Document



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): August 6, 2018 (August 1, 2018)

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 June 30, 2018.
On August 6, 2018, the Company issued a press release announcing its financial results for the quarter ended June 30, 2018. 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 5.02.
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Appointment of New Director
On August 1, 2018, the Board of Directors (the "Board") of Ellington Financial LLC (the "Company") appointed Lisa Mumford to serve on the Board, effective August 6, 2018. Ms. Mumford will serve as a member of the Board until the Company's next annual meeting of shareholders or until a successor is elected and qualified. There are no arrangements or understandings between Ms. Mumford and any other persons pursuant to which she was elected to serve on the Board.
Ms. Mumford served as the Company's Chief Financial Officer ("CFO") and the Chief Financial Officer of Ellington Financial Management LLC, the Company's external manager, from October 2009 through March 2018. Ms. Mumford also served as the Chief Financial Officer of Ellington Residential Mortgage REIT ("EARN") from April 2013 until March 2018. As CFO of the Company and EARN, Ms. Mumford managed all aspects of the accounting, internal control, and financial reporting processes. From August 2008 to October 2009, Ms. Mumford was Chief Financial Officer of ACA Financial Guaranty Corporation, or "ACA FG," where she oversaw all aspects of the finance and accounting operations. From 2003 until August 2008, Ms. Mumford served as the Chief Accounting Officer of ACA Capital Holdings, Inc., or "ACA," of which ACA FG was an operating subsidiary. Prior to joining ACA, and beginning in 1988, Ms. Mumford was with ACE Guaranty Corp., where over her tenure she held the positions of Chief Financial Officer and Controller. She began her career as a staff accountant with Coopers & Lybrand in 1984, culminating in the role of Audit Supervisor at the time of her departure in 1988. Ms. Mumford is a member of the American Institute of Certified Public Accountants and holds a B.B.A. in Accounting from Hofstra University.
Ms. Mumford and the Company will enter into the Company's standard indemnification agreement in the form previously filed with the Securities and Exchange Commission providing for indemnification and advancement of expenses. In addition, Ms. Mumford will be compensated for her service on the Board in accordance with the Company's standard compensation policy for non-employee directors.
As previously disclosed, on March 30, 2018, Ms. Mumford entered into a retirement agreement (the "Retirement Agreement") with Ellington Management Group L.L.C. and certain of its affiliates, including the Company. Pursuant to the Retirement Agreement, Ms. Mumford's deferred cash compensation from her service as the Company's Chief Financial Officer will continue to vest, subject to certain conditions, through December 31, 2018, and the forfeiture restrictions on her restricted LTIP Units will lapse, subject to certain conditions, as originally scheduled on December 12, 2018, December 13, 2018 and December 12, 2019. In return, Ms. Mumford will make herself available to provide reasonable assistance to our Company through such dates.
Resignation of Director
In conjunction with Ms. Mumford's appointment, Michael W. Vranos resigned as a member of the Board, also effective August 6, 2018. Mr. Vranos has served as a member of the Board since 2007 and he continues to serve as the Company's Co-Chief Investment Officer. Mr. Vranos' resignation is not due to any disagreements with the Company on any of the Company's operations, policies or practices.





On August 6, 2018, the Company issued a press release relating to the appointment of Ms. Mumford as a director of the Company and the retirement of Mr. Vranos as a director of the Company and. A copy of the press release is being furnished as Exhibit 99.2 to this Current Report on Form 8-K and shall not be deemed "filed" for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section. Furthermore, Exhibit 99.2 furnished pursuant to Item 9.01 shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933, as amended.
Item 7.01.
Regulation FD Disclosure.
The disclosure contained in Items 2.02 is incorporated herein by reference.
 
Item 9.01.
Financial Statements and Exhibits.
(d) Exhibits. The following exhibits are being furnished herewith this Current Report on Form 8-K.
99.1

99.2







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:
August 6, 2018
 
 
By:
 
/s/ JR Herlihy
 
 
 
 
 
 
JR Herlihy
 
 
 
 
 
 
Chief Financial Officer






EXHIBIT INDEX
 
Exhibit
  
Description
 
 
 
99.1

  
Earnings Press Release dated August 6, 2018
99.2

 
Press Release dated August 6, 2018



Exhibit
Exhibit 99.1

Ellington Financial LLC Reports Second Quarter 2018 Results
OLD GREENWICH, Connecticut—August 6, 2018
Ellington Financial LLC (NYSE: EFC) today reported financial results for the quarter ended June 30, 2018.
Highlights
Net income1 of $21.2 million, or $0.69 per basic and diluted share.
Book value per share as of June 30, 2018 of $19.57 on a diluted basis, after payment of a quarterly dividend of $0.41 per share, as compared to book value per share of $19.25 on a diluted basis as of March 31, 2018.
Credit strategy gross income of $24.9 million for the quarter, or $0.80 per share.
Agency strategy gross income of $1.7 million for the quarter, or $0.06 per share.
Net investment income of $11.0 million for the quarter, or $0.36 per share; adjusted net investment income2 of $11.0 million for the quarter, or $0.36 per share.
Announced a dividend of $0.41 per share for the second quarter of 2018, equating to an annualized dividend yield of 10.0% based on the August 3, 2018 closing price of $16.34 per share; dividends are paid quarterly in arrears.
Repurchased 242,161 common shares during the quarter, or approximately 1% of our outstanding common shares as of the beginning of the quarter, at an average price of $14.98 per share.
Debt-to-equity ratio, excluding repo borrowings on U.S. Treasury securities, of 2.77:1 as of June 30, 2018.
Second Quarter 2018 Results
"In the second quarter, Ellington Financial had net income, including the full impact of mark-to-market adjustments, of $21.2 million, or $0.69 per share," said Laurence Penn, Chief Executive Officer and President. "We were able to build on the strong momentum of the first quarter as we continued to benefit from our larger credit portfolio, which grew another 9% this quarter. As a result, net investment income is also growing nicely, increasing to 36 cents for the quarter. Overall, Ellington Financial generated an economic return of 3.8% in the second quarter, and 8.2% through the first half of the year, or 17.1% annualized.
"The growth and performance of our securitizations continues to be a key driver of our results. This past quarter, we participated in our third Ellington-sponsored corporate CLO, achieving tighter pricing and a longer investment period than our previous issuances, even in the face of a softer overall CLO new issue market. Meanwhile, S&P upgraded three classes of our non-QM securitization; in fact our deal has the highest perfect payer percentage of all non-QM securitizations in its vintage, as reported by Bloomberg.
"Moving into the second half of the year, our primary focus is on executing our business plan, and in particular continuing to grow our credit portfolio, emphasizing high-yielding, short-duration assets, and thereby continuing to grow our net investment income to provide stability of earnings and dividend coverage. If the volatility that we saw earlier this year returns, we believe that we are well positioned to take advantage by adding assets at higher yields and trading out of some of the more liquid parts of the portfolio, while at the same time relying on our hedges and liquidity management to protect and preserve book value.
"In addition, as we've discussed previously, we continue to actively evaluate possible changes to our tax status as a publicly traded partnership. Our options include potential conversion to a C-Corp, potential conversion to a REIT, and of course remaining a publicly traded partnership."
Market Overview
In June, the Federal Reserve raised the target range for the federal funds rate by 0.25%, to 1.75%–2.00%, its seventh rate increase since December 1, 2015 and its second rate increase so far in 2018. LIBOR rates, which drive many of our financing costs, increased in sympathy, with one-month LIBOR increasing 21 basis points to end the second quarter at 2.09%.
In April and July, the Federal Reserve continued to increase the amount of the tapering of its reinvestments in line with the schedule it had laid out in September 2017. The tapering of Agency RMBS purchases increased to $12 billion per

