Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q2 2023 Earnings Presentation
37 slides from Ellington Financial's earnings presentation, Aug 8, 2023
Slide 1: Earnings Conference Call Q2 2023
Earnings Conference Call Q2 August 8, 2023 2023 Q2 2023 EARNINGS
Slide 2: Important Notice: Forward-Looking Statements
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: $2.9 million or $0.04 per share(2) Overall Results • Economic return:(3) 0.3% for the quarter • Adjusted Distributable Earnings:(4) $25.7 million or $0.38 per share • Net income of $30.7 million or $0.46 per share • Credit strategy: • Net income $27.0 milli
Slide 4: Portfolio Summary as of June 30, 2023
Portfolio Summary as of June 30, 2023(1) Allocated Fair Value Average Price WAVG Mkt Equity and Asset (2) Credit Equity ($ 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) $ 963,772 99.3 0.8 8.9% No
Slide 5: Operating Results by Strategy as of June 30, 2023
Operating Results by Strategy as of June 30, 2023 Investment Portfolio Investment Portfolio Corporate/ Total (In thousands, except per share amounts) Credit Agency Subtotal Longbridge Other Total Per Share Interest income and other income (1) $ 73,544 $ 7,816 $ 81,360 $ 6,305 $ 1,195 $ 88,860 $ 1.31
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, 2023 Investment (in thousands, except per share amounts) Longbridge Corporate/Other Total Portfolio Net Income (Loss) $ 32,530 $ 2,476 $ (24,267) $ 10,739 Income tax expense (benefit) - - 83 8
Slide 7: Long Credit Portfolio
Long Credit Portfolio* H F GH I F G 1% I 1%1%1% E 2% E 2%1% 1% D 4% D 4% A: Residential Transition Loans and other residential 9% 9% mortgage loans & REO(3) B: Non-QM loans and Retained Non-QM RMBS(2) 39% 39% A A C: CMBS & Commercial Loans & REO(3)(4) C 18% $2.45 bn D: Non-Agency RMBS 19% $2.43 bn E
Slide 8: Long Agency Portfolio
Long Agency Portfolio RM ARMs Fixed IOs RM ARMs Fixed IOs 1% 1% Fixed 1% 15-Year Fixed 15-Year Fixed 3% Fixed 3% 2% 20-Year 1% 8% 20-Year 9% Fixed 1% 1% Fixed $918.5 mm $853.1 mm 84% 86% 30-Year 30-Year Fixed Fixed As of 6/30/2023(1) As of 3/31/2023(1) Fair Value(1) Wtd. Avg. Fair Value(1) Wtd. Avg.
Slide 9: Longbridge Portfolio
Longbridge Portfolio D D <1% <1% A A C 26% 26% A: Reverse MSRs (HMBS and proprietary)(2) 31% C B: Unsecuritized HECM loans(3) 43% C: Proprietary reverse mortgage loans $429.8 mm D: Other $442.5 mm 31% 42% B B As of 6/30/2023(1) As of 3/31/2023(1) • Longbridge originates reverse mortgage loans, inclu
Slide 10: Summary of Borrowings
Summary of Borrowings Recourse Borrowings ($ in thousands) As of 6/30/23 Three-Month Period Ended 6/30/23 Average Average Cost Outstanding Weighted Average Collateral Type Borrowings Borrowing Rate Borrowings of Funds Credit(1) $1,553,915 7.32% $ 1,534,114 7.39% Agency RMBS 797,100 5.28% 743,290 5.2
Slide 11: Small Balance Commercial Mortgage Loan Portfolio – Detail
Small Balance Commercial Mortgage Loan Portfolio – Detail(1)(2) Office Self-Storage Mobile TX 1% 11% All Other 21% Home 4% States <5% 35% Retail 6% Mixed 3% Use Property Type Geography 4% Industrial 19% FL 7% 64% 5% Hotel AZ 9% Multifamily 11% NY GA Floating with floor First Lien Seniority Interest
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 – Q1-2023(1)(2) Standard Company Deviation EFC 3.8% Hybrid REIT #02 5.7% Hybrid REIT #03 6.3% Hybrid REIT #04 6.4% Hybrid REIT #05 7.3% Hybrid REIT #06 12.3% Hybrid REIT #07 13.7% Hybrid REIT #08 13.8% H
Slide 14: 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 $ 20,430 1.52% $ (22
Slide 15: Supplemental Slides
Supplemental Slides Q2 2023 EARNINGS 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 6/30/2023 Q2/Q1 3/31/2023 Q1/Q4 12/31/2022 Q4/Q3 9/30/2022 Q3/Q2 6/30/2022 (1) UST (%) 3M UST 5.28 +0.59 4.69 +0.35 4.34 +1.10 3.25 +1.62 1.63 2Y UST 4.90 +0.87 4.03 -0.40 4.43 +0.15 4.28 +1.33 2.95 5Y UST 4.16 +0.58 3.57 -0.43 4.00 -0.09 4.09 +1.05 3.04 10
Slide 18: Derivatives Summary as of June 30, 2023
Derivatives Summary as of June 30, 2023(1) Short ($ in thousands) Long Notional Notional Net Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 306 $ (50,819) $ (50,513) $ 4,579 Total Net Mortgage-Related Derivatives $ 4,579 Corporate-Related Derivatives: CDS on Corporate
