Ellington Credit Company · NYSE:EARN
Ellington Credit — Ellington Residential Mortgage REIT — Q2 2020 Earnings Presentation
29 slides from Ellington Credit's earnings presentation, Aug 5, 2020
Slide 1: Second Quarter 2020 Earnings Conference Call
Second Quarter 2020 Earnings Conference Call August 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: Second Quarter Market Update
Second Quarter Market Update Quarter Ended: 6/30/2020 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 0.13 0.06 +0.07 1.54 -1.48 1.81 -0.26 2.09 -0.28 2.38 -0.29 2Y UST 0.15 0.25 -0.10 1.57 -1.32 1.62 -0.05 1.75 -0.13 2.26 -0.51 5Y UST 0.29 0.38 -0.09 1.69 -1
Slide 4: Payups (points)
Time Series of Pay-Ups on FNMA 4 HLBs and LLBs 8.0 7.0 6.0 5.0 Payups (points) 4.0 3.0 2.0 1.0 0.0 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Source: Credit Suisse Locus 4
Slide 5: Second Quarter Highlights
Second Quarter Highlights Net Income: $21.3 million or $1.73 per share; year-to-date net income of $4.6 million or $0.37 per share Core Earnings(1): $3.2 million or $0.26 per share Results Economic Return: 15.3% for the quarter, and 3.5% year-to-date Net Interest Margin(2): 1.86% Shareholder
Slide 6: Summary of Financial Results
Summary of Financial Results Quarter Ended 6/30/2020 Quarter Ended 3/31/2020 (1) ($ in thousands except per share amounts) Per Share Per Share(1) Interest Income $ 3,489 $ 9,881 Interest Expense (2,330) (6,100) Total Net Interest Income $ 1,159 $ 3,781 Total Other Gain (Loss) (2) (327) 184 Total Exp
Slide 7: Consolidated Balance Sheet (Unaudited)
Consolidated Balance Sheet (Unaudited) As of June 30, 2020 March 31, 2020 (In thousands except share amounts) ASSETS Cash and cash equivalents $ 50,935 $ 59,671 Mortgage-backed securities, at fair value 1,154,047 1,050,521 Other investments, at fair value 411 355 Due from brokers 38,024 49,966 Finan
Slide 8: Portfolio Summary
Portfolio Summary June 30, 2020 March 31, 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 $ 64,491 $ 69,169 $ 107.25 $ 66,172 $ 102.61 $ 124,511
Slide 9: Interest Rate Hedging Portfolio
Interest Rate Hedging Portfolio As of 6/30/2020 As of 3/31/2020 Short $208.6MM 10-yr equivalents(1) Short $166.4MM 10-yr equivalents(1) 2-5 Yr TBAs <2 Yr Interest Treasuries and 1.3% TBAs Rate Swaps Treasury 16.8% 6.4% Futures 12.5% >5 Yr Interest 2-5 Yr Rate Swaps Treasuries and 37.6% Treasury Futu
Slide 10: Dynamic Hedging Strategy
Dynamic Hedging Strategy Exposure to RMBS Based on Fair Value of TBA Portfolio(1) As of 06/30/2020 As of 3/31/2020 $1,300 $1,300 $1,100 Total RMBS $1,100 $1,154 Total RMBS $900 $900 $1,051 $700 $700 Net Long ($ in millions) ($ in millions) Exposure to $500 $500 RMBS Net Long $925 Exposure to RMBS $3
Slide 11: Relative Yield Spreads
Relative Yield Spreads As of June 30, 2020(1) Securitized Products 24 Mo Tights 24 Mo Wides US Agency MBS TOAS -58 -15 88 US Agency MBS TZV -4 44 145 US Agency FN 4 OAS -32 125 147 US Agency G2 4 OAS -56 -14 140 US Spec HLB 4 30 68 104 Non-QM AAA 58 120 300 Legacy Resi 95 225 550 CRT OTR M1 52 122 7
Slide 12: 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 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 the first quarter 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 6/30/2020: $1.11BN (1) As of 3/31/2020: $1.04BN (1) ARMs Fixed IOs RM Fixed ARMs Fixed IOs RM Fixed 1% 3% 2% 9% 2% 9% 15-Year Fixed 6% 15-Year 20-Year Fixed Fixed 30-Year 13% 30-Year <1% Fixed 81% Fixed 20-Year 73% Fixed <1%
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 6/30/2020 (1) Average for Quarter Ended 3/31/2020 (1) Jumbo Other Othe
Slide 18: Non-Agency Portfolio
Non-Agency Portfolio Non-Agency Portfolio 6/30/2020: $42.0 MM Senior Jumbo/ Opportunistically increased non-Agency Alt-A 17% RMBS holdings by 458% Seasoned Subprime 4% Our Non-Agency RMBS portfolio significantly benefited results during the second quarter Sub Jumbo/ Alt-A 4% Recent Subprime Tota
Slide 19: Repo Borrowings
Repo Borrowings(1) June 30, 2020 March 31, 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 $ 212,165 0.54% 1
Slide 20: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) 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 $ 540 0.34% $ (348) -0.22% Agency RMBS—Fixed Pools and IOs 8,875 5.63% (9,169) -5.82% TBAs (624
Slide 21: TBA Securities
Financial Derivatives as of June 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 $ 127,777 $ (2,542) 1.05% 0.34% 2.10 Fixed Payer 2023-2025 89,849 (2,589) 1.10% 0.46
Slide 22: Consolidated Statement of Operations
Consolidated Statement of Operations (Unaudited) Six-Month Period Three-Month Period Ended Ended June 30, 2020 March 31, 2020 June 30, 2020 (In thousands except share amounts) INTEREST INCOME (EXPENSE) Interest income $ 3,489 $ 9,881 $ 13,370 Interest expense (2,330) (6,100) (8,430) Total net intere
Slide 23: Consolidated Balance Sheet (Unaudited)
Consolidated Balance Sheet (Unaudited) 23
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) June 30, 2020 March 31, 2020 Net Income (Loss) $ 21,345 $ (16,745) Adjustments: Net realized (gains) losses on securities (5,175) (1,093) Change in net unrealized (gains) losses on se
Slide 25: About Ellington Management Group
About Ellington Management Group Ellington Profile As of 6/30/2020 Founded: 1994 $10.4 14 22 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 – Second 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 interes
Slide 27: Endnotes
Endnotes Slide 10 – 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 June 30, 2020 and March 31, 2020. The net carrying value of the TBA positions as of June 30, 2020 and March 31, 2020 on the C
Slide 28: Endnotes
Endnotes Slide 21 – Financial Derivatives as of June 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 underlyi
Slide 29: Investor and Media Contacts
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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