Ellington Residential Mortgage REIT(US:EARN)2024-08-14 19:56Financial Position - As of June 30, 2024, the company had outstanding borrowings under repurchase agreements amounting to $578.5 million, with 93% collateralized by Agency RMBS[157]. - The company's book value per share decreased to $6.91 as of June 30, 2024, down from $7.21 and $7.32 as of March 31, 2024, and December 31, 2023, respectively[157]. - The debt-to-equity ratio decreased to 3.7:1 as of June 30, 2024, compared to 4.9:1 as of March 31, 2024, driven by higher shareholder's equity and less leverage on CLO investments[167]. - The size of the Agency RMBS holdings decreased by 28% to $531.1 million as of June 30, 2024, from $739.3 million as of March 31, 2024[166]. - The net mortgage assets-to-equity ratio declined during the quarter, reflecting an increase in shareholders' equity and a smaller Agency RMBS portfolio[176]. - The debt-to-equity ratio improved to 4.0:1 as of June 30, 2024, down from 4.8:1 as of March 31, 2024, due to higher shareholders' equity and reduced leverage on CLO investments[186]. - The fair value of collateral transferred with respect to outstanding repo borrowings was $0.6 billion as of June 30, 2024, down from $0.8 billion as of December 31, 2023[206]. - The average remaining days to maturity for borrowings outstanding was 32 days as of June 30, 2024, compared to 16 days for the previous period[206]. - As of June 30, 2024, total borrowings outstanding under repurchase agreements amounted to $578.5 million, with a weighted average interest rate of 5.54%[206]. - The weighted average contractual haircut applicable to the assets serving as collateral for outstanding repo borrowings increased to 7.4% as of June 30, 2024, from 5.7% as of December 31, 2023[248]. Market Conditions - The Federal Reserve maintained its target range for the federal funds rate at 5.25%–5.50% during its April/May and June 2024 meetings, with only one interest rate cut projected by the end of 2024[158]. - The yield on the 2-year U.S. Treasury increased by 13 basis points quarter over quarter to 4.75%, while the yield on the 10-year U.S. Treasury increased by 20 basis points to 4.40%[159]. - The Freddie Mac survey indicated that the 30-year mortgage rate increased from 6.79% at the end of March to 7.22% on May 2, before declining to 6.86% at June 27[159]. - Overall prepayment speeds remained low, with Fannie Mae 30-year RMBS registering CPRs of 6.0 in April, 6.6 in May, and 6.0 in June[160]. - The unemployment rate increased to 4.1% in June 2024, up from 3.9% in April and 4.0% in May[1]. - The 12-month percentage change in the Consumer Price Index (CPI-U) registered 3.0% in June 2024, down from 3.4% in April[1]. - The NASDAQ rose by 8.3% and the S&P 500 increased by 3.9% in the second quarter, both indices setting record highs during the quarter[1]. Strategic Changes - The company approved a strategic transformation to focus on corporate collateralized loan obligations (CLOs) and revoked its REIT election for tax year 2024[149]. - The company plans to convert to a closed-end fund to be treated as a regulated investment company (RIC), subject to shareholder approval[151]. - The company operates as a taxable C-Corp after revoking its REIT election for tax year 2024[194]. - The company may face unrecorded tax liabilities if tax regulators challenge its positions on certain tax issues[194]. Income and Expenses - Net income for the three-month period ended June 30, 2024, was $(0.8) million, a decline from $1.2 million for the same period in 2023, attributed to total other loss and increased expenses[210]. - Interest income for the three-month period ended June 30, 2024, was $14.1 million, compared to $10.1 million for the same period in 2023, driven by higher asset yields[211]. - Total interest expense for the three-month periods ended June 30, 2024, and 2023 was $10.2 million and $11.7 million, respectively, reflecting a decrease due to lower overall borrowings[214]. - Other income (loss) for the three-month period ended June 30, 2024, was $(2.6) million, primarily due to net realized and unrealized losses on securities[222]. - Management fee expense increased to approximately $0.6 million for the three-month period ended June 30, 2024, compared to $0.4 million for the same period in 2023, attributed to a larger capital base[220]. - Other operating expenses rose to approximately $1.6 million for the three-month period ended June 30, 2024, from $1.1 million in the same period in 2023, mainly due to increased professional fees and compensation[221]. - Net income for the six-month period ended June 30, 2024, was $3.1 million, a slight decrease from $3.5 million for the same period in 2023[225]. - Other income for the six-month period ended June 30, 2024, was $3.0 million, driven by net realized and unrealized gains of $17.9 million on financial derivatives, partially offset by losses of $(14.9) million on securities[237]. Portfolio Performance - The weighted average yield of the overall portfolio was 6.55% for the three-month period ended June 30, 2024, compared to 3.95% for the same period in 2023[211]. - The net interest margin for the three-month period ended June 30, 2024, was 4.24%, compared to 1.08% for the same period in 2023, reflecting improved portfolio yields[219]. - The weighted average yield on the Agency RMBS and credit portfolios for the three-month period ended June 30, 2024, was 6.55%, compared to 3.95% for the same period in 2023[219]. - The weighted average yield on the Agency RMBS and credit portfolios for the six-month period ended June 30, 2024, was 5.87%, compared to 3.81% for the same period in 2023[234]. Cash Flow and Liquidity - The company expects its liquidity sources, including cash flow from investments and borrowings, to be sufficient to meet both short-term and long-term liquidity needs[245]. - For the six-month period ended June 30, 2024, operating activities provided net cash of $1.5 million, while investing activities provided net cash of $144.1 million, resulting in a total net cash of $73.4 million after financing activities[257]. - Cash and cash equivalents increased by $80.2 million, from $38.5 million as of December 31, 2023, to $118.8 million as of June 30, 2024[257]. - The company had cash and cash equivalents of $118.8 million as of June 30, 2024, which included $89.9 million of U.S. Treasury Bills held on margin[253]. - The company anticipates that its capital resources will be sufficient to meet both short-term and long-term liquidity requirements[263]. Shareholder Activities - The Board of Trustees declared a monthly dividend of $0.08 per share, with a total dividend amount of $1,691,000 for the period ending June 30, 2024[254]. - The company issued 2,533,512 common shares during the six-month period ended June 30, 2024, generating net proceeds of $16.4 million after commissions and offering costs[261]. - The company has repurchased 474,192 common shares at an average price of $9.21, with an aggregate cost of $4.4 million, and has authorization to repurchase an additional 725,808 common shares[262]. - The weighted average shares outstanding increased to 20,354,062 for the three-month period ended June 30, 2024, compared to 13,935,821 for the same period in 2023, reflecting a growth of 46.1%[244].