Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q1 2014 Earnings Presentation
31 slides from Ellington Financial's earnings presentation, May 8, 2014
Slide 1: First Quarter 2014 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) First Quarter 2014 Earnings Conference Call May 8, 2014
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 2014
First Quarter 2014
Slide 4: Operating Results
Operating Results Quarter (%) of Quarter (%) of Ended Per Average Ended Per Average (In thousands, except per share amounts) 3/31/2014 Share Equity 12/31/2013 Share Equity Non-Agency MBS, mortgage loans, ABS, and other: ` Interest income $ 13,516 0.52 2.15% $ 14,404 0.55 2.28% Net realized gain 24,2
Slide 5: Ellington Financial: First Quarter Highlights
Ellington Financial: First Quarter Highlights 1st quarter net income of $22.6 million, or $0.88 per share, equating to a 1st quarter non-annualized return Overall Results on average shareholders’ equity of 3.6%; fourth quarter net income of $14.9 million, or $0.58 per share 1st quarter non-Agency st
Slide 6: Ellington Financial: First Quarter Highlights (continued)
Ellington Financial: First Quarter Highlights (continued) Non-Agency Long Portfolio including long credit default swaps: $660.5 million with a market yield of 7.21%(1) at the end of the first quarter, as compared to $736.7 million at the end of the fourth quarter Portfolios with a market yield of 7.
Slide 7: Ellington Financial: Non-Agency Strategy
Ellington Financial: Non-Agency Strategy Non-Agency RMBS rallied in the first quarter, benefiting from the market perception of less uncertainty around future actions of the Federal Reserve with respect to its asset purchase program Overall Market Investor appetite for fixed income assets, especiall
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy Agency RMBS rallied in the first quarter, recovering much of their losses from the fourth quarter 2013 The Federal Reserve continues to taper its monthly bond purchases on a steady and measured pace, and it is expected that by late 2014 the Federal Reserve's net
Slide 9: Ellington Financial: Market Outlook
Ellington Financial: Market Outlook As spreads have tightened, careful asset selection has become increasingly important Opportunities in certain more seasoned sectors Asset diversification continues to be important mitigant to declining universe of legacy MBS European MBS/ABS CMBS “B-pieces” Non-Ag
Slide 10: Non-Agency Portfolio
Non-Agency Portfolio
Slide 11: EFC: Non-Agency Long Portfolio
EFC: Non-Agency Long Portfolio Current Quarter Previous Quarter Non-Agency Long Portfolio 3/31/14: $661MM(1)(2) Non-Agency Long Portfolio 12/31/13: $737MM(1)(2) (3) Seasoned CDO Seasoned CDO Manufactured Average Px 34.8 Manufactured Average Px 35.1 Housing Housing CMBS, CMBX Average Px 83.9 CMBS, CM
Slide 12: Non-Agency Long Portfolio as of March 31, 2014
EFC: Non-Agency Long Portfolio as of March 31, 2014 EFC non-Agency strategy is the main driver of earnings Non-Agency long portfolio value: $660.5 million(1) as of 3/31/14 (which includes $637.8 million of long non- Agency securities and loans and $22.7 million of bond equivalent value of long credi
Slide 13: Credit Hedging and Other Portfolio
EFC: Credit Hedging and Other Portfolio Current Quarter Previous Quarter Credit Hedging & Other Portfolio 3/31/14: $237MM(1) Credit Hedging & Other Portfolio 12/31/13: $245MM(1) CDS on MBS: $86.0mm Corporate CDS: $139.4mm CDS on MBS: $80.3mm Corporate CDS: $198.9mm ABX Indices ABX Indices 3% 4% Sing
Slide 14: Agency Portfolio
Agency Portfolio
Slide 15: Agency Long Portfolio
EFC: Agency Long Portfolio Current Quarter Previous Quarter Agency Long Portfolio 3/31/14: $928MM(¹) Agency Long Portfolio 12/31/13: $933MM(¹) 6% 1% FNMA Fixed - 30 Yr 7% FNMA Fixed - 30 Yr 5% 4% 4% FNMA Fixed - 15 Yr 3% FNMA Fixed - 15 Yr FHLM Fixed - 30 Yr 2% 2% FHLM Fixed - 30 Yr FHLM Fixed - 15
