Mortgage real estate investment trusts, or mREITs, have been a tough investment in this rate environment. One name that has held up in the space is Ellington Financial Inc. (NYSE:EFC), and it is well positioned for when rates normalize and the housing industry rebounds, in our opinion. We still like income names to comprise about 20% of your long-term portfolio. Within those long-term income holdings, we endorse having dividend paying names, blended with dividend growth, and/or high-yield. Now we got some b ...

Ownership and Acquisitions - As of March 31, 2024, Ellington Financial Inc. had an ownership interest of approximately 99.3% in its Operating Partnership[431]. - The company completed the acquisition of a controlling interest in Longbridge Financial, LLC on October 3, 2022, and a merger with Arlington Asset Investment Corp. on December 14, 2023[434]. Investment Portfolio - The investment portfolio includes residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), consumer loans, and asset-backed securities (ABS)[435]. - Agency RMBS assets consist primarily of whole pool and partial pool pass-through certificates, guaranteed by U.S. government agencies[441]. - The targeted asset classes include investments in U.S. and European markets, focusing on Agency RMBS, CMBS, consumer loans, and corporate CLOs[438]. - The company has a diverse array of financial assets, including investments in mortgage servicing rights and strategic investments in loan originators[440]. Financial Strategies - The company employs strategies to capitalize on market opportunities, adjusting asset allocations based on credit and liquidity trends[437]. - The strategies include opportunistic hedging of credit risk, interest rate risk, yield spread risk, and foreign currency risk, depending on market conditions[437]. - The company engages in TBA transactions to manage risks associated with investment strategies, utilizing these transactions as hedging instruments against interest rate and yield spread risks[465][466]. Loan and Mortgage Details - The majority of CMBS acquired utilize senior/subordinate structures, focusing on B-pieces for higher yields[445]. - As of March 31, 2024, all commercial mortgage loans held by the company were first-lien loans, with maturities ranging from one to ten years[448]. - The company focuses on acquiring smaller balance loans, typically less than $30 million, which are secured by real estate and may include personal guarantees from borrowers[449]. - The U.S. consumer loan portfolio consists of unsecured loans and secured auto loans, with ongoing purchases of newly originated consumer loans under flow agreements[450]. - The company is active in the market for residential non-performing loans (NPLs) and re-performing loans (RPLs), focusing on less-competitively-bid mixed legacy pools[459]. Financial Performance - Net income attributable to common stockholders for the three-month period ended March 31, 2024, was $26.9 million, with a net income per common share of $0.32[554]. - The company reported net interest income of $31.1 million for the three-month period ended March 31, 2024[554]. - Total other income for the same period was $44.5 million, which included realized and unrealized gains on financial derivatives of $33.8 million[554]. - The company reported a net income per common share of $0.61 for the three-month period ended March 31, 2024, down from $0.58 in the same period in 2023[556]. - For the three-month period ended March 31, 2024, total net income was $34,051,000, compared to $44,750,000 for the same period in 2023, representing a decrease of approximately 24%[603]. Interest Rates and Borrowing - The average cost of funds on secured financings increased to 5.78% for the three-month period ended March 31, 2024, compared to 5.69% for the previous period[519]. - The average borrowing rate on unsecured financings increased to 6.14% for the three-month period ended March 31, 2024, from 5.85% in the previous period[519]. - The company retained mortgage servicing rights associated with HMBS and proprietary reverse mortgage loans, contributing to its Reverse MSR-related Net Assets[503]. - As of March 31, 2024, total recourse borrowings amounted to $2,996.3 million, down from $3,510.9 million as of December 31, 2023, resulting in a debt-to-equity ratio of 1.9:1[514]. Market Conditions - The S&P CoreLogic Case-Shiller US National Home Price NSA Index increased by 0.5% in the first two months of 2024, following a 5.5% rise in 2023[474]. - U.S. real GDP grew at an estimated annualized rate of 1.6% in Q1 2024, down from 3.4% in the previous quarter, while the unemployment rate averaged 3.8% during the same period[474]. - The Federal Reserve maintained its target federal funds rate at 5.25%–5.50% in January and March 2024, indicating potential policy adjustments later in the year[474]. Asset Valuation - The fair value of the consolidated investment portfolio as of March 31, 2024, is $14,308,343,000, compared to $14,156,428,000 as of December 31, 2023, reflecting an increase of approximately 1.07%[533]. - The fair value of investments in unconsolidated entities totaled approximately $125.37 million as of March 31, 2024[492]. - The total fair value of Forward MSR-related investments was approximately $160.01 million[492]. Equity and Dividends - Equity increased by $17.5 million to $1.553 billion as of March 31, 2024, driven by net income of $34.1 million and net proceeds from common stock issuance of $26.9 million[552]. - Preferred stock dividends for the current period totaled $6,654,000, compared to $5,117,000 in the previous year[603]. Adjusted Distributable Earnings - Adjusted Distributable Earnings is calculated as U.S. GAAP net income adjusted for various components, providing a useful indicator of long-term financial performance and dividend-paying ability[598]. - Adjusted distributable earnings for the same period were $30,819,000, down from $35,990,000 in 2023, indicating a decline of about 14%[603]. - Adjusted distributable earnings attributable to common stockholders were $23,726,000 for the current period, down from $30,300,000 in the prior year[603].

