Ellington Credit Company, formerly known as Ellington Residential Mortgage REIT, reported significant changes in its financial performance for the third quarter and nine-month period ending September 30, 2024, following a strategic transformation to focus on corporate collateralized loan obligations (CLOs). This shift, effective January 1, 2024, involved revoking its REIT status and transitioning to a taxable C-Corp.

For the three-month period ended September 30, 2024, the company achieved a net income of $5.4 million, a substantial recovery from a net loss of $11.4 million in the same period of 2023. This improvement was driven by an increase in interest income, which rose to $12.5 million from $11.3 million year-over-year. The total net interest income also turned positive at $4.8 million, compared to a negative $1.1 million in the prior year. The weighted average yield of the overall portfolio increased to 7.21%, up from 4.25% in the previous year.

Total expenses for the quarter increased to $2.7 million from $1.4 million, reflecting higher management fees and operational costs associated with the strategic shift. The company incurred a performance fee of $1.1 million, which was waived by the Manager, and total management fees rose to $0.7 million from $0.4 million in 2023.

In terms of asset management, Ellington's total assets decreased to $752.3 million as of September 30, 2024, down from $945.7 million at the end of 2023. This decline was primarily due to a reduction in securities at fair value, which fell to $618.8 million from $773.5 million. The company’s total liabilities also decreased significantly to $560.7 million from $809.5 million, leading to an increase in total shareholders' equity to $191.6 million, up from $136.2 million.

The company’s strategic focus on CLOs has begun to yield results, with total CLO holdings increasing by 70% to $144.5 million from $85.1 million at the end of the previous quarter. The debt-to-equity ratio improved to 2.5:1, down from 4.0:1, reflecting reduced leverage and increased equity.

Ellington Credit Company declared dividends of $0.24 per common share for the three- and nine-month periods ended September 30, 2024, consistent with the previous year. The company also reported a pre-tax U.S. federal net operating loss carryforward of approximately $38.1 million, which it plans to utilize to offset taxable income.

Overall, the company’s transition to a CLO-focused strategy appears to be positively impacting its financial performance, with improved net income and a stronger balance sheet compared to the previous fiscal period.