EFC - Earnings call transcript Q4 2020 | Ellington Financial Inc.

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Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Ellington Financial, Fourth 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. Instructions]. [Operator my General the Counsel now Jason over to Deputy Frank, and pleasure is 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

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

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

Larry Penn

good Thanks, Jay, morning everyone. and

Ellington of in Financial Ellington was time the and your as results strategies. all credit cylinders interest diversified in quarter, again you thank fourth all always, on our and strong As firing Financial. in agency for delivered we

see report the the the can made per of fourth our year, to earnings $X.XX the you pleased that we for into strong positive results, share, return X.X% quarter we am net net per income quarter As a share. generated full core more with positive XXXX. income have a and earlier year from slide non-annualized return we which of and of for generated in and economic than losses I back $X.XX on economic translated three,

just was common on of related And was is think off per January giving where March Given extreme volatility a remarkable that of the economic with X% our hybrid April, our $XX.XX, than and more dividends book share common return estimated that's a of in accomplishment XX start, February. now the January and to XXXX COVID REIT. February, since mortgage And it last value is last I a $X.XX great credit this for is volatility. within last the stock which $X.XX to prior our before to

Now quarter getting fourth back to the results.

agreements. loan most the our completed the loan year, strong performance performance had for origination credit October both the year record mortgage had income. LendSure which securitization of through for In portfolios. or the and our on and November drove Our portfolios, of we loan volume consumer loans and In second transition securitized a that loans originated commercial particularly these business, strong from loans purchased flow origination business. we fact net in we earnings, reverse directly short unsecured way. our pool portfolio in the the businesses small of loans, volumes we again of partners. year, Longbridge non-QM residential a either side In consumer led outstanding mortgage an a and Meanwhile, through record ourselves non-QM duration for investments, quarter origination balance origination space, our of loan and our concluded mortgage one Notably,

Finally, we priced week securitization discuss successful I'll end, just that post non-QM in quarter earlier more Mark add detail fact also in very yet this later. another which will

to we As steady origination we've Financial highlighted flow ensuring that investments. These the high franchise we platforms crucial before, a in platforms believe provide loan that significant building of continued to are quality Ellington Ellington origination value Financial. are also us

public trade. that EFCs for these stock currently will forward. business value franchise already believe given moving that underappreciated premiums platforms tremendous price, this EFC continue loan many represents I fact, model I upside companies believe In origination differentiate sizeable which especially the to

also In selloff. addition quarter. is performing to the the RMBS very CLOs, and CMBS, RMBS strategies’ continue from security as Most credit well, well to prices March in performing notably, European our recover our non-agency loan

delivered attractive financing portfolio another rolls, spreads, Agency of by gains quarter hedging and our rates. Finally, driven attractive dollar tightening excellent results, yield

and were extend our During further improve financing. we quarter of to the able sources

to the also I term loan financing such your-end. of added and facility, loan of also extended shortly addition In loan the after mentioned, facilities another securitizations financing our we one which closed

in as our not crunch details last that’s not just asset leverage, us it no lower small but did. enabled our disciplined about that may financing mentioning view the financings to I'm also the we in part well managing remind facilities, to but COVID to news, everyone our whether part approach year as many most Okay, exciting it's that it's liquidity

quarter ample fourth financial to our cash the debt with dry from with results that exactly assets on again maintaining what here it we of we ratio from were With and a more we in significantly lower equity sheet, I'll X.X:X in to last quarter leverage We results X.X:X pass And Finally, earnings the this averages. detail. below point leverage quarter to I'll strong able plan XXXX. and past low and recourse plenty grow X.X:X than the our historical of while and this have average even down deliver balance JR do. to to add that, powder to discuss that's out of finished year

JR Herlihy

summary Thanks, Larry, with and our morning shows quarter also which of a fourth three, I’ll results. good everyone. start slide

quarter ended the per share. April. dividend for share of increase and per net our the reduction income per net and dividend share earnings results $X.XX in core Financial $X.XX the net earnings November, Ellington reported $X.XX core comfortably share of third by quarter. per increase dividends, common With of compare For income core monthly XX, These earnings our to $X.XX XX% of the second income since last exceeding our and board rate December

we $XX.X For of net the reported share. $X.XX or income million year per XXXX full

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

– me, share quarter a $X.XX strategy and the gross of strategy in agency generated generated per During strategy $X.XX share. gross credit to quarter. strategy prior $X.XX in of profit excuse agency while the fourth compare the the the profit total the of total per $X These $X.XX per per share, share credit a in

Our XXXX. credit as to interest results driven from selloff continued mark-to-market net income We excellent excellent significant across market prices generated investments improve the portfolio. our performance for the benefited by and in and in the gains credit strategies, quarter earlier substantial liquidity following of strong all

investments in had of another our mortgage originators. from quarter also performance We equity strong

the negative credit Finally, hedges with to quarter. across classes, were results tightening contributor asset our credit only spreads the during most

unrealized by agency offset realized yield long was net and A strong Reserve and significantly. on We Our hedges net by RMBS and benefited portion interest spreads tightened agency income on from agency quite strategy prepayment our quarter by purchasing driven as elevated interest also net losses our strong net rates as interest un-realized holdings had Federal activity of TBAs realized gains on RMBS income, another our this driven rose. gains activity. largely rate long investments term realized-unrealized of

which credit commercial increased fourth can loan nearly by quarter. was our as on securitizations, of two portfolio slide the securitizations approximately Removing consumer the total our by of the the portfolios, non-QM quarter-over-quarter than completion long and significant impact more grew and offset balance quarter. long the driven residential to by see XX%. loan portfolio loan The the as X% during well Turning that loan payoffs next credit transition two mortgage larger increase seven, small you in acquisitions,