Financial Data and Key Metrics Changes - The company reported net income of $0.32 per share and adjusted distributable earnings (ADE) of $0.28 per share for Q1 2024, with the credit strategy contributing $0.48 per share of net income [14][18] - The total loan credit portfolio increased by 2% to $2.8 billion as of March 31, driven by larger residential transition loan and commercial mortgage bridge loan portfolios [22] - The recourse debt to equity ratio decreased to 1.8:1 at March 31, down from 2:1 at year-end, indicating improved leverage management [25] Business Line Data and Key Metrics Changes - The credit strategy generated $0.48 per share of GAAP net income, primarily from strong net interest income and gains on non-Agency RMBS [7][14] - The Agency strategy generated a modest $0.03 per share of GAAP net income, despite lower interest rate volatility [20] - Longbridge generated $0.10 per share of GAAP net income, although adjusted earnings were slightly negative after excluding certain gains [4][21] Market Data and Key Metrics Changes - The total long Agency RMBS portfolio declined by 22% sequentially to $663 million, reflecting a strategic shift towards higher yielding opportunities [23] - Longbridge originated $205 million across HECM and proprietary loans, a 22% decline from the previous quarter, with a shift in origination channels [24][50] Company Strategy and Development Direction - The company is focusing on expanding its proprietary reverse mortgage business and has initiated a securitization program for these loans [5][29] - There is an emphasis on capitalizing on opportunities in the commercial real estate sector, particularly through the acquisition of non-performing loans at discounts [28][32] - The company aims to balance near-term earnings growth with maintaining capital for opportunistic investments [61] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for growth in closed-end seconds and HELOCs, driven by homeowners' substantial equity and low existing mortgage rates [6][43] - The company is well-positioned for a higher for longer interest rate environment, leveraging its hedging expertise and short-duration high-yielding loan portfolios [36][63] - Management expects Longbridge to contribute positively to ADE in the second quarter, with origination volumes ahead of projections [41][35] Other Important Information - The company completed its first non-QM securitization in 14 months, taking advantage of favorable market conditions [17] - The total economic return for the first quarter was positive at 2.1%, indicating a stable performance despite market challenges [26] Q&A Session Summary Question: Can you provide more details on sourcing closed-end seconds and HELOCs? - Management indicated that these products are primarily sourced from existing proprietary originator relationships, focusing on borrowers with agency first lien mortgages [66][85] Question: What is the company's comfort level regarding the dividend? - Management expressed confidence in maintaining the current dividend level, which is expected to remain stable for some time [69] Question: What is the company's strategy regarding regional banks' involvement in the RTL and commercial transitional space? - Management noted that regional banks lack the necessary expertise for heavy underwriting in this sector, which has allowed the company to maintain its competitive edge [73][74] Question: How does the company hedge against interest rate risks? - Management confirmed that they utilize a combination of interest rate hedges and credit hedges to mitigate risks associated with their portfolios [78][79]

