OLD GREENWICH, Conn.,
Aug. 4, 2015 /PRNewswire/
-- Ellington Residential Mortgage REIT (NYSE: EARN) today
reported financial results for the quarter ended June 30,
2015.
Summary of Financial Results
- Net income for the quarter was $0.2
million, or $0.02 per share,
as compared to $3.7 million or
$0.40 per share in the first quarter
of 2015.
- Core Earnings1 for the quarter was $5.2 million, or $0.57 per share, as compared to $6.0 million, or $0.66 per share, in the first quarter of
2015.
- Book value decreased 3.0% to $17.18 per share as of June 30, 2015 from $17.71 per share as of March 31, 2015, after giving effect to a second
quarter dividend of $0.55 per
share.
- Net interest margin was 1.83%, as compared to 2.21% for the
first quarter of 2015.
- Weighted average prepayment speed for the Agency RMBS portfolio
was 7.4% CPR for the quarter, as compared to 6.3% in the first
quarter of 2015
- Dividend yield of 15.8% based on August
3, 2015 closing stock price of $13.93.
- Debt-to-equity ratio was 8.0:1 as of June 30, 2015, as compared to 7.5:1 as of
March 31, 2015.
Second Quarter 2015 Results
"For the quarter ended June 30,
2015, on a fully mark-to-market basis, we generated net
income of $0.02 per share and our
Core Earnings was $0.57 per share,"
said Laurence Penn, Chief Executive
Officer and President. "Despite challenging market conditions,
including sharp interest rate increases and significant spread
widening in Agency RMBS, we were still able to generate positive
earnings for the quarter.
"It has always been one of our fundamental objectives to hedge
aggressively against the risk of rising interest rates, and this
significantly helped our results for the quarter. With Agency RMBS
spreads having widened in the second quarter, we kept most of our
hedges in interest rate swaps as opposed to TBA short positions,
and this contributed to the compression in our Core Earnings. On
the asset side, we believe that specified pools have become more
attractively priced as a result of the recent cheapening in
pay-ups, and after reducing our exposure earlier in the second
quarter, we re-established our exposures to pay-ups at what we
think are extremely attractive entry points."
As of June 30, 2015, our mortgage-backed securities
portfolio consisted of $1.200 billion
of fixed rate Agency "specified pools," $41.0 million of Agency RMBS backed by adjustable
rate mortgages, or "Agency ARMs," $56.2
million of Agency reverse mortgage pools, $7.1 million of Agency interest only securities,
or "Agency IOs," and $30.3 million of
non-Agency RMBS. Specified pools are fixed rate Agency pools with
special characteristics, such as pools comprised of low loan
balance mortgages, pools comprised of mortgages backed by investor
properties, pools containing mortgages originated through the
government-sponsored "Making Homes Affordable" refinancing
programs, and pools containing mortgages with various other
characteristics. During the quarter, we modestly increased our
holdings of reverse mortgage pools and Agency IOs while we modestly
decreased our holdings of fixed rate pass throughs. Overall, the
size of our RMBS portfolio declined slightly to $1.33 billion as of June
30, 2015 from $1.39 billion as
of March 31, 2015. In addition,
separate and apart from the short TBA portfolio that we held for
hedging purposes, we held $41.5
million in notional amount of long TBA positions for
investment purposes at June 30, 2015,
down from $92.9 million at
March 31, 2015. For financial
reporting purposes, TBAs are considered derivative instruments.
The second quarter was marked by significant volatility. The
10-year U.S. Treasury yield began the second quarter at 1.92%, and
while it initially dipped lower in the early part of the quarter,
its overall trend during the quarter was decidedly higher, as it
and ended the quarter at 2.35%. In addition, the yield curve
steepened, as the 2-year U.S. Treasury yield increased only 0.09%,
to 0.64%. The average rate for a fixed rate 30-year conventional
mortgage also increased sharply over the course of the second
quarter, climbing 0.38% to 4.08% as of June
30, 2015. As a result of this sharp increase, refinancing
activity slowed, especially in the latter half of the second
quarter.
Yield spreads on Agency RMBS generally widened in the second
quarter. The drop in mortgage rates that had occurred in the first
quarter led to increased refinancings, and therefore increased
Agency pool production, in the first half of the second quarter;
this increased supply was then exacerbated by the reduced purchase
activity of the Federal Reserve. Even though demand from banks,
money managers, and foreign investors has remained strong, the
demand could not keep up with the added supply. Given the recent
increase in interest rates, we believe that the level of supply
will likely decline in the coming quarters. While in the first
quarter specified pools had benefited from their prepayment
protection features relative to their generic or TBA counterparts,
this trend reversed in the second quarter as interest rates rose,
and as a result TBA roll prices improved and pay-ups cheapened.
