ELLINGTON CREDIT COMPANY August 11, 2023
Earnings Conference Call
Q2 2023
Q 2 2 0 2 3 E A R N I N G S
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 from the Company's beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward- looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should," "would," "could," "goal," "objective," "will," "may," "seek," or similar expressions or their negative forms, or by references to strategy, plans, or intentions.
The Company's results can fluctuate from month to month and from quarter to quarter depending on a variety of factors, some of which are beyond the Company's control and/or are difficult to predict, including, without limitation, changes in interest rates and the market value of the Company's securities, changes in mortgage default rates and prepayment rates, the Company's ability to borrow to finance its assets, changes in government regulations affecting the Company's business, the Company's ability to maintain its exclusion from registration under the Investment Company Act of 1940 and other changes in market conditions and economic trends including changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations. Furthermore, forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A of our Annual Report on Form 10-K, which can be accessed through the link to our SEC filings under "For Our Shareholders" on our website (www.earnreit.com) or at the SEC's website (www.sec.gov). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the SEC, including reports on Forms 10-Q,10-K and 8-K. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Modeling
Some statements in this presentation may be derived from proprietary models developed by Ellington Management Group, L.L.C. ("Ellington"). Some examples provided may be based upon the hypothetical performance of such models. Models, however, are inherently imperfect and subject to a number of risks, including that the underlying data used by the models is incorrect, inaccurate, or incomplete, or that the models rely upon assumptions that may prove to be incorrect. The utility of model-based information is highly limited. The information is designed to illustrate Ellington's current view and expectations and is based on a number of assumptions and limitations, including those specified herein. Certain models make use of discretionary settings or parameters which can have a material effect on the output of the model. Ellington exercises discretion as to which settings or parameters to use in different situations, including using different settings or parameters to model different securities. Actual results and events may differ materially from those described by such models.
Projected Yields and Spreads
Projected yields and spreads discussed herein are based upon Ellington models and rely on a number of assumptions, including as to prepayment, default and interest rates and changes in home prices. Such models are inherently imperfect and there is no assurance that any particular investment will perform as predicted by the models, or that any such investment will be profitable. Projected yields are presented for the purposes of (i) providing insight into the strategy's objectives, (ii) detailing anticipated risk and reward characteristics in order to facilitate comparisons with other investments, (iii) illustrating Ellington's current views and expectations, and (iv) aiding future evaluations of performance. They are not a guarantee of future performance. They are based upon assumptions regarding current and future events and conditions, which may not prove to be accurate. There can be no assurance that the projected yields will be achieved. Investments involve risk of loss.
Financial Information
All financial information included in this presentation is as of June 30, 2023 unless otherwise indicated. We undertake no duty or obligation to update this presentation to reflect subsequent events or developments.
Q 2 2 0 2 3 E A R N I N G S | 2 |
Second Quarter Market Update
Quarter Ended | 6/30/2023 | Q2/Q1 | 3/31/2023 | Q1/Q4 | 12/31/2022 | Q4/Q3 | 9/30/2022 | ||
UST (%)(1) | |||||||||
3M UST | 5.28 | +0.59 | 4.69 | +0.35 | 4.34 | +1.10 | 3.25 | ||
2Y UST | 4.90 | +0.87 | 4.03 | -0.40 | 4.43 | +0.15 | 4.28 | ||
5Y UST | 4.16 | +0.58 | 3.57 | -0.43 | 4.00 | -0.09 | 4.09 | ||
10Y UST | 3.84 | +0.37 | 3.47 | -0.41 | 3.87 | +0.05 | 3.83 | ||
30Y UST | 3.86 | +0.21 | 3.65 | -0.31 | 3.96 | +0.19 | 3.78 | ||
3M10Y Spread | -1.45 | -0.22 | -1.23 | -0.76 | -0.47 | -1.05 | 0.58 | ||
2Y10Y Spread | -1.06 | -0.50 | -0.56 | -0.01 | -0.55 | -0.10 | -0.45 | ||
