EX-99.1 2 dex991.htm PRESS RELEASE DATED NOVEMBER 16, 2010 Press Release dated November 16, 2010

Exhibit 99.1

Ellington Financial LLC Reports Third Quarter 2010 Results

OLD GREENWICH, Connecticut—November 16, 2010

Ellington Financial LLC (NYSE: EFC) (the “Company”) today reported financial results for the quarter ended September 30, 2010.

Highlights

 

•  

Raised approximately $95.0 million of net proceeds through the completion of its initial public offering of common shares that closed on October 14, 2010.

 

•  

Net increase in shareholders’ equity resulting from operations for the third quarter was $16.0 million. Basic and diluted earnings per share was $1.30.

 

•  

Book value per share as of September 30, 2010 was $25.78, as compared to $24.56 as of June 30, 2010.

 

•  

Total return for the third quarter was 5.58% (non-annualized).

 

•  

Announced a quarterly dividend for the third quarter of $0.80 per share payable December 15, 2010, to shareholders of record December 1, 2010.

Third Quarter 2010 Results

Total net increase in shareholders’ equity resulting from operations for the third quarter of 2010 was $16.0 million, or $1.30 per diluted share. This compares to $3.7 million, or $0.30 per diluted share for the quarter ended June 30, 2010. The quarter-over-quarter increase was primarily related to increases in the values of the Company’s non-Agency residential mortgage-backed securities (“RMBS”) holdings.

The Company prepares its financial statements in accordance with ASC 946, Financial Services—Investment Companies. As a result, investments are carried at fair value and all valuation changes are recorded in the consolidated statement of operations.

The Company also measures its performance on the basis of total return. Total return measures the Company’s overall change in shareholders’ equity, assuming the reinvestment of dividends. For the quarter ended September 30, 2010, total return was 5.58%. For the nine month period ended September 30, 2010, total return was 9.95%, or 13.3% on an annualized basis. Total return from inception of the Company (August 17, 2007) through September 30, 2010 was 58.3%, non-annualized. Over the same period the total return for the FTSE NAREIT Mortgage REITs Index1 was (0.47)%.

The Company’s book value per outstanding common share as of September 30, 2010 was $25.78, as compared to $24.56 as of June 30, 2010 and $25.04 as of December 31, 2009. Diluted book value per share was $24.99 as of September 30, 2010, as compared to $23.80 as of June 30, 2010 and $24.27 as of December 31, 2009. On a pro-forma basis, adjusted for the impact of the initial public offering, book value per share as of September 30, 2010 was $24.50; on a pro-forma diluted basis, book value per share was $23.95.

Initial Public Offering

On October 14, 2010, the Company completed an initial public offering of its common shares, selling 4,500,000 shares at an initial public offering price of $22.50. This resulted in approximately $101.3 million in gross proceeds and approximately $95.0 million in net proceeds, after deducting approximately $2.9 million in underwriting discounts and commissions and approximately $3.4 million in other expenses relating to the initial public offering.

“We are extremely pleased with our results for the quarter, all the more gratifying as our first earnings release as a public company,” said Laurence Penn, Chief Executive Officer and President of the Company. “The successful completion of our initial public offering is a milestone in the Company’s history. We believe that the non-Agency RMBS market continues to offer abundant opportunities for the Company, and we look forward to continuing to build shareholder value through our portfolio management capabilities.”

 

1

The FTSE NAREIT Mortgage REITs Index includes firms that invest primarily in mortgages or mortgage-backed securities secured by single-family or commercial property.

Portfolio

The following tables summarize the Company’s portfolio holdings:

RMBS Portfolio

 

In Thousands                                
     September 30, 2010  
     Current                           
     Principal     Fair Value     Average Price      Cost     Average Cost  

Non-Agency RMBS, excluding Interest Only and Residual Securities:

    $ 375,271      $ 259,161      $ 69.06       $ 242,534      $ 64.63   
                                         

Agency RMBS, excluding TBAs:

            

Floating

      65,000        68,407        105.24         67,212        103.40   

Fixed

      325,190        346,049        106.41         345,285        106.18   
                                         

Total Agency RMBS, excluding TBAs

      390,190        414,456        106.22         412,497        105.72   
                                         

Total Non-Agency and Agency RMBS, excluding Interest Only, Residual Securities and TBAs

