Ellington Residential Mortgage REIT Reports Fourth Quarter 2016 Results
Summary of Financial Results
- Net income for the quarter was
$2.0 million , or$0.22 per share, as compared to$6.6 million , or$0.73 per share, in the third quarter. - Core Earnings1 for the quarter was
$4.9 million , or$0.54 per share, as compared to$2.9 million , or$0.32 per share, in the third quarter. Excluding "Catch-up Premium Amortization Adjustment," Core Earnings for the fourth quarter was$4.3 million , or$0.47 per share, as compared to$4.4 million , or$0.48 per share, in the third quarter. - Book value decreased to
$15.52 per share as ofDecember 31, 2016 from$15.70 per share as ofSeptember 30, 2016 , after giving effect to a fourth quarter dividend of$0.40 per share. - Net interest margin was 1.89%, as compared to 1.30% for the third quarter. Excluding Catch-up Premium Amortization Adjustment, net interest margin was 1.69% for the fourth quarter of 2016 as compared to 1.77% for the third quarter.
- Weighted average prepayment speed for the fixed rate Agency specified pool portfolio was 15.6% CPR for the quarter, compared to 14.1% in the third quarter.
- Dividend yield of 12.3% based on
February 8, 2017 closing stock price of$13.02 . - Debt-to-equity ratio was 8.5:1 as of
December 31, 2016 , as compared to 8.1:1 as ofSeptember 30, 2016 . Adjusted for unsettled purchases and sales, the debt-to-equity ratio was 8.3:1 and 8.2:1 as ofDecember 31, 2016 andSeptember 30, 2016 , respectively.
Fourth Quarter 2016 Results
"For the fourth quarter, EARN had net income of
"In response to the increase in interest rates, pay-ups for specified pools decreased significantly over the course of the quarter. Nevertheless, as the prepayment landscape continues to be shaped by technological improvements in the mortgage banking industry, and as the Federal Reserve's footprint in the TBA market continues to shrink, we believe that investors will continue to find value in specified pools relative to TBAs. That said, a prudent and disciplined interest rate hedging strategy remains critically important, all the more so given the potential for great shifts in government policy accompanying the recent change in administrations. Our strategy served us well in 2016, as we generated a compounded economic return of 8.7% for the full year. We accomplished this despite significant fluctuations in interest rates, which included a decline in long-term interest rates to all-time record low levels by July, followed by a complete reversal in the remaining part of the year."
As of December 31, 2016, our mortgage-backed securities portfolio consisted of
1 Core Earnings is a non-GAAP financial measure. See "Reconciliation of Core Earnings to Net Income (Loss)" below for an explanation regarding the calculation of Core Earnings.
Market Overview
The fourth quarter of 2016 was characterized by sharply higher interest rates and increased market volatility, especially in the aftermath of the U.S. elections in November. The election of
In
Following the sharp increase in interest rates during the fourth quarter, mortgage rates also increased significantly. The
Agency RMBS
The market for Agency RMBS changed dramatically during the fourth quarter. At the beginning of the quarter, low mortgage rates provided the potential for ongoing increases in refinancing activity, but by the end of the quarter markedly higher mortgage rates eliminated the incentive for many borrowers to refinance. As the quarter progressed, Agency RMBS declined substantially in price and their durations extended, exacerbating further price declines. For example, during the quarter, TBA 30-year
Overall, Agency RMBS prepayment rates slowed over the course of the fourth quarter as mortgage rates increased, but the pace of the slowdown was much more gradual than most sell-side research had predicted. A variety of factors are helping to support prepayment activity, including the gradual loosening of mortgage credit underwriting standards relative to the immediate aftermath of the financial crisis; enhanced originator/servicer technology and infrastructure, which have streamlined the refinancing process and augmented refinancing capacity; employment in the mortgage industry, which remains at a post-financial crisis high; and increasing home prices and improvements in borrower credit profiles, both of which reflect continued improvement in the U.S. economy. On our Agency RMBS portfolio, prepayment speeds increased slightly quarter-over-quarter. The increase was not unexpected, given that a significant portion of our portfolio is backed by higher coupon mortgages, which are still economical for borrowers to refinance, and which therefore attract increased focus from the mortgage banking industry as many lower coupon mortgages are no longer refinanceable.
