Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q2 2024 Earnings Presentation
37 slides from Ellington Financial's earnings presentation, Aug 7, 2024
Slide 1: Earnings Conference Call Q2 2024
Earnings Conference Call Q2 August 7, 2024 2024 Q 2 2 0 2 4 E A R N I N GS
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: Second Quarter Highlights
Second Quarter Highlights(1) • Net income: $52.3 million or $0.62 per share(2) Overall Results • Economic return:(3) 4.5% for the quarter • Adjusted Distributable Earnings:(4) $28.3 million or $0.33 per share • Net income: $69.1 million or $0.81 per share • Credit strategy: • Net income: $68.0 milli
Slide 4: Portfolio Summary as of June 30, 2024
Portfolio Summary as of June 30, 2024(1) Allocated Fair Value Average Price WAVG Mkt (2) Equity and Asset Credit Equity ($ in $1,000s) (%)(3)(7) WAVG Life(5)(7) Yield(6)(7) Allocation by Strategy Residential Transition Loans and Other Residential Mortgage Loans and REO(8) $ 1,234,796 99.5 0.9 10.6%
Slide 5: Operating Results by Strategy for the Quarter Ended June 30, 2024
Operating Results by Strategy for the Quarter Ended June 30, 2024 Investment Portfolio Investment Portfolio Corporate/ Total (In thousands, except per share amounts) Credit Agency Subtotal Longbridge Other Total Per Share (1) Interest income and other income $ 81,983 $ 6,858 $ 88,841 $ 13,592 $ 1,91
Slide 6: Reconciliation of Net Income (Loss) to Adjusted Distributable Earnings
Reconciliation of Net Income (Loss) to Adjusted Distributable Earnings(1) Three-Month Period Ended June 30, 2024 Investment (in thousands, except per share amounts) Longbridge Corporate/Other Total Portfolio Net Income (Loss) $ 69,476 $ 4,209 $ (13,613) $ 60,072 Income tax expense (benefit) - - 142
Slide 7: Long Credit Portfolio
Long Credit Portfolio* I J H 1% G I J G 3% 2% F 2% F 2% 2% 3% 3% 3% A: Residential Transition Loans and other Residential E E 8% Mortgage Loans & REO(2) 5% D B: Non-QM Loans and Retained Non-QM RMBS(3)(4)(5) D A 6% A 6% 42% C: CMBS & Commercial Loans & REO(2)(6) 46% $2.80 bn $2.73 bn D: Forward MSR-
Slide 8: Long Agency Portfolio
Long Agency Portfolio Fixed Fixed IOs RM IOs ARMs 15- Fixed RM 1% 2% Year Fixed Fixed 7% 2% 15-Year 6% 6% Fixed 20-Year 8% Fixed <1% $457.7 mm $662.6 mm 85% 83% 30-Year 30-Year Fixed Fixed As of 6/30/2024(1) As of 3/31/2024(1) (1) (1) Wtd. Avg. Fair Value Wtd. Avg. Fair Value (2) Category ($ in MMs)
Slide 9: Longbridge Portfolio
Longbridge Portfolio* E E <1% 1% D D 6% 7% C 18% A: Proprietary reverse mortgage loans C B: Unsecuritized HECM loans(2) 21% C: HMBS MSR Equivalent (3) A 46% $520.8 mm A D: Reverse MSRs $441.0 mm 56% E: Other B 20% B 25% As of 6/30/2024(1) As of 3/31/2024(1) • Longbridge originates reverse mortgage l
Slide 10: Summary of Borrowings
Summary of Borrowings Recourse Borrowings ($ in thousands) As of 6/30/24 Three-Month Period Ended 6/30/24 Average Average Cost Outstanding Weighted Average Collateral Type Borrowings Borrowing Rate Borrowings of Funds (1) Credit $ 1,569,544 7.42% $ 1,587,562 7.73% Agency RMBS 383,409 5.48% 448,932 5
Slide 11: Commercial Mortgage Loan Portfolio – Detail as of 6/30/24
Commercial Mortgage Loan Portfolio – Detail as of 6/30/24 (1)(2) Mobile Office 3% Self-Storage Home 1% Retail All Other 4% States Healthcare FL 4% <5% Mixed Use 4% 21% 29% 4% Industrial 6% Property Type Geography NY 12% Hotel 8% CT 66% 5% MI Multifamily 5% NJ IL 12% 6% TX 10% Fixed First Lien 5% 100
