Ellington Credit Company Reports Third Quarter 2024 Results

OLD GREENWICH, Conn.--(BUSINESS WIRE)--November 12, 2024-- 

Ellington Credit Company $(EARN)$ ("we", "us," or "our") today reported financial results for the quarter ended September 30, 2024.

Highlights

   -- 
 Net income (loss) of $5.4 million, or $0.21 per share. 
 
 
   -- 
 Adjusted Distributable Earnings1 of $7.2 million, or $0.28 per share. 
 
 
   -- 
 Book value of $6.85 per share as of September 30, 2024, which includes 
      the effects of dividends of $0.24 per share for the quarter. 
 
 
   -- 
 Net interest margin2 of 9.65% on credit, 3.52% on Agency, and 5.22% 
      overall. 
 
 
   -- 
 CLO portfolio increased to $144.5 million as of September 30, 2024, as 
      compared to $85.1 million as of June 30, 2024. 
 
 
   -- 
 Capital allocation3 to corporate CLOs was 58% as of September 30, 2024 
      as compared to 45% as of June 30, 2024. 
 
 
   -- 
 Weighted average constant prepayment rate ("CPR") for the fixed-rate 
      Agency specified pool portfolio of 7.54. 
 
 
   -- 
 Net mortgage assets-to-equity ratio of 3.0:15 as of September 30, 
      2024. 
 
 
   -- 
 Dividend yield of 14.5% based on the November 8, 2024 closing stock 
      price of $6.62, and monthly dividend of $0.08 per common share declared 
      on November 7, 2024. 
 
 
   -- 
 Debt-to-equity ratio of 2.5:1 as of September 30, 2024. 
 
 
   -- 
 Cash and cash equivalents of $25.7 million as of September 30, 2024, in 
      addition to other unencumbered assets of $95.8 million. 
 

Third Quarter 2024 Results

"Our results in the third quarter reflect excellent performance from our CLO debt portfolio, where robust loan prepayments continued to trigger deleveraging in our seasoned mezzanine positions, and where low default rates boosted demand for junior mezzanine tranches, which drove yield spreads tighter. We also enhanced returns in this portfolio through opportunistic trading and by driving the liquidation of a CLO where we owned discount mezzanine debt. In our CLO equity portfolio, we had positive performance that was also enhanced by opportunistic trading as well as our completion of two deal refinancings. Finally, we had positive performance from our remaining RMBS investments as well, and our overall annualized economic return for the quarter was 10.8%," said Laurence Penn, Chief Executive Officer and President.

"As with prior quarters, our ongoing shift to CLOs continued to lower our leverage ratios. The wide net interest margins on our CLOs enabled our adjusted distributable earnings to continue to cover our dividends during the quarter, even as we terminated, in conjunction with selling agency pools, several interest rate swap hedging positions that had been supporting ADE, and even as our leverage declined significantly.

"As we look to the remainder of the year, we currently see better relative value and ample opportunities in CLO equity, where tighter debt spreads are improving economics for both new and existing deals. In addition, continued heavy issuance in the CLO market is creating inefficiencies and relative value opportunities in both the CLO debt and the CLO equity markets. Given our strong systems and deep experience in both primary and secondary markets, EARN is well positioned to capitalize on these inefficiencies."

Strategic Transformation Update

On March 29, 2024, our Board of Trustees approved a strategic transformation of our investment strategy to focus on corporate CLOs, with an emphasis on mezzanine debt and equity tranches. In connection with this transformation, we revoked our election to be taxed as a REIT effective January 1, 2024, rebranded as Ellington Credit Company, and updated our web address to www.ellingtoncredit.com. We continue to be listed on the New York Stock Exchange under our ticker symbol EARN.

In connection with our annual meeting later this year, on August 16, 2024 we filed a definitive proxy statement (as amended, supplemented or otherwise modified from to time, the "Proxy Statement") that includes proposals on certain matters related to the strategic transformation (the "Conversion Proposals"). On October 1 and October 23, 2024, we filed amendments to the Proxy Statement with supplemental information about the Conversion Proposals. The leading independent proxy advisory firms, ISS and Glass Lewis, along with our Board of Trustees, recommend that EARN's shareholders vote "FOR" the Conversion Proposals. Subject to such shareholder approval, we intend to convert to a closed-end fund registered under the Investment Company Act of 1940, as amended (the "1940 Act") that would be treated as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended, and complete our transition from an MBS-focused company to a CLO-focused company.

