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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): February 20, 2019

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 December 31, 2018.
On February 20, 2019, the Company issued a press release announcing its financial results for the quarter ended December 31, 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:
February 20, 2019
 
 
By:
 
/s/ JR Herlihy
 
 
 
 
 
 
JR Herlihy
 
 
 
 
 
 
Chief Financial Officer





EXHIBIT INDEX
 
Exhibit
  
Description
 
 
 
99.1

  
Earnings Press Release dated February 20, 2019



Exhibit
Exhibit 99.1

Ellington Financial LLC Reports Fourth Quarter 2018 Results
OLD GREENWICH, Connecticut—February 20, 2019
Ellington Financial LLC (NYSE: EFC) (the "Company") today reported financial results for the quarter ended December 31, 2018.
Highlights
•
Net loss1 of $(2.2) million, or $(0.07) per basic and diluted share.
•
Book value per share as of December 31, 2018 of $18.92, after payment of a quarterly dividend of $0.41 per share.
•
Credit strategy gross income of $8.1 million for the quarter, or $0.26 per share.
•
Agency strategy gross loss of $(4.9) million for the quarter, or $(0.16) per share.
•
Net investment income of $10.2 million for the quarter, or $0.33 per share; Adjusted net investment income2 of $12.7 million for the quarter, or $0.41 per share.
•
Announced a dividend of $0.41 per share, equating to an annualized dividend yield of 9.6% based on the February 19, 2019 closing price of $17.16 per share.
•
Repurchased 361,090 common shares during the quarter, or approximately 1% of our total common shares as of the beginning of the quarter, at an average price of $15.34 per share.
•
Debt-to-equity ratio of 3.35:13 as of December 31, 2018.
Fourth Quarter 2018 Results
"Despite weakness in most equity and fixed income markets globally in the fourth quarter, Ellington Financial preserved its book value thanks to our disciplined hedging strategy and diversified portfolio," stated Laurence Penn, Chief Executive Officer and President. "Even though we sold certain non-real-estate-related assets in anticipation of our REIT conversion, we still were able to grow our adjusted net investment income, which covered our dividend for the quarter. We also took advantage of our discounted stock price by repurchasing more than $5.5 million of our common shares during the quarter.
"During the fourth quarter, we had strong results from several of our loan strategies, including consumer and non-QM, where we completed our second non-QM securitization in November. Our investments in loan originators also performed well during the quarter. We believe that many of our loan strategies, in addition to providing us a pipeline of investments over which we have greater control and visibility, have the additional benefit of being relatively insulated from interest rate movements and global macroeconomic events. I am pleased with our performance in 2018, having realized our primary objectives of prudently growing our credit portfolio and our adjusted net investment income, while delivering an economic return of 9.2%.
"Finally, I am excited that we completed our tax conversion from a publicly traded partnership. While we rotated a portion of the portfolio to enable us to qualify as a REIT, we have maintained all of our core investment strategies, including our highest-conviction non-real-estate-related strategies, as well as our core hedging strategies. Our tax reporting to investors will be greatly simplified as a REIT, which should expand our investor base and greatly improve the liquidity of our stock. At the same time, our investment objectives remain the same: generate a high-quality earnings stream while maintaining a strong balance sheet, moderate leverage, and a stable book value."
Corporate Structure Update
The Company plans to elect to be taxed as a REIT for U.S. federal income tax purposes for the taxable year ending December 31, 2019. To facilitate this planned election, it has elected to be taxed as a corporation for U.S. federal income tax purposes effective as of January 1, 2019. The Company will issue a final Schedule K-1 to those shareholders who held shares in 2018. For 2019, the Company will issue a Form 1099 to shareholders reporting all dividends paid.


