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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 7, 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 September 30, 2018.
On November 7, 2018, the Company issued a press release announcing its financial results for the quarter ended September 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 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






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 7, 2018
 
 
By:
 
/s/ JR Herlihy
 
 
 
 
 
 
JR Herlihy
 
 
 
 
 
 
Chief Financial Officer





EXHIBIT INDEX
 
Exhibit
  
Description
 
 
 
99.1

  
Earnings Press Release dated November 7, 2018



Exhibit
Exhibit 99.1

Ellington Financial LLC Reports Third Quarter 2018 Results
OLD GREENWICH, Connecticut—November 7, 2018
Ellington Financial LLC (NYSE: EFC) (the "Company") today reported financial results for the quarter ended September 30, 2018.
Highlights
•
Net income1 of $6.7 million, or $0.22 per basic and diluted share.
•
Book value per share as of September 30, 2018 of $19.37 on a diluted basis, after payment of a quarterly dividend of $0.41 per share, as compared to book value per share of $19.57 on a diluted basis as of June 30, 2018.
•
Credit strategy gross income of $11.0 million for the quarter, or $0.36 per share.
•
Agency strategy gross income of $0.7 million for the quarter, or $0.02 per share.
•
Net investment income of $11.7 million for the quarter, or $0.38 per share; Adjusted net investment income2 of $12.5 million for the quarter, or $0.40 per share.
•
Announced a dividend of $0.41 per share for the third quarter of 2018, equating to an annualized dividend yield of 10.6% based on the November 6, 2018 closing price of $15.43 per share; dividends are paid quarterly in arrears.
•
Debt-to-equity ratio of 3.04:13 as of September 30, 2018.
Third Quarter 2018 Results
The Company's results in the third quarter reflected the continued growth of its credit portfolio, which increased 15% sequentially and drove net investment income of $0.38 per share and adjusted net investment income of $0.40 per share.
"Most significantly for the quarter, we were able to maintain the strong growth of our credit portfolio and our net investment income," said Laurence Penn, Chief Executive Officer and President. "Our third quarter adjusted net investment income of $0.40 per share essentially covered our $0.41 dividend, and we still have room to grow the credit portfolio. In addition, we had excellent performance in several of our credit strategies, including small balance commercial mortgage loans, where strong origination volume and favorable loan resolutions helped generate a high return on equity this quarter. In our CLO strategies, our first CLO was reset with improved pricing and structure, and we have begun accumulating assets for a potential fourth CLO. Our CMBS portfolio also contributed significantly to our third quarter results.
"We believe that our robust growth demonstrates the strength of our origination and sourcing capabilities, as well as the benefits of a diversified portfolio. Our larger portfolio this quarter reflects the continued growth of our non-QM loan strategy, where we have reached critical mass for a second securitization. We have also begun to originate and acquire residential bridge loans, a business where we see the potential for very attractive risk-adjusted returns on equity.
"Finally, our emphasis on hedging interest rates and certain credit risks in our portfolio, along with a commitment to maintaining moderate leverage and a strong balance sheet, should continue to provide significant protection to book value, particularly as interest rates rise and volatility returns to the market."
Corporate Structure Update
The Company continues to evaluate potential changes to its tax status. Although it has not completed its analysis or made any final decision, the Company currently expects, barring any unforeseen impediments, to convert from a publicly traded partnership to a REIT in the first half of 2019. In connection with such a conversion, the Company would expect to take several steps to help qualify as a REIT, including selling certain non-real-estate-related assets, and moving other non-real-estate-related assets into taxable REIT subsidiaries. A REIT conversion would also be facilitated by exchanging a portion of the Company's existing public senior unsecured notes for private notes issued by one or more of its taxable subsidiaries.

