Ellington Financial LLC Reports Fourth Quarter 2018 Results
Ellington Financial LLC (NYSE: EFC) (the "Company") today reported financial results for the quarter ended December 31,
2018.
Highlights
- Net loss1 of $(2.2) million, or $(0.07) per basic and diluted share.
- Book value per share as of December 31, 2018 of $18.92, after payment of a quarterly dividend of
$0.41 per share.
- Credit strategy gross income of $8.1 million for the quarter, or $0.26 per share.
- Agency strategy gross loss of $(4.9) million for the quarter, or $(0.16) per share.
- Net investment income of $10.2 million for the quarter, or $0.33 per share; Adjusted net investment
income2 of $12.7 million for the quarter, or $0.41 per share.
- Announced a dividend of $0.41 per share, equating to an annualized dividend yield of 9.6% based on
the February 19, 2019 closing price of $17.16 per share.
- Repurchased 361,090 common shares during the quarter, or approximately 1% of our total common shares
as of the beginning of the quarter, at an average price of $15.34 per share.
- Debt-to-equity ratio of 3.35:13 as of December 31, 2018.
| 1 Increase (decrease) in shareholders' equity from operations, or "net
income (loss)." |
| 2 Adjusted net investment income is a non-GAAP financial measure. See
"Reconciliation of Adjusted Net Investment Income to Net Income" below for an explanation regarding the calculation of Adjusted
net investment income. |
| 3 Excludes repo borrowings on U.S. Treasury securities. |
| |
Fourth Quarter 2018 Results
"Despite weakness in most equity and fixed income markets globally in the fourth quarter, Ellington Financial preserved its book
value thanks to our disciplined hedging strategy and diversified portfolio," stated Laurence Penn, Chief Executive Officer and
President. "Even though we sold certain non-real-estate-related assets in anticipation of our REIT conversion, we still were able
to grow our adjusted net investment income, which covered our dividend for the quarter. We also took advantage of our discounted
stock price by repurchasing more than $5.5 million of our common shares during the quarter.
"During the fourth quarter, we had strong results from several of our loan strategies, including consumer and non-QM, where we
completed our second non-QM securitization in November. Our investments in loan originators also performed well during the quarter.
We believe that many of our loan strategies, in addition to providing us a pipeline of investments over which we have greater
control and visibility, have the additional benefit of being relatively insulated from interest rate movements and global
macroeconomic events. I am pleased with our performance in 2018, having realized our primary objectives of prudently growing our
credit portfolio and our adjusted net investment income, while delivering an economic return of 9.2%.
"Finally, I am excited that we completed our tax conversion from a publicly traded partnership. While we rotated a portion of
the portfolio to enable us to qualify as a REIT, we have maintained all of our core investment strategies, including our
highest-conviction non-real-estate-related strategies, as well as our core hedging strategies. Our tax reporting to investors will
be greatly simplified as a REIT, which should expand our investor base and greatly improve the liquidity of our stock. At the same
time, our investment objectives remain the same: generate a high-quality earnings stream while maintaining a strong balance sheet,
moderate leverage, and a stable book value."
Corporate Structure Update
The Company plans to elect to be taxed as a REIT for U.S. federal income tax purposes for the taxable year ending December 31,
2019. To facilitate this planned election, it has elected to be taxed as a corporation for U.S. federal income tax purposes
effective as of January 1, 2019. The Company will issue a final Schedule K-1 to those shareholders who held shares in 2018. For
2019, the Company will issue a Form 1099 to shareholders reporting all dividends paid.
Financial Results
The Company's total long credit portfolio4 was $1.185 billion as of December 31, 2018, a decrease of
approximately 8.1% from $1.289 billion as of September 30, 2018. The Company's total long Agency RMBS portfolio was $975.4
million as of December 31, 2018, an increase of approximately 3.3% from $944.4 million as of September 30, 2018. Notable
transactions during the quarter included the Company completing its second non-QM securitization, as well as the consummation of a
strategic equity investment in a consumer loan originator with which the Company has a forward flow purchase agreement.
Additionally, the Company continued to participate in the asset ramp-up for what would be its fourth Ellington-sponsored CLO.
The Company's borrowings increased during the quarter primarily as a result of the financing of new small balance commercial
loan originations and non-QM loan purchases, while total equity declined primarily because of the Company's share repurchases and
dividend. As a result, the Company's debt-to-equity ratio3 increased to 3.35:1 as of December 31, 2018, from 3.04:1 as
of September 30, 2018.
During the fourth quarter, the Company's credit strategy generated total gross income of $8.1 million, or $0.26 per share, and
its Agency strategy generated a gross loss of $(4.9) million, or $(0.16) per share.
