EFC - Earnings call transcript Q2 2024 | Ellington Financial Inc.

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Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Ellington Financial Second Quarter 2024 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I'd now like to turn the call over to Alaael-Deen Shilleh.

Alaael-Deen Shilleh

Before we start, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

historical not are statements in nature. Forward-looking

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

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

Laurence Penn

everyone. good morning, and Alaael-Deen, Thanks,

Credit Agency strong platform, reverse the from slide from as you begin interest portfolios X the Ellington As as second results in mortgage presentation. In and for diversified well always, Financial. Ellington on and contributions drove time broad-based our quarter, Longbridge, for I'll thank of your our Financial.

In we economic to by paying earnings X.X% full an increased first $X.XX momentum book pleased to business keep per and In quarter. seen I'll been taking our XX value taking of from securitization and strong of am We booking X the the a years the tightest of see securitizing share, dividends, a months, April here. the in distributable the spreads for of we've per share loan advantage our first return our generated share non-QM after by loan yield ADE in completed non-QM AAA highlight non-annualized. grew April, than performance in rather months a whole increasing as our we bids $X.XX per up we significant to leading many selling them. deal, the we quarter, For results. adjusted very we've that marketplace of I and strong result. gain these our with in loans non-QM advantage

for loan levels. to tightened non-QM While XXXX bid securitization strong, saw early loans we AAA back spreads remain the whole very

And so of tranches provided economics, decided in rather also non-QM loans retained securitization boot. April, residual but than our some to selling. not That provided only attractive securitize with we high-yielding us to it transaction

that whole Following other that we proceeded loans sell April strong to loan non-QM bid. into securitization,

markets, financial given imagine, risk well-timed. turned recent can [indiscernible] the this in to all extremely be you As the activity move out

spreads But volumes, saw in unlike industry origination quarter, to yield non-QM securitization the non-QM, wider and led by HMBS also LendSure in strong continued gains affiliate drove mark-to-market Longbridge on for and HECM performance those loans on loans. for proprietary were industry-wide, strong the both quarter, also mortgage we up and excellent results affiliates. generated margins less In addition, including equity demand volumes for the the boost robust Meanwhile, origination loan contributed markets. on at volumes gain for improved significantly sale reverse of origination earnings the non-QM volumes which Similar originators, our in Lending American investments strong non-QM our Heritage Longbridge. and

gain a the for origination compressed benefit sale HECM their of in mostly which As higher margins offset volumes. business Longbridge's the result, quarter, actually on

second as mortgage closed-end CLOs. additional RPL/NPL, as the nonperforming strategies. portfolio, with RMBS. has the in to volatility, than wide we originated inaugural quarter's end, the another generally mortgage part last we non-QM important financing. into quarter. deployment credit over CMBS, agency short-term second have purchase in mentioned executed capital completed incrementally and strategies despite That seconds, high-yielding the the an quarter converted August, non-Agency market loan transition ADE our amounts leverage did provided for these commercial given of our I including Financial's strategies, our also our time, a non-mark-to-market Ellington Longbridge portfolio credit turnaround from in first quarter in residential non-agency with added well Longbridge, mortgage GAAP performance securitization third, risk-off following stronger slug portfolios, prior This quarter continued Finally, a we've coupled MBS we MBS our by Again, Longbridge, basis the of another we loans, The is on that well-timed and the especially locked-in our both down Since originations sales, At but seen our great transaction. included MBS of significantly leverage and and securitization, the in retained commercial the to Both long-term loans. transaction securitization high-yielding increased recent financing call a achieving of predicted a residual benefited in job the Longbridge repo and us at commercial the earnings deal the ADE of and securities new in was into that delivered residential reverse attractive we have continuing proprietary as utilize drove second sectors, solid both and array execution as successfully move Also higher overall commercial Agency investments the of tranches. On ratios prop RMBS. our call, growth earlier. momentum we of this mortgage quarter basis. results reverse, same HELOCs of second quarter, mortgage loans especially lower-yielding very and well second X

and have borrowing Moving earnings rive valuable widening. capacity significant JR other we detail. results unencumbered that, discuss spread is financial cash with assets plenty drive to the call portfolio given pattern plus d[ recent That growth ] with And forward, assets. I'll to second and particularly lightly quarter more in over leveraged to the of turn

JR Herlihy

good Larry, morning, Thanks, and everyone.

strategy share are quarter, the income net can on $X.XX attribution second reporting income per $X.XX see and per For fully income net X, share. the and distributable $X.XX quarter in a mortgage interest of gains share of strong credit income earnings RMBS, net loans, The RMBS, you commercial net driven per Longbridge. non-QM a adjusted retained slide robust and of non-Agency GAAP net basis. non-QM mark-to-market On from the Agency, GAAP we by loans. between generated Credit, of and

Heritage mark-to-market on to strong volumes and in those investments another sale originators. margins we which gain American Lending, from gains from from benefited equity performance dividend the sizable increased prior origination quarter, Similar the second for LendSure quarter. in received our also We reflected and strong on LendSure cash

modest portion yield with originations, interest net higher quarter-over-quarter, $X.XX these income loans, to interest rate servicing, offset HECM the per higher positive to was quarter. by tighter net residential contributed newly In Longbridge contrast Longbridge a share spreads on results share gains yield our in net mostly all share tail contributed also loss HMBS. to Offsetting positive proprietary the volumes GAAP In gains results net driven our contribution were a on had along from Meanwhile, which its of Notably, slightly servicing. ADE in originated on second on of securitizations, margins RPL/NPL. seasoned the generated rates and addition, hedges. by per sale from $X.XX led driven gains a more to we gain reverse spreads on quarter, servicing. for net in decline mortgage HMBS last income wider execution In by per segment improved interest negative on $X.XX with

agency net what of our gains net hedges nevertheless in for strategy losses net a generated with on rate net agency on exceeded share the per Agency down second interest for income, our basis Finally, overall, the slightly mortgage as quarter interest positive was income $X.XX along quarter MBS.