Pay-ups are price premiums for specified pools relative to their
TBA counterparts. In addition to cheapening on account of the
fundamental decline in the value of prepayment protection, pay-ups
cheapened further as a result of several technical factors,
including an increase in prices for TBA rolls (giving TBAs an added
carry advantage) and a general shift in sentiment away from
prepayment protected assets. The weighted average market pay-up for
our specified pools decreased to 0.81% as of June 30, 2015 from 1.12% as of March 31, 2015.
We took advantage of the volatility in pay-ups to harvest some
gains early in the quarter, and then re-establish our exposure to
pay-ups at cheaper levels later in the quarter. Our portfolio
turnover for the quarter was 20% (as measured by sales and
excluding paydowns), and we captured net realized gains of
$1.4 million, excluding hedges.
Over the course of the second quarter, our interest rate hedges,
which were largely concentrated in interest rate swaps and short
TBA positions, generated gains that significantly offset net
realized and unrealized losses from our long portfolio. We believe
that there remains a heightened risk of substantial interest rate
and prepayment volatility in the near term, thus reinforcing the
importance of our ability to hedge our risks using a variety of
tools, including TBAs.
During the second quarter, we continued to focus our Agency RMBS
purchasing activity primarily on specified pools, especially those
with higher coupons. As of June 30,
2015, the weighted average coupon on our fixed rate
specified pools was 3.97% as compared to 4.00% as of March 31, 2015. We also continued to be active in
the reverse mortgage pool sector, adding to our holdings during the
early part of the quarter. Our reverse mortgage pool purchase
activity continued to be focused on new issue pools. Our Agency
RMBS portfolio also includes a small allocation to Agency IOs,
including Agency IOs on reverse mortgage pools, and we slightly
increased our holdings of Agency IOs during the quarter.
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. Net Agency premium represents the total premium
(excess of market value over outstanding principal balance) on long
Agency RMBS holdings less the total premium on related net short
TBA positions. The lower our net Agency premium, the less we
believe we are exposed to market-wide increases in Agency RMBS
prepayments. As of June 30, 2015, our net Agency premium as a
percentage of fair value on long Agency RMBS holdings was
approximately 3.8% as compared to 4.7%, as of March 31, 2015.
Excluding TBA positions used to hedge our long Agency RMBS
portfolio, our Agency premium as a percentage of fair value was
approximately 6.4% and 7.7% as of June 30, 2015 and
March 31, 2015, respectively. These percentages may fluctuate
from period to period based on market factors, including interest
rates and mortgage rates, as well as with respect to the net
percentages, the degree to which we hedge prepayment risk with
short TBAs. We believe that our focus on purchasing pools with
specific prepayment characteristics provides a measure of
protection against prepayments.
During the second quarter, as global fixed-income markets
generally experienced a significant sell-off, the market for
non-Agency RMBS held up relatively well compared to other sectors.
More stable non-agency RMBS performed particularly well, as there
continues to be little forced selling, available supply is
dwindling as outstanding deals continue to amortize, and as
domestic insurance companies continue to be attracted to the
relatively high yields. On the fundamental side, modestly
increasing home prices and overall improvements in mortgage
delinquency and foreclosure rates continue to support non-Agency
RMBS valuations. Notwithstanding the overall positive performance
trend, we believe that careful loan-level analysis continues to be
very important in security selection. As of June 30, 2015, our investment in non-Agency RMBS
was $30.3 million as compared to
$31.7 million as of March 31, 2015.
For the quarter ended June 30,
2015, net realized and change in net unrealized gains
(losses) on our mortgage-backed securities were $(16.3) million, or $(1.78) per share. Our RMBS generally decreased
in value during the second quarter as interest rates rose. Net
realized and change in net unrealized gains (losses) on our
derivatives were $9.4 million, or
$1.03 per share, also resulting from
the increase in interest rates over the quarter.
