Business Wire | Aug 5, 2021 04:10PM EDT

Ellington Financial Inc. Reports Second Quarter 2021 Results

Aug. 05, 2021

OLD GREENWICH, Conn.--(BUSINESS WIRE)--Aug. 05, 2021--Ellington Financial Inc. (NYSE: EFC) (the "Company") today reported financial results for the quarter ended June 30, 2021.

Highlights

* Net income of $32.7 million, or $0.75 per common share. * Core Earnings1 of $22.3 million, or $0.51 per share. * Book value per common share as of June 30, 2021 of $18.47, including the effects of dividends of $0.44 per common share for the quarter. * Credit strategy gross income of $55.3 million for the quarter, or $1.25 per share. * Agency strategy gross loss of $(1.2) million for the quarter, or $(0.03) per share. * Dividend yield of 9.9% based on the August 4, 2021 closing stock price of $18.12 per share, and monthly dividend of $0.15 per common share declared on August 4, 2021. Increased monthly dividend by a cumulative 50% during the quarter. * Debt-to-equity ratio of 3.2:1 and recourse debt-to-equity ratio of 1.9:12 as of June 30, 2021. * Cash and cash equivalents of $134.7 million as of June 30, 2021, in addition to other unencumbered assets of $511.0 million.

Second Quarter 2021 Results

"Ellington Financial continued its strong performance during the second quarter, increasing Core Earnings per share another 19% sequentially, generating an annualized economic return of 18%, and raising the monthly dividend twice," said Laurence Penn, Chief Executive Officer and President. "Driven by our strong performance and earnings growth, we have now raised our monthly dividend a full 50% this year, to its current level of $0.15 per share.

"Our loan origination businesses again drove earnings this past quarter. In the non-QM space, LendSure had another record quarter for origination volume, while Longbridge continued to deliver tremendous results in the reverse mortgage space. We also closed on our second non-QM securitization of the year, and had excellent performance across our short-duration loan portfolios. Our results also reflect significant contributions from our CLO, CMBS, and non-Agency RMBS strategies. Finally, our Agency strategy only generated modest losses in what was a challenging quarter for Agency RMBS.

"Our loan portfolios steadily expanded during the second quarter, specifically non-QM, small-balance commercial mortgage, and residential transition loans. In addition, in the second quarter and through July we closed on two small but strategic equity investments in mortgage originators, thus further expanding and diversifying our loan sourcing channels. Finally, to support the continuing growth of our loan portfolios, we accessed the capital markets shortly after quarter end, raising approximately $113 million of common equity at around book value. This new capital should help drive additional growth of our portfolio and earnings per share."

Financial Results

The Company's total long credit portfolio3 increased by 5% in the second quarter, to $1.359 billion as of June 30, 2021. The quarter-over-quarter increase was driven by an increase in non-QM, small-balance commercial mortgage, and residential transition loan acquisitions, as well as by a new equity investment in a loan originator and appreciation of the Company's existing loan originator equity investments. These increases more than offset the collective impact of the non-QM loan securitization completed in June, loan payoffs and resolutions, and opportunistic sales of CLOs and non-Agency RMBS during the quarter.

The Company's total long Agency RMBS portfolio decreased slightly to $1.476 billion as of June 30, 2021.

The Company's debt-to-equity ratio was unchanged at 3.2:1 as of June 30, 2021 as compared to March 31, 2021, adjusting for unsettled purchases and sales, as total borrowings and total equity increased proportionally during the quarter. The Company's recourse debt-to-equity ratio, adjusted for unsettled purchases and sales, decreased slightly to 1.9:1 as of June 30, 2021, as compared to 2.0:1 at March 31, 2021. A larger portion of the Company's total borrowings were non-recourse as of June 30, 2021, as compared to the prior quarter end, primarily as a result of the non-QM securitization that was completed during the quarter.

During the second quarter, the Company's credit strategy generated total gross income of $55.3 million, or $1.25 per share, and its Agency strategy generated a total gross loss of $(1.2) million.

