Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q4 2022 Earnings Presentation
37 slides from Ellington Financial's earnings presentation, Feb 24, 2023
Slide 1: Earnings Conference Call Q4 2022
Earnings Conference Call Q4 February 24, 2023 2022 Q4 2022 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: Fourth Quarter Highlights
Fourth Quarter Highlights(1) • Net Income: $22.7 million or $0.37 per share(2) • Economic return:(3) 1.8% for the quarter Overall Results • Adjusted Distributable Earnings:(4) $26.0 million or $0.42 per share • Acquired controlling stake in Longbridge Financial and consolidated its results beginning
Slide 4: Portfolio Summary as of December 31, 2022
Portfolio Summary as of December 31, 2022(1) Allocated Fair Value Average Price WAVG Mkt Equity and Asset Credit Equity (2) ($ 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) $ 940,296 99.4 0.5
Slide 5: Operating Results by Strategy as of December 31, 2022
Operating Results by Strategy as of December 31, 2022 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 $ 75,864 $ 9,594 $ 85,458 $ 4,737 $ 1,158 $ 91,353 $
Slide 6: Long Credit Portfolio
Long Credit Portfolio* G H I G H I 2% 1% 1% 3% 1% 1% F F E A E A 1% 8% 1% 7% 20% 21% A: CMBS & Commercial Loans & REO(3)(4) B: Consumer Loans & ABS(2) 4% B C: Residential Transition Loans and other 4% B residential mortgage loans & REO(3) D 27% $2.54 bn D: Non-QM loans and Retained Non-QM RMBS(2) $2
Slide 7: Long Agency Portfolio
Long Agency Portfolio ARMs RM ARMs RM Fixed IOs 1% Fixed IOs Fixed 1% Fixed 15-Year 15-Year Fixed 3% 2% 3% 2% Fixed 20-Year 12% 13% Fixed 1% 20-Year Fixed1% $968.3 mm $1.14 bn 80% 81% 30-Year 30-Year Fixed Fixed As of 12/31/2022(1) As of 9/30/2022(1) Fair Value(1) Wtd. Avg. Fair Value(1) Wtd. Avg. (
Slide 8: Longbridge Portfolio
Longbridge Portfolio(1) D <1% A C 32% 32% A: Reverse MSRs (HMBS and proprietary)(2) B: Unsecuritized HECM loans C: Proprietary reverse mortgage loans $327.9 mm D: Other 37% B As of 12/31/2022(1) Longbridge originates reverse Upon securitization, the HECMs In addition, Longbridge originates In Q4, Lo
Slide 9: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 12/31/2022 Three-Month Period Ended 12/31/22 Average Average Cost Outstanding Weighted Average Collateral Type Borrowings Borrowing Rate Borrowings of Funds Credit (1) $3,178,378 4.82% $ 3,661,962 4.52% Agency RMBS 939,653 3.91% 1,027,447 3.28% Borrowings
Slide 10: Small Balance Commercial Mortgage Loan Portfolio – Detail
Small Balance Commercial Mortgage Loan Portfolio – Detail(1)(2) Self-Storage Mobile Office TX Home All Other 8% 1% Retail 3% States 20% <5% 27% Mixed Use 4% 3% Industrial 5% Hotel 6% Property Type Geography 18% 5% FL MI 5% 71% AZ 5% 7% 13% NJ Multifamily NY GA Floating First Lien with floor Interest
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 – Q3-2022(1)(2) Standard Company Deviation EFC 3.9% Hybrid REIT #02 5.8% Hybrid REIT #03 6.4% Hybrid REIT #04 6.4% Hybrid REIT #05 7.4% Hybrid REIT #06 9.8% Hybrid REIT #07 12.5% Hybrid REIT #08 13.9% 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 $ 24,022 2.01% $ (25
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: Supplemental Slides
Supplemental Slides Q4 2022 EARNINGS 15
Slide 16: Fourth Quarter Market Update
Fourth Quarter Market Update Quarter Ended 12/31/2022 Q4/Q3 9/30/2022 Q3/Q2 6/30/2022 Q2/Q1 3/31/2022 Q1/Q4 12/31/2021 UST (%)(1) 3M UST 4.34 +1.10 3.25 +1.62 1.63 +1.14 0.48 +0.45 0.03 2Y UST 4.43 +0.15 4.28 +1.33 2.95 +0.62 2.33 +1.60 0.73 5Y UST 4.00 -0.09 4.09 +1.05 3.04 +0.58 2.46 +1.20 1.26 10
Slide 17: Derivatives Summary as of December 31, 2022
Derivatives Summary as of December 31, 2022(1) Short ($ in thousands) Long Notional Notional Net Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 318 $ (58,224) $ (57,906) $ 3,409 Total Net Mortgage-Related Derivatives $ 3,409 Corporate-Related Derivatives: CDS on Corpo
Slide 18: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Instrument Corporate CDS Indices/ Single Name ABS CDS European Category Tranches/ 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) - (10.00) (20.00) (30
Slide 19: 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 • REO • Single
Slide 20: 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 11.7% E E 1.0% 13.5% 1.9% A: >5 Yr Interest Rate Swaps A B: 2-5Yr Treasuries and Treasury Futures 46.4% D $757.5mm 18.8% $563.9mm C: >5 Yr Treasuries and Treasury Futures D: TBAs 32
Slide 21: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Net Agency Pool Exposure Based on Fair Value(1) As of 12/31/2022 As of 9/30/2022 $1,200 $1,200 $1,000 $1,000 Long Agency $800 $800 Pools Long Agency $1,116 Pools $600 $951 $600 $400 $400 Net Long Net Long ($ in millions) ($ in millions) Exposure to
Slide 22: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Average for Quarter Ended 12/31/2022(1) Average for Quarter Ended 9/30/2022(1) Other Other 22% 23% Loan 38% Balance Jumbo 39% Loan Jumbo <1% <1% Balance Geography 18% 17% Geography 8% 12% 8% 11% 2% 2% MHA MHA Non- Low Non- Low Owner FICO Owner FICO Collate
Slide 23: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of December 31, 2022 >364 % of Total 181-364 Days, Remaining Days to Maturity Credit Agency U.S. Treasury Total Days, 30 Days Borrowings 0% 15% or Less, 30 Days or Less $ 462,284 $ 668,924 $ 69,347 $ 1,200,555 46.0
Slide 24: Resilient Profit Generation Over Market Cycles
Resilient Profit Generation Over Market Cycles(1) COVID Pandemic ($ in thousands) Years Ended 2022 2021 2020 2019 2018 2017 2016 Long: Credit (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 3,227 0.3% (1,887) -0.2% 8,027 0.9% (1
Slide 25: 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 2022 is approximately 244%, or 8.4% annualized(1) Diluted BVP
Slide 26: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage Across Entire Portfolio(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 2022 EARNINGS 26
Slide 27: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share amounts) December 31, 2022 September 30, 2022 Assets Cash and cash equivalents $ 217,053 $ 175,230 Restricted cash 4,816 - Securities, at fair value 1,459,465 1,522,772 Loans, at fair value 11,626,008 3,822,89
Slide 28: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share amounts) December 31, 2022 September 30, 2022 Net Interest Income Interest income $ 89,830 $ 78,592 Interest expense (59,656) (42,080) Total net interest income $ 30,174 $ 36,512 Other
Slide 29: 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, 2022 Investment (in thousands, except per share amounts) Longbridge Corporate/Other Total Portfolio Net Income (Loss) $ 18,911 $ 14,492 $ (6,592) $ 26,811 Income tax expense (benefit) - -
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 12/31/2022 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, 2022. (2) Includes ($10.7) million of preferred dividends accrued and certain corporate/other income and expense items not attributed to either the investment portfolio or Longbr
Slide 33: Endnotes
Endnotes Slide 5 – Operating Results by Strategy (1) Other income primarily consists of rental income on real estate owned and loan origination fees. (2) Also includes bargain purchase gain of $7.9 million relating to our acquisition of a controlling interest in Longbridge (3) Includes U.S. Treasury
Slide 34: Endnotes
Endnotes Slide 13 – Interest Rate Sensitivity Analysis (1) The table reflects the estimated effects on the value of our portfolio, both overall and by category, of hypothetical, immediate, 50 basis point downward and upward parallel shifts in interest rates, based on the market environment as of Dec
Slide 35: Endnotes
Endnotes Slide 21 – Agency Interest Rate Hedging Portfolio (continued) (1) We define our net Agency pool assets-to-equity ratio as the net aggregate market value of our Agency pools of $951.4 million and our long and short TBA positions of $(489) million, divided by the equity allocated to our Agenc
Slide 36: Endnotes
Endnotes Slide 29 – Reconciliation of Net Income (Loss) to Adjusted Distributable Earnings (1) We calculate Adjusted Distributable Earnings as U.S. GAAP net income (loss) as adjusted for: (i) realized and unrealized gain (loss) on securities and loans, REO, mortgage servicing rights, financial deriv
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