For the quarter ended June 30, 2015, the weighted average
yield of our portfolio of Agency and non-Agency RMBS was 2.92%,
while our average cost of funds including interest rate swaps and
U.S. Treasuries was 1.09%, resulting in a net interest margin for
the quarter of 1.83%. In comparison, for the quarter ended
March 31, 2015, the annualized weighted average yield of our
Agency and non-Agency RMBS was 3.14%, while the average cost of
funds including interest rate swaps and U.S. Treasuries was 0.93%,
resulting in a net interest margin of 2.21%. The decrease in our
portfolio yield was primarily a function of two factors. First,
during the second quarter, we had a "Catch-up Premium Amortization
Adjustment" in the amount of $0.4
million, which lowered our net interest income. Our interest
income is subject to fluctuations based on adjustments to premium
amortization as a result of changes in prepayments of our Agency
RMBS (accompanied by a corresponding offsetting adjustment to
realized and unrealized gains and losses). The amount of this
adjustment can vary significantly from quarter to quarter. During
the second quarter, prepayment speeds on our Agency RMBS increased,
reflecting the impact of the decline in mortgage rates that
occurred in the first quarter. Excluding the Catch-up Premium
Amortization Adjustment, our weighted average yield on our
portfolio was 3.05% and our net interest margin was 1.96%. Second,
yields on our held Agency RMBS portfolio, which are based on
projections made as of the beginning of the quarter, declined on a
quarter-over-quarter basis. Our cost of repo increased 0.03% to
0.39% for the second quarter, in part because the weighted average
remaining maturity of our repo borrowings increased to 90 days as
of June 30, 2015, up from 68 days as
of March 31, 2015. During the second
quarter we shifted our hedges slightly to be less concentrated in
TBA short positions and more concentrated in interest rate swaps
and short positions in U.S. Treasury securities, which increased
our interest expense and therefore also our cost of funds. During
the quarter ended March 31, 2015, the
Catch-up Premium Amortization Adjustment also decreased interest
income by approximately $0.4 million.
Excluding this Catch-up Premium Amortization Adjustment, the
weighted average yield on our portfolio for the quarter ended
March 31, 2015 would have been 3.27%
and our net interest margin would have been 2.34%.
After giving effect to a second quarter dividend of $0.55 per share, our book value per share was
$17.18 as of June 30, 2015, a
3.0% decrease from our book value per share as of March 31,
2015 of $17.71. Our economic return
on book value for the second quarter was 0.1%. Economic return on
book value is computed by adding back dividends to ending book
value per share, and comparing that amount to book value per share
as of the beginning of the quarter.
For the quarter ended June 30, 2015, Core Earnings was
$5.2 million, or $0.57 per share, and for the quarter ended
March 31, 2015, Core Earnings was
$6.0 million, or $0.66 per share. Core Earnings is a non-GAAP
financial measure. Compression in asset yields and the increase in
our cost of funds were the principal drivers of our quarter over
quarter decline in Core Earnings. See "Reconciliation of Core
Earnings to Net Income (Loss)" below for an explanation regarding
the calculation of Core Earnings.
Mortgage-backed securities
The following table summarizes our portfolio of mortgage-backed
securities as of June 30, 2015 and March 31, 2015:
|
June 30,
2015
|
|
