Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q3 2019 Earnings Presentation
34 slides from Ellington Financial's earnings presentation, Nov 7, 2019
Slide 1: Third Quarter 2019 Earnings Conference Call
Third Quarter 2019 Earnings Conference Call November 7, 2019
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: Third Quarter Market Update
Third Quarter Market Update 3
Slide 4: Third Quarter Highlights
Third Quarter Highlights(1) Net income: $17.3 million or $0.53 per share Economic return(2) for the quarter: Overall Results 1.7% or 7.1% annualized 2.7% or 11.4% annualized, excluding dilution from follow-on offering Core Earnings(3) of $15.4 million or $0.47 per share Credit gross inco
Slide 5: Portfolio Summary as of September 30, 2019
Portfolio Summary as of September 30, 2019(1) Diversified sources of return to perform over market cycles Average Allocated Fair Value Price WAVG WAVG Equity and Asset Allocation by (2)(6) (4)(6) Strategy Equity ($ in $1,000s) (%) Life Mkt Yield (5)(6) Strategy CREDIT Residential Mortgage Loans and
Slide 6: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Nine-Month Three-Month Period Ended Period Ended (In thousands, except per share data) September 30, 2019 June 30, 2019 September 30, 2019 Net Interest Income Interest income $ 39,985 $ 38,547 $ 114,548 Interest expense (19,954) (19,702) (57
Slide 7: Operating Results by Strategy
Operating Results by Strategy Three-Month Nine-Month Period Ended % of Three-Month % of Period Ended % of September 30, Per Average Period Ended Per Average September 30, Per Average (In thousands, except per share amounts) 2019 Share Equity June 30, 2019 Share Equity 2019 Share Equity Credit: Inter
Slide 8: Long Credit Portfolio
Long Credit Portfolio 9/30/2019 (1 ) 6/30/2019 (1 ) Equity Cor por ate Debt Equity Cor por ate Debt Investment in & Equity & Investment in & Equity Loan Or igination Cor por ate Loans Loan Or igination 1% Entities 2% Entities 3% 3% CLO(2) CLO (2) 7% 6% Residential Loans & REO (3) 19% Residential CMB
Slide 9: Long Agency Portfolio
Long Agency Portfolio Agency Long Portfolio Agency Long Portfolio As of 9/30/2019: $1.57BN (1) As of 6/30/2019: $1.34BN (1) ARMs Fixed IOs ARMs Fixed IOs RM Fixed RM Fixed < 1% 2% <1% 2% 8% 9% 15-Year 15-Year Fixed Fixed 12% 10% 20-Year 30-Year 20-Year Fixed Fixed 30-Year Fixed Fixed < 1% 78% 77% <
Slide 10: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 9/30/2019 Three-Month Period Ended 9/30/2019 Weighted Outstanding Average Average Average Collateral Type Borrowings Borrowing Rate Borrowings Cost of Funds (1) (1) (1) Credit(1) $1,085,993 3.75% $1,028,341 3.91% Agency RMBS $1,500,210 2.31% $1,320,588 2.
