Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q4 2021 Earnings Presentation
40 slides from Ellington Financial's earnings presentation, Feb 24, 2022
Slide 1: Earnings Conference Call Q4 2021
Earnings Conference Call Q4 February 24, 2022 2021 Q4 2021 EARNINGS
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: Fourth Quarter Highlights
Fourth Quarter Highlights(1) • Net income: $34.3 million or $0.61 per share • Economic return:(2) 2.7% for the quarter, and 13.9% for the year Overall Results • Core Earnings:(3) $24.9 million or $0.44 per share • Total return to shareholders of 26% for the year • Credit gross income: $51.8 million(
Slide 4: Portfolio Summary as of December 31, 2021
Portfolio Summary as of December 31, 2021(1) Proprietary portfolio of high-yielding, short-duration loans, and opportunistic securities Allocated Fair Value Average Price WAVG Mkt Strategy Equity(2) ($ in $1,000s) (%) (3)(7) WAVG Life (5)(7) Yield(6)(7) Equity and Asset Credit Allocation by Strategy
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) December 31, 2021 Share September 30, 2021 Share Credit: Interest income and other income(1) $ 41,647 $ 0.73 $ 36,337 $ 0.72 Realized gain (loss), net (497) (0.01) 7,826 0
Slide 6: Long Credit Portfolio
Long Credit Portfolio* G H G H F 1% 1% 2% 2% A F A 7% E 6% 20% 20% 9% A: CMBS & Commercial Loans & REO(3)(4) E 10% D B: Consumer Loans & ABS(2) 3% C: Residential Loans & REO(3) D 4% $2.06 bn 8% B D: CLOs(2) $1.69 bn 8% B E: Non-Agency RMBS F: Debt and Equity Investments in Loan Originators G: Non-Do
Slide 7: Long Agency Portfolio
Long Agency Portfolio ARMs Fixed ARMs Fixed RM 1% IOs RM 15-Year Fixed 1% IOs Fixed Fixed 3% 2% 4% 2% 14% 15-Year Fixed 15% 20-Year Fixed 3% $1.70 bn 20-Year 3% Fixed $1.54 bn 77% 30-Year 75% 30-Year Fixed Fixed As of 12/31/2021(1) As of 9/30/2021(1) Fair Wtd. Avg. Fair Wtd. Avg. (1) (2) (1) (2) Cat
Slide 8: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 12/31/2021 Three-Month Period Ended 12/31/21 Average Average Cost Outstanding Weighted Average Collateral Type Borrowings Borrowing Rate Borrowings of Funds (1) Credit $1,910,666 1.94% $ 1,539,383 2.21% Agency RMBS 1,639,887 0.19% 1,545,022 0.19% Borrowin
Slide 9: 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 10: Small Balance Commercial Mortgage Loan Portfolio – Detail
Small Balance Commercial Mortgage Loan Portfolio – Detail(1)(2) Other Retail FL Mixed 11% All Other 20% Use 2% 4% States <5% 36% Industrial 9% 8% NY Property Type Geography 9% 5% 65% AZ Hotel Multifamily 7% 18% 6% GA TX OH Fixed Fixed <1% First Lien Seniority Interest RateType Floating 100% with flo
Slide 11: 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 12: 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 13: 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 $ 24,524 1.85% $ (33
Slide 14: 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 15: Longbridge Transaction
Longbridge Transaction Q4 2021 EARNINGS 15
Slide 16: Longbridge Transaction
Longbridge Transaction • On 2/18/22, we entered into a definitive agreement to acquire substantially all of the remaining ownership interests of Longbridge Financial that we did not already own, from Home Point Capital. • The ~$75 million transaction would increase Ellington Financial’s ownership of
Slide 17: Longbridge Transaction – Business Rationale
Longbridge Transaction • Solidifies Ellington Financial’s foothold in the reverse mortgage market, which serves a growing demographic. • Continues the growth of EFC’s loan origination businesses through which we manufacture our own investments (in this case MSRs). • Significant synergies exist betwe
Slide 18: Longbridge Overview
Longbridge Transaction • Founded in 2012, Longbridge originates and services reverse mortgages to help the growing demographic of U.S. homeowners aged 55 and over manage their retirement and improve their financial future • Vertically integrated, GNMA-approved reverse mortgage originator and service
Slide 19: Longbridge Transaction – Market Opportunity
Longbridge Transaction • Reverse mortgages enable the growing population of senior homeowners, many of whom are struggling with higher debt payments and inflating expenses, to gain access to their home equity, manage their retirement and improve their financial future. • Because reverse mortgages pr
Slide 20: Supplemental Slides
Supplemental Slides Q4 2021 EARNINGS 20
Slide 21: Fourth Quarter Market Update
Fourth Quarter Market Update Quarter Ended 12/31/2021 Q4/Q3 9/30/2021 Q3/Q2 6/30/2021 Q2/Q1 3/31/2021 Q1/Q4 12/31/2020 (1) UST (%) 3M UST 0.03 -0.00 0.03 -0.01 0.04 +0.03 0.02 -0.04 0.06 2Y UST 0.73 +0.46 0.28 +0.03 0.25 +0.09 0.16 +0.04 0.12 5Y UST 1.26 +0.30 0.96 +0.08 0.89 -0.05 0.94 +0.58 0.36 1