The Company's credit portfolio continued to be the primary driver of its earnings. During the fourth quarter, the Company's
credit strategy generated net interest income5 of $17.7 million, net realized and unrealized losses on credit assets of
$(12.0) million, net realized and unrealized losses on interest rate hedges of $(0.6) million, and other investment related
expenses of $5.5 million. Other investment related expenses included $1.6 million of issuance costs related to the non-QM
securitization completed in November 2018.
The Company benefited from strong performance in several of its loan-related strategies, including consumer loans, non-QM loans,
and investments in loan originators. The weakness in the credit markets caused many of the Company's securities strategies to
underperform, including CLOs, European RMBS, and corporate credit relative value. However, much of this underperformance was offset
by the Company's net credit hedges and other activities, which generated a gain of $8.4 million for the quarter.
In the Agency strategy, declining interest rates generated net realized and unrealized gains on the Company's Agency assets of
$8.5 million, while net interest income6 totaled $2.6 million. Losses on the Company's interest rate hedges and other
activities exceeded these gains, however, as declining interest rates and high levels of interest rate volatility generated net
realized and unrealized losses of $(16.0) million.
| 4 Excludes hedges, other derivative, and corporate relative value trading
positions. Also excludes tranches of the Company's consolidated non-QM securitization trusts that were sold to third parties,
but that are consolidated for GAAP reporting purposes. Including such tranches, the Company's total long credit portfolio was
$1.480 billion as of December 31, 2018 as compared to $1.379 billion as of September 30, 2018. |
| 5 Excludes any interest income and interest expense items from Net
interest rate hedges and Net credit hedges and other activities. |
| 6 Excludes any interest income and interest expense items from Net
interest rate hedges and other activities |
| |
.
The following table summarizes the Company's investment portfolio holdings as of December 31, 2018 and September 30,
2018:
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
September 30, 2018 |
| (In thousands) |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
| Long: |
|
|
|
|
|
|
|
|
|
|
|
|
| Credit: |
|
|
|
|
|
|
|
|
|
|
|
|
| Dollar Denominated: |
|
|
|
|
|
|
|
|
|
|
|
|
| CLO |
|
|
$ |
123,893 |
|
|
|
$ |
139,424 |
|
|
|
$ |
156,087 |
|
|
|
$ |
160,561 |
|
| CMBS |
|
|
18,426 |
|
|
|
17,828 |
|
|
|
14,923 |
|
|
|
13,995 |
|
| Commercial Mortgage Loans and REO(1) |
|
|
245,536 |
|
|
|
244,193 |
|
|
|
160,515 |
|
|
|
158,159 |
|
| Consumer Loans and ABS Backed by Consumer Loans(2) |
|
|
209,922 |
|
|
|
218,895 |
|
|
|
209,848 |
|
|
|
218,183 |
|
| Corporate Debt and Equity |
|
|
15,316 |
|
|
|
17,526 |
|
|
|
44,559 |
|
|
|
43,250 |
|
| Equity Investment in Loan Origination Entities |
|
|
37,067 |
|
|
|
28,314 |
|
|
|
30,171 |
|
|
|
25,314 |
|
| Non-Agency RMBS |
|
|
153,214 |
|
|
|
141,130 |
|
|
|
180,223 |
|
|
|
168,399 |
|
| Residential Mortgage Loans and REO |
|
|
498,126 |
|
|
|
495,551 |
|
|
|
393,846 |
|
|
|
392,634 |
|
| Non-Dollar Denominated: |
|
|
|
|
|
|
|
|
|
|
|
|
| CLO |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| CMBS |
|
|
15,482 |
|
|
|
16,510 |
|
|
|
16,250 |
|
|
|
16,774 |
|
| Consumer Loans and ABS Backed by Consumer Loans |
|
|
884 |
|
|
|
761 |
|
|
|
919 |
|
|
|
825 |
|
| Corporate Debt and Equity |
|
|
10,810 |
|
|
|
11,821 |
|
|
|
11,400 |
|
|
|
12,165 |
|
| RMBS(3) |
|
|
160,342 |
|
|
|
168,289 |
|
|
|
199,108 |
|
|
|
200,416 |
|
| Agency: |
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed-Rate Specified Pools |
|
|
884,870 |
|
|
|
904,048 |
|
|
|
850,453 |
|
|
|
877,590 |
|
| Floating-Rate Specified Pools |
|
|
5,496 |
|
|
|
5,627 |
|
|
|
5,539 |
|
|
|
5,684 |
|
| IOs |
