EFC - Earnings call transcript Q4 2019 | Ellington Financial Inc.

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Ellington Financial Fourth Quarter 2019 Earnings Conference Call. Today's call is being recorded. [Operator Instructions].

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

Jason Frank

you. Thank

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

are not nature. in statements Forward-looking historical

undertakes could XA actual our of report XXXX, subject on this to obligation revise a or variety forward-looking predictions on conference as the statements events described its estimates to of statements during made forward-looking any a XX-K filed As beliefs, result otherwise. are company's whether are of you and under Form future Statements company and as information, of made call, these cause uncertainties differ of from projections. no forward-looking that call or this risks new item results should XX, date annual update future the on March expectations, statements of rely as not to events. Consequently, the and

joined am Officer Officer by our Larry Tecotzky, Mark and call on Investment today Executive Officer; Financial; Ellington EFC. Herlihy, Co-Chief Chief of of JR Penn, Financial Chief the I

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

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

Laurence Penn

Thanks, Jay, and morning, everyone. good

for from consumer mortgage strong a busy and The loan diverse and Ellington in one Financial. was quarter your loan businesses. fourth of time for you productive had a XXXX performance Financial. We thank interest always, As across-the-board and Ellington

second business, our of to origination securitization successfully In the our completed accelerate. And our continues and year in overall. November, we fourth non-QM flow mortgage loan

weakened in significant had back capital there after quarter. benefited allocation had sector strategy particular, excellent that made And agency Our we that also we in an August. from the

which in In garnered capital mortgage both our rare at strong lowest space. was is retail priced the REIT preferred our offering, investors and from credit through raised saw we in inaugural dividend stock that the among sector. rate participation which and institutional offering October, rating, an investment-grade a The

both that hedging, the reflected and record Ellington offering believe management the and credit We of effective disciplined of this risk dynamic and long execution value rating Financial's stability, prudent rightly book leverage. track

mid-November, offering, at that able common and having offerings of We equity preferred in equity weeks. to were a about most the the offering we both In follow-on we such proceeds attractive deployed invest from or the common preferred the levels. completed sized X X proceeds

Turning earnings on to X. presentation, Slide our

portfolios. see in in growth both can and credit double-digit fourth our You quarter the agency

this growth equity facilitated was proceeds our Of from two by course, offerings. the

went those in the residential saw and transition to majority flow all strong quarter, deployment capital very from growth continued our manner. during Looking particular, In of a loan credit robust consumer the portfolios reflecting the but pipelines. portfolio, at diversified invested, the non-QM loan, loan

a pace avoid on common XX%. to we us our drag deployment, core base and our quarter material almost even earnings MBS, which portfolios was sectors points. where to of with We as also entry of the CLOs took deployed agency and advantage our I we tactically CMBS, securities pleased various compelling by of quality a share capital per some capital grew such during enabled equity extremely where

now Slide X. Turning to

was Part some the XXXX of had to quarter, portfolio deployment the to of we during and This as to was can opportunities. XX% in beginning XXXX. bit agency XX% capital a the to still started end the during of tactical of opportunistic unchanged was the higher third response than at the but agency growth allocation that our the agency the allocation MBS with attractive of agency XX% tactical the to compared with You quarter, that see year-end. allocation strategy buying

we've as a an at anticipated was MBS larger conversion, least agency medium byproduct towards short also bias of long in and term. in portfolio calls, previous if the on However, term, not a the discussed the REIT

if strategy addition, emerge agency an we investment as as In a additional source our source view compelling of see we earnings. diversified of liquidity, well as credit opportunities

So portfolios eventually capital overall our I expect smaller continue that over term, will to as a of our strategy grow. do especially loan our the agency long allocation, comprise share

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

JR Herlihy

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

for $X.XX net increased EFC XX.X% income quarter reported earnings quarter or common ended compared million fourth for was net share share, during stock sequentially or XX, $XX the the third per per to declared or $X.XX Total income $X.XX share. share million of $XX.X $XX.X share share dividends Core the to still the per per $X.XX million. in or modest the fourth $XX.X December from was per third interest of the a For quarter XXXX, quarter. but quarter, million million from decrease $XX.X covered which per $X.XX million $XX.X

return per strategy the or income $X.XX share share of in prior or million quarter. million compared to per gross credit credit XXXX for $XX.X income In million X.X%, for credit the gross share, earnings the $X.XX quarter or both full $X.X Slide gross to from economic the excluding between the strategies. attribution of while $X.XX strategy for the strategy $X.X the in agency per turn our capital agency in the $XX.X income and year cases, per quarter, Please the Our generated $X.XX impact share. agency in fourth X generated million was and These raises. and our the fourth of X.X% dilutive or of strategy

