Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q2 2014 Earnings Presentation
31 slides from Ellington Financial's earnings presentation, Aug 7, 2014
Slide 1: Second Quarter 2014 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Second Quarter 2014 Earnings Conference Call August 7, 2014
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: Second Quarter 2014
Second Quarter 2014
Slide 4: Operating Results
Operating Results Quarter % of Quarter % of Six Months % of Ended Per Average Ended Per Average Ended Per Average (In thousands, except per share amounts) 6/30/2014 Share Equity 3/31/2014 Share Equity 06/30/2014 Share Equity Non-Agency MBS, mortgage loans, ABS, and other: Interest income $ 12,970 0.
Slide 5: Ellington Financial: Second Quarter Highlights
Ellington Financial: Second Quarter Highlights 2nd quarter net income of $20.9 million, or $0.81 per share, equating to a 2nd quarter non-annualized Overall Results return on average shareholders’ equity of 3.4%; 1st quarter net income of $22.6 million, or $0.88 per share 2nd quarter non-Agency
Slide 6: Ellington Financial: Second Quarter Highlights (continued)
Ellington Financial: Second Quarter Highlights (continued) Non-Agency Long Portfolio including long credit default swaps: $670.1 million with a market yield of 7.01%(1) at the end of the second quarter, as compared to $660.5 million at the end of the first quarter Portfolios with a market yield of
Slide 7: Ellington Financial: Non-Agency Strategy
Ellington Financial: Non-Agency Strategy Non-Agency RMBS rallied in the second quarter as credit spreads continued to tighten Investor appetite for fixed income assets, especially higher-yielding assets, has increased; retail bond funds Overall Market experienced significant net inflows in 2014,
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy Agency RMBS continued to rally in the second quarter As expected, the Federal Reserve continues to taper its monthly bond purchases at a steady and measured pace, and it is expected that by the fall of 2014 the Federal Reserve's net monthly purchases of Agenc
Slide 9: Ellington Financial: Market Outlook
Ellington Financial: Market Outlook As spreads have tightened, careful asset selection has become increasingly important Opportunities in certain more seasoned sectors We continue to focus on asset diversification CLOs European MBS/ABS Non-Agency CMBS ―B-pieces‖ Distressed small balanc
Slide 10: Non-Agency Portfolio
Non-Agency Portfolio
Slide 11: Non-Agency Long Portfolio
EFC: Non-Agency Long Portfolio Current Quarter Previous Quarter Non-Agency Long Portfolio 6/30/14: $670MM(1)(2) Non-Agency Long Portfolio 3/31/14: $661MM(1)(2) (3) Seasoned Seasoned MBS CDO Manufactured Manufactured Average Px 35.1 MBS CDO CMBS, CMBX Housing Average Px 35.1 Housing and Commercial Av
Slide 12: Non-Agency Long Portfolio as of June 30, 2014
EFC: Non-Agency Long Portfolio as of June 30, 2014 Non-Agency strategy is the main driver of earnings Non-Agency long portfolio value: $670.1 million(1) as of 6/30/14 (which includes $657.7 million of long non- Agency securities and loans and $12.4 million of bond equivalent value of net long cr
Slide 13: Credit Hedging and Other Portfolio
EFC: Credit Hedging and Other Portfolio Current Quarter Previous Quarter Credit Hedging & Other Portfolio 6/30/14: $234MM(1) Credit Hedging & Other Portfolio 3/31/14: $237MM(1) CDS on MBS: $67.4mm Corporate CDS: $158.4mm CDS on MBS: $86.0mm Corporate CDS: $139.4mm ABX Indices 4% ABX Indices 3% Singl
Slide 14: Agency Portfolio
Agency Portfolio
Slide 15: Agency Long Portfolio
EFC: Agency Long Portfolio Current Quarter Previous Quarter Agency Long Portfolio 6/30/14: $962MM(¹) Agency Long Portfolio 3/31/14: $928MM(¹) 6% 1% 6% 1% FNMA Fixed - 30 Yr 4% FNMA Fixed - 30 Yr 5% 2% 4% FNMA Fixed - 15 Yr FNMA Fixed - 15 Yr 4% 2% FHLM Fixed - 30 Yr FHLM Fixed - 30 Yr FHLM Fixed - 1
Slide 16: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Current Quarter Previous Quarter Agency Interest Rate Hedging Portfolio 6/30/14: Agency Interest Rate Hedging Portfolio 3/31/14: Short $391 MM 10-year equivalents Short $432 MM 10-year equivalents 2-5 Yr Interest <2 Yr Interest 2-5 Yr Interest <2 Yr Intere