|
|
29,516 |
|
|
|
30,399 |
|
|
|
33,050 |
|
|
|
34,134 |
|
| Reverse Mortgage Pools |
|
|
55,475 |
|
|
|
56,799 |
|
|
|
55,396 |
|
|
|
57,552 |
|
| TBAs |
|
|
474,860 |
|
|
|
473,115 |
|
|
|
303,552 |
|
|
|
304,331 |
|
| Government: |
|
|
|
|
|
|
|
|
|
|
|
|
| Dollar Denominated |
|
|
76 |
|
|
|
76 |
|
|
|
4,230 |
|
|
|
4,257 |
|
| Total Long |
|
|
2,939,311 |
|
|
|
2,970,306 |
|
|
|
2,670,069 |
|
|
|
2,694,223 |
|
| Repurchase Agreements |
|
|
|
|
|
|
|
|
|
|
|
|
| Dollar Denominated |
|
|
41,530 |
|
|
|
41,530 |
|
|
|
140,352 |
|
|
|
140,352 |
|
| Non-Dollar Denominated |
|
|
19,744 |
|
|
|
19,744 |
|
|
|
20,070 |
|
|
|
20,116 |
|
| Total Repurchase Agreements |
|
|
61,274 |
|
|
|
61,274 |
|
|
|
160,422 |
|
|
|
160,468 |
|
| Short: |
|
|
|
|
|
|
|
|
|
|
|
|
| Credit: |
|
|
|
|
|
|
|
|
|
|
|
|
| Dollar Denominated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Debt and Equity
|
|
|
(23,462 |
) |
|
|
(23,872 |
) |
|
|
(60,809 |
) |
|
|
(60,965 |
) |
| Agency: |
|
|
|
|
|
|
|
|
|
|
|
|
| TBAs |
|
|
(772,964 |
) |
|
|
(766,777 |
) |
|
|
(562,098 |
) |
|
|
(564,232 |
) |
| Government: |
|
|
|
|
|
|
|
|
|
|
|
|
| Dollar Denominated |
|
|
(34,817 |
) |
|
|
(34,410 |
) |
|
|
(52,809 |
) |
|
|
(52,884 |
) |
| Non-Dollar Denominated |
|
|
(19,334 |
) |
|
|
(19,545 |
) |
|
|
(19,633 |
) |
|
|
(19,605 |
) |
| Total Short |
|
|
(850,577 |
) |
|
|
(844,604 |
) |
|
|
(695,349 |
) |
|
|
(697,686 |
) |
| Net Total |
|
|
$ |
2,150,008 |
|
|
|
$ |
2,186,976 |
|
|
|
$ |
2,135,142 |
|
|
|
$ |
2,157,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Includes equity investment in a limited liability company holding small balance
commercial mortgage loans. |
| (2) |
|
Includes equity investment in a securitization-related vehicle. |
| (3) |
|
Includes RMBS secured by non-performing loans and REO, and an investment in an entity
holding a securitization call right. |
|
|
|
The following table summarizes the Company's operating results for the quarters ended December 31, 2018 and
September 30, 2018 and the year ended December 31, 2018:
|
|
|
Quarter
Ended
December
31, 2018
|
|
|
Per
Share
|
|
|
% of
Average
Equity
|
|
|
Quarter
Ended
September 30,
2018
|
|
|
Per
Share
|
|
|
% of
Average
Equity
|
|
|
Year
Ended
December
31, 2018
|
|
|
Per
Share
|
|
|
% of
Average
Equity
|
| (In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest income and other income |
|
|
$ |
27,335 |
|
|
|
$ |
0.89 |
|
|
|
4.49 |
% |
|
|
$ |
26,522 |
|
|
|
$ |
0.86 |
|
|
|
4.32 |
% |
|
|
$ |
97,455 |
|
|
|
$ |
3.14 |
|
|
|
15.91 |
% |
| Net realized gain (loss) |
|
|
3,496 |
|
|
|
0.11 |
|
|
|
0.57 |
% |
|
|
9,845 |
|
|
|
0.32 |
|
|
|
1.60 |
% |
|
|
18,407 |
|
|
|
0.59 |
|
|
|
3.01 |
% |
| Change in net unrealized gain (loss) |
|
|
(15,482 |
) |
|
|
(0.50 |
) |
|
|
(2.54 |
)% |
|
|
(9,886 |
) |
|
|
(0.32 |
) |
|
|
(1.61 |
)% |
|
|
(6,642 |
) |
|
|
(0.21 |
) |
|
|
(1.08 |
)% |
| Net interest rate hedges(1) |
|
|
(561 |
) |
|
|
(0.02 |
) |
|
|
(0.09 |
)% |
|
|
468 |
|
|
|
0.02 |
|
|
|
0.08 |
% |
|
|
115 |
|
|
|
— |
|
|
|
0.02 |
% |
| Net credit hedges and other activities(2) |
|
|
8,416 |
|
|
|
0.27 |
|
|
|
1.38 |
% |
|
|
(3,250 |
) |
|
|
(0.11 |
) |
|
|
(0.53 |
)% |
|
|
8,020 |
|
|
|
0.26 |
|
|
|
1.31 |
% |
| Interest expense(3) |
|
|
(9,622 |
) |
|
|
(0.31 |
) |
|
|
(1.58 |
)% |
|
|
(8,786 |
) |
|
|
(0.28 |
) |
|
|
(1.43 |
)% |
|
|
(32,735 |
) |
|
|
(1.05 |
) |
|
|
(5.34 |
)% |
| Other investment related expenses |
|
|
(5,456 |
) |
|
|
(0.18 |
) |
|
|
(0.90 |
)% |
|
|
(3,921 |
) |
|
|
(0.13 |
) |
|
|
(0.64 |
)% |
|
|
(15,284 |
) |
|
|
(0.49 |
) |
|
|
(2.50 |
)% |
| Total Credit profit (loss) |
|
|
8,126 |
|
|
|
0.26 |
|
|
|
1.33 |
% |
|
|
10,992 |
|
|
|
0.36 |
|
|
|
1.79 |
% |
|
|
69,336 |
|
|
|
2.24 |
|
|
|
11.33 |
% |
| Agency RMBS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest income |
|
|
8,205 |
|
|
|
0.27 |
|
|
|
1.35 |
% |
|
|
7,873 |
|
|
|
0.25 |
|
|
|
1.28 |
% |
|
|
31,116 |
|
|
|
1.01 |
|
|
|
5.08 |
% |
| Net realized gain (loss) |
|
|
(528 |
) |
