UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 13, 2023
(Exact name of registrant specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
The information in this Item 2.02 and the disclosure incorporated by reference in Item 7.01 with respect to Exhibit 99.1 attached to this Current Report on Form 8-K are being furnished by Ellington Residential Mortgage REIT (the "Company") pursuant to Item 7.01 of Form 8-K in satisfaction of the public disclosure requirements of Regulation FD and Item 2.02 of Form 8-K, insofar as they disclose historical information regarding the Company’s results of operations or financial condition for the quarter ended September 30, 2023.
On November 13, 2023, the Company issued a press release announcing its financial results for the quarter ended September 30, 2023. A copy of the press release is furnished herewith as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
In accordance with General Instructions B.2 and B.6 of Form 8-K, the information included in Item 2.02 and the disclosure incorporated by reference in Item 7.01 shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing made by the Company under the Exchange Act or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 7.01 Regulation FD Disclosure.
The disclosure contained in Item 2.02 is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits. The following exhibits are being furnished herewith this Current Report on Form 8-K.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ELLINGTON RESIDENTIAL MORTGAGE REIT | |||||||||||
| Dated: | November 13, 2023 | By: | /s/ Christopher Smernoff | ||||||||
| Christopher Smernoff | |||||||||||
| Chief Financial Officer | |||||||||||
Exhibit 99.1
Ellington Residential Mortgage REIT Reports Third Quarter 2023 Results
OLD GREENWICH, Connecticut—November 13, 2023
Ellington Residential Mortgage REIT (NYSE: EARN) ("we", "us," or "our") today reported financial results for the quarter ended September 30, 2023.
Highlights
•Net income (loss) of $(11.4) million, or $(0.75) per share.
•Adjusted Distributable Earnings1 of $3.2 million, or $0.21 per share.
•Book value of $7.02 per share as of September 30, 2023, which includes the effects of dividends of $0.24 per share for the quarter.
•Net interest margin2 of 1.24%.
•Weighted average constant prepayment rate ("CPR") for the fixed-rate Agency specified pool portfolio of 7.33.
•Dividend yield of 17.1% based on the November 10, 2023 closing stock price of $5.61, and monthly dividend of $0.08 per common share declared on November 7, 2023.
•Debt-to-equity ratio of 7.3:1 as of September 30, 2023.
•Net mortgage assets-to-equity ratio of 7.1:14 as of September 30, 2023.
•Cash and cash equivalents of $40.0 million as of September 30, 2023, in addition to other unencumbered assets of $2.7 million.
Third Quarter 2023 Results
“The third quarter was again characterized by sharply rising interest rates and elevated volatility, which drove yield spreads wider in many fixed income markets, including Agency RMBS. Conditions worsened as the quarter progressed, with the market pricing in a ‘higher-for-longer’ interest rate environment and the uncertainty related to a possible government shutdown,” said Laurence Penn, Chief Executive Officer and President.
“Against this backdrop, Agency RMBS, particularly low coupon MBS, significantly underperformed comparable U.S. Treasuries and interest rate swaps during the quarter. Meanwhile, our delta-hedging costs, which are tied to interest rate volatility, remained high. As a result, Ellington Residential experienced a significant net loss for the quarter, with net declines on our specified pools exceeding net gains on our interest rate hedges.
“That said, a significant portion of our losses for the quarter resulted from yield spread widening that we believe is likely recoverable. We also increased our Adjusted Distributable Earnings quarter over quarter, driven by further progress on portfolio turnover to capture higher market yields, while our cost of funds remained relatively stable. We continued to hold a strong liquidity position, with cash and unencumbered assets representing 38% of our total equity at quarter end, and our leverage was roughly unchanged quarter over quarter.
“During the quarter, we began rotating a portion of our capital to the corporate CLO space, which we believe offers compelling investment opportunities, both near-term and long-term. Yield spreads on certain CLO mezzanine debt and equity tranches available in the secondary market are now back to levels we last saw in mid-2020. Additionally, credit fundamentals have remained relatively strong while corporate balance sheet net leverage has remained relatively low, and we believe that dispersion in CLO collateral performance going forward will create ample ongoing trading opportunities in the sector. EARN is well situated to capitalize on these opportunities, as Ellington has extensive CLO expertise and a strong track record investing in CLOs in the secondary market. We are off to a good start, as in the past six weeks EARN has acquired several CLO mezzanine debt and equity tranches where we project ROEs well in excess of 20%.
