Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q3 2018 Earnings Presentation
31 slides from Ellington Financial's earnings presentation, Nov 8, 2018
Slide 1: Third Quarter 2018 Earnings Conference Call
Third Quarter 2018 Earnings Conference Call November 8, 2018
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: Third Quarter Market Update
Third Quarter Market Update Quarter Ended: 9/30/2018 6/30/2018 Q/Q 3/31/2018 Q/Q 12/31/2017 Q/Q 9/30/2017 Q/Q 6/30/2017 UST (%)(1) 2Y UST 2.82 2.53 +0.29 2.27 +0.26 1.88 +0.38 1.48 +0.40 1.38 5Y UST 2.95 2.74 +0.22 2.56 +0.18 2.21 +0.36 1.94 +0.27 1.89 10Y UST 3.06 2.86 +0.20 2.74 +0.12 2.41 +0.33 2
Slide 4: Third Quarter Highlights
Third Quarter Highlights(1) Net income: $6.7 million or $0.22 per share Overall NAV-based total return: 1.1% for the quarter and 9.4% year-to-date (12.6% annualized) Results Net investment income of $11.7 million or $0.38 per share Adjusted net investment income(2) of $12.5 million or $0.40
Slide 5: Portfolio Summary as of September 30, 2018
Portfolio Summary as of September 30, 2018(1) Diversified sources of return to perform across market cycles Average Allocated Fair Value Price WAVG WAVG Equity and Asset Allocation by (2)(6) (4)(6) (5)(6) Strategy Equity ($K) (%) Life Mkt Yield Strategy CREDIT 15% Residential Mortgage Loans and REO
Slide 6: Consolidated Statement of Operations (Unaudited)
Consolidated Statement of Operations (Unaudited) Nine-Month Period Three-Month Period Ended Ended (In thousands, except per share data) September 30, 2018 June 30, 2018 September 30, 2018 Investment income Interest income $ 35,300 $ 31,941 $ 95,333 Other income 1,046 1,094 2,857 Total investment inc
Slide 7: Operating Results by Strategy
Operating Results by Strategy Nine-Month Quarter Ended % of % of Period Ended % of September 30, Per Average Quarter Ended Per Average September 30, Per Average (In thousands, except per share amounts) 2018 Share Equity June 30, 2018 Share Equity 2018 Share Equity Credit: Interest income and other i
Slide 8: Long Credit Portfolio
Long Credit Portfolio 9/30/2018 (1 )(2 ) 6/30/2018 (1)(2) Investments in Investments in Corporate Corporate Mortgage- Mortgage- Debt and Debt & Equity Related Related Equity 1% Entities Entities 0% 2% CLO 3% 12% Residential CLO Residential Loans & REO 19% Loans & REO CMBS & 17% 24% Commer cial Loans
Slide 9: Long Agency Portfolio
Long Agency Portfolio Agency Long Portfolio Agency Long Portfolio (2) As of 9/30/2018: $944.4MM (1) As of 6/30/2018: $948.5MM (1) RM Fixed ARMs Fixed IOs RM Fixed ARMs Fixed IOs 1% 4% 1% 3% 6% 6% 15-Year 15-Year Fixed Fixed 8% 9% 20-Year 20-Year Fixed 30-Year Fixed 30-Year 0% 0% Fixed Fixed 81% 81%
Slide 10: Summary of Borrowings
Summary of Borrowings ($ in thousands) As of 9/30/2018 Weighted For the Quarter Ended 9/30/2018 Outstanding Average Average Average Collateral Type Borrowings Borrowing Rate Borrowings Cost of Funds Credit(1) $887,382 3.71% (1) $780,921 (1) 3.80% (1) Agency RMBS 901,685 2.29% 899,659 2.24% Subtotal
Slide 11: Diversified Credit Portfolio
Diversified Credit Portfolio Corporate Loans - Retained CLO Tranches - Secondary CLO Equity & Mezz - Distressed - Corporate Credit Relative Value 12% Residential Mortgages Commercial Mortgages - NPLs - Non-Agency / Non-Conforming - Bridge Loans - Non-QM Loans - CMBS B-Pieces & Credit Bonds - NPL/RPL
Slide 12: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q2 -2018(1)(2) Quarterly Economic 9.0% Returns of Hybrid REITs Q1-2011 – Q2-2018 8.0% Standard Company Deviation 7.0% EFC 2.4% Hybrid REIT #02 3.1% 6.0% Hybrid REIT #03 3.2% Hybrid
Slide 13: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis(1) Estimated Change in Fair Value ($ 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 $ 33 0.01% $ (35) -0.01% Agency RMBS - Fixed
Slide 14: Supplemental Slides
Ellington Financial Supplemental Slides
Slide 15: Derivative Summary as of September 30, 2018
Derivative Summary as of September 30, 2018(1) ($ in thousands) Long Short Net Fair Value Mortgage-Related Derivatives CDS on MBS and MBS Indices $ 7,406 $ (21,915) $ (14,509) $ 3,860 Total Net Mortgage-Related Derivatives 7,406 (21,915) (14,509) 3,860 Corporate-Related Derivatives CDS on Corporate
