Ellington Residential Mortgage REIT Reports Second Quarter 2017 Results
Summary of Quarterly Financial Results
-
Net income of
$1.6 million , or$0.15 per share. -
Core Earnings1 of
$4.8 million , or$0.45 per share and Adjusted Core Earnings1 of$5.1 million , or$0.47 per share. -
Book value of
$14.71 per share as of June 30, 2017, after giving effect to a second quarter dividend of$0.40 per share and an equity capital raise completed during the quarter, as compared to$15.35 per share as ofMarch 31, 2017 . - Net interest margin of 1.56%, and adjusted net interest margin2 of 1.63%.
-
Issued 3.23 million shares through a follow-on equity offering,
increasing our total equity approximately
$45 million , or 32%, and increasing our public float by approximately 52%. -
Aggregate RMBS portfolio increased 34% to
$1.653 billion . - Weighted average constant prepayment rate for the fixed-rate Agency specified pool portfolio of 8.25%; aided in part by significant purchases of newly originated pools following our equity offering.
-
Dividend yield of 10.8% based on
July 31, 2017 closing stock price of$14.83 . - Debt-to-equity ratio of 9.0:1 as of June 30, 2017; adjusted for unsettled purchases and sales, the debt-to-equity ratio was 8.5:1.
Second Quarter 2017 Results
"In the second quarter, Ellington Residential had net income of
"Our view remains favorable for specified pools despite their second quarter underperformance. While the Federal Reserve's Agency RMBS purchasing is now forecast to decline in the fourth quarter of this year, its purchases have always been in TBAs, not specified pools. The Agency pools that are delivered into TBA contracts are viewed as the most vulnerable to prepayments, but the Federal Reserve is relatively indifferent to these quality differences. As the Federal Reserve's buying subsides, we expect that the new marginal buyers of Agency RMBS will be more sensitive to these quality differences, which should be supportive of pay-ups and should therefore benefit our portfolio.
"Also during the second quarter, we successfully raised
1 | Core Earnings and Adjusted Core Earnings are non-GAAP financial measures. Adjusted Core Earnings represents Core Earnings excluding the effect of the Catch-up Premium Amortization Adjustment on interest income. See "Reconciliation of Core Earnings to Net Income" below for an explanation regarding the calculation of Core Earnings, Adjusted Core Earnings, and the Catch-up Premium Amortization Adjustment. | |
2 | Adjusted net interest margin represents net interest margin excluding the effect of the Catch-up Premium Amortization Adjustment on interest income. | |
Market Overview
- For the third consecutive quarter, the Federal Reserve raised the target range for the federal funds rate by 0.25%, to 1.00%–1.25%. At the June FOMC meeting, the Federal Reserve outlined the mechanics of the eventual tapering of its asset purchases. While the Federal Reserve did not signal exact timing, the market's expectation for the initial taper is the fourth quarter of this year.
- For another quarter, yields on U.S. Treasury securities traded in a tight range while the yield curve continued to flatten. The 2-year U.S. Treasury yield rose 13 basis points to end the quarter at 1.38%, whereas the 10-year U.S. Treasury yield fell 9 basis points to 2.30% and traded in an extraordinarily tight 29 basis point range during the quarter.
-
Mortgage rates continued to decline during the second quarter, with
the
Freddie Mac survey 30-year mortgage rate falling 26 basis points to end the quarter at 3.88%. Mortgage rates remain at something of a "sweet spot" between prepayment risk and extension risk—namely, the market has low exposure to either risk unless rates move more than about 25 basis points in either direction. - Quarter over quarter, overall Agency RMBS prepayment rates were slightly higher. The small increase reflects lower mortgage rates and the fact that the second quarter of each year typically includes a portion of the peak activity season, when home sales increase significantly.
