Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q3 2021 Earnings Presentation
35 slides from Ellington Financial's earnings presentation, Nov 8, 2021
Slide 1: Earnings Conference Call Q3 2021
Earnings Conference Call Q3 November 8, 2021 2021 Q3 2021 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: Third Quarter Highlights
Third Quarter Highlights(1) • Net income: $20.6 million or $0.41 per share • Economic return:(2) 1.8% for the quarter Overall Results • Year-to-date economic return of 11.1%, non-annualized • Core Earnings:(3) $23.0 million or $0.46 per share • Credit gross income: $33.6 million(4) or $0.66 per shar
Slide 4: Portfolio Summary as of September 30, 2021
Portfolio Summary as of September 30, 2021(1) Proprietary portfolio of high-yielding, short-duration loans, and opportunistic securities Allocated Fair Value Average Price WAVG Mkt (2) ($ in $1,000s) Equity and Asset Strategy Equity (%)(3)(7) WAVG Life(5)(7) Yield(6)(7) Allocation by Strategy Credit
Slide 5: Operating Results by Strategy
Operating Results by Strategy Three-Month Three-Month Period Ended Per Period Ended Per (In thousands, except per share amounts) September 30, 2021 Share June 30, 2021 Share Credit: Interest income and other income(1) $ 36,337 $ 0.72 $ 36,511 $ 0.82 Realized gain (loss), net 7,826 0.15 2,009 0.05 Un
Slide 6: Long Credit Portfolio
Long Credit Portfolio* A: CMBS & Commercial Loans & REO(3)(4) B: Consumer Loans & ABS(2) C: Residential Loans & REO(3) D: CLOs(2) E: Non-Agency RMBS F: Debt and Equity Investments in Loan Originators G: Non-Dollar MBS, ABS, CLOs & Other(2)(5) H: Corporate Debt & Equity & Corporate Loans As of 9/30/2
Slide 7: Long Agency Portfolio
Long Agency Portfolio As of 9/30/2021(1) As of 6/30/2021(1) Fair Wtd. Avg. Fair Wtd. Avg. (1) (2) (1) (2) Category Value Coupon Category Value Coupon 30-Year Fixed $ 1,143.6 3.21% 30-Year Fixed $ 1,056.7 3.31% 20-Year Fixed 51.0 2.45% 20-Year Fixed 52.1 2.45% 15-Year Fixed 229.9 2.65% 15-Year Fixed
Slide 8: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 9/30/2021 Three-Month Period Ended 9/30/21 Average Average Cost Outstanding Weighted Average Collateral Type Borrowings Borrowing Rate Borrowings of Funds (1) Credit $1,632,278 2.00% $ 1,577,246 2.03% Agency RMBS 1,436,845 0.17% 1,408,058 0.18% Borrowings
Slide 9: Diversified Credit Portfolio
Diversified Credit Portfolio Diversified sources of return to perform over market cycles Other Commercial Mortgages • NPLs • Bridge Loans Residential Mortgages • CMBS, B-Pieces & Credit Bonds • Non-QM Loans • REO • Residential Transition Loans • NPL / RPL • Non-Agency / Non-Conforming • Reverse Mort
Slide 10: Small Balance Commercial Mortgage Loan Portfolio – Detail
Small Balance Commercial Mortgage Loan Portfolio – Detail(1)(2) Property Type Geography Interest RateType • Small balance commercial mortgage loan portfolio is well diversified geographically and across property types • All investments are first liens • Vast majority of investments are floating rate
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 – Q2-2021(1)(2) Standard Company Deviation EFC 3.8% Hybrid REIT #02 5.6% Hybrid REIT #03 5.7% Hybrid REIT #04 6.4% Hybrid REIT #05 7.6% Hybrid REIT #06 9.9% Hybrid REIT #07 13.3% Hybrid REIT #08 13.8% 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 $ 18,984 1.73% $ (29
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 Q3 2021 EARN INGS 15
Slide 16: Third Quarter Market Update
Third Quarter Market Update Quarter Ended 9/30/2021 Q3/Q2 6/30/2021 Q2/Q1 3/31/2021 Q1/Q4 12/31/2020 Q4/Q3 9/30/2020 (1) UST (%) 3M UST 0.03 -0.01 0.04 +0.03 0.02 -0.04 0.06 -0.03 0.09 2Y UST 0.28 +0.03 0.25 +0.09 0.16 +0.04 0.12 -0.01 0.13 5Y UST 0.96 +0.08 0.89 -0.05 0.94 +0.58 0.36 +0.08 0.28 10Y
Slide 17: Derivatives Summary as of September 30, 2021
Derivatives Summary as of September 30, 2021(1) Long Short ($ in thousands) Notional Notional Net Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 589 $ (13,208) $ (12,619) $1,864 Total Net Mortgage-Related Derivatives $1,864 Corporate-Related Derivatives: CDS on Corpor
Slide 18: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Instrument Corporate CDS Indices/ Tranches/ Single Name ABS CDS European Category 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) • EFC’s dynamic credi
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 9/30/2021 As of 6/30/2021 Short $450.5mm 10-yr equivalents(1) Short $398.5mm 10-yr equivalents(1) • We hedge along the entire yield curve to protect against volatility, defend boo
