EFC - Earnings call transcript Q2 2019 | Ellington Financial Inc.

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Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Ellington Financial Second Quarter 2019 Earnings Conference Call. Today's call is being recorded.

At this time all participants have been placed in a listen-only mode. Then the floor will be opened for your questions following the presentation. Instructions] [Operator

my Counsel the may and now Jason over begin. to Corporate Frank, Secretary. pleasure is call turn to It Sir, you

Jason Frank

Thank you.

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

in are not historical nature. statements Forward-looking

on XXXX. under described Item As XX-K XX, on March our Report XA filed Form Annual of

of this call, the variety from no risks made or any otherwise. uncertainties to statements estimates are information, statements a undertakes during Forward-looking revise and update of actual not differ to cause conference as could to obligation or events Statements new and should statements, result future Company's made of this a forward-looking its of and the on you subject whether as future that as expectations, these rely forward-looking predictions projections. are results Company Consequently, events. date call of the beliefs,

I Larry of Penn, and Officer. have Herlihy, our Tecotzky, our Chief me Investment JR Co-Chief today, with Financial; Mark Officer Chief Ellington Executive Financial the call on Officer;

the in our in entirety remarks note presentation our conference release, As is of references their end earnings to presentation. Management's back any at will that the presentation ellingtonfinancial.com. second earnings qualified available by this quarter our described track are press the Please on website, prepared call presentation. in notes figures the

over Larry. With will that, the I turn to now call

Larry Penn

Jay, good everyone. Thanks, and morning,

second with for call On an you of and Financial. the our always, in I'll your interest time quarter. thank start Ellington overview today, As

discuss trends And positioning investment results. going and our portfolio market performance, JR Next, and summarize will financial forward. then outlook our recent Mark our will

questions. some provide your I we'll Finally, to closing comments, the then floor open and will

run our performance core our including, market net contributions again return after all, the X.X% exceeded quarter, economic agency to continued second an generated by credit Financial strong and its diversified earnings both we mark income rate XXXX, annualized of from and dividend driven of Ellington quarter the and through broad-based adjustments. for portfolios,

quarter, our from mortgage benefited the portfolio. and small-balance loans our loans non-agency we During notably residential strong commercial RMBS our mortgage and consumer non-performing from loans, our performance

trading our We portfolio advantage and in excellent performance numerous portfolio. also opportunities, European RMBS of resulting took CMBS in our

agency strategy Our solid for returns also generated quarter. the economic

our We are transition loan from also discuss which contributions a to Mark later. business, growing starting bit more meaningful see in detail will residential

that to with be securitization. quarter are of by same a strategic non-QM extremely very was our that the excited loan in we the equity prospects LendSure. pleased growing non-QM growth our because we another excellent I completion successful time also Our business At the our third portfolio, Financial's in about non-QM have of highlighted for investment portfolio. execution the had non-QM June Ellington securitization, continue

are from remains We expand LendSure's the and as its Company production footprint franchise loan ramp growing production quality and the of benefiting LendSure's value, up continues nationally as excellent. to

loans. patch marketwide announced late growth. the Mae allows or XXXX that let on a QM with enabling strong Consumer that exception got thereafter. access participate regulatory considered Fannie the front, in January industry non-QM on non-QM as Marketwide flow Protection been has Mac XXXX track origination shortly loans, just to Our what a Freddie non-QM steady certain to that volumes. to guarantee are July us would double Financial in so-called Meanwhile, to pipeline is boost volumes otherwise is patch on Bureau and the QM expire agreement it the be LendSure XXXX just the regulatory incredibly loans will The of

represented mortgage point and non-QM now the of sector, at market, role lenders in segment Fannie all especially XXXX, between Mac's and volume. to times January larger signs this Freddie happen specialty private of Mae XX% can a for over which lot a is Well, the

the in capitalize prime that be EFC strength sourcing will its we and believe to LendSure the on position franchise this a capabilities, of Given growth opportunity.

turn in now to presentation. the Please Slide Four

of at mind that that stood You the quarter credit at the keep can this reversing $X.XX in consolidation billion our But the non-QM size end. we after portfolio figure of securitizations. see here out present

consolidated In fact, on grew long by actually a quarter-over-quarter. basis, credit our X% portfolio almost

we we By out assets quarter almost had was full of had earmarked all leverage fairly our for the that end, rotated of non-requalifying and disposition. already

fund portfolio. five need investment years, July, in discuss To of million attractive incoming in many a more remarks. we equity $XX a our raising seeing we and first across raise dollars. result, that detail in in end, my As launched to our capital equity that bit the flow loan our additional I'll found other ourselves capital opportunities the in we're concluding raise