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 $1.185 billion as of December 31, 2018, a decrease of approximately 8.1% from $1.289 billion as of September 30, 2018. The Company's total long Agency RMBS portfolio was $975.4 million as of December 31, 2018, an increase of approximately 3.3% from $944.4 million as of September 30, 2018. Notable transactions during the quarter included the Company completing its second non-QM securitization, as well as the consummation of a strategic equity investment in a consumer loan originator with which the Company has a forward flow purchase agreement. Additionally, the Company continued to participate in the asset ramp-up for what would be its fourth Ellington-sponsored CLO.
The Company's borrowings increased during the quarter primarily as a result of the financing of new small balance commercial loan originations and non-QM loan purchases, while total equity declined primarily because of the Company's share repurchases and dividend. As a result, the Company's debt-to-equity ratio3 increased to 3.35:1 as of December 31, 2018, from 3.04:1 as of September 30, 2018.
During the fourth quarter, the Company's credit strategy generated total gross income of $8.1 million, or $0.26 per share, and its Agency strategy generated a gross loss of $(4.9) million, or $(0.16) per share.
The Company's credit portfolio continued to be the primary driver of its earnings. During the fourth quarter, the Company's credit strategy generated net interest income5 of $17.7 million, net realized and unrealized losses on credit assets of $(12.0) million, net realized and unrealized losses on interest rate hedges of $(0.6) million, and other investment related expenses of $5.5 million. Other investment related expenses included $1.6 million of issuance costs related to the non-QM securitization completed in November 2018.
The Company benefited from strong performance in several of its loan-related strategies, including consumer loans, non-QM loans, and investments in loan originators. The weakness in the credit markets caused many of the Company's securities strategies to underperform, including CLOs, European RMBS, and corporate credit relative value. However, much of this underperformance was offset by the Company's net credit hedges and other activities, which generated a gain of $8.4 million for the quarter.
In the Agency strategy, declining interest rates generated net realized and unrealized gains on the Company's Agency assets of $8.5 million, while net interest income6 totaled $2.6 million. Losses on the Company's interest rate hedges and other activities exceeded these gains, however, as declining interest rates and high levels of interest rate volatility generated net realized and unrealized losses of $(16.0) million.
4 Excludes hedges, other derivative, and corporate relative value trading positions. Also excludes tranches of the Company's consolidated non-QM securitization trusts that were sold to third parties, but that are consolidated for GAAP reporting purposes. Including such tranches, the Company's total long credit portfolio was $1.480 billion as of December 31, 2018 as compared to $1.379 billion as of September 30, 2018.
5 Excludes any interest income and interest expense items from Net interest rate hedges and Net credit hedges and other activities.
6 Excludes any interest income and interest expense items from Net interest rate hedges and other activities.


2

The following table summarizes the Company's investment portfolio holdings as of December 31, 2018 and September 30, 2018:
 
 
December 31, 2018
 
September 30, 2018
(In thousands)
 
Fair Value
 
Cost
 
Fair Value
 
Cost
Long:
 
 
 
 
 
 
 
 
Credit:
 
 
 
 
 
 
 
 
Dollar Denominated:
 
 
 
 
 
 
 
 
CLO
 
$
123,893

 
$
139,424

 
$
156,087

 
$
160,561

CMBS
 
18,426

 
17,828

 
14,923

 
13,995

Commercial Mortgage Loans and REO(1)
 
245,536

 
244,193

 
160,515

 
158,159

Consumer Loans and ABS Backed by Consumer Loans(2)
 
209,922

 
218,895

 
209,848

 
218,183

Corporate Debt and Equity
 
15,316

 
17,526

 
44,559

 
43,250

Equity Investment in Loan Origination Entities
 
37,067

 
28,314

 
30,171

 
25,314

Non-Agency RMBS
 
153,214

 
141,130

 
180,223

 
168,399

Residential Mortgage Loans and REO
 
498,126

 
495,551

 
393,846

 
392,634

Non-Dollar Denominated:
 
 
 
 
 
 
 
 
CLO
 
—

 
—

 
—

 
—

CMBS
 
15,482

 
16,510

 
16,250

 
16,774

Consumer Loans and ABS Backed by Consumer Loans
 
884

 
761

 
919

 
825

Corporate Debt and Equity
 
10,810

 
11,821

 
11,400

 
12,165

RMBS(3)
 
160,342

 
168,289

 
199,108

 
200,416

Agency:
 
 
 
 
 
 
 
