- Earnings call transcript Q3 2022

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Operator

Please standby.

Your program is about to begin. Good morning, ladies and gentleman. Thank you for standing by. Welcome to the Ellington Financial Third Quarter 2022 Earnings Conference Call. recorded. being is call Today’s [Operator Instructions] call and to the my is to Jason now over Counsel pleasure Frank, turn It Deputy Secretary. General may you Sir, begin.

Jason Frank

you. Thank

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

nature. looking historical statements Forward are in not

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

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

Larry Penn

Thanks, good everyone. morning, Jay, and

spreads rates the reversing interest constructive yield interest and After with note, As second their quarter year, started volatility, challenging much rally July of Ellington increases. proved time Financial. thank you for and quarter a however. third on first The your half in most the always, of a short-lived,

stressing their August hawkish elevated and shot sector, of a sharply and redemptions. calls many the Over of levels, for and higher. magnitude September, sectors margin X.X%, the the Fed of losses inflation loss the record and a declined loss. levels fixed steadily intensified reaching sentiment of to inverted, weakened alike. quarter equity meet the Ellington the the yield RMBS Nevertheless year. we from of continued fears this Financial up dynamic In course in Against recession across with on or this towards and spreads markets widest widespread to net fixed drove generated included income of interest widened selling every forced yield asset diversified hedging particularly backdrop, levels Volatility portfolio, and curve income rates non-QM, significantly by and Liquidity originator by the messaging sectors, virtually limited stable Market selling driven some sources saw economic stakes. financing of of Agency and our end that cases, managers difficult quarter.

loan, transition residential hedges balance interest-only securities. non-QM we CLO significant and CMBS And on our in and small gains portfolios. performance rate strong from interest mortgage had we net quarter, our commercial the During loan, benefited

quarter. securitization our during We also completed the of third year non-QM the

especially yields reinvestment and adjustable playing we distributable on our yields from end which dividend. resulted pools, of increase much up The our sequential assets, from the slide are especially bit to is into $X.XX distributable higher increase a portfolio, credit earnings. this larger will year, earnings now $X.XX see still had continued more with environment our which rotation we rate share, you reporting we the yield rising of covered adjustment With year. earlier have as that been rates Turning interest and our nearly catch in a lower investor reflect that presentation. invested. agency we of so a On purchase short curve, capital this three, of many our per dramatically interest got the of the The

we of a that our should continue lower out get as rotate yielding So we to ADE. to portfolio, boost

addition, portfolios that a in lot duration. In keep quite of mind in short credit our are

and those as So where figures, have heading. we bottomline unencumbered we a will continued to you naturally. our constructive themselves, maintain or can is grown strong portfolio. that still liquidity on the credit less see rotate Meanwhile, have we even ADE more The by our is from are cash position, as asset

estimated to all the on Longbridge like other approvals finally originator, affiliate million move value. mortgage a we half estimated premium Financial, was to $XX.X substantially than shortly final reverse the the in With that and of obtained, reflected Finally, end. discount of price quarter along lower Longbridge book to a million with our originally required price acquisition February purchase lower initial announced of closed book regulatory value rather a $XX The after as transaction. than Longbridge’s the I’d we of

now fully we Longbridge’s earnings our prospects of far conditions controlling with this are our beginning financials perspective, Longbridge market so Longbridge Ellington with and stake quarter fourth seen consolidate From strong, later. future even a business in we holds challenging elaborate With believe J.R. that year. so the onto Financial closing transaction, the on financials. this have a that will we will

the Given the of the forward. actually set on the we final in HECM, Longbridge the HMBS, return became XX% hobbled, really substantially paid, with equity originators, tough managed the headwinds excellent issuer that that levels. But said, also to interest turn at make are in market in a Longbridge’s trading on been new driven HECM competition lower no is it’s for untapped. demographic the and far production market mortgage Ginnie for been market share. forward going QX all mistake that the reverse to extremely is surge quite and are and in in with has investment largest the has is That second HMBS reverse wide an situation volumes we a profit Those different largely purchase be The issue outlet lower mortgage the so is for trend much the business favorable. the still HECM Longbridge’s near-term. our share its market. going third still Well, of Longbridge market from mortgage quarter Mae rates of a stage trends market rising believe for price mortgage

quality because to So expect the borrowers without we from downturn definitely provide can requirement acquisition the stream constructive that liquidity also and origination we Longbridge’s earnings and the reverse EFC’s Furthermore, mortgages should to mortgage long-term are prospects. diversification to stream. an reverse The example, business economic income enhance of monthly payments. the principal the flourish make see Longbridge in for on interest

fact COVID, teetering. were third In more the were Longbridge’s a falling to in in that, rapidly. soared when last component financial business. other is the cyclical businesses profits in prices detail. the the results in And the originations our peak it wake J.R., With of quarter financial global mortgage There income fixed to I reverse counter quarter over HECM home pass during when of the, discuss origination crisis of definitely XXXX to second XXXX, was in will depths