    $ 765,461      $ 673,617      $ 88.00       $ 655,031      $ 85.57   
                                         

Non-Agency Interest Only and Residual Securities

      n/a        10,727        n/a         4,569        n/a   
                                         

TBAs:

            

Long

    $ 503,750      $ 529,836      $ 105.18       $ 530,437      $ 105.30   

Short

      (849,250 )      (893,251 )      105.18         (894,958 )      105.38   
                                         

Net TBAs

    $ (345,500 )    $ (363,415 )    $ 105.19       $ (364,521 )    $ 105.51   
                                         
     June 30, 2010  
     Current                           
     Principal     Fair Value     Average Price      Cost     Average Cost  

Non-Agency RMBS, excluding Interest Only and Residual Securities:

    $ 372,613      $ 236,832      $ 63.56       $ 239,397      $ 64.25   
                                         

Agency RMBS, excluding TBAs:

            

Floating

      88,529        93,403        105.51         91,629        103.50   

Fixed

      312,657        333,818        106.77         329,010        105.23   
                                         

Total Agency RMBS, excluding TBAs

      401,186        427,221        106.49         420,639        104.85   
                                         

Total Non-Agency and Agency RMBS, excluding Interest Only, Residual Securities and TBAs

    $ 773,799      $ 664,053      $ 85.82       $ 660,036      $ 85.30   
                                         

Non-Agency Interest Only and Residual Securities

      n/a        8,687        n/a         5,353        n/a   
                                         

TBAs:

            

Long

    $ 201,750      $ 212,537      $ 105.35       $ 211,590      $ 104.88   

Short

      (690,500 )      (728,063 )      105.44         (721,847 )      104.54   
                                         

Net TBAs

    $ (488,750 )    $ (515,526 )    $ 105.48       $ (510,257 )    $ 104.40   
                                         

Non-Agency RMBS are generally securitized in senior/subordinated structures, or in excess spread/over-collateralization structures. Excluding TBAs, Agency RMBS consist primarily of whole pool pass through certificates.

For the quarter ended September 30, 2010, the yield on average settled non-Agency RMBS assets was approximately 11.76% and the average cost of borrowed funds for these assets was 1.97%, for a net interest rate spread of 9.79%. The yield on average settled Agency RMBS assets was approximately 4.12% for the quarter and the average cost of borrowed funds was 0.33% for these assets, for a net interest rate spread of 3.79%. In aggregate, the yield on average settled RMBS assets (i.e., non-Agency RMBS and Agency RMBS combined) for the quarter was approximately 7.12% for the quarter and the average cost of borrowed funds was 0.77%, for a net interest rate spread of 6.35%. Net interest rate spreads do not take into account the effects of forward-settling transactions (including TBAs) and derivatives, which include interest rate hedges. At September 30, 2010, the weighted average coupon of our settled RMBS portfolio was 3.96%.

The Company actively invests in the TBA market. TBAs are forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are “To Be Announced”. Given that the Company uses TBAs primarily to hedge risks associated with its long Agency RMBS (and to a lesser extent long non-Agency RMBS), the Company generally carries a net short TBA position. Additionally, the Company does not generally settle its TBA purchases and sales, nor does it accrue interest income on unsettled positions.

 

The following table summarizes the profit and loss of the RMBS portfolio for the quarter ended September 30, 2010:

 

In Thousands    Three Months Ended
September 30, 2010		  
        Realized and     
        Unrealized Gains     
     Interest Income         (Losses )      Total   

RMBS Portfolio:

        

Non-Agency

    $ 7,047       $ 24,527      $ 31,574   

Agency

      3,800         844        4,644   

TBAs

      —           (4,299 )      (4,299 ) 
                         

Total Portfolio

    $ 10,847       $ 21,072      $ 31,919   
                         

 

Derivatives Portfolio

 

In Thousands                         
     September 30, 2010     June 30, 2010  
     Notional           Notional        
     Amount     Fair Value     Amount     Fair Value  

Long Mortgage Related:(1)

