Earnings Conference Call

Q1

May 8, 2024

2024

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 differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should," "would," "could," "goal," "objective," "will," "may," "seek" or similar expressions or their negative forms, or by references to strategy, plans, or intentions. Forward-looking statements are based on our beliefs, assumptions and expectations of our future operations, business strategies, performance, financial condition, liquidity and prospects, taking into account information currently available to us. These beliefs, assumptions, and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations and strategies may vary materially from those expressed or implied in our forward-looking statements.

The following factors are examples of those that could cause actual results to vary from our forward-looking statements: changes in interest rates and the market value of our investments, market volatility, changes in mortgage default rates and prepayment rates, our ability to borrow to finance our assets, changes in government regulations affecting our business, our ability achieve the cost savings and efficiencies, operating efficiencies, synergies and other benefits, including the increased scale, and avoid potential business disruption from our recently completed merger with Arlington Asset Investment Corp., our ability to maintain our exclusion from registration under the Investment Company Act of 1940, our ability to maintain our qualification as a real estate investment trust, or "REIT," and other changes in market conditions and economic trends, such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations. Furthermore, forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A of our Annual Report on Form 10-K, which can be accessed through our website at www.ellingtonfinancial.com or at the SEC's website (www.sec.gov). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the SEC, including reports on Forms 10-Q,10-K and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Modeling

Some statements in this presentation may be derived from proprietary models developed by Ellington Management Group, L.L.C. ("Ellington"). Some examples provided may be based upon the hypothetical performance of such models. Models, however, are inherently imperfect and subject to a number of risks, including that the underlying data used by the models is incorrect, inaccurate, or incomplete, or that the models rely upon assumptions that may prove to be incorrect. The utility of model-based information is highly limited. The information is designed to illustrate Ellington's current view and expectations and is based on a number of assumptions and limitations, including those specified herein. Certain models make use of discretionary settings or parameters which can have a material effect on the output of the model. Ellington exercises discretion as to which settings or parameters to use in different situations, including using different settings or parameters to model different securities. Actual results and events may differ materially from those described by such models.

Example Analyses

The example analyses included herein are for illustrative purposes only and are intended to illustrate Ellington's analytic approach. They are not and should not be considered a recommendation to purchase or sell any security or a projection of our future results or performance. The example analyses are only as of the date specified and do not reflect changes since that time.

Projected Yields and Spreads

Projected yields and spreads discussed herein are based upon Ellington models and rely on a number of assumptions, including as to prepayment, default and interest rates and changes in home prices. Such models are inherently imperfect and there is no assurance that any particular investment will perform as predicted by the models, or that any such investment will be profitable. Projected yields are presented for the purposes of (i) providing insight into the strategy's objectives, (ii) detailing anticipated risk and reward characteristics in order to facilitate comparisons with other investments, (iii) illustrating Ellington's current views and expectations, and (iv) aiding future evaluations of performance. They are not a guarantee of future performance. They are based upon assumptions regarding current and future events and conditions, which may not prove to be accurate. There can be no assurance that the projected yields will be achieved. Investments involve risk of loss.

Financial Information

All financial information included in this presentation is as of March 31, 2024 unless otherwise indicated. We undertake no duty or obligation to update this presentation to reflect subsequent events or developments.

Q 1 2 0 2 4 E A R N I N G S

2

First Quarter Highlights(1)

Overall Results

Investment Portfolio

Longbridge

Financial

Equity & BVPS

Dividends

Leverage Below Sector Average

  • Net income: $26.9 million or $0.32 per share(2)
  • Economic return:(3) 2.1% for the quarter
  • Adjusted Distributable Earnings:(4) $23.7 million or $0.28 per share
  • Net income: $43.0 million or $0.51 per share
  • Credit strategy:
    • Net income: $40.9 million or $0.48 per share
    • Long credit portfolio: $2.80 billion(5)(6), a 2% increase from the prior quarter
  • Agency strategy:
    • Net income: $2.1 million or $0.03 per share
    • Long Agency portfolio: $662.6 million, a 22% decrease from the prior quarter
  • Net income: $8.7 million or $0.10 per share
  • Longbridge portfolio(7): $441.0 million, a 20% decrease from the prior quarter, driven by the successful completion of our inaugural proprietary reverse mortgage loan securitization
  • Total equity: $1.55 billion, comprising common equity of $1.20 billion and preferred equity of $355.6 million(8)
  • Book value per common share: $13.69 after total dividends declared of $0.43 for the quarter
  • Dividend yield of 13.3% based on the May 6, 2024 closing stock price of $11.71 per share, and monthly dividend of $0.13 per common share declared on May 7, 2024
  • Recourse debt-to-equity ratio(9): 1.8:1, adjusted for unsettled purchases and sales
  • Total debt-to equity ratio(10): 8.3:1, including all non-recourse borrowings, which primarily consist of securitization-related liabilities
  • Cash and cash equivalents of $187.5 million, in addition to other unencumbered assets of $544.5 million