March 31,
2015
|
(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
|
$
|
157,422
|
|
|
$
|
166,058
|
|
|
$
|
105.49
|
|
|
$
|
165,150
|
|
|
$
|
104.91
|
|
|
$
|
139,211
|
|
|
$
|
148,363
|
|
|
$
|
106.57
|
|
|
$
|
146,231
|
|
|
$
|
105.04
|
|
20-year fixed rate
mortgages
|
9,250
|
|
|
9,934
|
|
|
107.39
|
|
|
9,776
|
|
|
105.69
|
|
|
9,505
|
|
|
10,311
|
|
|
108.48
|
|
|
10,064
|
|
|
105.88
|
|
30-year fixed rate
mortgages
|
958,490
|
|
|
1,024,243
|
|
|
106.86
|
|
|
1,017,219
|
|
|
106.13
|
|
|
1,018,731
|
|
|
1,105,445
|
|
|
108.51
|
|
|
1,081,925
|
|
|
106.20
|
|
ARMs
|
38,594
|
|
|
40,997
|
|
|
106.23
|
|
|
40,976
|
|
|
106.17
|
|
|
39,458
|
|
|
42,057
|
|
|
106.59
|
|
|
42,056
|
|
|
106.58
|
|
Reverse
mortgages
|
50,788
|
|
|
56,233
|
|
|
110.72
|
|
|
56,591
|
|
|
111.43
|
|
|
39,630
|
|
|
44,131
|
|
|
111.36
|
|
|
43,455
|
|
|
109.65
|
|
Total Agency
RMBS
|
1,214,544
|
|
|
1,297,465
|
|
|
106.83
|
|
|
1,289,712
|
|
|
106.19
|
|
|
1,246,535
|
|
|
1,350,307
|
|
|
108.32
|
|
|
1,323,731
|
|
|
106.19
|
|
Non-Agency
RMBS
|
44,386
|
|
|
30,288
|
|
|
68.24
|
|
|
28,612
|
|
|
64.46
|
|
|
46,310
|
|
|
31,710
|
|
|
68.47
|
|
|
29,644
|
|
|
64.01
|
|
Total
RMBS(2)
|
1,258,930
|
|
|
1,327,753
|
|
|
105.47
|
|
|
1,318,324
|
|
|
104.72
|
|
|
1,292,845
|
|
|
1,382,017
|
|
|
106.90
|
|
|
1,353,375
|
|
|
104.68
|
|
Agency IOs
|
n/a
|
|
|
7,070
|
|
|
n/a
|
|
|
7,270
|
|
|
n/a
|
|
|
n/a
|
|
|
6,443
|
|
|
n/a
|
|
|
7,287
|
|
|
n/a
|
|
Total mortgage-backed
securities
|
|
|
1,334,823
|
|
|
|
|
1,325,594
|
|
|
|
|
|
|
1,388,460
|
|
|
|
|
1,360,662
|
|
|
|
U.S. Treasury
securities sold short
|
(51,380)
|
|
|
(51,184)
|
|
|
99.62
|
|
|
(51,931)
|
|
|
101.07
|
|
|
(61,950)
|
|
|
(62,848)
|
|
|
101.45
|
|
|
(62,747)
|
|
|
101.29
|
|
Reverse repurchase
agreements
|
58,859
|
|
|
58,859
|
|
|
100.00
|
|
|
58,859
|
|
|
100.00
|
|
|
62,973
|
|
|
62,973
|
|
|
100.00
|
|
|
62,973
|
|
|
100.00
|
|
Total
|
|
|
$
|
1,342,498
|
|
|
|
|
$
|
1,332,522
|
|
|
|
|
|
|
$
|
1,388,585
|
|
|
|
|
$
|
1,360,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $1.346 billion and $1.309 billion for the three month periods ended
June 30, 2015 and March 31, 2015, respectively.
Financial Derivatives Portfolio
The following table summarizes fair value of our financial
derivatives as of June 30, 2015 and March 31, 2015:
|
|
June 30,
2015
|
|
March 31,
2015
|
Financial
derivatives–assets, at fair value:
|
|
(In
thousands)
|
TBA securities
purchase contracts
|
|
$
|
48
|
|
|
$
|
936
|
|
TBA securities sale
contracts
|
|
858
|
|
|
53
|
|
Fixed payer interest
rate swaps
|
|
3,635
|
|
|
175
|
|
Swaptions
|
|
—
|
|
|
315
|
|
Total financial
derivatives–assets, at fair value:
|
|
4,541
|
|
|
1,479
|
|
Financial
derivatives–liabilities, at fair value:
|
|
|
|
|
TBA securities sale
contracts
|
|
(677)
|
|
|
(2,284)
|
|
Fixed payer interest
rate swaps
|
|
(3,313)
|
|
|
(11,917)
|
|
Swaptions
|
|
(17)
|
|
|
—
|
|
Total financial
derivatives–liabilities, at fair value:
|
|
(4,007)
|
|
|
(14,201)
|
|
Total
|
|
$
|
534
|
|
|
$
|
(12,722)
|
|
Interest Rate Swaps
The following tables provide details about our interest rate
swaps as of June 30, 2015 and March 31, 2015:
|
|
June 30,
2015
|
Maturity
|
|
Notional
Amount
|
|
Fair
Value
|
|
Weighted
Average
Pay
Rate
|
|
Weighted Average
Receive Rate
|
|
Weighted
Average
Remaining Years
to Maturity
|
|
|
(In
thousands)
|
|
|
|
|
|
|
2016
|
|
$
|
48,000
|
|
|
$
|
(191)
|
|
|
0.80
|
%
|
|
0.28
|
%
|
|
1.28
|
2017
|
|
74,750
|
|
|
(676)
|
|
|
1.21
|
|
|
0.28
|
|
|
2.10
|
2018
|
|
71,529
|
|
|
(1)
|
|
|
1.11
|
|
|
0.28
|
|
|
