Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q3 2012 Earnings Presentation
31 slides from Ellington Financial's earnings presentation, Nov 8, 2012
Slide 1: Third Quarter Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Third Quarter Earnings Conference Call November 8, 2012
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 2012
Third Quarter 2012
Slide 4: Operating Results
Operating Results Quarte r % of Ave rage Nine Months % of Average Ende d Per Shareholde rs' Pe riod Ended Per Share holders' (In thousands, except per share amounts) 9/30/2012 Share Equity 9/30/2012 Share Equity Non-Agency MBS and Commercial Mortgage Loans: Interest income $ 11,270 $ 0.61 2.54% $ 30
Slide 5: Ellington Financial: Third Quarter Highlights
Ellington Financial: Third Quarter Highlights 3rd quarter net income of $29.5 million or $1.59 per share Overall Results Nine months net income of $72.4 million or $4.15 per share, equating to annualized return on equity of 23.5% 3rd quarter non-Agency MBS income of $37.2 million or $2.01 per share
Slide 6: Ellington Financial: Highlights Continued
Ellington Financial: Highlights Continued Completed secondary public offering, which generated net proceeds of approximately $88 million Recent Share As of September 30, 2012, approximately half of the proceeds were deployed in the non-Agency Offering strategy Non-Agency Portfolio: $530.3 million wi
Slide 7: Ellington Financial: Non-Agency MBS Strategy
Ellington Financial: Non-Agency MBS Strategy Several straight months of improving home prices; QE 3 supports this trend by lowering mortgage rates QE 3 crowds investors out of Agency RMBS and into higher yielding assets like non-Agency MBS Overall Market Completion of asset sales from Maiden Lane II
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy QE 3 has reduced yields on Agency RMBS and has heightened prepayment risk by lowering mortgage Overall Market rates Conditions Private investors have been forced to compete with the Fed for assets Record high prices for Agency RMBS magnifies risks associated with
Slide 9: Ellington Financial: Market Outlook
Ellington Financial: Market Outlook We expect continued robust demand for non-Agency MBS given the need for yield and the lack of Robust Demand alternatives With non-Agency MBS prices having rallied across the board, security selection will become an increasingly important driver of portfolio perfor
Slide 10: Non-Agency Portfolio
Non-Agency Portfolio
Slide 11: Non-Agency Long Portfolio
EFC: Non-Agency Long Portfolio Previous Quarter Current Quarter Non-Agency Long Portfolio 6/30/12: $452MM(1)(2) Non-Agency Long Portfolio 9/30/12: $530MM(1)(2) Seasoned Seasoned CMBS, CMBX and Manufactured Manufactured CDO Commercial Housing Housing Avg Px 46.4 Mortgage Loans Avg Px 75.0 Avg Px 78.6
Slide 12: Non-Agency Long Portfolio as of September 30, 2012
EFC: Non-Agency Long Portfolio as of September 30, 2012 EFC non-Agency MBS strategy is the main driver of earnings Non-Agency long portfolio value: $530MM¹ as of 9/30/2012 (which includes $511.8 million of long non-Agency MBS and loans and $18.5 million of bond equivalent value of long credit deriva
Slide 13: Credit Hedging Portfolio
EFC: Credit Hedging Portfolio Previous Quarter Current Quarter Credit Hedging Portfolio 6/30/12: $153MM¹ Credit Hedging Portfolio 9/30/12: $159MM¹ Corporate CDS: $57.9mm Corporate CDS: $58.5mm CDS on MBS: $72.5mm CDS on MBS: $78.8mm CDX IG CDX IG ABX Indices, 26% ABX Indices, 27% Equity Swaps: $22.3
Slide 14: Agency Portfolio
Agency Portfolio
Slide 15: Agency Long Portfolio
EFC: Agency Long Portfolio Previous Quarter Current Quarter Agency Long Portfolio 6/30/12: $650MM¹ Agency Long Portfolio 9/30/12: $620MM¹ GNMA/FNMA/FHLM GNMA/FNMA/FHLM FNMA ARMS IOs FNMA ARMS IOs 4% 1% 3% 1% GNMA Fixed - 30 FHLM Fixed - 15 Yr Yr <1% FHLM Fixed - 30Yr <1% 10% FHLM Fixed - 30 Yr FNMA
Slide 16: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Previous Quarter Current Quarter Agency Interest Rate Hedging Portfolio 6/30/12: Agency Interest Rate Hedging Portfolio 9/30/12: Short $208MM 10-year equivalents1 Short $138MM 10-year equivalents >5 Yr Interest Rate Swaps 18.7% >5 Yr Interest Rate Swaps 20
