Ellington Financial LLC Reports Fourth Quarter 2013 Results
Highlights
- Net increase in shareholders' equity resulting from operations ("net income") for the fourth quarter was
$14.9 million , or$0.58 per basic and diluted share. For the year endedDecember 31, 2013 , net income was$78.5 million , or$3.28 per share, and return on average equity was 13.4%. - Book value per share as of December 31, 2013 was
$23.99 on a diluted basis, after payment of a quarterly dividend in the fourth quarter of$0.77 per share, as compared to book value per share of$24.19 on a diluted basis as of September 30, 2013. - The Company's non-Agency strategy generated gross income of
$20.5 million for the quarter ended December 31, 2013. - The Company's Agency strategy generated gross income of
$1.9 million for the quarter endedDecember 31, 2013 . - The Company's Board of Directors declared a dividend of
$0.77 per share for the fourth quarter of 2013 payable on March 17, 2014 to shareholders of record on February 28, 2014. Dividends are paid quarterly in arrears.
Fourth Quarter 2013 Results
For the quarter ended December 31, 2013, the Company recognized net income of
"We are pleased to report our results for the quarter and year ended
The Company's non-Agency strategy generated gross income in the amount of
The Company remains positive in its outlook for non-Agency MBS, both on fundamental and technical grounds. On the fundamental side, the Company expects that while the double-digit rate of home price appreciation that was experienced in 2013 will likely not be repeated in 2014, it should still remain positive in 2014. Since home prices continue to serve as one of the most important determinants of future cashflows in distressed non-Agency RMBS, the Company believes that future home price appreciation will continue to provide significant support for the prices and credit performance of non-Agency RMBS. On the technical side, while the GSEs and large banks continue to sell non-Agency MBS from their portfolios, market appetite for these assets remains quite strong, especially among insurance companies, regional banks, and money managers.
Consistent with the earlier part of the year, active portfolio trading remained a key driver of the Company's non-Agency results in the fourth quarter. In the fourth quarter, the Company turned over approximately 25% of its non-Agency long investments, generating net realized gains of
During the fourth quarter, as part of its non-Agency strategy, the Company purchased its first pool of non-performing residential loans. The loans were acquired as part of the
The Company continues to be active in the non-Agency CMBS and commercial mortgage loan space. The Company's CMBS holdings include legacy (i.e., issued before the financial crisis) and new issue CMBS, and during the fourth quarter, the Company actively traded its positions. Within the new issue market, the Company has found numerous attractive opportunities in select "b-pieces," which are the most subordinated (and therefore highest-yielding) tranches of CMBS, and believes that these investments complement its other CMBS bond and synthetic holdings, which are lower-yielding but can be traded more actively. The Company has also continued to increase its activity with respect to distressed commercial loans, which comprised
The Company's Agency strategy generated gross income of
In the early part of the fourth quarter, Agency RMBS rallied in response to the September "no taper" decision announced by the Federal Reserve. However, as noted above, market concerns about a future taper announcement resumed soon thereafter, and this weighed meaningfully on Agency RMBS prices, as well as on their yield spreads relative to interest rate swaps. While the
During the fourth quarter, the Company took advantage of depressed pay-ups for specified pools (price premiums for specified pools relative to their generic pool counterparts) by buying higher coupon specified pools. Despite current low prepayment levels, the Company believes that certain sectors of the Agency pool market are still susceptible to prepayments, thereby making it attractive to buy pools with prepayment protection in those sectors, especially given the drop in pay-ups. The Company is also finding attractive opportunities in seasoned specified pools, which have shorter remaining weighted average maturities relative to TBAs, and therefore can be hedged with a shorter, lower-cost basket of interest rate hedges. Given the current steepness of the yield curve, even relatively small amounts of seasoning can translate into significant value.
Also during the fourth quarter and consistent with its strategy, the Company continued to hedge against the risk of rising interest rates, primarily with interest rate swaps and TBAs. As interest rates rose over the quarter, the Company's interest rate hedges generated net gains, thereby reducing some of the impact of declining asset prices. Net gains from the Company's interest rate hedges in the Agency RMBS strategy in the fourth quarter were
Active trading of both assets and hedges has, and continues to be, a key element of the Agency strategy. Similar to the third quarter, the fourth quarter provided the Company an excellent opportunity to continue to upgrade its portfolio into higher coupon specified pools with stronger prepayment protection. The Company believes that specified pools remain very attractive relative to historical metrics.
As has been the case for the last several quarters, volatility in the Agency RMBS market will likely continue to be tied to actions of the Federal Reserve and its ongoing asset purchase programs. Now that the Federal Reserve has actually announced a plan to begin to taper its monthly asset purchases, it is possible that volatility will ease somewhat. Nevertheless, there still remain significant uncertainties about timing, and about how well the financial markets will be able to adapt to each incremental reduced level of support. This uncertainty reinforces the importance of the Company's ability to hedge its risks using a variety of tools, including TBAs.
