EFC - Earnings call transcript Q3 2020 | Ellington Financial Inc.

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Operator

Good morning, ladies and gentlemen, thank you for standing by, and welcome to the Ellington Financial Third Quarter 2020 Earnings Conference Call. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. [Operator Instructions]. pleasure General the Counsel my Jason over now Deputy Frank, and is to call turn to It Secretary. Sir, you may begin.

Jason Frank

Thank you.

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

nature. Forward-looking statements are not historical in

information, during of undertakes this call events. of whether Herlihy, future conference XXXX, on should are Part Larry the of forward-looking of March As subject this Annual Report as of to a months company's not obligation forward-looking Chief XA filed statements no item rely and X XX-K variety under and as and made XA of its any EFC. Officer a call, future three or our quarterly cause on to Ellington and results Form estimates am result update I Statements of forward-looking from Investment of Co-Chief Mark March on Chief JR Penn, Financial under Financial; XX, Tecotzky, Officer EFC; Executive on differ these risks XXXX, today described Form XX, statements predictions call the report XX-Q are our item actual revise on beliefs, statements and for of ended events date the made as could Officer you otherwise. new the the or company uncertainties by Consequently, that joined expectations, to of period projections.

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

Larry Penn

everyone. morning, good Thanks, Jay, and

As Ellington from thank in excellent you Ellington Financial. all we always, and performance benefited of strategies. time strong virtually another interest had as Financial across for your quarter, our

here. see economic net per can week, Board this on back earnings X.X%. quarterly our entire power, of share, and non-annualized we return our you As increased X, should of from to room investment dividend exceeds our ample growth our we core this $X.XX our significantly of still income per still were time core in loans, share XX%. a kept levels the able our we and conservative rate, Despite this Earlier $X.XX monthly current year, book still quarter. second this throughout Slide normal earnings share, overall activity our value earnings portfolio, but quarter, the non-QM additional per of light And positioning, mostly methodically comfortably and With dividend have by to relatively the credit dividend grew higher low. for for this time we this new core grow that past quarter, earnings in we given run leverage third generated

still RMBS middle our wave. massive that withstand where on around investment uncertainty and market new opportunities, well in high agency enable stimulus continuing sensitive economic believe of in leverage and we balances lower capitalize whether to to us pandemic, prepayment position credit the shocks Given us a fiscal the with additional the we're and recovery, cash the or sectors any grappling in

part positive benefited portfolio higher often our tightening, from quarter spread now quarter would in generated their During continuing continued has strong while nice our loan for our I'd had this note. the year. Meanwhile, growth of were ROEs, businesses. reinvestment some securities Longbridge of excellent a on return Financial's return like a on capital is September. very originators, strength focus credit results performance and redeployment, most to equity origination in solid producing at quickly performance a investments loan our portfolios its our resilient agency which and Ellington the notably I yields, on Financial, loan quarter, quarter most another today portfolios third continued and through boosted to performance, portfolio, another our again With year-to-date strategic the of strategy from strong basis by this

All such investment achieved post-COVID be securitization emerged attractive this originations the loan our business any be pipeline October product of expect job consumer LendSure October because for and fact, loan discussed As requirement and we've continues driver second Ellington restarting important an continues monthly financing risk of business calls, was and This in Meanwhile, demand principal volatility. it securitization. performance has spread loans of the market of COVID. Ellington borrowers generate strong million to the for in yet originator, excellent closed successfully returns provides of this add COVID-XX this LendSure liquidity originators, after also $XX payments, new interrupted mortgage amidst year, will loan we temporarily production the tightest drawn in without by third year, our the its share. on continue volume LendSure has generated record done year. LendSure's securitization to to a economic an our market and September past loan space. the of right has to the and production LendSure. pandemic-related the weathered week, levels before extraordinary borrower Financial in earnings a position And has volatility The reverse exceeded three origination non-QM loans, earlier surged fact, this interest the for us. Last a month Financial another Ellington for stress turmoil to Financial. adjusted production has these in the we strategic one and in non-QM entire

in we've channels years. decade benefit strong investments in mortgage of the our using joint many the originate than at space loans has own And several developed from NPLs and loan our active reliable loan bridge balance more of to three the now. sourcing small sourcing these source Financial originators, addition here ventures and of In we many Ellington for We Ellington. Ellington and directly in origination successful been commercial and teams sector commercial mortgage a our over out

residential for loan Financial, loans, business space. Ellington We channels well-established agreements primary as that originators as well they consumer our at two also least for with origination believe transition reasons. differentiator for are proprietary We the key flow have other a array loan critical our of for pipelines and is in

