Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q4 2015 Earnings Presentation
34 slides from Ellington Financial's earnings presentation, Feb 17, 2016
Slide 1: Fourth Quarter 2015 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Fourth Quarter 2015 Earnings Conference Call February 17, 2016
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: Fourth Quarter 2015
Fourth Quarter 2015
Slide 4: Operating Results
Operating Results Quarter Quarter Ended % of Ended % of Year Ended % of December Per Average September Per Average December Per Average (In thousands, except per share amounts) 31, 2015 Share Equity 30, 2015 Share Equity 31, 2015 Share Equity Credit: Interest income and other income $ 15,459 $ 0.45
Slide 5: Ellington Financial: Fourth Quarter Highlights
Ellington Financial: Fourth Quarter Highlights Net income of $1.8 million, or $0.05 per share Overall Results In light of continued and anticipated significant market volatility, net sold Agency RMBS, thereby reducing leverage and increasing cash holdings in order to be more defensively position
Slide 6: Fourth Quarter Highlights (continued)
Ellington Financial: Fourth Quarter Highlights (continued) Total Long Credit Portfolio: $639(1) million as of December 31, 2015 as compared to $655(1) million as of September 30, 2015 Portfolios Agency Long Portfolio: $963 million as of December 31, 2015, as compared to $1,221 million as of Sept
Slide 7: Ellington Financial: Credit Strategy
Ellington Financial: Credit Strategy During the fourth quarter: Given ongoing concerns over the health of the Chinese economy and the decline in commodity prices, global volatility continued and led to significant credit spread widening; additionally, the increase in its target interest rate by
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy Interest rates rose, especially at the shorter end of the yield curve and yield curve continued to flatten during the fourth quarter 2-year swap rate increased 43 basis points while 10-year swap rates increased only 18 basis points 10-year swap spread to U.
Slide 9: Ellington Financial: Market Outlook
Ellington Financial: Market Outlook We expect to continue to expand our diversified Credit portfolio, which now include: Non-Agency RMBS, with continued focus on legacy securities, opportunistically buying and selling as yield spreads fluctuate CMBS, especially “B-pieces” where the new issue m
Slide 10: Credit Portfolio
Credit Portfolio
Slide 11: Long Credit Portfolio
EFC: Long Credit Portfolio Current Quarter Previous Quarter Long Credit Portfolio 12/31/15: $639MM(1)(2) Long Credit Portfolio 9/30/15: $655MM(1)(2) Distressed Corporate Distressed Corporate Loans and Equity, 9% Loans, 9% Average Px 55.2 Average Px 58.6 Euro CLO, 4% Jumbo/ Euro CLO, 4% Average Px 93
Slide 12: Long Credit Portfolio (continued)
EFC: Long Credit Portfolio (continued) Holdings Overview Holdings Overview Long Credit Portfolio 12/31/15: $639MM(1) Long Credit Portfolio 12/31/13: $700MM(1) Distressed Corporate Loans and Equity, 9% CLOs, 3% RMBS, 34% RMBS, 82% Consumer Loans and ABS, 18% CLOs 6% European Non‐ Dollar Denominated M
Slide 13: Long Credit Portfolio as of December 31, 2015
EFC: Long Credit Portfolio as of December 31, 2015 Credit strategy is the main driver of earnings Long Credit securities and loan portfolio value: $618.0 million—excludes REO and equity investments in mortgage related entities Est. Yield at Market Price at Fair Value Weighted Average Historical
Slide 14: Credit Hedging Portfolio
EFC: Credit Hedging Portfolio(1)(2) Corporate CDS Indices / Instrument Tranches / Options / Single Single Name ABS CDS and Corporate Bond Index Category Names ABX Indices European Sovereign Debt ETFs/Equity CMBX HY CDX OTR Bond Equivalent Units Value (3)(4) Bond Equivalent Value (4) Market Value Mar
Slide 15: Agency Portfolio
Agency Portfolio
Slide 16: Agency Long Portfolio
EFC: Agency Long Portfolio Current Quarter Previous Quarter Agency Long Portfolio 12/31/15: $963MM(¹) Agency Long Portfolio 9/30/15: $1,221MM(¹) 1% 5% FNMA Fixed - 30 Yr 7% FNMA Fixed - 30 Yr 7% 5%1% FNMA Fixed - 15 Yr 2% FNMA Fixed - 15 Yr 3% 2% FHLM Fixed - 30 Yr 1% FHLM Fixed - 30 Yr FHLM Fixed -
Slide 17: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Current Quarter Previous Quarter Agency Interest Rate Hedging Portfolio 12/31/15: Agency Interest Rate Hedging Portfolio 9/30/15: Short $405 MM 10-year equivalents Short $486 MM 10-year equivalents 0-5 Yr Interest 0-5 Yr Interest Rate Swaps Rate Swaps 22.7
Slide 18: Agency Interest Rate Hedging Portfolio (continued)
EFC: Agency Interest Rate Hedging Portfolio (continued) Calculation of Exposure to Agency RMBS Based on Fair Value of TBA Portfolio: (In millions) Agency-related Portfolio 12/31/2015 9/30/2015 Long Agency RMBS $963 $1,221 Net Short TBAs (420) (685) Net Long Exposure to Agency RMBS $543 $536 Shorti
Slide 19: Borrowings
Borrowings
Slide 20: Repo Borrowings as of December 31, 2015
EFC: Repo Borrowings as of December 31, 2015 ($ in thousands) Repo Borrowings % of Total Remaining Maturity Credit Agency Total Borrowings 30 Days or Less $14,674 $295,277 $309,951 26.4% 31-60 Days 26,419 203,144 229,563 19.6% 61-90 Days 82,292 239,431 321,723 27.4% 91-120 Days — 193,962 193,962 16.
