Slide 1: First Quarter Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) First Quarter Earnings Conference Call May 8, 2012
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 2012 Highlights
First Quarter 2012 Highlights
Slide 4: Operating Results
Operating Results Quarter % of Average Ended Per Share Shareholders’ (In thousands, except per share amounts) 3/31/2012 Equity Non-Agency MBS and Commercial Mortgage Loans: Interest Income $ 9,565 $ 0.57 2.50% Net realized gain 6,545 0.39 1.71% Net change in net unrealized gain 19,430 1.15 5.07% Net
Slide 5: First Quarter 2012 Highlights
First Quarter 2012 Highlights Net Income of $32.1 million or $1.90 per share — non annualized return on equity: 8.4% − Non-Agency MBS contribution: $28.7 million or $1.70 per basic and diluted share − Income derived from net carry, realized gains from trading and asset valuations − Agency MBS cont
Slide 6: First Quarter 2012 Highlights Continued…
First Quarter 2012 Highlights Continued… Portfolio − Non-Agency MBS − 2012 Q1 performance benefited from recent portfolio maneuvers, such as: - Rotation throughout 2011 into lower-priced, “higher beta” securities - Decision towards the end of 2011 to be less credit-hedged − Market technicals impro
Slide 7: First Quarter 2012 Highlights Continued…
First Quarter 2012 Highlights Continued… Non-Agency RMBS market outlook: 3/31/2012 compared to one year earlier March 31, 2012 March 31, 2011 We expect many non-judicial foreclosure We expected significant further declines states to hit bottom; distressed sales in nationally; market was still facing
Slide 8: First Quarter 2012 Highlights Continued…
First Quarter 2012 Highlights Continued… Agency − Continued focus on pools with prepayment protection characteristics; realized CPR of only 5.1% − Many relative value trading opportunities during the quarter — as a result, high portfolio turnover generated trading gains above carry − High return o
Slide 9: First Quarter 2012 Highlights Continued…
First Quarter 2012 Highlights Continued… Market Outlook − Non-Agency MBS yields remain compelling even with prices slightly higher — market fundamentals and market technicals both improved during the quarter − Outlook for home prices is much brighter in much of the country today than one year ago
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 12/31/11: $451MM¹ Non-Agency Long Portfolio 3/31/12: $433MM¹ CMBS, CMBX and CMBS, CMBX and Seasoned Seasoned Manufactured Commercial Mortgage Loans Commercial Manuf actured Housing 6% Mortgage Loans Housing 14%
Slide 12: Non-Agency Long Portfolio as of March 31, 2012
EFC: Non-Agency Long Portfolio as of March 31, 2012 EFC non-Agency MBS strategy is the main driver of EFC’s earnings Non-Agency Long Portfolio Value: $433MM¹ as of 3/31/2012 (which includes $424.9 million of long non-Agency MBS and loans and $8.3 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 12/31/11: $182MM¹ Credit Hedging Portfolio 3/31/12: $161MM¹ Corporate CDS: $105.5mm Corporate CDS: $78.6mm CDS on MBS: $55.6mm CDS on MBS: $59.7mm CDX IG CDX IG CMBX CMBX 27% 27% Equity Swaps: $20.6mm Equity Swap
Slide 14: Agency Portfolio
Agency Portfolio
Slide 15: Agency Long Portfolio
EFC: Agency Long Portfolio Previous Quarter Current Quarter Agency Long Portfolio 12/31/11: $732MM¹ Agency Long Portfolio 3/31/12: $783MM¹ GNMA/FNMA/FHLM GNMA/FNMA/FHL FNMA/FHLM ARMS Fixed IOs FNMA/FHLM M Fixed IOs 5% 1% ARMS <1% 3% GNMA Fixed-30 Yr <1% GNMA Fixed - 30 Yr <1% FHLM Fixed - 30Yr 12% F
Slide 16: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Previous Quarter Current Quarter Agency Interest Rate Hedging Portfolio 12/31/11: Agency Interest Rate Hedging Portfolio 3/31/12: Short $207MM 10-year equivalents¹ Short $281MM 10-year equivalents >5 Yr Interest Rate 2-5 Yr Interest Swaps Rate Swaps 14.4%
