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Ellington Financial Inc. Reports Third Quarter 2021 Results

OLD GREENWICH, Conn.--(BUSINESS WIRE)--Nov. 8, 2021-- Ellington Financial Inc. (NYSE: EFC) (the "Company") today reported financial results for the quarter ended September 30, 2021.

Highlights

  • Net income of $20.6 million, or $0.41 per common share.
  • Core Earnings1 of $23.0 million, or $0.46 per share.
  • Book value per common share as of September 30, 2021 of $18.35, including the effects of dividends of $0.45 per common share for the quarter.
  • Credit strategy gross income of $33.6 million for the quarter, or $0.66 per share.
  • Agency strategy gross income of $1.7 million for the quarter, or $0.03 per share.
  • Dividend yield of 9.8% based on the November 5, 2021 closing stock price of $18.43 per share, and monthly dividend of $0.15 per common share declared on November 5, 2021.
  • Debt-to-equity ratio of 2.9:1 and recourse debt-to-equity ratio of 1.8:12 as of September 30, 2021.
  • Cash and cash equivalents of $103.6 million as of September 30, 2021, in addition to other unencumbered assets of $648.9 million.
  • In July, issued 6.303 million shares of common stock through a follow-on common stock offering, increasing our total equity by $113.1 million, or approximately 12%.

Third Quarter 2021 Results

"During the third quarter, we were able to substantially expand our loan portfolios. Our proprietary loan pipelines continue to provide us with a robust supply of high-yielding investments, and our equity capital raise in July enabled us to absorb that supply with relative ease," said Laurence Penn, Chief Executive Officer and President of Ellington Financial. "For the quarter, we generated per share net income of $0.41 and core earnings of $0.46, and we have now delivered an economic return of more than 11% through the first nine months of the year.

"The prospects of continued growth from our proprietary pipelines continue to be excellent. Our non-QM affiliate LendSure had yet another record quarter, both in origination volume and profitability. Thanks to our loan flow from LendSure, we were able to complete our third non-QM securitization of the year shortly after quarter end. Meanwhile, we are also seeing substantially increased loan flow in our residential transition loan and small balance commercial bridge loan businesses. Finally, we have closed on three additional equity stakes in loan originators in the last six months, and we have several others in the works that we hope to complete before year end.

"In the third quarter, our results not only benefited from continued growth in our loan portfolios, but also from excellent credit performance in those portfolios. We also had significant earnings from our CMBS, CLO, and non-Agency RMBS strategies. On the other hand, we had an unrealized loss related to our investment in our affiliate Longbridge Financial, which had a net loss for the quarter caused by yield spread widening and elevated prepayment speeds in the reverse mortgage sector. Importantly, Longbridge's net loss was due to a reduction in the value of its MSR portfolio, whereas its origination segment was still profitable. As such, we view Longbridge's quarterly loss as an anomaly, and believe that its earnings and growth prospects continue to be excellent. In fact, Longbridge has bounced right back to profitability in October.

"In October, having fully deployed the capital from our July raise, we again accessed the capital markets to support the continued growth of our loan portfolios. We raised just over $100 million of common equity, again at around book value. In addition to fueling continued loan portfolio growth, this additional capital should provide us with additional economies of scale—in our portfolio, in the capital markets, and operationally—while also positioning us to be opportunistic should any volatility occur around year end. Our October capital raise also put Ellington Financial above the $1 billion market cap threshold, which we believe will further increase our visibility in the marketplace, increase the liquidity of our stock for our shareholders, and enable us to access both the debt and equity capital markets more efficiently."

Financial Results

The Company's total long credit portfolio3 grew by 24% in the third quarter, to $1.688 billion as of September 30, 2021, as the Company deployed proceeds from its July equity offering. The majority of the growth occurred in the non-QM and residential transition loan strategies, while the Company's portfolios of small balance commercial mortgage loans and non-Agency RMBS also expanded. These increases were partially offset by loan payoffs and opportunistic sales of CMBS and CLOs during the quarter.