One gauge that the Company uses to measure its overall prepayment risk is the Company's net Agency premium as a percentage of its long Agency 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 through net-asset-value-based total return. Net-asset-value-based total return measures the change in the Company's book value per share and assumes the reinvestment of dividends at book value per share. For the quarter and year ended December 31, 2013, net-asset-value-based total return was 2.35% and 14.19%, respectively. Net-asset-value-based total return from inception of the Company (
The following table summarizes the Company's operating results for the quarters ended December 31, 2013 and September 30, 2013 and the year ended
Quarter Ended December 31, 2013 |
Per Share |
% of Average Equity |
Quarter Ended September 30, 2013 |
Per Share |
% of Average Equity |
Year Ended December 31, 2013 |
Per Share |
% of Average Equity |
|||||||||||||||||||||||||
(In thousands, except per share amounts) |
|||||||||||||||||||||||||||||||||
Non-Agency MBS, mortgage loans, ABS, and other: |
|||||||||||||||||||||||||||||||||
Interest income |
$ |
14,404 |
$ |
0.55 |
2.28 |
% |
$ |
15,500 |
$ |
0.59 |
2.45 |
% |
$ |
54,705 |
$ |
2.26 |
9.25 |
% |
|||||||||||||||
Net realized gain |
14,792 |
0.57 |
2.34 |
% |
11,873 |
0.46 |
1.88 |
% |
46,344 |
1.92 |
7.84 |
% |
|||||||||||||||||||||
Change in net unrealized gain (loss) |
1,908 |
0.07 |
0.30 |
% |
(5,224) |
(0.20) |
(0.83)% |
15,704 |
0.65 |
2.66 |
% |
||||||||||||||||||||||
Net interest rate hedges(1) |
3,088 |
0.12 |
0.49 |
% |
(1,001) |
(0.04) |
(0.16)% |
11,523 |
0.47 |
1.95 |
% |
||||||||||||||||||||||
Net credit hedges and other |
(11,681) |
(0.45) |
(1.85)% |
(3,754) |
(0.14) |
(0.59)% |
(22,173) |
(0.92) |
(3.75)% |
||||||||||||||||||||||||
Interest expense |
(2,047) |
(0.08) |
(0.32)% |
(2,264) |
(0.09) |
(0.36)% |
(7,102) |
(0.29) |
(1.20)% |
||||||||||||||||||||||||
Foreign currency gain (loss) |
38 |
— |
0.01 |
% |
— |
— |
— |
% |
38 |
— |
0.01 |
% |
|||||||||||||||||||||
Total non-Agency MBS, mortgage loans, ABS, and other profit |
20,502 |
0.78 |
3.25 |
% |
15,130 |
0.58 |
2.39 |
% |
99,039 |
4.09 |
16.76 |
% |
|||||||||||||||||||||
Agency RMBS: |
|||||||||||||||||||||||||||||||||
Interest income |
8,550 |
0.33 |
1.35 |
% |
8,564 |
0.33 |
1.35 |
% |
31,017 |
1.28 |
5.25 |
% |
|||||||||||||||||||||
Net realized loss |
(5,654) |
(0.22) |
(0.90)% |
(8,185) |
(0.32) |
(1.29)% |
(20,837) |
(0.86) |
(3.54)% |
||||||||||||||||||||||||
Change in net unrealized gain (loss) |
(2,145) |
(0.08) |
(0.34)% |
10,850 |
0.42 |
1.71 |
% |
(20,902) |
(0.86) |
(3.54)% |
|||||||||||||||||||||||
Net interest rate hedges(1) |
2,050 |
0.08 |
0.32 |
% |
(7,322) |
(0.28) |
(1.16)% |
19,110 |
0.79 |
3.23 |
% |
||||||||||||||||||||||
Interest expense |
(911) |
(0.03) |
(0.14)% |
(845) |
(0.03) |
(0.13)% |
(3,322) |
(0.14) |
(0.56)% |
||||||||||||||||||||||||
Total Agency RMBS profit |
1,890 |
0.08 |
0.29 |
% |
3,062 |
0.12 |
0.48 |
% |
5,066 |
0.21 |
0.84 |
% |
|||||||||||||||||||||
Total non-Agency and Agency MBS, mortgage loans, ABS, and other profit |
22,392 |
0.86 |
3.54 |
% |
18,192 |
0.70 |
2.87 |
% |
104,105 |
4.30 |
17.60 |
% |
|||||||||||||||||||||
