EFC - Earnings call transcript Q1 2018 | Ellington Financial Inc.

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Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial First Quarter 2018 Earnings Conference Call. Today’s call is being recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Maria Cozine, Vice President of Investor Relations.

begin. may You

Maria Cozine

good and Thanks, morning. Alisha,

of Before we Litigation that forward-looking Reform to provisions meaning everyone Act of would statements I statements the made Securities the constitute like certain may during remind call Harbor start, this Private Safe the XXXX. within of conference

Forward-looking nature. statements in historical are not

the could XX, actual of of are Statements statements subject any obligation update our these made Co-Chief the to during a today information, have call and variety Chief As of XA report are Chief made predictions call statements, its as forward-looking future estimates Form our of I forward-looking our described beliefs, under conference me Officer; the future Financial; company’s Mark XX-K result undertakes statements and forward-looking you and events or to company XXXX, on and cause uncertainties of Officer. differ from Herlihy, projections. that revise date risks events. on as annual JR Tecotzky, with on results Investment should Item filed as call, the Executive on March expectations, Ellington rely whether a of otherwise. not new Financial to Officer this of Consequently, Penn, or no Larry this

X to press As track along. Larry. will follow remarks the earnings conference turn described the on over turn will first to our ellingtonfinancial.com. I presentation. earnings in prepared Slide Management’s call to our our call quarter release, With presentation website, now is Please that, available

Larry Penn

to taking welcome appreciate quarter the to Thanks, the XXXX listen everyone Maria earnings you first our today. call We and time to call.

highs. XXXX retrack XXXX volatility of with equity low started The at is historically ended continuing first much and out as to quarter

The treasury change Of interest jumped record markets. on XXX% The and course, investor off between we reached over benefited broke an XXXX to February that sparking concerns performance early a Financial loan days both XX-year all headwinds point spreads February, on widen and navigated its for report correction performance inflation four on the with in our on The just year in across strategies. agency highest and years. successfully rates pleased X. more securities all across a We with rising equity I than XX, that and X.XX% and of the after February S&P sell territory its it’s February occurring in trading many had time Yield the a of Despite from February am sharp reaching in reaching greater of Ellington hurry the movement volatility. the sympathy market nine start VIX, quarter. range high. these credit out products market X, with strong one-day volatility saw largest credit

per X.X% prior excellent dividend. we in dividend. course earnings of share $X.XX share $X.XX quarter per EFC’s income quarter, return increase as value annualized. X.X%, payment the a the XX.X% or of total of us And after comfortably result, our book net an from generate generated of For helping even That the $X.XX covered

at per $X.XX came the during income share income steadily covered has investment net it share growing XX% quarter our forward, looking importantly of about recently investment alone $X.XX first as the and in net so Just our been quarter, for per dividend.

a As is look portfolio in quarter’s paying Slide quality patience really this indicate credit result high a XX. building our at Take off.

net strategies that these credit the interest by we our to loan earnings years progress You and the have proprietary key steady loan past strategies. the growing We in our generating made supported of portfolio believe see few are a diversifying particularly can over predictable income. stream

XX% of you one higher approximately finished than the a we can which end. – with first see back page on on sorry, portfolio can was quarter XX, As as year Slide credit back see $X.XX you billion,

focus consolidated tranches stood You’ll opposed quarter, portfolio un-deployed close GAAP. that we’ve sheet includes I Slide makes and that to see inside invested. which balance the In securitization but that of credit down size And have balance our X% on for we of the we’re asset for the the ultimate can it to at to actually pretty case, the overall the our fully on gross the our securitized non-QM the mortgages back a their securitization. larger purpose retain on discussing portfolio our from in any lower you as of end at more X, think objectives as credit implies than see sense sheet capital the

an need investments the to come interim that yielding, credit shift currently to as un-deployed portfolio deployed plan in those yielding still to is of that pipelines. figure. lower X% on more higher liquid we asterisk put continue I However, into our A investments portion from in

rotating into and double are capital desired interim So do with we the shifted extremely out composition continue of but where our assets. I’m we to from the don’t And investments expect with quarterly have yielding the target portfolio To today. digit summarize, our focus has reaching to credit portfolio still growth to work here. we somewhat higher some rate pleased

credit sources the to and portfolio continues our grow, we As improve of financing. to continue diversify

our European terms closed strategies negotiate loan been also During facilities the Ellington-sponsored new of quarter, and later. bank better lines will our We’ve our and number loan added we a financing second mention as non-performing JR existing to CLO. financing in able for consumer