J.R. Herlihy

three will the I good everyone. and of slide on morning, presentation. continue Larry, Thanks,

share the September earnings compared share. and fully ADE of loss four, adjusted ended per Financial quarter per on $X.X quarter. results of mark-to-market share a and Ellington during to to credit These slide distributable net increased we $X.XX that credit, net the capital reported further the for see the from slowly investments For per $X.XX agency. transaction, to that per opportunities currently prior XXth, point basis X% including up of to allocation of Based a $X.XX are Longbridge our a loss relative share On growing can on seeing the recently XXth. allocation this continue closed we expect to XX%, you quarter I in June

average that see and our can last on on as quarter. portfolios are up both You agency credit also to market yields this compared considerably slide

As much this that Larry interest still mentioned, rate had purchase lower many assets we of the environment a on reflects earlier year. yields our

yields expect strategies. our narrow agency continue we our five, of attribution net of and slide we and On and As the between margin. supportive interest should between will see turnover yields that market our our you assets, that be gap credit purchase the earnings to can

our third retained significantly non-QM to income share a gross strong compare gross agency $X.XX significant strategies, gross of loss share, $X.XX interest our generated rate CLO hedges on while increased portfolio, net portfolio by credit larger These per agency driven non-QM from of credit share. gross also the in driven had quarter, appreciation per while strategy by the and strategy share a results the strategy quarter. per loss interest the of CMBS and of strategy in and generated and we our in the the $X.XX quarter-over-quarter, loss tranches, During credit per the of interest-only on performance securities. $X.XX the loss gains Net prior

hand, On Both were non-QM yield rapidly volumes significantly. declined and origination each the our portfolio losses our interest valuation on loan economics to unsecuritized widening generated the other margins for LendSure pressure quarter, and and originator continued spreads on weak profitable and but for rates, rising third sale gain loan affiliates. securitization in Longbridge the

was for reduction of the Longbridge, company. that decline periods. the to our price valuation half lower to due final other For the compared for purchase And earnings Longbridge, reflected in the prior

for loss losses net and rate the extended hedging on gains a elevated volatility its these we Agency quarter. higher also RMBS income third rates of face widening. durations result interest while the headwinds spread RMBS from on continue booked originators our Agency in to stemming yield to the contributed double incurred investments a in fierce As valuation response net portfolio, exceeded in mark-to-market net interest loan volatility. as quarter declines, the interest costs and In to these hedges, EFC significant as on

a As for agency significant loss quarter our a we strategy. result, had in the net

slide now Turning six. to

to can principal XX% see million the slide those seven, long decreased portfolio. combined larger portfolio these received of our X% elsewhere by XX% loan credit billion for quarter, Please capital loan duration total third The that to represented was borrowings. RTL, RMBS SBC by eight during RTL On portfolios, the paydowns many paydowns loan of XXth. significant increase turn from price sequentially and our Larry of in primarily portfolios sales total driven to quarter. you of at and net the a continued our value our the $X.XX summary quarter. fair consumer partially billion, resulting offset During a to opportunistic September portfolios paydowns of slide credit into Agency declines. next by coming by which mark-to-market losses our and sales, $XXX portfolio, and return $X.XX to short We alluded the of on the portfolios portfolio grew

a and greater XXX average quarter of portfolios, secured at weighted increased loan basis end, borrowing higher our X.XX% and rate borrowings driven proportion to our carry rates assets. Our which sequentially borrowing higher by by rates by agency points short-term

sharply Book credit both the higher lesser our by driven quarter, to amount. and interest to same agency for increased yields For our turnover asset both a funds strategies, strategies during over portfolio thanks of increased also period, short-term the buy rates. cost

NIM a we X% were X.XX% our and on to able agency quarter, increase As by the declined in X.XX% this X.XX% prior result, the our from per to ADE contraction, portfolios respectively. share and quarter-over-quarter. Despite and $X.XX quarter-over-quarter credit NIM

on borrowings Agency as old to by million credit and Our secured our our but of portfolio our was and financing purchases haircuts to $XX maturity credit amid facilities. availability of the total unchanged increase that recourse X, smaller has up on offset and decrease financing portfolio for recourse I the loan our senior equity. recourse roughly equity unsettled well have borrowings to note higher several lower of notes at the volatility, hold continued we seen sales ratio debt adjusted widen a will our and X.X of on was spreads market RMBS in

marked facilities a quarter. to senior are unchanged but increased the by share. liability expenses liabilities, we on one our further swaps, down will this loan since quarter during $X.XX new the downs down. technical balance loans quarter, that loan per that share In sheet expenses we G&A related X.XX% $X.XX fact, see per added concerning also facility a were per extended term XX quarter, by residential were other third able or the months. largely prior point facility we our Total while mark hedging our liability SOFR we for note and On were fair of other you we by share, $X.XX the investment which offset marked Those from to for amount, two a was each expand

program approximately price share, issued in August, During repurchased management and share. quarter, XX,XXX of $XX.XX our opportunistic quarter, per at our $XX.XX at shares the shares per ATM were under we we an an average capital average XXX,XXX of we strategy. the later with common In price

XXth, Including $XX.XX $XX.XX, third of As was total per at economic dividends book of X.X% share the share negative for our common our in return of per during $X.XX share declared value that we September down from per was common X.X%. the quarter June XXth. the sort quarter,

consolidate and securitizations, are purposes. separate Longbridge in GAAP it and as Larry securitization on we will non-recourse treatment a planning beginning true Finally, GAAP not as those mentioned, in we all of operating Longbridge does Because consolidates achieve HMBS its to reporting reporting. report our financial non-GAAP QX Longbridge segment sale for

