Ellington Residential Mortgage REIT Reports First Quarter 2019 Results
OLD GREENWICH, Conn.–(BUSINESS WIRE)–Ellington Residential Mortgage REIT (NYSE: EARN) (the “Company”) today
reported financial results for the quarter ended March 31, 2019.
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 of March 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
$0.72 per share and an economic return of 5.93%, or almost 26%
annualized,” stated Laurence Penn, Chief Executive Officer and President.
“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 and December 31, 2018:
| 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 $1.492 billion
as of March 31, 2019, as compared to $1.540 billion as of December 31,
2018. The Company’s Agency RMBS portfolio turnover was 16% for the
quarter, as compared to 22% in the prior quarter. The Company’s total
investment in non-Agency RMBS was $11.2 million as of both March 31,
2019, and December 31, 2018.
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 March 31, 2019, as compared to 0.58% as of
December 31, 2018. Meanwhile, declining interest rates during the
quarter led to losses on the Company’s interest rate hedges, and these
hedging losses partially offset the gains on the Company’s assets.
During the quarter the Company continued to hedge interest rate risk,
primarily through the use of interest rate swaps, short positions in
TBAs, U.S. Treasury securities, and futures.
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
March 31, 2019 and December 31, 2018, the Company’s Core Earnings and
Adjusted Core Earnings on a consolidated basis to the line on the
Company’s Consolidated Statement of Operations entitled Net Income
(Loss), which the Company believes is the most directly comparable GAAP
measure on its Consolidated Statement of Operations to Core Earnings:
| (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 Ellington Residential Mortgage REIT
Ellington Residential Mortgage REIT is a mortgage real estate investment
trust that specializes in acquiring, investing in and managing
residential mortgage- and real estate-related assets, with a primary
focus on residential mortgage-backed securities for which the principal
and interest payments are guaranteed by a U.S. government agency or a
U.S. government-sponsored enterprise. Ellington Residential Mortgage
REIT is externally managed and advised by Ellington Residential Mortgage
Management LLC, an affiliate of Ellington Management Group, L.L.C.
Conference Call
The Company will host a conference call at 11:00 a.m. Eastern Time on
Friday, May 3, 2019, to discuss its financial results for the quarter
ended March 31, 2019. To participate in the event by telephone, please
dial (877) 437-3698 at least 10 minutes prior to the start time and
reference the conference ID number 8667797. International callers should
dial (810) 740-4679 and reference the same conference ID number. The
conference call will also be webcast live over the Internet and can be
accessed via the “For Our Shareholders” section of the Company’s web
site at www.earnreit.com.
To listen to the live webcast, please visit www.earnreit.com
at least 15 minutes prior to the start of the call to register,
download, and install necessary audio software. In connection with the
release of these financial results, the Company also posted an investor
presentation, that will accompany the conference call, on the Company’s
website at www.earnreit.com
under “For Our Shareholders—Presentations.”
A dial-in replay of the conference call will be available on Friday,
May 3, 2019, at approximately 2:00 p.m. Eastern Time through Friday,
May 17, 2019 at approximately 11:59 p.m. Eastern Time. To access this
replay, please dial (800) 585-8367 and enter the conference ID number
8667797. International callers should dial (404) 537-3406 and enter the
same conference ID number. A replay of the conference call will also be
archived on the Company’s web site at www.earnreit.com.
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
December 31, 2018 filed on March 8, 2019 which can be accessed through
the link to the Company’s SEC filings under “For Our Shareholders” on
the Company’s website (www.earnreit.com)
or at the SEC’s website (www.sec.gov).
Other risks, uncertainties, and factors that could cause actual results
to differ materially from those projected or implied may be described
from time to time in reports we file with the SEC, including reports on
Forms 10-Q, 10-K and 8-K. We undertake no obligation to update or revise
any forward-looking statements, whether as a result of new information,
future events, or otherwise.
|
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
(12,467,103 and 12,507,213 shares issued and outstanding, |
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. | |
Contacts
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