“Of course, with Agency yield spreads still very wide even after the recent rally, the Agency RMBS investment opportunity is also quite attractive right now. Furthermore, on a technical basis, late fall and winter seasonal effects should bring a drop in Agency RMBS supply, while the fourth quarter is typically a strong quarter for bank deposit growth and resulting security
1 Adjusted Distributable Earnings is a non-GAAP financial measure. See "Reconciliation of Adjusted Distributable Earnings to Net Income (Loss)" below for an explanation regarding the calculation of Adjusted Distributable Earnings.
2 Net interest margin represents the weighted average asset yield less the weighted average secured financing cost of funds (including the effect of actual and accrued payments on interest rate swaps used to hedge such financings). Net interest margin excludes the effect of the Catch-up Amortization Adjustment.
3 Excludes recent purchases of fixed rate Agency specified pools with no prepayment history.
4 We define our net mortgage assets-to-equity ratio as the net aggregate market value of our mortgage-backed securities (including the underlying market values of our long and short TBA positions) divided by total shareholders' equity. As of September 30, 2023 the market value of our mortgage-backed securities and our net short TBA position was $822.7 million and $(36.1) million, respectively, and total shareholders' equity was $111.5 million.
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purchases. I believe that CLO mezzanine debt and equity pair very well with Agency RMBS as complementary strategies that will diversify and help drive EARN’s earnings growth going forward. The investment environment is rich with opportunities, and we are excited to deploy our dry powder.”
Financial Results
The following table summarizes our portfolio of RMBS as of September 30, 2023 and June 30, 2023:
| September 30, 2023 | June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands) | Current Principal | Fair Value | Average Price(1) | Cost | Average Cost(1) | Current Principal | Fair Value | Average Price(1) | Cost | Average Cost(1) | |||||||||||||||||||||||||||||||||||||||||||||||||
Agency RMBS(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 15-year fixed-rate mortgages | $ | 34,975 | $ | 32,600 | 93.21 | $ | 34,800 | 99.50 | $ | 32,920 | $ | 31,529 | 95.77 | $ | 33,107 | 100.57 | |||||||||||||||||||||||||||||||||||||||||||
| 20-year fixed-rate mortgages | 10,441 | 9,074 | 86.91 | 11,083 | 106.15 | 11,040 | 10,021 | 90.77 | 11,707 | 106.04 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 30-year fixed-rate mortgages | 800,500 | 726,345 | 90.74 | 786,592 | 98.26 | 880,519 | 824,370 | 93.62 | 869,023 | 98.69 | |||||||||||||||||||||||||||||||||||||||||||||||||
| ARMs | 7,207 | 7,154 | 99.26 | 7,983 | 110.77 | 7,282 | 7,223 | 99.19 | 8,076 | 110.90 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Reverse mortgages | 15,023 | 15,335 | 102.08 | 17,049 | 113.49 | 15,521 | 15,885 | 102.35 | 17,510 | 112.81 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Agency RMBS | 868,146 | 790,508 | 91.06 | 857,507 | 98.77 | 947,282 | 889,028 | 93.85 | 939,423 | 99.17 | |||||||||||||||||||||||||||||||||||||||||||||||||
Non-Agency RMBS(2) | 14,752 | 12,825 | 86.94 | 12,316 | 83.49 | 15,276 | 13,013 | 85.19 | 12,602 | 82.50 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total RMBS(2) | 882,898 | 803,333 | 90.99 | 869,823 | 98.52 | 962,558 | 902,041 | 93.71 | 952,025 | 98.91 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Agency IOs | n/a | 7,845 | n/a | 6,967 | n/a | n/a | 7,256 | n/a | 6,913 | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Agency IOs | n/a | 11,540 | n/a | 8,884 | n/a | n/a | 11,417 | n/a | 9,065 | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total mortgage-backed securities | $ | 822,718 | $ | 885,674 | $ | 920,714 | $ | 968,003 | |||||||||||||||||||||||||||||||||||||||||||||||||||
(1)Expressed as a percentage of current principal balance.
(2)Excludes IOs.
The size of our Agency RMBS holdings decreased by 11% to $790.5 million as of September 30, 2023, compared to $889.0 million as of June 30, 2023. The decline was driven by paydowns, net sales, and net losses. Over the same period, our aggregate holdings of non-Agency RMBS and interest-only securities increased slightly, and we also added $3.8 million of corporate CLOs during the final week of the quarter. Our Agency RMBS portfolio turnover was 19% for the quarter.