EFC’s other The EFCs. next the million gross even As balance of though size also quarter, is to is was was recourse Longbridge’s equity price a ratio the that result, of at purchase EFCs than small than more marginally to for equity than half will will lower I which to out at double quarter September equity quite Longbridge was Longbridge X.X less X.X% of $XX.X XXth. EFC’s. here debt total end, relative point X sheet

We Ellington and into the Financial ADE business assimilate our GAAP the earnings accretive investment to reverse both and that be mortgage believe time. will are excited over to we

through only all to like in consolidation investments, value our in Longbridge directly I’d in of going zone Ellington earnings that and unconsolidated earnings EFC income in forward. about now, important and will minority Here, our entities. owns EFC’s Longbridge. quarter that statement stake make Financial valued net fair investments EFC’s the note fair an income equity virtually Until Like stake minority through a how each other change from impact flow

own value were Longbridge’s that course, driver change. fair earnings Of a primary of

factored Starting multiples instead impact Longbridge’s EFC, earnings EFC’s including historically, So and to longer earnings, determination, earnings factors Longbridge assets. into be value quarter, valued into earnings has but our M&A the flow and stock will in other prevailing financial and note also results into book fair all its directly multiples will similar I no will EFC’s simply Longbridge’s in fair of did Longbridge value virtually next market. came the our value play GAAP own earnings. fair also of that determinations on investment

the So acquired was based we value book effectively historical value, not fair costs. on that

calculated upon earnings consolidation. incorporate any own consolidation EFC’s In Longbridge the calculation the ADE, going change our will did but adjusted Longbridge, addition, forward. past, In when of we in at we distributable locally earnings not include ADE upon QX, distributable the generated our by adjusted will ADE generated

Now, over Mark. to

Mark Tecotzky

an of how rates, extraordinary the J.R. yield the and curve lasted. Thanks, truly moves What of interest the made magnitude unprecedented is quarter, spreads. long given in volatility of the widening is it twist This the the

as last and more violent during end seen periods, example, certainly have on at this but it during did times XXXX, March market before, XXXX volatility moves those the didn’t We for for in quarter. months day-after-day

opportunity what in given around is especially for quarter, saw good forced of because pretty through. longer the selling bouts sheet but all spreads had now, with constraints rather seems I the a looks good the U.K. turmoil, while X.X% managers liquidations to, extremely think days as forward-looking concern, is Agency moving September I overriding not in to Financial wide, third of to any functioning and down relative things economic of sectors. with us has absorbing against credit quarter, is in MBS, we weren’t feel the example, better attractive. balance the manage return starting indices marginally liquid flow passed some are We market just for an they predictably, in the were don’t because volatility third and Ellington market forced be selling forced they two-way some spreads to. no where by the market, and wanted means, think value are there to unlike And

saw changes don’t we retained the the credit we extension rates storm retained balance in taking eye incremental assumptions, year, in structured issued face own However, in to tranches large substantial of a loans near and plummet sectors. the declines we AAAs. in time their IO other component have into actually achieved tranches. Even appreciated any Along concerns, much non-QM lot EFC, call yet before price caused of those have we a those third QX one Rapidly mortgage have clearly and we in have strategies But that declined. quarter. of AAA and own the risk. bonds account rising our in this value own prepayments not in given with non-QM was product Non-QM CPRs how

in the being also have via including MBS unsecuritized short in had TBA loans, We hedges place our market.

investor for this this predict non-QM hedges had we now market helped possible, footing our a spreads We securitization the hedges Non-QM offset it QX for strategy AAA terming remain in didn’t losses way is as and we between our but and have sustained a bonds. would of the started that continue credit has lot pull borne in adding counterparties. also repo brunt why widening for additional the quarter. repo all those for spreads long, market push positions and dysfunctional out non-QM a third quite those of back which certainly thought against in searching We repo the and as demand

companies repo, securitization many of have about these want quarter for two a spoken The sense term is to makes to a new on and market delay financing non-mark-to-market additional recovering, originations if our nascent relationship on repo showing as There the or calls are flexibility with have repo extreme the that radar. supply originators times or insurance the and but is pricing exit activity many Meanwhile, showed have We attractive. things you other very up over some yields is on signs incremental benefits non-QM back capital and necessary. of new demand. sometimes securitization are primarily so slows market as have slowing now from the pulled

commercial talk mortgage First loans. bridge let’s about

the their This loans be what can loans now on the we might problem part of structure down new this forced the, DSCR an have and maturity the that to of that product LTV on off capital with is will that factor. also some dynamic dates higher result mezzanine factor and limiting situation new As volume, to are even properties Aggressively years. wide, capital that significant so Furthermore, the rates hit and opportunity limiting that their plans, provide be is generate where be that is equity market property to these required existing solution, being nailed new attractive as a property in less type the sizes, where to upside pay requisite loan. This than refinance haven’t size be yields. limiting NPL at a size or only severe sorry. we creates offered though performance also the level being solved creates the issue even owners not, it can at But LTV, lowering typically the could be business can loan meaningful seen capital. much opposed

