Ellington Financial Inc. Reports First Quarter 2019 Results
Highlights
-
Net income of
$15.4 million , or$0.52 per basic and diluted share. -
Book value per share as of
March 31, 2019 of$18.90 , including the effect of dividends of$0.55 per share, which included the Company's final quarterly dividend of$0.41 per share and its first monthly dividend of$0.14 per share. -
Credit strategy gross income of
$16.5 million for the quarter, or$0.54 per share. -
Agency strategy gross income of
$5.4 million for the quarter, or$0.18 per share. -
Core Earnings1 of
$13.3 million , or$0.45 per share. -
Dividend yield of 9.3% based on the
May 6, 2019 closing stock price of$18.08 per share. -
Debt-to-equity ratio of 3.39:12 and total recourse
debt-to-equity ratio of 2.63:13 as of
March 31, 2019 . -
Announced that the Company intends to be taxed as a REIT for U.S.
federal income tax purposes for tax year 2019, and announced the
conversion of the Company to a corporation under
Delaware law.
| 1 Core Earnings is a non-GAAP financial measure. See "Reconciliation of Net Income (Loss) to Core Earnings" below for an explanation regarding the calculation of Core Earnings. |
| 2 Excludes repo borrowings on U.S. Treasury securities. |
| 3 Includes borrowings at certain unconsolidated entities that are recourse to the Company. |
First Quarter 2019 Results
"During the quarter, our first quarter as a REIT,
"We continued to benefit from the excellent performance of our
residential non-performing loans, small-balance commercial mortgage
loans, non-QM loans, and consumer loans. Our Agency portfolio also
performed very well this quarter. In addition, we successfully executed
on several notable transactions during the quarter, including a
securitization of re-performing Irish residential loans, and the fourth
Ellington-sponsored CLO, which was upsized due to strong investor
demand. At the same time, we participated in the asset ramp-up for two
additional planned CLOs, one in the U.S. and one in
"Also this quarter, we shifted to a monthly dividend, while at the same time increasing our annualized dividend by 2.4%, reflecting the steady growth of our net interest income and overall earnings power. Given that we have always reported our book value on a monthly basis, we believe that our shift to a monthly dividend was a natural one, and will further enhance performance transparency. We believe that this will not only benefit our existing shareholders, but increase the breadth of our investor base as well.
"The year is off to a great start, and we believe that our performance
over the past several quarters demonstrates
Corporate Structure Update
The Company intends to elect to be taxed as a REIT for U.S. federal
income tax purposes for the taxable year ending
Financial Results
During the quarter, the Company continued to rotate capital from
non-REIT-qualifying assets to REIT-qualifying assets. As a result of
these efforts, the Agency RMBS portfolio grew significantly, while the
composition of the overall credit portfolio shifted somewhat,
highlighted by net purchases of small balance commercial mortgage loans,
non-QM loans, and residential transition loans, and net sales of
The Company's debt-to-equity ratio2 increased to 3.39:1 as of
During the first quarter, the Company's credit strategy generated total
gross income of
The Company's credit portfolio continues to be the primary driver of its
earnings. Steady growth in the net interest income of this portfolio was
a key contributor to the Company's strong first quarter results, along
with tighter yield spreads in many credit sectors and gains from
securitizations. During the first quarter, the Company's credit strategy
generated net interest income5 of
The Company also benefited from excellent performance in its Agency RMBS
portfolio during the quarter. Declining interest rates and tightening
yield spreads on many Agency RMBS generated net realized and unrealized
gains of