In light of the increase in interest rates over the course of the fourth quarter, pay-ups on specified pools fell. Pay-ups are price premiums for specified pools relative to their TBA counterparts. The decline in pay-ups was actually quite modest given that specified pools were much longer in duration than TBAs at the beginning of the fourth quarter. Average pay-ups on our specified pools decreased to 0.70% as of
For the quarter ended
We actively traded our Agency RMBS portfolio during the quarter in order to capitalize on sector rotation opportunities. Our portfolio turnover for the quarter was 16% (as measured by sales and excluding paydowns), and we had net realized losses of
During the fourth quarter, we continued to focus our Agency RMBS purchasing activity primarily on specified pools, especially those with higher coupons. As of
We expect to continue to target specified pools that, taking into account their particular composition and based on our prepayment projections: (1) should generate attractive yields relative to other Agency RMBS and U.S. Treasury securities, (2) should have less prepayment sensitivity to government policy shocks, and/or (3) should create opportunities for trading gains once the market recognizes their value, which for newer pools may come only after several months, when actual prepayment experience can be observed. We believe that our research team, proprietary prepayment models, and extensive databases remain essential tools in our implementation of this strategy.
Our net Agency premium as a percentage of our long Agency RMBS holdings is one metric that we use to measure our overall prepayment risk.
We believe that our adaptive and active style of portfolio management is well suited to the current MBS market environment, which continues to be shaped by heightened prepayment risk, shifting central bank and government policies, regulatory changes, and developing technologies.
2 "10-year equivalents" for a group of positions represent the amount of 10-year U.S. Treasury securities that would experience a similar change in market value under a standard parallel move in interest rates.
Non-Agency RMBS
Our non-Agency RMBS performed well in the fourth quarter. As the case has been for some time, the fundamentals underlying non-Agency RMBS, led by a stable housing market, continue to be strong. On a quarter-over-quarter basis, our non-Agency RMBS portfolio increased in size, as we added new purchases during the fourth quarter. As of December 31, 2016, our investment in non-Agency RMBS was
Financial Results
For the quarter ended December 31, 2016, the weighted average yield of our portfolio of Agency and non-Agency RMBS was 2.95%, while our average cost of funds including interest rate swaps and U.S. Treasuries was 1.06%, resulting in a net interest margin for the quarter of 1.89%. In comparison, for the quarter ended September 30, 2016, the annualized weighted average yield of our Agency and non-Agency RMBS was 2.31%, while our average cost of funds including interest rate swaps and U.S. Treasuries was 1.01%, resulting in a net interest margin of 1.30%. Some of the variability in our interest income, portfolio yields, and net interest margin is due to quarterly adjustments to premium amortization 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). We refer to this quarterly adjustment as a "Catch-up Premium Amortization Adjustment." The adjustment is calculated as of the beginning of each quarter based on our then assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter. For the fourth quarter, we had a positive Catch-up Premium Amortization Adjustment of approximately