mortgage So up very but properties loan are we performance underlying and to far, through delinquencies. are bridge preparing well, holding been valuations has on our good commercial mortgage in manage portfolio the

size in our new lending constant loans quarter-over-quarter. portfolio and Given other our the originations EFC had and are resolved, opportunities was four roughly five the volume for we was quarter down, sectors, participate seeing

slow. likely seeing levels, Second, rates we most in to borrowers outcome existing is continued time affordability. mortgages to back their affordability. level think decline about are a home to In homebuyers for continue That’s need we so the fix-and-flip, all will stay Also operators below prices lows home reasonable of fix-and-flip. with their where current sales a pay in challenge many X.X%, let’s in talk housing at MSAs, get off locked to many If some mortgage loans. low-cost

portfolio, We strong. very continue the is are nationwide. clear healthy home a we and evidence seeing of listings volume see on In time new remains to dynamic this performance extending for paydowns of our as market

a the loans, In have underwritten. lowering fact, against, limiting we against homes of the still raising there market really last these selective of aren’t On work aggressively where just regions we we get new lend. the homes now terms, operators still lend down lend on operators. Unlike more buyers we rates lending it’s our scope many we above and been value have selling for we clamp the year, loan and alternatives are the that we want, and generally the can about limiting LTVs, volume being value

on four. relies we shift as from leverage, strategies the quarter, overall, capital, more but you continuing during incrementally agency are Looking credit of can RTL to on Both agency our just lot portfolio, incremental in now at now primarily have portfolio to return slide dollar shrunk which XX% a see strategy grew incredible and constitutes so our we portfolio potential, our credit. our agency the away the

this in we As release, we quarter. past mentioned marked down our the press stakes originator

just for and case next smaller they greatly it’s loan quarters which be profitable quality exciting. LendSure, the The volumes the Board, reduced the tougher still opportunity and the the has across For a of gain and of think originators were though is margins, speaks will but few there. competition about lower volumes sale management been I discipline the on origination quarter,

million about in loan changes they agency about a managing paydowns us origination loans partners levels, $XXX seven, secondary we the EFC’s value to to in price tremendous shrunk own our page and sales, combination dialog. and that of constant are there’s of through retained tranches, in portfolio meanwhile, landscape, with the market addition them informed by dialog informed see On net origination declines. can keep In portfolio and keep you

markets credit crisis a liquidity to remained buy not XX stressed. page credit and So up recovered COVID agency in while But agency both came months liquidity like of recover we before shrinking our out in and didn’t agency QX, the throughout. Fed though. market MBS liquid the later. Agency the In credit were playbook credit COVID to because portfolio was the assessed, XXXX, QX were free by when took

the do What posed respectful have and all opportunities leave are what now? and risks recent severe to interest Fed the of at rates could sustained risk years balance Looking simultaneously and and sheet when shrinks are the rates how XX been hikes recession? what We pace fastest be. and consequences moves spreads created higher its by the can and of elevated in market an happen us where sharply ahead,

We have improved value of the who to lately, has spread very the markets the the there balance in incredibly tightening. and in of way and market PMs Spreads is widening agency upside competition management since team, for for think management are financing many on high When widening, that showing an pricing assets relative just of going through that outlook going the Spreads for RMBS we and end I has markets multiple and been am for dust CMBS wider team, hedge period book lately, experienced we shocks price Even yields as is here, queues seen to in and many senior opportunities are a high way are are headwind of and experienced been stability earnings origination believe great market settles, confident widening many so headwind better that other in assumptions are have has risk forward we an bear before. environment yields up. managed -- Spread ourselves if will yields stay value but returns. find has book a a has opportunity spread usher dramatically. quarter. good in investments that forward it The as a the Meanwhile, and hedging relative also from points years. down. potential costs bearish looks the will the so where the

higher lot to starting take lots worry the our power advantage of still tighten a capital into and market yield pricing charge have investment and you So new and the keep There’s opportunity. guidelines about to discipline, come will the to we rates. of is

Larry. back Now, to

Larry Penn

Thanks, Mark.

we to of a As opportunities the I think, loans. final buffer guard securities continue market capital we additional are to excited we adequate investment move and in weigh both that weeks the XXXX, But deployment downturn. ample into against you against tell can maintaining the liquidity about deeper of

to many originator to adding of as We their an affiliates withdraw opportunity continue also competitors share our sense loan from market. just the help market

slowdown, Finally, the I that economic by recession as measured performance a continues type. be emphasis on tightening to loan LTVs about increased guidelines, note underwriting the with on our looming, losses, our particular with we even fears defaults and being risk credit are focused of portfolios, of delinquencies, geography with more low selective and strong. will keeping credit property But an and

transition lower and takeouts, For rates LTV borrowers, helps interest loan re-financings sharply so stressing mortgage bridge commercial loan our residential are higher against starting a declines. and point value insulate property

We the go up to are declines given weakness, home deteriorating price preparing questions. are seeing ahead. now so Operator, regions price and please evidence call meaningful now of we in of open clear With some for affordability housing the country. will that, we

Operator

first George KBW. comes Bose from from Our question Instructions] [Operator

Mike Smith

Mike to Longbridge? the question, given Bose. of Hey, earnings for capital relative for guys. of just a sense deployment actually help that can and just for on first This kind addition is rate, run you get core My then $X.XX, us your outlook Smith