Turning smaller position. related but portfolio increased X% our earlier of to leverage next pre-COVID. our that response Recall can you to by long agency the we strategically to agency significantly in in market was quarter-over-quarter, that volatility, COVID lower the it slide see XXXX, liquidity eight, remains size our than in order RMBS enhance portfolio reduce and

We continue XXXX kept to small which throughout our keep low. this has levers portfolio relatively

period. adjusted our to debt X.X:X to recourse Turning you ratio decreased equity sales equity unsettled at X.X:X to the quarter the over can X.X:X overall third decreased to during to quarter purchase from of for the while end the from and see same X.X:X slide debt ratio that nine,

the decreased funds from of cost well fourth as in average the weighted quarter. X.X% X.XX% quarter Our in to third

borrowings on repo replace mature, cost $XXX had rates. unencumbered continue approximately them based assets with cost At equivalents lower cost current higher along lower borrowing of of cash older, cash - we approximately repo we year to end million and $XXX with our other borrowings As priced million.

dry we assets add to Larry mentioned, As of have powder here. plenty from

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

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

quarter common January at XX was book at the XX third the X.X% book strong XXXX share from and value at end to per Finally, our value per start $XX.XX. of after a our $XX.XX December up share stood $XX.XX, estimated

Mark. Now, the over

Mark Tecotzky

modest economic quarter a credit how of the mortgages, entire I’ll JR. core quarter, consumer each our coming quarter In from achieved X.X% the for and QX outlook leverage for the the contributions three return we strong X%. Thank and performance fourth an commercial return of total full evolved had quarter portfolio loans. only had and EFC for the our significant mortgages Today year Overall residential positive you, for with year, review EFC. EFC and months. strategies: the a the in was

product achieved having leverage, protecting Our return storm cash or selling mention and moment reasons decision, to the March shocks prices. that distressed lows, most invest. remaining you credit the sensitive you then that what didn't against sell at for our I able of assets in was modest of downside reason the March X.X% structured leverage much because drive seizing our weather deeply focus future performance was into Too to opportunities, coming year is EFC on assets One assets. was crisis QX last any to was volatile every modest and to assets with one the that have primary at the without leverage simultaneous in both ever guided probably had

demonstrates credit year the for disciplined our performance underwriting approach Our to risk.

We are believe and is see loans. have our continue individual the of certainly in a feel but underlying where that assets There large today. headaches property few resolutions well that to confident loans underlying loan was we investments cash remarkably flow highly I portfolio by on few by the we’ll and favorable covered the value the these challenged,

standards You bump. a company's can't really a the underwriting hits speed until judge market

bump, market better three many Before the across the lower to everything into of U.S. LTVs, the higher credit But given markets, practices consumer. problems looks in areas the substantial the extra focus, same always the test of and it XXXX underwriting rates, FICOs, put have to the you'd residential, to disruption of really performs its and capital economy EFCs note the the speed the rather because were have and commercial chased yield. in and shown higher sectors

was our program the with one have assets new and to and and really that our offense process, performance lending origination Because us appraisal was following position to allowed because underwriting attractive. were our Yes underwriting origination a loss it a related the reflected off of Non-QM crisis COVID in were lending lender a really in two strong some when in faith that had spring paid delinquencies, worked and of great ways. we policy. our play EFC its but closely non-QM partner for the servicer challenges opportunities believe as has example. restart we our manageable first so we had confidence, in are income, including distressed the significant that yes that Our LendSure was secure, of our and is borrowers

earnings volumes; LendSure and increased and the rewarding less at new share immediately competition, to in core attractive buy at increasing LendSure by profits it market any non-QM responded community with securitize First, loans able were levels, with broker which prominence drive in EFC. second, helped highly we

many of of XXXX the core So demonstrated our principles. I think efficacy

rarely The many first seller March core turn extra incremental work performance. with leverage. when the can fore against spreads out rewarded end of long higher the on or you, Obviously closely.’ or risk-on two an being saw turned but earnings for but on core been return case, with we credit It certainly last that for to were lot spreads must over extra are of leverage flexibility an turn principle upside tight the have when additional reach structure and assets, buyer an is the to in move March quarter the stable a the be under if at law being balance off. asset like managers managed ‘monitor The slightly difference our is facilities just too. and of of we term between leveraged sheets our are and turn a is your for should The long a liquidity over past run. the sold leverage quarter, extra this matters type a they enemy like leverage when of marginally The non-mark-to-market opportunistic had just have also turn be not several market higher, added term resilience leverage prices attack a

in The we I to a can second In close lender LendSure We market. buying is originating to the ultimate our our Again, when great think example. model is as product like are – principle securities borrower. and than investment product non-QM we core you secondary you the you’re business loans a as manufacturing just are, by to this issuing the better the directly get securitizations. try liked end

