Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Debt Investor Presentation (December 2021)
44 slides from Ellington Financial's debt investor presentation, December 2021
Slide 1: Presentation to Debt & Preferred Equity Investors
Presentation to Debt & Preferred Equity Investors December 2021
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. Our actual results may diff
Slide 3: Ellington Financial Overview
Ellington Financial Overview Hybrid mortgage REIT with diversified investment portfolio and income stream: residential and commercial mortgage, consumer / corporate loans, as well as multiple proprietary loan origination businesses; ability to shift capital allocation across various asset classes Re
Slide 4: Table of Contents
Table of Contents The Ellington Platform 5 Ellington Financial Inc. (NYSE: EFC) 16 Supplemental Information 27 4
Slide 5: The Ellington Platform
Ellington Financial The Ellington Platform
Slide 6: About Ellington Management Group
About Ellington Management Group Ellington and its Affiliated Management Companies Ellington Profile As of 9/30/2021 • Our external manager Ellington Financial Management LLC is part of the Ellington family of SEC-registered investment advisors(4). Ellington Founded: 1994 Management Group and its af
Slide 7: Ellington Management Group
Ellington Management Group Headcount by Department Strategy Breakdown ($bn) Treasury & Administration Middle 9% Office Traditional 8% Mandate Risk Systems / IT Ellington $6.5 Management 10% Financial Sponsored 2% Reporting CLO 17% EARN, $1.4 $0.2 Prepayment & Research 160+ employees Related $12.7bn
Slide 8: Access to Experienced Management
Access to Experienced Management Years of Years at Experience(3) Ellington(3) • Founder and CEO of Ellington Michael Vranos Co-Chief Investment 38 27 • Former head of RMBS trading and origination at Kidder Peabody Officer (1) • B.A. in Mathematics from Harvard University (magna cum laude, Phi Beta K
Slide 9: Our Infrastructure Is A Competitive Advantage
Our Infrastructure Is A Competitive Advantage Ellington has over 160 employees supporting approximately $12.7 billion(1) in assets under management Ellington Principals ` Services Agreement Ellington Management Group, L.L.C. Ellington Financial Management LLC Management Agreement ` ` Portfolio Manag
Slide 10: Integrated Investment Process, with an Emphasis on Risk Management
Integrated Investment Process, with an Emphasis on Risk Management Portfolio Risk Measurement, Risk Management Construction Hedging and Trade Execution and Compliance • CEO, Portfolio Management (PM) • Exposures assessed relative to • Trade suitability and allocation based Committee and Risk Oversig
Slide 11: Ellington's Approach to Risk Management
Ellington’s Approach to Risk Management Principles Process Protection Trading / Portfolio Monitor / Mitigate: Monitoring Threshold Notification Workflow Spread risk / technical market risk Preserve Capital and Stress Safeguards Testing Risk Fundamental / cashflow / default risk Oversight Daily Group
Slide 12: Access to Robust Compliance and Internal Audit Program
Access to Robust Compliance and Internal Audit Program Compliance Program Extensive Surveillance Infrastructure • Chief Compliance Officer and dedicated team • Oversight integrated with proprietary portfolio management system (automated diagnostics and • Compliance Committee full data transparency)
Slide 13: Ellington's Technology
Ellington’s Technology Modeling, research and infrastructure have Trading and Research been at the heart of Ellington’s business Borrower behavior models, collateral surveillance, model since it was founded relative valuation monitoring within and among sectors 25% of Ellington’s employees are i
Slide 14: An Integrated Platform
An Integrated Platform Robust infrastructure provides a constant, dynamic feedback loop between Research, Trading, Portfolio Management, and Oversight disciplines • Automated trade allocation • Source, clean, link, aggregate and • Threshold monitoring analyze data to build predictive models: • Trade
Slide 15: Commitment to ESG
Commitment to ESG Ellington is committed to corporate social 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 stockholder performance, and make a posi
Slide 16: Ellington Financial Inc. (NYSE: EFC)
Ellington Financial Inc. (NYSE: EFC) 16
Slide 17: Portfolio Summary as of September 30, 2021
