Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q3 2020 Earnings Presentation
35 slides from Ellington Financial's earnings presentation, Nov 6, 2020
Slide 1: Third Quarter 2020 Earnings Conference Call
Third Quarter 2020 Earnings Conference Call November 6, 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: Third Quarter Market Update
Third Quarter Market Update Quarter Ended: 9/30/2020 6/30/2020 Q/Q 3/31/2020 Q/Q 12/31/2019 Q/Q 9/30/2019 Q/Q 6/30/2019 Q/Q 3/31/2019 Q/Q UST (%)(1) 3M UST 0.09 0.13 -0.04 0.06 +0.07 1.54 -1.48 1.81 -0.26 2.09 -0.28 2.38 -0.29 2Y UST 0.13 0.15 -0.02 0.25 -0.10 1.57 -1.32 1.62 -0.05 1.75 -0.13 2.26 -
Slide 4: Third Quarter Highlights
Third Quarter Highlights(1) Our risk and liquidity management enabled us to avoid distressed asset sales during the market turmoil of March and early April, and so we were well positioned to benefit from the rebound in many credit-sensitive fixed income sectors Market Volatility that has occurred
Slide 5: Portfolio Summary as of September 30, 2020
Portfolio Summary as of September 30, 2020(1) Proprietary portfolio of high-yielding, short-duration loans, and opportunistic securities 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 16
Slide 6: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Nine-Month Period Three-Month Period Ended Ended (In thousands, except per share data) September 30, 2020 June 30, 2020 September 30, 2020 Net Interest Income Interest income $ 43,075 $ 39,281 $ 134,463 Interest expense (12,937) (14,686) (49
Slide 7: Operating Results by Strategy
Operating Results by Strategy Three-Month Nine-Month Period Ended Three-Month Period Ended September 30, Per Period Ended Per September 30, Per (In thousands, except per share amounts) 2020 Share June 30, 2020 Share 2020 Share Credit: Interest income and other income (1) $ 37,764 $ 0.85 $ 36,573 $ 0
Slide 8: Long Credit Portfolio
Long Credit Portfolio† 9/30/2020 (1 ) 6/30/2020 (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 Cor por ate Loans Entities 1% Entities 1% 4% 4% CLO(2) CLO (2) Residential 12% 12% Loans & Resi
Slide 9: Long Agency Portfolio
Long Agency Portfolio Agency Long Portfolio Agency Long Portfolio As of 9/30/2020: $920MM (1) As of 6/30/2020: $913MM (1) Fixed IOs Fixed IOs ARMs 6% ARMs 5% RM Fixed < 1% <1% 11% RM Fixed 15% 15-Year Fixed 15-Year Fixed 30-Year 6% 8% Fixed 73% 20-Year Fixed < 1% 20-Year 30-Year Fixed Fixed 74% < 1%
Slide 10: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 9/30/2020 Three-Month Period Ended 9/30/2020 Weighted Outstanding Average Average Average Collateral Type Borrowings Borrowing Rate Borrowings Cost of Funds (1) (1) (1) (1) Credit $1,394,388 2.98% $1,356,028 3.17% Agency RMBS $883,786 0.31% $876,995 0.35%
Slide 11: Diversified Credit Portfolio
Diversified Credit Portfolio Diversified sources of return to perform over market cycles Other 12% 12% Residential Mortgages - Non-QM Loans - Residential Transition Loans - NPL / RPL 43% 43% Commercial Mortgages - Non-Agency / Non-Conforming 30% - NPLs - Reverse Mortgages - REO 30% - Bridge Loans -
Slide 12: Small Balance Commercial Mortgage Loan Portfolio – Detail
Small Balance Commercial Mortgage Loan Portfolio – Detail(1)(2) Property Type Geography Other, Other, 13% All States <5%, 13% All26% States NY, 24% NY, 24% Multifamily , <5% , 27% Retail, 9% Multifamily 32% , 32% Retail, 9% Mixed Use, 11% Mix ed Use, 11% OH,OH, 5%5% FL,FL, 21%21% Hotel, 19% Multifam
Slide 13: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q2-2020(1)(2) Quarterly Economic 16.0% Returns of Hybrid REITs Q1-2011 – Q2-2020 Standard 14.0% Company Deviation EFC 3.7% 12.0% Hybrid REIT #02 4.7% Hybrid REIT #03 5.3% Hybrid RE
Slide 14: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value ($ 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 $ 367 0.04% $ (211) -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 September 30, 2020
Derivatives Summary as of September 30, 2020(1) Long Short Net ($ in thousands) Notional Notional Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 896 $ (31,624) $ (30,728) $ 9,931 Total Net Mortgage-Related Derivatives 9,931 Corporate-Related Derivatives: CDS on Corpor