Other interest income (expense), net |
(3) |
— |
0.00 |
% |
5 |
— |
0.00 |
% |
(64) |
— |
(0.01)% |
||||||||||||||||||||||
Other expenses (excluding incentive fee) |
(4,210) |
(0.16) |
(0.67)% |
(4,336) |
(0.17) |
(0.69)% |
(16,313) |
(0.67) |
(2.76)% |
||||||||||||||||||||||||
Net increase in equity resulting from operations (before incentive fee) |
18,179 |
0.70 |
2.87 |
% |
13,861 |
0.53 |
2.18 |
% |
87,728 |
3.63 |
14.83 |
% |
|||||||||||||||||||||
Incentive fee |
(3,091) |
(0.12) |
(0.49)% |
(2,038) |
(0.08) |
(0.32)% |
(8,366) |
(0.35) |
(1.42)% |
||||||||||||||||||||||||
Net increase in equity resulting from operations |
$ |
15,088 |
$ |
0.58 |
2.38 |
% |
$ |
11,823 |
$ |
0.45 |
1.86 |
% |
$ |
79,362 |
$ |
3.28 |
13.41 |
% |
|||||||||||||||
Less: Net increase in equity resulting from operations attributable to non-controlling interests |
226 |
96 |
838 |
||||||||||||||||||||||||||||||
Net increase in shareholders' equity resulting from operations(5) |
$ |
14,862 |
$ |
0.58 |
2.38 |
% |
$ |
11,727 |
$ |
0.45 |
1.86 |
% |
$ |
78,524 |
$ |
3.28 |
13.41 |
% |
|||||||||||||||
Weighted average shares and convertible units(2) outstanding |
26,040 |
26,026 |
24,198 |
||||||||||||||||||||||||||||||
Average equity (includes non-controlling interests)(3) |
$ |
630,063 |
$ |
632,852 |
$ |
590,783 |
|||||||||||||||||||||||||||
Weighted average shares and LTIP units outstanding(4) |
25,828 |
25,814 |
23,986 |
||||||||||||||||||||||||||||||
Average shareholders' equity (excludes non-controlling interests)(3) |
$ |
624,570 |
$ |
628,197 |
$ |
585,677 |
(1) |
Includes TBAs and U.S. Treasuries, if applicable. |
(2) |
Convertible units include LTIP units and Operating Partnership units attributable to non-controlling interests. |
(3) |
Average equity and average shareholders' equity is calculated using month end values. |
(4) |
Excludes Operating Partnership units attributable to non-controlling interests. |
(5) |
Per share information calculated using weighted average shares and LTIP units outstanding. Percentage of average equity is calculated using average shareholders' equity, which excludes non-controlling interests. |
Portfolio
The following tables summarize the Company's portfolio holdings as of December 31, 2013 and September 30, 2013:
Investment Portfolio
December 31, 2013 |
September 30, 2013 |
|||||||||||||||||||||||||||||||||||||||
(In thousands) |
Current Principal |
Fair Value |
Average Price(1) |
Cost |
Average Cost(1) |
Current Principal |
Fair Value |
Average Price(1) |
Cost |
Average Cost(1) |
||||||||||||||||||||||||||||||
Non-Agency RMBS and Residential mortgage loans |
$ |
883,049 |
$ |
600,835 |
$ |
68.04 |
$ |
546,616 |
$ |
61.90 |
$ |
928,480 |
$ |
648,007 |
$ |
69.79 |
$ |
594,918 |
$ |
64.07 |
||||||||||||||||||||
Non-Agency CMBS and Commercial mortgage loans |
97,332 |
56,880 |
58.44 |
56,366 |
57.91 |
85,508 |
48,207 |
56.38 |
48,302 |
56.49 |
||||||||||||||||||||||||||||||
Other ABS |
38,422 |
36,287 |
94.44 |
36,786 |
95.74 |
42,676 |
39,965 |
93.65 |
40,813 |
95.63 |
||||||||||||||||||||||||||||||
Total Non-Agency MBS, mortgage loans, and Other ABS |
1,018,803 |
694,002 |
68.12 |
639,768 |
62.80 |
1,056,664 |
736,179 |
69.67 |
684,033 |
