Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q1 2013 Earnings Presentation
31 slides from Ellington Financial's earnings presentation, May 7, 2013
Slide 1: First Quarter 2013 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) First Quarter 2013 Earnings Conference Call May 7, 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: First Quarter 2013
First Quarter 2013
Slide 4: Operating Results
Operating Results Quarter Quarter Ended Per % of Average Ended Per % of Ave rage (In thousands, except per share amounts) 3/31/2013 Share Equity 12/31/2012 Share Equity Non-Agency MBS, Other ABS, and Commercial mortgage loans: Interest income $ 12,118 $ 0.58 2.32% $ 12,013 $ 0.58 2.38% Net realized
Slide 5: Ellington Financial: First Quarter Highlights
Ellington Financial: First Quarter Highlights 1st quarter net income of $40.3 million or $1.94 per share – non-annualized return on shareholders’ equity Overall Results of 7.8% Non-Agency 1st quarter non-Agency MBS strategy gross income of $45.7 million(1) or $2.17 per share MBS Strategy Income deri
Slide 6: Ellington Financial: Highlights Continued
Ellington Financial: Highlights Continued Non-Agency Long Portfolio: $610.8 million with a market yield of 6.77%(1) at the end of the first quarter, as compared to $576.9 million at the end of the fourth quarter with a market yield of 7.81%(1) Portfolios Agency Portfolio: $861.0 million at the end o
Slide 7: Ellington Financial: Non-Agency MBS Strategy
Ellington Financial: Non-Agency MBS Strategy Housing market statistics continued to support the notion that a sustained recovery has taken hold Home prices continue to improve as distressed inventory continues to decline Fed activities also continue to foster favorable environment for non-Agency MBS
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy Similar to 4th quarter of 2012, the ongoing uncertainty around the timing and method of the Fed’s withdrawal of quantitative easing contributed to continued volatility in prices of Agency RMBS Overall Market On March 20th and May 1st, however, the Fed reiterated
Slide 9: Ellington Financial: Market Outlook
Ellington Financial: Market Outlook Rise in non-Agency MBS prices will likely moderate given the substantial rally that has taken place over the last year Securities with lower price transparency continue to be priced inefficiently, thereby creating trading opportunities Expectation of continued opp
Slide 10: Non-Agency Portfolio
Non-Agency Portfolio
Slide 11: EFC: Non-Agency Long Portfolio
EFC: Non-Agency Long Portfolio Previous Quarter Current Quarter Non-Agency Long Portfolio 12/31/12: $577MM(1)(2) Non-Agency Long Portfolio 3/31/13: $611MM(1)(2) MBS CDO CMBS, CMBX and MBS CDO CMBS, CMBX and Seasoned Manufactured Avg Px 50.4 Seasoned Manufactured Avg Px 45.7 Commercial Mortgage Comme
Slide 12: Non-Agency Long Portfolio as of March 31, 2013
EFC: Non-Agency Long Portfolio as of March 31, 2013 EFC non-Agency MBS strategy is the main driver of earnings Non-Agency long portfolio value: $611 million(1) as of 3/31/2013 (which includes $585 million of long non- Agency MBS and loans and $26 million of bond equivalent value of long credit deriv
Slide 13: EFC: Credit Hedging Portfolio
EFC: Credit Hedging Portfolio Previous Quarter Current Quarter Credit Hedging Portfolio 12/31/12: $151MM(1) Credit Hedging Portfolio 3/31/13: $158MM(1) Corporate CDS: $67.9.mm Corporate CDS: $88.1.mm CDX HY CDX HY CDS on MBS: $64.2mm CDS on MBS: $59.0mm ABX Indices 24% ABX Indices 26% Equity Swaps:
Slide 14: Agency Portfolio
Agency Portfolio
Slide 15: EFC: Agency Long Portfolio
