Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q1 2021 Earnings Presentation
34 slides from Ellington Financial's earnings presentation, May 6, 2021
Slide 1: Earnings Conference Call Q1 2021
Earnings Conference Call Q1 May 6, 2021 2021 Q1 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: First Quarter Highlights
First Quarter Highlights(1) • Net income: $37.9 million or $0.86 per common share Overall Results • Economic return(2) of 4.9% for the quarter, or 21.3% annualized • Core Earnings(3) of $18.8 million or $0.43 per share • Credit gross income: $50.7 million(4) or $1.14 per share Credit Strategy • Long
Slide 4: Portfolio Summary as of March 31, 2021
Portfolio Summary as of March 31, 2021(1) Proprietary portfolio of high-yielding, short-duration loans, and opportunistic securities Equity and Asset Fair Value Average Price WAVG Mkt Allocation by Strategy Allocated Strategy Equity ($ in $1,000s) (%)(2)(6) WAVG Life(4)(6) Yield(5)(6) Credit Residen
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) March 31, 2021 Share December 31, 2020 Share Credit: Interest income and other income(1) $ 34,289 $ 0.77 $ 34,089 $ 0.77 Realized gain (loss), net 4,188 0.09 (3,984) (0.09
Slide 6: Long Credit Portfolio
Long Credit Portfolio* G H F 1% 4% 5% A A: CMBS & Commercial Loans & REO(3)(4) E 27% B: Consumer Loans & ABS(2) 11% C: Residential Loans & REO(3) D: CLO(2) E: Non-Agency RMBS $1.43 bn D 13% F: Equity Investments in Loan Originators 8% G: Non-Dollar MBS, ABS, CLO & Other(2)(5) B H: Corporate Debt & E
Slide 7: Long Agency Portfolio
Long Agency Portfolio Fixed Fixed RM ARMs IOs ARMs IOs Fixed 1% 3% RM 1% 5% 6% Fixed 10% 15‐Year Fixed 12% 15‐Year 7% Fixed 20‐Year 4% $1.49 bn $0.96 bn Fixed 20‐Year 6% 71% 30‐Year 30‐Year Fixed Fixed 74% Fixed As of 3/31/2021(1) As of 12/31/2020(1) Fair Wtd. Avg. Fair Wtd. Avg. (1) (2) (1) (2) Cat
Slide 8: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 3/31/2021 Three-Month Period Ended 3/31/2021 Outstanding Weighted Average Average Average Cost Collateral Type Borrowings Borrowing Rate Borrowings of Funds (1) Credit $1,448,768 2.33% $ 1,411,154 2.59% Agency RMBS 1,436,505 0.22% 1,182,899 0.24% Borrowin
Slide 9: Diversified Credit Portfolio
Diversified Credit Portfolio Diversified sources of return to perform over market cycles Other Residential Mortgages • Non-QM Loans • Residential Transition Loans • NPL / RPL • Non-Agency / Non-Conforming • Reverse Mortgages Commercial Mortgages • REO • NPLs • Single-Family Rental MBS • Bridge Loans
Slide 10: Small Balance Commercial Mortgage Loan Portfolio – Detail
Small Balance Commercial Mortgage Loan Portfolio – Detail(1)(2) Other Multifamily 11% 25% Retail 9% Property Type Geography 15% Mixed 20% Hotel 20% Industrial First Lien 100% Seniority Interest Rate Type • Small balance commercial mortgage loan portfolio is well diversified geographically and across
Slide 11: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs, Q1-2011 – Q4-2020(1)(2) 16.0% Standard Company Deviation 14.0% EFC 3.9% Hybrid REIT #02 5.6% 12.0% Hybrid REIT #03 5.8% 10.0% Hybrid REIT #04 6.6% Hybrid REIT #05 7.8% 8.0% Hybrid REIT #06 10.0% 6.0% Hybrid REIT
Slide 12: 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 – ARM Pools $ 231 0.02% $ (154) -0.02% Agency RMBS – Fixe
Slide 13: 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 14: Supplemental Slides
Supplemental Slides Q1 2021 EARNINGS 14
Slide 15: First Quarter Market Update
First Quarter Market Update Quarter Ended 3/31/2021 12/31/2020 Q/Q 9/30/2020 Q/Q 6/30/2020 Q/Q 3/31/2020 Q/Q (1) UST (%) 3M UST 0.02 0.06 -0.04 0.09 -0.03 0.13 -0.04 0.06 +0.07 2Y UST 0.16 0.12 +0.04 0.13 -0.01 0.15 -0.02 0.25 -0.10 5Y UST 0.94 0.36 +0.58 0.28 +0.08 0.29 -0.01 0.38 -0.09 10Y UST 1.7
Slide 16: Derivatives Summary as of March 31, 2021
Derivatives Summary as of March 31, 2021(1) Long Short ($ in thousands) Notional Notional Net Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 848 $(14,633) $(13,785) $ 2,280 Total Net Mortgage-Related Derivatives $ 2,280 Corporate-Related Derivatives: CDS on Corporate
