Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q4 2014 Earnings Presentation
32 slides from Ellington Financial's earnings presentation, Feb 12, 2015
Slide 1: Fourth Quarter 2014 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Fourth Quarter 2014 Earnings Conference Call February 12, 2015
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: Fourth Quarter 2014
Fourth Quarter 2014
Slide 4: Operating Results
Operating Results Quarter % of Quarter % of % of Ended Per Average Ended Per Average Year Ended Per Average (In thousands, except per share amounts) 12/31/2014 Share Equity 9/30/2014 Share Equity 12/31/2014 Share Equity Non-Agency MBS, mortgage loans, ABS, and other: Interest income $ 17,365 0.51 2.
Slide 5: Ellington Financial: Fourth Quarter Highlights
Ellington Financial: Fourth Quarter Highlights 4th quarter net income of $2.6 million, or $0.08 per share; 3rd quarter net income of $12.9 million, or Overall Results $0.46 per share 4th quarter non-Agency strategy gross income of $7.7 million(1), or $0.23 per share Non-Agency Primary driver w
Slide 6: Fourth Quarter Highlights (continued)
Ellington Financial: Fourth Quarter Highlights (continued) Non-Agency Long Portfolio, including long credit default swaps: $897.1 million with a market yield of 7.52%(1) at the end of the fourth quarter, as compared to $732.0 million with a market yield of 7.84%(1) Portfolios at the end of the thi
Slide 7: Ellington Financial: Non-Agency Strategy
Ellington Financial: Non-Agency Strategy During the fourth quarter: Prices of non-Agency RMBS were supported by ongoing improvements in fundamental data, including mortgage delinquency and foreclosure rates Volatility continued in CMBS, fueled by the drop in oil prices, heavy new issue volume,
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy During the fourth quarter: The yield curve experienced significant flattening Prepayment rates remained relatively muted in response to lower mortgage rates Overall Market TBA roll prices were strong Conditions Specified pools performed well, but the de
Slide 9: Ellington Financial: Market Outlook
Ellington Financial: Market Outlook As spreads have tightened, careful asset selection continues to be of paramount importance We are still selectively finding attractive buying opportunities in legacy non-Agency RMBS We continue to focus on asset diversification and scaling newer strategies
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 12/31/14: $897MM(1)(2)(4) Non-Agency Long Portfolio 9/30/14: $732MM(1)(2)(3)(4) Distressed Corporate Euro CLO, 1% Loans, 4% Consumer ABS and Consumer ABS, 2% CLO, 12% Average Px 95.5 Euro CLO, 2% Average Px 91.
Slide 12: Non-Agency Long Portfolio (continued)
EFC: Non-Agency Long Portfolio (continued) Holdings Overview Holdings Overview Non-Agency Long Portfolio 12/31/14: $897MM(1)(2) Non-Agency Long Portfolio 12/31/13: $737MM(1) RMBS, 59% RMBS, 79% Consumer Loans and ABS, 3% Residential Loans, Investments in 3% Mortgage Related Entities, 2% CLOs, 5% Dis
Slide 13: Non-Agency Long Portfolio as of December 31, 2014
EFC: Non-Agency Long Portfolio as of December 31, 2014 Non-Agency strategy is the main driver of earnings Non-Agency long portfolio value: $897.1 million(1) as of 12/31/14 (including $880.4 million of long non-Agency securities and loans and $16.7 million of bond equivalent value of net long cre
Slide 14: Credit Hedging and Other Portfolio
EFC: Credit Hedging and Other Portfolio Current Quarter Previous Quarter Credit Hedging & Other Portfolio 12/31/14: $275MM(1) Credit Hedging & Other Portfolio 9/30/14: $254MM(1)(2) CDS on MBS: $78.9mm Corporate CDS: $195.6mm CDS on MBS: $89.6mm Corporate CDS: $154.5mm ABX Indices ABX Indices 3% 3% S
Slide 15: Agency Portfolio
Agency Portfolio
Slide 16: Agency Long Portfolio