in investments realized credit from in increased earnings was to also quarter. mortgage investment business. strategy million. performance loan-related The including $X.X interest quarter. million strong loans portfolio during income rate the favorable residential balance driver our of net driven Strong strategies, several small and non-QM entities by income on fourth the the the unconsolidated the larger balance transition the net portfolio. consumer hedges million several earnings The mortgage loans, $X.X gains mortgage unrealized benefited in resolutions the commercial loan small primary mortgage Net and $XX interest commercial of for loans, portfolio quarter interest We generated credit from in during had and of

also We and from had excellent CLO non-Agency notes RMBS. results

on also realized credit portfolio long and $X.X $X.X the million hedges losses generated activities. unrealized portfolio credit of and The and net losses of on and realized million other net investment unrealized

during net most our credit equity underperformed fourth and quarter. unrealized CLO high-yield led indexes, including For long the on XXXX, the which of portfolio and to hedges realized losses quarter, corporate investment

nonconforming million Also, investment-related generated generated to quarter, November. for portfolio primarily expenses the gains quarter, due quarter, the $X.X related euro-denominated securitization our from $X.X completed RMBS in our RMBS to U.K. portfolio issuance costs up third in this while increased non-QM million our losses. Other to

strategy had and prepayments. noted as tightened million excellent yield generated and the Agency during The Agency was net as in volatility Agency implied performance the gains $X.X Larry unrealized interest as with RMBS earlier, quarter As well net realized as we income actual $X.X moderating strategy million. spreads of fourth low and of

on medium- in our generated quarter interest the Additionally, gains realized and the unrealized and net increase million. of rates $X.X interest during rate hedges long-term

Slide to X. Turning next

portfolio that XX. $X.XX from the by billion can year-end during credit XX% You of to quarter at the about $X.XX September as grew see billion

added opportunistically and the CMBS we the you can secondary of CLO portfolio, size increased to portfolios. our see, consumer we As and loan

in can't grew with quarters, prior of of non-QM the after securitization non-QM Consistent also out We slightly more size chart graphically reversing than you our X the assets consolidation loan purchases new transition offset with because of this the connection of the residential portfolios, our shift during presents loan out portfolio trusts. on the our and although quarter. securitization non-QM portfolio see Slide November that the

you sequentially Agency increased XX, Slide see On the of that our size to XX% $X.XX can approximately portfolio long billion.

pools concentrate rates our long hedge interest protected and prepayment to We holdings specified curve. yield the across continue and

to respectively, compare please borrowings. for debt-to-equity quarter. a end, At debt-to-equity had XX ratio These summary of of prior Next, our we for X.X:X. and to turn quarter X:X X.X:X the ratio total recourse and X.X:X, Slide a of

overall significantly significant And of the balance, we on the offerings. a significant as Although converted our a by investment quarter borrowings recourse driven in equity closing quarter also the our ratio of into added related decline repo of the of also to which, The the declined equity was two result recourse course, over debt-to-equity securitization, during amount borrowings slightly. of securitized leverage larger our debt. term our non-QM increased the portfolios, course nonrecourse

X.XX% in meaningfully during several tightened and declined versus funds quarter as to sectors be X.XX% XX further of the rate tightening declines cost short-term at average in to LIBOR also LIBOR XXXX. spreads as September from financing seem weighted and our Finally,

in $X.X base. from by quarter, million professional driven the our line expectations higher G&A total but the the fees, given $X.X fourth were with prior capital expenses larger up million, otherwise the quarter partly in For

our expense we capital project Going G&A -- larger decline significantly base. forward, with ratio ratio to

Finally, well during was $X.XX $X.X fourth quarter, had taxable per as of value as $XX.XX, At our liabilities. stock subsidiaries book the REIT led of accrued in our offerings. taxable income of as and deferred tax for an preferred of which December dividends quarter the share impact to domestic million common share expenses the tax we our per paid effects fourth income in net included XX, increase the

Mark. Now over to

Mark Tecotzky

raises. the proceeds as from busy a was QX equity our we common JR. Thanks, EFC preferred one and deployed for

the of our XXXX, and by announced the warranted which month. portfolio last over course XX% we a credit fact, steady increase, dividend In grew growth

both real potential housing and wages estate rates constructive in despite very our increase combination mortgage of are mortgage increasing for for low The support and commercial rates modest helping cash home and we We keep the strong in saw XXXX. strategies on to is lend the credit borrowers core flows to prices affordable as valuations. return low residential

service and the are, is to the ratios. our lower we Agency exceptions, portfolio, rents, the ROE with with increasing few MBS generated well mortgage stable combined rising commercial over risk annualized or even rates for for side, In which stable On we or allocated on year a mid-XXs phenomenal coverage quarter XX% debt seeing ROE a based leading capital.

increase by sharp this accordingly have the prepayment in portfolio and surprised rates benefit. not positioned are the to year We

to Slide X. Turning

portfolio see pie REO to securitization that credit our explains percentage grew described for capital. how loans residential can our our non-QM JR You chart. and equity in proportion increase the in the roughly drop the in

chart. by this misled particular be don't So

our ever well than business, grow slow normally Our through over seasonally biggest of workforce residential $XX non-QM volume a XXX largely -- double a mortgage earlier loans. to origination conduct which more December, LendSure's business, in very we XX% LendSure, million LendSure the month bounds. owned LendSure's $XX XXXX. leaps now in December strong. of million volume with year is around of just company That's closed with substantial in subsidiary and was which a is continues month