2.79
|
2020
|
|
88,000
|
|
|
96
|
|
|
1.62
|
|
|
0.28
|
|
|
4.79
|
2022
|
|
27,700
|
|
|
8
|
|
|
2.04
|
|
|
0.28
|
|
|
6.82
|
2023
|
|
131,164
|
|
|
758
|
|
|
2.13
|
|
|
0.28
|
|
|
7.90
|
2024
|
|
12,900
|
|
|
(474)
|
|
|
2.73
|
|
|
0.28
|
|
|
8.95
|
2025
|
|
90,290
|
|
|
1,737
|
|
|
2.21
|
|
|
0.26
|
|
|
9.79
|
2043
|
|
29,089
|
|
|
(935)
|
|
|
3.06
|
|
|
0.28
|
|
|
27.90
|
Total
|
|
$
|
573,422
|
|
|
$
|
322
|
|
|
1.76
|
%
|
|
0.28
|
%
|
|
6.76
|
|
|
March 31,
2015
|
Maturity
|
|
Notional
Amount
|
|
Fair
Value
|
|
Weighted
Average
Pay
Rate
|
|
Weighted Average
Receive Rate
|
|
Weighted
Average
Remaining Years
to Maturity
|
|
|
(In
thousands)
|
|
|
|
|
|
|
2016
|
|
$
|
48,000
|
|
|
$
|
(189)
|
|
|
0.80
|
%
|
|
0.26
|
%
|
|
1.52
|
2017
|
|
74,750
|
|
|
(647)
|
|
|
1.21
|
|
|
0.26
|
|
|
2.35
|
2018
|
|
25,000
|
|
|
(48)
|
|
|
1.11
|
|
|
0.26
|
|
|
2.97
|
2020
|
|
63,000
|
|
|
(427)
|
|
|
1.62
|
|
|
0.26
|
|
|
5.01
|
2022
|
|
9,000
|
|
|
(169)
|
|
|
2.04
|
|
|
0.26
|
|
|
6.90
|
2023
|
|
139,350
|
|
|
(3,907)
|
|
|
2.17
|
|
|
0.26
|
|
|
8.15
|
2024
|
|
12,900
|
|
|
(926)
|
|
|
2.73
|
|
|
0.26
|
|
|
9.20
|
2025
|
|
30,080
|
|
|
(97)
|
|
|
2.03
|
|
|
0.26
|
|
|
9.85
|
2043
|
|
33,610
|
|
|
(5,332)
|
|
|
3.08
|
|
|
0.26
|
|
|
28.16
|
Total
|
|
$
|
435,690
|
|
|
$
|
(11,742)
|
|
|
1.79
|
%
|
|
0.26
|
%
|
|
7.34
|
Interest Rate Swaptions
The following table provides information about our swaptions as
of June 30, 2015 and March 31, 2015:
June 30,
2015
|
Option
|
|
Underlying
Swap
|
Type
|
|
Fair
Value
|
|
Months to
Expiration
|
|
Notional
Amount
|
|
Term
(Years)
|
|
Fixed
Rate
|
($ in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Straddle
|
|
$
|
(17)
|
|
|
0.5
|
|
$
|
9,700
|
|
|
10.0
|
|
3.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2015
|
Option
|
|
Underlying
Swap
|
Type
|
|
Fair
Value
|
|
Months to
Expiration
|
|
Notional
Amount
|
|
Term
(Years)
|
|
Fixed
Rate
|
($ in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Straddle
|
|
$
|
315
|
|
|
3.5
|
|
$
|
9,700
|
|
|
10.0
|
|
3.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBAs
The following table provides information about our TBAs as of
June 30, 2015 and March 31, 2015:
|
|
June 30,
2015
|
|
March 31,
2015
|
TBA
Securities
|
|
Notional
Amount (1)
|
|
Cost
Basis(2)
|
|
Market
Value (3)
|
|
Net
Carrying
Value
(4)
|
|
Notional
Amount (1)
|
|
Cost
Basis(2)
|
|
Market
Value (3)
|
|
Net
Carrying
Value (4)
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
41,508
|
|
|
$
|
41,433
|
|
|
$
|
41,481
|
|
|
$
|
48
|
|
|
$
|
92,898
|
|
|
$
|
94,607
|
|
|
$
|
95,543
|
|
|
$
|
936
|
|
|
|
|
41,508
|
|
|
41,433
|
|
|
|
41,481
|
|
|
|
48
|
|
|
|
92,898
|
|
|
|
94,607
|
|
|
|
95,543
|
|
|
|
936
|
|
Sale
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
(214,926)
|
|
|
|
(230,900)
|
|
|
|
(230,042)
|
|
|
|
858
|
|
|
|
(72,260)
|
|
|
|
(76,568)
|
|
|
|
(76,515)
|
|
|
|
53
|
|
Liabilities
|
|
|
(313,059)
|
|
|
|
(330,828)
|
|
|
|
(331,505)
|
|
|
|
(677)
|
|
|
|
(529,475)
|
|
|
|
(565,990)
|
|
|
|
(568,274)
|
|
|
|
(2,284)
|
|
|
|
|
(527,985)
|
|
|
|
(561,728)
|
|
|
|
(561,547)
|
|
|
|
181
|
|
|
|
(601,735)
|
|
|
|
(642,558)
|
|
|
|
(644,789)
|
|
|
|
(2,231)
|
|
Total TBA securities,
net
|
|
$
|
(486,477)
|
|
|
$
|
(520,295)
|
|
|
$
|
(520,066)
|
|
|
$
|
229
|
|
|
$
|
(508,837)
|
|
|
$
|
(547,951)
|
|
|
$
|
(549,246)
|
|
|
$
|
(1,295)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 June 30, 2015
and March 31, 2015:
|
|
Three Month Period
Ended June 30, 2015
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed payer
interest
rate swaps
|
|
$
|