Volatility continued to hit new lows in the second quarter. The Merrill
Lynch Option Volatility Estimate Index, or MOVE Index, sunk to a four
year low, and the
Non-Agency RMBS yield spreads continued to grind tighter, as did those for many other credit products such as CMBS, while demand remained strong for floating-rate debt instruments, including CLOs and leveraged loans. The energy-related sectors of the corporate bond market were notable exceptions to this trend, as yield spreads in these sectors widened in response to sharp declines in oil prices. Meanwhile, Agency RMBS remained one of the few fixed-income asset classes trading at the wider end of their trailing two-year range, with their option-adjusted spreads relatively unchanged quarter over quarter. We largely attribute the relative underperformance of Agency RMBS to concerns around the Federal Reserve's plan for tapering its asset purchases.
Financial Results
Holdings
As of June 30, 2017, our mortgage-backed securities portfolio consisted
of
In addition to deploying the proceeds from our follow-on equity offering, 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 50% (as measured by sales and excluding paydowns). Our portfolio selection continues to be informed by mortgage industry trends—including significant enhancements in technology that are helping streamline the origination process—and we note that refinancing capacity remains high, with employment in the mortgage industry near a post-financial crisis high.
While pay-ups on specified pools edged higher quarter over quarter, the
increase was less than might have been expected given the drop in
mortgage rates. Pay-ups are price premiums for specified pools relative
to their TBA counterparts. Average pay-ups on our specified pools
increased to 0.71% as of June 30, 2017, from 0.68% as of
Our non-Agency RMBS performed well in the second quarter, driven by net
carry and unrealized gains. As the case has been for some time, the
fundamentals underlying non-Agency RMBS, led by a stable housing market,
continue to be strong. We added slightly to this portfolio over the
course of the second quarter, and as a result our total investment in
non-Agency RMBS was
Earnings and Net Interest Margin
We had net income of
For the quarter ended June 30, 2017, the weighted average yield of our portfolio of Agency and non-Agency RMBS was 2.94%, while our average cost of funds including interest rate swaps and U.S. Treasury securities was 1.38%, resulting in a net interest margin for the quarter of 1.56%. In comparison, for the quarter ended March 31, 2017, the weighted average yield of our Agency and non-Agency RMBS was 3.79%, while our average cost of funds including interest rate swaps and U.S. Treasury securities was 1.23%, resulting in a net interest margin of 2.56%. For the second and first quarters, excluding the impact of the Catch-up Premium Amortization Adjustment, the weighted average yield of our portfolio was 3.01% and 2.99% and our adjusted net interest margin was 1.63% and 1.76%, respectively.
On a quarter-over-quarter basis our cost of funds, including the cost of repo, interest rate swaps, and short positions in U.S. Treasury securities, increased to 1.38% from 1.23%. This quarter-over-quarter increase resulted primarily from an increase in our cost of repo, which increased as LIBOR rose, and to a lesser extent from an increase in the cost of our interest rate swaps. Our average cost of repo increased fifteen basis points quarter over quarter to 1.09%, while the cost related to our interest rate swaps increased three basis points to 0.19%. The contribution of our short positions in U.S. Treasury securities to our average cost of funds decreased quarter over quarter, to 0.11% in the second quarter, as compared to 0.13% in the first quarter of 2017. The relative make up of our interest rate hedging portfolio can change materially from quarter to quarter.
