Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q3 2023 Earnings Presentation
37 slides from Ellington Financial's earnings presentation, Nov 8, 2023
Slide 1: Earnings Conference Call Q3 2023
Earnings Conference Call Q3 November 8, 2023 2023 Q 3 2 0 2 3 E A R N I N GS
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 Highlights
Third Quarter Highlights(1) • Net income: $6.6 million or $0.10 per share(2) Overall Results • Economic return:(3) 0.5% for the quarter • Adjusted distributable earnings:(4) $22.5 million or $0.33 per share • Net income: $14.2 million or $0.21 per share • Credit strategy: • Net income: $24.8 million
Slide 4: Portfolio Summary as of September 30, 2023
Portfolio Summary as of September 30, 2023(1) Allocated Fair Value Average Price WAVG Mkt Equity and Asset (2) ($ in $1,000s) (3)(7) (5)(7) (6)(7) Allocation by Strategy Credit Equity (%) WAVG Life Yield Residential Transition Loans and Other Residential Mortgage Loans and REO(8) $ 975,667 99.3 0.7
Slide 5: Operating Results by Strategy for the Quarter Ended September 30, 2023
Operating Results by Strategy for the Quarter Ended September 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) $ 77,809 $ 10,490 $ 88,299 $ 9,593 $
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 September 30, 2023 Investment (in thousands, except per share amounts) Longbridge Corporate/Other Total Portfolio Net Income (Loss) $ 14,682 $ 4,083 $ (5,685) $ 13,080 Income tax expense (benefit) - -
Slide 7: Long Credit Portfolio
Long Credit Portfolio* F G F G 2% 2% E E 3% 3% 4% D 4% D A: Residential Transition Loans and other residential 10% 9% mortgage loans & REO(3) B: Non-QM loans and Retained Non-QM RMBS(2) A 38% A 39% C: CMBS & Commercial Loans & REO(3)(4) C 16% $2.48 bn D: Non-Agency RMBS C 18% $2.45 bn E: Consumer Lo
Slide 8: Long Agency Portfolio
Long Agency Portfolio Fixed ARMs Fixed IOs RM ARMs IOs RM 1% 1% 1% 1% Fixed 15-Year Fixed 15-Year Fixed 20-Year Fixed 3% 3% 20-Year Fixed 9% 8 1% 8% Fixed 1% $964.3 mm $918.5 mm 86% 85% 30-Year 30-Year Fixed Fixed As of 9/30/2023(1) As of 6/30/2023(1) (1) (1) Wtd. Avg. Fair Value Wtd. Avg. Fair Valu
Slide 9: Longbridge Portfolio
Longbridge Portfolio D D <1% <1% A A 21% C 26% A: Reverse MSRs (HMBS and proprietary)(2) B: Unsecuritized HECM loans(3) 43% C: Proprietary reverse mortgage loans C 51% $488.2 mm D: Other $429.8 mm 28% B 31% B As of 9/30/2023(1) As of 6/30/2023(1) • Longbridge originates reverse mortgage loans, inclu
Slide 10: Summary of Borrowings
Summary of Borrowings Recourse Borrowings ($ in thousands) As of 9/30/23 Three-Month Period Ended 9/30/23 Average Average Cost Outstanding Weighted Average Collateral Type Borrowings Borrowing Rate Borrowings of Funds (1) Credit $1,599,986 7.51% $ 1,567,085 7.55% Agency RMBS 847,426 5.46% 844,405 5.
