Ellington Residential Mortgage REIT Reports Third Quarter 2016 Results
Summary of Financial Results
- Net income for the quarter was
$6.6 million , or$0.73 per share, as compared to$3.5 million , or$0.38 per share, in the second quarter. - Core Earnings1 for the quarter was
$2.9 million , or$0.32 per share, unchanged from the second quarter. Excluding "Catch-up Premium Amortization Adjustment," Core Earnings for the third quarter was$4.4 million , or$0.48 per share, also unchanged from the second quarter. - Book value increased to
$15.70 per share as ofSeptember 30, 2016 from$15.38 per share as ofJune 30, 2016 , after giving effect to a third quarter dividend of$0.40 per share. - Net interest margin was 1.30%, as compared to 1.28% for the second quarter. Excluding Catch-up Premium Amortization Adjustment, net interest margin was 1.77% for the third quarter of 2016 as compared to 1.76% for the second quarter.
- Weighted average prepayment speed for the fixed rate Agency specified pool portfolio was 12.7% CPR for the quarter, compared to 10.1% in the second quarter.
- Dividend yield of 12.7% based on
October 31, 2016 closing stock price of$12.58 . - Debt-to-equity ratio was 8.1:1 as of
September 30, 2016 , as compared to 8.6:1 as ofJune 30, 2016 . Adjusted for unsettled purchases and sales, the debt-to-equity ratio was 8.2:1 and 8.1:1 as ofSeptember 30, 2016 andJune 30, 2016 , respectively.
Third Quarter 2016 Results
"Ellington Residential had a strong third quarter, with net income of
Despite the higher prepayment speeds and heightened prepayment risk, yield spreads in most Agency mortgage sectors have not widened. This makes careful asset selection and hedging strategies even more important. We believe that our research-driven modeling and analytics provide us with a significant advantage in selecting assets and navigating difficult markets. Through active trading, we captured net realized gains during the quarter in both our Agency and non-Agency RMBS portfolios.
Given our caution on overall Agency mortgage spreads, we maintained a relatively high level of TBA hedges relative to our overall interest rate hedges. Our TBA hedges help protect us not only from a potential re-widening in mortgage spreads, but also from a potential market-wide increase in prepayment speeds. Similar to our asset portfolio, we actively manage our interest rate hedging portfolio in response to evolving market conditions."
As of September 30, 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
During the third quarter, U.S. interest rates trended somewhat higher and many measures of implied volatility reached multi-year lows. The large and frequent swings in interest rates that characterized the early part of 2016 were comparatively absent in the third quarter. Bias toward accommodative monetary policy by global central banks, in response to continued sluggish growth, contributed to the lower volatility and increased investor appetite for risk-taking. Negative yields persisted throughout the quarter for many high quality sovereign bonds maintaining the global shortage of high quality, positive-yielding liquid fixed income investments. As a result, the higher yields and favorable liquidity offered by Agency RMBS continued to fuel demand from investors, especially those in search of high credit quality assets. This demand helped support Agency RMBS prices despite rising interest rates and increasing prepayment speeds. Many credit sensitive U.S. fixed income sectors, including non-Agency RMBS and high-yield corporate bonds, also performed well in the quarter, driven by investor demand for yield.
Since its
The yield curve continued to flatten over the course of the third quarter, although less dramatically than it had in the second quarter. The 10-year U.S. Treasury yield increased 12 basis points to 1.59%, while the 2-year U.S. Treasury yield increased 18 basis points to 0.76%. Despite the rise in interest rates, the drop in interest rate volatility helped keep mortgage rates low over the course of the quarter; the
Agency RMBS
Bolstered by high demand from both domestic and overseas investors, prices of 30-year fixed rate Agency RMBS increased over the course of the third quarter, even while interest rates rose slightly and overall prepayment rates increased. Overall prepayment rates reached their highest levels since 2012, and exceeded most sell-side estimates. Newer mortgages originated by non-bank lenders have been prepaying at a particularly fast pace. Strong borrower credit, high mortgage loan balances, and enhanced originator/servicer technology and infrastructure each played a role in the increased prepayment speeds.