1 Increase (decrease) in shareholders' equity from operations, or "net income (loss)."
2 Adjusted net investment income for the quarter ended June 30, 2018 is equal to net investment income of $11.0 million, plus incentive fees accrued of $0.3 million, which reduced net investment income, less the quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses) of $0.3 million, which increased interest income. We believe that adjusted net investment income provides information useful to investors because it is one of the metrics that we use to assess our performance and to evaluate the effective net yield provided by our portfolio. However, because adjusted net investment income is an incomplete measure of our financial results and differs from net investment income computed in accordance with GAAP, it should be considered as supplementary to, and not as a substitute for, net investment income computed in accordance with GAAP.
1


month in April and to $16 billion per month in July. The tapering of U.S. Treasury purchases increased to $18 billion per month in April and to $24 billion per month in July.
The yield curve flattened for the sixth consecutive quarter: the 2-year U.S. Treasury yield rose 26 basis points to end the second quarter at 2.53%, while the 10-year U.S. Treasury yield rose 12 basis points to 2.86%. The spread between the 2-year and 10-year tightened to just 33 basis points, as compared to 47 basis points at the end of the first quarter.
Mortgage rates increased in the second quarter, with the Freddie Mac survey 30-year mortgage rate rising 11 basis points to end the quarter at 4.55%.
Overall Agency RMBS prepayment rates continued to be muted during the quarter. The Mortgage Bankers Association's Refinance Index, which measures refinancing application volumes, fell 11.9% quarter over quarter, dropping intra-quarter to its lowest seasonally-adjusted level in more than 17 years.
The second quarter of 2018 saw the extreme equity volatility of the first quarter subside, but interest rate choppiness and yield curve flattening continue. During the first part of the quarter, interest rates continued their recent upward trend, with the 10-year U.S. Treasury yield rising 37 basis points to an almost seven-year high of 3.11% on May 17th. Over the next two weeks, this trend reversed, as investors reacted to a possible trade war and political uncertainty in Italy; by May 29th, the 10-year U.S. Treasury had rallied nearly back to where it started the quarter. The flight to quality was short-lived, however, and the 10-year U.S. Treasury yield finished the quarter 12 basis points higher overall. The yield curve has lately been the flattest it has been since 2007, when it actually inverted during the early part of the year.
Performance was mixed for the quarter across the various credit-sensitive sectors. Investment grade and high yield corporate credit spreads tightened during April but then widened in May and June, and finished the quarter approximately flat. Meanwhile, CMBS credit spreads generally tightened during the quarter (with especially strong demand for higher-yielding, non-investment grade CMBS securities), and the legacy non-Agency RMBS market continued to be well supported. The continued increase in LIBOR boosted coupons of floating-rate debt instruments, benefiting CLOs, leveraged loans, and other structured credit products.
Despite higher rates and the continued increase of Fed tapering, Agency RMBS spreads generally held firm over the quarter, continuing to benefit from a muted prepayment environment. As measured by the Bloomberg Barclays U.S. MBS Agency Fixed Rate Index, Agency RMBS generated a total return of 24 basis points for the quarter, and an excess return (on a duration-adjusted basis) over the Bloomberg Barclays U.S. Treasury Index of 15 basis points.
Financial Results
Credit Summary
As of June 30, 2018, our total long Credit portfolio (excluding corporate relative value trading positions, hedges, and other derivatives) was $1.224 billion, which was an increase of approximately 7% from $1.146 billion as of March 31, 2018. Our total long Credit portfolio was $1.123 billion3 as of June 30, 2018, which was an increase of approximately 9% from $1.032 billion3 as of March 31, 2018. During the second quarter, our Credit strategy generated total gross income of $24.9 million, or $0.80 per share.
The growth of our Credit portfolio primarily came from net purchases in the following target strategies: consumer loans and ABS, residential mortgage loans and REO, European RMBS, and retained tranches in CLO securitizations. Our corporate debt and equity portfolio decreased in size during the quarter. We also sold a portion of our more liquid, lower-risk assets, such as certain U.S. non-Agency RMBS and CLO note investments, and rotated that capital into our higher-yielding strategies.
At the end of the second quarter, we held $150.2 million of unsecuritized non-QM mortgages, and we are optimistic that later this year we will be able to complete our second non-QM securitization. In our CLO securitization strategy, we participated in our third Ellington-sponsored CLO, which priced in June and closed in July. In addition, the liquidity of certain of our retained tranches from our prior CLO securitizations benefited from a ruling by the United States Court of Appeals for the District of Columbia Circuit, which ruled that U.S. risk retention rules do not apply to managers of open-market CLOs.
Our Credit portfolio performed very well during the quarter and continued to be the primary driver of our earnings. During the second quarter, our Credit strategy generated gross investment income of $12.1 million and net realized and change in net unrealized gains of $11.2 million. We benefited from strong performance in several of our loan-related strategies, including consumer loans, small balance commercial mortgage loans, European non-performing loans, and non-QM loans. Among our securities strategies, U.S. and European CLOs, U.S. CMBS, corporate credit relative value, and European RMBS all contributed strong results.
3For our consolidated non-QM securitization trust, only retained tranches are included in this figure (i.e., excludes tranches sold to third parties).

