Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q2 2013 Earnings Presentation
31 slides from Ellington Financial's earnings presentation, Aug 6, 2013
Slide 1: Ellington Financial LLC Second Quarter 2013 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Second Quarter 2013 Earnings Conference Call August 6, 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: Second Quarter 2013
Second Quarter 2013
Slide 4: Operating Results
Operating Results Quarter Six Months Ended Per % of Average Ended Per % of Average (In thousands, except per share amounts) 6/30/2013 Share Equity 6/30/2013 Share Equity Non-Agency MBS, Other ABS, and Commercial mortgage loans: Interest income $ 12,684 $ 0.54 2.18% $ 24,802 $ 1.11 4.46% Net realized
Slide 5: Ellington Financial: Second Quarter Highlights
Ellington Financial: Second Quarter Highlights 2nd quarter net income of $11.6 million or $0.49 per share; Six months net income of $51.9 million or Overall Results $2.35 per share, equating to a non-annualized return on shareholders’ equity of 9.4% 2nd quarter non-Agency MBS strategy gross inco
Slide 6: Ellington Financial: Highlights Continued
Ellington Financial: Highlights Continued Non-Agency Long Portfolio: $796.0 million with a market yield of 6.82%(1) at the end of the second quarter, as compared to $610.8 million at the end of the first quarter with a market yield of 6.77%(1) Portfolios Agency Long Portfolio: $860.7 million at
Slide 7: Ellington Financial: Non-Agency MBS Strategy
Ellington Financial: Non-Agency MBS Strategy Fundamentals of housing remain strong but the combination of rapid HPA in the last year and 100 basis point increase in mortgage rates means that the actual monthly payments are up by +30% in the last 18 months in some areas Ongoing positive momentum
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy Agency RMBS dramatically underperformed both U.S. Treasuries and interest rate swaps Specified pools with prepayment protection charactersitics particularly hard hit–as interest rate rise, prepayment protection has less value Lower coupon specified pools im
Slide 9: Ellington Financial: Market Outlook
Ellington Financial: Market Outlook Widening in non-Agency MBS yield spreads has created attractive investment opportunities We expect to continue to opportunistically purchase attractively priced securities in other sectors CMBS/CDOs/CLOs Small balance non-performing commercial mortgage loa
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 3/31/13: $611MM(1)(2) Non-Agency Long Portfolio 6/30/13: $796MM(1)(2) CMBS, CMBX and MBS CDO CMBS, CMBX and MBS CDO Commercial Mortgage Avg Px 50.4 Seasoned Manufactured Commercial Mortgage Avg Px 52.1 Seasoned
Slide 12: Non-Agency Long Portfolio as of June 30, 2013
EFC: Non-Agency Long Portfolio as of June 30, 2013 EFC non-Agency MBS strategy is the main driver of earnings Non-Agency long portfolio value: $796 million(1) as of 6/30/2013 (which includes $766 million of long non- Agency MBS and loans and $30 million of bond equivalent value of long credit de
Slide 13: Credit Hedging and Other Portfolio
EFC: Credit Hedging and Other Portfolio Previous Quarter Current Quarter Credit Hedging Portfolio 3/31/13: $158MM(1) Credit Hedging Portfolio 6/30/13: $183MM(1) Corporate CDS: $88.1mm Corporate CDS: $110.5mm CDX HY CDX HY CDS on MBS: $59.0mm CDS on MBS: $65.0mm ABX Indices ABX Indices 8% 26% Single
Slide 14: Agency Portfolio
Agency Portfolio
Slide 15: EFC: Agency Long Portfolio
EFC: Agency Long Portfolio Previous Quarter Current Quarter Agency Long Portfolio 3/31/13: $861MM(¹) Agency Long Portfolio 6/30/13: $861MM(¹) 2% 7% 8% 2% 3% FNMA Fixed - 30 Yr 1% <1% 1% FNMA Fixed - 30 Yr FNMA Fixed - 15 Yr FNMA Fixed - 15 Yr FHLM Fixed - 30 Yr 21% FHLM Fixed - 30 Yr FHLM Fixed - 15
Slide 16: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Previous Quarter Current Quarter Agency Interest Rate Hedging Portfolio 3/31/13: Agency Interest Rate Hedging Portfolio 6/30/13: Short $408 MM 10-year equivalents Short $518 MM 10-year equivalents 2-5 Yr Interest 2-5 Yr Interest Rate Swaps 18.0% Rate Swaps
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 3/31/2013 6/30/2013 Long Agency RMBS $861 $861 Net Short TBA Positions (517) (481) Net Long Exposure to Agency RMBS $344 $380 Short
Slide 18: Borrowings
Borrowings
Slide 19: Repo Borrowings as of June 30, 2013
EFC: Repo Borrowings as of June 30, 2013 ($ In Millions) Repo Borrowings % of Total Remaining Days to Maturity Non-Agency Agency Total Borrowings 30 Days or Less $57.2 $263.9 $321.1 24.9% 31-60 Days 106.3 287.4 393.7 30.6 61-90 Days 137.1 256.1 393.2 30.5 91-120 Days 3.3 50.9 54.2 4.3 121-150 Days 1
Slide 20: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of June 30, 2013 For the Quarter Ended June 30, 2013 Average Borrowings for 1 (1) 1 1 Collateral for Borrowing Outstanding Borrowings the Quarter Ended (1) Average Cost of Funds(1) Non-Agency RMBS, CMBS, and Other $415,545 $315,851 2.04% Agency RMB
Slide 21: Supplemental Information
Supplemental Information
Slide 22: Gross Profit and Loss
EFC: Gross Profit and Loss In times of MBS market distress, the use of hedging instruments has been effective in insulating long non-Agency portfolio from credit risk Six Months Ended Years Ended June 30, 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % Long: Non-Agency 60,71
Slide 23: Capital and Leverage
EFC: Capital and Leverage Capital Usage Across Entire Portfolio(1) Notes 6/30/2013 (1) Capital usage based on pro forma calculation of leverage generally applicable to long positions in target asset classes. 3/31/2013 (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 $ In millions Non-Agency Agency $ 1,000.0 900.0 861.0 860.7 800.0 774.3 765.8 700.0 620.2 584.9 600.0 557.2 511.8 500.0 400.0 300.0 200.0 100.0 - 9/30/2012 12/31/2012 3/31/2013 6/30/2013 Average
Slide 25: 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% 8.61% 8.00% 5.90% 5.70% 5.46% 5.61% 6.00% 3.57% 4.00% 3.01% 2.75% 2.73% 2.00% 0.00% Q3 2012 Q4 2012 Q1 2013 Q2 2013 Note: Yields are based on amortized cost, not fair value. No
Slide 26: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share $1.55 $1.50 Dividend Yield as $0.75(2) of June 30, 2013 $1.45 13.5% (1) $0.80 $0.75 $0.70 $0.65 $0.77 $0.77 $0.77 $0.60 $0.70 $0.55 (1) Based on NYSE closing price as of 6/28/2013. (2) Special dividend. $0.50 Q3 2012 Q4 2012 Q1 2013 Q2 2013 3.0% E
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 $40 BVPS Cumulative Dividends ABX 2006-2 AAA $100 EFC’s stable book value $90 $35 $80 $11.48 $12.25 $30
Slide 28: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Three Month Period Ended Six Month Period Ended June 30, March 31, June 30, (In thousands, except per share data) 2013 2013 2013 Investment income Interest income $ 20,335 $ 18,382 $ 38,717 Expenses Base manage
Slide 29: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of June 30, March 31, December 31, (In thousands, except share amounts) 2013 2013 2012(1) ASSETS Cash and cash equivalents $ 201,795 $ 64,753 $ 59,084 Investments, financial derivatives and
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 industry-leading reso
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