Ellington Residential Mortgage REIT Reports First Quarter 2019 Results
Highlights
-
Net income of
$8.9 million , or$0.72 per share. -
Core Earnings1 of
$2.4 million , or$0.19 per share, and Adjusted Core Earnings1 of$3.3 million , or$0.27 per share. -
Book value of
$12.69 per share as ofMarch 31, 2019 , which includes the effect of a first quarter dividend of$0.34 per share. - Net interest margin of 0.83%, and adjusted net interest margin2 of 1.08%.
- Weighted average constant prepayment rate for the fixed-rate Agency specified pool portfolio of 6.0%.
-
Dividend yield of 11.7% based on the
May 1, 2019 closing stock price of$11.66 . -
Debt-to-equity ratio of 9.0:1 as of
March 31, 2019 ; adjusted for unsettled purchases and sales, the debt-to-equity ratio was 8.9:1. -
Net mortgage assets-to-equity ratio of 8.5:13 as of
March 31, 2019 .
First Quarter 2019 Results
"During the first quarter, Ellington Residential generated net income of
"The strong performance of Agency RMBS helped drive our results this quarter, and the recent decline in mortgage rates and corresponding increase in prepayment expectations boosted the value of the prepayment protection that our specified pools provide. In contrast, the generic pools that underlie TBAs tend to be more prepayment-sensitive. Because we concentrate our long investments in specified pools as opposed to TBAs, the increase in specified pool pay-ups further benefited our performance for the quarter.
"The year is off to a great start, and with interest rates low and prepayments likely to pick up from here, we believe that our portfolio is well positioned. Changes in the prepayment landscape should favor our core strengths of prepayment modeling, asset selection, and dynamic interest rate hedging, while also providing meaningful trading opportunities."
| 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, 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. | |
| 3 | The Company defines its net mortgage assets-to-equity ratio as the net aggregate market value of its mortgage-backed securities (including the underlying market values of its long and short TBA positions) divided by total shareholders' equity. As of March 31, 2019 the market value of the Company's mortgage-backed securities and its net short TBA position was $1.492 billion and $(152.3) million, respectively, and total shareholders' equity was $158.2 million. | |
Financial Results
The following table summarizes the Company's portfolio of RMBS as of
| March 31, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||||||||||
| (In thousands) |
Current |
Fair Value |
Average |
Cost |
Average |
Current |
Fair Value |
Average |
Cost |
Average |
||||||||||||||||||||||||||||||
| Agency RMBS(2) | ||||||||||||||||||||||||||||||||||||||||
| 15-year fixed-rate mortgages | $ | 137,382 | $ | 141,192 | $ | 102.77 | $ | 140,235 | $ | 102.08 | $ | 135,537 | $ | 137,531 | $ | 101.47 | $ | 138,844 | $ | 102.44 | ||||||||||||||||||||
| 20-year fixed-rate mortgages | 37,455 | 39,126 | 104.46 | 39,038 | 104.23 | 7,267 | 7,505 | 103.28 | 7,842 | 107.91 | ||||||||||||||||||||||||||||||
| 30-year fixed-rate mortgages | 1,134,722 | 1,183,728 | 104.32 | 1,186,421 | 104.56 | 1,237,047 | 1,273,514 | 102.95 | 1,294,517 | 104.65 | ||||||||||||||||||||||||||||||
| ARMs | 26,316 | 27,141 | 103.13 | 27,612 | 104.92 | 17,752 | 18,243 | 102.77 | 18,969 | 106.86 | ||||||||||||||||||||||||||||||
| Reverse mortgages | 70,531 | 76,032 | 107.80 | 76,559 | 108.55 | 70,991 | 75,904 | 106.92 | 77,322 | 108.92 | ||||||||||||||||||||||||||||||
| Total Agency RMBS | 1,406,406 | 1,467,219 | 104.32 | 1,469,865 | 104.51 | 1,468,594 | 1,512,697 | 103.00 | 1,537,494 | 104.69 | ||||||||||||||||||||||||||||||
| Non-Agency RMBS | 13,576 | 11,170 | 82.28 | 9,027 | 66.49 | 13,755 | 11,233 | 81.66 | 9,431 | 68.56 | ||||||||||||||||||||||||||||||
| Total RMBS(2) | 1,419,982 | 1,478,389 | 104.11 | 1,478,892 | 104.15 | 1,482,349 | 1,523,930 | 102.81 | 1,546,925 | 104.36 | ||||||||||||||||||||||||||||||
| Agency IOs | n/a | 13,872 | n/a | 14,663 | n/a | n/a | 16,366 | n/a | 16,740 | n/a | ||||||||||||||||||||||||||||||
| Total mortgage-backed securities | $ | 1,492,261 | $ | 1,493,555 | $ | 1,540,296 | $ | 1,563,665 | ||||||||||||||||||||||||||||||||
| (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. | |
The Company's overall RMBS portfolio decreased by 3.1% to
The Company benefited from strong performance in its Agency RMBS
portfolio this quarter. Declining interest rates and tightening yield
spreads on many Agency RMBS generated net realized and unrealized gains
on the Company's Agency assets. Additionally, outperformance of
specified pools compared to TBAs, in the form of higher pay-ups for
specified pools, also contributed to results, as the Company continued
to concentrate its long investments in specified pools, as opposed to
TBAs. Pay-ups are price premiums for specified pools relative to their
TBA counterparts. Increasing prepayment expectations related to
declining mortgage rates were the key drivers of the expansion in
specified pool pay-ups. Average pay-ups on the Company's specified pools
increased to 0.99% as of
The Company's non-Agency RMBS performed well during the quarter, driven by strong net interest income and net unrealized gains. Fundamentals underlying non-Agency RMBS remain strong, led by a stable housing market. To the extent that more attractive entry points develop in non-Agency RMBS, the Company may increase its capital allocation to this sector.