Thanks, to part, no new past mortgage significant contributor was business our deal, our earnings the non-QM a small to securitization this -- year.

as As tighter We we economies we our better spreads. scale. are benefits the securitizations non-QM, XXXX generally only to we more reaping origination with issued are frequent market X by two XXXX, in are in that issuers finding in volumes opposed and grow the awarded of of debt

Our our increased over from deal the sizes also expenses initial our larger deals. securitization deal benefiting through since fixed have spreading

our benefit Our to additional added securitizing loans we at EFC. future the for Retaining way call November rights EFC by upside exercising the securitizations non-QM was deal great potential the rights profit some reacquired securitizations that a in on significant at XXXX particularly our par call successful on for represent deal. control for these loans and opportunistically a is we our had because of

to portfolio these of are call options. We be a building happy

additional U.S. Meanwhile, see our approaching especially given there, XX loans transition of residential also the been and buying, years. a lot really median is loans currently that we of originators. and homes exploring agreements flow like with purchase growth the age we runway are in seeing we're establishing RTL we've steady We business, RTL

XXXX, potential of the what White he treasury, all GSE have were and allowed the about focused loans higher the about the on patch the there Mission discussions very guarantee The the sees has X rule Fannie Mac just and Calabria, debt-to-income end is notable ratios. reform. which Freddie being QM that some the remains QM policy been head Fannie Mark future GSE the is of Creek FHFA, Towards that with with to example. FHFA House vocal has allowed of patch, --

private a That GSE reform slow be we hard is and the less about and properly GSE that to is private believe under supporting which direction to predict, that Financial. to generate guarantee more public and While we investigate heading confident been securitized that and GSEs to originators process potential whether for do a capital this yes. direction of administration. are this that is timing It's will efficiently incremental loans the that multiyear market, attractive greatly can transformation mortgage resounding that was to Phase answer Ellington advantage hold. opportunity. think the benefit may take X we and capital to EFC tranches position be not are this the to there of retained sponsors is high-quality can The

As projections has space the evidenced, is resulting exiting. year. upgrades first been sector attractive. agency the economics far for been movers very performance growing rating the securitization ratings Credit to why seeing you're than and better non-QM entrants of each sponsors in numerous That's the new and none has

directly GSEs, loans we capital are private Now X. are Phase Phase with the competes X entering is eligible. GSE our securitizing that

result, price a lower adjustments the higher is latest from typically execution. the investor in starting Administration proposal guarantee these included Trump this GSEs with for better the even budget market loan And label Interestingly, than the seeing private LTV execution loans. very loans. The proposal as are to a fees. level supplied We GSE high

that proposal it private enacted, this in where capital As enough growth. the is public and investments. could support more encouraged market source Financial's well such capital is LendSure is private like franchise We our benefit investments attractive. capital be up public believe to area a originate manage will as We take Ellington share set even companies that to as that private there our private both to make in transition believe of in ownership capabilities to

we fourth added portfolio sequentially our quarter CMBS. estate Getting grew our back as real commercial to results,

for we and to happy excited portfolio, have finding proprietary loan again In great be consumer investments, various loan performance attractive our agreements. strong and robust returns which through historically B-piece generated continued us. are our We saw growth loan

not high-yield But CLO investments, without which to portfolio us, created between its resulted for picking big is Agency monetized deep by expertise already we EFC is dislocation cheap to credit-sensitive of and at no indices, which a in in bonds We loss our only up leveraged the parts brings but portfolio our loans saw but and In the well. quarter, XXXX. disconnect The advantage quarter as some an challenges. opportunity. a some portfolios, and of of took MBS team it resources fourth

our our rate Agency outsized as mortgage quarter, Slide our we investments Agency can X, you And on hedges. see This portfolio delivered on returns. money and both made interest

led the of The of originators statements are as changing a in to the fax to moving of market of for are Agency but technology Freddie. or the The to adoption technologies actually well the were to radically more checking guard, borrowers. years price new extent on caught Fannie paper few transformational a the is last this process the positioned has resulting as pools relative been dependency showed bank shedding streamlined returns, origination increase more and interest course, technologies much more off over PBA. EFC summer machines Most mortgage their prepayment for many rate like can electronically. and and market refinancing past coming and these This are in and which specified and tax it, speeds was impact value from participants huge instead

for TBA you we Slide loan lot shorts. of call that portfolio provide on primarily that high-quality effectively can had of On way can see were you Agency XX, all XX, specified a XXXX. this is see Page lot a pools positioned protection. our And that We of

