Slide 1: Fourth Quarter 2012 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Fourth Quarter 2012 Earnings Conference Call February 14, 2013
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 2012
Fourth Quarter 2012
Slide 4: Operating Results
Operating Results Quarter % of Ave rage Quarte r % of Average Ye ar % of Average Ended Per Shareholders' Ended Pe r Share holde rs' Ended Per Shareholders' (In thousands, except per share amounts) 12/31/2012 Share Equity 9/30/2012 Share Equity 12/31/2012 Share Equity Non-Agency MBS and Commercial mo
Slide 5: Ellington Financial: Fourth Quarter Highlights
Ellington Financial: Fourth Quarter Highlights 4th quarter net income of $24.8 million or $1.19 per share Overall Results Net income for the year of $97.1 million or $5.31 per share, equating to annualized return on equity of 22.5% Non-Agency 4th quarter non-Agency MBS strategy gross income of $32.5
Slide 6: Ellington Financial: Highlights Continued
Ellington Financial: Highlights Continued Non-Agency Portfolio: $576.9 million with a market yield of 7.81%(1) at the end of the fourth quarter, as compared to $530.3 million at the end of the third quarter with a market yield of 9.26%(1) Portfolios Agency Portfolio: $774.3 million at the end of the
Slide 7: Ellington Financial: Non-Agency MBS Strategy
Ellington Financial: Non-Agency MBS Strategy The Fed’s accommodative fiscal policy actions continue to drive investors to higher yielding sectors of the fixed income market, including non-Agency MBS Overall Market Home prices continue to improve as inventory continues to decline, providing further s
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy Specter of the Fed potentially relaxing its accommodative fiscal policy stance contributed to recent increase in yields and declines in prices of Agency RMBS On January 30th, however, the Fed reiterated its intention to continue its purchases of U.S. Treasuries a
Slide 9: Ellington Financial: Market Outlook
Ellington Financial: Market Outlook With non-Agency MBS prices having experienced a year-long rally and price increases occurring across the board, security selection remains an increasingly important driver of portfolio performance Securities with lower price transparency continue to be priced inef
Slide 10: Non-Agency Portfolio
Non-Agency Portfolio
Slide 11: Non-Agency Long Portfolio
EFC: Non-Agency Long Portfolio Previous Quarter Current Quarter Non-Agency Long Portfolio 9/30/12: $530MM(1)(2) Non-Agency Long Portfolio 12/31/12: $577MM(1)(2) Seasoned CDO CDO Manufactured CMBS, CMBX and Seasoned Manufactured Avg Px 45.7 Avg Px 46.4 Housing Commercial Mortgage Housing Avg Px 78.6
Slide 12: Non-Agency Long Portfolio as of December 31, 2012
EFC: Non-Agency Long Portfolio as of December 31, 2012 EFC non-Agency MBS strategy is the main driver of earnings Non-Agency long portfolio value: $577 million(1) as of 12/31/2012 (which includes $557 million of long non- Agency MBS and loans and $20 million of bond equivalent value of long credit d
Slide 13: Credit Hedging Portfolio
EFC: Credit Hedging Portfolio Previous Quarter Current Quarter Credit Hedging Portfolio 9/30/12: $159MM(1) Credit Hedging Portfolio 12/31/12: $151MM(1) Corporate CDS: $58.5mm Corporate CDS: $67.9.mm CDS on MBS: $78.8mm CDS on MBS: $64.2mm CDX IG CDX IG ABX Indices, 27% ABX Indices 24% Equity Swaps:
Slide 14: Agency Portfolio
Agency Portfolio
Slide 15: Agency Long Portfolio
EFC: Agency Long Portfolio Previous Quarter Current Quarter Agency Long Portfolio 9/30/12: $620MM¹ Agency Long Portfolio 12/31/12: $774MM¹ GNMA/FNMA/FHLM GNMA/FNMA/FHLM FNMA ARMS IOs IOs FNMA ARMS 3% 1% GNMA Fixed - 30 1% GNMA Fixed - 30 2% FHLM Fixed - 15 Yr Yr <1% FHLM Fixed - 15 Yr Yr <1% <1% <1%