For the quarter ended
After giving effect to a second quarter dividend of
3 | "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. | |
Securities Portfolio
The following table summarizes our portfolio of securities as of June 30, 2017 and March 31, 2017:
June 30, 2017 | March 31, 2017 | ||||||||||||||||||||||||||||||||||||||
(In thousands) |
Current |
Fair Value |
Average |
Cost |
Average |
Current |
Fair Value |
Average |
Cost |
Average |
|||||||||||||||||||||||||||||
Agency RMBS(2) | |||||||||||||||||||||||||||||||||||||||
15-year fixed-rate mortgages | $ | 174,413 | $ | 181,932 | $ | 104.31 | $ | 182,470 | $ | 104.62 | $ | 129,244 | $ | 134,823 | $ | 104.32 | $ | 135,290 | $ | 104.68 | |||||||||||||||||||
20-year fixed-rate mortgages | 9,721 | 10,359 | 106.56 | 10,461 | 107.61 | 10,045 | 10,678 | 106.30 | 10,818 | 107.70 | |||||||||||||||||||||||||||||
30-year fixed-rate mortgages | 1,272,409 | 1,342,379 | 105.50 | 1,348,714 | 106.00 | 916,405 | 966,147 | 105.43 | 976,462 | 106.55 | |||||||||||||||||||||||||||||
ARMs | 27,375 | 28,591 | 104.44 | 29,031 | 106.05 | 28,521 | 29,760 | 104.34 | 30,293 | 106.21 | |||||||||||||||||||||||||||||
Reverse mortgages | 53,330 | 58,256 | 109.24 | 58,567 | 109.82 | 55,668 | 60,127 | 108.01 | 60,780 | 109.18 | |||||||||||||||||||||||||||||
Total Agency RMBS | 1,537,248 | 1,621,517 | 105.48 | 1,629,243 | 105.98 | 1,139,883 | 1,201,535 | 105.41 | 1,213,643 | 106.47 | |||||||||||||||||||||||||||||
Non-Agency RMBS | 24,977 | 20,630 | 82.60 | 18,122 | 72.55 | 20,486 | 15,999 | 78.10 | 14,176 | 69.20 | |||||||||||||||||||||||||||||
Total RMBS(2) | 1,562,225 | 1,642,147 | 105.12 | 1,647,365 | 105.45 | 1,160,369 | 1,217,534 | 104.93 | 1,227,819 | 105.81 | |||||||||||||||||||||||||||||
Agency IOs | n/a | 10,882 | n/a | 11,395 | n/a | n/a | 12,542 | n/a | 12,256 | n/a | |||||||||||||||||||||||||||||
Total mortgage-backed securities | 1,653,029 | 1,658,760 | 1,230,076 | 1,240,075 | |||||||||||||||||||||||||||||||||||
U.S. Treasury securities sold short | (74,788 | ) | (72,762 | ) | 97.29 | (73,793 | ) | 98.67 | (82,989 | ) | (79,454 | ) | 95.74 | (80,616 | ) | 97.14 | |||||||||||||||||||||||
Reverse repurchase agreements | 73,470 | 73,470 | 100.00 | 73,470 | 100.00 | 80,133 | 80,133 | 100.00 | 80,133 | 100.00 | |||||||||||||||||||||||||||||
Total | $ | 1,653,737 | $ | 1,658,437 | $ | 1,230,755 | $ | 1,239,592 | |||||||||||||||||||||||||||||||
(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 June 30, 2017 and March 31, 2017:
June 30, 2017 | March 31, 2017 | |||||||
Financial derivatives–assets, at fair value: | (In thousands) | |||||||
TBA securities purchase contracts | $ | — |
$ |
537 |
||||
TBA securities sale contracts | 1,936 | 45 | ||||||
Fixed payer interest rate swaps | 3,294 | 4,318 | ||||||
Fixed receiver interest rate swaps | 710 | 562 | ||||||
Futures | 166 | 2 | ||||||
Total financial derivatives–assets, at fair value | 6,106 | 5,464 | ||||||
Financial derivatives–liabilities, at fair value: | ||||||||
TBA securities purchase contracts | (328 | ) | (3 | ) | ||||
TBA securities sale contracts | (1 | ) | (2,430 | ) | ||||
Fixed payer interest rate swaps | (2,357 | ) | (1,115 | ) | ||||
Futures | — | (24 | ) | |||||
Total financial derivatives–liabilities, at fair value | (2,686 | ) | (3,572 | ) | ||||