The Company's long Agency RMBS portfolio also increased during the quarter, by 4% to $1.537 billion as of September 30, 2021.

The Company's debt-to-equity ratio, adjusted for unsettled purchases and sales, decreased to 2.9:1 as of September 30, 2021, as compared to 3.2:1 as of June 30, 2021, as borrowings related to new purchases were partially offset by paydowns of non-recourse borrowings related to the Company's non-QM securitizations, and as total equity increased. The Company's recourse debt-to-equity ratio, adjusted for unsettled purchases and sales, was unchanged at 1.9:1 as of September 30, 2021, as borrowings related to new purchases increased roughly in proportion to total equity.

During the third quarter, the Company's credit strategy generated total gross income of $33.6 million, or $0.66 per share, and its Agency strategy generated total gross income of $1.7 million or $0.03 per share.

The Company had strong performance from most of its primary credit strategies in the third quarter, and similar to the prior quarter, strong net interest income4 and substantial net realized and unrealized gains drove results. The Company's loan strategies—including non-QM, residential transition, small balance commercial mortgage, and consumer loans—generated high returns on equity driven primarily by net interest income, while performance in the CMBS, CLO, and non-Agency RMBS strategies was also excellent, driven primarily by net realized and unrealized gains. Finally, despite a record quarter of originations, Longbridge Financial had a net loss for the quarter, driven by mark-to-market losses on its MSR portfolio due to yield spread widening and elevated prepayment speeds in the reverse mortgage sector, which detracted from the Company's results.

The Company's Agency strategy had modestly positive results during a quarter in which the Agency RMBS sector had mixed performance. In July and early August, interest rates continued to fall and volatility increased, causing Agency RMBS to underperform U.S. Treasury securities. Moving into the latter half of the quarter, interest rates began to increase and volatility declined, and toward the end of the quarter, Agency yield spreads tightened as the market got more clarity on the Federal Reserve's tapering plan. Incrementally higher mortgage rates—particularly in September—led to reduced expectations for prepayment rates and boosted higher-coupon RMBS, while the anticipated withdrawal of Federal Reserve purchases negatively impacted lower-coupon RMBS.

Net interest income on the Company's Agency portfolio, strong performance from its Agency interest-only securities, and net gains on its higher-coupon specified pools exceeded net losses on its lower-coupon holdings and reverse mortgage portfolio. On the hedging side, net losses on TBA short positions, particularly on higher coupons, slightly exceeded net gains on interest-rate swaps and U.S. Treasury hedges.

Average pay-ups on the Company's specified pools decreased to 1.04% as of September 30, 2021, as compared to 1.10% as of June 30, 2021, as new purchases during the quarter mainly consisted of pools with lower pay-ups. Pay-ups are price premiums for specified pools relative to their TBA counterparts.

During the third quarter, the Company continued to hedge interest rate risk, primarily through the use of interest rate swaps, and short positions in TBAs, U.S. Treasury securities, and futures. The size of the Company's short TBA position increased quarter over quarter relative to its other hedging instruments, as measured by 10-year equivalents5. In addition, the Company continued to maintain a long TBA portfolio concentrated in lower coupons.

______________________________

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 at certain unconsolidated entities that are recourse to us. Including such borrowings, the Company's debt-to-equity ratio based on total recourse borrowings was 1.9:1 as of September 30, 2021.

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 U.S. GAAP reporting purposes. Including such tranches, the Company's total long credit portfolio was $2.534 billion as of September 30, 2021.
Excludes any interest income and interest expense items from Interest rate hedges, net and Credit hedges and other activities, net.
Ten-year equivalents for a group of positions represent the amount of 10-year U.S. Treasury securities that would be expected to experience a similar change in market value under a standard parallel move in interest rates.

