Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Residential Mortgage REIT 2019 Second Quarter Financial Results Conference Call. Today's call is being recorded. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for your questions following the presentation. [Operator Instructions]It is now my pleasure to turn the call over to Jason Frank, Corporate Counsel and Secretary. Sir, you may begin.

Thank you. Before we start, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature.As described under Item 1A of our Annual Report on Form 10-K filed on March 8, 2019 forward-looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs, expectations, estimates and projections. Consequently, you should not rely on these forward-looking statements as predictions of future events.Statements made during this conference call are made as of the date of this call, and the company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.Joining me on the call today are; Larry Penn, Chief Executive Officer of Ellington Residential; Mark Tecotzky, our co-Chief Investment Officer; and Chris Smernoff, our Chief Financial Officer.As described in our earnings press release, our second quarter earnings conference call presentation is available on our website, earnreit.com. Our comments this morning will track the presentation. Also as a reminder, during this call, we will sometimes refer to Ellington Residential by its NYSE ticker E-A-R-N or EARN for short.With that, I will now turn the call over to Larry.

Thanks, Jay and good morning, everyone. As always, we appreciate your time and your interest in Ellington Residential. On our call today, I'll begin with an overview of the second quarter. Chris will then summarize our financial results. Next, Mark will review the performance of the residential mortgage-backed securities market during the quarter, our portfolio positioning and our market outlook. And finally, I'll provide some brief closing remarks and then we'll open the floor to questions.The beginning of the second quarter continued many of the trends of the prior quarter. Dovish messaging from the Federal Reserve continued to appease the stock and bond markets. Volatility remained low and equities in many credit assets continued to perform well. However, volatility returned to the markets in May as global trade tensions escalated. Domestic equity sold-off, interest rates plummeted and the yield spreads on most fixed income assets widened.In June, the Federal Reserve again soothed the markets and spread a broad rally across most asset classes by strong signaling that it would cut short-term rates in July. Domestic equity markets welcomed the message with the S&P 500 reaching a record high on June 20. Long-term U.S. Treasury yield continued their precipitous decline with the 10-year dropping below 2% for the first time since November 2016.As you can see on slide 3 of the presentation not only did interest rates fall sharply during the quarter, but the inversion between short-term and medium-term interest rates amplified. The declining interest rates led to losses in our interest rate hedges and also continued to drive increases in actual and projected prepayments, which in turn led to widening of the Agency RMBS yield spreads as you can also see on this slide.As Mark will discuss later there are other particular challenges specific to the Agency RMBS market this…

Thank you, Larry and good morning everyone. Please turn to slide 7 for a summary of EARN's financial results. For the quarter ended June 30, 2019 we recorded a net loss of $107,000 or $0.01 per share compared to net income of $8.9 million or $0.72 per share for the first quarter. Adjusted core earnings was $2.7 million or $0.22 per share compared to $3.3 million or $0.27 per share for the prior quarter. The decrease in adjusted core earnings was primarily due to lower yields on our mortgage assets, which declined quarter-over-quarter as a result of falling interest rates.Our adjusted core earnings exclude the Catch-up Premium Amortization adjustment, which was negative $904,000 in the second quarter compared to negative $944,000 in the prior quarter. For each period declining mortgage rates caused actual and projected prepayments to increase and the Catch-up Premium Amortization adjustment was negative. We had a small net loss for the second quarter because declining interest rates led to net realized and unrealized losses on our interest rate hedges, which combined with operating expenses slightly exceeded net interest income and net realized and unrealized gains on our Agency RMBS investments.Additionally, our performance as specified pools compared to TBAs in the form of higher pay-ups for specified pools, contributed to our results and we continue to concentrate our long investments in specified pools as opposed to TBAs. The key drivers of the expansion in specified pool pay-ups were increases in actual projected prepayments as a result of declining mortgage rates.Average pay-ups on our specified pools increased to 1.56% as of June 30 as compared to 0.99% as of March 31. Our non-Agency RMBS portfolio also performed well during the quarter driven by strong net interest income and realized gains. For the second quarter, our annualized operating expense ratio…

Thanks Chris. Q2 was, obviously, a very volatile quarter and in a period like this, performance of a leveraged mortgage portfolio can vary a lot based on positioning. This quarter within the Agency mortgage market there was a big repricing of higher coupon TBA relative to lower coupon. The results were a big repricing of specified pools relative to TBA and there was a big repricing of low levels.I'm very pleased with our performance given these challenges. We preserved book value and ended the quarter positioned opportunistically. That paid off last month as Larry mentioned EARN had a strong July.So to quickly recap the second quarter, there was a sharp rally across the yield curve, significant enough to materially increase prepayments, a newer production, non-call-protected pools. So when assessing how mortgage has performed for the quarter, you really have to be specific about, which mortgages because there were tremendous differences in performance between different coupons and between call-protected pools and TBA-type pool.Look at slide 11. On this slide we compare the market as if -- we compare the market as it was two years ago in August 2017 with the market as it is now. We went back two years because the five-year swap rate in August 2017 happened to be the same place where it is now around 180. But look what happened to TBA. They used to be two points higher in price. So if you now own -- so if you own TBA or pools like TBA the price of your asset underperformed the price of straight hedge by two points between then and now.Now look at specified pools. Here we show LLB or low loan balance, pools at the max $85,000 loan balance. They have performed fine. The price is virtually unchanged two years later. Both…

Thanks Mark. We have constructed our portfolio to generate steady core earnings, but also to protect book value. In a market that has recently been characterized by declining interest rates and rising prepayment risk, for us, this is meant owning lower-yielding, but higher-quality specified pools. We're so far have been much more resistant to duration shortening as compared to the higher-yielding generic mortgages underlying TBA securities.Of course, concentrating in lower-yielding pools and hedging interest rate risk has meant to sacrifice in core earnings in the short-term, but we value the stability that our portfolio has provided. In contrast portfolios that had been on dollar roles remaining special, CPRs remaining low, and our interest rates remaining range-bound. These kinds of portfolios have massively underperformed in recent months.We think it's a mistake to chase headline yields in any market and particularly in an environment like this. We also think it's a mistake to overleverage, especially in a market like this one. It seems that for the remainder of the year the Agency mortgage REIT market will be dealing with low interest rates and a flat and sometimes inverted yield curve, which should continue to put pressure on industry core earnings, but we think that the opportunity remains strong to achieve attractive total economic returns in this market.The Federal Reserve just cut interest rates on Wednesday, and there's a real possibility that more rate cuts are coming. Even with mortgage rates where they are today, nearly half of all Agency mortgages are currently refinanceable. And if rates drop further, the mortgage market could find itself in a bona fide prepayment wave.Even if interest rates remain at today's levels, we expect to see big discrepancies in prepayment behavior between different sub-sectors of the Agency RMBS market and we believe that will create excellent opportunities for us. This is the first environment in over a decade, where the market faces dramatic increases in prepayment rates without the support of the Federal Reserve as a buyer of last resort. Without the Fed to artificially pop-up prices on large segments of the Agency RMBS market, we see more dislocations on the horizon.Our smaller size should be a big advantage, as it should enable us to be nimble and react quickly to reposition the portfolio response to any market distress. We're especially hopeful, the dislocations will materialize in prepayment-sensitive sectors that favor our modeling expertise, such as premium coupons and IOs and inverse IOs. As you can see on slide 14, our portfolio is extremely light on IOs now. So we are well positioned to grow that portfolio.And with that, we'll now open the call to your questions. Operator? End of Q&A: All right. It appears we have no questions. Thank you all for participating today and we'll see you next quarter.

This concludes today's conference call. You may now disconnect.