 
Fixed-Rate Specified Pools
 
884,870

 
904,048

 
850,453

 
877,590

Floating-Rate Specified Pools
 
5,496

 
5,627

 
5,539

 
5,684

IOs
 
29,516

 
30,399

 
33,050

 
34,134

Reverse Mortgage Pools
 
55,475

 
56,799

 
55,396

 
57,552

TBAs
 
474,860

 
473,115

 
303,552

 
304,331

Government:
 
 
 
 
 
 
 
 
Dollar Denominated
 
76

 
76

 
4,230

 
4,257

Total Long
 
2,939,311

 
2,970,306

 
2,670,069

 
2,694,223

Repurchase Agreements
 
 
 
 
 
 
 
 
Dollar Denominated
 
41,530

 
41,530

 
140,352

 
140,352

Non-Dollar Denominated
 
19,744

 
19,744

 
20,070

 
20,116

Total Repurchase Agreements
 
61,274

 
61,274

 
160,422

 
160,468

Short:
 
 
 
 
 
 
 
 
Credit:
 
 
 
 
 
 
 
 
Dollar Denominated:
 
 
 
 
 
 
 
 
Corporate Debt and Equity
 
(23,462
)
 
(23,872
)
 
(60,809
)
 
(60,965
)
Agency:
 
 
 
 
 
 
 
 
TBAs
 
(772,964
)
 
(766,777
)
 
(562,098
)
 
(564,232
)
Government:
 
 
 
 
 
 
 
 
Dollar Denominated
 
(34,817
)
 
(34,410
)
 
(52,809
)
 
(52,884
)
Non-Dollar Denominated
 
(19,334
)
 
(19,545
)
 
(19,633
)
 
(19,605
)
Total Short
 
(850,577
)
 
(844,604
)
 
(695,349
)
 
(697,686
)
Net Total
 
$
2,150,008

 
$
2,186,976

 
$
2,135,142

 
$
2,157,005

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

3

The following table summarizes the Company's operating results for the quarters ended December 31, 2018 and September 30, 2018 and the year ended December 31, 2018:
 
 
Quarter Ended
December 31, 2018
 
Per Share
 
% of Average Equity
 
Quarter Ended
September 30, 2018
 
Per Share
 
% of Average Equity
 
Year Ended December 31, 2018
 
Per Share
 
% of Average Equity
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income and other income
 
$
27,335

 
$
0.89

 
4.49
 %
 
$
26,522

 
$
0.86

 
4.32
 %
 
$
97,455

 
$
3.14

 
15.91
 %
Net realized gain (loss)
 
3,496

 
0.11

 
0.57
 %
 
9,845

 
0.32

 
1.60
 %
 
18,407

 
0.59

 
3.01
 %
Change in net unrealized gain (loss)
 
(15,482
)
 
(0.50
)
 
(2.54
)%
 
(9,886
)
 
(0.32
)
 
(1.61
)%
 
(6,642
)
 
(0.21
)
 
(1.08
)%
Net interest rate hedges(1)
 
(561
)
 
(0.02
)
 
(0.09
)%
 
468

 
0.02

 
0.08
 %
 
115

 
—

 
0.02
 %
Net credit hedges and other activities(2)
 
8,416

 
0.27

 
1.38
 %
 
(3,250
)
 
(0.11
)
 
(0.53
)%
 
8,020

 
0.26

 
1.31
 %
Interest expense(3)
 
(9,622
)
 
(0.31
)
 
(1.58
)%
 
(8,786
)
 
(0.28
)
 
(1.43
)%
 
(32,735
)
 
(1.05
)
 
(5.34
)%
Other investment related expenses
 
(5,456
)
 
(0.18
)
 
(0.90
)%
 
(3,921
)
 
(0.13
)
 
(0.64
)%
 
(15,284
)
 
(0.49
)
 
(2.50
)%
Total Credit profit (loss)
 
8,126

 
0.26

 
1.33
 %
 
10,992

 
0.36

 
1.79
 %
 
69,336

 
2.24

 
11.33
 %
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
8,205

 
0.27

 
1.35
 %
 
7,873

 
0.25

 
1.28
 %
 
31,116

 
1.01

 
5.08
 %
Net realized gain (loss)
 