1 Increase (decrease) in shareholders' equity from operations, or "net income (loss)."
2 Adjusted net investment income is a non-GAAP financial measure. See "Reconciliation of Adjusted Net Investment Income to Net Income" below for an explanation regarding the calculation of Adjusted net investment income.
3 Excludes repo borrowings on U.S. Treasury securities.
1

Financial Results
The Company's total long Credit portfolio4 was $1.289 billion as of September 30, 2018, which was an increase of approximately 15% from $1.123 billion as of June 30, 2018. As of September 30, 2018, the Company's long Agency RMBS portfolio decreased approximately (0.4)% to $944.4 million, from $948.5 million as of June 30, 2018. With the increased size of its portfolio, the Company's debt-to-equity ratio3 increased to 3.04:1 as of September 30, 2018, up from 2.77:1 as of June 30, 2018.
During the third quarter, the Company's Credit strategy generated total gross income of $11.0 million, or $0.36 per share, and its Agency strategy generated gross income of $0.7 million, or $0.02 per share.
The Company's Credit portfolio continued to be the primary driver of its earnings. During the third quarter, the Company's Credit strategy generated net interest income5 of 17.7 million, net realized and change in net unrealized losses of $(41) thousand, net gain from interest rate hedges of $468 thousand, and other investment related expenses of $3.9 million. The Company benefited from strong performance in several of its loan-related strategies, including small balance commercial mortgage loans, consumer loans, and U.S. non-performing loans. Among the Company's securities strategies, non-Agency RMBS, U.S. CMBS, and investments in Ellington-sponsored CLOs performed well. Also during the quarter, credit hedges reduced profitability in many of the Company's credit strategies, and net credit hedges and other activities generated a loss of $(3.3) million, reversing the gains in this category from the first two quarters of the year.
Interest rates rose and Agency RMBS prices declined again during the quarter, which led to net realized and unrealized losses on the Company's Agency portfolio of $(7.6) million. However, these losses were more than offset by net interest income6 from the Agency portfolio of $2.8 million and gains on the Company's interest rate hedges and other activities of $5.5 million.

4 Excludes hedges, other derivative, and corporate relative value trading positions. Also excludes tranches of the Company's consolidated non-QM securitization trust that were sold to third parties. Including such tranches, the Company's total long Credit portfolio was $1.379 billion as of September 30, 2018 as compared to $1.224 billion as of June 30, 2018.
5 Excludes any interest income and interest expense items from Net interest rate hedges and Net credit hedges and other activities.
6 Excludes any interest income and interest expense items from Net interest rate hedges and other activities.


2

The following table summarizes the Company's investment portfolio holdings as of September 30, 2018 and June 30, 2018:
 
 
September 30, 2018
 
June 30, 2018
(In thousands)
 
Fair Value
 
Cost
 
Fair Value
 
Cost
Long:
 
 
 
 
 
 
 
 
Credit:
 
 
 
 
 
 
 
 
Dollar Denominated:
 
 
 
 
 
 
 
 
CLO(1)
 
$
156,087

 
$
160,561

 
$
210,935

 
$
216,236

CMBS
 
14,923

 
13,995

 
16,927

 
16,890

Commercial Mortgage Loans and REO(2)
 
160,515

 
158,159

 
139,546

 
137,846

Consumer Loans and ABS Backed by Consumer Loans(1)
 
209,848

 
218,183

 
196,584

 
205,243

Corporate Debt and Equity
 
44,559

 
43,250

 
71,422

 
68,878

Debt and Equity Investment in Mortgage-Related Entities
 
30,171

 
25,314

 
30,823

 
25,314

Non-Agency RMBS
 
180,223

 
168,399

 
156,834

 
144,760

Residential Mortgage Loans and REO
 
393,846

 
392,634

 
294,366

 
292,994

Non-Dollar Denominated:
 
 
 
 
 
 
 
 
CLO
 
—

 
—

 
4,670

 
4,788

CMBS
 
16,250

 
16,774

 
16,309

 
16,468

Consumer Loans and ABS Backed by Consumer Loans
 
919

 
825

 
8,723

 
899

Corporate Debt and Equity
 
11,400

 
12,165

 
11,911

 
12,576

RMBS(3)
 