Financial Performance - Net income attributable to common stockholders was $26915 thousand or $032 per share[6] - Adjusted Distributable Earnings was $237 million or $028 per share[30] - Book value per common share was $1369 after total dividends declared of $043 for the quarter[30] Portfolio Composition - Long credit portfolio was $280 billion, a 2% increase from the prior quarter[30] - Long Agency portfolio was $6626 million, a 22% decrease from the prior quarter[30] - Longbridge portfolio was $4410 million, a 20% decrease from the prior quarter, driven by the successful completion of an inaugural proprietary reverse mortgage loan securitization[30] Leverage and Capitalization - Recourse debt-to-equity ratio was 18:1, adjusted for unsettled purchases and sales[30] - Total debt-to-equity ratio was 83:1, including all non-recourse borrowings, which primarily consist of securitization-related liabilities[30] - Cash and cash equivalents of $1875 million, in addition to other unencumbered assets of $5445 million[30] Asset Allocation - Credit accounted for 82% of allocated equity, Agency 7%, and Longbridge 11%[41]

Financial Performance - Net income attributable to common stockholders for Q1 2024 was $26.9 million, or $0.32 per common share, with $43.0 million from the investment portfolio[7] - Adjusted Distributable Earnings for Q1 2024 were $23.7 million, or $0.28 per common share[7] - Net income attributable to common stockholders for Q1 2024 was $40,943, compared to $26,915 in Q4 2023, reflecting an increase of approximately 52%[30] - Longbridge generated net income of $8.7 million for Q1 2024, despite a 20% sequential decrease in the portfolio to $441.0 million[15] - For the three-month period ended March 31, 2024, the total net income was $34,051,000, compared to a net income of $19,325,000 for the three-month period ended December 31, 2023, representing a 76% increase[53] - Adjusted distributable earnings attributable to common stockholders for the three-month period ended March 31, 2024, were $23,726,000, compared to $18,905,000 for the previous period, reflecting a 25% increase[53] - The earnings per share for common stockholders was $0.28 for the three-month period ended March 31, 2024, compared to $0.27 for the previous period, indicating a slight increase of 3.7%[53] Portfolio and Assets - The total long credit portfolio increased to $2.80 billion as of March 31, 2024, up from $2.74 billion at the end of 2023, driven by growth in residential transition loans and commercial mortgage bridge loans[9] - The Agency RMBS portfolio decreased by 22% quarter-over-quarter to $662.6 million, impacted by net sales and principal repayments[12] - Longbridge's proprietary reverse mortgage loans increased to $365,372 as of March 31, 2024, from $329,575 as of December 31, 2023, marking a growth of about 10.9%[23] - The total origination volume for new loans in Q1 2024 was $204,885, a decrease of 21.7% from $262,182 in Q4 2023[25] - The total equity of Longbridge rose to $1,553,156 as of March 31, 2024, compared to $1,535,612 at the end of 2023[26] - The company retained HMBS MSR Equivalent increased to $94,372 as of March 31, 2024, from $88,447 as of December 31, 2023, showing a growth of approximately 6.5%[23] Financial Ratios and Debt - The recourse debt-to-equity ratio was 1.8:1 as of March 31, 2024, adjusted for unsettled purchases and sales[7] - The recourse debt-to-equity ratio improved to 1.8:1 as of March 31, 2024, down from 2.0:1 at December 31, 2023, indicating a stronger equity position[26] - Longbridge's total borrowings decreased slightly to $13,184,958 as of March 31, 2024, compared to $13,358,848 at December 31, 2023[26] Income and Expenses - The company reported a weighted average share price of $0.32 for common stockholders in Q1 2024, up from $0.10 in Q4 2023[30] - The company incurred $5,491,000 in non-capitalized transaction costs and other expenses for the three-month period ended March 31, 2024, compared to $5,855,000 in the previous period, showing a decrease of 6.2%[53] - Total expenses for the quarter were $58,169,000, which included investment-related expenses of $9,555,000[33] Changes in Assets and Liabilities - Total assets decreased from $15,315,930,000 on December 31, 2023, to $15,132,600,000 as of March 31, 2024, representing a decline of approximately 1.2%[44] - Cash and cash equivalents decreased by 18.1%, from $228,927,000 to $187,467,000[44] - Total liabilities decreased from $13,780,318,000 to $13,579,444,000, a reduction of about 1.5%[44] - Total stockholders' equity increased from $1,517,071,000 to $1,533,459,000, reflecting a growth of approximately 1.1%[44] Gains and Losses - The company reported a realized loss of $30,139,000 and an unrealized gain of $95,464,000 during the quarter[33] - The company reported realized gains of $30,874,000 for the three-month period ended March 31, 2024, compared to $19,835,000 for the previous period, marking a 55% increase[53] - Unrealized losses for the same period were $(25,602,000), an improvement from $(14,114,000) in the previous period, indicating a reduction in losses by 81%[53] Future Outlook - The company plans to host a conference call on May 8, 2024, to discuss financial results for the quarter ended March 31, 2024[38]