2


In the second quarter, our credit hedges modestly reduced profitability. The interest rate hedges in our Credit strategy, which currently consist primarily of interest rate swaps, had no material impact on our results. We had net losses on foreign currency-related transactions and translation, but these were more than offset by net gains on our foreign currency hedges.
In our corporate credit relative value strategy as of June 30, 2018, the market value of our long corporate bonds was $65.2 million, the aggregate market value of our short corporate bonds was $(50.2) million, and the aggregate notional amount of our credit default swaps where we were long protection and short protection was $81.8 million and $(122.4) million, respectively. As mentioned above, this strategy performed well in the second quarter. As of March 31, 2018 in this strategy, the market value of our long corporate bonds was $74.2 million, the aggregate market value of our short corporate bonds was $(46.4) million, and the aggregate notional amount of our credit default swaps where we were long protection and short protection was $122.8 million and $(162.4) million, respectively.
Agency Summary
As of June 30, 2018, our long Agency RMBS portfolio increased approximately 2% to $948.5 million, from $928.2 million as of March 31, 2018. During the second quarter, our Agency strategy generated gross income of $1.7 million, or $0.06 per share. Agency RMBS prices declined again during the quarter, which led to net realized and unrealized losses on our portfolio of $(5.7) million. However, these losses were more than offset by net interest income from the Agency portfolio of $3.9 million and gains on our interest rate hedges and other activities of $3.4 million. Our results were also dampened by the outperformance of TBAs relative to specified pools during the quarter, driven by strong TBA dollar rolls and muted prepayments. We continued to concentrate our long investments in specified pools and hold net short positions in TBAs as a significant component of our interest rate hedging strategy.
Average pay-ups on our specified pools were unchanged at 0.61% as of June 30, 2018 as compared to March 31, 2018. Pay-ups are price premiums for specified pools relative to their TBA counterparts. As of June 30, 2018, the weighted average coupon on our fixed-rate specified pools was 4.1%.
During the quarter we continued to hedge interest rate risk in our Agency strategy, primarily through the use of short positions in TBAs, and to a lesser extent interest rate swaps and short positions in U.S. Treasury securities and futures. For the quarter, we had total net gains of $3.4 million from our interest rate hedges and other activities, as interest rates increased. In our hedging portfolio, the relative proportion (based on 10-year equivalents4) of short positions in TBAs decreased slightly quarter over quarter relative to interest rate swaps.
Portfolio turnover for our Agency strategy was approximately 9.4% for the quarter (as measured by sales and excluding paydowns), and we had net realized losses of $(1.5) million, excluding interest rate hedges.

4"10-year equivalents" for a group of positions represent the amount of 10-year U.S. Treasury securities that would be expected to 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 June 30, 2018 and March 31, 2018 and the six-month period ended June 30, 2018:
 
 
Quarter Ended
June 30, 2018
 
Per Share
 
% of Average Equity
 
Quarter Ended
March 31, 2018
 
Per Share
 
% of Average Equity
 
Six-Month Period Ended June 30, 2018
 
Per Share
 
% of Average Equity
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income and other income
 
$
23,053

 
$
0.75

 
3.75
 %
 
$
20,545

 
$
0.65

 
3.34
 %
 
$
43,598

 
$
1.40

 
7.09
 %
Net realized gain (loss)
 
105

 

 
0.01
 %
 
4,961

 
0.16

 
0.81
 %
 
5,066

 
0.16

 
0.82
 %
Change in net unrealized gain (loss)
 
11,046

 
0.36

 
1.80
 %
 
7,680

 
0.24

 
1.25
 %
 
18,726

 
0.60

 
3.05
 %
Net interest rate hedges(1)
 
29

 

 
 %
 
179

 
0.01

 
0.03
 %
 
208

 
0.01

 
0.03
 %
Net credit hedges and other activities(2)
 
1,659

 
0.05

 
0.27
 %
 
1,195

 
0.04

 
0.19
 %
 
2,854

 
0.09

 
0.46
 %
Interest expense(3)
 
(7,680
)
 
(0.25
)
 
(1.25
)%
 
(6,647
)
 
(0.21
)
 
(1.08
)%
 
(14,327
)
 
(0.46
)
 
(2.33
)%
Other investment related expenses
 
(3,288
)
 
(0.11
)
 
(0.53
)%
 
(2,619
)
 
(0.08
)
 
(0.43
)%
 
(5,907
)
 
(0.19
)
 
(0.96
)%
Total Credit profit (loss)
 
24,924

 
0.80

 
4.05
 %
 
25,294

 
0.81

 
4.11
 %
 
50,218

 
1.61

 
8.16
 %
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
8,345

 
0.27

 
1.36
 %
 
6,693

 
0.21

 
1.09
 %
 
15,038

 
0.48

 
2.45
 %
Net realized gain (loss)
 
(1,509
)
 
(0.05
)
 
(0.25
)%
 
(1,187
)
 
(0.04
)
 
(0.19
)%
 
(2,696
)
 
(0.09
)
 
(0.44
)%
Change in net unrealized gain (loss)
 
(4,151
)
 
(0.14
)
 
(0.67
)%
 
(12,591
)
 
(0.40
)
 
(2.05
)%
 
(16,742
)
 
(0.54
)
 
(2.72
)%
Net interest rate hedges and other activities(1)
 