199,108

 
200,416

 
130,395

 
128,620

Agency:
 
 
 
 
 
 
 
 
Fixed-Rate Specified Pools
 
850,453

 
877,590

 
853,120

 
874,862

Floating-Rate Specified Pools
 
5,539

 
5,684

 
6,155

 
6,304

IOs
 
33,050

 
34,134

 
32,899

 
33,630

Reverse Mortgage Pools
 
55,396

 
57,552

 
56,371

 
58,104

TBAs
 
303,552

 
304,331

 
317,013

 
316,530

Government:
 
 
 
 
 
 
 
 
Dollar Denominated
 
4,230

 
4,257

 
70,468

 
70,467

Total Long
 
2,670,069

 
2,694,223

 
2,625,471

 
2,631,409

Repurchase Agreements
 
 
 
 
 
 
 
 
Dollar Denominated
 
140,352

 
140,352

 
194,230

 
194,229

Non-Dollar Denominated
 
20,070

 
20,116

 
20,181

 
20,117

Total Repurchase Agreements
 
160,422

 
160,468

 
214,411

 
214,346

Short:
 
 
 
 
 
 
 
 
Credit:
 
 
 
 
 
 
 
 
Dollar Denominated:
 
 
 
 
 
 
 
 
Corporate Debt and Equity
 
(60,809
)
 
(60,965
)
 
(84,395
)
 
(85,280
)
Agency:
 
 
 
 
 
 
 
 
TBAs
 
(562,098
)
 
(564,232
)
 
(618,665
)
 
(616,872
)
Government:
 
 
 
 
 
 
 
 
Dollar Denominated
 
(52,809
)
 
(52,884
)
 
(159,220
)
 
(159,005
)
Non-Dollar Denominated
 
(19,633
)
 
(19,605
)
 
(19,866
)
 
(19,668
)
Total Short
 
(695,349
)
 
(697,686
)
 
(882,146
)
 
(880,825
)
Net Total
 
$
2,135,142

 
$
2,157,005

 
$
1,957,736

 
$
1,964,930

(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.

3

The following table summarizes the Company's operating results for the quarters ended September 30, 2018 and June 30, 2018 and the nine-month period ended September 30, 2018:
 
 
Quarter Ended
September 30, 2018
 
Per Share
 
% of Average Equity
 
Quarter Ended June
30, 2018
 
Per Share
 
% of Average Equity
 
Nine-Month Period Ended September 30, 2018
 
Per Share
 
% of Average Equity
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income and other income
 
$
26,522

 
$
0.86

 
4.32
 %
 
$
23,053

 
$
0.75

 
3.75
 %
 
$
70,120

 
$
2.25

 
11.41
 %
Net realized gain (loss)
 
9,845

 
0.32

 
1.60
 %
 
105

 
—

 
0.01
 %
 
14,911

 
0.48

 
2.43
 %
Change in net unrealized gain (loss)
 
(9,886
)
 
(0.32
)
 
(1.61
)%
 
11,046

 
0.36

 
1.80
 %
 
8,840

 
0.28

 
1.44
 %
Net interest rate hedges(1)
 
468

 
0.02

 
0.08
 %
 
29

 
—

 
—
 %
 
676

 
0.02

 
0.11
 %
Net credit hedges and other activities(2)
 
(3,250
)
 
(0.11
)
 
(0.53
)%
 
1,659

 
0.05

 
0.27
 %
 
(396
)
 
(0.01
)
 
(0.06
)%
Interest expense(3)
 
(8,786
)
 
(0.28
)
 
(1.43
)%
 
(7,680
)
 
(0.25
)
 
(1.25
)%
 
(23,113
)
 
(0.74
)
 
(3.76
)%
Other investment related expenses
 
(3,921
)
 
