Ellington Residential Reports Q4 and FY 2023 Earnings

The TDR Three Key Takeaways for Ellington:

  1. Ellington Residential reports Q4 net income of $12.4 million, $0.75 per share.
  2. Adjusted Distributable Earnings rise to $4.6 million, or $0.27 per share.
  3. Q4 sees growth in CLO portfolio to $17.4 million, diversifying assets.

Ellington Residential Mortgage REIT (NYSE: EARN), based in Old Greenwich, Connecticut, yesterday announced its financial results for the quarter ending December 31, 2023. The company reported a net income of $12.4 million, translating to $0.75 per share. This performance highlights a significant turnaround, considering the challenging market conditions that have persisted over the past months.

Ellington Residential’s Adjusted Distributable Earnings stood at $4.6 million, or $0.27 per share, demonstrating the company’s ability to cover its dividends effectively. A key factor contributing to this quarter’s performance was the strategic growth of the company’s Collateralized Loan Obligation (CLO) portfolio, which expanded to $17.4 million as of the quarter’s end. This growth not only signifies a diversification of assets but also underscores the company’s agility in the current conditions in the mortgage and credit markets.

The company’s book value was reported at $7.32 per share, inclusive of dividends of $0.24 per share for the quarter. Ellington Residential’s capital allocation as of December 31, 2023, was primarily in mortgage-related securities (89%), with the remaining 11% in corporate CLOs. This allocation underscores a strategic approach to investment, focusing on sectors that offer favorable returns and resilience amidst market volatility.

Chief Executive Officer and President Laurence Penn commented on the company’s performance, noting the ability to avoid forced asset sales during the market selloff in October, thereby preserving earnings power for future market recoveries. Penn highlighted the outperformance of Agency RMBS, particularly in lower and intermediate coupons, as a key driver of the quarter’s success. The company’s portfolio, concentrated in these areas, benefitted from the market rally through the end of the year, as investors anticipated the conclusion of the Federal Reserve’s hiking cycle.

Looking ahead, Ellington Residential anticipates continued volatility in interest rates and yield spreads. However, the company remains poised to capitalize on investment opportunities, particularly in the CLO and non-Agency RMBS sectors, based on market conditions. The management team’s focus on expanding the CLO portfolio and maintaining a conservative leverage ratio underscores a strategic approach to growth and risk management.

The financial results also reflect a net interest margin improvement, with the Agency portfolio margin increasing to 2.02% and the credit portfolio margin to 6.28%. These improvements are attributed to higher asset yields and a lower cost of funds, benefiting from positive carry on interest rate swaps. Furthermore, the company’s disciplined capital management strategy, as evidenced by a decreased debt-to-equity ratio to 5.3:1, positions Ellington Residential for sustainable growth and profitability.

Ellington Residential’s fourth quarter 2023 financial results highlight a period of strategic growth and solid financial performance. Despite market challenges, the company has demonstrated resilience through its diversified investment approach and disciplined capital management. As Ellington Residential continues to navigate the evolving market landscape, its focus on strategic asset allocation and conservative financial management will be key drivers of its long-term success. Want to keep up to date with all of TDR’s research, subscribe to our daily Baked In newsletter.    

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