Core Earnings was lower this quarter as compared to the prior quarter, primarily as a result of a reversal in the direction of the Catch-up Premium Amortization Adjustment. With mortgage rates declining quarter over quarter, expected future prepayments increased, which caused a negative Catch-Up Premium Amortization Adjustment to interest income in the current quarter, as compared to a positive adjustment to interest income in the prior quarter. Adjusted Core Earnings was lower in the current quarter as compared to the prior quarter, primarily as a result of an increase in repo borrowing rates combined with a smaller portfolio, partially offset by increases in asset yields.
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. The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on the Company's 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 the Company's then-current 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. The Company believes that Core Earnings and Adjusted Core Earnings provide information useful to investors because they are metrics that the Company uses to assess its performance and to evaluate the effective net yield provided by the portfolio. Moreover, one of the Company's 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. In addition, the Company believes that presenting Core Earnings enables its investors to measure, evaluate and compare its operating performance to that of its peer companies. However, because Core Earnings and Adjusted Core Earnings are incomplete measures of the Company's 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
| (In thousands except share amounts) |
Three-Month Period Ended March 31, 2019 |
Three-Month Period Ended December 31, 2018 |
|||||||
| Net Income (Loss) | $ | 8,928 | $ | (10,074 | ) | ||||
| Less: | |||||||||
| Net realized gains (losses) on securities | (1,674 | ) | (9,787 | ) | |||||
| Net realized gains (losses) on financial derivatives, excluding periodic payments(1) | (13,105 | ) | 3,102 | ||||||
| Change in net unrealized gains (losses) on securities | 21,971 | 20,524 | |||||||
| Change in net unrealized gains (losses) on financial derivatives, excluding accrued periodic payments(2) | (634 | ) | (27,936 | ) | |||||
| Subtotal | 6,558 | (14,097 | ) | ||||||
| Core Earnings | $ | 2,370 | $ | 4,023 | |||||
| Less: Catch-up Premium Amortization Adjustment | (944 | ) | 31 | ||||||
| Adjusted Core Earnings | $ | 3,314 | $ | 3,992 | |||||
| Weighted Average Shares Outstanding | 12,467,913 | 12,619,912 | |||||||
| Core Earnings Per Share | $ | 0.19 | $ | 0.32 | |||||
| Adjusted Core Earnings Per Share | $ | 0.27 | $ | 0.32 | |||||
| (1) | For the three-month period ended March 31, 2019, represents Net realized gains (losses) on financial derivatives of $(12.1) million less Net realized gains (losses) on periodic settlements of interest rate swaps of $1.0 million. For the three-month period ended December 31, 2018, represents Net realized gains (losses) on financial derivatives of $3.1 million less Net realized gains (losses) on periodic settlements of interest rate swaps of $(36) thousand. | |
| (2) | For the three-month period ended March 31, 2019, represents Change in net unrealized gains (losses) on financial derivatives of $(1.0) million less Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps of $(0.3) million. For the three-month period ended December 31, 2018, represents Change in net unrealized gains (losses) on financial derivatives of $(27.4) million less Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps of $0.5 million. | |
About
Conference Call
The Company will host a conference call at
A dial-in replay of the conference call will be available on
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 the
Company's 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, the Company's beliefs regarding the current economic and
investment environment, the Company's ability to implement its
investment and hedging strategies, the Company's future prospects and
the protection of the Company's net interest margin from prepayments,
volatility and its impact on the Company, the performance of the
Company's investment and hedging strategies, the Company's exposure to
prepayment risk in the Company's Agency portfolio, and statements
regarding the drivers of the Company's returns. The Company's results
