Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q4 2019 Earnings Presentation
35 slides from Ellington Financial's earnings presentation, Feb 13, 2020
Slide 1: Fourth Quarter 2019 Earnings Conference Call
Fourth Quarter 2019 Earnings Conference Call February 13, 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: Fourth Quarter Market Update
Fourth Quarter Market Update Quarter Ended: 12/31/2019 9/30/2019 Q/Q 6/30/2019 Q/Q 3/31/2019 Q/Q 12/31/2018 Q/Q 9/30/2018 Q/Q UST (%)(1) 3M UST 1.54 1.81 -0.26 2.09 -0.28 2.38 -0.29 2.35 +0.03 2.20 +0.16 2Y UST 1.57 1.62 -0.05 1.75 -0.13 2.26 -0.51 2.49 -0.23 2.82 -0.33 5Y UST 1.69 1.54 +0.15 1.77 -
Slide 4: Fourth Quarter Highlights
Fourth Quarter Highlights(1) Net income: $11.1 million or $0.31 per common share Economic return(2) for the quarter: Overall Results 0.5% or 1.9% annualized 1.6% or 6.8% annualized, excluding dilution from the common and preferred stock offerings Core Earnings(3) of $15.8 million or $0.44
Slide 5: 2019 Highlights
2019 Highlights 1. Completed REIT Conversion - Triggered inclusion in several stock indexes - Greatly improved stock’s trading volume - Greatly increased breadth and diversity of investor base 2. Financial Results - $1.76 per share of Net Income - $1.82 per share of Core Earnings(1) - $1.81 per shar
Slide 6: Portfolio Summary as of December 31, 2019
Portfolio Summary as of December 31, 2019(1) Diversified sources of return to perform over market cycles Average Allocated Fair Value Price WAVG WAVG Equity and Asset Allocation by Strategy Equity ($ in $1,000s) (%)(2)(6) Life(4)(6) Mkt Yield (5)(6) Strategy CREDIT Residential Mortgage Loans and REO
Slide 7: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended Year Ended (In thousands, except per share data) December 31, 2019 September 30, 2019 December 31, 2019 Net Interest Income Interest income $ 45,353 $ 39,985 $ 159,901 Interest expense (21,205) (19,954) (78,479) Tota
Slide 8: Operating Results by Strategy
Operating Results by Strategy Three-Month Three-Month Period Ended Period Ended Year Ended December 31, Per September 30, Per December 31, Per (In thousands, except per share amounts) 2019 Share 2019(1) Share 2019 Share Credit: Interest income and other income(2) $ 35,505 $ 0.97 $ 31,194 $ 0.93 $ 12
Slide 9: Long Credit Portfolio
Long Credit Portfolio 12/31/2019 (1 ) 9/30/2019 (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 2% 2% Entities 3% 3% CLO(2) CLO(2) 6% 12% Residential Loans & REO(3)
Slide 10: Long Agency Portfolio
Long Agency Portfolio Agency Long Portfolio Agency Long Portfolio As of 12/31/2019: $1.94BN(1) As of 9/30/2019: $1.57BN(1) RM Fixed ARMs Fixed IOs ARMs Fixed IOs RM Fixed 7% < 1% 2% <1% 2% 8% 15-Year 15-Year Fixed Fixed 17% 12% 30-Year 30-Year Fixed 20-Year Fixed 20-Year Fixed 74% Fixed 77% < 1% < 1
Slide 11: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 12/31/2019 Three-Month Period Ended 12/31/2019 Weighted Outstanding Average Average Average Collateral Type Borrowings Borrowing Rate Borrowings Cost of Funds (1) (1) (1) (1) Credit $1,325,557 3.50% $1,168,857 3.83% Agency RMBS $1,864,473 1.98% $1,572,791
Slide 12: Diversified Credit Portfolio
Diversified Credit Portfolio Other 13% Residential Mortgages - Non-QM Loans - Residential Transition Loans - NPL / RPL 38% - Non-Agency / Non-Conforming Commercial Mortgages - Reverse Mortgages - NPLs - REO - Bridge Loans 33% - CMBS B-Pieces & Credit Bonds - REO 16% Consumer Loans - Installment Loan
Slide 13: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q3-2019(1)(2) Quarterly Economic 7.0% Returns of Hybrid REITs Q1-2011 – Q3-2019 EFC 2.3% 6.0% Hybrid REIT #02 3.0% Hybrid REIT #03 3.1% 5.0% Hybrid REIT #04 4.5% Hybrid REIT #05 4.
