Overview of the Company’s Financial Performance

Ellington Financial Inc. is a diversified real estate investment trust (REIT) that invests in a variety of mortgage-related and consumer-related assets. The company had a strong year in 2024, with net income attributable to common stockholders of $117.8 million, up from $60.9 million in 2023. This increase was driven by higher net interest income, significant earnings from investments in unconsolidated entities, and positive results from the company’s Longbridge reverse mortgage segment.

The company’s total adjusted long credit portfolio increased by 24% to $3.42 billion as of December 31, 2024, from $2.75 billion a year earlier. This growth was primarily due to net purchases of closed-end second lien loans, home equity lines of credit (HELOCs), and commercial mortgage loans. The company’s non-qualified mortgage (non-QM) loan portfolio declined due to paydowns and securitizations, while the company also reduced its holdings of non-Agency residential mortgage-backed securities (RMBS).

Revenue and Profit Trends

Ellington Financial’s total interest income increased to $416.0 million in 2024, up from $370.2 million in 2023. This was driven by higher yields on the company’s credit portfolio, which saw interest income rise to $320.6 million from $293.0 million. Interest income from the company’s Agency RMBS portfolio declined to $22.6 million from $37.0 million due to a smaller portfolio size, though this was partially offset by higher average yields.

The company’s Longbridge reverse mortgage segment also contributed to the increase in interest income, with revenue rising to $50.7 million in 2024 from $18.9 million in 2023. This was due to growth in the portfolio of proprietary reverse mortgage loans as well as higher interest income from reverse repo on short U.S. Treasury positions.

Total interest expense increased to $279.6 million in 2024 from $262.5 million in 2023, primarily due to higher financing costs in the Longbridge segment. However, the company’s overall net interest margin improved to 2.83% in 2024 from 2.70% in 2023, aided by positive carry on its interest rate swap hedges.

Ellington Financial also generated strong results from its investments, with net realized and unrealized gains of $58.5 million on its securities and loans portfolio. The company’s Longbridge segment contributed $156.5 million in other income, driven by gains on reverse mortgage loans and related securitizations.

Strengths and Weaknesses

A key strength of Ellington Financial is its diversified investment portfolio, which spans Agency RMBS, non-Agency RMBS, commercial mortgage loans, consumer loans, and reverse mortgages, among other asset classes. This diversification helps mitigate risk and provides the company with multiple avenues for generating returns.

The company’s Longbridge reverse mortgage segment has also been a strong performer, with growing origination volumes, improved margins, and positive results from securitizations. Reverse mortgages represent an attractive niche market that Ellington has been able to capitalize on.

One potential weakness is the company’s exposure to interest rate risk, as changes in interest rates can significantly impact the valuations of its fixed-income assets. Ellington Financial attempts to hedge this risk using a variety of instruments, but interest rate volatility remains a concern.

The company’s commercial mortgage loan portfolio has also experienced some challenges, with a higher level of delinquencies during the first three quarters of 2024, though this trend reversed in the fourth quarter. Careful management of this portfolio will be important going forward.

Outlook and Future Prospects

Looking ahead, Ellington Financial expects to continue to capitalize on opportunities in its target asset classes, including non-QM loans, residential transition loans, commercial mortgage loans, and consumer loans. The company’s strategic investments in loan originators should also provide a steady stream of deal flow and potential upside.

In the Longbridge segment, the company anticipates further growth in proprietary reverse mortgage originations and securitizations, which have been a key driver of the segment’s performance. Tighter HMBS yield spreads should also contribute to positive results for the Longbridge business.

However, the company will need to navigate a potentially more challenging interest rate environment, as the Federal Reserve has signaled a slower pace of rate cuts in 2025. Careful risk management and hedging strategies will be crucial to mitigate the impact of rising rates on the company’s portfolio.

Overall, Ellington Financial appears well-positioned to continue its strong performance, leveraging its diversified investment strategy, growing Longbridge segment, and strategic partnerships to generate attractive risk-adjusted returns for shareholders.