Ellington Financial Inc. · NYSE:EFC
Ellington Financial — Q3 2014 Earnings Presentation
31 slides from Ellington Financial's earnings presentation, Nov 6, 2014
Slide 1: Third Quarter 2014 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Third Quarter 2014 Earnings Conference Call November 6, 2014
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 2014
Third Quarter 2014
Slide 4: Operating Results
Operating Results Quarter Quarter Nine Months Ended % of Ended % of Ended % of September Per Average June 30, Per Average September 30, Per Average 30, 2014 Share Equity 2014 Share Equity 2014 Share Equity (In thousands, except per share amounts) Non-Agency MBS, mortgage loans, ABS, and other: Inter
Slide 5: Ellington Financial: Third Quarter Highlights
Ellington Financial: Third Quarter Highlights • 3rd quarter net income of $12.9 million, or $0.46 per share; 2nd quarter net income of $20.9 million, or $0.81 Overall Results per share • 3rd quarter non-Agency strategy gross income of $15.9 million(1), or $0.56 per share Non-Agency • Primary drivers
Slide 6: Ellington Financial: Third Quarter Highlights (continued)
Ellington Financial: Third Quarter Highlights (continued) • Non-Agency Long Portfolio including long credit default swaps: $732.0 million with a market yield of 7.84%(1) at the end of the third quarter, as compared to $670.1 million at the end of the second quarter with a Portfolios market yield of
Slide 7: Ellington Financial: Non-Agency Strategy
Ellington Financial: Non-Agency Strategy • Non-Agency RMBS exhibited resilience during the third quarter, particularly relative to high yield credit • Investor appetite for fixed income assets, especially higher-yielding assets, remains strong • Active new issuance in CMBS market contributed to incr
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy • As expected, in October, the Federal Reserve ended its net monthly purchases of Agency RMBS and U.S. Treasury securities, though the Fed will continue to reinvest principal payments from its existing holdings into additional Agency RMBS and U.S. Treasury securi
Slide 9: Ellington Financial: Market Outlook
Ellington Financial: Market Outlook • As spreads remain tight, careful asset selection continues to be important • Opportunities in certain more seasoned sectors and smaller transaction sizes • We continue to focus on asset diversification • European MBS and ABS- Opportunities may arise from pressur
Slide 10: Non-Agency Portfolio
Non-Agency Portfolio
Slide 11: EFC: Non-Agency Long Portfolio
EFC: Non-Agency Long Portfolio Current Quarter Previous Quarter Non-Agency Long Portfolio 9/30/14: $732MM(1)(2)(4) Non-Agency Long Portfolio 6/30/14: $670MM(1)(2)(3) Seasoned Subprime Seasoned Subprime Other (Pre-2005) 2005-2007 Subprime Other (Pre-2005) 2005-2007 Subprime Average Px 77.7 Average Px
Slide 12: EFC: Non-Agency Long Portfolio as of September 30, 2014
EFC: Non-Agency Long Portfolio as of September 30, 2014 • Non-Agency strategy is the main driver of earnings • Non-Agency long portfolio value: $732.0 million(1) as of 9/30/2014 (which includes $719.7 million of long non-Agency securities and loans and $12.3 million of bond equivalent value of net l
Slide 13: EFC: Credit Hedging
EFC: Credit Hedging Current Quarter Previous Quarter Credit Hedging & Other Portfolio 9/30/2014: $269MM(1) Credit Hedging & Other Portfolio 6/30/14: $236MM(1)(2) CDS on MBS: $89.6mm Corporate CDS: $169.7mm CDS on MBS: $67.4mm Corporate CDS: $158.4mm ABX Indices ABX Indices 3% Single Name 4% Single N
Slide 14: Agency Portfolio
Agency Portfolio
Slide 15: EFC: Agency Long Portfolio
EFC: Agency Long Portfolio Current Quarter Previous Quarter Agency Long Portfolio 9/30/2014: $1,064MM(¹) Agency Long Portfolio 6/30/14: $962MM(¹) 3% 1% 1% 6% 1% 4% 4% 2% n FNMA Fixed 30-Yr n FNMA Fixed 30-Yr 2% n FNMA Fixed - 15 Yr n FNMA Fixed - 15 Yr 4% 4% n FHLM Fixed 30-Yr n FHLM Fixed 30-Yr n F
