Ellington Residential Mortgage REIT(EARN) - 2019 Q1 - Quarterly Report

Financial Performance - Net income for the three-month period ended March 31, 2019, was $8.9 million, compared to a net loss of $(3.95) million for the same period in 2018[201]. - The book value per share increased to $12.69 as of March 31, 2019, from $12.30 as of December 31, 2018, resulting in an economic return of 5.9% for the quarter[169]. - Core Earnings for the three-month period ended March 31, 2019, was $2.37 million, down from $4.28 million in 2018, while Adjusted Core Earnings was $3.31 million compared to $4.43 million in 2018[204]. - Total expenses for the three-month period ended March 31, 2019, were $1.37 million, down from $1.52 million in the same period in 2018[201]. - The expense ratio increased to 3.5% for the three-month period ended March 31, 2019, compared to 3.3% in 2018, due to a decrease in average shareholders' equity[215]. Portfolio and Investment - As of March 31, 2019, the total mortgage-backed securities portfolio decreased by 3.1% to $1.492 billion from $1.540 billion as of December 31, 2018[156]. - The total portfolio of financial derivatives–assets at fair value decreased to $5.5 million as of March 31, 2019, from $11.8 million as of December 31, 2018[191]. - Total RMBS portfolio as of March 31, 2019, was valued at $1.48 billion, with a fair value of $1.48 billion[188]. - Total fixed-rate Agency RMBS amounted to $1,309,559 million as of March 31, 2019, reflecting a 27% increase from the previous quarter[166]. - The company intends to actively trade a diversified portfolio primarily consisting of Agency RMBS, with a lesser extent of non-Agency RMBS and mortgage-related assets[246]. Debt and Borrowings - The debt-to-equity ratio improved to 8.9:1 as of March 31, 2019, down from 9.2:1 at the end of 2018, due to a smaller portfolio and a higher equity base[156]. - The company had outstanding borrowings under repurchase agreements amounting to $1.4 billion as of March 31, 2019[149]. - Total borrowings outstanding under repurchase agreements as of March 31, 2019, were $1.43 billion, with a weighted average interest rate of 2.70%[199]. - The average outstanding repo borrowings for the three-month period ended March 31, 2019, was $1.42 billion, with an average cost of funds of 2.70%[209]. - The weighted average contractual haircut for collateral on outstanding repo borrowings was 5.2% as of March 31, 2019[222]. Interest Rates and Economic Indicators - The Federal Reserve maintained the target range for the federal funds rate at 2.25%-2.50% during the first quarter of 2019[151]. - U.S. GDP growth for the first quarter of 2019 was reported at 3.2%, an increase from 2.2% in the previous quarter[151]. - The average borrowing cost of repo for the three-month period ended March 31, 2019, was 2.70%, compared to 2.44% for the previous quarter[172]. - The weighted average yield of the portfolio for the three-month period ended March 31, 2019, was 3.36%, compared to 2.99% in 2018, resulting in a net interest margin of 0.83%[213]. Risk Management - The company actively manages market risks, primarily related to interest rate risk, prepayment risk, and credit risk, to maintain capital levels consistent with these risks[241]. - Interest rate risk is significant for the company, with most assets and liabilities being sensitive to interest rate changes, influenced by various economic and political factors[242]. - The company faces prepayment risk, which can affect the rate at which principal is returned on mortgage loans, influenced by interest rates and borrower behavior[247]. - Credit risk is particularly relevant for non-Agency RMBS, with potential losses arising from various factors including poor origination practices and economic conditions[248]. - Default risk is managed through selective use of credit default swaps and reliance on third-party mortgage servicers, although these servicers may lack incentives to mitigate loan default rates[249]. Cash Flow and Dividends - For the three-month period ended March 31, 2019, the company generated net cash of $4.8 million from operating activities and $84.4 million from investing activities[230]. - The company declared a dividend of $0.34 per share for the first quarter of 2019, totaling $4.2 million[230]. - Cash and cash equivalents increased from $18.6 million as of December 31, 2018 to $44.3 million as of March 31, 2019[229]. - The company used $58.8 million in net cash for repo activity related to the purchase of securities during the same period[230].