Also on our for challenging a quarter can quarter, see Slide you the portfolio the agency XX% contributed portfolio from that results. positive Four, despite and grew prior assets, agency

conversion, our REIT our the investments to our always with have and we test. Act our additions test agency planned As were help discussed, previously portfolio as REIT both XXXX agency these following

to the us. our agencies on range which the historical As is was upper for capital allocation XX%, June of XXth, end of

have end quarter, especially spreads, which we matched excellent been seen yet in RMBS yield the that offered believe second agency of the value, RMBS tightening. in light the the tightening had corporate spread of Towards agency by we bond

TBA this even and to assets market able our increase yield saw of position we so of spreads were agency RMBS that short the agency view, second we we July. as As net RMBS advantage take didn't were the materially we in adding tightening result quarter, in a

reporting increased from our times was mainly The overall accommodate quarter. increase on see loan Slide last X.X due to times to and borrowings our larger to X GAAP and agency higher our non-QM I You score purposes the overall can larger larger that capital a for portion to ratio debt-to-equity also borrowings Four, portfolio, consolidated utilizes represents allocation are which our now mention holdings, accommodate also which which leverage. RMBS of

our balance sheet. onto securitizations non-QM three consolidate now We

borrowings, so only as times at March end, quarter times increase well securitization modest to was non-QM X.X a financings, our non-recourse these X.X debt-to-equity compared Excluding as at other ratio XXst. as recourse

financial through our for And call JR in turn I'll go quarter results with to that, detail. to the the more over

JR Herlihy

Larry, everyone. morning, Slide turn Please for our of Thanks, statement. income to summary good Six a and

quarter $XX.X the Net compared June $X.XX XX, per million. earnings or from of share entities during the $X.X of $X.XX net per quarter income million million, in quarter. strong to of or income $XX.X EFC ended for million, first investments other of reported unconsolidated income and $X.X XXXX included income $XX.X For share million, second net interest the

tax share expense our share, the was the For or second expenses REIT Core from income quarter. -- expense $XXX,XXX related to earnings for quarter first taxable quarter, million, million an increase or in the subsidiaries. income $X.XX $X.XX income in in $XX.X second was $X.X million, per domestic were taxable $XX.X per

Please we strategic while our as as always portion invested earnings. equity generating mind earnings its does power, like keep limitation, be have loan view it current core core earnings originators certain as of hold capital in as LendSure we that proxy our to a a opposed investments that good and in for will our appreciation, for such assets, capital

does the trading. we much not opportunistic with core earnings of that addition, return our total In capture generate

net share, successful second CMBS income and income, earnings entities of per between In to generated the million were activity from strategy $X.XX generated interest securitization realized net as income and interest for strategy Slide the activity results. $XX.X and $X.X the portfolios. realized agency net million, gross in quarter, from trading came gross million, attribution $X.X million, investments European share. unrealized gains our strategy, loan, credit gains growing residential income loan, in the The while strategy drove the our the Seven net turn agency was of $X.X of non-QM million unrealized earnings the and non-performing $X.XX were credit on in Please majority unconsolidated of total RMBS or details In credit per strategies. and or $XX.X credit

from retained CLOs. While this we in had quarter, Ellington-sponsored investments underperformance

incurred completed of this increased the we and that to investment costs million net $X.X We June. million activities. issuance credit reflecting $X.X Other securitization million, related other non-QM interest $X.X from hedges quarter on in expenses rate hedges for a and primarily loss

agency million. was income net rates interest our strategy, unrealized net and agency realized assets activities income specified on net hedges pool generated partially the $X.X on offset by In interest rate and of of $XX.X our while other million, losses declining totaled This interest gains $XX.X million.

TBAs. pools from expansion of in a result of specified and our increases in mortgage we Additionally, TBAs, the of to of pools, to as on pay-ups as pool the The higher outperformance drivers of were increased long pools the of XXXX. opposed Average key pay-ups to June specified in projected March XX, in continued to contributed X.XX% X.XX% pools actual as XXXX, declining as for specified rates. prepayments, specified form our results, investments compared specified agency to as our concentrate positively XX, pay-ups

trusts. Turning billion, down size Slide more with last back quarter. $X.XX XXth, after next June our of a note here as of as credit prior consistent that Eight. are has was $XXX our securitization to securitization and Larry our from reversing bit potential prior next mentioned, million. But than the to Friday, At warehouse in quarters, about non-QM totals these portfolio The final consolidation out quoted grown XX% loan the the of is non-QM portfolio the the awaiting