Slide 22: Derivatives Summary as of December 31, 2021
Derivatives Summary as of December 31, 2021(1) Long Short ($ in thousands) Notional Notional Net Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 573 $ (15,348) $ (14,775) $2,015 Total Net Mortgage-Related Derivatives $2,015 Corporate-Related Derivatives: CDS on Corpora
Slide 23: 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 24: Agency Interest Rate Hedging Portfolio
Agency Interest Rate Hedging Portfolio(1) We deploy a dynamic and adaptive hedging strategy to preserve book value E F F E <1% <1% 4.9% 8.4% D 22.2% 37.4% A D 22.1% 43.7% $531.4mm $450.5mm A 8.6% 18.3% C C 16.9% 17.1% B B As of 12/31/2021 As of 9/30/2021 Short $531.4mm 10-yr equivalents(1) Short $45
Slide 25: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Net Agency Pool Exposure Based on Fair Value(1) As of 12/31/2021 As of 9/30/2021 $1,600 $1,400 Long Agency $1,400 Pools $1,200 Long Agency $1,663 Pools $1,200 $1,000 $1,499 $1,000 $800 $800 $600 Net Long Exposure to ($ in millions) ($ in millions) $
Slide 26: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Average for Quarter Ended 12/31/2021(1) Average for Quarter Ended 9/30/2021 (1) Other Other Jumbo <1% 14% 23% 0% Loan Balance Geography Loan Jumbo 36% 11% 40% Balance <1% 10% Geography 10% Non- Owner 9% 2% Non- 20% MHA 22% 2% Owner MHA Low Low FICO FICO Co
Slide 27: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of December 31, 2021 % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 30 Days or Less $ 377,440 $ 180,059 $ - $ 557,499 22.5% 31-90 Days 199,390 408,547 - 607,937 24.6% 91-180 Days
Slide 28: Resilient Profit Generation Over Market Cycles
Resilient Profit Generation Over Market Cycles(1) Generated a Gross Profit Every Year Since Inception COVID Pandemic ($ in thousands) Years Ended 2021 2020 2019 2018 2017 2016 2015 Long: Credit $172,718 16.6% $63,052 7.3% $73,919 11.1% $61,201 10.0% $61,136 9.6% $36,203 5.3% $46,892 6.1% Credit Hedg
Slide 29: 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 Q4 2021 is approximately 277%, or 9.7% annualized(1) Diluted BVP
Slide 30: 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(6) Average Price – Credit and Agency(5)(6) $ in Millions Q4 2021 EARNINGS 30
Slide 31: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share amounts) December 31, 2021 September 30, 2021 Assets Cash and cash equivalents $ 92,661 $ 103,617 Restricted cash 175 175 Securities, at fair value 2,087,360 1,895,563 Loans, at fair value 2,415,321 1,996,529
Slide 32: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share amounts) December 31, 2021 September 30, 2021 Net Interest Income Interest income $ 49,390 $ 40,146 Interest expense (10,918) (10,604) Total net interest income $ 38,472 $ 29,542 Other
Slide 33: 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) December 31, 2021 September 30, 2021 Net Income (Loss) $ 38,850 $ 23,981 Income tax expense (benefit) (4) (2,009) Net income (loss) before income tax expense $ 38,846 $ 21,972 Ad
Slide 34: About Ellington Management Group
About Ellington Management Group Ellington and its Affiliated Management Companies Ellington Profile As of 12/31/2021 • 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 a
Slide 35: 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 36: Endnotes
Endnotes Slide 3 – Fourth Quarter Highlights (1) Holdings, leverage, equity and book value amounts are as of December 31, 2021. (2) Economic return is based on book value per share. (3) Core Earnings is a non-GAAP financial measure. See slide 33 for a reconciliation of Core Earnings to Net Income (L
Slide 37: 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 $3.026 bi
Slide 38: Endnotes
Endnotes Slide 18 – Longbridge Transaction (1) Securitization volume measured by issuance of HMBS securitizations of newly originated Home Equity Conversion Mortgages, or HECMs, using data from Bloomberg. Endorsements are reported by Reverse Market Insight. Slide 19 – Longbridge Transaction (1) Sour
Slide 39: Endnotes
Endnotes Slide 27 – Repo Borrowings (1) Included in the table, using the original maturity dates, are any repos involving underlying investments we sold prior to December 31, 2021 for settlement following December 31, 2021 even though we may expect to terminate such repos early. Not included are any
Slide 40: Investors and Media Contacts
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 Greenwich, CT 06870 www.ellington