EFC - Earnings call transcript Q3 2018 | Ellington Financial Inc.

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Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial Third Quarter 2018 Earnings Conference Call. Today’s call is being recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Jason Frank, Corporate Counsel and Secretary. begin. may Sir,

Jason Frank

Thank you.

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

Forward-looking are in nature. statements historical not

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

X now call Please to endnotes qualified the presentation. at figures I press As track along. With will follow the remarks earnings conference note in their turn turn described the on third this to over our ellingtonfinancial.com. presentation. earnings any in that back prepared Slide Management’s call to our references by the our the to quarter will entirety release, presentation website, is Please available in Larry. are of presentation that,

Larry Penn

everyone. Thanks, and Jay, morning, good

summarize give your portfolio time will market overview co-Chief quarter, has And results. the going Ellington your what CFO, an our Officer, how discuss I always our of first then positioning will Financial. performed On and we financial JR Investment and investment in quarter. Herlihy, the our our is will this our Mark performance call outlook Tecotzky, our today Then As interest appreciate and forward.

Finally, our to half I plans, equity capital more helped to strategy. convert in small-balance will volumes last including which earnings a resolutions the to provide some remarks, the commercial Then X, on XXXX. high In loan night where a favorable with we’ll detail the first strong REIT in and the paid, open reset the in is the excellent corporate or annualized. generate of Financial had again of its now X.X% including improved our the XX.X% We on release, reinvestment first we economic third third including extended of the of our Beginning grew the CLO, Overall, Financial performance continued announced or closing another the successful our of third portfolio growth Slide floor quarter through Credit questions. of book XXXX. strategies Ellington several year-to-date losses, quarter our structure. XX% investment mark-to-market give from portfolio the $X.XX per with strategy, liabilities be lowered of and We dividend. and back per through income per in sourcing an strong for remaining this realized and here to whereby should the X.X% for adjusted extremely CLO our share period, ultimately return third months net million able $X.X progress generated of nine quarter. we a value quarter our loans, and continue of balance further grow and $X.XX dividend to earnings completed to strong the sheet, covered generated share, and we channels net dividends $X.XX and of our of share gains Adding on origination and cost we first which per the of support essentially income our diverse of pleased and up Ellington quarter mortgage year growth investment the $X.XX income performance credit net return I’m share.

equity on result, a forward. going projected increased this investment our significantly yield As

We have potential accumulating also a begun fourth assets CLO. for

our significantly our a mass I’m both and CMBS we third with non-QM this priced actually gains. positive quarter happy Finally, earlier securitization, results, just portfolio carry we reached contributed also which announce critical trading strategy, our morning. to In for to loan second

closed for $XXX non-QM quarter. of quarter million also during had We purchases, we the loans on a record as

portfolio. continue we the usual, rates credit interest hedge well as risks in As as select

balance maintaining increasing commitment market moderate Our to differentiators and strong strategies, our continue core in interest value volatility. with principles an hedging performance. environment to protection to rising and a leverage are should us These book significant for and along investment sheet, rates underpin long-term that dynamic a of significant provide

XX% strategies, Credit our of with allocated to portfolio of origination was September yield our blended, overview equity unlevered Agency proprietary market you a various Turning Slide and to X, X.X%. portfolio we to where our see sourcing current and assets strategies. At of an can a channels, across XXXX, assembled Credit XX, thanks have the of

in we we our portion rotated lower did prior a of strategies. higher into yielding quarter, As yielding assets the

barriers analytics big to us compete there banks big We where focus entry sectors continue where are due where on our an we and strategies regulation. to to and longer gives post-crisis no believe edge,

leverage Slide X, of also highly liquid This ratio on As portfolio. at to with of compares debt-to-equity this we a of Agency X.XX:X, can finished you X.XX:X the quarter. with of the supporting quarter debt-to-equity the end our ratio much see a second

to that, natural overall the sector the higher, over call CFO, JR While well Herlihy. average. and with the below our our I’ll all of And result leverage turn a growth portfolio remains is is increase

