Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q1 2016 Earnings Presentation
36 slides from Ellington Financial's earnings presentation, May 6, 2016
Slide 1: First Quarter 2016 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) First Quarter 2016 Earnings Conference Call May 6, 2016
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 2016
First Quarter 2016
Slide 4: Operating Results
Operating Results Quarter Quarter Ended % of Ended % of Mach 31, Per Average December Per Average (In thousands, except per share amounts) 2016 Share Equity 31, 2015 Share Equity Credit: Interest income and other income $ 13,571 $ 0.40 1.88% $ 15,459 $ 0.45 2.07% Net realized gain (loss) 2,681 0.08
Slide 5: First Quarter Highlights
Ellington Financial: First Quarter Highlights Net loss of $(23.2) million, or $(0.69) per share Loss was primarily the result of a significant decoupling in the latter half of the quarter between assets and credit hedges: Overall Results Credit hedges were concentrated in short positions in va
Slide 6: First Quarter Highlights (continued)
Ellington Financial: First Quarter Highlights (continued) Total Long Credit Portfolio: $645(1) million as of March 31, 2016 as compared to $639(1) million as of December 31, 2015 Portfolios Agency Long Portfolio: $937 million as of March 31, 2016, as compared to $963 million as of December 31, 2
Slide 7: Credit Strategy
Ellington Financial: Credit Strategy Credit yield spreads widened dramatically early in the quarter across most credit-sensitive fixed income sectors, including new issue CMBS, newer vintage CLOs, and high-yield corporate bonds, especially sectors with direct or indirect exposure to depressed ener
Slide 8: Agency Strategy
Ellington Financial: Agency Strategy Interest rates reversed course from the fourth quarter of 2015 and dropped sharply 2-year and 10-year swap rates were down 34 basis points and 55 basis points, respectively 10-year Treasury yield decreased 50 basis points to end the first quarter at 1.77%
Slide 9: Market Outlook
Ellington Financial: Market Outlook We expect to continue to hold a diversified Credit portfolio, which now includes: Consumer Loans and ABS, with an emphasis on establishing a steady pipeline through flow agreements Small Balance Commercial Mortgage Loans, especially distressed loans non-QM
Slide 10: Market Moves in Q1 Were Violent and Highly Correlated
Market Moves in Q1 Were Violent and Highly Correlated 5% 0% % Change in Index Value -5% -10% -15% -20% -25% SPX CMBX BB CDX HY Credit markets moved almost in lockstep in Q1, regardless of differing fundamentals Markets hit their lows in early-to-mid February Non-Agency RMBS underperformed but
Slide 11: EFC Credit: Long Securities Portfolio vs High Yield Series 25
EFC Credit: Long Securities Portfolio(1) vs High Yield Series 25(2) EFC Long Securities Portfolio vs High Yield 25 1000 900 800 Spread 700 600 500 400 12/31/2015 1/31/2016 2/29/2016 3/31/2016 EFC Long Securities Portfolio Spread (3) HY 25 EFC Long Securities Portfolio/High Yield 25 Basis 600 500 400
Slide 12: Credit Portfolio
Credit Portfolio
Slide 13: Long Credit Portfolio
EFC: Long Credit Portfolio Current Quarter Previous Quarter Long Credit Portfolio 3/31/16: $645MM(1)(2) Long Credit Portfolio 12/31/15: $639MM(1)(2) Distressed Corporate Distressed Corporate Loans and Equity, Loans and Equity, 9% 10% Average Px 55.2 Average Px 56.7 Jumbo/ Alt-A, 19% Euro CLO, 4% Jum
Slide 14: Long Credit Portfolio (continued)
EFC: Long Credit Portfolio (continued) Holdings Overview Holdings Overview Long Credit Portfolio 3/31/16: $645MM(1) Long Credit Portfolio 12/31/13: $700MM(1) Distressed Corporate Loans and Equity, 10% CLOs, 3% RMBS, 28% RMBS, 82% Consumer Loans and ABS, 22% CLOs 6% European Non- Residential Loans Do
Slide 15: Long Credit Portfolio as of March 31, 2016
EFC: Long Credit Portfolio as of March 31, 2016 Credit strategy is the main driver of earnings Long Credit securities and loan portfolio value: $615.5 million—excludes REO and equity investments in mortgage related entities Est. Yield at Market Price at Fair Value Weighted Average Historical 1-Y
Slide 16: Credit Hedging Portfolio
EFC: Credit Hedging Portfolio(1)(2) Corporate CDS Indices / Instrument Tranches / Options / Single Single Name ABS CDS and Corporate Bond Index Category Names ABX Indices European Sovereign Debt ETFs/Equity CMBX HY CDX OTR Bond Equivalent Units Value(3)(4) Bond Equivalent Value (4) Market Value Mark
Slide 17: Agency Portfolio
Agency Portfolio
Slide 18: Agency Long Portfolio
EFC: Agency Long Portfolio Current Quarter Previous Quarter Agency Long Portfolio 3/31/16: $937MM(¹) Agency Long Portfolio 12/31/15: $963MM(¹) 1% 6% 1% 5% FNMA Fixed - 30 Yr 7% FNMA Fixed - 30 Yr 7% FNMA Fixed - 15 Yr 2% FNMA Fixed - 15 Yr 3% 2% FHLM Fixed - 30 Yr 2% FHLM Fixed - 30 Yr 2% FHLM Fixed