EFC: Agency Long Portfolio Current Quarter Previous Quarter Agency Long Portfolio 12/31/14: $1,218MM(¹) Agency Long Portfolio 9/30/14: $1,064MM(¹) FNMA Fixed - 30 Yr FNMA Fixed - 30 Yr 3% 5% 1% <1% FNMA Fixed - 15 Yr 4% 3% 1% 1% 1% 2% FNMA Fixed - 15 Yr 2% FHLM Fixed - 30 Yr 4% FHLM Fixed - 30 Yr FH
Slide 17: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Current Quarter Previous Quarter Agency Interest Rate Hedging Portfolio 12/31/14: Agency Interest Rate Hedging Portfolio 9/30/14: Short $526 MM 10-year equivalents Short $471 MM 10-year equivalents 0-5 Yr Interest Rate Swaps 0-5 Yr Interest 0.9% Rate Swaps
Slide 18: 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 12/31/2014 9/30/2014 Long Agency RMBS $1,218 $1,064 Net Short TBAs (733) (582) Net Long Exposure to Agency RMBS $485 $482 Shor
Slide 19: Borrowings
Borrowings
Slide 20: Repo Borrowings as of December 31, 2014
EFC: Repo Borrowings as of December 31, 2014 ($ in thousands) Repo Borrowings U.S. Treasury % of Total Remaining Days to Maturity Non-Agency Agency Securities Total Borrowings 30 Days or Less $53,939 $537,624 $123,631 $715,194 42.8% 31-60 Days 46,872 276,002 — 322,874 19.3% 61-90 Days 37,561 251,715
Slide 21: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of December 31, 2014 For the Quarter Ended December 31, 2014 Average Borrowings for Collateral for Borrowing Outstanding Borrowings1 the Quarter Ended1 Average Cost of Funds1 (1) (1) (1) Non-Agency RMBS, CMBS, and Other $399,981 $328,830 2.09% Agen
Slide 22: Supplemental Information
Supplemental Information
Slide 23: Gross Profit and Loss
EFC: Gross Profit and Loss Year Ended December 31, 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % Long: Non-Agency 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) (26.20) Credit Hedge and Other: Non-Agency (1,197) (0.17) (19,28
Slide 24: Capital and Leverage
EFC: Capital and Leverage(1) Capital Usage Across Entire Portfolio(2) Notes 12/31/2014 (1) Capital usage based on pro forma calculation of leverage generally applicable to long positions in target asset classes (2) Assets per strategy capital includes in the numerator holdings on a trade date basis
Slide 25: 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 $ 1,400.0 1,217.7 1,200.0 1,064.2 927.7 961.8 1,000.0 880.4 800.0 719.7 637.9 657.7 600.0 400.0 200.0 - 3/31/2014 6/30/2014 9/30/2014 12/31/2014 Average Price –
Slide 26: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields – Agency and Non-Agency Non-Agency Agency 10.00% 9.43% Total 9.24% 9.08% 8.75% 9.00% 8.00% 7.00% 5.69% 5.52% 5.39% 5.61% 6.00% 5.00% 4.00% 3.44% 3.37% 3.22% 3.22% 3.00% 2.00% 1.00% 0.00% Q1 2014 Q2 2014 Q3 2014 Q4 2014 Note: Yields are based on amortized co
Slide 27: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share Dividend Yield as of $0.70 February 10, 2015 12.6% (1) $0.65 $0.77 $0.77 $0.77 $0.60 $0.65 $0.55 $0.50 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Expense Ratio(2) 3.15% 3.03% 3.05% 2.95% 2.85% 2.81% 2.76% 2.75% 2.65% 2.59% 2.55% 2.45% 2.35% 2.25% Q1 2014 Q2
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 $90 BVPS Cumulative Dividends ABX 2006-2 AAA $45.00 $80 $40.00 $70 $35.00 Price
Slide 29: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Three Month Period Ended Year Ended (In thousands, except per share data) December 31, 2014 September 30, 2014 December 31, 2014 Investment income Interest income $ 28,688 $ 22,353 $ 93,533 Other investment inc
Slide 30: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of December 31, September 30, December 31, (In thousands, except share amounts) 2014 2014 2013 (1) ASSETS Cash and cash equivalents $ 114,140 $ 129,124 $ 183,489 Investments, financial deriv
Slide 31: 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 150 employees, giving EFC access to time-tested infrastructure and proprietary resource
Slide 32: Investor and Media Contacts
Investor Contact: Media Contact: Lindsay Tragler, 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 w