priced good underlying about which non-QM but under yesterday, note the a priced the We was deal, at AAA rate X.X%, a loan is Here's the yield why. the illustration securitization on deal of average tranche, XX% X.X%. the

spread enormous gives financing an us that AAA So cost. over

deal lot The there's course a to to we originated a take we loans fees. here. and prepayment have equation and more absorb risk, Of risk the premium; credit

they've process, understanding So we it, with I the simplify and gained originated, of credit. to of to safer much getting entire the by borrower, think compared when deeper able securitized. warehoused over we're much credit just buying them I yielding closer frankly homeowner to and the after more closer don't and the involved a but want to investments manufacture higher the ultimate to the the We are underwriting are been borrower risk and initial overseeing

equity of The third originators we own think businesses belief the can is their in volumes in on term addition ebb community the not franchise for sale and by Gain represent they theoretically core and and because short bumpy capped. is in road drivers to ownership our so originators origination that don't investment flow our But directly that, the marketed excellent Only term. generate can value, bumpy material core time, stakes underappreciated be our value. can the we a can and in in are be can short upsides times. value way margins income alignment principle our be long and great over to origination a grow EFC - platforms, be in book book they

for correlated portfolio us our advantage so earnings security sometimes inversely is Another these of diversification. with in can the some investments be enhance our originator are counter other that cyclical and investments to yields,

we while resolutions had completed both portfolios, For securitizations. our and two many credit the and even grew we agency quarter, loan

which November. our still Leverage covered core increase. and has Our room in low earnings is dividend comfortably we to raised

grow several opportunities that and be we're dry result little we That's also that portfolio quarter, Consumer some of should deployed throughout powder the pie have some the resolutions. shrunk substantially was November. do did securitization intending Looking but very NPLs so. past that to that’s attractive building currently had banks to portion slide in a we're we up of in inventory this in to a consistent CMBS us loans defaulted year, mainly the seeing the commercial given and loans, shrunk seven, expecting loan deals. of the where We're at chart origination the at commercial help performance due our to on successful the strategy of

We we of expect loan the The grew transition both loans, in growth and from loans securitized. non-QM portfolio. residential net mortgage portfolio residential that even

Our demonstrated allocated year up than on had finishing quarter, portfolio strategy strong to the its more strategic agency company also again the capital. agency very X% another The value XXXX. in

March in Over also last the years and not April. times such a as return, has only it of source of stress source liquidity been it's a been but of

fourth strong as of quarter isn't as it yielding asset into quite which appreciation, start bring the high was the we of significant came means of core Our well a earnings start the as price from the combination that as QX. at year portfolio earnings,

of of of CMBS, we the the things the own. quarter true loans of For securities the In expected plus some agency way true less we for at the consistent targeting. start, financing But and year, it's the we than yield expensive some more our that's terms. looking half sectors seeing of last example, in are also end for at was second many with credit better the for potential are many

Our to loan focus strategies and forward and grow to our to focus both is going securities. real-estate investments continue consumer

in some expanding seen focusing incremental mortgage particular on agency month. yield rates and always, non-prime could investment improving and as already steepening curve arrangements. financing demand have are drive attractive and higher this A in our and we opportunities non-agency We also sectors

to been originators. footprint we fertile so and our origination supporting for resources has focused very their in continue they market businesses, on can grow to a Finally, are expand and providing what

Now, Larry. back to

Larry Penn

Thanks Mark.

year. unprecedented our tremendous quarter return for economic for positive income strong fourth Our and net an result brought a XXXX;

we increase the back in Please we portfolio core here. board here, excess to upside and side. earnings see the already core of portfolio, dividend current on our has to further power throughout much and from addition But, how our dry dividend. generated a book I given expand continue our the dividend consistently to value earnings XXXX six. and in loan turn acted from dividend, see I to upside, twice our of upside given our the earnings have also powder to As slide especially lot to to of dividend well

realized right see limit able the realized credit portfolio slide, year we're area getting our can I'm in XXXX. our the share upper But in extremely we row back. That's around towards that this you that's losses $X.XX were one share, back. share, to $X.XX share losses I were that for proud portfolio a portfolio get As per of $X.XX can our we in it per per just $X share losses credit not credit in per $X XXXX of look our per mark-to-market but much losses. COVID related lower, un-realized were in to

are And most of made great common per XXXX, financing. that a with already that long value share. that's back of our value represent as getting XXXX. we're and $X.XX pre-COVID share per more Meanwhile, credit far the attractive book remain And that's February. securitization are book our get close to $XX.XX per last goal the of going January, providing a since talent even our already huge back costs great our before at expectation in so dividends our headway the on earnings to value there, off estimated giving and financing we're markets book traditional we've our end stock very that our to term XXXX and attractive of in would we That share, to in start and and for

grow actively increased equity This driving driving our originator we proprietary on loan which investment, at a the partner and continuing and affiliates. growth product. expand, origination for We cycle, our originator, flow to creates lookout further through portfolio more origination equity the of meaningful our strong we by focus Ellington earnings are loan Furthermore, participate businesses our also adding in growing continue while our growth so to investment at volumes origination enhance agreements, record Financial. our diversify virtuous strategic and to leverage sources as low track on purchase to an as investments

