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About Ellington Financial

Ellington Financial LLC is a specialty finance company that invests in a diverse array of financial assets, including residential and commercial mortgage-backed securities, residential and commercial mortgage loans, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, corporate equity and debt securities (including distressed debt), non-mortgage and mortgage-related derivatives, equity investments in mortgage-related entities, and other strategic investments. The Company securitizes certain assets, such as consumer loans, non-QM loans, and corporate loans. Ellington Financial LLC is externally managed and advised by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C.

Our Portfolio

(as of December 31, 2017)









Financial Highlights

For the year ended December 31,
in thousands, except per share data 2017 2016 2015
Summary of Operations
Interest income 89,629 74,344 101,783
Net investment income 35,168 35,765 66,176
Net realized and change in net unrealized gain (loss) on investments 11,298 (5,304) (22,485)
Net realized and change in net unrealized gain (loss) on financial derivatives, excluding currency hedges (11,727) (46,722) (5,598)
Net increase (decrease) in shareholders' equity resulting from operations 33,981 (16,007) 38,089
Basic and diluted earnings per share 1.04 (0.48) 1.13
Dividends per share* 1.72 1.90 2.30

*Dividends are declared and paid on a quarterly basis in arrears. For example, dividends for the fiscal year ended December 31, 2017 include the dividend declared on February 6, 2018 for the fourth quarter of 2017.

As of December 31,
in thousands, except per share data and ratio data 2017 2016
Balance Sheet Data
Investments, at fair value 2,071,707 1,505,026
Cash and cash equivalents 47,233 123,274
Repurchase agreements, at fair value 155,949 184,819
Financial derivatives, at fair value, net (8,108) 16,908
Investments sold short, at fair value (642,240) (584,896)
Reverse repurchase agreements (1,209,315) (1,033,581)
Other secured borrowings 57,909 24,086
Other secured borrowings, at fair value 125,105
Total equity 620,691 644,777
Book value per share 19.15 19.75
Diluted book value per share 18.85 19.46
Common shares and convertible securities outstanding 32,039 32,976
Debt-to-equity ratio 2.38:1 1.64:1






Credit Spreads Across Fixed-Income Assets Remained at or Near 36-Month Tights




Dear Fellow Shareholders

On behalf of the entire Ellington team, it is my pleasure to address you once again in our Annual Report to review briefly our 2017 performance and share our outlook for 2018. At Ellington Financial, we have been steadily building a diversified portfolio of loans and securities based on fundamental analysis and proprietary sourcing. While heightened competition for credit assets led to slower-than-planned growth, we still increased our credit portfolio by over 85% in 2017, and our portfolio is now close to targeted levels where it can generate a high, sustainable earnings stream. During this growth phase, we delivered a diluted net asset value-based total return of 6.2% for 2017. Our dividend currently equates to an annualized yield of 10.9% based on our March 19, 2018 closing stock price.

We achieved many important objectives in 2017 on both the asset and liability side of the balance sheet. On the asset side, our most important loan-oriented strategies—including small balance commercial mortgage loans, consumer loans, non-QM loans, and residential and consumer NPLs—all had excellent performance, and we expect these strategies to generate double-digit returns-on-equity going forward. We are also projecting high returns in our CLO retained interest strategy, which was a new strategy for us in 2017 and appears poised for significant growth in 2018. All of these credit strategies share the common thread of return generation through capturing and leveraging net interest margin, as opposed to price appreciation. As a result, we believe EFC's overall strategy is becoming both more simplified and more predictable.

On the liability side of the balance sheet, we continued to build the Ellington securitization brand, with Ellington Financial tapping the securitization markets for two new products in 2017. In June, we participated in Ellington's first self-managed CLO, followed by the pricing of a second CLO in December, with more CLOs expected going forward. In November, we completed our inaugural securitization of non-QM loans, which was well received by both rating agencies and investors. All of the loans in this securitization were originated by Lendsure Mortgage, our non-QM loan origination partner in which we hold a strategic equity investment. We have been continuing to acquire non-QM loans, and are optimistic that market conditions will support another securitization later this year. We are enthusiastic about the long-term, locked-in financing that these types of securitizations provide, with effective costs of funds that are well below the projected yields on the underlying assets. Importantly, we also expect incremental funding advantages with each successive securitization that we complete, as the securitization markets tend to reward repeat issuers with successively better execution.

In addition to developing our securitization franchise throughout 2017, we also improved, expanded, and diversified our bank financing facilities. We substantially improved terms on our financing facilities for both small balance commercial mortgage loans and consumer loans, and established additional financing facilities for non-QM loans, residential NPLs, and consumer loans.

Another milestone we achieved in 2017 was the successful completion of our first issuance of unsecured debt. We issued $86 million in senior unsecured notes, rated single-A by Egan-Jones, with a five-year maturity and a fixed rate of 5.25%. We were very pleased with the execution of the offering, which we believe represents among the lowest costs of funds in our peer group for long-term unsecured non-convertible debt. The notes provide us with another source of long-term non-mark-to-market financing, particularly for our harder-to-finance assets, and further diversify our balance sheet.

With our share price trading at a significant discount to book value, we have been capitalizing on attractive opportunities to repurchase our shares. Throughout 2017, we repurchased 961,566 shares for $14.6 million, gaining 11 cents of accretion to diluted book value per share. Since year end, we have repurchased over 3% more of our outstanding shares, and our Board of Directors has reloaded our repurchase program to accommodate additional repurchases. Even though we are seeing attractive assets coming out of our loan pipelines, stock buybacks have been a compelling use of capital, particularly given where our stock price has been in recent months. At these levels, stock buybacks have provided substantial accretion to book value per share, which should ultimately lead to both meaningful accretion to earnings per share and a higher stock price.

We have also been actively evaluating the potential actions we may take in response to the passage of the Tax Cuts and Jobs Act, including enhancements to our investment strategies and possible conversion to a taxable corporation.

Looking forward, given the volatility we have seen in 2018 so far, we believe that staying true to our acquisition standards, continuing to employ a disciplined hedging strategy, and otherwise prudently managing risk, are as important now as ever. We are optimistic about our strategies and are forecasting that our credit portfolio will be fully ramped by the middle part of this year. The new year is off to a very strong start, with estimated book value per share, dividend-adjusted, up over 3% year-to-date through February.

Thank you for your continued support and confidence, and we look forward to a successful 2018.


Laurence Penn
Chief Executive Officer and President

Ellington Financial LLC acquires residential mortgage-related assets, which are securities or loans backed by individual residences.
Ellington Financial LLC acquires non-performing commercial mortgage loans, many of which are backed by apartment buildings.
Ellington Financial LLC acquires consumer loans, many of which are used by borrowers for debt consolidation.
Ellington Financial LLC acquires commercial mortgage-backed securities or loans, many of which are backed by office buildings.

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
Financial, 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

JR Herlihy
Chief Financial Officer

Daniel Margolis
General Counsel

Christopher M. Smernoff
Chief Accounting Officer

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
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 Wednesday, May 16, 2018,
at 11:30 am Eastern Time at the
Hyatt Regency at 1800 East Putnam
Avenue, Old Greenwich, CT 06870.