3,406

 
0.12

 
0.56
 %
 
10,239

 
0.32

 
1.66
 %
 
13,645

 
0.44

 
2.22
 %
Interest expense
 
(4,439
)
 
(0.14
)
 
(0.73
)%
 
(3,471
)
 
(0.11
)
 
(0.56
)%
 
(7,910
)
 
(0.25
)
 
(1.29
)%
Total Agency RMBS profit (loss)
 
1,652

 
0.06

 
0.27
 %
 
(317
)
 
(0.02
)
 
(0.05
)%
 
1,335

 
0.04

 
0.22
 %
Total Credit and Agency RMBS profit (loss)
 
26,576

 
0.86

 
4.32
 %
 
24,977

 
0.79

 
4.06
 %
 
51,553

 
1.65

 
8.38
 %
Other interest income (expense), net
 
497

 
0.02

 
0.09
 %
 
399

 
0.01

 
0.06
 %
 
896

 
0.03

 
0.15
 %
Other expenses
 
(4,598
)
 
(0.15
)
 
(0.75
)%
 
(4,052
)
 
(0.13
)
 
(0.66
)%
 
(8,650
)
 
(0.28
)
 
(1.41
)%
Net increase in equity resulting from operations (before incentive fee)
 
22,475

 
0.73

 
3.66
 %
 
21,324

 
0.67

 
3.46
 %
 
43,799

 
1.40

 
7.12
 %
Incentive fee
 
(291
)
 
(0.01
)
 
(0.05
)%
 

 

 
 %
 
(291
)
 
(0.01
)
 
(0.05
)%
Net increase (decrease) in equity resulting from operations
 
$
22,184

 
$
0.72

 
3.61
 %
 
$
21,324

 
$
0.67

 
3.46
 %
 
$
43,508

 
$
1.39

 
7.07
 %
Less: Net increase (decrease) in equity resulting from operations attributable to non-controlling interests
 
991

 
 
 
 
 
285

 
 
 
 
 
1,276

 
 
 
 
Net increase (decrease) in shareholders' equity resulting from operations(4)
 
$
21,193

 
$
0.69

 
3.53
 %
 
$
21,039

 
$
0.67

 
3.52
 %
 
$
42,232

 
$
1.36

 
7.05
 %
Weighted average shares and convertible
units(5) outstanding
 
30,907

 
 
 
 
 
31,534

 
 
 
 
 
31,219

 
 
 
 
Average equity (includes non-controlling interests)(6)
 
$
612,622

 
 
 
 
 
$
615,433

 
 
 
 
 
$
614,610

 
 
 
 
Weighted average shares and LTIP units outstanding(7)
 
30,695

 
 
 
 
 
31,322

 
 
 
 
 
31,007

 
 
 
 
Average shareholders' equity (excludes non-controlling interests)(6)
 
$
597,870

 
 
 
 
 
$
598,498

 
 
 
 
 
$
598,714

 
 
 
 
(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 our 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 and LTIP units.
(6)
Average equity and average shareholders' equity are calculated using month end values.
(7)
Excludes Operating Partnership units attributable to non-controlling interests.

4


Portfolio
The following tables summarize our portfolio holdings as of June 30, 2018 and March 31, 2018:
Investment Portfolio
 
 
June 30, 2018
 
March 31, 2018
(In thousands)
 
Fair Value
 
Cost
 
Fair Value
 
Cost
Long:
 
 
 
 
 
 
 
 
Credit:
 
 
 
 
 
 
 
 
Dollar Denominated:
 
 
 
 
 
 
 
 
CLO(1)
 
$
210,935

 
$
216,236

 
$
226,403

 
$
232,741

CMBS
 
16,927

 
16,890

 
11,666

 
13,015

Commercial Mortgage Loans and REO(2)
 
139,546

 
137,846

 
139,367

 
138,392

Consumer Loans and ABS Backed by Consumer Loans(1)
 
196,584

 
205,243

 
148,418

 
158,089

Corporate Debt and Equity
 
71,422

 
68,878

 
82,426

 
83,061

Debt and Equity Investment in Mortgage-Related Entities
 
30,823

 
25,314

 
30,215

 
25,314

Non-Agency RMBS
 
156,834

 
144,760

 
169,185

 
157,249

Residential Mortgage Loans and REO
 
294,366

 
292,994

 
241,651

 
239,954

Non-Dollar Denominated:
 
 
 
 
 
 
 
 
CLO
 
4,670

 
4,788

 
10,559

 
9,681

CMBS
 
16,309

 
16,468

 
21,500

 
20,336

Consumer Loans and ABS Backed by Consumer Loans
 
8,723

 
899

 
5,911

 
1,005

Corporate Debt and Equity
 
11,911

 
12,576

 
12,880

 
12,864

RMBS(3)
 
130,395

 
128,620

 
119,791

 
112,307

Agency:
 
 
 
 
 
 
 
 
Fixed-Rate Specified Pools
 
853,120

 
874,862

 
830,689

 
849,000

Floating-Rate Specified Pools
 
6,155

 
6,304

 
7,270

 
7,407

IOs
 
32,899

 
33,630

 
32,450

 
32,925

Reverse Mortgage Pools
 
56,371

 
58,104

 
57,825

 
59,107

TBAs
 
317,013

 
316,530

 
193,332

 
192,834

Government:
 
 
 
 
 
 
 
 
Dollar Denominated
 
70,468

 
70,467

 
2,200

 
2,178

Total Long
 
2,625,471

 
2,631,409

 
2,343,738

 
2,347,459

Repurchase Agreements
 
 
 
 
 
 
 
 
Dollar Denominated
 
194,230

 
194,229

 
94,060

 
94,059

Non-Dollar Denominated
 
20,181

 
20,117

 
38,478

 
38,671

Total Repurchase Agreements
 
214,411

 
214,346

 
132,538

 
132,730

Short:
 
 
 
 
 
 
 
 
Credit:
 
 
 
 
 
 
 
 
Dollar Denominated:
 
 
 
 
 
 
 
 
Corporate Debt and Equity
 
(84,395
)
 
(85,280
)
 
