Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q1 2023 Earnings Presentation
37 slides from Ellington Financial's earnings presentation, May 9, 2023
Slide 1: Earnings Conference Call Q1 2023
Earnings Conference Call Q1 May 9, 2023 2023 Q1 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: First Quarter Highlights
First Quarter Highlights(1) • Net Income: $38.9 million or $0.58 per share(2) Overall Results • Economic return:(3) 3.3% for the quarter • Adjusted Distributable Earnings:(4) $30.3 million or $0.45 per share • Net income of $40.9 million or $0.61 per share • Credit strategy: • Net income $35.5 milli
Slide 4: Portfolio Summary as of March 31, 2023
Portfolio Summary as of March 31, 2023(1) Allocated Fair Value Average Price WAVG Mkt Equity and Asset (2) (3)(7) (5)(7) (6)(7) Allocation by Strategy Credit Equity ($ in $1,000s) (%) WAVG Life Yield (8) Residential transition loans and other residential mortgage loans and REO $ 951,811 99.4 0.5 9.4
Slide 5: Operating Results by Strategy as of March 31, 2023
Operating Results by Strategy as of March 31, 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) $ 73,570 $ 7,121 $ 80,691 $ 4,165 $ 1,912 $ 86,768 $ 1.2
Slide 6: Long Credit Portfolio
Long Credit Portfolio* G H I G H I 2% 1% 1% F 2% 1% 1% F A A E E 1% 1% 9% 19% 8% 20% A: CMBS & Commercial Loans & REO(3)(4) B: Consumer Loans & ABS backed by consumer loans (2) B B 4% C: Residential Transition Loans and other residential 4% mortgage loans & REO(3) D 24% $2.43 bn 27% $2.54 bn D: Non-
Slide 7: Long Agency Portfolio
Long Agency Portfolio ARMs RM ARMs RM Fixed IOs 1% Fixed IOs Fixed 1% Fixed 15-Year 3% 2% 15-Year 3% 2% Fixed Fixed 20-Year 9% 1% 13% Fixed 20-Year Fixed 1% $853.1 mm $968.3 mm 80% 84% 30-Year 30-Year Fixed Fixed As of 3/31/2023(1) As of 12/31/2022(1) Fair Value(1) Wtd. Avg. Fair Value(1) Wtd. Avg.
Slide 8: Longbridge Portfolio
Longbridge Portfolio(1) D D <1% <1% C C 26% A A 31% 32% 32% A: Reverse MSRs (HMBS and proprietary)(2) B: Unsecuritized HECM loans(3) C: Proprietary reverse mortgage loans $442.5 mm D: Other $327.9 mm 42% 37% B B As of 3/31/2023(1) As of 12/31/2022(1) • Longbridge originates reverse mortgage loans, i
Slide 9: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 3/31/23 Three-Month Period Ended 3/31/23 Average Average Cost Outstanding Weighted Average Collateral Type Borrowings Borrowing Rate Borrowings of Funds Credit(1) $3,059,422 4.95% $ 3,344,483 4.92% Agency RMBS 664,279 4.94% 805,981 4.45% Borrowings — Cred
Slide 10: Small Balance Commercial Mortgage Loan Portfolio – Detail
Small Balance Commercial Mortgage Loan Portfolio – Detail(1)(2) Office Self-Storage FL Mobile All Other 2% Home 10% States 20% 3% <5% 29% Retail 6% Mixed Use 3% 5% Property Type Geography Industrial 19% TX 6% 65% 5% Hotel AZ 6% Multifamily MI 10% 11% GA NY Floating First Lien with floor Seniority In
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 – Q4-2022(1)(2) Standard Company Deviation EFC 3.8% Hybrid REIT #02 5.8% Hybrid REIT #03 6.4% Hybrid REIT #04 6.5% Hybrid REIT #05 7.3% Hybrid REIT #06 12.4% Hybrid REIT #07 13.8% Hybrid REIT #08 14.0% H
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 $ 18,369 1.33% $ (20
Slide 14: Supplemental Slides
Supplemental Slides Q1 2023 EARNINGS 14
Slide 15: 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 16: First Quarter Market Update
First Quarter Market Update Quarter Ended 3/31/2023 Q1/Q4 12/31/2022 Q4/Q3 9/30/2022 Q3/Q2 6/30/2022 Q2/Q1 3/31/2022 UST (%)(1) 3M UST 4.69 +0.35 4.34 +1.10 3.25 +1.62 1.63 +1.14 0.48 2Y UST 4.03 -0.40 4.43 +0.15 4.28 +1.33 2.95 +0.62 2.33 5Y UST 3.57 -0.43 4.00 -0.09 4.09 +1.05 3.04 +0.58 2.46 10Y
Slide 17: Derivatives Summary as of March 31, 2023
Derivatives Summary as of March 31, 2023(1) Short ($ in thousands) Long Notional Notional Net Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 313 $ (52,215) $ (51,902) $ 4,889 Total Net Mortgage-Related Derivatives $ 4,889 Corporate-Related Derivatives: CDS on Corporat
