EFC Ellington Financial Inc

Ellington Financial Inc. (NYSE: EFC) ("we," "us," or "our") today reported financial results for the quarter ended June 30, 2024.

Highlights

• Net income attributable to common stockholders of $52.3 million, or $0.62 per common share.1
  • $69.1 million, or $0.81 per common share, from the investment portfolio.
    • $68.0 million, or $0.80 per common share, from the credit strategy.
    • $1.1 million, or $0.01 per common share, from the Agency strategy.
  • $4.2 million, or $0.05 per common share, from Longbridge.
• Adjusted Distributable Earnings2 of $28.3 million, or $0.33 per common share.
• Book value per common share as of June 30, 2024 of $13.92, including the effects of dividends of $0.39 per common share for the quarter.
• Dividend yield of 13.0% based on the August 5, 2024 closing stock price of $12.04 per share, and monthly dividend of $0.13 per common share declared on July 8, 2024.
• Recourse debt-to-equity ratio3 of 1.6:1 as of June 30, 2024, adjusted for unsettled purchases and sales. Including all non-recourse borrowings, which primarily consist of securitization-related liabilities, debt-to-equity ratio of 8.2:14.
• Cash and cash equivalents of $198.5 million as of June 30, 2024, in addition to other unencumbered assets of $565.1 million.

Second Quarter 2024 Results

"Driven by broad-based contributions from our diversified credit and Agency portfolios, as well as from our reverse mortgage platform Longbridge, Ellington Financial generated a non-annualized economic return of 4.5% for the second quarter, and grew adjusted distributable earnings and book value per share sequentially," said Laurence Penn, Chief Executive Officer and President.

"We had notably strong performance in our non-QM loan business, where tight yield spreads in our April securitization helped generate a significant gain in our portfolio, and where continued strong loan demand improved industrywide gain-on-sale margins and origination volumes, driving excellent results at our affiliate loan originators. Longbridge also contributed robust earnings for the quarter, led by the strong performance of proprietary reverse mortgage loans. Following quarter end, we successfully completed our second securitization of proprietary reverse mortgage loans originated by Longbridge, achieving incrementally stronger execution than our inaugural deal in the first quarter. Our second quarter results also significantly benefited from the performance of our residential transition and commercial mortgage loan strategies, as well as non-Agency RMBS.

"During the quarter, we added attractive investments in a wide array of our credit strategies, including HELOCs and closed-end second lien loans, proprietary reverse mortgage loans, commercial mortgage bridge loans, re-performing and non-performing residential mortgage loans, CMBS, and CLOs. At the same time, we continued to cull securities in lower-yielding sectors, including Agency and non-Agency RMBS.

"Looking forward, our investment pipeline across our diversified proprietary loan origination channels remains strong, and the loan originators in which we've invested are not only helping to feed that pipeline, but they're showing strong profitability as well. Combine that with our ability to access compelling term, non-mark-to-market financing in the securitization markets, and I believe Ellington Financial is well positioned for continued portfolio and earnings growth over the remainder of the year."

Financial Results

Investment Portfolio Summary

Our investment portfolio generated net income attributable to common stockholders of $69.1 million, consisting of $68.0 million from the credit strategy and $1.1 million from the Agency strategy.

Credit Performance

Our total long credit portfolio, excluding non-retained tranches of consolidated securitization trusts, decreased to $2.73 billion as of June 30, 2024, from $2.80 billion as of March 31, 2024. The decline was driven by the cumulative impact of a non-QM securitization completed during the second quarter and net sales of non-Agency and retained non-QM RMBS, and non-QM loans, which more than offset net purchases of commercial mortgage bridge loans, home equity lines of credit, or "HELOCs," closed-end second lien loans, re-performing and non-performing residential mortgage loans, CMBS, and CLOs.

Strong net interest income5 and net gains from non-QM loans, retained non-QM RMBS, non-Agency RMBS, and commercial mortgage loans drove the positive results in our credit strategy in the second quarter. We also benefited from mark-to-market gains on our equity investments in the loan originators LendSure and American Heritage Lending, which reflected strong performance at those originators driven by increased origination volumes and strong gain-on-sale margins. With interest rates slightly higher quarter over quarter, we also had net gains on our interest rate hedges. Offsetting a portion of all these gains was a modest net loss in re-performing and non-performing residential mortgage loans.

In our residential mortgage loan portfolio, after excluding the impacts of the purchase of one non-performing loan portfolio and the consolidation of another non-performing loan portfolio, our percentage of delinquent loans increased only slightly quarter over quarter. In our commercial mortgage loan portfolio (including loans accounted for as equity method investments) the delinquency percentage ticked down sequentially. Both of these portfolios continue to experience low levels of realized credit losses and strong overall credit performance, though we are monitoring developments closely and diligently working out a handful of non-performing commercial mortgage assets.

The net interest margin6 on our credit portfolio decreased quarter over quarter, to 2.76% from 2.86%. We continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate.

Agency Performance

Our total long Agency RMBS portfolio decreased by 31% quarter over quarter to $457.7 million, driven primarily by net sales.

In April, interest rates and volatility increased over renewed concerns about inflation and a more hawkish Federal Reserve, which pushed Agency RMBS yield spreads wider. In May and June, however, interest rates and volatility generally declined, and Agency RMBS yield spreads reversed most of their April widening. Overall for the second quarter, the U.S. Agency MBS Index generated a negative excess return of (0.08)%. Nevertheless, our Agency RMBS strategy generated positive results for the quarter, as net gains on interest rate hedges and net interest income exceeded net losses on Agency RMBS.

Average pay-ups on our specified pools increased modestly to 0.91% as of June 30, 2024, as compared to 0.89% as of March 31, 2024.