Slide 16: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Previous Quarter Current Quarter Agency Interest Rate Hedging Portfolio 9/30/12: Agency Interest Rate Hedging Portfolio 12/31/12: Short $138MM 10-year equivalents Short $249MM 10-year equivalents >5 Yr Interest Rate Swaps >5 Yr Interest Rate Swaps 20.0% 15
Slide 17: 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 9/30/2012 12/31/2012 Long Agency RMBS $620 $774 Net Short TBA Positions (409) (565) Net Long Exposure to Agency RMBS $211 $209 Shorti
Slide 18: Borrowings
Borrowings
Slide 19: Repo Borrowings as of December 31, 2012
EFC: Repo Borrowings as of December 31, 2012 ($ In Millions) Repo Borrowings % of Total Remaining Days to Maturity Non-Agency Agency Total Borrowings 30 Days or Less $27.5 $273.7 $301.2 33.3% 31-60 Days 60.0 200.9 260.9 28.8 61-90 Days 8.6 230.3 238.9 26.4 121-150 Days 12.0 - 12.0 1.3 151-180 Days 9
Slide 20: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of December 31, 2012 For the Quarter Ended December 31, 2012 Average Borrowings for (1) (1) (1) Collateral for Borrowing Outstanding Borrowings the Quarter Ended Average Cost of Funds Non-Agency RMBS, CMBS and Other $200,820 $263,867 2.12% Agency R
Slide 21: Supplemental Information
Supplemental Information
Slide 22: Gross Profit and Loss
EFC: Gross Profit and Loss In times of MBS market distress, the use of hedging instruments has been effective in insulating long non-Agency portfolio from credit risk Historically, non-Agency hedges have contributed gains to the overall portfolio Years Ended 2012 2011 2010 2009 2008 ($ In thousands)
Slide 23: Capital and Leverage
EFC: Capital and Leverage Capital Usage Across Entire Portfolio(1) Notes (1) Each strategy’s capital includes settled investment amounts net of repo borrowings and Additional securitized debt, initial margin of hedges and synthetic long positions, and other assets and CRE 12/31/2012 Non-Agency RMBS
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 Non-Agency $ In millions Agency $ 900.0 783.4 774.3 800.0 700.0 650.3 620.2 600.0 557.2 511.8 500.0 424.9 418.1 400.0 300.0 200.0 100.0 - 3/31/2012 6/30/2012 9/30/2012 12/31/2012 Average Price –
Slide 25: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Non-Agency Yields – Agency and Non-Agency Agency 12.00% Total 10.15% (1) 9.72% (1) 10.00% 8.64% 8.84% 8.00% (1) (1) 5.90% 5.70% 6.00% 5.40% 5.19% 4.00% 3.39% 3.24% 2.75% 2.73% 2.00% 0.00% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Note: Yields are based on amortized cost, no
Slide 26: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share $0.80 20% 18% $0.75 16% 14.32% 13.71% 13.23% 14% $0.70 12.27% 12% $0.65 10% Yield(1) $0.77 $0.75 8% $0.60 $0.70 $0.70 $0.70 6% 4% $0.55 2% $0.50 0% Q1 2012 Q2 2012 Q3 2012 Q4 2012 2012 Special Dividend (1) Based on NYSE closing price as of period
Slide 27: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Three Month Period Ended Year Ended December 31, September 30, December 31, (In thousands, except per share data) 2012 2012 2012 Investment income Interest income $ 16,653 $ 15,426 $ 63,857 Expenses
Slide 28: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) As of December 31, September 30, December 31, (In thousands, except share amounts) 2012 2012 2011 ASSETS (1) Cash and cash equivalents $ 59,084 $ 69,223 $ 62,737 Inves
Slide 29: 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 $40 BVPS Cumulative Dividends ABX 2006-2 AAA $100 $34.82 $90 $35 $33.60 $31.95 $3
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 100 employees, giving EFC access to time-tested infrastructure and industry-leading resource
Slide 31: Investor Contact
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) 371-5999 Ellington Financial LLC 53 Forest Ave Old Greenwich, CT 06870 www.ellingtonfinancial.co