over and Ellington Financial slide market to shows like fully highlighting varied post XX. mark-to-market in net was XX of in of years these XXXX. cycles. our result and basis of Ellington turn existence. disciplined not as well portfolio income in believe on hybrid only crisis approach of income our our for the by and net EFC our of incredibly a the extremely This a years. XXXX of has liquidity financial importance close entire reflect only I XXXX, risk Whether to the XX crunch I'd XXXX, generated is each profit the traded of strength Please I how the this performed, XXXX, full Financial the am which publicly history, of proud and to Finally, management. or has investing, effectiveness each to portfolio but slide team Taper our positive of our COVID Tantrum of of as one REITs mortgage the

we Before in we And to call for open that, the will for work like open the to questions. now hard best floor call thank to questions, those their team the I today, Ellington XXXX. we Operator. with listening the you on entire all for XXXX the wish would and

Operator

you. Instructions]. [Operator Thank

comes of Our first Harter Credit Suisse. from line question of Doug the

Doug Harter

Thanks.

an kind way as possible getting you to far of of of the of that, how that? cons interests about borrowers the fully you the kind your allowance, kind about talk you pros just versus As kind think your of how as to owning us as of as ownership, about sourcing equity kind value. kind of kind Can close know and and the originator of mentioned add you

Larry Penn

Doug! there hey a is – yeah, I think there’s issues. Larry, few this Well,

have a our that LendSure a ownership. is of at particular game companies, you the skin certainly first like The lot in lot principles we you having – well there, these know in know the one

consolidation not issue. think small is issue, it's a I big a

an your companies to in then know additional to were guess, case would there sheet we and Stone of we in complexity our just partner you share which a, public, XX% the create Homepoint if I that these as know that Longbridge, balance on You equal Mortgage The we Point, know at financials. – consolidate you have looking own some less us. our which know that's owns went a actually more of

this So also are we point minority there's stakes one interest. currently exploring, that have have other think of we also know there. I at And concept majority we that stake certainly, it's we you don't no where have

generate important for loan So – the we feed, I I is to from return-on-equity investments of that REIT’s flow us, clearly think going. are also over to needs, terms certainly on flow, right. point we thing our big and stand in just the think mean we loan standpoint time, mouth are in a better keep right, the terms of that repeatability have a to just

So really that’s super important.

icing think, seeing these values value indirectly book that's of all is I and already loan of the you're key important which think sort the through of terms flowing cake. other so the I the that companies, ownership but of So through the the flow book our obviously you value it's important, of earnings and know on in is company, flows the the is don't through the that franchise really

Doug Harter

it. I those of earnings then, within any businesses. through of of for ownership the any know are being Got interests, of kind growth equity providing cash any flow the kind they retained or guess, equity are of dividend is you to those kind And

Larry Penn

Yeah, for earnings growth. is being retained

Doug Harter

Great! Thank you.

Larry Penn

growth core right, income, not. Mark is to mean were they know they regular are said, but could I just added, be you as it’s If core, dividends, is, directly their them right. which and and it paying that not I grow Which dividends, they for the better platforms makes effect We out. dividends want it’s pay on going perfect to them. is sense to would – that multiplier be much any that than and

Doug Harter

you. thank sense, Makes

Operator

BTIG. question Hagen line comes Eric a of Your next of from

Eric Hagen

adding the couple can guys. the interest then that guys first about where incremental on capital performance, that source rates you here. portfolio, at up on and of portfolio. remarks. credit picking detail for well? and consumer some drive I your other good outlook plan do you Can go are kind loan themes specifically of of how – outlook prepared Hey, that And I support thinking non-QM Any here, Maybe portfolio. for how you strategies? think Hope growth portfolio just the you it the direct up about there, lending you you're morning say the think A following originate all using is Thanks. current on heard to into things non-QM the your your maybe to much to LendSure

Larry Penn

me just which think on a million the in take they call over they you part million, about is, – know let originated we are first $XX LendSure, on prior $XX Yeah, talked October. I how

So just you analyze that's if under $X billion. that,

So mean we're will to – have expectations for extremely the let's they realistic certainly which wide just I'd can an also manage I But to our course. it just think a not by billion. we you And target is we loans? $X I exceed are way, is we we hopeful purchase LendSure certainly, don't over say that can them to expect say, $X – margin. from know to Mark, of you target want this exceed billion year and exclusively talk about commercial by

as portfolios I from well, is we’ll – at agreements. purchasing potentially not flow continue of you something mean through know providers in So we have past looked to other out non-QM are look that's even the at question. that we the and

Mark Tecotzky

were yeah Sure, bridge about going Eric, you or performance non-QM the commercial forward asking in credit more in side?