The following tables summarize the Company's investment portfolio holdings as of September 30, 2021 and June 30, 2021:

Credit Portfolio(1)

 

 

 

September 30, 2021

 

June 30, 2021

($ in thousands)

 

Fair Value

 

% of Total
Long Credit
Portfolio

 

Fair Value

 

% of Total
Long Credit
Portfolio

Dollar Denominated:

 

 

 

 

 

 

 

 

CLOs(2)

 

$

65,678

 

 

2.6

%

 

$

69,053

 

 

2.9

%

CMBS

 

13,604

 

 

0.5

%

 

45,872

 

 

2.0

%

Commercial mortgage loans and REO(3)(4)

 

325,733

 

 

12.9

%

 

316,010

 

 

13.5

%

Consumer loans and ABS backed by consumer loans(2)

 

138,568

 

 

5.5

%

 

138,471

 

 

5.9

%

Corporate debt and equity and corporate loans

 

26,373

 

 

1.0

%

 

27,939

 

 

1.2

%

Debt and equity investments in loan origination entities

 

106,406

 

 

4.2

%

 

106,159

 

 

4.5

%

Non-Agency RMBS

 

168,044

 

 

6.6

%

 

158,798

 

 

6.8

%

Residential mortgage loans and REO(3)

 

1,658,879

 

 

65.5

%

 

1,447,202

 

 

61.8

%

Non-Dollar Denominated:

 

 

 

 

 

 

 

 

CLOs(2)

 

3,746

 

 

0.1

%

 

3,804

 

 

0.2

%

Consumer loans and ABS backed by consumer loans

 

101

 

 

%

 

166

 

 

%

Corporate debt and equity

 

14

 

 

%

 

26

 

 

%

RMBS(5)

 

26,960

 

 

1.1

%

 

28,717

 

 

1.2

%

Total Long Credit Portfolio

 

$

2,534,106

 

 

100.0

%

 

$

2,342,217

 

 

100.0

%

Less: Non-retained tranches of consolidated securitization trusts

 

845,754

 

 

 

 

982,984

 

 

 

Total Long Credit Portfolio excluding non-retained tranches of consolidated securitization trusts

 

$

1,688,352

 

 

 

 

$

1,359,233

 

 

(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 small balance commercial mortgage loans and REO.

(5) 

 

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

Agency RMBS Portfolio  

 

 

September 30, 2021

 

June 30, 2021

($ in thousands)

 

Fair Value

 

% of Long Agency
Portfolio

 

Fair Value

 

% of Long Agency
Portfolio

Long Agency RMBS:

 

 

 

 

 

 

 

 

Fixed Rate

 

$

1,424,516

 

 

92.7

%

 

$

1,333,676

 

 

90.4

%

Floating Rate

 

10,880

 

 

0.7

%

 

27,093

 

 

1.8

%

Reverse Mortgages

 

63,534

 

 

4.1

%

 

75,934

 

 

5.1

%

IOs

 

38,077

 

 

2.5

%

 

39,045

 

 

2.7

%

Total Long Agency RMBS

 

$

1,537,007

 

 

100.0

%

 

$

1,475,748

 

 

100.0

%

The following table summarizes the Company's operating results for the three-month periods ended September 30, 2021 and June 30, 2021 and the nine-month period ended September 30, 2021:

 

 

Three-
Month
Period
Ended
September
30, 2021

 

Per
Share

 

Three-
Month
Period
Ended
June 30,
2021

 

Per
Share

 

Nine-
Month
Period
Ended
September
30, 2021

 

Per
Share

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Credit:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income and other income(1)

 

$

36,337

 

 

$

0.72

 

 

$

36,511

 

 

$

0.82

 

 

$

107,137

 

 

$

2.30

 

Realized gain (loss), net

 

7,826

 

 

0.15

 

 

2,009

 

 

0.05

 

 

14,023

 

 

0.30

 

Unrealized gain (loss), net

 

(2,528)

 

 

(0.05)

 

 

12,791

 

 

0.29

 

 

27,838

 

 

0.60

 

Interest rate hedges, net(2)

 

309

 

 

0.01

 

 

(1,202)

 

 

(0.03)

 

 

835

 

 

0.02

 

Credit hedges and other activities, net(3)

 

1,074

 

 

0.02

 

 

1,303

 

 