64.74 |
||||||||||||||||||||||||||||||
Agency RMBS: |
||||||||||||||||||||||||||||||||||||||||
Floating |
28,746 |
30,618 |
106.51 |
30,274 |
105.31 |
35,896 |
37,556 |
104.62 |
37,332 |
104.00 |
||||||||||||||||||||||||||||||
Fixed |
778,295 |
801,060 |
102.92 |
813,677 |
104.55 |
817,236 |
848,118 |
103.78 |
856,408 |
104.79 |
||||||||||||||||||||||||||||||
Reverse Mortgages |
56,154 |
61,308 |
109.18 |
62,708 |
111.67 |
55,027 |
60,469 |
109.89 |
61,791 |
112.29 |
||||||||||||||||||||||||||||||
Total Agency RMBS |
863,195 |
892,986 |
103.45 |
906,659 |
105.03 |
908,159 |
946,143 |
104.18 |
955,531 |
105.22 |
||||||||||||||||||||||||||||||
Total Non-Agency and Agency MBS, mortgage loans, and Other ABS |
$ |
1,881,998 |
$ |
1,586,988 |
$ |
84.32 |
$ |
1,546,427 |
$ |
82.17 |
$ |
1,964,823 |
$ |
1,682,322 |
$ |
85.62 |
$ |
1,639,564 |
$ |
83.45 |
||||||||||||||||||||
Agency Interest Only RMBS |
n/a |
$ |
40,504 |
n/a |
$ |
39,826 |
n/a |
n/a |
$ |
37,033 |
n/a |
$ |
38,498 |
n/a |
||||||||||||||||||||||||||
Non-Agency Interest Only and Principal Only MBS and Other(2) |
n/a |
$ |
5,782 |
n/a |
$ |
5,313 |
n/a |
n/a |
$ |
9,265 |
n/a |
$ |
8,622 |
n/a |
||||||||||||||||||||||||||
TBAs: |
||||||||||||||||||||||||||||||||||||||||
Long |
$ |
101,150 |
$ |
96,856 |
$ |
95.76 |
$ |
96,691 |
$ |
95.59 |
$ |
126,100 |
$ |
123,131 |
$ |
97.65 |
$ |
120,065 |
$ |
95.21 |
||||||||||||||||||||
Short |
(784,888) |
(811,957) |
103.45 |
(813,757) |
103.68 |
(788,543) |
(819,334) |
103.90 |
(808,881) |
102.58 |
||||||||||||||||||||||||||||||
Net Short TBAs |
$ |
(683,738) |
$ |
(715,101) |
$ |
104.59 |
$ |
(717,066) |
$ |
104.87 |
$ |
(662,443) |
$ |
(696,203) |
$ |
105.10 |
$ |
(688,816) |
$ |
103.98 |
||||||||||||||||||||
Short U.S. Treasury Securities |
$ |
(20,000) |
$ |
(19,607) |
$ |
98.03 |
$ |
(19,899) |
$ |
99.49 |
$ |
(41,700) |
$ |
(40,794) |
$ |
97.83 |
$ |
(41,920) |
$ |
100.53 |
||||||||||||||||||||
Short European Sovereign Bond |
$ |
(5,325) |
$ |
(7,681) |
$ |
144.24 |
$ |
(7,633) |
$ |
143.35 |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
||||||||||||||||||||
Repurchase Agreements |
$ |
27,962 |
$ |
27,962 |
$ |
100.00 |
$ |
27,943 |
$ |
99.93 |
$ |
40,994 |
$ |
40,994 |
$ |
100.00 |
$ |
40,994 |
$ |
100.00 |
||||||||||||||||||||
Short Common Stock |
n/a |
$ |
(6,369) |
n/a |
$ |
(6,313) |
n/a |
n/a |
$ |
— |
n/a |
$ |
— |
n/a |
||||||||||||||||||||||||||
Total Net Investments |
$ |
912,478 |
$ |
868,598 |
$ |
1,032,617 |
$ |
996,942 |
(1) |
Represents the dollar amount, per $100 of current principal of the price or cost for the security. |
(2) |
Includes equity tranches and similar securities. |
Non-Agency RMBS and CMBS are generally securitized in senior/subordinated structures, or in excess spread/over-collateralization structures. Disregarding TBAs, Agency RMBS consist primarily of whole-pool pass through certificates. The Company actively invests in the TBA market. TBAs are forward-settling Agency RMBS where the mortgage pass-through certificates to be delivered are "To-Be-Announced." Given that the Company uses TBAs primarily to hedge the risk of rising interest rates on its long holdings, the Company generally carries a net short TBA position.