Larry Penn

for the Thanks Sure. Okay. question.

to ADE addition did from captured the Longbridge, I second start beginning Longbridge of in will point, QX. mentioned that, the be So to

realized We separate core exclude to from business the on we are than components going and unrealized that ADE components it. portion of its that is at are operating present different EFC oriented that give from The whereas a gain as how and are oriented, we EFC, of originator the sale segment side. and origination also given of calculating detail

components will we different show them the will be So but both.

we to bit and current As dividend. be more volatile incremental accretive just again their -- adding so to a ADEs than our piece consequence of the EFCs think very we looks be today it’s to tends gain component on a relative EFCs. at Longbridge, it time to good sale But over that project

One rate, part. guess rate second are of run is part, And that a talked of calculation. There estimate here. and probably, Agency which the first the the a because from different as almost value increased I is the big good the the think the this XX sequential is, overall into in was pieces moving is of a that’s size even quarter, we run parts driver. increase portfolio about was part credit So so the I That pretty then declines. size portfolio lot of XX% our book

the have yields. also We asset

talking higher yields on been market should -- that funds reinvestment purchase have to have which turnover it Cost are we how swap will to component, short-term We of much what lead a as -- more growth NIM. into rates. is lead will contraction about marked also the topline to think be we interest and short quickly with so of the adjusting then have and we had yields, NIM

that’s a think going probably be you rate. which that on XX of good is covering longwinded right to we Longbridge think run have your to And is to guess folding are going kind I the the $X.XX, are question, are effect we of a additional we in the answer dividend, of that it So I then top But now. to equation.

Mike Smith

Any expectation there.

Larry Penn

few per least. A and per few I that and quarter share also sorry, could cents Yeah. -- am a be at that --

Mike Smith

Great.

Larry Penn

Yeah.

Mike Smith

versus in the That’s much sense kind for book the recovery of Thanks. And wondering much you for last do value, unrealized? of then has helpful. is on decline guys how over book? how one maybe been few realized there quarters just potential a Just your have

Larry Penn

Sure.

our that’s our it’s a chunk we in date I component -- whether unrealized, year-to-date, think took unrealized originator have that’s portion numbers, LendSure, better cash is a where where and -- below there So but whether cash on stakes component. those the big we picture, agency give the of to of the book where balances to significant you a with strategy, been can been a losses stakes, losses unrealized I And good company balance upside has sizable point, sheet the value transaction non-QM think which unrealized Longbridge’s there’s down down, then the big representing another there. of has is source -- mark, there took I year-to-date,

had $X.XX income we look a share. realized that losses $X.XX months you September statement about almost can per to you XXth, ending losses nine see through unrealized the of share, per year-to-date, If at our of compared

good the of they yields portion we and high tightened high. or we of that So just that stay which even there, that if here, a are if prospects can proportion spreads from two-thirds is think combined so, recovering unrealized think

Mike Smith

helpful really Great. That’s taking Thanks for questions. the color.

Larry Penn

you. Thank

Operator

question Credit Suisse. Harter from And comes next the from Doug

Doug Harter

just holding the for of how in decision? of and Thanks. you bit of versus that volatility Can cash talk other about are thinking you about in what you are looking little move for you or the way deployment kind a liquidity one kind might near-term balancing that

Larry Penn

do Mark, to take you want that?

Mark Tecotzky

Sure.

and mean or something we is think the you that, So of a in part is starting to markets look high function remarks you If bit telling some I for the magnitude some had at supply what push the little advantage market that what of that mentioned really looking news. demand. that of you tomorrow, portfolio of, expectations just prepared big maybe I as market Fed managing right? and but taking high England, the Bank that another to pull expectation there ahead managing a is like but Fed in said, on sort are hikes that lies discussions from the come a supposed whatever things are lot. it be yields, you with a -- good just statement is so think the between will market follow was level QX. certainly, I balance and of don’t changed green better my at perceive have down of the company I shoots, just if prepared and

which moves better a the we yield you I think just selling. of we sort I are not and balance, for market, investment absorbing spread pointed that of is an take it are more are I daily closely grade to think to indices, following indices indices, is of us, indication agency high sort like now credit

and credit you and demand and Now liquid seeing look where still supply parts at certain right? forced QX securitized is even October, back the and actually are you managers. if wide, legacy into you look have at non-Agencies, of indices bonds days product you selling had indicative market, let’s money in balance would if us, that tightened is you from markets say, where To not of that

So lot those a think we look at of indicators.

forced things market of see in the we at definitely move. the selling bit would still from you quarter. I how disconnected securities third have did would prices a those But how certainly on think parts than that see imbalances, predicted day parts still where are little there given We right? better they of feel a have

we other the market. other the coming into factor is Now capital look is, what at

in been of And how a across some so have I buying capital think for and it’s erosion. on mark-to-market lot to be deposit a had it’s it’s they going relative it’s struggling going had that’s bank They portfolios. one CLO, XXXX thing Board, so been other absorb it been losses with is written and to that’s been distinguish been MBS, interesting to the of as banks securities Agency about AAA of the are to also sale have diminished really lot years available lack it

banks are player you they the the securitized being haven’t way meaningful amounts wheel are. have the at But that sort the seen, of the of So seen with up new, capital of companies. you some products participants showing in of what sort historically the insurance is substantial new

the right? us how right we think to it’s for take now have think on So it lead positive but we all hand, But put to for enough cautiously see cautiously going of sign. sort caution I is much shoots, say optimistic, are cash green part as that conservatism starting I some all clear. but still that the I of you optimistic sound that, to would we So when we on are together, not another

Larry Penn

Yeah.

