UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 6, 2017
ELLINGTON FINANCIAL LLC
(Exact name of registrant as specified in its charter)
Delaware | 001-34569 | 26-0489289 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
53 Forest Avenue
Old Greenwich, CT 06870
(Address and zip code of principal executive offices)
Registrant’s telephone number, including area code: (203) 698-1200
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02. | Results of Operations and Financial Condition. |
The information in this Item 2.02 and the disclosure incorporated by reference in Item 7.01 with respect to Exhibit 99.1 attached to this Current Report on Form 8-K are being furnished by Ellington Financial LLC (the "Company") pursuant to Item 7.01 of Form 8-K in satisfaction of the public disclosure requirements of Regulation FD and Item 2.02 of Form 8-K, insofar as they disclose historical information regarding the Company’s results of operations or financial condition for the quarter ended September 30, 2017.
On November 6, 2017, the Company issued a press release announcing its financial results for the quarter ended September 30, 2017. A copy of the press release is furnished herewith as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
In accordance with General Instructions B.2 and B.6 of Form 8-K, the information included in Item 2.02 and the disclosure incorporated by reference in Item 7.01 shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing made by the Company under the Exchange Act or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 7.01. | Regulation FD Disclosure. |
The disclosure contained in Item 2.02 is incorporated herein by reference.
Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits. The following exhibit is being furnished herewith this Current Report on Form 8-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ELLINGTON FINANCIAL LLC | ||||||
Date: | November 6, 2017 | By: | /s/ Lisa Mumford | |||
Lisa Mumford | ||||||
Chief Financial Officer | ||||||
EXHIBIT INDEX
Exhibit | Description | ||
99.1 | |||
Exhibit 99.1
Ellington Financial LLC Reports Third Quarter 2017 Results
OLD GREENWICH, Connecticut—November 6, 2017
Ellington Financial LLC (NYSE: EFC) today reported financial results for the quarter ended September 30, 2017.
Highlights
• | Net income1 of $6.2 million, or $0.19 per basic and diluted share. |
• | Book value per share as of September 30, 2017 of $18.96 on a diluted basis, after payment of a quarterly dividend of $0.45 per share, as compared to book value per share of $19.21 on a diluted basis as of June 30, 2017. |
• | Credit strategy gross income of $7.9 million for the quarter ended September 30, 2017. |
• | Agency strategy gross income of $2.8 million for the quarter ended September 30, 2017. |
• | Announced a dividend of $0.41 per share for the third quarter of 2017, equating to an annualized dividend yield of 10.7% based on the November 3, 2017 closing price of $15.35 per share; dividends are paid quarterly in arrears. |
• | Issued $86 million of 5.25% senior unsecured notes due September 2022, at par. |
• | Debt-to-equity ratio, excluding repo borrowings on U.S. Treasury securities, of 1.91:1 as of September 30, 2017. |
Third Quarter 2017 Results
"In the third quarter, Ellington Financial had net income, including the full impact of mark-to-market adjustments, of $6.2 million, or $0.19 per share," said Laurence Penn, Chief Executive Officer and President. "We benefited from strong performance from our CMBS, distressed corporate investments, corporate credit relative value, and Agency RMBS strategies.
"During the third quarter, we successfully completed an $86 million offering of 5.25% senior unsecured notes, with a five-year maturity. We were very pleased with the execution of the offering, which priced at par, and is rated "A" by Egan-Jones Ratings Company. The notes further diversify our borrowings, offer us another source of long-term non mark-to-market financing, and provide additional capacity to grow our Credit portfolio and drive earnings.
"We used the proceeds of the debt offering to temporarily reduce our highest-cost repo borrowings and to continue growing our Credit portfolio, which we increased over the quarter by 8%, or $56.6 million, to $741.3 million. Similar to last quarter, we added U.K. non-conforming RMBS investments, which we believe currently offer superior value to their U.S. counterparts. We also net added assets in our CLO, consumer loan and non-QM mortgage loan strategies, but net sold assets in our CMBS and performing leveraged loan strategies.
"As we move into the final months of 2017, we continue to focus on growing the Credit portfolio and improving earnings. As we have highlighted before, we view securitization as an important driver of this growth. We have reached critical mass in our non-QM portfolio, and intend to complete a non-QM securitization in the near future. After successfully completing our first CLO securitization earlier this year, we have begun accumulating assets for a follow-on CLO. By securing long-term locked-in financing through these types of securitizations, we are able to manufacture attractive risk-adjusted returns while freeing up capital to redeploy in these and other high-yielding strategies.
"We still hold a great deal of free cash, which means that we have plenty of dry powder to pursue investments. In order for our earnings to be able to cover our dividend more consistently, we need to continue to grow our Credit portfolio. Although we net added $189.3 million of Credit assets year-to-date through September 30th, our pace of capital deployment has been slower than planned. But importantly, in this environment of heightened competition for assets, we believe that we have been diligent in seeking high-quality, high-yielding assets without compromising our acquisition standards."
"Finally, with our recent dividend announcement, we reset our dividend roughly back to the annualized yield on book value at which we set it a year ago, and consistent with our capital management strategy, we expect this to free up additional capital to deploy for new investments, and for share repurchases to the extent that our share-price-to-book-value ratio remains at levels attractive for repurchase. Consistent with past guidance, and with our stock price having traded lower after quarter end, we have recently been repurchasing shares pursuant to our 10b5-1 share repurchase program."
1 Increase (decrease) in shareholders' equity from operations, or "net income (loss)."
1
Market Overview
• | In October, the Federal Reserve initiated its balance sheet normalization program, and began tapering asset purchases of both U.S. Treasury securities and Agency RMBS. At the November Federal Open Market Committee, or "FOMC," meeting, the Federal Reserve maintained the target range for the federal funds rate at 1.00%–1.25%. |
• | For the third consecutive quarter, the yield curve flattened. The 2-year U.S. Treasury yield rose 10 basis points to end the quarter at 1.48%, while the 10-year U.S. Treasury yield increased only 3 basis points to 2.33%. |
• | Despite the rise in U.S. Treasury yields, mortgage rates declined over the course of the third quarter, with the Freddie Mac survey 30-year mortgage rate falling 5 basis points to end the quarter at 3.83%. |
• | Overall Agency RMBS prepayment rates declined slightly during the quarter. The Mortgage Bankers Association's Refinance Index, which measures refinancing application volumes, increased 2.0% quarter over quarter but remains well below the multi-year high reached in mid-2016. |
Volatility remained at historic lows during the third quarter. The Merrill Lynch Option Volatility Estimate Index, or MOVE Index, declined to an all-time low, while the Chicago Board Options Exchange Volatility Index, known as the VIX, dropped to its lowest level in 23 years. U.S. Treasury yields were again range-bound, with the 10-year U.S. Treasury trading within a 35-basis point range during the quarter.