| 4 Includes REO at the lower of cost or fair value. Excludes hedges and other derivative positions, as well as tranches of the Company's consolidated non-QM securitization trusts that were sold to third parties, but that are consolidated for GAAP reporting purposes. Including such tranches, the Company's total long credit portfolio was $1.473 billion and $1.480 billion, as of March 31, 2019 and December 31, 2018, respectively. |
| 5 Excludes any interest income and interest expense items from Interest rate hedges, net and Credit hedges and other activities, net. |
| 6 Excludes any interest income and interest expense items from Interest rate hedges and other activities, net. |
The following table summarizes the Company's investment portfolio(1)
holdings as of
| (In thousands) | Fair Value | |||||
| Long: | ||||||
| Credit: | ||||||
| Dollar Denominated: | ||||||
| CLO(2) | $ | 98,497 | ||||
| CMBS | 29,995 | |||||
| Commercial Mortgage Loans and REO(3)(4) | 277,947 | |||||
| Consumer Loans and ABS backed by Consumer Loans(2) | 218,027 | |||||
| Corporate Debt and Equity | 3,867 | |||||
| Equity Investments in Loan Origination Entities | 34,849 | |||||
| Non-Agency RMBS | 130,372 | |||||
| Residential Mortgage Loans and REO(3) | 584,779 | |||||
| Non-Dollar Denominated: | ||||||
| CLO(2) | 4,332 | |||||
| CMBS | 3,198 | |||||
| Consumer Loans and ABS backed by Consumer Loans | 770 | |||||
| Corporate Debt and Equity | 3,335 | |||||
| RMBS(5) | 82,846 | |||||
| Agency: | ||||||
| Fixed-Rate Specified Pools | 1,019,982 | |||||
| Floating-Rate Specified Pools | 9,460 | |||||
| IOs | 25,428 | |||||
| Reverse Mortgage Pools | 89,345 | |||||
| Government Debt: | ||||||
| Dollar Denominated | 16,601 | |||||
| Total Long | $ | 2,633,630 | ||||
| Short: | ||||||
| Credit: | ||||||
| Dollar Denominated: | ||||||
| Corporate Debt and Equity | $ | (4,441 | ) | |||
| Government Debt: | ||||||
| Dollar Denominated | (2,910 | ) | ||||
| Non-Dollar Denominated | (18,861 | ) | ||||
| Total Short | $ | (26,212 | ) | |||
| (1) | This information does not include financial derivatives. | |
| (2) | Includes equity investment in securitization-related vehicles. | |
| (3) | 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 a limited liability companies holding small balance commercial mortgage loans and REO. | |
| (5) |
Includes European RMBS secured by non-performing loans and REO, and an investment in an unconsolidated entity holding European RMBS. |
|
The following table summarizes the Company's operating results for the
quarter ended
|
Three-Month |
Per Share |
% of Average |
|||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||
| Credit: | |||||||||||||||
| Interest income and other income(1) | $ | 29,409 | $ | 0.97 | 4.95 | % | |||||||||
| Realized gain (loss), net | (4,299 | ) | (0.14 | ) | (0.72 | )% | |||||||||
| Unrealized gain (loss), net | 11,713 | 0.38 | 1.97 | % | |||||||||||
| Interest rate hedges, net(2) | (822 | ) | (0.03 | ) | (0.14 | )% | |||||||||
| Credit hedges and other activities, net(3) | (6,556 | ) | (0.22 | ) | (1.10 | )% | |||||||||
| Interest expense(4) | (11,246 | ) | (0.37 | ) | (1.89 | )% | |||||||||
| Other investment related expenses | (3,476 | ) | (0.11 | ) | (0.59 | )% | |||||||||
| Earnings from investments in unconsolidated entities | 1,797 | 0.06 | 0.30 | % | |||||||||||
| Total Credit profit (loss) | 16,520 | 0.54 | 2.78 | % | |||||||||||
| Agency RMBS: | |||||||||||||||
| Interest income | 7,562 | 0.25 | 1.27 | % | |||||||||||
| Realized gain (loss), net | (967 | ) | (0.03 | ) | (0.16 | )% | |||||||||
| Unrealized gain (loss), net | 14,227 | 0.47 | 2.39 | % | |||||||||||
| Interest rate hedges and other activities, net(2) | (9,484 | ) | (0.31 | ) | (1.59 | )% | |||||||||
| Interest expense | (5,981 | ) | (0.20 | ) | (1.01 | )% | |||||||||
| Total Agency RMBS profit (loss) | 5,357 | 0.18 | 0.90 | % | |||||||||||
| Total Credit and Agency RMBS profit (loss) | 21,877 | 0.72 | 3.68 | % | |||||||||||
| Other interest income (expense), net | 346 | 0.01 | 0.06 | % | |||||||||||
| Other expenses | (5,735 | ) | (0.19 | ) | (0.97 | )% | |||||||||