We on So by the only credit around last that. could if quarter. I grew just X% elaborate portfolio

about higher it’s are I to off in going near-term, with running that more the replacing yielding forward be assets think assets. looking the

one yielding right as We our of definitely different is now. higher know. have a of lot ROE strategies you strategies RTL

flow we to think flow. going very I to healthy So continue are there, see

hand, as so sort commercial growing slowed quite portfolio. not loans have other balance as that bit the that, prepared replacing mortgage of On just we down so and a sort more of the payoff, really mentioned that remarks, in we small

where We capital the selective in. a on as we always be going shrink cash have Recently, I third try But We our to coming choosing $XXX little sometimes little more say, been of would very to in We terms -- think quarter, to depends securitization our higher in dollar portfolio, be lower, securitization, mentioned wide a will $XXX asset while portfolio. range, haven’t agency typically continue a other we can non-QM other think the million it’s that’s positions mentioned sense. that we keep Mark we the right? to like spreads bit. one capital been that is that of non-QM loans hold So that we obviously, of the are deploying are those dollars makes We mentioned upon the that, of million to the seen range. in did but we repo, have that unencumbered we nature little market. in factor

catalyst could that should a be certainly So credit bringing for assets completed more securitization we there. in

lot So factors, in I bottomline growth overall near-term. in the a gross huge is, there’s wouldn’t of size credit the but expect portfolio the of

Doug Harter

Great. Thank you.

Operator

question next Trevor from Securities. JMP comes Our Cranston from

Trevor Cranston

Thanks. Hey.

secondary of potentially of more seeing evaluating little little proprietary are selling you and about some bit the investment towards loan opportunities in? a you end market the September. what guys come forced you terms guys talked talk a capital have guys how deploying in kind seeing are there versus You of bit about Can you

Mark Tecotzky

in we prices drop than saw Mark. drop many in that’s a security big question We It’s in topical. That’s very prices. -- instances, you in great greater the drop how loan Trevor. Hey, because In a securities XXXX, the XXXX. saw it is in

So securities portfolio. to the added we

always to are in compelling securities very are and loans. to relative cases, interesting can between they the trade-off looking at they yes, relative value if look you We loans. think some selective, us. We securities And -- are

this November valuations, you that, a buying are is lot you right? The XXXX loans, season you other thing about are are into buy locked when securities securities, property that market securities. you originating When in is, matters

I risk think a transfer example. credit good is

took that You since loans. XXXX, XX%, price borrowers XXXX, where been CRT can bonds the buy could home were they XX% in of their appreciation originated have out

are So than a origination. lower they they at what were LTV at substantially

instances compelling it them makes we securities about that have those all to have yeah, So very we factors. And believe in versus seen where dropped we loans. where point think the prices

say, would we looking I So at both actively are sectors.

tightening and a On some metrics we been through sort guidelines more -- side, cautious we that of we the on. of it’s have the become loan went been about of list

a And I really big securities EFC for so, the opportunity think, yeah, are now. right

Trevor Cranston

it. Got

in securitization market how repo available much you financing then that. you you mentioned also utilizing or any for loans, is dysfunctional. the for any -- limitations of, Thanks somewhat for you if on loans that? of is of loans I and anything sort long terms are Okay. am lines remind repo have And Thanks. if like Can held there’s sort there more while capacity how and be us of those sort can

Larry Penn

on Yeah. we capacity limit facilities we how capacity this of concerned are now But not is have is held long that no about do No. a lines. of on loans There total we sort could variety wide point. But at something and be those not disclose.

Trevor Cranston

Thank enough. you, guys. Fair Okay.

Operator

from Hagen BTIG. Eric from comes question next Our

Eric Hagen

Hey. Thanks. Good morning. I well. hope you as

sense dividend many you accept going what’s that the of including other portfolio, subordinate the pay? stable is? how balance here. characterize repo I you year, return I the also between like the reason agency maybe dividend about a capital financing that balance say talk three to for have for your say And retained break be are on you those the think and strips this what how in you IO heard of questions tranches tranches you and the that? down Can subordinate for Can RMBS haircut I you just I will what shrink looks have non-QM -- think give maybe mentioned guys a sheet the to you that the non-Agency there? ordinary can

Larry Penn

No. No.

trying look in we very this now. example are Just they not in I -- terms for can anything, specified we should are to excellent discounts is specified find you turnover extension risk fact, pools, especially right at point. really have agency wide think accumulate mean, we think And speeds. have pools of we faster that to at value we and been subject Spreads if the if relative there, that and are

agencies. nothing good, opportunities in very against are the agencies So,

Just…

Eric Hagen

Okay.

Larry Penn

out cash and like keeping liquidity the a to And just our see to of up taking the as also always our better quote mentioned, we unquote, keep and leveraged of that’s ROE where healthy. Just position keep we liquidity source just taking playbook, our -- good COVID page Mark high.

