Business Wire | Feb 18, 2021 04:10PM EST

Ellington Financial Inc. Reports Fourth Quarter 2020 Results

Feb. 18, 2021

OLD GREENWICH, Conn.--(BUSINESS WIRE)--Feb. 18, 2021--Ellington Financial Inc. (NYSE: EFC) (the "Company") today reported financial results for the quarter ended December 31, 2020.

Highlights

* Net income of $63.2 million, or $1.44 per common share; full year 2020 net income of $17.2 million, or $0.39 per common share. * Core Earnings1 of $16.0 million, or $0.37 per share. * Book value per common share as of December 31, 2020 of $17.59, including the effects of dividends of $0.29 per common share for the quarter. * Credit strategy gross income of $75.0 million for the quarter, or $1.69 per share. * Agency strategy gross income of $6.3 million for the quarter, or $0.13 per share. * Dividend yield of 7.5% based on the February 17, 2021 closing stock price of $15.92 per share, and dividend of $0.10 per common share declared on February 5, 2021. * Debt-to-equity ratio of 2.6:1 and recourse debt-to-equity ratio of 1.6:12 as of December 31, 2020. * Cash and cash equivalents of $111.6 million as of December 31, 2020, in addition to other unencumbered assets of $442.5 million.

Fourth Quarter 2020 Results

"Ellington Financial fired on all cylinders in the fourth quarter, with broad-based contributions across our diversified credit and Agency portfolios. EFC generated Core Earnings of $0.37 per share, and a non-annualized quarterly economic return of 8.7% for the quarter," said Laurence Penn, Chief Executive Officer and President. "The fourth quarter's strong results brought our economic return and net income positive for the full year, despite the extreme volatility encountered earlier in the year. I am extremely proud of this result, which I believe confirms yet again the importance and effectiveness of our risk and liquidity management. Notably, EFC is one of the only publicly traded hybrid mortgage REITs to post a profit in 2020.

"During the fourth quarter, our loan origination businesses again led the way. In the non-QM space, our affiliate LendSure had a record quarter for origination volume, and our affiliate Longbridge concluded an outstanding year in the reverse mortgage space. We also closed on our second non-QM securitization of the year, and we securitized a pool of our unsecured consumer loans. We had strong performance across our short-duration loan portfolios, particularly residential transition mortgage loans, consumer loans, and small-balance commercial mortgage loans. In addition, our credit securities performed very well, most notably CLOs, CMBS, non-Agency RMBS, and European RMBS, as prices continued to recover from the March selloff. Finally, our Agency portfolio delivered another quarter of excellent results.

"Moving into 2021, our focus continues to be on growing our proprietary loan origination businesses, including potentially adding more strategic equity investments and loan flow purchase agreements. We will also continue to be opportunistic in our securities strategies, and plan to continue to extend and diversify our financings. We still hold ample liquidity and employ low leverage, which means that we have plenty of dry powder to add assets and grow earnings. As always, our disciplined hedging and risk management should continue to be critical in protecting book value, as we tackle the challenges and opportunities of the year ahead."

Financial Results

The Company's total long credit portfolio3 increased by approximately 2% in the fourth quarter, to $1.434 billion from $1.405 billion. The quarter-over-quarter increase was driven by larger non-QM and residential transition loan acquisitions, which more than offset significant pay-offs on the Company's small balance commercial mortgage loan and consumer loan portfolios, as well as the completion of two loan securitizations during the quarter. In addition, the Company's total long Agency RMBS portfolio increased approximately 4% to $959.4 million as of December 31, 2020, from $919.9 million as of September 30, 2020.

The Company's debt-to-equity ratio decreased to 2.6:1 as of December 31, 2020, as compared to 2.7:1 as of September 30, 2020, primarily as a result of the completion during the quarter of a consumer loan securitization, which the Company did not consolidate, as well as an increase in the Company's total equity. The Company's recourse debt-to-equity ratio, adjusted for unsettled purchases and sales, also decreased over the course of the quarter to 1.6:1 from 1.7:1, driven by the increase in the Company's total equity. As of December 31, 2020, the Company had cash and cash equivalents of approximately $111.6 million, along with other unencumbered assets of $442.5 million.

