OLD GREENWICH, Conn. - Nov. 2, 2021
Highlights
Third Quarter 2021 Results
"In the third quarter, Ellington Residential generated net income of
"Performance of Agency RMBS was again mixed during the third quarter. Incrementally higher mortgage rates—particularly in September—led to reduced expectations for prepayment rates and boosted higher-coupon RMBS, while the anticipated withdrawal of
"Net interest income on our portfolio more than offset net unrealized and realized losses, which were concentrated on our lower-coupon holdings. On the hedging side, net gains on our interest-rate swaps and
"As we move into the final weeks of the year and look ahead to 2022, we will seek to capitalize on pricing dislocations that Fed tapering—or fear of Fed tapering—could generate. We believe that our hedging strategy and highly liquid portfolio position us well to take advantage of these potential opportunities, while also preserving book value."
___________________________________
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. | |
2 | Net interest margin excludes the effect of the Catch-up Premium Amortization Adjustment. | |
3 | Excludes recent purchases of fixed rate Agency specified pools with no prepayment history. | |
4 | 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 |
Financial Results
The following table summarizes the Company’s portfolio of RMBS as of
| September 30, 2021 |
| June 30, 2021 | ||||||||||||||||||||||||||||||||||||
(In thousands) | Current |
| Fair Value |
| Average |
| Cost |
| Average |
| Current |
| Fair Value |
| Average |
| Cost |
| Average | ||||||||||||||||||||
Agency RMBS(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
15-year fixed-rate mortgages | $ | 142,607 |
|
| $ | 150,316 |
|
| $ | 105.41 |
|
| $ | 148,435 |
|
| $ | 104.09 |
|
| $ | 140,139 |
|
| $ | 148,054 |
|
| $ | 105.65 |
|
| $ | 145,804 |
|
| $ | 104.04 |
|
20-year fixed-rate mortgages | 37,387 |
|
| 38,515 |
|
| 103.02 |
|
| 38,925 |
|
| 104.11 |
|
| 38,496 |
|
| 39,610 |
|
| 102.89 |
|
| 40,062 |
|
| 104.07 |
| ||||||||||
30-year fixed-rate mortgages | 898,524 |
|
| 955,012 |
|
| 106.29 |
|
| 940,203 |
|
| 104.64 |
|
| 872,706 |
|
| 933,252 |
|
| 106.94 |
|
| 914,966 |
|
| 104.84 |
| ||||||||||
ARMs | 11,692 |
|
| 12,212 |
|
| 104.45 |
|
| 12,253 |
|
| 104.80 |
|
| 13,388 |
|
| 14,042 |
|
| 104.88 |
|
| 14,027 |
|
| 104.77 |
| ||||||||||
Reverse mortgages | 38,657 |
|
| 41,339 |
|
| 106.94 |
|
| 41,274 |
|
| 106.77 |
|
| 49,698 |
|
| 53,714 |
|
| 108.08 |
|
| 52,956 |
|
| 106.56 |
| ||||||||||
Total Agency RMBS | 1,128,867 |
|
| 1,197,394 |
|
| 106.07 |
|
| 1,181,090 |
|
| 104.63 |
|
| 1,114,427 |
|
| 1,188,672 |
|
| 106.66 |
|
| 1,167,815 |
|
| 104.79 |
| ||||||||||
Non-Agency RMBS | 10,874 |
|
| 9,138 |
|
| 84.04 |
|
| 7,288 |
|
| 67.02 |
|
| 11,069 |
|
| 9,304 |
|
| 84.05 |
|
| 7,344 |
|
| 66.35 |
| ||||||||||
Total RMBS(2) | 1,139,741 |
|
| 1,206,532 |
|
| 105.86 |
|
| 1,188,378 |
|
| 104.27 |
|
| 1,125,496 |
|
| 1,197,976 |
|
| 106.44 |
|
| 1,175,159 |
|
| 104.41 |
| ||||||||||
Agency IOs | n/a |
| 11,774 |
|
| n/a |
| 14,255 |
|
| n/a |
| n/a |
| 12,644 |
|
| n/a |
| 15,393 |
|
| n/a | ||||||||||||||||
Total mortgage-backed securities |
|
| $ | 1,218,306 |
|
|
|
| $ | 1,202,633 |
|
|
|
|
|
| $ | 1,210,620 |
|
|
|
| $ | 1,190,552 |
|
|
|
(1) | Represents the dollar amount (not shown in thousands) per | |
(2) | Excludes Agency IOs. |
The Company’s Agency RMBS holdings increased slightly to
The Company’s debt-to-equity ratio, decreased to 6.7:1 as of
Performance of Agency RMBS was mixed during the third quarter. In July and early August, interest rates continued to fall and volatility increased, causing lower-coupon Agency RMBS to underperform
Net interest income on the Company’s portfolio more than offset net realized and unrealized losses, which were concentrated in its lower-coupon holdings. In addition, the Company’s reverse mortgage portfolio underperformed, driven by widening yield spreads in that sector. On the hedging side, net gains on interest-rate swaps and
Average pay-ups on the Company’s specified pools decreased to 1.44% as of
During the quarter, the Company continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBAs,
The Company’s non-Agency RMBS portfolio had positive results for the quarter as net interest income exceeded modest mark-to-market losses. The Company expects to vary its allocation to non-agency RMBS as market opportunities change over time.