| Net income (loss) (before incentive fee) | 16,488 | 0.54 | 2.77 | % | |||||||||||
| Incentive fee | — | — | — | % | |||||||||||
| Net income (loss) | $ | 16,488 | $ | 0.54 | 2.77 | % | |||||||||
| Less: Net income (loss) attributable to non-controlling interests | 1,080 | ||||||||||||||
| Net income (loss) attributable to common stockholders(5) | $ | 15,408 | $ | 0.52 | 2.73 | % | |||||||||
|
Weighted average shares and convertible |
|||||||||||||||
|
units(6) outstanding |
30,481 | ||||||||||||||
| Average equity (includes non-controlling interests)(7) | $ | 594,206 | |||||||||||||
| Weighted average shares outstanding(8) | 29,748 | ||||||||||||||
| Average stockholders' equity (excludes non-controlling interests)(7) | $ | 563,492 | |||||||||||||
| (1) | Other income primarily consists of rental income on real estate owned and loan origination fees. | |
| (2) | Includes U.S. Treasury securities, if applicable. | |
| (3) | Includes equity and other relative value trading strategies and related hedges and net realized and unrealized gains (losses) on foreign currency. | |
| (4) | Includes interest expense on the Company's Senior Notes. | |
| (5) | Per share information is calculated using weighted average common shares outstanding. Percentage of average equity is calculated using average stockholders' equity, which excludes non-controlling interests. | |
| (6) | Convertible units include Operating Partnership units attributable to non-controlling interests. | |
| (7) | Average equity and average stockholders' equity are calculated using month end values. | |
| (8) | Excludes Operating Partnership units attributable to non-controlling interests. | |
About
Conference Call
The Company will host a conference call at
A dial-in replay of the conference call will be available on
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. Actual results may differ from the
Company's 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. Examples of
forward-looking statements in this press release include without
limitation management's beliefs regarding the current economic and
investment environment and the Company's ability to implement its
investment and hedging strategies, performance of the Company's
investment and hedging strategies, the Company's exposure to prepayment
risk in its Agency portfolio, statements regarding the drivers of the
Company's returns, statements regarding the Company's planned REIT tax
election, and statements regarding the Company's intended dividend
policy. The Company's results can fluctuate from month to month and from
quarter to quarter depending on a variety of factors, some of which are
beyond the Company's control and/or are difficult to predict, including,
without limitation, changes in interest rates and the market value of
the Company's securities, changes in mortgage default rates and
prepayment rates, the Company's ability to borrow to finance its assets,
changes in government regulations affecting the Company's business, the
Company's ability to maintain its exclusion from registration under the
Investment Company Act of 1940; the Company's ability to qualify and
maintain its qualification as a real estate investment trust, or "REIT";
and other changes in market conditions and economic trends. Furthermore,
forward-looking statements are subject to risks and uncertainties,
including, among other things, those described under Item 1A of the
Company's Annual Report on Form 10-K filed on
|
ELLINGTON FINANCIAL INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) |
||||||
|
Three-Month |
||||||
| (In thousands, except per share amounts) | ||||||
| NET INTEREST INCOME | ||||||
| Interest income | $ | 36,016 | ||||
| Interest expense | (17,618 | ) | ||||
| Total net interest income | 18,398 | |||||
| Other Income (Loss) | ||||||
| Realized gains (losses) on securities and loans, net | (5,322 | ) | ||||
| Realized gains (losses) on financial derivatives, net | (11,570 | ) | ||||
| Realized gains (losses) on real estate owned, net | (58 | ) | ||||
| Unrealized gains (losses) on securities and loans, net | 26,388 | |||||