Slide 16: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Current Quarter Previous Quarter Agency Interest Rate Hedging Portfolio 3/31/14: Agency Interest Rate Hedging Portfolio 12/31/13: Short $432 MM 10-year equivalents Short $541 MM 10-year equivalents <2 Yr Interest 2-5 Yr Interest <2 Yr Interest Rate Swaps R
Slide 17: 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 3/31/2014 12/31/2013 Long Agency RMBS $928 $933 Net Short TBAs (435) (377) Net Long Exposure to Agency RMBS $493 $556 Shorting “
Slide 18: Borrowings
Borrowings
Slide 19: Repo Borrowings as of March 31, 2014
EFC: Repo Borrowings as of March 31, 2014 ($ in thousands) Repo Borrowings % of Total Remaining Days to Maturity Non-Agency Agency Total Borrowings 30 Days or Less $59,351 $279,860 $339,211 28.8% 31-60 Days 100,501 253,413 353,914 30.1% 61-90 Days 67,724 263,788 331,512 28.2% 91-120 Days — 21,484 21
Slide 20: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of March 31, 2014 For the Quarter Ended March 31, 2014 (1) Average Borrowings (1) for (1) Collateral for Borrowing Outstanding Borrowings1 the Quarter Ended1 Average Cost of Funds1 Non-Agency RMBS, CMBS, and Other $308,621 $343,308 1.94% Agency RMB
Slide 21: Supplemental Information
Supplemental Information
Slide 22: Gross Profit and Loss
EFC: Gross Profit and Loss Quarter Ended March 31, Years Ended 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % Long: Non-Agency 24,431 3.88 109,536 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 1,074 0.17
Slide 23: Capital and Leverage
EFC: Capital and Leverage Capital Usage Across Entire Portfolio(1) 3/31/2014 Notes (1) Capital usage based on pro forma calculation of leverage generally applicable to long positions in target asset classes 12/31/2013 (2) Assets per strategy capital includes in the numerator holdings on a trade date
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(1) $ In millions Non-Agency Agency $ 1,200.0 983.2 1,000.0 933.5 927.7 860.7 765.8 745.4 800.0 699.8 637.8 600.0 400.0 200.0 - 6/30/2013 9/30/2013 12/31/2013 3/31/2014 Average Price – Non-Agency
Slide 25: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields – Agency and Non-Agency Non-Agency Agency 10.00% 9.24% Total 8.97% 9.00% 8.61% 8.67% 8.00% 7.00% 5.61% 5.80% 5.54% 5.69% 6.00% 5.00% 3.57% 3.63% 3.37% 4.00% 3.44% 3.00% 2.00% 1.00% 0.00% Q2 2013 Q3 2013 Q4 2013 Q1 2014 Note: Yields are based on amortized co
Slide 26: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share $0.80 Dividend Yield as of May 7, 2014 $0.75 12.6% (1) $0.70 $0.65 $0.77 $0.77 $0.77 $0.77 $0.60 $0.55 (1) Based on NYSE closing price as of 05/07/2014. (2) Expense ratios annualized. $0.50 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Expense Ratio(2) 2.85% 2.
Slide 27: 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 $90 EFC’s stable book value $45.00 BVPS Cumulative Dividends ABX 2006-2 AAA $80 $40.00 $70 $35.00 $14.56
Slide 28: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Three Month Period Ended (In thousands, except per share data) March 31, 2014 December 31, 2013 Investment income Interest income $ 21,496 $ 22,954 Expenses Base management fee 2,364 2,365 Incentive fee - 3,091
Slide 29: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of March 31, December 31, (In thousands, except share amounts) 2014 2013 (1) ASSETS Cash and cash equivalents $ 170,362 $ 183,489 Investments, financial derivatives and repurchase agreements
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 130 employees, giving EFC access to time-tested infrastructure and proprietary resources in
Slide 31: Investor Contact
Investor Contact: Media Contact: Lisa Mumford, Chief Financial Officer Steve Bruce or Taylor Ingraham Ellington Financial LLC ASC Advisors, for (203) 409-3575 Ellington Financial LLC (203) 992-1230 Ellington Financial LLC 53 Forest Ave Old Greenwich, CT 06870 www.ellingtonfinancial.com