During the quarter, yield spreads across most credit products, including non-Agency RMBS, remained at the tightest points of their trailing two-year ranges. Corporate credit spreads fluctuated intra-quarter but finished the quarter tighter. As in prior quarters, demand remained strong for floating-rate debt instruments, including CLOs and leveraged loans. Finally, damage from recent hurricanes and ongoing negative headlines in retail led to heightened volatility in the CMBS market during the quarter.
Also, during the third quarter, Agency RMBS finally participated in the spread tightening that other fixed-income asset classes had already benefited from this year. After the Federal Reserve announced at its September meeting the initiation of its tapering program, the Agency mortgage basis tightened significantly, suggesting that many investors had been waiting for policy clarity before adding Agency RMBS exposure. As measured by the Bloomberg Barclays U.S. MBS Agency Fixed Rate Index, Agency RMBS generated an excess return over the Bloomberg Barclays U.S. Treasury Index of 48 basis points for the quarter.
Mortgage REIT buying of Agency RMBS was also widespread following a number of equity raises, suggesting that private capital has been willing and able, at least so far, to replace the Federal Reserve's footprint in this market. Year-to-date through October 31, 2017, residential mortgage REITs have raised approximately $8.1 billion of capital, representing over $40 billion of Agency RMBS buying power. At the same time, low interest rate volatility and a muted prepayment environment have provided a significant tailwind to the sector.
Financial Results
We prepare our financial statements in accordance with ASC 946, Financial Services—Investment Companies. As a result, our investments are carried at fair value and all valuation changes are recorded in the Consolidated Statement of Operations.
Credit Summary
As of September 30, 2017, our total long Credit portfolio (excluding corporate relative value trading positions, hedges, and other derivatives) increased 8.3% to $741.3 million from $684.7 million as of June 30, 2017. During the third quarter, our Credit strategy generated gross income of $7.9 million or $0.24 per share.
The primary components of our Credit strategy generally include: non-Agency RMBS; CMBS; performing, sub-performing, and non-performing residential and commercial mortgage loans; consumer loans and ABS; U.S. and European CLOs; investments in mortgage-related entities; and credit hedges (including relative value trades involving credit hedging instruments). We also opportunistically invest in the corporate credit market, including distressed and non-distressed debt and corporate credit relative value trading.
During the third quarter, our Credit strategy was profitable even after taking into account modest losses on our credit hedges. We benefited from particularly strong performance in the following strategies: CMBS, distressed corporate investments, non-performing and re-performing U.S. residential mortgage loans, and corporate credit relative value. Most of the return in the credit strategies during the quarter came from net interest income as opposed to trading gains, as our selling activity was limited as we sought to deploy the proceeds of our debt offering. A notable exception to this was our corporate credit relative value strategy, which generated trading gains across a number of smaller positions, as some of the basis relationships, which as we noted last quarter had moved against us, started to normalize. With its strong performance during the third quarter, this strategy more than recovered from its underperformance last quarter, and we continue to hold many of the same basis positions as we expect those relationships to continue to normalize. Finally, we note that our credit portfolio was not materially impacted by the recent hurricanes.
2
Currently, our credit hedges consist primarily of financial instruments tied to high-yield corporate credit, such as CDS on high-yield corporate bond indices, as well as tranches and options on these indices; short positions in and CDS on corporate bonds; and positions involving ETFs of high-yield corporate bonds. Our credit hedges also currently include CDS tied to individual MBS or an index of several MBS, such as CMBX. We also opportunistically overlay our high-yield corporate credit hedges and mortgage-related derivatives with certain relative value long/short positions involving the same or similar instruments. In the third quarter, credit hedges reduced profitability in most of our credit strategies, as spreads in most credit sectors continued to tighten, including the high-yield corporate and CMBS sectors in which most of our credit hedges continue to be concentrated.
In addition to using credit hedges, we also use interest rate hedges in our Credit strategy in order to protect our portfolio against the risk of rising interest rates. The interest rate hedges in our Credit strategy, which currently consist primarily of interest rate swaps, had no material impact on our results for the quarter. We also use foreign currency hedges in our Credit strategy, in order to protect our assets denominated in euros and British pounds against the risk of declines in those currencies against the U.S. dollar. We had net losses on our foreign currency hedges for the quarter, but these were more than offset by net gains on foreign currency-related transactions and translation.
We believe that our publicly traded partnership structure affords us valuable flexibility, especially with respect to our ability to adjust our exposures nimbly by hedging many forms of risk, such as credit risk, interest rate risk, and foreign currency risk.
Agency Summary
As of September 30, 2017, our long Agency RMBS portfolio was $816.2 million, down slightly from $834.0 million as of June 30, 2017. During the third quarter, our Agency strategy generated gross income of $2.8 million, or $0.08 per share.
Our Agency RMBS portfolio performed well in the third quarter as Agency RMBS yield spreads tightened. Most of this tightening occurred toward the end of the quarter, after the Federal Reserve announced at its September FOMC meeting that it would begin tapering purchases in October—an announcement that removed uncertainty in the sector and triggered buying. The sector also benefited from a confined interest rate range, declining implied volatility, and a muted prepayment environment. The strong performance of Agency RMBS in the third quarter represented a reversal of the sector's underperformance versus other spread products during the first half of 2017.
During the third quarter, our portfolio also benefited from the outperformance of specified pools versus TBAs, as we continued to concentrate our long investments in specified pools, and to hold net short positions in TBAs as a significant component of our interest rate hedging strategy. Slightly lower roll costs in higher coupon TBAs and increased investor demand for specified pools were key drivers of the outperformance. Average pay-ups on our specified pools increased to 0.81% as of September 30, 2017, from 0.77% as of June 30, 2017. Pay-ups are price premiums for specified pools relative to their TBA counterparts. As of September 30, 2017, the weighted average coupon on our fixed-rate specified pools was 4.0%.
Besides fixed-rate specified pools, our Agency portfolio also includes pools that are backed by ARMs, Hybrid ARMs and reverse mortgages, and also includes CMOs, including IOs, POs, and IIOs. Finally, our Agency strategy also includes interest rate hedges for our Agency RMBS, as well as certain relative value trading positions in interest rate-related and TBA-related instruments.
