Ellington Residential Mortgage REIT Reports First Quarter 2017 Results
Summary of Financial Results
-
Net income for the quarter was
$2.1 million , or$0.22 per share, as compared to$2.0 million , or$0.22 per share, in the fourth quarter of 2016. -
Core Earnings1 for the quarter was
$7.4 million , or$0.81 per share, as compared to$4.9 million , or$0.54 per share, in the fourth quarter of 2016. Adjusted Core Earnings1 for the first quarter was$4.8 million , or$0.53 per share, as compared to$4.3 million , or$0.47 per share, in the fourth quarter. -
Book value was
$15.35 per share as of March 31, 2017, after giving effect to a first quarter dividend of$0.40 per share. Economic return for the quarter was 1.5%, consisting of the$0.40 dividend offset by a$0.17 drop in book value per share over the quarter. - Net interest margin was 2.56%, as compared to 1.89% for the fourth quarter. Adjusted net interest margin2 was 1.76% for the first quarter as compared to 1.69% for the fourth quarter of 2016.
- Weighted average constant prepayment rate for the fixed rate Agency specified pool portfolio was 12.7% for the first quarter, compared to 15.6% for the fourth quarter.
-
Dividend yield of 10.5% based on
May 1, 2017 closing stock price of$15.18 . - Debt-to-equity ratio was 8.4:1 as of March 31, 2017, as compared to 8.5:1 as of December 31, 2016. Adjusted for unsettled purchases and sales, the debt-to-equity ratio was 8.2:1 and 8.3:1 as of March 31, 2017 and December 31, 2016, respectively.
First Quarter 2017 Results
"For the first quarter, EARN had net income of
"Pay-ups on our specified pools decreased slightly in the first quarter. Following the fourth quarter's surge in mortgage rates, prepayment rates have continued to decline, as the majority of Agency mortgages are no longer refinanceable. With prepayment concerns fading for the generic pools that underlie TBAs, and with strong TBA dollar rolls reemerging, specified pools underperformed relative to their TBA counterparts. We took advantage of this underperformance by rotating a portion of our portfolio into what we believe are higher quality specified pools at attractive valuations. With the Federal Reserve's gradual reduction of its participation in the TBA market, our view remains that specified pools will outperform TBAs in the medium term. Should we see meaningful yield spread widening in specified pools in the interim, we will look to add leverage at wider net interest margins. We intend to continue to seek trading opportunities, especially as perceptions change as to when the Federal Reserve will start unwinding its Agency RMBS portfolio."
As of
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 (Loss)" below for an explanation regarding the calculation of Core Earnings and Adjusted Core Earnings. |
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 most of the first quarter, both interest rate volatility and overall
market volatility were low, but many measures of volatility increased
towards the end of the quarter. The yield curve flattened over the
course of the quarter as market participants ratcheted back their
post-election expectations of economic growth and inflation in the U.S.
economy. The 2-year U.S. Treasury yield rose 6 basis points to end the
quarter at 1.25%, whereas the 10-year U.S. Treasury yield fell 5 basis
points to 2.39%. Notably, global monetary policy has begun to diverge,
as an interest rate hiking cycle is underway in the U.S. while the
monetary policies of other major economies, including
Fixed-income credit spreads continued to tighten during the early part
of the first quarter, but began widening in early March following
intermeeting commentary from several Federal Reserve governors, who
expressed support for an imminent increase in the federal funds rate
(which did in fact come to pass at the
Mortgage rates declined over the course of the first quarter, with the
We believe that several factors could put additional upward pressure on
interest rates in the near term, including a tightening of Federal
Reserve monetary policy in response to employment and economic growth in
Agency RMBS
During the first quarter, both realized and implied volatility remained low, but yield spreads for Agency RMBS widened. Agency RMBS investors are becoming increasingly focused on the timing and mechanism of the Federal Reserve's discontinuation of its current policy of reinvesting principal payments from its Agency RMBS holdings. While the Federal Reserve has indicated that it expects to continue its reinvesting policy "until normalization of the level of the federal funds rate is well under way," uncertainty around when that condition would be satisfied weighed on asset valuations during the first quarter. Despite the anticipated reduced support from the Federal Reserve, we do not expect that Agency RMBS yield spreads will widen substantially, as they did during the 2013 "Taper Tantrum," largely because the investor base for Agency RMBS has changed substantially since then. Agency RMBS ownership has largely shifted away from investors such as the GSEs, certain money managers, and mortgage REITs whose activities, including delta-hedging and utilization of high degrees of leverage, tend to amplify price swings during periods of high volatility.
