Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q1 2019 Earnings Presentation
34 slides from Ellington Financial's earnings presentation, May 8, 2019
Slide 1: First Quarter 2019 Earnings Conference Call
First Quarter 2019 Earnings Conference Call May 8, 2019
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 3
Slide 4: First Quarter Highlights
First Quarter Highlights(1) Net income: $15.4 million or $0.52 per share Overall Results Economic return(2): 2.8% for the quarter or 11.7% annualized Core Earnings(3) of $13.3 million or $0.45 per share Credit Credit gross income: $16.5 million(4) or $0.54 per share Strategy Long credit po
Slide 5: Portfolio Summary as of March 31, 2019
Portfolio Summary as of March 31, 2019(1) Diversified sources of return to perform across market cycles Average Allocated Fair Value Price WAVG WAVG Equity and Asset Allocation by Strategy Equity ($K) (%)(2)(6) Life(4)(6) Mkt Yield (5)(6) Strategy CREDIT CMBS and Commercial Mortgage Loans and REO (8
Slide 6: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share data) March 31, 2019 Net Interest Income Interest income $ 36,016 Interest expense (17,618) Total net interest income 18,398 Other Income (Loss) Realized gains (losses) on securities a
Slide 7: Operating Results by Strategy
Operating Results by Strategy Three-Month % of Period Ended Per Average (In thousands, except per share amounts) March 31, 2019 Share Equity Credit: Interest income and other income (1) $ 29,409 $ 0.97 4.95% Realized gain (loss), net (4,299) (0.14) -0.72% Unrealized gain (loss), net 11,713 0.38 1.97
Slide 8: Long Credit Portfolio
Long Credit Portfolio 3/31/2019 (1 ) 12/31/2018 (1 ) Equity Corporate Equity Investment in Corporate Debt & Equity Investment in Loan Debt & Equity <1% Loan 1% Origination Origination Entities Entities CLO 3% CLO(2) 3% 8% Residential 10% Residential Loans & REO Loans & 17% CMBS & REO(3) CMBS & Comme
Slide 9: Long Agency Portfolio
Long Agency Portfolio Agency Long Portfolio Agency Long Portfolio As of 3/31/2019: $1,144.2MM (1) As of 12/31/2018: $975.4MM (1) RM Fixed ARMs Fixed IOs RM Fixed ARMs Fixed IOs < 1% 2% <1% 3% 8% 6% 15-Year 15-Year Fixed Fixed 6% 8% 20-Year Fixed 20-Year < 1% Fixed < 1% 30-Year 30-Year Fixed Fixed 83
Slide 10: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 3/31/2019 Weighted For the Quarter Ended 3/31/2019 Outstanding Average Average Average Collateral Type Borrowings Borrowing Rate Borrowings Cost of Funds (1) (1) (1) Credit(1) $978,683 4.18% $966,679 4.25% Agency RMBS 941,266 2.71% 893,987 2.74% Subtotal
Slide 11: Diversified Credit Portfolio
Diversified Credit Portfolio CLOs - Retained CLO Tranches - Secondary CLO Equity & Mezz 8% Residential Mortgages - Non-QM Loans Commercial Mortgages - Residential Transition Loans - NPLs - NPL/RPL - Bridge Loans 28% - CMBS B-Pieces & Credit Bonds - Non-Agency / Non-Conforming 45% - REO - Reverse Mor
Slide 12: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q4 -2018(1)(2) Quarterly Economic 9.0% Returns of Hybrid REITs Q1-2011 – Q4-2018 Standard 8.0% Company Deviation EFC 2.4% 7.0% Hybrid REIT #02 3.1% Hybrid REIT #03 3.3% 6.0% Hybrid
Slide 13: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value ($ in thousands) 50 Basis Point Decline in Interest Rates 50 Basis Point Increase in Interest Rates % of Total Market Value % of Total Equity Market Value Equity Agency RMBS - ARM Pools $ 131 0.02% $ (159) -0.03% Agency RMBS - Fixe
Slide 14: Expected Effect of REIT Conversion on Investment Strategies
Expected Effect of REIT Conversion on Investment Strategies Non-REIT Strategies to Shrink - Secondary CLO Equity/Notes - UK Non-Conforming RMBS Pro Forma Target Allocation Non-REIT Strategies to Maintain - Consumer Loans & ABS - Ellington-Sponsored CLOs - European NPLs - Equity Investments in Loan-
Slide 15: Supplemental Slides
Ellington Financial Supplemental Slides
Slide 16: Derivatives Summary as of March 31, 2019
Derivatives Summary as of March 31, 2019(1) Long Short Net ($ in thousands) Notional Notional Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 6,276 $ (37,735) $ (31,459) $ 3,687 Total Net Mortgage-Related Derivatives 6,276 (37,735) (31,459) 3,687 Corporate-Related Deri