Portfolio Summary as of September 30,2021 (1) Diversified, proprietary portfolio of high-yielding, short-duration loans, and opportunistic securities Long Credit Portfolio(2) Allocated Fair Value Average Price WAVG WAVG Mkt (4) (5)(9) (7)(9) (8)(9) G H Category Equity ($000s) (%) Life Yield F 2% 2%
Slide 18: Proprietary Loan Origination Businesses
Proprietary Loan Origination Businesses Ellington Financial’s vertically integrated, proprietary loan origination businesses are designed to: • Lock in a steady flow of high-quality loan originations • Leverage Ellington’s core strengths of data analysis and modeling to help shape the underwriting c
Slide 19: Total Return Since Inception
Total Return Since Inception EFC has successfully preserved book value over market cycles, while producing strong results for investors • EFC life-to-date diluted net asset value-based total return from inception in August 2007 through Q3 2021 is approximately 267%, or 9.6% annualized(1) Diluted BVP
Slide 20: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs, Q1-2011 – Q3-2021(1)(2) Standard Company Deviation EFC 3.8% Hybrid REIT #02 5.6% Hybrid REIT #03 5.7% Hybrid REIT #04 6.4% Hybrid REIT #05 7.6% Hybrid REIT #06 9.8% Hybrid REIT #07 13.1% Hybrid REIT #08 13.6% Hy
Slide 21: Resilient Profit Generation Over Market Cycles
Resilient Profit Generation Over Market Cycles(1) Generated a Gross Profit Every Year Since Inception Nine-Month COVID ($ in thousands) Period Ended Pandemic Years Ended September 30 2021 2020(2) 2019(2) 2018 2017 2016 2015 Long: Credit $135,354 13.8% $63,052 7.3% $73,919 11.1% $61,201 10.0% $61,136
Slide 22: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value 50 Basis Point Decline in Interest Rates 50 Basis Point Increase in Interest Rates ($ in thousands) ∆ Fair Value % of Total Equity ∆ Fair Value % of Total Equity Agency RMBS – Fixed Pools and IOs excluding TBAs $ 18,984 1.73% $ (29
Slide 23: Agency Interest Rate Hedging Portfolio
Agency Interest Rate Hedging Portfolio We deploy a dynamic and adaptive hedging strategy to preserve book value Agency Interest Rate Hedging Portfolio 9/30/21: Net Agency Pool Exposure Based on Fair Value(2) Short $450.5mm 10-yr Equivalents(1) <2Yr Interest $1,400 rate Swaps Long 0.0% <1% $1,200 Age
Slide 24: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Instrument Corporate CDS Indices/ Tranches/ Single Name ABS CDS European Category Options/ Single Names and ABX Indices Sovereign Debt CMBX Units HY CDX OTR Bond Equivalent Value(3)(4) Bond Equivalent Value(4) Market Value Bond Equivalent Value(4) • EFC’s dynamic credi
Slide 25: Diversified Sources of Financing
Diversified Sources of Financing ($ in thousands) As of 9/30/2021 Three-Month Period Ended 9/30/21 Average Average Cost Outstanding Weighted Average Collateral Type Borrowings Borrowing Rate Borrowings of Funds (1) Credit $1,632,278 2.00% $ 1,577,246 2.03% Agency RMBS 1,436,845 0.17% 1,408,058 0.18%
Slide 26: EFC Portfolio – Schedule of Unencumbered Assets as of September 30, 2021
EFC Portfolio – Schedule of Unencumbered Assets as of September 30, 2021 (1) Strategy Fair Value ($MM) Residential Mortgage Loans and REO $ 327,646 Investments in Loan Origination Entities 106,406 Structured Products - Credit (CLOs, CMBS, Non-Agency RMBS) 61,997 Commercial Mortgage Loans and REO 93,
Slide 27: Supplemental Information
Supplemental Information 27
Slide 28: EFC's Best-in-Class Performance Since Inception
EFC’s Best-in-Class Performance Since Inception Percentage of 3/31/2007 Book Value per Share Cumulative Total Economic Return Since 3/31/2007 EFC #4 EFC #8 #4 #8 #3 #7 #5 #6 #3 #9 #9 #6 #5 #7 #2 #2 Note: EFC peers are other hybrid mortgage REITs. Above charts have been normalized for stock splits. 2
Slide 29: EFC: Stable Returns During Financial Crises, including 2008…
EFC: Stable Returns During Financial Crises, including 2008… Percentage of 9/30/07 Book Value per Share, 9/30/07-12/31/08 Cumulative Total Economic Return 9/30/07-12/31/08 EFC EFC #4 #4 #5 #5 #3 #3 #2 #2 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Note: EFC peers
Slide 30: …and 2020
…and 2020 Hybrid REITs’ 2020 Cumulative Total Economic Return EFC #3 #5 #2 #4 #8 #9 #6 #7 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Note: EFC peers are other hybrid mortgage REITs. Above charts have been normalized for stock splits. 30
Slide 31: Demonstrated Outperformance Managing Agency RMBS Assets