managers ruled the this financings, interesting retention this should which open our rules February we later retained retained investments. Appeals our non-QM there additional not our one of do apply other U.S. CLOs. market Court Namely, pursue a past the the that should and to nice securitization of to This conditions. to securitizations in U.S. liquidity strategy expect quarter, market subject our across to of In ruling securitization CLO market give some year, very to development As CLO risk investments. of boost increase was

bought up ticked grown leverage end. back a debt over We has with X.XX:X X.XX:X our quarters equity to shares. from up the quarter noticed, finished the aggressively you’ve last portfolio sure as ratio at of we’ve and few I’m As year our

low, mortgage peers historically leverage our high but hybrid still is us compared to for REIT our speaking. Now it’s

However, non now market related A of to relate borrowings not securitization that much leverage repo. equal. another senior portion of mark-to-market less non-QM term our than deal notes. to leverage is bank facilities to the decent relates portion all consolidate, another say unsecured These our created forms obviously shocks are we to total vulnerable and portion

desired to off increasing expect prudently still leverage. grow We’ll to of see I room trend today composition, and we some continue But in approaches the our the credit So, recent format portfolio. the follow we on add as the past. portfolio see as size I’d the leveling in same as a call to leverage have

will our going Herlihy financial Mark will investment our our discuss First is run through portfolio Tecotzky our performed results. our outlook markets how and our Co-CIO, how CFO, Then forward. quarter, what performed JR last

Finally, I call the remarks JR. over will follow I’ll to And turn before with questions. floor the opening to closing with that,

JR Herlihy

good million plus $X.XX per as share. turn Thanks, the and fees our or of minus first $X.XX to to share XX, summary interests net investment or $XX.X non-controlling allocation everyone. management $XX.X gain $X.XX or Larry income share broken Slide follows. income generated $XX $X.XX of G&A share of a realized per per or of for income and unrealized after million $XXX,XXX million quarter, Net down net of per Please and morning, EFC statement. In

covered Our per XX% of net net of $X.XX income comfortably income it. investment our covered while dividend share, about

of $XX.X In strategy quarter earnings credit of and $X.XX generated Slide increase income investment $XXX,XXX and per for the were $X.XX or strategy net As that per strategy. was credit or of in net the strategies. underlying to on strategy $X.XX the $X.X a approximately income income while of $X.X credit we first $X.XX attributable numerous. are share. continue the The turn drivers associated had share credit or non-QM quarter. million agency per quarter, of agency The the securitization credit entirely our The grow net attribution our to income loss from million we per details $X.XX one-time investment of gross and comparison expenses of gross the the significant last income increases the slight double share, or the By portfolio. to between had of issuance prior net income with Please excluding X share. million the

hefty mentioned, same time average rise we the credit income. holdings the by weighted able basis agency our of quarter-over-quarter. on we LIBOR. Meanwhile, yield lines First funds the on increased several increased. X of rise credit costs our our were grew secured as to LIBOR, average our renegotiate quarter, Larry this the our At despite of interest basis credit points RMBS points net assets which both on quarter-over-quarter cost the on Pressured of our only overall funds the average costs increased increased XX of by terms by borrowings and our borrowings in and borrowings

were led realized and gains The significant quarter non-Agency gains in European RMBS strategies. U.S. and second, CMBS non-conforming our by this trading

gains other by the by interest Despite and credit gross $X.X hedges value did our credit came that income activities as mortgage our investments loan quarter’s well total, were million as the European Longbridge strategic relative In of strategy. credit P&L. As volatility originator contributed highlighted but from one of hedges strong performance of net continued unrealized majority by corporate Financial, rate strategy. our impact our market and not meaningfully

associated last from quarter with expensed we gross the non-QM we quarter-over-quarter loan, securitization, to related per in which increases issuance investment and because European and loan Finally, had $X.XX the our leveraged our U.S. other consumer share. strategies. performing one-time cost loan non-performing expenses amounted fully loan strategies, Among declined income

a the quarter. EFC’s quarter commercial in the on strategies an a and profitable European both non-QM and quarter balance million ROE from servicing although strong and our had strategy. expenses of end its had the $XX.X related first fourth XX% equity includes loan they Overall but financing credit costs contribution management at hedging general also of our our income approximately decline operating in investment CLO return less We than expenses and were in strategy fees. We about of fees of This based other to portfolio, XX% excludes and costs, allocated annualized portfolio P&L gross in utilized assets, generated quarter-over-quarter small quarter. were modest mortgage portfolio growth