(EFC) ...

Dragon ClawsEllington Financial (EFC) is a mortgage REIT that invests in residential and commercial mortgages. The company also carries a portfolio of consumer loans. Over a year ago, I wrote about the attractive investment in Ellington’s Series A preferred shares (NYSE:EFC.PR.A). Today, I’m suggesting that investors consider switching from the Series A shares to the Series E preferred shares (NYSE:EFC.PR.E). Other than the company’s common shares, Ellington Financial has seven different income securiti ...

OLD GREENWICH, Conn.--(BUSINESS WIRE)--Ellington Financial Inc. (NYSE: EFC) (the "Company") today announced that its Board of Directors has declared the following: (i) a monthly dividend of $0.13 per share of common stock, payable on April 25, 2024 to common stockholders of record as of March 29, 2024; (ii) a quarterly dividend of $0.421875 per share on the Company's 6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, payable on April 30, 2024 to Series A preferred stockholders of ...

Assets and Management - As of December 31, 2023, Ellington had approximately $10.3 billion in assets under management, with $7.2 billion attributed to the company and Ellington Residential Mortgage REIT[27]. - As of December 31, 2023, the majority of Ellington's recourse borrowings consisted of repurchase agreements, primarily collateralized by Agency RMBS and residential mortgage loans[45]. - As of December 31, 2023, Ellington managed approximately $8.7 billion in assets, including $3.1 billion in accounts that do not employ financial leverage[63]. - The company has a commitment to fund additional borrowing capacity of $1.9 billion for HECM loans as of December 31, 2023[198]. Business Strategy and Operations - The company completed the merger with Arlington Asset Investment Corp. on December 14, 2023, enhancing its capital base and investment portfolio[21]. - The company has two reportable segments: the Investment Portfolio Segment and the Longbridge Segment, following the acquisition of a controlling stake in Longbridge in October 2022[18]. - Longbridge is engaged in originating, purchasing, selling, and servicing Home Equity Conversion Mortgages (HECM) and proprietary reverse mortgage products[19]. - The company utilizes an opportunistic strategy to generate attractive, risk-adjusted returns across various asset classes, including mortgage-related and consumer-related assets[28]. - The company aims to maintain its qualification as a REIT and its exclusion from registration under the Investment Company Act, adapting its strategy to changing market conditions[29]. - The company targets underserved niche market segments for loans, capitalizing on reduced bank origination and ownership due to post-2008 regulations, creating better investment opportunities[33]. Risk Management - Ellington's risk management infrastructure includes a proprietary portfolio management system, "ELLiN," used across all departments for comprehensive risk assessment[40]. - The company employs a diverse range of hedging instruments and derivative contracts to manage risks while maintaining REIT qualification[35]. - The company believes its manager's extensive experience in fixed income securities and loans provides a steady flow of favorable investment opportunities[34]. - The investment and risk management committee oversees investment policies and portfolio compliance, ensuring alignment with the company's strategic goals[37]. Financial Performance and Fees - The base management fee is set at 1.50% per annum of the equity of the Operating Partnership, calculated at the end of each fiscal quarter[54]. - Incentive fees are calculated as 25% of the excess of Adjusted Net Income over specified hurdle amounts for the incentive calculation period[55]. - The incentive fee calculation includes a "Hurdle Amount" based on a minimum of 9% or 3% plus the 10-year U.S. Treasury rate, impacting the financial performance metrics[58]. Regulatory Compliance - The company must monitor its compliance with the Investment Company Act to avoid being classified as an investment company, which would impose significant operational restrictions[79]. - The company is actively monitoring the regulatory landscape, particularly regarding the SEC's review of the Investment Company Act exclusions[78]. - Regulatory compliance is extensive, with Longbridge subject to various federal, state, and local regulations impacting mortgage loan origination