Ellington Financial Delivers Solid Performance in Third Quarter

Ellington Financial, a diversified real estate investment trust (REIT), reported strong financial results for the third quarter of 2024. The company’s net income attributable to common stockholders was $16.2 million, or $0.19 per share, up from $6.6 million, or $0.10 per share, in the same period last year.

The increase in Ellington’s profitability was driven by several factors. First, the company saw a significant rise in total other income, which jumped to $33.4 million from $26.2 million a year earlier. This was primarily due to net gains on the company’s securities and loan portfolio, as well as its reverse mortgage business.

Ellington’s investment portfolio, which includes a diverse array of assets like residential mortgage-backed securities (RMBS), commercial mortgage loans, consumer loans, and corporate debt, generated $6.5 million in other income during the quarter, compared to a loss of $12.0 million in the prior-year period. The portfolio benefited from lower interest rates, which led to mark-to-market gains on the company’s non-QM loans, non-Agency RMBS, and commercial mortgage-backed securities (CMBS).

The company’s Longbridge segment, which originates and services reverse mortgage loans, also contributed significantly to Ellington’s performance. Longbridge reported $30.6 million in other income, driven by gains on its HECM (home equity conversion mortgage) reverse mortgage loans and related HMBS (HECM-backed mortgage-backed securities) obligations. This was partially offset by losses on Longbridge’s interest rate hedges.

In addition to the strong performance of its investment and reverse mortgage businesses, Ellington also saw an increase in net interest income, which rose to $33.6 million from $27.5 million in the prior-year quarter. This was due to higher yields on the company’s credit portfolio, as well as a decline in financing costs on its Agency RMBS holdings.

However, Ellington’s results were not without some challenges. The company reported a net loss of $2.5 million in its Longbridge segment, primarily due to mark-to-market losses on interest rate hedges. Additionally, the company’s corporate segment, which includes expenses not allocated to the investment portfolio or Longbridge, saw a net loss of $25.3 million, driven by unrealized losses on the company’s unsecured borrowings.

Looking at Ellington’s balance sheet, the company’s total assets increased to $16.0 billion as of September 30, 2024, up from $15.3 billion at the end of 2023. This growth was largely attributable to an expansion of the company’s credit portfolio, which increased to $4.7 billion from $4.1 billion over the same period.

Ellington’s debt-to-equity ratio, a measure of financial leverage, stood at 8.5:1 as of September 30, 2024, up slightly from 8.7:1 at the end of 2023. The company’s recourse debt-to-equity ratio, which excludes non-recourse borrowings, was 2.0:1, up from 2.3:1 at the end of the prior year. This increase in leverage was driven by growth in the credit portfolio, partially offset by a decrease in borrowings on the Agency RMBS portfolio and the conversion of certain recourse borrowings to non-recourse borrowings related to Longbridge’s proprietary reverse mortgage securitization.

Ellington’s investment portfolio continues to be well-diversified, with investments in Agency RMBS, non-Agency RMBS, commercial mortgage loans, consumer loans, corporate debt, and other strategic assets. The company’s credit portfolio, excluding Agency RMBS, grew to $3.3 billion as of September 30, 2024, up from $2.7 billion at the end of the prior year. This growth was primarily driven by net purchases of non-QM loans, closed-end second lien loans, home equity lines of credit (HELOCs), commercial mortgage loans, and non-Agency RMBS.

In the Agency RMBS portfolio, the company’s holdings decreased by 14% quarter-over-quarter to $394.6 million, as net sales and principal repayments outpaced new investments. The Agency RMBS portfolio generated positive results for the quarter, as net gains on the securities exceeded losses on the company’s interest rate hedges.

Ellington’s Longbridge segment, which was acquired in October 2022, continued to be a significant contributor to the company’s performance. Longbridge’s loan-related assets, excluding non-retained tranches of consolidated securitization trusts, decreased by 5% sequentially to $494.2 million as of September 30, 2024, primarily due to the completion of a securitization of proprietary reverse mortgage loans, partially offset by new originations.

Overall, Ellington’s results for the third quarter of 2024 demonstrate the company’s ability to navigate a challenging market environment and deliver solid financial performance. The company’s diversified investment strategy, combined with the growth of its reverse mortgage business, has positioned Ellington for continued success.

Looking ahead, Ellington remains focused on identifying attractive investment opportunities across its target asset classes, while actively managing its interest rate and credit risk exposures. The company’s flexible approach and Ellington’s extensive experience in the real estate and mortgage markets are expected to continue to serve the company well in the current market environment.