|
|
(0.02 |
) |
|
|
(0.09 |
)% |
|
|
(1,388 |
) |
|
|
(0.04 |
) |
|
|
(0.23 |
)% |
|
|
(4,612 |
) |
|
|
(0.15 |
) |
|
|
(0.75 |
)% |
| Change in net unrealized gain (loss) |
|
|
9,008 |
|
|
|
0.29 |
|
|
|
1.48 |
% |
|
|
(6,167 |
) |
|
|
(0.20 |
) |
|
|
(1.00 |
)% |
|
|
(13,901 |
) |
|
|
(0.45 |
) |
|
|
(2.27 |
)% |
| Net interest rate hedges and other activities(1) |
|
|
(16,011 |
) |
|
|
(0.52 |
) |
|
|
(2.63 |
)% |
|
|
5,510 |
|
|
|
0.18 |
|
|
|
0.90 |
% |
|
|
3,144 |
|
|
|
0.10 |
|
|
|
0.51 |
% |
| Interest expense |
|
|
(5,585 |
) |
|
|
(0.18 |
) |
|
|
(0.92 |
)% |
|
|
(5,087 |
) |
|
|
(0.17 |
) |
|
|
(0.83 |
)% |
|
|
(18,582 |
) |
|
|
(0.60 |
) |
|
|
(3.03 |
)% |
| Total Agency RMBS profit (loss) |
|
|
(4,911 |
) |
|
|
(0.16 |
) |
|
|
(0.81 |
)% |
|
|
741 |
|
|
|
0.02 |
|
|
|
0.12 |
% |
|
|
(2,835 |
) |
|
|
(0.09 |
) |
|
|
(0.46 |
)% |
| Total Credit and Agency RMBS profit (loss) |
|
|
3,215 |
|
|
|
0.10 |
|
|
|
0.52 |
% |
|
|
11,733 |
|
|
|
0.38 |
|
|
|
1.91 |
% |
|
|
66,501 |
|
|
|
2.15 |
|
|
|
10.87 |
% |
| Other interest income (expense), net |
|
|
422 |
|
|
|
0.01 |
|
|
|
0.07 |
% |
|
|
347 |
|
|
|
0.01 |
|
|
|
0.06 |
% |
|
|
1,664 |
|
|
|
0.05 |
|
|
|
0.27 |
% |
| Other expenses |
|
|
(4,707 |
) |
|
|
(0.15 |
) |
|
|
(0.77 |
)% |
|
|
(4,182 |
) |
|
|
(0.14 |
) |
|
|
(0.68 |
)% |
|
|
(17,539 |
) |
|
|
(0.57 |
) |
|
|
(2.86 |
)% |
| Net increase in equity resulting from operations (before incentive fee) |
|
|
(1,070 |
) |
|
|
(0.04 |
) |
|
|
(0.18 |
)% |
|
|
7,898 |
|
|
|
0.25 |
|
|
|
1.29 |
% |
|
|
50,626 |
|
|
|
1.63 |
|
|
|
8.28 |
% |
| Incentive fee |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
(424 |
) |
|
|
(0.01 |
) |
|
|
(0.07 |
)% |
|
|
(715 |
) |
|
|
(0.02 |
) |
|
|
(0.12 |
)% |
| Net increase (decrease) in equity resulting from operations |
|
|
$ |
(1,070 |
) |
|
|
$ |
(0.04 |
) |
|
|
(0.18 |
)% |
|
|
$ |
7,474 |
|
|
|
$ |
0.24 |
|
|
|
1.22 |
% |
|
|
$ |
49,911 |
|
|
|
$ |
1.61 |
|
|
|
8.16 |
% |
| Less: Net increase (decrease) in equity resulting from operations
attributable to non-controlling interests |
|
|
1,147 |
|
|
|
|
|
|
|
|
|
813 |
|
|
|
|
|
|
|
|
|
3,235 |
|
|
|
|
|
|
|
| Net increase (decrease) in shareholders' equity resulting from
operations(4) |
|
|
$ |
(2,217 |
) |
|
|
$ |
(0.07 |
) |
|
|
(0.38 |
)% |
|
|
$ |
6,661 |
|
|
|
$ |
0.22 |
|
|
|
1.12 |
% |
|
|
$ |
46,676 |
|
|
|
$ |
1.52 |
|
|
|
7.86 |
% |
|
Weighted average shares and convertible
units(5) outstanding
|
|
|
30,735 |
|
|
|
|
|
|
|
|
|
30,859 |
|
|
|
|
|
|
|
|
|
31,006 |
|
|
|
|
|
|
|
| Average equity (includes non-controlling interests)(6) |
|
|
$ |
608,772 |
|
|
|
|
|
|
|
|
|
$ |
613,816 |
|
|
|
|
|
|
|
|
|
$ |
612,513 |
|
|
|
|
|
|
|
| Weighted average shares and LTIP units outstanding(7) |
|
|
30,514 |
|
|
|
|
|
|
|
|
|
30,647 |
|
|
|
|
|
|
|
|
|
30,792 |
|
|
|
|
|
|
|
| Average shareholders' equity (excludes non-controlling interests)(6) |
|
|
$ |
583,206 |
|
|
|
|
|
|
|
|
|
$ |
596,204 |
|
|
|
|
|
|
|
|
|
$ |
593,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Includes TBAs and U.S. Treasury securities, if applicable. |
| (2) |
|
Includes equity and other relative value trading strategies and related hedges. |
| (3) |
|
Includes interest expense on the Company's Senior Notes. |
| (4) |
|
Per share information is calculated using weighted average shares and LTIP units
outstanding. Percentage of average equity is calculated using average shareholders' equity, which excludes non-controlling
interests. |
| (5) |
|
Convertible units include Operating Partnership units attributable to non-controlling
interests. |
| (6) |
|
Average equity and average shareholders' equity are calculated using month end
values. |
| (7) |
|
Excludes Operating Partnership units attributable to non-controlling interests. |
|
|
|
About Ellington Financial
Ellington Financial invests in a diverse array of financial assets, including residential and commercial mortgage-backed
securities, residential and commercial mortgage loans, consumer loans and asset-backed securities backed by consumer loans,
collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies,
and other strategic investments. Ellington Financial is externally managed and advised by Ellington Financial Management LLC, an
affiliate of Ellington Management Group, L.L.C.
Conference Call
The Company will host a conference call at 11:00 a.m. Eastern Time on Thursday, February 21, 2019, to discuss its financial
results for the quarter ended December 31, 2018. To participate in the event by telephone, please dial (877) 241-1233 at least
10 minutes prior to the start time and reference the conference ID number 6997409. International callers should dial (810) 740-4657
and reference the same conference ID number. The conference call will also be webcast live over the Internet and can be accessed
via the "For Our Shareholders" section of the Company's web site at
www.ellingtonfinancial.com. To listen to the live webcast, please visit
www.ellingtonfinancial.com at least 15 minutes prior to the start of the call to register, download, and install necessary
audio software. In connection with the release of these financial results, the Company also posted an investor presentation, that
will accompany the conference call, on its website at
www.ellingtonfinancial.com under "For Our Shareholders—Presentations."
A dial-in replay of the conference call will be available on Thursday, February 21, 2019, at approximately 4 p.m. Eastern
Time through Thursday, March 7, 2019 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (800)
585-8367 and enter the conference ID number 6997409. International callers should dial (404) 537-3406 and enter the same conference
ID number. A replay of the conference call will also be archived on the Company's web site at
www.ellingtonfinancial.com.
Cautionary Statement Regarding Forward-Looking Statements
This press release 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. Actual results may
differ from the Company's beliefs, expectations, estimates, and projections and, consequently, you should not rely on these
forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be
identified by words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should,"
"would," "could," "goal," "objective," "will," "may," "seek," or similar expressions or their negative forms, or by references to
strategy, plans, or intentions. Examples of forward-looking statements in this press release include without limitation
management's beliefs regarding the current economic and investment environment and the Company's ability to implement its
investment and hedging strategies, performance of the Company's investment and hedging strategies, the Company's exposure to
prepayment risk in its Agency portfolio, estimated effects on the fair value of the Company's holdings of a hypothetical change in
interest rates, statements regarding the drivers of the Company's returns, the Company's expected ongoing annualized expense ratio,
statements regarding potential changes to the Company's corporate structure, and statements regarding the Company's intended
dividend policy including the amount to be recommended by management, and the Company's share repurchase program. The Company's
results can fluctuate from month to month and from quarter to quarter depending on a variety of factors, some of which are beyond
the Company's control and/or are difficult to predict, including, without limitation, changes in interest rates and the market
value of the Company's securities, changes in mortgage default rates and prepayment rates, the Company's ability to borrow to
finance its assets, changes in government regulations affecting the Company's business, the Company's ability to maintain its
exclusion from registration under the Investment Company Act of 1940; the Company's ability to qualify and maintain its
qualification as a real estate investment trust, or "REIT"; and other changes in market conditions and economic trends.