(0.13
)
 
(0.64
)%
 
(3,288
)
 
(0.11
)
 
(0.53
)%
 
(9,828
)
 
(0.32
)
 
(1.60
)%
Total Credit profit (loss)
 
10,992

 
0.36

 
1.79
 %
 
24,924

 
0.80

 
4.05
 %
 
61,210

 
1.96

 
9.97
 %
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
7,873

 
0.25

 
1.28
 %
 
8,345

 
0.27

 
1.36
 %
 
22,911

 
0.74

 
3.73
 %
Net realized gain (loss)
 
(1,388
)
 
(0.04
)
 
(0.23
)%
 
(1,509
)
 
(0.05
)
 
(0.25
)%
 
(4,084
)
 
(0.13
)
 
(0.66
)%
Change in net unrealized gain (loss)
 
(6,167
)
 
(0.20
)
 
(1.00
)%
 
(4,151
)
 
(0.14
)
 
(0.67
)%
 
(22,909
)
 
(0.74
)
 
(3.73
)%
Net interest rate hedges and other activities(1)
 
5,510

 
0.18

 
0.90
 %
 
3,406

 
0.12

 
0.56
 %
 
19,155

 
0.62

 
3.12
 %
Interest expense
 
(5,087
)
 
(0.17
)
 
(0.83
)%
 
(4,439
)
 
(0.14
)
 
(0.73
)%
 
(12,997
)
 
(0.42
)
 
(2.12
)%
Total Agency RMBS profit (loss)
 
741

 
0.02

 
0.12
 %
 
1,652

 
0.06

 
0.27
 %
 
2,076

 
0.07

 
0.34
 %
Total Credit and Agency RMBS profit (loss)
 
11,733

 
0.38

 
1.91
 %
 
26,576

 
0.86

 
4.32
 %
 
63,286

 
2.03

 
10.31
 %
Other interest income (expense), net
 
347

 
0.01

 
0.06
 %
 
497

 
0.02

 
0.09
 %
 
1,242

 
0.04

 
0.20
 %
Other expenses
 
(4,182
)
 
(0.14
)
 
(0.68
)%
 
(4,598
)
 
(0.15
)
 
(0.75
)%
 
(12,832
)
 
(0.41
)
 
(2.09
)%
Net increase in equity resulting from operations (before incentive fee)
 
7,898

 
0.25

 
1.29
 %
 
22,475

 
0.73

 
3.66
 %
 
51,696

 
1.66

 
8.42
 %
Incentive fee
 
(424
)
 
(0.01
)
 
(0.07
)%
 
(291
)
 
(0.01
)
 
(0.05
)%
 
(715
)
 
(0.02
)
 
(0.12
)%
Net increase (decrease) in equity resulting from operations
 
$
7,474

 
$
0.24

 
1.22
 %
 
$
22,184

 
$
0.72

 
3.61
 %
 
$
50,981

 
$
1.64

 
8.30
 %
Less: Net increase (decrease) in equity resulting from operations attributable to non-controlling interests
 
813

 
 
 
 
 
991

 
 
 
 
 
2,089

 
 
 
 
Net increase (decrease) in shareholders' equity resulting from operations(4)
 
$
6,661

 
$
0.22

 
1.12
 %
 
$
21,193

 
$
0.69

 
3.53
 %
 
$
48,892

 
$
1.58

 
8.18
 %
Weighted average shares and convertible
units(5) outstanding
 
30,859

 
 
 
 
 
30,907

 
 
 
 
 
31,098

 
 
 
 
Average equity (includes non-controlling interests)(6)
 
$
613,816

 
 
 
 
 
$
612,622

 
 
 
 
 
$
614,426

 
 
 
 
Weighted average shares and LTIP units outstanding(7)
 
30,647

 
 
 
 
 
30,695

 
 
 
 
 
30,886

 
 
 
 