Slide 14: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value ($ 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 $ 206 0.02% $ (196) -0.02% 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 December 31, 2019
Derivatives Summary as of December 31, 2019(1) Long Short Net ($ in thousands) Notional Notional Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 1,039 $ (70,656) $ (69,617) $ 4,062 Total Net Mortgage-Related Derivatives 1,039 (70,656) (69,617) 4,062 Corporate-Related D
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 Units HY CDX OTR Bond Equivalent Value(3)(4) Bond Equivalent Value (4) Market Value Bond Equivalent Value (4) - (10.0) (20.0) (30.0) (40.0) (In $M
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 12/31/2019 As of 9/30/2019 Short $441.9MM 10-yr equivalents(1) Short $369.8MM 10-yr equivalents(1)(2) > 2 Yr Treasuries, 0-5 Yr Interest 0.2% Rate Swaps, 0-5 Yr Interest 16.53% TB
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 12/31/2019 As of 9/30/2019 $2,000 $2,000 $1,500 $1,500 Long Agency RMBS Long Agency $1,902 $1,000 RMBS $1,000 $1,528 ($ in millions) $500 ($ in millions) $500 Net Long Net Long Exposure to Expos
Slide 21: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Agency Fixed Long Portfolio Agency Fixed Long Portfolio Collateral Characteristics and Historical 3-Mo CPR: Collateral Characteristics and Historical 3-Mo CPR: Average for Quarter Ended 12/31/2019(1) Average for Quarter Ended 9/30/2019(1) Other Other Jumbo
Slide 22: Repo Borrowings
Repo Borrowings(1) ($ in thousands) Repo Borrowings as of December 31, 2019 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 4% 8% 2% 21% 30 Days or Less $16,549 $511,996 — $528,545 21.6% 31-90 Days 243,328 1,339,125 — 1,582,453 64.7%
Slide 23: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation over market cycles Years Ended ($ In thousands) 2019 2018 2017 2016 2015 2014 Long: Credit $ 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 Hedge and Other (11,237) -1.8% 8,020 1.3% (11,997) -1.9% (40,5
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 Q4 2019 is approximately 221%, or 10% annualized(1) $45.00 DBVPS
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 5.0 9.8 10.00 9.00 8.8 4.5 12/31/2019 8.00 4.0 4.0 4.0 3.8 9/30/2019 3.4 3.5 3.0 6/30/2019 2.5 2.4 2.2 2.3 2.1 3/31/2019 2.0 1.5 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Slide 26: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) December 31, September 30, (In thousands, except share amounts) 2019 2019 ASSETS Cash and cash equivalents $ 72,302 $ 33,251 Restricted cash 175 175 Securities, at fair value 2,449,941 1,875,929 Loans, at fair value 1,412,426 1,225,843 Investments in
Slide 27: 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, 2019 September 30, 2019 Net income (loss) $14,321 $18,712 Income tax expense (benefit) 1,180 2 Net income (loss) before income tax expense 15,501 18,714 Adjustments:
Slide 28: About Ellington Management Group
About Ellington Management Group Ellington Profile As of 12/31/2019 Founded: 1994 $9.8 14 23 Years of average 9% Billion in Employee-partners industry Management’s Employees: >140 assets under own the firm(2) ownership of EFC, management as of experience of Investment Professionals: >60 senior portf
Slide 29: 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 30: Endnotes
Endnotes Slide 3 – Fourth 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 embe
Slide 31: Endnotes
Endnotes Slide 6 – Portfolio Summary as of December 31, 2019 (1) See endnote (5) on slide 4. (2) Average price excludes interest only, principal only, equity tranches and other similar securities and non-exchange traded corporate equity. All averages in this table are weighted averages using fair va
Slide 32: Endnotes
Endnotes Slide 9 – Long Credit Portfolio (1) See endnote (5) on slide 4. 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 $2.028 bi
Slide 33: Endnotes
Endnotes 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 December 31, 2019, derivative assets and derivative liabilit
Slide 34: Endnotes
Endnotes Slide 24 – Total Return Since Inception (1) Total return is based on $18.61 net diluted book value per share at inception in August 2007 and is calculated assuming the reinvestment of dividends at diluted book value per share and assumes all convertible units were converted into common shar
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