Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q1 2020 Earnings Presentation
35 slides from Ellington Financial's earnings presentation, May 8, 2020
Slide 1: First Quarter 2020 Earnings Conference Call
First Quarter 2020 Earnings Conference Call May 8, 2020
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: First Quarter Market Update
First Quarter Market Update Quarter Ended: 3/31/2020 12/31/2019 Q/Q 9/30/2019 Q/Q 6/30/2019 Q/Q 3/31/2019 Q/Q 12/31/2018 Q/Q UST (%)(1) 3M UST 0.06 1.54 -1.48 1.81 -0.26 2.09 -0.28 2.38 -0.29 2.35 +0.03 2Y UST 0.25 1.57 -1.32 1.62 -0.05 1.75 -0.13 2.26 -0.51 2.49 -0.23 5Y UST 0.38 1.69 -1.31 1.54 +0
Slide 4: First Quarter Highlights
First Quarter Highlights(1) In March, the spread of COVID-19 resulted in extreme volatility and widespread market dislocations, including Market Volatility significant price declines and yield spread widening across virtually all fixed income asset classes Related to the Forced selling by many m
Slide 5: First Quarter Highlights (continued)
First Quarter Highlights (continued) Common Stock In January, issued 5.29 million shares of common stock, for net proceeds of $95.3 million (1) Offerings Share Repurchase Repurchased 288,172 shares during the quarter, or approximately 0.7%, at an average price of $10.53 Program 5
Slide 6: Portfolio Summary as of March 31, 2020
Portfolio Summary as of March 31, 2020(1) Diversified sources of return to perform over market cycles Average Allocated Fair Value Price WAVG WAVG Equity and Asset Allocation by (2)(6) (4)(6) (5)(6) Strategy Equity ($ in $1,000s) (%) Life Mkt Yield Strategy CREDIT 2% (8)(9) 16% CMBS and Commercial M
Slide 7: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share data) March 31, 2020 December 31, 2019 Net Interest Income Interest income $ 52,108 $ 45,353 Interest expense (22,090) (21,205) Total net interest income 30,018 24,148 Other Income (Lo
Slide 8: Operating Results by Strategy
Operating Results by Strategy Three-Month Three-Month Period Ended Period Ended Per December 31, Per (In thousands, except per share amounts) March 31, 2020 Share 2019 Share Credit: Interest income and other income (1) $ 41,841 $ 0.97 $ 35,505 $ 0.97 Realized gain (loss), net 10,447 0.24 (9,618) (0.
Slide 9: Long Credit Portfolio
Long Credit Portfolio 3/31/2020 (1 ) 12/31/2019 (1 ) Equity Cor por ate Debt Cor por ate Debt & Equity & Equity Investment in Investment in & Equity & Loan Or igination Cor por ate Loans Cor por ate Loans Loan Or igination Entities 1% 2% Entities 3% 3% CLO(2) CLO(2) 12% 12% Residential Residential L
Slide 10: Long Agency Portfolio
Long Agency Portfolio Agency Long Portfolio Agency Long Portfolio As of 3/31/2020: $1.02BN (1) As of 12/31/2019: $1.94BN (1) ARMs Fixed IOs ARMs Fixed IOs RM Fixed < 1% 4% <1% 2% RM Fixed 7% 13% 15-Year Fixed 17% 15-Year Fixed 30-Year 8% Fixed 30-Year Fixed 74% 74% 20-Year Fixed 20-Year < 1% Fixed <
Slide 11: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 3/31/2020 Three-Month Period Ended 3/31/2020 Weighted Outstanding Average Average Average Collateral Type Borrowings Borrowing Rate Borrowings Cost of Funds (1) (1) (1) (1) Credit $1,473,064 3.08% $1,428,921 3.44% Agency RMBS $1,287,030 1.64% $1,747,434 1
Slide 12: Diversified Credit Portfolio
Diversified Credit Portfolio Other 12% Residential Mortgages - Non-QM Loans - Residential Transition Loans - NPL / RPL 40% - Non-Agency / Non-Conforming Commercial Mortgages - Reverse Mortgages - NPLs - REO 31% 31% - Bridge Loans - CMBS B-Pieces & Credit Bonds - REO 17%16% Consumer Loans - Installme
Slide 13: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q4-2019(1)(2) Quarterly Economic 14.0% Returns of Hybrid REITs Q1-2011 – Q4-2019 EFC 2.2% 12.0% Hybrid REIT #02 3.0% Hybrid REIT #03 3.1% Hybrid REIT #04 4.4% 10.0% Hybrid REIT #05
Slide 14: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value ($ in thousands) 50 Basis Point Decline in Interest Rates 50 Basis Point Increase in Interest Rates Δ Fair Value % of Total Equity Δ Fair Value % of Total Equity Agency RMBS - ARM Pools $ 598 0.07% $ (401) -0.05% Agency RMBS - Fixe
Slide 15: Commitment to ESG
Commitment to ESG Ellington is committed to corporate 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 shareholder performance, and make a positive im
Slide 16: Supplemental Slides
Ellington Financial Supplemental Slides
Slide 17: Derivatives Summary as of March 31, 2020
Derivatives Summary as of March 31, 2020(1) Long Short Net ($ in thousands) Notional Notional Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 997 $ (64,527) $ (63,530) $ 14,467 Total Net Mortgage-Related Derivatives 14,467 Corporate-Related Derivatives: CDS on Corporat
Slide 18: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Corporate CDS Indices / Tranches / Options / Single Names Single Name ABS CDS and ABX Indices European Sovereign Debt CMBX (4) Units HY CDX OTR Bond Equivalent Value (3)(4) Bond Equivalent Value (4) Market Value Bond Equivalent Value - (10.0) (20.0) (30.0) (In $Million
