Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q2 2012 Earnings Presentation
30 slides from Ellington Financial's earnings presentation, Aug 7, 2012
Slide 1: Second Quarter Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Second Quarter Earnings Conference Call August 7, 2012
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 2012
Second Quarter 2012
Slide 4: Operating Results
Operating Results % of Average Six Months % of Average Quarter Ended Shareholders' Period Ended Shareholders' (In thousands, except per share amounts) 6/30/2012 Per Share Equity 6/30/2012 Per Share Equity Non-Agency MBS and Commercial Mortgage Loans: Interest income $ 9,491 $ 0.56 2.40% $ 19,056 $ 1
Slide 5: Second Quarter 2012 Highlights
Second Quarter 2012 Highlights Second quarter net income of $10.8 million or $0.64 per share: − Six months net income of $42.8 million, equating to annualized return on equity of 22.0% − Second quarter non-Agency MBS contributions: $12.9 million or $0.77 per share − Income derived from yield on as
Slide 6: Second Quarter 2012 Highlights Continued
Second Quarter 2012 Highlights Continued Non-Agency MBS Strategy − Non-Agency MBS market supported by: − Increasing evidence suggesting home prices have hit bottom; many markets finally seeing increases − Fewer mortgage delinquencies − Less supply in the market following the completion of the sale
Slide 7: Second Quarter 2012 Highlights Continued
Second Quarter 2012 Highlights Continued Agency MBS Strategy − Continued focus on pools with prepayment protection characteristics; effective asset selection resulting in realized CPR of only 8.3% − Continued relative value trading opportunities during the quarter − Pay-ups continue to rise for pr
Slide 8: Second Quarter 2012 Highlights Continued
Second Quarter 2012 Highlights Continued Market Outlook − We expect robust demand for non-Agency MBS given the need for yield and the lack of alternatives − Capital deficiency in the non-Agency mortgage market is gradually getting filled as insurance companies and parts of the banking industry shi
Slide 9: Non-Agency Portfolio
Non-Agency Portfolio
Slide 10: Non-Agency Long Portfolio
EFC: Non-Agency Long Portfolio Previous Quarter Current Quarter Non-Agency Long Portfolio 3/31/12: $433MM(1)(2) Non-Agency Long Portfolio 6/30/12: $452MM(1)(2) Seasoned Seasoned CMBS, CMBX and Manufactured CMBS, CMBX and Manufactured Commercial Housing Commercial Housing Mortgage Loans Avg Px 73.6 M
Slide 11: Non-Agency Long Portfolio as of June 30, 2012
EFC: Non-Agency Long Portfolio as of June 30, 2012 EFC non-Agency MBS strategy is the main driver of earnings Non-Agency long portfolio value: $452MM¹ as of 6/30/2012 (which includes $418.1 million of long non-Agency MBS and loans and $33.8 million of bond equivalent value of long credit derivat
Slide 12: Credit Hedging Portfolio
EFC: Credit Hedging Portfolio Previous Quarter Current Quarter Credit Hedging Portfolio 3/31/12: $161MM¹ Credit Hedging Portfolio 6/30/12: $153MM¹ Corporate CDS: $78.6mm Corporate CDS: $57.9mm CDS on MBS: $59.7mm CDS on MBS: $72.5mm CDX IG CDX IG CMBX 27% ABX Indices, 26% Equity Swaps: $22.4mm Equit
Slide 13: Agency Portfolio
Agency Portfolio
Slide 14: Agency Long Portfolio
EFC: Agency Long Portfolio Previous Quarter Current Quarter Agency Long Portfolio 3/31/12: $783MM¹ Agency Long Portfolio 6/30/12: $650MM¹ GNMA/FNMA/FHLM GNMA/FNMA/FHLM Fixed IOs FNMA ARMS FNMA/FHLM ARMS IOs <1% GNMA Fixed-30 Yr 4% 3% 1% <1% FHLM Fixed - 30Yr FHLM Fixed - 30Yr 10% 12% FNMA Fixed -15
Slide 15: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Previous Quarter Current Quarter Agency Interest Rate Hedging Portfolio 3/31/12: Agency Interest Rate Hedging Portfolio 6/30/12: Short $281MM 10-year equivalents Short $208MM 10-year equivalents1 >5 Yr Interest Rate Swaps 14.4% >5 Yr Interest Rate Swaps 18