Eric Hagen

other you performance as actually you're credit ending and up asking strategies there, you that the about any influence was picking directly loan far specifically are themes pursuing, on that non-QM any trends consumer seeing I guys whether of or what course. have around as in are portfolio Well,

Mark Tecotzky

that you watching portfolio had right very we certainly COVID closely, when was know through because we've us. think so concerned very XXXX, were Yeah, we came consistent when hit performance that throughout in loan consumer portfolio it – right definitely that a it and

programs a know strong there. so the stimulus benefited, there had there were have ended they’ve lot substantially the there, programs various performance know I and forbearance have to you we of been and think by perform, from from have consumers the able borrowers you large government, and

sort of have real-estate more of that protection your I think portfolio around investment. focused you the where low portfolio, that LTV sort than is

On the consumer that. you don't have side,

think more to seems a and it's now, just economy. make I portfolios. economy I the about predictions, than bit those but it pick no certainly the hopeful economy little started vaccine's open tethered though, right we up the as to to the up other So ability mean are

not and seen one time space the so changes rates. watch than things long the of the how U.S. we of of performance, immune economy, now, not it sort the those it every reasons health is have We're know sort in the strategies more it's for in as performs been that that month to So you linkage investing very also function duration of it, real-estate the to we're shorter change where review we That of we've over we one real just closely. economy. why a is – cycles. in of portfolio But

quickly, So you if the it’s you, economic downturn, underwriting allows typically take how shorter loans and to books. so the to relatively relative an change guidelines that your stay long on assets

JR Herlihy

record little One October. your lower, mentioned origination plus but point Eric in could and LendSure originated question in November was Larry on I for minute. million. a volumes jump at that Right, hit additional million a if new regarding at one $XX just December LendSure. $XX

rate, I run higher a that add wanted additional that, just update. to even So

Eric Hagen

color. helpful thanks. that's great, That's Alright, guys. Thanks

Larry Penn

Thank you.

Operator

next comes of from question of George Bose Your a line KBW.

Bose George

your best on then interest, second retain from just mentioned, and just NPLs solid And loans. elaborate anything returns returns? Longbridge guys, LendSure the morning. Hi all the are commercial some on where what just Can the you on You of securitizations that though you you or is like seeing you're good know also do the programs. retained

Larry Penn

hey Bose. start, I'll Well,

order. So the reverse

So purchase anything. we with don’t Longbridge, - no we don't

from purchased haven't anything Longbranch. We directly

a talked we've very asset thing looked extra interesting tangible make them one our on that one grows of mortgages that's that, done day that's for to in we've about, before. rights. Most is book that servicing sell classic, and think definitely as and Longbridge but is at that it sense not value and something may certainly I servicing extra niche rights rights, Longbridge’s reverse servicing

[inaudible] would do like possibility, things but to it we though [inaudible] and that ourselves be So a derivatives, acquire, like even and that. and - happens

not question. sell source so production the is They for our Longbridge not, We their that. to are dealers, Longbridge that's just

sorry, other were? two the And questions

Bose George

loans. your the on retained The interest from returns LendSure

Larry Penn

is I to Yeah, that that probably to their know actually aware, I – – the of securitization. there mean securitize – back actually there know you which as because to keep that, take it's do when all think know But you of is we compelled over to have you time. don't according what value right, an you first disclose expenses don't risk retention you is is which we and you're rules you're – arbitrage you

retained asset, we interest, a – of is I digits, think specifically hard, said, is it's it's high that so but think so certainly where into you but it’s the it's not range that like disclose. something say, know the I’ll know where little So it's you digits that's that to bit, I fair values we double well mark I depends retain – It’s like well you and very just but liquid, it the into it’s asset up. double on not really but

Bose George

mean that's actually curious on continue you or thanks. know think that? could your then I both you the how things to just of you Okay, helpful, do asset see on do thoughts sort about tighten and know credit. agency spreads you on prices, And

Larry Penn

Mark?

Mark Tecotzky

say levered during I generate is know, thinking factors say loan our looking flow, we more or being total still the hard that at to of for not new with shareholders demand gobbled quite either know, buy, ravenous different form, issue, they there can change your it as financing was of are as strong is fourth up, always our what what still you arrangements. the You assets then I new third predict know the strong, pace while and how can cash very deals end I’d it's for issue you and I'd thinking would that's quarter XXXX. much exogenous on the security which that and of know return very don't quarter about just focus about the at say

go we to you leverage of what are think, assets, set viewing I appropriate been that and on put prepayment side, is biggest now, of outcomes, more credit consider understanding just market and So they tighter. the thinking has the move is the expected know I we behind how I think but of I amount But and the now the the to opportunity the part hard on had both guess. apply presidential I what risk money a know a the of agency earnings on you you Prepayment to through the the new work. tight our just that and returns just substantial But would their what that side. lens. know certainly mean predict you with then know if the risks relatively in that's is range non-QM, understanding administration thinking when focus about us of drives spreads are risks, could over say lot

more there is to lot we're going have put think and a of capital opportunities work. to I to

Bose George

Okay.

sense… You Talk] [Cross know that makes

Larry Penn

couple just that. of I I to things could If add to yeah, just, want a

a So and fourth relative securities. the areas for so at a the Agencies fixed where to run let's like relative they've I they're you say that, in know great quarter, had you the on income, little Not other to side. looking first is example, know right now tight would but look been. in

are. want we traders that’s and to rotate active best we go the So we to and are opportunities the want areas where into because

few So which about positions liked short have first you that case, flavor and the the years, right. specified really off can for lot, increase pools right each we trade-on again a you last talked a of long TBA then short TBA’s, our and know know we that we is all, in we

can on you we that loan But spreads where still now consistent return are spaces. want when there's So opportunities the right money. know most seeing we – we're equity tighter no we are think question in make that an the opportunity

is great there. a You amount balance commercial have know flow small certain a – example. can't We of we

seeing the the we're half turn year, this that you up the greater know we definitely you so you of is takes to you really see right, much immediately that. quarter of recently, for really non-QM. in. right, to talked but here I'm have, flow and think going flow, that second reserving higher at powder optimistic come very I earnings know know about portfolio we for time dry space the look about But mean higher that core quarter a we're actually just the flow, faucet that's if predictable which of to we remainder flow, for have, first second set the think in year, increasing the that we it you I know you can't

up to there COVID, probably So year securitizations we we you last we're looking minimum. know and did two a securitizations another done certainly year we're space three and do keeping but could certainly for this have obviously know at but you