On a quarter-over-quarter basis our annualized cost of funds, including the cost of repo, interest rate swaps and short positions in U.S. Treasury securities, increased to 1.06% from 1.01%. This quarter-over-quarter increase was primarily the result of an increase in our cost of repo, which increased as LIBOR increased. Typical year-end balance sheet constraints of lending banks also put upward pressure on the cost of repo as
After giving effect to a fourth quarter dividend of
For the quarter ended December 31, 2016, Core Earnings was
Securities Portfolio
The following table summarizes our portfolio of securities as of December 31, 2016 and September 30, 2016:
December 31, 2016 |
September 30, 2016 |
||||||||||||||||||||||||||||||||||||||
(In thousands) |
Current |
Fair Value |
Average |
Cost |
Average |
Current |
Fair Value |
Average |
Cost |
Average |
|||||||||||||||||||||||||||||
Agency RMBS(2) |
|||||||||||||||||||||||||||||||||||||||
15-year fixed rate |
$ |
141,829 |
$ |
148,363 |
$ |
104.61 |
$ |
148,873 |
$ |
104.97 |
$ |
134,770 |
$ |
143,300 |
$ |
106.33 |
$ |
141,566 |
$ |
105.04 |
|||||||||||||||||||
20-year fixed rate |
10,488 |
11,185 |
106.65 |
11,275 |
107.50 |
10,710 |
11,660 |
108.87 |
11,530 |
107.66 |
|||||||||||||||||||||||||||||
30-year fixed rate |
888,976 |
940,457 |
105.79 |
948,157 |
106.66 |
881,351 |
957,420 |
108.63 |
940,520 |
106.71 |
|||||||||||||||||||||||||||||
ARMs |
31,656 |
33,138 |
104.68 |
33,226 |
104.96 |
30,645 |
32,341 |
105.53 |
32,179 |
105.01 |
|||||||||||||||||||||||||||||
Reverse mortgages |
57,411 |
62,058 |
108.09 |
63,114 |
109.93 |
57,088 |
63,677 |
111.54 |
62,941 |
110.25 |
|||||||||||||||||||||||||||||
Total Agency RMBS |
1,130,360 |
1,195,201 |
105.74 |
1,204,645 |
106.57 |
1,114,564 |
1,208,398 |
108.42 |
1,188,736 |
106.65 |
|||||||||||||||||||||||||||||
Non-Agency RMBS |
27,794 |
19,446 |
69.96 |
18,268 |
65.73 |
23,591 |
17,896 |
75.86 |
16,743 |
70.97 |
|||||||||||||||||||||||||||||
Total RMBS(2) |
1,158,154 |
1,214,647 |
104.88 |
1,222,913 |
105.59 |
1,138,155 |
1,226,294 |
107.74 |
1,205,479 |
105.92 |
|||||||||||||||||||||||||||||
Agency IOs |
n/a |
12,347 |
n/a |
11,841 |
n/a |
n/a |
6,840 |
n/a |
8,730 |
n/a |
|||||||||||||||||||||||||||||
Total mortgage- |
1,226,994 |
1,234,754 |
1,233,134 |
1,214,209 |
|||||||||||||||||||||||||||||||||||
U.S. Treasury |
(78,589) |
(74,194) |
94.41 |
(75,465) |
96.02 |
(76,495) |
(77,263) |
101.00 |
(76,332) |
99.79 |
|||||||||||||||||||||||||||||
Reverse repurchase |
75,012 |
75,012 |
100.00 |
75,012 |
100.00 |
77,932 |
77,932 |
100.00 |
77,932 |
100.00 |
|||||||||||||||||||||||||||||
Total |
$ |
1,227,812 |
$ |
1,234,301 |
$ |
1,233,803 |
$ |
1,215,809 |
|||||||||||||||||||||||||||||||
(1) Represents the dollar amount (not shown in thousands) per $100 of current principal of the price or cost for the security. |
|||||||||||||||||||||||||||||||||||||||
(2) Excludes Agency IOs. |
Our weighted average holdings of RMBS based on amortized cost was
Financial Derivatives Portfolio
The following table summarizes fair value of our financial derivatives as of December 31, 2016 and September 30, 2016:
December 31, 2016 |
September 30, 2016 |
|||||||
Financial derivatives–assets, at fair value: |
(In thousands) |
|||||||
TBA securities purchase contracts |
$ |
96 |
$ |
142 |
||||
TBA securities sale contracts |
949 |
32 |
||||||
Fixed payer interest rate swaps |
4,198 |
112 |
||||||
Fixed receiver interest rate swaps |
693 |
1,355 |
