Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q1 2018 Earnings Presentation
30 slides from Ellington Financial's earnings presentation, May 8, 2018
Slide 1: First Quarter 2018 Earnings Conference Call
First Quarter 2018 Earnings Conference Call May 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: First Quarter Highlights
First Quarter Highlights(1) Net income: $21.0 million or $0.67 per share Overall NAV-based total return: 4.3% for the quarter, 18.3% annualized Results Net investment income of $10.2 million or $0.32 per share Credit Credit gross income: $25.3 million(2) or $0.81 per share Strategy Long Cr
Slide 4: Market Conditions & Portfolio Trends
Market Conditions & Portfolio Trends Volatility returned to markets in the quarter, with a violent sell off in equities in February, driven in part by concerns over inflation and rising interest rates, and continued volatility into March Short- and long-term rates rose during the quarter, with t
Slide 5: 2018 Objectives
2018 Objectives 1. Continue to grow Credit portfolio and earnings - Leverage proprietary pipeline of loans and add securities opportunistically - Credit portfolio is nearing desired size 2. Improve and diversify financing sources - Emphasize long-term non mark-to-market financing - Securitization is
Slide 6: Operating Results
Operating Results % of Quarter Ended % of Quarter Ended Per Average December 31, Per Average (In thousands, except per share amounts) March 31, 2018 Share Equity 2017 Share Equity Credit: Interest income and other income $ 20,545 $ 0.65 3.34% $ 16,706 $ 0.51 2.67% Net realized gain (loss) 4,961 0.16
Slide 7: Portfolio
Ellington Financial Portfolio
Slide 8: Portfolio Summary as of March 31, 2018
Portfolio Summary as of March 31, 2018(1) Diversified sources of return to perform through market cycles Average Allocated Fair Value Price WAVG WAVG Equity and Asset Allocation by (2)(6) (4)(6) (5)(6) Strategy Equity ($MM) (%) Life Mkt Yield Strategy CREDIT 6% CLO $ 226,403 96.7 4.5 10.7% 15% Non-D
Slide 9: 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 $ 41 0.01% $ (47) -0.01% Agency RMBS - Fixed Po
Slide 10: Long Credit Portfolio – Holdings Overview
Long Credit Portfolio – Holdings Overview 3/31/18(1)(2) 12/31/17(1)2)(3) Corporate Debt Investments in Investments in Corporate Debt and Equity Mortgage- Mortgage- and Equity 1% Related Entities Residential Related Entities 1% 3% Mortgage Loans 3% and REO 6% Residential Mortgage CLO CLO Loans and RE
Slide 11: Credit: Significantly Diversified Sources of Return Over Time
Credit: Significantly Diversified Sources of Return Over Time 3/31/18(1)(2) 12/31/13(1) Corporate Debt Investments in and Equity Mortgage- 1% Related Entities 3% Non-Agency Residential RMBS Mortgage CLO 82% Loans and REO 22% 12% Consumer Loans and ABS $1,032MM CMBS and CLO $699.8MM 14% Commercial Mo
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 (4) Units Value(3)(4) Bond Equivalent Value(4) Market
Slide 13: Agency Long Portfolio
Agency Long Portfolio Agency Long Portfolio: $928.2MM(¹) Collateral Characteristics and Historical 3-month CPR As of 3/31/18 Average for the Quarter Ended 3/31/18(2) 3-Month FNMA/FHLM FNMA/FHLM Jumbo Geography Characteristic(3) Fair Historical GNMA/ ARMS Fixed - 20 Yr 2% Value(2)(4) GNMA 1% CPR(3) F
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 3/31/18: As of 12/31/17: Short $412MM 10-year equivalents Short $333MM 10-year equivalents >5 Yr Treasury >5 Yr Treasury Futures Futures 15.4% 0-5 Yr Interest Rate Swaps 1.8% 0-5
Slide 15: Agency Interest Rate Hedging Portfolio (continued)
