Ellington Credit Company · NYSE:EARN
Ellington Credit — Ellington Residential Mortgage REIT — Q2 2018 Earnings Presentation
27 slides from Ellington Credit's earnings presentation, Aug 3, 2018
Slide 1: Second Quarter 2018 Earnings Conference Call
Second Quarter 2018 Earnings Conference Call August 3, 2018
Slide 2: Important Notice
Important Notice Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Actual results may differ f
Slide 3: Second Quarter Market Update
Second Quarter Market Update Quarter Ended 6/30/2018 3/31/2018 Q/Q 12/31/2017 Q/Q 9/30/2017 Q/Q 6/30/2017 Q/Q 3/31/2017 Q/Q (1) UST (%) 2Y UST 2.53 2.27 +0.26 1.88 +0.38 1.48 +0.40 1.38 +0.10 1.25 +0.13 5Y UST 2.74 2.56 +0.18 2.21 +0.36 1.94 +0.27 1.89 +0.05 1.92 -0.03 10Y UST 2.86 2.74 +0.12 2.41 +
Slide 4: Second Quarter Highlights
Second Quarter Highlights Net income: $1.8 million or $0.14 per share Overall Results Economic return: 1.2% for the quarter Net Interest Margin: 1.28%; Adjusted Net Interest Margin(2): 1.17% Core Earnings: $5.1 million or $0.40 per share Core Earnings(1) Adjusted Core Earnings(2): $4.6 mil
Slide 5: Relative Yield Spreads
Relative Yield Spreads Securitized Products As of July 9, 2018 24 Mo Tights 24 Mo Wides US Agency MBS TOAS -13 23 27 US Agency MBS TZV 51 72 87 US Non-Agency RMBS 95 100 375 CRT OTR M1 37 78 193 CRT OTR LCF 177 206 534 US CMBS AAA 75 87 115 US CMBS BBB- 310 320 630 Agency CMBS (10yr) 43 56 85 US CLO
Slide 6: Summary of Financial Results
Summary of Financial Results ($ in thousands except per share amounts and percentages) QE 6/30/2018 QE 3/31/2018 Interest Income $ 14,081 $ 13,426 Interest Expense (7,668) (7,248) Total Net Interest Income $ 6,413 $ 6,178 Total Other Gain (Loss) (1) $ 131 $ (379) Total Expenses $ 1,427 $ 1,517 (2) a
Slide 7: Portfolio Summary
Portfolio Summary June 30, 2018 March 31, 2018 Current Average Current Average (In thousands) Fair Value Cost Average Cost(1) Fair Value Cost Average Cost(1) Principal Price(1) Principal Price(1) (2) Agency RMBS 15-year fixed rate mortgages $ 147,080 $ 148,499 $ 100.96 $ 153,512 $ 104.37 $ 151,969 $
Slide 8: Dynamic Hedging Strategy
Dynamic Hedging Strategy Exposure to RMBS Based on Fair Value of TBA Portfolio (1) As of 6/30/2018 As of 3/31/2018 $2,000 $2,000 $1,500 Total RMBS Total RMBS $1,580 $1,500 $1,631 $1,000 $1,000 ($ in millions) ($ in millions) Net Long Net Long Exposure to Exposure to $500 RMBS $500 RMBS $1,285 $1,387
Slide 9: Agency Interest Rate Hedging Portfolio
Agency Interest Rate Hedging Portfolio As of 6/30/2018 As of 3/31/2018 Short $690.1MM 10-year equivalents(1) Short $759.5MM 10-year equivalents(1) Swaptions >5 Yr Treasury >5 Yr Treasury Swaptions 1.4% Futures Futures 1.1% 19.8% >5 Yr Interest Rate 18.1% Swaps 20.3% >5 Yr Interest Rate Swaps 25.9% 5
Slide 10: Spread Differential: 3-mo. LIBOR vs. Repo Funding Rate
Spread Differential: 3-mo. LIBOR vs. Repo Funding Rate(1) 3-month LIBOR vs. EARN Repo Funding 0.6 Difference 3-mo. LBR and EARN's Average Repo Rate (%) 0.5 0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 The spread between the Agency repo funding rate and 3-month LIBOR has widened significantly since the end of 201
Slide 11: Lower Premium Prepayment Risk
Lower Premium Prepayment Risk 90 80 Premium of LLB FNCL 4.0 with 7x Leverage 70 60 50 40 30 20 10 0 With lower Agency RMBS dollar prices and smaller specified pool payups, Agency mREIT net interest margins have become less dependent on slow prepayment speeds Par-priced mortgages have a more stab
Slide 12: EARN: 2018 Objectives
EARN: 2018 Objectives 1. Take advantage of relative value trading opportunities that we believe will emerge as a diminishing Fed footprint leads to more pricing dislocations 2. Dial up and down our MBS exposure aggressively in response to market opportunities 3. Supplement earnings with book value a
Slide 13: Supplemental Slides
Supplemental Slides
Slide 14: Agency Portfolio Summary
Agency Portfolio Summary Agency Long Portfolio Agency Long Portfolio As of 6/30/18: $1.57BN(1) As of 3/31/18: $1.62BN(1) GNMA/FNMA/FHLM Fixed IOs GNMA/FNMA/FHLM FNMA/GNMA ARMS GNMA Fixed 15-Yr Fixed IOs 1.3% 1.2% GNMA Fixed 15-Yr 0.1% FNMA/GNMA ARMS 0.9% 1.4% 0.1% GNMA RM Fixed GNMA RM Fixed 4.9% 4.