During the fourth quarter, the Company's credit strategy generated total gross income of $75.0 million, or $1.69 per share, and its Agency strategy generated total gross income of $6.3 million, or $0.13 per share.

The Company's credit portfolio generated excellent results for the quarter, driven by strong net interest income4 and significant mark-to-market gains across the portfolio. The Company benefited from strong performance in all of its credit strategies, as prices and liquidity continued to improve following the substantial market selloff earlier in the year. The Company also had notable strong performance from its equity investments in mortgage originators. Finally, with credit spreads tightening across most asset classes, credit hedges were the sole detractor of results during the quarter.

The Company's Agency strategy delivered another quarter of strong performance, as Agency RMBS yield spreads tightened significantly. The primary drivers of these results were strong net interest income on the Company's Agency RMBS investments, net realized and unrealized gains on its long TBA holdings, driven by Federal Reserve purchasing activity, and net realized and unrealized gains on interest rate hedges as long-term interest rates rose. A portion of this income was offset by net realized and unrealized losses on the Company's Agency RMBS investments, driven largely by elevated prepayment activity. Average pay-ups on the Company's specified pools declined to 2.05% as of December 31, 2020, from 2.25% as of September 30, 2020, primarily because its new purchases during the quarter consisted mainly of lower-pay-up pools. Pay-ups are price premiums for specified pools relative to their TBA counterparts.

During the fourth quarter the Company continued to hedge interest rate risk, primarily through the use of interest rate swaps, and to a lesser extent through the use of short positions in TBAs, U.S. Treasury securities, and futures. In addition, the Company continued to hold a portfolio of long TBAs for investment during the quarter.

1 Core Earnings is a non-GAAP financial measure. See "Reconciliation of Net Income (Loss) to Core Earnings" below for an explanation regarding the calculation of Core Earnings. 2 Excludes repo borrowings at certain unconsolidated entities that are recourse to us. Including such borrowings, the Company's debt-to-equity ratio based on total recourse borrowings was 1.6:1 as of December 31, 2020. 3 Includes REO at the lower of cost or fair value. Excludes hedges and other derivative positions, as well as tranches of the Company's consolidated non-QM securitization trusts that were sold to third parties, but that are consolidated for U.S. GAAP reporting purposes. Including such tranches, the Company's total long credit portfolio was $2.173 billion and $2.095 billion, as of December 31, 2020 and September 30, 2020, respectively. 4 Excludes any interest income and interest expense items from Interest rate hedges, net and Credit hedges and other activities, net.

The following table summarizes the Company's investment portfolio(1) holdings as of December 31, 2020 and September 30, 2020:

Fair Value

(In thousands) December 31, September 30, 2020 2020

Long:

Credit:

Dollar Denominated:

CLO^(2) $ 181,229 $ 165,954

CMBS 117,652 105,015

Commercial Mortgage Loans and REO^(3)(4) 269,287 304,698

Consumer Loans and ABS backed by Consumer 112,077 200,857 Loans^(2)

Corporate Debt and Equity and Corporate 12,606 10,257 Loans

Equity Investments in Loan Origination 79,536 57,009 Entities

Non-Agency RMBS 154,492 166,787

Residential Mortgage Loans and REO^(3) 1,188,731 1,033,481

Non-Dollar Denominated:

CLO^(2) 6,108 2,693

Consumer Loans and ABS backed by Consumer 306 333 Loans

Corporate Debt and Equity 28 27

RMBS^(5) 51,388 47,663

Agency:

Fixed-Rate Specified Pools 807,704 756,580

Floating-Rate Specified Pools 6,454 7,046

IOs 47,656 51,705

Reverse Mortgage Pools 97,629 104,524

Total Long $ 3,132,883 $ 3,014,629

Short:

Credit:

Dollar Denominated:

Corporate Debt and Equity $ (218) $ (461)

Government Debt:

Dollar Denominated - (14,310)

Non-Dollar Denominated (38,424) (36,722)

Total Short $ (38,642) $ (51,493)

(1)

This information does not include financial derivatives.

(2)

Includes equity investments in securitization-related vehicles.