During the quarter, our Agency RMBS asset yields and our borrowing costs both declined, and we received a larger benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate. As a result, the net interest margin6 on our Agency RMBS, excluding the Catch-up Amortization Adjustment, increased to 1.99% from 1.50% quarter over quarter.

Longbridge Summary

Our Longbridge segment generated net income attributable to common stockholders of $4.2 million for the second quarter, driven by net interest income and net gains on proprietary reverse mortgage loans, along with positive results from servicing. In HECM originations, higher volumes were mostly offset by a decline in gain-on-sale margins, driven by wider yield spreads on newly originated HMBS. In servicing, tighter yield spreads on more seasoned HMBS led to improved execution on tail securitizations, which contributed to the positive results from servicing.

Our Longbridge portfolio, excluding non-retained tranches of a consolidated securitization trust, increased by 18% sequentially to $520.8 million as of June 30, 2024, driven primarily by proprietary reverse mortgage loan originations.

Corporate/Other Summary

In addition to expenses not allocated to either the investment portfolio or Longbridge segments, our results for the quarter also reflect a net gain, driven by the increase in interest rates, on our senior notes. This gain was partially offset by a net loss, also driven by the increase in interest rates, on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured long-term debt and our preferred equity.

1 Includes $(21.0) million of preferred dividends accrued and certain corporate/other income and expense items not attributed to either the investment portfolio or Longbridge segments.

2 Adjusted Distributable Earnings is a non-GAAP financial measure. See "Reconciliation of Net Income (Loss) to Adjusted Distributable Earnings" below for an explanation regarding the calculation of Adjusted Distributable Earnings.

3 Excludes U.S. Treasury securities and repo borrowings at certain unconsolidated entities that are recourse to us. Including such borrowings, our debt-to-equity ratio, adjusted for unsettled purchases and sales, based on total recourse borrowings was 1.9:1 as of June 30, 2024.

4 Excludes U.S. Treasury securities and repo borrowings at certain unconsolidated entities.

5 Excludes any interest income and interest expense items from interest rate hedges, net credit hedges and other activities, net.

6 Net interest margin represents the weighted average asset yield less the weighted average secured financing cost of funds on such assets. It also includes the effect of actual and accrued periodic payments on interest rate swaps used to hedge the assets.

Credit Portfolio(1)

The following table summarizes our credit portfolio holdings as of June 30, 2024 and March 31, 2024:

 

 

June 30, 2024

 

March 31, 2024

($ in thousands)

 

Fair Value

 

%

 

Fair Value

 

%

Dollar denominated:

 

 

 

 

 

 

 

 

CLOs(2)

 

$

75,719

 

1.8

%

 

$

59,243

 

1.4

%

CMBS

 

 

42,842

 

1.0

%

 

 

22,393

 

0.5

%

Commercial mortgage loans and REO(3)(4)

 

 

362,914

 

8.8

%

 

 

366,320

 

8.7

%

Consumer loans and ABS backed by consumer loans(2)

 

 

85,802

 

2.1

%

 

 

83,194

 

2.0

%

Corporate debt and equity and corporate loans

 

 

32,100

 

0.8

%

 

 

31,140

 

0.8

%

Debt and equity investments in loan origination-related entities(6)

 

 

37,381

 

0.9

%

 

 

35,967

 

0.9

%

Forward MSR-related investments

 

 

158,031

 

3.8

%

 

 

160,009

 

3.8

%

Home equity line of credit and closed-end second lien loans

 

 

62,737

 

1.5

%

 

 

—

 

—

%

Non-Agency RMBS

 

 

143,690

 

3.5

%

 

 

210,132

 

5.0

%

Non-QM loans and retained non-QM RMBS(7)

 

 

1,802,847

 

43.5

%

 

 

1,989,390

 

47.3

%

Other loans and ABS(5)

 

 

23,533

 

0.6

%

 

 

19,674

 

0.5

%

Residential transition loans and other residential mortgage loans and REO(3)

 

 

1,234,796

 

29.8

%

 

 

1,199,246

 

28.5

%

Non-Dollar denominated:

 

 

 

 

 

 

 

 

CLOs(2)

 

 

6,973

 

0.2

%

 

 

5,496

 

0.1

%

Corporate debt and equity

 

 

219

 

—

%

 

 

185

 

—

%

RMBS(8)

 

 

18,138

 

0.4

%

 

 

20,423

 

0.5

%

Other residential mortgage loans

 

 

52,368

 

1.3

%

 

 

—

 

—

%

Total long credit portfolio

 

$

4,140,090

 

100.0

%

 

$

4,202,812

 

100.0

%

Less: Non-retained tranches of consolidated securitization trusts

 

 

1,414,389

 

 

 

 

1,407,035

 

 

Total long credit portfolio excluding non-retained tranches of consolidated securitization trusts

 

$

2,725,701

 

 

 

$

2,795,777

 

 

(1)

This information does not include U.S. Treasury securities, securities sold short, or financial derivatives.

(2)

Includes equity investments in securitization-related vehicles.

(3)

In accordance with U.S. GAAP, REO is not considered a financial instrument and as a result is included at the lower of cost or fair value.

(4)

Includes equity investments in unconsolidated entities holding commercial mortgage loans and REO.

(5)

Includes equity investment in an unconsolidated entity which held certain other loans for securitization.

(6)

Includes corporate loans to certain loan origination entities in which we hold an equity investment.

(7)

Retained non-QM RMBS represents RMBS issued by non-consolidated Ellington-sponsored non-QM loan securitization trusts, and interests in entities holding such RMBS.

(8)

Includes an equity investment in an unconsolidated entity holding European RMBS.