Eric Hagen

Okay.

Larry Penn

Yeah.

Eric Hagen

right. All that. clarifying for Thanks my… Hopefully

Larry Penn

you. Thank

Eric Hagen

through. …Hopefully my you, guys. questions Thank two came other

Larry Penn

Yeah.

Mark Tecotzky

I… don’t Why

Larry Penn

Yeah.

are versus I you don’t I could first have maybe question quite, I second hit after you. about financing if on then capital So return the and on It’s taxable will answer interesting on your guidance of for re-dividend. on retained guidance why don’t I an -- on you the good income the Mark, on tranches the go? a So two our comment

given will haven’t a of I We But little basis. regular give current you income a color. really on taxable estimates

on thing our we is, is seen which one have so to this that in a unrealized though the we our where which ordinary losses impacts from caveating that’s we provision. have normal year. domestic is, we a One had the taxable first make investments, component income somewhat that because securities. blocker, earnings far market The some am not run have a happening XXX our originator on this close necessarily the contains market, normal election the in of securities, coming those None GAAP loans investments. keeps I

for there We through most blocker, some where that part, have been also the losses. securitize

our So there losses blocker re-taxable have been domestic be in reflected some that of the necessarily income. won’t

makes normal that So have we and level might at some in in our dichotomy put if market, between we this sense? doesn’t year So account corporate it way, more so could than a be income, have take income that blocker, losses the top than right? income re-taxable another it there that a functioning taxable GAAP into

Mark Tecotzky

taxable between tax, return will as think still the GAAP just a dividend great our Does It that be won’t would as sense? spread might component. our expect and given make have that you income. capital our I of

Eric Hagen

helpful That’s detail. Yeah.

Mark Tecotzky

Okay.

Eric Hagen

That’s good.

J.R. Herlihy

Your first question.

Eric Hagen

Yeah.

J.R. Herlihy

Yeah.

$XXX.X detailed versus portfolio our on that So of -- at That the the we fair XXth million. was retained out we slide break tranches, and component value non-QM. summary non-QM that September those

Mark Tecotzky

Slide Yeah. four.

J.R. Herlihy

Slide retained four. tranches financing this that? comment want about I guess he those Mark, on you changed and haircut do year, -- do has asked to you want wise to availability how on

Larry Penn

Larry. -- this is think I

me of and if, -- available me tell issue I level if the Mark the think in believe are finance -- I in terms that in those. what’s to haven’t we any still correct and haircuts I but that had I continuing of we market still around XX% am terms wrong,

I material or of seen availability. any terms terms in of sort change the that are haven’t we in haircuts seeing So

Mark Tecotzky

live market if right, are going goes repo margin be Yeah. because to, are current The lending haircuts to fair with stable, spreads, be have to of essentially you changes, lender, the XX% still XX%, cuts with make haircuts and they you wanted down, haircuts and you goes you right? value are though positioned point to value I up. going you, the still to lending are market called to let’s either can stable and volatility say, to margin your mark-to-market while have are they you if is manage levels, stable fair that, So it through even market they get the call it

out retained sort pieces, figuring of of we that interesting, into was dollar principal. it’s about the heavy So IO relative by and going this had what’s we what to the price sort year think

sector -- remarks, this that year. the that has done And of non-QM part speeds. slowdown in overall portfolio well dramatic so in prepared the we has There mentioned a been

that across the the in securitizations have see like out you are widened more lot structures income, and than in Board of seeing top investment year, it indices a RPL BSL CLOs capital been it’s changes in So one the a to issue market in spreads, and us on year, probably, AAA, non-QM it big It’s spreads AA, of hasn’t bonds, been BBB. so investment been really costs, you in a than NPL things you that, hasn’t this are the that. A -- it that grade widening or seeing lot big in IG financing this fixed really

to And so AAA spreads grade they that a movement relative have spreads, widened lot primarily in repo. investment

there’s top capital securities. of while repo the as The know, on and come bit, up on typically are banks little they haven’t money have a so spreads structure. spreads supporters nearly been securities, you come managers spreads much as And of the

question the a this been money and on it’s side before, talking security had of how market, in the had about we year diminished redemptions. earlier, about lot managers Trevor As mentioned have when role banks a I were their the

moved So top some it’s functioning, it buyers. It’s of the done lot. has out a capital structures had it, widen to to but attract new

will wider available was or is the spreads we that future. what portfolio slightly that’s to do. at term of with -- why where so able time think for we sort normally achieve us, are it’s the the living managing we repo in the financing its market a be securitization on than than to with were we us through And loans more At

Larry Penn

more really sorry, And because right, retention, are that is before, a a let advance something get consists which opposed just lot actually me the can lower on rates we haircut you one even just higher add or, about to then haven’t higher haircuts but thing, talked vertical do you if of tranches, as the bottom horizontal you retained strip of rated getting piece. securities

considering actually not our it’s something So may that’s are do next months. or few for that we may a it. Obviously, been deal

especially environment rate we next So at buying the in very to and that was there the go IOs would But levels. see strong our that interesting, could even that one, vertical right? that give produce be us of be last securitization, way being time also ability because to the sell July think the our we could market, a And to some non-QM I from IOs receptive retention did that too, securitization. we a high could

market -- as options. see given bottomline see a giving strange haircuts this retention that there have vertical state. it’s advance But in that. you done not other securitization participants rates, we and it’s could -- is lower So us lot many could now right gives Obviously, this we higher on

Eric Hagen

Great perspective. Yeah. you much. Thank very guys

Larry Penn

Thank you.