Q 1 2 0 2 4 E A R N I N G S

3

Portfolio Summary as of March 31, 2024(1)

Allocated

Fair Value

Average Price

WAVG Mkt

Credit

Equity(2)

($ in $1,000s)

(%)(3)(7)

WAVG Life(5)(7)

Yield(6)(7)

Residential Transition Loans and Other Residential Mortgage Loans and REO(8)

$

1,199,246

99.5

0.8

10.3%

Non-QM Loans and Retained Non-QM RMBS(9)(10)(12)

582,355

84.5

6.3

8.9%

Commercial Mortgage Loans and REO, and CMBS(8)(11)

388,713

92.2

1.2

11.4%

Non-Agency RMBS

210,132

87.8

5.5

9.3%

Forward MSR-related investments

160,009

N/A

7.4

9.8%

Consumer Loans and ABS backed by Consumer Loans(12)

83,194

-(4)

1.5

11.3%

CLOs(12)

59,243

82.4

3.9

18.1%

Debt and Equity Investments in Loan Origination Entities(13)

35,967

N/A

N/A

N/A

Corporate Debt and Equity and Corporate Loans

31,140

73.1

2.7

15.8%

Non-Dollar MBS, ABS, CLO and Other(12)(14)

26,104

93.0

2.2

13.7%

Other loans and ABS(15)

19,674

66.5

3.3

21.3%

Total - Credit

82%

$

2,795,777

93.1

2.7

10.4%

Agency

Equity and Asset

Allocation by Strategy

11% 7%

Equity

82%

11% 17%

Fixed-Rate Specified Pools

609,806

93.1

6.5

5.1%

Assets

Reverse Mortgage Pools

36,912

104.3

4.0

5.2%

IOs

10,811

N/A

5.8

9.8%

Floating-Rate Specified Pools

5,043

97.5

4.8

5.6%

72%

Total - Agency

7%

$

662,572

Longbridge(16)

Proprietary reverse mortgage loans(9)

202,890

Unsecuritized HECM loans(17)

111,617

HMBS MSR Equivalent(18)

94,372

Reverse MSRs and Unsecuritized REO

32,117

Total - Longbridge

11%

$

440,996

Debt-to-Equity Ratio by Strategy and Overall

Recourse

Total

Credit(20)

1.5x

2.7x

Agency(20)

5.7x

5.7x

Longbridge(20)

1.4x

52.3x

Overall

1.8x(19)

8.3x(21)

Q 1 2 0 2 4 E A R N I N G S

93.76.45.2%

  • Residential transition loans and other residential mortgage loans and REO(8) consist of residential transition loans ($1,178.1mm), other residential loans ($6.8mm), and REO ($14.3mm)
  • Non-QMloans and retained non-QMRMBS(9)(10)(12) consist of non-QM loans ($441.7mm) and retained non-QM tranches ($140.6mm)
  • Debt and Equity Investments in Loan Origination Entities(13) consist of LendSure ($21.3mm) and other loan origination entities ($14.7mm)

4

Operating Results by Strategy for the Quarter Ended March 31, 2024

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)

$

84,269

$

7,069

$

91,338

$

12,132

$

1,877

$

105,347

$

1.24

Interest expense

(43,121)

(9,763)

(52,884)

(8,558)

(4,597)

(66,039)

(0.77)

Realized gain (loss), net

(6,379)

(12,154)

(18,533)

-

-

(18,533)

(0.22)

Unrealized gain (loss), net

3,466

797

4,263

(8,356)

1,829

(2,264)

(0.03)

Net change from reverse mortgage loans and

-

-

-

27,515

-

27,515

0.32

HMBS obligations

Earnings in unconsolidated entities

2,226

-

2,226

-

-

2,226

0.03

Interest rate hedges and other activity, net(2)

8,259

16,123

24,382

15,712

(5,538)

34,556

0.41

Credit hedges and other activities, net(3)

(4,449)

-

(4,449)

(592)

-

(5,041)

(0.06)

Income tax (expense) benefit

-

-

-

-

(61)

(61)

-

Investment related expenses

(2,973)

-

(2,973)

(10,263)

-

(13,236)

(0.16)

Other expenses

(170)

-

(170)

(18,836)

(11,413)

(30,419)

(0.36)

Net income (loss)

$

41,128

$

2,072

$

43,200

$

8,754

$

(17,903)