Total | $ | 3,420 | $ | 1,892 | ||||
Interest Rate Swaps
The following tables provide details about our fixed payer interest rate swaps as of June 30, 2017 and March 31, 2017:
June 30, 2017 | ||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||
(In thousands) | ||||||||||||||||
2017 | $ | 54,750 | $ | (171 | ) | 1.28 | % | 1.14 | % | 0.16 | ||||||
2018 | 65,990 | 192 | 0.97 | 1.16 | 0.93 | |||||||||||
2019 | 19,540 | 73 | 1.41 | 1.27 | 2.01 | |||||||||||
2020 | 119,900 | 465 | 1.56 | 1.18 | 2.85 | |||||||||||
2021 | 131,400 | (354 | ) | 1.88 | 1.18 | 3.91 | ||||||||||
2022 | 63,044 | (113 | ) | 1.95 | 1.17 | 4.93 | ||||||||||
2023 | 54,200 | 251 | 1.93 | 1.17 | 5.97 | |||||||||||
2024 | 8,900 | 41 | 1.99 | 1.15 | 6.76 | |||||||||||
2025 | 15,322 | 30 | 2.04 | 1.06 | 7.63 | |||||||||||
2026 | 40,885 | 1,943 | 1.63 | 1.19 | 9.21 | |||||||||||
2027 | 58,066 | (228 | ) | 2.29 | 1.18 | 9.86 | ||||||||||
2043 | 12,380 | (1,192 | ) | 2.99 | 1.12 | 25.89 | ||||||||||
Total | $ | 644,377 | $ | 937 | 1.72 | % | 1.17 | % | 4.73 | |||||||
March 31, 2017 | ||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||
(In thousands) | ||||||||||||||||
2017 | $ | 74,750 | $ | (87 | ) | 1.21 | % | 1.06 | % | 0.34 | ||||||
2018 | 65,990 | 368 | 0.97 | 1.05 | 1.18 | |||||||||||
2019 | 4,200 | 72 | 0.96 | 1.04 | 2.36 | |||||||||||
2020 | 79,500 | 439 | 1.48 | 1.00 | 3.07 | |||||||||||
2021 | 14,400 | 59 | 1.81 | 1.08 | 4.67 | |||||||||||
2022 | 13,044 | 173 | 1.75 | 1.04 | 5.44 | |||||||||||
2023 | 54,200 | 450 | 1.93 | 1.04 | 6.22 | |||||||||||
2024 | 8,900 | 73 | 1.99 | 1.00 | 7.01 | |||||||||||
2025 | 15,322 | 223 | 2.04 | 1.01 | 7.88 | |||||||||||
2026 | 40,885 | 2,460 | 1.63 | 1.05 | 9.46 | |||||||||||
2043 | 12,380 | (1,027 | ) | 2.99 | 1.04 | 26.13 | ||||||||||
Total | $ | 383,571 | $ | 3,203 | 1.52 | % | 1.04 | % | 4.50 | |||||||
The following tables provide details about our fixed receiver interest rate swaps as of June 30, 2017 and March 31, 2017:
June 30, 2017 | ||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||
(In thousands) | ||||||||||||||||
2025 | $ | 9,700 | $ | 710 | 1.16 | % | 3.00 | % | 8.05 | |||||||
Total | $ | 9,700 | $ | 710 | 1.16 | % | 3.00 | % | 8.05 | |||||||
March 31, 2017 | ||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||
(In thousands) | ||||||||||||||||
2025 | $ | 9,700 | $ | 562 | 1.02 | % | 3.00 | % | 8.30 | |||||||
Total | $ | 9,700 | $ | 562 | 1.02 | % | 3.00 | % | 8.30 | |||||||
Futures
The following table provides information about our short positions in futures as of June 30, 2017 and March 31, 2017:
June 30, 2017 | ||||||||||
Description | Notional Amount | Fair Value |
Remaining Months to |
|||||||
($ in thousands) | ||||||||||
U.S. Treasury Futures | $ | (25,800 | ) | $ | 165 | 2.73 | ||||
Eurodollar Futures | $ | (3,000 | ) | $ | 1 | 2.67 | ||||
March 31, 2017 | ||||||||||
Description | Notional Amount | Fair Value |
Remaining Months to |
|||||||
($ in thousands) | ||||||||||
U.S. Treasury Futures | $ | (25,800 | ) | $ | (24 | ) | 2.73 | |||
Eurodollar Futures | $ | (6,000 | ) | $ | 2 | 4.18 | ||||
TBAs
The following table provides information about our TBAs as of June 30, 2017 and March 31, 2017:
June 30, 2017 | March 31, 2017 | |||||||||||||||||||||||||||||||
TBA Securities |