XXXX. to to repricing surges in the sizable So for deliver relative to helped pools in TBA specified of returns response us prepayment

whole the and forward, like positioned, I I Going headed. how is portfolio it's current like where

investment. with estate origination consumer and proprietary channels to continue real us high-quality Our reward

Now back Larry. to

Laurence Penn

of lists base. Financial. conversion, completed and Slide X to a Thanks, trading in indexes. highlights. our breadth successfully the It the REIT of not EFC's REIT the diversity afforded some our triggered also We was treatment transformational Mark. our inclusion for shareholders stock which and gave tax year stock investor only but more Ellington XXXX improved volume favorable several our dividends,

our All of common offering last equity XX% to common months last preferred, both by our through around base equity series of over this XX the capital offerings, enabled and including month. us a grow

raises capital expand high-yielding lowering Our They've expense significantly us projected allowed ratio. our loan pipelines. our are to

net million million originated which $XXX and/or as the loans, as Over XXXX, was acquired residential increase of XXXX was a XX% increase. of of of small XX% transition $XXX course a non-QM to compared downs, loans, we well and balance mortgage commercial pay which

it the stockholders XXXX. EFC all, in XX% Through total return for was

in and grew, dividend, investment X% our covered overall the which earnings dividend that core raise portfolio Our culminated we last steadily announced consistently month.

our we our focused ones. are ample to grow while even return. from January powder same balance assets continuing a we MBS equity dry With new that sheet, in our pipelines, our at play our we to controlling classes. in of or see are to on seeking as along actively pullbacks are loan with critical various loan XXXX, We add time, liquid For Agency lots sources our in common targeted pipelines and proprietary volatility manufacturing increased raise, the asset position on strong proprietary of believe offense

position said, we the to extremely see disciplined we’d preserve in great hedging to and management and book to our protect prepayment we're on on liquidity That and add in to will that now, market where Agency in If driven distressed as always, be example, IO to XX-year light could agency edge high. year MBS of way flirting index be rate even all-time with we X-plus and saw on the mortgage the refinancing for MBA lows, what were well extreme the compared just more our we an For front strategy, right weakness. hit selling rely market, We a Agency is continue including a XXXX. in refinancing value.

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

Operator

[Operator Instructions].

Crédit the Harter of Doug Your with line first Suisse. comes from question

Douglas Harter

How about the raise capital think preferreds in XXXX you equity? successful think you've I appetite your mix just of constructing was and common raised. just obviously, your in you yield or you high curious, sheet, do about further capital the deploying been right balance to when and

Laurence Penn

Larry. think It's mix. the so think with right Yes, versus XX% kind Doug. Starting preferred a common, mix let's I go let me here. Thanks, I of reasonable backwards -- of is

side. Our a on the lot. room up actually preferred us That gives more preferred traded little has a

So preferred doubling I that think, of wouldn't million soon. not would absolutely already, we anytime And think but be that's given -- I something we -- $XXX have there consider. that out we we're that

but terms In we mean, just place, year really X opportunistically, be the our the think -- bunch of Number a for really couple So needs of right? time -- of of ago. things A been And capital sorry, to It's and the weeks that We've those so right needs number we've also same just things raises, we capital level, actually been right? month. be with at been buying to price two, pleased our the investment seen be far. there. tightened I just have obviously, last we sectors need pace, one, right? stock in raised -- have to we as just deployed our at -- selling just -- we've buying this

the capital prior So deployment X was factor. in obviously, that's to little And raise it be a bit a from the the been going than last has raises. slower

the place, for we and another where as need I about price I investment think capital, capital and front the the even opportunities need both seeing we think are stock the both the Before fronts, right be said, in yes. to raise, in

well. it ready be for balance has to, sheet Our as obviously,

Operator

question line Sandler. of Your comes from Crispin Love with next the Piper

Crispin Love

target credit would basis? a leverage And what under your the Xx further, stand-alone was portfolios ratio us is what target forward? be for Agency forward then, remind or guess, you for leverage the and So step a going I just step on just quarter. ratios your Can going a debt-to-equity at

JR Herlihy

This Crispin. Okay. is JR,

securitizations that look nonrecourse, say overall consolidate term number, more we measure well, effectively the So the leverage mark-to-market. of those that we leverage, and all non -- first I'd for at of our we've are probably done recourse all, acute the are overall as GAAP, but in included non-QM important headline

of down tick really having you That's recourse we that X.X saw equity. that I'm on and to sure from focus X.X. So more a measure, function

Agency don't the the depends XX% Agency for agency I necessarily targets think at is have number higher it as end of well, Over some but loan it year between where because where say, they that generate ago. was the products. mentioned into portfolios Larry we we XX that was rotate to it of at it September a that asset than as our time, mix and and on expect credit, was,

naturally on bring the than down ratio to will higher it tends on Agency So much is because be credit. leverage that the leverage

room our lines within would products, we is capital. of I also I calculation risk an would say. the and have And individual on important say, part across-the-board, this

We very rarely draw given shocks. so do And potential for a calls fully line. we margin any save capital or

of keep in But a lot maybe asset lines. Xx, the our So on function think we of going we, And high is be leverage were in general, capacity mix. a recourse. to I at side,

That's on to a Now low X.X. range end, I we're but good think, probably think that's, the about.