JR Herlihy

in morning, $X.X EFC of generated share, share per turn everyone. compared of statement. Please as Slide prior million or income to X Thanks, quarter, Larry, good quarter. per the In summary income a or and income for the $X.XX of million $XX.X net $X.XX net third to our

the of $XX.X down $XX.X income a quarter Net share. were in Our past also this $XX.X Net modest opposed gains credit rather quarter. quarter net exceeded per income per or $X.XX share loss and and net per After per year-over-year. effectively third income gains $X.XX increased last income investment because net this up has our generated quarter, had million in income quarterly breaks share investment net to million because hedges gains per now The gains not allocation share. strategies adjustments, on share. per Several $XXX,XXX was non-controlling net interest investment was net sequentially or quarter in or as or $X.XX $X.XX or unrealized was third to income quarter. was was fact, per mark-to-market million $X.XX realized last income realized losses the investment share; smaller downward from Including which $X.XX follows. net down our was covered dividend. $X.XX Net gains was share in $X.XX, significant as down, we adjustment losses change growth XX% investment QX losses that net had the but

conjunction the with adjustments in will a with in Larry the in portfolio to that comply would to REIT conversion expected moment, REIT need rules. Additionally, certain discuss we make more detail

our where $XX.X loss a unrealized marked to that million interest margins. NPLs million we our connected net capture of current in expect unrealized an the $XX and $X.XX million growing results the dividends. income per our driven third strategies. however, income. Notable of loss in view offsetting sale doesn’t from via gains the of larger income. we quarter, between unrealized X reflected million in per Moreover, strategies but earnings occurs to together of European realized and and returns turn primary realized result loan the good consumer $X.XX stabilizes strategy the we for would Credit the composition of income a Agency trading. included assets interest portfolio while on investment contributed up of estate-owned investment net from the $X.XX assets more that and closed investments the resume gross the from our with for and on you realized Credit share second adjusted gain generated it or examples net gross adjustments, of In a zero income, we Agency where our slow income gains hedges. as activities rate One P&L, total that In compare the comment or the in $X.XX while strategic third had third is of $X.XX origination corporate which and Net driver net Once rather expect income, disposition, million Credit credit would opportunistic quarter, gross investment per let attribution us earnings our portfolio, quarter income our interest the proxy net generate strategy the we growth in credit at Agency this the million, has the limitations. compared hedges it and strategy was other net per generate of in investment negative power, of a performed net credit $X.XX to than and As higher that much our appreciation adjusted Credit of $X.X quarter. realized $XXX,XXX Slide quarter, net ultimately investment of do adversely portfolio and XXXX, our net second be or real in A the by of amounts a these portfolio not produced reflected of increased second million to well temporarily. to gross include a capital as will in so investment resolution gets and during generated income to to that in income gains, Please $XX.X P&L its share, details to approaching. as always positive remind total $XX.X portion affected share. or net income change Net share invested earnings quarter income companies These the

$XXX,XXX X, significant Other income $X.X market in on and during $X.XX per you related $X.XX turning compared expenses, to share component was credit now value results to that expenses, slightly loan and the operating share, larger or As October. Slide to negative loan the gross on were quarter. per Slide of the strategy, third that’s Agency Staying $X.X share increased returned the our in hedges per million is holdings. $X.XX with before largest X the $X.XX also of servicing only about from quarter investment the or credit million prior in can step at September the year-to-date, see XX for the million selloff which hedges

rates $X.XX portfolio which share. totaling interest led $X.X rose quarter, per to and prices on or Agency realized losses net and third RMBS the unrealized declined During our again, million

in together all than were in by which more even view $X.XX net interest for net totaled We gain hedges income Agency in million difficult mark-to-market solid our all interest particular. losses performance or on $X.X share. Agency mortgage was our net strategy and other these and general this turn after quarter gains Slide RMBS Please However, to as REITs in offset what per and rate activities, X. Agency a representing adjustments,

approximately of The trust. Credit REO are increase purchases non-Agency quoted primarily and RMBS, a consumer loans non-QM ABS. of $X.XX consolidating before September Consistent the Our strategies: second XXXX, the and the mortgage net the Credit quarters, of target came growth quarter. loans following and portfolio was in portfolio billion from is securitization RMBS, REO, totals commercial XX, with residential XX% prior end loans which as and these our European mortgage from

RMBS net had note ABS, such assets, strategies: Similar investments. in consumer more liquid we lower-risk to CLO. Slide we of to U.S. portfolio turn loans quarter, X. hold the the prior continued During and and certain and quarters, as U.S. to CMBS a sales non-Agency CLO European U.S. Please following

Our September long as slightly Agency as from RMBS million to $XXX.X of $XXX.X June portfolio XX, XXXX XX, decreased XXXX. million of

shows was our essentially mix breakout leverage. XX of asset Slide and borrowings Our a unchanged quarter-to-quarter.