||||||
Futures |
72 |
— |
||||||
Total financial derivatives–assets, at fair value |
6,008 |
1,641 |
||||||
Financial derivatives–liabilities, at fair value: |
||||||||
TBA securities purchase contracts |
— |
(3) |
||||||
TBA securities sale contracts |
(554) |
(603) |
||||||
Fixed payer interest rate swaps |
(1,421) |
(9,275) |
||||||
Futures |
— |
(4) |
||||||
Total financial derivatives–liabilities, at fair value |
(1,975) |
(9,885) |
||||||
Total |
$ |
4,033 |
$ |
(8,244) |
Interest Rate Swaps
The following tables provide details about our fixed payer interest rate swaps as of December 31, 2016 and September 30, 2016:
December 31, 2016 |
||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted Pay Rate |
Weighted |
Weighted Average |
|||||||||||
(In thousands) |
||||||||||||||||
2017 |
$ |
74,750 |
$ |
(258) |
1.21 |
% |
0.92 |
% |
0.59 |
|||||||
2018 |
65,990 |
193 |
0.97 |
0.89 |
1.43 |
|||||||||||
2019 |
4,200 |
57 |
0.96 |
0.88 |
2.60 |
|||||||||||
2020 |
79,500 |
554 |
1.48 |
0.89 |
3.32 |
|||||||||||
2021 |
19,300 |
99 |
1.83 |
0.93 |
4.92 |
|||||||||||
2022 |
13,044 |
172 |
1.75 |
0.89 |
5.68 |
|||||||||||
2023 |
54,200 |
514 |
1.93 |
0.89 |
6.47 |
|||||||||||
2024 |
8,900 |
87 |
1.99 |
0.85 |
7.26 |
|||||||||||
2025 |
15,322 |
123 |
2.04 |
0.89 |
8.13 |
|||||||||||
2026 |
46,435 |
2,306 |
1.72 |
0.91 |
9.74 |
|||||||||||
2043 |
12,380 |
(1,070) |
2.99 |
0.89 |
26.38 |
|||||||||||
Total |
$ |
394,021 |
$ |
2,777 |
1.53 |
% |
0.90 |
% |
4.82 |
|||||||
September 30, 2016 |
||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||
(In thousands) |
||||||||||||||||
2016 |
$ |
26,500 |
$ |
(43) |
0.70 |
% |
0.69 |
% |
0.13 |
|||||||
2017 |
74,750 |
(283) |
1.21 |
0.78 |
0.84 |
|||||||||||
2018 |
65,990 |
1 |
0.97 |
0.72 |
1.68 |
|||||||||||
2019 |
4,200 |
11 |
0.96 |
0.79 |
2.85 |
|||||||||||
2020 |
79,500 |
(1,478) |
1.48 |
0.72 |
3.57 |
|||||||||||
2022 |
13,044 |
(451) |
1.75 |
0.75 |
5.93 |
|||||||||||
2023 |
42,200 |
(1,946) |
1.90 |
0.76 |
6.60 |
|||||||||||
2024 |
8,900 |
(494) |
1.99 |
0.65 |
7.51 |
|||||||||||
2025 |
15,322 |
(862) |
2.04 |
0.65 |
8.38 |
|||||||||||
2026 |
26,885 |
(20) |
1.46 |
0.78 |
9.87 |
|||||||||||
2043 |
12,380 |
(3,598) |
2.99 |
0.81 |
26.63 |
|||||||||||
Total |
$ |
369,671 |
$ |
(9,163) |
1.41 |
% |
0.74 |
% |
4.38 |
The following tables provide details about our fixed receiver interest rate swaps as of December 31, 2016 and September 30, 2016:
December 31, 2016 |
||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||
(In thousands) |
||||||||||||||||
2025 |
$ |
9,700 |
$ |
693 |
0.88 |
% |
3.00 |
% |
8.54 |
|||||||
Total |
$ |
9,700 |
$ |
693 |
0.88 |
% |
3.00 |
% |
8.54 |
|||||||
September 30, 2016 |
||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||
(In thousands) |
||||||||||||||||
2025 |
$ |
9,700 |
$ |
1,355 |
0.68 |
% |
3.00 |
% |
8.79 |
|||||||
Total |
$ |
9,700 |
$ |
1,355 |
0.68 |
% |
3.00 |
% |
8.79 |
Futures
The following table provides information about our short positions in futures as of December 31, 2016 and September 30, 2016:
December 31, 2016 |
||||||||||
Description |
Notional Amount |
Fair Value |
Remaining Months to |
|||||||
($ in thousands) |
||||||||||
U.S. Treasury Futures |
$ |
(26,700) |
$ |
71 |
2.70 |
|||||
Eurodollar Futures |
$ |
(9,000) |
$ |
1 |
5.59 |
|||||
September 30, 2016 |
||||||||||
Description |
Notional Amount |
Fair Value |
Remaining Months to |
|||||||
($ in thousands) |
||||||||||
Eurodollar Futures |
$ |
(12,000) |
$ |
(4) |
7.16 |
|||||
TBAs
The following table provides information about our TBAs as of December 31, 2016 and September 30, 2016:
