Ellington Credit Company · NYSE:EARN
Ellington Credit — Ellington Residential Mortgage REIT — Q2 2016 Earnings Presentation
26 slides from Ellington Credit's earnings presentation, Aug 3, 2016
Slide 1: Second Quarter 2016 Earnings Conference Call
Second Quarter 2016 Earnings Conference Call August 3, 2016
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 2016
Second Quarter 2016
Slide 4: Second Quarter Highlights
Ellington Residential: Second Quarter Highlights Overall Net income of $3.5 million, or $0.38 per share Results Agency specified pools performed well against the backdrop of declining interest rates Core Earnings of $2.9 million, or $0.32 per share Core Earnings excluding “catch-up” premium
Slide 5: Agency RMBS
Ellington Residential: Agency RMBS Interest rates gradually trended higher during the first two months of the quarter, and then abruptly declined after the United Kingdom’s vote to leave the European Union, or “Brexit” vote, in late June 2-year and 10-year swap rates were down 14 basis points an
Slide 6: Non-Agency RMBS
Ellington Residential: Non-Agency RMBS For most credit sensitive assets, such as non-Agency RMBS and high-yield corporate credit, yield spreads initially widened in reaction to the Brexit vote Widening was short-lived, as major central banks indicated that global central bank Overall Market mone
Slide 7: Agency MBS are Attractive to Investors Worldwide
Agency MBS are Attractive to Investors Worldwide Japan’s monthly purchase of agency securities hit the highest level in March 2016 relative to the last few years and remains elevated at $9.2 billion in May 2016 Monthly purchase from Japan (MBS+agency debt, $bn) 15 10 5 $ Billions 0 -5 -10 Because
Slide 8: Post-crisis Regulations and Cost Still Exert Prepay Friction
Post-crisis Regulations and Cost Still Exert Prepay Friction Refi index is low given the price of mortgages 5500 106 5000 104 4500 102 4000 FNCL 3 30Y Mtge Price 100 MBA Refi Index 3500 98 3000 96 2500 94 2000 92 1500 1000 90 500 88 MBA Refi Index FNCL 3 30Y Mtge Source: Bloomberg. 8
Slide 9: Cost of Maintaining TBA Shorts Continues to Cheapen
Cost of Maintaining TBA Shorts Continues to Cheapen Implied annualized price drop from FNCL 4.0% Dollar Roll (60 day average) 2.80 2.60 2.40 % Annualized Price Drop 2.20 2.00 1.80 1.60 1.40 1.20 1.00 Prepayment fears and healthy origination volumes depressed dollar roll levels Cost of hedging ha
Slide 10: July Prepay Reports Highlight the Value of Call Protection
July Prepay Reports Highlight the Value of Call Protection FNCL 3.5% Prepayment Speeds Balance Year Collateral LTV FICO Jun May Apr Mar (Billions) Non- 2014 54.6 78 760 22.9 21.7 20.8 24.3 Specified Low Loan 0.6 2014 68 756 9.8 8.2 6.9 7.5 Balance FNCL 4.0% Prepayment Speeds Balance Year Collateral
Slide 11: Portfolio
Portfolio
Slide 12: Portfolio Summary
Ellington Residential: Portfolio Summary June 30, 2016 March 31, 2016 Current Average Current Average Fair Value Cost Average Cost(1) Fair Value Cost Average Cost(1) Principal Price(1) Principal Price(1) (In thousands) Agency RMBS(2) 15-year fixed rate $ 133,590 $ 142,365 $ 106.57 $ 140,303 $ 105.03
Slide 13: Agency Long Portfolio
Ellington Residential: Agency Long Portfolio Current Quarter Agency Long Portfolio Previous Quarter Agency Long Portfolio As of 6/30/16: $1.21BN(1) As of 3/31/16: $1.15BN(1) FNMA/FHLM FNMA/FHLM GNMA RM GNMA RM ARMS ARMS Fixed Fixed 3.6% GNMA/FNMA/ 3.2% GNMA/FNMA/ 6.3% 6.8% FHLM Fixed IOs FHLM Fixed
Slide 14: Agency Fixed Long Portfolio