franchise proprietary control our the And high foremost, reason partners have to out are Ellington we've highlighting will modeling trading think than not there's analytics. driver capital and We apply our originate. flow what pipelines believe undervaluing First the and sector why originators to passively been Several investments our of build loan months, our quality public clear therefore time, goal There's And through earnings return, are criteria originators companies help in and the that past value tremendous Financial. pipelines. represents pipelines. Over public at flow recent only a also in the to the these core key our with to has rather specifically is market of that steady income One time, our is But broaden final originator stock trading. our designed second look loan have markets where sources to been own statement. valuations. stock. And the our do and the to investments premium us these of to our loan our upside they loans to synergies, strengths shape I'm loans loan core provide manufacture and originators coming loan over these data accepting that those pipelines originator significant including and investments. our to the value fair that recently recognize you we it's underwriting and price, have EFC enable Ellington is Ellington's Financial. of investments the that continue our originators. at a But the analytics for loan made of a EFC also note investments and that this of we offer. for going secondary at And loan rates, help same mortgage portfolio to our We on a years. market if into that very significant growth few gone the we represent of I growth will a leverage pipelines forward. At EFC's believe mortgage The drive but premium

that P&L our earnings. GAAP any for reflected in they So is us generate

earnings by be these value done these book since core in tailwind not the way, is if continue loan appreciations earnings, quarter per the However, covering Therefore, investments significant our investments were we've to can on reporting we share. earnings. we a started and core core EPS, our to originator every appreciation our with dividends able as on the captured

Before to anticipation to I continuing turn opportunities, extend to and only that low JR, plentiful the call I'd are our also in improve of over we're of we not also leverage keeping highlight investment sources like financing.

securitization, and added It we But and of important unsecured JR securitizations other borrowing closed the financing sixth securitization consumer facility lower our where locked all These securitization non-mark-to-market balance with securitization that for in not bank discuss non-mark-to-market financing. loans. cost shorter lowered those past that, the to other used financial priced we terms significantly then quarter, financing pass generally lately, financing long-term residential rate become and And strategies. third costs, only loan commonplace, have we non-QM repo coming just borrow of I'll while the margining results another the it our quarter costs During our With weeks, to more mark-to-market additional bank even disadvantages especially detail. in be of also terms. two our lower it's to of affording of provides term, that than within They are the provided also sectors, to sheet. securitizations third in to serious financing. market advantages repo have add lines and borrowings relative types a

JR Herlihy

see where Staying of Thanks, our morning, Larry, good a third and everyone. you Slide summary on results. quarter X, can

income quarter quarter as Financial and and common of declared earnings as Ellington per share. the per for core $X.XX of earnings to the to earnings share. share new $X.XX core September $X.XX share, exceeded per per rate per net run well reported XX, For of income the second results dividends quarterly our quarter. share of $X.XX of dividend of These share core per net ended during GAAP compare $X.XX comfortably $X.XX

to turn Slide strategies. attribution earnings please Next, X agency between and of our credit the for

the in quarter, credit by a compare These the share. net total portfolio to gross strategy quarter interest profit increased our strategy during per share, contributed had strategies while lower credit quarter-over-quarter CLO, improve During Net financing realized strategy credit agency we in RMBS strategy per the agency income per $X.XX gross non-QM $X.XX the our increased of unrealized the driven liquidity to and portfolio the non-agency Each a in our and those the $X.XX per and $X.XX significant of markets. costs. credit share a of third for quarter. generated in in generated prior and CMBS, total profit to gains. continued Prices results. holdings as loans, positively also And larger share

principal In mortgage loan small loan, experienced well mortgage significant portfolios and residential balance repayments. the and addition transition consumer loan, commercial each performed

portfolios of the those than coming we XX% on these portfolios, principal repayments the from proceeds of quarter. received During loan more million $XXX represented into the third size aggregate which quarter, of about

as the Finally, hedges sole quarter strong loan detractor many discussed, performance quarter. strong originators. we quarter results from from from The by this the in results also investments of credit Larry our driven the in credit sectors benefited extremely were for

another average prepayments specified quarter. during Overall quarter this again further declined protected which pool of Our from strong and during pools had the performance, slightly the the specified our expected income low prepayment specified actual quarter-over-quarter. specified strong by pools because mortgage actually decrease downward. skewed in pools, quarter But pay-ups purchases agency occurred our interest primarily and only rates pay-ups net strategy our were as and increased driven performance declined rose

also increased we held-for-investment, These of which we quarter, in Reserve performed well current activity. concentrated TBAs by purchasing Federal production. the investments driven our During long holdings coupon

purchases the XX. at $X.X Turning RMBS. portfolio by increase long size was XX% non-QM can and next credit to September credit single-family mainly as to of our see well portfolio increased the quarter that Slide loan by X, in of in The originations, billion CMBS third the driven approximately as you rental

quarter. because harder shrinked growth several purchases the the the of this and we are but REO commercial and to see can is had CMBS loan resolutions residential have to largest loans in sales at the in commercial loans loans we RMBS sequentially, portfolio our rental at will balance XX. slices. strategy paid than we here because in and non-QM You I of small new or quarter originations REO impact note that single offsetting smaller September slice the while balance it third family two the completely in end, both on Commercial slice, also par. the off slide, the mortgage today pick-up successful was see down CMBS seen in small of same also Investments that SBC Overall, and subsequent paydowns had paid And

originations our we've we've been been new pre-COVID receiving as Importantly, as the in higher able paydowns, reinvest origination. capital SBC to these compared to at yields

relative credit quarter-over-quarter driven you of that the portfolio in our portfolio paydowns. order can latest in our significant see year, to You enhance slide the completion On final to and on position. response lower on the non-QM quarter, that is reduce liquidity decreased this XX. portfolio with note by caused of volatility COVID-XX, you A loan also consumer which that leverage strategically can we we the our October, mentioned. last overall that with see loan of low, our that the a see Slide kept spread of as size we're portfolio agency by replenishing agency Larry has portfolio on our leverage the this portfolio kept small securitization the September week, X, Slide relatively this ratios can which LendSure has record quickly production to reaching XX Earlier level decreased in

Our ratio unsettled to XX X for XX, X.X as both of adjusting purchases and and September sales. was debt-to-equity June

financing, X below ratio partially by unsettled non-recourse recourse related loan borrowings pre-pandemic remains non-QM our recourse below recent X.X Our in non-recourse by debt-to-equity adjusted for of also driven X.X The borrowings XX. The ratio to debt-to-equity recourse that as our holdings, quarter-over-quarter converted securitizations borrowings. to was debt-to-equity which levels. certain increased recourse more into sales in $XX offset term of larger ratio, than our purchases and reductions non-QM million X recourse to from to well reduced increase to X increased X.X October

of decreased September significantly quarter XX. the Our to XX X.X% at June third from weighted average cost in funds at X.XX%

As At our $XXX assets million, cash based higher repo other $XXX borrowing of million, them quarter of end, priced which relative matured, remained to cost we had current older have elevated with unencumbered cash we've cost repo and replaced with rates. on equivalents approximately pre-COVID approximately borrowings borrowings periods. lower along

per the in the expenses the $X.XX, in For third the were up $X.XX share from non-QM quarter, our costs $X.XX from Other but investment-related that to not incurred total due issuance second mainly to decreased securitization G&A share $X.XX, in third we prior-quarter. expenses quarter-over-quarter quarter. slightly per quarter,

tax related investments in due third increase TRS. million, expense primarily the on in tax income held we For a quarter, liabilities of deferred accrued unrealized to gains domestic $X.X an to

$XX.XX the second at up our from X% Finally, XX value end common the quarter. at September per $XX.XX, share was book of

to, Mark. over Now,

Mark Tecotzky

non-QM investments. yielding really student the that impact with turning far post-COVID. and of X.X% economic in core return to so its lodging see before origination dividend. paid holdings given others also grew certainly that annualized our and movers which machine we're our discipline, had return, growth, and on affected XX% excess early finding persistent earnings off. by of underwriting adjusted We've the COVID LendSure almost We glad excellent an was most JR. sectors but avoiding with well of XX%. one our high decision we portfolio equates of We many as Thanks, origination housing, even has back quarter to like non-annualized With credit were another in I

volumes never which LendSure's March. platform. a exceeding from mentioned, I Larry now too. would this predicted levels, assets are economics The strong better have the pre-COVID are on the Larry also materially EFC but origination gets execution before, in securitization origination double and mentioned back the now As on dip

non-QM in we're loans, the a board across we coupon; high market. is stake a high with have performance Credit the originator. finance earnings a of through core profitable sizable long-term both year. secondly, benefit them our benefits strong And drive we that quality this First, mortgage securitization on prospects and equity saw But us. and portfolio. We to forbearance, consumer credit focused performance for both CARES Act the enacted substantial of stimulus how affect from broad-based and will further very consumer the earlier

continue entering forbearance underwriting and we're plan, Now a Despite for for actually enhanced all markets commercial lend of us. against. but April seeing where slowed. virus period the mortgage to more six-month loan and interesting unemployment critical are that some is time been are exiting is in many resolutions, business, small March our benefits functioning quickly, We have opportunities spreading borrowers as we getting it well. mortgage discipline Take weren't balanced reduced, loan market example,

loans did we the were we as those. our some of refinanced properties quarter also of and and took advantage attractive debt we lending was seeing find more even saw As progressed, second But that we opportunities payoff sold. began

and loans like getting flow us grow is new This feels normalcy to financing. to we seeing recycle capital. are return business for a of it is usual, our looking paid-off, portfolio allowing our Now are steady and properties

off commercial two or JR October. our mentioned, paid actually As paid largest positions down during

good. I expect where portfolio those forbearance, exit in many consumer Excluding housing borrowers take since growth has has the had to situations, Spring. And our well-positioned was performance have resume this Everybody performance and loan great knows portfolio. remained to very EFC that in two advantage.