(528
)
 
(0.02
)
 
(0.09
)%
 
(1,388
)
 
(0.04
)
 
(0.23
)%
 
(4,612
)
 
(0.15
)
 
(0.75
)%
Change in net unrealized gain (loss)
 
9,008

 
0.29

 
1.48
 %
 
(6,167
)
 
(0.20
)
 
(1.00
)%
 
(13,901
)
 
(0.45
)
 
(2.27
)%
Net interest rate hedges and other activities(1)
 
(16,011
)
 
(0.52
)
 
(2.63
)%
 
5,510

 
0.18

 
0.90
 %
 
3,144

 
0.10

 
0.51
 %
Interest expense
 
(5,585
)
 
(0.18
)
 
(0.92
)%
 
(5,087
)
 
(0.17
)
 
(0.83
)%
 
(18,582
)
 
(0.60
)
 
(3.03
)%
Total Agency RMBS profit (loss)
 
(4,911
)
 
(0.16
)
 
(0.81
)%
 
741

 
0.02

 
0.12
 %
 
(2,835
)
 
(0.09
)
 
(0.46
)%
Total Credit and Agency RMBS profit (loss)
 
3,215

 
0.10

 
0.52
 %
 
11,733

 
0.38

 
1.91
 %
 
66,501

 
2.15

 
10.87
 %
Other interest income (expense), net
 
422

 
0.01

 
0.07
 %
 
347

 
0.01

 
0.06
 %
 
1,664

 
0.05

 
0.27
 %
Other expenses
 
(4,707
)
 
(0.15
)
 
(0.77
)%
 
(4,182
)
 
(0.14
)
 
(0.68
)%
 
(17,539
)
 
(0.57
)
 
(2.86
)%
Net increase in equity resulting from operations (before incentive fee)
 
(1,070
)
 
(0.04
)
 
(0.18
)%
 
7,898

 
0.25

 
1.29
 %
 
50,626

 
1.63

 
8.28
 %
Incentive fee
 
—

 
—

 
—
 %
 
(424
)
 
(0.01
)
 
(0.07
)%
 
(715
)
 
(0.02
)
 
(0.12
)%
Net increase (decrease) in equity resulting from operations
 
$
(1,070
)
 
$
(0.04
)
 
(0.18
)%
 
$
7,474

 
$
0.24

 
1.22
 %
 
$
49,911

 
$
1.61

 
8.16
 %
Less: Net increase (decrease) in equity resulting from operations attributable to non-controlling interests
 
1,147

 
 
 
 
 
813

 
 
 
 
 
3,235

 
 
 
 
Net increase (decrease) in shareholders' equity resulting from operations(4)
 
$
(2,217
)
 
$
(0.07
)
 
(0.38
)%
 
$
6,661

 
$
0.22

 
1.12
 %
 
$
46,676

 
$
1.52

 
7.86
 %
Weighted average shares and convertible
units(5) outstanding
 
30,735

 
 
 
 
 
30,859

 
 
 
 
 
31,006

 
 
 
 
Average equity (includes non-controlling interests)(6)
 
$
608,772

 
 
 
 
 
$
613,816

 
 
 
 
 
$
612,513

 
 
 
 
Weighted average shares and LTIP units outstanding(7)
 
30,514

 
 
 
 
 
30,647

 
 
 
 
 
30,792

 
 
 
 
Average shareholders' equity (excludes non-controlling interests)(6)
 
$
583,206

 
 
 
 
 
$
596,204

 
 
 
 
 
$
593,483

 
 
 
 
(1)
Includes TBAs and U.S. Treasury securities, if applicable.
(2)
Includes equity and other relative value trading strategies and related hedges.
(3)
Includes interest expense on the Company's Senior Notes.
(4)
Per share information is calculated using weighted average shares and LTIP units outstanding. Percentage of average equity is calculated using average shareholders' equity, which excludes non-controlling interests.
(5)
Convertible units include Operating Partnership units attributable to non-controlling interests.
(6)
Average equity and average shareholders' equity are calculated using month end values.
(7)
Excludes Operating Partnership units attributable to non-controlling interests.