| Unrealized gains (losses) on financial derivatives, net | (5,689 | ) | ||||
| Unrealized gains (losses) on real estate owned, net | (247 | ) | ||||
| Other, net | 2,002 | |||||
| Total other income (loss) | 5,504 | |||||
| EXPENSES | ||||||
| Base management fee to affiliate (Net of fee rebates of $447) | 1,722 | |||||
| Investment related expenses: | ||||||
| Servicing expense | 2,393 | |||||
| Other | 1,083 | |||||
| Professional fees | 1,956 | |||||
| Compensation expense | 1,072 | |||||
| Other expenses | 985 | |||||
| Total expenses | 9,211 | |||||
| Net Income (Loss) before Earnings from equity method investments | 14,691 | |||||
| Earnings from investments in unconsolidated entities | 1,797 | |||||
| Net Income (Loss) | 16,488 | |||||
| Net Income (Loss) Attributable to Non-Controlling Interests | 1,080 | |||||
| Net Income (Loss) Attributable to Common Stockholders | $ | 15,408 | ||||
| Net Income (Loss) per Common Share: | ||||||
| Basic and Diluted | $ | 0.52 | ||||
| Weighted average shares outstanding | 29,748 | |||||
| Weighted average shares and convertible units outstanding | 30,481 | |||||
|
ELLINGTON FINANCIAL INC. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) |
||||||
| As of | ||||||
| (In thousands, except share amounts) | March 31, 2019 | |||||
| ASSETS | ||||||
| Cash and cash equivalents | $ | 55,876 | ||||
| Restricted cash | 175 | |||||
| Securities, at fair value | 1,529,485 | |||||
| Loans, at fair value | 1,014,990 | |||||
| Investments in unconsolidated entities, at fair value | 58,152 | |||||
| Real estate owned | 31,003 | |||||
| Financial derivatives–assets, at fair value | 15,356 | |||||
| Reverse repurchase agreements | 25,381 | |||||
| Due from brokers | 58,145 | |||||
| Investment related receivables | 78,223 | |||||
| Other assets | 3,779 | |||||
| Total Assets | $ | 2,870,565 | ||||
| LIABILITIES | ||||||
| Securities sold short, at fair value | $ | 26,212 | ||||
| Repurchase agreements | 1,550,016 | |||||
| Financial derivatives–liabilities, at fair value | 26,904 | |||||
| Due to brokers | 4,820 | |||||
| Investment related payables | 168,211 | |||||
| Other secured borrowings | 117,315 | |||||
| Other secured borrowings, at fair value | 282,124 | |||||
| Senior notes, net | 85,100 | |||||
| Accounts payable and accrued expenses | 6,167 | |||||
| Base management fee payable to affiliate | 1,722 | |||||
| Dividend payable | 4,267 | |||||
| Interest payable | 4,995 | |||||
| Other liabilities | 278 | |||||
| Total Liabilities | 2,278,131 | |||||
| EQUITY | ||||||
|
Common stock, par value $0.001 per share, 100,000,000 shares authorized; |
||||||
|
29,745,776 shares issued and outstanding |
30 | |||||
| Additional paid-in-capital | 664,654 | |||||
| Retained earnings (accumulated deficit) | (102,475 | ) | ||||
| Total Stockholders' Equity | 562,209 | |||||
| Non-controlling interests | 30,225 | |||||
| Total Equity | 592,434 | |||||
| TOTAL LIABILITIES AND EQUITY | $ | 2,870,565 | ||||
| PER SHARE INFORMATION: | ||||||
| Common stock | $ | 18.90 | ||||
Reconciliation of Net Income (Loss) to Core Earnings
The Company calculates Core Earnings as U.S. GAAP net income (loss) as adjusted for: (i) realized and unrealized gain (loss) on investments, REO, financial derivatives (excluding net accrued periodic (payments) receipts on interest rate swaps), other secured borrowings, at fair value, and foreign currency transactions; (ii) incentive fee to affiliate; (iii) Catch-up Premium Amortization Adjustment (as defined below); (iv) non-cash equity compensation expense; (v) miscellaneous non-recurring expenses; (vi) provision for income taxes; and (vii) certain other income or loss items that are of a non-recurring nature. For certain investments in unconsolidated entities, the Company includes the relevant net operating income in core earnings. The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on the Company's 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 the Company's then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter.