Average shareholders' equity (excludes non-controlling interests)(6)
 
$
596,204

 
 
 
 
 
$
597,870

 
 
 
 
 
$
597,625

 
 
 
 
(1)
Includes TBAs and U.S. Treasury securities, if applicable.
(2)
Includes equity and other relative value trading strategies and related hedges.
(3)
Includes interest expense on the Company's Senior Notes.
(4)
Per share information is calculated using weighted average shares and LTIP units outstanding. Percentage of average equity is calculated using average shareholders' equity, which excludes non-controlling interests.
(5)
Convertible units include Operating Partnership units attributable to non-controlling interests 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

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
The Company will host a conference call at 11:00 a.m. Eastern Time on Thursday, November 8, 2018, to discuss its financial results for the quarter ended September 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 3595166. 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 the Company's web site at www.ellingtonfinancial.com. To listen to the live webcast, please visit www.ellingtonfinancial.com at least 15 minutes prior to the start of the call to register, download, and install necessary audio software. In connection with the release of these financial results, the Company also posted an investor presentation, that will accompany the conference call, on its website at www.ellingtonfinancial.com under "For Our Shareholders—Presentations."
A dial-in replay of the conference call will be available on Thursday, November 8, 2018, at approximately 2 p.m. Eastern Time through Thursday, November 22, 2018 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (800) 585-8367 and enter the passcode 3595166. International callers should dial (404) 537-3406 and enter the same passcode. A replay of the conference call will also be archived on the Company's web site at www.ellingtonfinancial.com.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Actual results may differ from the Company's beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should," "would," "could," "goal," "objective," "will," "may," "seek," or similar expressions or their negative forms, or by references to strategy, plans, or intentions. Examples of forward-looking statements in this press release include without limitation management's beliefs regarding the current economic and investment environment and the Company's ability to implement its investment and hedging strategies, performance of the Company's investment and hedging strategies, the Company's exposure to prepayment risk in its Agency portfolio, estimated effects on the fair value of the Company's holdings of a hypothetical change in interest rates, statements regarding the drivers of the Company's returns, the Company's expected ongoing annualized expense ratio, statements regarding potential changes to the Company's corporate structure, and statements regarding the Company's intended dividend policy including the amount to be recommended by management, and the Company's share repurchase program. The Company's results can fluctuate from month to month and from quarter to quarter depending on a variety of factors, some of which are beyond the Company's control and/or are difficult to predict, including, without limitation, changes in interest rates and the market value of the Company's securities, changes in mortgage default rates and prepayment rates, the Company's ability to borrow to finance its assets, changes in government regulations affecting the Company's business, the Company's ability to maintain its exclusion from registration under the Investment Company Act of 1940 and other changes in market conditions and economic trends. Furthermore, forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A of the Company's Annual Report on Form 10-K filed on March 15, 2018 which can be accessed through the Company's website at www.ellingtonfinancial.com or at the SEC's website (www.sec.gov). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected or implied may be described from time to time in reports the Company's files with the SEC, including reports on Forms 10-Q, 10-K and 8-K. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

5

ELLINGTON FINANCIAL LLC
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
 
 
Three-Month
Period Ended
 
Nine-Month Period Ended
(In thousands, except per share amounts)
 
September 30, 2018
 
June 30,
2018
 
September 30, 2018
Investment income
 
 
 
 
 
 
Interest income
 
$
35,300

 
$
31,941

 
$
95,333

Other income
 
1,046

 
1,094

 
2,857

Total investment income
 
36,346

 
33,035

 
98,190

Expenses
 
 
 
 
 
 
Base management fee to affiliate (Net of fee rebates of $423, $252, and $950, respectively)
 
1,830

 
2,021

 
5,829

Incentive fee to affiliate
 
424

 
291

 
715

Interest expense
 
15,678

 
13,383

 
40,624

Other investment related expenses:
 
 
 
 
 
