Slide 1: Second Quarter 2019 Earnings Conference Call
Second Quarter 2019 Earnings Conference Call August 6, 2019
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 Market Update
Second Quarter Market Update Quarter Ended: 6/30/2019 3/31/2019 Q/Q 12/31/2018 Q/Q 9/30/2018 Q/Q 6/30/2018 Q/Q 3/31/2018 Q/Q UST (%)(1) 3M UST 2.09 2.38 -0.29 2.35 +0.03 2.20 +0.16 1.91 +0.28 1.70 +0.21 2Y UST 1.75 2.26 -0.51 2.49 -0.23 2.82 -0.33 2.53 +0.29 2.27 +0.26 5Y UST 1.77 2.23 -0.47 2.51 -0
Slide 4: Second Quarter Highlights
Second Quarter Highlights(1) Net income: $12.6 million or $0.43 per share Overall Results Economic return(2): 2.3% for the quarter or 9.4% annualized Core Earnings(3) of $13.6 million or $0.46 per share Credit Credit gross income: $16.3 million(4) or $0.54 per share Strategy Long credit po
Slide 5: Portfolio Summary as of June 30, 2019
Portfolio Summary as of June 30, 2019(1) Diversified sources of return to perform across market cycles Average Allocated Fair Value Price WAVG WAVG Equity and Asset Allocation by (2)(6) (4)(6) (5)(6) Strategy Equity ($ in $1,000s) (%) Life Mkt Yield Strategy CREDIT CMBS and Commercial Mortgage Loans
Slide 6: Condensed Consolidated Statement of Operations (Unaudited)
Condensed Consolidated Statement of Operations (Unaudited) Three-Month Period Ended (In thousands, except per share data) June 30, 2019 March 31, 2019 Net Interest Income Interest income $ 38,547 $ 36,016 Interest expense (19,702) (17,618) Total net interest income 18,845 18,398 Other Income (Loss)
Slide 7: Operating Results by Strategy
Operating Results by Strategy Three-Month % of Three-Month % of Period Ended Per Average Period Ended Per Average (In thousands, except per share amounts) June 30, 2019 Share Equity March 31, 2019 Share Equity Credit: Interest income and other income (1) $ 30,418 $ 1.00 5.13% $ 29,409 $ 0.97 4.95% R
Slide 8: Long Credit Portfolio
Long Credit Portfolio 6/30/2019 (1 ) 3/31/2019 (1 ) Equity Cor por ate Debt Equity Investment in Cor por ate Debt Investment in & Equity & & Equity Loan Or igination Cor por ate Loans Loan Or igination <1% Entities 1% Entities 3% 3% CLO CLO(2) 8% 7% Residential Residential Loans & REO(3) Loans & REO
Slide 9: Long Agency Portfolio
Long Agency Portfolio Agency Long Portfolio Agency Long Portfolio As of 6/30/2019: $1.34BN (1) As of 3/31/2019: $1.14BN (1) ARMs Fixed IOs RM Fixed ARMs Fixed IOs RM Fixed 2% < 1% <1% 2% 9% 8% 15-Year Fixed 15-Year Fixed 6% 10% 20-Year Fixed 20-Year Fixed < 1% 30-Year < 1% 30-Year Fixed Fixed 78% 83
Slide 10: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 6/30/2019 Three-Month Period Ended 6/30/2019 Weighted Outstanding Average Average Average Collateral Type Borrowings Borrowing Rate Borrowings Cost of Funds (1) (1) (1) (1) Credit $1,051,834 4.06% $975,638 4.31% Agency RMBS 1,240,726 2.61% 1,172,136 2.70%
Slide 11: Diversified Credit Portfolio
Diversified Credit Portfolio CLOs - Retained CLO Tranches - Secondary CLO Equity & Mezz Residential Mortgages - Non-QM Loans 8% - Residential Transition Loans - NPL / RPL - Non-Agency / Non-Conforming - Reverse Mortgages Commercial Mortgages - REO 38% - NPLs - Bridge Loans 36% - CMBS B-Pieces & Cred
Slide 12: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q1 -2019(1)(2) Quarterly Economic Returns of Hybrid REITs 9.0% Q1-2011 – Q1-2019 Standard 8.0% Company Deviation EFC 2.3% 7.0% Hybrid REIT #02 3.1% Hybrid REIT #03 3.2% 6.0% Hybrid
Slide 13: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value ($ in thousands) 50 Basis Point Decline in Interest Rates 50 Basis Point Increase in Interest Rates % of Total Market Value % of Total Equity Market Value Equity Agency RMBS - ARM Pools $ 129 0.02% $ (130) -0.02% Agency RMBS - Fixe
Slide 14: Supplemental Slides
Ellington Financial Supplemental Slides
Slide 15: Derivatives Summary as of June 30, 2019
Derivatives Summary as of June 30, 2019(1) Long Short Net ($ in thousands) Notional Notional Notional Fair Value Mortgage-Related Derivatives: CDS on MBS and MBS Indices $ 1,170 $ (29,767) $ (28,597) $ 3,052 Total Net Mortgage-Related Derivatives 1,170 (29,767) (28,597) 3,052 Corporate-Related Deriv
Slide 16: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Corporate CDS Indices / Tranches / Options / Single Names Single Name ABS CDS and ABX Indices European Sovereign Debt CMBX (3)(4) (4) Units HY CDX OTR Bond Equivalent Value Bond Equivalent Value Market Value Bond Equivalent Value (4) - (10.0) (20.0) (30.0) (In $Million
Slide 17: Agency Interest Rate Hedging Portfolio
Agency Interest Rate Hedging Portfolio(1) We deploy a dynamic and adaptive hedging strategy to preserve book value As of 6/30/2019 As of 3/31/2019 Short $356.3MM 10-yr equivalents(1) Short $386.5MM 10-yr equivalents(1) Eurodollar 0-5 Yr Interest Eurodollar 0-5 Yr Interest Futures, 0.2% Rate Swaps, F
Slide 18: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Exposure to Agency Pools Based on Net Fair Value As of 6/30/2019 As of 3/31/2019 $1,500 $1,500 $1,000 Long Agency $1,000 RMBS $1,314 Long Agency RMBS $1,119 $500 Net Long $500 ($ in millions) ($ in millions) Exposure to Agency Net Long Exposur e to