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 E 13.8% E 13.5% 1.5% 1.9% A: >5 Yr Interest Rate Swaps B: 2-5Yr Treasuries and Treasury Futures D D 21.5% $508.3mm C: >5 Yr Treasuries and Treasury Futures 18.8% $563.9mm D: TBAs 61
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 3/31/2023 As of 12/31/2022 $1,000 $1,000 $800 $800 Long Agency Long Agency Pools Pools $951 $600 $838 $600 $400 Net Long $400 Net Long Exposure to Exposure to ($ in millions) ($ in millions) Agen
Slide 22: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Average for Quarter Ended 3/31/2023(1) Average for Quarter Ended 12/31/2022(1) Other Other 23% 22% Loan Loan Jumbo 38% Balance 38% Balance <1% Jumbo <1% 17% Geography 18% Geography 8% 12% 2% 8% 12% 2% MHA Non- MHA Non- Low Low Owner FICO Owner FICO Collate
Slide 23: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of March 31, 2023 >364 % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Days, 30 Days Borrowings 181-364 5% or Less, Days, 23% 30 Days or Less $ 53,953 $ 342,461 $ 132,043 $ 528,457 23.1% 22%
Slide 24: Resilient Profit Generation Over Market Cycles
Resilient Profit Generation Over Market Cycles(1)(2) COVID Three-Month Pandemic Period Ended ($ in thousands) March 31 Years Ended 2023 2022 2021 2020 2019 2018 2017 2016 Long: Credit 48,418 3.7% (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
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 Q1 2023 is approximately 256%, or 8.5% annualized(1) Diluted BVP
Slide 26: 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 Q1 2023 EARNINGS 26
Slide 27: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share amounts) March 31, 2023 December 31, 2022 (1) Assets Cash and cash equivalents $ 188,555 $ 217,053 Restricted cash 1,601 4,816 Securities, at fair value 1,389,547 1,459,465 Loans, at fair value 11,812,567 11,6
Slide 28: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share amounts) March 31, 2023 December 31, 2022 Net Interest Income Interest income $ 87,174 $ 89,830 Interest expense (59,617) (59,656) Total net interest income $ 27,557 $ 30,174 Other Inc
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 March 31, 2023 Investment (in thousands, except per share amounts) Longbridge Corporate /Other Total Portfolio Net Income (Loss) $ 41,101 $ 6,498 $ (2,846) $ 44,753 Income tax expense (benefit) - - 21
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 3/31/2023 Ellington family of SEC-registered investment advisors(4) Founded: 1994 Employees: >170 • 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 – First Quarter Highlights (1) Holdings, leverage, equity and book value amounts are as of March 31, 2023. (2) Includes ($8.4) million of preferred dividends accrued and certain corporate/other income and expense items not attributed to either the investment portfolio or Longbridge.
Slide 33: Endnotes
Endnotes Slide 5 – Operating Results by Strategy as of March 31, 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 trading strategies an
Slide 34: Endnotes
Endnotes Slide 11- Proprietary Loan Origination Businesses (1) For our consolidated non-QM securitization trusts, excludes loans in consolidated non-QM securitization trusts that were sold to third parties. (2) Includes our allocable portion of the fair value of certain small-balance commercial loan
Slide 35: Endnotes
Endnotes Slide 20 – Agency Interest Rate Hedging Portfolio (1) Agency interest rate hedges are shown in normalized units of risk, with each group of positions measured in “10-year equivalents; “10-year equivalents” for a group of positions represent the amount of 10-year U.S. Treasury securities tha
Slide 36: Endnotes
Endnotes Slide 27– Condensed Consolidated Balance Sheet (Unaudited) (1) Derived from audited financial statements as of December 31, 2022. (2) Common shares issued and outstanding at March 31, 2023, includes 4,433,861 shares of common stock issued during the quarter under our at-the-market common st
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