Slide 1: Third Quarter 2016 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Third Quarter 2016 Earnings Conference Call November 4, 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: Third Quarter 2016
Third Quarter 2016
Slide 4: Operating Results
Operating Results Quarter Quarter Nine Month Ended % of Ended % of Period Ended % of September 30, Per Average June 30, Per Average September 30, Per Average (In thousands, except per share amounts) 2016 Share Equity 2016 Share Equity 2016 Share Equity Credit: Interest income and other income $ 11,8
Slide 5: Ellington Financial: Third Quarter Highlights
Ellington Financial: Third Quarter Highlights Net income of $0.5 million, or $0.02 per share Overall Results Assets generated positive results in both the Credit and Agency strategies during the third quarter Credit hedge losses substantially offset the positive performance of our assets Cre
Slide 6: Ellington Financial: Third Quarter Highlights (continued)
Ellington Financial: Third Quarter Highlights (continued) Total Long Credit Portfolio: $490(1) million as of September 30, 2016 as compared to $583(1) million as of June 30, 2016 Portfolios Agency Long Portfolio: $808 million as of September 30, 2016, as compared to $850 million as of June 30, 2
Slide 7: Ellington Financial: Credit Strategy
Ellington Financial: Credit Strategy During the third quarter, U.S. interest rates trended somewhat higher and many measures of implied volatility reached multi-year lows Large and frequent swings in interest rates that characterized the early part of 2016 were comparatively absent Overall Bia
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy The yield curve continued to flatten over the course of the third quarter, although less dramatically than it had in the second quarter 10-year Treasury yield increased 12 basis points to end the second quarter at 1.59% 2-year U.S. Treasury yield increased
Slide 9: Ellington Financial: Outlook
Ellington Financial: Outlook We expect to continue to hold a diversified Credit portfolio, primarily consisting of: Loans, including: Consumer Loans and ABS, with an emphasis on establishing a steady pipeline through flow agreements Small Balance Commercial Mortgage Loans, especially distres
Slide 10: EFC Credit: Long Securities Portfolio vs High Yield Series 25
EFC Credit: Long Securities Portfolio(1) vs High Yield Series 25(2) EFC Long Portfolio vs High Yield 25 (3) 1100 1000 900 800 Spread 700 600 500 400 300 HY.25, Not Loss Adjusted EFC Long Portfolio, Loss Adjusted (1) Long securities portfolio includes investments in non-Agency RMBS, CMBS, ABS, CLOs,
Slide 11: Credit Portfolio
Credit Portfolio
Slide 12: EFC: Long Credit Portfolio
EFC: Long Credit Portfolio Current Quarter Previous Quarter Long Credit Portfolio 9/30/16: $490MM(1)(2) Long Credit Portfolio 6/30/16: $583MM(1)(2) Distressed Corporate Distressed Corporate Euro CLO, 3% Loans and Equity, 4% Jumbo/ Loans and Equity, 9% Jumbo/ Average Px 96.7 Average Px 36.0 Alt-A, 15
Slide 13: EFC: Long Credit Portfolio (continued)
EFC: Long Credit Portfolio (continued) Holdings Overview Holdings Overview Long Credit Portfolio 9/30/16: $490MM(1) Long Credit Portfolio 12/31/13: $700MM(1) Distressed Corporate Loans CLOs, 3% and Equity, 4% RMBS, 24% Consumer Loans and ABS, 24% RMBS, 82% CLOs 6% Residential Loans European Non- and
Slide 14: Long Credit Portfolio as of September 30, 2016
EFC: Long Credit Portfolio as of September 30, 2016 Credit strategy is the main driver of earnings Long Credit securities and loan portfolio value: $468.8 million—excludes REO and equity investments in mortgage related entities Est. Yield at Market Fair Value Weighted Average Price at Ellington
Slide 15: Credit Hedging Portfolio
EFC: Credit Hedging Portfolio(1)(2) Corporate CDS Indices / Instrument Tranches / Options / Single Single Name ABS CDS and Corporate Bonds/Corporate Category Names ABX Indices European Sovereign Debt Bond ETFs/Equities CMBX HY CDX OTR Bond Equivalent Units (3)(4) (4) (4) Value Bond Equivalent Value
Slide 16: Agency Portfolio
Agency Portfolio
Slide 17: EFC: Agency Long Portfolio
EFC: Agency Long Portfolio Current Quarter Previous Quarter Agency Long Portfolio 9/30/16: $808MM(¹) Agency Long Portfolio 6/30/16: $850MM(¹) 7% 1% 4% <1% FNMA Fixed - 30 Yr 8% 1% 3% FNMA Fixed - 30 Yr 2% 2% FNMA Fixed - 15 Yr FNMA Fixed - 15 Yr 2% 2% FHLM Fixed - 30 Yr FHLM Fixed - 30 Yr 2% 2% FHLM
