Ellington Financial LLC (EFC)

EFC 
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Ellington Financial LLC (EFC)

Q1 2013 Earnings Call

May 7, 2013 11:00 AM ET

Executives

Sara Brown – Corporate Counsel

Larry Penn – CEO and President

Lisa Mumford – CFO

Mark Tecotzky – Co-Chief Investment Officer

Analysts

Steve DeLaney – JMP Securities

Michael Widner – KBW

Presentation

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial First Quarter 2013 Financial Results Conference Call. Today’s call is being recorded. At this time, all participants have been placed in listen-only mode and the floor will be open for your questions following the presentation. (Operator Instructions).

It is now my pleasure to turn the floor over to, Sara Brown, Corporate Counsel. You may begin.

Sara Brown

Before we start I’d like to remind everyone that certain statements made during this conference call including statements concerning future strategies, intentions and plans may constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not historical in nature and can be identified by words such as belief, expect, anticipate, estimate, project, plan, should, or similar expressions or by reference to strategies plans, or intentions.

As describe under item 1A or our annual report on Form 10-K, filed on March 15, 2013, forward-looking statements are subject to a variety of risks and uncertainties that could cause the company’s actual result differ from its belief, expectations, estimates and projections. Consequently, you should not rely on these forward-looking statements as predictions of future events.

Statements made during this conference call are made as of the date of this call and the company undertakes no obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise.

I have with me today on the call, Larry Penn, Chief Executive Officer of Ellington Financial; Mark Tecotzky, our Co-Chief Investment Officer; and Lisa Mumford our Chief Financial Officer.

Larry Penn

Thanks Sara. As always, it is our pleasure to speak with our shareholders this morning as we release our first quarter 2013 results. We all appreciate your taking the time to participate on the call today.

We will follow the same format as we have for the past several quarters. First, our CFO Lisa Mumford will run through our financial result. Then our Co-CIO Mark Tecotzky will discuss how the MBS market performed over the course of the quarter, how we positioned our portfolio, and what our market outlook is going-forward. Then, I’ll close our prepared remarks and we’ll take some questions.

In addition to our earnings release, yesterday evening we posted a first quarter earnings conference call presentation to our website www.ellingtonfinancial.com. You will find it right on the, for our shareholders page or alternatively on the presentations page of the website. Lisa and Mark’s prepared remark will track the presentation. So, it will be helpful if you have this presentation in front of you, and turn to page three to follow along.

While you are getting that in front of you, I’m going to turn it over to Lisa.

Lisa Mumford

Thank you, Larry, and good morning every one. My remarks are based on the slides beginning with our P&L attribution table on page three and the two summary slides following it. Looking at the attribution table on page three, you can see that for the quarter, we earned $40.3 million or $1.94 per share which equates to a non-annualized return on equity of 7.8%.

Our Non-Agency MBS strategy provided 98% of our total gross P&L for the quarter. In our non-agency strategy for the fifth consecutive quarter are, income here was driven by interest income as well as net realized and unrealized gains.

During the quarter, we continued to augment yields earned on the portfolio with trading gains. Notably, net realized and unrealized gains contributed to combined I’m sorry to contribute $1.97 per share to our gross P&L for the quarter, returned over just under 20% of the portfolio during the quarter.

Additionally, as of March 31, 2013, net unrealized in the portfolio were in excess of $66 million and as measured by value the bond portfolio grew to approximately $585 million as compared to approximately $557 million as of the end of 2012.

Average holdings based on amortized costs, increased to $514.4 million at the end of March from $494.2 million at the end of the fourth quarter. Weighted average yields based on cost for the quarter was 9.4% compared to 9.7% in the fourth quarter.

In our agency strategy, we earned gross P&L of $734,000 or $0.04 per share. Interest income of $0.30 per share was muted somewhat by net realized and unrealized losses on our agency specified pool as the price premium for these pools relative to generic pool contracted during the period. Our hedges blunted some of the impact of the decline adding $0.04 to agency gross profit.

Active trading of both assets and hedges including TBAs has and continues to be the focus of this strategy. As of the end of the first quarter, the agency portfolio as measured by value increased to $861 million as compared to $774 million as of the end of 2012.

During the fourth quarter of 2012, many specified pools were trading at all-time highs relative to their TBA counterparts. We took advantage of these historically high levels and actively sold many of our specified pools to capture gains replacing these positions with lower priced non-traditional pre-payment protected position.

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