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 As of 3/31/2020 As of 12/31/2019 Short $243.5MM 10-yr equivalents(1) Short $441.9MM 10-yr equivalents(1) TBAs, <2 Yr Interest >2 YrTreasuries, 19.9% Rate Swaps, 0.2% 3.3% 0-5 Yr Interes
Slide 20: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Exposure to Agency Pools Based on Net Fair Value As of 3/31/2020 As of 12/31/2019 $1,200 $2,000 $1,000 $1,500 $800 Long Agency Long Agency RMBS RMBS $1,902 $974 $1,000 $600 ($ in millions) $400 ($ in millions) Net Long $500 Net Long Exposure to Expo
Slide 21: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Agency Fixed Long Portfolio Agency Fixed Long Portfolio Collateral Characteristics and Historical 3-Mo CPR: Collateral Characteristics and Historical 3-Mo CPR: Average for Quarter Ended 3/31/2020 (1) Average for Quarter Ended 12/31/2019 (1) Other Other 29%
Slide 22: Repo Borrowings
Repo Borrowings(1) ($ in tho usands) Repo Borrowings as of March 31, 2020 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 2% 1% 16% 19% 30 Days or Less $37,567 $353,826 $1,654 $393,047 19.3% 31-90 Days 321,625 932,842 — 1,254,467 61.7
Slide 23: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation over market cycles Three-Month Period Years Ended Ended March 31 ($ In thousands) 2020 2019 2018 2017 2016 2015 2014 Long: Credit $ (118,307) -15.1% $ 73,919 11.6% $ 61,201 10.0% $ 61,136 9.6% $ 36,203 5.3% $ 46,892 6.1% $ 77,636 11.4% Credit Hedg
Slide 24: Diluted Book Value per Share
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 Q1 2020 is approximately 168%, or 8.1% annualized(1) $45.00 DBVP
Slide 25: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage Across Entire Portfolio(1) Leverage by Strategy (Debt-to-Equity)(1) 9.9 10.1 9.8 10.2 5.0 10.0 3/31/2020 9.0 4.5 8.0 4.0 4.0 4.0 3.8 12/31/2019 3.5 3.5 9/30/2019 3.0 2.5 2.4 6/30/2019 2.3 2.3 2.0 2.1 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Slide 26: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) March 31, December 31, (In thousands, except share amounts) 2020 2019(1) ASSETS Cash and cash equivalents $ 136,740 $ 72,302 Restricted cash 175 175 Securities, at fair value 1,481,395 2,449,941 Loans, at fair value 1,443,589 1,412,426 Investments in
Slide 27: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share data) March 31, 2020 December 31, 2019 Net Interest Income Interest income $ 52,108 $ 45,353 Interest expense (22,090) (21,205) Total net interest income 30,018 24,148 Other Income (Lo
Slide 28: Reconciliation of Net Income (Loss) to Core Earnings
Reconciliation of Net Income (Loss) to Core Earnings(1) Three-Month Period Ended (In thousands, except per share amounts) March 31, 2020 December 31, 2019 Net income (loss) $ (128,342) $14,321 Income tax expense (benefit) (547) 1,180 Net income (loss) before income tax expense (128,889) 15,501 Adjus
Slide 29: About Ellington Management Group
About Ellington Management Group Ellington Profile As of 3/31/2020 Founded: 1994 $9.7 14 21 Years of average 8% Billion in Employee-partners industry Management’s Employees: >150 assets under own the firm(2) experience of ownership of EFC, management as of representing Investment Professionals: 70 3
Slide 30: Investment Highlights of EFC
Investment Highlights of EFC Diversified investment portfolio across residential mortgage, commercial mortgage, consumer loan, and corporate loan sectors • Diverse range of strategies designed to generate a high-quality earnings stream • Ability to shift capital allocation across asset classes as
Slide 31: Endnotes
Endnotes Slide 3 – First Quarter Market Update (1) Source: Bloomberg (2) Source: Mortgage Bankers Association via Bloomberg (3) LIBOR-based OAS measures the additional yield spread over LIBOR that an asset provides at its current market price after taking into account any interest rate options embed
Slide 32: Endnotes
Endnotes Slide 8 – Operating Results by Strategy (1) Other income primarily consists of rental income on real estate owned and loan origination fees. (2) Includes U.S. Treasury securities, if applicable. (3) Other activities include certain equity and other trading strategies and related hedges, and
Slide 33: Endnotes
Endnotes Slide 15 – Commitment to ESG (1) See endnote (9) on slide 4. Slide 17 – Derivatives Summary (1) In the table, fair value of certain derivative transactions are shown on a net basis. The accompanying financial statements separate derivative transactions as either assets or liabilities. As of
Slide 34: Endnotes
Endnotes Slide 23 – Gross Profit and Loss (1) Gross profit excludes expenses other than interest expense and other investment related expenses. Figures in “%” columns are as a percentage of average equity for the period. Slide 24 – Total Return Since Inception (1) Total return is based on $18.61 net
Slide 35: Investor Relations Contact
Investors: Investor Relations Ellington Financial LLC (203) 409-3575 Info@ellingtonfinancial.com Media: Amanda Klein or Kevin FitzGerald Gasthalter & Co. for Ellington Financial LLC (212) 257-4170 Ellington@gasthalter.com Ellington Financial LLC 53 Forest Ave Old Greenwich, CT 06870 www.ellingtonfin