Agency Interest Rate Hedging Portfolio (continued) Exposure to Agency Pools Based on Net Fair Value As of 3/31/2018 As of 12/31/2017 $1,000 $1,000 $800 $800 Long Agency Long Agency RMBS RMBS $600 $896 $600 $838 $400 $400 ($ in millions) Net Long ($ in millions) Net Long Exposure to Exposure to $200
Slide 16: Borrowings
Ellington Financial Borrowings
Slide 17: Borrowings and Leverage
Borrowings and Leverage(1) For the Quarter Ended ($ In thousands) As of March 31, 2018 March 31, 2018 Weighted Average Average Outstanding Borrowing (1) Debt-to-Equity Borrowings (1) for the Average(1)Cost of Strategy Borrowings Rate Ratio(2) Quarter Ended Funds Credit, Secured Recourse $478,290 3.4
Slide 18: Repo Borrowings
Repo Borrowings(1) ($ in tho usands) Repo Borrowings as of March 31, 2018 Borrowings by Days to Maturity % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 5% 1%3% 24% 30 Days or Less $39,740 $276,496 $2,203 $318,439 23.9% 31-90 Days 304,519 583,284 — 887,803 66.7% 91
Slide 19: Supplemental Information
Ellington Financial Supplemental Information
Slide 20: Gross Profit and Loss
Gross Profit and Loss(1) Resilient profit generation through market cycles Quarter Ended Years Ended March 31, 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % Long: Credit 23,920 3.89 61,136 9.58 36,203 5.29 46,892 6.09 77,636 11.38
Slide 21: Stable Economic Return
Stable Economic Return Standard Deviation of Quarterly Economic Returns of Hybrid REITs Standard Deviation of Q1-2011 – Q4 -2017(1)(2) Quarterly Economic Returns of Hybrid REITs 9.0% Q1-2011 – Q4-2017 8.0% Standard Company Deviation 7.0% EFC 2.4% Hybrid REIT #02 3.2% 6.0% Hybrid REIT #03 3.3% 5.0% H
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 Q1 2018 is approximately 185%, or 10.4% 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) 4.00 10.00 9.71 10.00 9.11 3.50 9.00 3/31/2018 9.00 7.57 8.00 7.00 8.00 3.00 6.80 7.00 12/31/2017 2.62 2.50 6.00 2.24 6.00 2.00 1.85 1.91 5.00 9/30/2017 1.50 1.53 4.00 3.00 1.0
Slide 24: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Three Month Period Ended (In thousands, except per share data) March 31, 2018 December 31, 2017 Investment income Interest income $ 28,092 $ 23,810 Other income 716 1,288 Total investment income 28,808 25,098 E
Slide 25: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of March 31, December 31, (In thousands, except share amounts) 2018 2017(1) ASSETS Cash and cash equivalents $ 25,715 $ 47,233 Restricted Cash 425 425 Investments, financial derivatives, and
Slide 26: 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 27: Endnotes
Endnotes Slide 3 – First Quarter Highlights (1) Holdings, leverage and book value amounts are as of March 31, 2018. (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 28: Endnotes
Endnotes Slide 10 – Long Credit Portfolio – Holdings Overview (1) See endnote (3) on slide 3. (2) See endnote (4) on slide 3. (3) Conformed to current period presentation. Slide 11 – Credit: Significantly Diversified Sources of Return Over Time (1) See endnote (3) on slide 3. (2) See endnote (4) on
Slide 29: Endnotes
Endnotes Slide 17 – Borrowings and Leverage (1) Amounts exclude repo on U.S. Treasury securities. (2) See endnote (5) on slide 3. The debt-to-equity ratio does not account for liabilities other than debt financings. The Company's debt financings consist of reverse repos in the amount of $1,330.9 mil
Slide 30: Investor Contact
Investor Contact: Maria Cozine Vice President of 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 Fores