 
Servicing and other
 
4,384

 
3,771

 
11,107

Other operating expenses
 
2,352

 
2,578

 
7,004

Total expenses
 
24,668

 
22,044

 
65,279

Net investment income
 
11,678

 
10,991

 
32,911

Net realized gain (loss) on:
 
 
 
 
 
 
Investments
 
8,551

 
(388
)
 
20,747

Financial derivatives, excluding currency hedges
 
479

 
(3,632
)
 
(2,251
)
Financial derivatives—currency hedges
 
297

 
3,787

 
1,881

Foreign currency transactions
 
775

 
(1,110
)
 
1,433

 
 
10,102

 
(1,343
)
 
21,810

Change in net unrealized gain (loss) on:
 
 
 
 
 
 
Investments
 
(13,372
)
 
7,457

 
(12,767
)
Other secured borrowings
 
(358
)
 
414

 
840

Financial derivatives, excluding currency hedges
 
173

 
6,553

 
9,922

Financial derivatives—currency hedges
 
528

 
76

 
1,404

Foreign currency translation
 
(1,277
)
 
(1,964
)
 
(3,139
)
 
 
(14,306
)
 
12,536

 
(3,740
)
Net realized and change in net unrealized gain (loss) on investments, financial derivatives, and other secured borrowings
 
(4,204
)
 
11,193

 
18,070

Net increase in equity resulting from operations
 
7,474

 
22,184

 
50,981

Less: Increase in equity resulting from operations attributable to non-controlling interests
 
813

 
991

 
2,089

Net increase in shareholders' equity resulting from operations
 
$
6,661

 
$
21,193

 
$
48,892

Net increase in shareholders' equity resulting from operations per share:
 
 
 
 
 
 
Basic and diluted
 
$
0.22

 
$
0.69

 
$
1.58

Weighted average shares and LTIP units outstanding
 
30,647

 
30,695

 
30,886

Weighted average shares and convertible units outstanding
 
30,859

 
30,907

 
31,098



6

ELLINGTON FINANCIAL LLC
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES, AND EQUITY
(UNAUDITED)
 
 
As of
(In thousands, except share amounts)
 
September 30,
2018
 
June 30,
2018
 
December 31,
2017(1)
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
53,598

 
$
22,071

 
$
47,233

Restricted cash
 
425

 
425

 
425

Investments, financial derivatives, and repurchase agreements:
 
 
 
 
 
 
Investments, at fair value (Cost–$2,694,223, $2,631,409, and $2,071,754)
 
2,670,069

 
2,625,471

 
2,071,707

Financial derivatives–assets, at fair value (Net cost–$20,895, $24,510, and $31,474)
 
31,338

 
30,669

 
28,165

Repurchase agreements (Cost–$160,468, $214,346, and $155,109)
 
160,422

 
214,411

 
155,949

Total Investments, financial derivatives, and repurchase agreements
 
2,861,829

 
2,870,551

 
2,255,821

Due from brokers
 
83,915

 
84,196

 
140,404

Receivable for securities sold and financial derivatives
 
670,952

 
637,965

 
476,000

Interest and principal receivable
 
38,635

 
32,469

 
29,688

Other assets
 
5,207

 
24,399

 
43,770

Total assets
 
$
3,714,561

 
$
3,672,076

 
$
2,993,341

LIABILITIES
 
 
 
 
 
 
Investments and financial derivatives:
 
 
 
 
 
 
Investments sold short, at fair value (Proceeds–$697,686, $880,825, and $640,202)
 
$
695,349

 
$
882,146

 
$
642,240

Financial derivatives–liabilities, at fair value (Net proceeds–$16,294, $18,294, and $27,463)
 
27,226

 
25,675

 
36,273

Total investments and financial derivatives
 
722,575

 
907,821

 
678,513

Reverse repurchase agreements
 
1,636,039

 
1,421,506

 
1,209,315

Due to brokers
 
4,551

 
3,250

 
1,721

Payable for securities purchased and financial derivatives
 
430,808

 
431,024

 
202,703

Other secured borrowings (Proceeds–$114,190, $95,630, and $57,909)
 