Slide 16: 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) (4) Units Value (3)(4) Bond Equivalent Value Marke
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 9/30/2018 As of 6/30/2018 Short $461.4MM 10-yr equivalents(1) Short $447.8MM 10-yr equivalents(1) >5 Yr Treasuries, Eurodollar 0-5 Yr Interest 0.5% Futures, 0.9% 0-5 Yr Interest >
Slide 18: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Exposure to Agency Pools Based on Net Fair Value As of 9/30/2018 As of 6/30/2018 Net Agency pool Net Agency pool assets-to-equity(1): 4.9:1 assets-to-equity(1): 4.5:1 Our net long mortgage exposure was effectively unchanged quarter over quarter
Slide 19: CPR Breakout of Agency Fixed Long Portfolio
CPR Breakout of Agency Fixed Long Portfolio Agency Fixed Long Portfolio Agency Fixed Long Portfolio Collateral Characteristics and Historical 3-Mo CPR: Collateral Characteristics and Historical 3-Mo CPR: Average for Quarter Ended 9/30/2018 (1) Average for Quarter Ended 6/30/2018 (1) Jumbo Other Geog
Slide 20: Repo Borrowings
Repo Borrowings(1) ($ in tho usands) Repo Borrowings as of September 30, 2018 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 4% 6% 18% 30 Days or Less $26,546 $209,417 $50,731 $286,694 17.5% 11% 31-90 Days 335,006 663,133 — 998,139 6
Slide 21: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation through market cycles Nine-Month Period Ended Years Ended ($ In thousands) September 30, 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Long: Credit $ 60,930 9.9% $ 61,136 9.6% $ 36,203 5.3% $ 46,892 6.1% $ 77,636 11.4% $ 109,536 18.5% $ 1
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 Q3 2018 is approximately 199%, or 10.3% 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) 11.00 9/30/18 4.00 9.71 10.06 10.00 9.11 9.24 3.50 9.00 6/30/18 3.04 3.00 2.77 2.62 2.50 2.24 3/31/18 2.00 1.85 1.50 1.65 1.53 12/31/17 1.21 1.00 0% 10% 20% 30% 40% 50% 60% 70%
Slide 24: Consolidated Statement of Assets, Liabilities and Equity
Consolidated Statement of Assets, Liabilities and Equity (Unaudited) As of September 30, June 30, December 31, (In thousands, except share amounts) 2018 2018 2017(1) ASSETS Cash and cash equivalents $ 53,598 $ 22,071 $ 47,233 Restricted Cash 425 425 425 Investments, financial derivatives, and repurc
Slide 25: Reconciliation of Adjusted Net Investment Income to Net Investment Income
Reconciliation of Adjusted Net Investment Income to Net Investment Income(1) Quarter Ended (In thousands, except per share amounts) September 30, 2018 Net investment income $11,678 Include: Net realized and change in net unrealized gains (losses) from certain equity investments in partnerships (2) 1
Slide 26: About Ellington
About Ellington Ellington Profile As of 9/30/2018 Founded: 1994 $7.5 16 18 12% Billion in Employee-partners Years of average Management’s Employees: >150 assets under own the firm(2) industry experience ownership of EFC, management as of of senior portfolio representing strong Investment Professiona
Slide 27: Endnotes
Endnotes Slide 3 – Third 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 embed
Slide 28: Endnotes
Endnotes Slide 7 – Operating Results by Strategy (1) Includes TBAs and U.S. Treasury securities, if applicable. (2) Includes equity and other relative value trading strategies and related hedges. (3) Includes interest expense on our Senior Notes. (4) Per share information is calculated using weighte
Slide 29: Endnotes
Endnotes Slide 15 – Derivative Summary (1) In the table, fair value of certain derivative transactions are shown on a net basis. The accompanying financial statements separate derivative transactions as either assets or liabilities. As of September 30, 2018, derivative assets and derivative liabilit
Slide 30: Endnotes
Endnotes Slide 20 – Repo Borrowings (1) Included in the table, using the original maturity dates, are any reverse repos involving underlying investments we sold prior to September 30, 2018 for settlement following September 30, 2018 even though the company may expect to terminate such reverse repos
Slide 31: Investor Contact
Investor Contact: Investor Relations 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@gasthalter.com Ellington Financial LLC 53 Forest Ave Old Greenwich, CT 06870 w