of see billion, Slide that long quarter-over-quarter. of you agency our grew $X.X the to can On size Nine, increase portfolio an XX%

end, quarter to and had to X.X our long we X. total for X concentrate of compared These and debt-to-equity to and pools. to At a debt-to-equity specified prior X.X respectively X the prepayment continue quarter. We recourse ratio ratio of holdings protected X.X

equity see X.X quarter, last times can quarter. back As X agency allocated up portfolio you Slide the Five, X.X on debt-to-equity the to to ratio on reached from this

lack we the part here assets As was additional rate in their much times, because of at leverage factoring the that as position, agency TBA utilizing are our the effective of quarter significant is leverage of an our comfortable end we credit hedging lower portfolio. discussed, we on nuance liquidity risk. when short on more interest maintain agency and previously portfolio X.X But

XX. Turning to Slide

pool of show aggregate net XXth. position divided only we short as allocated X the we This X.X our net define at our TBA pools value agency measure equity. net to agency equity assets by to less ratio, June was which Here our market

And portfolio you in at short was our hedging that about interest on Slide and positions of quarter end. rate see XXth, XX% TBAs can

interest the significant agency our portfolio strategy of is and a rate Our a a short factor ways. risk TBAs hedge use to in few distinguishing agency positions in our in portion of

the keeping exposure strategy First, by agency we believe mortgage risk most of that from the REITs. the agency volatility asset and reduces portfolio, our overall than effective earnings the lower

it yield we volatility, increased spreads. avoid specified pool interest hedges. our overall with take advantage to costs to increasing us exposure high times And the enables net rate dislocations associated swap of without during payouts Second, of agency and third, rebalancing

expenses G&A $X.X million million, $X.X total our were For down quarter, first the quarter. second in the from

in $XXX,XXX quarter, further $X.XX book XXth, In anticipate effect June due per At per than mentioned incurred been during do REIT first we value $X.X per have $X.XX included $XX.XX, related less costs previously, and the As the not million REIT material dividends of we G&A the of or which an incurring to additional second second the quarter of elevated costs. conversion. reconversion to paid related share was conversion share costs we to the our of any share approximately quarter.

Mark. over to Now

Mark Tecotzky

JR. Thanks,

quarter for including but credit spreads. S&P but the over for interest for return second volatile, dramatic, The was down X% intra-quarter were moves gained X% also only May. not rates, quarter, in the The

been focus our our adding over quarter. loans For the were past stable portfolio, EFC low much this has more LTV terms related year and real with monthly diversified estate its

dramatically One uncertain stability. more Reserve looming volatility market factors, is to from QX. volatility war shorter-dated exogenous from in like Federal is away coming is Meanwhile, policy. evolution longer-dated This loans into and consequence our of up and mark portfolio picking trade securities

asset like we real end, to our LTV portfolio this on focus assets. through this low way from try volatility loan to investments we One continue inflate To is by to backed selection.

loan real balance again performance return surprisingly, commercial for to not real related QX. So, led were the important estate loans strategies our contributor quarter. in Small the estate an way for our

did grow origination biggest ever its and in to $XX LendSure in a had milestones. continues closed. reach Our June and loans million new non-QM with July platform securitization We deal over in month

back it to continue gratifying continue to we LendSure XXXX a It's the grow. start-up of see in development from multiple operation the very person today. XXX We to to performance ways see is excellent and to see

well capital and more gradually more the EFC toward shrink mortgage that new now of has we Head positioned that the FHFA, GSC the to coming the opportunity. clear statement from Calabria CFPB Mark is private QM, Larry made Meanwhile, years. as about and desire the will take to discussed with And GSC in footprint. of shift market the away earlier, his the advantage think

The and highly that advantageous referred cautiously million our fix-and-flip deals residential been to generate we non-QM at now unlevered business we our ramping we manages has have excellent same as at over commonly up $XX loan Financial very the We financing team attractive have ROEs. Ellington with that and arrangements believe portfolio, invested secured, can transitional steadily together business.

the been opportunity, age long-term the of advantage now filling a this fix-and-flip sector it lot a U.S. about to in, think to pre-crisis. be take This of While up market. the important capital was need is and growing there the significantly creates remodeling XX need. has great that from home The capital median of is for is we tremendous a market and years, where as an raised

not capital on is with construction consumer quarter business, well. borrowers, strong this target which Meanwhile, drove strong in. home to stepping to loan that our our demand with had strategies so pace unique it for partners a wasn't whom returns is we housing, quarter. as want focuses private just keeping loan access New But

significant the in generated selection I'm for equity. And that to against of a very volatility us return proud CMBS, as non-agency focused CMBS. generate positive strategies Our EFC CMBS and quarter such challenging market securities backdrop MBS. was report very strategy returns, a focus on European security it to the agency on agency then allowed

face specified prepayment increasing strong trading the In our the risk. agency, in pools performance a attractive lower focus to of leverage, keys and on with

