Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q3 2022 Earnings Presentation
35 slides from Ellington Financial's earnings presentation, Nov 8, 2022
Slide 1: Earnings Conference Call Q3 2022
Earnings Conference Call Q3 November 8, 2022 2022 Q 3 2 0 2 2 E A R N IN G S
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: Third Quarter Highlights
Third Quarter Highlights(1) • Net loss: $(33.3) million or $(0.55) per share Overall Results • Economic return:(2) (3.4)% for the quarter • Adjusted Distributable Earnings:(3) $26.5 million or $0.44 per share • Credit gross loss: $(11.3) million(4) or $(0.19) per share Credit Strategy • Long credit
Slide 4: Portfolio Summary as of September 30, 2022
Portfolio Summary as of September 30, 2022(1) Proprietary portfolio of high-yielding, short-duration loans, and opportunistic securities Allocated Fair Value Average Price WAVG Mkt (2) ($ in $1,000s) (3)(7) (5)(7) Equity and Asset Strategy Equity (%) WAVG Life Yield(6)(7) Allocation by Strategy Cred
Slide 5: Operating Results by Strategy
Operating Results by Strategy Three-Month Three-Month Period Ended Per Period Ended Per (In thousands, except per share amounts) September 30, 2022 Share June 30, 2022 Share Credit: Interest income and other income (1) $ 66,825 $ 1.10 $ 51,628 $ 0.85 Realized gain (loss), net 2,735 0.05 3,410 0.06 U
Slide 6: Long Credit Portfolio
Long Credit Portfolio* G H G H F 1% 1% F 1% 1% E D A E 3% 4% A 1% D 7% 21% 1% 8% 22% A: CMBS & Commercial Loans & REO(3)(4) B: Consumer Loans & ABS(2) C: Residential Loans & REO(3) 4% B B $2.74 bn D: CLOs(2) $2.66 bn 4% E: Non-Agency RMBS F: Debt and Equity Investments in Loan Originators G: Non-Dol
Slide 7: Long Agency Portfolio
Long Agency Portfolio Fixed RM ARMs Fixed IOs RM ARMs IOs Fixed 1% 1% Fixed 15-Year 15-Year Fixed 3% 2% Fixed 3% 2% 20-Year 12% 14% Fixed 1% 20-Year Fixed <1% $1.14 bn $1.34 bn 81% 79% 30-Year 30-Year Fixed Fixed As of 9/30/2022(1) As of 6/30/2022(1) Fair Value(1) Wtd. Avg. Fair Value(1) Wtd. Avg. C
Slide 8: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 9/30/2022 Three-Month Period Ended 9/30/22 Average Average Cost Outstanding Weighted Average Collateral Type Borrowings Borrowing Rate Borrowings of Funds Credit(1) $3,397,322 4.10% $ 3,441,741 3.69% Agency RMBS 1,143,644 2.40% 1,229,624 1.63% Borrowings
Slide 9: Small Balance Commercial Mortgage Loan Portfolio – Detail
Small Balance Commercial Mortgage Loan Portfolio – Detail(1)(2) Self-Storage Mobile Office TX Home 8% 1% All Other Retail 3% 18% States 4% Mixed Use 3% <5% 33% Industrial 6% Property Type Geography 18% 6% FL Hotel 69% 5% NJ 6% 13% Multifamily 7% AZ GA NY Floating First Lien with floor Interest Rate
Slide 10: 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 11: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs, Q1-2011 – Q2-2022(1)(2) Standard Company Deviation EFC 3.9% Hybrid REIT #02 5.9% Hybrid REIT #03 6.1% Hybrid REIT #04 6.3% Hybrid REIT #05 7.4% Hybrid REIT #06 9.6% Hybrid REIT #07 12.7% Hybrid REIT #08 13.4% Hy
Slide 12: 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 $ 31,483 2.67% $ (32
Slide 13: 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 14: Supplemental Slides
Supplemental Slides Q 3 2 0 2 2 E A R N IN G S 14
Slide 15: Third Quarter Market Update
Third Quarter Market Update Quarter Ended 9/30/2022 Q3/Q2 6/30/2022 Q2/Q1 3/31/2022 Q1/Q4 12/31/2021 Q4/Q3 9/30/2021 UST (%)(1) 3M UST 3.25 +1.62 1.63 +1.14 0.48 +0.45 0.03 -0.00 0.03 2Y UST 4.28 +1.33 2.95 +0.62 2.33 +1.60 0.73 +0.46 0.28 5Y UST 4.09 +1.05 3.04 +0.58 2.46 +1.20 1.26 +0.30 0.96 10Y
Slide 16: Derivatives Summary as of September 30, 2022
Derivatives Summary as of September 30, 2022(1) Short ($ in thousands) Long Notional Notional Net Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 324 $ (56,565) $ (56,241) $ 2,295 Total Net Mortgage-Related Derivatives $ 2,295 Corporate-Related Derivatives: CDS on Corp
Slide 17: 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 18: 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 19: Agency Interest Rate Hedging Portfolio
Agency Interest Rate Hedging Portfolio(1) We deploy a dynamic and adaptive hedging strategy to preserve book value F F 11.7% 10.2% E E <1% 1.0% A: >5 Yr Interest Rate Swaps A 43.4% A B: 2-5Yr Treasuries and Treasury Futures 46.4% $757.5mm C: >5 Yr Treasuries and Treasury Futures $824.7mm 32.1% D: TB