Core Earnings is a supplemental non-GAAP financial measure. The Company believes that the presentation of Core Earnings provides a consistent measure of operating performance by excluding the impact of gains and losses and other adjustments listed above from operating results. The Company believes that Core Earnings provides information useful to investors because it is a metric that the Company uses to assess its performance and to evaluate the effective net yield provided by the portfolio. In addition, the Company believes that presenting Core Earnings enables its investors to measure, evaluate, and compare its operating performance to that of its peers. However, because Core Earnings is an incomplete measure of the Company's financial results and differs from net income (loss) computed in accordance with U.S. GAAP, it should be considered as supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP.
The following table provides U.S. GAAP measures of net income (loss) and
details with respect to reconciling the aforementioned line items to
Core Earnings for the three-month period ended
| (In thousands, except per share amounts) |
Three-Month
Period Ended March 31, 2019 |
|||||
| Net income (loss) | $ | 16,488 | ||||
| Adjustments: | ||||||
| Realized (gains) losses on securities and loans, net | 5,322 | |||||
| Realized (gains) losses on financial derivatives, net(1) | 12,289 | |||||
| Realized (gains) losses on real estate owned, net | 58 | |||||
| Unrealized (gains) losses on securities and loans, net | (26,388 | ) | ||||
| Unrealized (gains) losses on financial derivatives, net(2) | 5,414 | |||||
| Unrealized (gains) losses on real estate owned, net | 247 | |||||
| Other realized and unrealized (gains) losses, net(3) | (386 | ) | ||||
| Non-cash equity compensation expense | 116 | |||||
| Catch-up Premium Amortization Adjustment | 507 | |||||
| Miscellaneous non-recurring expenses(4) | 1,075 | |||||
| (Earnings) losses from investments in unconsolidated entities(5) | (364 | ) | ||||
| Total Core Earnings | $ | 14,378 | ||||
| Core Earnings attributable to non-controlling interests | 1,029 | |||||
| Core Earnings Attributable to Common Stockholders | $ | 13,349 | ||||
| Core Earnings Attributable to Common Stockholders, per share | $ | 0.45 | ||||
| (1) | Adjustment excludes net realized gains (losses) on accrued periodic settlements of interest rate swaps of $0.7 million for the three month period ended March 31, 2019. | |
| (2) | Adjustment excludes net unrealized gains (losses) on accrued periodic settlements of interest rate swaps of ($0.3) million for the three month period ended March 31, 2019. | |
| (3) |
Includes realized and unrealized gains (losses) on foreign currency and unrealized gain (loss) on other secured borrowings, at fair value, included in Other, net, on the Condensed Consolidated Statement of Operations. |
|
| (4) | Miscellaneous non-recurring expenses consist mostly of professional fees related to the Company's conversion to a corporation and intended election to be taxed as a REIT. | |
| (5) | Adjustment represents, for certain investments in unconsolidated entities, the net realized and unrealized gains and losses of the underlying investments of such entities. | |
View source version on businesswire.com: https://www.businesswire.com/news/home/20190507006139/en/
Source:
Investors:
Ellington Financial
Investor Relations
(203)
409-3575
info@ellingtonfinancial.com
or
Media:
Amanda
Klein or Kevin FitzGerald
Gasthalter & Co.
for Ellington
Financial
(212) 257-4170
ellington@gasthalter.com