Of had loans valuations to tranches. our during yield the course, dramatically quarter, high bonds hurting quarter, CLO and we this rated triple-C underperformed our headwinds retained

Our a credit drag hedges small were the also on returns.

portfolio the evolved those call the we the the It of how that Let's JR the of was consequence is just feature that shrank, primarily deals that as great Larry rates looks in like Eight. securitization on look completed. retains the mentioned Slide non-QM at non-QM One a and portfolio EFC deals.

option, that has be can small on are see those which not premium in the EFC what real -- you future, they extremely today. if we So, to can profitable, slide, loans get trading big obligation in portfolio we see can our back the the during underlying can quarter. to commercial like this estate Also are balance but the continue you loans the a portfolio the grow

of in well. to the the looked you swap volatility that available. as see versus add Nine, as some agency versus can Those liquid future higher grew yielding Slide At can that the they attractive become easily investments pools strategy hedge We advantage others in favor unwound trades took of the the less and TBA hedge. be

some We've points and Looking week pull positioning volatility very forward, volatility highs. leads opportunistic. We've often yield in incredible high to seen are portfolio their investments. had compelling July be the past already the X around some we back indices from

the liquid for capital balance a deploy to to investments fix-and-fit loan continue consumer the more those future approach has We proprietary in trade in out loans. of non-QM, invested big as and fund raise small run from EFC short and pipeline loans, we then get equity commercial, our partnerships. and

from less of lot a to invested. capital have pools get competition We other

for We laying have this been years. groundwork

for We this, our to from do that a company. drive with EFC strategic and are takes as believe strategies. because One for value time interest to is it economics many [indiscernible] to the will better growth volatility net great increases commodities equity successive great the strategies the scale. is benefit franchise we example. more volume each get improved of trying a that along more of What that with with the The EFC strategies are shorter is create securitization. the credit investments of rate margin Non-QM inflated always ramp

Now back to Larry.

Larry Penn

very performance this I'm with far Mark. our year. Thanks, so pleased

Earnings of economic to For GAAP per the excess of first our monthly now to return annualized and both half dividend our for XX.X% XXXX, have Core coverage stability and we an delivered $X.XX share, grown earnings. we've providing $X.XX nicely

close of in half, between stock our completed this major inclusion value. indices, triggered our successfully and we improving REIT trading gap course, to ultimately the the our the stock volume helped share book two price Of most our a and in conversion of and first

passive tremendous Market to inclusion the Stock the among visibility us growth Vanguard Russell our the and opportunity investing, the in Index gives index-based our Total in is particularly Given and investors. expand important XXXX

in we heels very the July of in first proceeds have these Deployment achievements, our XXXX. On since of offering $XX raised the going well. million equity is

we investment take attractive are that across capital allowing a As advantage to diversified fresh seeing our opportunities us is portfolio. the of

we Given the we've see opportunities. in to sharp even and risk-off expect the sentiment, week, just past seen better hope

to was excellent have our the we're So, and timing powder. that excited I think dry

we base equity more and on per book also continue trading will accretive share significant value, base investments, projected shareholders. decision investor book a liquidity on our savings high and basis projected that effect issue given believe daily add returns diversify an raises on we our short evident but dilutive stock, capital our our operating the to never from it are of in as share. overall larger average nicely to than seeing on easy term the result equity to stock expense value It's The We volumes. improved helped be per incremental seems earnings us the institutional outweighing race moderate we has to below the

last Finally, to amount discounts at share. substantial I'd to raise ago, of we around repurchased like point five value deep shares our that our out book since have a years per

has been strategy opportunistic. management capital our So,

whatever as At mentioned, and leverage. and protect to pipelines, proprietary book our the on to rather we will securities to sources with offer. our believe the hedging we own value the and same enabling critical to in time, return, to will second portfolios prudent relying we continue forward dynamic strategies are us the markets manufacture which merely continue year, Looking of a Mark loan than of half have on control focus

to the Core here. Given believe our we portfolio, positioned strength Earnings we diversity that well of from and are grow

we'll call with please go ahead. open the questions. now that, Operator, And to your

Operator

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

Steve Delaney

taking congratulations to say Thanks on success Good I the morning, everyone. vision question. for LendSure. have And your and with

Larry Penn

you. Thank

Steve Delaney

you stuck that. glad with So,

well, question from relationship The you product those that does strategic on LendSure first do fix-and-flip. just are the as loans or two? sourcing I'm another be would curious, or

Mark Tecotzky

is This steve. Mark. Hey,

Steve Delaney

Hi, Mark.