XX, approximately year As which was a portfolio credit XXXX our billion, XX% compared increase of to was end. $X.XX March

consolidating consumer of assets backs added this the effects loans the mortgage loans the non-QM Larry non-conforming RMBS, As total and We residential REO, European in mentioned, trust. following and securitization strategies ABS. out and

these in per And income lower the yielding we the opportunity in non-Agency Gross to can holdings size the first our with for our $XX,XXX higher add liquid that in CMBS. was $XXX,XXX as the more included assets to addition, of U.S. quarter as increased and during CLO a similar European believe CLOs quarter. loss strategy declined prior as share note to such continue solid be of compared per or investments provide Portfolios that we assets. RMBS quarter net $X.XX they In and certain or We the $X.XX it investments. risk quarter easily meantime a sold RMBS the round for fourth of from U.S. Agency share loss income.

first to quarter, drops realized the portfolio. spreads losses and unrealized and led prices RMBS which Agency During agency widens yield our on

losses offset the portfolio interest from were However, rate the net and these interest mostly our gains income by hedges. on from

up XX, ends. March we from RMBS Agency million, holdings $XXX of XXXX, year $XXX at had million of As long

in all able Index that’s widening that performance negative of was quarter, adding our on to portfolio. The Barclays MBS the Agency the a were unleveraged to we basis. and As spreads by to RMBS Fixed remarkable, the agency given Bloomberg the U.S. for strategy Rate Agency more close yield the recorded the of on breakeven X.XX% capitalize

our our you strategy. great strategy of the to basis, capital ROE an the in you preserving If can mortgage performance also that agency the job we of agency quarter, the appreciate on over performance compare REITs did agency

XXXX, share XX, would had to resulted when connection GAAP for be which and borrowing in ratio repurchases. the we reporting X.XX:X. X.XX:X, credit new non-QM that The we along previous non-QM leverage a the securitization also securitization debt, in March over higher debt-to-equity related weren’t consolidating continued increase the from quarter capital to debt-to-equity If consolidate the a is the reduced ratio we Leverage purchase ratio due Larry of As been X.XX:X. have with agency increased with ends, purposes. higher discussed our significant base because was adjusted

at per repurchased XXX,XXX value the quarter, our diluted X% approximately on shares share. outstanding first average, coming we’ve the discount of shares, to into During XX% or quarter, a book

to As a these our share of share were result by per discounts, repurchases book accretive $X.XX. value

with slightly annualized now an share over per the quarter of million, ended fees. first We which expenses the X.X% book our presentation from of value $XX.XX. For decreased operating X.X%, in from representing quarter, were to the quarter, primarily expense in general ratio diluted turn the prior $X.XX professional Mark. decline the I’ll

Mark Tecotzky

history, to curve and its tried stay spreads quality hoping willing That we be is stays return were the what we’ve our A fingers deliver rely always means, just Thanks, to able credits and greater return. to pay doesn’t JR. to a returned yield call investment that crossing low The steep. Throughout find because doesn’t fool EFC than more little always position rates theory. interest itself rely the investors, quality somebody always tightened a on ourselves. on

outperform from but less between or quarters, leverage high quarter, proud in our peer longs or hold we the relative of includes group. are Our baited shareholders tighter, and our happened But many peer, when only credit philosophy quarter credit delivered second an that excellent need our have and XX% our a in cycles may fundamental this over not top even but yielding Over workflow, value, to last we versus in focus given exposure finding fundamentally outright annualized much performer. so this the on may not half peer go shorts. We a as our spreads to we to relative be performance past stronger our to tight of lag be the return, like investments value quarter group. finding to less year, in

quarter? highlights. this Larry the So JR what out pointed work and

yielding that revolution. Mae mortgage which contribution age, one driven Financial, and is than Take loans this Longbridge reverse Longbridge sold Longbridge initial PMs working is investments. team demand our because mortgage and without Since participation, will the company made helping hard that All earnings. strategic that credit for was a this but Longbridge assets At thesis time generate work EFC, For our Baby with EFC. by would competitive on equity build originator like our building also interested to Bigbank not originate EFC, of more not get levered evolution that that in the the fruit. We investments private trade returns at only point just high for in business to Longbridge Management Longbridge now, bear beta the mortgage a a believe paying-off increase is in EFC, quarter may our putting manufacture it proprietary looks in significant landscape favorable. Ginnie that the cycle. reverse a to take long Boomers we’re have research is investment pools XXXX, and been credit

than much Of were buy. risk to cash as purely trade of securities. course, for the we Q, system technical drove two commoditized of factors to put credit worked leverage price more quarters, beta years the there bonds In in credit had like the we’re interesting assets, last transfer

