Ellington Financial(US:EFC)2024-05-10 18:15Ownership 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].