Mark Tecotzky

your to question. take going I'm

originators. built out fix-and-flip team So, the with oversees works LendSure team in that and Connecticut with LendSure relationships has that

So, we are not running those LendSure. through settlements

Steve Delaney

Okay. They not. are

your various originators to I'm will, product that desk, just of going the assume you if is with working, So, around country.

not it so sourcing LendSure is So you're doing it, right? elsewhere,

Mark Tecotzky

Yeah. That's LendSure work to about the focused and having keep strictly exactly right. that, We better thought LendSure was management on that at it on non-QM. consensus was

And volume drive management bandwidth non-QM with was non-QM to business They what know, really, do. on you so had feel and that sectors. we additional the wanted don't… to they the additional, Yes, didn't wanted take to really the

Steve Delaney

Sure.

Larry Penn

investment. equity strategic a have currently don't We

Steve Delaney

Got it.

Larry Penn

In fix-and-flip these we of other with… that any doing the lenders are business

Steve Delaney

Okay.

Larry Penn

We're out seriously opportunities those But are at not anything considering there. this precisely.

Steve Delaney

point this less would situation? to fix-and-flip is at time, of what servicing assume complex mention the I And be, in multiples QM opportunity, Right. market not

Larry Penn

really. really. Yeah. Not Not

Steve Delaney

really? Oh

Larry Penn

Yeah.

ramping in than especially, is production You now, this what think, month but do know, could at could up we I business, I you is you us we're non-QM for that bigger that capacity in we've per of I fix-and-flip. But got course, think, look reverse. the right think if

Steve Delaney

Yes.

Larry Penn

months sure. now. could the from You way XX know I'd other be to X could reverse, It for say that

Steve Delaney

versus, know, segue ago is we've year you good large the step dramatically a that's I market players market. QM a mean, [indiscernible] into because, that even different. in way, today seen Well, like the

growth that participants, to impacted structures, more as capital of returns, I'm just how the -- that the enters the space? curious spreads, the entry more is and the market how

Larry Penn

is more capital of that lot market in sort growing two-pronged. true But -- it's it's and terms competition there's of providers. a bounces. think The leaps also I in the

market I growing you think both side demand supply So, that's just side. and the on seeing a the

Steve Delaney

Yes.

Larry Penn

of mentioned, housing in really Mark you're And market. the a regime almost change -- as it's a terms really at

there important I will be as capital think capital this an capital that be much supply that, for in. mentioned, we be -- as market So, they'll us is demand. think just to We increased

market this we really So, the going like forward. prospects of

Steve Delaney

how know, and product or rating seen their much was it they're you have And Or, any XX agencies, six how you is the in -- pretty months? that? like their, haircutting same loans things how retention improvement and that

Larry Penn

are to this plans LendSure We same don't have These with do any shorter. the as we securitize loans. loans the

Steve Delaney

I to I'm referring apologize. was sorry. I non-QM. actually

Larry Penn

Sorry.

if rating more benefit think you the what the are non-QM XXXX I at agencies know, have have performance. the in You XXXX say doing, rating versus, they look agencies was data,

Steve Delaney

Yes.

Larry Penn

Right.

date, structures I first XXXX- the improvement do I of changed but were expect So, agencies when to haven't you But rate really not sufficient data have to the They least rating gradual done there'll capital deals on, they're you the think materially, but these now seen be -- over structures. XXXX. at time severities. starting fairly no, started know, conservative, it default body getting understandably capital some have in get

think competitors originations. So, really it's to really capital lower some when going us, That structures. be have we of focus. about would that at will us aggressive than our of been pools tolerate rate low for And our something little get that. capital we if mean, market, has happen, the the more keep can Right. LTV was and slightly I focus for I if a looked you we know, bit important on lower another the LTVs. And mentioned focus you you non-QM to entering I maybe would guess talk our

us has are been a not LTV seeing origination and higher You some for levels growth that more non-QM area. at

Steve Delaney

very I us the glad before that too bond might that given market hear to telling we a I'm long. have you, and hear that is recession

LTV is your best -- think I for ahead. line both you your go defense. Well, of low thank

Larry Penn

is the of region different right. I country add can too, every that

think, to in in with. factoring start We're you're you the what foreclosing to. XX% mean, in risky, pretty in it's the to we're lend loan going about, of LTV whole we that parts that's costs, practically to you careful loans you pretty the some if originating we're if LTV, and non-QM have people about careful see especially loan, I brokerage country do extend XX% -- So, at a

LTV maximum like So, more LTV lower are of us. to. than risk key the lenders, bit average is and mentioned, other coupon, LTV who is but we we And as our high lot a to clipping Mark taking our think a little than maybe would

Steve Delaney

Great. both your comments. Thank you for

Mark Tecotzky

Thanks, Steve.