So we you in know. see would flow arrangements of portfolio to good the a We've our lot we well there as as hope there good about know loan got talked we you see surely normal consumer well. flows and

So loans small part of ramping our up residential has portfolio, there. transition but been a

are. we keep you really want and to flow that's in best coming see really for opportunities know So where dry we powder as that the

it. are there's the tight no know about question now, markets securities You

that's So okay. you've yields you know quarter-over-quarter, seen lower but

that you to in coming very as is a got securities on what know of the higher might there's much on be know the be when You side cycle reason another just on flow turn we've reliable on that just of frankly. Mark leverage and think and tight return we adding said, no equity

Bose George

yeah, definitely sense. Okay, makes that

does know in not sort create the of you importance something the now like way of like meaningful. that, either earnings present actually is that or like consensus you core include category plus banking, question; make more the just the it know your new sense core feel you that one in to given Just – all I core mortgage because or like

Larry Penn

explore. could something that that's mean I perhaps. Well, I guess we

that being dividend thought dividends. and you growth know about something I see, we that they the of earnings in will any steady not the we our we like, something not that's the so that affiliates, don't plans know that that I but but have of a recurring that if know can do it's recurring that of – the guess is as You even recognize project hope in more look, take I of you to market that core, that indirect interest it’s could see ownership form something that. our we terms know closer you think as something or we core mean these mean include of we we earnings is know you that the as in is you interest something – can and know is we

Bose George

sense. No, yeah. that makes Yeah,

very thanks great, So much.

Operator

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

Trevor Cranston

quarter deal of recollection mentioned in a Hey, prepared Mark the know just in non-QM there curious, guys thanks. know you I you was where last than the amount pricing the lower My was that I guys comments the was on think the priced you decent AAA did. fourth the was. you securitization

the of just So bit execution deals little months. I few elaborate over you was wondering last if how the have of evolved a could course Thanks. on kind of

Larry Penn

Yeah, Trevor! of slowed down. of sort has but are Hi the spreads Sure. tighter, velocity tightening

sort of move, really, like a a violent sort know pace. I tighter, really, spreads at and of but slower grinding characterize this would tightening there’s So year's you of of second half much XXXX

market, very also competitive deal is repo. the on of certainly a of securitizations, costs at sort execution know terms lower attractive will in so we But it leading you consumer. relative overall ultimately to and that So loan prices better liability attractive think to we it's consider rates higher lead the to note and that

but portion we're to level moves So of a bit sort capture to little market able have efficiency sort of know a the some to it, of you of it. typically

Trevor Cranston

of then couple that on transition questions. Got And a loans, it, helps. you know the okay,

Larry Penn

October, points, that know and you reference, one for that deal just you last XX at the right, priced add just XX, Let thing. so… know It the you've looks basis me plus priced below here swaps like we coupons the, got

Trevor Cranston

okay. yeah, Right,

transition a the So loans, on of things. couple

Larry Penn

The AAA…

Trevor Cranston

Right, yeah, got I it.

overall the transition the mentioned can that kind for particular? loans asset, place have remind growing strategy those that's a financing for you things. give of of us you couple One, the the sort of in in in transition and what a financing of is know at you us then second, loans December transition you loans the you what the on can balance was And XX. portfolio what So since actual

JR Herlihy

Sure.

$XX our So loan, first non-QM loans the the a point, the same transition year to at balance of end. million, presentation, residential million little to the the loan transition in in the $XX include in portion was over bucket transition

Trevor Cranston

can talk you those? guys and Okay, financing about you using the for are

Larry Penn

banks quote these facilities we they know JR, bit? non-QM, want where using we think we that these have, you want have a do you often know but specific right, I are to lines we're Well, don't similar I – mean finance a similar from are, that little spreads, from – elaborate we you on yeah? that and its to

JR Herlihy

it attractive else, up on small good have line in portfolio, but smaller is and line, we financing and spread don't the they're as are in on and the well. that's everything I to that on helped we've unlevered spreads yeah, in mean kind it's strategy the doing. firmly quite mean Yeah, on of yield so the held NIM advance with deals digits, but of financing been even we’re our are in probably part held the so the specific right, well, a kept accretive yields very underwriting, it terms us. the it's certainly that some par, structure and very earnings counterparty in and been been in talk and been of our getting payoffs, for performing for how I is so of spread we mid-upper has about and for were that's cases good we core similar that's getting a though non-QM, still so that very even but strategy exactly coming shelves payoffs still so earnings COVID the turnover and we've pretty they terms single at to

