Ellington Credit Company · NYSE:EARN
Ellington Credit — Ellington Residential Mortgage REIT — Q2 2019 Earnings Presentation
27 slides from Ellington Credit's earnings presentation, Aug 2, 2019
Slide 1: Second Quarter 2019 Earnings Conference Call
Second Quarter 2019 Earnings Conference Call August 2, 2019
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: 6/30/2019 3/31/2019 Q/Q 12/31/2018 Q/Q 9/30/2018 Q/Q 6/30/2018 Q/Q 3/31/2018 Q/Q UST (%)(1) 3M UST 2.09 2.38 -0.29 2.35 +0.03 2.20 +0.16 1.91 +0.28 1.70 +0.21 2Y UST 1.75 2.26 -0.51 2.49 -0.23 2.82 -0.33 2.53 +0.29 2.27 +0.26 5Y UST 1.77 2.23 -0.47 2.51 -0
Slide 4: Second Quarter Highlights
Second Quarter Highlights ▪ Net Loss: $(0.1) million or $(0.01) per share Overall Results ▪ Economic Return: (0.1)% for the quarter ▪ Net Interest Margin: 0.55%; Adjusted Net Interest Margin(1): 0.78% ▪ Core Earnings: $1.8 million or $0.15 per share Core Earnings(2) ▪ Adjusted Core Earnings(1): $2.7
Slide 5: Relative Yield Spreads
Relative Yield Spreads Source: Morgan Stanley ◼ While investment grade corporate bond spreads were stable to slightly tighter for the quarter, high yield corporate bond and Agency RMBS spreads generally widened 5
Slide 6: Spread Differential: 3-mo. LIBOR vs. Repo Funding Rate
Spread Differential: 3-mo. LIBOR vs. Repo Funding Rate(1) 3-month LIBOR vs. EARN Repo Funding 0.6 0.5 Difference 3-mo. LBR and EARN's Average Repo Rate (%) 0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 ◼ The spread between our Agency repo funding rate and 3-month LIBOR became more negative during the second quarter
Slide 7: Summary of Financial Results
Summary of Financial Results Quarter Ended 6/30/2019 Quarter Ended 3/31/2019 ($ in thousands except per share amounts) Per Share(1) Per Share(1) Interest Income $ 12,139 $ 12,613 Interest Expense (9,662) (9,555) Total Net Interest Income $ 2,477 $ 3,058 Total Other Gain (Loss) (2) $ 662 $ 680 Total
Slide 8: Portfolio Summary
Portfolio Summary June 30, 2019 March 31, 2019 Current Average Average Current Average Average (In thousands) Fair Value (1) Cost (1) Fair Value (1) Cost (1) Principal Price Cost Principal Price Cost (2) Agency RMBS 15-year fixed rate mortgages $ 159,586 $ 165,605 $ 103.77 $ 162,516 $ 101.84 $ 137,3
Slide 9: Agency Interest Rate Hedging Portfolio
Agency Interest Rate Hedging Portfolio As of 6/30/2019 As of 3/31/2019 Short $408.1MM 10-yr equivalents(1) Short $493.1MM 10-yr equivalents(1) <2 Yr Interest <2 Yr Interest 2-5 yr 2-5 yr Rate Swaps Treasuries Rate Swaps TBA Securities 1.7% Treasuries 2.0% 0.5% 7.0% 0.8% TBA Securities 15.4% >5 Yr In
Slide 10: Dynamic Hedging Strategy
Dynamic Hedging Strategy Exposure to RMBS Based on Fair Value of TBA Portfolio (1) As of 6/30/2019 As of 3/31/2019 $2,000 $2,000 Total RMBS $1,459 $1,500 $1,500 Total RMBS $1,492 $1,000 $1,000 ($ in millions) ($ in millions) Net Long Net Long Exposure to Exposure to RMBS RMBS $1,385 $1,340 $500 $500
Slide 11: Low Loan Balance FNCL 4%'s, August 2017 versus Today
Low Loan Balance FNCL 4%’s, August 2017 versus Today August 2017 July 2019 5-Year Swap Rate 1.84 1.81 FNCL 4 TBA Price 105.36 103.46 LLB 4 Payup (Ticks) 64.0 115.0 LLB 4 Price 107.36 107.06 TBA Price Change (1.89) LLB Price Change (0.30) Sources: JP Morgan DataQuery; Bloomberg ◼ Pricing of specified
Slide 12: EARN: 2019 Objectives
