Ellington Residential Mortgage REIT (NYSE: EARN) reported Q3 EPS of $0.39, $0.10 better than the analyst estimate of $0.29.

Highlights

• Net income of $8.1 million, or $0.66 per share; year-to-date net income of $12.7 million, or $1.03 per share.
• Core Earnings1 of $4.8 million, or $0.39 per share.
• Book value of $13.17 per share as of September 30, 2020, which includes the effect of a third quarter dividend of $0.28 per share. Economic return of 5.1% for the quarter, and year-to-date economic return of 8.5%.
• Net interest margin2 of 2.21%.
• Weighted average constant prepayment rate ("CPR") for the fixed-rate Agency specified pool portfolio of 21.4%.
• Dividend yield of 10.1% based on the November 4, 2020 closing stock price of $11.13.
• Debt-to-equity ratio of 6.5:1 as of September 30, 2020; adjusted for unsettled purchases and sales, the debt-to-equity ratio was also 6.5:1.
• Net mortgage assets-to-equity ratio of 5.6:1 3 as of September 30, 2020.
• Cash and cash equivalents of $61.2 million as of September 30, 2020, in addition to other unencumbered assets of $28.1 million.

Third Quarter 2020 Results

"During the third quarter, Ellington Residential generated net income of $0.66 per share, while Core Earnings increased to $0.39 per share, driven by a strong net interest margin," said Laurence Penn, Chief Executive Officer and President. "EARN has now produced an annualized economic return of 11.5% through the first nine months of 2020, despite the extreme volatility experienced earlier this year.

"The drivers of our strong third quarter results were substantially similar to those that drove our strong second quarter performance. Pay-ups on our specified pools appreciated further, as prepayments remained elevated; our non-Agency RMBS portfolio had another great quarter, as prices continued to recover from the March selloff; and by maintaining our long positions in current coupon TBAs, we again benefited from attractive dollar rolls, which continue to be driven by Federal Reserve purchasing activity. Additionally, the low level of interest rates, together with the low level of interest rate volatility, kept our hedging costs low and supported Agency RMBS valuations.

"During the third quarter, with a presidential election approaching and with the economy still struggling from the pandemic, we kept our overall leverage well below our historical averages. I am extremely pleased that we were able to deliver such strong performance for the quarter while still maintaining this conservative portfolio profile.

"Finally, with mortgage rates persisting at historically low levels, and with the vast majority of outstanding mortgages refinanceable, we are decidedly in the middle of a bona fide refinancing wave. While this presents many challenges for the MBS market—especially in higher coupons—we believe that this environment plays right to our core strengths of prepayment modeling, asset selection, and dynamic interest rate hedging. As we move into the final weeks of the year, we expect this environment to create numerous attractive investment opportunities for us, and our current high levels of liquidity should enable us to capitalize on these opportunities as they arise."

For earnings history and earnings-related data on Ellington Residential Mortgage REIT (EARN) click here.