Our debt-to-equity ratio, adjusted for unsettled purchases and sales, decreased to 7.3:1 as of September 30, 2023, as compared to 7.6:1 as of June 30, 2023. The decline was primarily due to a decrease in borrowings on our smaller Agency RMBS portfolio, partially offset by lower shareholders' equity. Our net mortgage assets-to-equity ratio increased slightly to 7.1:1 from 7.0:1 over the same time period, as a smaller net short TBA position and the decline in shareholders' equity more than offset a smaller RMBS portfolio.
In the third quarter, Agency RMBS faced the significant headwinds of elevated market volatility and rising long-term interest rates. Yield spreads widened and Agency RMBS significantly underperformed U.S. Treasury securities and interest rate swaps for the quarter, with lower-coupon RMBS exhibiting the most pronounced underperformance.
Net losses on our Agency RMBS and negative net interest income exceeded net gains on our interest rate hedges, while our delta-hedging costs remained high as a result of the elevated interest rate volatility. As a result, we had a net loss overall for the quarter.
Average pay-ups on our specified pool portfolio increased modestly to 1.02% as of September 30, 2023, as compared to 0.98% as of June 30, 2023. During the quarter, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBAs, U.S. Treasury securities, and futures. We again ended the quarter with a net short TBA position.
Our non-Agency RMBS portfolio and interest-only securities generated positive results for the quarter, driven by net interest income and net gains. We intend to increase our allocation to non-Agency RMBS and/or corporate CLOs based on market opportunities.
Our net interest margin and Adjusted Distributable Earnings increased quarter over quarter, as continued portfolio turnover boosted our average asset yield. During the quarter, we again benefited from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate.
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About Ellington Residential Mortgage REIT
Ellington Residential Mortgage REIT is a real estate investment trust that specializes in acquiring, investing in, and managing residential mortgage-related, real estate-related, and other assets, with a primary focus on residential mortgage-backed securities for which the principal and interest payments are guaranteed by a U.S. government Agency or a U.S. government-sponsored enterprise. Ellington Residential Mortgage REIT is externally managed and advised by Ellington Residential Mortgage Management LLC, an affiliate of Ellington Management Group, L.L.C.
Conference Call
We will host a conference call at 11:00 a.m. Eastern Time on Monday, November 13, 2023, to discuss its financial results for the quarter ended September 30, 2023. To participate in the event by telephone, please dial (800) 245-3047 at least 10 minutes prior to the start time and reference the conference ID: EARNQ323. International callers should dial (203) 518-9765 and reference the same conference ID. The conference call will also be webcast live over the Internet and can be accessed via the "For Our Shareholders" section of our web site at www.earnreit.com. To listen to the live webcast, please visit www.earnreit.com at least 15 minutes prior to the start of the call to register, download, and install necessary audio software. In connection with the release of these financial results, we also posted an investor presentation, that will accompany the conference call, on our website at www.earnreit.com under "For Our Shareholders—Presentations."
A dial-in replay of the conference call will be available on Monday, November 13, 2023, at approximately 2:00 p.m. Eastern Time through Monday, November 20, 2023 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (888) 562-2817. International callers should dial (402) 220-7354. A replay of the conference call will also be archived on our web site at www.earnreit.com.