both things our we in gains and NPL, RPL credit. realized find like this continue unrealized securities resi did portfolio, as non-agency we and generated quarter, Our to

our on portfolio how Slide X. this quarter at look evolved Let's credit

capital strategy we unemployment loans. sector. which new new investment because loans every the we debt. loans, we found mortgage in CARES faster loan we're somewhat consumer cash securities, than than and busy. the had and with BP's, cash of more sold CMBS to given we normal a of our loans benefits, originated One non-intuitive a we loans, purchased returned new Act strategy, was that grade there's at acquired so down enhanced to consumers used bought a bonds, most a that pay net pace spans many BP's investment, and down pay-off, In effect themselves The definitely growth of activity was lot While essentially paid they non-QM, commercial side extra

pay So in our been downs consumer quickly loan have coming on portfolio.

not mortgage our be they how I'm repo ago. The term lot capital share months But both. our allow is of and how our but of pretty in close. there's our One that to CMBS make higher. just market below sure now measure We the guessed market six in prices I non-QM repo, there, securitization to levels estate this that where XXXX. securitizations even competitors, real to recent exercising by mark-to-market would going represented we've mentioned now. loans that's fewer market portfolio. pool the did a be it Larry that at to It's costs a right scientifically, are that in up. securitized market I'm the about market. inherent just avoid shortage provide calling to Everybody loves pricing historically Another headaches is new be the of that flowing to with had commercial or hard superior is half their point have originations case current wouldn't to We below well closed non-term true. acquire open. reacquired the our of result deal hate is potentially resolutions done very no issue seems sure risks relative but advantage if it's additional future deal to loan wide in our by us securitizations, in

invest analytic finding credit and proprietary to limited we sectors. the high high of team, of commercial exposure mortgage expertise and affected with have, levels tools the we're lots to great both So enhancement our assets in given yielding opportunities credit COVID

drove protected be another had performed pools, long well in agency which agency assets and our portfolio portfolio our results these continued CMBS strategy. agent specified their prepayment Our strong quarter, concentrated relative hedges, in to to

benefited so, rest the the the in know Fed's were wave Larry our middle are priced to current of rolls rate significant to the a lower possible. and costs increase and mentioned to we dynamic XXXX, despite the the purchasing modeling, financing already hedging. to maintained We prepayment Thinking got TBAs, activity. by and our close the long in by and that doing to use whenever the year we're for our October also strong we in what speeds policy? We highs. next What participants mean our We're that of additional borrowing term fourth GSE market securitization what from and housing refinancing that consumer continue interest position continue out market dollar will Front bonds in securitization loan coupon origination is driven once at will the about want GSEs how who impact multiyear hoping. We stimulus? prepayment we asset right minds prepayment center from and be, just President And levels, the reform. record believe some now selection for well outperform quarter. and report the the equipped that will mean that will record will

research-driven give advantage that LTV diversity portfolio. us in new We of the strategies excited positioning low and EFC created. arrangements sourcing a opportunities high our to approach, flow inevitably loans advantage our origination partnerships big our we're take to be of will quality, believe properly about credit that Given and

Larry. Now back to

Larry Penn

you I'm underway in or pleased fully the shined. not the book see and and the management the this quarter now XX% from agency of as portfolio areas fired $XX Mark. year-to-date. Thanks all almost quarter. just and quarter Ellington protect Financial risk with we've to on But time importance where value refinancing credit and our be in uncertainty Slide losses of Ellington has the can Financial third wave third management liquidity The in the and cylinders underscore first and XX, in performance very to RMBS ongoing complacent. is that's economic but million, all our recovered on earnings

unmatched economic among its of XX, in peer EFC stability is the As you returns. on its can see Slide group

the financing, protecting achieved strongly stable be through to credit portfolio, on levels, We rate always, new with interest And aligned in our management of a These to diversified and continue EFC. prudent stability hedging. our disciplined value being opportunities. sources capitalize in hedging, and book position with leverage opportunistic principles shareholders remains significant as have critical in co-investment

to continue objective beyond, our look grow, and is primary we our and to loan to business XXXX As broaden refine capabilities. origination

So catalysts our stock manufacture continue of these stability even of well and I to believe for we key greater our as growth of businesses control can own the continued are to return sources that an degree. our the and for price, book as earnings. value

the floor listening to and healthy we circumstances I Ellington the Before And we'll past the call months stay questions. work team the we hard with family thank questions, go for safe. like on open call your and that would of open difficult the Operator, despite hope those and for you that, few please to today, your now ahead. to the entire all over their

Operator

from [Operator you. JMP of comes first Trevor Instructions]. your Cranston And question Thank Securities.

Trevor Cranston

thanks. Hey,

it's one of things that coupon end Looking I noticed X.X%, seems up stable was around at the from the like from securitization which loan October, pre-COVID. the where were still pretty thing is

on I more you loan are than you could guys new you type talk where have So if loans it since coupon loans, versus that on, March obviously means of higher sustainable, if significantly generally, you that spreads was. of characteristics and is Seriously, Thanks. other agency is how purchasing. can comment about, think loan mean sort evolved these

Mark Tecotzky

take to me want Larry? that, you Do

Larry Penn

Absolutely.

