Ellington Credit Company · NYSE:EARN
Ellington Credit — Ellington Residential Mortgage REIT — Q3 2020 Earnings Presentation
29 slides from Ellington Credit's earnings presentation, Nov 5, 2020
Slide 1: Third Quarter 2020 Earnings Conference Call
Third Quarter 2020 Earnings Conference Call November 5, 2020
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: Third Quarter Market Update
Third Quarter Market Update Quarter Ended: 9/30/2020 6/30/2020 Q/Q 3/31/2020 Q/Q 12/31/2019 Q/Q 9/30/2019 Q/Q 6/30/2019 Q/Q 3/31/2019 Q/Q UST (%)(1) 3M UST 0.09 0.13 -0.04 0.06 +0.07 1.54 -1.48 1.81 -0.26 2.09 -0.28 2.38 -0.29 2Y UST 0.13 0.15 -0.02 0.25 -0.10 1.57 -1.32 1.62 -0.05 1.75 -0.13 2.26 -
Slide 4: Third Quarter Highlights
Third Quarter Highlights Net Income: $8.1 million or $0.66 per share; year-to-date net income of $12.7 million or $1.03 per share Core Earnings(1): $4.8 million or $0.39 per share Results Economic Return: 5.1% for the quarter, and 8.5% year-to-date, non-annualized Net Interest Margin(2): 2.2
Slide 5: Summary of Financial Results
Summary of Financial Results Quarter Ended 9/30/2020 Quarter Ended 6/30/2020 (1) ($ in thousands except per share amounts) Per Share Per Share(1) Interest Income $ 7,776 $ 3,489 Interest Expense (819) (2,330) Total Net Interest Income $ 6,957 $ 1,159 Total Other Gain (Loss) (2) (419) (327) Total Exp
Slide 6: Consolidated Balance Sheet (Unaudited)
Consolidated Balance Sheet (Unaudited) As of September 30, 2020 June 30, 2020 December 31, 2019(1) (In thousands except share amounts) ASSETS Cash and cash equivalents $ 61,193 $ 50,935 $ 35,351 Mortgage-backed securities, at fair value 1,113,620 1,154,047 1,401,778 Other investments, at fair value
Slide 7: Portfolio Summary
Portfolio Summary September 30, 2020 June 30, 2020 Current Average Average Current Average Average (In thousands) Fair Value (1) Cost (1) Fair Value (1) Cost (1) Principal Price Cost Principal Price Cost Agency RMBS (2) 15-year fixed rate mortgages $ 80,451 $ 86,213 $ 107.16 $ 83,106 $ 103.30 $ 64,4
Slide 8: Interest Rate Hedging Portfolio
Interest Rate Hedging Portfolio As of 9/30/2020 As of 6/30/2020 Short $189.0MM 10-yr equivalents(1) Short $208.6MM 10-yr equivalents(1) 2-5 Yr Treasuries and 2-5 Yr TBAs Treasury Treasuries and 1.3% >5 Yr Interest Futures Treasury Rate Swaps 19.3% Futures 31.1% 12.5% >5 Yr Interest Rate Swaps 37.6%
Slide 9: Dynamic Hedging Strategy
Dynamic Hedging Strategy Exposure to RMBS Based on Fair Value of TBA Portfolio (1) As of 09/30/2020 As of 06/30/2020 $1,300 $1,300 $1,100 $1,100 Total RMBS Total RMBS $1,154 $1,114 $900 $900 $700 $700 Net Long Net Long ($ in millions) ($ in millions) $500 Exposure to Exposure to $500 RMBS RMBS $905
Slide 10: Relative Yield Spreads
Relative Yield Spreads As of September 30, 2020(1) Securitized Products 24 Mo Tights 24 Mo Wides US Agency MBS TOAS -58 32 88 US Agency MBS TZV -4 70 145 US Agency FN 3 OAS -36 69 99 US Agency G2 3 OAS -2 71 110 US Spec HLB 3 2 31 55 Non-QM AAA 70 100 300 Legacy Resi 95 185 550 CRT OTR M1 54 135 711
Slide 11: Spread Differential: 3-mo. LIBOR vs. Repo Funding Rate
Spread Differential: 3-mo. LIBOR vs. Repo Funding Rate(1) 3-month LIBOR Minus EARN Repo Funding Rate 0.7 0.5 3-mo. LIBOR Minus EARN's Average Repo Rate (%) 0.3 0.1 -0.2 -0.4 -0.6 -0.8 -1.0 -1.2 Because we receive 3-month LIBOR on our interest rate swaps, when 3-month LIBOR is lower than our repo f
Slide 12: The Vast Majority of Outstanding Mortgages are Refinanceable
The Vast Majority of Outstanding Mortgages are Refinanceable Source: Credit Suisse Locus 12
Slide 13: Commitment to ESG
Commitment to ESG Ellington is committed to corporate responsibility. We recognize the importance of environmental, social and governance (“ESG”) factors, and believe that the implementation of ESG policies will benefit our employees, support long-term shareholder performance, and make a positive im
Slide 14: EARN: 2020 Objectives
EARN: 2020 Objectives 1. Capitalize on investment opportunities following the severe dislocations of earlier this year 2. Rely on disciplined interest rate hedging and liquidity management to manage future volatility and protect book value 3. Dial up and down our MBS exposure aggressively in respons
Slide 15: Supplemental Slides
Supplemental Slides
Slide 16: Agency Portfolio Summary
