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About Ellington Financial

Ellington Financial LLC is a specialty finance company that primarily acquires and manages mortgage-related and consumer-related assets, including residential mortgage-backed securities, residential and commercial mortgage loans, consumer loans and asset-backed securities backed by consumer loans, commercial mortgage-backed securities, real property, and mortgage-related derivatives. The Company also invests in corporate debt and equity, including distressed debt, collateralized loan obligations, non-mortgage-related derivatives, and other financial assets, including private debt and equity investments in mortgage-related entities. Ellington Financial LLC is externally managed and advised by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C.


Ellington Financial LLC acquires residential mortgage-related assets, which are securities or loans backed by individual residences.

Our Portfolio

(as of December 31, 2016)

Financial Highlights

For the year ended December 31,
in thousands, except per share data 2016 2015 2014
Summary of Operations
Interest income $ 74,344 $ 101,783 $ 93,533
Net investment income 35,765 66,176 58,751
Net realized and change in net unrealized gain (loss) on investments (5,304) (22,485) 23,117
Net realized and change in net unrealized gain (loss) on financial derivatives, excluding currency forwards (46,722) (5,598) (21,899)
Net increase (decrease) in shareholders' equity resulting from operations (16,007) 38,089 59,167
Dividends paid/declared* 63,097 78,173 88,538
Basic and diluted earnings (loss) per share $     (0.48) $       1.13 $     2.09
Dividends per share* $       1.90 $       2.30 $     2.96

*Dividends are declared and paid on a quarterly basis in arrears. For example, dividends for the fiscal year ended December 31, 2016 include the dividends declared on February 8, 2017 for the fourth quarter of 2016.

As of December 31,
in thousands, except per share data 2016 2015
Balance Sheet Data
Investments, at fair value $ 1,505,026 $ 1,661,118
Cash and cash equivalents 123,274 183,909
Repurchase agreements, at fair value 184,819 105,700
Financial derivatives, at fair value, net 16,908 102,433
Investments sold short, at fair value (584,896) (728,747)
Reverse repurchase agreements (1,033,581) (1,174,189)
Total equity 644,777 738,952
Book value per share $        19.75 $        22.10
Diluted book value per share $        19.46 $        21.80
Leverage ratio 1.64:1 1.59:1
Common shares and convertible securities outstanding 32,976 33,788

Dear Fellow Shareholders

On behalf of the entire Ellington team, it is my pleasure to address you once again in our Annual Report to briefly review 2016 performance and share our outlook for 2017. In 2016, our assets performed well, driven by solid performance and continued growth in our loan businesses. However, losses on our high-yield corporate credit hedges, which were principally used to hedge our non-Agency RMBS assets, proved to be a substantial drag on earnings, resulting in overall performance that fell short of our expectations. While disappointed with our performance for the last year, we are very optimistic about our prospects for 2017 and beyond.


Ellington Financial LLC acquires commercial mortgage-backed securities and loans, many of which are backed by apartment buildings.

Over the course of 2016, our goal was to build a more predictable earnings stream by continuing to grow our pipelines of high-yielding loan assets, and by securing favorable financing facilities for those pipelines. Since executing our first financing facility for small balance commercial mortgage loans in early 2016, we have subsequently added facilities for non-QM mortgage loans, residential non-performing loans, and consumer loans.

We started 2016 with a hedging strategy that reflected our concern that the credit markets — and especially the high-yield corporate bond markets — were vulnerable to a variety of possible risks, such as an economic downturn, tightening of monetary policy, or weakening commodity or energy prices. While we did see two large sell-offs in the credit markets during the year — the first following the steep plunge in commodity prices that culminated early in the year, and the second after the Brexit vote later in the year — in both cases heavy central bank interventions caused strong relief rallies and ultimately led to losses on our high-yield corporate bond hedges. As continued accommodative monetary policies of global central banks pushed yields on sovereign bonds lower during the first three quarters of 2016, investors sought higher yields from other sectors, including the high-yield corporate bond market where our hedges were concentrated.