Mark Tecotzky

Sure.

a Trevor. question, that's great So

to certainly right. come down, rates going note think I are

came that was the half loans securitization, in the So post-COVID, interesting, that mentioned deal originated a the that loans were script, price because we did from the we about half loans called, we right. one just XXXX

buying And we price. started securitization of after March. loans them one to were right the we first post-COVID start So originating for originators any before again

So you we pricing note had of post-COVID a loans of that power. in had that mentioned as were rate loans, fair about a securitization bit The X.XX%.

at two bond about the recent me text, note on in right in note in XXXX loans comments; AAA the you to But those we've deal had exactly interesting was the the if called X.X%. prepared securitizations, X.XX%. note that at the I AAA the this this look alluded same X%. is almost about from a deal, the on was XXXX So bond rate The deal rate was to

still were same debt but able keep note you the have of costs. hundreds points, So rate, to lower basis

when were I of X.XX%, post-COVID The that space the there had it rate right. more it's competitive were May, not that But say certainly originating as that, it do originations those was note we isn't than a loans, lot think competitors, So in pre-COVID. to right. what was, with being on even as competitive

So the given can down down. lot. note securitization But they rates come I come will think execution, a

Now, in they're were terms they LTV, pre-COVID. what materially of the other than not different attributes, credit score,

So same. I think those attributes will the stay

room I absolutely come they have are think But coming the down the note rates down. to given securitization execution.

Larry Penn

obviously. broaden the LendSure now, for But is suite it's could focused near If focused future. I which actually may its that in very that, add is non-QM it one pretty more non-QM. And on to thanks on thing, Mark, been now, product

are to back of their shifted there. more rates basically Some are agencies focus its competitors given where

was as basis, for the And not as with in competing of so that's created a much on it originators that some really other before. day-to-day LendSure it's a tailwind

also So as well. that's helping pricing power,

phenomenon been that's think to for yes. going a while, I continue So a that's little

it's So good, just for a space in be us really good now. right to

purchase they the As I attractive rates. going still product, rates interest down; even margins said, if versus where we net continue last that we're looking to is extremely to going think were slightly are low, year, to are trend at really lower example. for note be as rates obviously come Mark But

Trevor Cranston

sectors loan up. there's got most Can you you activity in color mentioned what particular anywhere are Okay, the provide guys it. That's very avoiding terms originations? in new originations in of SBC helpful. you then picking some guys also seeing if the Thanks. And more and that you're

Larry Penn

that Mark, seeing to supplement and a that lot we're the I spots. business pick can normalcy. now you probably as you We choose activity more think as just went -- we fit, our handle back quarter in can really both we see mentioned third

distressed more sectors, no I question of we start away. COVID think forbearance to that as and that past get there's some the go in

when more is seen to And loan these business, be we obviously going But for the obviously, turnover talking to a specialty loans, I those of going see have business, COVID. on it we about recovering was to sector we're now, you're going much of sectors. trading pick challenged given what's bridge really some you're of loan still specialty pre-COVID, more multifamily there's really loans, And and our and happened saw still than than from to as But think the permanent really that you multifamily a overheated. was are better sectors non-performing properties. basis, bridge non-performing of just other lenders, up given really because that, see talking it's so lending about

see forward bonds; that going market. the sectors to what think versus seeing It's, we're But only we're -- we're some actually originations of before. there's there prices, quite long-term, like to the continue bad looking I see there's I said, increased to no all different bad right.

So LTV-focused, tended liens stay, only. first well we're we've to very

you definitely past see properties distressed to open of see all of on compromise we're in terms do our focused to add disclosures, standards LTV, so the Mark, on first-liens, seeing many be our more -- in sectors. there. you But different As where we you to we're focused going in can can we anything? going as not want

Mark Tecotzky

choosier, -- say of multi-families. you sort beginning, COVID that, I And that mostly for really that market, been right. open business in all the just be we throughout would in chose could because we've

into for else the space, I people other better time vaccine more be to now of are no over like thing that us enter get by timing sectors on predictive to COVID, heals COVID. sectors given it'll virus, the that anything impacted market and the the go and of is least that, powers have that impacted we anyone as than prudent tougher. But think by for the path are

If you look then them at of sort those just scenarios. you very onerous underwrite properties, to

them calendar the a multispace good but of underwrite for we into, no, little to so sectors real into been more the more the tend a things COVID hasn't been yes, now scenarios, a we far, you really XXXX, right in for And to -- unless when bit good going margins haven't to are Spreads competitive. once think here, of sectors turn like that these can that change the has us healthy affected there. from we us. But there lot activity now. change. we draconian lot We But be were expect

So we putting are money to on more work. focused

Operator

Thank you.

next question of Doug Harter from is Credit Suisse. Our

Josh Bolton

is this guys, for Hey, taking question. Doug. Josh Thanks on for the

the versus Just you portfolio? allocation thinking we're that seeing agency equity TBAs specifically the of context segment, fit that into attractiveness fits pools given in how the And how to about Thanks. incremental TBA going the the thinking in deployment in market of how the overall, currently, about overall the are strategy the it capital, forward?