During the first quarter, mortgage rates remained relatively elevated from their pre-election levels, and prepayment rates declined, as many borrowers did have not an economic incentive to refinance their mortgages. The lower day count of the first quarter and the impact of winter seasonality were also factors contributing to the overall decline in prepayments. Since the generic pools that underlie TBAs tend to be more prepayment-sensitive than specified pools, the favorable decline in overall prepayment rates helped TBAs outperform specified pools over the course of the first quarter. This dampened our results for the first quarter, given that TBA short positions are a major component of our interest rate hedging portfolio.
Pay-ups on our specified pools decreased slightly quarter over quarter.
Pay-ups are price premiums for specified pools relative to their TBA
counterparts. Average pay-ups on our specified pools decreased to 0.68%
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 21% (as measured by sales and excluding paydowns),
and we had net realized losses of
During the first quarter, we continued to focus our Agency RMBS
purchasing activity primarily on specified pools, particularly those
with higher coupons. The weighted average coupon on our fixed rate
specified pools was 3.9%, unchanged from the prior quarter. Even though
we net purchased assets during the first quarter in our Agency RMBS
portfolio, the slight decline in asset prices caused the total market
value of our Agency RMBS portfolio as of
We expect to continue to target specified pools that, based on our prepayment projections, should: (1) generate attractive yields relative to other Agency RMBS and U.S. Treasury securities, (2) have less prepayment sensitivity to government policy shocks, and/or (3) 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 the fair value of our
specified pool holdings is one metric that we use to measure the overall
prepayment risk of our specified pool portfolio.
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.
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. |
Non-Agency RMBS
Our non-Agency RMBS performed well in the first quarter, driven by net
carry and realized 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. On a quarter-over-quarter basis,
our non-Agency RMBS portfolio decreased in size, as we sold securities
that we believed had become fully valued. As of March 31, 2017, our
investment in non-Agency RMBS was
Financial Results
For the quarter ended March 31, 2017, the weighted average yield of our
portfolio of 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 for the quarter of 2.56%.
In comparison, for the quarter ended December 31, 2016, the annualized
weighted average yield of our Agency and non-Agency RMBS was 2.95%,
while our average cost of funds including interest rate swaps and U.S.
Treasury securities was 1.06%, resulting in a net interest margin of
1.89%. 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 first quarter, we had a
positive Catch-up Premium Amortization Adjustment of approximately
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 1.23% from 1.06%. 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 cost related to our short positions in U.S. Treasury securities. Our average cost of repo increased thirteen basis points quarter over quarter to 0.94%, and the cost related to our short positions in U.S. Treasury securities increased five basis points to 0.13%. The contribution of our interest rate swaps to our average cost of funds decreased quarter over quarter, to 0.16% in the first quarter as compared to 0.17% in the fourth quarter of 2016. The relative make up of our interest rate hedging portfolio can change materially from quarter to quarter.
After giving effect to a first quarter dividend of
For the quarter ended March 31, 2017, Core Earnings was
Securities Portfolio
