\nEllington Residential Mortgage REIT (NYSE: EARN) (the “Company”) today reported financial results for the quarter ended September 30, 2022.\n<\/p>\n
Highlights<\/b><\/p>\n Third Quarter 2022 Results<\/b><\/p>\n \n“In the fixed income markets, July started the third quarter on a constructive note, with volatility, interest rates, and most yield spreads reversing much of their second quarter increases. In August and September, however, markets took on a decidedly negative tone. Hawkish messaging from Fed officials, elevated inflation and recessionary concerns, and sharply rising interest rates pushed volatility higher and drove an inversion of the yield curve, all of which stressed equity and fixed income markets alike,” said Laurence Penn, Chief Executive Officer and President.\n<\/p>\n \n“We saw widespread selling across asset classes, including forced selling by some asset managers to meet margin calls and redemptions, particularly in September. Liquidity deteriorated and yield spreads widened in virtually every fixed income sector, including Agency RMBS, with many sectors reaching their widest levels of the year. Meanwhile, the increased pace of Fed balance sheet runoff and weak bank demand represented further headwinds to Agency RMBS. Against this backdrop, Ellington Residential experienced a significant net loss for the quarter as net declines on our specified pools exceeded net gains on our interest rate hedges and carry from the portfolio, while delta hedging costs stemming from the volatility weighed further on results.\n<\/p>\n \n“That said, we continued to hold a strong liquidity position, with cash and unencumbered assets representing 27% of our total equity at quarter end. Furthermore, a significant portion of our losses for the quarter\u2014and indeed, for the year\u2014resulted from yield spread widening, and we believe that the prospects of recouping many of these losses are strong.”\n<\/p>\n \n“Looking ahead, with mortgage rates considerably higher and housing affordability at its lowest level in decades, prepayment rates have plummeted and we are seeing the first clear evidence of declining home prices. Meanwhile, the Fed continues to signal additional rate hikes. In this environment, pool selection, hedging, and risk management will be critical to performance, and we believe that Ellington’s modeling expertise and data analytics are distinct advantages. At the same time, EARN’s smaller size and strong liquidity management should enable us to be nimble as market conditions continue to evolve.”\n<\/p>\n \n________________________________\n<\/p>\n 1<\/sup> Adjusted Distributable Earnings is a non-GAAP financial measure. See “Reconciliation of Adjusted Distributable Earnings to Net Income (Loss)” below for an explanation regarding the calculation of Adjusted Distributable Earnings. Financial Results<\/i><\/p>\n \nThe following table summarizes the Company’s portfolio of RMBS as of September 30, 2022 and June 30, 2022:\n<\/p>\n\n
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2<\/sup> Net interest margin excludes the effect of the Catch-up Premium Amortization Adjustment.
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3<\/sup> Excludes recent purchases of fixed rate Agency specified pools with no prepayment history.
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4<\/sup> 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 September 30, 2022 the market value of the Company’s mortgage-backed securities and its net short TBA position was $934.7 million and $(161.3) million, respectively, and total shareholders’ equity was $103.0 million.\n<\/p>\n
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