0.03

 

 

3,462

 

 

0.08

 

Interest expense(4)

 

(9,065)

 

 

(0.18)

 

 

(9,856)

 

 

(0.22)

 

 

(28,865)

 

 

(0.62)

 

Other investment related expenses

 

(2,879)

 

 

(0.06)

 

 

(4,831)

 

 

(0.11)

 

 

(12,565)

 

 

(0.27)

 

Earnings (losses) from investments in unconsolidated entities

 

2,549

 

 

0.05

 

 

18,602

 

 

0.42

 

 

27,786

 

 

0.60

 

Total Credit profit (loss)

 

33,623

 

 

0.66

 

 

55,327

 

 

1.25

 

 

139,651

 

 

3.01

 

Agency RMBS:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

5,246

 

 

0.10

 

 

11,328

 

 

0.25

 

 

23,326

 

 

0.50

 

Realized gain (loss), net

 

(1,151)

 

 

(0.02)

 

 

(3,982)

 

 

(0.09)

 

 

(5,131)

 

 

(0.11)

 

Unrealized gain (loss), net

 

242

 

 

0.00

 

 

(2,815)

 

 

(0.06)

 

 

(24,547)

 

 

(0.53)

 

Interest rate hedges and other activities, net(2)

 

(1,762)

 

 

(0.03)

 

 

(4,754)

 

 

(0.11)

 

 

9,683

 

 

0.21

 

Interest expense(4)

 

(866)

 

 

(0.02)

 

 

(939)

 

 

(0.02)

 

 

(2,744)

 

 

(0.06)

 

Total Agency RMBS profit (loss)

 

1,709

 

 

0.03

 

 

(1,162)

 

 

(0.03)

 

 

587

 

 

0.01

 

Total Credit and Agency RMBS profit (loss)

 

35,332

 

 

0.69

 

 

54,165

 

 

1.22

 

 

140,238

 

 

3.02

 

Other interest income (expense), net

 

8

 

 

 

 

38

 

 

 

 

53

 

 

 

Income tax (expense) benefit

 

2,009

 

 

0.04

 

 

(3,140)

 

 

(0.07)

 

 

(3,149)

 

 

(0.07)

 

Other expenses

 

(8,113)

 

 

(0.16)

 

 

(7,437)

 

 

(0.17)

 

 

(23,024)

 

 

(0.50)

 

Net income (loss) (before incentive fee)

 

29,236

 

 

0.57

 

 

43,626

 

 

0.98

 

 

114,118

 

 

2.45

 

Incentive fee

 

(5,255)

 

 

(0.10)

 

 

(7,157)

 

 

(0.16)

 

 

(12,412)

 

 

(0.26)

 

Net income (loss)

 

$

23,981

 

 

$

0.47

 

 

$

36,469

 

 

$

0.82

 

 

$

101,706

 

 

$

2.19

 

Less: Dividends on preferred stock

 

1,941

 

 

0.04

 

 

1,940

 

 

0.04

 

 

5,822

 

 

0.13

 

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

 

1,195

 

 

0.02

 

 

1,369

 

 

0.03

 

 

3,446

 

 

0.07

 

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

 

20,845

 

 

0.41

 

 

33,160

 

 

0.75

 

 

92,438

 

 

1.99

 

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

 

281

 

 

 

 

505

 

 

 

 

1,363

 

 

 

Net income (loss) attributable to common stockholders

 

$

20,564

 

 

$

0.41

 

 

$

32,655

 

 

$

0.75

 

 

$

91,075

 

 

$

1.99

 

Weighted average shares of common stock and convertible units(5) outstanding

 

50,533

 

 

 

 

44,460

 

 

 

 

46,503

 

 

 

Weighted average shares of common stock outstanding

 

49,853

 

 

 

 

43,782

 

 

 

 

45,828

 

 

 

(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) 

 

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

(4) 

 

Includes allocable portion of interest expense on the Company's Senior notes.