Slide 12: 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 13: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs, Q1-2011 – Q1-2024(1)(2) Standard 16.0% Company Deviation EFC 3.7% 14.0% Hybrid REIT #02 6.1% 12.0% Hybrid REIT #03 6.4% Hybrid REIT #04 7.1% 10.0% Hybrid REIT #05 9.4% 8.0% Hybrid REIT #06 13.5% 6.0% Hybrid REIT
Slide 14: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value As of 6/30/2024 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 $ 10
Slide 15: Supplemental Slides
Supplemental Slides Q 2 2 0 2 4 E A R N I N GS 15
Slide 16: 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 17: Second Quarter Market Update
Second Quarter Market Update Quarter Ended 6/30/2024 Q2/Q1 3/31/2024 Q1/Q4 12/31/2023 Q4/Q3 9/30/2023 (1) UST (%) 3M UST 5.35 -0.01 5.36 +0.03 5.33 -0.11 5.45 2Y UST 4.75 +0.13 4.62 +0.37 4.25 -0.79 5.04 5Y UST 4.38 +0.16 4.21 +0.37 3.85 -0.76 4.61 10Y UST 4.40 +0.20 4.20 +0.32 3.88 -0.69 4.57 30Y U
Slide 18: Derivatives Summary as of June 30, 2024
Derivatives Summary as of June 30, 2024(1) Short ($ in thousands) Long Notional Notional Net Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 279 $ (42,036) $ (41,757) $ 2,112 Total Net Mortgage-Related Derivatives $ 2,112 Corporate-Related Derivatives: CDS on Corporate
Slide 19: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Instrument Corporate CDS Indices/ Tranches/ European Category Options/ Single Names Sovereign Debt CMBX Units HY CDX OTR Bond Equivalent Value(3)(4) Market Value Bond Equivalent Value(4) $0.00 -$20.00 -$40.00 -$60.00 -$80.00 -$100.00 -$120.00 -$140.00 3/31/2024 6/30/20
Slide 20: Diversified Credit Portfolio
Diversified Credit Portfolio Diversified sources of return to perform over market cycles Other Commercial Mortgages • Bridge Loans 5% • CMBS, B-Pieces & Credit Bonds • NPLs • REO 22% Residential Mortgages • Non-QM Loans • Residential Transition Loans • MSR-Related Investments • HELOCs and CES 3% • N
Slide 21: Agency Interest Rate Hedging Portfolio
Agency Interest Rate Hedging Portfolio(1) We deploy a dynamic and adaptive hedging strategy to preserve book value E 0.4% C 16.2% D A 26.9% 28.2% A A: >5 Yr Interest Rate Swaps 37.8% B: 2-5Yr Interest Rate Swaps $282.1mm C: <2 Yr Interest Rate Swaps $380.8mm D: TBAs C E: <2 Yr Treasuries 5.2% B 46.0
Slide 22: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Net Agency Pool Exposure Based on Fair Value(1) As of 6/30/2024 As of 3/31/2024 $700 $700 Long Agency Pools $652 $500 $500 Long Agency Pools ($ in millions) ($ in millions) $448 $300 $300 Net Long Exposure to Net Long Agency Pools Exposure to $420 A
Slide 23: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Average for Quarter Ended 6/30/2024(1) Average for Quarter Ended 3/31/2024(1) Other Other MHA 21% MHA 21% Loan 1% Loan 1% Balance 33% Balance Jumbo 34% Jumbo 1% 1% Non- 5% Non- 4% Owner Owner 5% 5% High LTV High LTV 13% 22% 15% 18% Low Low FICO FICO Geogra
Slide 24: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of June 30, 2024 Remaining Days to Reverse % of Total >364 Days Credit Agency U.S. Treasury Total Maturity Mortgage Loans Borrowings 181-364 5% 30 Days Days or Less 30 Days or Less $ 15,360 $ 308,855 $ 246,613 $ -
Slide 25: Resilient Profit Generation Over Market Cycles
Resilient Profit Generation Over Market Cycles(1)(2) Six-Month COVID Period Ended Pandemic ($ in thousands) June 30 Years Ended 2024 2023(3) 2022 2021 2020 2019 2018 2017 2016 Long: Credit $ 98,438 6.3% $103,239 7.7% $(74,934) -6.0% $188,562 18.1% $53,736 6.2% $73,919 11.1% $61,201 10.0% $61,136 9.6
