Ellington Credit Company Reports Results for Three-Month Period Ended March 31, 2025

OLD GREENWICH, Conn.--(BUSINESS WIRE)--Ellington Credit Company (NYSE: EARN) ("we") today reported financial results for the three-month period ended March 31, 2025.

Highlights

• Net income (loss) of $(7.9) million, or $(0.23) per share.
• Adjusted Distributable Earnings¹ of $9.0 million, or $0.26 per share.
• Book value of $6.08 per share as of March 31, 2025, which includes the effects of dividends of $0.24 per share for the three-month period.
• Net interest margin² of 11.13% on credit, 2.29% on Agency, and 5.27% overall.
• CLO portfolio increased to $249.9 million as of March 31, 2025, compared to $171.1 million as of December 31, 2024.
• Capital allocation³ to CLOs increased to 81% as of March 31, 2025, compared to 72% as of December 31, 2024.
• Debt-to-equity ratio, adjusted for unsettled sales of Agency pools, of 2.2:1 and net mortgage assets-to-equity ratio of 0.0:1⁴ as of March 31, 2025.
• Weighted average constant prepayment rate ("CPR") for the fixed-rate Agency specified pool portfolio of 7.2⁵.
• Cash and cash equivalents of $17.4 million as of March 31, 2025, in addition to other unencumbered assets of $151.5 million.
• Dividend rate of 17.1% based on the May 19, 2025 closing stock price of $5.62, and monthly dividend of $0.08 per common share declared on May 7, 2025.

Conversion Update

On April 1, 2025, we completed our conversion to a Delaware-domiciled closed-end fund focused on corporate collateralized loan obligations ("CLOs"), registered under the Investment Company Act of 1940 ("1940 Act"), which intends to operate as a Regulated Investment Company ("RIC") under U.S. federal tax law. Shortly after the conversion, we sold our remaining Agency RMBS and covered the related TBA hedges.

In connection with the conversion, we also changed our fiscal year to end on March 31, the day prior to the conversion, with our first full fiscal year following conversion to end on March 31, 2026. We will have a short fiscal year for the three-month period ended March 31, 2025, during which time we operated as a taxable C-Corporation.

Results for Three-Month Period Ended March 31, 2025

"Following a constructive start, the latter part of the first calendar quarter of 2025 saw rising interest rate and credit spread volatility fueled by uncertain tariff policies, geopolitical tensions, persistent inflation, and growing fears of an economic slowdown. Interest rates declined, equity indices generally fell, and yield spreads widened across numerous credit fixed income sectors," said Laurence Penn, Chief Executive Officer and President. "CLO mezzanine debt and equity prices declined during the quarter, which we attribute mostly to macro challenges rather than credit-specific concerns, and this drove an overall net loss for Ellington Credit. Nevertheless, our adjusted distributable earnings continued to cover our dividends.

"In preparation for the conversion, we expanded the CLO portfolio by 46% over the course of the quarter, to $250 million at March 31st. Meanwhile, we kept the size of our long Agency RMBS portfolio stable in order to maintain our exemption from the 1940 Act prior to conversion, while also neutralizing our exposure to the mortgage basis by using net short TBA positions. I am pleased that in the first week of April, following the conversion, we were able to efficiently liquidate the entirety of our long Agency RMBS and short TBA positions with minimal effect on book value, even as markets experienced significant upheaval. While additional credit spread widening did drive further CLO price declines in April, our drawdown was contained, and we had an estimated economic return of about negative (2%) on the month. Our estimated net asset value per share as of April 30 was in the range of $5.85 to $5.91. So far in May, we have seen a good amount of credit spread tightening, which of course has been a tailwind for our NAV.

"The timing of the conversion has so far proven advantageous, as our Agency pool sales freed up capital for redeployment just as the credit markets were dislocating. I am excited to have dry powder to deploy just as wider credit spreads and plentiful trading opportunities are recharging and expanding the opportunity set. As we continue to ramp up the CLO portfolio, I believe we are in excellent position to drive strong earnings and unlock value for shareholders moving forward. We will also look to add corporate debt to our liability structure later this year, which should be accretive to net investment income."

Financial Results

The following table summarizes our portfolio of long investments as of March 31, 2025 and December 31, 2024: