Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q4 2023 Earnings Presentation
37 slides from Ellington Financial's earnings presentation, Feb 27, 2024
Slide 1: Earnings Conference Call Q4 2023
Earnings Conference Call Q4 February 27, 2024 2023 Q4 2023 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: $12.5 million or $0.18 per share(2) Overall Results • Economic return:(3) (0.3)% for the quarter • Adjusted distributable earnings:(4) $18.9 million or $0.27 per share • Net income: $27.3 million or $0.38 per share • Credit strategy: • Net income: $12.7 mil
Slide 4: Portfolio Summary as of December 31, 2023
Portfolio Summary as of December 31, 2023(1) Allocated Fair Value Average Price WAVG Mkt Equity and Asset (2) Credit Equity ($ 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) $ 1,113,816 99.5 0.7 1
Slide 5: Operating Results by Strategy for the Quarter Ended December 31, 2023
Operating Results by Strategy for the Quarter Ended December 31, 2023 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 $ 74,769 $ 11,580 $ 86,349 $ 10,930 $
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 December 31, 2023 Investment (in thousands, except per share amounts) Longbridge Corporate/Other Total Portfolio Net Income (Loss) $ 27,862 $ (3,362) $ (5,175) $ 19,325 Income tax expense (benefit) - -
Slide 7: Long Credit Portfolio
Long Credit Portfolio* G H G H 2% F 1% F 3% E 3% 4% D 4% 6% A: Residential Transition Loans and other residential 10% D mortgage loans & REO(3) 9% B: Non-QM loans and Retained Non-QM RMBS(2) 38% A 41% A C: CMBS & Commercial Loans & REO(3)(4) $2.74 bn D: Non-Agency RMBS C 16% $2.48 bn E: Forward MSR-
Slide 8: Long Agency Portfolio
Long Agency Portfolio RM ARMs Fixed IOs Fixed 1% 1% RM ARMs IOs 15-Year Fixed 1% 1% 15-Year Fixed Fixed Fixed 20-Year 4% 20-Year 3% Fixed <1% 6% Fixed 1% 9% 8 $853.2 mm $964.3 mm 88% 85% 30-Year 30-Year Fixed Fixed As of 12/31/2023(1) As of 9/30/2023(1) Fair Value(1) Wtd. Avg. Fair Value(1) Wtd. Avg
Slide 9: Longbridge Portfolio
Longbridge Portfolio D D <1% <1% A 21% 21% A: Reverse MSRs (HMBS and proprietary)(2) B: Unsecuritized HECM loans(3) C: Proprietary reverse mortgage loans $552.4 mm D: Other C 51% $488.2 mm 60% 19% C B 28% As of 12/31/2023(1) As of 9/30/2023(1) • Longbridge originates reverse mortgage loans, includin
Slide 10: Summary of Borrowings
Summary of Borrowings Recourse Borrowings ($ in thousands) As of 12/31/23 Three-Month Period Ended 12/31/23 Average Average Cost Outstanding Weighted Average Collateral Type Borrowings Borrowing Rate Borrowings of Funds Credit(1) $ 1,592,640 7.48% $ 1,572,107 7.61% Agency RMBS 1,095,341 5.55% 919,55
Slide 11: Commercial Mortgage Loan Portfolio – Detail as of 12/31/23
Commercial Mortgage Loan Portfolio – Detail as of 12/31/23 (1)(2) Mobile Home Industrial 1% Self-Storage FL Healthcare 4% 4% All Other 18% 5% States Retail <5% 29% 6% 12% IL Office 8% Property Type Geography 8% 64% 5% IN 11% Hotel Multifamily 6% MI 8% 11% NY GA TX Floating First Lien with floor Inte
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 – Q3-2023(1)(2) Standard Company Deviation EFC 3.7% Hybrid REIT #02 5.6% Hybrid REIT #03 6.2% Hybrid REIT #04 6.4% Hybrid REIT #05 7.2% Hybrid REIT #06 12.0% Hybrid REIT #07 13.5% Hybrid REIT #08 13.7% H
Slide 14: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value As of 12/31/2023 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 $ 1
Slide 15: Supplemental Slides
Supplemental Slides Q4 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: Fourth Quarter Market Update
Fourth Quarter Market Update Quarter Ended 12/31/2023 Q4/Q3 9/30/2023 Q3/Q2 6/30/2023 Q2/Q1 3/31/2023 (1) UST (%) 3M UST 5.33 -0.11 5.45 +0.16 5.28 +0.59 4.69 2Y UST 4.25 -0.79 5.04 +0.15 4.90 +0.87 4.03 5Y UST 3.85 -0.76 4.61 +0.45 4.16 +0.58 3.57 10Y UST 3.88 -0.69 4.57 +0.73 3.84 +0.37 3.47 30Y U
Slide 18: Derivatives Summary as of December 31, 2023
Derivatives Summary as of December 31, 2023(1) Short ($ in thousands) Long Notional Notional Net Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 290 $ (42,146) $ (41,856) $ 3,294 Total Net Mortgage-Related Derivatives $ 3,294 Corporate-Related Derivatives: CDS on Corpo