As a debt-to-equity XX, had X.XX:X of from last September of we up X.XX:X, ratio quarter.

We X.XX:X was purchases, we increased in securitize. our of particular majority and recourse the ratio The leverage up new to I borrowings to agency note very portfolio as X.XX:X resulted leverage debt-to-equity in non-QM recourse that compared with and higher ramped with and our would pools. also reached from supports highly mass comfortable connection remain critical Our last liquidity. liquid debt quarter. our

quarter December to the $X.X ended expense of our Mark. call payment higher share $X.XX XX We CLOs. expenses points an sponsored per $XX.XX Ellington value turn our share basis diluted the per fee after representing of which the third on primarily down X.X%, totaled During prior quarter, management I book of driven the over and quarter, from will other dividend with annualized operating XXXX. now of was ratio the in by rebates base million,

Mark Tecotzky

strategies. X% in primarily QX and stuck and through JR. tone program. a S&P long-term portfolio quarter the the the diligently commercial to Thanks, strong tightening up for QX, for which CLO credit spreads its was channels: set corporate EFC small-balance sourcing both was by quarter, credit our ABS for over through The consumer, proprietary credit. for growing investments generally non-QM, manufacturing plan

track can size portfolio in X. on You changes composition and Slide

the where less on continued We on we increasing tightening which double-digit trying equity focused cash, more lower-yielding on generate about QX. returns sectors continued to spread increase returns limited. to We saw some corporate looks be spread in used credit to tightening commoditized opportunistically excited leverage but of these sectors on are not future sectors, by

Slide less my also equally from net investment for net effectively volatility and positive XX. LTV. net assets increased, now, spreads portfolio high size quarter. the in Ellington the quality October. shorter our relevant book been havoc in contrast, of a Credit changed hedges, opinion a have very is we extreme that see pleased dividend a with is and of leverage Using predictable at our return well yielding coming important. lot income. price worse. values income with that flows, to given we the is our oftentimes But last important our markets adjusted widened in end. report direction, added can that equities. financial on night That’s collateralized you particularly or our as of economic That are had were duration looking credit Much assets higher on since wreak low lot In Financial very covered mentioned in investment have Larry dropping income JR quarter some As can a positioning on hospitable cash

credit mentioned, performance. proportional hedges portfolio October in contributed I to previous both Our construction, conservative increase including the our that

was broad-based metrics that to stock XX. Fundamental monitor. we despite Page are EFC the market any volatility, quarter, credit in the good loan four credit third Turning deterioration back across performance had on shown the contributions sectors seeing not we and

has can We also In investment securitization, priced our X was Larry attained non-QM returns for for just our shareholders; first, mentioned in critical premise mass always space, through the quarter non-QM ways as during been this EFC second generate the morning. Since loans approximately which high-coupon we have and started had loans its supply with the relationship with EFC non-QM in LendSure, of has limited credit proprietary risk. we worth program secured a million XXXX, losses no of have bought to $XXX we now credit date. that

space The opportunities mortgage we an with looked that funding residential knowledge can at of to competitive too and value. best the EFC that be in its better the of exceeded geographic footprint monthly models market, is After can aggressive broad that opportunity equity is a with upside. $XX banks the crisis, in mark. global We in when the that borrowers. given financial million see volume active strategic and opportunities having is a our stake the we with were myriad those But have that and afford where and loan they recently cross-selling where equity monthly think They second a data, didn’t on? our market. stake still EFC non-QM company are management volume where thought, capitalize we market EFC LendSure, mortgage has maturing growing, we increase stake there, tremendous that LendSure LendSure closely a than than mortgage and in through jumbo work EFC in way in terms to excellent franchise much XX% market, own generating returns to more as we is originations

did Those jumbo the in FICOs by that have REITs high avoided very involved and get sector. exited in we origination market. both largely now originations Mae that even jumbo LTV loans were with of Fannie lots saw and the below We lending XXXX, Mae So doing mortgage Ginnie XXX.