Although specified pools with prepayment protection features also experienced a quarter-over-quarter increase in overall prepayment speeds, this increase was significantly less than that of generic pools, and accounted for the relative outperformance of specified pools relative to generic pools during the quarter. Specified pools include loans with low principal balances, for example. Such loans continue to show much more muted prepayment responses to lower mortgage rates. Our Agency RMBS portfolio, which remains concentrated in specified pools, was well insulated from the large increase in generic pool prepayment rates during the quarter. We believe that specified pools will continue to outperform generic pools as the presence of the Federal Reserve (which focuses its purchases on generic pools) shrinks in the Agency RMBS market and as newer vintage Agency RMBS prepayment speeds remain high. In the current climate of elevated prepayment speeds, relative pricing among the many sectors of the Agency RMBS market, including both the generic "TBA" sectors and the many sub-sectors of the specified pool market, is often highly inefficient, and so careful asset selection remains of paramount importance.
For the quarter ended
During the third quarter, we continued to use short positions in TBAs to hedge interest rate risk. TBAs underperformed specified pools during the quarter as more investors sought pools with prepayment protection. Because we held a net short position in TBAs against our long position in specified pools, this underperformance of TBAs relative to specified pools benefited our results for the quarter. To the extent that prepayment rates remain elevated, we believe that the underperformance of generic pools relative to specified pools will persist.
We actively traded our Agency RMBS portfolio during the quarter in order to capitalize both on sector rotation opportunities and trading opportunities. Our portfolio turnover for the quarter was 24% (as measured by sales and excluding paydowns), and we captured net realized gains of
During the third 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 policies, regulatory changes, and developing technologies.
Non-Agency RMBS
Non-Agency RMBS performed well during the third 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. Our non-Agency portfolio benefited from strong yields, appreciation from our held positions, and net realized gains from positions sold. On a quarter-over-quarter basis, our non-Agency RMBS portfolio declined in size. As of September 30, 2016, our investment in non-Agency RMBS was
Financial Results
For the quarter ended September 30, 2016, the weighted average yield of our portfolio of 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 for the quarter of 1.30%. In comparison, for the quarter ended June 30, 2016, the annualized weighted average yield of our Agency and non-Agency RMBS was 2.45%, while our average cost of funds including interest rate swaps and U.S. Treasuries was 1.17%, resulting in a net interest margin of 1.28%. 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 third quarter, we had a negative 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, decreased to 1.01% from 1.17%. This quarter-over-quarter net decrease was primarily the result of a decline in our cost of swaps, which fell for two main reasons. First, our swaps, which consist primarily of fixed payer interest rate swaps, benefited from the increase in LIBOR over the course of the third quarter. Under our fixed payer interest rate swaps, we make fixed payments but in return we receive floating payments based on LIBOR. As LIBOR increased, our net swap payments decreased. Second, we slightly reduced our net interest rate swap hedge in favor of a slightly larger TBA hedge. Our cost of repo was effectively unchanged at 0.71% for the third quarter, as compared to 0.70% for the second quarter. The relative make up of our interest rate hedging portfolio can change materially from quarter to quarter.
During the third quarter, higher short-term interest rates lowered the cost of our interest rate swap hedges, but for technical reasons the higher rates did not lead to materially higher Agency RMBS repo borrowing costs. As a result of changes in money market fund regulations, there has been a significant investor shift away from "prime" money market funds, which under the new regulations are now susceptible to daily changes in their share prices, and into "government" money market funds. Because government money market funds are among the biggest providers of Agency RMBS repo, the increased assets of these funds has resulted in an increase in the supply of Agency RMBS repo financing, thereby putting downward pressure on the cost of Agency RMBS repo, and largely offsetting the increase in short-term interest rates.