Derivatives Portfolio(1)
December 31, 2013 |
September 30, 2013 |
|||||||||||||||
Notional Value |
Fair Value |
Notional Value |
Fair Value |
|||||||||||||
(In thousands) |
||||||||||||||||
Mortgage-Related Derivatives: |
||||||||||||||||
Long CDS on RMBS and CMBS Indices(2) |
$ |
46,072 |
$ |
(11,805) |
$ |
64,780 |
$ |
(19,248) |
||||||||
Short CDS on RMBS and CMBS Indices(3) |
(72,422) |
4,876 |
(78,488) |
9,122 |
||||||||||||
Short CDS on Individual RMBS(3) |
(26,426) |
16,296 |
(27,737) |
17,296 |
||||||||||||
Net Mortgage-Related Derivatives |
(52,776) |
9,367 |
(41,445) |
7,170 |
||||||||||||
Long CDS on Corporate Bond Indices |
74,425 |
13,226 |
— |
— |
||||||||||||
Short CDS on Corporate Bond Indices |
(337,815) |
(23,902) |
(182,713) |
(9,679) |
||||||||||||
Purchased Options on CDS on Corporate Bond Indices(4) |
22,588 |
190 |
— |
— |
||||||||||||
Long Total Return Swaps on Corporate Equities(5) |
51,018 |
4 |
34,632 |
(8) |
||||||||||||
Short Total Return Swaps on Corporate Equities(5) |
(10,397) |
(67) |
(9,417) |
1 |
||||||||||||
Interest Rate Derivatives: |
||||||||||||||||
Long Interest Rate Swaps(6) |
387,700 |
(879) |
187,700 |
2,968 |
||||||||||||
Short Interest Rate Swaps(7) |
(1,164,400) |
19,368 |
(981,900) |
8,683 |
||||||||||||
Long Futures(8) |
227,200 |
(2,370) |
208,100 |
976 |
||||||||||||
Short Futures(9) |
(14,000) |
(3) |
(16,000) |
(1) |
||||||||||||
Purchased Options on TBA contracts(10) |
— |
— |
3,700 |
4 |
||||||||||||
Written Options on TBA contracts(10) |
— |
— |
(3,700) |
(4) |
||||||||||||
Purchased Swaptions(11) |
15,000 |
61 |
— |
— |
||||||||||||
Written Swaptions(12) |
(4,000) |
(84) |
— |
— |
||||||||||||
Total Net Interest Rate Derivatives |
16,093 |
12,626 |
||||||||||||||
Other Derivatives: |
||||||||||||||||
Foreign Currency Forwards(13) |
(6,575) |
(38) |
— |
— |
||||||||||||
Total Net Derivatives |
$ |
14,873 |
$ |
10,110 |
(1) |
In the table above, long and short credit default swaps, or "CDS," interest rate swaps, total return swaps, futures, options, and forwards are shown net. The accompanying financial statements separate derivative transactions as either assets or liabilities. As of December 31, 2013, derivative assets and derivative liabilities were $59.7 million and $44.8 million, respectively, for a net fair value of $14.9 million, as reflected in "Total Net Derivatives" above. As of September 30, 2013, derivative assets and derivative liabilities were $43.6 million and $33.5 million, respectively, for a net fair value of $10.1 million, as reflected in "Total Net Derivatives" above. |
(2) |
Long mortgage-related derivatives represent transactions where we sold credit protection to a counterparty. |
(3) |
Short mortgage-related derivatives represent transactions where we purchased credit protection from a counterparty. |
(4) |
Represents the option on the part of the Company to enter into a CDS on a corporate bond index whereby the Company would pay a fixed rate and receive credit protection payments. |
(5) |
Notional value represents number of underlying shares or par value times the closing price of the underlying security. |
(6) |
For long interest rate swaps, a floating rate is being paid and a fixed rate is being received. |
(7) |
For short interest rate swaps, a fixed rate is being paid and a floating rate is being received. |
(8) |
Notional value represents the total face amount of U.S. Treasury Notes underlying all contracts held. As of December 31, 2013 and September 30, 2013, a total of 1,847 and 1,629 contracts were held, respectively. |
(9) |
Every $1,000,000 in notional value represents one Eurodollar future contract. |
(10) |
Notional amount represents total face amount of TBA securities underlying each option contract. |
(11) |
Represents the option on the part of the Company to enter into an interest rate swap whereby the Company would pay a fixed rate and receive a floating rate. |
(12) |
Represents the option on the part of a counterparty to enter into an interest rate swap with the Company whereby the Company would receive a fixed rate and pay a floating rate. |
(13) |
Notional amount represents U.S. Dollars to be received by the Company at the maturity of the forward contract. |
The Company's net short positions in RMBS and CMBS indices reference underlying exposures in several vintage years, including 2005-2008 and 2012. Net long and net short total return swaps on corporate equities are principally comprised of long and short equity positions in certain publicly traded REITs. The Company's mix and composition of derivative instruments may vary from period to period.
The following table summarizes, as of December 31, 2013, the estimated effects on the value of the Company's portfolio, both overall and by category, of hypothetical, immediate 50 basis point downward and upward parallel shifts in interest rates.