non-QM lending. designed We the see didn’t our and we and or FICO origination high LTV focus assessment low right. higher to was an FICO on market program low our of So opportunity LTV in

any have economics Similarly, we concerns, saw and where to in originate We losses. where yielding reverse the demographics due banks to mortgages, pulled higher were compelling. but regulatory an seen built we machinery haven’t out credit and loans the opportunity the

a As in book grown job October spread good our announcement the unaffected not to a are the hard the a from have commoditized we’ve large can deepened didn’t have has bonds have were out wild easy hurricanes, that October, spread and that its tight shocks, I et way, credit built done the yield example, because widening. a protecting unpredictable time, and secure again, portfolio mean EFC unaffected from exogenous we have like the short credit by past events And shows book that largely high way. value year, to risk swings taken by for infrastructure unlike We cetera. In we exposure of assets that relationships fires, large relatively price transfer duration lot sectors.

October. had one returns assets saw since exposes to credit spreads of October. priced that risk-off tight are We to price and try and the like moves have avoid in in that’s reasons we declines that in to perfection, investors So positive we growing sharp sectors

for the risks. the While focused at and the opportunities EFC the both ahead markets in to on we time have November, remain being appear stabilized future

Now, back to Larry.

Larry Penn

Thanks, Mark.

in the Financial’s As market, remains the same. we see emerge new challenges Ellington focus

favorable mix the of stability superior strategies; performance. of for our good as has over drive can And in diversified been strategy for a cycles. this assets strategy a us in risk you based being see Our of year XX, Slide been reward, on terms has to us. And with XXXX us very allocations differentiator disciplined a our our hedging on returns nimble risk-adjusted of investing across and positions market

we’ve fixed hedging relative every us during the both virtually market believe volatility during enabling fourth underscores and sector opportunities of this increased dislocations. importance seen that first buying to and we’ve course income We again quarter, book in the disciplined preserving weeks of the liquidity to Treasuries. management, Of seen take and of advantage our widen environment value

bit have utilizing a We the growth portfolio leverage growing for up been more future. us drive strategically and our to set earnings and

repurchase we the represent opportunistically attractive own believe shares We they retain value. when ability also to an our

repurchased you fact, quarter on with X, In XXX,XXX our as down. back since end see price stock we’ve shares Slide can over

portion we analysis say a while EFC to related to more position certain to our REIT first moving assets expect estate In private selling other steps several also qualify take of of night REIT release notes Finally, REIT we our conversion, to trust last would such completed of a into related we taxable XXXX, non-real made subsidiaries. not convert as would in REIT half facilitated that in public are decision, exchanging any be non-real real our one as the a announced now a help for unsecured during to and notes earnings our assets issued taxable conversion investment by have by estate expects estate unforeseen including connection final a senior impediments. A an subsidiaries. with REIT, or barring and or or

conversion That early is to focused our first the steps provide various completion completing expectation the the half this more target prepared changes possible. in and of including year and to we date. are as at as Given conversion to a on said, convert goal and complete our certain structure quickly estate related assets, sales to are this non-real time we of the for precise us required organizational not

significant that That Financial driver of of include would to As we allocation continue mortgage Credit pursue strategy. Agency earnings. Namely the strategy. will would hybrid far expect to main EFC’s strategy Ellington the be to the by a still a continue capital a said, EFC to REIT, continue

tool. U.K. preparation the assets, tranches that to are which as As would CLO which for we cash consist a We risk more liquid expect debt structured in been management they as assets using as sell non-conforming lower yielding that generally conversion, expect certain the many well of good non-core a REIT lately such will we would not non-mortgage lower to qualify RMBS assets, assets. as predominantly U.S. have sell EFC of as somewhat to