During the quarter we continued to hedge interest rate risk in our Agency strategy, primarily through the use of interest rate swaps and short positions in TBAs, and to a lesser extent, short positions in U.S. Treasury securities. For the quarter, we had total net losses of $(1.8) million, or $(0.05) per share, from our interest rate hedges and other activities. In our hedging portfolio, the relative proportion (based on 10-year equivalents2) of TBA short positions decreased slightly quarter over quarter relative to interest rate swaps.
Portfolio turnover for our Agency strategy was approximately 9% for the quarter (as measured by sales and excluding paydowns), and we had net realized losses of $(0.2) million, excluding interest rate hedges. Our portfolio selection continues to be informed by mortgage industry trends—including significant enhancements in technology that are helping streamline the origination process—and we note that refinancing capacity remains high, with employment in the mortgage industry near a post-financial crisis high.
2"10-year equivalents" for a group of positions represent the amount of 10-year U.S. Treasury securities that would experience a similar change in market value under a standard parallel move in interest rates.
3
The following table summarizes our operating results for the quarters ended September 30, 2017 and June 30, 2017 and the nine month period ended September 30, 2017:
Quarter Ended September 30, 2017 | Per Share | % of Average Equity | Quarter Ended June 30, 2017 | Per Share | % of Average Equity | Nine Month Period Ended September 30, 2017 | Per Share | % of Average Equity | |||||||||||||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||||||||||||||||||||
Credit: | |||||||||||||||||||||||||||||||||
Interest income and other income | $ | 14,877 | $ | 0.45 | 2.35 | % | $ | 14,098 | $ | 0.43 | 2.19 | % | $ | 42,108 | $ | 1.28 | 6.56 | % | |||||||||||||||
Net realized gain (loss)(1) | 2,732 | 0.08 | 0.43 | % | 5,544 | 0.17 | 0.86 | % | 10,529 | 0.32 | 1.64 | % | |||||||||||||||||||||
Change in net unrealized gain (loss)(1) | (2,800 | ) | (0.09 | ) | (0.44 | )% | 194 | 0.01 | 0.03 | % | 6,220 | 0.19 | 0.97 | % | |||||||||||||||||||
Net interest rate hedges(1) | (325 | ) | (0.01 | ) | (0.05 | )% | (438 | ) | (0.02 | ) | (0.07 | )% | (617 | ) | (0.02 | ) | (0.10 | )% | |||||||||||||||
Net credit hedges and other activities(1)(3) | (760 | ) | (0.02 | ) | (0.12 | )% | (4,687 | ) | (0.15 | ) | (0.73 | )% | (7,910 | ) | (0.24 | ) | (1.23 | )% | |||||||||||||||
Interest expense(4) | (3,967 | ) | (0.12 | ) | (0.63 | )% | (3,253 | ) | (0.10 | ) | (0.51 | )% | (9,419 | ) | (0.29 | ) | (1.47 | )% | |||||||||||||||
Other investment related expenses | (1,809 | ) | (0.05 | ) | (0.29 | )% | (2,013 | ) | (0.06 | ) | (0.31 | )% | (5,318 | ) | (0.17 | ) | (0.83 | )% | |||||||||||||||
Total Credit profit (loss) | 7,948 | 0.24 | 1.25 | % | 9,445 | 0.28 | 1.46 | % | 35,593 | 1.07 | 5.54 | % | |||||||||||||||||||||
Agency RMBS: | |||||||||||||||||||||||||||||||||
Interest income | 5,917 | 0.18 | 0.94 | % | 6,397 | 0.19 | 0.99 | % | 20,944 | 0.64 | 3.26 | % | |||||||||||||||||||||
Net realized gain (loss) | (173 | ) | (0.01 | ) | (0.03 | )% | (663 | ) | (0.02 | ) | (0.10 | )% | (1,547 | ) | (0.05 | ) | (0.24 | )% | |||||||||||||||
Change in net unrealized gain (loss) | 1,453 | 0.04 | 0.23 | % | 1,522 | 0.05 | 0.24 | % | 405 | 0.01 | 0.06 | % | |||||||||||||||||||||
Net interest rate hedges and other activities(2) | (1,831 | ) | (0.05 | ) | (0.29 | )% | (4,659 | ) | (0.14 | ) | (0.72 | )% | (8,062 | ) | (0.25 | ) | (1.26 | )% | |||||||||||||||
Interest expense | (2,571 | ) | (0.08 | ) | (0.41 | )% | (2,226 | ) | (0.07 | ) | (0.35 | )% | (6,654 | ) | (0.21 | ) | (1.04 | )% | |||||||||||||||
Total Agency RMBS profit (loss) | 2,795 | 0.08 | 0.44 | % | 371 | 0.01 | 0.06 | % | 5,086 | 0.14 | 0.78 | % | |||||||||||||||||||||
Total Credit and Agency RMBS profit (loss) | 10,743 | 0.32 | 1.69 | % | 9,816 | 0.29 | 1.52 | % | 40,679 | 1.21 | 6.32 | % | |||||||||||||||||||||
Other interest income (expense), net | 352 | 0.01 | 0.06 | % | 215 | 0.01 | 0.03 | % | 703 | 0.02 | 0.11 | % | |||||||||||||||||||||
Other expenses | (4,500 | ) | (0.14 | ) | (0.71 | )% | (4,590 | ) | (0.14 | ) | (0.71 | )% | (13,616 | ) | (0.42 | ) | (2.12 | )% | |||||||||||||||
Net increase in equity resulting from operations | $ | 6,595 | $ | 0.19 | 1.04 | % | $ | 5,441 | $ | 0.16 | 0.84 | % | $ | 27,766 | $ | 0.81 | 4.31 | % | |||||||||||||||
Less: Net increase in equity resulting from operations attributable to non-controlling interests | 400 | 377 | 1,229 | ||||||||||||||||||||||||||||||
Net increase in shareholders' equity resulting from operations(5) | $ | 6,195 | $ | 0.19 | 1.00 | % | $ | 5,064 | $ | 0.16 | 0.80 | % | $ | 26,537 | $ | 0.81 | 4.22 | % | |||||||||||||||
Weighted average shares and convertible units(6) outstanding | 32,779 | 32,799 | 32,835 | ||||||||||||||||||||||||||||||
Average equity (includes non-controlling interests)(7) | $ | 632,724 | $ | 644,868 | $ | 641,540 | |||||||||||||||||||||||||||