Notional |
Cost |
Market |
Net |
Notional |
Cost |
Market |
Net |
||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Purchase contracts: | ||||||||||||||||||||||||||||||||
Assets | $ | — | $ | — | $ | — | $ | — | $ | 137,022 | $ | 140,723 | $ | 141,260 | $ | 537 | ||||||||||||||||
Liabilities | 126,309 | 132,095 | 131,767 | (328 | ) | 3,000 | 2,977 | 2,974 | (3 | ) | ||||||||||||||||||||||
126,309 | 132,095 | 131,767 | (328 | ) | 140,022 | 143,700 | 144,234 | 534 | ||||||||||||||||||||||||
Sale contracts: | ||||||||||||||||||||||||||||||||
Assets | (672,314 | ) | (703,405 | ) | (701,469 | ) | 1,936 | (64,000 | ) | (65,370 | ) | (65,325 | ) | 45 | ||||||||||||||||||
Liabilities | (2,100 | ) | (2,231 | ) | (2,232 | ) | (1 | ) | (520,580 | ) | (541,766 | ) | (544,196 | ) | (2,430 | ) | ||||||||||||||||
(674,414 | ) | (705,636 | ) | (703,701 | ) | 1,935 | (584,580 | ) | (607,136 | ) | (609,521 | ) | (2,385 | ) | ||||||||||||||||||
Total TBA securities, net | $ | (548,105 | ) | $ | (573,541 | ) | $ | (571,934 | ) | $ | 1,607 | $ | (444,558 | ) | $ | (463,436 | ) | $ | (465,287 | ) | $ | (1,851 | ) | |||||||||
(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 reported in Financial derivatives-assets, at fair value and Financial derivatives-liabilities, at fair value on the Consolidated Balance Sheet, for each respective period end. | |
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 June 30, 2017 and March 31, 2017:
Three Month Period Ended June 30, 2017 | ||||||||||||||||||||||||
Derivative Type |
Net Realized |
Net Realized |
Net Realized |
Change in Net |
Change in Net |
Change in Net |
||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Interest rate swaps | $ | (936 | ) | $ | 34 | $ | (902 | ) | $ | 317 | $ | (2,435 | ) | $ | (2,118 | ) | ||||||||
TBAs | (7,718 | ) | (7,718 | ) | 3,458 | 3,458 | ||||||||||||||||||
Futures | (508 | ) | (508 | ) | 188 | 188 | ||||||||||||||||||
Total | $ | (936 | ) | $ | (8,192 | ) | $ | (9,128 | ) | $ | 317 | $ | 1,211 | $ | 1,528 | |||||||||
Three Month Period Ended March 31, 2017 | ||||||||||||||||||||||||
Derivative Type |
Net Realized |
Net Realized |
Net Realized |
Change in Net |
Change in Net |
Change in Net |
||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Interest rate swaps | $ | (15 | ) | $ | (29 | ) | $ | (44 | ) | $ | (462 | ) | $ | 756 | $ | 294 | ||||||||
TBAs | 1,831 | 1,831 | (2,342 | ) | (2,342 | ) | ||||||||||||||||||
Futures | (134 | ) | (134 | ) | (94 | ) | (94 | ) | ||||||||||||||||
Total | $ | (15 | ) | $ | 1,668 | $ | 1,653 | $ | (462 | ) | $ | (1,680 | ) | $ | (2,142 | ) | ||||||||
Interest Rate Sensitivity
The following table summarizes, as of June 30, 2017, 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 |
50 Basis Point Increase |
||||||||||||
Market Value |
% of Total |
Market Value |
% of Total |
|||||||||||
Agency RMBS—ARM Pools | $ | 192 | 0.11 | % | $ | (247 | ) | (0.13 | )% | |||||
Agency RMBS—Fixed Pools and IOs | 24,536 | 13.49 | % | (33,614 | ) | (18.48 | )% | |||||||
TBAs | (9,348 | ) | (5.14 | )% | 13,262 | 7.29 | % | |||||||
Non-Agency RMBS | 240 | 0.13 | % | (238 | ) | (0.13 | )% | |||||||
Interest Rate Swaps | (13,696 | ) | (7.53 | )% | 13,175 | 7.24 | % | |||||||
U.S. Treasury Securities | (2,577 | ) | (1.42 | )% | 2,472 | 1.36 | % | |||||||