the because Longbridge was capital short cost in term invested high. lagged, Our opportunity

yield interest high to wider finding Now are credit and lots or IG on of beta portfolio balance rate rate sheet challenging it Fed risk continued reduction, with spreads, generate built returns. and leverage hikes, the is

credit As our we’ve profile Financial. Ellington grown in

focused fundamental diversified fool style have greater of not trading. on more We much value, on the

impacted have, for financing tide commoditized yielding be by favorable a residential, one that terms Mary. assets eggs what us we basket with are and CLOs, now When and outperform big balanced enables more to debt very are tide versus rising the really in But market. we to commercial stock our We complicated. high a won’t U.S. sheet all seeing consumer down strategies. proprietary great boats, European have our shift and we more we lifts balance exposure, Queen in we moves risk, But the necessarily all this less believe don’t made the market and one our up in

in loans are seeing to We mentioned. contributions advantage investments favorable benefiting mortgage performance And from from strategies I to continue originators, and securitize. strong our take our as strategic of opportunities

interest will high from such of our like voting returns entry long net machine. what in yielding Graham yield to market strategies. results to periods short especially by our eroded over Quarter-to-quarter, cannot to and really of of to continues that is we dominates. It’s significantly dividend. income, my mark-to-market the I’m with market. to our shares. and slightly another equity to our perspective, a strategy the smaller best accept job of a discount, buyback those is good not thing be so believe high gives our equity smaller drive We weighing have our should EFC increase more a longer focus set but entry, deliver to impacted Another classic X% of our run, bought happy fundamental well continued the the some we barriers through duration returns other itself tailwind – Benjamin a back significant be we run, and be a to not time, a always getting At stock or shareholders. But isn’t example base. messaging steady A times, in were that a isn’t communicate quarter do to earn creative quarter of see the is always our and quarter it short we by the work stability assets, to our quote, generation have diverse to but returns, When think the value base the this on ability this That in means the often interest is but strategy at prices effectively in do investors. was this yielding only the moves, it’s a and We in From received. machine. acquiring great and buybacks

tax the both for growth for both and rates outlook and sheet that boosted think to commoditized the To headwind may balance a we continue reduction credit the sectors. ahead reform Fed Looking be inflation big legacy for from policy is which in positive borrowers the brought changes. much volatility loan portfolio, generally consumer portfolio, of MBS market and fundamental our benefit a our our in as

across leveraging increasing have the We portfolio and securitizations credit yield portfolio, in strong financing our most underlying our focus and term performance advantageous using the on of our arrangements. yield seen that both and primary way

Now Larry. back to

Larry Penn

a forward is on we first start. to performance. And Thanks, building XXXX quarter’s look off Mark. to the great

April the share up a second you As night, per see to book can with great non-annualized. value last the estimated also another that announced X.X% start we quarter is from off

credit Our we result developed. we pipeline a net in this also yielding the the of that portfolio loan have high picking to as growing robust up. continues assets grow, At income nicely. time, volatility as And our capitalize is growth, of direct investment same

well We’re as more to of seeing add assets higher parts liquid portfolio. yields, as opportunities at trade our

jarring virtually and Of volatility the hedges course, also underscored importance book on to the credit of corners and interest effects value. the all of of our rate this have market protect preserve

their non-Agency among short unmatched long As highlighting stability and can duration. sensitivity to Slide of CMBS, of Slide value. RMBS, our see you is analysis. captures also it’s loans the high its XX, credit The X, down, our The and of size assets, on peer portfolio. fourth rate group, really vast book line majority Turn worth of interest its credit many mortgage see the the to other EFC profile of ABS, our yielding

points. by and hedges. and two-year our estate consumer term see fast loans, duration book interest the prioritize credit if minus portfolio loans, loans, of estimate in be would such to table, can quarter a on short XX we installment impact about duration on commercial one one about in that value where products translates non-performing short That to resolutions. rate accumulated basis the plus and the that’s rate we overall up shift before or down a portfolio years like you bridge our XX basis points, As or real focusing We’ve

our very environment. see we overall the percentage in where will can don’t Importantly, why number, we’ve scenario, duration about reinvest does runoff there’s market and in to estimate peers a performance decline assets. interest cycle bull to entire happy whenever looking start many book rising tiny reason, portfolio our rate credit assets rate best think, We’ve in cycle rate across are much in continue but us see X.X duration when now. that We of to turn, by toward start portfolio rates which to again, and X%, short to our quickly, would important another I how many perform intentionally point, that of seen for including that you’ve our at know should hedges, than rise we’ll a shorter enabling naturally a half opportunities But whatever value it you be interest one been turn, rising a environments. of gravitated years in In less is so the the time.