Slide 15: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Agency Fixed Long Portfolio Agency Fixed Long Portfolio Collateral Characteristics and Historical 3-month CPR: Collateral Characteristics and Historical 3-month CPR: Average for the Quarter Ended June 30, 2018(1) Average for the Quarter Ended March 31, 201
Slide 16: Non-Agency Portfolio
Non-Agency Portfolio Non-Agency Portfolio 6/30/18: $12.0 MM Continue to maintain a small but high- yielding portfolio of non-Agency RMBS Recent Subprime 20.6% May increase allocation to sector should more attractive entry points arise Sub Jumbo/ Senior Jumbo/ Alt-A Alt-A 6.6% 52.7% Seasoned Subp
Slide 17: Repo Borrowings
Repo Borrowings(1) June 30, 2018 March 31, 2018 Weighted Average Weighted Average Remaining Days to Borrowings Remaining Days to Borrowings Remaining Days to Maturity Outstanding Interest Rate Maturity Outstanding Interest Rate Maturity (In thousands) (In thousands) 30 days or less $ 481,649 2.00% 1
Slide 18: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value (In thousands) 50 Basis Point Decline in Interest Rates 50 Basis Point Increase in Interest Rates % of Total Market Value % of Total Equity Market Value Equity Agency RMBS - ARM Pools $ 197 0.11% $ (213) -0.12% Agency RMBS - Fixed
Slide 19: Interest Rate Hedging as of June 30, 2018
Interest Rate Hedging as of June 30, 2018 Fixed Payer Interest Rate Swap Weighted Weighted Average Weighted Average Maturity Notional Amount Fair Value Average Years Pay Rate Receive Rate to Maturity (In thousands) 2020-2022 $ 287,880 $ 7,799 1.83 % 2.35 % 2.83 2023-2025 176,088 3,871 2.35 % 2.35 %
Slide 20: Consolidated Statement of Operations
Consolidated Statement of Operations (Unaudited) Six Month Period Three Month Period Ended Ended June 30, 2018 March 31, 2018 June 30, 2018 (In thousands except share amounts) INTEREST INCOME (EXPENSE) Interest income $ 14,081 $ 13,426 $ 27,506 Interest expense (7,668) (7,248) (14,915) Total net int
Slide 21: Consolidated Balance Sheet
Consolidated Balance Sheet (Unaudited) As of June 30, 2018 March 31, 2018 December 31, 2017 (1) (In thousands except share amounts) ASSETS Cash and cash equivalents $ 41,402 $ 46,025 $ 56,117 Mortgage-backed securities, at fair value 1,580,103 1,630,575 1,685,998 Due from brokers 26,946 32,061 26,75
Slide 22: Reconciliation of Core Earnings to Net Income (Loss)
Reconciliation of Core Earnings to Net Income (Loss)(1) Three-Month Period Ended Three-Month Period Ended (In thousands except share amounts) June 30, 2018 March 31, 2018 Net Income (Loss) $ 1,786 $ (3,953) Less: Net realized gains (losses) on securities (7,114) 1,927 Net realized gains (losses) on
Slide 23: About Ellington
About Ellington Ellington Profile As of 6/30/2018 Founded: 1994 $7.4 16 18 23% Billion in Employee-partners Years of average Ownership of EARN Employees: >150 assets under own the firm(2) industry experience by Blackstone management as of of senior portfolio Tactical Investment Professionals: 65 6/3
Slide 24: Endnotes
Endnotes Slide 3 – Second Quarter Market Update (1) Source: Bloomberg (2) Source: Mortgage Bankers Association via Bloomberg (3) Libor-based OAS measures the additional yield spread over Libor that an asset provides at its current market price after taking into account any interest rate options embe
Slide 25: Endnotes
Endnotes Slide 10 – Spread Differential: 3-mo. LIBOR vs. Repo Funding Rate (1) Chart compares LIBOR on each day to the average rate of EARN’s repo financing outstanding on that day. Because repo financing may be entered into for an extended term at a rate fixed at the beginning of the term, the aver
Slide 26: Endnotes
Endnotes Slide 22 – Reconciliation of Core Earnings to Net Income (Loss) (1) Core Earnings consists of net income (loss), excluding realized and change in net unrealized gains and (losses) on securities and financial derivatives, and, if applicable, items of income or loss that are of a non-recurrin
Slide 27: Investor Contact
Investor Contact: JR Herlihy Chief Operating Officer Ellington Residential Mortgage REIT (203) 409-3773 info@earnreit.com Media Contact: Amanda Klein or Kevin Fitzgerald Gasthalter & Co. for Ellington Residential Mortgage REIT (212) 257-4170 Ellington@gasthalter.com Ellington Residential Mortgage RE
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