Eurodollar and U.S. Treasury Futures | (1,007 | ) | (0.55 | )% | 973 | 0.53 | % | |||||||
Repurchase and Reverse Repurchase Agreements | (881 | ) | (0.49 | )% | 881 | 0.49 | % | |||||||
Total | $ | (2,541 | ) | (1.40 | )% | $ | (3,336 | ) | (1.83 | )% | ||||
(1) | Based on the market environment as of June 30, 2017. Results are based on forward-looking models, which are inherently imperfect, and incorporate various simplifying assumptions. Therefore, the table above is for illustrative purposes only and actual changes in interest rates would likely cause changes in the actual value of the overall portfolio that would differ from those presented above and such differences might be significant and adverse. | |
Repo Borrowings
The following table details our outstanding borrowings under repo agreements as of June 30, 2017 and March 31, 2017:
June 30, 2017 | March 31, 2017 | ||||||||||||||||||
Weighted Average | Weighted Average | ||||||||||||||||||
Remaining Days to Maturity |
Borrowings |
Interest Rate |
Remaining |
Borrowings |
Interest Rate |
Remaining |
|||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||||
30 days or less | $ | 688,807 | 1.21 | % | 15 | $ | 514,438 | 0.92 | % | 14 | |||||||||
31-60 days | 707,251 | 1.22 | 47 | 207,068 | 0.91 | 43 | |||||||||||||
61-90 days | 205,465 | 1.33 | 77 | 300,979 | 1.06 | 76 | |||||||||||||
91-120 days | 16,927 | 1.17 | 105 | 13,738 | 1.04 | 105 | |||||||||||||
121-150 days | — | — | — | 136,635 | 0.99 | 137 | |||||||||||||
151-180 days | 10,000 | 1.45 | 171 | 5,427 | 1.15 | 168 | |||||||||||||
Total | $ | 1,628,450 | 1.23 | % | 39 | $ | 1,178,285 | 0.96 | % | 51 | |||||||||
As of June 30, 2017, we had no outstanding borrowings other than under repo agreements. Our repo borrowings were with thirteen counterparties as of June 30, 2017. The above figures are as of the respective quarter ends; over the course of the quarters ended June 30, 2017 and March 31, 2017 our average cost of repo was 1.09% and 0.94%, 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 June 30, 2017, our expense ratio, defined as management fees and operating expenses as a percentage of average shareholders' equity, was 3.6% on an annualized basis unchanged from the quarter ended March 31, 2017. In light of our second quarter follow-on equity offering, we expect that our annualized expense ratio will decline to approximately 3.2%.
Dividends
On
Follow-On Equity Offering
On
At-the-Market Program
In addition to completing an equity offering in the second quarter, we
also entered into equity distribution agreements for an "at the market"
offering program whereby we are able to sell shares from time to time in
the open market or in negotiated transactions. Under the program, which
is open-ended in duration, we can sell shares with a value of up to
Reconciliation of Core Earnings to Net Income
Core Earnings consists of net income, 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. Adjusted Core Earnings represents Core Earnings excluding the effect of the Catch-up Premium Amortization Adjustment on interest income. The Catch-up Premium Amortization Adjustment is a quarterly adjustment 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). 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.