Slide 17: 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 18: Agency Interest Rate Hedging Portfolio
Agency Interest Rate Hedging Portfolio(1) We deploy a dynamic and adaptive hedging strategy to preserve book value F E F F E E 10.2% 1.9% 0% 7.8% A 1.9% 3.0% A: >5Yr Interest Rate Swaps 20.9% A B: 2-5Yr Treasuries and Treasury Futures D 33.7% 10.4% C: >5Yr Treasuries and Treasury Futures D: TBAs $19
Slide 19: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Net Agency Pool Exposure Based on Fair Value(1) As of 3/31/2021 As of 12/31/2020 • EFC often carries significantly lower net effective mortgage • Use of TBA short positions as hedges helps drive outperformance exposure than our “headline” Agency lev
Slide 20: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Average for Quarter Ended 3/31/2021(1) Average for Quarter Ended 12/31/2020(1) Other Other Jumbo 12% <1% 15% Jumbo <1% Geography 10% 39% Geography 7% Non‐ 5% Loan 49% Non‐ Loan Owner Balance 6% Owner Balance 4% 17% 30% Low MHA Low 6% FICO FICO MHA Collater
Slide 21: Repo Borrowings
Repo Borrowings(1) Borrowings by Days to Maturity ($ in thousands) Repo Borrowings as of March 31, 2021 % of Total >360 Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 181‐360 Days, 30 Days or Less, 4.2% 12.5% Days, 30 Days or Less $ 14,646 $ 223,518 $ - $ 238,164 12.5% 14.8%
Slide 22: Gross Profit and Loss
Gross Profit and Loss(1) Resilient Profit Generation Over Market Cycles Three-Month COVID ($ in thousands) Period Ended Pandemic Years Ended March 31 2021 2020 2019 2018 2017 2016 2015 Long: Credit $47,888 5.8% $63,052 8.4% $73,919 11.6% $61,201 10.0% $61,136 9.6% $36,203 5.3% $46,892 6.1% Credit He
Slide 23: 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 2021 is approximately 246%, or 9.5% annualized(1) Diluted BVP
Slide 24: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage Across Entire Portfolio(1) Leverage by Strategy (Debt-to-Equity)(1) 7.5 7.0 6.5 6.0 Credit and Agency Portfolios by Fair Value(3) Average Price – Credit and Agency(2)(3) $ in Millions Q1 2021 EARNINGS 24
Slide 25: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) (in thousands except per share amounts) March 31, 2021 December 31,2020 (1) Assets Cash and cash equivalents $ 149,350 $ 111,647 Restricted cash 175 175 Securities, at fair value 1,909,127 1,514,185 Loans, at fair value 1,582,516 1,453,480 Investments
Slide 26: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share amounts) March 31, 2021 December 31, 2020 Net Interest Income Interest income $ 40,079 $ 39,067 Interest expense (11,342) (11,952) Total net interest income $ 28,737 $ 27,115 Other Inc
Slide 27: 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) March 31, 2021 December 31, 2020 Net Income (Loss) $ 41,256 $ 66,578 Income tax expense (benefit) 2,017 7,888 Net income (loss) before income tax expense $ 43,273 $ 74,466 Adjustm
Slide 28: About Ellington Management Group
About Ellington Management Group Ellington and its Affiliated Management Companies Ellington Profile As of 3/31/2021 • 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 29: 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 30: Endnotes
Endnotes Slide 3 – First Quarter Highlights (1) Holdings, leverage, equity and book value amounts are as of March 31, 2021. (2) Economic return is based on book value per share. (3) Core Earnings is a non-GAAP financial measure. See slide 27 for a reconciliation of Core Earnings to Net Income (Loss)
Slide 31: 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 $2.187 bi
Slide 32: Endnotes
Endnotes Slide 15 – First 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 33: Endnotes
Endnotes Slide 22 – 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 23 – Total Return Since Inception (1) Total return is based on $18.61 net
Slide 34: Investors: Media: Ellington Financial Inc.
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