(5) 

 

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, residential and commercial mortgage-backed securities, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, 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

The Company will host a conference call at 11:00 a.m. Eastern Time on Monday, November 8, 2021, to discuss its financial results for the quarter ended September 30, 2021. To participate in the event by telephone, please dial (877) 876-9173 at least 10 minutes prior to the start time and reference the conference ID EFCQ321. International callers should dial (785) 424-1667 and reference the same conference ID. The conference call will also be webcast live over the Internet and can be accessed via the "For Our Shareholders" section of the Company's 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, the Company also posted an investor presentation, that will accompany the conference call, on its website at www.ellingtonfinancial.com under "For Our Shareholders—Presentations."

A dial-in replay of the conference call will be available on Monday, November 8, 2021, at approximately 2:00 p.m. Eastern Time through Monday, November 15, 2021 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (877) 693-4280. International callers should dial (402) 220-1601. A replay of the conference call will also be archived on the Company's 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. 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, and statements regarding the drivers of the Company's returns. 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 investments, 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, including changes resulting from the ongoing spread and economic effects of the novel coronavirus (COVID-19) pandemic, and associated responses to the pandemic. 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, as amended, which can be accessed through the Company's 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 or implied may be described from time to time in reports the Company's files with the SEC, including reports on Forms 10-Q, 10-K and 8-K. The Company undertakes 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 STATEMENT OF OPERATIONS

(UNAUDITED)

 

 

Three-Month Period Ended

 

Nine-Month
Period Ended
September 30,
2021

 

September 30,
2021

 

June 30,
2021

 

(In thousands, except per share amounts)

 

 

 

 

 

NET INTEREST INCOME

 

 

 

 

 

Interest income

$

40,146

 

 

$

45,890

 

 

$

126,115

 

Interest expense

(10,604)

 

 

(11,166)

 

 

(33,111)

 

Total net interest income

29,542

 

 

34,724

 

 

93,004

 

Other Income (Loss)

 

 

 

 

 

Realized gains (losses) on securities and loans, net

6,359

 

 

(2,009)

 

 

8,627

 

Realized gains (losses) on financial derivatives, net

(1,782)

 

 

425

 

 

4,438

 

Realized gains (losses) on real estate owned, net

(50)

 

 

(74)

 

 

(63)

 

Unrealized gains (losses) on securities and loans, net

(3,212)

 

 

10,000

 

 

5,006

 

Unrealized gains (losses) on financial derivatives, net

1,155

 

 

(5,683)

 

 

6,183

 

Unrealized gains (losses) on real estate owned, net

672

 

 

(1,314)

 

 

(1,435)

 

Other, net

2,986

 

 

4,363

 

 

9,310

 

Total other income (loss)

6,128

 

 

5,708

 

 

32,066

 

EXPENSES

 

 

 

 

 

Base management fee to affiliate (Net of fee rebates of $395, $195 and $784, respectively)

3,675

 

 

3,355

 

 

10,308

 

Incentive fee to affiliate

5,255

 

 

7,157

 

 

12,412

 

Investment related expenses:

 

 

 

 

 

Servicing expense

1,182

 

 

974

 

 

3,142

 

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

 

 

2,039

 

 

3,704

 

Other

1,697

 

 

1,818

 

 

5,719

 

Professional fees

1,202

 

 

1,037

 

 

3,437

 

Compensation expense

1,554

 

 

1,412

 

 

4,386

 

Other expenses

1,682

 

 

1,633

 

 

4,893

 

Total expenses

16,247

 

 

19,425

 

 

48,001

 

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

19,423

 

 

21,007

 

 

77,069

 

Income tax expense (benefit)

(2,009)

 

 

3,140

 

 

3,149

 

Earnings (losses) from investments in unconsolidated entities

2,549

 

 

18,602

 

 

27,786

 

Net Income (Loss)

23,981

 

 

36,469

 

 

101,706

 

Net Income (Loss) Attributable to Non-Controlling Interests

1,476

 

 

1,874

 

 

4,809

 

Dividends on Preferred Stock

1,941

 

 

1,940

 

 

5,822

 