believe portfolio, I the Here’s income The our environment, higher and continue to how volatility. to hedging together. of comes in interest recurring periods dynamic of that portfolio, it performance rise both credit should diverse duration us management the or combined liquidity all sources rates of short current of strategies, not with whether enable of most our and financing whether our sustain

And On discount the stock significant book We there at second We for $XX an aggressively shares of the May value capital of worth since quarter, trading share million quarter our the repurchased have diluted repurchased side, value. of back outstanding shares quarter. end, share. consecutive our first to our by a $X.XX accretive price additional per during bought was or shares to X. management million book worth we X% which through $X

as that compelling our can’t Although we is, what to we going use try a all stock capital, take for starts such value. well. opportunistic of the we’ll stock and be believe appreciate have to now advantage cheap love the we but to a how buybacks us. book Well, market assets it’s pipelines, of loan of are at coming discount still our remain out while I

presentation to right of on that call the presentation. opening next Before out quarterly like I’d earnings point section to website Q&A. the up our to

a potential a cons one posted C also We EFC. and corp for overview of of page pros some conversion expected

to enough may to a I potential to are this cuts we in traded investment tax actions jobs we emphasize passage that last strategies As our at we a just provide conversion the change in profile C just of and market development PTP options of even the of structure a are we the possible corp another we including potential monitoring can’t meantime, with take of response publicly our call, high a last and to investors add, a C actively evaluating changes list interesting But point, as to and wanted developments. of a being discussed still the evaluating the When to week. some the partnership. corp. considerations

We possibilities continue a could which income possible only includes and for reporting also C our expansion investor lower effective but simplification of tax to to the REIT, not process of all corp, conversion big U.S. such base. to evaluate also a that rates a tax REIT on with potential our taxpayers, conversion benefits becoming as bring

ability REIT the to our becoming credit limit would like and and hedge our invest consumer CLOs our also limit risk. at However, same real loans capacity a estate time, in to non-mortgage, non assets

these and on And now is feedback to welcome. our Operator? take investor remarks always pleased concludes As we’re prepared issues this questions.

Operator

first [Operator the Suisse. comes Your Instructions] Credit line from Harter with Doug of question

Doug Harter

pickup, the targeted the about efforts? as into or credit the the talk you Can ROE Thanks. rotate you longer term you see yield assets either that

Larry Penn

Sure.

second Just here. give us a

have see if find we to right you broken not some a going way. We’re out might numbers, that can

JR Herlihy

Yes.

was QX about portfolio the the was include that to credit credit levered quarter, and the performance annualized. ROE that I X.X% versus placeholders – general first it in overall placeholders the – in as the of on can speak versus carry that assets XXs so the we into mentioned in net-net So the

in bit So quite delta QX. of at there’s least that we a saw

Larry Penn

and Yes. Then yields that’s lower than well exactly. in levered the in obviously are change, seven that

And mostly that as are for yield. you’ve got assets think also sometimes the liquid, down if we’re think assets assets short we sometimes just and their and yielding these so assets, it’s down securities which as is obviously, I can for what those kind on look spread going or especially, buying X, where on were would higher to protecting in see coming you a – we’re based but yields as referred not credit well to good so yielding, total are Slide in analysis. return rolling are higher yielding of are, can loan yes, substantial so are those their those see say pickup. interim there lower many on that So, curve that a their we and roll the they’re you when But the tighten placeholder obviously, – they yield, you quickly, the assets just term cases, it’s plays

Doug Harter

those of pace. Do And kind as comparable it that add far room guess as assets, you for term of of kind run pacing of acceleration expect sort the would those a think the kind there’s you a I you rate do long Or can think you assets. and of pace now?

Larry Penn

in terms in growing, able the pace up related Yes. I not of to acceleration, of loan know, term, not don’t be should way size in especially, more adding high this would of assets. if I so say again yielding, but the long I but terms we overall I think those keep

to close. we’re be I not where yet, think, yes, So ultimately want but we we’re

of the same. the I at and expect next would least more I So quarter, think for

Doug Harter

last then me. for And one

share just you authorization? remaining you me, repurchase your have could what remind on If

Larry Penn

X.XX X, shares May of As million. of it’s XXX,XXX about the

Doug Harter

Thank it. Got you.