Slide 11: Small Balance Commercial Mortgage Loan Portfolio – Detail as of 9/30/23
Small Balance Commercial Mortgage Loan Portfolio – Detail as of 9/30/23 (1)(2) Mobile Retail Home 1% Self-Storage FL 4% Industrial All Other 19% 6% States 26% 6% <5% Office 7% 13% GA Property Type Geography 9% 5% Hotel IN 6% 67% MI 6% 13% Multifamily 12% AZ TX NY Floating with floor First Lien Senio
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 – Q2-2023(1)(2) Standard Company Deviation EFC 3.8% Hybrid REIT #02 5.6% Hybrid REIT #03 6.2% Hybrid REIT #04 6.4% Hybrid REIT #05 7.2% Hybrid REIT #06 12.1% 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 9/30/2023 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 $ 24
Slide 15: Supplemental Slides
Supplemental Slides Q 3 2 0 2 3 E A R N I N GS 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: Third Quarter Market Update
Third Quarter Market Update Quarter Ended 9/30/2023 Q3/Q2 6/30/2023 Q2/Q1 3/31/2023 Q1/Q4 12/31/2022 (1) UST (%) 3M UST 5.45 +0.16 5.28 +0.59 4.69 +0.35 4.34 2Y UST 5.04 +0.15 4.90 +0.87 4.03 -0.40 4.43 5Y UST 4.61 +0.45 4.16 +0.58 3.57 -0.43 4.00 10Y UST 4.57 +0.73 3.84 +0.37 3.47 -0.41 3.87 30Y US
Slide 18: Derivatives Summary as of September 30, 2023
Derivatives Summary as of September 30, 2023(1) Short ($ in thousands) Long Notional Notional Net Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 299 $ (42,990) $ (42,691) $ 3,617 Total Net Mortgage-Related Derivatives $ 3,617 Corporate-Related Derivatives: CDS on Corp
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 • CMBS, B-Pieces & Credit Bonds 2% • NPLs • REO 20% Residential Mortgages • Non-QM Loans • Residential Transition Loans 4% • NPL / RPL • Non-Agency / Non-Conforming Cons
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 E 0.2% 0.1% 3.2% D 32.3% A: >5 Yr Interest Rate Swaps D 35.4% 43.7% A B: 2-5Yr Interest Rate Swaps $648.9mm C: <2 Yr Interest Rate Swaps $558.8mm 54.0% D: TBAs A E: 2-5 Yr Treasurie
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 9/30/2023 As of 6/30/2023 $1,000 $1,000 Long Agency Pools Long Agency $800 $953 $800 Pools $905 $600 $600 ($ in millions) ($ in millions) $400 Net Long $400 Net Long Exposure to Exposure to Agenc
Slide 23: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Average for Quarter Ended 9/30/2023(1) Average for Quarter Ended 6/30/2023(1) Other Other 17% 23% Loan 31% Balance Loan High LTV 37% Balance 7% Jumbo<1% High LTV 7% <1% Jumbo 1% MHA 27% 10% 23% 7% 4% Low Geography 4% 1% FICO MHA Low Geography Non- Non- FIC
Slide 24: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of September 30, 2023 Reverse % of Total >364 Remaining Days to Maturity Credit Agency U.S. Treasury Total Days, Mortgage Loans Borrowings 10% 181-364 30 Days 30 Days or Less $ 136,059 $ 614,695 $ 76,727 $ 78,447 $
Slide 25: Resilient Profit Generation Over Market Cycles
Resilient Profit Generation Over Market Cycles(1)(2) COVID Nine-Month Pandemic Period Ended ($ in thousands) September 30 Years Ended 2023 2022 2021 2020 2019 2018 2017 2016 Long: Credit 68,115 5.1% (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% Cred
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 Q3 2023 is approximately 259%, 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 Q 3 2 0 2 3 E A R N I N GS 27
Slide 28: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share amounts) September 30, 2023 June 30, 2023 Assets Cash and cash equivalents $ 174,664 $ 194,595 Restricted cash 1,604 1,602 Securities, at fair value 1,502,049 1,500,863 Loans, at fair value 11,920,872 11,822,6
Slide 29: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (1) (In thousands, except per share amounts) September 30, 2023 June 30, 2023 Net Interest Income Interest income $ 96,216 $ 88,092 Interest expense (68,702) (63,433) Total net interest income $ 27,514 $ 24,659 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 9/30/2023 Ellington family of SEC-registered investment advisors(4) Founded: 1994 Employees: >160 • 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 – Third Quarter Highlights (1) Holdings, leverage, equity and book value amounts are as of September 30, 2023. (2) Includes $(11.7) 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 for the Quarter Ended September 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 t
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 17 – Third 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 an
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 September 30, 2023 for settlement following September 30, 2023 even though we may expect to terminate such repos early. Not included are a
Slide 37: Investors and Media Contacts
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