Furthermore, forward-looking statements are subject to risks and uncertainties, including, among other things, those described
under Item 1A of the Company's Annual Report on Form 10-K filed on March 15, 2018 which can be accessed through the
Company's website at
www.ellingtonfinancial.com or at the SEC's website (www.sec.gov).
Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected or implied may be
described from time to time in reports the Company's files with the SEC, including reports on Forms 10-Q, 10-K and 8-K. The Company
undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events,
or otherwise.
|
|
|
|
|
|
|
|
ELLINGTON FINANCIAL LLC
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended |
|
|
Year Ended |
| (In thousands, except per share amounts) |
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
|
December 31,
2018
|
| Investment income |
|
|
|
|
|
|
|
|
|
| Interest income |
|
|
$ |
35,694 |
|
|
|
$ |
35,300 |
|
|
|
$ |
131,027 |
|
| Other income |
|
|
1,157 |
|
|
|
1,046 |
|
|
|
4,014 |
|
| Total investment income |
|
|
36,851 |
|
|
|
36,346 |
|
|
|
135,041 |
|
| Expenses |
|
|
|
|
|
|
|
|
|
| Base management fee to affiliate (Net of fee rebates of $430, $423, and $1,380,
respectively) |
|
|
1,744 |
|
|
|
1,830 |
|
|
|
7,573 |
|
| Incentive fee to affiliate |
|
|
— |
|
|
|
424 |
|
|
|
715 |
|
| Interest expense |
|
|
16,083 |
|
|
|
15,678 |
|
|
|
56,707 |
|
| Other investment related expenses: |
|
|
|
|
|
|
|
|
|
| Servicing and other |
|
|
4,201 |
|
|
|
4,384 |
|
|
|
15,307 |
|
| Issuance costs related to Other secured borrowings, at fair value |
|
|
1,647 |
|
|
|
— |
|
|
|
1,647 |
|
| Other operating expenses |
|
|
2,962 |
|
|
|
2,352 |
|
|
|
9,967 |
|
| Total expenses |
|
|
26,637 |
|
|
|
24,668 |
|
|
|
91,916 |
|
| Net investment income |
|
|
10,214 |
|
|
|
11,678 |
|
|
|
43,125 |
|
| Net realized gain (loss) on: |
|
|
|
|
|
|
|
|
|
| Investments |
|
|
4,675 |
|
|
|
8,551 |
|
|
|
25,421 |
|
| Financial derivatives, excluding currency hedges |
|
|
(389 |
) |
|
|
479 |
|
|
|
(2,639 |
) |
| Financial derivatives—currency hedges |
|
|
2,594 |
|
|
|
297 |
|
|
|
4,475 |
|
| Foreign currency transactions |
|
|
2,698 |
|
|
|
775 |
|
|
|
4,131 |
|
|
|
|
9,578 |
|
|
|
10,102 |
|
|
|
31,388 |
|
| Change in net unrealized gain (loss) on: |
|
|
|
|
|
|
|
|
|
| Investments |
|
|
(13,181 |
) |
|
|
(13,372 |
) |
|
|
(25,947 |
) |
| Other secured borrowings |
|
|
(82 |
) |
|
|
(358 |
) |
|
|
758 |
|
| Financial derivatives, excluding currency hedges |
|
|
(2,829 |
) |
|
|
173 |
|
|
|
7,093 |
|
| Financial derivatives—currency hedges |
|
|
(839 |
) |
|
|
528 |
|
|
|
565 |
|
| Foreign currency translation |
|
|
(3,931 |
) |
|
|
(1,277 |
) |
|
|
(7,071 |
) |
|
|
|
(20,862 |
) |
|
|
(14,306 |
) |
|
|
(24,602 |
) |
| Net realized and change in net unrealized gain (loss) on investments,
financial derivatives, and other secured borrowings |
|
|
(11,284 |
) |
|
|
(4,204 |
) |
|
|
6,786 |
|
| Net increase (decrease) in equity resulting from operations |
|
|
(1,070 |
) |
|
|
7,474 |
|
|
|
49,911 |
|
| Less: Increase (decrease) in equity resulting from operations attributable to
non-controlling interests |
|
|
1,147 |
|
|
|
813 |
|
|
|
3,235 |
|
| Net increase (decrease) in shareholders' equity resulting from
operations |
|
|
$ |
(2,217 |
) |
|
|
$ |
6,661 |
|
|
|
$ |
46,676 |
|
| Net increase (decrease) in shareholders' equity resulting from operations per
share: |
|
|
|
|
|
|
|
|
|
| Basic and diluted |
|
|
$ |
(0.07 |
) |
|
|
$ |
0.22 |
|
|
|
$ |
1.52 |
|
| Weighted average shares and LTIP units outstanding |
|
|
30,514 |
|
|
|
30,647 |
|
|
|
30,792 |
|
| Weighted average shares and convertible units outstanding |
|
|
30,735 |
|
|
|
30,859 |
|
|
|