to strategies, likely to Importantly as to even estate our estate REIT able expect in however, Ellington-sponsored related EFC’s would the the loans, compliance. including to strategies we non-real these capital future relative related be need to maintain allocations such although many we consumer maintain non-real core growth higher limit strategies, CLOs current and of yielding

expect be we’ve while As to what there done a rate to some REIT’s to different EFC historically. as of not EFC’s still interest aggressively hedges, restrictions a use are rate hedge materially interest rate on hedges, risk from interest its able even we REIT

couple to are simply As able hedges that as credit major compared currency there anyway been credit lighter can amount to we’ve to EFC’s reason jeopardizing That Part EFC in be status. do any credit years. and in utilize to of what we hedges, to a make said, REIT. won’t years changes the risk that of limitations on strategies is REIT hedging of last REIT credit hedges prior much its we heavily qualify used the a how a also not safely to need to its using believe

With and for to loan shorter a duration hedges our few credit strategies, our hedging our CMBS tend to available credit they the assets their be loans strategy, exception our in heavy small-balance correlated risks just worthwhile. of And make as consumer such assets, idiosyncratic. credit assets, most mortgage our aren’t and more enough to tend such are to loan be there assets as that select of commercial

So usually heavy there either. credit hedging isn’t appropriate

I meaningfully overall, don’t So to portfolio convert. to credit were hedging change expect we our if

for income excited taxpayers, our investor believe significant are for our Becoming process a bring tax expansion such and investors conversion the reporting rates of with to U.S. effective of benefits, tax we lower REIT. the would REIT on extremely of a We as about base. it big simplification EFC potential a our

our of finalize the remainder plans over to expect We XXXX.

welcome. feedback issues is And investor our these always, As this on concludes remarks. prepared

questions. your Operator? pleased are to We take now

Operator

of the Instructions] question Your first [Operator Delaney of line Steve Securities. from JMP comes

Steve Delaney

here especially book October. in the performance, Congratulations value on

from week, residential they’ve as of We’re this the X% most down reported. to REITs hearing hybrid X%

me Regarding broadening what in and there box like the could remind to with credit assume degree your of particular of of you do homogenization LendSure, agency if you’re looks the your product? to able profile the there’s I NQM continue NQM in terms of it program exists product securitizations. where a the

Mark Tecotzky

is This Mark.

on non-QM So first ticker morning symbol which deal priced Bloomberg EFMT its is XXXX-X. deal you shortly. can will The look Bloomberg, at our on we this be

So opportunity self-employed. X.X% typically for rate. we Freddie, is documenting with XXs, XXXs. fit XXs XXXXs. And of a to a they’ve we’re lot W-Xs an FICOs that income to credit have Fannie-Freddie-Ginnie FHA; a LTV are focused high get seen around into is note where to low really borrowers worthy Really and borrowers that on don’t been Fannie, post-crisis box,

borrowers income, to So don’t have partnership into rental the have that K-Xs, the they maybe they complicated, income; neatly agency more extent returns are box. tax maybe they have fit

where So and is years the Fannie those investor We’ve there. opposed of borrower properties look also as individual. just we’ll LLC We’ve to opportunities at borrowers, bank on seen Freddie an seen good statements. with focus an individuals. opportunity a

So of volume, it’s that, variety qualities it a the like at get the credit sort lower where been like. to able niches that our we but get better we’ve been LTVs, of

Steve Delaney

you owner-occupied trust? self-employed in blend with RMBS the loans the investment market in So business properties is letting purpose same

Mark Tecotzky

They for data expected have a Yes, methodological Yes. calculating losses. a on have agencies that. of the lot framework rating

Steve Delaney

develop to it what of Okay, most like working you’re additional is as well? sounds sourcing you Are with and doing LendSure.

Mark Tecotzky

buy they have credit some to getting Recently have and we originating. initiatives other we from some that similarly of LendSure production started we have on focused of relatively so think attractive Yes, lenders capability purchasing rates. the note quality strong combination since that

Steve Delaney

buy so that XX% sounds it, equity it connection from that no there them? requires you only exclusive interest, there’s your like Got loans

Mark Tecotzky

also correct. they And that to there’s Yes, small exclusivity no and others sell loans can’t on that’s a they have scale.

