Ellington Credit Company (EARN) Q2 2024 earnings summary

Executive summary

• Strategic transformation to a CLO-focused closed-end fund/RIC is underway, with conversion expected by year-end pending shareholder approval; REIT status was revoked and the company rebranded as Ellington Credit Company.

• CLO portfolio grew from $17M at year-end to $85.1M as of June 30, 2024, and reached $108M by August 9, 2024, now representing 45% of capital at quarter-end and 50% by August.

• Agency MBS portfolio was reduced by 28% quarter-over-quarter, with a focus on liquidity and minimizing liquidation costs.

• Net loss of $0.8M ($0.04 per share) for Q2 2024, but adjusted distributable earnings rose to $7.3M ($0.36 per share), comfortably covering the $0.08 per share monthly dividend.

• Book value per share declined to $6.91 at June 30, 2024, from $7.21 at March 31, 2024.

Financial highlights

• Net loss of $0.8M ($0.04 per share) in Q2 2024; adjusted distributable earnings rose to $7.3M ($0.36 per share) from $5.3M ($0.27 per share) sequentially.

• Net interest margin expanded to 4.24% overall, with 13.41% on credit and 2.85% on Agency portfolios.

• Book value per share was $6.91 at June 30, 2024, after paying $0.24 per share in dividends for the quarter.

• Economic return for the quarter was -0.8%.

• Cash and cash equivalents totaled $118.8M, including $89.9M in U.S. Treasury Bills; unencumbered assets were $43.9M.

Outlook and guidance

• Adjusted distributable earnings are expected to decline in Q3 as Agency pools are sold and swap hedges expire, but should continue to cover the dividend.

• Dividend of $0.08 per share is expected to be maintained through and after the conversion, with potential for increases post-conversion.

• Strategic transformation to a CLO-focused closed-end fund/RIC is targeted for completion by year-end, pending shareholder approval.

• Expects greater risk-adjusted return potential and lower leverage post-conversion, with enhanced access to capital markets.

• Manager will waive all performance fees through December 31, 2024.