December 31, 2016 |
September 30, 2016 |
|||||||||||||||||||||||||||||||
TBA Securities |
Notional |
Cost |
Market |
Net |
Notional |
Cost |
Market |
Net |
||||||||||||||||||||||||
(In thousands) |
||||||||||||||||||||||||||||||||
Purchase contracts: |
||||||||||||||||||||||||||||||||
Assets |
$ |
49,138 |
$ |
49,774 |
$ |
49,870 |
$ |
96 |
$ |
56,383 |
$ |
59,180 |
$ |
59,322 |
$ |
142 |
||||||||||||||||
Liabilities |
— |
— |
— |
— |
4,510 |
4,747 |
4,744 |
(3) |
||||||||||||||||||||||||
49,138 |
49,774 |
49,870 |
96 |
60,893 |
63,927 |
64,066 |
139 |
|||||||||||||||||||||||||
Sale contracts: |
||||||||||||||||||||||||||||||||
Assets |
(281,655) |
(298,807) |
(297,858) |
949 |
(119,179) |
(129,253) |
(129,221) |
32 |
||||||||||||||||||||||||
Liabilities |
(183,381) |
(189,694) |
(190,248) |
(554) |
(399,832) |
(424,546) |
(425,149) |
(603) |
||||||||||||||||||||||||
(465,036) |
(488,501) |
(488,106) |
395 |
(519,011) |
(553,799) |
(554,370) |
(571) |
|||||||||||||||||||||||||
Total TBA securities, net |
$ |
(415,898) |
$ |
(438,727) |
$ |
(438,236) |
$ |
491 |
$ |
(458,118) |
$ |
(489,872) |
$ |
(490,304) |
$ |
(432) |
||||||||||||||||
(1) Notional amount represents the principal balance of the underlying Agency RMBS. |
||||||||||||||||||||||||||||||||
(2) Cost basis represents the forward price to be paid for the underlying Agency RMBS. |
||||||||||||||||||||||||||||||||
(3) Market value represents the current market value of the underlying Agency RMBS (on a forward delivery basis) as of the respective period end. |
||||||||||||||||||||||||||||||||
(4) Net carrying value represents the difference between the market value of the TBA contract as of the respective period end and the cost basis, and is |
We primarily use TBAs to hedge interest rate risk, typically in the form of short positions. However, from time to time we also invest in TBAs as a means of acquiring exposure to Agency RMBS, or for speculative purposes, including holding long positions. Overall, we typically hold a net short position.
The following tables detail gains and losses on our financial derivatives for the three month periods ended December 31, 2016 and September 30, 2016:
Three Month Period Ended December 31, 2016 |
||||||||||||||||||||||||
Derivative Type |
Net Realized |
Net Realized |
Net Realized |
Change in Net |
Change in Net |
Change in Net |
||||||||||||||||||
(In thousands) |
||||||||||||||||||||||||
Interest rate swaps |
$ |
(917) |
$ |
(378) |
$ |
(1,295) |
$ |
426 |
$ |
10,852 |
$ |
11,278 |
||||||||||||
TBAs |
9,489 |
9,489 |
925 |
925 |
||||||||||||||||||||
Futures |
1,209 |
1,209 |
75 |
75 |
||||||||||||||||||||
Total |
$ |
(917) |
$ |
10,320 |
$ |
9,403 |
$ |
426 |
$ |
11,852 |
$ |
12,278 |
||||||||||||
Three Month Period Ended September 30, 2016 |
||||||||||||||||||||||||
Derivative Type |
Net Realized |
Net Realized |
Net Realized |
Change in Net |
Change in Net |
Change in Net |
||||||||||||||||||
(In thousands) |
||||||||||||||||||||||||
Interest rate swaps |
$ |
(241) |
$ |
(1,089) |
$ |
(1,330) |
$ |
(385) |
$ |
3,071 |
$ |
2,686 |
||||||||||||
TBAs |
(2,591) |
(2,591) |
521 |
521 |
||||||||||||||||||||
Futures |
1 |
1 |
8 |
8 |
||||||||||||||||||||
Total |
$ |
(241) |
$ |
(3,679) |
$ |
(3,920) |
$ |
(385) |
$ |
3,600 |
$ |
3,215 |
Interest Rate Sensitivity
The following table summarizes, as of December 31, 2016, the estimated effects on the value of our portfolio, both overall and by category, of immediate downward and upward parallel shifts of 50 basis points in interest rates.