Estimated Change in Value (1) |
||||||||
(In thousands) |
50 Basis Point Decline in Interest Rates |
50 Basis Point Increase in Interest Rates |
||||||
Agency ARM Pools |
$ |
232 |
$ |
(290) |
||||
Agency Fixed Pools and IOs |
21,906 |
(25,444) |
||||||
TBAs |
(16,154) |
18,977 |
||||||
Non-Agency RMBS, CMBS, Mortgage Loans, and Other ABS |
8,570 |
(8,429) |
||||||
Interest Rate Swaps |
(19,579) |
18,726 |
||||||
Interest Rate Swaptions |
33 |
(6) |
||||||
U.S. Treasury Securities |
(463) |
451 |
||||||
Eurodollar and U.S. Treasury Futures |
5,519 |
(5,519) |
||||||
Mortgage-Related Derivatives |
(399) |
670 |
||||||
Corporate Securities and Derivatives on Corporate Securities |
2,621 |
(3,636) |
||||||
Repurchase Agreements and Reverse Repurchase Agreements |
(615) |
720 |
||||||
$ |
1,671 |
$ |
(3,780) |
(1) |
Based on the market environment as of December 31, 2013. The preceding analysis does not include sensitivities to changes in interest rates for instruments for which the Company believes that the effect of a change in interest rates is not material to the value of the overall portfolio and/or cannot be accurately estimated. In particular, this analysis excludes certain corporate securities and derivatives on corporate securities. Results are based on forward-looking models, which are inherently imperfect, and incorporate various simplifying assumptions. Therefore, the table above is for illustrative purposes only and actual changes in interest rates would likely cause changes in the actual value of the overall portfolio that would differ from those presented above and such differences might be significant and adverse. |
Borrowed Funds and Liquidity(1)
By Collateral Type
As of December 31, 2013 |
For the Quarter Ended |
As of September 30, 2013 |
For the quarter ended September 30, 2013 |
|||||||||||||||||||
Collateral for Borrowing |
Outstanding Borrowings |
Average Borrowings |
Average Cost of Funds |
Outstanding Borrowings |
Average Borrowings |
Average Cost of Funds |
||||||||||||||||
(In thousands) |
||||||||||||||||||||||
Non-Agency RMBS, CMBS, and Other |
$ |
393,853 |
$ |
404,924 |
2.00 |
% |
$ |
452,008 |
$ |
447,218 |
2.00 |
% |
||||||||||
Agency RMBS |
842,313 |
896,454 |
0.40 |
% |
893,215 |
830,748 |
0.40 |
% |
||||||||||||||
Total |
$ |
1,236,166 |
$ |
1,301,378 |
0.90 |
% |
$ |
1,345,223 |
$ |
1,277,966 |
0.96 |
% |
||||||||||
Leverage Ratio (2) |
1.98:1 |
2.14:1 |
(1) |
Borrowed amounts exclude $1.0 million in securitized debt as of both December 31, 2013 and September 30, 2013, representing long term financing for the related asset. |
(2) |
The leverage ratio does not account for liabilities other than debt financings. The Company's debt financings consist solely of reverse repurchase agreements ("reverse repos") and a securitized debt financing in the amount of $1.0 million as of both December 31, 2013 and September 30, 2013. |
Borrowings under reverse repos decreased slightly as of
By Remaining Maturity (1)(2)
(In thousands) |
As of December 31, 2013 |
As of September 30, 2013 |
||||||||||||
Remaining Maturity (3) |
Outstanding Borrowings |
% of Borrowings |
Outstanding Borrowings |
% of Borrowings |
||||||||||
30 Days or Less |
$ |
369,861 |
29.9 |
% |
$ |
476,839 |
35.4 |
% |
||||||
31-60 Days |
402,206 |
32.5 |
% |
366,633 |
27.3 |
% |
||||||||
61-90 Days |
320,161 |
25.9 |
% |
190,329 |
14.1 |
% |
||||||||
91-120 Days |
8,233 |
0.7 |
% |
7,425 |
0.6 |
% |
||||||||
121-150 Days |
38,856 |
3.1 |
% |
67,264 |
5.0 |
% |
||||||||
151-180 Days |
96,849 |
7.9 |
% |
236,733 |
17.6 |
% |
||||||||
$ |
1,236,166 |
100.0 |
% |
$ |
1,345,223 |
100.0 |
% |
(1) |
Borrowed amounts exclude $1.0 million in securitized debt as of both December 31, 2013 and September 30, 2013, representing long term financing for the related asset. |
(2) |
Reverse repos involving underlying investments that the Company had sold prior to the applicable period end for settlement following the applicable period end, are shown using their original maturity dates even though such reverse repos may be expected to be terminated early upon settlement of the sale of the underlying investment. Not included are any reverse repos that the Company may have entered into prior to the applicable period end for which delivery of the borrowed funds is not scheduled until after the applicable period end. |
(3) |