Weighted average shares and LTIP units outstanding(8) | 32,567 | 32,587 | 32,623 | ||||||||||||||||||||||||||||||
Average shareholders' equity (excludes non-controlling interests)(7) | $ | 620,828 | $ | 630,182 | $ | 629,271 | |||||||||||||||||||||||||||
(1) | Conformed to current period presentation. |
(2) | Includes TBAs and U.S. Treasury securities, if applicable. |
(3) | Includes equity and other relative value trading strategies and related hedges. |
(4) | Includes interest expense on our Senior Notes. |
(5) | 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. |
(6) | Convertible units include Operating Partnership units attributable to non-controlling interests and LTIP units. |
(7) | Average equity and average shareholders' equity are calculated using month end values. |
(8) | Excludes Operating Partnership units attributable to non-controlling interests |
4
Portfolio
The following tables summarize our portfolio holdings as of September 30, 2017 and June 30, 2017:
Investment Portfolio
September 30, 2017 | June 30, 2017 | ||||||||||||||||||||||||||||||||||||||
(In thousands) | Current Principal | Fair Value | Average Price(1) | Cost | Average Cost(1) | Current Principal | Fair Value | Average Price(1) | Cost | Average Cost(1) | |||||||||||||||||||||||||||||
Non-Agency RMBS and Residential Mortgage Loans | $ | 367,389 | $ | 304,721 | $ | 82.94 | $ | 294,569 | $ | 80.18 | $ | 331,501 | $ | 262,767 | $ | 79.27 | $ | 252,519 | $ | 76.17 | |||||||||||||||||||
Non-Agency CMBS and Commercial Mortgage Loans | 164,857 | 94,038 | 57.04 | 96,823 | 58.73 | 178,252 | 95,483 | 53.57 | 99,808 | 55.99 | |||||||||||||||||||||||||||||
ABS and Consumer Loans | 247,007 | 243,292 | 98.50 | 247,248 | 100.10 | 223,277 | 219,830 | 98.46 | 223,785 | 100.23 | |||||||||||||||||||||||||||||
Total Non-Agency MBS, Mortgage loans, and ABS and Consumer Loans(2) | 779,253 | 642,051 | 82.39 | 638,640 | 81.96 | 733,030 | 578,080 | 78.86 | 576,112 | 78.59 | |||||||||||||||||||||||||||||
Agency RMBS: | |||||||||||||||||||||||||||||||||||||||
Floating | 8,272 | 8,598 | 103.94 | 8,684 | 104.97 | 9,610 | 9,991 | 103.97 | 10,108 | 105.19 | |||||||||||||||||||||||||||||
Fixed | 680,115 | 721,709 | 106.12 | 722,572 | 106.24 | 698,299 | 739,908 | 105.96 | 742,175 | 106.28 | |||||||||||||||||||||||||||||
Reverse Mortgages | 50,784 | 55,172 | 108.64 | 55,539 | 109.36 | 50,986 | 55,315 | 108.49 | 55,941 | 109.72 | |||||||||||||||||||||||||||||
Total Agency RMBS(3) | 739,171 | 785,479 | 106.26 | 786,795 | 106.44 | 758,895 | 805,214 | 106.10 | 808,224 | 106.50 | |||||||||||||||||||||||||||||
Total Non-Agency and Agency MBS, Mortgage loans, and ABS and Consumer Loans(2)(3) | 1,518,424 | 1,427,530 | 94.01 | 1,425,435 | 93.88 | 1,491,925 | 1,383,294 | 92.72 | 1,384,336 | 92.79 | |||||||||||||||||||||||||||||
Agency Interest Only RMBS | n/a | 30,722 | n/a | 31,373 | n/a | n/a | 28,783 | n/a | 29,184 | n/a | |||||||||||||||||||||||||||||
Non-Agency Interest Only and Principal Only MBS and Other(4) | n/a | 22,465 | n/a | 19,264 | n/a | n/a | 23,129 | n/a | 20,018 | n/a | |||||||||||||||||||||||||||||
TBAs: | |||||||||||||||||||||||||||||||||||||||
Long | 115,303 | 121,009 | 104.95 | 121,217 | 105.13 | 172,950 | 179,874 | 104.00 | 180,243 | 104.22 | |||||||||||||||||||||||||||||
Short | (447,590 | ) | (470,487 | ) | 105.12 | (471,204 | ) | 105.28 | (428,424 | ) | (450,055 | ) | 105.05 | (451,073 | ) | 105.29 | |||||||||||||||||||||||
Net Short TBAs | (332,287 | ) | (349,478 | ) | 105.17 | (349,987 | ) | 105.33 | (255,474 | ) | (270,181 | ) | 105.76 | (270,830 | ) | 106.01 | |||||||||||||||||||||||
Long U.S. Treasury Securities | 1,510 | 1,519 | 100.62 | 1,510 | 99.99 | 22,122 | 22,165 | 100.20 | 22,060 | 99.72 | |||||||||||||||||||||||||||||
Short U.S. Treasury Securities | (50,909 | ) | (50,467 | ) | 99.13 | (50,523 | ) | 99.24 | (106,045 | ) | (104,924 | ) | 98.94 | (104,922 | ) | 98.94 | |||||||||||||||||||||||
Short European Sovereign Bonds | (68,389 | ) | (69,940 | ) | 102.27 | (66,592 | ) | 97.37 | (65,980 | ) | (67,556 | ) | 102.39 | (66,666 | ) | 101.04 | |||||||||||||||||||||||
Repurchase Agreements | 193,071 | 193,070 | 100.00 | 194,265 | 100.62 | 266,659 | 266,659 | 100.00 | 265,403 | 99.53 | |||||||||||||||||||||||||||||
Long Corporate Debt | 106,485 | 89,308 | 83.87 | 90,324 | 84.82 | 111,293 | 94,584 | 84.99 | 95,816 | 86.09 | |||||||||||||||||||||||||||||
Short Corporate Debt | (70,580 | ) | (70,567 | ) | 99.98 | (70,082 | ) | 99.29 | (63,142 | ) | (61,267 | ) | 97.03 | (61,755 | ) | 97.80 | |||||||||||||||||||||||
Non-Exchange Traded Preferred and Common Equity Investment in Mortgage-Related Entities | n/a | 21,814 | n/a | 22,814 | n/a | n/a | 20,000 | n/a | 20,000 | n/a | |||||||||||||||||||||||||||||
Non-controlling equity interest in limited liability companies | n/a | 11,445 | n/a | 15,937 | n/a | n/a | 11,557 | n/a | 15,937 | n/a | |||||||||||||||||||||||||||||