$

34,051

$

0.40

Dividends on preferred stock

-

-

-

-

(6,654)

(6,654)

(0.08)

Net (income) loss attributable to non-

(185)

-

(185)

(38)

(4)

(227)

-

participating non-controlling interests

Net income (loss) attributable to common

stockholders and participating non-controlling

$

40,943

$

2,072

$

43,015

$

8,716

$

(24,561)

$

27,170

$0.32

interests

Net (income) loss attributable to participating

-

-

-

-

(255)

(255)

-

non-controlling interests

Net income (loss) attributable to common

$

40,943

$

2,072

$

43,015

$

8,716

$

(24,816)

$

26,915

$

0.32

stockholders

Net income (loss) attributable to common

$

0.48

$

0.03

$

0.51

$

0.10

$

(0.29)

$

0.32

stockholders per share of common stock

Weighted average shares of common stock

85,269

and convertible units(4)

outstanding

Weighted average shares of common stock

outstanding

84,468

Q 1 2 0 2 4 E A R N I N G S

5

Reconciliation of Net Income (Loss) to Adjusted Distributable Earnings(1)

Three-Month Period Ended March 31, 2024

(in thousands, except per share amounts)

Investment

Longbridge

Corporate/Other

Total

Portfolio

Net Income (Loss)

$

43,200

$

8,754

$

(17,903)

$

34,051

Income tax expense (benefit)

-

-

61

61

Net income (loss) before income tax expense (benefit)

$

43,200

$

8,754

$

(17,842)

$

34,112

Adjustments:

Realized (gains) losses, net(2)

29,254

-

1,620

30,874

Unrealized (gains) losses, net(3)

(25,945)

449

(106)

(25,602)

Unrealized (gains) losses on MSRs, net of hedging (gains) losses (4)

-

(13,943)

-

(13,943)

Negative (positive) component of interest income represented by Catch-up Amortization

Adjustment

1,297

-

-

1,297

Non-capitalized transaction costs and other expense adjustments(5)

923

4,068

500

5,491

(Earnings) losses from investments in unconsolidated entities

(2,226)

-

-

(2,226)

Adjusted Distributable Earnings from investments in unconsolidated entities(6)

816

-

-

816

Total Adjusted Distributable Earnings

$

47,319

$

(672)

$

(15,828)

$

30,819

Dividends on preferred stock

-

-

6,654

6,654

Adjusted Distributable Earnings attributable to non-controlling interests

216

(2)

225

439

Adjusted Distributable Earnings Attributable to Common Stockholders

$

47,103

$

(670)

$

(22,707)

$

23,726

Adjusted Distributable Earnings Attributable to Common Stockholders, per share

$

0.56

$

(0.01)

$

(0.27)

$

0.28

Q 1 2 0 2 4 E A R N I N G S

6

Long Credit Portfolio*

F

G

H

2%

4%

E

3%

6%

D

8%

42%

A

A: Residential Transition Loans and other residential

mortgage loans & REO(3)

B: Non-QM loans and Retained Non-QM RMBS(2)

C: CMBS & Commercial Loans & REO(3)(4)

  1. H
    F 1%
  1. 3% 4%
    6%

D

9%

41%

A

C

$2.80 bn

D: Non-Agency RMBS

$2.74 bn

14%

21%

B

As of 3/31/2024(1)

E: Forward MSR-related investments

F: Consumer Loans & ABS backed by consumer loans(2)

G: Debt and Equity Investments in Loan Originators

H: Other(2)(5)(6)

22%

B

As of 12/31/2023(1)

The size of our long credit

The increase was driven primarily

Net purchases of corporate CLOs

A portion of the increase was

portfolio increased by 2% in

by larger residential transition loan

also contributed to the increased

offset by a smaller non-QM loan

the first quarter.

and commercial mortgage bridge

sized of our credit portfolio.

portfolio, where principal

loan portfolios, where net

paydowns and loan sales

originations exceeded principal

exceeded net originations, and

paydowns.

net sales of non-Agency RMBS

and CMBS.

*For consolidated non-QM securitization trusts, only includes retained tranches.

Q 1 2 0 2 4 E A R N I N G S

7

Long Agency Portfolio

ARMs

Fixed

RM

ARMs

Fixed IOs

IOs

RM 1% 2%

15-Year

Fixed

1%

1%

Fixed

Fixed

15-Year

6%

20-Year

4%

Fixed

Fixed <1%

6%

20-Year

8%

Fixed

<1%

$662.6 mm

$853.2 mm

83%

30-Year Fixed

As of 3/31/2024(1)

Fair Value(1)

Wtd. Avg.