         

CDS on RMBS and CMBS Indices

    $ 140,973      $ (22,777 )    $ 58,125 $        (13,331 ) 
                                

Total Long Mortgage Related Derivatives

      140,973        (22,777 )      58,125        (13,331 ) 
                                

Short Mortgage Related (2)

         

CDS on RMBS and CMBS Indices

      (131,872 )      40,361        (124,943 )      31,490   

CDS on Individual RMBS and CMBS

      (125,959 )      102,574        (138,102 )      113,425   
                                

Total Short Mortgage Related Derivatives

      (257,831 )      142,935        (263,045 )      144,915   
                                

Net Mortgage Related Derivatives

      (116,858 )      120,158        (204,920 )      131,584   
                                

CDS on Corporate Bond Indices (Short)

      (19,700 )      5        (19,700 )      172   

Interest Rate Derivatives:

         

Interest Rate Swap

      (70,000 )      (3,065 )      (48,000 )      (1,215 ) 

Eurodollar Futures*

      (990 )      (3,000 )      (988 )      (2,421 ) 
                    

Total Interest Rate Derivatives

        (6,065 )        (3,636 ) 
                    

Total Derivatives

      $ 114,098        $ 128,120   
                    

 

* Represents number of contracts. Each contract represents a notional amount of $1,000,000.
(1)

Long mortgage-related derivatives represent transactions where we sold protection.

(2)

Short mortgage-related derivatives represent transactions where we purchased protection.

During the quarter ended September 30, 2010, the Company increased its long mortgage-related CDS index contracts, reflecting its more favorable view at such time of the relative value of certain contracts linked to indices such as PrimeX. The Company’s short positions in RMBS and CMBS indices remain concentrated in RMBS vintage years 2006 and 2007. The Company also adjusted its interest rate hedges by replacing certain short TBA positions with short interest rate swap positions.

 

The following tables summarize the profit and loss of the Company’s portfolio of derivative holdings for the quarter ended September 30, 2010:

Profit & Loss on Derivatives:

 

     Three Months Ended  
In Thousands    September 30, 2010  
     Realized     Unrealized     Total  

Mortgage Related:

       

CDS on Individual RMBS and CMBS

    $ (2,683 )    $ (1,647 )    $ (4,330 ) 

CDS on RMBS and CMBS Indices

      (1,135 )      (685 )      (1,820 ) 
                        

Total Mortgage Related Derivatives

      (3,818 )      (2,332 )      (6,150 ) 
                        

CDS on Corporate Bond Indices

      (50 )      (166 )      (216 ) 

Interest Rate Derivatives:

       

Interest Rate Swap

      —          (1,850 )      (1,850 ) 

Eurodollar Futures

      (581 )      (579 )      (1,160 ) 
                        

Total Interest Rate Derivatives

      (581 )      (2,429 )      (3,010 ) 
                        

Total Derivatives

    $ (4,449 )    $ (4,927 )    $ (9,376 ) 
                        

The following table summarizes, as of September 30, 2010, the estimated impacts on the fair value of our RMBS and interest rate derivative holdings, of immediate 50 basis point downward and upward shifts in interest rates.

 

In Thousands    Estimated Change in Fair Value*  
     50 Basis Points Decline in     50 Basis Points Increase in  
     Interest Rates     Interest Rates  

Non-Agency RMBS

    $ 4,037      $ (3,864 ) 

Agency Fixed

      538        (4,027 ) 

Agency ARMs

      108        (157 ) 

TBAs

      (1,240 )      4,616   

Interest Rate Swaps

      (2,043 )      1,972   

Eurodollar Futures

      (1,222 )      1,222   
                
   $ 178      $ (238 ) 
                

 

* Based on market environment as of September 30, 2010. 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 fair value of our portfolio that would differ from those presented above, and such differences might be significant and adverse.