EFC: Agency Long Portfolio Previous Quarter Current Quarter Agency Long Portfolio 12/31/12: $774MM¹ Agency Long Portfolio 3/31/13: $861MM¹ 1% <1% 2% 7% 2% 2% <1% FNMA Fixed – 30 year FNMA Fixed – 30 year <1% FNMA Fixed – 15 year FNMA Fixed – 15 year 23% FHLM Fixed – 30 year FHLM Fixed – 30 year FHLM
Slide 16: EFC: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Previous Quarter Current Quarter Agency Interest Rate Hedging Portfolio 12/31/12: Agency Interest Rate Hedging Portfolio 3/31/13: Short $249MM 10-year equivalents Short $408 MM 10-year equivalents 2-5 Yr Interest Rate Swaps 2-5 Yr Interest 13.7% Rate Swaps
Slide 17: EFC: 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 12/31/2012 3/31/2013 Long Agency RMBS $774 $861 Net Short TBA Positions (565) (517) Net Long Exposure to Agency RMBS $209 $344 Shorti
Slide 18: Borrowings
Borrowings
Slide 19: EFC: Repo Borrowings as of March 31, 2013
EFC: Repo Borrowings as of March 31, 2013 ($ In Millions) Repo Borrowings % of Total Remaining Days to Maturity Non-Agency Agency Total Borrowings 30 Days or Less $57.8 $183.8 $241.6 25.0% 31-60 Days 70.3 248.7 319.0 33.1 61-90 Days 23.2 26.2 49.4 5.1 121-150 Days 0.0 109.2 109.2 11.3 151-180 Days 8
Slide 20: EFC: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of March 31, 2013 For the Quarter Ended March 31, 2013 Average Borrowings for 1 1 1 Collateral for Borrowing Outstanding Borrowings (1) the Quarter Ended (1) Average Cost of Funds (1) Non-Agency RMBS, CMBS and Other $237,511 $233,725 2.02% Agency R
Slide 21: Supplemental Information
Supplemental Information
Slide 22: EFC: 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 Qtr Ended March 31, 2013 Years Ended 2013 2012 2011 2
Slide 23: EFC: 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 Unallocated Capital (“AUC”) securitized debt, initial margin of hedges and synthetic long positions, and other assets and lia
Slide 24: EFC: 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 $ 1,000.0 900.0 861.0 774.3 800.0 700.0 650.3 620.2 584.9 600.0 557.2 511.8 500.0 418.1 400.0 300.0 200.0 100.0 - 6/30/2012 9/30/2012 12/31/2012 3/31/2013 Average
Slide 25: EFC: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields – Agency and Non-Agency Non-Agency Agency 12.00% Total 10.15% 9.72% 9.42% 10.00% 8.84% 8.00% 5.90% 5.70% 6.00% 5.19% 5.46% 4.00% 3.24% 3.01% 2.75% 2.73% 2.00% 0.00% Q2 2012 Q3 2012 Q4 2012 Q1 2013 Note: Yields are based on amortized cost, not fair value. Ne
Slide 26: EFC: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share $1.55 $1.50 Dividend Yield as of March 31, 2013 $1.45 $0.75 (2) 12.4% (1) 6.94% $ 0.40 $0.80 7.60% $ 0.40 9.31% $ 0.40 $0.75 9.32% $ 0.40 14.32% $ 0.70 $0.70 13.23% $ 0.70 12.27% $ 0.70 $0.65 13.71% $ 0.77 $ 0.75 12.00% $ 0.77 $0.77 $0.77 $0.60 $0
Slide 27: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Three Month Period Ended March 31, December 31, (In thousands, except per share data) 2013 2012 Investment income Interest income $ 18,382 $ 16,653 Expenses Base management fee 1,967 1,933 Incentive
Slide 28: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY (UNAUDITED) As of March 31, December 31, (1) (In thousands, except share amounts) 2013 2012 ASSETS Cash and cash equivalents $ 64,753 $ 59,084 Investments, financial derivatives and repurchase
Slide 29: EFC: 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 $40 BVPS Cumulative Dividends ABX 2006-2 AAA EFC’s stable book value $100 $90 $35 $80 $11.48 $30 $9.96 $9
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 Steve Bruce or Katrina Allen 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.ellingtonfinancial.com