(85,186
)
 
(86,587
)
Agency:
 
 
 
 
 
 
 
 
TBAs
 
(618,665
)
 
(616,872
)
 
(499,620
)
 
(497,379
)
Government:
 
 
 
 
 
 
 
 
Dollar Denominated
 
(159,220
)
 
(159,005
)
 
(69,156
)
 
(68,716
)
Non-Dollar Denominated
 
(19,866
)
 
(19,668
)
 
(38,000
)
 
(35,101
)
Total Short
 
(882,146
)
 
(880,825
)
 
(691,962
)
 
(687,783
)
Net Total
 
$
1,957,736

 
$
1,964,930

 
$
1,784,314

 
$
1,792,406

(1)
Includes equity investment in a securitization-related vehicle.
(2)
Includes equity investment in a limited liability company holding small balance commercial mortgage loans.
(3)
Includes RMBS secured by non-performing loans and REO, and an investment in an entity holding a securitization call right.

5


Derivatives Portfolio(1) 
 
 
As of June 30, 2018
 
As of March 31, 2018
 
 
Notional
 
Net
Fair Value
 
Notional
 
Net
Fair Value
(In thousands)
 
Long
 
Short
 
Net
 
 
Long
 
Short
 
Net
 
Mortgage-Related Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CDS on MBS and MBS Indices
 
$
7,587

 
$
(25,047
)
 
$
(17,460
)
 
$
5,348

 
$
14,554

 
$
(26,971
)
 
$
(12,417
)
 
$
5,138

Total Mortgage-Related Derivatives
 
7,587

 
(25,047
)
 
(17,460
)
 
5,348

 
14,554

 
(26,971
)
 
(12,417
)
 
5,138

Corporate-Related Derivatives:
 
 
 
 
 
 
 
 
 

 

 

 

CDS on Corporate Bonds and Corporate Bond Indices
 
142,955

 
(392,947
)
 
(249,992
)
 
(9,850
)
 
174,088

 
(424,880
)
 
(250,792
)
 
(17,309
)
Total Return Swaps on Corporate Equities(2)
 
59

 
(8,018
)
 
(7,959
)
 

 
60

 
(10,073
)
 
(10,013
)
 
1

Total Return Swaps on Corporate Bond Indices(3)
 

 
(56,140
)
 
(56,140
)
 
(314
)
 

 
(18,290
)
 
(18,290
)
 
16

Total Corporate-Related Derivatives
 
143,014

 
(457,105
)
 
(314,091
)
 
(10,164
)
 
174,148

 
(453,243
)
 
(279,095
)
 
(17,292
)
Interest Rate-Related Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swaps
 
297,656

 
(600,809
)
 
(303,153
)
 
9,282

 
350,799

 
(606,304
)
 
(255,505
)
 
8,382

U.S. Treasury Futures(4)
 

 
(95,900
)
 
(95,900
)
 
634

 

 
(95,900
)
 
(95,900
)
 
(931
)
Total Interest Rate-Related Derivatives
 
 
 
 
 
 
 
9,916

 
 
 
 
 
 
 
7,451

Other Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign Currency Forwards(5)
 

 
(25,495
)
 
(25,495
)
 
11

 

 
(25,097
)
 
(25,097
)
 
(89
)
Foreign Currency Futures(6)
 

 
(38,125
)
 
(38,125
)
 
(115
)
 

 
(35,250
)
 
(35,250
)
 
(92
)
Other(7)
 
n/a

 
n/a

 
n/a

 
(2
)
 
n/a

 
n/a

 
n/a

 
(3
)
Total Other Derivatives
 
 
 
 
 
 
 
(106
)
 
 
 
 
 
 
 
(184
)
Net Total
 
 
 
 
 
 
 
$
4,994

 
 
 
 
 
 
 
$
(4,887
)
(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 June 30, 2018, derivative assets and derivative liabilities were $30.7 million and $(25.7) million, respectively, for a net fair value of $5.0 million, as reflected in "Total Net Derivatives" above. As of March 31, 2018, derivative assets and derivative liabilities were $30.0 million and $(34.9) million, respectively, for a net fair value of $(4.9) million, as reflected in "Total Net Derivatives" above.
(2)
Notional value represents number of underlying shares multiplied by the closing price of the underlying security.
(3)
Notional value represents the number of underlying index units multiplied by the reference price.
(4)
Notional value represents the total face amount of U.S. Treasury securities underlying all contracts held. As of both June 30, 2018 and March 31, 2018 a total of 959 short U.S. Treasury futures contracts were held.
(5)
Short notional value represents U.S. Dollars to be received by us at the maturity of the forward contract. Long notional value represents U.S. Dollars to be paid by us at the maturity of the forward contract.
(6)
Notional value represents the total face amount of currency futures underlying all contracts held. As of June 30, 2018 and March 31, 2018, a total of 371 and 348 short foreign currency futures contracts were held, respectively.
(7)
As of both June 30, 2018 and March 31, 2018, includes interest rate caps and interest rate "basis" swaps whereby the Company pays one floating rate and receives a different floating rate.
The mix and composition of our derivative instruments may vary from period to period.

6


The following table summarizes, as of June 30, 2018, 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
 
$
30

 
 %
 
$
(38
)
 
(0.01
)%
Agency RMBS—Fixed Pools and IOs
 
16,890

 
2.75
 %
 
(21,674
)
 
(3.53
)%
TBAs
 
(8,003
)
 
(1.30
)%
 
9,000

 
1.47
 %
Non-Agency RMBS, CMBS, Other ABS, and Mortgage Loans
 
4,582

 
0.75
 %
 
(4,642
)
 
(0.76
)%
Interest Rate Swaps
 
(5,776
)
 
(0.94
)%
 
5,539

 
0.90
 %
U.S. Treasury Securities
 
(2,369
)
 
(0.38
)%
 
2,281

 
0.37
 %
U.S. Treasury Futures
 
(3,230
)
 
(0.53
)%
 
3,127

 
0.51
 %
Mortgage-Related Derivatives
 
18

 
 %
 
(15
)
 
 %
Corporate Securities and Derivatives on Corporate Securities
 
(235
)
 
(0.04
)%
 
256

 
0.04
 %
Repurchase Agreements and Reverse Repurchase Agreements
 
(2,697
)
 
(0.44
)%
 
2,685

 
0.44
 %
 
 
$
(790
)
 
(0.13
)%
 
$
(3,481
)
 
(0.57
)%
(1)
Based on the market environment as of June 30, 2018. 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 June 30, 2018 and March 31, 2018.
 