Operator

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

Doug Harter

Thanks.

ask want the ultimately about questions to couple how be deployment. will long-term the shorter in? of assets expect take to you to the a do the capital to Just you One, assets, rotation from complete that want long term it targeted

Larry Penn

JR you want to take that?

JR Herlihy

Yes. it. Doug ago it's JR. since Yeah, I where an accomplished this you we've raise on couple don't we're know exact that what the we've timeline a tell and I'll put But weeks week. looking

generating we've of proceeds the the about. So, raise as and from and both been few investing is deliberate volatility Larry opportunities, the days Mark past investment in lots spoke

sense rewarded But we earnings. other on drag a cash hand, market don't in and on like one to patience on want this. is that in sit be So, the have a

So, two considerations. balance those we're to a between strike looking

more investments completed we when pay raise was took, a expensive repo buy of temporary liquid we cash. immediately to some down step first as the and the So, use

then the generate been we And consumer. loan pipelines fix-and-flip commercial, mostly transition non-QM, loans, that's as balanced and flow small buy the and product, the residential

million credit and bit larger. $XX about is quarter since the best has million little portfolio progress that measure the to is, than more by grown So, bigger way end, $XX the agency a

of So, to that of the of the capital as shy rate from is a translates XX% today. deployed little

this about all us should several if to non-QM commercial, close and small Again, loans XX% deployed, to mostly happen closer said, take those that as we're week. balance scheduled. With which set

are pleased pro to capitalize few for we kind week. the where volatility days the those again, dry that on But that's to have powder forma So, this opportunities. opportunities past and the creating, of the we're given

Doug Harter

talk hedging investments markets about kind of wider you kind or if remain liquid of credit And of volatile of can know, -- in on plans, lower short-term kind these the portfolio? thoughts those you know, hedges, from more the case you incremental move here, of or that have you on piece about just then your on,

Larry Penn

pretty where hedging comfortable with credit the we're we've on think I been. side,

If the of you at very quarters, it's look last stable. been couple

hedges. We have shows supplemental section slide that a probably credit in the our

move don't bit. know, moves I around interest expect certainly difference you July. They duration we're will to a low. move coming very On our We've in were hedges. spreads a about around wide in can see July credit don't around big overall disciplined TBA quarter-to-quarter. hedge, hedges, our our So, a tightened our -- -- which But quite bit we keeping from as quite into we rate

Mark, you know, what want spreads point? our of you terms to lot, some liquid agency where, of on hedge mentioned think JR TBA comment you were know, the I obviously at that this investments the mean, in the the here? you

Mark Tecotzky

right? So, increasing move know, and in there's for an waivers. you earn, increasing while, of from about one just call now a the issues with technology been interest GSCs this property you about in Some certainly know, the past thinking week, prepayment really the rates the in we've for spoke on lower changes inspection in we for day some the landscape that

XXXX like behind kind We is this prepayments, us for of thought period of wet time now. XXXX which maybe sort of blanket really to firmly

on But and TBA. opportunities for it think I pools risk think done weighs lot certainly material. it's we what prepayment certainly specified benefits value. is It's So, a It relative here. of is created

And threes You rate know, of now, gains when fives. programs there is and you lot not regime, sort in value a relative be loan that's of that the right. which XXXX, servicers. wasn't difference understanding case big kind There interest and have all much wasn't a really to from of made where are similar, prepayments

trading right market. for risk the in higher, opportunities being the more compensated while this well are is on significant much So, because, very prepayments, you're

on as the nuance attractive a at that, used ups protection. forms They've prepayment that pay finding would most run very be. I current of big to say of stories levels. prepayment But are we We're fans more think sort the So, some as we we're commodities not lot.