Estimated Change in Fair Value(1) |
||||||||
(In thousands) |
50 Basis Point Decline in Interest Rates |
50 Basis Point Increase in Interest Rates |
||||||
Agency RMBS - ARM Pools |
$ |
245 |
$ |
(295) |
||||
Agency RMBS - Fixed Pools and IOs |
18,890 |
(24,608) |
||||||
TBAs |
(7,077) |
9,823 |
||||||
Non-Agency RMBS |
197 |
(192) |
||||||
Interest Rate Swaps |
(8,257) |
7,891 |
||||||
U.S. Treasury Securities |
(3,377) |
3,213 |
||||||
Eurodollar and U.S. Treasury Futures |
(1,031) |
996 |
||||||
Repurchase and Reverse Repurchase Agreements |
(739) |
736 |
||||||
Total |
$ |
(1,149) |
$ |
(2,436) |
||||
(1) Based on the market environment as of December 31, 2016. Results are based on forward-looking models, which are inherently imperfect, and |
Repo Borrowings
The following table details our outstanding borrowings under repo agreements as of December 31, 2016 and September 30, 2016:
December 31, 2016 |
September 30, 2016 |
|||||||||||||||||
Weighted Average |
Weighted Average |
|||||||||||||||||
Remaining Days to |
Borrowings |
Interest Rate |
Remaining |
Borrowings |
Interest Rate |
Remaining |
||||||||||||
(In thousands) |
(In thousands) |
|||||||||||||||||
30 days or less |
$ |
545,817 |
0.80 |
% |
19 |
$ |
521,831 |
0.70 |
% |
15 |
||||||||
31-60 days |
304,398 |
0.91 |
45 |
298,063 |
0.70 |
47 |
||||||||||||
61-90 days |
299,081 |
0.98 |
74 |
248,083 |
0.74 |
76 |
||||||||||||
91-120 days |
1,050 |
0.88 |
109 |
74,956 |
0.76 |
109 |
||||||||||||
121-150 days |
12,428 |
0.97 |
135 |
2,150 |
0.75 |
137 |
||||||||||||
151-180 days |
35,199 |
1.05 |
164 |
13,879 |
0.82 |
165 |
||||||||||||
Total |
$ |
1,197,973 |
0.88 |
% |
45 |
$ |
1,158,962 |
0.72 |
% |
44 |
As of December 31, 2016, we had no outstanding borrowings other than under repo agreements. Our repo borrowings were with thirteen counterparties as of December 31, 2016. The above figures are as of the respective quarter ends; over the course of the quarters ended December 31, 2016 and September 30, 2016 our average cost of repo was 0.81% and 0.71%, respectively.
Other
We incur an annual base management fee, payable quarterly in arrears, in an amount equal to 1.50% of shareholders' equity (as defined in our management agreement). For the quarter ended December 31, 2016, our expense ratio, defined as management fees and operating expenses as a percentage of average shareholders' equity, was 3.1% on an annualized basis as compared to 3.5% for the quarter ended
Dividends
On
Share Repurchase Program
On
Reconciliation of Core Earnings to Net Income (Loss)
Core Earnings consists of net income (loss), excluding realized and change in net unrealized gains and losses on securities and financial derivatives, and, if applicable, items of income or loss that are of a non-recurring nature. Core Earnings includes net realized and change in net unrealized gains (losses) associated with payments and accruals of periodic payments on interest rate swaps. Core Earnings excluding Catch-up Premium Amortization Adjustment consists of Core Earnings but excludes the effect of the Catch-up Premium Amortization Adjustment on interest income. Core Earnings and Core Earnings excluding Catch-up Premium Amortization Adjustment are supplemental non-GAAP financial measures. We believe that Core Earnings and Core Earnings excluding Catch-up Premium Amortization Adjustment provide information useful to investors because they are metrics that we use to assess our performance and to evaluate the effective net yield provided by the portfolio. Moreover, one of our objectives is to generate income from the net interest margin on the portfolio, and Core Earnings and Core Earnings excluding Catch-up Premium Amortization Adjustment are used to help measure the extent to which this objective is being achieved. However, because Core Earnings and Core Earnings excluding Catch-up Premium Amortization Adjustment are incomplete measures of our financial results and differ from net income (loss) computed in accordance with GAAP, they should be considered as supplementary to, and not as substitutes for, net income (loss) computed in accordance with GAAP.