Core Earnings and Adjusted Core Earnings are supplemental non-GAAP financial measures. We believe that Core Earnings and Adjusted Core Earnings 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 Adjusted Core Earnings are used to help measure the extent to which this objective is being achieved. However, because Core Earnings and Adjusted Core Earnings 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 June 30, 2017 and March 31, 2017, our Core Earnings and Adjusted Core Earnings 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 |
Three Month Period Ended March 31, 2017 |
||||||
Net Income | $ | 1,603 | $ | 2,052 | ||||
Less: | ||||||||
Net realized gains (losses) on securities | (359 | ) | (2,990 | ) | ||||
Net realized gains (losses) on financial derivatives, excluding periodic payments(1) | (8,192 | ) | 1,668 | |||||
Change in net unrealized gains (losses) on securities | 4,136 | (2,347 | ) | |||||
Change in net unrealized gains (losses) on financial derivatives, excluding accrued periodic payments(2) | 1,211 | (1,680 | ) | |||||
Subtotal | (3,204 | ) | (5,349 | ) | ||||
Core Earnings | $ | 4,807 | $ | 7,401 | ||||
Catch-up Premium Amortization Adjustment | (274 | ) | 2,584 | |||||
Adjusted Core Earnings | $ | 5,081 | $ | 4,817 | ||||
Weighted Average Shares Outstanding | 10,741,074 | 9,130,897 | ||||||
Core Earnings Per Share | $ | 0.45 | $ | 0.81 | ||||
Adjusted Core Earnings Per Share | $ | 0.47 | $ | 0.53 | ||||
(1) | For the three month period ended June 30, 2017, represents Net realized gains (losses) on financial derivatives of $(9,128) less Net realized gains (losses) on periodic settlements of interest rate swaps of $(936). For the three month period ended March 31, 2017, represents Net realized gains (losses) on financial derivatives of $1,653 less Net realized gains (losses) on periodic settlements of interest rate swaps of $(15). | |
(2) | For the three month period ended June 30, 2017, represents Change in net unrealized gains (losses) on financial derivatives of $1,528 less Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps of $317. For the three month period ended March 31, 2017, represents Change in net unrealized gains (losses) on financial derivatives of $(2,142) less Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps of $(462). | |
About
Conference Call
We will host a conference call at
A dial-in replay of the conference call will be available on Wednesday,
August 2, 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 |
Six Month |
|||||||||||
June 30, 2017 | March 31, 2017 | June 30, 2017 | ||||||||||
(In thousands except share amounts) | ||||||||||||
INTEREST INCOME (EXPENSE) | ||||||||||||
Interest income | $ | 10,883 | $ | 12,329 | $ | 23,211 | ||||||
Interest expense | (4,020 | ) | (3,179 | ) | (7,199 | ) | ||||||
Total net interest income | 6,863 | 9,150 | 16,012 | |||||||||
EXPENSES | ||||||||||||
Management fees | 685 | 527 | 1,212 | |||||||||
Professional fees | 178 | 175 | 354 | |||||||||
Compensation expense | 216 | 159 | 375 | |||||||||
Other operating expenses | 358 | 411 | 768 | |||||||||
Total expenses | 1,437 | 1,272 | 2,709 | |||||||||
OTHER INCOME (LOSS) | ||||||||||||
Net realized gains (losses) on securities | (359 | ) | (2,990 | ) | (3,350 | ) | ||||||
Net realized gains (losses) on financial derivatives | (9,128 | ) | 1,653 | (7,474 | ) | |||||||