After giving effect to a third quarter dividend of
For the quarter ended September 30, 2016, Core Earnings was
Securities Portfolio
The following table summarizes our portfolio of securities as of September 30, 2016 and June 30, 2016:
September 30, 2016 |
June 30, 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 |
$ |
134,770 |
$ |
143,300 |
$ |
106.33 |
$ |
141,566 |
$ |
105.04 |
$ |
133,590 |
$ |
142,365 |
$ |
106.57 |
$ |
140,303 |
$ |
105.03 |
|||||||||||||||||||
20-year fixed rate mortgages |
10,710 |
11,660 |
108.87 |
11,530 |
107.66 |
11,061 |
12,014 |
108.62 |
11,920 |
107.77 |
|||||||||||||||||||||||||||||
30-year fixed rate mortgages |
881,351 |
957,420 |
108.63 |
940,520 |
106.71 |
851,353 |
924,824 |
108.63 |
908,300 |
106.69 |
|||||||||||||||||||||||||||||
ARMs |
30,645 |
32,341 |
105.53 |
32,179 |
105.01 |
41,005 |
43,337 |
105.69 |
43,143 |
105.21 |
|||||||||||||||||||||||||||||
Reverse mortgages |
57,088 |
63,677 |
111.54 |
62,941 |
110.25 |
68,858 |
76,056 |
110.45 |
74,869 |
108.73 |
|||||||||||||||||||||||||||||
Total Agency RMBS |
1,114,564 |
1,208,398 |
108.42 |
1,188,736 |
106.65 |
1,105,867 |
1,198,596 |
108.39 |
1,178,535 |
106.57 |
|||||||||||||||||||||||||||||
Non-Agency RMBS |
23,591 |
17,896 |
75.86 |
16,743 |
70.97 |
33,934 |
22,788 |
67.15 |
21,063 |
62.07 |
|||||||||||||||||||||||||||||
Total RMBS(2) |
1,138,155 |
1,226,294 |
107.74 |
1,205,479 |
105.92 |
1,139,801 |
1,221,384 |
107.16 |
1,199,598 |
105.25 |
|||||||||||||||||||||||||||||
Agency IOs |
n/a |
6,840 |
n/a |
8,730 |
n/a |
n/a |
7,631 |
n/a |
9,807 |
n/a |
|||||||||||||||||||||||||||||
Total mortgage-backed securities |
1,233,134 |
1,214,209 |
1,229,015 |
1,209,405 |
|||||||||||||||||||||||||||||||||||
U.S. Treasury securities sold short |
(76,495) |
(77,263) |
101.00 |
(76,332) |
99.79 |
(67,105) |
(68,528) |
102.12 |
(67,037) |
99.90 |
|||||||||||||||||||||||||||||
Reverse repurchase agreements |
77,932 |
77,932 |
100.00 |
77,932 |
100.00 |
68,862 |
68,862 |
100.00 |
68,862 |
100.00 |
|||||||||||||||||||||||||||||
Total |
$ |
1,233,803 |
$ |
1,215,809 |
$ |
1,229,349 |
$ |
1,211,230 |
(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 September 30, 2016 and June 30, 2016:
September 30, 2016 |
June 30, 2016 |
|||||||
Financial derivatives–assets, at fair value: |
(In thousands) |
|||||||
TBA securities purchase contracts |
$ |
142 |
$ |
353 |
||||
TBA securities sale contracts |
32 |
22 |
||||||
Fixed payer interest rate swaps |
112 |
— |
||||||
Fixed receiver interest rate swaps |
1,355 |
1,545 |
||||||
Total financial derivatives–assets, at fair value |
1,641 |
1,920 |
||||||
Financial derivatives–liabilities, at fair value: |
||||||||
TBA securities purchase contracts |
(3) |
(1) |
||||||
TBA securities sale contracts |
(603) |
(1,328) |
||||||
Fixed payer interest rate swaps |
(9,275) |
(12,039) |
||||||
Futures |
(4) |
(11) |
||||||
Total financial derivatives–liabilities, at fair value |
(9,885) |
(13,379) |
||||||
Total |
$ |
(8,244) |
$ |
(11,459) |
Interest Rate Swaps
The following tables provide details about our fixed payer interest rate swaps as of September 30, 2016 and June 30, 2016:
September 30, 2016 |
||||||||||||||||
Maturity |
Notional Amount |
Fair Value |
Weighted Average Pay Rate |
Weighted Average Receive Rate |
Weighted Average Remaining Years to Maturity |
|||||||||||
(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 |
June 30, 2016 |
||||||||||||||||
Maturity |
Notional Amount |
Fair Value |
Weighted Average |
Weighted Average Receive Rate |
Weighted Average Remaining Years to Maturity |
|||||||||||
(In thousands) |
||||||||||||||||
2016 |
$ |
48,000 |
$ |
(71) |
0.80 |
% |
0.63 |
% |
0.27 |
|||||||
2017 |
74,750 |
(646) |
1.21 |
0.63 |
1.09 |
|||||||||||
2018 |
65,990 |
(446) |
0.97 |
0.63 |
1.93 |
|||||||||||
2020 |
79,500 |
(1,924) |
1.48 |
0.63 |
3.82 |
|||||||||||
2022 |
13,044 |
(550) |
1.75 |
0.63 |
6.19 |
|||||||||||
2023 |
65,000 |
(3,511) |
1.93 |
0.63 |
6.85 |
|||||||||||
2024 |
8,900 |
(539) |
1.99 |
0.63 |
7.76 |
|||||||||||
2025 |
15,322 |
(1,058) |
2.04 |
0.64 |
8.63 |
|||||||||||
2043 |
12,380 |
(3,294) |
2.99 |
0.62 |
26.89 |
|||||||||||
Total |
$ |
382,886 |
$ |
(12,039) |
1.42 |
% |
0.63 |
% |
4.14 |
The following tables provide details about our fixed receiver interest rate swaps as of September 30, 2016 and June 30, 2016:
September 30, 2016 |
||||||||||||||||
Maturity |
Notional Amount |
Fair Value |
Weighted Average |
Weighted Average Receive Rate |
Weighted Average Remaining Years to Maturity |
|||||||||||
(In thousands) |
||||||||||||||||
2025 |
$ |
9,700 |
$ |
1,355 |
0.68 |
% |
3.00 |
% |
8.79 |
|||||||
Total |
$ |
9,700 |
$ |
1,355 |
0.68 |
% |
3.00 |
% |
8.79 |
June 30, 2016 |
||||||||||||||||
Maturity |
Notional Amount |
Fair Value |
Weighted Average |
Weighted Average Receive Rate |
Weighted Average Remaining Years to Maturity |
|||||||||||
(In thousands) |
||||||||||||||||
2025 |
$ |
9,700 |
$ |
1,545 |
0.63 |
% |
3.00 |
% |
9.05 |
|||||||
Total |
$ |
9,700 |
$ |
1,545 |
0.63 |
% |
3.00 |
% |
9.05 |
Eurodollar Futures
The following table provides information about our short positions in Eurodollar futures as of September 30, 2016 and June 30, 2016:
September 30, 2016 |
||||||||||
Remaining Maturity |
Notional Amount |
Fair Value |
Remaining Months to Expiration |
|||||||
($ in thousands) |
||||||||||
2016 |
$ |
(3,000) |
$ |
— |
2.67 |
|||||
2017 |
(9,000) |
(4) |
8.66 |
|||||||
Total |
$ |
(12,000) |
$ |
(4) |
7.16 |
June 30, 2016 |
||||||||||
Remaining Maturity |
Notional Amount |
Fair Value |
Remaining Months to Expiration |
|||||||
($ in thousands) |
||||||||||
2016 |
$ |
(6,000) |
$ |
(2) |
4.22 |
|||||
2017 |
(9,000) |
(9) |
11.72 |
|||||||
Total |
$ |
(15,000) |
$ |
(11) |
8.72 |
TBAs
The following table provides information about our TBAs as of September 30, 2016 and June 30, 2016:
September 30, 2016 |
June 30, 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 |
$ |
56,383 |
$ |
59,180 |
$ |
59,322 |
$ |
142 |
$ |
61,493 |
$ |
64,299 |
$ |
64,652 |
$ |
353 |
||||||||||||||||
Liabilities |
4,510 |
4,747 |
4,744 |
(3) |
2,300 |
2,510 |
2,509 |
(1) |
||||||||||||||||||||||||
60,893 |
63,927 |
64,066 |
139 |
63,793 |
66,809 |
67,161 |
352 |
|||||||||||||||||||||||||
Sale contracts: |