As the year progressed, we significantly reduced the size of our non-Agency RMBS portfolio, and we observed continued de-coupling between the non-Agency RMBS market and the high-yield corporate bond market. In response, we substantially scaled back our high-yield corporate credit hedges during the third and fourth quarters, and by the end of the year our portfolio was far less exposed to the performance of these hedges.

With our high-yield corporate credit hedges no longer a significant factor in our portfolio, we are very enthusiastic about the outlook for our business and future growth — we see no shortage of opportunities to put our capital to work. We continue to see excellent opportunities in our consumer loan business, our small balance commercial mortgage loan business (both distressed loans and bridge loans), our non-QM loan business, and our non-performing residential loan business. In addition, we are exploring CLO-related opportunities for our corporate loan portfolio.


Ellington Financial LLC acquires consumer loans, many of which are used by borrowers for debt consolidation.

As we entered 2017 our credit portfolio had an average unleveraged yield of over 10.5%, and we were using only very modest leverage. Over the coming months, we plan to increase the size of our credit portfolio by judiciously adding both assets and leverage. Notably, as we continue to ramp up our loan pipelines, we now have the flexibility to allocate between a wide variety of strategies that we believe will generate high returns on capital, while continuing to increase our capacity for these strategies using both our financing facilities and the securitization markets. With a larger portfolio of high-yielding loan assets, we expect to produce a high, sustainable earnings stream. Although there are many components to our loan portfolios, our overall strategy is becoming more simplified, given that the common thread of our loan businesses is capturing and leveraging net interest margin.


Ellington Financial LLC acquires commercial mortgage-backed securities and loans, many of which are backed by office buildings.

Despite what was a difficult year, Ellington Financial's historical performance remains strong. Since our inception in 2007, we have generated an average annualized return on diluted book value of 10.6%. Given our growing pipelines of high-yielding loan assets, coupled with the leverage we can apply with our financing facilities and through the securitization markets, we believe that we will soon be well positioned to consistently generate earnings to cover our quarterly dividend, which currently equates to an annualized yield of 11.4% based on our March 17, 2017 closing stock price.

After nearly a decade of operation, our goal at Ellington Financial remains the same: to capture upside in good markets and control downside in difficult markets, thereby delivering attractive returns to shareholders over time, without taking excessive risk.

Thank you for your continued support and confidence, and we look forward to a successful 2017.


Laurence Penn
Chief Executive Officer and President


Directors & Officers

Board of Directors

Thomas F. Robards
Chairman of the Board of Directors and
Principal of Robards & Co, LLC

Edward Resendez
Vice Chairman, President, and
Chief Operating Officer of Cherrywood
Commercial Lending, LLC

Ronald I. Simon, Ph.D.
Financial Consultant and Investor

Laurence Penn
Chief Executive Officer and President

Michael W. Vranos
Co-Chief Investment Officer and
Founder and Chief Executive Officer of
Ellington Management Group, L.L.C.


Laurence Penn
Chief Executive Officer and President

Michael W. Vranos
Co-Chief Investment Officer

Mark Tecotzky
Co-Chief Investment Officer

Lisa Mumford
Chief Financial Officer

Daniel Margolis
General Counsel

Christopher M. Smernoff

Jason Frank
Corporate Counsel and Secretary

Company Information

Corporate Headquarters

Ellington Financial LLC
53 Forest Avenue
Old Greenwich, CT 06870

Independent Registered
Public Accounting Firm

PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017

Corporate Counsel

Vinson & Elkins LLP
901 East Byrd Street
Suite 1500
Richmond, VA 23219

Stock Transfer Agent

American Stock Transfer & Trust
Company, LLC
6201 15th Avenue
Brooklyn, NY 11219

Annual Meeting of Shareholders

Ellington Financial’s 2017 Annual
Meeting of Shareholders will be
held on Tuesday, May 16, 2017,
at 10:30 am Eastern Time at the
Hyatt Regency at 1800 East Putnam
Avenue, Old Greenwich, CT 06870.