Ellington Residential Mortgage REIT Reports First Quarter 2021 Results

Rhea-AI Impact

(Neutral)

Rhea-AI Sentiment

(Neutral)

Tags

Rhea-AI Summary

Ellington Residential Mortgage REIT (NYSE: EARN) reported its Q1 2021 financial results, showing net income of $0.1 million ($0.01 per share) and core earnings of $3.8 million ($0.31 per share). The book value stood at $13.22 per share, with a 9% dividend yield based on a closing stock price of $12.44. The debt-to-equity ratio was 6.8:1. Despite rising interest rates, the company maintained stable book value and core earnings. They successfully utilized their balance sheet to acquire attractively priced pools, and a dynamic hedging strategy is planned for future performance.

Positive

Core earnings of $3.8 million ($0.31 per share) indicate strong operational performance.
Book value of $13.22 per share reflects stability amid market volatility.
Dividend yield of 9% based on April 30, 2021 stock price supports attractive returns for investors.
Successful interest rate hedges and strategic asset acquisitions contributed positively to financial results.

Negative

Net income of only $0.1 million raises concerns about profitability.
Debt-to-equity ratio of 6.8:1 suggests high leverage, potentially increasing financial risk.
Performance in lower coupon RMBS prices declined significantly due to interest rate increases.

05/03/2021 - 04:10 PM

Ellington Residential Mortgage REIT (NYSE: EARN) (the "Company") today reported financial results for the quarter ended March 31, 2021.

Highlights

Net income of $0.1 million, or $0.01 per share.
Core Earnings¹ of $3.8 million, or $0.31 per share.
Book value of $13.22 per share as of March 31, 2021, which includes the effect of a first quarter dividend of $0.28 per share. Economic return of 0.1% for the quarter.
Net interest margin² of 1.96%.
Weighted average constant prepayment rate ("CPR") for the fixed-rate Agency specified pool portfolio of 23.6%.
Dividend yield of 9% based on the April 30, 2021 closing stock price of $12.44.
Debt-to-equity ratio of 6.8:1 as of March 31, 2021; adjusted for unsettled purchases and sales, the debt-to-equity ratio was 7.0:1.
Net mortgage assets-to-equity ratio of 6.2:1³as of March 31, 2021.
Cash and cash equivalents of $52.5 million as of March 31, 2021, in addition to other unencumbered assets of $48.2 million.

First Quarter 2021 Results

"Despite rising long-term interest rates, a steepening yield curve, and increased interest rate volatility during the first quarter, EARN's book value was stable, and Core Earnings remained strong. Although most Agency RMBS prices declined during the quarter, performance across subsectors diverged sharply. The increase in interest rates led to reduced expectations for prepayment rates, which boosted performance of higher-coupon RMBS, put downward pressure on pay-ups for prepayment-protected specified pools, and caused significant price declines for lower coupon RMBS in the face of heightened extension risk," said Laurence Penn, Chief Executive Officer and President.

"Gains on our interest rate hedges and interest-only securities, together with net interest income, more than offset net realized and unrealized losses in the portfolio. Given the opportunities presented by wider yield spreads during the quarter, we used our strong balance sheet to add some attractively priced pools, which increased our leverage incrementally.

"Looking forward, while prepayment speeds remain elevated, we are seeing signs that the prepayment wave may be abating. In this environment, it's critical to be mindful of both the prepayment risks and the extension risks that are present in the market. We believe that such a rapidly shifting market plays to our strengths, where asset selection and risk management will continue to drive performance. Finally, we will continue to deploy a dynamic and adaptive hedging strategy to protect book value."

____________________

¹Core 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 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, 2021 the market value of the Company's mortgage-backed securities and its net short TBA position was $1.20 billion and $(186.4) million, respectively, and total shareholders' equity was $163.1 million.

Financial Results

The following table summarizes the Company's portfolio of RMBS as of March 31, 2021 and December 31, 2020:

March 31, 2021

December 31, 2020

(In thousands)

Current

Principal

Fair Value

Average

Price⁽¹⁾

Cost

Average

Cost⁽¹⁾

Current

Principal

{ "@context": "https://schema.org", "@type": "FAQPage", "name": "Ellington Residential Mortgage REIT Reports First Quarter 2021 Results FAQs", "mainEntity": [ { "@type": "Question", "name": "What were the Q1 2021 results for Ellington Residential Mortgage REIT (EARN)?", "acceptedAnswer": { "@type": "Answer", "text": "Ellington Residential Mortgage REIT reported a net income of $0.1 million and core earnings of $3.8 million for Q1 2021." } }, { "@type": "Question", "name": "What is the dividend yield for EARN as of Q1 2021?", "acceptedAnswer": { "@type": "Answer", "text": "The dividend yield for Ellington Residential Mortgage REIT is 9% based on the April 30, 2021 closing stock price." } }, { "@type": "Question", "name": "What is the book value per share for EARN as of March 31, 2021?", "acceptedAnswer": { "@type": "Answer", "text": "The book value per share for Ellington Residential Mortgage REIT was $13.22 as of March 31, 2021." } }, { "@type": "Question", "name": "How does EARN's debt-to-equity ratio affect its financial health?", "acceptedAnswer": { "@type": "Answer", "text": "EARN's debt-to-equity ratio of 6.8:1 indicates high leverage, which may increase financial risk." } }, { "@type": "Question", "name": "How did rising interest rates impact EARN's performance?", "acceptedAnswer": { "@type": "Answer", "text": "Rising interest rates led to significant price declines in lower coupon RMBS, affecting part of EARN's portfolio." } } ] }