Slide 26: 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 Q2 2024 is approximately 282.0%, or 8.3% annualized(1) Diluted B
Slide 27: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage By Strategy(1) Leverage by Strategy (Debt-to-Equity)(1) 10.0 9.8 6/30/2024 8.6 9.4 8.4 8.5 8.5 8.3 8.0 8.6 8.3 3/31/2024 6.3 6.0 12/31/2023 5.7 4.0 4.3 9/30/2023 2.0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 9/30/2023 12/31/2023 3/31/2024 6/3
Slide 28: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share amounts) June 30, 2024 March 31, 2024 Assets Cash and cash equivalents $ 198,513 $ 187,467 Restricted cash 6,098 6,343 Securities, at fair value 1,127,684 1,328,848 Loans, at fair value 12,846,106 12,644,232 L
Slide 29: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share amounts) June 30, 2024 March 31, 2024 Net Interest Income Interest income $ 100,470 $ 101,520 Interest expense (66,874) (70,464) Total net interest income $ 33,596 $ 31,056 Other Incom
Slide 30: About Ellington Management Group
About Ellington Management Group Ellington and its Affiliated Management Companies Ellington Profile • Our external manager Ellington Financial Management LLC is part of the As of 6/30/2024 Ellington family of SEC-registered investment advisors(4) Founded: 1994 Employees: >160 • Ellington Management
Slide 31: 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 32: Endnotes
Endnotes Slide 3 – Second Quarter Highlights (1) Holdings, leverage, equity and book value amounts are as of June 30, 2024. (2) Includes $(21.0) million of preferred dividends accrued and certain corporate/other income and expense items not attributed to either the investment portfolio or Longbridge
Slide 33: Endnotes
Endnotes Slide 5 – Operating Results by Strategy for the Quarter Ended June 30, 2024 (1) Other income primarily consists of rental income on real estate owned, loan origination fees, and servicing income. (2) Includes U.S. Treasury securities, if applicable. (3) Other activities include certain equi
Slide 34: Endnotes
Endnotes Slide 8 – Long Agency Portfolio (1) Agency long portfolio includes $447.5 million of long Agency securities and $10.2 million of interest only securities as of June 30, 2024 and $651.7 million of long Agency securities and $10.8 million of interest only securities as of March 31, 2024. (2)
Slide 35: Endnotes
Endnotes Slide 17 – Second Quarter Market Update (1) Source: Bloomberg (2) Source: Mortgage Bankers Association via Bloomberg (3) Source: J.P. Morgan Markets (4) TSY-based OAS measures the additional yield spread over TSY that an asset provides at its current market price after taking into account a
Slide 36: Endnotes
Endnotes Slide 24 – Repo Borrowings (1) Included in the table, using the original maturity dates, are any repos involving underlying investments we sold prior to June 30, 2024 for settlement following June 30, 2024 even though we may expect to terminate such repos early. Not included are any repos t
Slide 37: Investor and Media Contacts
Investors: Investor Relations Ellington Financial Inc. (203) 409-3575 Info@ellingtonfinancial.com Media: Amanda Shpiner or Sara Widmann Gasthalter & Co. for Ellington Financial Inc. (212) 257-4170 Ellington@gasthalter.com Ellington Financial Inc. 53 Forest Ave Old Greenwich, CT 06870 www.ellingtonfi