Slide 19: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Corporate CDS Indices/ Instrument Tranches/ Options/ Single Name ABS CDS European Category Single Names and ABX Indices Sovereign Debt Equity/Equity Swap CMBX HY CDX OTR Bond Equivalent Units Value(3)(4) Bond Equivalent Value(4) Market Value Market Value Bond Equivalen
Slide 20: Diversified Credit Portfolio
Diversified Credit Portfolio Diversified sources of return to perform over market cycles Other Commercial Mortgages • Bridge Loans 2% • CMBS, B-Pieces & Credit Bonds • NPLs • REO 22% Residential Mortgages • Non-QM Loans • Residential Transition Loans • NPL / RPL • Non-Agency / Non-Conforming 4% • RE
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 F 0.1% 1.9% D 21.5% D 32.3% A: >5 Yr Interest Rate Swaps B: 2-5Yr Interest Rate Swaps C 1.5% $558.8mm 54.0% C: <2 Yr Interest Rate Swaps $508.3mm A D: TBAs 61.3% E: <2 Yr Treasuries 1
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 6/30/2023 As of 3/31/2023 $1,000 $1,000 Long Agency $800 Pools $800 Long Agency $905 Pools $838 $600 $600 $400 $400 Net Long ($ in millions) ($ in millions) Net Long Exposure to Exposure to Agenc
Slide 23: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Average for Quarter Ended 6/30/2023(1) Average for Quarter Ended 3/31/2023(1)(2) Other Other 17% 14% High LTV Loan 0% Jumbo <1% 4% Loan High LTV 37% Balance 38% 7% Balance Jumbo<1% Geography 26% 27% 7% 7% 10% 1% Geography 4% 1% MHA MHA Low Non- Low Non- FI
Slide 24: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of June 30, 2023 Reverse % of Total >364 Remaining Days to Maturity Credit Agency U.S. Treasury Total Days, Mortgage Loans Borrowings 8% 30 Days 181-364 or Less, 30 Days or Less $ 32,734 $ 561,294 $ 160,329 $ - $ 7
Slide 25: Resilient Profit Generation Over Market Cycles
Resilient Profit Generation Over Market Cycles(1)(2) COVID Pandemic Six-Month Period Ended June 30 ($ in thousands) Years Ended 2023 2022 2021 2020 2019 2018 2017 2016 Long: Credit 63,570 4.8% (74,934) -6.0% $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 Hed
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 2023 is approximately 257%, or 8.3% annualized(1) Diluted BVP
Slide 27: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage By Strategy(1) Leverage by Strategy (Debt-to-Equity)(1) Credit, Agency, and Longbridge Portfolios by Fair Value(7) Recourse Leverage by Strategy (Debt-to-Equity)(6) $ in Millions Q2 2023 EARNINGS 27
Slide 28: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share amounts) June 30, 2023 March 31, 2023 Assets Cash and cash equivalents $ 194,595 $ 188,555 Restricted cash 1,602 1,601 Securities, at fair value 1,500,863 1,389,547 Loans, at fair value 11,822,695 11,812,567 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, 2023 March 31, 2023 Net Interest Income Interest income $ 88,092 $ 87,174 Interest expense (63,433) (59,617) Total net interest income $ 24,659 $ 27,557 Other Income
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 6/30/2023 Ellington family of SEC-registered investment advisors(4) Founded: 1994 Employees: >170 • 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, 2023. (2) Includes $(30.3) 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 as of June 30, 2023 (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
Slide 34: Endnotes
Endnotes Slide 9 – Longbridge Portfolio (1) This information does not include financial derivatives or loan commitments. (2) HECMs are consolidated for GAAP reporting purposes and accounted for on our balance sheet as collateralized borrowings. The fair value of HECM assets less the fair value of th
Slide 35: Endnotes
Endnotes Slide 18– 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 June 30, 2023, derivative assets and derivative liabilities were $131.5 mi
Slide 36: Endnotes
Endnotes Slide 25 – Resilient Profit Generation Over Market Cycles (1) Gross profit excludes expenses other than interest expense and other investment related expenses. Figures in “%” columns are as a percentage of average total equity for the period which includes common and preferred equity as wel
Slide 37: Investor Relations Contact
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