Slide 1: Second Quarter 2016 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Second Quarter 2016 Earnings Conference Call August 5, 2016
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 2016
Second Quarter 2016
Slide 4: Operating Results
Operating Results Six Month Quarter Quarter Period Ended % of Ended % of Ended % of June 30, Per Average Mach 31, Per Average June 30, Per Average (In thousands, except per share amounts) 2016 Share Equity 2016 Share Equity 2016 Share Equity Credit: Interest income and other income $ 14,113 $ 0.42 2
Slide 5: Ellington Financial: Second Quarter Highlights
Ellington Financial: Second Quarter Highlights Net income of $5.0 million, or $0.15 per share Assets performed well in both the Credit and Agency strategies during the second quarter Overall Results Interest rate hedges and credit hedges partially offset the performance of our assets Credit
Slide 6: Second Quarter Highlights (continued)
Ellington Financial: Second Quarter Highlights (continued) Total Long Credit Portfolio: $583(1) million as of June 30, 2016 as compared to $645(1) million as of March 31, 2016 Portfolios Agency Long Portfolio: $850 million as of June 30, 2016, as compared to $937 million as of March 31, 2016 J
Slide 7: Ellington Financial: Credit Strategy
Ellington Financial: Credit Strategy Over the first two months of the second quarter, interest rates generally trended slightly higher and volatility declined In June, as a result of the "Brexit" vote, interest rates sharply reversed course and dropped dramatically Yield spreads initially wide
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy Over the course of the second quarter the yield curve flattened significantly 10-year Treasury yield decreased 30 basis points to end the second quarter at 1.47% 2-year U.S. Treasury yield decreased 14 basis points to 0.58% Overall Market 30-year mortgage
Slide 9: Ellington Financial: Outlook
Ellington Financial: Outlook We expect to continue to hold a diversified Credit portfolio, primarily consisting of: Consumer Loans and ABS, with an emphasis on establishing a steady pipeline through flow agreements Small Balance Commercial Mortgage Loans, especially distressed loans Non-QM M
Slide 10: EFC Credit: Long Securities Portfolio vs High Yield Series 25
EFC Credit: Long Securities Portfolio(1) vs High Yield Series 25(2) EFC Long Portfolio vs High Yield 25 (3) 1000 900 800 Spread 700 600 500 400 300 HY.25, Not Loss Adjusted EFC Long Portfolio, Loss Adjusted (1) Long securities portfolio includes investments in non-Agency RMBS, CMBS, ABS, CLOs, bank
Slide 11: Credit Portfolio
Credit Portfolio
Slide 12: EFC: Long Credit Portfolio
EFC: Long Credit Portfolio Current Quarter Previous Quarter Long Credit Portfolio 6/30/16: $583MM(1)(2) Long Credit Portfolio 3/31/16: $645MM(1)(2) Distressed Corporate Distressed Corporate Loans and Equity, Loans and Equity, 9% Jumbo/ 10% Average Px 50.5 Alt-A, 17% Average Px 56.7 Jumbo/ Euro CLO,
Slide 13: Long Credit Portfolio (continued)
EFC: Long Credit Portfolio (continued) Holdings Overview Holdings Overview Long Credit Portfolio 6/30/16: $583MM(1) Long Credit Portfolio 12/31/13: $700MM(1) Distressed Corporate Loans and Equity, 9% CLOs, 3% RMBS, 26% RMBS, 82% Consumer Loans and ABS, 27% CLOs 6% European Non- Residential Loans Dol
Slide 14: Long Credit Portfolio as of June 30, 2016
EFC: Long Credit Portfolio as of June 30, 2016 Credit strategy is the main driver of earnings Long Credit securities and loan portfolio value: $570.7 million—excludes REO and equity investments in mortgage related entities Est. Yield at Market Price at Fair Value Weighted Average Historical 1-Ye
Slide 15: Credit Hedging Portfolio
EFC: Credit Hedging Portfolio(1)(2) Corporate CDS Indices / Instrument Tranches / Options / Single Single Name ABS CDS and Corporate Bond Index Category Names ABX Indices European Sovereign Debt ETFs/Equity CMBX HY CDX OTR Bond Equivalent Units Value(3)(4) Bond Equivalent Value (4) Market Value Mark
Slide 16: Agency Portfolio
Agency Portfolio
Slide 17: EFC: Agency Long Portfolio
EFC: Agency Long Portfolio Current Quarter Previous Quarter Agency Long Portfolio 6/30/16: $850MM(¹) Agency Long Portfolio 3/31/16: $937MM(¹) 8% 1% 3% FNMA Fixed - 30 Yr 1% 6% FNMA Fixed - 30 Yr 2% 7% 2% FNMA Fixed - 15 Yr 2% FNMA Fixed - 15 Yr 2% FHLM Fixed - 30 Yr 2% FHLM Fixed - 30 Yr FHLM Fixed
Slide 18: EFC: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Current Quarter Previous Quarter Agency Interest Rate Hedging Portfolio 6/30/16: Agency Interest Rate Hedging Portfolio 3/31/16: Short $210 MM 10-year equivalents Short $292 MM 10-year equivalents 0-5 Yr Interest 0-5 Yr Interest Rate Swaps Rate Swaps 35.3%