EARN: 2019 Objectives 1. Take advantage of relative value trading opportunities that we believe will emerge as a diminishing Fed footprint and market volatility lead to more pricing dislocations 2. Dial up and down our MBS exposure aggressively in response to market opportunities 3. Rotate portfolio
Slide 13: Supplemental Slides
Supplemental Slides
Slide 14: Agency Portfolio Summary
Agency Portfolio Summary Agency Long Portfolio Agency Long Portfolio As of 6/30/2019: $1.45BN (1) As of 3/31/2019: $1.48BN (1) RM Fixed ARMs Fixed IOs RM Fixed ARMs Fixed IOs 5% 2% 1% 7% 3% 1% 15-Year Fixed 15-Year 9% Fixed 11% 20-Year 30-Year Fixed 30-Year 20-Year Fixed 3% Fixed Fixed 76% 80% 2% Ca
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-Mo CPR: Collateral Characteristics and Historical 3-Mo CPR: Average for Quarter Ended 6/30/2019 (1) Average for Quarter Ended 3/31/2019 (1) Other Jumbo Othe
Slide 16: Non-Agency Portfolio
Non-Agency Portfolio Non-Agency Portfolio ◼ We continue to maintain a small but high-yielding portfolio of non-Agency 6/30/2019: $9.3 MM RMBS Senior Jumbo/ Alt-A 40% ◼ May increase allocation to sector Recent should more attractive entry points Subprime arise 30% Sub Jumbo/ Alt-A 7% Seasoned Subprim
Slide 17: Repo Borrowings
Repo Borrowings(1) June 30, 2019 March 31, 2019 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 $ 519,763 2.64% 1
Slide 18: 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 $ 310 0.20% $ (409) -0.27% Agency RMBS—Fixed Po
Slide 19: Financial Derivatives as of June 30, 2019
Financial Derivatives as of June 30, 2019 ($ in thousands) Fixed Payer Interest Rate Swap Notional Fair Weighted Average Weighted Average Weighted Average Maturity Amount Value Pay Rate Receive Rate Years to Maturity 2020-2022 $ 311,700 $ (873) 1.94% 2.53% 1.86 2023-2025 258,795 (3,009) 2.00% 2.35%
Slide 20: Consolidated Statement of Operations
Consolidated Statement of Operations (Unaudited) Six-Month Three-Month Period Ended Period Ended June 30, 2019 March 31, 2019 June 30, 2019 (In thousands except share amounts) INTEREST INCOME (EXPENSE) Interest income $ 12,139 $ 12,613 $ 24,752 Interest expense (9,662) (9,555) (19,217) Total net int
Slide 21: Consolidated Balance Sheet
Consolidated Balance Sheet (Unaudited) As of June 30, 2019 March 31, 2019 12/31/2018 (1) (In thousands except share amounts) ASSETS Cash and cash equivalents $ 41,473 $ 44,263 $ 18,585 Mortgage-backed securities, at fair value 1,459,452 1,492,261 1,540,296 Due from brokers 41,838 34,753 24,051 Finan
Slide 22: 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, 2019 March 31, 2019 Net Income (Loss) $ (107) $ 8,928 Less: Net realized gains (losses) on securities 1,418 (1,674) Net realized gains (losses) on financial derivatives, excl
Slide 23: About Ellington Management Group
About Ellington Management Group Ellington Profile As of 6/30/2019 Founded: 1994 $8.4 14 26 25% 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 Prof
Slide 24: 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 25: Endnotes
Endnotes Slide 8 – Portfolio Summary (1) Represents the dollar amount (not shown in thousands) per $100 of current principal of the price or cost for the security. (2) Excludes Agency IOs. Slide 9 – Agency Interest Rate Hedging Portfolio (1) “10-year equivalents” for a group of positions represent t
Slide 26: Endnotes
Endnotes Slide 19 – Financial Derivatives as of June 30, 2019 (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 underly
Slide 27: 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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