Slide 11: Diversified Credit Portfolio
Diversified Credit Portfolio Other 7% Residential Mortgages Commercial Mortgages - Non-QM Loans 45% 32% - NPLs - Residential Transition Loans - Bridge Loans - NPL / RPL - CMBS B-Pieces & Credit Bonds - Non-Agency / Non-Conforming - REO - Reverse Mortgages - REO 16% Consumer Loans - Installment Loans
Slide 12: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q2-2019(1)(2) Quarterly Economic 9.0% Returns of Hybrid REITs Q1-2011 – Q2-2019 8.0% Standard Company Deviation EFC 2.3% 7.0% Hybrid REIT #02 3.1% Hybrid REIT #03 3.2% 6.0% Hybrid
Slide 13: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value ($ in thousands) 50 Basis Point Decline in Interest Rates 50 Basis Point Increase in Interest Rates % of Total Market Value % of Total Equity Market Value Equity Agency RMBS - ARM Pools $ 225 0.03% $ (214) -0.03% Agency RMBS - Fixe
Slide 14: Supplemental Slides
Ellington Financial Supplemental Slides
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: Derivatives Summary as of September 30, 2019
Derivatives Summary as of September 30, 2019(1) Long Short Net ($ in thousands) Notional Notional Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 1,090 $ (33,210) $ (32,120) $ 3,030 Total Net Mortgage-Related Derivatives 1,090 (33,210) (32,120) 3,030 Corporate-Related
Slide 17: 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 (3)(4) (4) Units HY CDX OTR Bond Equivalent Value Bond Equivalent Value(4) Market Value Bond Equivalent Value - (10.0) (20.0) (30.0) (In $Millions
Slide 18: 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 9/30/2019 As of 6/30/2019 Short $369.8MM 10-yr equivalents(1) Short $356.3MM 10-yr equivalents(1)(2) 5 Yr Treasury > 5 Yr Treasuries, 0-5 Yr >5 Yr Treasuries, 0-5 Yr Treasuries Eu
Slide 19: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Exposure to Agency Pools Based on Net Fair Value As of 9/30/2019 As of 6/30/2019 $1,500 $1,500 $1,000 Long Agency Long Agency RMBS RMBS $1,314 $1,000 $1,528 $500 Net Long ($ in millions) ($ in millions) Exposure to $500 Agency Net Long RMBS Exposure
Slide 20: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Agency Fixed Long Portfolio Agency Fixed Long Portfolio Collateral Characteristics and Historical 3-Mo CPR: Collateral Characteristics and Historical 3-Mo CPR: Average for Quarter Ended 9/30/2019 (1) Average for Quarter Ended 6/30/2019 (1) Other Other Jumb
Slide 21: Repo Borrowings
Repo Borrowings(1) ($ in tho usands) Repo Borrowings as of September 30, 2019 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 9% 5% 23% 30 Days or Less $8,077 $450,874 — $458,951 22.3% 7% 31-90 Days 119,999 1,034,730 — 1,154,729 56.2%
Slide 22: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation over market cycles Nine-Month Period Ended Years Ended ($ In thousands) September 30 2019 2018 2017 2016 2015 2014 Long: Credit $ 62,303 10.1% $ 61,201 10.0% $ 61,136 9.6% $ 36,203 5.3% $ 46,892 6.1% $ 77,636 11.4% Credit Hedge and Other (7,850) -
Slide 23: 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 Q3 2019 is approximately 219%, or 10.0% annualized(1) $45.00 DBV
Slide 24: 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 10.00 9.5 9/30/2019 9.00 8.8 4.5 8.00 4.0 4.0 4.0 6/30/2019 3.5 3.4 3.4 3.0 3/31/2019 2.5 2.4 2.3 12/31/2018 2.2 2.2 2.0 1.5 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Slide 25: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) September 30, June 30, (In thousands, except share amounts) 2019 2019 ASSETS Cash and cash equivalents $ 33,251 $ 42,671 Restricted cash 175 175 Securities, at fair value 1,875,929 1,668,677 Loans, at fair value 1,225,843 1,091,523 Investments in unco
Slide 26: Reconciliation of Net Income (Loss) to Core Earnings
Reconciliation of Net Income (Loss) to Core Earnings(1) 26
Slide 27: About Ellington Management Group
About Ellington Management Group Ellington Profile As of 9/30/2019 Founded: 1994 $8.4 14 26 Years of average 11% Billion in Employee-partners industry Management’s Employees: >150 assets under own the firm(2) experience of ownership of EFC, management as of representing Investment Professionals: >60
Slide 28: 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 29: Endnotes
Endnotes Slide 3 – Third 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 embed
Slide 30: Endnotes
Endnotes Slide 5 – Portfolio Summary as of September 30, 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 v
Slide 31: Endnotes
Endnotes Slide 8 – 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 $1.652 bi
Slide 32: Endnotes
Endnotes Slide 16 – 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 September 30, 2019, derivative assets and derivative liabili
Slide 33: Endnotes
Endnotes Slide 23 – 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 34: 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