Slide 17: Agency Interest Rate Hedging Portfolio (continued)
EFC: Agency Interest Rate Hedging Portfolio (continued) Calculation of Exposure to Agency RMBS Based on Fair Value of TBA Portfolio: (In millions) Agency-related Portfolio 6/30/2014 3/31/2014 Long Agency RMBS $962 $928 Net Short TBAs (546) (435) Net Long Exposure to Agency RMBS $416 $493 Shorting
Slide 18: Borrowings
Borrowings
Slide 19: Repo Borrowings as of June 30, 2014
EFC: Repo Borrowings as of June 30, 2014 ($ in thousands) Repo Borrowings % of Total Remaining Days to Maturity Non-Agency Agency Total Borrowings 30 Days or Less $70,171 $298,351 $368,522 31.0% 31-60 Days 73,729 274,386 348,115 29.3% 61-90 Days 21,246 271,446 292,692 24.6% 91-120 Days — 3,828 3,828
Slide 20: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of June 30, 2014 For the Quarter Ended June 30, 2014 (1) Average Borrowings(1)for (1) Collateral for Borrowing Outstanding Borrowings1 the Quarter Ended1 Average Cost of Funds1 Non-Agency RMBS, CMBS, and Other $297,837 $307,964 1.92% Agency RMBS 89
Slide 21: Supplemental Information
Supplemental Information
Slide 22: Gross Profit and Loss
EFC: Gross Profit and Loss Six Months Ended June 30, 2014 Years Ended 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % Long: Non-Agency 50,757 8.05 109,536 18.53 129,830 30.02 1,505 0.39 70,840 21.87 101,748 36.33 (64,565) (26.20) Credit Hedge and Other: Non-Agency (2,
Slide 23: Capital and Leverage
EFC: Capital and Leverage Capital Usage Across Entire Portfolio(1) Notes 6/30/2014 (1) Capital usage based on pro forma calculation of leverage generally applicable to long positions in target asset classes 3/31/2014 (2) Assets per strategy capital includes in the numerator holdings on a trade date
Slide 24: Non-Agency and Agency Fair Values and Average Prices
EFC: Non-Agency and Agency Fair Values and Average Prices Non-Agency and Agency Portfolios by Fair Value(1) $ In millions Non-Agency Agency $ 1,200.0 983.2 961.8 1,000.0 933.5 927.7 800.0 745.4 699.8 637.9 657.7 600.0 400.0 200.0 - 9/30/2013 12/31/2013 3/31/2014 6/30/2014 Average Price – Non-Agency
Slide 25: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields – Agency and Non-Agency Non-Agency Agency 10.00% Total 9.24% 9.08% 8.97% 9.00% 8.67% 8.00% 7.00% 5.80% 5.54% 5.69% 5.52% 6.00% 5.00% 4.00% 3.63% 3.37% 3.44% 3.37% 3.00% 2.00% 1.00% 0.00% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Note: Yields are based on amortized co
Slide 26: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share $0.80 Dividend Yield as of August 6, 2014 $0.75 12.9% (1) $0.70 $0.65 $0.77 $0.77 $0.77 $0.77 $0.60 $0.55 (1) Based on NYSE closing price as of 08/06/2014. (2) Expense ratios annualized. $0.50 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Expense Ratio(2) 2.85%
Slide 27: Book Value
EFC: Book Value EFC has successfully preserved book value through market cycles, while producing strong results for investors Price of ABX 2006-2 AAA has been extremely volatile in comparison to EFC’s stable book value $90 BVPS Cumulative Dividends ABX 2006-2 AAA $45.00 $80 $40.00 $70 $35.00 $14.5
Slide 28: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Six Month Period Three Month Period Ended Ended (In thousands, except per share data) June 30, 2014 March 31, 2014 June 30, 2014 Investment income Interest income $ 20,996 $ 21,496 $ 42,493 Expenses Base manage
Slide 29: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of June 30, March 31, December 31, (In thousands, except share amounts) 2014 2014 2013 (1) ASSETS Cash and cash equivalents $ 145,032 $ 170,362 $ 183,489 Investments, financial derivatives a
Slide 30: About Ellington
About Ellington EFC is managed by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C. (“EMG”) EMG was founded in 1994 by Michael Vranos and five partners; currently has over 140 employees, giving EFC access to time-tested infrastructure and proprietary resource
Slide 31: Investor Contact
Investor Contact: Media Contact: Lisa Mumford, Chief Financial Officer Steve Bruce or Taylor Ingraham Ellington Financial LLC ASC Advisors, for (203) 409-3575 Ellington Financial LLC (203) 992-1230 Ellington Financial LLC 53 Forest Ave Old Greenwich, CT 06870 www.ellingtonfinancial.com