Non-Exchange Traded Corporate Equity | n/a | 4,068 | n/a | 3,690 | n/a | n/a | 4,141 | n/a | 4,069 | n/a | |||||||||||||||||||||||||||||
Long Common Stock | n/a | 790 | n/a | 1,092 | n/a | n/a | 1,625 | n/a | 2,339 | n/a | |||||||||||||||||||||||||||||
Short Common Stock | n/a | (14,189 | ) | n/a | (14,105 | ) | n/a | n/a | (3,432 | ) | n/a | (3,563 | ) | n/a | |||||||||||||||||||||||||
Real Estate Owned | n/a | 25,762 | n/a | 26,198 | n/a | n/a | 24,977 | n/a | 25,462 | n/a | |||||||||||||||||||||||||||||
Total | $ | 1,273,852 | $ | 1,280,613 | $ | 1,373,554 | $ | 1,376,888 | |||||||||||||||||||||||||||||||
(1) | Represents the dollar amount, per $100 of current principal, of the price or cost for the security. |
(2) | Excludes non-Agency Interest Only and Principal Only MBS and Other (see footnote 4 below). |
(3) | Excludes Agency Interest Only RMBS. |
(4) | Other includes equity tranches of CLOs, non-Agency residual MBS, and similar positions. |
5
Non-Agency RMBS and CMBS are generally securitized in senior/subordinated structures, or in excess spread/over-collateralization structures. Disregarding TBAs, Agency RMBS consist primarily of whole-pool pass through certificates. We actively invest in the TBA market. TBAs are forward-settling Agency RMBS where the mortgage pass-through certificates to be delivered are "To-Be-Announced." Given that we use TBAs primarily to hedge the risk of rising interest rates on our long holdings, we generally carry a net short TBA position.
Derivatives Portfolio(1)
September 30, 2017 | June 30, 2017 | |||||||||||||||
(In thousands) | Notional Value | Fair Value | Notional Value | Fair Value | ||||||||||||
Mortgage-Related Derivatives: | ||||||||||||||||
Long CDS on RMBS and CMBS Indices | $ | 9,456 | $ | (1,485 | ) | $ | 11,198 | $ | (1,760 | ) | ||||||
Short CDS on RMBS and CMBS Indices | (37,495 | ) | 6,977 | (48,350 | ) | 7,416 | ||||||||||
Short CDS on Individual RMBS | (9,011 | ) | 4,323 | (9,641 | ) | 4,900 | ||||||||||
Net Mortgage-Related Derivatives | (37,050 | ) | 9,815 | (46,793 | ) | 10,556 | ||||||||||
Long CDS referencing Corporate Bond Indices | 12,888 | 631 | 13,973 | 880 | ||||||||||||
Short CDS referencing Corporate Bond Indices | (261,060 | ) | (11,646 | ) | (223,178 | ) | (7,361 | ) | ||||||||
Long CDS on Corporate Bonds | 136,053 | 149 | 94,620 | (5,119 | ) | |||||||||||
Short CDS on Corporate Bonds | (199,642 | ) | (3,651 | ) | (154,232 | ) | (259 | ) | ||||||||
Long Total Return Swaps on Corporate Equities(2) | 63 | — | — | — | ||||||||||||
Short Total Return Swaps on Corporate Equities(2) | (10,486 | ) | — | (24,986 | ) | (1 | ) | |||||||||
Interest Rate Derivatives: | ||||||||||||||||
Long Interest Rate Swaps | 515,443 | (1,064 | ) | 364,843 | (1,206 | ) | ||||||||||
Short Interest Rate Swaps | (955,216 | ) | 2,482 | (839,288 | ) | 3,404 | ||||||||||
Short Eurodollar Futures(3) | — | — | (42,000 | ) | (47 | ) | ||||||||||
Short U.S. Treasury Note Futures(4) | (6,800 | ) | 143 | (6,800 | ) | 44 | ||||||||||
Interest Rate Caps | 113,453 | 2 | 113,453 | 2 | ||||||||||||
Total Net Interest Rate Derivatives | 1,563 | 2,197 | ||||||||||||||
Other Derivatives: | ||||||||||||||||
Short Foreign Currency Forwards(5) | (66,971 | ) | 707 | (73,747 | ) | (1,319 | ) | |||||||||
Purchased Equity Call Options(6) | 28 | 50 | 16 | 23 | ||||||||||||
Purchased Equity Put Options(6) | — | — | 5 | 2 | ||||||||||||
Total Net Derivatives | $ | (2,382 | ) | $ | (401 | ) | ||||||||||
(1) | In the table above, fair value of certain derivative transactions are shown on a net basis. The accompanying financial statements separate derivative transactions as either assets or liabilities. As of September 30, 2017, derivative assets and derivative liabilities were $29.9 million and $32.3 million, respectively, for a net fair value of $(2.4) million, as reflected in "Total Net Derivatives" above. As of June 30, 2017, derivative assets and derivative liabilities were $26.6 million and $27.0 million, respectively, for a net fair value of $(0.4) million, as reflected in "Total Net Derivatives" above. |
(2) | Notional value represents number of underlying shares times the closing price of the underlying security. |
(3) | Every $1,000,000 in notional value represents one Eurodollar future contract. |
(4) | Notional value represents the total face amount of U.S. Treasury securities underlying all contracts held. As of both September 30, 2017 and June 30, 2017 a total of 68 short U.S. Treasury note futures contracts were held. |
(5) | Notional value represents U.S. Dollars to be received by us at the maturity of the forward contract. |
(6) | Notional value represents the number of common shares we have the option to purchase or sell multiplied by the strike price. |
The mix and composition of our derivative instruments may vary from period to period.
6
The following table summarizes, as of September 30, 2017, the estimated effects on the value of our portfolio, both overall and by category, of hypothetical, immediate, 50 basis point downward and upward parallel shifts in interest rates.