||||||||||||||||||||||||||||||||
Assets |
(119,179) |
(129,253) |
(129,221) |
32 |
(65,849) |
(72,025) |
(72,003) |
22 |
||||||||||||||||||||||||
Liabilities |
(399,832) |
(424,546) |
(425,149) |
(603) |
(427,427) |
(454,191) |
(455,519) |
(1,328) |
||||||||||||||||||||||||
(519,011) |
(553,799) |
(554,370) |
(571) |
(493,276) |
(526,216) |
(527,522) |
(1,306) |
|||||||||||||||||||||||||
Total TBA securities, net |
$ |
(458,118) |
$ |
(489,872) |
$ |
(490,304) |
$ |
(432) |
$ |
(429,483) |
$ |
(459,407) |
$ |
(460,361) |
$ |
(954) |
(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 September 30, 2016 and June 30, 2016:
Three Month Period Ended September 30, 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 |
$ |
(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 |
Three Month Period Ended June 30, 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 |
$ |
(2,508) |
$ |
(7,725) |
$ |
(10,233) |
$ |
1,448 |
$ |
3,850 |
$ |
5,298 |
||||||||||||
TBAs |
(3,375) |
(3,375) |
(162) |
(162) |
||||||||||||||||||||
Futures |
1 |
1 |
(7) |
(7) |
||||||||||||||||||||
Total |
$ |
(2,508) |
$ |
(11,099) |
$ |
(13,607) |
$ |
1,448 |
$ |
3,681 |
$ |
5,129 |
Interest Rate Sensitivity
The following table summarizes, as of September 30, 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 |
$ |
148 |
$ |
(227) |
||||
Agency RMBS - Fixed Pools and IOs |
10,816 |
(18,138) |
||||||
TBAs |
(2,792) |
6,594 |
||||||
Non-Agency RMBS |
209 |
(206) |
||||||
Interest Rate Swaps |
(7,507) |
7,147 |
||||||
U.S. Treasury Securities |
(1,940) |
1,874 |
||||||
Eurodollar Futures |
(15) |
15 |
||||||
Repurchase and Reverse Repurchase Agreements |
(691) |
691 |
||||||
Total |
$ |
(1,772) |
$ |
(2,250) |
(1) |
Based on the market environment as of September 30, 2016. 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 September 30, 2016 and June 30, 2016:
September 30, 2016 |
June 30, 2016 |
||||||||||||||||||
Weighted Average |
Weighted Average |
||||||||||||||||||
Remaining Days to Maturity |
Borrowings Outstanding |
Interest Rate |
Remaining Days to Maturity |
Borrowings Outstanding |
Interest Rate |
Remaining Days to Maturity |
|||||||||||||
(In thousands) |
(In thousands) |
||||||||||||||||||
30 days or less |
$ |
521,831 |
0.70 |
% |
15 |
$ |
557,934 |
0.69 |
% |
18 |
|||||||||
31-60 days |
298,063 |
0.70 |
47 |
305,648 |
0.67 |
44 |
|||||||||||||
61-90 days |
248,083 |
0.74 |
76 |
342,405 |
0.71 |
77 |
|||||||||||||
91-120 days |
74,956 |
0.76 |
109 |
— |
— |
— |
|||||||||||||
121-150 days |
2,150 |
0.75 |
137 |
— |
— |
— |
|||||||||||||
151-180 days |
13,879 |
0.82 |
165 |
— |
— |
— |
|||||||||||||
Total |
$ |
1,158,962 |
0.72 |
% |
44 |
$ |
1,205,987 |
0.69 |
% |
41 |
As of September 30, 2016, we had no outstanding borrowings other than under repo agreements. Our repo borrowings were with thirteen counterparties as of September 30, 2016. The above figures are as of the respective quarter ends; over the course of the quarters ended September 30, 2016 and June 30, 2016 our average cost of repo was 0.71% and 0.70%, 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 September 30, 2016, our expense ratio, defined as management fees and operating expenses as a percentage of average shareholders' equity, was 3.5% on an annualized basis as compared to 3.6% 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 September 30, 2016 and June 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 September 30, 2016 |