US Dollar Swaps (%)(1) | |||||||||
2Y SWAP | 5.09 | +0.74 | 4.36 | -0.35 | 4.71 | +0.16 | 4.54 | ||
5Y SWAP | 4.22 | +0.58 | 3.63 | -0.39 | 4.02 | -0.12 | 4.14 | ||
10Y SWAP | 3.86 | +0.40 | 3.46 | -0.37 | 3.84 | -0.04 | 3.88 | ||
SOFR (%)(1) | |||||||||
1M | 5.14 | +0.34 | 4.80 | +0.44 | 4.36 | +1.32 | 3.04 | ||
3M | 5.27 | +0.36 | 4.91 | +0.32 | 4.59 | +0.99 | 3.59 | ||
1M3M Spread | 0.13 | +0.02 | 0.11 | -0.12 | 0.23 | -0.32 | 0.55 | ||
Mortgage Rates (%)(2) | |||||||||
15Y | 6.30 | +0.33 | 5.97 | -0.09 | 6.06 | +0.10 | 5.96 | ||
30Y | 6.70 | +0.46 | 6.24 | -0.17 | 6.41 | -0.29 | 6.70 | ||
FNMA Pass-Thrus(1) | |||||||||
30Y2.5 | $84.66 | -$1.46 | $86.13 | +$1.49 | $84.63 | +$0.84 | $83.80 | ||
30Y3.5 | $91.01 | -$1.80 | $92.80 | +$1.98 | $90.82 | +$0.99 | $89.83 | ||
30Y4.5 | $96.05 | -$1.87 | $97.92 | +$1.61 | $96.31 | +$1.13 | $95.18 | ||
30Y5.5 | $99.47 | -$1.54 | $101.01 | +$0.71 | $100.30 | +$0.88 | $99.41 | ||
TSY-based OAS (bps)(3) (4) | |||||||||
FNMA30Y2.5 OAS | 27.8 | -11.6 | 39.4 | +18.0 | 21.4 | -19.7 | 41.1 | ||
FNMA30Y3.5 OAS | 31.1 | -7.7 | 38.8 | +11.3 | 27.5 | -21.0 | 48.5 | ||
FNMA30Y4.5 OAS | 34.0 | -16.9 | 50.9 | +24.7 | 26.2 | -25.8 | 52.0 | ||
FNMA30Y5.5 OAS | 44.3 | -10.7 | 55.0 | +22.4 | 32.6 | -33.1 | 65.7 | ||
TSY-based ZSpread (bps)(3) (5) | |||||||||
FNMA30Y2.5 ZSpread | 47.5 | -10.9 | 58.4 | +12.9 | 45.5 | -18.9 | 64.4 | ||
FNMA30Y3.5 ZSpread | 67.9 | -4.9 | 72.8 | +8.2 | 64.6 | -21.2 | 85.8 | ||
FNMA30Y4.5 ZSpread | 100.9 | -6.8 | 107.7 | +11.3 | 96.4 | -21.6 | 118.0 | ||
FNMA30Y5.5 ZSpread | 140.5 | -10.0 | 150.5 | +14.2 | 136.3 | -19.9 | 156.2 | ||
Q 2 2 0 2 3 E A R N I N G S | 3 |
Second Quarter Highlights
• | Net Income: $1.2 million or $0.09 per share | ||
Results | • | Economic Return:(1) 0.6% for the quarter | |
• | Adjusted Distributable Earnings(2): $2.4 million or $0.17 per share | ||
• | Net Interest Margin(3): 0.93% | ||
Shareholders' Equity & | • | Shareholders' Equity: $116.7 million | |
BVPS(4) | • | Book Value Per Share: $8.12 | |
• | Agency RMBS Portfolio: $889.0 million(4) | ||
• | Weighted average constant prepayment speed on our fixed-rate specified pools(5) increased quarter over | ||
Investment Portfolio | quarter to 7.4 CPR from 4.3 CPR | ||
• | Average pay-ups on our fixed-rate specified pools decreased to 0.98% from 1.09% | ||
• | Interest-Only Securities: $18.7 million(4) | ||
• | Non-Agency RMBS Portfolio: $13.0 million(4) | ||
• Debt-to-Equity Ratio: 7.5:1, and 7.6:1 adjusted for unsettled purchases and sales | |||
Leverage(4) | • | Net Mortgage Assets-to-Equity Ratio of 7.0:1(6) | |
• Cash and cash equivalents of $43.7 million, in addition to other unencumbered assets of $7.2 million | |||
Dividends | • | Dividend yield of 13.6% based on 8/9/2023 closing price of $7.07 and monthly dividend of $0.08 per common | |
share declared on 8/7/2023 | |||
Q 2 2 0 2 3 E A R N I N G S | 4 |
Summary of Financial Results
Quarter Ended | Quarter Ended | ||||||||
6/30/2023 | 3/31/2023 | ||||||||
(in thousands except per share amounts) | |||||||||
Interest Income | $ | 10,070 | $ | 9,338 | |||||
Interest Expense | (11,686) | (9,710) | |||||||
Total N et Interest Incom e | $ | (1,616) | $ | (372) | |||||
Total Other Gain (Loss)(1) | 5,060 | 4,201 | |||||||
Total Expenses | (1,500) | (1,305) | |||||||
Add back: Non-recurring expenses | 60 | - | |||||||
Add back: Catch-up Premium Amortization Adjustment(2) | 376 | 299 | |||||||
Adjusted Distributable Earnings ( 3 ) | $ | 2,380 | $ | 2,823 | |||||
Per Share ( 4 ) | $ | 0 .17 | $ | 0 .21 | |||||
Net Realized and Unrealized Gain (Loss): | |||||||||
RMBS | (13,769) | 12,840 | |||||||
Long TBAs Held for Investment | (2,050) | 463 | |||||||
Interest Rate Hedges and Other Activities, Net | 15,079 | (13,490) | |||||||
Total N et Realiz ed and Unrealiz ed Gain (Loss) | $ | (740) | $ | (187) | |||||
Deduct : Non-recurring expenses | (60) | - | |||||||
Deduct: Catch-up Premium Amortization Adjustment(2) | (376) | (299) | |||||||
N et Incom e (Loss) | $ | 1,204 | $ | 2,337 | |||||
Per Share ( 4 ) | $ | 0 .09 | $ | 0 .17 | |||||
Weighted Average Yield(5) | 3.95% | 3.66% | |||||||
Cost of Funds | -3.02% | -2.50% | |||||||
Net Interest Margin(6) | 0.93% | 1.16% | |||||||
Average Pay-Ups | 0.98% | 1.09% | |||||||
Shareholders' Equity | $ | 116,697 | $ | 114,977 | |||||
Book Value Per Share ( 4 ) | $ | 8 .12 | $ | 8 .31 | |||||
Q 2 2 0 2 3 E A R N I N G S | 5 |
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Disclaimer
Ellington Residential Mortgage REIT published this content on 10 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 August 2023 23:42:37 UTC.