Estimated Change in Value (1) | ||||||||||||||
(In thousands) | 50 Basis Point Decline in Interest Rates | 50 Basis Point Increase in Interest Rates | ||||||||||||
Market Value | % of Total Equity | Market Value | % of Total Equity | |||||||||||
Agency RMBS - ARM Pools | $ | 53 | 0.01 | % | $ | (60 | ) | (0.01 | )% | |||||
Agency RMBS - Fixed Pools and IOs | 10,730 | 1.70 | % | (15,458 | ) | (2.45 | )% | |||||||
TBAs | (4,120 | ) | (0.65 | )% | 6,761 | 1.07 | % | |||||||
Non-Agency RMBS, CMBS, Other ABS, and Mortgage Loans | 3,324 | 0.53 | % | (3,711 | ) | (0.59 | )% | |||||||
Interest Rate Swaps | (5,102 | ) | (0.81 | )% | 4,877 | 0.78 | % | |||||||
U.S. Treasury Securities | (2,004 | ) | (0.32 | )% | 1,912 | 0.31 | % | |||||||
U.S. Treasury Futures | (265 | ) | (0.04 | )% | 256 | 0.04 | % | |||||||
Mortgage-Related Derivatives | 50 | 0.01 | % | (51 | ) | (0.01 | )% | |||||||
Corporate Securities and Derivatives on Corporate Securities | (34 | ) | (0.01 | )% | 80 | 0.01 | % | |||||||
Repurchase Agreements and Reverse Repurchase Agreements | (2,389 | ) | (0.38 | )% | 2,350 | 0.37 | % | |||||||
$ | 243 | 0.04 | % | $ | (3,044 | ) | (0.48 | )% | ||||||
(1) | Based on the market environment as of September 30, 2017. The preceding analysis does not include sensitivities to changes in interest rates for instruments for which we believe that the effect of a change in interest rates is not material to the value of the overall portfolio and/or cannot be accurately estimated. In particular, this analysis excludes certain corporate securities and derivatives on corporate securities, and reflects only sensitivity to U.S. interest rates. Results are based on forward-looking models, which are inherently imperfect, and incorporate various simplifying assumptions. Therefore, the table above is for illustrative purposes only and actual changes in interest rates would likely cause changes in the actual value of our overall portfolio that would differ from those presented above and such differences might be significant and adverse. |
Borrowed Funds and Liquidity
Reverse Repos and Other Secured Borrowings
Borrowings By Collateral Type
The following table summarizes our aggregate secured borrowings, including reverse repos and other secured borrowings for the three month period ended September 30, 2017 and June 30, 2017.
As of September 30, 2017 | For the Quarter Ended September 30, 2017 | As of June 30, 2017 | For the Quarter Ended June 30, 2017 | |||||||||||||||||||
Collateral for Borrowing | Outstanding Borrowings | Average Borrowings | Average Cost of Funds | Outstanding Borrowings | Average Borrowings | Average Cost of Funds | ||||||||||||||||
(In thousands) | ||||||||||||||||||||||
Credit(1) | $ | 277,596 | $ | 315,731 | 3.72 | % | $ | 301,362 | $ | 274,958 | 3.87 | % | ||||||||||
Agency RMBS | 768,418 | 783,521 | 1.30 | % | 791,083 | 807,615 | 1.11 | % | ||||||||||||||
Subtotal(1) | 1,046,014 | 1,099,252 | 2.00 | % | 1,092,445 | 1,082,573 | 1.81 | % | ||||||||||||||
Corporate Credit Relative Value Trading Strategy | 67,722 | 59,347 | 1.60 | % | 87,799 | 66,829 | 1.56 | % | ||||||||||||||
U.S. Treasury Securities | 5,720 | 9,014 | 1.14 | % | 27,094 | 48,923 | 0.92 | % | ||||||||||||||
Total | $ | 1,119,456 | $ | 1,167,613 | 1.97 | % | $ | 1,207,338 | $ | 1,198,325 | 1.76 | % | ||||||||||
(1) | Excludes U.S. Treasury Securities and investments in our corporate credit relative value trading strategy. |
Throughout the third quarter, borrowing costs increased as LIBOR rose, which impacted our Agency-related as well as Credit-related borrowings. As shown in the table above, the reverse repo borrowings in our corporate credit relative value trading strategy have much lower costs of funds than most of our other Credit-related borrowings, because this strategy tends to involve more liquid assets than our other credit strategies. In light of this large difference in borrowing costs, as well as the more short-term nature and varying overall size of our positions in this strategy, we have broken out in the above table the borrowings in that strategy from our other Credit-related borrowings. Our average cost of funds on our total credit portfolio, including our corporate credit relative value trading strategy was 3.39% and 3.42% for the three month periods ended September 30, 2017 and June 30, 2017, respectively.
7
Reverse Repurchase Agreements By Remaining Maturity (1)
(In thousands) | As of September 30, 2017 | As of June 30, 2017 | ||||||||||||
Remaining Maturity (2) | Outstanding Borrowings | % of Borrowings | Outstanding Borrowings | % of Borrowings | ||||||||||
30 Days or Less | $ | 351,982 | 34.2 | % | $ | 311,846 | 27.9 | % | ||||||
31-60 Days | 347,427 | 33.7 | % | 332,008 | 29.7 | % | ||||||||
61-90 Days | 236,695 | 23.0 | % | 232,897 | 20.8 | % | ||||||||
91-120 Days | 73,609 | 7.1 | % | 122,071 | 10.9 | % | ||||||||
121-150 Days | 3,338 | 0.3 | % | 6,709 | 0.6 | % | ||||||||
151-180 Days | 8,991 | 0.9 | % | 10,365 | 0.9 | % | ||||||||
181-360 Days | 7,768 | 0.8 | % | 103,342 | 9.2 | % | ||||||||
$ | 1,029,810 | 100.0 | % | $ | 1,119,238 | 100.0 | % | |||||||
(1) | Reverse repos involving underlying investments that we had sold prior to the applicable period end for settlement following the applicable period end, are shown using their original maturity dates even though such reverse repos may be expected to be terminated early upon settlement of the sale of the underlying investment. Not included are any reverse repos that we may have entered into prior to the applicable period end for which delivery of the borrowed funds is not scheduled until after the applicable period end. |
(2) | Remaining maturity for a reverse repo is based on the contractual maturity date in effect as of the applicable period end. Some reverse repos have floating interest rates, which may reset before maturity. |
The weighted average remaining term on our reverse repos as of September 30, 2017 decreased to 48 days from 67 days as of June 30, 2017. In addition to borrowings under reverse repos, we had other secured borrowings related to certain of our loan portfolios in the amount of $89.6 million and $88.1 million as of September 30, 2017 and June 30, 2017, respectively.
