Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q2 2017 Earnings Presentation
29 slides from Ellington Financial's earnings presentation, Aug 4, 2017
Slide 1: Second Quarter 2017 Earnings Conference Call
Second Quarter 2017 Earnings Conference Call August 4, 2017
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 Highlights
Second Quarter Highlights(1) Net income: $5.1 million or $0.16 per share Overall Results Economic return: 0.85% for the quarter, 6.9% year-to-date annualized through Q2 Increased assets in Credit strategy Credit gross income: $9.4 million(2) or $0.28 per share Credit Each individual strate
Slide 4: Market Conditions & Portfolio Trends
Market Conditions & Portfolio Trends Volatility continued to hit new lows and yield curve flattened further Federal Reserve raised the target range for the federal funds rate by 0.25% and provided further details of its tapering plan Overall Market Conditions Yield spreads for many credit prod
Slide 5: Objectives
Objectives ■ Leverage our proprietary pipeline of loans and make opportunistic allocations to securities to build a diverse group of high-yielding assets ■ Minimize the volatility of our book value and earnings through dynamic credit and interest rate hedging ■ Expand financing facilities, including
Slide 6: Portfolio
Ellington Financial Portfolio
Slide 7: Portfolio Summary as of June 30, 2017
Portfolio Summary as of June 30, 2017(1) Diversified sources of return to perform through market cycles Equity Fair Value Average WAVG WAVG Equity and Asset Allocation by Strategy Allocation ($MM) Price (%)(2) Life (4) Mkt Yield (5) Strategy CREDIT 11% Residential Loans $ 136,097 97.7 2.1 6.0% CLOs
Slide 8: Second Quarter Portfolio Updates by Strategy
Second Quarter Portfolio Updates by Strategy Strategy Second Quarter Developments Diversified Credit CLOs Actively traded our U.S. CLO investments, generating net realized gains in addition to strong carry Participated in CLO securitization by selling loans to, and acquiring interests in, Elling
Slide 9: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value 50 Basis Point Decline in Interest Rates 50 Basis Point Increase in Interest Rates (In thousands) Market Value % of Total Equity Market Value % of Total Equity Agency RMBS ARM Pools $ 63 0.01% $ (74) -0.01% Agency RMBS Fixed Pools
Slide 10: Credit: Significantly Diversified Sources of Return Over Time
Credit: Significantly Diversified Sources of Return Over Time Holdings Overview Holdings Overview Long Credit Portfolio 6/30/17: $685MM(1) Long Credit Portfolio 12/31/13: $700MM(1) Corporate Debt and Equity, 2% CLOs, 15% RMBS, 10% RMBS, 82% Residential Loans and REO, 20% CLOs 6% Consumer Loans and A
Slide 11: Credit Hedging Portfolio
Credit Hedging Portfolio(1)(2) Corporate CDS Indices / Instrument Tranches / Options / Single Single Name ABS CDS and Corporate Bonds/Corporate Category Names ABX Indices European Sovereign Debt Bond ETFs/Equities CMBX HY CDX OTR Bond Equivalent (4) Units Value (3)(4) Bond Equivalent Value (4) Marke
Slide 12: Agency Long Portfolio
Agency Long Portfolio Agency Long Portfolio: $834MM(¹) Collateral Characteristics and Historical 3-month CPR As of 6/30/17 For the Quarter Ended 6/30/17(2) 3-Month Geography Fair Jumbo Characteristic(3) Historical 4% Value(2)(4) < 1% 1% CPR(3) < 1% < 1% FNMA Fixed - 30 Yr Other 7% 8% Non-Owner FNMA
Slide 13: Agency Interest Rate Hedging Portfolio
Agency Interest Rate Hedging Portfolio(1) We deploy a dynamic and adaptive hedging strategy to preserve book value Agency Interest Rate Hedging Portfolio 6/30/17: Exposure to Agency Pools Based on Fair Value Short $302MM 10-year equivalents $1,000 >5 Yr Treasury Futures 0-5 Yr Interest Rate 2.0% Swa
Slide 14: Borrowings
Ellington Financial Borrowings