Slide 17: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Corporate CDS Indices / Tranches / Single Name ABS CDS and ABX Corporate Bonds/Corporate Bond Options / Single Names Indices European Sovereign Debt ETFs/Equities CMBX HY CDX OTR Bond Equivalent Units (4) (4) Value (3)(4) Bond Equivalent Value Market Value Market Value
Slide 18: 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 3/31/2019 As of 12/31/2018 Short $386.5MM 10-yr equivalents(1) Short $424.3MM 10-yr equivalents(1) Eurodollar Eurodollar 0-5 Yr Interest Futures, 0.5% Futures, 0.7% Rate Swaps, >5
Slide 19: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Exposure to Agency Pools Based on Net Fair Value As of 3/31/2019 As of 12/31/2018 $1,200 $1,200 $1,000 $1,000 $800 Long Agency $800 Long Agency RMBS RMBS $1,119 $946 $600 $600 Net Long $400 $400 ($ in millions) ($ in millions) Exposure to Net Long A
Slide 20: 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 3/31/2019 (1) Average for Quarter Ended 12/31/2018 (1) Other Jumbo Oth
Slide 21: Repo Borrowings
Repo Borrowings(1) ($ in tho usands) Repo Borrowings as of March 31, 2019 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 5% 14% 6% 30 Days or Less $9,330 $180,657 $29,507 $219,494 14.2% 1% 31-90 Days 227,146 752,206 — 979,352 63.2% 9
Slide 22: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation through market cycles Three-Month Period Ended Years Ended ($ In thousands) March 31 2019 2018 2017 2016 2015 2014 Long: Credit $ 23,898 4.0% $ 61,201 10.0% $ 61,136 9.6% $ 36,203 5.3% $ 46,892 6.1% $ 77,636 11.4% Credit Hedge and Other (6,556) -1
Slide 23: Diluted Book Value per Share
Total Return Since Inception EFC has successfully preserved book value through 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 2019 is approximately 207%, or 10.1% annualized(1) $45.00
Slide 24: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage Across Entire Portfolio(1) Leverage by Strategy (Debt-to-Equity)(1) 10.06 4.00 9.45 10.00 9.24 3/31/2019 9.00 8.77 8.00 3.50 3.35 3.39 12/31/18 3.04 3.00 2.77 9/30/18 2.50 2.19 2.17 2.00 6/30/18 1.85 1.65 1.50 0% 10% 20% 30% 40% 50% 60% 70% 80%
Slide 25: Condensed Consolidated Balance Sheet
Condensed Consolidated Balance Sheet (Unaudited) As of (In thousands, except share amounts) March 31, 2019 ASSETS Cash and cash equivalents $ 55,876 Restricted cash 175 Securities, at fair value 1,529,485 Loans, at fair value 1,014,990 Investments in unconsolidated entities, at fair value 58,152 Rea
Slide 26: 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, 2019 Net income (loss) $16,488 Adjustments: Realized (gains) losses on securities and loans, net 5,322 (2) Realized (gains) losses on financial derivatives, net 12,289
Slide 27: About Ellington Management Group
About Ellington Management Group Ellington Profile As of 3/31/2019 Founded: 1994 $8.1 16 26 Years of average 12% 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: 65
Slide 28: 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 29: 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 30: Endnotes
Endnotes Slide 6 – Condensed Consolidated Statement of Operations (unaudited) (1) Expense ratio is defined as our annualized base management fee and other operating expenses, but excluding interest expense, other investment related expenses, incentive fees, and REIT conversion costs, as a percentage
Slide 31: Endnotes
Endnotes Slide 13 – Interest Rate Sensitivity Analysis (1) The table reflects the estimated effects on the value of our portfolio, both overall and by category, of hypothetical, immediate, 50 basis point downward and upward parallel shifts in interest rates, based on the market environment as of Mar
Slide 32: Endnotes
Endnotes Slide 20 – CPR Breakout of Agency Fixed Long Portfolio (1) Does not include long TBA positions, reverse mortgage pools, or fixed rate IOs. (2) Classification methodology may change over time as market practices change. (3) Fair value shown in millions. (4) “MHA” indicates those pools where
Slide 33: Endnotes
Endnotes Slide 26 – Reconciliation of Net Income (Loss) to Core Earnings (1) We calculate Core Earnings as U.S. GAAP net income (loss) as adjusted for: (i) realized and unrealized gain (loss) on investments, REO, financial derivatives (excluding net accrued periodic (payments) receipts on interest r
Slide 34: 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