4

About Ellington Financial
Ellington Financial invests in a diverse array of financial assets, including residential and commercial mortgage-backed securities, residential and commercial mortgage loans, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments. Ellington Financial is externally managed and advised by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C.
Conference Call
The Company will host a conference call at 11:00 a.m. Eastern Time on Thursday, February 21, 2019, to discuss its financial results for the quarter ended December 31, 2018. To participate in the event by telephone, please dial (877) 241-1233 at least 10 minutes prior to the start time and reference the conference ID number 6997409. International callers should dial (810) 740-4657 and reference the same conference ID number. The conference call will also be webcast live over the Internet and can be accessed via the "For Our Shareholders" section of the Company's web site at www.ellingtonfinancial.com. To listen to the live webcast, please visit www.ellingtonfinancial.com at least 15 minutes prior to the start of the call to register, download, and install necessary audio software. In connection with the release of these financial results, the Company also posted an investor presentation, that will accompany the conference call, on its website at www.ellingtonfinancial.com under "For Our Shareholders—Presentations."
A dial-in replay of the conference call will be available on Thursday, February 21, 2019, at approximately 4 p.m. Eastern Time through Thursday, March 7, 2019 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (800) 585-8367 and enter the conference ID number 6997409. International callers should dial (404) 537-3406 and enter the same conference ID number. A replay of the conference call will also be archived on the Company's web site at www.ellingtonfinancial.com.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Actual results may differ from the Company's beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should," "would," "could," "goal," "objective," "will," "may," "seek," or similar expressions or their negative forms, or by references to strategy, plans, or intentions. Examples of forward-looking statements in this press release include without limitation management's beliefs regarding the current economic and investment environment and the Company's ability to implement its investment and hedging strategies, performance of the Company's investment and hedging strategies, the Company's exposure to prepayment risk in its Agency portfolio, estimated effects on the fair value of the Company's holdings of a hypothetical change in interest rates, statements regarding the drivers of the Company's returns, the Company's expected ongoing annualized expense ratio, statements regarding potential changes to the Company's corporate structure, and statements regarding the Company's intended dividend policy including the amount to be recommended by management, and the Company's share repurchase program. The Company's results can fluctuate from month to month and from quarter to quarter depending on a variety of factors, some of which are beyond the Company's control and/or are difficult to predict, including, without limitation, changes in interest rates and the market value of the Company's securities, changes in mortgage default rates and prepayment rates, the Company's ability to borrow to finance its assets, changes in government regulations affecting the Company's business, the Company's ability to maintain its exclusion from registration under the Investment Company Act of 1940; the Company's ability to qualify and maintain its qualification as a real estate investment trust, or "REIT"; and other changes in market conditions and economic trends. Furthermore, forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A of the Company's Annual Report on Form 10-K filed on March 15, 2018 which can be accessed through the Company's website at www.ellingtonfinancial.com or at the SEC's website (www.sec.gov). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected or implied may be described from time to time in reports the Company's files with the SEC, including reports on Forms 10-Q, 10-K and 8-K. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

5

ELLINGTON FINANCIAL LLC
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
 
 
Three-Month Period Ended
 
Year Ended
(In thousands, except per share amounts)
 
December 31, 2018
 
September 30, 2018
 
December 31, 2018
Investment income
 
 
 
 
 
 
Interest income
 
$
35,694

 
$
35,300

 
$
131,027

Other income
 
1,157

 
1,046

 
4,014

Total investment income
 
36,851

 
36,346

 
135,041

Expenses
 
 
 
 
 
 
Base management fee to affiliate (Net of fee rebates of $430, $423, and $1,380, respectively)
 
1,744

 
1,830

 
7,573

Incentive fee to affiliate
 
—

 
424

 
715

Interest expense
 
16,083

 
15,678

 
56,707

Other investment related expenses:
 
 
 
 
 
 
Servicing and other
 
4,201

 
4,384

 
15,307

Issuance costs related to Other secured borrowings, at fair value
 
1,647

 
—

 
1,647

Other operating expenses
 
2,962

 
2,352

 
9,967

Total expenses
 
26,637

 
24,668

 
91,916

Net investment income
 
10,214

 
11,678

 
43,125

Net realized gain (loss) on:
 