Slide 19: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Agency Fixed Long Portfolio Agency Fixed Long Portfolio Collateral Characteristics and Historical 3-Mo CPR: Collateral Characteristics and Historical 3-Mo CPR: (1) Average for Quarter Ended 6/30/2019 Average for Quarter Ended 3/31/2019 (1) Other Jumbo Othe
Slide 20: Repo Borrowings
Repo Borrowings(1) ($ in tho usands) Repo Borrowings as of June 30, 2019 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 5% 5% 17% 30 Days or Less $142 $283,477 $687 $284,306 16.6% 14% 31-90 Days 187,820 827,465 — 1,015,285 59.2% 91-1
Slide 21: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation through market cycles Six-Month Period Years Ended ($ In thousands) Ended June 30 2019 2018 2017 2016 2015 2014 Long: Credit $ 42,084 7.1% $ 61,201 10.0% $ 61,136 9.6% $ 36,203 5.3% $ 46,892 6.1% $ 77,636 11.4% Credit Hedge and Other (6,829) -1.2%
Slide 22: Diluted Book Value per Share
Total Return Since Inception EFC has successfully preserved book value through market cycles, while producing strong results for investors EFC life-to-date diluted net asset value-based total return from inception in August 2007 through Q2 2019 is approximately 214%, or 10.1% annualized(1) $45.00
Slide 23: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition Capital Usage Across Entire Portfolio(1) Leverage by Strategy (Debt-to-Equity)(1) 10.1 5.0 10.00 9.5 9.9 9.00 8.8 6/30/2019 4.5 8.00 4.0 4.0 3/31/2019 3.5 3.4 3.4 3.0 12/31/18 3.0 2.5 2.4 9/30/18 2.0 2.2 2.2 1.9 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1.
Slide 24: Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Balance Sheet (Unaudited) June 30, March 31, (In thousands, except share amounts) 2019 2019 ASSETS Cash and cash equivalents $ 42,671 $ 55,876 Restricted cash 175 175 Securities, at fair value 1,668,677 1,529,485 Loans, at fair value 1,091,523 1,014,990 Investments in unconsol
Slide 25: Reconciliation of Net Income (Loss) to Core Earnings
Reconciliation of Net Income (Loss) to Core Earnings(1) Three-Month Period Ended (In thousands, except per share amounts) June 30, 2019 March 31, 2019 Net income (loss) $13,656 $16,488 Income tax expense (benefit) 376 - Net income (loss) before income tax expense 14,032 16,488 Adjustments: Realized
Slide 26: About Ellington Management Group
About Ellington Management Group Ellington Profile As of 6/30/2019 Founded: 1994 $8.4 14 26 Years of average 12% Billion in Employee-partners industry Management’s Employees: >150 assets under own the firm(2) experience of ownership of EFC, management as of representing Investment Professionals: 65
Slide 27: Investment Highlights of EFC
Investment Highlights of EFC Diversified investment portfolio across residential mortgage, commercial mortgage, consumer loan, and corporate loan sectors • Diverse range of strategies designed to generate a high-quality earnings stream • Ability to shift capital allocation across asset classes as
Slide 28: Endnotes
Endnotes Slide 3 – Second Quarter Market Update (1) Source: Bloomberg (2) Source: Mortgage Bankers Association via Bloomberg (3) LIBOR-based OAS measures the additional yield spread over LIBOR that an asset provides at its current market price after taking into account any interest rate options embe
Slide 29: Endnotes
Endnotes Slide 6 – Condensed Consolidated Statement of Operations (unaudited) (1) Expense ratio is defined as our annualized base management fee (net of fee rebates) and other operating expenses, but excluding interest expense, other investment related expenses, incentive fees, income tax expense, a
Slide 30: Endnotes
Endnotes Slide 13 – Interest Rate Sensitivity Analysis (1) The table reflects the estimated effects on the value of our portfolio, both overall and by category, of hypothetical, immediate, 50 basis point downward and upward parallel shifts in interest rates, based on the market environment as of Jun
Slide 31: Endnotes
Endnotes Slide 19 – CPR Breakout of Agency Fixed Long Portfolio (1) Does not include long TBA positions, reverse mortgage pools, or fixed rate IOs. (2) Classification methodology may change over time as market practices change. (3) Fair value shown in millions. (4) “MHA” indicates those pools where
Slide 32: Endnotes
Endnotes Slide 25 – Reconciliation of Net Income (Loss) to Core Earnings (1) We calculate Core Earnings as U.S. GAAP net income (loss) as adjusted for: (i) realized and unrealized gain (loss) on investments, REO, financial derivatives (excluding net accrued periodic (payments) receipts on interest r
Slide 33: Investor Relations Contact
Investors: Investor Relations Ellington Financial LLC (203) 409-3575 Info@ellingtonfinancial.com Media: Amanda Klein or Kevin FitzGerald Gasthalter & Co. for Ellington Financial LLC (212) 257-4170 Ellington@gasthalter.com Ellington Financial LLC 53 Forest Ave Old Greenwich, CT 06870 www.ellingtonfin