Core Earnings and net interest margin decreased quarter over quarter, primarily driven by lower 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 excluding, if applicable, any non-recurring items of income or loss. Core Earnings also excludes 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 includes net realized and change in net unrealized gains (losses) associated with periodic settlements on interest rate swaps.
Core Earnings is a supplemental non-GAAP financial measure. The Company believes that Core Earnings provides information useful to investors because it is a metric 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 is 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 is an incomplete measure of the Company’s financial results and differs from net income (loss) computed in accordance with GAAP, it should be considered as supplementary to, and not as a substitute for, net income (loss) computed in accordance with GAAP.
The following table reconciles, for the three-month periods ended
|
| Three-Month Period Ended | ||||||||
(In thousands except share amounts and per share amounts) |
| September 30, 2021 |
| June 30, 2021 | ||||||
Net Income (Loss) |
| $ | 860 |
|
|
| $ | (4,537 | ) |
|
Adjustments: |
|
|
|
| ||||||
Net realized (gains) losses on securities |
| (1,425 | ) |
|
| (852 | ) |
| ||
Change in net unrealized (gains) losses on securities |
| 4,283 |
|
|
| 11,071 |
|
| ||
Net realized (gains) losses on financial derivatives |
| 3,042 |
|
|
| (2,222 | ) |
| ||
Change in net unrealized (gains) losses on financial derivatives |
| (3,291 | ) |
|
| 4,221 |
|
| ||
Net realized gains (losses) on periodic settlements of interest rate swaps |
| (791 | ) |
|
| (255 | ) |
| ||
Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps |
| 123 |
|
|
| (246 | ) |
| ||
Non-recurring expenses |
| — |
|
|
| 58 |
|
| ||
Negative (positive) component of interest income represented by Catch-up Premium Amortization Adjustment |
| 1,213 |
|
|
| (2,636 | ) |
| ||
Subtotal |
| 3,154 |
|
|
| 9,139 |
|
| ||
Core Earnings |
| $ | 4,014 |
|
|
| $ | 4,602 |
|
|
Weighted Average Shares Outstanding |
| 12,921,649 |
|
|
| 12,432,004 |
|
| ||
Core Earnings Per Share |
| $ | 0.31 |
|
|
| $ | 0.37 |
|
|
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, including changes resulting from the economic effects related to the COVID-19 pandemic, and associated responses to the pandemic. 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
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) | |||||||||||||||
|
| Three-Month |
| Nine-Month | |||||||||||
|
|
|
|
|
|
| |||||||||
(In thousands except share amounts and per share amounts) |
|
|
|
|
|
| |||||||||
INTEREST INCOME (EXPENSE) |
|
|
|
|
|
| |||||||||
Interest income |
| $ | 5,463 |
|
|
| $ | 9,875 |
|
|
| $ | 21,873 |
|
|
Interest expense |
| (552 | ) |
|
| (661 | ) |
|
| (1,994 | ) |
| |||
Total net interest income |
| 4,911 |
|
|
| 9,214 |
|
|
| 19,879 |
|
| |||
EXPENSES |
|
|
|
|
|
| |||||||||
Management fees to affiliate |
| 598 |
|
|
| 609 |
|
|
| 1,821 |
|
| |||
Professional fees |
| 223 |
|
|
| 275 |
|
|
| 768 |
|
| |||
Compensation expense |
| 203 |
|
|
| 212 |
|
|
| 592 |
|
| |||
Insurance expense |
| 99 |
|
|
| 95 |
|
|
| 280 |
|
| |||
Other operating expenses |
| 319 |
|
|
| 342 |
|
|
| 978 |
|
| |||
Total expenses |
| 1,442 |
|
|
| 1,533 |
|
|
| 4,439 |
|
| |||
OTHER INCOME (LOSS) |
|
|
|
|
|
| |||||||||
Net realized gains (losses) on securities |
| 1,425 |
|
|
| 852 |
|
|
| 5,358 |
|
| |||
Net realized gains (losses) on financial derivatives |
| (3,042 | ) |
|
| 2,222 |
|
|
| (5,971 | ) |
| |||
Change in net unrealized gains (losses) on securities |
| (4,283 | ) |
|
| (11,071 | ) |
|
| (25,662 | ) |
| |||
Change in net unrealized gains (losses) on financial derivatives |
| 3,291 |