Remaining maturity for a reverse repo is based on the contractual maturity date in effect as of the applicable period end. Some reverse repos have floating interest rates, which may reset before maturity. |
Substantially all of the Company's borrowed funds are in the form of reverse repos. Aside from borrowings under reverse repos, the Company also had securitized debt outstanding in the amount of
Derivatives/Hedging and Other Investments Summary
The following table summarizes the components of the Company's derivatives/hedging and other investments results for the quarters ended December 31, 2013 and September 30, 2013:
(In thousands) |
Quarter Ended December 31, 2013 |
Quarter Ended September 30, 2013 |
||||||||||||||||||||||||||||||
Hedges: |
Net Interest Expense(1) |
Net Realized Gain (Loss) |
Change in Net Unrealized Gain (Loss) |
Total |
Net Interest Expense(1) |
Net Realized Gain (Loss) |
Change in Net Unrealized Gain (Loss) |
Total |
||||||||||||||||||||||||
Interest Rate Swaps |
$ |
(2,227) |
$ |
(21) |
$ |
6,525 |
$ |
4,277 |
$ |
(2,007) |
$ |
(7) |
$ |
(2,802) |
$ |
(4,816) |
||||||||||||||||
Futures |
— |
776 |
(3,348) |
(2,572) |
— |
(774) |
1,052 |
278 |
||||||||||||||||||||||||
Net TBAs Held Short |
— |
(5,903) |
9,139 |
3,236 |
— |
6,790 |
(10,580) |
(3,790) |
||||||||||||||||||||||||
Net U.S. Treasuries Held Short |
(55) |
1,086 |
(834) |
197 |
(168) |
— |
173 |
5 |
||||||||||||||||||||||||
Total Interest Rate Hedges |
(2,282) |
(4,062) |
11,482 |
5,138 |
(2,175) |
6,009 |
(12,157) |
(8,323) |
||||||||||||||||||||||||
Net Credit Hedges and Other (2) |
(2,084) |
(4,977) |
(4,620) |
(11,681) |
(1,859) |
(3,088) |
1,193 |
(3,754) |
||||||||||||||||||||||||
Total Hedges |
$ |
(4,366) |
$ |
(9,039) |
$ |
6,862 |
$ |
(6,543) |
$ |
(4,034) |
$ |
2,921 |
$ |
(10,964) |
$ |
(12,077) |
(1) |
Net interest expense represents fixed rate periodic payments made by the Company. |
(2) |
Net interest expense includes dividend expense related to common stock sold short. |
Other
The Company's base management fee and other operating expenses, but excluding interest expense, other investment related expenses and incentive fees, represent 2.7%, on an annualized basis, of average equity for each of the quarters ended December 31, 2013 and September 30, 2013. Incentive fee expense of
Dividends
On
Share Repurchase Program
On August 4, 2011, the Company's Board of Directors approved the adoption of a
About
Conference Call
The Company will host a conference call at
A dial-in replay of the conference call will be available on Thursday, February 13, 2014, at approximately
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, statements regarding the Company's net Agency premium, estimated effects on the fair value of the Company's MBS and interest rate derivative 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, and statements regarding the Company's intended dividend policy including the amount to be recommended by management and share repurchase program including the amount of shares to be repurchased. 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 exemption 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, 2013 which can be accessed through the Company's website at www.ellingtonfinancial.com or at the
ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) |
||||||||||||
Three Month Period Ended |
Year Ended |
|||||||||||
(In thousands, except per share amounts) |
December 31, 2013 |
September 30, 2013 |
December 31, 2013 |
|||||||||
Investment income |
||||||||||||
Interest income |
$ |
22,954 |
$ |
24,069 |
$ |
85,740 |
||||||
Expenses |
||||||||||||
Base management fee |
2,365 |
2,378 |
9,115 |
|||||||||
Incentive fee |
3,091 |
2,038 |
8,366 |
|||||||||
Interest expense |
3,024 |
3,277 |
11,025 |
|||||||||
Other investment related expenses |
84 |
85 |
496 |
|||||||||
Other operating expenses |
1,878 |
1,885 |
7,083 |
|||||||||
Total expenses |
10,442 |
9,663 |
36,085 |
|||||||||
Net investment income |
12,512 |
14,406 |
49,655 |
|||||||||
Net realized gain (loss) on: |
||||||||||||
Investments |
4,159 |
10,731 |
39,485 |
|||||||||
Financial derivatives |
(8,705) |
(6,442) |
(21,479) |
|||||||||
Foreign currency transactions |
(4) |
— |
(4) |
|||||||||
(4,550) |
4,289 |
18,002 |
||||||||||
Change in net unrealized gain (loss) on: |
||||||||||||
Investments |
8,180 |
(4,867) |