Slide 21: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of December 31, 2015 For the Quarter Ended December 31, 2015 Average Borrowings for Collateral for Borrowing Outstanding Borrowings (1) the Quarter Ended (1) Average Cost of Funds (1) Credit $240,869 $231,259 2.50% Agency RMBS 933,320 1,077,612 0.5
Slide 22: Supplemental Information
Supplemental Information
Slide 23: Gross Profit and Loss
EFC: Gross Profit and Loss Years Ended 2015 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % $ % Long: Credit 46,892 6.09 77,636 11.38 109,536 18.53 129,830 30.02 1,505 0.39 70,840 21.87 101,748 36.33 (64,565) (26.20) Credit Hedge and Other 10,671 1.38 (1,197) (0.17) (
Slide 24: Capital and Leverage
EFC: Capital and Leverage(1) Capital Usage Across Entire Portfolio(2) Notes 12/31/2015 (1) Excludes U.S. Treasury securities (2) Capital usage based on pro forma calculation of leverage generally applicable to long positions in target asset classes. 9/30/2015 (3) Assets per strategy capital includes
Slide 25: Credit and Agency Fair Values and Average Prices
EFC: Credit and Agency Fair Values and Average Prices Credit and Agency Portfolios by Fair Value $ In millions Credit Agency $ 1,400.0 1,221.2 1,200.0 1,140.9 1,124.5 962.6 1,000.0 790.1 753.2 800.0 655.5 638.8 600.0 400.0 200.0 - 3/31/2015 6/30/2015 9/30/2015 12/31/2015 Average Price – Credit and A
Slide 26: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields – Agency and Credit Credit Agency 12.00% Total 9.82% 9.83% 9.34% 10.00% 9.35% 8.00% 5.78% 5.43% 5.44% 6.00% 5.10% 3.53% 4.00% 3.00% 2.83% 2.82% 2.00% 0.00% Q1 2015 Q2 2015 Q3 2015 Q4 2015 Note: Yields are based on amortized cost, not fair value. Excludes lo
Slide 27: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio $0.75 Dividends Per Share $0.70 Dividend Yield as of February 12, 2016 $0.65 12.2% (1) $0.60 $0.55 $0.50 $0.65 $0.65 $0.45 $0.40 $0.50 $0.50 $0.35 $0.30 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Expense Ratio(2) 3.05% 2.98% 2.95% 2.85% 2.75% 2.63% 2.65% 2.54% 2.55% 2.55% 2.45%
Slide 28: Diluted Book Value
EFC: Diluted 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 $90 DBVPS Cumulative Dividends ABX 2006-2 AAA $45.00 EFC’s stable book value $80 $40.00 $70 $35
Slide 29: Stable Book Value Per Share Relative to Peer Group
EFC: Stable Book Value Per Share Relative to Peer Group Standard Deviation Normalized Book Value Per Share of Hybrid mREITs of Normalized Book Value Per Share Q1 2011 – Q3 2015(1)(2) Q1 2011 – Q3 2015 40% Standard Company EFC Deviation 30% Hybrid REIT #02 EFC 3.30% 20% Hybrid REIT #03 Hybrid REIT #0
Slide 30: Sharpe Ratio of Quarterly Economic Returns Relative to Peer Group
EFC: Sharpe Ratio of Quarterly Economic Returns Relative to Peer Group Normalized Cumulative Compounded Sharpe Ratio of Quarterly Economic Returns of Hybrid mREITs Quarterly Economic Returns Q1 2011 – Q3 2015(1)(2)(3) Q1 2011 – Q3 2015 70% EFC Sharpe Company 60% Hybrid REIT #02 Ratio Hybrid REIT #03
Slide 31: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Three Month Period Ended Year Ended (In thousands, except per share data) December 31, 2015 September 30, 2015 December 31, 2015 Investment income Interest income $ 23,091 $ 26,440 $ 101,783 Other income 932 56
Slide 32: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of December 31, September 30, December 31, (In thousands, except share amounts) (1) 2015 2015 2014 ASSETS Cash and cash equivalents $ 183,909 $ 139,395 $ 114,140 Restricted cash 4,857 5,580
Slide 33: 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 34: Investor Contact
Investor Contact: Media Contact: Ania Pritchard, Investor Relations or Steve Bruce or Taylor Ingraham Lisa Mumford, Chief Financial Officer ASC Advisors, for Ellington Financial LLC Ellington Financial LLC (203) 409-3575 (203) 992-1230 Ellington Financial LLC 53 Forest Ave Old Greenwich, CT 06870 ww