Larry Penn

Hey, me you then Mark and let specifically if could just on TBAs. finish start

post-COVID. we've way the the have to that credit just to advantage agency that In lower to allocation, us that for best kept the terms to take liquidity in of opportunities We other want is have that sectors. think of be we and able

general allocation. just just general So, with -- start a a

going out definitely we're allocations continues the Mark portfolio want favor market? to TBA specifically talk stage. do to grow, that over over credit to -- about the you As

Mark Tecotzky

post-COVID, TBA telegraphed and the lot the really program. positioning purchase has and a like of large, a of helped so people Yes, EFC We Fed right. Sure. consistent, well recognize lot our in importance

had had we've exposure rolls lot the of a the the QX. in coupons side that that So helped TBA balance sheet, long to strong on have and

which to we've blazing is the we've these beyond in of cost our part rolls the other the short of has been involved don't as you've done, which actually hedging, had the been zero, the Fed seen, TBAs, where think hedging I levels in people successful right. have Feds equally positions being do, thing in that not many is able that pushed below just fast one numbers, we've get way that's to roll the right. which And negative on speeds The

higher So coupon EFC pools. with expiry years, TBAs specified in positions in rolls, ways for rolls, the from is our the also positions hedged long the some short negative which has we've of TBAs of one benefited but with that

ROEs doing do. now know it's not the are healthy in right think But, what agency Fed I market. they're enough is enough what the going to to know now; it's to

was lagged, there the So the what really to in different Fed to from did when if that that Fed the Fed buy, that, to to and collapsed, was went at lagged, its XX-year coupon Xs. price third reason Fannie collapsed. TBA, being it one it was you right, coupons buying that look -- a it used a a and roll coupon And it happened quarter, its

of it's you the caught and a on position wrong up Fed’s in if changes are strategy the it it you're gone if healthy a side but And bulletproof changes, roll. a TBA, because not it significant price a right. So holding shopping incrementally, had where list, has that what's the Fed, lot, that, the changes, on a it

All see of Fed you're going a that and sudden, buying the balloon reverse. if to prices the stops deflates

It's healthy markets. like And us. of was don't a view as earnings see it quarter, for of in one but else portion been have several us, now -- it companies for we obviously, anything successful tools it So and portfolio. returns. right. we I this I generate But the a for it lot it drove these like of as to riskless, it's

the a And having weakens? thing. to it roll have the sense? does coupon, is, at going stay if also TBA But Is look to where make price it roll is so that one is good of it you

Josh Bolton

you Great, Thanks in the that sense. about your for going mentioned room release Larry, in that and press forwards. And ample color. growth dividend makes comments for then,

the those how you think or general retaining that? you're appropriate earnings and any levels, power dividend Just versus around book value, thinking about of the Thanks. company, curious earnings how about thinking when you thoughts you're have about, growing

Larry Penn

question. Yes, that's great a

selection. because is, first any for of one the actually made our year, dividend this reduced pressure we've differentiators many we our -- that the that losses tax this quarter of of advantages have And us on that the XXX has that is One in terms their of one we still many yet not of the that's absolutely upward to based potentially going have losing upon and advantages. that income, pressure they dividend were you were to out how pressure, taxable having had do compute really economically companies money, and

that So portfolio around XX. And We we P&L a flexibility a have we first positive a back, I made we've take value what book our be hit that certainly that hope of perspective, in quarter. right about a in to mentioned from December lot of as dividend. nicely, now balance But means the now investors, position XX% is space, at and a see building two we really think value that's really I book is quarters, that's to given a economic that the we're appealing book that you building consistent just value with dividend in between right think And there's that the can important. our yields last returns and back back. the dividend did

think $X.XX, I to will is balance. just in earnings, obviously per the range it were So raised right, a $X.XX $X.XX continue we at to our dividend, month, core right. be which We to our $X.XX

of a got than We core at room we've were per or little higher plenty of terms $X.XX in that $X.XX there So $X.XX. run another grow month at points to earnings. basically our rate pre-COVID

of the balances, be to we're growth that we're right of to we So as fully are, we're can given steady discussions seeing terms plenty to fully, earnings we I leverage, of going interesting can dividends. to the away I increases. value. just want we're those our very now, think see And meantime, Board book lots room in in But increases, core And we're our once opposed clearly do be the it, cash where that at for you our my hopefully about is terms room going continue of grow look in think to opportunities but you I keeping the deployed, our build to certainly timing judicious any with of will prediction having which have look there. not, at -- that,

Operator

you. Thank

with Your next question is from Crispin Love Sandler. Piper

Crispin Love

my guys. for taking question. morning Thanks Good

calls, that you've of So credit the earnings performance and and quality pain losses your or relative in just talk have portfolio? I'm credit perspective, you bullish initial seeing there in you're from negative more a will currently? you can First, from expectations recent portfolio, July that kind on has and some your how to sectors little to been of the March commented been curious kind that be in bit about the about a

Larry Penn

Mark, you want to take that?

