EFC Ellington Financial Inc

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

Highlights

• Net income attributable to common stockholders of $16.2 million, or $0.19 per common share.1
  • $44.0 million, or $0.51 per common share, from the investment portfolio.
    • $39.2 million, or $0.45 per common share, from the credit strategy.
    • $4.8 million, or $0.06 per common share, from the Agency strategy.
  • $(2.5) million, or $(0.03) per common share, from Longbridge.
• Adjusted Distributable Earnings2 of $34.5 million, or $0.40 per common share.
• Book value per common share as of September 30, 2024 of $13.66, including the effects of dividends of $0.39 per common share for the quarter.
• Dividend yield of 13.1% based on the November 5, 2024 closing stock price of $11.95 per share, and monthly dividend of $0.13 per common share declared on October 7, 2024.
• Recourse debt-to-equity ratio3 of 1.8:1 as of September 30, 2024, adjusted for unsettled purchases and sales. Including all recourse and non-recourse borrowings, which primarily consist of securitization-related liabilities, debt-to-equity ratio of 8.3:14.
• Cash and cash equivalents of $217.7 million as of September 30, 2024, in addition to other unencumbered assets of $546.8 million.
• On November 6, 2024, we announced the redemption of our Series E Preferred Stock. Such redemption is expected to take place on December 13, 2024.

Third Quarter 2024 Results

"In the third quarter, Ellington Financial's investment portfolio expanded as we utilized our strong balance sheet to continue growing our high-yielding loan portfolios. For the quarter, our non-QM loan, residential transition loan, commercial mortgage bridge loan, HELOC, and closed-end second lien loan portfolios increased by a combined 26%, which drove leverage incrementally higher, even as we continued to shrink our Agency portfolio and maintain additional dry powder to deploy," said Laurence Penn, Chief Executive Officer and President.

"Our third quarter results reflect excellent performance from our non-QM and proprietary reverse mortgage loan businesses, both driven in part by strong executions in the securitization markets. Our closed-end second liens, Agency and non-Agency RMBS, CLOs, and CMBS all delivered positive results as well. Underperformance from other parts of the portfolio partially offset these positive drivers, and overall for the quarter, EFC generated net income of $0.19 per share.

"In addition, adjusted distributable earnings increased nicely during the quarter to $0.40 per share and covered our dividends, driven in part by a sizeable contribution from our proprietary reverse mortgage strategy. Looking forward, we see support for adjusted distributable earnings from our larger investment portfolio, the additional dry powder we have to deploy, our continued progress in working out delinquent loan inventory, and our anticipated replacement in the fourth quarter of higher-cost debt and preferred equity with lower-cost debt."

Financial Results

Investment Portfolio Summary

Our investment portfolio generated net income attributable to common stockholders of $44.0 million, consisting of $39.2 million from the credit strategy and $4.8 million from the Agency strategy.

Credit Performance

Our total long credit portfolio, excluding non-retained tranches of consolidated securitization trusts, increased by 19% to $3.25 billion as of September 30, 2024, from $2.73 billion as of June 30, 2024. The increase was primarily driven by net purchases of non-QM loans, closed-end second lien loans, home equity lines of credit, or "HELOCs," commercial mortgage bridge loans, and non-Agency RMBS. A portion of the increase was offset by smaller CLO and CMBS portfolios, driven by net sales.

Including associated financing costs and hedging gains/losses, strong net interest income and net gains from our non-QM loans and retained tranches, non-Agency RMBS, closed-end second lien loans, and CMBS drove the positive performance of our credit strategy in the third 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 wider gain-on-sale margins. Offsetting a portion of these gains were net losses on our consumer loan portfolio and a related equity investment in a consumer loan originator, as well as negative operating income on certain non-performing commercial mortgage loans and REO. Finally, we had a net loss on the Great Ajax common shares we had purchased in connection with last year's terminated merger.

The percentage of delinquent loans in our residential mortgage loan portfolio decreased quarter over quarter, while the percentage of delinquent loans in our commercial mortgage loan portfolio (including loans accounted for as equity method investments) increased. Both of these portfolios continue to experience low levels of realized credit losses and strong overall credit performance, though we continue to work out several non-performing commercial mortgage assets.