Slide 19: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Corporate CDS Indices/ Instrument Tranches/ Options/ Single Single Name ABS CDS European Category Names and ABX Indices Sovereign Debt CMBX HY CDX OTR Bond Equivalent Units Value(3)(4) Bond Equivalent Value(4) Market Value Bond Equivalent Value(4) $0.00 -$50.00 -$100.0
Slide 20: 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 2% • NPLs • REO 18% Residential Mortgages • Non-QM Loans • Residential Transition Loans 3% • MSR-Related Investments • NPL / RPL Consumer
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 F F 0.2% E 0.2% 3.2% D 26.9% A 31.7% A: >5 Yr Interest Rate Swaps B: 2-5Yr Interest Rate Swaps D 35.4% 43.7% A $395.9mm C: <2 Yr Interest Rate Swaps $648.9mm 2.2% D: TBAs C E: 2-5 Yr Tr
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 12/31/2023 As of 9/30/2023 $1,000 $1,000 Long Agency Pools $841 Long Agency Pools $800 $800 $953 $600 $600 Net Long Exposure to ($ in millions) ($ in millions) $400 Agency Pools $400 Net Long $77
Slide 23: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Average for Quarter Ended 12/31/2023(1) Average for Quarter Ended 9/30/2023(1) Other Loan Balance Other 26% 24% 23% Loan 31% Balance 1% MHA High LTV 7% 10% 13% High LTV Low <1% Jumbo 1% FICO 10% MHA 4% 23% <1% 22% 4% Low Jumbo Non- FICO Geography Owner Geo
Slide 24: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of December 31, 2023 Reverse % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total >364 Mortgage Loans Borrowings Days, 2% 30 Days or Less $ 124,617 $ 1,076,710 $ 155,016 $ - $1,356,343 45.7% 31-9
Slide 25: Resilient Profit Generation Over Market Cycles
Resilient Profit Generation Over Market Cycles(1)(2) COVID Pandemic ($ in thousands) Years Ended (3) 2023 2022 2021 2020 2019 2018 2017 2016 Long: Credit 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% $36,203 5.3% Credit Hedge and Other (7,095) -0.5
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 Q4 2023 is approximately 257.8%, or 8.1% 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) Credit, Agency, and Longbridge Portfolios by Fair Value(7) Recourse Leverage by Strategy (Debt-to-Equity)(6) $ in Millions Q4 2023 EARNINGS 27
Slide 28: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share amounts) December 31, 2023 September 30, 2023 Assets Cash and cash equivalents $ 228,927 $ 174,664 Restricted cash 1,618 1,604 Securities, at fair value 1,518,377 1,502,049 Loans, at fair value 12,306,636 11,9
Slide 29: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share amounts) December 31, 2023 September 30, 2023 Net Interest Income Interest income $ 98,690 $ 96,216 Interest expense (70,699) (68,702) Total net interest income $ 27,991 $ 27,514 Other
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 12/31/2023 Ellington family of SEC-registered investment advisors(4) Founded: 1994 Employees: >170 • Ellington Managemen
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 – Fourth Quarter Highlights (1) Holdings, leverage, equity and book value amounts are as of December 31, 2023. (2) Includes $(11.4) million of certain corporate/other income and expense items not attributed to either the investment portfolio or Longbridge segments. Such amount prima
Slide 33: Endnotes
Endnotes Slide 5 – Operating Results by Strategy for the Quarter Ended December 31, 2023 (1) Other income primarily consists of rental income on real estate owned, loan origination fees, and servicing income. (2) In Corporate/Other represents the $28.2 million bargain purchase gain related to the Ar
Slide 34: Endnotes
Endnotes Slide 8 – Long Agency Portfolio (1) Agency long portfolio includes $840.5 million of long Agency securities and $12.7 million of interest only securities as of December 31, 2023 and $953.0 million of long Agency securities and $11.3 million of interest only securities as of September 30, 20
Slide 35: Endnotes
Endnotes Slide 17 – Fourth 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 December 31, 2023 for settlement following December 31, 2023 even though we may expect to terminate such repos early. Not included are any
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