Steve Delaney

then Larry, is and I lastly for me, you. from guess this great, Okay

be but not review Could what in that will XXXX, but when activities there. you REIT what significant REIT sure. exactly you say or a I’m most sure go a us move down to convert have TRS? a two to take understand to it. three that’s I’m would I’m – would if into you activities I to I convert on going when down you place, touched You just to not got the – for understand Thanks. not

JR Herlihy

Steve, it’s Hey Sure. JR.

Steve Delaney

JR? Hey

JR Herlihy

How are you?

Steve Delaney

Good.

JR Herlihy

that move as secondary blocker. Larry think the already consumer CLOs But I as as mentioned, our non-conforming to Ellington any structured we also CLOs RMBS would I a sponsored to REIT probably businesses are Those categories. picture, we The big in. businesses the we the mentioned are so that consumer two well continue invest and aren’t largest euro Yes, assets. mean maintain. in expect CLOs Ellington Larry as sponsored

some be of to be I bucket think would would third perhaps probably those but be moved, think more would the maybe That sold. about.

Steve Delaney

to put is it hearing REIT assets. of XX% investments Okay, because we so about estate the what – need have it I’m non-real need then if test be a TRS, think way good you to should you is into your there, related primarily would – what would you

Larry Penn

right. that’s Yes,

JR Herlihy

TRS gross the asset Yes, XX% XX% test test. and then

But So, it. the way yes. think about that’s to right

Larry Penn

the move form would of think to some we And or then well, also move just one hedges another. of credit our majority as credit also I would would TRS hedges

Steve Delaney

thanks the guys. the got for commands comments Okay it for

Operator

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

Crispin Love

lot Good on market. thanks CLO for shoe the question. press your morning of been that my what a and Can in riskier recently CLOs taking how about been There’s been in next market recently they the comment drop investments and be getting to have you you’ve performing? the might seeing CLO

views of you you get kind of with just of your if on kind So kind how are and that agree to wanted I positioned there.

Mark Tecotzky

Hi Crispin, Mark. it’s

on quality the an into bank So loans of erosion covenants syndicated broadly in CLOs. typically yes, that the there’s certainly been go

bit little covenants. But stronger they’re spreads. secondary a to We’ve a is a bit bit They’re program able Our primarily been loans, leverage. focus issue. not different. get little We little new less wider on

erosion think and this credit our erosion So why we’ve it. of sort I designed of of the quality of reasons one designed is way the covenants we’ve program

been erosion Financial strategies, like sort in participating have entity other one our of because credit concerns for consequence not or covenants of is you articulated. we an So the Ellington of equity, that this third-party generally

Larry Penn

look the them. managers some our And in there, we’re so mentioned, that at in assets issue distressed, not garden that structures that distressed they’re of variety buy. we buying your from technical there new if of deal can’t really They’re Mark angels support fund kind the and that thing fallen isn’t the have not CLO kind would really you buy as market

degree just on think like has that in the a spread advantage is than been investments, you a a here investment profiles much yield investments they losses more And to wouldn’t but that very we you real we the So an yielding look would you future versus that these in those amount obviously tranches, the good do we believe is But getting and technical to new at those loan as given I I reach say on deals us how to as order market investments make basis dent compelling. think really have looks losses to you losses issuance a press vanilla your assets expect there these the tranches in investment equity on where in of look need at to the typical lot deal. poor actually look inherent the when lot equity after-loss that of of our our

Crispin Love

that have helpful. PTP? C than That’s staying on to of the thought convert you. I talk kind about Thank within corp. is or a a understand may a you great. a REIT early choose nothing I towards led been Okay, what year, you a But past bit leaning corp to final can C you yet. to rather And little

last process I’m or how has the months. thought So your wondering decision XX and over XX evolved

Larry Penn

okay. Well, Right.