During the quarter, the net interest margin5 on our credit portfolio decreased to 2.64% from 2.76%. 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 approximately 14% quarter over quarter to $394.6 million, driven by net sales and principal repayments, which were partially offset by net gains.

In the third quarter, interest rates fell, the yield curve steepened, and Agency RMBS yield spreads tightened as the market anticipated the beginning of the Federal Reserve's interest rate cutting cycle. In September the Federal Reserve reduced the target range for the federal funds rate by 50 basis points and also released updated economic projections that implied another 50 basis points of interest rate cuts later in 2024. Overall for the third quarter, the U.S. Agency MBS Index generated an excess return of 0.76%. Against this backdrop, our Agency strategy generated positive results for the quarter, as net gains on our Agency RMBS exceeded net losses on interest rate hedges, which were driven by declining interest rates.

Average pay-ups on our specified pools decreased to 0.68% as of September 30, 2024, as compared to 0.91% as of June 30, 2024.

During the quarter, the net interest margin5 on our Agency RMBS, excluding the Catch-up Amortization Adjustment, increased to 2.03% from 1.99%. As with our credit strategy, 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.

Longbridge Summary

Our Longbridge segment generated a net loss attributable to common stockholders of $(2.5) million for the third quarter, driven by net losses on interest rate hedges, partially offset by positive results in originations. We had a mark-to-market gain on our HMBS MSR Equivalent, but this gain was muted by wider HMBS yield spreads, which resulted in a net loss on this position after taking into account the net losses on the interest rate hedges that we hold against this position. Wider HMBS yield spreads adversely affect the value of our HMBS MSR Equivalent because they lower the component of projected servicing income that stems from the right to fund and securitize future borrower draws. In HECM originations, a decline in origination margins, also driven by wider HMBS yield spreads, was partially offset by higher volumes; whereas in proprietary reverse originations, net gains related to the securitization in July, along with improved origination margins and higher volumes, led to strong profits in that product line.

Our Longbridge portfolio, excluding non-retained tranches of consolidated securitization trusts, decreased by 5% sequentially to $494.2 million as of September 30, 2024, driven primarily by the completion of our securitization of proprietary reverse mortgage loans, partially offset by new proprietary reverse mortgage loan originations during the quarter.

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 unrealized loss on our unsecured borrowings, driven by the decline in interest rates. This loss was partially offset by a net gain, also driven by the decrease 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 $(25.3) 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 2.0:1 as of September 30, 2024. 4 Excludes U.S. Treasury securities and repo borrowings at certain unconsolidated entities. 5 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 September 30, 2024 and June 30, 2024:

 

 

September 30, 2024

 

June 30, 2024

($ in thousands)

 

Fair Value

 

%

 

Fair Value

 

%

Dollar denominated:

 

 

 

 

 

 

 

 

CLOs(4)

 

$

67,963

 

1.4

%

 

$

75,719

 

1.8

%

CMBS

 

 

38,937

 

0.8

%

 

 

42,842

 

1.0

%

Commercial mortgage loans(3)

 

 

392,073

 

8.3

%

 

 

362,914

 

8.8

%

Consumer loans and ABS backed by consumer loans(4)

 

 

88,805

 

1.9

%

 

 

85,802

 

2.1

%

Corporate debt and equity and corporate loans

 

 

31,650

 

0.7

%

 

 

32,100

 

0.8

%

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

 

 

42,376

 

0.9

%

 

 

37,381

 

0.9

%

Forward MSR-related investments

 

 

149,831

 

3.2

%

 

 

158,031

 

3.8

%

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

 

 

186,050

 

4.0

%

 

 

62,737

 

1.5

%

Non-Agency RMBS

 

 

155,423

 

3.3

%

 

 

143,690

 

3.5

%

Non-QM loans and retained non-QM RMBS(2)(7)

 

 

2,165,375

 

46.1

%

 

 

1,802,847

 

43.5

%

Other investments(5)

 

 

49,651

 

1.1

%

 

 

23,533

 

0.6

%

Residential transition loans and other residential mortgage loans(2)

 

 

1,248,001

 

26.6

%

 

 

1,234,796

 

29.8

%

Non-Dollar denominated:

 

 

 

 

 

 

 

 

CLOs(4)

 

 

6,956

 

0.1

%

 

 

6,973

 

0.2

%

Corporate debt and equity

 

 

206

 

—

%

 

 

219

 

—

%

RMBS(8)

 

 

17,480

 

0.4

%

 

 

18,138

 

0.4

%

Other residential mortgage loans

 

 

55,167

 

1.2

%

 

 

52,368

 

1.3

%

Total long credit portfolio

 

$

4,695,944

 

100.0

%

 

$

4,140,090

 

100.0

%

Less: Non-retained tranches of consolidated securitization trusts

 

 

1,445,466

 

 

 

 

1,414,389

 

 

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

 

$

3,250,478

 

 

 

$

2,725,701

 

 

(1)

 

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

(2)

 

Includes related REO. 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.

(3)

 

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

(4)

 

Includes equity investments in securitization-related vehicles.

(5)

 

Includes equity investment in Ellington affiliate.

(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 September 30, 2024 and June 30, 2024:

 

 

September 30, 2024

 

June 30, 2024

($ in thousands)

 

Fair Value

 

%

 

Fair Value

 

%

Long Agency RMBS:

 

 

 

 

 

 

 

 

Fixed rate

 

$

346,341

 

87.8

%

 

$

413,685

 

90.4

%

Reverse mortgages

 

 

33,723

 

8.5

%

 

 

33,853

 

7.4

%

IOs

 

 

14,579

 

3.7

%

 

 

10,162

 

2.2

%

Total long Agency RMBS

 

$

394,643

 

100.0

%

 

$

457,700

 

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 summarizes loan-related assets(1) in the Longbridge segment as of September 30, 2024 and June 30, 2024:

 

 

September 30, 2024

 

June 30, 2024

 

 

(In thousands)

HMBS assets(2)

 

$

8,890,459

 

 

$

8,926,658

 

Less: HMBS liabilities

 

 

(8,790,589

)

 

 

(8,832,058

)

HMBS MSR Equivalent

 

 

99,870

 

 

 

94,600

 

Unsecuritized HECM loans(3)

 

 

127,625

 

 

 

103,668

 

Proprietary reverse mortgage loans(4)

 

 

597,093

 

 

 

449,968

 

Reverse MSRs

 

 

28,877

 

 

 

29,538

 

Unsecuritized REO

 

 

2,372

 

 

 

1,375

 

Total

 

 

855,837

 

 

 

679,149

 

Less: Non-retained tranches of consolidated securitization trusts

 

 

361,596

 

 

 

158,397

 

Total, excluding non-retained tranches of consolidated securitization trusts

 

$

494,241

 

 

$

520,752

 

(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 September 30, 2024, includes $8.2 million of active HECM buyout loans, $10.6 million of inactive HECM buyout loans, and $4.2 million of other inactive HECM loans. 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.

(4)

 

As of September 30, 2024, includes $390.6 million of securitized proprietary reverse mortgage loans and $9.0 million of cash held in a securitization reserve fund. 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.

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

($ In thousands)

 

September 30, 2024

 

June 30, 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

 

459

 

$

83,080

 

23

%

 

408

 

$

60,601

 

20

%

Wholesale and correspondent

 

1,391

 

 

271,660

 

77

%

 

1,298

 

 

243,937

 

80

%

Total

 

1,850

 

$

354,740

 

100

%

 

1,706

 

$

304,538

 

100

%

(1)

 

Represents initial borrowed amounts on reverse mortgage loans.

Financing

Our recourse debt-to-equity ratio3, adjusted for unsettled purchases and sales, increased to 1.8:1 at September 30, 2024 from 1.6:1 at June 30, 2024. The increase was primarily driven by an increase in borrowings on our larger credit portfolio, partially offset by a decrease in borrowings on our smaller Agency portfolio, the proprietary reverse mortgage securitization which converted certain recourse borrowings to non-recourse borrowings, and an increase in shareholders' equity. Our overall debt-to-equity ratio4, adjusted for unsettled purchases and sales, also increased during the quarter, to 8.3:1 as of September 30, 2024, as compared to 8.2:1 as of June 30, 2024.