Larry Penn

emphasize and smaller to made and makes and just frequently authorize the Sure than say, just authorize, that just on some board program. leave out sense we whenever incredibly our And not much, that have large has have only we in more forever. shares the been with amount the it have more there amounts to just to that we determination the reauthorizing, hanging has it try because too the to left out very run receptive in to that of board authorization amount

it. that way the just to that’s So we preferred do

Doug Harter

you. sense. Makes Thank

Operator

of Your next with Love O’Neill. Crispin the question comes line from Sandler

Crispin Love

taking guys. Hi, question. Thanks my for

from little value what was as talk in second quarter? strong what’s Is Can about, you’re of a that kind sharing and a investment the a bit as such gains? And in said growth from other that purchases? driving there credit factors you then So April. continuation seeing trading of really book the strength? you first plays kind quarter income benefit then benefits that with net And also of strong

Larry Penn

good Crispin. Yes, morning,

it we the it’s is continuation of sample size, same also It’s XXX,XXX part published that shares repurchase, following we so think, things other another just back. share But estimate overall so a small of it month just I purchased the change. QX. So of a many

But broken strategies income from we’ve haven’t years. few I the of more building coming components. think encourages last of yet many down been loan over it’s the continuation these We that

Mark Tecotzky

coming the I Yes. of right investments. like income some want just not terms more good of don’t of that in our first extrapolate terms in definitely some it’s quarter, from had to illiquid we just And – purely in out, net interest headwinds into

bearing fruit, call. had Longbridge we’re that we mentioned investment quite have they NPLs And much looking valuable performing before. been than now We more Finally, on nicely. a were the

a interest factors do we’re to combination But is of trying the to can build give anyone where I repeatable impression income it’s that wouldn’t was to want and indefinitely. what So net trying portfolio, X.X%, non-annualized cover a the was dividend. accrued that. annualized we call or obviously returns Right, X.X% it covered it April. dividend, given that’s I’m a from the – whatever key let’s during sorry, more and well than we’re

Crispin Love

few think growth maybe more to on been you with then be XXXX, just credit the more we’ve And maybe not might same the but mid thanks. kind fully Do portfolio. the quarters. and little not you expect of guess, few be detail last that just seeing quite ramped by but I bit that out a Okay, a quarters that

Mark Tecotzky

Yes.

hey, I getting we’re growing long, our fronts, say, I issue that be I the right. back expectation cheap in think whether, portfolio. one, sort buying two, and too terms we’re Number little attacking what quarters our a might even the price two actually, mean, of where there. we’re is. is stock stock. I we’re of Number more few would on mean,

also the us And helping is actually so line. that to get finish

So I pretty we’re think close.

where no, think quarter, I at quarter, if I I say second where good to are the that. there I’m But not quarter, the about end I the going end the be pretty think of mean, third feeling at first am will most end at of at consider that we of you necessarily.

we’ll So in maybe sometime between, see.

Crispin Love

of low single digits kind point of should digits be And spin, steady of, stable will when of I be mid the where kind more kind you single that get guess or a growth state? kind in to

Larry Penn

to talking that have steady a get we about prudently, rotation, state when your capital there right. support think asset composition. can we to it When want more certain only will certain a be – I we be, be base more where you will Because

think a really that But it in makes So mean, not sector and lot we in I be. of be. we’re strategies, we environment not think have that’s – from pretend anyone a pure us want – where play don’t is right, to this it’s there, to I we which great. I different

are So competition mean, see spreads there in originate evolving I securitization changing. relative the where right, got you’ve prospects there, market, non-QM value different different changing, are as some the we is sectors, is the to

provider. have want going Hey, always providers? that incremental loans, what look is what’s going So flow what’s dollars at there, flow with new capital point. we’ll So at reevaluating. our to where we’re on our we put we on Consumer this

flows don’t place the – if about to of these able our asset strategies strategy sector that pull we where big We out without is, be upon some to advantage be there in to into depending one best great painfully sort to and XX-year the especially, off in. want having a huge we to shift of think having cash the we other naturally is we and get just portfolio, not can where shorter some at discount. chunks if can rotate for the the well and duration illiquid another of band-aid come one we selling that portfolio, see the that of allocation value many So so and

Mark Tecotzky

This thing. add is one I Mark, want

state, the that lot in you’re activity portfolio, securitization, yielding still high pieces non-QM, So about the repo, yield you steady originating into you the of a if retain. you’re if concentrating non-QM but there’s even of securitization think it most when at financing essentially you are you do you’re when loans, in with

up the another So And capital to get assets. in from you proceeds you you high and free the very then the that deploy to EFC add retained high looking capital yielding yielding you’re the securitization. portion then portfolio,

the dividend. retain state yield portfolio and yield their your right. from evolve, steady to support drive it mean pieces constantly securitization doesn’t those generate and So have doesn’t have trying portfolio additional The is you