 
As of
June 30, 2018
 
For the Quarter Ended
June 30, 2018
 
As of
March 31, 2018
 
For the Quarter Ended
March 31, 2018
Collateral for Secured Borrowing
 
Outstanding
Borrowings
 
Average
Borrowings
 
Average
Cost of
Funds
 
Outstanding
Borrowings
 
Average
Borrowings
 
Average
Cost of
Funds
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Credit(1)
 
$
702,523

 
$
638,668

 
3.89
%
 
$
630,644

 
$
578,727

 
3.59
%
Agency RMBS
 
891,082

 
891,285

 
2.00
%
 
859,780

 
840,274

 
1.68
%
Subtotal(1)
 
1,593,605

 
1,529,953

 
2.79
%
 
1,490,424

 
1,419,001

 
2.46
%
Corporate Credit Relative Value Trading Strategy
 
21,992

 
23,309

 
2.20
%
 
23,971

 
14,279

 
1.88
%
U.S. Treasury Securities
 
2,639

 
8,561

 
1.85
%
 
2,203

 
4,694

 
1.45
%
Total
 
$
1,618,236

 
$
1,561,823

 
2.78
%
 
$
1,516,598

 
$
1,437,974

 
2.45
%
(1)
Excludes U.S. Treasury Securities and investments in our corporate credit relative value trading strategy.
LIBOR rose again during the second quarter, which increased the cost of funds for our Credit portfolio, our Agency RMBS portfolio, and overall. The overall cost of funds on our aggregate secured borrowings increased from 2.45% to 2.78% quarter over quarter. Consistent with recent quarters, the share of our overall borrowings represented by our higher-cost Credit-related secured borrowings continues to grow. As shown in the table above, the secured borrowings in our corporate credit relative value trading strategy have much lower costs of funds than most of our other Credit-related secured borrowings, because this strategy tends to involve more liquid assets, financed for shorter terms, as compared to 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 secured borrowings in that strategy from our other Credit-related secured

7


borrowings. Our average cost of funds on our total Credit portfolio, including our corporate credit relative value trading strategy, was 3.83% and 3.55% for the three-month periods ended June 30, 2018 and March 31, 2018, respectively.
Reverse Repurchase Agreements By Remaining Maturity (1) 
(In thousands)
 
As of June 30, 2018
 
As of March 31, 2018
Remaining Maturity (2)
 
Outstanding
Borrowings
 
% of
Borrowings
 
Outstanding
Borrowings
 
% of
Borrowings
30 Days or Less
 
$
288,859

 
20.3
%
 
$
318,439

 
23.9
%
31-60 Days
 
550,717

 
38.7
%
 
468,382

 
35.2
%
61-90 Days
 
378,875

 
26.6
%
 
419,421

 
31.5
%
91-120 Days
 

 
%
 
3,563

 
0.3
%
121-150 Days
 
2,284

 
0.2
%
 
1,953

 
0.2
%
151-180 Days
 
12,241

 
0.9
%
 
11,008

 
0.8
%
181-360 Days
 
121,971

 
8.6
%
 
35,162

 
2.6
%
> 360 Days
 
66,559

 
4.7
%
 
73,015

 
5.5
%
 
 
$
1,421,506

 
100.0
%
 
$
1,330,943

 
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 June 30, 2018 decreased slightly to 104 days from 108 days as of March 31, 2018.
Our borrowings outstanding under reverse repos were with a total of 24 counterparties as of June 30, 2018. As of June 30, 2018, we held liquid assets in the form of cash and cash equivalents in the amount of $22.1 million.
Long-Term Debt
As of June 30, 2018, our outstanding borrowings included $86.0 million in aggregate principal amount of unsecured Senior Notes, bearing interest at a rate of 5.25% per annum and maturing on September 1, 2022. Inclusive of debt issuance costs, our effective cost of funds on the notes is 5.55%.

8


Total Borrowed Funds
The following table details our borrowings outstanding and debt-to-equity ratios as of June 30, 2018 and March 31, 2018.
 
 
As of
 
 
June 30, 2018
 
March 31, 2018
 
 
($ in thousands)
Recourse(1) Borrowings:
 
 
 
 
Reverse Repurchase Agreements
 
$
1,421,506

 
$
1,330,943

Other Secured Borrowings
 
10,990

 
9,330

Senior Notes, at par
 
86,000

 
86,000

Total Recourse Borrowings
 
$
1,518,496

 
$
1,426,273

Debt-to-Equity Ratio Based on Total Recourse Borrowings
 
 2.48:1

 
2.34:1

Debt-to-Equity Ratio Based on Total Recourse Borrowings Excluding U.S. Treasury Securities
 
 2.47:1

 
2.33:1

Non-Recourse(1) Borrowings:
 
 
 
 
Other Secured Borrowings
 
$
84,640

 
$
62,550

Other Secured Borrowings, at fair value(2)
 
101,100

 
113,775

Total Recourse and Non-Recourse Borrowings
 
$
1,704,236

 
$
1,602,598

Debt-to-Equity Ratio Based on Total Recourse and Non-Recourse Borrowings
 
 2.78:1

 
2.63:1

Debt-to-Equity Ratio Based on Total Recourse and Non-Recourse Borrowings Excluding U.S. Treasury Securities
 