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

 

 

September 30, 2024

 

June 30, 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)

 

$

3,224,630

 

2.0:1

 

$

2,816,882

 

1.8:1

Non-recourse borrowings(4)

 

 

10,604,344

 

6.5:1

 

 

10,417,896

 

6.6:1

Total Borrowings

 

$

13,828,974

 

8.5:1

 

$

13,234,778

 

8.4:1

Total Equity

 

$

1,625,649

 

 

 

$

1,573,859

 

 

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

 

 

 

1.8:1

 

 

 

1.6:1

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

 

 

 

8.3:1

 

 

 

8.2:1

(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 2.1:1 and 1.9:1 as of September 30, 2024 and June 30, 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 September 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)

 

$

78,309

 

 

$

5,418

 

 

$

83,727

 

 

$

16,470

 

 

$

1,523

 

 

$

101,720

 

 

$

1.16

 

Interest expense

 

 

(46,905

)

 

 

(5,132

)

 

 

(52,037

)

 

 

(12,318

)

 

 

(4,491

)

 

 

(68,846

)

 

 

(0.78

)

Realized gain (loss), net

 

 

(11,499

)

 

 

(2,172

)

 

 

(13,671

)

 

 

(19

)

 

 

—

 

 

 

(13,690

)

 

 

(0.16

)

Unrealized gain (loss), net

 

 

28,826

 

 

 

17,981

 

 

 

46,807

 

 

 

20,484

 

 

 

(9,059

)

 

 

58,232

 

 

 

0.66

 

Net change from reverse mortgage loans and HMBS obligations

 

 

—

 

 

 

—

 

 

 

—

 

 

 

24,717

 

 

 

—

 

 

 

24,717

 

 

 

0.28

 

Earnings in unconsolidated entities

 

 

7,281

 

 

 

—

 

 

 

7,281

 

 

 

—

 

 

 

—

 

 

 

7,281

 

 

 

0.08

 

Interest rate hedges and other activity, net(2)

 

 

(8,561

)

 

 

(11,294

)

 

 

(19,855

)

 

 

(17,252

)

 

 

5,247

 

 

 

(31,860

)

 

 

(0.36

)

Credit hedges and other activities, net(3)

 

 

(2,573

)

 

 

—

 

 

 

(2,573

)

 

 

(722

)

 

 

—

 

 

 

(3,295

)

 

 

(0.04

)

Income tax (expense) benefit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(12

)

 

 

(12

)

 

 

—

 

Investment related expenses

 

 

(4,146

)

 

 

—

 

 

 

(4,146

)

 

 

(11,539

)

 

 

—

 

 

 

(15,685

)

 

 

(0.18

)

Other expenses

 

 

(1,418

)

 

 

—

 

 

 

(1,418

)

 

 

(22,272

)

 

 

(11,549

)

 

 

(35,239

)

 

 

(0.40

)

Net income (loss)

 

 

39,314

 

 

 

4,801

 

 

 

44,115

 

 

 

(2,451

)

 

 

(18,341

)

 

 

23,323

 

 

 

0.26

 

Dividends on preferred stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,833

)

 

 

(6,833

)

 

 

(0.07

)

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

 

 

(116

)

 

 

—

 

 

 

(116

)

 

 

(39

)

 

 

(4

)

 

 

(159

)

 

 

—

 

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

 

 

39,198

 

 

 

4,801

 

 

 

43,999

 

 

 

(2,490

)

 

 

(25,178

)

 

 

16,331

 

 

 

0.19

 

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

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(156

)

 

 

(156

)

 

 

—

 

Net income (loss) attributable to common stockholders

 

$

39,198

 

 

$

4,801

 

 

$

43,999

 

 

$

(2,490

)

 

$

(25,334

)

 

$

16,175

 

 

$

0.19

 

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

 

$

0.45

 

 

$

0.06

 

 

$

0.51

 

 

$

(0.03

)

 

$

(0.29

)

 

$

0.19

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

88,039

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

87,198

 

 

 

(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 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.

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 Thursday, November 7, 2024, to discuss our financial results for the quarter ended September 30, 2024. To participate in the event by telephone, please dial (800) 343-4849 at least 10 minutes prior to the start time and reference the conference ID EFCQ324. International callers should dial (203) 518-8948 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 Thursday, November 7, 2024, at approximately 2:00 p.m. Eastern Time through Thursday, November 14, 2024 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (800) 839-2475. International callers should dial (402) 220-7220. 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

 

Nine-Month Period Ended

 

September 30, 2024

 

June 30, 2024

 

September 30, 2024

(In thousands, except per share amounts)

 

 

 

 

 

NET INTEREST INCOME

 