(2,148)
|
|
|
$
|
(1,366)
|
|
|
$
|
(3,514)
|
|
|
$
|
270
|
|
|
$
|
11,794
|
|
|
$
|
12,064
|
|
Swaptions
|
|
|
|
—
|
|
|
—
|
|
|
|
|
(333)
|
|
|
(333)
|
|
TBAs
|
|
|
|
(328)
|
|
|
(328)
|
|
|
|
|
1,525
|
|
|
1,525
|
|
Total
|
|
$
|
(2,148)
|
|
|
$
|
(1,694)
|
|
|
$
|
(3,842)
|
|
|
$
|
270
|
|
|
$
|
12,986
|
|
|
$
|
13,256
|
|
|
|
Three Month Period
Ended March 31, 2015
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed payer
interest
rate swaps
|
|
$
|
(707)
|
|
|
$
|
(3,441)
|
|
|
$
|
(4,148)
|
|
|
$
|
(851)
|
|
|
$
|
(6,383)
|
|
|
$
|
(7,234)
|
|
Swaptions
|
|
|
|
—
|
|
|
—
|
|
|
|
|
237
|
|
|
237
|
|
TBAs
|
|
|
|
(4,595)
|
|
|
(4,595)
|
|
|
|
|
(97)
|
|
|
(97)
|
|
Total
|
|
$
|
(707)
|
|
|
$
|
(8,036)
|
|
|
$
|
(8,743)
|
|
|
$
|
(851)
|
|
|
$
|
(6,243)
|
|
|
$
|
(7,094)
|
|
Interest Rate Sensitivity
The following table summarizes, as of June 30, 2015, 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
|
|
$
360
|
|
$
(453)
|
Agency RMBS - Fixed
Pools and IOs
|
|
25,979
|
|
(31,844)
|
TBAs
|
|
(8,249)
|
|
11,103
|
Non-Agency
RMBS
|
|
358
|
|
(342)
|
Interest Rate
Swaps
|
|
(17,220)
|
|
16,373
|
Swaptions
|
|
466
|
|
(419)
|
U.S. Treasury
Securities
|
|
(1,641)
|
|
1,576
|
Repurchase and
Reverse Repurchase Agreements
|
|
(1,320)
|
|
1,538
|
Total
|
|
$
(1,267)
|
|
$
(2,468)
|
|
|
|
|
|
|
|
|
(1)
|
Based on the market
environment as of June 30, 2015. 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 June 30, 2015 and March 31,
2015:
|
|
June 30,
2015
|
|
March 31,
2015
|
|
|
|
|
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
|
|
$
|
172,255
|
|
|
0.36
|
%
|
|
16
|
|
$
|
412,648
|
|
|
0.34
|
%
|
|
15
|
31-60 days
|
|
136,666
|
|
|
0.36
|
|
|
46
|
|
274,524
|
|
|
0.34
|
|
|
45
|
61-90 days
|
|
432,874
|
|
|
0.41
|
|
|
77
|
|
269,022
|
|
|
0.36
|
|
|
74
|
91-120
days
|
|
165,617
|
|
|
0.42
|
|
|
107
|
|
50,066
|
|
|
0.38
|
|
|
105
|
121-150
days
|
|
191,503
|
|
|
0.44
|
|
|
136
|
|
—
|
|
|
—
|
|
|
—
|
|
151-180
days
|
|
165,564
|
|
|
0.48
|
|
|
166
|
|
139,513
|
|
|
0.43
|
|
|
168
|
301-330
days
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65,337
|
|
|
0.47
|
|
|
227
|
Total
|
|
$
|
1,264,479
|
|
|
0.41
|
%
|
|
90
|
|
$
|
1,211,110
|
|
|
0.36
|
%
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2015, we had no outstanding borrowings other
than under repo agreements. Our repo borrowings were with eleven
counterparties as of June 30, 2015 and were entirely related
to Agency RMBS. The above figures are as of the respective quarter
ends; over the course of the quarters ended June 30, 2015 and March
31, 2015 our average cost of repo was 0.39% and 0.36%,
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, effective January 1, 2015). For the quarter ended
June 30, 2015, our expense ratio, defined as management fees
and operating expenses as a percentage of shareholders' equity, was
3.1% on an annualized basis.
Dividends
On June 16, 2015, our Board of
Trustees declared a second quarter dividend of $0.55 per share, or $5.0
million, which was paid on July 27,
2015 to shareholders of record on June 30, 2015.
Share Repurchase Program
On August 13, 2013, our Board of
Trustees approved the adoption of a $10
million share repurchase program. The program, which is
open-ended in duration, allows us to make repurchases from time to
time on the open market or in negotiated transactions. Repurchases
are at our discretion, subject to applicable law, share
availability, price and our financial performance, among other
considerations. To date, we have not repurchased any shares under
the program.