Slide 16: EFC: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Current Quarter Previous Quarter Agency Interest Rate Hedging Portfolio 9/30/2014: Agency Interest Rate Hedging Portfolio 6/30/14: Short $471 MM 10-year equivalents Short $391 MM 10-year equivalents 0-5 Yr Interest 0-5 Yr Interest Rate Swaps Rate Swaps 0.6
Slide 17: EFC: 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 9/30/2014 6/30/2014 Long Agency RMBS $1,064 $962 Net Short TBAs (582) (546) Net Long Exposure to Agency RMBS $482 $416 • Shortin
Slide 18: Borrowings
Borrowings
Slide 19: EFC: Repo Borrowings as of September 30, 2014
EFC: Repo Borrowings as of September 30, 2014 ($ in thousands) Repo Borrowings U.S. Treasury % of Total Remaining Days to Maturity Non-Agency Agency Securities Total Borrowings 30 Days or Less $44,675 $340,677 $224,425 $609,777 43.7% 31-60 Days 71,956 259,797 — 331,753 23.8% 61-90 Days 24,359 260,30
Slide 20: EFC: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of September 30, 2014 For the Quarter Ended September 30, 2014 Average Borrowings for 1 1 1 Collateral for Borrowing Outstanding Borrowings (1 the Quarter Ended (1 Average Cost of Funds (1 ) ) ) Non-Agency RMBS, CMBS, and Other $266,195 $306,160 1.
Slide 21: Supplemental Information
Supplemental Information
Slide 22: EFC: Gross Profit and Loss
EFC: Gross Profit and Loss Nine Months Ended September 30, 2014 Years Ended 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % Long: Non-Agency 63,103 9.74 109,536 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: Non-Agen
Slide 23: EFC: Capital and Leverage
EFC: Capital and Leverage(1) Capital Usage Across Entire Portfolio(2) Notes 9/30/2014 (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 6/30/2014 (3) Assets per strategy capital includes i
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(1) $1,200.0 1,064.2 961.8 $1,000.0 933.5 927.7 $800.0 719.7 699.8 657.7 $ (Millions) 637.9 $600.0 Non-Agency Agency $400.0 $200.0 $0.0 12/31/13 03/31/14 06/30/14 09/30/14 Average Price – Non-Agen
Slide 25: EFC: Yields and Net Interest Margin
EFC: Yields and Net Interest Margin Yields – Agency and Non-Agency 10.00% 9.24% 8.97% 9.08% 8.75% 8.00% 5.54% 5.69% 5.52% 6.00% 5.39% Non-Agency Agency 4.00% 3.37% 3.44% 3.37% 3.22% Total 2.00% 0.00% Q4 2013 Q1 2014 Q2 2014 Q3 2014 Note: Yields are based on amortized cost, not fair value. Net Intere
Slide 26: EFC: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio Dividends Per Share $0.80 $0.75 Dividend Yield as of November 4, 2014 $0.70 13.8%(1) $0.65 $0.77 $0.77 $0.77 $0.77 $0.60 $0.55 $0.50 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Expense Ratio(2) 3.03% 3.00% 2.90% 2.81% 2.80% 2.76% 2.70% 2.67% 2.60% 2.50% Q4 2013 Q1 2014 Q2 2014 Q
Slide 27: EFC: 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 $90 BVPS Cumulative Dividends ABX 2006-2 AAA $45.00 $80 $40.00 $70 $35.00 Price
Slide 28: Income Statement
Income Statement ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Nine Month Three Month Period Ended Period Ended (In thousands, except per share amounts) September 30, 2014 June 30, 2014 September 30, 2014 Investment income Interest income $ 22,521 $ 20,996 $ 65,014 Expense
Slide 29: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES, AND EQUITY As of (In thousands, except share amounts) September 30, 2014 June 30, 2014 December 31, 2013(1) ASSETS Cash and cash equivalents $ 129,124 $ 145,032 $ 183,489 Investments, financial derivativ
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 140 employees, giving EFC access to time-tested infrastructure and proprietary resource
Slide 31: Investor Contact
Investor Contact: Media Contact: Lindsay Tragler, 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 w