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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240806005948/en/
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
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