31,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ELLINGTON FINANCIAL LLC
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES, AND EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
As of |
| (In thousands, except share amounts) |
|
|
December 31,
2018
|
|
|
September 30,
2018 |
|
|
December 31,
2017(1) |
| ASSETS |
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
|
$ |
44,656 |
|
|
|
$ |
53,598 |
|
|
|
$ |
47,233 |
| Restricted cash |
|
|
425 |
|
|
|
425 |
|
|
|
425 |
| Investments, financial derivatives, and repurchase agreements: |
|
|
|
|
|
|
|
|
|
| Investments, at fair value (Cost–$2,970,306, $2,694,223, and $2,071,754) |
|
|
2,939,311 |
|
|
|
2,670,069 |
|
|
|
2,071,707 |
| Financial derivatives–assets, at fair value (Net cost–$22,526, $20,895, and
$31,474) |
|
|
20,001 |
|
|
|
31,338 |
|
|
|
28,165 |
| Repurchase agreements (Cost–$61,274, $160,468, and $155,109) |
|
|
61,274 |
|
|
|
160,422 |
|
|
|
155,949 |
| Total Investments, financial derivatives, and repurchase agreements |
|
|
3,020,586 |
|
|
|
2,861,829 |
|
|
|
2,255,821 |
| Due from brokers |
|
|
71,794 |
|
|
|
83,915 |
|
|
|
140,404 |
| Receivable for securities sold and financial derivatives |
|
|
780,826 |
|
|
|
670,952 |
|
|
|
476,000 |
| Interest and principal receivable |
|
|
37,676 |
|
|
|
38,635 |
|
|
|
29,688 |
| Other assets |
|
|
15,536 |
|
|
|
5,207 |
|
|
|
43,770 |
| Total assets |
|
|
$ |
3,971,499 |
|
|
|
$ |
3,714,561 |
|
|
|
$ |
2,993,341 |
| LIABILITIES |
|
|
|
|
|
|
|
|
|
| Investments and financial derivatives: |
|
|
|
|
|
|
|
|
|
| Investments sold short, at fair value (Proceeds–$844,604, $697,686, and
$640,202) |
|
|
$ |
850,577 |
|
|
|
$ |
695,349 |
|
|
|
$ |
642,240 |
| Financial derivatives–liabilities, at fair value (Net proceeds–$19,019,
$16,294, and $27,463) |
|
|
20,806 |
|
|
|
27,226 |
|
|
|
36,273 |
| Total investments and financial derivatives |
|
|
871,383 |
|
|
|
722,575 |
|
|
|
678,513 |
| Reverse repurchase agreements |
|
|
1,498,849 |
|
|
|
1,636,039 |
|
|
|
1,209,315 |
| Due to brokers |
|
|
5,553 |
|
|
|
4,551 |
|
|
|
1,721 |
| Payable for securities purchased and financial derivatives |
|
|
488,411 |
|
|
|
430,808 |
|
|
|
202,703 |
| Other secured borrowings (Proceeds–$114,100, $114,190, and $57,909) |
|
|
114,100 |
|
|
|
114,190 |
|
|
|
57,909 |
| Other secured borrowings, at fair value (Proceeds–$81,728 $90,409, and $125,105) |
|
|
297,948 |
|
|
|
89,569 |
|
|
|
125,105 |
| Senior notes, net |
|
|
85,035 |
|
|
|
84,968 |
|
|
|
84,771 |
| Accounts payable and accrued expenses |
|
|
5,723 |
|
|
|
5,337 |
|
|
|
3,885 |
| Base management fee payable to affiliate |
|
|
1,744 |
|
|
|
1,830 |
|
|
|
2,113 |
| Incentive fee payable to affiliate |
|
|
— |
|
|
|
424 |
|
|
|
— |
| Interest and dividends payable |
|
|
7,159 |
|
|
|
6,451 |
|
|
|
5,904 |
| Other liabilities |
|
|
424 |
|
|
|
1,141 |
|
|
|
441 |
| Total liabilities |
|
|
3,376,329 |
|
|
|
3,097,883 |
|
|
|
2,372,380 |
| EQUITY |
|
|
595,170 |
|
|
|
616,678 |
|
|
|
620,961 |
| TOTAL LIABILITIES AND EQUITY |
|
|
$ |
3,971,499 |
|
|
|
$ |
3,714,561 |
|
|
|
$ |
2,993,341 |
| ANALYSIS OF EQUITY: |
|
|
|
|
|
|
|
|
|
| Common shares, no par value, 100,000,000 shares authorized; |
|
|
|
|
|
|
|
|
|
| (29,796,601, 30,155,055, and 31,335,938, shares issued and outstanding) |
|
|
$ |
563,833 |
|
|
|
$ |
583,179 |
|
|
|
$ |
589,722 |
| Additional paid-in capital–LTIP units (2) |
|
|
— |
|
|
|
10,618 |
|
|
|
10,377 |
| Total Shareholders' Equity |
|
|
563,833 |
|
|
|
593,797 |
|
|
|
600,099 |
| Non-controlling interests (2) |
|
|
31,337 |
|
|
|
22,881 |
|
|
|
20,862 |
| Total Equity |
|
|
$ |
595,170 |
|
|
|
$ |
616,678 |
|
|
|
$ |
620,961 |
| PER SHARE INFORMATION: |
|
|
|
|
|
|
|
|
|
| Common shares, no par value (2) |
|
|
$ |
18.92 |
|
|
|
$ |