Crispin Love

capital very to strong. ROEs putting And then of in And were growth raises? of capital this the would know at higher removing that quarters? growth. recent non-QM you the expect securitizations. strategies Agency, both from into is Okay. some a the part months quarter credit Agency little of or in that faster a Agency is But was credit just work and saw in I to rotate -- the We the And function portfolios coming that growth

Laurence Penn

than risk over allocation up we're and that's any absolutely the we the But and portfolio the the see the as necessarily that long loan you I where I of down the Agency, what's see would to absolutely. to the be the credit. or allocation replace going Agency imagine said mean, term, deployed pipelines Yes, going, I basis that in we're some steadier, to time, into opportunities. that that that my deploy going mortgage right? the think, we within pipelines So taking you dialing of we are And have. basically more currently I rush that a over -- agencies there little we're can't in amount absolutely remarks, to --

as like then in of again, in factor summer So other we we If term, you're absolutely over up saw that's see portfolio right tick late of terms great a the the the where entry I long might see But we the that well. point right? heading. last think year,

Operator

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

Eric Hagen

guys savings quantify that as expense remarks down the your alluded you bringing ratio? just in you've you and to Can opening are about expense capital the raised

Laurence Penn

Yes.

that like, a for it per the value share about G&A in raise capital So over the and was dilutive base example, that's base. did so $X.XX to savings, savings in a We just $X.XX. spreading per we projected book January, share, larger of a but right, perpetual it based larger was that with $X.XX upon capital

we the that make G&A. size, given G&A current sort term, long think us, from raise, of raise, of basically this we're X% was point the of includes the the savings. deployed fee. basis capital in back the dilution raise terms expense already This for at slightly Xs, XXX right? the on our X.X current in And given ratio a prior we ratio, And just ratio great high we that in capital years of So management had below from course,

Eric Hagen

some private even that origination. your guys the mean, to non-QM grow consuming can you just diversify sources I'm High exposure capital larger of other maybe there a provide or mortgage share is you LendSure curious And a you remarks market. capital might guys? gave you could or just Great. the capacity private of how potentially guys about I outgrow Xs. it. concern that bullish Got to

Laurence Penn

exclusive to not We're LendSure.

that some team are right majority LendSure open. already that If very are standards underwriting of we the originators. actually originators we different that we're LendSure, there. we're while couple but confident be. the know these very and other level to companies sure, their bought of and is And to make is from well buying, continuing need we and of we we that to to with So what the with have originators processes non-QM need them addition packages absolutely that in the bought LendSure can vast we are non-QM we some up grow, still at course,

not exclusive are LendSure. absolutely we yes, So to

Eric Hagen

you Okay. in now started how non-QM program? levered about of And kind guys the versus return when this

Laurence Penn

it very very dependent. can rate It's be interesting. It's --

rates that's little arbitrage, which doing the which warehousing As securitizations, a targets the to drop to the double-digit will, the between hits ROE into loans But when the plan. loans of if going frequently, we're of we're sticky. you -- our tends be we're certainly the and doing rate originating at -- now ROE getting actually double-digit It right, absolutely be more into the ROE. comfortably the

So that business in is equity. return we're happy still on with very of terms what projecting

Operator

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

Timothy Hayes

follow-up discussion. a Just on the non-QM

You just mentioned securitizations that of you expect pick to up. the pace

want rate? to? to Just run but looking you're any to looking there's it get run call to get wondering if a don't if I you're quarterly -- to Or target, general just maybe rate in

Laurence Penn

it, have, what are -- for that that's, million if not second we size averaging million, $XXX do if in be, that's January what December, nice half a going X $XX that let's just of now $XX But to at LendSure's look, where call to -- deal. that hopefully, we going That's if say, be. I'm let's that's by can mean, the million. I February or saying then months, more, the say, year, Yes. and

that So the to early we next -- we year could anticipate be is going doing maybe deals, probably the pace of latter quarterly our part our that to But than be certainly, X where frequent is. instead of because X now to get could -- the seems we more before. to right it until Maybe months, year. pace not months or volume be get origination we was

-- been they've LendSure has hiring.

XXX a little a over That workforce I now. in over call, XXX around the their compares on earlier. mentioned we As think, to, year

options now call capabilities. deal other So in And that we and they and given in the that our We simultaneous stuff other in parties our do, a we also deals that originators, earlier. while, have have on that that we exercised kick from also November the was once the November, right? -- pipeline. from buying the in with we're one And

these of all our things So can increase frequency. help

a pretty thereafter. year; two to year, year, year X opposed four hopefully, as at year; looking be maybe we'll to go this a certainly, a soon So and maybe last

Timothy Hayes

Got it.