Agency RMBS Portfolio

The following table(1) summarizes our Agency RMBS portfolio holdings as of June 30, 2024 and March 31, 2024:

 

 

June 30, 2024

 

March 31, 2024

($ in thousands)

 

Fair Value

 

%

 

Fair Value

 

%

Long Agency RMBS:

 

 

 

 

 

 

 

 

Fixed rate

 

$

413,686

 

90.4

%

 

$

609,806

 

92.0

%

Floating rate

 

 

—

 

—

%

 

 

5,043

 

0.8

%

Reverse mortgages

 

 

33,853

 

7.4

%

 

 

36,912

 

5.6

%

IOs

 

 

10,162

 

2.2

%

 

 

10,811

 

1.6

%

Total long Agency RMBS

 

$

457,701

 

100.0

%

 

$

662,572

 

100.0

%

(1)

This information does not include U.S. Treasury securities, securities sold short or financial derivatives.

Longbridge Portfolio

Longbridge originates reverse mortgage loans, including home equity conversion mortgage loans, or "HECMs," which are insured by the FHA and which are eligible for inclusion in GNMA-guaranteed HECM-backed MBS, or "HMBS." Upon securitization, the HECMs remain on our balance sheet under GAAP, and Longbridge retains the mortgage servicing rights associated with the HMBS, or the "HMBS MSR Equivalent." Longbridge also originates "proprietary reverse mortgage loans," which are not insured by the FHA, and Longbridge has typically retained the associated MSRs. We have securitized some of the proprietary reverse mortgage loans originated by Longbridge, and we have retained certain of the securitization tranches in compliance with credit risk retention rules. The following table(1) summarizes loan-related assets in the Longbridge segment as of June 30, 2024 and March 31, 2024:

 

 

June 30, 2024

 

March 31, 2024

 

 

(In thousands)

HMBS assets(2)

 

$

8,926,658

 

 

$

8,713,835

 

Less: HMBS liabilities

 

 

(8,832,058

)

 

 

(8,619,463

)

HMBS MSR Equivalent

 

 

94,600

 

 

 

94,372

 

Unsecuritized HECM loans(3)

 

 

103,668

 

 

 

111,617

 

Proprietary reverse mortgage loans(4)

 

 

449,968

 

 

 

365,372

 

Reverse MSRs

 

 

29,538

 

 

 

29,889

 

Unsecuritized REO

 

 

1,375

 

 

 

2,228

 

Total

 

 

679,149

 

 

 

603,478

 

Less: Non-retained tranches of consolidated securitization trust

 

 

158,397

 

 

 

162,482

 

Total, excluding non-retained tranches of consolidated securitization trust

 

$

520,752

 

 

$

440,996

 

(1)

This information does not include financial derivatives or loan commitments.

(2)

Includes HECM loans, related REO, and claims or other receivables.

(3)

As of June 30, 2024, includes $5.1 million of active HECM buyout loans, $9.9 million of inactive HECM buyout loans, and $4.3 million of other inactive HECM loans. As of March 31, 2024, includes $9.3 million of active HECM buyout loans, $9.4 million of inactive HECM buyout loans, and $4.5 million of other inactive HECM loans.

(4)

As of June 30, 2024, includes $181.1 million of securitized proprietary reverse mortgage loans and $4.5 million of cash held in a securitization reserve fund. As of March 31, 2024, includes $184.9 million of securitized proprietary reverse mortgage loans and $4.7 million of cash held in a securitization reserve fund.

The following table summarizes Longbridge's origination volumes by channel for the three-month periods ended June 30, 2024 and March 31, 2024:

($ In thousands)

 

June 30, 2024

 

March 31, 2024

Channel

 

Units

 

New Loan Origination Volume(1)

 

% of New Loan Origination Volume

 

Units

 

New Loan Origination Volume(1)

 

% of New Loan Origination Volume

Retail

 

408

 

$

60,601

 

20

%

 

381

 

$

51,639

 

25

%

Wholesale and correspondent

 

1,298

 

 

243,937

 

80

%

 

983

 

 

153,246

 

75

%

Total

 

1,706

 

$

304,538

 

100

%

 

1,364

 

$

204,885

 

100

%

(1)

Represents initial borrowed amounts on reverse mortgage loans.

Financing

Our recourse debt-to-equity ratio3, adjusted for unsettled purchases and sales, decreased to 1.6:1 at June 30, 2024 from 1.8:1 at March 31, 2024. The decline was primarily driven by the completion of a non-QM securitization in the second quarter, a decline in borrowings on our smaller Agency RMBS portfolio, and an increase in shareholders' equity. Our overall debt-to-equity ratio4, adjusted for unsettled purchases and sales, also decreased during the quarter, to 8.2:1 as of June 30, 2024, as compared to 8.3:1 as of March 31, 2024.

The following table summarizes our outstanding borrowings and debt-to-equity ratios as of June 30, 2024 and March 31, 2024:

 

 

June 30, 2024

 

March 31, 2024

 

 

Outstanding Borrowings(1)

 

Debt-to-Equity Ratio(2)

 

Outstanding Borrowings(1)

 

Debt-to-Equity Ratio(2)

 

 

(In thousands)

 

 

 

(In thousands)

 

 

Recourse borrowings(3)(4)

 

$

2,816,882

 

1.8:1

 

$

2,996,346

 

1.9:1

Non-recourse borrowings(4)

 

 

10,417,896

 

6.6:1

 

 

10,188,612

 

6.6:1

Total Borrowings

 

$

13,234,778

 

8.4:1

 

$

13,184,958

 

8.5:1

Total Equity

 

$

1,573,859

 

 

 

$

1,553,156

 

 

Recourse borrowings excluding U.S. Treasury securities, adjusted for unsettled purchases and sales

 

 

 

1.6:1

 

 

 

1.8:1

Total borrowings excluding U.S. Treasury securities, adjusted for unsettled purchases and sales

 

 

 

8.2:1

 

 

 

8.3:1

 

(1) Includes borrowings under repurchase agreements, other secured borrowings, other secured borrowings, at fair value, and unsecured debt, at par.