(3)

In accordance with U.S. GAAP, REO is not considered a financial instrument and as a result is included at the lower of cost or fair value.

(4)

Includes equity investments in unconsolidated entities holding small balance commercial mortgage loans and REO.

(5)

Includes an equity investment in an unconsolidated entity holding European RMBS.

The following table summarizes the Company's operating results for the three-month periods ended December 31, 2020 and September 30, 2020 and the year ended December 31, 2020:

(1) This information does not include financial derivatives.

(2) Includes equity investments in securitization-related vehicles.

In accordance with U.S. GAAP, REO is not considered a financial(3) instrument and as a result is included at the lower of cost or fair value.

(4) Includes equity investments in unconsolidated entities holding small balance commercial mortgage loans and REO.

(5) Includes an equity investment in an unconsolidated entity holding European RMBS.

The following table summarizes the Company's operating results for the three-month periods ended December 31, 2020 and September 30, 2020 and the year ended December 31, 2020:

Three-Month Three-Month Year Ended Period Ended Per Period Ended Per December Per December 31, Share September Share 31, 2020 Share 2020 30, 2020

(In thousands,except per share amounts)

Credit:

Interest incomeand other income^ $ 34,089 $ 0.77 $ 37,764 $ 0.85 $ 150,266 $ 3.41 (1)

Realized gain (3,984) (0.09) (645) (0.01) (14,458) (0.33) (loss), net

Unrealized gain 41,270 0.93 26,802 0.60 (44,322) (1.00) (loss), net

Interest rate 18 - (21) - (7,938) (0.18) hedges, net^(2)

Credit hedges andother activities, (7,363) (0.17) (7,944) (0.18) (1,289) (0.03) net^(3)

Interest expense^ (11,016) (0.25) (11,866) (0.27) (48,223) (1.09) (4)

Other investment (5,337) (0.12) (3,578) (0.08) (18,144) (0.41) related expenses

Earnings (losses)from investments 27,344 0.62 11,443 0.26 37,933 0.86 in unconsolidatedentities

Total Credit 75,021 1.69 51,955 1.17 53,825 1.23 profit (loss)

Agency RMBS:

Interest income 5,896 0.13 6,663 0.15 28,011 0.63

Realized gain 166 - 2,062 0.05 12,695 0.29 (loss), net

Unrealized gain (1,678) (0.04) (2,276) (0.05) 18,081 0.41 (loss), net

Interest ratehedges and other 2,801 0.06 1,748 0.04 (33,672) (0.76) activities, net^(2)

Interest expense^ (854) (0.02) (1,057) (0.02) (12,830) (0.29) (4)

Total Agency RMBS 6,331 0.13 7,140 0.17 12,285 0.28 profit (loss)

Total Credit andAgency RMBS 81,352 1.82 59,095 1.34 66,110 1.51 profit (loss)

Other interestincome (expense), (29) - 1 - 338 0.01 net

Income tax (7,888) (0.18) (2,494) (0.06) (11,377) (0.26) (expense) benefit

Other expenses (6,857) (0.15) (6,900) (0.16) (26,694) (0.61)

Net income (loss)(before incentive 66,578 1.49 49,702 1.12 28,377 0.65 fee)

Incentive fee - - - - - -

Net income (loss) $ 66,578 $ 1.49 $ 49,702 $ 1.12 $ 28,377 $ 0.65

Less: Dividendson preferred 1,941 0.04 1,940 0.04 7,763 0.18 stock

Less: Net income(loss)attributable to 562 0.01 912 0.02 3,372 0.08 non-participatingnon-controllinginterests

Net income (loss)attributable tocommonstockholders and 64,075 1.44 46,850 1.06 17,242 0.39 participatingnon-controllinginterests

Less: Net income(loss)attributable to 913 647 (3) participatingnon-controllinginterests

Net income (loss)attributable to $ 63,162 $ 1.44 $ 46,203 $ 1.06 $ 17,245 $ 0.39 commonstockholders

Weighted averageshares of commonstock and 44,415 44,392 44,122 convertible units^(5) outstanding

Weighted averageshares of common 43,782 43,779 43,486 stock outstanding

(1)

Other income primarily consists of rental income on real estate owned and loan origination fees.