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. 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 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 numerous 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 or 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. Examples of forward-looking statements in this press release include, without limitation, our beliefs regarding the current economic and investment environment, our ability to implement its investment and hedging strategies, our future prospects and the protection of our net interest margin from prepayments, volatility and its impact on us, the performance of our investment and hedging strategies, our exposure to prepayment risk in our Agency portfolio, and statements regarding the drivers of our returns. The following factors are examples of those that could cause actual results to vary from those stated or implied by 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 its assets, changes in government regulations affecting our business, our ability to maintain its exclusion from registration under the Investment Company Act of 1940, our ability to maintain our qualification as a real estate investment trust, or "REIT," and other changes in market conditions and economic trends, such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations. Furthermore, as stated above, forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A of our Annual Report on Form 10-K, which can be accessed through the link to our SEC filings under "For Our Shareholders" on our website (at www.earnreit.com) or at the SEC's website (www.sec.gov). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected or implied may be described from time to time in reports we file with the SEC, including reports on Forms 10-Q, 10-K and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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ELLINGTON RESIDENTIAL MORTGAGE REIT
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
| Three-Month Period Ended | Nine-Month Period Ended | |||||||||||||||||||
| September 30, 2023 | June 30, 2023 | September 30, 2023 | ||||||||||||||||||
| (In thousands except share amounts and per share amounts) | ||||||||||||||||||||
| INTEREST INCOME (EXPENSE) | ||||||||||||||||||||
| Interest income | $ | 11,253 | $ | 10,070 | $ | 30,661 | ||||||||||||||
| Interest expense | (12,349) | (11,686) | (33,745) | |||||||||||||||||
| Total net interest income (expense) | (1,096) | (1,616) | (3,084) | |||||||||||||||||
| EXPENSES | ||||||||||||||||||||
| Management fees to affiliate | 420 | 439 | 1,292 | |||||||||||||||||
| Professional fees | 290 | 407 | 939 | |||||||||||||||||
| Compensation expense | 177 | 187 | 545 | |||||||||||||||||
| Insurance expense | 95 | 95 | 289 | |||||||||||||||||
| Other operating expenses | 374 | 372 | 1,096 | |||||||||||||||||
| Total expenses | 1,356 | 1,500 | 4,161 | |||||||||||||||||
| OTHER INCOME (LOSS) | ||||||||||||||||||||
| Net realized gains (losses) on securities | (19,572) | (11,580) | (46,278) | |||||||||||||||||
| Net realized gains (losses) on financial derivatives | 1,152 | 24,227 | 27,122 | |||||||||||||||||
| Change in net unrealized gains (losses) on securities | (15,824) | (1,780) | 10,344 | |||||||||||||||||
| Change in net unrealized gains (losses) on financial derivatives | 25,276 | (6,548) | 8,177 | |||||||||||||||||
| Total other income (loss) | (8,968) | 4,319 | (635) | |||||||||||||||||
| NET INCOME (LOSS) | $ | (11,420) | $ | 1,203 | $ | (7,880) | ||||||||||||||
| NET INCOME (LOSS) PER COMMON SHARE: | ||||||||||||||||||||
| Basic and Diluted | $ | (0.75) | $ | 0.09 | $ | (0.55) | ||||||||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING | 15,199,837 | 13,935,821 | 14,273,071 | |||||||||||||||||
| CASH DIVIDENDS PER SHARE: | ||||||||||||||||||||
| Dividends declared | $ | 0.24 | $ | 0.24 | $ | 0.72 | ||||||||||||||
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ELLINGTON RESIDENTIAL MORTGAGE REIT
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
| As of | ||||||||||||||||||||
| September 30, 2023 | June 30, 2023(2) | December 31, 2022(1)(2) | ||||||||||||||||||
| (In thousands except share amounts and per share amounts) | ||||||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Cash and cash equivalents | $ | 39,996 | $ | 43,713 | $ | 34,816 | ||||||||||||||
| Securities, at fair value | 836,275 | 921,224 | 893,509 | |||||||||||||||||
| Due from brokers | 27,900 | 17,031 | 18,824 | |||||||||||||||||
Financial derivatives–assets, at fair value | 100,948 | 70,518 | 68,770 | |||||||||||||||||
Reverse repurchase agreements | 37,103 | 12,191 | 499 | |||||||||||||||||
Receivable for securities sold | 16,667 | 14,528 | 33,452 | |||||||||||||||||
| Interest receivable | 4,995 | 4,138 | 3,326 | |||||||||||||||||
Other assets | 552 | 646 | 436 | |||||||||||||||||
| Total Assets | $ | 1,064,436 | $ | 1,083,989 | $ | 1,053,632 | ||||||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||||||
| LIABILITIES | ||||||||||||||||||||
| Repurchase agreements | $ | 811,180 | $ | 875,030 | $ | 842,455 | ||||||||||||||
