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Ellington Financial LLC Reports Fourth Quarter 2011 Results
OLD GREENWICH, ConnecticutFebruary 13, 2012
Ellington Financial LLC (NYSE: EFC) (the Company) today reported financial results for the quarter ended December 31, 2011.
Net increase in shareholders equity resulting from operations (net income) for the fourth quarter was $1.7 million, or $0.10 per basic and diluted share; net income for the full year was $10.3 million or $0.61 per basic and diluted share.
Book value per share as of December 31, 2011 was $22.03 on a diluted basis after payment of a $0.40 per share third quarter dividend on December 15, 2011, as compared to book value per share of $22.32 on a diluted basis as of September 30, 2011.
The Companys non-Agency MBS strategy generated a loss of $2.2 million for the quarter ended December 31, 2011, as mark-to-market losses on non-Agency RMBS and losses on credit hedges together exceeded non-Agency MBS interest income. For the full year, the non-Agency MBS strategy generated income in the amount of $13.2 million.
While the benchmark ABX.HE.AAA 06-2 index ended the quarter roughly where it began, a variety of technical factors caused the overall non-Agency RMBS market to decline over the course of the quarter, albeit modestly in comparison to the steeper declines of the previous two quarters. The Companys recent rotation into 2006 and 2007 vintage subprime and Alt-B securities continues to augment yields on the long non-Agency RMBS portfolio.
The Companys Agency RMBS strategy performed well during the quarter, generating $6.4 million in income, as the prepayment-protected sectors in which the Company invested appreciated relative to its TBA and interest rate swap hedges. Additionally, the Company actively manages its Agency RMBS portfolio, thereby enabling it to realize trading gains. The Agency RMBS results were achieved while also substantially limiting interest rate risk. For the full year, the Agency RMBS strategy generated income of $9.4 million.
The Company announced a dividend for the fourth quarter of 2011 of $0.40 per share payable March 15, 2012 to shareholders of record on March 1, 2012.
Fourth Quarter 2011 Results
For the fourth quarter of 2011, the Company recognized net income of $1.7 million, or $0.10 per diluted share. This compares to a net loss of $1.2 million, or $0.07 per diluted share for the quarter ended September 30, 2011. Losses in the Companys non-Agency MBS strategy during the quarter were more than offset by strong results in the Agency RMBS strategy, which generated $6.4 million in net income with high portfolio turnover. This was a direct result of the Companys strategy to invest in select (specified) prepayment-protected pools, such as those comprised of low loan balance mortgages and those containing mortgages not eligible for one of the government-sponsored refinancing programs. The Companys specified Agency pools continued to prepay slowly, both on an absolute basis and relative to their generic TBA counterparts, which allowed the Company to capture greater net carry income on its Agency RMBS portfolio. Even more importantly, superior actual and forecast prepayment performance relative to TBAs led to significant price gains for these specified Agency pools, and by actively trading and rotating between sectors the Company monetized many of these gains. Meanwhile, the Company recognized a net loss of $2.2 million in its non-Agency MBS/Commercial Mortgage Loan strategy for the fourth quarter of 2011.
The net loss in the non-Agency MBS strategy was driven largely by valuation declines in non-Agency RMBS assets, and to a lesser extent by losses in credit hedges. The underlying mortgage loan performance for non-Agency RMBS remains strong, as evidenced by stabilization in delinquency roll rates and severity rates; the valuation declines were the result of technical, not fundamental, factors. With higher market yields many in excess of 10% on a loss-adjusted basis on both its existing portfolio and new purchases, the Company has continued to increase the weighted average yield of its overall non-Agency MBS portfolio. Losses in credit hedges were largely attributable to certain corporate instruments that now comprise a greater portion of the Companys credit hedging portfolio. These corporate instruments ran up significantly in price throughout 2011 even while non-Agency RMBS prices fell sharply, and the Company continues to believe that they provide additional relative value and diversification for the Companys hedging portfolio. The Company expects to experience some increased month-to-month volatility as a result of the inclusion of such corporate instruments in the portfolio, but over the longer term anticipates that their opportunistic use should enhance the hedging strategy.
The following information was filed by Ellington Financial Llc (EFC) on Tuesday, February 14, 2012 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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