(2)

Includes U.S. Treasury securities, if applicable.

(3)

Other activities include certain equity and other trading strategies and related hedges, and net realized and unrealized gains (losses) on foreign currency.

(4)

Includes allocable portion of interest expense on the Company's Senior notes.

(5)

Convertible units include Operating Partnership units attributable to participating non-controlling interests.

About Ellington Financial

Ellington Financial invests in a diverse array of financial assets, including residential and commercial mortgage loans, residential and commercial mortgage-backed securities, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments. Ellington Financial is externally managed and advised by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C.

Conference Call

The Company will host a conference call at 11:00 a.m. Eastern Time on Friday, February 19, 2021, to discuss its financial results for the quarter ended December 31, 2020. To participate in the event by telephone, please dial (877) 241-1233 at least 10 minutes prior to the start time and reference the conference ID number 9333979. International callers should dial (810) 740-4657 and reference the same conference ID number. The conference call will also be webcast live over the Internet and can be accessed via the "For Our Shareholders" section of the Company's web site at www.ellingtonfinancial.com. To listen to the live webcast, please visit www.ellingtonfinancial.com at least 15 minutes prior to the start of the call to register, download, and install necessary audio software. In connection with the release of these financial results, the Company also posted an investor presentation, that will accompany the conference call, on its website at www.ellingtonfinancial.com under "For Our Shareholders-Presentations."

A dial-in replay of the conference call will be available on Friday, February 19, 2021, at approximately 2:15 p.m. Eastern Time through Friday, March 5, 2021 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (800) 585-8367 and enter the conference ID number 9333979. International callers should dial (404) 537-3406 and enter the same conference ID number. A replay of the conference call will also be archived on the Company's web site at www.ellingtonfinancial.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Actual results may differ from the Company's beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should," "would," "could," "goal," "objective," "will," "may," "seek," or similar expressions or their negative forms, or by references to strategy, plans, or intentions. Examples of forward-looking statements in this press release include without limitation management's beliefs regarding the current economic and investment environment and the Company's ability to implement its investment and hedging strategies, performance of the Company's investment and hedging strategies, the Company's exposure to prepayment risk in its Agency portfolio, and statements regarding the drivers of the Company's returns. The Company's results can fluctuate from month to month and from quarter to quarter depending on a variety of factors, some of which are beyond the Company's control and/or are difficult to predict, including, without limitation, changes in interest rates and the market value of the Company's securities, changes in mortgage default rates and prepayment rates, the Company's ability to borrow to finance its assets, changes in government regulations affecting the Company's business, the Company's ability to maintain its exclusion from registration under the Investment Company Act of 1940; the Company's ability to qualify and maintain its qualification as a real estate investment trust, or "REIT"; and other changes in market conditions and economic trends, including changes resulting from the ongoing spread and economic effects of the novel coronavirus (COVID-19) pandemic, and associated responses to the pandemic. Furthermore, forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A of the Company's Annual Report on Form 10-K filed on March 13, 2020 and under Part II, Item IA of the Company's Quarterly Report on Form 10-Q, as amended, for the three-month period ended March 31, 2020 which can be accessed through the Company's website at www.ellingtonfinancial.com or at the SEC's website (www.sec.gov). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected or implied may be described from time to time in reports the Company's files with the SEC, including reports on Forms 10-Q, 10-K and 8-K. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

(1) Other income primarily consists of rental income on real estate owned and loan origination fees.

(2) Includes U.S. Treasury securities, if applicable.

Other activities include certain equity and other trading strategies and(3) related hedges, and net realized and unrealized gains (losses) on foreign currency.

(4) Includes allocable portion of interest expense on the Company's Senior notes.

(5) Convertible units include Operating Partnership units attributable to participating non-controlling interests.

About Ellington Financial

Ellington Financial invests in a diverse array of financial assets, including residential and commercial mortgage loans, residential and commercial mortgage-backed securities, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments. Ellington Financial is externally managed and advised by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C.