The following table summarizes our portfolio of securities as of March 31, 2017 and December 31, 2016:
March 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||||||||
(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 | $ | 129,244 | $ | 134,823 | $ | 104.32 | $ | 135,290 | $ | 104.68 | $ | 141,829 | $ | 148,363 | $ | 104.61 | $ | 148,873 | $ | 104.97 | ||||||||||||||||||
20-year fixed rate mortgages | 10,045 | 10,678 | 106.30 | 10,818 | 107.70 | 10,488 | 11,185 | 106.65 | 11,275 | 107.50 | ||||||||||||||||||||||||||||
30-year fixed rate mortgages | 916,405 | 966,147 | 105.43 | 976,462 | 106.55 | 888,976 | 940,457 | 105.79 | 948,157 | 106.66 | ||||||||||||||||||||||||||||
ARMs | 28,521 | 29,760 | 104.34 | 30,293 | 106.21 | 31,656 | 33,138 | 104.68 | 33,226 | 104.96 | ||||||||||||||||||||||||||||
Reverse mortgages | 55,668 | 60,127 | 108.01 | 60,780 | 109.18 | 57,411 | 62,058 | 108.09 | 63,114 | 109.93 | ||||||||||||||||||||||||||||
Total Agency RMBS | 1,139,883 | 1,201,535 | 105.41 | 1,213,643 | 106.47 | 1,130,360 | 1,195,201 | 105.74 | 1,204,645 | 106.57 | ||||||||||||||||||||||||||||
Non-Agency RMBS | 20,486 | 15,999 | 78.10 | 14,176 | 69.20 | 27,794 | 19,446 | 69.96 | 18,268 | 65.73 | ||||||||||||||||||||||||||||
Total RMBS(2) | 1,160,369 | 1,217,534 | 104.93 | 1,227,819 | 105.81 | 1,158,154 | 1,214,647 | 104.88 | 1,222,913 | 105.59 | ||||||||||||||||||||||||||||
Agency IOs | n/a | 12,542 | n/a | 12,256 | n/a | n/a | 12,347 | n/a | 11,841 | n/a | ||||||||||||||||||||||||||||
Total mortgage-backed securities | 1,230,076 | 1,240,075 | 1,226,994 | 1,234,754 | ||||||||||||||||||||||||||||||||||
U.S. Treasury securities sold short | (82,989 | ) | (79,454 | ) | 95.74 | (80,616 | ) | 97.14 | (78,589 | ) | (74,194 | ) | 94.41 | (75,465 | ) | 96.02 | ||||||||||||||||||||||
Reverse repurchase agreements | 80,133 | 80,133 | 100.00 | 80,133 | 100.00 | 75,012 | 75,012 | 100.00 | 75,012 | 100.00 | ||||||||||||||||||||||||||||
Total | $ | 1,230,755 | $ | 1,239,592 | $ | 1,227,812 | $ | 1,234,301 |
(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 March 31, 2017 and December 31, 2016:
March 31, 2017 | December 31, 2016 | ||||||||||||
Financial derivatives–assets, at fair value: | (In thousands) | ||||||||||||
TBA securities purchase contracts | $ | 537 | $ | 96 | |||||||||
TBA securities sale contracts | 45 | 949 | |||||||||||
Fixed payer interest rate swaps | 4,318 | 4,198 | |||||||||||
Fixed receiver interest rate swaps | 562 | 693 | |||||||||||
Futures | 2 | 72 | |||||||||||
Total financial derivatives–assets, at fair value | 5,464 | 6,008 | |||||||||||
Financial derivatives–liabilities, at fair value: | |||||||||||||
TBA securities purchase contracts | (3 | ) | — | ||||||||||
TBA securities sale contracts | (2,430 | ) | (554 | ) | |||||||||
Fixed payer interest rate swaps | (1,115 | ) | (1,421 | ) | |||||||||
Futures | (24 | ) | — | ||||||||||
Total financial derivatives–liabilities, at fair value | (3,572 | ) | (1,975 | ) | |||||||||
Total | $ | 1,892 | $ | 4,033 | |||||||||
Interest Rate Swaps
The following tables provide details about our fixed payer interest rate swaps as of March 31, 2017 and December 31, 2016:
March 31, 2017 | ||||||||||||||||
Maturity |
Notional Amount |
Fair Value |
Weighted Average Pay Rate |
Weighted Average Receive Rate |
Weighted Average Remaining Years to Maturity |
|||||||||||
(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 |
December 31, 2016 | ||||||||||||||||
Maturity |
Notional Amount |
Fair Value |
Weighted
Average |
Weighted Average Receive Rate |
Weighted Average Remaining Years to Maturity |
|||||||||||
(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 | |||||||
The following tables provide details about our fixed receiver interest rate swaps as of March 31, 2017 and December 31, 2016:
March 31, 2017 | ||||||||||||||||
Maturity |
Notional Amount |
Fair Value |
Weighted
Average |
Weighted Average Receive Rate |
Weighted Average Remaining Years to Maturity |