Category

($

in MMs)

Coupon(2)

30-Year Fixed

$

556.0

4.02%

20-Year Fixed

2.0

2.29%

15-Year Fixed

51.8

2.57%

RM Fixed

36.9

5.98%

Subtotal - Fixed

$

646.7

3.99%

ARMs

5.0

Fixed IOs

10.8

Total

$

662.6

88%

30-Year Fixed

As of 12/31/2023(1)

Fair Value(1)

Wtd. Avg.

Category

($

in MMs)

Coupon(2)

30-Year Fixed

$

742.1

4.04%

20-Year Fixed

2.1

2.29%

15-Year Fixed

54.0

2.58%

RM Fixed

37.2

5.37%

Subtotal - Fixed

$

835.4

3.99%

ARMs

5.1

Fixed IOs

12.7

Total

$

853.2

  • Our long Agency portfolio decreased by 22% quarter over quarter, as we continued to rotate capital out of the strategy and into higher-yielding opportunities.

Q 1 2 0 2 4 E A R N I N G S

8

Longbridge Portfolio*

E

D

1%

E

D<1%

9%

C

5%

  1. 21%

46% A

$441.0 mm

25%

B

16%

  1. Proprietary reverse mortgage loans
  2. Unsecuritized HECM loans(2)

C: HMBS MSR Equivalent (3)

$552.4 mm

D: Reverse MSRs

19%

60%

E: Other

B

A

As of 3/31/2024(1)

As of 12/31/2023(1)

  • Longbridge originates reverse mortgage loans, including home equity conversion mortgage loans, or "HECMs," which are insured by the FHA and which are eligible for inclusion in GNMA-guaranteedHECM-backed MBS, or "HMBS."
  • Upon securitization, the HECMs remain on our balance sheet under GAAP, and Longbridge retains the mortgage servicing rights associated with the HMBS.
  • In addition, Longbridge originates proprietary reverse mortgage loans, which are not insured by the FHA, and has typically retained the associated MSRs.
  • In Q1, Longbridge's portfolio decreased by 20%, driven primarily by the successful completion of our inaugural proprietary reverse mortgage loan securitization.
  • Longbridge originated $204.9 million across HECM and prop, 75% through its wholesale and correspondent channel and 25% through its retail channel.
  • Positive results from servicing and net gains on interest rate hedges drove performance for the quarter. Tighter HECM yield spreads also led to net gains on the HMBS MSR Equivalent, as well as improved execution on tail securitizations, which contributed to the positive results from servicing.
  • These gains were partially offset by net losses on proprietary loans.
  • In originations, improved gain-on-sale margins in HECM were mostly offset by a decline in overall origination volumes.

*For consolidated proprietary reverse mortgage loan securitization trusts, only includes retained tranches.

Q 1 2 0 2 4 E A R N I N G S

9

Summary of Borrowings

Recourse Borrowings ($ in thousands)

As of 3/31/24

Three-Month Period Ended 3/31/24

Outstanding

Weighted Average

Average

Average Cost

Collateral Type

Borrowings

Borrowing Rate

Borrowings

of Funds

Credit(1)

$

1,594,501

7.46%

$

1,579,016

7.58%

Agency RMBS

617,283

5.47%

703,111

5.59%

Borrowings - Credit and Agency RMBS

$

2,211,784

6.90%

$

2,282,127

6.96%

U.S. Treasury Securities

227,232

5.50%

225,349

5.51%

Borrowings - including U.S. Treasury Securities

$

2,439,016

6.77%

$

2,507,476

6.83%

Senior Notes, at par

282,681

6.00%

282,681

6.00%

Subordinated Notes

$

15,000

8.33%

$

15,000

8.41%

Longbridge-Related Recourse Borrowings

259,650

8.65%

347,820

9.25%

Total Recourse Borrowings(2)

$

2,996,347

6.87%

$

3,152,977

7.03%

Recourse and Non-Recourse Leverage Summary(3)

As of 3/31/2024

Recourse Borrowings

$

2,996,347

Recourse Debt-to-Equity Ratio(4)

1.8:1

Non-RecourseHMBS-Related Obligations

$

8,619,463

Net of Unsettled Purchases/Sales

1.8:1

Non-RecourseNon-QM and Proprietary Reverse

$

1,569,149

Mortgage Loan Securitizations

Total Debt-to-Equity Ratio(5)

Total Borrowings

$

13,184,958

8.3:1

Total Equity

$

1,553,156

Net of Unsettled Purchases/Sales

8.3:1

Q 1 2 0 2 4 E A R N I N G S

10

Attachments

  • Original Link
  • Original Document
  • Permalink

Disclaimer

Ellington Financial Inc. published this content on 08 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 May 2024 00:37:05 UTC.