Three Month |
||||||
Net Income |
$ |
6,626 |
$ |
3,507 |
||||
Less: |
||||||||
Net realized gains (losses) on securities |
3,892 |
2,100 |
||||||
Net realized gains (losses) on financial derivatives, excluding periodic payments(1) |
(3,679) |
(11,099) |
||||||
Change in net unrealized gains (losses) on securities |
(124) |
5,879 |
||||||
Change in net unrealized gains (losses) on financial derivatives, excluding accrued periodic payments(2) |
3,600 |
3,681 |
||||||
Subtotal |
3,689 |
561 |
||||||
Core Earnings |
$ |
2,937 |
$ |
2,946 |
||||
Catch-up Premium Amortization Adjustment |
(1,448) |
(1,457) |
||||||
Core Earnings excluding Catch-up Premium Amortization Adjustment |
$ |
4,385 |
$ |
4,403 |
||||
Weighted Average Shares Outstanding |
9,119,111 |
9,117,183 |
||||||
Core Earnings Per Share |
$ |
0.32 |
$ |
0.32 |
||||
Core Earnings Per Share excluding Catch-up Premium Amortization Adjustment |
$ |
0.48 |
$ |
0.48 |
(1) |
For the three month period ended September 30, 2016, represents Net realized gains (losses) on financial derivatives of $(3,920) less Net realized gains (losses) on periodic settlements of interest rate swaps of $(241). For the three month period ended June 30, 2016, represents Net realized gains (losses) on financial derivatives of $(13,607) less Net realized gains (losses) on periodic settlements of interest rate swaps of $(2,508). |
(2) |
For the three month period ended September 30, 2016, represents Change in net unrealized gains (losses) on financial derivatives of $3,215 less Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps of $(385). For the three month period ended June 30, 2016, represents Change in net unrealized gains (losses) on financial derivatives of $5,129 less Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps of $1,448. |
About
Conference Call
We will host a conference call at
A dial-in replay of the conference call will be available on Wednesday, November 2, 2016, 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 |
||||||||||||
Three Month Period Ended |
Nine Month Period Ended |
|||||||||||
September 30, 2016 |
June 30, |
September 30, 2016 |
||||||||||
(In thousands except share amounts) |
||||||||||||
INTEREST INCOME (EXPENSE) |
||||||||||||
Interest income |
$ |
7,096 |
$ |
7,538 |
$ |
24,285 |
||||||
Interest expense |
(2,279) |
(2,260) |
(6,589) |
|||||||||
Total net interest income |
4,817 |
5,278 |
17,696 |
|||||||||
EXPENSES |
||||||||||||
Management fees |
539 |
528 |
1,596 |
|||||||||
Professional fees |
171 |
161 |
549 |
|||||||||
Compensation expense |
142 |
169 |
463 |
|||||||||
Other operating expenses |
402 |
414 |
1,269 |
|||||||||
Total expenses |
1,254 |
1,272 |
3,877 |
|||||||||
OTHER INCOME (LOSS) |
||||||||||||
Net realized gains (losses) on securities |
3,892 |
2,100 |
9,003 |
|||||||||
