Ellington Financial Inc. (NYSE: EFC) (the "Company") today reported financial results for the quarter ended June 30, 2021.

Highlights

• Net income of $32.7 million, or $0.75 per common share.
• Core Earnings¹ of $22.3 million, or $0.51 per share.
• Book value per common share as of June 30, 2021 of $18.47, including the effects of dividends of $0.44 per common share for the quarter.
• Credit strategy gross income of $55.3 million for the quarter, or $1.25 per share.
• Agency strategy gross loss of $(1.2) million for the quarter, or $(0.03) per share.
• Dividend yield of 9.9% based on the August 4, 2021 closing stock price of $18.12 per share, and monthly dividend of $0.15 per common share declared on August 4, 2021. Increased monthly dividend by a cumulative 50% during the quarter.
• Debt-to-equity ratio of 3.2:1 and recourse debt-to-equity ratio of 1.9:1² as of June 30, 2021.
• Cash and cash equivalents of $134.7 million as of June 30, 2021, in addition to other unencumbered assets of $511.0 million.

Second Quarter 2021 Results

"Ellington Financial continued its strong performance during the second quarter, increasing Core Earnings per share another 19% sequentially, generating an annualized economic return of 18%, and raising the monthly dividend twice," said Laurence Penn, Chief Executive Officer and President. "Driven by our strong performance and earnings growth, we have now raised our monthly dividend a full 50% this year, to its current level of $0.15 per share.

"Our loan origination businesses again drove earnings this past quarter. In the non-QM space, LendSure had another record quarter for origination volume, while Longbridge continued to deliver tremendous results in the reverse mortgage space. We also closed on our second non-QM securitization of the year, and had excellent performance across our short-duration loan portfolios. Our results also reflect significant contributions from our CLO, CMBS, and non-Agency RMBS strategies. Finally, our Agency strategy only generated modest losses in what was a challenging quarter for Agency RMBS.

"Our loan portfolios steadily expanded during the second quarter, specifically non-QM, small-balance commercial mortgage, and residential transition loans. In addition, in the second quarter and through July we closed on two small but strategic equity investments in mortgage originators, thus further expanding and diversifying our loan sourcing channels. Finally, to support the continuing growth of our loan portfolios, we accessed the capital markets shortly after quarter end, raising approximately $113 million of common equity at around book value. This new capital should help drive additional growth of our portfolio and earnings per share."

Financial Results

The Company's total long credit portfolio³ increased by 5% in the second quarter, to $1.359 billion as of June 30, 2021. The quarter-over-quarter increase was driven by an increase in non-QM, small-balance commercial mortgage, and residential transition loan acquisitions, as well as by a new equity investment in a loan originator and appreciation of the Company's existing loan originator equity investments. These increases more than offset the collective impact of the non-QM loan securitization completed in June, loan payoffs and resolutions, and opportunistic sales of CLOs and non-Agency RMBS during the quarter.

The Company's total long Agency RMBS portfolio decreased slightly to $1.476 billion as of June 30, 2021.

The Company's debt-to-equity ratio was unchanged at 3.2:1 as of June 30, 2021 as compared to March 31, 2021, adjusting for unsettled purchases and sales, as total borrowings and total equity increased proportionally during the quarter. The Company's recourse debt-to-equity ratio, adjusted for unsettled purchases and sales, decreased slightly to 1.9:1 as of June 30, 2021, as compared to 2.0:1 at March 31, 2021. A larger portion of the Company's total borrowings were non-recourse as of June 30, 2021, as compared to the prior quarter end, primarily as a result of the non-QM securitization that was completed during the quarter.

During the second quarter, the Company's credit strategy generated total gross income of $55.3 million, or $1.25 per share, and its Agency strategy generated a total gross loss of $(1.2) million.

The Company benefited from strong performance in all of its primary credit strategies during the second quarter. Similar to the prior quarter, higher sequential net interest income⁴ and substantial net realized and unrealized gains drove results. The increase in net interest income was primarily driven by larger small balance commercial mortgage, residential transition, and non-QM loan portfolios, as well as by lower financing costs. Net interest income also increased due to several small balance commercial asset resolutions that included the payment of past-due interest. The substantial net realized and unrealized gains occurred mainly in the Company's CMBS, CLO, non-Agency RMBS, and non-QM strategies, as well as the Company's equity investments in loan originators. Finally, the Company's credit hedges detracted from results, as credit yield spreads continued to tighten during the quarter.

Meanwhile, the Company's Agency strategy generated a small net loss for the quarter. In a reversal from the prior quarter, interest rates declined and the yield curve flattened. Faced with declining interest rates and continued elevated prepayment rates, along with concerns that the Federal Reserve will commence tapering its asset purchases in the coming months, Agency RMBS yield spreads widened, and most Agency RMBS significantly underperformed comparable US Treasuries and interest rate swaps on a total return basis. Higher-coupon Agency RMBS particularly underperformed. The Company had a small net loss in the strategy as net realized and unrealized losses on specified pools, interest rates swaps, U.S. Treasury securities, and futures exceeded net interest income on RMBS and net gains on TBA positions.

Average pay-ups on the Company's specified pools increased to 1.10% as of June 30, 2021, as compared to 1.02% as of March 31, 2021, driven by increases in projected prepayments as a result of declining mortgage rates. Pay-ups are price premiums for specified pools relative to their TBA counterparts.

During the quarter, the Company continued to hedge interest rate risk, primarily through the use of interest rate swaps, short positions in TBAs, U.S. Treasury securities, and futures. The size of the Company's short TBA position declined quarter over quarter relative to its other hedging instruments, as measured by 10-year equivalents⁵, as the duration of the TBA short positions declined more significantly than the duration of the Company's other hedging instruments, and as the Company covered a portion of its TBA short positions. In addition, the Company increased the size of its long TBA portfolio during the quarter. This long TBA portfolio continued to be concentrated in lower coupons, and performed well during the quarter.

_______________________________

The following tables summarize the Company's investment portfolio holdings as of June 30, 2021 and March 31, 2021:

Credit Portfolio⁽¹⁾

Agency RMBS Portfolio

The following table summarizes the Company's operating results for the three-month periods ended June 30, 2021 and March 31, 2021 and the six-month period ended June 30, 2021:

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 Friday, August 6, 2021, to discuss its financial results for the quarter ended June 30, 2021. To participate in the event by telephone, please dial (877) 876-9174 at least 10 minutes prior to the start time and reference the conference ID EFCQ221. International callers should dial (785) 424-1669 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 Friday, August 6, 2021, at approximately 2:00 p.m. Eastern Time through Friday, August 13, 2021 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (888) 562-0859. International callers should dial (402) 220-7342. 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.

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 June 30, 2021 and March 31, 2021 and the six-month period ended June 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:

View source version on businesswire.com: https://www.businesswire.com/news/home/20210805006066/en/