Larry Penn

strategy. our non-QM the non-QM, I on one on And to want point more just add

not. mentioned loans. was we I these last on I got origination we the perfect it performance – slower this the if there terms into has than in call business. flow I of we been So or not sure originally mean had in when the has been had hoped was think XX.X% But the pristine, think we it pay mean, pay. we perfect I

that. the we our first the – securitization securitization, the I for about way great think our rating rest So group and next credit from edges got of

in I to hoping was securitization I really to a with are that better lot. one, should happen. our be next But a that in that our shorten for point, think between time I’ll in wanted make

securitized odd was tranches. X million retaining assets number? yes, – XXX million the we what of have X and – – that ended odd, XXX million X We of up of and was

those So But of high the and concentrated very to as yielding. tranches are really is, we want you do retain our Right to all increase really that. of want Mark said, those projections. what frequency we obviously to

lines loans the return our But right, margin long not as not securitization. that as versus high have generating for financing net on balance sheet terms mean, where a interest I that’s as effective yielding, there. So on actually the as they’re as leverage not equity, are of in we loans doing

month, better, four we a month a think it’s doing of if the also that million that capital. lot million million we I will – $XX XX to can say of can so if that’s continue can origination apart. By a up get to months hoping securitization, just recently, XX get million we’re our do that and in in them and use So per let’s flow $XXX low terms the been increase

just to have So things, we’ll all these play see they how out.

Crispin Love

right. All for taking my you Thank questions.

Larry Penn

Thanks, Crispin.

Operator

from JMP Your line question of Securities. Mikhail the Goberman with next comes

Mikhail Goberman

have gentlemen. a X% did morning, sort buyback A question. all of the been we a for maybe guys year equal? in the But first of expect already. the can again, talking the pace my about assuming that you Thanks them else few answered guess taking that of being rest I Good quarter. Is

Larry Penn

we it’s to our today stock price aggressively. where on And given I put don’t as we’re was us So, there We it’s where should it is But still yes, XX% that. into wouldn’t we’ve as is, the book. before of – of line know been it as buyback speak. hate pretty we still slightly sort say came – below I that. like consistent that long we saying I

that for think money our we our of shown couple we’ve last mouth is. put the I and where quarters Now

given opportunities hand, On trade also above of further we the use and think on other saying XX% asset side as quite our we’re if we we’ve and we best been that’s that – the don’t think all the above I XX% the clear, capital.

example, and probably want for that flexibility book, we’ve in between to us leave there. said XX% of we So by repurchasing before some we not anything

So I dependent, price wouldn’t be – it. about to very it’s be we’re stock opportunistic going to going very

a of purchase we – pace and be purchased price buying not pace a we The of prices. are function we be at We’re it’s not like same is to to whether that going price. function different going the is

our the – constrained in volume is I point was are daily by trading peers stock a additional space. as of make the well wanted to that lower and of than one lot the volume, which So the we

are day bit of outstanding shares space that. trade the lot three of trade So to per than – we quarters of and trading shares, less tend in can peers a we the their – quite a X%

XX%. are think you pedal been its the when example, that the being the metal volume if got volume based actually about day, up to during percentage buying well the of constraint and which based both are as a time – and we’ve a ends XXXX significant restrictions when even So for significantly below

I’ll things probably were all than that that’s if be the And it buying – could would equal I price soft say, lower in say could that we of ceiling quarter. significantly mode all call it much a goes a I because that. stock obviously our being pretty So aggressive up

Mikhail Goberman

you on some X.X you just your of or TBA I forward. guess with now you. about You. for short the Got your – Thank a and guys thinking forward are guys I are about going And continuity how going just GAAP you hedge guess there Thank thinking quick ration portfolio how that. any strategy about one

Mark Tecotzky

in Yes, take XX of the duration agency rates side this mean, since interest to change exposure shareholders if rates. the to is predict interest in on increase the I we then want roughly sort the point a consistent direction That to the in GAAP we basis view that our returns the don’t value of we’re get not response. and Mark. start year the despite – interest lot we of generate to best total risk expose rates for book are difficult of

in increase than don’t that. for to year But do down versus we we margins the did the TBA interest amazing, at agency you’ll certainly argue But now dial mortgages. see can we we is we attractive and use different slight in So of our up instance versus what hedging in net our net exposure. treasuries mortgage terms that’s that choose a more start might market the what of see soft

quarter treasury bit or in little swap little and smaller a So broadly maybe the a mortgages had. of TBA a – other for bit agency a the of that more first of argues performance hedge

could change you more probably likely that’s So the as see make.

