Ellington Residential Mortgage REIT(US:EARN)2020-08-08 01:46Financial Performance - Net income for the three-month period ended June 30, 2020, was $21.3 million, compared to a loss of $0.1 million for the same period in 2019[238]. - For the six-month period ended June 30, 2020, net income was $4.6 million, down from $8.8 million in the same period of 2019, attributed to a decrease in total other income and net interest income[251]. - Interest income for the three-month period ended June 30, 2020, was approximately $3.5 million, down from $11.7 million in the same period of 2019[239]. - Interest income for the six-month period ended June 30, 2020, was $12.3 million, a decline from $23.6 million in 2019, primarily due to lower average holdings and yields[254]. - Other income for the three-month period ended June 30, 2020, was $21.9 million, a substantial increase from a loss of $(1.3) million in 2019, mainly due to gains on Agency RMBS and financial derivatives[248]. - Other income for the six-month period ended June 30, 2020, was $2.7 million, primarily from net realized gains of $30.0 million on Agency RMBS, offset by losses of $(26.0) million on financial derivatives[261]. Asset Management - The company's overall RMBS portfolio increased by approximately 10% to $1.154 billion as of June 30, 2020, compared to $1.051 billion as of March 31, 2020[182]. - The company's Agency RMBS holdings increased by 6.8% to $1.098 billion from $1.027 billion during the same period[181]. - Non-Agency RMBS holdings increased more than fivefold to $42.0 million as of June 30, 2020, from $7.5 million as of March 31, 2020[181]. - The total Agency RMBS portfolio was valued at $1,097,583,000 as of June 30, 2020, with a fair value increase from $1,374,683,000 as of December 31, 2019[218]. - The company turned over approximately 13% of its Agency RMBS portfolio during the three-month period ended June 30, 2020, generating net realized gains of $4.7 million[249]. - For the six-month period ended June 30, 2020, the company turned over approximately 29% of its Agency RMBS portfolio, generating net realized gains of $8.7 million[261]. Liquidity and Capital Management - As of June 30, 2020, the company had cash and cash equivalents of $50.9 million and unencumbered assets of approximately $45.1 million[185]. - The company expects that its sources of funds will be sufficient to meet both short-term and long-term liquidity needs[263]. - The company strategically reduced the size of its portfolio to enhance liquidity in response to market volatility caused by COVID-19[229]. - Dividends paid during the six-month period ended June 30, 2020, amounted to $6.9 million, with a total cash holding increase from $35.4 million to $50.9 million[275]. - The company utilized $377.1 million in repo activities, resulting in a net cash increase of $23.5 million when combined with financing activities[275]. Debt and Leverage - The overall debt-to-equity ratio declined to 6.8:1 as of June 30, 2020, from 7.2:1 as of March 31, 2020[183]. - The debt-to-equity ratio improved to 5.8:1 as of June 30, 2020, down from 7.9:1 as of March 31, 2020, indicating better leverage management[204]. - The company's total debt-to-equity ratio improved to 5.6:1 as of June 30, 2020, down from 8.1:1 as of December 31, 2019[229]. - As of June 30, 2020, total borrowings outstanding under repurchase agreements were $909.8 million, with a weighted interest rate of 0.38%[229]. Interest Rates and Economic Conditions - The U.S. Federal Reserve maintained its target range for the federal funds rate at 0.00%–0.25% during the second quarter, indicating ongoing accommodative monetary policy[177]. - The 10-year U.S. Treasury yield finished the second quarter at 0.66%, virtually unchanged from the start of the quarter[177]. - U.S. real GDP shrank at an estimated annualized rate of 32.9% in the second quarter, reflecting the negative impact of the COVID-19 pandemic[179]. - Forbearance rates on residential mortgages rose sharply, finishing the quarter at 8.4% as of June 30, 2020[179]. - The average cost of funds for the six-month period ended June 30, 2020, was 1.13%, down from 2.56% in 2019, reflecting lower interest rates[255]. Risk Management - The company actively manages market risks, including interest rate risk, prepayment risk, and credit risk, to maintain capital levels consistent with those risks[287]. - The company is exposed to credit risk primarily related to its non-Agency RMBS, influenced by factors such as poor origination practices and economic conditions[297]. - Default risk arises from borrowers failing to make principal and interest payments on mortgage loans, with the company potentially using credit default swaps to mitigate this risk[298]. - Severity risk involves potential losses from property value declines and foreclosure costs when borrowers default on mortgage loans[299]. - Economic conditions, including job loss and personal events, can significantly impact credit risk associated with real estate loans[297]. Shareholder Equity - The company's book value per share was $12.80 as of June 30, 2020, compared to $11.34 as of March 31, 2020, and $12.91 as of December 31, 2019[176]. - Shareholders' equity decreased to $157.7 million as of June 30, 2020, from $160.8 million as of December 31, 2019[231]. - The company has repurchased a total of 434,171 common shares at an average price of $9.45, with an aggregate cost of $4.1 million under the current repurchase program[279].