(2) Recourse and overall debt-to-equity ratios are computed by dividing outstanding recourse and overall borrowings, respectively, by total equity. Debt-to-equity ratios do not account for liabilities other than debt financings.

(3) Excludes repo borrowings at certain unconsolidated entities that are recourse to us. Including such borrowings, our debt-to-equity ratio based on total recourse borrowings is 1.9:1 and 2.0:1 as of June 30, 2024 and March 31, 2024, respectively.

(4) All of our non-recourse borrowings are secured by collateral. In the event of default under a non-recourse borrowing, the lender has a claim against the collateral but not any of the other assets held by us or our consolidated subsidiaries. In the event of default under a recourse borrowing, the lender's claim is not limited to the collateral (if any).

The following table summarizes our operating results by strategy for the three-month period ended June 30, 2024:

 

 

Investment Portfolio

 

Longbridge

 

Corporate/Other

 

Total

 

Per Share

(In thousands except per share amounts)

 

Credit

 

Agency

 

Investment Portfolio Subtotal

 

 

 

 

Interest income and other income(1)

 

$

81,983

 

 

$

6,858

 

 

$

88,841

 

 

$

13,592

 

 

$

1,915

 

 

$

104,348

 

 

$

1.22

 

Interest expense

 

 

(43,531

)

 

 

(6,207

)

 

 

(49,738

)

 

 

(8,754

)

 

 

(4,631

)

 

 

(63,123

)

 

 

(0.74

)

Realized gain (loss), net

 

 

(11,208

)

 

 

(14,200

)

 

 

(25,408

)

 

 

(24

)

 

 

—

 

 

 

(25,432

)

 

 

(0.29

)

Unrealized gain (loss), net

 

 

30,143

 

 

 

9,140

 

 

 

39,283

 

 

 

3,683

 

 

 

1,868

 

 

 

44,834

 

 

 

0.52

 

Net change from reverse mortgage loans and HMBS obligations

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,034

 

 

 

—

 

 

 

19,034

 

 

 

0.22

 

Earnings in unconsolidated entities

 

 

12,042

 

 

 

—

 

 

 

12,042

 

 

 

—

 

 

 

—

 

 

 

12,042

 

 

 

0.14

 

Interest rate hedges and other activity, net(2)

 

 

4,292

 

 

 

5,507

 

 

 

9,799

 

 

 

3,487

 

 

 

(1,759

)

 

 

11,527

 

 

 

0.13

 

Credit hedges and other activities, net(3)

 

 

(31

)

 

 

—

 

 

 

(31

)

 

 

—

 

 

 

—

 

 

 

(31

)

 

 

—

 

Income tax (expense) benefit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(142

)

 

 

(142

)

 

 

—

 

Investment related expenses

 

 

(3,306

)

 

 

—

 

 

 

(3,306

)

 

 

(7,781

)

 

 

—

 

 

 

(11,087

)

 

 

(0.13

)

Other expenses

 

 

(2,006

)

 

 

—

 

 

 

(2,006

)

 

 

(19,028

)

 

 

(10,864

)

 

 

(31,898

)

 

 

(0.37

)

Net income (loss)

 

 

68,378

 

 

 

1,098

 

 

 

69,476

 

 

 

4,209

 

 

 

(13,613

)

 

 

60,072

 

 

 

0.70

 

Dividends on preferred stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,825

)

 

 

(6,825

)

 

 

(0.08

)

Net (income) loss attributable to non-participating non-controlling interests

 

 

(382

)

 

 

—

 

 

 

(382

)

 

 

—

 

 

 

(4

)

 

 

(386

)

 

 

—

 

Net income (loss) attributable to common stockholders and participating non-controlling interests

 

 

67,996

 

 

 

1,098

 

 

 

69,094

 

 

 

4,209

 

 

 

(20,442

)

 

 

52,861

 

 

 

0.62

 

Net (income) loss attributable to participating non-controlling interests

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(514

)

 

 

(514

)

 

 

—

 

Net income (loss) attributable to common stockholders

 

$

67,996

 

 

$

1,098

 

 

$

69,094

 

 

$

4,209

 

 

$

(20,956

)

 

$

52,347

 

 

$

0.62

 

Net income (loss) attributable to common stockholders per share of common stock

 

$

0.80

 

 

$

0.01

 

 

$

0.81

 

 

$

0.05

 

 

$

(0.24

)

 

$

0.62

 

 

 

Weighted average shares of common stock and convertible units(4) outstanding

 

 

 

 

 

 

 

 

 

 

 

 

85,880

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

85,045

 

 

 

 

(1) Other income primarily consists of rental income on real estate owned, loan origination fees, and servicing income.

(2) Includes U.S. Treasury securities, if applicable.

(3) Other activities include certain equity and other trading strategies and related hedges, and net realized and unrealized gains (losses) on foreign currency.

(4) Convertible units include Operating Partnership units attributable to participating non-controlling interests.