Net Income (Loss) Attributable to Common Stockholders

$

20,564

 

 

$

32,655

 

 

$

91,075

 

Net Income (Loss) per Common Share:

 

 

 

 

 

Basic and Diluted

$

0.41

 

 

$

0.75

 

 

$

1.99

 

Weighted average shares of common stock outstanding

49,853

 

 

43,782

 

 

45,828

 

Weighted average shares of common stock and convertible units outstanding

50,533

 

 

44,460

 

 

46,503

 

ELLINGTON FINANCIAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

 

As of

(In thousands, except share amounts)

September 30,
2021

 

June 30,
2021

 

December 31,
2020(1)

ASSETS

 

 

 

 

 

Cash and cash equivalents

$

103,617

 

 

$

134,695

 

 

$

111,647

 

Restricted cash

175

 

 

175

 

 

175

 

Securities, at fair value

1,895,563

 

 

1,860,990

 

 

1,514,185

 

Loans, at fair value

1,996,529

 

 

1,742,701

 

 

1,453,480

 

Investments in unconsolidated entities, at fair value

142,019

 

 

178,979

 

 

141,620

 

Real estate owned

37,002

 

 

35,295

 

 

23,598

 

Financial derivatives–assets, at fair value

15,976

 

 

13,028

 

 

15,479

 

Reverse repurchase agreements

38,062

 

 

160,412

 

 

38,640

 

Due from brokers

89,983

 

 

76,396

 

 

63,147

 

Investment related receivables

97,721

 

 

75,781

 

 

49,317

 

Other assets

3,608

 

 

4,229

 

 

2,575

 

Total Assets

$

4,420,255

 

 

$

4,282,681

 

 

$

3,413,863

 

LIABILITIES

 

 

 

 

 

Securities sold short, at fair value

$

30,294

 

 

$

145,374

 

 

$

38,642

 

Repurchase agreements

2,105,836

 

 

1,916,749

 

 

1,496,931

 

Financial derivatives–liabilities, at fair value

14,119

 

 

14,171

 

 

24,553

 

Due to brokers

2,560

 

 

2,130

 

 

5,059

 

Investment related payables

82,295

 

 

29,457

 

 

4,754

 

Other secured borrowings

90,981

 

 

86,374

 

 

51,062

 

Other secured borrowings, at fair value

872,306

 

 

1,003,037

 

 

754,921

 

Senior notes, net

85,759

 

 

85,693

 

 

85,561

 

Base management fee payable to affiliate

3,675

 

 

3,355

 

 

3,178

 

Incentive fee payable to affiliate

5,255

 

 

7,157

 

 

 

Dividend payable

9,149

 

 

7,963

 

 

5,738

 

Interest payable

1,813

 

 

3,000

 

 

3,233

 

Accrued expenses and other liabilities

20,943

 

 

23,117

 

 

18,659

 

Total Liabilities

3,324,985

 

 

3,327,577

 

 

2,492,291

 

EQUITY

 

 

 

 

 

Preferred stock, par value $0.001 per share, 100,000,000 shares authorized;
6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable;
4,600,000 shares issued and outstanding, respectively ($115,000 liquidation preference)

111,034

 

 

111,034

 

 

111,034

 

Common stock, par value $0.001 per share, 100,000,000 shares authorized;
(51,677,667, 43,781,684, and 43,781,684 shares issued and outstanding, respectively)(3)

52

 

 

44

 

 

44

 

Additional paid-in-capital

1,057,939

 

 

915,817

 

 

915,658

 

Retained earnings (accumulated deficit)

(105,699)

 

 

(103,409)

 

 

(141,521)

 

Total Stockholders' Equity

1,063,326

 

 

923,486

 

 

885,215

 

Non-controlling interests

31,944

 

 

31,618

 

 

36,357

 

Total Equity

1,095,270

 

 

955,104

 

 

921,572

 

TOTAL LIABILITIES AND EQUITY

$

4,420,255

 

 

$

4,282,681

 

 

$

3,413,863

 

SUPPLEMENTAL PER SHARE INFORMATION:

 

 

 

 

 

Book Value Per Common Share(2)

$

18.35

 

 

$

18.47

 

 

$

17.59

 

(1) 

 

Derived from audited financial statements as of December 31, 2020.