Slide 15: Borrowings and Leverage
Borrowings and Leverage(1) As of June 30, 2017 For the Quarter Ended June 30, 2017 ($ In thousands) (1) (1) (1) Weighted Average Outstanding Debt-to-Equity Average Cost of Collateral for Borrowing Average Borrowings for the Borrowings Ratio(2) Funds Borrowing Rate Quarter Ended Credit $389,161 3.17%
Slide 16: Repo Borrowings
Repo Borrowings(1) ($ in tho usands) Repo Borrowings as of June 30, 2017 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 9% 12% 28% 30 Days or Less $66,501 $218,251 $27,094 $311,846 27.90% 31-90 Days 107,746 457,159 — 564,905 50.50% 9
Slide 17: Supplemental Information
Ellington Financial Supplemental Information
Slide 18: Operating Results
Operating Results % of % of Quarter Ended Per Average Quarter Ended Per Average (In thousands, except per share amounts) June 30, 2017 Share Equity March 31, 2017 Share Equity Credit: Interest income and other income $ 14,098 $ 0.43 2.19% $ 13,133 $ 0.40 2.02% Net realized gain (loss) 3,858 0.12 0.6
Slide 19: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation through market cycles Six Months Years Ended Ended June 30, 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % Long: Credit 41,448 6.42 36,203 5.29 46,892 6.09 77,636 11.38 109,536 18.53 129,
Slide 20: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q1 -2017(1)(2) Quarterly Economic Returns of Hybrid REITs Q1-2011 – Q1-2017 9.0% Standard Company Deviation 8.0% EFC 2.555% Hybrid REIT #02 3.366% 7.0% Hybrid REIT #03 3.479% 6.0%
Slide 21: 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 2017 is approximately 166%, or 10.4% annualized(1) DBVPS C
Slide 22: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition(1) Capital Usage Across Entire Portfolio Leverage by Strategy (Debt-to-Equity) 3.50 6/30/2017 3.00 6.65 6.80 7.00 6.10 2.50 5.47 3/31/2017 6.00 2.00 1.85 1.63 1.70 1.50 12/31/2016 1.50 1.00 0.86 9/30/2016 0.68 0.50 0.57 0.58 0% 10% 20% 30% 40% 50% 60% 70% 80
Slide 23: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Six Month Three Month Period Ended Period Ended (In thousands, except per share data) June 30, 2017 March 31, 2017 June 30, 2017 Investment income Interest income $ 21,788 $ 22,886 $ 44,674 Other income 872 939
Slide 24: 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) 2017 2017 2016(1) ASSETS Cash and cash equivalents $ 134,515 $ 104,219 $ 123,274 Restricted Cash 425 655 655 Investmen
Slide 25: 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 26: Endnotes
Endnotes Slide 3 – Second Quarter Highlights (1) Holdings, leverage and book value amounts are as of June 30, 2017. (2) Gross income includes interest income, other income, net realized and change in net unrealized gains (losses), net interest rate hedges, net credit hedges and other activities, int
Slide 27: Endnotes
Endnotes Slide 11 – Credit Hedging Portfolio (1) The Credit Hedging Portfolio excludes both legs of certain relative value trades which we believe do not affect the overall hedging position of the portfolio. Consequently, the amounts shown here may differ materially (i) from those that would be show
Slide 28: Endnotes
Endnotes Slide 18 – Operating Results (1) Includes TBAs and U.S. Treasuries, if applicable. (2) Includes equity and other relative value trading strategies and related hedges. (3) Per share information is calculated using weighted average shares and LTIP units outstanding. Percentage of average equi
Slide 29: Investor Contact
Investor Contact: Maria Cozine, Vice President of Investor Relations or Lisa Mumford, Chief Financial Officer Ellington Financial LLC (203) 409-3575 Info@ellingtonfinancial.com Media Contact: Amanda Klein or Kevin Fitzgerald Gasthalter & Co. for Ellington Financial LLC (212) 257-4170 Ellington@gasth