The following table summarizes our operating results by strategy for the three-month period ended March 31, 2024:

 

 

Investment Portfolio

 

Longbridge

 

Corporate/Other

 

Total

 

Per Share

(In thousands except per share amounts)

 

Credit

 

Agency

 

Investment Portfolio Subtotal

 

 

 

 

Interest income and other income(1)

 

$

84,269

 

 

$

7,069

 

 

$

91,338

 

 

$

12,132

 

 

$

1,877

 

 

$

105,347

 

 

$

1.24

 

Interest expense

 

 

(43,121

)

 

 

(9,763

)

 

 

(52,884

)

 

 

(8,558

)

 

 

(4,597

)

 

 

(66,039

)

 

 

(0.77

)

Realized gain (loss), net

 

 

(6,379

)

 

 

(12,154

)

 

 

(18,533

)

 

 

—

 

 

 

—

 

 

 

(18,533

)

 

 

(0.22

)

Unrealized gain (loss), net

 

 

3,466

 

 

 

797

 

 

 

4,263

 

 

 

(8,356

)

 

 

1,829

 

 

 

(2,264

)

 

 

(0.03

)

Net change from reverse mortgage loans and HMBS obligations

 

 

—

 

 

 

—

 

 

 

—

 

 

 

27,515

 

 

 

—

 

 

 

27,515

 

 

 

0.32

 

Earnings in unconsolidated entities

 

 

2,226

 

 

 

—

 

 

 

2,226

 

 

 

—

 

 

 

—

 

 

 

2,226

 

 

 

0.03

 

Interest rate hedges and other activity, net(2)

 

 

8,259

 

 

 

16,123

 

 

 

24,382

 

 

 

15,712

 

 

 

(5,538

)

 

 

34,556

 

 

 

0.41

 

Credit hedges and other activities, net(3)

 

 

(4,449

)

 

 

—

 

 

 

(4,449

)

 

 

(592

)

 

 

—

 

 

 

(5,041

)

 

 

(0.06

)

Income tax (expense) benefit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(61

)

 

 

(61

)

 

 

—

 

Investment related expenses

 

 

(2,973

)

 

 

—

 

 

 

(2,973

)

 

 

(10,263

)

 

 

—

 

 

 

(13,236

)

 

 

(0.16

)

Other expenses

 

 

(170

)

 

 

—

 

 

 

(170

)

 

 

(18,836

)

 

 

(11,413

)

 

 

(30,419

)

 

 

(0.36

)

Net income (loss)

 

 

41,128

 

 

 

2,072

 

 

 

43,200

 

 

 

8,754

 

 

 

(17,903

)

 

 

34,051

 

 

 

0.40

 

Dividends on preferred stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,654

)

 

 

(6,654

)

 

 

(0.08

)

Net (income) loss attributable to non-participating non-controlling interests

 

 

(185

)

 

 

—

 

 

 

(185

)

 

 

(38

)

 

 

(4

)

 

 

(227

)

 

 

—

 

Net income (loss) attributable to common stockholders and participating non-controlling interests

 

 

40,943

 

 

 

2,072

 

 

 

43,015

 

 

 

8,716

 

 

 

(24,561

)

 

 

27,170

 

 

 

0.32

 

Net (income) loss attributable to participating non-controlling interests

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(255

)

 

 

(255

)

 

 

—

 

Net income (loss) attributable to common stockholders

 

$

40,943

 

 

$

2,072

 

 

$

43,015

 

 

$

8,716

 

 

$

(24,816

)

 

$

26,915

 

 

$

0.32

 

Net income (loss) attributable to common stockholders per share of common stock

 

$

0.48

 

 

$

0.03

 

 

$

0.51

 

 

$

0.10

 

 

$

(0.29

)

 

$

0.32

 

 

 

Weighted average shares of common stock and convertible units(4) outstanding

 

 

 

 

 

 

 

 

 

 

 

 

85,269

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

84,468

 

 

 

 

(1) Other income primarily consists of rental income on real estate owned, loan origination fees, and servicing income.

(2) Includes U.S. Treasury securities, if applicable.

(3) Other activities include certain equity and other trading strategies and related hedges, and net realized and unrealized gains (losses) on foreign currency.

(4) Convertible units include Operating Partnership units attributable to participating non-controlling interests.

About Ellington Financial

Ellington Financial invests in a diverse array of financial assets, including residential and commercial mortgage loans and mortgage-backed securities, reverse mortgage loans, mortgage servicing rights and related investments, consumer loans, asset-backed securities, collateralized loan obligations, non-mortgage and mortgage-related derivatives, debt and equity investments in loan origination companies, and other strategic investments. Ellington Financial is externally managed and advised by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C.

Conference Call

We will host a conference call at 11:00 a.m. Eastern Time on Wednesday, August 7, 2024, to discuss our financial results for the quarter ended June 30, 2024. To participate in the event by telephone, please dial (800) 579-2543 at least 10 minutes prior to the start time and reference the conference ID EFCQ224. International callers should dial (785) 424-1789 and reference the same conference ID. The conference call will also be webcast live over the Internet and can be accessed via the "For Investors" section of our 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. In connection with the release of these financial results, we also posted an investor presentation, that will accompany the conference call, on our website at www.ellingtonfinancial.com under "For Investors—Presentations."

A dial-in replay of the conference call will be available on Wednesday, August 7, 2024, at approximately 2:00 p.m. Eastern Time through Wednesday, August 14, 2024 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (800) 695-0974. International callers should dial (402) 220-1459. A replay of the conference call will also be archived on our web site 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 "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. Forward-looking statements are based on our beliefs, assumptions and expectations of our future operations, business strategies, performance, financial condition, liquidity and prospects, taking into account information currently available to us. These beliefs, assumptions, and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations and strategies may vary materially from those expressed or implied in our forward-looking statements. The following factors are examples of those that could cause actual results to vary from our forward-looking statements: changes in interest rates and the market value of our investments, market volatility, changes in mortgage default rates and prepayment rates, our ability to borrow to finance our assets, changes in government regulations affecting our business, our ability to maintain our exclusion from registration under the Investment Company Act of 1940, our ability to maintain our qualification as a real estate investment trust, or "REIT," and other changes in market conditions and economic trends, such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations. Furthermore, forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A of our Annual Report on Form 10-K, which can be accessed through our website at www.ellingtonfinancial.com or at the SEC's website (www.sec.gov). 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 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.