The Company benefited from strong performance in all of its primary credit strategies during the second quarter. Similar to the prior quarter, higher sequential net interest income4 and substantial net realized and unrealized gains drove results. The increase in net interest income was primarily driven by larger small balance commercial mortgage, residential transition, and non-QM loan portfolios, as well as by lower financing costs. Net interest income also increased due to several small balance commercial asset resolutions that included the payment of past-due interest. The substantial net realized and unrealized gains occurred mainly in the Company's CMBS, CLO, non-Agency RMBS, and non-QM strategies, as well as the Company's equity investments in loan originators. Finally, the Company's credit hedges detracted from results, as credit yield spreads continued to tighten during the quarter.

Meanwhile, the Company's Agency strategy generated a small net loss for the quarter. In a reversal from the prior quarter, interest rates declined and the yield curve flattened. Faced with declining interest rates and continued elevated prepayment rates, along with concerns that the Federal Reserve will commence tapering its asset purchases in the coming months, Agency RMBS yield spreads widened, and most Agency RMBS significantly underperformed comparable US Treasuries and interest rate swaps on a total return basis. Higher-coupon Agency RMBS particularly underperformed. The Company had a small net loss in the strategy as net realized and unrealized losses on specified pools, interest rates swaps, U.S. Treasury securities, and futures exceeded net interest income on RMBS and net gains on TBA positions.

Average pay-ups on the Company's specified pools increased to 1.10% as of June 30, 2021, as compared to 1.02% as of March 31, 2021, driven by increases in projected prepayments as a result of declining mortgage rates. Pay-ups are price premiums for specified pools relative to their TBA counterparts.

During the quarter, the Company continued to hedge interest rate risk, primarily through the use of interest rate swaps, short positions in TBAs, U.S. Treasury securities, and futures. The size of the Company's short TBA position declined quarter over quarter relative to its other hedging instruments, as measured by 10-year equivalents5, as the duration of the TBA short positions declined more significantly than the duration of the Company's other hedging instruments, and as the Company covered a portion of its TBA short positions. In addition, the Company increased the size of its long TBA portfolio during the quarter. This long TBA portfolio continued to be concentrated in lower coupons, and performed well during the quarter.

_______________________________

Core Earnings is a non-GAAP financial measure. See "Reconciliation of Net^ Income (Loss) to Core Earnings" below for an explanation regarding the1 calculation of Core Earnings.

Excludes repo borrowings at certain unconsolidated entities that are^ recourse to us. Including such borrowings, the Company's debt-to-equity2 ratio based on total recourse borrowings was 2.0:1 as of June 30, 2021.

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 are3 consolidated for U.S. GAAP reporting purposes. Including such tranches, the Company's total long credit portfolio was $2.342 billion as of June 30, 2021.

^ Excludes any interest income and interest expense items from Interest rate4 hedges, net and Credit hedges and other activities, net.

Ten-year equivalents for a group of positions represent the amount of^ 10-year U.S. Treasury securities that would be expected to experience a5 similar change in market value under a standard parallel move in interest rates.

The following tables summarize the Company's investment portfolio holdings as of June 30, 2021 and March 31, 2021:

Credit Portfolio(1)

June 30, 2021 March 31, 2021

% of % of Total Total($ in thousands) Fair Value Long Fair Value Long Credit Credit Portfolio Portfolio

Dollar Denominated:

CLOs^(2) $ 69,053 2.9 % $ 104,201 4.8 %

CMBS 45,872 2.0 % 45,073 2.1 %

Commercial mortgage 316,010 13.5 % 308,368 14.1 %loans and REO^(3)(4)

Consumer loans and ABSbacked by consumer 138,471 5.9 % 134,441 6.1 %loans^(2)

Corporate debt andequity and corporate 27,939 1.2 % 22,840 1.0 %loans

Debt and equityinvestments in loan 106,159 4.5 % 82,482 3.8 %origination entities

Non-Agency RMBS 158,798 6.8 % 175,213 8.0 %

Residential mortgage 1,447,202 61.8 % 1,282,450 58.6 %loans and REO^(3)