Mark Tecotzky

Crispin. hi Yes,

non-QM, the for That deal. benefits introduce a consumer of this transition be deal of had And going of sectors NPL/RPL, now. to in a unemployment state the replace payments of I that lot loss was that And $XXX to been caveat housing-related But it the the loss big the that, that in loans, remarks income tried big every stimulus forbearance suffered of reduced the income was was lost, and benefits. was Election, sort look really a was will And from as the that a COVID. good. see in I result benefits that COVID. excess enhanced So homeowners and have for that prepared think those unemployment would what big non-agency of a happened deal CARES sort it are I right. performance the balance nationally We like that about of need Any securities, just and forward. do income what residential Act a sectors, of with has a

about dimensions, right. of sort sort underwriting discipline to good. doing. it's you're volume been all pendulum and always between When it's and thinking competitors those has very -- performance underwriting of always while think you are we So have And discipline, your a what

And so stimulus, this underwriting happened been right to able we've about about nice by right very the with And I the strict I path should is been volumes now, given been up means let we what's discipline. that think, future have to now. don't uncertainty keeping able get don't with the think any market of virus? origination we what significant

clear we those been little; forward. some residential But of the understand things. So they how side, part It's going great, made it's of performance less drivers; that's on evolve the great. it has

good, On have performance the side, was headaches. the That we'd really commercial I good. been has sector; thought

the -- than surprising really estate and is to have back what June, of years think loans one I'm fewer COVID, When at there probably lot XXXX, how non-agency is to I been I've gets a lost active commercial right. deal commercial it financial I the sort been a you I benefit it big paying before. have that securitization in And is There been think it of right. we're it it's guessing. -- a that With thing get priced real but is years, right. commercial saw off of activity and probably crisis done which before think estate markets real sometimes some going important real in I estate, thought after was rate is get was

does of sort that it what appropriate at financings is, So offered rates are people means buy leverage, and estate to to allows low that with want flow. very capital real that

that the woods the performance any commercial on think I So what portfolio, where case, loan it's strong. because has that is interesting see, we've been And slide, forbearance XX-year on portfolio, were strong consumer XX And by sort been the in earnings they're means. an tenured extremely shorter Page the than a estate in but real of we're of that's really of out disclosure terms the don't a mortgage. you case can generally augmented

loans. forbearance So agreements and in that are opted the borrowers paying from have emerged that portfolio, of a on lot forbearance their for

a borrowers it. not out of plays to do part case, months, come forbearance. we're at a credit for good, emergency but been few when of should more But another the a of sort seeing, we I you're test they don't that data has necessarily think on So going on that. and how little big extrapolate bit that side point residential be Stimulus

Larry Penn

I'd Mark. Hey, to add love to that,

no I disclosure, frank you think surprises. And our I mean, that being I and about honest. we're on thank all really So

days. I for we to what really look, end you quarter. the is I you other saying you disclosures expected of think lot if coming assess each I say about saw was Q a in which And going you'll and at it on have those Crispin, example, basically if see who losses, few out back April. of where wasn't. that credit and I fine. there you'll And mean was find a think to March companies question I we're have at think were your in everything our look And were our

you expected credit You'll able the there. a of where various notes, sectors into we see see -- to on portfolio you'll you dig look, see lot the can see losses if of you're stability

obviously, only And elect we this also good. are we relates credit really, losses, really through are election. expected going right, fair marked -- not income, and our value have And the we to predictions net it to to statement. where with to have losses go stuff need relates about Our we those fair assessments make to right value, that income expected credit

expected that to with our consumer has something? our the really, portfolio. in of third on have corporate again, COVID. contained. some taken in look our in whether to expect some already And they're stability better. at mentioned you'll do quarter see, commercial kind And really lien of Mark going credit I going could on you're And at portfolio, see residential portfolio of first stability on again, few where see it's do disclosed are here, if on just CMBS, a June good hits we come in the credit a assessments just out So anything are as our JR, think you days, there, honest. loan see on estimate We're focused things call our look it's loan in had to that to terms not, it that because portfolio, terms XX, the a And think philosophy And look you add they're it bit And when few again, a those you coming on been. really, all. has right after losses from mortgage portfolio, really major. and we've but out estimate. I or be the so again, you a that things, there. little losses the of June And I what our September Q, word into That's We you you'll context related, see so think at CMBS performance disclosures. want our we're but in the XX, you'll is that And consumer really anything XX LTV, fantastic not "resilient" to some focused hit. come in if at our going in been disclosures nothing because we saw really we and there earlier bad use on we have and you scratches, the