ELLINGTON FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

Three-Month Period Ended

 

Six-Month Period Ended

 

June 30, 2024

 

March 31, 2024

 

June 30, 2024

(In thousands, except per share amounts)

 

 

 

 

 

NET INTEREST INCOME

 

 

 

 

 

Interest income

$

100,470

 

 

$

101,520

 

 

$

201,990

 

Interest expense

 

(66,874

)

 

 

(70,464

)

 

 

(137,338

)

Total net interest income

 

33,596

 

 

 

31,056

 

 

 

64,652

 

Other Income (Loss)

 

 

 

 

 

Realized gains (losses) on securities and loans, net

 

(22,968

)

 

 

(17,208

)

 

 

(40,176

)

Realized gains (losses) on financial derivatives, net

 

6,313

 

 

 

3,478

 

 

 

9,791

 

Realized gains (losses) on real estate owned, net

 

(1,877

)

 

 

(1,372

)

 

 

(3,249

)

Unrealized gains (losses) on securities and loans, net

 

40,271

 

 

 

5,573

 

 

 

45,844

 

Unrealized gains (losses) on financial derivatives, net

 

7,902

 

 

 

30,365

 

 

 

38,267

 

Unrealized gains (losses) on real estate owned, net

 

882

 

 

 

(679

)

 

 

203

 

Unrealized gains (losses) on other secured borrowings, at fair value, net

 

(1,516

)

 

 

(12,524

)

 

 

(14,040

)

Unrealized gains (losses) on unsecured borrowings, at fair value

 

1,868

 

 

 

1,829

 

 

 

3,696

 

Net change from HECM reverse mortgage loans, at fair value

 

146,706

 

 

 

205,497

 

 

 

352,202

 

Net change related to HMBS obligations, at fair value

 

(127,672

)

 

 

(177,982

)

 

 

(305,654

)

Other, net

 

7,652

 

 

 

7,508

 

 

 

15,161

 

Total other income (loss)

 

57,561

 

 

 

44,485

 

 

 

102,045

 

EXPENSES

 

 

 

 

 

Base management fee to affiliate, net of rebates

 

5,811

 

 

 

5,730

 

 

 

11,541

 

Investment related expenses:

 

 

 

 

 

Servicing expense

 

5,782

 

 

 

5,688

 

 

 

11,470

 

Debt issuance costs related to Other secured borrowings, at fair value

 

—

 

 

 

3,113

 

 

 

3,113

 

Other

 

5,305

 

 

 

4,435

 

 

 

9,740

 

Professional fees

 

2,438

 

 

 

2,970

 

 

 

5,407

 

Compensation and benefits

 

16,353

 

 

 

14,643

 

 

 

30,996

 

Other expenses

 

7,296

 

 

 

7,076

 

 

 

14,373

 

Total expenses

 

42,985

 

 

 

43,655

 

 

 

86,640

 

Net Income (Loss) before Income Tax Expense (Benefit) and Earnings from Investments in Unconsolidated Entities

 

48,172

 

 

 

31,886

 

 

 

80,057

 

Income tax expense (benefit)

 

142

 

 

 

61

 

 

 

202

 

Earnings (losses) from investments in unconsolidated entities

 

12,042

 

 

 

2,226

 

 

 

14,268

 

Net Income (Loss)

 

60,072

 

 

 

34,051

 

 

 

94,123

 

Net Income (Loss) attributable to non-controlling interests

 

900

 

 

 

482

 

 

 

1,382

 

Dividends on preferred stock

 

6,825

 

 

 

6,654

 

 

 

13,479

 

Net Income (Loss) Attributable to Common Stockholders

$

52,347

 

 

$

26,915

 

 

$

79,262

 

Net Income (Loss) per Common Share:

 

 

 

 

 

Basic and Diluted

$

0.62

 

 

$

0.32

 

 

$

0.94

 

Weighted average shares of common stock outstanding

 

85,045

 

 

 

84,468

 

 

 

84,756

 

Weighted average shares of common stock and convertible units outstanding

 

85,880

 

 

 

85,269

 

 

 

85,574

 

ELLINGTON FINANCIAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

As of

(In thousands, except share and per share amounts)

June 30, 2024

 

March 31, 2024

 

December 31, 2023(1)

ASSETS

 

 

 

 

 

Cash and cash equivalents

$

198,513

 

 

$

187,467

 

 

$

228,927

 

Restricted cash

 

6,098

 

 

 

6,343

 

 

 

1,618

 

Securities, at fair value

 

1,127,684

 

 

 

1,328,848

 

 

 

1,518,377

 

Loans, at fair value

 

12,846,106

 

 

 

12,644,232

 

 

 

12,306,636

 

Loan commitments, at fair value

 

5,623

 

 

 

3,917

 

 

 

2,584

 

Forward MSR-related investments, at fair value

 

158,031

 

 

 

160,009

 

 

 

163,336

 

Mortgage servicing rights, at fair value

 

29,538

 

 

 

29,889

 

 

 

29,580

 

Investments in unconsolidated entities, at fair value

 

163,182

 

 

 

125,366

 

 

 

116,414

 

Real estate owned

 

25,248

 

 

 

19,999

 

 

 

22,085

 

Financial derivatives–assets, at fair value

 

162,165

 

 

 

150,343

 

 

 

143,996

 

Reverse repurchase agreements

 

85,671

 

 

 

183,607

 

 

 

173,145

 

Due from brokers

 

22,036

 

 

 

17,099

 

 

 

51,884

 

Investment related receivables

 

195,557

 

 

 

200,059

 

 

 

480,249

 

Other assets

 

67,201

 

 

 

75,422

 

 

 

77,099

 

Total Assets

$

15,092,653

 

 

$

15,132,600

 

 

$

15,315,930

 

LIABILITIES

 

 

 

 

 

Securities sold short, at fair value

$

51,858

 

 

$

165,118

 

 

$

154,303

 

Repurchase agreements

 

2,301,976

 

 

 

2,517,747

 

 