Non-Dollar Denominated:

CLOs^(2) 3,804 0.2 % 4,313 0.2 %

Consumer loans and ABSbacked by consumer 166 - % 224 - %loans

Corporate debt and 26 - % 27 - %equity

RMBS^(5) 28,717 1.2 % 27,470 1.3 %

Total Long Credit $ 2,342,217 100.0 % $ 2,187,102 100.0 %Portfolio

Less: Non-retainedtranches of 982,984 888,509 consolidatedsecuritization trusts

Total Long CreditPortfolio excludingnon-retained tranches $ 1,359,233 $ 1,298,593 of consolidatedsecuritization trusts

(1)This information does not include U.S. Treasury securities, securities sold short, or 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.

Agency RMBS Portfolio

This information does not include U.S. Treasury securities, securities(1) sold short, or financial derivatives.

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

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

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

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

Agency RMBS Portfolio

June 30, 2021 March 31, 2021

% of Long % of Long($ in thousands) Fair Value Agency Fair Value Agency Portfolio Portfolio

Long Agency RMBS:

Fixed Rate $ 1,333,676 90.4 % $ 1,340,448 90.1 %

Floating Rate 27,093 1.8 % 5,807 0.4 %

Reverse Mortgages 75,934 5.1 % 92,476 6.2 %

IOs 39,045 2.7 % 49,051 3.3 %

Total Long Agency $ 1,475,748 100.0 % $ 1,487,782 100.0 %RMBS

The following table summarizes the Company's operating results for the three-month periods ended June 30, 2021 and March 31, 2021 and the six-month period ended June 30, 2021:

Three- Three- Six-Month Month Month Period Period Per Period Per Ended Per Ended Share Ended Share June 30, Share June 30, March 31, 2021 2021 2021

(In thousands,except per share amounts)

Credit:

Interest incomeand other income^ $ 36,511 $ 0.82 $ 34,289 $ 0.77 $ 70,800 $ 1.59 (1)

Realized gain 2,009 0.05 4,188 0.09 6,197 0.14 (loss), net

Unrealized gain 12,791 0.29 17,575 0.40 30,366 0.68 (loss), net

Interest rate (1,202 ) (0.03 ) 1,727 0.04 525 0.01 hedges, net^(2)

Credit hedges andother activities, 1,303 0.03 1,085 0.02 2,388 0.06 net^(3)

Interest expense^ (9,856 ) (0.22 ) (9,944 ) (0.22 ) (19,800 ) (0.44 ) (4)

Other investment (4,831 ) (0.11 ) (4,855 ) (0.11 ) (9,686 ) (0.22 ) related expenses

Earnings (losses)from investments 18,602 0.42 6,635 0.15 25,237 0.57 in unconsolidatedentities

Total Credit 55,327 1.25 50,700 1.14 106,027 2.39 profit (loss)

Agency RMBS:

Interest income 11,328 0.25 6,752 0.15 18,080 0.41

Realized gain (3,982 ) (0.09 ) 2 - (3,980 ) (0.09 ) (loss), net

Unrealized gain (2,815 ) (0.06 ) (21,974 ) (0.49 ) (24,789 ) (0.56 ) (loss), net

Interest ratehedges and other (4,754 ) (0.11 ) 16,199 0.36 11,445 0.26 activities, net^(2)

Interest expense^ (939 ) (0.02 ) (939 ) (0.02 ) (1,878 ) (0.04 ) (4)

Total Agency RMBS (1,162 ) (0.03 ) 40 0.00 (1,122 ) (0.02 ) profit (loss)

Total Credit andAgency RMBS 54,165 1.22 50,740 1.14 104,905 2.37 profit (loss)

Other interestincome (expense), 38 - 7 - 45 - net

Income tax (3,140 ) (0.07 ) (2,017 ) (0.05 ) (5,157 ) (0.12 ) (expense) benefit

Other expenses (7,437 ) (0.17 ) (7,474 ) (0.17 ) (14,911 ) (0.34 )

Net income (loss)(before incentive 43,626 0.98 41,256 0.92 84,882 1.91 fee)

Incentive fee (7,157 ) (0.16 ) - - (7,157 ) (0.16 )

Net income (loss) $ 36,469 $ 0.82 $ 41,256 $ 0.92 $ 77,725 $ 1.75

Less: Dividendson preferred 1,940 0.04 1,941 0.04 3,881 0.09 stock

Less: Net income(loss)attributable to 1,369 0.03 882 0.02 2,251 0.05 non-participatingnon-controllinginterests

Net income (loss)attributable tocommonstockholders and 33,160 0.75 38,433 0.86 71,593 1.61 participatingnon-controllinginterests

Less: Net income(loss)attributable to 505 577 1,082 participatingnon-controllinginterests

Net income (loss)attributable to $ 32,655 $ 0.75 $ 37,856 $ 0.86 $ 70,511 $ 1.61 commonstockholders

Weighted averageshares of commonstock and 44,460 44,448 44,454 convertible units^(5) outstanding

Weighted averageshares of common 43,782 43,782 43,782 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, August 6, 2021, to discuss its financial results for the quarter ended June 30, 2021. To participate in the event by telephone, please dial (877) 876-9174 at least 10 minutes prior to the start time and reference the conference ID EFCQ221. International callers should dial (785) 424-1669 and reference the same conference ID. 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, August 6, 2021, at approximately 2:00 p.m. Eastern Time through Friday, August 13, 2021 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (888) 562-0859. International callers should dial (402) 220-7342. 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 investments, 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, as amended, 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.

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

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

Convertible units include Operating Partnership units attributable to(5) 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, August 6, 2021, to discuss its financial results for the quarter ended June 30, 2021. To participate in the event by telephone, please dial (877) 876-9174 at least 10 minutes prior to the start time and reference the conference ID EFCQ221. International callers should dial (785) 424-1669 and reference the same conference ID. 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, August 6, 2021, at approximately 2:00 p.m. Eastern Time through Friday, August 13, 2021 at approximately 11:59 p.m. Eastern Time. To access this replay, please dial (888) 562-0859. International callers should dial (402) 220-7342. 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 investments, 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, as amended, 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 Six-Month Period Ended June 30, March 31, June 30, 2021 2021 2021

(In thousands, except per share amounts)

NET INTEREST INCOME

Interest income $ 45,890 $ 40,079 $ 85,970

Interest expense (11,166 ) (11,342 ) (22,508 )

Total net interest income 34,724 28,737 63,462

Other Income (Loss)

Realized gains (losses) on (2,009 ) 4,276 2,268 securities and loans, net

Realized gains (losses) on financial 425 5,795 6,220 derivatives, net

Realized gains (losses) on real (74 ) 61 (13 ) estate owned, net

Unrealized gains (losses) on 10,000 (1,781 ) 8,218 securities and loans, net

Unrealized gains (losses) on (5,683 ) 10,711 5,028 financial derivatives, net

Unrealized gains (losses) on real (1,314 ) (792 ) (2,107 ) estate owned, net

Other, net 4,363 1,960 6,323

Total other income (loss) 5,708 20,230 25,937

EXPENSES

Base management fee to affiliate(Net of fee rebates of $195, $194 3,355 3,277 6,633 and $389, respectively)

Incentive fee to affiliate 7,157 - 7,157

Investment related expenses:

Servicing expense 974 986 1,960

Debt issuance costs related to Other 2,039 1,665 3,704 secured borrowings, at fair value

Other 1,818 2,204 4,022

Professional fees 1,037 1,198 2,235

Compensation expense 1,412 1,420 2,831

Other expenses 1,633 1,579 3,212

Total expenses 19,425 12,329 31,754

Net Income (Loss) before Income TaxExpense (Benefit) and Earnings from 21,007 36,638 57,645 Investments in UnconsolidatedEntities

Income tax expense (benefit) 3,140 2,017 5,157

Earnings (losses) from investments 18,602 6,635 25,237 in unconsolidated entities

