Ellington Financial LLC Reports Third Quarter 2010 Results
OLD GREENWICH, Conn., Nov. 16, 2010 /PRNewswire-FirstCall/ -- 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 Index(1) 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: |
||||
| Three Months Ended |
||||
| In Thousands |
September 30, 2010 |
|||
| Interest Income |
Realized and Unrealized |
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 Amount |
Fair Value |
Notional 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 |
50 Basis Points Increase |
||
| 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 |
||||||
| Collateral for Borrowing |
Quarter End |
Average |
Average Cost |
Quarter End |
Average |
Average Cost |
||
| 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, |
|||||
| 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. |
||||||
SOURCE Ellington Financial LLC
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