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 mortgage-backed
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 is a supplemental non-GAAP
financial measure. We believe that Core Earnings provides
information useful to investors because it is a metric 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 is used to help measure the extent to which this
objective is being achieved. However, because Core Earnings is an
incomplete measure of our 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 June 30, 2015 and March 31, 2015, our 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
June 30,
2015
|
|
Three Month
Period Ended
March 31, 2015
|
Net
Income
|
|
$
|
190
|
|
|
$
|
3,677
|
|
Less:
|
|
|
|
|
Net realized gains on
mortgage-backed securities
|
|
1,442
|
|
|
6,722
|
|
Net realized losses
on financial derivatives, excluding periodic
payments(1)
|
|
(1,694)
|
|
|
(8,036)
|
|
Change in net
unrealized gains (losses) on mortgage-backed securities
|
|
(17,722)
|
|
|
5,186
|
|
Change in net
unrealized gains (losses) on financial derivatives, excluding
accrued periodic payments(2)
|
|
12,986
|
|
|
(6,243)
|
|
Subtotal
|
|
(4,988)
|
|
|
(2,371)
|
|
Core
Earnings
|
|
$
|
5,178
|
|
|
$
|
6,048
|
|
Weighted Average
Shares Outstanding
|
|
9,149,274
|
|
|
9,149,274
|
|
Core Earnings Per
Share
|
|
$
|
0.57
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the three month
period ended June 30, 2015, represents Net realized gains (losses)
on financial derivatives of $(3,842) less Net realized gains
(losses) on periodic settlements of interest rate swaps of
$(2,148). For the three month period ended March 31, 2015,
represents Net realized gains (losses) on financial derivatives of
$(8,743) less Net realized gains (losses) on periodic settlements
of interest rate swaps of $(707).
|
(2)
|
For the three month
period ended June 30, 2015, represents Change in net unrealized
gains (losses) on financial derivatives of $13,256 less Change in
net unrealized gains (losses) on accrued periodic settlements of
interest rate swaps of $270. For the three month period ended March
31, 2015, represents Change in net unrealized gains (losses) on
financial derivatives of $(7,094) less Change in net unrealized
gains (losses) on accrued periodic settlements of interest rate
swaps of $(851).
|
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
We will host a conference call at 11:00
a.m. Eastern Time on Wednesday, August 5, 2015, to
discuss our financial results for the quarter ended June 30, 2015. 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 83806920.
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 our 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, we also posted an investor
presentation, that will accompany the conference call, on our
website at www.earnreit.com under "For Our
Shareholders—Presentations."
A dial-in replay of the conference call will be available on
Wednesday, August 5, 2015, at approximately 2:00 p.m. Eastern Time through Wednesday,
August 12, 2015 at approximately 12:59
p.m. Eastern Time. To access this replay, please dial (800)
585-8367 and enter the conference ID number 83806920. 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
our 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
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
December 31, 2014 filed on
March 12, 2015 which can be accessed
through the link to our SEC filings under "For Our Shareholders" on
our 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 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.
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.
|
ELLINGTON RESIDENTIAL
MORTGAGE REIT
|
CONSOLIDATED
STATEMENT OF OPERATIONS
|
(UNAUDITED)
|
|
|
|
Three
Month
Period
Ended
|
|
Six
Month
Period
Ended
|
|
|
June 30,
2015
|
|
March 31,
2015
|
|
June 30,
2015
|
(In thousands
except share amounts)
|
|
|
|
|
|
|
INTEREST INCOME
(EXPENSE)
|
|
|
|
|
|
|
Interest
