
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Preferred Stock Dividends Declared |
(3,450 | ) | (3,450 | ) | ||||
Net Income Allocable to Common Stock and Participating Securities |
$ | 24,432 | $ | 1,890 | ||||
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Earnings per Share of Common Stock Basic and Diluted |
$ | 0.76 | $ | 0.07 | ||||
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Dividends Declared per Share of Common Stock |
$ | 0.40 | $ | 0.70 | ||||
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7
Reconciliations of Non-GAAP Financial Measures
Included in this press release are disclosures about the Companys operating earnings, operating earnings per common share, effective cost of funds, effective interest expense, effective levered asset yield and effective net interest rate spread which measures constitute non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The Company believes that the non-GAAP financial measures presented, when considered together with GAAP financial measures, provide information that is useful to investors in understanding the Companys operating results. An analysis of any non-GAAP financial measures should be made in conjunction with results presented in accordance with GAAP.
Operating earnings and operating earnings per common share presented exclude, as applicable: (i) certain realized and unrealized gains and losses recognized through earnings; (ii) non-cash equity compensation; (iii) one time events pursuant to changes in GAAP; and (iv) certain other non-cash charges. Operating earnings is a non-GAAP financial measure that is used by the Company to assess its business results.
While the Company has not elected hedge accounting for its Swaps, such derivative instruments are viewed by the Company as an economic hedge against increases in future market interest rates. To present for investors how the Company views its Swaps, the Company provides the effective cost of funds which is comprised of GAAP interest expense plus the interest expense component for Swaps. The interest expense component of the Companys Swaps reflects the net interest payments made or accrued on its Swaps.
The Company believes that the presentation of effective cost of funds is useful for investors as it presents the Companys borrowing costs as viewed by management. The Company believes that the non-GAAP measures presented provide investors and other readers of this press release with meaningful information to assess the performance of the Companys ongoing business and believes it is useful supplemental information for both management and investors in evaluating the Companys financial results. The primary limitation associated with operating earnings as a measure of the Companys financial performance over any period is that such measure excludes, except for the net interest component of Swaps, the effects of net realized and unrealized gains and losses from investments and realized and unrealized gains and losses from derivative instruments. In addition, the Companys presentation of operating earnings may not be comparable to similarly-titled measures of other companies, who may use different definitions or calculations for such term. As a result, operating earnings should not be considered as a substitute for GAAP net income as a measure of the Companys financial performance or the Companys liquidity under GAAP.
8
A reconciliation of the GAAP items discussed above to their non-GAAP measures for the three months ended March 31, 2014 and the three months ended March 31, 2013, are presented in the tables below.
(Table 6)
The following table reconciles net income allocable to common stockholders with operating earnings for the three months ended March 31, 2014 and March 31, 2013, respectively:
Three months ended March 31, 2014 |
Three months ended March 31, 2013 |
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($ amounts in thousands except share and per share data) | Per Share(1) | Per Share(1) | ||||||||||||||
Net income allocable to common stockholders |
$ | 24,279 | $ | 0.76 | $ | 1,756 | $ | 0.07 | ||||||||
Adjustments: |
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Non-cash stock-based compensation expense |
459 | 0.01 | 399 | 0.01 | ||||||||||||
Unrealized (gain)/loss on RMBS, net |
(50,647 | ) | (1.58 | ) | 33,048 | 1.29 | ||||||||||
Unrealized loss on derivatives, net |
18,718 | 0.58 | 1,659 | 0.06 | ||||||||||||
Unrealized (gain) on securitized mortgage loans, net |
(1,054 | ) | (0.03 | ) | (2,848 | ) | (0.11 | ) | ||||||||
Unrealized (gain)/loss on securitized debt |
(10 | ) | | 872 | 0.03 | |||||||||||
Unrealized (gain) on other investment securities |
(122 | ) | | | | |||||||||||
Realized (gain)/loss on sale of RMBS, net |
11,810 | 0.37 | (15,795 | ) | (0.61 | ) | ||||||||||
Realized loss on TBA Short Contracts |
7,156 | 0.22 | | | ||||||||||||
Realized loss on Swaption terminations |
6,527 | 0.20 | | | ||||||||||||
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Total adjustments to arrive at operating earnings: |
(7,163 | ) | (0.23 | ) | 17,335 | 0.67 | ||||||||||
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Operating earnings |
$ | 17,116 | $ | 0.53 | $ | 19,091 | $ | 0.74 | ||||||||
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Weighted average common shares outstanding Basic |
32,015,397 | 25,686,304 | ||||||||||||||
Weighted average common shares outstanding Diluted |
32,067,157 | 25,686,304 |
(1) | Reflects basic and diluted per share impact of each component presented. |
(Table 7)
The following table reconciles the effective cost of funds with interest expense for the three months ended March 31, 2014:
Three months ended March 31, 2014 |
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($ amounts in thousands) | Reconciliation | Cost of Funds/ Effective Cost of Funds |
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Interest Expense |
$ | 7,268 | 0.99 | % | ||||
Adjustment: |
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Net interest paid for Swaps |
4,789 | 0.66 | % | |||||
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Effective interest expense/effective cost of funds |
$ | 12,057 | 1.65 | % | ||||
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Weighted average balance of borrowings |
$ | 2,928,895 |
9