 
 
 
 
 
Investments
 
4,675

 
8,551

 
25,421

Financial derivatives, excluding currency hedges
 
(389
)
 
479

 
(2,639
)
Financial derivatives—currency hedges
 
2,594

 
297

 
4,475

Foreign currency transactions
 
2,698

 
775

 
4,131

 
 
9,578

 
10,102

 
31,388

Change in net unrealized gain (loss) on:
 
 
 
 
 
 
Investments
 
(13,181
)
 
(13,372
)
 
(25,947
)
Other secured borrowings
 
(82
)
 
(358
)
 
758

Financial derivatives, excluding currency hedges
 
(2,829
)
 
173

 
7,093

Financial derivatives—currency hedges
 
(839
)
 
528

 
565

Foreign currency translation
 
(3,931
)
 
(1,277
)
 
(7,071
)
 
 
(20,862
)
 
(14,306
)
 
(24,602
)
Net realized and change in net unrealized gain (loss) on investments, financial derivatives, and other secured borrowings
 
(11,284
)
 
(4,204
)
 
6,786

Net increase (decrease) in equity resulting from operations
 
(1,070
)
 
7,474

 
49,911

Less: Increase (decrease) in equity resulting from operations attributable to non-controlling interests
 
1,147

 
813

 
3,235

Net increase (decrease) in shareholders' equity resulting from operations
 
$
(2,217
)
 
$
6,661

 
$
46,676

Net increase (decrease) in shareholders' equity resulting from operations per share:
 
 
 
 
 
 
Basic and diluted
 
$
(0.07
)
 
$
0.22

 
$
1.52

Weighted average shares and LTIP units outstanding
 
30,514

 
30,647

 
30,792

Weighted average shares and convertible units outstanding
 
30,735

 
30,859

 
31,006



6

ELLINGTON FINANCIAL LLC
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES, AND EQUITY
(UNAUDITED)
 
 
As of
(In thousands, except share amounts)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017(1)
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
44,656

 
$
53,598

 
$
47,233

Restricted cash
 
425

 
425

 
425

Investments, financial derivatives, and repurchase agreements:
 
 
 
 
 
 
Investments, at fair value (Cost–$2,970,306, $2,694,223, and $2,071,754)
 
2,939,311

 
2,670,069

 
2,071,707

Financial derivatives–assets, at fair value (Net cost–$22,526, $20,895, and $31,474)
 
20,001

 
31,338

 
28,165

Repurchase agreements (Cost–$61,274, $160,468, and $155,109)
 
61,274

 
160,422

 
155,949

Total Investments, financial derivatives, and repurchase agreements
 
3,020,586

 
2,861,829

 
2,255,821

Due from brokers
 
71,794

 
83,915

 
140,404

Receivable for securities sold and financial derivatives
 
780,826

 
670,952

 
476,000

Interest and principal receivable
 
37,676

 
38,635

 
29,688

Other assets
 
15,536

 
5,207

 
43,770

Total assets
 
$
3,971,499

 
$
3,714,561

 
$
2,993,341

LIABILITIES
 
 
 
 
 
 
Investments and financial derivatives:
 
 
 
 
 
 
Investments sold short, at fair value (Proceeds–$844,604, $697,686, and $640,202)
 
$
850,577

 
$
695,349

 
$
642,240

Financial derivatives–liabilities, at fair value (Net proceeds–$19,019, $16,294, and $27,463)
 
20,806

 
27,226

 
36,273

Total investments and financial derivatives
 
871,383

 
722,575

 
678,513

Reverse repurchase agreements
 
1,498,849

 
1,636,039

 
1,209,315

Due to brokers
 
5,553

 
4,551

 
1,721

Payable for securities purchased and financial derivatives
 
488,411

 
430,808

 
202,703

Other secured borrowings (Proceeds–$114,100, $114,190, and $57,909)
 
114,100

 
114,190

 
57,909

Other secured borrowings, at fair value (Proceeds–$81,728 $90,409, and $125,105)
 