 

2,967,437

 

Financial derivatives–liabilities, at fair value

 

44,064

 

 

 

40,425

 

 

 

61,776

 

Due to brokers

 

74,946

 

 

 

62,646

 

 

 

62,442

 

Investment related payables

 

38,977

 

 

 

32,329

 

 

 

37,403

 

Other secured borrowings

 

217,225

 

 

 

180,918

 

 

 

245,827

 

Other secured borrowings, at fair value

 

1,585,838

 

 

 

1,569,149

 

 

 

1,424,668

 

HMBS-related obligations, at fair value

 

8,832,058

 

 

 

8,619,463

 

 

 

8,423,235

 

Unsecured borrowings, at fair value

 

269,069

 

 

 

270,936

 

 

 

272,765

 

Base management fee payable to affiliate

 

5,811

 

 

 

5,730

 

 

 

5,660

 

Dividend payable

 

15,158

 

 

 

15,168

 

 

 

11,528

 

Interest payable

 

17,174

 

 

 

25,177

 

 

 

22,933

 

Accrued expenses and other liabilities

 

64,640

 

 

 

74,638

 

 

 

90,341

 

Total Liabilities

 

13,518,794

 

 

 

13,579,444

 

 

 

13,780,318

 

EQUITY

 

 

 

 

 

Preferred stock, par value $0.001 per share, 100,000,000 shares authorized; 14,757,222, 14,757,222 and 14,757,222 shares issued and outstanding, and $368,931, $368,931 and $368,931 aggregate liquidation preference, respectively

 

355,551

 

 

 

355,551

 

 

 

355,551

 

Common stock, par value $0.001 per share, 300,000,000, 200,000,000, and 200,000,000 shares authorized, respectively; 85,041,913, 85,056,648 and 83,000,488 shares issued and outstanding, respectively(2)

 

85

 

 

 

85

 

 

 

83

 

Additional paid-in-capital

 

1,541,002

 

 

 

1,540,857

 

 

 

1,514,797

 

Retained earnings (accumulated deficit)

 

(343,853

)

 

 

(363,034

)

 

 

(353,360

)

Total Stockholders' Equity

 

1,552,785

 

 

 

1,533,459

 

 

 

1,517,071

 

Non-controlling interests

 

21,074

 

 

 

19,697

 

 

 

18,541

 

Total Equity

 

1,573,859

 

 

 

1,553,156

 

 

 

1,535,612

 

TOTAL LIABILITIES AND EQUITY

$

15,092,653

 

 

$

15,132,600

 

 

$

15,315,930

 

SUPPLEMENTAL PER SHARE INFORMATION:

 

 

 

 

 

Book Value Per Common Share (3)

$

13.92

 

 

$

13.69

 

 

$

13.83

 

(1) Derived from audited financial statements as of December 31, 2023.

(2) Common shares issued and outstanding at June 30, 2024 exclude 14,735 common shares repurchased during the quarter.

(3) Based on total stockholders' equity less the aggregate liquidation preference of our preferred stock outstanding.

Reconciliation of Net Income (Loss) to Adjusted Distributable Earnings

We calculate Adjusted Distributable Earnings as U.S. GAAP net income (loss) as adjusted for: (i) realized and unrealized gain (loss) on securities and loans, REO, mortgage servicing rights, financial derivatives (excluding periodic settlements on interest rate swaps), any borrowings carried at fair value, and foreign currency transactions; (ii) incentive fee to affiliate; (iii) Catch-up Amortization Adjustment (as defined below); (iv) non-cash equity compensation expense; (v) provision for income taxes; (vi) certain non-capitalized transaction costs; and (vii) other income or loss items that are of a non-recurring nature. For certain investments in unconsolidated entities, we include the relevant components of net operating income in Adjusted Distributable Earnings. The Catch-up Amortization Adjustment is a quarterly adjustment to premium amortization or discount accretion triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses). The adjustment is calculated as of the beginning of each quarter based on our then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter. Non-capitalized transaction costs include expenses, generally professional fees, incurred in connection with the acquisition of an investment or issuance of long-term debt. For the contribution to Adjusted Distributable Earnings from Longbridge, we adjust Longbridge's contribution to our net income in a similar manner, but we include in Adjusted Distributable Earnings certain realized and unrealized gains (losses) from Longbridge's origination business ("gain-on-sale income").

Adjusted Distributable Earnings is a supplemental non-GAAP financial measure. We believe that the presentation of Adjusted Distributable Earnings provides information useful to investors, because: (i) we believe that it is a useful indicator of both current and projected long-term financial performance, in that it excludes the impact of certain current-period earnings components that we believe are less useful in forecasting long-term performance and dividend-paying ability; (ii) we use it to evaluate the effective net yield provided by our investment portfolio, after the effects of financial leverage and by Longbridge, to reflect the earnings from its reverse mortgage origination and servicing operations; and (iii) we believe that presenting Adjusted Distributable Earnings assists investors in measuring and evaluating our operating performance, and comparing our operating performance to that of our residential mortgage REIT and mortgage originator peers. Please note, however, that: (I) our calculation of Adjusted Distributable Earnings may differ from the calculation of similarly titled non-GAAP financial measures by our peers, with the result that these non-GAAP financial measures might not be directly comparable; and (II) Adjusted Distributable Earnings excludes certain items that may impact the amount of cash that is actually available for distribution.

In addition, because Adjusted Distributable Earnings is an incomplete measure of our financial results and differs from net income (loss) computed in accordance with U.S. GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP.

Furthermore, Adjusted Distributable Earnings is different from REIT taxable income. As a result, the determination of whether we have met the requirement to distribute at least 90% of our annual REIT taxable income (subject to certain adjustments) to our stockholders, in order to maintain our qualification as a REIT, is not based on whether we distributed 90% of our Adjusted Distributable Earnings.