Our borrowings outstanding under reverse repos were with a total of twenty-one counterparties as of September 30, 2017. As of September 30, 2017, we held liquid assets in the form of cash and cash equivalents in the amount of $111.4 million.
Long-Term Debt
On August 18, 2017, we issued $86.0 million in aggregate principal amount of unsecured Senior Notes, at par and maturing on September 1, 2022. The total net proceeds from the issuance of the notes was approximately $84.7 million, after deducting debt issuance costs. The notes bear an interest rate of 5.25%, and interest is payable semi-annually in arrears on March 1 and September 1 of each year, with the first interest payment date on March 1, 2018. Inclusive of debt issuance costs, our effective cost of funds on the notes is 5.55%.
Total Borrowed Funds
The following table details our debt-to-equity ratios as of September 30, 2017 and June 30, 2017.
As of September 30, 2017 | As of June 30, 2017 | |||||||
($ in thousands) | ||||||||
Recourse1 Borrowings: | ||||||||
Reverse Repurchase Agreements | $ | 1,029,810 | $ | 1,119,238 | ||||
Senior Notes, at par | 86,000 | — | ||||||
Total Recourse Borrowings | 1,115,810 | 1,119,238 | ||||||
Debt-to-Equity Ratio Based on Total Recourse Borrowings | 1.77:1 | 1.76:1 | ||||||
Debt-to-Equity Ratio Based on Total Recourse Borrowings Excluding U.S. Treasury Securities | 1.76:1 | 1.71:1 | ||||||
Non-Recourse1 Borrowings: | ||||||||
Other Secured Borrowings | 89,646 | 88,100 | ||||||
Total Recourse and Non-Recourse Borrowings | 1,205,456 | 1,207,338 | ||||||
Debt-to-Equity Ratio Based on Total Recourse and Non-Recourse Borrowings | 1.91:1 | 1.90:1 | ||||||
Debt-to-Equity Ratio Based on Total Recourse and Non-Recourse Borrowings Excluding U.S. Treasury Securities | 1.91:1 | 1.85:1 | ||||||
(1) | All of our non-recourse borrowings are secured by collateral. In the event of default under a non-recourse borrowing, the lender has a claim against the collateral but not any of our other assets. In the event of default under a recourse borrowing, the lender’s claim is not limited to the collateral (if any). |
8
Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, and the timing of security purchase and sale transactions.
Other
Our expense ratio, which we define as our annualized base management fee and other operating expenses, but excluding interest expense, other investment related expenses, and incentive fees, as a percentage of average equity, was 2.8% for the quarter ended September 30, 2017, unchanged from the prior quarter. We did not incur incentive fee expense for either the second or third quarters of 2017.
Dividends
On November 1, 2017, our Board of Directors declared a dividend of $0.41 per share for the third quarter of 2017, payable on December 15, 2017 to shareholders of record on December 1, 2017. The declaration and amount of future dividends remain in the discretion of the Board of Directors. Our dividends are paid on a quarterly basis, in arrears.
Share Repurchase Program
On March 6, 2017, our Board of Directors approved the adoption of a share repurchase program under which we are authorized to repurchase up to 1.7 million common shares. The program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions. Repurchases are at our discretion, subject to applicable law, share availability, price and our financial performance, among other considerations.
During the three month period ended September 30, 2017, we repurchased 123,321 shares at an average price per share of $15.60 and a total cost of $1.9 million. From inception of the current repurchase program through November 3, 2017, we have repurchased 337,925 shares for an aggregate cost of approximately $5.3 million.
About Ellington Financial LLC
Ellington Financial LLC is a specialty finance company that primarily acquires and manages mortgage-related and consumer-related assets, including residential mortgage-backed securities, residential and commercial mortgage loans, consumer loans and asset-backed securities backed by consumer loans, commercial mortgage-backed securities, real property, and mortgage-related derivatives. The Company also invests in corporate debt and equity, including distressed debt, collateralized loan obligations, non-mortgage-related derivatives, and other financial assets, including private debt and equity investments in mortgage-related entities. Ellington Financial LLC is externally managed and advised by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C.
Conference Call
We will host a conference call at 11:00 a.m. Eastern Time on Tuesday, November 7, 2017, to discuss our financial results for the quarter ended September 30, 2017. 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 passcode 97169855. International callers should dial (810) 740-4657 and reference the same passcode. The conference call will also be webcast live over the Internet and can be accessed via the "For Our Shareholders" section of our 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, we 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 Tuesday, November 7, 2017, at approximately 2 p.m. Eastern Time through Tuesday, November 14, 2017 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (800) 585-8367 and enter the passcode 97169855. International callers should dial (404) 537-3406 and enter the same passcode. A replay of the conference call will also be archived on our web site at www.ellingtonfinancial.com.