Change in net unrealized gains (losses) on securities | 4,136 | (2,347 | ) | 1,789 | ||||||||
Change in net unrealized gains (losses) on financial derivatives | 1,528 | (2,142 | ) | (613 | ) | |||||||
Total other income (loss) | (3,823 | ) | (5,826 | ) | (9,648 | ) | ||||||
NET INCOME | $ | 1,603 | $ | 2,052 | $ | 3,655 | ||||||
NET INCOME PER COMMON SHARE: | ||||||||||||
Basic and Diluted | $ | 0.15 | $ | 0.22 | $ | 0.37 | ||||||
WEIGHTED AVERAGE SHARES OUTSTANDING | 10,741,074 | 9,130,897 | 9,940,433 | |||||||||
CASH DIVIDENDS PER SHARE: | ||||||||||||
Dividends declared | $ | 0.40 | $ | 0.40 | $ | 0.80 | ||||||
ELLINGTON RESIDENTIAL MORTGAGE REIT | ||||||||||||
CONSOLIDATED BALANCE SHEET | ||||||||||||
(UNAUDITED) | ||||||||||||
As of | ||||||||||||
June 30, |
March 31, |
December |
||||||||||
(In thousands except share amounts) | ||||||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 41,660 | $ | 37,509 | $ | 33,504 | ||||||
Mortgage-backed securities, at fair value | 1,653,029 | 1,230,076 | 1,226,994 | |||||||||
Due from brokers | 34,924 | 27,205 | 49,518 | |||||||||
Financial derivatives–assets, at fair value | 6,106 | 5,464 | 6,008 | |||||||||
Reverse repurchase agreements | 73,470 | 80,133 | 75,012 | |||||||||
Receivable for securities sold | 156,348 | 82,269 | 33,199 | |||||||||
Interest receivable | 5,966 | 4,966 | 4,633 | |||||||||
Other assets | 687 | 185 | 266 | |||||||||
Total Assets | $ | 1,972,190 | $ | 1,467,807 | $ | 1,429,134 | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||
LIABILITIES | ||||||||||||
Repurchase agreements | $ | 1,628,450 | $ | 1,178,285 | $ | 1,197,973 | ||||||
Payable for securities purchased | 77,054 | 58,620 | 5,516 | |||||||||
Due to brokers | 318 | 1,031 | 1,055 | |||||||||
Financial derivatives–liabilities, at fair value | 2,686 | 3,572 | 1,975 | |||||||||
U.S. Treasury securities sold short, at fair value | 72,762 | 79,454 | 74,194 | |||||||||
Dividend payable | 4,947 | 3,652 | 3,652 | |||||||||
Accrued expenses | 1,114 | 708 | 647 | |||||||||
Management fee payable | 685 | 528 | 533 | |||||||||
Interest payable | 2,269 | 1,832 | 1,912 | |||||||||
Total Liabilities | 1,790,285 | 1,327,682 | 1,287,457 | |||||||||
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;
(12,367,598, 9,130,897, and 9,130,897 shares issued and outstanding, respectively) |
124 | 92 | 92 | |||||||||
Additional paid-in-capital | 226,136 | 181,044 | 180,996 | |||||||||
Accumulated deficit | (44,355 | ) | (41,011 | ) | (39,411 | ) | ||||||
Total Shareholders' Equity | 181,905 | 140,125 | 141,677 | |||||||||
Total Liabilities and Shareholders' Equity | $ | 1,972,190 | $ | 1,467,807 | $ | 1,429,134 | ||||||
PER SHARE INFORMATION | ||||||||||||
Common shares, par value $0.01 per share | $ | 14.71 | $ | 15.35 | $ | 15.52 | ||||||
(1) | Derived from audited financial statements as of December 31, 2016. | |
View source version on businesswire.com: http://www.businesswire.com/news/home/20170801006744/en/
Source:
Investors:
Ellington Residential Mortgage REIT
Maria Cozine,
203-409-3773
Vice President of Investor Relations
or
Lisa
Mumford, 203-409-3773
Chief Financial Officer
info@earnreit.com
or
Media:
Gasthalter
& Co., for Ellington Residential Mortgage REIT
Amanda Klein /
Kevin Fitzgerald, 212-257-4170
Ellington@gasthalter.com