Conference Call

The Company will host a conference call at 11:00 a.m. Eastern Time on Friday, February 19, 2021, to discuss its financial results for the quarter ended December 31, 2020. To participate in the event by telephone, please dial (877) 241-1233 at least 10 minutes prior to the start time and reference the conference ID number 9333979. International callers should dial (810) 740-4657 and reference the same conference ID number. The conference call will also be webcast live over the Internet and can be accessed via the "For Our Shareholders" section of the Company's web site at www.ellingtonfinancial.com. To listen to the live webcast, please visit www.ellingtonfinancial.com at least 15 minutes prior to the start of the call to register, download, and install necessary audio software. In connection with the release of these financial results, the Company also posted an investor presentation, that will accompany the conference call, on its website at www.ellingtonfinancial.com under "For Our Shareholders-Presentations."

A dial-in replay of the conference call will be available on Friday, February 19, 2021, at approximately 2:15 p.m. Eastern Time through Friday, March 5, 2021 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (800) 585-8367 and enter the conference ID number 9333979. International callers should dial (404) 537-3406 and enter the same conference ID number. A replay of the conference call will also be archived on the Company's web site at www.ellingtonfinancial.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Actual results may differ from the Company's beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should," "would," "could," "goal," "objective," "will," "may," "seek," or similar expressions or their negative forms, or by references to strategy, plans, or intentions. Examples of forward-looking statements in this press release include without limitation management's beliefs regarding the current economic and investment environment and the Company's ability to implement its investment and hedging strategies, performance of the Company's investment and hedging strategies, the Company's exposure to prepayment risk in its Agency portfolio, and statements regarding the drivers of the Company's returns. The Company's results can fluctuate from month to month and from quarter to quarter depending on a variety of factors, some of which are beyond the Company's control and/or are difficult to predict, including, without limitation, changes in interest rates and the market value of the Company's securities, changes in mortgage default rates and prepayment rates, the Company's ability to borrow to finance its assets, changes in government regulations affecting the Company's business, the Company's ability to maintain its exclusion from registration under the Investment Company Act of 1940; the Company's ability to qualify and maintain its qualification as a real estate investment trust, or "REIT"; and other changes in market conditions and economic trends, including changes resulting from the ongoing spread and economic effects of the novel coronavirus (COVID-19) pandemic, and associated responses to the pandemic. Furthermore, forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A of the Company's Annual Report on Form 10-K filed on March 13, 2020 and under Part II, Item IA of the Company's Quarterly Report on Form 10-Q, as amended, for the three-month period ended March 31, 2020 which can be accessed through the Company's website at www.ellingtonfinancial.com or at the SEC's website (www.sec.gov). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected or implied may be described from time to time in reports the Company's files with the SEC, including reports on Forms 10-Q, 10-K and 8-K. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

ELLINGTON FINANCIAL INC.CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(UNAUDITED)

Three-Month Period Ended Year Ended December December September 31, 2020 31, 2020 30, 2020

(In thousands, except per share amounts)

NET INTEREST INCOME

Interest income $ 39,067 $ 43,075 $ 173,531

Interest expense (11,952) (12,937) (61,665)

Total net interest income 27,115 30,138 111,866

Other Income (Loss)

Realized gains (losses) on securities and (3,625) 1,446 (5,960) loans, net

Realized gains (losses) on financial (5,820) (1,620) (31,521) derivatives, net

Realized gains (losses) on real estate (106) (18) 15 owned, net

Unrealized gains (losses) on securities 39,635 24,208 (25,783) and loans, net

Unrealized gains (losses) on financial 3,098 (298) 989 derivatives, net

Unrealized gains (losses) on real estate (186) 122 (649) owned, net

Other, net (795) (2,747) (2,298)

Total other income (loss) 32,201 21,093 (65,207)

EXPENSES

Base management fee to affiliate (Net offee rebates of $198, $201, and $1,051, 3,178 2,981 11,508 respectively)

Incentive fee to affiliate - - -

Investment related expenses:

Servicing expense 1,736 2,379 9,139

Debt issuance costs related to Other 1,819 - 3,894 secured borrowings, at fair value

Other 1,782 1,199 5,111

Professional fees 1,186 1,209 5,005

Compensation expense 962 1,085 3,776

Other expenses 1,531 1,625 6,405

Total expenses 12,194 10,478 44,838

Net Income (Loss) before Income TaxExpense (Benefit) and Earnings from 47,122 40,753 1,821 Investments in Unconsolidated Entities