|
|
| (4,221 | ) |
|
| 7,285 |
|
| |||
Total other income (loss) |
| (2,609 | ) |
|
| (12,218 | ) |
|
| (18,990 | ) |
| |||
NET INCOME (LOSS) |
| $ | 860 |
|
|
| $ | (4,537 | ) |
|
| $ | (3,550 | ) |
|
NET INCOME (LOSS) PER COMMON SHARE: |
|
|
|
|
|
| |||||||||
Basic and Diluted |
| $ | 0.07 |
|
|
| $ | (0.36 | ) |
|
| $ | (0.28 | ) |
|
WEIGHTED AVERAGE SHARES OUTSTANDING |
| 12,921,649 |
|
|
| 12,432,004 |
|
|
| 12,567,849 |
|
| |||
CASH DIVIDENDS PER SHARE: |
|
|
|
|
|
| |||||||||
Dividends declared |
| $ | 0.30 |
|
|
| $ | 0.30 |
|
|
| $ | 0.88 |
|
|
CONSOLIDATED BALANCE SHEET (UNAUDITED) | |||||||||||||||
|
| As of | |||||||||||||
|
|
|
|
|
|
| |||||||||
(In thousands except share amounts and per share amounts) |
|
|
|
|
|
| |||||||||
ASSETS |
|
|
|
|
|
| |||||||||
Cash and cash equivalents |
| $ | 61,169 |
|
|
| $ | 58,683 |
|
|
| $ | 58,166 |
|
|
Mortgage-backed securities, at fair value |
| 1,218,306 |
|
|
| 1,210,620 |
|
|
| 1,081,380 |
|
| |||
Other investments, at fair value |
| 309 |
|
|
| 306 |
|
|
| 292 |
|
| |||
Due from brokers |
| 58,296 |
|
|
| 69,000 |
|
|
| 47,798 |
|
| |||
Financial derivatives–assets, at fair value |
| 7,310 |
|
|
| 3,750 |
|
|
| 2,791 |
|
| |||
Reverse repurchase agreements |
| 9,975 |
|
|
| 33,572 |
|
|
| — |
|
| |||
Receivable for securities sold |
| 7,022 |
|
|
| 778 |
|
|
| — |
|
| |||
Interest receivable |
| 3,786 |
|
|
| 3,786 |
|
|
| 4,114 |
|
| |||
Other assets |
| 502 |
|
|
| 550 |
|
|
| 270 |
|
| |||
Total Assets |
| $ | 1,366,675 |
|
|
| $ | 1,381,045 |
|
|
| $ | 1,194,811 |
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
| |||||||||
LIABILITIES |
|
|
|
|
|
| |||||||||
Repurchase agreements |
| $ | 1,062,197 |
|
|
| $ | 1,135,497 |
|
|
| $ | 1,015,245 |
|
|
Payable for securities purchased |
| 125,853 |
|
|
| 51,885 |
|
|
| — |
|
| |||
Due to brokers |
| 577 |
|
|
| 222 |
|
|
| 1,064 |
|
| |||
Financial derivatives–liabilities, at fair value |
| 3,090 |
|
|
| 4,318 |
|
|
| 6,630 |
|
| |||
| 9,974 |
|
|
| 21,017 |
|
|
| — |
|
| ||||
Dividend payable |
| 3,881 |
|
|
| 3,876 |
|
|
| 3,456 |
|
| |||
Accrued expenses |
| 1,207 |
|
|
| 1,332 |
|
|
| 918 |
|
| |||
Management fee payable to affiliate |
| 598 |
|
|
| 609 |
|
|
| 626 |
|
| |||
Interest payable |
| 398 |
|
|
| 437 |
|
|
| 470 |
|
| |||
Total Liabilities |
| 1,207,775 |
|
|
| 1,219,193 |
|
|
| 1,028,409 |
|
| |||
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
| |||||||||
Preferred shares, par value |
| — |
|
|
| — |
|
|
| — |
|
| |||
Common shares, par value |
| 129 |
|
|
| 129 |
|
|
| 123 |
|
| |||
Additional paid-in-capital |
| 236,869 |
|
|
| 236,800 |
|
|
| 229,614 |
|
| |||
Accumulated deficit |
| (78,098 | ) |
|
| (75,077 | ) |
|
| (63,335 | ) |
| |||
Total Shareholders’ Equity |
| 158,900 |
|
|
| 161,852 |
|
|
| 166,402 |
|
| |||
Total Liabilities and Shareholders’ Equity |
| $ | 1,366,675 |
|
|
| $ | 1,381,045 |
|
|
| $ | 1,194,811 |
|
|
SUPPLEMENTAL PER SHARE INFORMATION |
|
|
|
|
|
| |||||||||
Book Value Per Share |
| $ | 12.28 |
|
|
| $ | 12.53 |
|
|
| $ | 13.48 |
|
|
(1) | Derived from audited financial statements as of |
Investors:
Investor Relations
(203) 409-3773
info@earnreit.com
or
Media:
for
(212) 257-4170
Ellington@gasthalter.com
Source:
View original content: Businesswire
Ellington Residential Mortgage REIT
Symbol: EARN
CIK: 1560672
Exchange: NYSE
Founded: 2012 (12 years)
Type of REIT: Mortgage REIT
Listing Status: Public
Market Capitalization: Micro-Cap
REIT Sector: Mortgage
REITRating is REITNote's Real Estate Investment Trust industry-specific rating and ranking system. The overall score is out of ten points, with ten being the best score.
Latest Price: $6.91
High: $6.97
Low: $6.85
Open: $6.90
Previous Close: $6.92
Volume: 274,433
52-Week High: $7.12
52-Week Low: $4.59
Last updated: 2024-12-13 - v1.3