| Payable for securities purchased | 8,220 | 30,725 | 42,199 | |||||||||||||||||
| Due to brokers | 71,202 | 49,787 | 45,666 | |||||||||||||||||
| Financial derivatives–liabilities, at fair value | 8,840 | 2,481 | 3,119 | |||||||||||||||||
| U.S. Treasury securities sold short, at fair value | 46,326 | 1,957 | 498 | |||||||||||||||||
| Dividend payable | 1,270 | 1,150 | 1,070 | |||||||||||||||||
| Accrued expenses | 1,454 | 1,386 | 1,097 | |||||||||||||||||
| Management fee payable to affiliate | 420 | 439 | 423 | |||||||||||||||||
| Interest payable | 4,066 | 4,337 | 4,696 | |||||||||||||||||
| Total Liabilities | 952,978 | 967,292 | 941,223 | |||||||||||||||||
| SHAREHOLDERS' EQUITY | ||||||||||||||||||||
Preferred shares, par value $0.01 per share, 100,000,000 shares authorized; (0 shares issued and outstanding, respectively) | — | — | — | |||||||||||||||||
Common shares, par value $0.01 per share, 500,000,000 shares authorized; (15,870,141, 14,378,193 and 13,377,840 shares issued and outstanding, respectively)(3) | 159 | 144 | 134 | |||||||||||||||||
| Additional paid-in-capital | 258,258 | 248,355 | 240,940 | |||||||||||||||||
| Accumulated deficit | (146,959) | (131,802) | (128,665) | |||||||||||||||||
| Total Shareholders' Equity | 111,458 | 116,697 | 112,409 | |||||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 1,064,436 | $ | 1,083,989 | $ | 1,053,632 | ||||||||||||||
| SUPPLEMENTAL PER SHARE INFORMATION | ||||||||||||||||||||
Book Value Per Share | $ | 7.02 | $ | 8.12 | $ | 8.40 | ||||||||||||||
(1)Derived from audited financial statements as of December 31, 2022.
(2)Conformed to current period presentation.
(3)Common shares issued and outstanding at September 30, 2023, includes 1,459,028 common shares issued during the third quarter under our at-the-market common share offering program.
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Reconciliation of Adjusted Distributable Earnings to Net Income (Loss)
We calculate Adjusted Distributable Earnings as net income (loss), excluding realized and change in net unrealized gains and (losses) on securities and financial derivatives, and excluding other income or loss items that are of a non-recurring nature, if any. Adjusted Distributable Earnings includes net realized and change in net unrealized gains (losses) associated with periodic settlements on interest rate swaps. Adjusted Distributable Earnings also excludes the effect of the Catch-up Amortization Adjustment on interest income. The Catch-up Amortization Adjustment is a quarterly adjustment to premium amortization or discount accretion triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses). The adjustment is calculated as of the beginning of each quarter based on our then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter.
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 portfolio, after the effects of financial leverage; 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 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, such as most realized and unrealized gains and losses, 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 U.S. GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP.
Furthermore, Adjusted Distributable Earnings is different than 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 shareholders, in order to maintain qualification as a REIT, is not based on whether we have distributed 90% of our Adjusted Distributable Earnings.
In setting our dividends, our Board of Trustees considers our earnings, liquidity, financial condition, REIT distribution requirements, and financial covenants, along with other factors that the Board of Trustees may deem relevant from time to time.
The following table reconciles, for the three-month periods ended September 30, 2023 and June 30, 2023, our Adjusted Distributable Earnings to the line on our Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S. GAAP measure:
| Three-Month Period Ended | ||||||||||||||
| (In thousands except share amounts and per share amounts) | September 30, 2023 | June 30, 2023 | ||||||||||||
| Net Income (Loss) | $ | (11,420) | $ | 1,203 | ||||||||||
| Adjustments: | ||||||||||||||
| Net realized (gains) losses on securities | 19,572 | 11,580 | ||||||||||||
| Change in net unrealized (gains) losses on securities | 15,824 | 1,780 | ||||||||||||
| Net realized (gains) losses on financial derivatives | (1,152) | (24,227) | ||||||||||||
| Change in net unrealized (gains) losses on financial derivatives | (25,276) | 6,548 | ||||||||||||
| Net realized gains (losses) on periodic settlements of interest rate swaps | 796 | 3,942 | ||||||||||||
Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps | 4,913 | 1,118 | ||||||||||||
| Non-recurring expenses | 28 | 60 | ||||||||||||
| Negative (positive) component of interest income represented by Catch-up Amortization Adjustment | (46) | 376 | ||||||||||||
| Subtotal | 14,659 | 1,177 | ||||||||||||
| Adjusted Distributable Earnings | $ | 3,239 | $ | 2,380 | ||||||||||
| Weighted Average Shares Outstanding | 15,199,837 | 13,935,821 | ||||||||||||
| Adjusted Distributable Earnings Per Share | $ | 0.21 | $ | 0.17 | ||||||||||
6