Net Income (Loss) 36,469 41,256 77,725

Net Income (Loss) Attributable to 1,874 1,459 3,333 Non-Controlling Interests

Dividends on Preferred Stock 1,940 1,941 3,881

Net Income (Loss) Attributable to $ 32,655 $ 37,856 $ 70,511 Common Stockholders

Net Income (Loss) per Common Share:

Basic and Diluted $ 0.75 $ 0.86 $ 1.61

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

Weighted average shares of commonstock and convertible units 44,460 44,448 44,454 outstanding

ELLINGTON FINANCIAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)

As of

(In thousands, except share amounts)

June 30, 2021

March 31, 2021

December 31, 2020(1)

ASSETS

Cash and cash equivalents

$

134,695

$

149,350

$

111,647

Restricted cash

175

175

175

Securities, at fair value

1,860,990

1,909,127

1,514,185

Loans, at fair value

1,742,701

1,582,516

1,453,480

Investments in unconsolidated entities, at fair value

178,979

147,684

141,620

Real estate owned

35,295

35,557

23,598

Financial derivatives-assets, at fair value

13,028

23,082

15,479

Reverse repurchase agreements

160,412

96,783

38,640

Due from brokers

76,396

91,814

63,147

Investment related receivables

75,781

67,338

49,317

Other assets

4,229

3,499

2,575

Total Assets

$

4,282,681

$

4,106,925

$

3,413,863

LIABILITIES

Securities sold short, at fair value

$

145,374

$

96,398

$

38,642

Repurchase agreements

1,916,749

1,909,511

1,496,931

Financial derivatives-liabilities, at fair value

14,171

19,438

24,553

Due to brokers

2,130

5,337

5,059

Investment related payables

29,457

40,836

4,754

Other secured borrowings

86,374

64,506

51,062

Other secured borrowings, at fair value

1,003,037

911,256

754,921

Senior notes, net

85,693

85,627

85,561

Base management fee payable to affiliate

3,355

3,277

3,178

Incentive fee payable to affiliate

7,157

-

-

Dividend payable

7,963

5,740

5,738

Interest payable

3,000

1,915

3,233

Accrued expenses and other liabilities

23,117

19,708

18,659

Total Liabilities

3,327,577

3,163,549

2,492,291

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 43,781,684 shares issued and outstanding, respectively)

44

44

44

Additional paid-in-capital

915,817

915,577

915,658

Retained earnings (accumulated deficit)

(103,409

)

(116,799

)

(141,521

)

Total Stockholders' Equity

923,486

909,856

885,215

Non-controlling interests

31,618

33,520

36,357

Total Equity

955,104

943,376

921,572

TOTAL LIABILITIES AND EQUITY

$

4,282,681

$

4,106,925

$

3,413,863

SUPPLEMENTAL PER SHARE INFORMATION:

Book Value Per Common Share(2)

$

18.47

$

18.16

$

17.59

ELLINGTON FINANCIAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)

As of

(In thousands, except share June 30, 2021 March 31, 2021 December 31,amounts) 2020^(1)