Income tax expense (benefit) 7,888 2,494 11,377

Earnings (losses) from investments in 27,344 11,443 37,933 unconsolidated entities

Net Income (Loss) 66,578 49,702 28,377

Net Income (Loss) Attributable to 1,475 1,559 3,369 Non-Controlling Interests

Dividends on Preferred Stock 1,941 1,940 7,763

Net Income (Loss) Attributable to Common $ 63,162 $ 46,203 $ 17,245 Stockholders

Net Income (Loss) per Common Share:

Basic and Diluted $ 1.44 $ 1.06 $ 0.39

Weighted average shares of common stock 43,782 43,779 43,486 outstanding

Weighted average shares of common stock 44,415 44,392 44,122 and convertible units outstanding

ELLINGTON FINANCIAL INC. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

As of

(In thousands, except share amounts)

December 31, 2020

September 30, 2020

December 31, 2019(1)

ASSETS

Cash and cash equivalents

$

111,647

$

126,783

$

72,302

Restricted cash

175

175

175

Securities, at fair value

1,514,185

1,451,420

2,449,941

Loans, at fair value

1,453,480

1,442,612

1,412,426

Investments in unconsolidated entities, at fair value

141,620

95,803

71,850

Real estate owned

23,598

24,794

30,584

Financial derivatives-assets, at fair value

15,479

27,864

16,788

Reverse repurchase agreements

38,640

47,041

73,639

Due from brokers

63,147

63,991

79,829

Investment related receivables

49,317

67,540

123,120

Other assets

2,575

2,850

7,563

Total Assets

$

3,413,863

$

3,350,873

$

4,338,217

LIABILITIES

Securities sold short, at fair value

$

38,642

$

51,493

$

73,409

Repurchase agreements

1,496,931

1,439,984

2,445,300

Financial derivatives-liabilities, at fair value

24,553

34,814

27,621

Due to brokers

5,059

7,147

2,197

Investment related payables

4,754

-

66,133

Other secured borrowings

51,062

142,674

150,334

Other secured borrowings, at fair value

754,921

695,516

594,396

Senior notes, net

85,561

85,495

85,298

Base management fee payable to affiliate

3,178

2,981

2,663

Incentive fee payable to affiliate

-

-

116

Dividend payable

5,738

5,299

6,978

Interest payable

3,233

2,074

7,320

Accrued expenses and other liabilities

18,659

11,119

7,753

Total Liabilities

2,492,291

2,478,596

3,469,518

EQUITY

Preferred stock, par value $0.001 per share, 100,000,000 shares authorized; 6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable; 4,600,000 shares issued and outstanding, respectively ($115,000 liquidation preference)

111,034

111,034

111,034

Common stock, par value $0.001 per share, 100,000,000 shares authorized; (43,781,684, 43,781,684, and 38,647,943 shares issued and outstanding, respectively)

44

44

39

Additional paid-in-capital

915,658

916,038

821,747

Retained earnings (accumulated deficit)

(141,521)

(191,986)

(103,555)

Total Stockholders' Equity

885,215

835,130

829,265

Non-controlling interests

36,357

37,147

39,434

Total Equity

921,572

872,277

868,699

TOTAL LIABILITIES AND EQUITY

$

3,413.863

$

3,350,873

$

4,338,217

SUPPLEMENTAL PER SHARE INFORMATION:

Book Value Per Common Share(2)

$

17.59

$

16.45

$

18.48

ELLINGTON FINANCIAL INC.CONDENSED CONSOLIDATED BALANCE SHEET(UNAUDITED)

As of

(In thousands, except share December 31, September 30, December 31,amounts) 2020 2020 2019^(1)