Demonstrated Outperformance Managing Agency RMBS Assets The Ellington platform also has deep expertise in managing Agency assets, as demonstrated by the performance of Ellington Residential Mortgage REIT (NYSE: EARN) Percentage of 3/31/2013 Book Value per Share Cumulative Total Economic Return Since
Slide 32: EFC: 2020 in Review
EFC: 2020 in Review Delivered a positive economic return and positive net income during an unprecedented year. 1 One of the only publicly traded hybrid mortgage REITs to post a profit in 2020. 2 Declared dividends of $1.26 per share Disciplined risk and liquidity management protected book value and
Slide 33: EFC: 2021 YTD Summary
EFC: 2021 YTD Summary Generated net income of $1.99 per share, core earnings(1) of $1.40 per share, economic return 1 of 11.1% non-annualized, and total return on common stock of 32% 2 Declared dividends of $1.19 per share, and increased monthly dividend by 50% 3 Grew capital base by 39%(†) through
Slide 34: Diversified Credit Portfolio
Diversified Credit Portfolio Diversified sources of return to perform over market cycles Other Commercial Mortgages • Bridge Loans • CMBS, B-Pieces & Credit Bonds Residential Mortgages • NPLs • Non-QM Loans • REO • Residential Transition Loans • NPL / RPL • Non-Agency / Non-Conforming • Reverse Mort
Slide 35: Small Balance Commercial Mortgage Loan Portfolio – Detail
Small Balance Commercial Mortgage Loan Portfolio – Detail(1)(2) Other FL All Other 12% Retail States 21% 4% <5% 30% Mixed Multifamily Use 11% 43% Property Type Geography 19% NY 7% 17% PA 7% Industrial 5% 13% 6% 5% TX CT Hotel OH MO Fixed 1% First Lien Interest Seniority RateType 100% Floating 99% wi
Slide 36: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of September 30, 2021 % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 30 Days or Less $ 28,508 $ 367,272 $ - $ 395,780 18.8% 31-90 Days 469,811 160,494 - 630,305 29.9% 91-180 Days
Slide 37: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Nine-Month Period Ended Year Ended (In thousands, except per share amounts) September 30, 2021 December 31, 2020 Net Interest Income Interest income $ 126,115 $ 173,531 Interest expense (33,111) (61,665) Total net interest income $ 93,004 $
Slide 38: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share amounts) September 30, 2021 December 31, 2020 Assets Cash and cash equivalents $ 103,617 $ 111,647 Restricted cash 175 175 Securities, at fair value 1,895,563 1,514,185 Loans, at fair value 1,996,529 1,453,480
Slide 39: Reconciliation of Net Income (Loss) to Core Earnings
Reconciliation of Net Income (Loss) to Core Earnings(1) Nine-Month Period Ended Year Ended (in thousands, except per share amounts) September 30, 2021 December 31, 2020 Net Income (Loss) $ 101,706 $ 28,377 Income tax expense (benefit) 3,149 11,377 Net income (loss) before income tax expense $ 104,85
Slide 40: Investment Highlights of EFC
Investment Highlights of EFC Diversified investment Proprietary portfolio of high- Dynamic interest-rate and portfolio across residential yielding, short-duration loans credit hedging designed to mortgage, commercial reduce volatility of book value mortgage, consumer loan, and earnings and corporate
Slide 41: Endnotes
Endnotes Slide 6 – About Ellington Management Group (1) $12.7 billion in assets under management includes approximately $1.3 billion in Ellington-managed CLOs. For these purposes, the Ellington-managed CLO figure represents the aggregate outstanding balance of CLO notes and market value of CLO equit
Slide 42: Endnotes
Endnotes Slide 18 – Proprietary Loan Origination Businesses (1) For our consolidated non-QM securitization trusts, excludes tranches that were sold to third parties, but that are consolidated for GAAP purposes. (2) Includes our allocable portion of the fair value of certain small-balance commercial
Slide 43: Endnotes
Endnotes Slide 25 – Diversified Sources of Financing (1) Includes Other secured borrowings and Other secured borrowings, at fair value. (2) All of our non-recourse borrowings are secured by collateral. In the event of default under a non-recourse borrowing, the lender has a claim against the collate
Slide 44: Investor and Media Contacts
JR Herlihy (203) 698-1200 Investors: Investor Relations Ellington Financial Inc. (203) 409-3575 Info@ellingtonfinancial.com Media: Amanda Klein or Kevin FitzGerald Gasthalter & Co. for Ellington Financial Inc. (212) 257-4170 Ellington@gasthalter.com Ellington Financial Inc. 53 Forest Ave Old Greenwi
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