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 (3)(4) (4) Units HY CDX OTR Bond Equivalent Value Bond Equivalent Value (4) Market Value Bond Equivalent Value - (5.0) (10.0) (15.0) (In $Millions
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 9/30/2020 As of 6/30/2020 Short $196.5MM 10-yr equivalents(1) Short $193.7MM 10-yr equivalents(1) TBAs, 8.9% <2 Yr Interest TBAs, 6.7% Rate Swaps, 2-5 Yr 4.4% Treasuries and Treas
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 9/30/2020 As of 6/30/2020 $1,200 $1,200 $1,000 $1,000 $800 $800 Long Agency Long Agency RMBS RMBS $600 $868 $600 $864 ($ in millions) ($ in millions) $400 $400 Net Long Net Long Exposure to Expo
Slide 21: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Agency Fixed Long Portfolio Agency Fixed Long Portfolio Collateral Characteristics and Historical 3-Mo CPR: Collateral Characteristics and Historical 3-Mo CPR: Average for Quarter Ended 9/30/2020 (1) Average for Quarter Ended 6/30/2020 (1) Jumbo Other Jumb
Slide 22: Repo Borrowings
Repo Borrowings(1) ($ in thousands) Repo Borrowings as of September 30, 2020 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 3% 12% 20% 30 Days or Less $40,785 $241,423 $0 $282,208 19.6% 14% 31-90 Days 211,095 526,019 — 737,114 51.2%
Slide 23: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation over market cycles Nine-Month Period Years Ended Ended September 30 ($ In thousands) 2020 2019 2018 2017 2016 2015 2014 Long: Credit $ (19,311) -2.6% $ 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 Hed
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 Q3 2020 is approximately 203%, or 8.8% annualized(1) $45.00 DBVP
Slide 25: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage Across Entire Portfolio(1) Leverage by Strategy (Debt-to-Equity)(1) 10.0 9.8 10.2 5.0 9/302020 9.0 8.0 4.5 7.0 6/30/2020 4.0 3.8 6.5 6.2 3.5 3.5 3/31/2020 3.0 2.7 2.7 2.5 12/31/2019 2.3 2.2 2.0 2.1 2.0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100
Slide 26: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) September 30, June 30, (In thousands, except share amounts) 2020 2020 ASSETS Cash and cash equivalents $ 126,783 $ 146,531 Restricted cash 175 175 Securities, at fair value 1,451,420 1,396,008 Loans, at fair value 1,442,612 1,416,851 Investments in un
Slide 27: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Nine-Month Period Three-Month Period Ended Ended (In thousands, except per share data) September 30, 2020 June 30, 2020 September 30, 2020 Net Interest Income Interest income $ 43,075 $ 39,281 $ 134,463 Interest expense (12,937) (14,686) (49
Slide 28: Reconciliation of Net Income (Loss) to Core Earnings
Reconciliation of Net Income (Loss) to Core Earnings(1) Nine-Month Period Three-Month Period Ended Ended (In thousands, except per share amounts) September 30, 2020 June 30, 2020 September 30, 2020 Net income (loss) $ 49,702 $ 40,439 $ (38,201) Income tax expense (benefit) 2,494 1,542 3,490 Net inco
Slide 29: About Ellington Management Group
About Ellington Management Group Ellington Profile As of 9/30/2020 Founded: 1994 $10.8 14 24 Years of average 8% 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: 62
Slide 30: 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 31: 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 32: Endnotes
Endnotes Slide 7 – Operating Results by Strategy (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 trading strategies and related hedges, and
Slide 33: Endnotes
Endnotes Slide 15 – Commitment to ESG (1) See endnote (10) on slide 4. 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 o
Slide 34: Endnotes
Endnotes Slide 23 – Gross Profit and Loss (1) Gross profit excludes expenses other than interest expense and other investment related expenses. Figures in “%” columns are as a percentage of average equity for the period. Slide 24 – Total Return Since Inception (1) Total return is based on $18.61 net
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