In setting our dividends, our Board of Directors considers our earnings, liquidity, financial condition, REIT distribution requirements, and financial covenants, along with other factors that the Board of Directors may deem relevant from time to time.

The following table reconciles, for the three-month periods ended June 30, 2024 and March 31, 2024, our Adjusted Distributable Earnings to the line on our Condensed Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S. GAAP measure:

:

 

 

Three-Month Period Ended

 

 

June 30, 2024

 

March 31, 2024

(In thousands, except per share amounts)

 

Investment Portfolio

 

Longbridge

 

Corporate/Other

 

Total

 

Investment Portfolio

 

Longbridge

 

Corporate/Other

 

Total

Net Income (Loss)

 

$

69,476

 

 

$

4,209

 

 

$

(13,613

)

 

$

60,072

 

 

$

43,200

 

 

$

8,754

 

 

$

(17,903

)

 

$

34,051

 

Income tax expense (benefit)

 

 

—

 

 

 

—

 

 

 

142

 

 

 

142

 

 

 

—

 

 

 

—

 

 

 

61

 

 

 

61

 

Net income (loss) before income tax expense (benefit)

 

 

69,476

 

 

 

4,209

 

 

 

(13,471

)

 

 

60,214

 

 

 

43,200

 

 

 

8,754

 

 

 

(17,842

)

 

 

34,112

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized (gains) losses, net(1)

 

 

34,875

 

 

 

—

 

 

 

1,059

 

 

 

35,934

 

 

 

29,254

 

 

 

—

 

 

 

1,620

 

 

 

30,874

 

Unrealized (gains) losses, net(2)

 

 

(50,663

)

 

 

1,441

 

 

 

(2,679

)

 

 

(51,901

)

 

 

(25,945

)

 

 

449

 

 

 

(106

)

 

 

(25,602

)

Unrealized (gains) losses on reverse MSRs, net of hedging (gains) losses(3)

 

 

—

 

 

 

(394

)

 

 

—

 

 

 

(394

)

 

 

—

 

 

 

(13,943

)

 

 

—

 

 

 

(13,943

)

Negative (positive) component of interest income represented by Catch-up Amortization Adjustment

 

 

(720

)

 

 

—

 

 

 

—

 

 

 

(720

)

 

 

1,297

 

 

 

—

 

 

 

—

 

 

 

1,297

 

Non-capitalized transaction costs and other expense adjustments(4)

 

 

1,081

 

 

 

181

 

 

 

321

 

 

 

1,583

 

 

 

923

 

 

 

4,068

 

 

 

500

 

 

 

5,491

 

(Earnings) losses from investments in unconsolidated entities

 

 

(12,042

)

 

 

—

 

 

 

—

 

 

 

(12,042

)

 

 

(2,226

)

 

 

—

 

 

 

—

 

 

 

(2,226

)

Adjusted distributable earnings from investments in unconsolidated entities(5)

 

 

3,272

 

 

 

—

 

 

 

—

 

 

 

3,272

 

 

 

816

 

 

 

—

 

 

 

—

 

 

 

816

 

Total Adjusted Distributable Earnings

 

$

45,279

 

 

$

5,437

 

 

$

(14,770

)

 

$

35,946

 

 

$

47,319

 

 

$

(672

)

 

$

(15,828

)

 

$

30,819

 

Dividends on preferred stock

 

 

—

 

 

 

—

 

 

 

6,825

 

 

 

6,825

 

 

 

—

 

 

 

—

 

 

 

6,654

 

 

 

6,654

 

Adjusted Distributable Earnings attributable to non-controlling interests

 

 

486

 

 

 

23

 

 

 

278

 

 

 

787

 

 

 

216

 

 

 

(2

)

 

 

225

 

 

 

439

 

Adjusted Distributable Earnings Attributable to Common Stockholders

 

$

44,793

 

 

$

5,414

 

 

$

(21,873

)

 

$

28,334

 

 

$

47,103

 

 

$

(670

)

 

$

(22,707

)

 

$

23,726

 

Adjusted Distributable Earnings Attributable to Common Stockholders, per share

 

$

0.53

 

 

$

0.06

 

 

$

(0.26

)

 

$

0.33

 

 

$

0.56

 

 

$

(0.01

)

 

$

(0.27

)

 

$

0.28

 

(1)

Includes realized (gains) losses on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), and foreign currency transactions which are components of Other Income (Loss) on the Condensed Consolidated Statement of Operations.

(2)

Includes unrealized (gains) losses on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), borrowings carried at fair value, MSR-related investments, and foreign currency translations which are components of Other Income (Loss) on the Condensed Consolidated Statement of Operations.

(3)

Represents net change in fair value of the HMBS MSR Equivalent and Reverse MSRs attributable to changes in market conditions and model assumptions. This adjustment also includes net (gains) losses on certain hedging instruments, which are components of realized and/or unrealized gains (losses) on financial derivatives, net on the Condensed Consolidated Statement of Operations.

(4)

For the three-month period ended June 30, 2024, includes $1.1 million of non-capitalized transaction costs, $0.3 million of non-cash equity compensation expense, and $0.2 million of various other expenses. For the three-month period ended March 31, 2024, includes $3.1 million of debt issuance costs related to the securitization of reverse mortgage loans, $0.9 million of non-capitalized transaction costs, $0.6 million of merger and other business transition-related expenses, $0.3 million of non-cash equity compensation expense, and $0.6 million of various other expenses.

(5)

Includes net interest income and operating expenses for certain investments in unconsolidated entities.

 

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Investors: Ellington Financial Investor Relations (203) 409-3575 info@ellingtonfinancial.com or Media: Amanda Shpiner/Grace Cartwright Gasthalter & Co. for Ellington Financial (212) 257-4170 ellington@gasthalter.com