 2.77:1

 
2.62:1

(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).
(2)
Relates to our non-QM loan securitization, where we have elected the fair value option on the related debt.
The increase in our reverse repo borrowings on our Credit and Agency portfolios and in our other secured borrowings, partially offset by a decrease in our other secured borrowings at fair value, led to an increase in our debt-to-equity ratio as of June 30, 2018 as compared to the prior period, driven primarily by the growth in our Credit portfolio. Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets activities, 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, increased to 3.0% for the quarter ended June 30, 2018, from 2.7% for the prior quarter. The increase in our annualized expense ratio resulted primarily from an increase in professional fees, compensation expense, and other operating expenses for the quarter. We incurred an incentive fee expense of $0.3 million for the quarter ended June 30, 2018. No incentive fee expense was incurred for the quarter ended March 31, 2018.
Dividends
On August 1, 2018, our Board of Directors declared a dividend of $0.41 per share for the second quarter of 2018, payable on September 17, 2018 to shareholders of record on August 31, 2018. 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 June 13, 2018, our Board of Directors approved the adoption of a share repurchase program under which we are authorized to repurchase up to 1.55 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, including under 10b5-1 plans. Repurchases are at our discretion, subject to applicable law, share availability, price and our financial performance, among other considerations. This program superseded the program that was previously adopted on February 6, 2018, which also authorized us to repurchase up to 1.55 million of common shares.

9


During the three-month period ended June 30, 2018, we repurchased 242,161 common shares at an average price per share of $14.98 and a total cost of $3.6 million. From the inception of the current repurchase program through August 3, 2018, we have not repurchased any common shares.
At-the-Market Program
We have entered into equity distribution agreements for an "at-the-market" offering program whereby we are able to sell common shares from time to time in the open market or in negotiated transactions. Under the program, which is open-ended in duration, we can sell common shares with a value of up to $150 million. As of June 30, 2018 we have not yet issued any common shares under the offering program.
About Ellington Financial LLC
Ellington Financial LLC is a specialty finance company that 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, corporate equity and debt securities (including distressed debt), non-mortgage and mortgage-related derivatives, equity investments in mortgage-related entities, and other strategic investments. 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, August 7, 2018, to discuss our financial results for the quarter ended June 30, 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 passcode 6598699. 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, August 7, 2018, at approximately 2 p.m. Eastern Time through Tuesday, August 21, 2018 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (800) 585-8367 and enter the passcode 6598699. 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.

10


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, 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 15, 2018 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.

11


ELLINGTON FINANCIAL LLC
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
 
 
Three-Month Period Ended
 
Six-Month Period Ended
(In thousands, except per share amounts)
 
June 30, 2018
 
March 31, 2018
 
June 30, 2018
Investment income
 
 
 
 
 
 
Interest income
 
$
31,941

 
$
28,092

 
$
60,033

Other income
 
1,094

 
716

 
1,811

Total investment income
 
33,035

 
28,808

 
61,844

Expenses
 
 
 
 
 
 
Base management fee to affiliate (Net of fee rebates of $252, $275, and $527, respectively)
 
2,021

 
1,978

 
4,000

Incentive fee
 
291

 

 
291

Interest expense
 
13,383

 
11,562

 
24,946

Other investment related expenses:
 
 
 
 
 
 
Servicing and other
 
3,771

 
2,952

 
6,723

Other operating expenses
 
2,578

 
2,074

 
4,650

Total expenses
 
22,044

 
18,566

 
40,610

Net investment income
 
10,991

 
10,242

 
21,234

Net realized gain (loss) on:
 
 
 
 
 
 
Investments
 
(388
)
 
12,584

 
12,196

Financial derivatives, excluding currency hedges
 
(3,632
)
 
902

 
(2,730
)
Financial derivatives—currency hedges
 
3,787

 
(2,204
)
 
1,584

Foreign currency transactions
 
(1,110
)
 
1,769

 
658

 
 
(1,343
)
 
13,051

 
11,708

Change in net unrealized gain (loss) on:
 
 
 
 
 
 
Investments
 
7,457

 
(6,851
)
 
605

Other secured borrowings
 
414

 
784

 
1,198

Financial derivatives, excluding currency hedges
 
6,553

 
3,197

 
9,749

Financial derivatives—currency hedges
 
76

 
800

 
877

Foreign currency translation
 
(1,964
)
 
101

 
(1,863
)
 
 
12,536

 
(1,969
)
 
10,566

Net realized and change in net unrealized gain (loss) on investments, financial derivatives, and other secured borrowings
 
11,193

 
11,082

 
22,274

Net increase in equity resulting from operations
 
22,184

 
21,324

 
43,508

Less: Increase in equity resulting from operations attributable to non-controlling interests
 
991

 
285

 
1,276

Net increase in shareholders' equity resulting from operations
 
$
21,193

 
$
21,039

 
$
42,232

Net increase in shareholders' equity resulting from operations per share:
 
 
 
 
 
 
Basic and diluted
 
$
0.69

 
$
0.67

 
$
1.36

Weighted average shares and LTIP units outstanding
 
30,695

 
31,322

 
31,007

Weighted average shares and convertible units outstanding
 
30,907

 
31,534

 
31,219



12


ELLINGTON FINANCIAL LLC
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES, AND EQUITY
(UNAUDITED)
 
 
As of
(In thousands, except share amounts)
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
(1)
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
22,071

 
$
25,715

 
$
47,233

Restricted cash
 
425

 
425

 
425

Investments, financial derivatives, and repurchase agreements:
 
 
 
 
 
 
Investments, at fair value (Cost–$2,631,409, $2,347,459, and $2,071,754)
 
2,625,471

 
2,343,738

 
2,071,707

Financial derivatives–assets, at fair value (Net cost–$24,510, $25,391, and $31,474)
 
30,669

 
30,038

 
28,165

Repurchase agreements (Cost–$214,346, $132,730, and $155,109)
 
214,411

 
132,538

 
155,949

Total Investments, financial derivatives, and repurchase agreements
 
2,870,551

 
2,506,314

 
2,255,821

Due from brokers
 
84,196

 
95,549

 
140,404

Receivable for securities sold and financial derivatives
 
637,965

 
522,126

 
476,000

Interest and principal receivable
 
32,469

 
32,488

 
29,688

Other assets
 
24,399

 
13,729

 
43,770

Total assets
 
$
3,672,076

 
$
3,196,346

 
$
2,993,341

LIABILITIES
 
 
 
 
 