 

Borrowed Funds and Liquidity

In Thousands

 

Total Borrowings, In Thousands    September 30, 2010     June 30, 2010  
                   Average Cost                   Average Cost  
Collateral for Borrowing    Quarter End      Average      of Funds     Quarter End      Average      of Funds  

Non-Agency RMBS

    $ 120,136       $ 121,152         1.97 %    $ 114,244       $ 129,159         1.74 % 

Agency RMBS

      356,587         325,405         0.33 %      313,926         320,311         0.31 % 
                                                    

Total

    $ 476,723       $ 446,557         0.77 %    $ 428,170       $ 449,470         0.72 % 
                                                    

Leverage Ratio

      1.54:1              1.45:1         

The Company’s borrowed funds are in the form of reverse repurchase agreements (“reverse repos”). The average remaining term on the Company’s reverse repos as of September 30, 2010 and June 30, 2010 were 44 days and 29 days, respectively. The Company’s borrowings outstanding under reverse repos were with seven counterparties as of September 30, 2010. The leverage ratio, or debt to equity ratio, does not account for liabilities other than debt financings. As of September 30, 2010, the Company had liquid assets in the form of cash and cash equivalents in the amount of $117.7 million.

Other

The Company’s other operating expenses and the base management fee, but excluding interest expense and incentive fees, represent 4.1% and 4.4%, on an annualized basis, of average shareholders’ equity for the three months ended September 30, 2010 and June 30, 2010, respectively. With the increase of the Company’s capital base following its recently completed IPO and based on its projection of operating expenses, the Company estimates this expense ratio at approximately 3.3% for the coming year.

Dividend

During the quarter ended September 30, 2010, the Company paid a dividend in the amount of $0.15 per share related to its second quarter results, bringing dividends paid to date related to the current year’s earnings to $0.40 per share.

On November 9, 2010, the Company’s board of directors declared a third quarter 2010 dividend of $0.80 per share, payable on December 15, 2010, to shareholders of record as of December 1, 2010.

About Ellington Financial LLC

Ellington Financial LLC is a specialty finance company formed in August 2007 that specializes in acquiring and managing mortgage-related assets. The Company’s primary objective is to generate attractive, risk-adjusted total returns for its shareholders by making investments that it believes appropriately compensate for the risks associated with them. Ellington Financial LLC was formed as a Delaware limited liability company. The Company is externally managed by Ellington Financial Management LLC, a registered investment advisor and an affiliate of Ellington Management Group, L.L.C., an investment management firm. For federal income tax purposes, the Company has been and expects to continue to be treated as a partnership.

Conference Call

The Company will host a conference call at 10:00 a.m. Eastern Time on Wednesday, November 17, 2010, to discuss its financial results for the quarter ended September 30, 2010. To participate in the event by telephone, please dial (877) 941-8609 at least 10 minutes prior to the start time and reference the conference passcode 4383836. International callers should dial (480) 629-9818 and reference the same passcode. The conference call will also be webcast live over the Internet and can be accessed via the Investor Relations 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.

A dial-in replay will be available on Wednesday, November 17, 2010, at approximately 1 p.m. Eastern Time through Wednesday, November 24, 2010, at approximately 12 p.m. Eastern Time. To access this replay, please dial (800) 406-7325 and enter the conference ID number 4383836. International callers should dial (303) 590-3030 and enter the same conference ID number. A replay of the conference call will also be archived on the Company’s website 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. 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,” “expect,” “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 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, 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 the heading “Risk Factors” in our Registration Statement on Form S-11, filed October 7, 2010 (Registration # 333-160562), which can be accessed at the SEC’s website (www.sec.gov), relating to our initial public offering. 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 Securities and Exchange Commission (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.

 

Investor Contact:    Media Contact:   
Neha Mathur    Shawn Pattison or Dana Gorman   
Vice President    The Abernathy MacGregor Group, for   
Ellington Financial LLC    Ellington Financial LLC   
(203) 409-3575    (212) 371-5999   

ELLINGTON FINANCIAL LLC

CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

In Thousands, Except Per Share Data

 

     Three Months Ended     Nine Months Ended  
     September 30,     June 30,     September 30,  
     2010     2010     2010  

Investment Income

       

Interest income

    $ 10,859      $ 10,799      $ 33,574   
                        

Expenses

       