That's from Okay. originators? pretty you're products credit are the characteristics getting And helpful. LendSure the versus similar other between

Mark Tecotzky

fairly This Yes, are Mark. is similar they each. Yes.

each our find originator different You'll large, by are rates note about. that a pretty LTVs yes, has and a borrower a similar. most bit profile bit little has But niche of little enthusiastic they're and similar. out focused We're that on And is rate in very as -- focused been there. getting the we're to loan-to-value due are highest not and we've on preferences, note part ratio. own

process bit we're think dating of ones process. they value So people credit, that the think see a of a of their it's way about sort sort the select in because us origination selecting that and about that little we're of sort we credit

Timothy Hayes

Okay. some And refi prepayment in activity the earlier you about index. comments then made

how curious in broader trending in pools that that that? context, have recently been And maybe spec light how guess, of just you on pay-ups leverage see there? returns trending I Just and,

Mark Tecotzky

Yes.

you very haven't them. really So seen I QX XX-year think, resilient, go a were roughly is even lot this was They though specified basis -- in pool interesting right? had, of XX volatility note, What rate year because in seen down. a didn't increase the point you've you pay-ups

it. interest a into part to respond pay-ups far big this they've a you've a large that move. to in And QX. So you've mean, bit seen year, of little rate reversed increase I made

as lot is portfolio lot make see we So specified market as responsibility pool those fully we to other our is there offer And characterize There think value. sectors would managers the of priced. of certain we of of distinctions. that a are are what that sort sectors a

year they way So pounding but value. still cheap view they're certainly the not of we relative had pockets of were a sort there's of lots table the ago, of the

Timothy Hayes

context Or maybe comment And XQ if that little a came first 'XX just to in just core that of the to than quarter? higher covered $X.XX far it. you the you me. so but one announced the XQ capital share. easier if the in per to more as at expect earnings you dividend dividend a you when per and idea then earnings where dividends talk about in Okay. of Core relative in the Got where the can raise pretty run on new the level it's investment can? for just of deployment you paid, had decided in quarterly share to good from quarter, activity dividend Seeing a $X.XX January of lower earnings new point, you the and land rate why were

Laurence Penn

Yes. -- Larry. you than deployment think a X only This Thanks. but X deployment or capital we're last few net capital it a bit is raise going -- slower couple did some I obviously, -- time Yes, because, income. as -- and raise, see closing we're attractive also statement. assets. look, appreciation the the through from we going I as GAAP We're the on weeks little book income mark of is I in actually weeks mentioned, mentioned, focused is literally some market to to Look, as just net everything solely to opportunities the everything know, sell value did virtually core. focused on We not market

better absolutely it's where to take I is that something we're the And see things standpoint So the think to point -- known at of one for. when we're we think, that total that's, from opportunity. return a going and sell, we that

So the capital, a -- forward. were it's had and time, to it's our we that dividend be $X.XX that slightly going going exceed period of short we really going raise we been reason quite deploy We would obviously, that projections $X.XX that actually raised to that. When covering that's hopefully to to take do is going the to simple.

$X.XX we in think, that possible And downtick core less versus basis, right, close. a than quarter. comfortably in always you maybe on it raise you're And less, capital $X.XX, saw after core really see saw less right. The capital, quarter was will, but as we very absolutely covering you'll if earnings normalized And the $X.XX slightly xX, -- you the raise which the or to slightly is for so I right, for earnings. a $X.XX $X.XX the the see the

don't a proper raise. think it upon deploying where the philosophy We -- to that based our deployment the that's to size based the way to of size we core not least are. So in recent that's covering quarter, slight at may the on have And current a still drag I fact upon you after core is the dividend see proceeds. comfortably

Operator

comes question Your line JMP the Securities. of Trevor Cranston from next with

Trevor Cranston

the market, But products guys as relationships if lot there opportunities with see originators, in exploring growth to new currently continue and might you non-QM rightfully are loan or a I consider guys other look this sourcing? you're about year have that marketplace at any in stuff the and adding to portfolio curious, opportunity addition was you guys the You talked so. in in and the particular, are

Laurence Penn

the agreements Well, we, flow loan about I the I that There residential RTL, business, flow opportunities is even and agreements fact there. purchase I'll add yes. want have transition to many get too to into exploring specifics. we the we speak, mean, as new say -- the -- necessarily don't answer are talked

all one In been non-QM haven't well, could RTL that whether rental markets, in -- large part it's other or of non-QM loans we be properties, properties. the there's for products single-family market right, these or on example, whether of terribly as really is it's making rental rental -- residential

we're looking more. at investments again, growth, think, so percentage part LendSure's That's but to flow. that's over small always relatively strategic it'll to the the maybe as we're something exploring potentially open, that has time right increase partner. will that of always a well. And increasing -- these I equity it be of these -- and Maybe But

the for lot there promise small lot value it a originators out as of wouldn't And certainly well. for seen a And partnership, I a as flow. investments to open where with that you there be we're investment, want can have increases big where in we potentially relatively of those strategic of great equity it's anything, capture something a to. LendSure, opportunities help we've can small but are

sense, open investments. managers in It's asset large REITS, cases, and industry. I who to up for So -- makes the you I originators the that the done, the see they to to. hybrid some it's of at very have the we're something mortgage And of -- some like look need that some strategic think in some of made, it what's that on and I peers what absolutely some mortgage the you loan REITs going be and that actually right, flow. going with in think if teaming have more our REITs you're of the see can think And and marketplace