ASSETS

Cash and cash equivalents $ 111,647 $ 126,783 $ 72,302

Restricted cash 175 175 175

Securities, at fair value 1,514,185 1,451,420 2,449,941

Loans, at fair value 1,453,480 1,442,612 1,412,426

Investments in unconsolidated 141,620 95,803 71,850 entities, at fair value

Real estate owned 23,598 24,794 30,584

Financial derivatives-assets, at 15,479 27,864 16,788 fair value

Reverse repurchase agreements 38,640 47,041 73,639

Due from brokers 63,147 63,991 79,829

Investment related receivables 49,317 67,540 123,120

Other assets 2,575 2,850 7,563

Total Assets $ 3,413,863 $ 3,350,873 $ 4,338,217

LIABILITIES

Securities sold short, at fair $ 38,642 $ 51,493 $ 73,409 value

Repurchase agreements 1,496,931 1,439,984 2,445,300

Financialderivatives-liabilities, at fair 24,553 34,814 27,621 value

Due to brokers 5,059 7,147 2,197

Investment related payables 4,754 - 66,133

Other secured borrowings 51,062 142,674 150,334

Other secured borrowings, at fair 754,921 695,516 594,396 value

Senior notes, net 85,561 85,495 85,298

Base management fee payable to 3,178 2,981 2,663 affiliate

Incentive fee payable to - - 116 affiliate

Dividend payable 5,738 5,299 6,978

Interest payable 3,233 2,074 7,320

Accrued expenses and other 18,659 11,119 7,753 liabilities

Total Liabilities 2,492,291 2,478,596 3,469,518

EQUITY

Preferred stock, par value $0.001per share, 100,000,000 sharesauthorized; 6.750% Series AFixed-to-Floating Rate Cumulative 111,034 111,034 111,034 Redeemable; 4,600,000 sharesissued and outstanding,respectively ($115,000liquidation preference)

Common stock, par value $0.001per share, 100,000,000 sharesauthorized; (43,781,684, 44 44 39 43,781,684, and 38,647,943 sharesissued and outstanding,respectively)

Additional paid-in-capital 915,658 916,038 821,747

Retained earnings (accumulated (141,521) (191,986) (103,555) deficit)

Total Stockholders' Equity 885,215 835,130 829,265

Non-controlling interests 36,357 37,147 39,434

Total Equity 921,572 872,277 868,699

TOTAL LIABILITIES AND EQUITY $ 3,413.863 $ 3,350,873 $ 4,338,217

SUPPLEMENTAL PER SHARE INFORMATION:

Book Value Per Common Share^(2) $ 17.59 $ 16.45 $ 18.48

(1)

Derived from audited financial statements as of December 31, 2019.

(2)

Based on total stockholders' equity less the aggregate liquidation preference of the Company's preferred stock outstanding.

Reconciliation of Net Income (Loss) to Core Earnings

The Company calculates Core Earnings as U.S. GAAP net income (loss) as adjusted for: (i) realized and unrealized gain (loss) on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), other secured borrowings, at fair value, and foreign currency transactions; (ii) incentive fee to affiliate; (iii) Catch-up Premium Amortization Adjustment (as defined below); (iv) non-cash equity compensation expense; (v) provision for income taxes; and (vi) certain other income or loss items that are of a non-recurring nature. For certain investments in unconsolidated entities, the Company includes the relevant components of net operating income in Core Earnings. The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on the Company's Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses). The adjustment is calculated as of the beginning of each quarter based on the Company's then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter.

Core Earnings is a supplemental non-GAAP financial measure. The Company believes that the presentation of Core Earnings provides a consistent measure of operating performance by excluding the impact of gains and losses and other adjustments listed above from operating results. The Company believes that Core Earnings provides information useful to investors because it is a metric that the Company uses to assess its performance and to evaluate the effective net yield provided by its portfolio. In addition, the Company believes that presenting Core Earnings enables its investors to measure, evaluate, and compare its operating performance to that of its peers. However, because Core Earnings is an incomplete measure of the Company's financial results and differs from net income (loss) computed in accordance with U.S. GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP.

The following table reconciles, for the three-month period and year ended December 31, 2020 and the three-month period ended September 30, 2020, the Company's Core Earnings to the line on the Company's Consolidated Statement of Operations entitled Net Income (Loss), which the Company believes is the most directly comparable U.S. GAAP measure:

(1) Derived from audited financial statements as of December 31, 2019.