JR Herlihy

that quarter. increased in on discussed forbearances these and and how third outbreak I forbearances. the mentioned Yes. I increased have add and last following deferments been have QX. I declined the would both forbearances in deferments mean, COVID to in considerably had portfolio months Mark just our we update would And how in quarter, delinquencies had

sequentially loans the amount forbearance X%, You at from despite Deferments haven't close X/XX. was deferment were non-QM where and still of up we it's delinquencies in yet X/XX. not or X/XX at And just which loans, by deferment X% in in And about Larry in speaking they are non-QM in or are transition as was modification. finally clearly forbearance, in the that's down close just to. to are are half numbers X/XX just being small of then non-QM, to now in loans XX-plus-percent are cut could and that down to current And in at forbearance portfolio almost subject from forbearance are consumer where loans see even and but commercial, well. in deferments that current any had are balance X%, it the residential most

versus our deferrals. QX terms QX been of that's in forbearance in So experience and

Larry Penn

too. thing want the one by Yes, just add just way, to I

one look was right. not pay-off, underwrote details, too think and, we And loans getting And too in just was JR a what a portfolio it LTV down -- -- the hotel paid loan. we again a XX pay just had again, from a LTV. from that it them LTV and multiple this a was to appraisals, many take On originally we significant of and/or pay-off our down loan. them Because old shows and mentioned loan appraisals, We we call, high was par, of XX because are that any we into loans, to I in thinking. an we a conservative to think our couple at without say, case down just I'll partners had that that hotel of -- origination underwritten reconcile don't or to such And of of at appraisal. we what couple loans underwriting, to mentioned

make the that really good loans, shape the we because and these take that appraisal have think the when the on think really we we of faithfulness of and laser-focus I we're I process, LTV, in So care there.

Crispin Love

you four, about a originator investments of new was have earlier elevated undervalued prospective there. the valuations. commented the for pitched the at of as are your earnings. How newer in which EFC fits those valuations, three, legacy some then you times coming to at public those think the trading some Fintechs. steeper market, in you you being five that the do much broader there Ellington's of companies capabilities originators market have And and being that originator with of color thinking you mortgage all in market. origination the Larry, IPOs kind by and the loan of originators helpful. of Thank Can the -- you valuations IPOs explain But loan that

the guess value is, one which are I kind of of and So channels origination valuations how again investments? the unlock question can its right and EFC

Larry Penn

is pipeline benefit Right, in an manage some not do incremental do in look I we us there's gives buy, Ginnie I well to reverse for terms there's servicing, class terms the having really so how in point where about Longbridge we'd But, right. us is in like. loan But -- We I investment -- it. of right question which originators investment in that exposure a is flow, asset this think think an HECMs no, at think that that as mortgage no where said different you buy as portfolio, of a much now, and that as now Longbridge, of Mae that market. like it's has unique and cases which definitely we of really I for are valued know obviously

blip right profitability obviously I year. in a now terms this of think there's that

So I multiple is appropriate. projecting not certainly that forward think over years

you've amount book are power. a in a think you be said, to book LendSure, an you've there's be a So value had But as if a at multiple there's value, record and should valued, I to got I know got where going got our transparency investments month. general, think be value overvalued. that's originator has there. I I no some don't then valued, earnings tremendous that franchise upside we huge of look right? value, just just them And a going you've question get a tangible where of that It's are But there. of

and So that there's have if we where where valued there. we project question Longbridge there's continued tremendous value, there, as we investment no growth that upside that those have well.

mortgage as companies, by the of is reverse Some gone tough couple the you have widely know market. wayside was known, a past over years, of the it

market. tough a not it's Now,

what for now are to help going Now it’s indirect companies could At servicing a of market market a and grow. we're to great to is getting for Longbridge to; those it going also those we're exposure. flow getting exposure can become some example, instead in to there. share companies provider But for us, do point, to direct And help going continue us. we

bonds. suite, in us expand management product Longbridge our obviously, And as mortgage mentioned terms LendSure's give of of non-QM, they I mentioned. in flow want terms I portfolio reverse to of in we As LendSure the

the explosive So going other something could of expertise I principle think is on and residential that's there lot a loans. of in that's in long-term terms markets; be have transition horizon. the that And into

as all spaces, we might we possible. space. like go, are in mean, in that or investments either agency our So future that's I then that even to well. the origination a the consumer place things about loan And we have, haven't talked make these natural other

in think a integrated, companies. they're and obviously, these for partner, a of we're I for position, And that great unique right great So we're think I some given partner us. vertically that just a it's

see in now. is but Q it'll retest, obviously, investments or sheet, of that's what that, total of So million $XX fair it's maybe our can but in have subject we equity grow our but we've deck, in of of in the our so balance only terms equity something the time, it those okay, could room in you over the X% number there. originators And, like value to that got call our that plenty be

Operator

Thank you.

further questions conclude have will conference call. at time. We this no today's This

lines time You may have this your wonderful and day. disconnect a at

Ellington Financial (EFC) 6 Nov 202020 Q3 Earnings call transcript