Slide 20: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Net Agency Pool Exposure Based on Fair Value(1) As of 9/30/2021 As of 6/30/2021 • EFC often carries significantly lower net effective mortgage • Use of TBA short positions as hedges helps drive outperformance exposure than our “headline” Agency leve
Slide 21: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Average for Quarter Ended 9/30/2021(1) Average for Quarter 6/30/2021(1) Collateral Characteristics and Historical 3-Mo CPR Collateral Characteristics and Historical 3-Mo CPR (2) (1)(3) (5) (2) (1)(3) (5) Characteristic Fair Value 3-Month CPR % Characterist
Slide 22: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of September 30, 2021 % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 30 Days or Less $ 28,508 $ 367,272 $ - $ 395,780 18.8% 31-90 Days 469,811 160,494 - 630,305 29.9% 91-180 Days
Slide 23: Resilient Profit Generation Over Market Cycles
Resilient Profit Generation Over Market Cycles(1) Generated a Gross Profit Every Year Since Inception Nine-Month COVID ($ in thousands) Period Ended Pandemic Years Ended September 30 (2) (2) 2021 2020 2019 2018 2017 2016 2015 Long: Credit $135,354 13.8% $63,052 7.3% $73,919 11.1% $61,201 10.0% $61,1
Slide 24: 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 2021 is approximately 267%, or 9.6% annualized(1) Diluted BVP
Slide 25: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage Across Entire Portfolio(1) Leverage by Strategy (Debt-to-Equity)(1) Credit and Agency Portfolios by Fair Value(6) Average Price – Credit and Agency(5)(6) $ in Millions Q3 2021 EARNINGS 25
Slide 26: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share amounts) September 30, 2021 June 30, 2021 Assets Cash and cash equivalents $ 103,617 $ 134,695 Restricted cash 175 175 Securities, at fair value 1,895,563 1,860,990 Loans, at fair value 1,996,529 1,742,701 Inv
Slide 27: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share amounts) September 30, 2021 June 30, 2021 Net Interest Income Interest income $ 40,146 $ 45,890 Interest expense (10,604) (11,166) Total net interest income $ 29,542 $ 34,724 Other Inc
Slide 28: Reconciliation of Net Income (Loss) to Core Earnings
Reconciliation of Net Income (Loss) to Core Earnings(1) Three-Month Period Ended (in thousands, except per share amounts) September 30, 2021 June 30, 2021 Net Income (Loss) $ 23,981 $ 36,469 Income tax expense (benefit) (2,009) 3,140 Net income (loss) before income tax expense $ 21,972 $ 39,609 Adju
Slide 29: About Ellington Management Group
About Ellington Management Group Ellington and its Affiliated Management Companies Ellington Profile As of 9/30/2021 • Our external manager Ellington Financial Management LLC is part of the Ellington family of SEC-registered investment advisors(4). Ellington Founded: 1994 Management Group and its af
Slide 30: 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 31: Endnotes
Endnotes Slide 3 – Third Quarter Highlights (1) Holdings, leverage, equity and book value amounts are as of September 30, 2021. (2) Economic return is based on book value per share. (3) Core Earnings is a non-GAAP financial measure. See slide 28 for a reconciliation of Core Earnings to Net Income (L
Slide 32: Endnotes
Endnotes Slide 6 – Long Credit Portfolio (1) See endnote (5) on slide 3. 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 $2.534 bi
Slide 33: Endnotes
Endnotes Slide 16 – Third Quarter Market Update (1) Source: Bloomberg (2) Source: Mortgage Bankers Association via Bloomberg (3) Source: J.P. Morgan Markets (4) LIBOR-based OAS measures the additional yield spread over LIBOR that an asset provides at its current market price after taking into accoun
Slide 34: Endnotes
Endnotes Slide 23 – Resilient Profit Generation Over Market Cycles (1) Gross profit excludes expenses other than interest expense and other investment related expenses. Figures in “%” columns are as a percentage of average total equity for the period which includes common and preferred equity as wel
Slide 35: Investor and Media Contacts
Investors: Investor Relations Ellington Financial Inc. (203) 409-3575 Info@ellingtonfinancial.com Media: Amanda Klein or Kevin FitzGerald Gasthalter & Co. for Ellington Financial Inc. (212) 257-4170 Ellington@gasthalter.com Ellington Financial Inc. 53 Forest Ave Old Greenwich, CT 06870 www.ellington