19.69 |
|
|
|
$ |
19.15 |
| DILUTED PER SHARE INFORMATION: |
|
|
|
|
|
|
|
|
|
| Common shares and convertible units, no par value (3) |
|
|
$ |
18.92 |
|
|
|
$ |
19.37 |
|
|
|
$ |
18.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Derived from audited financial statements as of December 31, 2017. |
| (2) |
|
On December 31, 2018, the Company redeemed all 503,988 of its outstanding LTIP units
which it had originally issued under its incentive plans, with each LTIP unitholder receiving in exchange an equivalent number
of LTIP Units of the Operating Partnership. As such, these LTIP units are now treated as non-controlling interests. |
| (3) |
|
Based on total equity excluding non-controlling interests not represented by
instruments convertible into common shares. |
|
|
|
Reconciliation of Adjusted Net Investment Income to Net Investment Income
The table below reconciles Adjusted net investment income for the three-month period ended December 31, 2018 to the line,
Net investment income, on the Company's Consolidated Statement of Operations, which the Company believes is the most directly
comparable U.S. GAAP measure. Adjusted net investment income includes net realized and unrealized gains (losses) from certain of
the Company's equity investments in partnerships and net accrued periodic (payments) receipts on various interest rate swaps, and
excludes incentive fee, deal expenses, one-time costs related to tax conversion, and the Catch-Up Premium Amortization Adjustment.
The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and
projected prepayments on the Company's Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized
gains and losses). The adjustment is calculated as of the beginning of each quarter based on the Company's then assumptions about
cashflows and prepayments, and can vary significantly from quarter to quarter.
The Company believes that Adjusted net investment income provides information useful to investors because it is one of the
metrics that it uses to assess its performance and to evaluate the effective net yield provided by the Company's portfolio.
However, because Adjusted net investment income is an incomplete measure of the Company's financial results and differs from Net
investment income computed in accordance with U.S. GAAP, it should be considered as supplementary to, and not as a substitute for,
Net investment income computed in accordance with U.S. GAAP.
| (In thousands, except per share amounts) |
|
|
Three-Month
Period Ended
December 31, 2018
|
| Net investment income |
|
|
$ |
10,214 |
|
| Include: |
|
|
|
| Net realized and unrealized gains (losses) from certain equity investments in
partnerships(1) |
|
|
103 |
|
| Net accrued periodic (payments) receipts on interest rate swaps |
|
|
130 |
|
| Exclude: |
|
|
|
| Incentive fee to affiliate |
|
|
— |
|
| Catch-up Premium Amortization Adjustment |
|
|
16 |
|
| Debt issuance costs related to Other secured borrowings, at fair value |
|
|
(1,647 |
) |
| Costs related to tax conversion |
|
|
(615 |
) |
| Adjusted net investment income |
|
|
$ |
12,693 |
|
| Weighted average shares and convertible units outstanding |
|
|
30,735 |
|
| Net investment income per share |
|
|
$ |
0.33 |
|
| Adjusted net investment income per share |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
| (1) |
|
Includes only those components that would be included in net investment income at the
underlying partnership. |
Investors:
Ellington Financial
Investor Relations, 203-409-3575
info@ellingtonfinancial.com
or
Media:
Gasthalter & Co., for Ellington Financial
Amanda Klein / Kevin FitzGerald, 212-257-4170
ellington@gasthalter.com
View source version on businesswire.com: https://www.businesswire.com/news/home/20190220005933/en/