9
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 our 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 our ability to implement our investment and hedging strategies, performance of our investment and hedging strategies, our exposure to prepayment risk in our Agency portfolio, statements regarding our net Agency premium, estimated effects on the fair value of our holdings of a hypothetical change in interest rates, statements regarding the drivers of our returns, our expected ongoing annualized expense ratio, and statements regarding our intended dividend policy including the amount to be recommended by management, and our share repurchase program. Our results can fluctuate from month to month and from quarter to quarter depending on a variety of factors, some of which are beyond our control and/or are difficult to predict, including, without limitation, changes in interest rates and the market value of our securities, changes in mortgage default rates and prepayment rates, our ability to borrow to finance our assets, changes in government regulations affecting our business, our ability to maintain our exclusion from registration under the Investment Company Act of 1940 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 our Annual Report on Form 10-K filed on March 16, 2017 which can be accessed through our 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 we file with the SEC, including reports on Forms 10-Q, 10-K and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
10
ELLINGTON FINANCIAL LLC
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Month Period Ended | Nine Month Period Ended | |||||||||||
(In thousands, except per share amounts) | September 30, 2017 | June 30, 2017 | September 30, 2017 | |||||||||
Investment income | ||||||||||||
Interest income | $ | 21,145 | $ | 21,788 | $ | 65,819 | ||||||
Other income | 1,232 | 872 | 3,043 | |||||||||
Total investment income | 22,377 | 22,660 | 68,862 | |||||||||
Expenses | ||||||||||||
Base management fee to affiliate (Net of fee rebates of $172, $0, and $172, respectively) | 2,161 | 2,372 | 6,942 | |||||||||
Interest expense | 8,166 | 7,625 | 21,794 | |||||||||
Other investment related expenses | 1,908 | 2,058 | 5,487 | |||||||||
Other operating expenses | 2,240 | 2,173 | 6,530 | |||||||||
Total expenses | 14,475 | 14,228 | 40,753 | |||||||||
Net investment income | 7,902 | 8,432 | 28,109 | |||||||||
Net realized gain (loss) on: | ||||||||||||
Investments | 1,087 | 691 | 2,372 | |||||||||
Financial derivatives, excluding currency forwards | (595 | ) | (4,046 | ) | (6,222 | ) | ||||||
Financial derivatives—currency forwards | (4,013 | ) | (2,523 | ) | (7,357 | ) | ||||||
Foreign currency transactions | 4,726 | 531 | 6,234 | |||||||||
1,205 | (5,347 | ) | (4,973 | ) | ||||||||
Change in net unrealized gain (loss) on: | ||||||||||||
Investments | (1,750 | ) | 2,829 | 6,837 | ||||||||
Financial derivatives, excluding currency forwards | (305 | ) | (2,619 | ) | (4,081 | ) | ||||||
Financial derivatives—currency forwards | 2,026 | (1,194 | ) | 1,162 | ||||||||
Foreign currency translation | (2,483 | ) | 3,340 | 712 | ||||||||
(2,512 | ) | 2,356 | 4,630 | |||||||||
Net realized and change in net unrealized gain (loss) on investments and financial derivatives | (1,307 | ) | (2,991 | ) | (343 | ) | ||||||
Net increase in equity resulting from operations | 6,595 | 5,441 | 27,766 | |||||||||
Less: Increase in equity resulting from operations attributable to non-controlling interests | 400 | 377 | 1,229 | |||||||||
Net increase in shareholders' equity resulting from operations | $ | 6,195 | $ | 5,064 | $ | 26,537 | ||||||
Net increase in shareholders' equity resulting from operations per share: | ||||||||||||
Basic and diluted | $ | 0.19 | $ | 0.16 | $ | 0.81 | ||||||
Weighted average shares and LTIP units outstanding | 32,567 | 32,587 | 32,623 | |||||||||
Weighted average shares and convertible units outstanding | 32,779 | 32,799 | 32,835 | |||||||||
11
ELLINGTON FINANCIAL LLC
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY
(UNAUDITED)
As of | ||||||||||||
(In thousands, except share amounts) | September 30, 2017 | June 30, 2017 | December 31, 2016(1) | |||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 111,423 | $ | 134,515 | $ | 123,274 | ||||||
Restricted cash | 425 | 425 | 655 | |||||||||
Investments, financial derivatives, and repurchase agreements: | ||||||||||||
Investments, at fair value (Cost – $1,758,854, $1,799,464, and $1,525,710) | 1,756,432 | 1,794,129 | 1,505,026 | |||||||||
Financial derivatives–assets, at fair value (Net cost – $41,041, $36,162, and $40,724) | 29,896 | 26,602 | 35,595 | |||||||||
Repurchase agreements (Cost – $194,265, $265,403, and $185,205) | 193,070 | 266,659 | 184,819 | |||||||||
Total Investments, financial derivatives, and repurchase agreements | 1,979,398 | 2,087,390 | 1,725,440 | |||||||||
Due from brokers | 108,173 | 62,934 | 93,651 | |||||||||
Receivable for securities sold and financial derivatives | 499,053 | 484,124 | 445,112 | |||||||||
Interest and principal receivable | 25,006 | 21,157 | 21,704 | |||||||||
Other assets | 3,169 | 6,881 | 3,359 | |||||||||
Total assets | $ | 2,726,647 | $ | 2,797,426 | $ | 2,413,195 | ||||||
LIABILITIES | ||||||||||||
Investments and financial derivatives: | ||||||||||||
Investments sold short, at fair value (Proceeds – $672,506, $687,979, and $589,429) | $ | 675,650 | $ | 687,234 | $ | 584,896 | ||||||
Financial derivatives–liabilities, at fair value (Net proceeds – $28,507, $19,994, and $12,012) | 32,278 | 27,003 | 18,687 | |||||||||
Total investments and financial derivatives | 707,928 | 714,237 | 603,583 | |||||||||
Reverse repurchase agreements | 1,029,810 | 1,119,238 | 1,033,581 | |||||||||
Due to brokers | 3,613 | 3,898 | 12,780 | |||||||||
Payable for securities purchased and financial derivatives | 169,717 | 224,529 | 85,168 | |||||||||
Other secured borrowings (Proceeds – $89,646, $88,100, and $24,086) | 89,646 | 88,100 | 24,086 | |||||||||
Senior notes, net | 84,752 | — | — | |||||||||
Accounts payable and accrued expenses | 4,230 | 3,996 | 3,327 | |||||||||
Base management fee payable to affiliate | 2,161 | 2,371 | 2,416 | |||||||||
Interest and dividends payable | 4,868 | 3,977 | 3,460 | |||||||||
Other liabilities | 198 | 119 | 17 | |||||||||
Total liabilities | 2,096,923 | 2,160,465 | 1,768,418 | |||||||||
EQUITY | 629,724 | 636,961 | 644,777 | |||||||||
TOTAL LIABILITIES AND EQUITY | $ | 2,726,647 | $ | 2,797,426 | $ | 2,413,195 | ||||||
ANALYSIS OF EQUITY: | ||||||||||||
Common shares, no par value, 100,000,000 shares authorized; | ||||||||||||
(31,992,177, 32,112,697, and 32,294,703, shares issued and outstanding) | $ | 605,357 | $ | 615,702 | $ | 627,620 | ||||||
Additional paid-in capital–LTIP units | 10,278 | 10,229 | 10,041 | |||||||||
Total Shareholders' Equity | 615,635 | 625,931 | 637,661 | |||||||||
Non-controlling interests | 14,089 | 11,030 | 7,116 | |||||||||
Total Equity | $ | 629,724 | $ | 636,961 | $ | 644,777 | ||||||
PER SHARE INFORMATION: | ||||||||||||
Common shares, no par value | $ | 19.24 | $ | 19.49 | $ | 19.75 | ||||||
DILUTED PER SHARE INFORMATION: | ||||||||||||
Common shares and convertible units, no par value (2) | $ | 18.96 | $ | 19.21 | $ | 19.46 | ||||||
(1) | Derived from audited financial statements as of December 31, 2016. |
(2) | Based on total equity excluding non-controlling interests not represented by instruments convertible into common shares. |
12