 

 

 

 

Interest income

$

107,281

 

 

$

100,470

 

 

$

309,272

 

Interest expense

 

(73,654

)

 

 

(66,874

)

 

 

(210,993

)

Total net interest income

 

33,627

 

 

 

33,596

 

 

 

98,279

 

Other Income (Loss)

 

 

 

 

 

Realized gains (losses) on securities and loans, net

 

(12,243

)

 

 

(22,968

)

 

 

(52,419

)

Realized gains (losses) on financial derivatives, net

 

(41,564

)

 

 

6,313

 

 

 

(31,774

)

Realized gains (losses) on real estate owned, net

 

(397

)

 

 

(1,877

)

 

 

(3,646

)

Unrealized gains (losses) on securities and loans, net

 

126,908

 

 

 

40,271

 

 

 

172,752

 

Unrealized gains (losses) on financial derivatives, net

 

356

 

 

 

7,902

 

 

 

38,623

 

Unrealized gains (losses) on real estate owned, net

 

(769

)

 

 

882

 

 

 

(567

)

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

 

(56,179

)

 

 

(1,516

)

 

 

(70,218

)

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

 

(9,059

)

 

 

1,868

 

 

 

(5,363

)

Net change from HECM reverse mortgage loans, at fair value

 

158,554

 

 

 

146,706

 

 

 

510,757

 

Net change related to HMBS obligations, at fair value

 

(133,837

)

 

 

(127,672

)

 

 

(439,491

)

Other, net

 

1,581

 

 

 

7,652

 

 

 

16,742

 

Total other income (loss)

 

33,351

 

 

 

57,561

 

 

 

135,396

 

EXPENSES

 

 

 

 

 

Base management fee to affiliate, net of rebates

 

6,031

 

 

 

5,811

 

 

 

17,572

 

Investment related expenses:

 

 

 

 

 

Servicing expense

 

6,334

 

 

 

5,782

 

 

 

17,805

 

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

 

1,991

 

 

 

—

 

 

 

5,103

 

Other

 

7,360

 

 

 

5,305

 

 

 

17,100

 

Professional fees

 

2,667

 

 

 

2,438

 

 

 

8,074

 

Compensation and benefits

 

18,987

 

 

 

16,353

 

 

 

49,983

 

Other expenses

 

7,554

 

 

 

7,296

 

 

 

21,927

 

Total expenses

 

50,924

 

 

 

42,985

 

 

 

137,564

 

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

 

16,054

 

 

 

48,172

 

 

 

96,111

 

Income tax expense (benefit)

 

12

 

 

 

142

 

 

 

214

 

Earnings (losses) from investments in unconsolidated entities

 

7,281

 

 

 

12,042

 

 

 

21,549

 

Net Income (Loss)

 

23,323

 

 

 

60,072

 

 

 

117,446

 

Net Income (Loss) attributable to non-controlling interests

 

315

 

 

 

900

 

 

 

1,697

 

Dividends on preferred stock

 

6,833

 

 

 

6,825

 

 

 

20,312

 

Net Income (Loss) Attributable to Common Stockholders

$

16,175

 

 

$

52,347

 

 

$

95,437

 

Net Income (Loss) per Common Share:

 

 

 

 

 

Basic and Diluted

$

0.19

 

 

$

0.62

 

 

$

1.12

 

Weighted average shares of common stock outstanding

 

87,198

 

 

 

85,045

 

 

 

85,576

 

Weighted average shares of common stock and convertible units outstanding

 

88,039

 

 

 

85,880

 

 

 

86,402

 

ELLINGTON FINANCIAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

As of

(In thousands, except share and per share amounts)

September 30, 2024

 

June 30, 2024

 

December 31, 2023(1)

ASSETS

 

 

 

 

 

Cash and cash equivalents

$

217,725

 

 

$

198,513

 

 

$

228,927

 

Restricted cash

 

10,578

 

 

 

6,098

 

 

 

1,618

 

Securities, at fair value

 

1,063,774

 

 

 

1,127,684

 

 

 

1,518,377

 

Loans, at fair value

 

13,519,786

 

 

 

12,846,106

 

 

 

12,306,636

 

Loan commitments, at fair value

 

5,955

 

 

 

5,623

 

 

 

2,584

 

Forward MSR-related investments, at fair value

 