Slide 16: Agency Interest Rate Hedging Portfolio Continued
EFC: Agency Interest Rate Hedging Portfolio Continued Calculation of Exposure to Agency RMBS Based on TBA Portfolio Fair Value: (In millions) Agency-related Portfolio 3/31/2012 6/30/2012 Long Agency RMBS $783 $650 Net Short TBA Positions (549) (400) Net Long Exposure to Agency RMBS $234 $250 Short
Slide 17: Borrowings
Borrowings
Slide 18: Repo Borrowings as of June 30, 2012
EFC: Repo Borrowings as of June 30, 2012 ($ In Millions) Repo Borrowings % of Total Remaining Days to Maturity Non-Agency Agency Total Borrowings 30 Days or Less $60.5 $419.1 $479.6 54.3% 31-60 Days 75.5 69.1 144.6 16.4 61-90 Days 30.6 156.6 187.2 21.2 151-180 Days 71.9 0 71.9 8.1 Total Borrowings $
Slide 19: Average Cost of Borrowings
EFC: Average Cost of Borrowings For the Quarter Ended June 30, 2012 (In thousands) Average Borrowings for (1) Collateral for Borrowing Outstanding Borrowings the Quarter Ended(1) Average Cost of Funds Non-Agency RMBS, CMBS and Other $238,469 $227,071 2.18% Agency RMBS 644,853 716,492 0.37 Total $883
Slide 20: Supplemental Information
Supplemental Information
Slide 21: Gross Profit and Loss
EFC: Gross Profit and Loss In times of MBS market distress, the use of hedging instruments has been effective in insulating long non-Agency portfolio from credit risk Historically, non-Agency hedges have contributed gains to the overall portfolio Six Months Ended June 30, Years Ended 2012 2011 2
Slide 22: Capital and Leverage
EFC: Capital and Leverage Capital Usage Across Entire Portfolio Liquidity Management CRE 6/30/2012 Non-Agency RMBS Agency Strategy (“Liquidity”) Note to Capital Usage Across Entire Portfolio table: Includes settled investment amounts net of repo borrowings and securitized debt, initial margin of hed
Slide 23: 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 Non-Agency $ In millions Agency $ 900.0 833.8 783.4 800.0 732.3 700.0 650.3 600.0 500.0 438.0 415.5 424.9 418.1 400.0 300.0 200.0 100.0 - 09/30/2011 12/31/2011 3/31/2012 6/30/2012 Non-Agency Aver
Slide 24: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields – Agency and Non-Agency Non-Agency Agency 10.00% Total 8.77% 8.64% 9.00% 8.55% 8.84% 8.00% 7.00% 6.00% 5.36% 5.40% 5.01% 5.19% 5.00% 3.70% 3.39% 4.00% 3.24% 2.77% 3.00% 2.00% 1.00% 0.00% Q3 2011 Q4 2011 Q1 2012 Q2 2012 Note: Yields are based on amortized co
Slide 25: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share $0.80 14.32% 16% 13.23% $0.70 14% $0.60 12% 9.31% 9.32% $0.50 10% 7.60% $0.40 8% Yield(1) $0.70 $0.70 $0.30 6% $0.20 $0.40 $0.40 $0.40 4% $0.10 2% $‐ 0% Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 (1) Based on NYSE closing price as of period end date.
Slide 26: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Three Month Period Ended Six Month Period Ended June 30, March 31, June 30, (In thousands, except per share amounts) 2012 2012 2012 Investment income Interest income $ 16,045 $ 15,733 $ 31,777 Expen
Slide 27: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) As of June 30, March 31, December 31, (In thousands, except share amounts) 2012 2012 2011 (1) ASSETS Cash and cash equivalents $ 48,120 $ 51,546 $ 62,737 Investments,
Slide 28: 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 $35 BVPS Cumulative Dividends ABX 2006‐2 AAA $100 $32.59 $31.95 $90 $29.93 $29
Slide 29: 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 100 employees, giving EFC access to time-tested infrastructure and industry-leading reso
Slide 30: Second Quarter Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Second Quarter Earnings Conference Call August 7, 2012 Investor Contact: Media Contact: Lisa Mumford Shawn Pattison or Dana Gorman Chief Financial Officer The Abernathy MacGregor Group, for Ellington Financial LLC Ellington Financial LLC (203) 409−3575 (212) 371−5