Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q3 2017 Earnings Presentation
31 slides from Ellington Financial's earnings presentation, Nov 7, 2017
Slide 1: Third Quarter 2017 Earnings Conference Call
Third Quarter 2017 Earnings Conference Call November 7, 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: Third Quarter Highlights
Third Quarter Highlights(1) Net income: $6.2 million or $0.19 per share Overall Results Economic return: 1.06% for the quarter, 6.0% year-to-date annualized through Q3 Continued to ramp Credit portfolio Credit Credit gross income: $7.9 million(2) or $0.24 per share Strategy Long Credit por
Slide 4: Market Conditions & Portfolio Trends
Market Conditions & Portfolio Trends Volatility remained at historic lows and the yield curve flattened again during the quarter In September, the Federal Reserve announced it would initiate tapering in October Overall Market During the quarter, yield spreads across most credit products remain
Slide 5: Objectives
Objectives ■ Focus on growing the Credit portfolio and improving earnings ■ Leverage our proprietary pipeline of loans and make opportunistic allocations to securities to build a diverse group of high-yielding assets ■ Select high-quality, high-yielding assets without compromising our acquisition st
Slide 6: Portfolio
Ellington Financial Portfolio
Slide 7: Portfolio Summary as of September 30, 2017
Portfolio Summary as of September 30, 2017(1) Diversified sources of return to perform through market cycles Average Equity Fair Value Price WAVG WAVG Equity and Asset Allocation by (2)(6) (4)(6) (5)(6) Strategy Allocation ($MM) (%) Life Mkt Yield Strategy CREDIT 12% Residential Mortgage Loans and R
Slide 8: Third Quarter Portfolio Updates by Strategy
Third Quarter Portfolio Updates by Strategy Strategy Third Quarter Developments Diversified Credit Residential Mortgage Reached critical mass in our non-QM portfolio, and intend to complete securitization in the near future Loans & REO Continue to see interesting opportunities in the non-perform
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 $ 53 0.01% $ (60) -0.01% Agency RMBS Fixed Pools
Slide 10: Long Credit Portfolio – Holdings Overview
Long Credit Portfolio – Holdings Overview 9/30/17 6/30/17 Investments in Corporate Debt Investments in Corporate Debt Mortgage- and Equity Mortgage- and Equity Related Entities 2% Related Entities 2% 4% 5% Residential Residential RMBS Loans Loans RMBS 10% and REO and REO 11% 22% 20% European CLOs No
Slide 11: Credit: Significantly Diversified Sources of Return Over Time
Credit: Significantly Diversified Sources of Return Over Time 9/30/17 12/31/13 Investments in Corporate Debt Mortgage- and Equity Related Entities 2% 4% Residential RMBS RMBS 82% Loans 10% and REO 22% CLOs 6% CLOs 15% $741.3MM(1) Consumer European Non- Dollar $699.8MM(1) Loans and Denominated ABS MB
Slide 12: 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 Units Value (3)(4) Bond Equivalent Value (4) Market Va
Slide 13: Agency Long Portfolio
Agency Long Portfolio Agency Long Portfolio: $816.2MM(¹) Collateral Characteristics and Historical 3-month CPR As of 9/30/17 For the Quarter Ended 9/30/17(2) FNMA/FHLM ARMS FNMA/FHLM Fixed - 3-Month Fair 20 Yr Jumbo Geography Characteristic(3) Historical 1% Other Non-Owner Value(2)(4) <1% GNMA Fixed
Slide 14: 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 9/30/17: As of 6/30/17: Short $289MM 10-year equivalents Short $302MM 10-year equivalents >5 Yr Treasury >5 Yr Treasury Futures Futures 0-5 Yr Interest Rate 2.1% 0-5 Yr Interest R
Slide 15: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Exposure to Agency Pools Based on Fair Value As of 9/30/2017 As of 6/30/2017 $1,000 $1,000 $800 $800 Long Agency Long Agency $600 RMBS $600 RMBS $785 $805 $400 $400 ($ in millions) ($ in millions) Net Long Net Long $200 Exposure to $200 Exposure to
Slide 16: Borrowings
Ellington Financial Borrowings
Slide 17: Borrowings and Leverage
Borrowings and Leverage(1) For the Quarter Ended As of September 30, 2017 ($ In thousands) September 30, 2017 Weighted Average Outstanding Debt-to-Equity Average(1)Cost of Strategy Average (1) Borrowings (1) for the Borrowings Ratio(2) Funds Borrowing Rate Quarter Ended Credit, Secured $345,318 3.01
Slide 18: Repo Borrowings
Repo Borrowings(1) ($ in tho usands) Repo Borrowings as of September 30, 2017 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 8% 1% 34% 30 Days or Less $64,719 $281,543 $5,720 $351,982 34.20% 31-90 Days 136,073 448,049 — 584,122 56.70
Slide 19: Supplemental Information
Ellington Financial Supplemental Information
Slide 20: Operating Results
Operating Results Quarter Ended % of % of September 30, Per Average Quarter Ended Per Average (In thousands, except per share amounts) 2017 Share Equity June 30, 2017 Share Equity Credit: Interest income and other income $ 14,877 $ 0.45 2.35% $ 14,098 $ 0.43 2.19% (1) Net realized gain (loss) 2,732
Slide 21: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation through market cycles Nine Months Ended Years Ended September 30, 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % Long: Credit 44,120 6.87 36,203 5.29 46,892 6.09 77,636 11.38 109,536 18.5
Slide 22: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q2 -2017(1)(2) Quarterly Economic Returns of Hybrid REITs 9.0% Q1-2011 – Q2-2017 8.0% Standard Company Deviation 7.0% EFC 2.51% Hybrid REIT #02 3.33% 6.0% Hybrid REIT #03 3.41% Hyb
Slide 23: 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 2017 is approximately 169%, or 10.3% annualized(1) DBVPS C
Slide 24: Capital, Leverage & Portfolio Composition
Capital, Leverage & Portfolio Composition(1) Capital Usage Across Entire Portfolio Leverage by Strategy (Debt-to-Equity) 3.50 7.57 6.65 6.80 9/30/2017 3.00 7.00 6.10 2.50 6/30/2017 6.00 2.00 1.85 1.91 1.63 1.70 1.50 3/31/2017 1.00 0.97 0.86 12/31/2016 0.50 0.58 0.68 0% 20% 40% 60% 80% 100% - 12/31/2
Slide 25: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Nine Month Period Three Month Period Ended Ended (In thousands, except per share data) September 30, 2017 June 30, 2017 September 30, 2017 Investment income Interest income $ 21,145 $ 21,788 $ 65,819 Other inco
Slide 26: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of September 30, June 30, December 31, (In thousands, except share amounts) 2017 2017 2016(1) ASSETS Cash and cash equivalents $ 111,423 $ 134,515 $ 123,274 Restricted Cash 425 425 655 Inves
Slide 27: 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 28: Endnotes
Endnotes Slide 3 – Second Quarter Highlights (1) Holdings, leverage and book value amounts are as of September 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
Slide 29: Endnotes
Endnotes Slide 11 – Credit: Significantly Diversified Sources of Return Over Time (1) This information does not include interest rate swaps, TBA positions, corporate CDS, common stock and equity swaps, positions related to certain of our relative value strategies, or other hedge positions. Slide 12
Slide 30: Endnotes
Endnotes Slide 20 – Operating Results (1) Conformed to current period presentation. (2) Includes TBAs and U.S. Treasury securities, if applicable. (3) Includes equity and other relative value trading strategies and related hedges. (4) Includes interest expense on our Senior Notes. (5) Per share info
Slide 31: 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