149,831

 

 

 

158,031

 

 

 

163,336

 

Mortgage servicing rights, at fair value

 

28,877

 

 

 

29,538

 

 

 

29,580

 

Investments in unconsolidated entities, at fair value

 

188,475

 

 

 

163,182

 

 

 

116,414

 

Real estate owned

 

29,690

 

 

 

25,248

 

 

 

22,085

 

Financial derivatives–assets, at fair value

 

149,679

 

 

 

162,165

 

 

 

143,996

 

Reverse repurchase agreements

 

331,630

 

 

 

85,671

 

 

 

173,145

 

Due from brokers

 

16,048

 

 

 

22,036

 

 

 

51,884

 

Investment related receivables

 

208,861

 

 

 

195,557

 

 

 

480,249

 

Other assets

 

32,381

 

 

 

67,201

 

 

 

77,099

 

Total Assets

$

15,953,290

 

 

$

15,092,653

 

 

$

15,315,930

 

LIABILITIES

 

 

 

 

 

Securities sold short, at fair value

$

304,918

 

 

$

51,858

 

 

$

154,303

 

Repurchase agreements

 

2,642,052

 

 

 

2,301,976

 

 

 

2,967,437

 

Financial derivatives–liabilities, at fair value

 

49,243

 

 

 

44,064

 

 

 

61,776

 

Due to brokers

 

55,529

 

 

 

74,946

 

 

 

62,442

 

Investment related payables

 

25,178

 

 

 

38,977

 

 

 

37,403

 

Other secured borrowings

 

284,897

 

 

 

217,225

 

 

 

245,827

 

Other secured borrowings, at fair value

 

1,813,755

 

 

 

1,585,838

 

 

 

1,424,668

 

HMBS-related obligations, at fair value

 

8,790,589

 

 

 

8,832,058

 

 

 

8,423,235

 

Unsecured borrowings, at fair value

 

278,128

 

 

 

269,069

 

 

 

272,765

 

Base management fee payable to affiliate

 

6,031

 

 

 

5,811

 

 

 

5,660

 

Dividend payable

 

15,892

 

 

 

15,158

 

 

 

11,528

 

Interest payable

 

21,045

 

 

 

17,174

 

 

 

22,933

 

Accrued expenses and other liabilities

 

40,384

 

 

 

64,640

 

 

 

90,341

 

Total Liabilities

 

14,327,641

 

 

 

13,518,794

 

 

 

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, 300,000,000, and 200,000,000 shares authorized, respectively; 90,661,736, 85,041,913 and 83,000,488 shares issued and outstanding, respectively(2)

 

91

 

 

 

85

 

 

 

83

 

Additional paid-in-capital

 

1,613,740

 

 

 

1,541,002

 

 

 

1,514,797

 

Retained earnings (accumulated deficit)

 

(362,146

)

 

 

(343,853

)

 

 

(353,360

)

Total Stockholders' Equity

 

1,607,236

 

 

 

1,552,785

 

 

 

1,517,071

 

Non-controlling interests

 

18,413

 

 

 

21,074

 

 

 

18,541

 

Total Equity

 

1,625,649

 

 

 

1,573,859

 

 

 

1,535,612

 

TOTAL LIABILITIES AND EQUITY

$

15,953,290

 

 

$

15,092,653

 

 

$

15,315,930

 

SUPPLEMENTAL PER SHARE INFORMATION:

 

 

 

 

 

Book Value Per Common Share (3)

$

13.66

 

 

$

13.92

 

 

$

13.83

 

(1)

 

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

(2)

 

Common shares issued and outstanding at September 30, 2024 includes 5,612,166 shares of common stock issued under our ATM program and 7,657 shares of common stock issued for the conversion of LTIP Units during the three-month period ended September 30, 2024.

(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. We also include in Adjusted Distributable Earnings, for all loans that we originate through Longbridge, any realized and unrealized gains (losses) on such loans up to the point of loan sale or securitization, net of sale or securitization costs.