Slide 19: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Current Quarter Previous Quarter Agency Interest Rate Hedging Portfolio 3/31/16: Agency Interest Rate Hedging Portfolio 12/31/15: Short $292 MM 10-year equivalents Short $405 MM 10-year equivalents 0-5 Yr Interest 0-5 Yr Interest Rate Swaps Rate Swaps 27.6
Slide 20: 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 3/31/2016 12/31/2015 Long Agency RMBS $937 $963 Net Short TBAs (369) (420) Net Long Exposure to Agency RMBS $568 $543 Shorting
Slide 21: Borrowings
Borrowings
Slide 22: Repo Borrowings as of March 31, 2016
EFC: Repo Borrowings as of March 31, 2016 ($ in thousands) Repo Borrowings % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 30 Days or Less $19,045 $420,442 $13,664 $453,151 39.4% 31-60 Days 19,620 319,396 — 339,016 29.5% 61-90 Days 89,927 117,846 — 207,773 18.1% 91
Slide 23: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of March 31, 2016 For the Quarter Ended March 31, 2016 Average Borrowings for Collateral for Borrowing Outstanding Borrowings (1) the Quarter Ended (1) Average Cost of(1)Funds Credit $264,880 $265,510 2.52% Agency RMBS 893,758 896,475 0.64% Total e
Slide 24: Supplemental Information
Supplemental Information
Slide 25: Gross Profit and Loss
EFC: Gross Profit and Loss Three Months Ended March 31, 2016 Years Ended 2016 2015 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % $ % $ % Long: Credit 4,902 0.68 46,892 6.09 77,636 11.38 109,536 18.53 129,830 30.02 1,505 0.39 70,840 21.87 101,748 36.33 (64,565) (26.2
Slide 26: Capital and Leverage
EFC: Capital and Leverage(1) Capital Usage Across Entire Portfolio(2) Notes 3/31/2016 (1) Excludes U.S. Treasury securities (2) Capital usage based on pro forma calculation of leverage generally applicable to long positions in target asset classes. 12/31/2015 (3) Assets per strategy capital includes
Slide 27: Credit and Agency Fair Values and Average Prices
EFC: Credit and Agency Fair Values and Average Prices Credit and Agency Portfolios by Fair Value $ In millions Credit Agency $ 1,400.0 1,221.2 1,200.0 1,124.5 962.6 936.8 1,000.0 800.0 753.2 655.5 638.8 644.9 600.0 400.0 200.0 - 6/30/2015 9/30/2015 12/31/2015 3/31/2016 Average Price – Credit and Age
Slide 28: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields – Agency and Credit Credit Agency 12.00% Total 9.82% 9.83% 10.00% 9.34% 8.29% 8.00% 5.78% 6.00% 5.44% 5.10% 5.14% 3.53% 4.00% 2.82% 3.21% 2.83% 2.00% 0.00% Q2 2015 Q3 2015 Q4 2015 Q1 2016 Note: Yields are based on amortized cost, not fair value. Excludes lo
Slide 29: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio $0.75 Dividends Per Share $0.70 Dividend Yield as of $0.65 May 4, 2016 11.8% (1) $0.60 $0.55 $0.50 $0.65 $0.45 $0.40 $0.50 $0.50 $0.50 $0.35 $0.30 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Expense Ratio(2) 3.05% 2.98% 2.85% 2.82% 2.65% 2.54% 2.55% 2.45% 2.25% (1) Based on NYSE
Slide 30: Diluted Book Value
EFC: Diluted 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 DBVPS Cumulative Dividends ABX 2006-2 AAA $45.00 $80 $40.00 $70 $35
Slide 31: Stable Book Value Per Share Relative to Peer Group
EFC: Stable Book Value Per Share Relative to Peer Group Standard Deviation Normalized Book Value Per Share of Hybrid mREITs of Normalized Book Value Per Share Q1 2011 - Q4 2015(1)(2)(3) Q1 2011 – Q4 2015 50% Standard Company 40% EFC Deviation Hybrid REIT #02 EFC 3.58% 30% Hybrid REIT #03 Hybrid REIT
Slide 32: Sharpe Ratio of Quarterly Economic Returns Relative to Peer Group
EFC: Sharpe Ratio of Quarterly Economic Returns Relative to Peer Group Normalized Cumulative Compounded Sharpe Ratio of Quarterly Economic Returns of Hybrid mREITs Quarterly Economic Returns Q1 2011 – Q4 2015(1)(2)(3) Q1 2011 – Q4 2015 80% EFC Sharpe Company Hybrid REIT #02 Ratio 70% Hybrid REIT #03
Slide 33: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Three Month Period Ended (In thousands, except per share data) March 31, 2016 December 31, 2015 Investment income Interest income $ 20,427 $ 23,091 Other income 1,668 932 Total investment income 22,095 24,023 E
Slide 34: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of March 31, December 31, (In thousands, except share amounts) 2016 2015(1) ASSETS Cash and cash equivalents $ 142,082 $ 183,909 Restricted Cash 4,485 4,857 Investments, financial derivative
Slide 35: 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 160 employees, giving EFC access to time-tested infrastructure and proprietary resource
Slide 36: Investor Contact
Investor Contact: Media Contact: Maria Cozine, Investor Relations or Steve Bruce or Taylor Ingraham Lisa Mumford, Chief Financial Officer ASC Advisors, for Ellington Financial LLC Ellington Financial LLC (203) 409-3575 (203) 992-1230 Ellington Financial LLC 53 Forest Ave Old Greenwich, CT 06870 www.