Trevor Cranston

or sense. the we you. refinancing just having And activity. That on you your the if part comments does? in of Got the in that, part at point curious, makes was prepared second just Mark, speeds in efficient at of that market changing more space looked were Yes. technology mortgage and mentioned in to adding EFC question. what as of this the something year. If I fast is you impact terms of have and disruption some would market some refinancing MSR see the is guys as consider

Mark Tecotzky

Yes.

I last question. Larry fast last right, good a speeds, refi you've year, and that's came that from print mentioned that would So seen on say I index a very mean, week. July out of high

XXXX. multi-lender prepayment a actually So the similar you've and out of with faster seen The speeds paid you've mortgage some seen pools in rates how a loans little lower. note fast significantly big bit major bottomed than pay rate

MSRs, be Fannie, you hold to of the a those side, licensed things. servicer on In terms to have Freddie

where things a look partnership. could So at in we're we

make agency to impaired can an hedges flows. fit up yes, get cash you bit think you and servicing that derivative the specified we with rights. sense long lot percentage sort need get doing We've is a you've of that servicing of asset But that of -- past, for a generally been because IOs can inverse mortgage There's been with in -- servicing. I big market, has seen of lot in the can what us. close. this portfolio that -- rate a of You gotten and is We've wind certainly better looked replace a for -- IOs some interest mortgage we've your the natural at view space pool the little a

it. we've is So sector to do keep but not anything imminent, I on. explored and now, that right We're eye a our we say anything it's ready wouldn't certainly

Laurence Penn

I MSR in we -- the what showing reverse so could we those are, When all, at going very some look MSRs first it's we I can an to are we see that, Ellington comparing And mean, here and IO have in we're mortgage in relative if higher-yielding to forward at a participant to we IOs. of And value we're -- we about MSRs, portfolios, we're want MSRs MSRs, forward when to just at market. very been and market and big at mortgage be a right? the always I to look IOs, MSR are the in the than some second. always talk comparable look ways, add MSRs mortgage compare IO And there to finance true -- when

question. There's they're they're and expensive finance also also by to But a illiquid. no bit, more quite

the if seen to the for some maybe about But been into to buying there ROE, you So distressed risks all been seen fact IOs, start us compensate ROEs just lot we'll hasn't at again, a if IOs, enough the from of those pickup for the more. and talked as is haven't We haven't more that illiquidity other on we look at MSRs leveraged account. and closely a look on we've -- well. start to things have the where taken that -- And selling, be given leverage buying IOs. we and

I want investment impression in ours. do the though I don't relatively to to asset MSR our investment some reverse we under investment mortgage $XX primary we own own mention Longbridge want tangible an asset give don't the -- Longbridge. small -- MSRs portfolio. company, a through any because hold. It's is But is that million that indirectly their of we

indirectly we very characteristics which normal very attractive, we very reverse to that, a is have but -- exposure a asset -- some class -- do can from be Now can technically do mortgage which the right And has MSRs. class MSRs, that different MSR we but unique asset it's think have. priced a is and portfolio, so be

Operator

next Your line Nomura. Matthew question Howlett comes with the of from

Matthew Howlett

the as completing first REIT. on a Congrats year

of questions. couple a Just

look First, fast. I the real performance at just and touch speeds excellent mean, prepayment quickly. CPRs about speeds are to loans I design? but wanted always returns? that credit-wise, buy we or Or your on hear coming you protected out at find you right in right the non-QM is that or least How much influence them come you guys could do just that

Mark Tecotzky

Mark. big have we it's So It's a here. Matt, effort good So right? question, a research

is universe out available non-QM we data different of growing, loans to with now all insights some the have that right? us which of types prepayment we gave regress involved characteristics non-QM we the getting and that So points securitized So started when and non-QM nice there research certainly model more deals And is what's the model. in you about of effort build about market, a took loans. the

drive differences getting Those You investor a loan of there's function primarily X correctly prepayment properties, prepayment other the component. really are component on mentioned understanding as understanding but these Pricing to the ROE means attributes. things loans see an penalties. prepayment loans we also some right: credit and

we've prepayment worked that our we've pretty I securitizations the speeds come the our on hard speeds. in component. So have close done, for And projected actual say would to

consistent broadly come, least that given expectations the the you've can piece date, focus speeds our the sort a those that our think that data and retain lot non-QM research efforts tend when changes I times And are, our winds prepayment just up we at what to market, that. of of but have helping on So that to seen been change. with

given our as So then quickly hope you pick discipline, if react to some a find opportunities on that -- early is up and may you speeds expectation to is, saw result. we're and even non-QM increase, my my going it --