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 September 30, 2024 and June 30, 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

 

 

September 30, 2024

 

June 30, 2024

(In thousands, except per share amounts)

 

Investment Portfolio

 

Longbridge

 

Corporate/ Other

 

Total

 

Investment Portfolio

 

Longbridge

 

Corporate/ Other

 

Total

Net Income (Loss)

 

$

44,115

 

 

$

(2,451

)

 

$

(18,341

)

 

$

23,323

 

 

$

69,476

 

 

$

4,209

 

 

$

(13,613

)

 

$

60,072

 

Income tax expense (benefit)

 

 

—

 

 

 

—

 

 

 

12

 

 

 

12

 

 

 

—

 

 

 

—

 

 

 

142

 

 

 

142

 

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

 

 

44,115

 

 

 

(2,451

)

 

 

(18,329

)

 

 

23,335

 

 

 

69,476

 

 

 

4,209

 

 

 

(13,471

)

 

 

60,214

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized (gains) losses, net(1)

 

 

63,515

 

 

 

—

 

 

 

(1

)

 

 

63,514

 

 

 

34,875

 

 

 

—

 

 

 

1,059

 

 

 

35,934

 

Unrealized (gains) losses, net(2)

 

 

(57,575

)

 

 

52

 

 

 

2,429

 

 

 

(55,094

)

 

 

(50,663

)

 

 

1,441

 

 

 

(2,679

)

 

 

(51,901

)

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

 

 

—

 

 

 

11,728

 

 

 

—

 

 

 

11,728

 

 

 

—

 

 

 

(394

)

 

 

—

 

 

 

(394

)

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

 

 

(498

)

 

 

—

 

 

 

—

 

 

 

(498

)

 

 

(720

)

 

 

—

 

 

 

—

 

 

 

(720

)

Adjustment related to consolidated proprietary reverse mortgage loan securitizations(4)

 

 

—

 

 

 

(2,007

)

 

 

—

 

 

 

(2,007

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Non-capitalized transaction costs and other expense adjustments(5)

 

 

2,353

 

 

 

2,846

 

 

 

219

 

 

 

5,418

 

 

 

1,081

 

 

 

181

 

 

 

321

 

 

 

1,583

 

(Earnings) losses from investments in unconsolidated entities

 

 

(7,281

)

 

 

—

 

 

 

—

 

 

 

(7,281

)

 

 

(12,042

)

 

 

—

 

 

 

—

 

 

 

(12,042

)

Adjusted distributable earnings from investments in unconsolidated entities(6)

 

 

2,769

 

 

 

—

 

 

 

—

 

 

 

2,769

 

 

 

3,272

 

 

 

—

 

 

 

—

 

 

 

3,272

 

Total Adjusted Distributable Earnings

 

$

47,398

 

 

$

10,168

 

 

$

(15,682

)

 

$

41,884

 

 

$

45,279

 

 

$

5,437

 

 

$

(14,770

)

 

$

35,946

 

Dividends on preferred stock

 

 

—

 

 

 

—

 

 

 

6,833

 

 

 

6,833

 

 

 

—

 

 

 

—

 

 

 

6,825

 

 

 

6,825

 

Adjusted Distributable Earnings attributable to non-controlling interests

 

 

205

 

 

 

43

 

 

 

332

 

 

 

580

 

 

 

486

 

 

 

23

 

 

 

278

 

 

 

787

 

Adjusted Distributable Earnings Attributable to Common Stockholders

 

$

47,193

 

 

$

10,125

 

 

$

(22,847

)

 

$

34,471

 

 

$

44,793

 

 

$

5,414

 

 

$

(21,873

)

 

$

28,334

 

Adjusted Distributable Earnings Attributable to Common Stockholders, per share

 

$

0.54

 

 

$

0.12

 

 

$

(0.26

)

 

$

0.40

 

 

$

0.53

 

 

$

0.06

 

 

$

(0.26

)

 

$

0.33

 

(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 (including interest rate swaps, futures, and short U.S. Treasury securities), which are components of realized and/or unrealized gains (losses) on financial derivatives, net, realized and/or unrealized gains (losses) on securities and loans, net, interest income, and interest expense on the Condensed Consolidated Statement of Operations.

(4)

 

Represents the effect of replacing mortgage loan interest income (net of securitization debt expense) with interest income of the retained tranches.

(5)

 

For the three-month period ended September 30, 2024, includes $2.1 million of one-time compensation expense related to the cancellation of employee stock options, $2.2 million of non-capitalized transaction costs, $0.8 million of various other expenses, and $0.3 million of non-cash equity compensation expense. 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.

(6)

 

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/20241106286391/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