|||||||||||
(In thousands) | ||||||||||||||||
2025 | $ | 9,700 | $ | 562 | 1.02 | % | 3.00 | % | 8.30 | |||||||
Total | $ | 9,700 | $ | 562 | 1.02 | % | 3.00 | % | 8.30 | |||||||
December 31, 2016 | ||||||||||||||||
Maturity |
Notional Amount |
Fair Value |
Weighted
Average |
Weighted Average Receive Rate |
Weighted Average Remaining Years to Maturity |
|||||||||||
(In thousands) | ||||||||||||||||
2025 | $ | 9,700 | $ | 693 | 0.88 | % | 3.00 | % | 8.54 | |||||||
Total | $ | 9,700 | $ | 693 | 0.88 | % | 3.00 | % | 8.54 | |||||||
Futures
The following table provides information about our short positions in futures as of March 31, 2017 and December 31, 2016:
March 31, 2017 | ||||||||||
Description |
Notional Amount | Fair Value |
Remaining Months to Expiration |
|||||||
($ in thousands) | ||||||||||
U.S. Treasury Futures | $ | (25,800 | ) | $ | (24 | ) | 2.73 | |||
Eurodollar Futures | $ | (6,000 | ) | $ | 2 | 4.18 | ||||
December 31, 2016 | ||||||||||
Description | Notional Amount | Fair Value |
Remaining Months to Expiration |
|||||||
($ in thousands) | ||||||||||
U.S. Treasury Futures | $ | (26,700 | ) | $ | 71 | 2.70 | ||||
Eurodollar Futures | $ | (9,000 | ) | $ | 1 | 5.59 | ||||
TBAs
The following table provides information about our TBAs as of March 31, 2017 and December 31, 2016:
March 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||
TBA Securities |
Notional Amount (1) |
Cost |
Market Value (3) |
Net Carrying Value (4) |
Notional Amount (1) |
Cost |
Market Value (3) |
Net Carrying Value (4) |
||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Purchase contracts: | ||||||||||||||||||||||||||||||||
Assets | $ | 137,022 | $ | 140,723 | $ | 141,260 | $ | 537 | $ | 49,138 | $ | 49,774 | $ | 49,870 | $ | 96 | ||||||||||||||||
Liabilities | 3,000 | 2,977 | 2,974 | (3 | ) | — | — | — | — | |||||||||||||||||||||||
140,022 | 143,700 | 144,234 | 534 | 49,138 | 49,774 | 49,870 | 96 | |||||||||||||||||||||||||
Sale contracts: | ||||||||||||||||||||||||||||||||
Assets | (64,000 | ) | (65,370 | ) | (65,325 | ) | 45 | (281,655 | ) | (298,807 | ) | (297,858 | ) | 949 | ||||||||||||||||||
Liabilities | (520,580 | ) | (541,766 | ) | (544,196 | ) | (2,430 | ) | (183,381 | ) | (189,694 | ) | (190,248 | ) | (554 | ) | ||||||||||||||||
(584,580 | ) | (607,136 | ) | (609,521 | ) | (2,385 | ) | (465,036 | ) | (488,501 | ) | (488,106 | ) | 395 | ||||||||||||||||||
Total TBA securities, net | $ | (444,558 | ) | $ | (463,436 | ) | $ | (465,287 | ) | $ | (1,851 | ) | $ | (415,898 | ) | $ | (438,727 | ) | $ | (438,236 | ) | $ | 491 |
(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 March 31, 2017 and December 31, 2016:
Three Month Period Ended March 31, 2017 | ||||||||||||||||||||||||
Derivative Type |
Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps |
Net Realized Gains (Losses) Other Than Periodic Settlements of Interest Rate Swaps |
Net Realized Gains (Losses) on Financial Derivatives |
Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps |
Change in Net Unrealized Gains (Losses) Other Than on Accrued Periodic Settlements of Interest Rate Swaps |
Change in Net Unrealized Gains (Losses) on Financial Derivatives |
||||||||||||||||||
(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 | ) | ||||||||
Three Month Period Ended December 31, 2016 | |||||||||||||||||||||||
Derivative Type |
Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps |
Net Realized Gains (Losses) Other Than Periodic Settlements of Interest Rate Swaps |
Net Realized Gains (Losses) on Financial Derivatives |
Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps |
Change in Net Unrealized Gains (Losses) Other Than on Accrued Periodic Settlements of Interest Rate Swaps |
Change in Net Unrealized Gains (Losses) on Financial Derivatives |
|||||||||||||||||
(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 | ||||||||||
Interest Rate Sensitivity