Matthew Howlett

difference just CLOs, a sense. the corporate mortgages? relative rally. value I value opportunity know continues for think you bit it side. strategy firm your do the strategy makes difference you What's you and of expertise opportunity. the a ton obviously, big it. opportunity what even Is high-yield XXXX? risk on? of corporate going in your and about take a mean, moving that. it. derivatives appreciate sort talk market, I the an talk It record -- about has in The the And Got to the to have track that relative and on, this of what Just And towards the maybe in to some certainly little between in saw mortgages on is you long Appreciate a prepayments. on advantage

Laurence Penn

Yes.

more that's mean, our right, mean, all. of a in a imply is moves REIT want morph after we're it that don't of the on there. corporate company. I going to sort little Just side, I I tactical, the to terms

-- we will So around well. to corporate and the exposure but as that make tactical continue portfolio opportunistic we have the decisions and loan consumer

that did did your have... answer And question? you Or sorry,

Matthew Howlett

a relative corporate you a today, just huge Did risk see on -- mortgages relative a big basis? difference value in

Laurence Penn

why terms a in that of I -- yes, But we're investment-grade think big and we have our do. corporates corporate reason that's not corporate not bonds, we hedges on.

corporates significantly that not market, in use all and mortgage quite the the way, hedging in commercial with portfolio we're we by mortgage market CMBX in actively. our So there at robust do derivative in a there's the -- market -- the particular, a thankfully,

we disposal. at have our tools other So

JR Herlihy

at JR. pretty spreads I this it even investment-grade relative other looks just spreads. I Agency is And corporate Yes. other -- would to hedging that and would add yield those are still tightened vis-à-vis to corporates credit in attractive where Matt, look also instruments. QX, we Agency and after thing relative one

for to respect time. book Agency value the -- at relative the same our look at we'll So with

Laurence Penn

so hedging to not we're... going not hedge But we're Right. with mean, much to corporates. be as I our with agencies --

Matthew Howlett

Right. I see.

Laurence Penn

Yes.

good looking large that at a entry is of the it's just So to that exit universe to more or value relative at this trying get is going this a investment move. maybe ahead to good knowing right, and where what they're decide, hey, point point,

Matthew Howlett

the was last guys know investment-grade I you question rated then deal, today tighter. deal preferred think, And had, I mean, is I X.XX%. Great. market on priced preferred just it. Got the

accretive I how to You've you than got -- look tighter you up And I think mean, if forward? to last something -- on sense of just you're your that sort at any avenue do XX% And massively going do that's said said preferred? be deal? you

Laurence Penn

just, considered promises. size. Yes, think, think don't correlates times, they market was of at Like A lot that is. if our I I you incredible coupon time any I want with fairly it is XX% X.XX% ask people I structure something our think, -- it standard, for look, to what was hey, give the is mean, Yes. said, I reasonable capital cap. especially a

Now at. in if it's it's at call. is absolutely look you yield look would of our terms sub-X% preferred so something we where Yes. Yes, trading, to

I an just absolutely. could very I So capital term, of it looking it's -- structure, long important think think I think part be our

Matthew Howlett

certainly are, right? accretive targeted where yields your And to

Laurence Penn

Yes. Very accretive, absolutely. Absolutely.

Operator

Lee line Cooperman of the Omega from Family comes question with last Your Office.

Leon Cooperman

understand I you what doing. question. guys A are

fee equal times revenue. management under Assets

put you it out distribution. creating the concern can. environment rate may in interest push burden to out like you'd that low stock My much a you're stock as to maintain company the make as you on this difficult is that that more So as

but know capital So comfortable enhanced will to result are talked dividend last all in be XX you're would in ultimately by that the you've raising dividend call, I having reduced and not capital this minutes you the the around the this be that on a raising?

Laurence Penn

that sets, a absolutely, we diverse comfortable, have am product product I in set. the very

handle growing pipelines I the balances, space. we the are consumer RTL, loan Our in the can a leaps and base. example, larger non-QM, am capital in that comfortable for absolutely

I've Of we about said stock to be when where raise opportunistic. is. our course, price capital, we need

not deployment won't our and -- parts a our do If It's we hope next stock we're it's one where other pipelines But We'll I been I XX answering be capital would price time The in We're months, we're question the see accretive. need very our better, raised after portfolio know our where think affirmative. just where that raise. did are. are every what, mentioned the see selling we down, in of better last I'm level. raise. past certainly deploying that. there. barely, a to then comfortable dilutive. We'll just see is. was the we one the But your you a we've barely

Operator

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

You may now disconnect.

Ellington Financial (EFC) 13 Feb 202019 Q4 Earnings call transcript