Trevor Cranston

Then non-QM side. that last helps. thing the Okay, on one

over as course of continue point doing to business so your REFI another full the Have the many the expect who to earliest and other of guys little being seller. bit already agency into of you also to potentially know the to of March, market seen some know of after you come burn sort you pre-March non-QM one back back you of lenders that the know evolve year. get of more or you the starts non-QM benefits you to is adding out LendSure were You a the possibility something guys mentioned market at mentioned kind this

Larry Penn

would I think come I most back. Mark, lenders say have

a mover I then originating. other them think the know place restarting in market are lending of lot back operation, out pre-COVID, we you lenders a first think know were I I of our definitely since you that the think in we but sought most

Trevor Cranston

comments. Okay. you, I appreciate guys. the Thank

Operator

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

Crispin Love

from about a billion all of you. in comment or the potential Thank way, the our levels potential the and I asked we originations little XXXX, at saw we gives just originators, your XXXX? any bit that back confidence mentioned? LendSure, that are the you that hold in not strength the at other December October you any or you too following LendSure With the its aggressive heard but of be in about is impact on the there in see worried repeat you might originations loan XXXX could guess XXXX think record considering for what $X another continuing in reason earlier I to that flow might

Larry Penn

This is hey Larry, Crispin.

tapped, the a real actually concern. about as we're especially would this got up, know about creep it's you've under I not market driven the so going not still agencies I worried on that is repeatability, – agencies, nearly questions as rates I suppose think right. say what's you think I not where not very as at rate is that. that's It's

you there from right, a a you attention gets REFI In it's – to opportunity much brokers so LendSure anything, get loans and it in leads you brokers, conforming. or get harder we of call of lot is if can when lot know fact know

I we're very So which greater that you tougher you rates the at for see a now, think creep right up, so to when a worried business easy as – if start about to on REFI’S, if – all. do you know see focus from you know obviously brokers it non-QM, might profitable if not brokers just that anything getting is and

Crispin Love

performed you other expected. if then the better areas you might are if few out And can and Mark, that the Okay, you you portfolio recently of taken than has today, changed also currently? are quarters otherwise distressed thanks. had portfolio what what last the that And want have that you mentioned compare point and any to there that to

JR Herlihy

that over meetings, a know a review know, I shorter time. are more I in of anecdotal, little stage in what we meetings basis, You regular any guess have those is bit a and delinquency, review gotten said you fairly loans but those

properties at are in on borrower look at we're has borrower the contact valuation secured. what when you look know we are, and just loans, their commercial and cases of side plans a So the we with when look we you the struggled, the well know the our at know loans confident most you say where that

So specific. it wasn't much sector so

well the are concerned as known, not just was it. loans seeing mentioned retail, You a loan valuation right, the those housing. know problems we're lodging, in that It comment though student JR is is we when words the what it's like the there we're reviewed portfolio, below just amount more – things and where really that

financial open, crisis to evidenced of the another – the not these activity and capital and fact we've after portfolio, that's help securitization but how think flowing. and having people know after I resolutions transactions really that's the it’s know what lot is a real that has March, the market got a only so and – you so beneficial markets of with to of There's it's a there's know interested think of been active sort quickly lot surf lubricant securities in also picked opened now helped a you estate for I lot, happened markets is fed You to pace of up by I up our right like a so the barometer but think and relative portfolios.

Larry Penn

right you're you have have going start you as coming court Yes, know no you COVID right, that something we to to – have going the well, underwritten the when a and and headaches of if right property loan foreclosure to impact can't resolution. that are balance that's for know on so not you headache. a so know loan ultimately that get that’s of you've is, you small your simple some value, headaches, to it's But a you when not commercial example, obviously – out into as

people and are are had hotel we that, to out lien but could you was malls biggest was, pay it a know and down it exactly taken our had, – but we much to properties, the or that I example to yes, about how too down That – that paid for deck, loan, are the on it looks there, concentration third in was liens seniority, headaches page and that year, were when, that of type you extent, in where middle remember have XX% don't the when turn it’s liens. I LTV that in things the think which know get People that If do are or or see have lot, the how second I it able so you just think extremely think in have the last we you comes one by still can if everything's know first there. you we basically are a to hotels – tells loan you, borrowers I you you that think diversified some XX solid if like right.

that it confident marked and par feel example. about at is we So very loan for

here maybe and are the nothing there's to around timing. really know a They there, everything material shortfall, going lot a nothing, in are So context but you going little headaches a there on. be of yeah, somewhere, small

behind really we're did where are of, actually placed, did did diversification. you're the documents about. underwriting theory think have all terms the good We stuff appraisals, good good that have really legal back, in turned reality concerned that we looking I we So have we the, proud that into

as well, the our and of performance you all and the and there's all the science right. of data put know portfolios – consumer have So in good, reality. underwriting into that the then in the play, there, Again like but we, other on we secured theory

for our to inappropriate apply really we So think so standards think lack about and when about are, to good just think continuing the we’re applied same feeling frankly. good very I it's I that of - we not we yield, reach headaches I feel

Crispin Love

you for Thank that all color.