Base management fee

      1,173        1,108        3,385   

Incentive fee

      2,524        —          3,007   

Interest expense

      921        873        2,601   

Other operating expenses

      1,919        2,141        6,119   
                        

Total expenses

      6,537        4,122        15,112   
                        

Net Investment Income

      4,322        6,677        18,462   
                        

Net realized gain (loss) on:

       

Investments

      (2,697 )      8,525        9,618   

Swaps

      (3,868 )      (788 )      3,352   

Futures

      (581 )      (288 )      (1,607 ) 

Purchased options

      —          —          (581 ) 
                        

Total realized gain (loss)

      (7,146 )      7,449        10,782   
                        

Change in net unrealized gain (loss) on:

       

Investments

      23,769        (7,269 )      16,716   

Swaps

      (4,348 )      (2,655 )      (17,229 ) 

Futures

      (579 )      (470 )      (1,928 ) 

Purchased options

      —          —          542   
                        

Total unrealized gain (loss)

      18,842        (10,394 )      (1,899 ) 
                        

Net Realized and Unrealized Gain (Loss) on Investments and Financial Derivatives

      11,696        (2,945 )      8,883   
                        

Net increase (decrease) in shareholders’ equity resulting from operations

    $ 16,018      $ 3,732      $ 27,345   
                        

Net increase (decrease) in shareholders’ equity resulting from operations per share:

       

Basic and Diluted

    $ 1.30      $ 0.30      $ 2.21   

 

ELLINGTON FINANCIAL LLC

CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY (UNAUDITED)

In Thousands, Except Share Data

 

     As of  
     September 30,      June 30,      December 31,  
     2010      2010      2009 (1)  

ASSETS

         

Cash and cash equivalents

    $ 117,712       $ 109,332       $ 102,863   
                          

Investments and financial derivatives:

         

Investments at value (Cost - $1,190,037, $876,980 and $753,893)

      1,214,179         885,276         755,441   

Financial derivatives - assets (Cost - $156,135, $153,123 and $113,568)

      147,153         146,677         123,638   
                          

Total investments and financial derivatives

      1,361,332         1,031,953         879,079   
                          

Deposits with dealers held as collateral

      18,084         30,243         23,071   

Receivable for securities sold

      1,026,531         785,274         513,821   

Interest and principal receivable

      5,243         4,370         9,298   

Deferred offering costs

      3,139         2,804         2,533   

Prepaid insurance

      249         534         —     
                          

Total Assets

    $ 2,532,290       $ 1,964,510       $ 1,530,665   
                          

LIABILITIES

         

Investments and financial derivatives:

         

Investments sold short at value (Proceeds - $894,958, $721,847 and $509,588)

    $ 893,251       $ 728,063       $ 502,544   

Financial derivatives - liabilities (Proceeds -$26,948, $14,841 and $8,044)

    $ 33,055       $ 18,557       $ 14,046   
                          

Total investments and financial derivatives

      926,306         746,620         516,590   
                          

Reverse repurchase agreements

      476,723         428,170         559,978   

Due to brokers - margin accounts

      105,805         119,741         106,483   

Payable for securities purchased

      707,794         371,218         41,645   

Accounts payable and accrued expenses

      2,520         2,656         2,016   

Accrued base management fee

      1,173         1,108         1,137   

Accrued incentive fees

      2,524         —           2,274   

Interest and dividends payable

      472         647         748   
                          

Total Liabilities

      2,223,317         1,670,160         1,230,871   
                          

SHAREHOLDERS’ EQUITY

      308,973         294,350         299,794   
                          

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

    $ 2,532,290       $ 1,964,510       $ 1,530,665   
                          

ANALYSIS OF SHAREHOLDERS’ EQUITY:

         

Common shares, no par value, 100,000,000 shares authorized; (11,985,670, 11,985,670 and 11,972,113 shares issued and outstanding)

    $ 300,215       $ 286,052       $ 292,947   

Additional paid-in capital - LTIP units

      8,758         8,298         6,847   
                          

Total Shareholders’ Equity

    $ 308,973       $ 294,350       $ 299,794   
                          

PER SHARE INFORMATION:

         

Common shares, no par value

    $ 25.78       $ 24.56       $ 25.04   
                          

 

(1)

Derived from audited financial statements as of December 31, 2009.