(2) Based on total stockholders' equity less the aggregate liquidation preference of the Company's preferred stock outstanding.

Reconciliation of Net Income (Loss) to Core Earnings

The Company calculates Core Earnings as U.S. GAAP net income (loss) as adjusted for: (i) realized and unrealized gain (loss) on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), other secured borrowings, at fair value, and foreign currency transactions; (ii) incentive fee to affiliate; (iii) Catch-up Premium Amortization Adjustment (as defined below); (iv) non-cash equity compensation expense; (v) provision for income taxes; and (vi) certain other income or loss items that are of a non-recurring nature. For certain investments in unconsolidated entities, the Company includes the relevant components of net operating income in Core Earnings. The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on the Company's Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses). The adjustment is calculated as of the beginning of each quarter based on the Company's then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter.

Core Earnings is a supplemental non-GAAP financial measure. The Company believes that the presentation of Core Earnings provides a consistent measure of operating performance by excluding the impact of gains and losses and other adjustments listed above from operating results. The Company believes that Core Earnings provides information useful to investors because it is a metric that the Company uses to assess its performance and to evaluate the effective net yield provided by its portfolio. In addition, the Company believes that presenting Core Earnings enables its investors to measure, evaluate, and compare its operating performance to that of its peers. However, because Core Earnings is an incomplete measure of the Company's financial results and differs from net income (loss) computed in accordance with U.S. GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP.

The following table reconciles, for the three-month period and year ended December 31, 2020 and the three-month period ended September 30, 2020, the Company's Core Earnings to the line on the Company's Consolidated Statement of Operations entitled Net Income (Loss), which the Company believes is the most directly comparable U.S. GAAP measure:

Three-Month Period Ended Year Ended December(In thousands, except per share amounts) December September 31, 2020 31, 2020 30, 2020

Net Income (Loss) $ 66,578 $ 49,702 $ 28,377

Income tax expense (benefit) 7,888 2,494 11,377

Net income (loss) before income tax 74,466 52,196 39,754 expense

Adjustments:

Realized (gains) losses on securities 3,625 (1,446) 5,960 and loans, net

Realized (gains) losses on financial 5,820 1,620 31,521 derivatives, net

Realized (gains) losses on real estate 106 18 (15) owned, net

Unrealized (gains) losses on securities (39,635) (24,208) 25,783 and loans, net

Unrealized (gains) losses on financial (3,098) 298 (989) derivatives, net

Unrealized (gains) losses on real estate 186 (122) 649 owned, net

Other realized and unrealized (gains) 1,854 4,217 7,703 losses, net^(1)

Net realized gains (losses) on periodic (139) (1,150) (2,038) settlements of interest rate swaps

Net unrealized gains (losses) on accruedperiodic settlements of interest rate (322) 516 219 swaps

Non-cash equity compensation expense 190 186 722

Negative (positive) component ofinterest income represented by Catch-up 83 (319) 4,523 Premium Amortization Adjustment

Debt issuance costs related to Other 1,819 - 3,894 secured borrowings, at fair value

Deferred offering costs expensed 31 143 174

(Earnings) losses from investments in (26,176) (10,895) (34,664) unconsolidated entities^(2)

Total Core Earnings $ 18,810 $ 21,054 $ 83,196

Dividends on preferred stock 1,941 1,940 7,763

Core Earnings attributable to 849 1,148 4,532 non-controlling interests

Core Earnings Attributable to Common $ 16,020 $ 17,966 $ 70,901 Stockholders

Core Earnings Attributable to Common $ 0.37 $ 0.41 $ 1.63 Stockholders, per share

(1)

Includes realized and unrealized gains (losses) on foreign currency and unrealized gain (loss) on other secured borrowings, at fair value, included in Other, net, on the Condensed Consolidated Statement of Operations.

(2)

Adjustment represents, for certain investments in unconsolidated entities, the net realized and unrealized gains and losses of the underlying investments of such entities.

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CONTACT: Investors: Ellington Financial Inc. Investor Relations (203) 409-3575 info@ellingtonfinancial.com or Media: Amanda Klein or Kevin FitzGerald Gasthalter & Co. for Ellington Financial (212) 257-4170 Ellington@gasthalter.com