Slide 20: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Net Agency Pool Exposure Based on Fair Value(1) As of 9/30/2022 As of 6/30/2022 $1,400 $1,400 $1,200 $1,200 Long Agency $1,000 Pools Long Agency $1,000 $1,311 $800 Pools $1,116 $800 $600 $600 Net Long ($ in millions) ($ in millions) $400 Exposure to
Slide 21: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Average for Quarter Ended 9/30/2022(1) Average for Quarter Ended 6/30/2022(1) Other Other 23% 25% Loan Jumbo Loan 38% Balance 39% <1% Balance Jumbo <1% 17% 12% Geography Geography 8% 11% 9% 2% 13% 2% MHA MHA Non- Non- Low Owner Owner Low FICO FICO Collater
Slide 22: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of September 30, 2022 181-364 % of Total Days, 30 Days Remaining Days to Maturity Credit Agency U.S. Treasury Total 12% or Less, Borrowings 17% 30 Days or Less $ 16,157 $ 450,636 $ 30,781 $ 497,574 17.2% 31-90 Days
Slide 23: Resilient Profit Generation Over Market Cycles
Resilient Profit Generation Over Market Cycles(1) Nine-Month COVID Pandemic Period Ended ($ in thousands) September 30 Years Ended 2022 2021 2020 2019 2018 2017 2016 Long: Credit (91,434) -7.2% $188,562 18.1% $53,736 6.2% $73,919 11.1% $61,201 10.0% $61,136 9.6% $36,203 5.3% Credit Hedge and Other 6
Slide 24: 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 2022 is approximately 238%, or 8.4% annualized(1) Diluted BVP
Slide 25: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage Across Entire Portfolio(1) Leverage by Strategy (Debt-to-Equity)(1) Credit and Agency Portfolios by Fair Value(7) Average Price – Credit and Agency(6)(7) $ in Millions Q 3 2 0 2 2 E A R N IN G S 25
Slide 26: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share amounts) September 30, 2022 June 30, 2022 Assets Cash and cash equivalents $ 175,230 $ 224,451 Securities, at fair value 1,522,772 1,757,513 Loans, at fair value 3,822,895 3,490,820 Investments in unconsolidat
Slide 27: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share amounts) September 30, 2022 June 30, 2022 Net Interest Income Interest income $ 78,592 $ 62,722 Interest expense (42,080) (26,024) Total net interest income $ 36,512 $ 36,698 Other Inc
Slide 28: Reconciliation of Net Income (Loss) to Adjusted Distributable Earnings
Reconciliation of Net Income (Loss) to Adjusted Distributable Earnings(1) Three-Month Period Ended (in thousands, except per share amounts) September 30, 2022 June 30, 2022 Net Income (Loss) $ (29,731) $ (61,451) Income tax expense (benefit) (81) (7,825) Net income (loss) before income tax expense $
Slide 29: About Ellington Management Group
About Ellington Management Group Ellington and its Affiliated Management Companies Ellington Profile As of 9/30/2022 • Our external manager Ellington Financial Management LLC is part of the Ellington family of SEC-registered investment advisors(4) Founded: 1994 Employees: >170 • Ellington Management
Slide 30: 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 31: Endnotes
Endnotes Slide 3 – Third Quarter Highlights (1) Holdings, leverage, equity and book value amounts are as of September 30, 2022. (2) Economic return is based on book value per share. (3) Adjusted Distributable Earnings, is a non-GAAP financial measure. See slide 28 for a reconciliation of Adjusted Di
Slide 32: Endnotes
Endnotes Slide 6 – Long Credit Portfolio (1) See endnote (5) on slide 3. For our consolidated non-QM securitization trusts, excludes tranches that were sold to third parties, but that are consolidated for GAAP purposes. Including such tranches, the Company’s total long credit portfolio was $4.372 bi
Slide 33: Endnotes
Endnotes Slide 16– Derivatives Summary (1) In the table, fair value of certain derivative transactions are shown on a net basis. The financial statements separate derivative transactions as either assets or liabilities. As of September 30, 2022, derivative assets and derivative liabilities were $160
Slide 34: Endnotes
Endnotes Slide 24 – Total Return Since Inception (1) Total return is based on $18.61 net diluted book value per share at inception in August 2007 and is calculated assuming the reinvestment of dividends at diluted book value per share and assumes all convertible units were converted into common shar
Slide 35: Investor and Media Contacts
Investors: Investor Relations Ellington Financial Inc. (203) 409-3575 Info@ellingtonfinancial.com Media: Amanda Shpiner or Sara Windman Gasthalter & Co. for Ellington Financial Inc. (212) 257-4170 Ellington@gasthalter.com Ellington Financial Inc. 53 Forest Ave Old Greenwich, CT 06870 www.ellingtonfi