and servicing[81]. - The company is impacted by the CFPB's evolving regulations, which affect mortgage servicing and origination practices[83]. Market Risks - The company faces competitive risks that may hinder its ability to achieve business goals, despite having access to industry expertise and strategic equity investments[71]. - Difficult conditions in the mortgage and residential and commercial real estate markets may adversely affect the value of the assets in which the company invests[101]. - The federal conservatorship of Fannie Mae and Freddie Mac could materially adversely affect the company's business, financial condition, and results of operations[102]. - The principal and interest payments on non-Agency RMBS and CRTs are not guaranteed, exposing the company to increased credit risk[101]. - Increases in interest rates could negatively affect the value of the company's assets and increase the risk of default[101]. - The company may face challenges in acquiring targeted assets due to changes in market conditions affecting issuance volumes[101]. - The company is subject to risks associated with third-party service providers, including mortgage servicers, which could disrupt its operations[99]. - The lack of liquidity in the company's assets may materially adversely affect its financial condition and ability to pay dividends[99]. Investment Risks - The company's investments in distressed debt and equity carry significant risk of loss, which may involve large costs to protect these investments[99]. - The company faces increased risks related to mortgage loans due to potential seller defaults on defective loans, which could lead to higher delinquency and default rates, adversely affecting investment returns[143]. - The company has invested in subordinated and lower-rated securities, which generally carry a higher risk of loss compared to senior securities, potentially impacting financial performance and dividend payments[144]. - The performance of non-Agency RMBS may be adversely affected by higher delinquency rates associated with less stringent underwriting guidelines[117]. - Changes in prepayment rates can adversely affect the performance of the company's assets, impacting profitability[122]. - The value of mortgage servicing rights (MSRs) declines with higher prepayment rates, adversely impacting expected future cash flows[127]. Economic and Financial Conditions - The company may encounter challenges in securing financing on favorable terms, which could adversely affect its operations and ability to pay dividends to stockholders[182]. - The company's lenders are primarily large global financial institutions, and any financial difficulties experienced by these lenders could impact the availability and cost of financing[183]. - The company is exposed to various risks associated with real estate assets, including economic downturns, changes in laws, and environmental liabilities, which could materially affect its financial condition[175]. - The Federal Reserve's interest rate hikes have raised the target range for the federal funds rate to 5.25%-5.50% as of January 31, 2024, creating uncertainty in future interest rate movements[151]. Management and Governance - The management agreement with the Manager has a current term expiring on December 31, 2024, with automatic one-year renewals unless a non-renewal notice is given 180 days prior[60]. - The company does not maintain an office or employ personnel directly, relying on the Manager for operational resources and incurring all direct operating expenses[59]. - The management agreement allows for cross transactions, which may create potential conflicts of interest, requiring prior approval from independent directors[65]. - The company has not adopted a policy prohibiting its directors and officers from having a pecuniary interest in transactions involving the company, but it has a conflicts of interest policy in place[68].

Ellington Financial, Inc. (NYSE:EFC) Q4 2023 Earnings Conference Call February 27, 2024 11:00 AM ET Company Participants Alaael-Deen Shilleh - Associate General Counsel and Secretary Laurence Penn - President and CEO Mark Tecotzky - Co-Chief Investment Officer JR Herlihy - CFO Conference Call Participants Crispin Love - Piper Sandler Trevor Cranston - JMP Securities Bose George - Keefe, Bruyette and Woods Lee Cooperman - Omega Family Office Matthew Howlett - B. Riley Securities Operator Good morning, ladies ...