can fluctuate from month to month and from quarter to quarter depending
on a variety of factors, some of which are beyond the Company's control
and/or are difficult to predict, including, without limitation, changes
in interest rates and the market value of the Company's securities,
changes in mortgage default rates and prepayment rates, the Company's
ability to borrow to finance its assets, changes in government
regulations affecting the Company's business, the Company's ability to
maintain its 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 the Company's Annual Report on Form 10-K for the fiscal year ended
|
ELLINGTON RESIDENTIAL MORTGAGE REIT |
|||||||||
| Three-Month Period Ended | |||||||||
| March 31, 2019 | December 31, 2018 | ||||||||
| (In thousands except share amounts) | |||||||||
| INTEREST INCOME (EXPENSE) | |||||||||
| Interest income | $ | 12,613 | $ | 13,875 | |||||
| Interest expense | (9,555 | ) | (9,084 | ) | |||||
| Total net interest income | 3,058 | 4,791 | |||||||
| EXPENSES | |||||||||
| Management fees to affiliate | 595 | 579 | |||||||
| Professional fees | 229 | 182 | |||||||
| Compensation expense | 151 | 79 | |||||||
| Insurance expense | 74 | 74 | |||||||
| Other operating expenses | 319 | 318 | |||||||
| Total expenses | 1,368 | 1,232 | |||||||
| OTHER INCOME (LOSS) | |||||||||
| Net realized gains (losses) on securities | (1,674 | ) | (9,787 | ) | |||||
| Net realized gains (losses) on financial derivatives | (12,091 | ) | 3,066 | ||||||
| Change in net unrealized gains (losses) on securities | 21,971 | 20,524 | |||||||
| Change in net unrealized gains (losses) on financial derivatives | (968 | ) | (27,436 | ) | |||||
| Total other income (loss) | 7,238 | (13,633 | ) | ||||||
| NET INCOME (LOSS) | $ | 8,928 | $ | (10,074 | ) | ||||
| NET INCOME (LOSS) PER COMMON SHARE: | |||||||||
| Basic and Diluted | $ | 0.72 | $ | (0.80 | ) | ||||
| WEIGHTED AVERAGE SHARES OUTSTANDING | 12,467,913 | 12,619,912 | |||||||
| CASH DIVIDENDS PER SHARE: | |||||||||
| Dividends declared | $ | 0.34 | $ | 0.34 | |||||
|
ELLINGTON RESIDENTIAL MORTGAGE REIT |
||||||||
| As of | ||||||||
| March 31, 2019 | December 31, 2018(1) | |||||||
| (In thousands except share amounts) | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 44,263 | $ | 18,585 | ||||
| Mortgage-backed securities, at fair value | 1,492,261 | 1,540,296 | ||||||
| Due from brokers | 34,753 | 24,051 | ||||||
| Financial derivatives–assets, at fair value | 5,489 | 11,839 | ||||||
| Reverse repurchase agreements | 38,835 | 379 | ||||||
| Receivable for securities sold | 27,926 | 74,197 | ||||||
| Interest receivable | 5,394 | 5,607 | ||||||
| Other assets | 812 | 612 | ||||||
| Total Assets | $ | 1,649,733 | $ | 1,675,566 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| LIABILITIES | ||||||||
| Repurchase agreements | $ | 1,427,147 | $ | 1,481,561 | ||||
| Payable for securities purchased | — | 11,275 | ||||||
| Due to brokers | 4,084 | 1,325 | ||||||
| Financial derivatives–liabilities, at fair value | 11,107 | 16,559 | ||||||
| U.S. Treasury securities sold short, at fair value | 38,670 | 374 | ||||||
| Dividend payable | 4,239 | 4,252 | ||||||
| Accrued expenses | 671 | 838 | ||||||
| Management fee payable to affiliate | 595 | 579 | ||||||
| Interest payable | 5,070 | 4,981 | ||||||
| Total Liabilities | 1,491,583 | 1,521,744 | ||||||
| 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; (12,467,103 and 12,507,213 shares issued and outstanding, respectively) |
125 | 125 | ||||||
| Additional paid-in-capital | 230,527 | 230,888 | ||||||
| Accumulated deficit | (72,502 | ) | (77,191 | ) | ||||
| Total Shareholders' Equity | 158,150 | 153,822 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 1,649,733 | $ | 1,675,566 | ||||
| PER SHARE INFORMATION | ||||||||
| Common shares, par value $0.01 per share | $ | 12.69 | $ | 12.30 | ||||
| (1) | Derived from audited financial statements as of December 31, 2018. | |
View source version on businesswire.com: https://www.businesswire.com/news/home/20190502005951/en/
Source:
Investors:
Investor Relations
Ellington Residential Mortgage
REIT
(203) 409-3773
info@earnreit.com
or
Media:
Amanda
Klein or Kevin FitzGerald
Gasthalter & Co.
for Ellington
Residential Mortgage REIT
(212) 257-4170
Ellington@gasthalter.com