Ellington Financial(EFC) - 2022 Q1 - Quarterly Report

Part I Item 1. Condensed Consolidated Financial Statements (unaudited) Ellington Financial Inc. reported a Q1 2022 net loss of $(6.5) million, a significant downturn from prior year income Condensed Consolidated Balance Sheet Summary (In thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $5,827,265 | $5,177,419 | | Securities, at fair value | $1,877,529 | $2,087,360 | | Loans, at fair value | $2,884,627 | $2,415,321 | | Total Liabilities | $4,504,327 | $3,853,863 | | Repurchase agreements | $2,717,638 | $2,469,763 | | Other secured borrowings, at fair value | $1,216,542 | $984,168 | | Total Equity | $1,322,938 | $1,323,556 | Condensed Consolidated Statement of Operations Summary (In thousands, except per share amounts) | Metric | Three-Month Ended March 31, 2022 | Three-Month Ended March 31, 2021 | | :--- | :--- | :--- | | Total net interest income | $37,057 | $28,737 | | Total other income (loss) | $(25,442) | $20,230 | | Total expenses | $19,567 | $12,329 | | Net Income (Loss) | $(6,498) | $41,256 | | Net Income (Loss) Attributable to Common Stockholders | $(9,902) | $37,856 | | Basic and Diluted EPS | $(0.17) | $0.86 | Condensed Consolidated Statement of Cash Flows Summary (In thousands) | Cash Flow Activity | Three-Month Ended March 31, 2022 | Three-Month Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $32,931 | $9,164 | | Net cash provided by (used in) investing activities | $(592,459) | $(590,296) | | Net cash provided by (used in) financing activities | $830,396 | $618,835 | | Net Increase (Decrease) in Cash | $270,868 | $37,703 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a challenging Q1 2022 due to rising interest rates and volatility, impacting financial performance and portfolio composition - The company's primary objective is to generate attractive, risk-adjusted total returns through an opportunistic strategy, investing across a diverse array of financial assets without restriction to ratings or structure[352] Key Financial Metrics as of March 31, 2022 | Metric | Value | | :--- | :--- | | Book value per common share | $17.74 | | Debt-to-equity ratio | 3.2:1 | | Recourse debt-to-equity ratio | 2.3:1 | - The market environment in Q1 2022 was characterized by a hawkish Federal Reserve, which raised the federal funds rate by 0.25% and signaled further increases, leading to sharply higher interest rates and increased market volatility[403] - The company entered into an agreement to acquire the remaining 49.6% of Longbridge Financial, LLC, a reverse mortgage originator, which upon closing will lead to its consolidation into EFC's financial statements[364][394] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are credit, prepayment, and interest rate risk, actively managed through hedging strategies - The company is subject to credit risk from its investments in non-Agency RMBS, CMBS, mortgage loans, corporate debt, and consumer loans, influenced by factors like underwriting quality, economic conditions, and property value volatility[531][532] - Prepayment risk is the risk of changes in the rate at which principal is returned, affecting assets like RMBS and consumer loans, influenced by interest rates, borrower behavior, and government policies[540] Interest Rate Sensitivity Analysis as of March 31, 2022 (In thousands) | Change in Interest Rates | Estimated Change in Market Value | % of Total Equity | | :--- | :--- | :--- | | -100 basis points | $(716) | (0.05)% | | -50 basis points | $1,650 | 0.12% | | +50 basis points | $(5,604) | (0.42)% | | +100 basis points | $(16,123) | (1.22)% | Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2022, concluding they were effective - Based on an evaluation as of March 31, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[547][549] - No changes occurred during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[549] Part II. Other Information Item 1. Legal Proceedings As of the report date, neither Ellington Financial Inc. nor its manager and affiliates were subject to any material legal proceedings - The company and its affiliates are not currently subject to any legal proceedings that are considered material[551] Item 1A. Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have occurred in the company's risk factors since its last Annual Report on Form 10-K[552] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company issued unregistered equity securities in two instances, including shares to the Manager and OP LTIP Units to personnel - On February 22, 2022, the company issued 19,094 shares of common stock to its Manager as part of an incentive fee payment[553] - On March 7, 2022, the company granted 40,254 OP LTIP Units to certain Ellington personnel under its 2017 Plan[554] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The report includes standard exhibits such as CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL data files (Exhibits 101 and 104)[556]