Ellington Credit Company (EARN) Q4 2024 earnings summary

Executive summary

• Shareholders approved conversion to a closed-end RIC fund focused on CLOs, effective April 1, 2025, with capital allocation to CLOs rising from 11% to 72% by year-end.

• Reported Q4 2024 net loss of $2.0 million ($0.07 per share), but adjusted distributable earnings of $7.8 million ($0.27 per share), covering the $0.24 dividend.

• Book value per share at December 31, 2024, was $6.53, down from $6.85 sequentially; economic return for the quarter was -1.2%.

• Strategic transformation from MBS-focused REIT to CLO-focused fund, with rebranding to Ellington Credit Company completed in 2024.

• CLO portfolio grew 18% in Q4 to $171.1 million, with further growth to $235 million post-year-end, mainly in equity tranches.

Financial highlights

• Net interest margin was 8.54% on credit, 3.24% on Agency, and 5.07% overall for Q4 2024.

• Interest income rose to $12.8 million; net realized and unrealized losses totaled $9.5 million, mainly from RMBS and CLOs.

• Dividend yield was 15.7% based on a $0.08 monthly dividend and a $6.12 share price.

• Debt-to-equity ratio at year-end was 2.9:1; net mortgage assets-to-equity ratio was 2.6:1, lowest in a decade.

• Cash and cash equivalents totaled $31.8 million, with $79.2 million in unencumbered assets at year-end.

Outlook and guidance

• Post-conversion, the company will deploy approximately 28% of capital from agency RMBS sales into CLOs, aiming for a fully ramped portfolio by mid-year.

• ADE for Q1 2024 expected to be similar to Q4 2023; Q2 may see a temporary dip due to capital deployment, with dividend coverage expected to resume by Q3.

• RIC conversion is expected to lower leverage, reduce interest rate hedging needs, and improve cost of capital.

• Management anticipates strong earnings and value creation for shareholders post-conversion.

• Majority of CLO holdings will remain dollar-denominated, with continued focus on portfolio diversification.