ASSETS

Cash and cash equivalents $ 134,695 $ 149,350 $ 111,647

Restricted cash 175 175 175

Securities, at fair value 1,860,990 1,909,127 1,514,185

Loans, at fair value 1,742,701 1,582,516 1,453,480

Investments inunconsolidated entities, at 178,979 147,684 141,620 fair value

Real estate owned 35,295 35,557 23,598

Financialderivatives-assets, at fair 13,028 23,082 15,479 value

Reverse repurchase 160,412 96,783 38,640 agreements

Due from brokers 76,396 91,814 63,147

Investment related 75,781 67,338 49,317 receivables

Other assets 4,229 3,499 2,575

Total Assets $ 4,282,681 $ 4,106,925 $ 3,413,863

LIABILITIES

Securities sold short, at $ 145,374 $ 96,398 $ 38,642 fair value

Repurchase agreements 1,916,749 1,909,511 1,496,931

Financialderivatives-liabilities, at 14,171 19,438 24,553 fair value

Due to brokers 2,130 5,337 5,059

Investment related payables 29,457 40,836 4,754

Other secured borrowings 86,374 64,506 51,062

Other secured borrowings, 1,003,037 911,256 754,921 at fair value

Senior notes, net 85,693 85,627 85,561

Base management fee payable 3,355 3,277 3,178 to affiliate

Incentive fee payable to 7,157 - - affiliate

Dividend payable 7,963 5,740 5,738

Interest payable 3,000 1,915 3,233

Accrued expenses and other 23,117 19,708 18,659 liabilities

Total Liabilities 3,327,577 3,163,549 2,492,291

EQUITY

Preferred stock, par value$0.001 per share,100,000,000 sharesauthorized;

6.750% Series A 111,034 111,034 111,034 Fixed-to-Floating RateCumulative Redeemable;4,600,000 shares issued andoutstanding, respectively($115,000 liquidationpreference)

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

Additional paid-in-capital 915,817 915,577 915,658

Retained earnings (103,409 ) (116,799 ) (141,521 ) (accumulated deficit)

Total Stockholders' Equity 923,486 909,856 885,215

Non-controlling interests 31,618 33,520 36,357

Total Equity 955,104 943,376 921,572

TOTAL LIABILITIES AND $ 4,282,681 $ 4,106,925 $ 3,413,863 EQUITY

SUPPLEMENTAL PER SHARE INFORMATION:

Book Value Per Common Share $ 18.47 $ 18.16 $ 17.59 ^(2)

(1)Derived from audited financial statements as of December 31, 2020.

(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 periods ended June 30, 2021 and March 31, 2021 and the six-month period ended June 30, 2021, 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, 2020.

Based on total stockholders' equity less the aggregate liquidation(2) 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 periods ended June 30, 2021 and March 31, 2021 and the six-month period ended June 30, 2021, 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 Six-Month Period Ended(In thousands, except per share June 30, March 31, June 30,amounts) 2021 2021 2021

Net Income (Loss) $ 36,469 $ 41,256 $ 77,725

Income tax expense (benefit) 3,140 2,017 5,157

Net income (loss) before income 39,609 43,273 82,882 tax expense

Adjustments:

Realized (gains) losses on 2,009 (4,276 ) (2,268 ) securities and loans, net

Realized (gains) losses on (425 ) (5,795 ) (6,220 ) financial derivatives, net

Realized (gains) losses on real 74 (61 ) 13 estate owned, net

Unrealized (gains) losses on (10,000 ) 1,781 (8,218 ) securities and loans, net

Unrealized (gains) losses on 5,683 (10,711 ) (5,028 ) financial derivatives, net

Unrealized (gains) losses on real 1,314 792 2,107 estate owned, net

Other realized and unrealized (2,166 ) (602 ) (2,768 ) (gains) losses, net^(1)

Net realized gains (losses) onperiodic settlements of interest 77 (816 ) (739 ) rate swaps

Net unrealized gains (losses) onaccrued periodic settlements ofinterest rate (709 ) 410 (299 )

swaps

Incentive fee to affiliate 7,157 - 7,157

Non-cash equity compensation 244 229 473 expense

Negative (positive) component ofinterest income represented by (3,041 ) 87 (2,954 ) Catch-up Premium AmortizationAdjustment

Debt issuance costs related toOther secured borrowings, at fair 2,039 1,665 3,704 value

Non-recurring expenses 248 - 248

(Earnings) losses from investments (16,313 ) (4,178 ) (20,491 ) in unconsolidated entities^(2)

Total Core Earnings $ 25,800 $ 21,798 $ 47,599

Dividends on preferred stock 1,940 1,941 3,881

Core Earnings attributable to 1,609 1,045 2,655 non-controlling interests

Core Earnings Attributable to $ 22,251 $ 18,812 $ 41,063 Common Stockholders

Core Earnings Attributable to $ 0.51 $ 0.43 $ 0.94 Common 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