Larry Penn

things today, the that performance just a to that environment, and big like of technical out in you this was coupons, environment of fed be data going going with I when dominated see divergence, performance real TVAs an higher What based , the And rate to in times, that a is rates add prepayments. it's the going if low, very a I could different think, fundamental in lot to performance And out got right? you've TVA have come month. rolls, of every by look come factors doing, you're that at on -- you

So, have to market going this to TVA have of going a hedge we terms with, we hedge extent what hedge, coupons great that it's are with to how to are we which flexibility we TVAs. in

and it's hedge to on obviously interest selective let's we still of, We or rate believe swap how along to But terms way an way which rates, do indifference which even we're use believe the various do than a rates position put being better a let's better let's that going than TBAs, interest we're in use. just that to having we down. We swaps in determine short are maintain kind determine up and to moving, by simple can coupons they're much whether gonna use going curve. our points of

Doug Harter

one then last one. And just Great.

dividend how and your Earnings know, Board now kind Core you levels level, dividend the of are exceeding thinking Your you kind forward? about of is going comfortably kind of

Larry Penn

Yeah.

a few exceeded said, you what we the little bit. exactly where we've us, have by months dividend So, now a behind

that might is will be My -- belief is when say and I move dividend belief that couldn't in that going move. I is is next next say when that whenever So, be. my slight the personal a personal couldn't to it upward be. think -- the that But change the the

Operator

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

Crispin Love

Can Core Thanks question. taking keep go expect little guys. you're commented Hi, a $X.XX to that raise in well drag be grow saw to softening you to Or, detail there. Larry, quarter? here. Earnings into equity growing cash near positioned the cause Do more you for you a third EPS that from we rate term? to from should this from run my the there a the quarter core slight

Larry Penn

XX% JR deployed. Yeah. we're Well, as mentioned, already

look So, where big the mid-teens don't being see that at if on comfortably margin ROE. deal. I we're And a investments the you into adding

if perspective. assets, of -- from We earnings, sort those perform, assets, we So, replace sort in that portfolio will. to performance for have producing kept of returns assets to continue total you accretive a be waiting the it perspective from lower some price of should of we a a as bunch are still the ROE non-core to

So, flow replace with where higher we're to we but very as coming in going earning the and where capital. ROEs those then, deploy and that's this, replace we to loan be in, do terms of in we're as we're those selective can rush no we

securitizations come look financing are to The versus other time has higher bigger returns and fix-and-flip things ROE excellent Non-QM, on unlevered in each being a where expect as with equal. ROEs, to our again that's you the mentioned, closer the strategy Mark we all productions, when see costs. at business of that

upward you terms continue as to our the know, be that focus increase. have to of lot a our to think necessarily I to see, just we something a don't flow. continue of it's to that benefits have are incremental But going we we're core. we think going I to be where going just points in every So, it that not will momentum something, on is loan hitting that where think big quarter you're selective is I

we to So, and core the we core assets. as sort continue still are producing, out more rotation but of that portfolio this total returns the assets perspective not as of like some from producing of

Operator

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

Tim Hayes

guys, Most good follow questions. ups for but my been answered, of and taking thanks a here. couple have just Hey, afternoon,

been but of you've buyer And XX% has the and Your stock level. value been stocks that book between off XX% I acting since kind secondary. historically the well announcing today, know of

conversion, REIT the know, has improved. liquidity said, kind the trading you've stock the to following book and closed value you But gap with the you've of

with back curious level? over the of buying XX% if past considered under stock view stock trading slightly book the few changed days just if you with you've or that how So, value, nothing

Larry Penn

there. we don't still especially on we think I target opportunities would think, happened weeks, really great the Yeah, of the in anything's with are buybacks. without will kind We're have what's where of of same even in But couple terms frankly, that, side, seeing the last changed discipline I investment so.

Tim Hayes

then me. one And for more understood. Okay,

your if on other are you've or RMBS strategy. be broad shrinking of have been markets, share I And to wondering there. any kind But just exposure you that's stronger might a seeing find and non-conforming whether highlighted view your attractive? with it types increased European statement. the some UK some peers And Just an of know REIT you returns increase given of you NPLs, would that if room assets there, focus

JR Herlihy

Hi, JR. Tim, It's

some Europe or we been strategies, and also we've incremental has invested, that for have investments returns So, the great in CLO. the whether it's a NPL CBS strategies capital kind RMBS of of a the driver

they for I think test theme strategies across of those common qualify XX% the asset REIT. for is the many don't

don't. most but do, some So,

of So, the effectively say mid-year, as we mentioned, the where to pairing to prepare qualify holding kind down for REIT. it point with reach rotation. done But we've in the been those Larry I'd

back it's relative for across to Europe. value and markets that includes now and looking opportunities So,

but and the a space. some next outcome about lot talked next that think in guess we the point, securitization, that, we I I resecuritizing make good -- is this had very I'd QX, higher loans a on were