The following table reconciles, for the three month periods ended December 31, 2016 and September 30, 2016, our Core Earnings and Core Earnings excluding Catch-up Premium Amortization Adjustment on a consolidated basis to the line on our Consolidated Statement of Operations entitled Net Income, which we believe is the most directly comparable GAAP measure on our Consolidated Statement of Operations to Core Earnings:
(In thousands except share amounts) |
Three Month December 31, 2016 |
Three Month |
||||||
Net Income |
$ |
2,012 |
$ |
6,626 |
||||
Less: |
||||||||
Net realized gains (losses) on securities |
(582) |
3,892 |
||||||
Net realized gains (losses) on financial derivatives, excluding periodic |
10,320 |
(3,679) |
||||||
Change in net unrealized gains (losses) on securities |
(24,484) |
(124) |
||||||
Change in net unrealized gains (losses) on financial derivatives, excluding |
11,852 |
3,600 |
||||||
Subtotal |
(2,894) |
3,689 |
||||||
Core Earnings |
$ |
4,906 |
$ |
2,937 |
||||
Catch-up Premium Amortization Adjustment |
596 |
(1,448) |
||||||
Core Earnings excluding Catch-up Premium Amortization Adjustment |
$ |
4,310 |
$ |
4,385 |
||||
Weighted Average Shares Outstanding |
9,127,836 |
9,119,111 |
||||||
Core Earnings Per Share |
$ |
0.54 |
$ |
0.32 |
||||
Core Earnings Per Share excluding Catch-up Premium Amortization |
$ |
0.47 |
$ |
0.48 |
||||
(1) For the three month period ended December 31, 2016, represents Net realized gains (losses) on financial derivatives of $9,403 less Net realized gains |
||||||||
(2) For the three month period ended December 31, 2016, represents Change in net unrealized gains (losses) on financial derivatives of $12,278 less Change |
About
Conference Call
We will host a conference call at
A dial-in replay of the conference call will be available on Friday, February 10, 2017, at approximately
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 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 our 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, estimated effects on the fair value of our RMBS and interest rate derivative holdings of a hypothetical change in interest rates, statements regarding our share repurchase program, and statements regarding the drivers of our returns. Our results can fluctuate from month to month and from quarter to quarter depending on a variety of factors, some of which are beyond our control and/or are difficult to predict, including, without limitation, changes in interest rates and the market value of our securities, 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 to maintain our exclusion from registration under the Investment Company Act of 1940 and other changes in market conditions and economic trends. Furthermore, forward-looking statements are subject to risks and uncertainties, including, among other things, those described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended
ELLINGTON RESIDENTIAL MORTGAGE REIT CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) |
||||||||||||
Three Month Period Ended |
Year Ended |
|||||||||||
December 31, |
September 30, |
December 31, |
||||||||||
(In thousands except share amounts) |
||||||||||||
INTEREST INCOME (EXPENSE) |
||||||||||||
Interest income |
$ |
9,213 |
$ |
7,096 |
$ |
33,498 |
||||||
Interest expense |
(2,684) |
(2,279) |
(9,274) |
|||||||||
Total net interest income |
6,529 |
4,817 |
24,224 |
|||||||||
EXPENSES |
||||||||||||
Management fees |
534 |
539 |
2,129 |