Net realized gains (losses) on financial derivatives |
(3,920) |
(13,607) |
(21,523) |
|||||||||
Change in net unrealized gains (losses) on securities |
(124) |
5,879 |
14,388 |
|||||||||
Change in net unrealized gains (losses) on financial derivatives |
3,215 |
5,129 |
(5,792) |
|||||||||
Total other income (loss) |
3,063 |
(499) |
(3,924) |
|||||||||
NET INCOME (LOSS) |
$ |
6,626 |
$ |
3,507 |
$ |
9,895 |
||||||
NET INCOME (LOSS) PER COMMON SHARE: |
||||||||||||
Basic and Diluted |
$ |
0.73 |
$ |
0.38 |
$ |
1.09 |
||||||
WEIGHTED AVERAGE SHARES OUTSTANDING |
9,119,111 |
9,117,183 |
9,119,164 |
|||||||||
CASH DIVIDENDS PER SHARE: |
||||||||||||
Dividends declared |
$ |
0.40 |
$ |
0.40 |
$ |
1.25 |
ELLINGTON RESIDENTIAL MORTGAGE REIT |
||||||||||||
As of |
||||||||||||
September 30, 2016 |
June 30, 2016 |
December 31, 2015(1) |
||||||||||
(In thousands except share amounts) |
||||||||||||
ASSETS |
||||||||||||
Cash and cash equivalents |
$ |
43,026 |
$ |
36,200 |
$ |
40,166 |
||||||
Mortgage-backed securities, at fair value |
1,233,134 |
1,229,015 |
1,242,266 |
|||||||||
Due from brokers |
33,462 |
34,380 |
33,297 |
|||||||||
Financial derivatives–assets, at fair value |
1,641 |
1,920 |
2,183 |
|||||||||
Reverse repurchase agreements |
77,932 |
68,862 |
78,632 |
|||||||||
Receivable for securities sold |
37,057 |
98,328 |
155,526 |
|||||||||
Interest receivable |
4,274 |
4,427 |
4,325 |
|||||||||
Other assets |
357 |
454 |
289 |
|||||||||
Total Assets |
$ |
1,430,883 |
$ |
1,473,586 |
$ |
1,556,684 |
||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||
LIABILITIES |
||||||||||||
Repurchase agreements |
$ |
1,158,962 |
$ |
1,205,987 |
$ |
1,222,719 |
||||||
Payable for securities purchased |
34,808 |
33,457 |
98,949 |
|||||||||
Due to brokers |
538 |
5,877 |
439 |
|||||||||
Financial derivatives–liabilities, at fair value |
9,885 |
13,379 |
4,725 |
|||||||||
U.S. Treasury securities sold short, at fair value |
77,263 |
68,528 |
78,447 |
|||||||||
Dividend payable |
3,651 |
3,647 |
4,111 |
|||||||||
Accrued expenses |
622 |
615 |
533 |
|||||||||
Management fee payable |
539 |
528 |
545 |
|||||||||
Interest payable |
1,341 |
1,310 |
1,361 |
|||||||||
Total Liabilities |
1,287,609 |
1,333,328 |
1,411,829 |
|||||||||
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; (9,127,039, 9,117,183, and 9,135,103 shares issued and outstanding, respectively) |
92 |
92 |
92 |
|||||||||
Additional paid-in-capital |
180,952 |
180,911 |
181,027 |
|||||||||
Accumulated deficit |
(37,770) |
(40,745) |
(36,264) |
|||||||||
Total Shareholders' Equity |
143,274 |
140,258 |
144,855 |
|||||||||
Total Liabilities and Shareholders' Equity |
$ |
1,430,883 |
$ |
1,473,586 |
$ |
1,556,684 |
||||||
PER SHARE INFORMATION |
||||||||||||
Common shares, par value $0.01 per share |
$ |
15.70 |
$ |
15.38 |
$ |
15.86 |
||||||
(1) Derived from audited financial statements as of December 31, 2015. |
Investor Contact:
Media Contact:
Logo - http://photos.prnewswire.com/prnh/20140811/135117
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/ellington-residential-mortgage-reit-reports-third-quarter-2016-results-300355344.html
SOURCE