114,190

 
95,630

 
57,909

Other secured borrowings, at fair value (Proceeds–$90,409 $102,298, and $125,105)
 
89,569

 
101,100

 
125,105

Senior notes, net
 
84,968

 
84,902

 
84,771

Accounts payable and accrued expenses
 
5,337

 
4,105

 
3,885

Base management fee payable to affiliate
 
1,830

 
2,021

 
2,113

Incentive fee payable to affiliate
 
424

 
291

 
—

Interest and dividends payable
 
6,451

 
6,791

 
5,904

Other liabilities
 
1,141

 
360

 
441

Total liabilities
 
3,097,883

 
3,058,801

 
2,372,380

EQUITY
 
616,678

 
613,275

 
620,961

TOTAL LIABILITIES AND EQUITY
 
$
3,714,561

 
$
3,672,076

 
$
2,993,341

ANALYSIS OF EQUITY:
 
 
 
 
 
 
Common shares, no par value, 100,000,000 shares authorized;
 
 
 
 
 
 
(30,155,055, 30,149,880, and 31,335,938, shares issued and outstanding)
 
$
583,179

 
$
589,000

 
$
589,722

Additional paid-in capital–LTIP units
 
10,618

 
10,567

 
10,377

Total Shareholders' Equity
 
593,797

 
599,567

 
600,099

Non-controlling interests
 
22,881

 
13,708

 
20,862

Total Equity
 
$
616,678

 
$
613,275

 
$
620,961

PER SHARE INFORMATION:
 
 
 
 
 
 
Common shares, no par value
 
$
19.69

 
$
19.89

 
$
19.15

DILUTED PER SHARE INFORMATION:
 
 
 
 
 
 
Common shares and convertible units, no par value (2)
 
$
19.37

 
$
19.57

 
$
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.

7

Reconciliation of Adjusted Net Investment Income to Net Investment Income
The table below reconciles Adjusted net investment income for the three-month period ended September 30, 2018 to the line, Net investment income, on the Company's Consolidated Statement of Operations, which the Company believes is the most directly comparable U.S. GAAP measure. Adjusted net investment income includes net realized and change in net unrealized gains (losses) from certain of the Company's equity investments in partnerships and net periodic (payments) receipts on various interest rate swaps, and excludes incentive fee, deal expenses, and the Catch-Up Premium Amortization Adjustment. The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on the Company's Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses). The adjustment is calculated as of the beginning of each quarter based on the Company's then assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter.
The Company believes that Adjusted net investment income provides information useful to investors because it is one of the metrics that it uses to assess its performance and to evaluate the effective net yield provided by the Company's portfolio. However, because Adjusted net investment income is an incomplete measure of the Company's financial results and differs from Net investment income computed in accordance with U.S. GAAP, it should be considered as supplementary to, and not as a substitute for, Net investment income computed in accordance with U.S. GAAP.
(In thousands, except per share amounts)
 
Three-Month
Period Ended
September 30, 2018
Net investment income
 
$
11,678

Include:
 
 
Net realized and change in net unrealized gains (losses) from certain equity investments in partnerships(1)
 
104

Net periodic (payments) receipts on interest rate swaps(2)
 
79

Exclude:
 
 
Incentive fee to affiliate
 
(424
)
Catch-up Premium Amortization Adjustment
 
(170
)
Adjusted net investment income
 
$
12,455

Weighted average shares and convertible units outstanding
 
30,859

Net investment income per share
 
$
0.38

Adjusted net investment income per share
 
$
0.40

(1)
Includes only those components that would be included in net investment income at the underlying partnership.
(2)
Net periodic (payments) receipts on interest swaps related to our interest rate hedging portfolio.

8