Slide 18: EFC: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Current Quarter Previous Quarter Agency Interest Rate Hedging Portfolio 9/30/16: Agency Interest Rate Hedging Portfolio 6/30/16: Short $201 MM 10-year equivalents Short $210 MM 10-year equivalents 0-5 Yr Interest 0-5 Yr Interest Rate Swaps Rate Swaps 29.9%
Slide 19: EFC: Agency Interest Rate Hedging Portfolio (continued)
EFC: Agency Interest Rate Hedging Portfolio (continued) Calculation of Exposure to Agency Pools Based on Fair Value: (In millions) Agency-related Portfolio 9/30/2016 6/30/2016 Long Agency RMBS $788 $829 Net Short TBAs (393) (375) Net Long Exposure to Agency RMBS $395 $454 Shorting “generic” pools
Slide 20: Borrowings
Borrowings
Slide 21: Repo Borrowings as of September 30, 2016
EFC: Repo Borrowings as of September 30, 2016 ($ in thousands) Repo Borrowings % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 30 Days or Less $30,386 $448,489 $15,751 $494,626 50.3% 31-60 Days 38,541 197,704 — 236,245 24.0% 61-90 Days 22,240 85,050 — 107,290 10.9%
Slide 22: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of September 30, 2016 For the Quarter Ended September 30, 2016 Average Borrowings for Collateral for Borrowing Outstanding Borrowings the Quarter Ended Average Cost of Funds (1) (1) (1) Credit $228,696 $247,108 3.02% Agency RMBS 770,138 781,539 0.7
Slide 23: Supplemental Information
Supplemental Information
Slide 24: EFC: Gross Profit and Loss
EFC: Gross Profit and Loss Nine Months Ended September 30, Years Ended 2016 2015 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % $ % $ % Long: Credit 33,249 4.70 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) (26.20
Slide 25: EFC: Capital and Leverage
EFC: Capital and Leverage(1) Capital Usage Across Entire Portfolio(2) Notes (1) Excludes U.S. Treasury securities 9/30/2016 (2) Capital usage based on pro forma calculation of leverage generally applicable to long positions in target asset classes. 6/30/2016 (3) Assets per strategy capital used incl
Slide 26: 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 $ 1,200.0 1,000.0 962.6 936.8 849.7 807.8 800.0 638.8 644.9 583.3 600.0 490.5 400.0 200.0 - 12/31/2015 3/31/2016 6/30/2016 9/30/2016 Average Price – Credit and Agency(1) $ 120
Slide 27: EFC: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share $0.55 Dividend Yield as of November 2, 2016 $0.50 11.6% (1) $0.45 $0.40 $0.50 $0.50 $0.50 $0.45 $0.35 $0.30 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Expense Ratio(2) 3.05% 2.98% 2.96% 2.89% 2.85% 2.82% 2.65% 2.45% 2.25% (1) Based on NYSE closing price as o
Slide 28: EFC: 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 $100 DBVPS Cumulative Dividends ABX 2006-2 AAA EFC’s stable book value $45.00 $40.00 $90 $35.00
Slide 29: EFC: Stable Book Value Per Share Relative to Peer Group
EFC: Stable Book Value Per Share Relative to Peer Group Standard Deviation Normalized Book Values per Share of Hybrid REITs of Normalized Book Q1 2011 - Q2 2016(1)(2) Value Per Share Q1 2011 – Q2 2016 Standard Company 40% Deviation EFC EFC 4.99% 30% Hybrid REIT #02 Hybrid REIT #02 5.07% Hybrid REIT
Slide 30: EFC: Sharpe Ratio of Quarterly Economic Returns Relative to Peer Group
EFC: Sharpe Ratio of Quarterly Economic Returns Relative to Peer Group Sharpe Ratio of Normalized Cumulative Compounded Quarterly Economic Returns Quarterly Economic Returns of Hybrid mREITs Q1 2011 – Q2 2016(1)(2)(3) Q1 2011 – Q1 2016 Sharpe 80% Company Ratio 70% EFC Hybrid REIT #01 1.94 60% Hybrid
Slide 31: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Nine Month Period Three Month Period Ended Ended (In thousands, except per share data) September 30, 2016 June 30, 2016 September 30, 2016 Investment income Interest income $ 16,662 $ 18,990 $ 56,078 Other inco
Slide 32: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of September 30, June 30, December 31, (In thousands, except share amounts) 2016 2016 2015(1) ASSETS Cash and cash equivalents $ 179,618 $ 140,358 $ 183,909 Restricted Cash 5,610 3,905 4,857
Slide 33: 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 170 employees, giving EFC access to time-tested infrastructure and proprietary resource
Slide 34: Investor and Media Contacts
Investor Contact: Media Contact: Maria Cozine, Vice President of Investor Relations or Amanda Klein or Kevin Fitzgerald Lisa Mumford, Chief Financial Officer Gasthalter & Co. Ellington Financial LLC for Ellington Financial LLC (203) 409-3575 (212) 257-4170 Info@ellingtonfinancial.com Ellington@gasth