|||||||||
Professional fees |
118 |
171 |
668 |
|||||||||
Compensation expense |
137 |
142 |
599 |
|||||||||
Other operating expenses |
343 |
402 |
1,613 |
|||||||||
Total expenses |
1,132 |
1,254 |
5,009 |
|||||||||
OTHER INCOME (LOSS) |
||||||||||||
Net realized gains (losses) on securities |
(582) |
3,892 |
8,420 |
|||||||||
Net realized gains (losses) on financial derivatives |
9,403 |
(3,920) |
(12,120) |
|||||||||
Change in net unrealized gains (losses) on securities |
(24,484) |
(124) |
(10,096) |
|||||||||
Change in net unrealized gains (losses) on financial derivatives |
12,278 |
3,215 |
6,487 |
|||||||||
Total other income (loss) |
(3,385) |
3,063 |
(7,309) |
|||||||||
NET INCOME (LOSS) |
$ |
2,012 |
$ |
6,626 |
$ |
11,906 |
||||||
NET INCOME (LOSS) PER COMMON SHARE: |
||||||||||||
Basic and Diluted |
$ |
0.22 |
$ |
0.73 |
$ |
1.31 |
||||||
WEIGHTED AVERAGE SHARES OUTSTANDING |
9,127,836 |
9,119,111 |
9,121,344 |
|||||||||
CASH DIVIDENDS PER SHARE: |
||||||||||||
Dividends declared |
$ |
0.40 |
$ |
0.40 |
$ |
1.65 |
ELLINGTON RESIDENTIAL MORTGAGE REIT CONSOLIDATED BALANCE SHEET (UNAUDITED) |
||||||||||||
As of |
||||||||||||
December 31, |
September |
December 31, |
||||||||||
(In thousands except share amounts) |
||||||||||||
ASSETS |
||||||||||||
Cash and cash equivalents |
$ |
33,504 |
$ |
43,026 |
$ |
40,166 |
||||||
Mortgage-backed securities, at fair value |
1,226,994 |
1,233,134 |
1,242,266 |
|||||||||
Due from brokers |
49,518 |
33,462 |
33,297 |
|||||||||
Financial derivatives–assets, at fair value |
6,008 |
1,641 |
2,183 |
|||||||||
Reverse repurchase agreements |
75,012 |
77,932 |
78,632 |
|||||||||
Receivable for securities sold |
33,199 |
37,057 |
155,526 |
|||||||||
Interest receivable |
4,633 |
4,274 |
4,325 |
|||||||||
Other assets |
266 |
357 |
289 |
|||||||||
Total Assets |
$ |
1,429,134 |
$ |
1,430,883 |
$ |
1,556,684 |
||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||
LIABILITIES |
||||||||||||
Repurchase agreements |
$ |
1,197,973 |
$ |
1,158,962 |
$ |
1,222,719 |
||||||
Payable for securities purchased |
5,516 |
34,808 |
98,949 |
|||||||||
Due to brokers |
1,055 |
538 |
439 |
|||||||||
Financial derivatives–liabilities, at fair value |
1,975 |
9,885 |
4,725 |
|||||||||
U.S. Treasury securities sold short, at fair value |
74,194 |
77,263 |
78,447 |
|||||||||
Dividend payable |
3,652 |
3,651 |
4,111 |
|||||||||
Accrued expenses |
647 |
622 |
533 |
|||||||||
Management fee payable |
533 |
539 |
545 |
|||||||||
Interest payable |
1,912 |
1,341 |
1,361 |
|||||||||
Total Liabilities |
1,287,457 |
1,287,609 |
1,411,829 |
|||||||||
SHAREHOLDERS' EQUITY |
||||||||||||
Preferred shares, par value $0.01 per share, 100,000,000 shares |
— |
— |
— |
|||||||||
Common shares, par value $0.01 per share, 500,000,000 shares |
92 |
92 |
92 |
|||||||||
Additional paid-in-capital |
180,996 |
180,952 |
181,027 |
|||||||||
Accumulated deficit |
(39,411) |
(37,770) |
(36,264) |
|||||||||
Total Shareholders' Equity |
141,677 |
143,274 |
144,855 |
|||||||||
Total Liabilities and Shareholders' Equity |
$ |
1,429,134 |
$ |
1,430,883 |
$ |
1,556,684 |
||||||
PER SHARE INFORMATION |
||||||||||||
Common shares, par value $0.01 per share |
$ |
15.52 |
$ |
15.70 |
$ |
15.86 |
||||||
(1) Derived from audited financial statements as of December 31, 2015. |
Investor Contact:
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/ellington-residential-mortgage-reit-reports-fourth-quarter-2016-results-300405461.html
SOURCE