been in this I our and the year made think now the convert, in only So business are we decision have think that not – our moves we’ve model that portfolio terms proving headed to but more right have of so we in you the PTP, because a when at direction, look limited. price succeeded. we’re our yet, much to look the at you And and stock the ability stock buy it’s when investors of

reach able We’re base. investor not to that broad

that’s one reason. So

income lower XX% dividends by REIT, income, than before income, rate other types a generating for taxpayer tax we are of investors the for are, for of is XXXX, that law at taxed effectively in our with terms example PTP reason, a large. in U.S. The of and course, that change were REIT say, other the ordinary

and a C the would then a up PTP. huge a flexibility knew we did a than that if material to at look We a feedback there’s REIT our on But any we we’d had that taxes change the to even would we said And even to more for give frankly all with that And in we our structure, REIT in think a in have that from corp, would that we effective front that a did more be this go to We you have dividend see drop was don’t account of us while. would we too with also sector. not also excellent at than pay got So that structure, factor. corp much. because tax the investors most C rate that the pay. rate, REITs a tax that going have least for the

efficient. negative call think, So the really The on structure, we twofold. I right, of it’s addressed today. is the And this, REIT tax only

in that is loans, be be you be the that able extremely one if going that REIT do future, we XX% lose now. would REIT not some wanted first some do being we’re let’s to framework. a to consumer just not say, where flexibility, The difficult be if now We’re But that close the to we years right? that’s wanted anywhere to – to to at within in

of we infinite flexibility. and not point the all numbers. structure the nicely can REIT second into to growth in to all still but was seem mentioned qualify fit some growth, we’re running in doing really lose related past. the like and do hedge relative still for again, in thing to be the some at ability growth, we the that room core for analysis it estate But them and the does the we call some our – also limit today with But credit then room extent that our seems it our So to And overall some portfolio. strategies we strategies non-real those

hedge used So to pools like big in market a for XXXX, CDS in we a very that you buy with when markets and extensively liquid addition that; on market, the was so that example in and subprime where in CDS slide a back preserve the XXXX, our was you other in asset-backed the portfolio things lot that book can a slide, of us helped which there’s there’s risks a in supplemental XXXX. value those see And really accomplishment. tremendous could

pick as wouldn’t changed years the in strategy to But where I’ll those bought strategies frankly financial towards going If to we ourselves hedge be not you’re this able loan, liquid loan to portfolio an have anything typical be be be very asset we And see with mortgage forward, much so we’ve hedged nonperforming able also on going that just to to we New REIT? you the and in is No. asset. able that’s a a our anyway example. XXX% Jersey; a oriented past in few to credit are where to building commercial So the markets. that be office going strategies. one we more hedge expect idiosyncratic in credit

more as the hedged think all from that CDS; many, to portfolio moved generic a gotten with we ago more enough that that and investments important has to converting asset-backed subprime making from were with So were us REIT. of away many everything we easily an RMBS this in your don’t loan-oriented stop balance non-Agency types consideration is years

accomplish going accomplish happy very we’re in that REIT we’re what to we can the format. So

Crispin Love

that question. you sense for thank my taking and Right makes

Larry Penn

Thank you.

Operator

Credit next Suisse. of comes the from Your question Harter Doug

Unidentified Analyst

on is Josh actually for This Doug.

we the to allowing redeploying Just and during follow-up thinking target in should assets? the run on agency non-core assets of into to uptick how capital outright off that versus process see investments any guys you one Thanks. sales the conversion, expect are about REIT

Larry Penn

Excellent question, thank you.

the on right nail one hit so the yes, second you So on head. the

I know, pools. lot home term, So specified the pools, of our as strategy. we And good a Those buy a Agency mortgage probably RMBS. increase modest think are assets, REIT we in whole you Agency in short have would

yes. So,

see growth. in we I a result year JR would investment we while mentioned as see So income And we share grew I of income our per fact think think that its think adjusted I alluded a little the short do uptick XX% that we don’t net think the this ago. conversion there investment dropping from see to I net our materially a term, and

back So then think little we’re can to of that probably REIT going able normal drop obviously us, And to closer again would the maybe growth to conversion, to to we good anyway. for kind allocation will levels been happen the then not Agency focus or we that more for levels quarters, see all expect after we’ve stabilization that continue I that the assets fill dust major this a more settles and next normal the more of what we be a of on increased to couple but there. as with doing are portfolio

second your – think versus question. you that’s first runoff. So is I selling And was sort it of question

most assets are that we selling So the were about talking of pretty liquid.

