Ellington Residential Mortgage REIT(EARN) - 2019 Q3 - Quarterly Report

Financial Performance - Net income for the three-month period ended September 30, 2019, was $3.7 million, compared to $0.9 million for the same period in 2018, reflecting a significant improvement [226]. - Interest income for the three-month period ended September 30, 2019, was approximately $10.5 million, down from $13.2 million in 2018, primarily due to lower average holdings in the Agency RMBS portfolio [227]. - Total interest expense for the three-month period ended September 30, 2019, was $8.8 million, slightly up from $8.5 million in 2018, driven by higher rates on repo borrowings [231]. - Core Earnings for the three-month period ended September 30, 2019, were $0.85 million, while Adjusted Core Earnings were $2.42 million [225]. - Total Other Income for the three-month period ended September 30, 2019, was $3.4 million, a reversal from a loss of $(2.4) million in the prior period [226]. - The company reported a net income per common share of $0.30 for the three-month period ended September 30, 2019, compared to $0.07 in 2018 [226]. Portfolio and Asset Management - As of September 30, 2019, the overall RMBS portfolio decreased by 4.4% to $1.395 billion compared to $1.459 billion as of June 30, 2019 [176]. - The total RMBS portfolio was valued at $1.39 billion as of September 30, 2019, with a fair value of $1.38 billion [207]. - The investment portfolio included $1.29 billion in Agency RMBS as of September 30, 2019, with a fair value of $1.37 billion [207]. - The company anticipates diversifying its portfolio primarily towards Agency RMBS, with lesser focus on non-Agency RMBS and mortgage-related assets [285]. - The company turned over approximately 47% of its Agency RMBS portfolio during the nine-month period ended September 30, 2019, generating net realized gains of $2.4 million [252]. Debt and Borrowings - The debt-to-equity ratio decreased to 8.6:1 as of September 30, 2019, down from 8.9:1 as of June 30, 2019 [176]. - The company had outstanding borrowings under repurchase agreements amounting to $1.3 billion as of September 30, 2019 [167]. - The total debt-to-equity ratio as of September 30, 2019, was 8.7:1, compared to 9.6:1 as of December 31, 2018 [218]. - The average outstanding repo borrowings for the nine-month period ended September 30, 2019, was $1.40 billion, with an average cost of funds of 2.63% [245]. - As of September 30, 2019, the company had $1.3 billion of outstanding borrowings with 14 counterparties [277]. Interest Rates and Economic Factors - The Federal Reserve reduced the target range for the federal funds rate by 25 basis points to 2.00%–2.25% in July 2019, marking its first reduction since 2008 [169]. - The Freddie Mac Survey 30-year mortgage rate decreased by 9 basis points to end the quarter at 3.64% [169]. - The average borrowing cost of repo declined to 2.50% for the three-month period ended September 30, 2019, down from 2.69% for the previous period [192]. - The average one-month LIBOR was 2.18%, compared to 2.11% in 2018 [233]. 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 [280]. - Interest rates are highly sensitive to various factors, and the company hedges its interest rate risk through instruments such as interest rate swaps and U.S. Treasury securities [281]. - A sensitivity analysis indicates that a decrease of 100 basis points in interest rates could result in a market value decrease of $3.4 million, representing a 2.22% impact on total equity [283]. - Default risk involves the possibility of borrowers failing to make payments, which the company attempts to mitigate through credit default swaps and reliance on third-party mortgage servicers [289]. - Severity risk pertains to the loss of value upon borrower default, including costs associated with foreclosure and property liquidation, which the company also seeks to manage [290]. Shareholder Information - The book value per share was $12.42 as of September 30, 2019, compared to $12.40 as of June 30, 2019 [168]. - The company declared dividends of $0.34 per share for the first quarter of 2019, totaling $4.2 million, and $0.28 per share for the second and third quarters, totaling $3.5 million and $3.5 million respectively [267]. - Shareholders' equity increased to $154.6 million as of September 30, 2019, from $153.8 million as of December 31, 2018, driven by net income of $12.6 million [219].