(2) 

 

Based on total stockholders' equity less the aggregate liquidation preference of the Company's preferred stock outstanding.

(3)

 

Common shares issued and outstanding at September 30, 2021 includes approximately 1.5 million shares of common stock issued during the quarter under the Company's at-the-market program.

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 securities and loans, REO, financial derivatives (excluding periodic settlements 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) provision for income taxes; and (vi) certain other income or loss items that are of a non-recurring nature. For certain investments in unconsolidated entities, the Company includes the relevant components of 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 its 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 supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP.

The following table reconciles, for the three-month periods ended September 30, 2021 and June 30, 2021 and the nine-month period ended September 30, 2021, the Company's Core Earnings to the line on the Company's Consolidated Statement of Operations entitled Net Income (Loss), which the Company believes is the most directly comparable U.S. GAAP measure:

 

 

Three-Month Period Ended

 

Nine-Month Period
Ended September 30,
2021

(In thousands, except per share amounts)

 

September 30,
2021

 

June 30,
2021

 

Net Income (Loss)

 

$

23,981

 

 

$

36,469

 

 

$

101,706

 

Income tax expense (benefit)

 

(2,009)

 

 

3,140

 

 

3,149

 

Net income (loss) before income tax expense

 

21,972

 

 

39,609

 

 

104,855

 

Adjustments:

 

 

 

 

 

 

Realized (gains) losses on securities and loans, net

 

(6,359)

 

 

2,009

 

 

(8,627)

 

Realized (gains) losses on financial derivatives, net

 

1,782

 

 

(425)

 

 

(4,438)

 

Realized (gains) losses on real estate owned, net

 

50

 

 

74

 

 

63

 

Unrealized (gains) losses on securities and loans, net

 

3,212

 

 

(10,000)

 

 

(5,006)

 

Unrealized (gains) losses on financial derivatives, net

 

(1,155)

 

 

5,683

 

 

(6,183)

 

Unrealized (gains) losses on real estate owned, net

 

(672)

 

 

1,314

 

 

1,435

 

Other realized and unrealized (gains) losses, net(1)

 

(1,133)

 

 

(2,166)

 

 

(3,901)

 

Net realized gains (losses) on periodic settlements of interest rate swaps

 

(1,069)

 

 

77

 

 

(1,808)

 

Net unrealized gains (losses) on accrued periodic settlements of interest rate swaps

 

252

 

 

(709)

 

 

(47)

 

Incentive fee to affiliate

 

5,255

 

 

7,157

 

 

12,412

 

Non-cash equity compensation expense

 

244

 

 

244

 

 

717

 

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

 

2,944

 

 

(3,041)

 

 

(10)

 

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

 

 

 

2,039

 

 

3,704

 

Non-recurring expenses

 

471

 

 

248

 

 

719

 

(Earnings) losses from investments in unconsolidated entities(2)

 

647

 

 

(16,313)

 

 

(19,845)

 

Total Core Earnings

 

$

26,441

 

 

$

25,800

 

 

$

74,040

 

Dividends on preferred stock

 

1,941

 

 

1,940

 

 

5,822

 

Core Earnings attributable to non-controlling interests

 

1,544

 

 

1,609

 

 

4,200

 

Core Earnings Attributable to Common Stockholders

 

$

22,956

 

 

$

22,251

 

 

$

64,018

 

Core Earnings Attributable to Common Stockholders, per share

 

$

0.46

 

 

$

0.51

 

 

$

1.40

 

(1) 

 

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.

(2) 

 

Adjustment represents, for certain investments in unconsolidated entities, the net realized and unrealized gains and losses of the underlying investments of such entities.

 

Investors:
Ellington Financial Inc.
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

Source: Ellington Financial Inc.

Copyright © 2021 by Ellington Financial Inc.