In the meantime, we are operating as a taxable C-Corp and taking advantage of our significant existing net operating loss carryforwards to offset the majority of any U.S. federal taxable income we may generate pending our conversion to a closed-end fund/RIC. During this interim phase, we continue to hold a core portfolio of liquid Agency MBS pools to maintain our exemption from the 1940 Act. Once we convert to a closed-end fund/RIC, we would generally not be subject to corporate tax.

During the third quarter, we increased the size of the CLO portfolio to $144.5 million, from $85.1 million as of the prior quarter end.

Financial Results

The following table summarizes our portfolio of long investments as of September 30, 2024 and June 30, 2024:

 
                                    September 30, 2024                                     June 30, 2024 
                    ---------------------------------------------------  ------------------------------------------------- 
                     Current      Fair    Average              Average    Current      Fair    Average             Average 
 ($ in thousands)   Principal    Value    Price(1)    Cost     Cost(1)   Principal    Value    Price(1)    Cost    Cost(1) 
                    ----------  --------  --------  --------  ---------  ----------  --------  --------  --------  ------- 
 Credit Portfolio: 
 Dollar 
 Denominated: 
   CLOs 
     CLO Notes      $   63,090  $ 52,892     83.84  $ 52,800      83.69  $   46,314  $ 37,225     80.38  $ 37,108    80.12 
     CLO Equity            n/a    66,518       n/a    69,188        n/a         n/a    33,228       n/a    34,779      n/a 
                                 -------             -------                          -------             ------- 
 Total Dollar 
  Denominated 
  CLOs                           119,410             121,988                           70,453              71,887 
                                 -------             -------                          -------             ------- 
   Corporate Debt        1,222       391     32.00       372      30.44          --        --        --        --       -- 
   Corporate 
    Equity                 n/a        30       n/a        43        n/a         n/a        32       n/a        43      n/a 
   Non-Agency 
    RMBS(2)              9,343     9,448    101.12     7,844      83.96       9,461     9,463    100.02     7,943    83.96 
   Non-Agency IOs          n/a        --       n/a        --        n/a         n/a     8,328       n/a     6,182      n/a 
                                 -------             -------                          -------             ------- 
 Total Dollar 
  Denominated 
  Credit                         129,279             130,247                           88,276              86,055 
                                 -------             -------                          -------             ------- 
 Non-Dollar 
 Denominated: 
   CLOs: 
     CLO Notes          17,555    16,818     95.80    16,173      92.13       8,431     7,874     93.39     7,800    92.52 
     CLO Equity            n/a     8,258       n/a     8,394        n/a         n/a     6,761       n/a     7,056      n/a 
                                 -------             -------                          -------             ------- 
 Total non-Dollar 
  Denominated 
  CLOs                            25,076              24,567                           14,635              14,856 
                                 -------             -------                          -------             ------- 
 Total Credit                    154,355             154,814                          102,911             100,911 
                                 -------             -------                          -------             ------- 
 Agency Portfolio: 
 Dollar 
 Denominated: 
   Agency RMBS(2) 
     15-year 
      fixed-rate 
      mortgages             --        --        --        --         --       4,115     4,084     99.25     4,158   101.04 
     30-year 
      fixed-rate 
      mortgages        461,682   462,112    100.09   454,370      98.42     548,497   526,985     96.08   538,451    98.17 
     Reverse 
      mortgages             34        34    100.00        37     108.82          34        33     97.06        37   108.82 
                     ---------   -------  --------   -------  ---------   ---------   -------  --------   -------  ------- 
   Total Agency 
    RMBS               461,716   462,146    100.09   454,407      98.42     552,646   531,102     96.10   542,646    98.19 
                     ---------   -------  --------   -------  ---------   ---------   -------  --------   -------  ------- 
   Agency IOs              n/a     1,870       n/a     1,583        n/a         n/a     2,355       n/a     1,985      n/a 
                                 -------             -------                          -------             ------- 
 Total Agency                    464,016             455,990                          533,457             544,631 
                                 -------             -------                          -------             ------- 
 U.S. Treasury 

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November 12, 2024 19:00 ET (00:00 GMT)