The following table summarizes, as of March 31, 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
in Interest Rates |
50 Basis Point Increase
in Interest Rates |
|||||||||||||||
Market Value |
% of Total Equity |
Market Value |
% of Total Equity |
||||||||||||||
Agency RMBS - ARM Pools | $ | 218 | 0.16 | % | $ | (281 | ) | (0.20 | )% | ||||||||
Agency RMBS - Fixed Pools and IOs | 19,154 | 13.67 | % | (25,193 | ) | (17.98 | )% | ||||||||||
TBAs | (8,009 | ) | (5.72 | )% | 10,925 | 7.80 | % | ||||||||||
Non-Agency RMBS | 223 | 0.16 | % | (221 | ) | (0.16 | )% | ||||||||||
Interest Rate Swaps | (7,407 | ) | (5.29 | )% | 7,077 | 5.05 | % | ||||||||||
U.S. Treasury Securities | (3,551 | ) | (2.53 | )% | 3,380 | 2.41 | % | ||||||||||
Eurodollar and U.S. Treasury Futures | (995 | ) | (0.71 | )% | 962 | 0.69 | % | ||||||||||
Repurchase and Reverse Repurchase Agreements | (825 | ) | (0.59 | )% | 824 | 0.59 | % | ||||||||||
Total | $ | (1,192 | ) | (0.85 | )% | $ | (2,527 | ) | (1.80 | )% |
(1) | Based on the market environment as of March 31, 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 March 31, 2017 and December 31, 2016:
March 31, 2017 | December 31, 2016 | |||||||||||||||||
Weighted Average | Weighted Average | |||||||||||||||||
Remaining Days to |
Borrowings Outstanding |
Interest Rate |
Remaining Days to Maturity |
Borrowings Outstanding |
Interest Rate |
Remaining Days to Maturity |
||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||
30 days or less | $ | 514,438 | 0.92 | % | 14 | $ | 545,817 | 0.80 | % | 19 | ||||||||
31-60 days | 207,068 | 0.91 | 43 | 304,398 | 0.91 | 45 | ||||||||||||
61-90 days | 300,979 | 1.06 | 76 | 299,081 | 0.98 | 74 | ||||||||||||
91-120 days | 13,738 | 1.04 | 105 | 1,050 | 0.88 | 109 | ||||||||||||
121-150 days | 136,635 | 0.99 | 137 | 12,428 | 0.97 | 135 | ||||||||||||
151-180 days | 5,427 | 1.15 | 168 | 35,199 | 1.05 | 164 | ||||||||||||
Total | $ | 1,178,285 | 0.96 | % | 51 | $ | 1,197,973 | 0.88 | % | 45 | ||||||||
As of March 31, 2017, we had no outstanding borrowings other than under repo agreements. Our repo borrowings were with thirteen counterparties as of March 31, 2017. The above figures are as of the respective quarter ends; over the course of the quarters ended March 31, 2017 and December 31, 2016 our average cost of repo was 0.94% and 0.81%, 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 March 31, 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 as compared to 3.1% for the quarter ended December 31, 2016.
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. Adjusted Core Earnings represents Core Earnings excluding the effect of the Catch-up Premium Amortization Adjustment on interest income. 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 March 31, 2017 and December 31, 2016, 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 Period Ended March 31, 2017 |
Three Month Period Ended December 31, 2016 |
||||||
Net Income | $ | 2,052 | $ | 2,012 | ||||
Less: | ||||||||
Net realized gains (losses) on securities | (2,990 | ) | (582 | ) | ||||
Net realized gains (losses) on financial derivatives, excluding
periodic |
1,668 | 10,320 | ||||||
Change in net unrealized gains (losses) on securities | (2,347 | ) | (24,484 | ) | ||||
Change in net unrealized gains (losses) on financial derivatives,
excluding |
(1,680 | ) | 11,852 | |||||
Subtotal | (5,349 | ) | (2,894 | ) | ||||
Core Earnings | $ | 7,401 | $ | 4,906 | ||||
Catch-up Premium Amortization Adjustment | 2,584 | 596 | ||||||
Adjusted Core Earnings | $ | 4,817 | $ | 4,310 | ||||
Weighted Average Shares Outstanding | 9,130,897 | 9,127,836 | ||||||
Core Earnings Per Share | $ | 0.81 | $ | 0.54 | ||||
Adjusted Core Earnings Per Share | $ | 0.53 | $ | 0.47 |
(1) | 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). For the three month period ended December 31, 2016, represents Net realized gains (losses) on financial derivatives of $9,403 less Net realized gains (losses) on periodic settlements of interest rate swaps of $(917). | |