 
Investments and financial derivatives:
 
 
 
 
 
 
Investments sold short, at fair value (Proceeds–$880,825, $687,783, and $640,202)
 
$
882,146

 
$
691,962

 
$
642,240

Financial derivatives–liabilities, at fair value (Net proceeds–$18,294, $22,202, and $27,463)
 
25,675

 
34,925

 
36,273

Total investments and financial derivatives
 
907,821

 
726,887

 
678,513

Reverse repurchase agreements
 
1,421,506

 
1,330,943

 
1,209,315

Due to brokers
 
3,250

 
21,054

 
1,721

Payable for securities purchased and financial derivatives
 
431,024

 
225,519

 
202,703

Other secured borrowings (Proceeds–$95,630, $71,880, and $57,909)
 
95,630

 
71,880

 
57,909

Other secured borrowings, at fair value (Proceeds–$102,298, $114,559, and $125,105)
 
101,100

 
113,775

 
125,105

Senior notes, net
 
84,902

 
84,837

 
84,771

Accounts payable and accrued expenses
 
4,105

 
3,876

 
3,885

Base management fee payable to affiliate
 
2,021

 
1,978

 
2,113

Incentive fee payable
 
291

 

 

Interest and dividends payable
 
6,791

 
5,168

 
5,904

Other liabilities
 
360

 
479

 
441

Total liabilities
 
3,058,801

 
2,586,396

 
2,372,380

EQUITY
 
613,275

 
609,950

 
620,961

TOTAL LIABILITIES AND EQUITY
 
$
3,672,076

 
$
3,196,346

 
$
2,993,341

ANALYSIS OF EQUITY:
 
 
 
 
 
 
Common shares, no par value, 100,000,000 shares authorized;
 
 
 
 
 
 
(30,149,880, 30,392,041, and 31,335,938, shares issued and outstanding)
 
$
589,000

 
$
584,005

 
$
589,722

Additional paid-in capital–LTIP units
 
10,567

 
10,469

 
10,377

Total Shareholders' Equity
 
599,567

 
594,474

 
600,099

Non-controlling interests
 
13,708

 
15,476

 
20,862

Total Equity
 
$
613,275

 
$
609,950

 
$
620,961

PER SHARE INFORMATION:
 
 
 
 
 
 
Common shares, no par value
 
$
19.89

 
$
19.56

 
$
19.15

DILUTED PER SHARE INFORMATION:
 
 
 
 
 
 
Common shares and convertible units, no par value (2)
 
$
19.57

 
$
19.25

 
$
18.85

(1)
Derived from audited financial statements as of December 31, 2017.
(2)
Based on total equity excluding non-controlling interests not represented by instruments convertible into common shares.

13
Exhibit
Exhibit 99.2

ELLINGTON FINANCIAL LLC APPOINTS LISA MUMFORD TO BOARD OF DIRECTORS
OLD GREENWICH, CONNECTICUT, August 6, 2018—Ellington Financial LLC (NYSE: EFC) ("EFC" or the "Company") today announced the appointment of Lisa Mumford, the Company's former Chief Financial Officer, to its Board of Directors (the "Board"), effective immediately. In conjunction with Ms. Mumford's appointment, Michael W. Vranos, Co-Chief Investment Officer of the Company, will step down from the Board. Mr. Vranos will continue to serve as Co-CIO as well as Chief Executive Officer of EFC's external manager, Ellington Financial Management LLC, and Ellington Management Group, L.L.C.
"We are thrilled to welcome Lisa to our Board," said Thomas Robards, Chairman of the Board of EFC. "In the years we worked with her as CFO we were consistently impressed with her intelligence and integrity, and we know that she will bring those qualities to the Board. We will continue to benefit from Mike's investment insights as Co-CIO of EFC and CEO of our manager. Just as importantly, Mike sets the tone at the top that encourages the thoughtfulness and integrity of Ellington's people and processes."
"Lisa's intimate knowledge of EFC and substantial experience in the financial services industry make her the ideal fit for our Board. EFC flourished under Lisa's leadership as CFO, and we will leverage her deep understanding of the Company and financial accounting, as we continue to drive the Company forward," said Laurence Penn, Chief Executive Officer of EFC.
Mr. Vranos added, "I will remain as active as ever in the business as Co-CIO, and am excited about EFC's current positioning and the investment opportunities we're seeing. It's great to have Lisa back on the team, now as a director, whose skillset, business savvy, and knowledge of EFC will prove invaluable as the Company continues to evolve."
Ms. Mumford concluded, "Having worked at EFC for nearly a decade, I am excited to take on this new role as director, working alongside Board and management team members I not only know well, but also respect tremendously."
Ms. Mumford served as CFO of EFC from October 2009, seeing the Company through its initial public offering in 2010, and managing all of the Company's accounting, internal control, and financial reporting processes until her retirement in March 2018. Ms. Mumford also previously served as CFO of Ellington Residential Mortgage REIT (NYSE: EARN) from April 2013 to March 2018.
Prior to joining Ellington, Ms. Mumford served as CFO of ACA Financial Guaranty Corporation. Previously, she was Chief Accounting Officer of ACA Capital Holdings, Inc., and before that was CFO and Controller of ACE Guaranty Corp. She began her career at Coopers & Lybrand in 1984. Ms. Mumford is a member of the American Institute of Certified Public Accountants and holds a B.B.A. in Accounting from Hofstra University.
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. Our 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 "anticipate," "estimate," "will," "should," "may," "expect," "project," "believe," "intend," "seek," "plan" and similar expressions or their negative forms, or by references to strategy, plans, or intentions. The Company's results can fluctuate from month to month 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, changes in mortgage default rates and prepayment rates, 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 our Annual Report on Form 10-K filed on March 15, 2018, which can be accessed through the link to our SEC filings under "For Our Shareholders" on our website (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 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.
About Ellington Financial LLC
Ellington Financial LLC is a specialty finance company that 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, corporate equity and debt securities (including distressed debt), non-mortgage and mortgage-related derivatives, equity investments in mortgage-related entities, and other strategic investments. Ellington Financial LLC is externally managed and advised by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C.