income
|
|
$
|
9,841
|
|
|
$
|
10,280
|
|
|
$
|
20,121
|
|
Interest
expense
|
|
(1,520)
|
|
|
(1,258)
|
|
|
(2,778)
|
|
Total net interest
income
|
|
8,321
|
|
|
9,022
|
|
|
17,343
|
|
EXPENSES
|
|
|
|
|
|
|
Management
fees
|
|
592
|
|
|
610
|
|
|
1,202
|
|
Professional
fees
|
|
135
|
|
|
143
|
|
|
278
|
|
Other operating
expenses
|
|
538
|
|
|
663
|
|
|
1,201
|
|
Total
expenses
|
|
1,265
|
|
|
1,416
|
|
|
2,681
|
|
OTHER INCOME
(LOSS)
|
|
|
|
|
|
|
Net realized gains on
mortgage-backed securities
|
|
1,442
|
|
|
6,722
|
|
|
8,164
|
|
Net realized losses
on financial derivatives
|
|
(3,842)
|
|
|
(8,743)
|
|
|
(12,585)
|
|
Change in net
unrealized gains (losses) on mortgage-backed securities
|
|
(17,722)
|
|
|
5,186
|
|
|
(12,536)
|
|
Change in net
unrealized gains (losses) on financial derivatives
|
|
13,256
|
|
|
(7,094)
|
|
|
6,162
|
|
Total other
loss
|
|
(6,866)
|
|
|
(3,929)
|
|
|
(10,795)
|
|
NET
INCOME
|
|
$
|
190
|
|
|
$
|
3,677
|
|
|
$
|
3,867
|
|
NET INCOME PER
COMMON SHARE:
|
|
|
|
|
|
|
Basic and
Diluted
|
|
$
|
0.02
|
|
|
$
|
0.40
|
|
|
$
|
0.42
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING
|
|
|
9,149,274
|
|
|
|
9,149,274
|
|
|
|
9,149,274
|
|
CASH DIVIDENDS PER
SHARE:
|
|
|
|
|
|
|
Dividends
declared
|
|
$
|
0.55
|
|
|
$
|
0.55
|
|
|
$
|
1.10
|
|
ELLINGTON RESIDENTIAL
MORTGAGE REIT
|
CONSOLIDATED BALANCE
SHEET
|
(UNAUDITED)
|
|
|
|
As
of
|
|
|
June 30,
2015
|
|
March 31,
2015
|
|
December 31,
2014(1)
|
(In thousands
except share amounts)
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
43,978
|
|
|
$
|
53,340
|
|
|
$
|
45,237
|
|
Mortgage-backed
securities, at fair value
|
|
1,334,823
|
|
|
1,388,460
|
|
|
1,393,303
|
|
Due from
brokers
|
|
26,145
|
|
|
28,740
|
|
|
18,531
|
|
Financial
derivatives–assets, at fair value
|
|
4,541
|
|
|
1,479
|
|
|
3,072
|
|
Reverse repurchase
agreements
|
|
58,859
|
|
|
62,973
|
|
|
13,987
|
|
Receivable for
securities sold
|
|
45,045
|
|
|
36,649
|
|
|
41,834
|
|
Interest
receivable
|
|
4,522
|
|
|
4,451
|
|
|
4,793
|
|
Other
assets
|
|
536
|
|
|
610
|
|
|
317
|
|
Total
Assets
|
|
$
|
1,518,449
|
|
|
$
|
1,576,702
|
|
|
$
|
1,521,074
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
|
1,264,479
|
|
|
$
|
1,211,110
|
|
|
$
|
1,323,080
|
|
Payable for
securities purchased
|
|
32,504
|
|
|
117,493
|
|
|
4,227
|
|
Due to
brokers
|
|
1,503
|
|
|
1,609
|
|
|
583
|
|
Financial
derivatives–liabilities, at fair value
|
|
4,007
|
|
|
14,201
|
|
|
8,700
|
|
U.S. Treasury
securities sold short, at fair value
|
|
51,184
|
|
|
62,848
|
|
|
13,959
|
|
Dividend
payable
|
|
5,032
|
|
|
5,032
|
|
|
5,032
|
|
Accrued
expenses
|
|
709
|
|
|
908
|
|
|
890
|
|
Management fee
payable
|
|
592
|
|
|
610
|
|
|
551
|
|
Interest
payable
|
|
1,211
|
|
|
851
|
|
|
687
|
|
Total
Liabilities
|
|
1,361,221
|
|
|
1,414,662
|
|
|
1,357,709
|
|
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; (9,149,274,
9,149,274, and 9,149,274 shares issued and outstanding,
respectively)
|
|
91
|
|
|
91
|
|
|
91
|
|
Additional
paid-in-capital
|
|
181,342
|
|
|
181,312
|
|
|
181,282
|
|
Accumulated
deficit
|
|
(24,205)
|
|
|
(19,363)
|
|
|
(18,008)
|
|
Total
Shareholders' Equity
|
|
157,228
|
|
|
162,040
|
|
|
163,365
|
|
Total Liabilities
and Shareholders' Equity
|
|
$
|
1,518,449
|
|
|
$
|
1,576,702
|
|
|
$
|
1,521,074
|
|
PER SHARE
INFORMATION
|
|
|
|
|
|
|
Common shares, par
value $0.01 per share
|
|
$
|
17.18
|
|
|
$
|
17.71
|
|
|
$
|
17.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Derived from audited
financial statements as of December 31, 2014.
|
|
|
|
|
|
|
Investor Contact: Lindsay Tragler, Vice President of
Investor Relations, or Lisa Mumford, Chief Financial
Officer, Ellington Residential Mortgage REIT, (203)
409-3773;
Media Contact: Steve Bruce or Taylor
Ingraham, ASC Advisors, for Ellington Residential
Mortgage REIT, (203) 992-1230
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SOURCE Ellington Residential Mortgage REIT