297,948

 
89,569

 
125,105

Senior notes, net
 
85,035

 
84,968

 
84,771

Accounts payable and accrued expenses
 
5,723

 
5,337

 
3,885

Base management fee payable to affiliate
 
1,744

 
1,830

 
2,113

Incentive fee payable to affiliate
 
—

 
424

 
—

Interest and dividends payable
 
7,159

 
6,451

 
5,904

Other liabilities
 
424

 
1,141

 
441

Total liabilities
 
3,376,329

 
3,097,883

 
2,372,380

EQUITY
 
595,170

 
616,678

 
620,961

TOTAL LIABILITIES AND EQUITY
 
$
3,971,499

 
$
3,714,561

 
$
2,993,341

ANALYSIS OF EQUITY:
 
 
 
 
 
 
Common shares, no par value, 100,000,000 shares authorized;
 
 
 
 
 
 
(29,796,601, 30,155,055, and 31,335,938, shares issued and outstanding)
 
$
563,833

 
$
583,179

 
$
589,722

Additional paid-in capital–LTIP units (2)
 
—

 
10,618

 
10,377

Total Shareholders' Equity
 
563,833

 
593,797

 
600,099

Non-controlling interests (2)
 
31,337

 
22,881

 
20,862

Total Equity
 
$
595,170

 
$
616,678

 
$
620,961

PER SHARE INFORMATION:
 
 
 
 
 
 
Common shares, no par value (2)
 
$
18.92

 
$
19.69

 
$
19.15

DILUTED PER SHARE INFORMATION:
 
 
 
 
 
 
Common shares and convertible units, no par value (3)
 
$
18.92

 
$
19.37

 
$
18.85

(1)
Derived from audited financial statements as of December 31, 2017.

7

(2)
On December 31, 2018, the Company redeemed all 503,988 of its outstanding LTIP units which it had originally issued under its incentive plans, with each LTIP unitholder receiving in exchange an equivalent number of LTIP Units of the Operating Partnership. As such, these LTIP units are now treated as non-controlling interests.
(3)
Based on total equity excluding non-controlling interests not represented by instruments convertible into common shares.
Reconciliation of Adjusted Net Investment Income to Net Investment Income
The table below reconciles Adjusted net investment income for the three-month period ended December 31, 2018 to the line, Net investment income, on the Company's Consolidated Statement of Operations, which the Company believes is the most directly comparable U.S. GAAP measure. Adjusted net investment income includes net realized and unrealized gains (losses) from certain of the Company's equity investments in partnerships and net accrued periodic (payments) receipts on various interest rate swaps, and excludes incentive fee, deal expenses, one-time costs related to tax conversion, and the Catch-Up Premium Amortization Adjustment. The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on the Company's Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses). The adjustment is calculated as of the beginning of each quarter based on the Company's then assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter.
The Company believes that Adjusted net investment income provides information useful to investors because it is one of the metrics that it uses to assess its performance and to evaluate the effective net yield provided by the Company's portfolio. However, because Adjusted net investment income is an incomplete measure of the Company's financial results and differs from Net investment income computed in accordance with U.S. GAAP, it should be considered as supplementary to, and not as a substitute for, Net investment income computed in accordance with U.S. GAAP.
(In thousands, except per share amounts)
 
Three-Month
Period Ended
December 31, 2018
Net investment income
 
$
10,214

Include:
 
 
Net realized and unrealized gains (losses) from certain equity investments in partnerships(1)
 
103

Net accrued periodic (payments) receipts on interest rate swaps
 
130

Exclude:
 
 
Incentive fee to affiliate
 
—

Catch-up Premium Amortization Adjustment
 
16

Debt issuance costs related to Other secured borrowings, at fair value
 
(1,647
)
Costs related to tax conversion
 
(615
)
Adjusted net investment income
 
$
12,693

Weighted average shares and convertible units outstanding
 
30,735

Net investment income per share
 
$
0.33

Adjusted net investment income per share
 
$
0.41

(1)
Includes only those components that would be included in net investment income at the underlying partnership.

8