Slide 17: Agency Interest Rate Hedging Portfolio Continued…
EFC: Agency Interest Rate Hedging Portfolio Continued… Calculation of Exposure to Agency RMBS Based on TBA Portfolio Fair Value: ($ In millions) Agency-related Portfolio 12/31/11 3/31/12 Long Agency RMBS $732 $783 Net Short TBA Positions (415) (549) Net Long Exposure to Agency RMBS $317 $234 Short
Slide 18: Borrowings
Borrowings
Slide 19: Repo Borrowings as of March 31, 2012
EFC: Repo Borrowings as of March 31, 2012 ($ In millions) Repo Borrowings Remaining Days to % of Total Non-Agency Agency Total Maturity Borrowings 30 Days or Less $81.3 $438.9 $520.2 56.5% 31-60 Days 51.1 105.2 156.3 17.0 61-90 Days 33.4 65.7 99.1 10.7 91-120 Days − 87.3 87.3 9.5 151-180 Days 58.5 −
Slide 20: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of March 31, 2012 For the Quarter Ended March 31, 2012 Average Average Outstanding Borrowings for the Cost of Collateral for Borrowing Borrowings(1) Quarter Ended(1) Funds Non-Agency RMBS and CMBS $224,280 $231,496 2.02% Agency RMBS 697,126 657,354
Slide 21: Supplemental Information
Supplemental Information
Slide 22: Gross Profit and Loss
EFC: Gross Profit and Loss In times of RMBS 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, 2012 Years Ended 2011 2012 2
Slide 23: Capital and Leverage
EFC: Capital and Leverage Capital Usage Across Entire Portfolio Note to Capital Usage Across Entire Portfolio table: Includes settled investment Liquidity Management CRE 3/31/2012 Non-Agency RMBS Agency amounts net of repo borrowings and securitized debt, initial margin of hedges and Strategy (“Liqu
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-Ag $ In millions Ag $900.0 833.8 785.4 783.4 800.0 732.3 700.0 600.0 500.0 438.0 424.9 415.5 373.5 400.0 300.0 200.0 100.0 - 06/30/2011 09/30/2011 12/31/2011 3/31/2012 Average Price - Non-Age
Slide 25: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields - Agency and Non-Agency Non-Ag Ag 10.00% Total 8.72% 8.77% 9.00% 8.55% 8.64% 8.00% 7.00% 6.00% 5.40% 5.36% 5.40% 5.01% 5.00% 4.04% 3.70% 4.00% 3.39% 2.77% 3.00% 2.00% 1.00% 0.00% Q2 2011 Q3 2011 Q4 2011 Q1 2012 Note: Yields are based on amortized cost, not
Slide 26: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share 14.32% $0.80 14% $0.70 12% $0.70 $0.60 9.31% 9.32% 10% $0.50 7.60% 6.94% 8% Yield(1) $0.40 $0.40 $0.40 $0.40 $0.40 6% $0.30 4% $0.20 $0.10 2% $- 0% Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 (1) Based on NYSE closing price as of period end date. Expe
Slide 27: Income Statement
Income Statement (Unaudited) Three Months Ended March 31, December 31, (In thousands, except per share amounts) 2012 2011 Investment income Interest income $ 15,733 $ 15,442 Expenses Base management fee 1,492 1,396 Incentive fee - - Interest expense 1,832 1,874 Other operating expenses 1,449 1,126 T
Slide 28: Balance Sheet
Balance Sheet (Unaudited) As of March 31, December 31, (In thousands, except share amounts) (1) 2012 2011 ASSETS Cash and cash equivalents $ 51,546 $ 62,737 Investments, financial derivatives and repurchase agreements: Investments at fair value (Cost - $1,232,162 and $1,234,203) 1,225,584 1,212,483
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 $35.00 EFC’s stable book value $31.95 BVPS Cumulative Dividends $29.93 $30.06 $29.97 $29.90 $30.01 $30
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, and has over 100 employees, giving EFC access to time-tested infrastructure and industry-leading resources
Slide 31: Ellington Financial LLC First Quarter Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) First Quarter Earnings Conference Call May 8, 2012 Investor Contact: Media Contact: Neha Mathur Shawn Pattison or Dana Gorman Vice President The Abernathy MacGregor Group, for Ellington Financial LLC Ellington Financial LLC (203) 409−3575 (212) 371−5999