(1,819) |
|||||||||
Financial derivatives |
(1,096) |
(2,005) |
13,482 |
|||||||||
Foreign currency translation |
42 |
— |
42 |
|||||||||
7,126 |
(6,872) |
11,705 |
||||||||||
Net realized and unrealized gain (loss) on investments and financial derivatives |
2,576 |
(2,583) |
29,707 |
|||||||||
Net increase in equity resulting from operations |
15,088 |
11,823 |
79,362 |
|||||||||
Less: Increase in equity resulting from operations attributable to non-controlling interests |
226 |
96 |
838 |
|||||||||
Net increase in shareholders' equity resulting from operations |
$ |
14,862 |
$ |
11,727 |
$ |
78,524 |
||||||
Net increase in shareholders' equity resulting from operations per share: |
||||||||||||
Basic and diluted |
$ |
0.58 |
$ |
0.45 |
$ |
3.28 |
||||||
Weighted average shares and LTIP units outstanding |
25,828 |
25,814 |
23,986 |
|||||||||
Weighted average shares and convertible units outstanding |
26,040 |
26,026 |
24,198 |
ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY (UNAUDITED) |
||||||||||||
As of |
||||||||||||
(In thousands, except share amounts) |
December 31, 2013 |
September 30, 2013 |
December 31, 2012(1) |
|||||||||
ASSETS |
||||||||||||
Cash and cash equivalents |
$ |
183,489 |
$ |
186,737 |
$ |
59,084 |
||||||
Investments, financial derivatives, and repurchase agreements: |
||||||||||||
Investments at fair value (Cost - $1,688,257, $1,806,749, and $1,328,153) |
1,730,130 |
1,851,751 |
1,375,116 |
|||||||||
Financial derivatives–assets at fair value (Net cost - $50,533, $43,199, and $65,860) |
59,664 |
43,567 |
48,504 |
|||||||||
Repurchase agreements (Cost - $27,943, $40,994, and $13,650) |
27,962 |
40,994 |
13,650 |
|||||||||
Total Investments, financial derivatives, and repurchase agreements |
1,817,756 |
1,936,312 |
1,437,270 |
|||||||||
Due from brokers |
82,571 |
65,159 |
22,744 |
|||||||||
Receivable for securities sold |
883,005 |
926,638 |
626,919 |
|||||||||
Interest and principal receivable |
6,831 |
6,691 |
5,719 |
|||||||||
Other assets |
1,546 |
1,165 |
379 |
|||||||||
Total assets |
$ |
2,975,198 |
$ |
3,122,702 |
$ |
2,152,115 |
||||||
LIABILITIES |
||||||||||||
Investments and financial derivatives: |
||||||||||||
Investments sold short at fair value (Proceeds - $847,602, $850,801, and $621,048) |
$ |
845,614 |
$ |
860,128 |
$ |
622,301 |
||||||
Financial derivatives–liabilities at fair value (Net proceeds - $29,746, $28,271, and $13,171) |
44,791 |
33,457 |
15,212 |
|||||||||
Total investments and financial derivatives |
890,405 |
893,585 |
637,513 |
|||||||||
Reverse repurchase agreements |
1,236,166 |
1,345,223 |
905,718 |
|||||||||
Due to brokers |
19,762 |
13,740 |
30,954 |
|||||||||
Payable for securities purchased |
193,047 |
230,650 |
57,333 |
|||||||||
Securitized debt (Proceeds - $980, $1,050, and $1,311) |
983 |
1,038 |
1,335 |
|||||||||
Accounts payable and accrued expenses |
1,810 |
2,241 |
1,995 |
|||||||||
Base management fee payable |
2,364 |
2,378 |
1,934 |
|||||||||
Incentive fee payable |
3,091 |
2,038 |
7,343 |
|||||||||
Other payables |
— |
507 |
903 |
|||||||||
Interest and dividends payable |
1,521 |
1,500 |
732 |
|||||||||
Total liabilities |
2,349,149 |
2,492,900 |
1,645,760 |
|||||||||
EQUITY |
626,049 |
629,802 |
506,355 |
|||||||||
TOTAL LIABILITIES AND EQUITY |
$ |
2,975,198 |
$ |
3,122,702 |
$ |
2,152,115 |
||||||
ANALYSIS OF EQUITY: |
||||||||||||
Common shares, no par value, 100,000,000 shares authorized; |
||||||||||||
(25,428,186, 25,418,937, and 20,370,469 shares issued and outstanding) |
$ |
611,282 |
$ |
616,104 |
$ |
497,373 |
||||||
Additional paid-in capital–LTIP units |
9,119 |
9,069 |
8,982 |
|||||||||
Total Shareholders' Equity |
620,401 |
625,173 |
506,355 |
|||||||||
Non-controlling interests |
5,648 |
4,629 |
— |
|||||||||
Total Equity |
$ |
626,049 |
$ |
629,802 |
$ |
506,355 |
||||||
PER SHARE INFORMATION: |
||||||||||||
Common shares, no par value |
$ |
24.40 |
$ |
24.59 |
$ |
24.86 |
||||||
DILUTED PER SHARE INFORMATION: |
||||||||||||
Common shares and convertible units, no par value |
$ |
23.99 |
$ |
24.19 |
$ |
24.38 |
(1) |
Derived from audited financial statements as of December 31, 2012. |
SOURCE
Investor Contact: Lisa Mumford, Chief Financial Officer, Ellington Financial LLC, (203) 409-3575, or Media Contact: Steve Bruce or Katrina Allen, ASC Advisors, for Ellington Financial LLC, (203) 992-1230