JR Herlihy

– one Yeah, the gave wanted financing I of clarify to minute the ago answers just JR. on this about wanted to is a I just I RTL.

structures, and not the many there of that economics So the true similar same counterparties. same. are quite with are it's The similar,

in quite little lower securitizations. are and would wider probably spread as a of non-QM the the so It’s securitizations expensive, versus expect that and is which non-QM the not we what advances happening just wanted have kind are, little So on to product, other add that where everyone given liquidity clarification. RTLs but

Operator

Your from next comes question line the Vandervliet UBS. of Brock of

Brock Vandervliet

been your that guys, the its in circle positioning, saw the Hey agency most how of series, time get I covered portfolio the how and sense in hedges have hedge the didn't to think the back but wanted by in this a I up just have you changed? repositioned but might point, the disclosure basic on quarter. on

JR Herlihy

of in side, portfolio. to I QX, so precession, – have, quarter want with follow can we low didn't I’d volatility the look pretty we there agency up. and on answer that was don’t But think more and big was back changes rate

on positioning curve, there wasn't the yield of significant any changes. terms in So

Larry Penn

as basis. mortgage really would the the mortgage quarter. look at which the quarter third up were between quarter third think consistent, and when and fourth you were we we into I thing we the the liked basis can mortgage other so liked quarter. basis, our Those those mortgage and fourth the and mentioned of shorts, agency TBA We down, the in I the calls those what Yeah, coming upon coming into basis add that, good dial is before, the fairly depending

caused be mortgage that surprised many basis to are going first consistently if I of on as versus so of what's TBA – were in hedging that as know tighter, talk terms little want but contrast in constructive That’s a similar more spreads mentioned construction. - we longs. and you different shorts March of think we things that or don't even were in on the pretty we our XX. to portfolio in we right quarter many, and maybe But I XX% got look don't when pretty XXXX, periods to its Now as high keep the past about us the

about you the basis frankly, what So closer to at tells know time. we being you zero the felt mortgage

Brock Vandervliet

no? continue up likely And note, just the housekeeping tax kind Is TRS. it, think revs to that rate Got modeling okay. a in of with the or quarter, bounced this I the

Larry Penn

do you through taxes mean tax the just mean yeah, do the When see you actual you rate, that our rate income deferred say you or statement. flow

Brock Vandervliet

I I Sorry, guess mean latter. the

Larry Penn

Yeah, because the rate.

the You the constant income But know function a rates obviously rate apply. copper bit? remained could generating which and as be JR, it up, unrealized affect the to that elaborate going that. But you well. on also doesn't little talk be income, want really it’s taxable in gains we're there’s have of can income much TRS, of that has to we how a

JR Herlihy

Yeah, exactly.

domestic and tax of originator. So the that TRS the our provision the one mortgage in of steaks income increased this in includes quarter because activity

tax increase gain it of as would unrealized mentioned, under a provision. an increases deferred Larry As the trigger even

So have TRS. taxable that income that that's just one It’s activity well. of we the from domestic our [inaudible] as in drivers generating occurs that within

has but it’s tax provision. income that not change, is that income driven just to more So higher the

Larry Penn

of course those in activities our – you knowing we we're and to in Right, right, going high the strategies things going limit TRS ROE We're large a to taxable put as in strategy have to TRS, are imagine, low taxable, to the to ROE put TRS we is that know and and very not a those going that by right. you strategy a can are be right. that

rate extremely know so – there. in some is think some of ROE do, one at REIT our in dividends, originators our a actually when then mortgage rate growth be those if TRS we we Certainly point future, investments. sort well. parent benefit as qualified pays well. got investments It’s high as you in that another in those high for be the investors should very lower And strategies tax terms dividends we've our is of would the which So

Brock Vandervliet

Got it.

color. for Okay thanks

Operator

of of Bank Your America. of comes line Hewett question next from the Derek

Derek Hewett

the originators my color based could Most provide some book in but that Good credit of the were additional it questions what you further in terms spread was Was investments, already involved. on, on value referenced afternoon, in addressed, January. the of everyone. trends, caused tightening increase losses six, whether think unrealized positive it of I slide given dollar evaluations agency whether stronger from from maybe loan its maybe or factors portfolio, the equity other that

Larry Penn

know which investments. mostly but that's also – – think to know we And realized, unrealized, right. are are we the we to then the go on way, JR where Mark the Yeah, potentially think the we shift, are or It for tightening actively I feel out security free it, you by are risk with us to seeing not was When reward you spread definitely we certainly close when as take that we now we to both mean I'm starts going appropriate. are maxed was we and selling. in share. Mark tightening elaborate. – want advantage, It originator you lion’s add to to that. JR spread

you want yes, Any that a and to realized add JR tightening. unrealized by driven or of color Mark. So to combination spread

Mark Tecotzky

Yeah, one thing. I’ll just add

kind recovery year. last April the a of of following So progression and because following March of – was asset there

So caught followed non-agency last the couple of maybe and we’ve in up year lagged sectors tightening fell continue. progressed may and recovered in have really are those kind than were CMBS and year-to-date some faster quickly certain talked spread and non-QM, the agencies to we credit and have assets and and then about come others, say seen of order XXXX, drivers as back sectors we about. of whereas strategies in seem different CLO talked would that earnings QX I of those

Derek Hewett

That’s Okay. from Thank all you. me.

Larry Penn

Thanks.

Operator

you quarter thank We in call. Ellington participating conference today. for fourth question Financial, XXXX final for our earnings was That

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

Ellington Financial (EFC) 19 Feb 212020 Q4 Earnings call transcript