Ellington Residential: Agency Fixed Long Portfolio Collateral Characteristics and Historical 3-month CPR Collateral Characteristics and Historical 3-month CPR For the Quarter Ended June 30, 2016(1) For the Quarter Ended March 31, 2016:(1) Geography Geography Other <1% Other 2% 10% 7% Non-Owner Non-O
Slide 15: Non-Agency Long Portfolio
Ellington Residential: Non-Agency Long Portfolio Current Quarter Previous Quarter Non-Agency Long Portfolio 6/30/16: $22.8MM Non-Agency Long Portfolio 3/31/16: $27.6MM Sub Jumbo/ Sub Jumbo/ Alt-A Senior Jumbo/ Alt-A Senior Jumbo/ 42.6% Alt-A/Alt-B 44.4% Alt-A/Alt-B 43.5% 44.2% Seasoned Seasoned Subp
Slide 16: Borrowings and Hedges
Borrowings and Hedges
Slide 17: Repo Borrowings
Ellington Residential: Repo Borrowings June 30, 2016 March 31, 2016 Weighted Average Weighted Average Remaining Days Borrowings Remaining Days Borrowings Remaining Days to Maturity Outstanding Interest Rate to Maturity Outstanding Interest Rate to Maturity (In thousands) (In thousands) 30 days or le
Slide 18: Interest Rate Hedging Portfolio
Ellington Residential: Interest Rate Hedging Portfolio Current Quarter Previous Quarter Agency Interest Rate Hedging Portfolio 6/30/16: Agency Interest Rate Hedging Portfolio 3/31/16: Short $301.7MM 10-year equivalents Short $360.0MM 10-year equivalents >5 Yr Treasuries >5 Yr Treasuries 0.1% 3.1% TB
Slide 19: Interest Rate Hedging
Ellington Residential: Interest Rate Hedging Calculation of Exposure to Agency RMBS Based on Fair Value of TBA Portfolio: (In millions) 6/30/2016 3/31/2016 Agency-related Portfolio Long Agency RMBS $ 1,206 $ 1,146 (1) Net Short TBA Positions (460) (254) Net Long Exposure to Agency RMBS $ 746 $ 892
Slide 20: Interest Rate Hedging (Continued)
Ellington Residential: Interest Rate Hedging (Continued) June 30, 2016 Fixed Payer Interest Rate Swap Weighted Weighted Weighted Average Maturity Notional Amount Fair Value Average Pay Average Years Receive Rate Rate to Maturity (In thousands) 2016 $ 48,000 $ (71) 0.80 % 0.63 % 0.3 2017 74,750 (646)
Slide 21: Supplemental Information
Supplemental Information
Slide 22: Income Statement (Unaudited)
Ellington Residential: Income Statement (Unaudited) CONSOLIDATED STATEMENT OF OPERATIONS Six Month Period Three Month Period Ended Ended June 30, 2016 March 31, 2016 June 30, 2016 (In thousands except share amounts) INTEREST INCOME (EXPENSE) Interest income $ 7,538 $ 9,651 $ 17,188 Interest expense
Slide 23: Balance Sheet (Unaudited)
Ellington Residential: Balance Sheet (Unaudited) CONSOLIDATED BALANCE SHEET As of June 30, 2016 March 31, 2016 Decem ber 31, 2015(1) (In thousands except share amounts) ASSETS Cash and cash equivalents $ 36,200 $ 41,242 $ 40,166 Mortgage-backed securities, at fair value 1,229,015 1,173,593 1,242,266
Slide 24: 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, 2016 March 31, 2016 Net Income (Loss) $ 3,507 $ (239) Less: Net realized gains (losses) on securities 2,100 3,010 Net realized gains (losses) on fina
Slide 25: About Ellington
About Ellington EARN is managed by Ellington Residential Mortgage Management LLC, an affiliate of Ellington Management Group, L.L.C. (“EMG”) EMG was founded in 1994 by Michael Vranos and five partners; currently has over 160 employees, giving EARN access to time-tested infrastructure and industr
Slide 26: Investor Contact
Investor Contact: Maria Cozine, Vice President of Investor Relations or Lisa Mumford, Chief Financial Officer Ellington Residential Mortgage REIT (203) 409-3773 [email protected] Media Contact: Amanda Klein or Kevin Fitzgerald Gasthalter & Co. for Ellington Residential Mortgage REIT (212) 257-4170 E
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