Slide 17: Agency Interest Rate Hedging Portfolio Continued
EFC: Agency Interest Rate Hedging Portfolio Continued Calculation of Exposure to Agency RMBS Based on TBA Portfolio Fair Value: (In millions) Agency-related Portfolio 6/30/2012 9/30/2012 Long Agency RMBS $650 $620 Net Short TBA Positions (400) (409) Net Long Exposure to Agency RMBS $250 $211 Shortin
Slide 18: Borrowings
Borrowings
Slide 19: Repo Borrowings as of September 30, 2012
EFC: Repo Borrowings as of September 30, 2012 ($ In Millions) Repo Borrowings % of Total Remaining Days to Maturity Non-Agency Agency Total Borrowings 30 Days or Less $67.6 $71.3 $138.9 21.0% 31-60 Days 105.2 86.6 191.8 29.0 61-90 Days 11.9 180.6 192.5 29.1 91-120 Days - 63.4 63.4 9.6 151-180 Days 7
Slide 20: Average Cost of Borrowings
EFC: Average Cost of Borrowings For the Quarter Ended September 30, 2012 ($ In thousands) Average Borrowings for 1 Collateral for Borrowing Outstanding Borrowings the Quarter Ended 1 Average Cost of Funds 1 Non-Agency RMBS, CMBS and Other $259,048 $247,859 2.16% Agency RMBS 401,885 489,511 0.42 Tota
Slide 21: Supplemental Information
Supplemental Information
Slide 22: Gross Profit and Loss
EFC: Gross Profit and Loss In times of MBS market distress, the use of hedging instruments has been effective in insulating long non-Agency portfolio from credit risk Historically, non-Agency hedges have contributed gains to the overall portfolio Nine Months Ended September 30, Years Ended 2012 2011
Slide 23: Capital and Leverage
EFC: Capital and Leverage Capital Usage Across Entire Portfolio 1 Notes 1) Each strategy’s capital includes settled investment amounts net of repo borrowings and securitized debt, initial margin of hedges and synthetic long positions, and other assets and liabilities Additional CRE 9/30/2012 Non-Age
Slide 24: Non-Agency and Agency Fair Values and Average Prices
EFC: Non-Agency and Agency Fair Values and Average Prices Non-Agency and Agency Portfolios by Fair Value Non-Agency $ In millions Agency $ 900.0 783.4 800.0 732.3 700.0 650.3 620.2 600.0 511.8 500.0 438.0 424.9 418.1 400.0 300.0 200.0 100.0 - 12/31/2011 3/31/2012 6/30/2012 9/30/2012 Average Price –
Slide 25: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields – Agency and Non-Agency Non-Agency Agency 12.00% Total 10.15% 1 10.00% 8.77% 8.64% 8.84% 8.00% 5.90% 5.40% 5.19% 6.00% 5.01% 3.39% 3.24% 4.00% 2.77% 2.75% 2.00% 0.00% Q4 2011 Q1 2012 Q2 2012 Q3 2012 Note: Yields are based on amortized cost, not fair value.
Slide 26: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share $0.80 16% 14.32% $0.70 13.23% 14% 12.27% $0.60 12% $0.50 9.32% 10% $0.40 8% Yield (1) $0.70 $0.70 $0.70 $0.30 6% $0.20 $0.40 4% $0.10 2% $- 0% Q4 2011 Q1 2012 Q2 2012 Q3 2012 1) Based on NYSE closing price as of period end date. Expense Ratio 3.2%
Slide 27: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Three Month Period Ended Nine Month Period Ended September 30, June 30, September 30, In thousands, except per share data 2012 2012 2012 Investment income Interest income $ 15,426 $ 16,045 $ 47,203
Slide 28: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) As of September 30, June 30, December 31, (1) (In thousands, except share amounts) 2012 2012 2011(1) ASSETS Cash and cash equivalents $ 69,223 $ 48,120 $ 62,737 Invest
Slide 29: Book Value
EFC: 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 $40 BVPS Cumulative Dividends ABX 2006-2 AAA $100 $90 $35 $33.60 $32.59 $31.95 $8
Slide 30: 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 100 employees, giving EFC access to time-tested infrastructure and industry-leading resource
Slide 31: Lisa Mumford Chief Financial Officer Ellington Financial LLC
Investor Contact: Media Contact: Lisa Mumford Shawn Pattison or Dana Gorman Chief Financial Officer The Abernathy MacGregor Group, for Ellington Financial LLC Ellington Financial LLC (203) 409-3575 (212) 371-5999 Ellington Financial LLC 53 Forest Ave Old Greenwich, CT 06870 www.ellingtonfinancial.co