(2) | 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). For the three month period ended December 31, 2016, represents Change in net unrealized gains (losses) on financial derivatives of $12,278 less Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps of $426. | |
About
Conference Call
We will host a conference call at
A dial-in replay of the conference call will be available on Wednesday,
May 3, 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 | ||||||||||
March 31,
2017 |
December 31, 2016 |
|||||||||
(In thousands except share amounts) | ||||||||||
INTEREST INCOME (EXPENSE) | ||||||||||
Interest income | $ | 12,329 | $ | 9,213 | ||||||
Interest expense | (3,179 | ) | (2,684 | ) | ||||||
Total net interest income | 9,150 | 6,529 | ||||||||
EXPENSES | ||||||||||
Management fees | 527 | 534 | ||||||||
Professional fees | 175 | 118 | ||||||||
Compensation expense | 159 | 137 | ||||||||
Other operating expenses | 411 | 343 | ||||||||
Total expenses | 1,272 | 1,132 | ||||||||
OTHER INCOME (LOSS) | ||||||||||
Net realized gains (losses) on securities | (2,990 | ) | (582 | ) | ||||||
Net realized gains (losses) on financial derivatives | 1,653 | 9,403 | ||||||||
Change in net unrealized gains (losses) on securities | (2,347 | ) | (24,484 | ) | ||||||
Change in net unrealized gains (losses) on financial derivatives | (2,142 | ) | 12,278 | |||||||
Total other income (loss) | (5,826 | ) | (3,385 | ) | ||||||
NET INCOME | $ | 2,052 | $ | 2,012 | ||||||
NET INCOME PER COMMON SHARE: | ||||||||||
Basic and Diluted | $ | 0.22 | $ | 0.22 | ||||||
WEIGHTED AVERAGE SHARES OUTSTANDING | 9,130,897 | 9,127,836 | ||||||||
CASH DIVIDENDS PER SHARE: | ||||||||||
Dividends declared | $ | 0.40 | $ | 0.40 |
ELLINGTON RESIDENTIAL MORTGAGE REIT CONSOLIDATED BALANCE SHEET (UNAUDITED) |
|||||||||
As of | |||||||||
March 31, 2017 |
December 31, 2016(1) |
||||||||
(In thousands except share amounts) | |||||||||
ASSETS | |||||||||
Cash and cash equivalents | $ | 37,509 | $ | 33,504 | |||||
Mortgage-backed securities, at fair value | 1,230,076 | 1,226,994 | |||||||
Due from brokers | 27,205 | 49,518 | |||||||
Financial derivatives–assets, at fair value | 5,464 | 6,008 | |||||||
Reverse repurchase agreements | 80,133 | 75,012 | |||||||
Receivable for securities sold | 82,269 | 33,199 | |||||||
Interest receivable | 4,966 | 4,633 | |||||||
Other assets | 185 | 266 | |||||||
Total Assets | $ | 1,467,807 | $ | 1,429,134 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
LIABILITIES | |||||||||
Repurchase agreements | $ | 1,178,285 | $ | 1,197,973 | |||||
Payable for securities purchased | 58,620 | 5,516 | |||||||
Due to brokers | 1,031 | 1,055 | |||||||
Financial derivatives–liabilities, at fair value | 3,572 | 1,975 | |||||||
U.S. Treasury securities sold short, at fair value | 79,454 | 74,194 | |||||||
Dividend payable | 3,652 | 3,652 | |||||||
Accrued expenses | 708 | 647 | |||||||
Management fee payable | 528 | 533 | |||||||
Interest payable | 1,832 | 1,912 | |||||||
Total Liabilities | 1,327,682 | 1,287,457 | |||||||
SHAREHOLDERS' EQUITY | |||||||||
Preferred shares, par value $0.01 per share, 100,000,000 shares
authorized; |
— | — | |||||||
Common shares, par value $0.01 per share, 500,000,000 shares
authorized; |
92 | 92 | |||||||
Additional paid-in-capital | 181,044 | 180,996 | |||||||
Accumulated deficit | (41,011 | ) | (39,411 | ) | |||||
Total Shareholders' Equity | 140,125 | 141,677 | |||||||
Total Liabilities and Shareholders' Equity | $ | 1,467,807 | $ | 1,429,134 | |||||
PER SHARE INFORMATION | |||||||||
Common shares, par value $0.01 per share | $ | 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/20170502006905/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
or
info@earnreit.com
or
Media:
Gasthalter
& Co., for Ellington Residential Mortgage REIT
Amanda Klein /
Kevin Fitzgerald, 212-257-4170
Ellington@gasthalter.com