Mikhail Goberman

you Thank right. questions. for my taking All

Mark Tecotzky

you. Thank

Operator

comes question the Tim line final FBR. Riley from with of Hayes Your B.

Tim Hayes

Can for most Hey from you’re yield you across credit assets perspective? guys. of portfolio the Thanks seeing a for about talk just landscape your the pressure kind competitive taking questions. my and which and competition

Mark Tecotzky

Sure. This Mark. is

us. that a structure So favorable number yields on the years risk CMBS smaller CMBS in of B-piece retention to market side come investments commercial have is for like with for that seen you’ve financials –

that’s that much the an a she pretty we bounce but our rules risk So down in small consistent we increase where been remain a deal But think as active it’s some supply haven’t goes slow competitive there pressures. Consumer I other in I loans, been commercial in the steady there’s on of changes the big area think loans hand supply. retention the there. noticed

popular – there become has our more I think a about product is both in of year was think borrowers. versus more Larry consistent it roughly a So among expected that talked return originators non-QM where and I that portfolio ago.

felt there interest the terms short in relative part have what borrowers rate interest are competitive where rates in pressures offer the of curve. we some we So to yield to of

pretty that’s been Non-Agency RMBS competitive a there area think hasn’t So I that there. been consistent change been has some pressures. big

we returns. our have So competitive haven’t that eroded pressures felt

base can’t a part we’ve in done – think get to entry. into large last a – lot of because people the that of lot yield commoditize just we the barrier few of and other because assets it’s first some work lot Ellington asset Financial the a really of years diversify I what away in

around buying, ability around paying there’s So a like that lot a is we’re in what us portfolio. But dividend of yields moat business. the of which the the of moat and I sort helpful think the give paying the

Tim Hayes

are Okay. consumer disciplined loosening Got you’re or CRE. just of you kind it. and standards That’s and very talk performance on type can either guys very broader helpful. I know credit. broadly But of about credit if you seeing then, And across more any

Mark Tecotzky

Yes.

environment the post you’ve had quarter stark in and first pretty we level this versus this I That’s think like under-performance of is there’s year seen treasuries. highest from reversal a been grade broadly XXXX. a spreads the trend spreads high yield credit investment big the

other of I been we’ve we own B think And CRE, our the there past. where control if with our investors so kept destiny pieces, in standards consistent terms with In they’ve the come commercial want their well recognize to do. that’s the cycle to rates wanted down. real have right, something not in estate have cap done Look we we’ve loosen standards very values

same. So able discipline there our the been we’ve think I keep to

On entities the underwriting from again, ongoing relationship quality. we’re a discussions side we about where consumers have don’t with buying we not credit have loan that

we trends. our impacted for by ongoing with but So credit loosening have been by has broad portfolio be dialogue more It’s impacted partners. our trends the of much those might broader not slight

Larry Penn

realized we B-pieces. had things. the in couple a actually the add we CMBS we that to want of just sales the gains were the In of example had B-pieces quarter some – gains for on from I first actually – that

So as thought the right market we opportunity that anymore. wasn’t there tightened that value that’s an

but recently there. actually of So some and or yet that. not replace were I pieces actually to we recently is sold bunch And a right of Mark able actually recognize – we’re again we think closed able

me up we’re So but to we’ve was still seller a we a wrong, recent new get very able pick been in actually B-piece, attractive level. thought a it times, net don’t

a B-pieces And lightening up again at any lot that. one we replace going we’re other point way a get to very to be if there. if that continue were the they like other to lighted quarter an think assets, do questions? are So first Any the and we yield will opportunistic opportunity attractive we’ll

Tim Hayes

I me. the appreciate No, it for that’s color.

Larry Penn

of Great. talking And doing assets I to think I a about just we’ve in one of the been JR. from think as terms Doug, research the ahead higher interim been wanted – assets. questions little Go versus before I

JR Herlihy

Doug. Right,

versus Looking of around investment at target market on a X.X% or X% assets. X%, our yields the it’s range assets other credit our X% versus range in interim target credit there’s maybe investments a on

bit basis a that. point again up you’re XXX about at unlevered looking post tick and more little than BP a leverage So then

Larry Penn

All think I we’re Operator, thanks everyone. well Great. right, done.

Operator

concludes today’s call. This

You disconnect. may now

Ellington Financial (EFC) 8 May 182018 Q1 Earnings call transcript