Slide 19: Agency Interest Rate Hedging Portfolio (continued)
EFC: Agency Interest Rate Hedging Portfolio (continued) Calculation of Exposure to Agency Pools Based on Fair Value: (In millions) Agency-related Portfolio 6/30/2016 3/31/2016 Long Agency RMBS $829 $914 Net Short TBAs (375) (369) Net Long Exposure to Agency RMBS $454 $545 Shorting “generic” pools
Slide 20: Borrowings
Borrowings
Slide 21: Repo Borrowings as of June 30, 2016
EFC: Repo Borrowings as of June 30, 2016 ($ in thousands) Repo Borrowings % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 30 Days or Less $19,109 $361,738 $143 $380,990 35.6% 31-60 Days 18,186 254,400 — 272,586 25.5% 61-90 Days 72,843 199,636 — 272,479 25.5% 91-120
Slide 22: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of June 30, 2016 For the Quarter Ended June 30, 2016 Average Borrowings for Collateral for Borrowing Outstanding Borrowings the Quarter Ended Average Cost of Funds (1) (1) (1) Credit $267,222 $283,775 3.14% Agency RMBS 815,774 850,986 0.71% Total e
Slide 23: Supplemental Information
Supplemental Information
Slide 24: Gross Profit and Loss
EFC: Gross Profit and Loss Six Months Ended June 30, 2016 Years Ended 2016 2015 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % $ % $ % Long: Credit 15,697 2.17 46,892 6.09 77,636 11.38 109,536 18.53 129,830 30.02 1,505 0.39 70,840 21.87 101,748 36.33 (64,565) (26.20)
Slide 25: Capital and Leverage
EFC: Capital and Leverage(1) Capital Usage Across Entire Portfolio(2) Notes 6/30/2016 (1) Excludes U.S. Treasury securities (2) Capital usage based on pro forma calculation of leverage generally applicable to long positions in target asset classes. 3/31/2016 (3) Assets per strategy capital includes
Slide 26: Credit and Agency Fair Values and Average Prices
EFC: Credit and Agency Fair Values and Average Prices Credit and Agency Portfolios by Fair Value $ In millions Credit Agency $ 1,400.0 1,221.2 1,200.0 962.6 936.8 1,000.0 849.7 800.0 655.5 638.8 644.9 583.3 600.0 400.0 200.0 - 9/30/2015 12/31/2015 3/31/2016 6/30/2016 Average Price – Credit and Agenc
Slide 27: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields – Agency and Credit Credit Agency 12.00% Total 9.83% 10.00% 9.34% 8.75% 8.29% 8.00% 5.78% 6.00% 5.10% 5.14% 4.85% 4.00% 3.53% 2.82% 3.21% 2.36% 2.00% 0.00% Q3 2015 Q4 2015 Q1 2016 Q2 2016 Note: Yields are based on amortized cost, not fair value. Excludes lo
Slide 28: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio $0.55 Dividends Per Share Dividend Yield as of $0.50 August 3, 2016 11.5% (1) $0.45 $0.40 $0.50 $0.50 $0.50 $0.50 $0.35 $0.30 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Expense Ratio(2) 3.05% 2.98% 2.96% 2.85% 2.82% 2.65% 2.55% 2.45% 2.25% (1) Based on NYSE closing price as of
Slide 29: Diluted Book Value
EFC: Diluted 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 EFC’s stable book value $90 DBVPS Cumulative Dividends ABX 2006-2 AAA $45.00 $80 $40.00 $70 $35
Slide 30: Stable Book Value Per Share Relative to Peer Group
EFC: Stable Book Value Per Share Relative to Peer Group Normalized Book Value per Share of Hybrid mREITs Standard Deviation Q1 2011 - Q1 2016(1)(2) of Normalized Book Value Per Share Q1 2011 – Q1 2016 40% Standard Company Deviation EFC 30% Hybrid REIT #02 EFC 4.32% Hybrid REIT #02 4.44% 20% Hybrid R
Slide 31: Sharpe Ratio of Quarterly Economic Returns Relative to Peer Group
EFC: Sharpe Ratio of Quarterly Economic Returns Relative to Peer Group Normalized Cumulative Compounded Sharpe Ratio of Quarterly Economic Returns of Hybrid mREITs Quarterly Economic Returns Q1 2011 – Q1 2016(1)(2)(3) Q1 2011 – Q1 2016 80% Sharpe Company Ratio 70% EFC Hybrid REIT #01 1.94 60% Hybrid
Slide 32: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Six Month Period Three Month Period Ended Ended (In thousands, except per share data) June 30, 2016 March 31, 2016 June 30, 2016 Investment income Interest income $ 18,990 $ 20,427 $ 39,417 Other income 1,024 1
Slide 33: 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) 2016 2016 2015(1) ASSETS Cash and cash equivalents $ 140,358 $ 142,082 $ 183,909 Restricted Cash 3,905 4,485 4,857 Inv
Slide 34: 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 160 employees, giving EFC access to time-tested infrastructure and proprietary resource
Slide 35: Investor Contact
Investor Contact: Media Contact: Maria Cozine, Vice President of Investor Relations or Amanda Klein or Kevin Fitzgerald Lisa Mumford, Chief Financial Officer Gasthalter & Co. Ellington Financial LLC for Ellington Financial LLC (203) 409-3575 (212) 257-4170 Info@ellingtonfinancial.com Ellington@gasth