lot a about we assets, certain of placeholder the debt talking sometimes CLO example. You’re them these some – for investments, call

REIT January would the quarter mean I be X, under – measured asset XXXX. convert we are at even that rules, earliest that would And end. given the So tests the

satisfy assets. we tests X March to So we basically until on a have have XX conversion, REIT January the under even

assets more look time liquid European portion be that some portfolio. we because the us potentially. to assets that liquid, of again, second really – do pretty there our the would they’re a modest that And runoff, So But a plenty would thing assets more – these are little it’s to gives are of that. some of probably

time think of we for the is And plenty terms sale an so that in most of really they’re issue stuff I have liquid. plenty and of not

or want JR, add to Mark think something you that? I to

Mark Tecotzky

the not REIT think now lower terms seasoned some CLO about like debt; a yielding more good that’s that would I Yes, in a as just say, of a say asset, in we rotation. it asset company we have

rotation CMBS couple them good Many non-Agency deploy of placeholder lot there where that into aren’t debt, out A mortgage sectors assets. are. market; a cash. is we this a them So into so some of of of REIT of

So it sort I incremental portfolio rotation. an more of about think as

Unidentified Analyst

Good guys. thanks

Mark Tecotzky

Thank you.

Operator

of line Bank. of Your Bahamondes Deutsche comes from next question George the

George Bahamondes

Hey good morning.

conversion, Just a conversion quick the REIT how about we process? REIT with think on the associated expenses should

JR Herlihy

with will to fees There JR. They It’s be get associated the costs, through costs be mostly Sure. professional conversion. will conversion. the one-time

In hit one-time of settles quarter, to some Larry reiterate, But kind costs look hundred stabilize of a couple to the as after, this they’d then fact, says, the would costs k. ratios those we us be on and dust conversion. have expense

George Bahamondes

you. me all helpful today that’s Got thank it okay from

JR Herlihy

Thanks.

Operator

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

Tim Hayes

for afternoon questions. Hey guys thanks taking good my

with pay follow-up rules and guess, you are distribution that the that of just conjunction to not a an Just last the, if question, not on profit have Sorry in there. I earnings understanding conversion? do my around

Larry Penn

were assets with election, XXX there analysis So partnership believe through any alluding one-time we’re material take mitigate going would you’re if effect things some mark-to-market preliminary also, be corporation certain that And in on that that a case, of it. little that largely along anything to in looked are given some tax currently be and remember extremely a we to correct. we that analysis we is what on we’re lines. But minor. might we’ve says don’t those currently would any our a our to election and assets that But certain there be similar at But this some that of go subsidiaries.

Tim Hayes

That’s happen Okay. Thanks you the value a really this quarter? at estimate for have that. to point book helpful. explaining And do during

Larry Penn

night. just We have. October We published last

Tim Hayes

Oh, missed I I apologize. it.

Larry Penn

that’s going lot a diluted okay, That’s on. or? And

JR Herlihy

$XX.XX Diluted, of XX/XX. per yes. Fully share diluted as

Larry Penn

That’s favorable sector and extremely book in REIT some which compares the alluded one October call, the in of of to the so on a positive had return where– to economic in – I earlier otherwise. we the think announcements your colleagues month,

Tim Hayes

of And is clarification. strategy more have with at all Understood, where shares to trading thanks XX% book capital usually this you buying value range back for quarter stock much the that attractive you that to kind – then been closer guys? of allocating

Larry Penn

Exactly.

under X.X% X. of price until on blackout $XX.XX average since we’ve we shares, November at been X our a you XXX,XXX period this is, can operating an shares of see in XXb-XX program. as basically yes, were our So automated And through we’ve it Slide I purchased think so call, another

that you as remarked, stock you coincided price-to-book XX% the And date. to correctly XX% drop up pretty price you and that there even our with towards go. in gets that quarter-end And that level. post below So

Tim Hayes

all appreciate Okay the comments.

Larry Penn

you. Thank

Operator

XXXX Conference Third Quarter you may Ellington thank was We Call, disconnect. our for you That question. Earnings participating final in and Financial’s now

Ellington Financial (EFC) 10 Nov 182018 Q3 Earnings call transcript