Operator

from from Love Piper question comes last Sandler. Our Crispin

Crispin Love

in could And if early I not guess opportunity here other about XXXX, for any active the curious area couple loan banks the you you shed potential more this distressed be and start in assets on you but expect some of already? opportunity an where to is in areas Mark, I are am that would have there started see quarters. there next to you for Thanks. an to non-core securities, talked be CRE acquisitions, the and

Mark Tecotzky

No. a great It’s question.

I would yes. So say,

that from So GreenPoint the it Mutual Ellington things is right? strategy When companies, was lot old selling portfolio, and they we had and during small the portfolio the buying fall it first commercial balance thing XXX% commercial in had those acquirers, of loans,, the banks Washington loans are came a both their Financial, that -- those the old was non-performing big the and headaches had crisis started and we both commercial portfolio financial acquired in were a delinquent of so. -- balance lot loans

So us started probably it loved just XXXX, dried a and we that that distress. strategy in There any up, then wasn’t right? great and was but for we it

than of be coverage limit do remarks, the think loan and of well. on I in a we that about the service talked property get loans to issue in many balance smaller prepared of balance the balance paid it that So ratios new loans. a could off loan going And wants new kind a performing despite debt this are new cases, to of

I more see yeah, we So, will those opportunities. think, of

starting just to are We now. see it

are The uncon financially we on area, have acquisition consumer doing not -- consumer the think -- going bank are programs we to in several to a see fairly it what been about I used That’s talked it’s fairly when not consistent side unsecured the have quarters. loans. loans, on you something unsecured last used we you buy to is, other

by we we the capital getting of market about consumer banks. we priced the unsecured buying -- talked credit bank -- kind So and unions were why and is essentially I reason I think challenges the the stopped And loans faced. out of

starting are showing to many of which are coming packages So consumer loans, we par. at originators loan big unsecured discounts see of to us

there. potential is there So

the The that is other is participating loans right, auto been potential there side, on that’s something auto we and area where packages have in. of

distress residential can residential side, a are Ellington starting past see to loan participating the anything think, we on you on to the delinquent either are and the don’t lot I these XXXX, XXXX really more prices, saw side bit. a going of or sales the for the no what seeing be I little was GSEs, that of going Financial returns more think in Financial a RPL XXXX, modest it’s participate then whether so to if Ellington in is whether has it’s decline in loans one something side, distressed this see reasons. that just to NPL you home sectors been --and from close now you there going exciting I maybe lot So drivers of opportunities in the been of think But but in in XXXX, forward great much. that, that have weren’t and XXXX, sectors accelerates,

So, are will we for looking capital are no, that, that for to allocate we we opportunities. ready and those certainly

Crispin Love

Thanks, over I on $XX just in worries have environment? helpful Mark. at slide where Are looking position more And if you just am uncertainty to is just CMBS or there from increased to beginning general All question very one right now cracks sectors, or any million there. am million, hedging any you see it you I correctly, that. in XX are the at current looking that last so me, from the are about $XX then chart so CRE

Mark Tecotzky

if it If think didn’t took first when work-from-home. property was the been X% might essentially you with a new spreads you loan paying plus loan, have from your where a to SOFR SOFR, zero are think, with if those and are I paying, turn CRE lot was you living years, is people been taking get now at bridge a looking LIBOR issue up points point were LIBOR But issues office, at of about written for a you look operators cases what they some right, know, loan, interest and floating and I loan XXX a could with higher. get with out net. it’s out you you rates are there’s with bought been CLOs, more LIBOR out things XX-year are our to There’s just right? you the X.X%, in that basis loan, you bridge retail. a an conduit when certainly XXX rate

or some your just in -- case costs going some double debt cases. it’s in So double to are

then if that to and so haven’t property coverage to your point And your able proportionately ratio can is side income the if with where grow -- service of to debt drop cost, come and is been that property going going to is increasing it debt something, you it’s drop you on up full the existing loan to the of the you when willing -- date that to lend not maturity existing your lenders the have amount grapple loan, to with. might market be a

I think it’s opportunity very that on. us focused for it’s are we something and

Larry Penn

Yeah. been And hedge terms -- sizable is that our you against of I it in as commercial view portfolio, should balance steady which think hedge small and has size. its CMBS

see office you Now challenges. have you and is that that multifamily is like still think some like there we and of look believe support got good to the other I things could values, close for XX% that have XX%, like multifamily that, right? things but some And smaller got against categories

Ellington on I willingness our an and in uncertain face largely think hedge, it’s the that environment. portfolio a against that to of hedges again the Financial, against a differentiate terms of it’s So, that put something portfolio hedge credit when like in

Crispin Love

I Larry, there. Thanks, appreciate Mark. comments the

Mark Tecotzky

Sure. Thank you.

Operator

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

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

Ellington Financial (EFC) 8 Nov 222022 Q3 Earnings call transcript