Agency Portfolio Summary Agency Long Portfolio Agency Long Portfolio As of 9/30/2020: $1.09BN (1) As of 6/30/2020: $1.11BN (1) ARMs RM Fixed ARMs Fixed IOs RM Fixed Fixed IOs 2% 7% 2% 1% 9% 1% 15-Year Fixed 15-Year 8% Fixed 6% 20-Year 20-Year 30-Year Fixed Fixed Fixed <1% 30-Year 4% 78% Fixed 81% Ca
Slide 17: 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-Mo CPR: Collateral Characteristics and Historical 3-Mo CPR: Average for Quarter Ended 9/30/2020 (1) Average for Quarter Ended 6/30/2020 (1) Other Other Jumb
Slide 18: Non-Agency Portfolio
Non-Agency Portfolio Non-Agency Portfolio 9/30/2020: $24.6 MM Senior Jumbo/ Alt-A 22% Decreased non-Agency RMBS holdings by 41% as we monetized gains during the third quarter Seasoned Subprime 7% We expect to continue to vary our allocation to non-Agency RMBS as market Recent opportunities chang
Slide 19: Repo Borrowings
Repo Borrowings(1) September 30, 2020 June 30, 2020 Weighted Average Weighted Average Remaining Days to Borrowings Interest Remaining Days Borrowings Interest Remaining Days to Maturity Outstanding Rate to Maturity Outstanding Rate Maturity (In thousands) (In thousands) 30 days or less $ 302,744 0.2
Slide 20: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) ($ in thousands) Estimated Change in Fair Value 50 Basis Point Decline in Interest Rates 50 Basis Point Increase in Interest Rates Market Value % of Total Equity Market Value % of Total Equity Agency RMBS—ARM Pools $ 417 0.26% $ (266) -0.16% Agency RMBS—Fixed Po
Slide 21: TBA Securities
Financial Derivatives as of September 30, 2020 Notional Fair Weighted Average Weighted Average Weighted Average ($ in thousands) Interest Rate Swaps Maturity Amount Value Pay Rate Receive Rate Years to Maturity 2020-2022 $ 119,347 $ (2,274) 0.97% 0.25% 2.04 Fixed Payer 2023-2025 77,591 (1,730) 0.96%
Slide 22: Consolidated Statement of Operations
Consolidated Statement of Operations (Unaudited) Nine-Month Period Three-Month Period Ended Ended September 30, 2020 June 30, 2020 September 30, 2020 (In thousands except share amounts) INTEREST INCOME (EXPENSE) Interest income $ 7,776 $ 3,489 $ 21,146 Interest expense (819) (2,330) (9,249) Total ne
Slide 23: Consolidated Balance Sheet (Unaudited)
Consolidated Balance Sheet (Unaudited) As of September 30, 2020 June 30, 2020 December 31, 2019(1) (In thousands except share amounts) ASSETS Cash and cash equivalents $ 61,193 $ 50,935 $ 35,351 Mortgage-backed securities, at fair value 1,113,620 1,154,047 1,401,778 Other investments, at fair value
Slide 24: Reconciliation of Core Earnings to Net Income (Loss)
Reconciliation of Core Earnings to Net Income (Loss)(1) Three Month Period Ended (In thousands except share amounts) September 30, 2020 June 30, 2020 Net Income (Loss) $ 8,118 $ 21,345 Adjustments: Net realized (gains) losses on securities (4,987) (5,175) Change in net unrealized (gains) losses on s
Slide 25: About Ellington Management Group
About Ellington Management Group Ellington Profile As of 9/30/2020 Founded: 1994 $10.8 14 24 27% 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 Pro
Slide 26: Endnotes
Endnotes Slide 3 – Third Quarter Market Update (1) Source: Bloomberg (2) Source: Mortgage Bankers Association via Bloomberg (3) LIBOR-based Option Adjusted Spread measures the additional yield spread over LIBOR that an asset provides at its current market price after taking into account any interest
Slide 27: Endnotes
Endnotes Slide 9 – Dynamic Hedging Strategy (1) Net short TBA positions represents the current market value of the underlying Agency RMBS (on a forward delivery basis) as of September 30, 2020 and June 30, 2020. The net carrying value of the TBA positions as of September 30, 2020 and June 30, 2020 o
Slide 28: Endnotes
Endnotes Slide 21 – Financial Derivatives as of September 30, 2020 (1) Notional amount represents the principal balance of the underlying Agency RMBS. (2) Cost basis represents the forward price to be paid for the underlying Agency RMBS (3) Market value represents the current market value of the und
Slide 29: Investor Contacts: Ellington Residential Mortgage REIT
Investor s: Ellington Residential Mortgage REIT (203) 409-3773 info@earnreit.com Media: Amanda Klein or Kevin FitzGerald Gasthalter & Co. for Ellington Residential Mortgage REIT (212) 257-4170 Ellington@gasthalter.com Ellington Residential Mortgage REIT 53 Forest Ave Old Greenwich, CT 06870 www.earn
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