P&L that be. was that continues us great So, to a for driver

again, think opportunities. I yeah, Europe for where including relative So, look is we value

Larry Penn

we Yeah, great here in job. Ellington, a team at a done they've London, have

opportunities really, those shows you you We passing to if of comfortably keep do busy. are in very there. pockets But manages never in up know, again, to financial. happy when we're Ellington that now is attractive, really not there we're other those forced can, Ellington Ellington that participate We guys about arise, that of -- think that retests. be reinvigorating sort where Financial portfolio something our capital market, opportunities, know,

think positioned this pursuing time. big really at So, we're nothing But I of moment precise we're to very that in advantage opportunities well there. take there's

Tim Hayes

comments. Appreciate thanks. the Okay,

Larry Penn

Thanks.

Operator

next comes KBW. Hagen from Eric Your line question a with of

Eric Hagen

solid a first year. Thanks. really Good and half of morning the on congrats

Larry Penn

Thanks, Eric.

Eric Hagen

on retaining the non-QM bonds you from strategy? equity from to that that of in LendSure acquisition securitization the is ultimately equity is the expect to balance What loans on return What sheet? return your on

Larry Penn

Yeah.

This course, executing So, by things in JR lot of the affected depends terms of, in be say are I'm is on the that of to I and want to but markets securitization, let at question. it a Larry, where time. answer which up can going where a timing you end

know, of ahead, from go So, you quarter-to-quarter. there's vary JR. can But a variables lot from, that

JR Herlihy

Yeah, few balance Ellington securitize we when loan a of -- a different warehouse are and then Financial, profile. period, and buys so non-QM stage the that different during stages kind Okay. think a from ROE we of on cycle, originates when tranches sheet has I there it our launch retained it and each we and put the

but Larry for say, factoring as variables lots go look we the would mentioned, I mean there, analysis. cycle of whole on I low mid-teens that leverage in, a overall, into

better matures outcome, more there and certainty on a consistent in have certainly lenders securitizations the To risk call, in on So, to kind can the on and the think the more levered more the attracted and exit comfortable the first warehouse loan pricing while market back looking we lines? of think hold in entrants and financing I is, as question it is where return, are new and the kind that what market an originated market the end it earlier repo of on and I we the a make taking are tighter.

spreads over So, two to facilities have years. the last on one better got repo definitely

warehouse the ROE So, process. during helped the that's

June. the Larry at dependent balance market pleased securitization know, them I you the the timing performance our with you the put and trenches, as according moment. kind where And that's mentioned is his the of the on we mid-teens to economics sheet conservatively in levered. that were think, of deal But are third obviously in retained probably going of then The and plan. remarks, And on

So, for to many other the a big we year. we of low get again, to the the can kind cycle mid-teens, how input securitization do is life but

point, June, we last at last the deal as, July we've million back $XXX this years, one in was million year as We mentioned per in So, but the did range. XX in we new done we're at over and the $XXX of of origination. couple did one

mid-teens we we're to opposed the I be of doing a year, if get to low-teens. couple to can deals will So, the think, the point, we as closer where a ROE

Larry Penn

-- one time that mentioned I'll the our first know, deal that you earnings calls we on the this thing Mark just this we've Mark Yeah, is callable, wanted more becomes first mentioned, is in right. first November add it our

was November small now a deal. So, our first first, -- it

$XXX only already below half. to, So, factored million, down think below, it's I slightly

premiums. But, $XX we're talking So, you know, November, million be of maybe down somewhere. into by loans, are we'll trading maybe about we've a loans know, maybe those big amount million, huge you not $XXs got the at

very sell to non-QM something you if in that not many And But have of that's LendSure. away with, and hope of that's has having purchasers ROE we have obviously a is their deal November, we -- call we is there business if purchaser many, that partner real are the are contractual, today right loyal there that fine product, money. our doing could then real. advantages to for that's investment day -- too. we a future. because our selling been that We to that That's in been So, we equity in got count the part as happy don't continue the

Eric Hagen

invested appreciated? today? Or your and kind it's that? actually worth hit you Right. of much how in equity Have you double X guys And what

Larry Penn

not were partnership, used disclose think We don't something when I but… we Yeah, to a that that's -- we disclose. we

JR Herlihy

end year than It double. it is is more

Eric Hagen

double. than More

Okay.

Larry Penn

but yeah. end, year then of As

Eric Hagen

Got it. That's helpful. guys. Thank you

Operator

call. and this concludes conference today's Ladies gentlemen,

disconnect. may You now

Ellington Financial (EFC) 6 Aug 192019 Q2 Earnings call transcript