equity. the reflect fixed partially also our receiver our driven by on our we senior gain the was by This offset loss swaps increase for interest the both increase interest fixed the quarter interest gain a rates net preferred notes. that also net on results a unsecured and the in rates debt hedge by driven rate to long-term payments Our in used on

slide X. to Turning

by can the ADE of breakout segment. You see

share Here's where $X.XX drove the which share per increase rose you ADE, $X.XX solid contribution sequentially EFC's from see to $X.XX. which overall Longbridge, per in that can

portfolio percentage commercial after loan including and consolidation In loans slightly for Turning ticked equity our the delinquent next the loan method increased residential purchase our the excluding Meanwhile, of loan mortgage percentage performance. portfolio, of another accounted impacts portfolio, of one our as down loans in to quarter-over-quarter. also investments, loan nonperforming delinquency loan mortgage our sequentially. only portfolio, of nonperforming

resolution we commercial continue also We loans nonperforming work bridge said, based quarter. a on our referenced to gain on on mortgage nonperforming one last That loans X mark-to-market of multifamily process. progress had through significant that the we those

higher second on weigh meaningfully ADE expenses loans the in and quarter-over-quarter, While the status to continue nonaccrual not in quarter. REO

cumulative lien XX. second during of closed-end to which bridge second please second offset The total by of was and and loan the net and as credit slide by quarter, CLOs. non-QM quarter $X.XX loans, non-QM the net non-QM portfolio the our RMBS, completed loans, more commercial impact RMBS, of RPL/NPL, turn securitization mortgage the of than X.X% Non-Agency retained to CMBS, purchases HELOCs, residential X. In June decreased loans, driven sales decline Next, billion

you during loan to combined which of short-duration RPL, if steady portfolios provide of take capital dry advantage XX% the quarter quarter, of environment. commercial the opportunities, portfolio to total that That our coming value mortgage, powder the payments consumer especially of long fair as $XXX lots see those Agency For $XXX million total stream to those RMBS we X, On and continued should principal declined of million. principal entering quarter portfolios received are slide we paydowns a second portfolios, into XX% risk-off in represented another can steadily. the by return of our

driven primarily and portfolio into opportunities. higher-yielding to our $XXX Longbridge quarter, previous Slide We size the by million second which mortgage proprietary nearly originated that sequentially HECM the increase the prop, a quarter. capital loan XX% million, rotate was by $XXX illustrates X originations. the of increased Longbridge reverse XX% portfolio continue In across and from to that shrink

attractive June of As at locked financing Larry our Please summary at increased total X.XX% funds. in non-mark-to-market securitization reverse our prop from term by end borrowing of recourse July, borrowings, mentioned, an XX. to shortly loans of in second basis On turn after next we borrowings. quarter rate cost Longbridge, completed our slide average for a points XX the XX weighted to which

carry pay agency benefit floating continue NIM We net a swap to from modestly interest assets overall fixed rate. rate declined while on quarter-over-quarter hedges, positive a on lower interest credit rate and our margin The higher where portfolio increased. on receive the we our

to March down at ratio non-QM X.X:X securitization April more June by driven borrowings debt-to-equity decreased our portfolio. recourse a highly XX, RMBS the in as XX, X.X:X decline but Our levered and Agency of from on smaller in

million, Our at combined as X.X:X $XXX cash approximately well million At $XXX assets our XX. ticked March and overall up debt-to-equity ratio unencumbered June X.X:X. down from to totaled XX, from

for economic common return book at $XX.XX was up per XXX second at was nicely the March total nonannualized from Our quarter end, And XX. quarter. X.X% value our the share

Now over Mark. to

Mark Tecotzky

ADE, This to a per sequential quarter also which solid strong had expect Thanks, drove a did improvement economic I book Not JR. have but continue. only we which a higher return, EFC. share, our we for value in is very

high, stakes integrated the and Our business this couple driven been a so in of driven quarter American so own them. ADE Lending is EFC's low. in But both bad, by higher existing But with to challenging of quarter, margins the contributed value which housing Longbridge their EFC, sale have years the at earnings QX, on increased also mortgage our rates home volumes, to business. just the valuation this so mortgage led Heritage equity increased strongly and for solid posted and profits sales by showed a and proprietary persevered in for LendSure originators. vertically reverse an platform. we origination gain affordability earnings don't It's origination have

origination was We attractive, their and buy them credit when we on for on opportunistically In relatively collaborate second of securitization in reverse in parts expect assets also in Longbridge's integration portfolio. quarter, as were helped from we that to well. All is the completed gains securitizations of grow Longbridge's decisions, maximize and we us. sector. those our Prop Credit via well proceeds did as of a loans the what and their so to sold for display spreads securitizations We portfolio. high-yielding volumes be QX, this arb loans, quarter, some expect also with a continue volume power of more non-term mortgages another vertical as full tight we July, in loan retain the the different that securitization to took few those securitization

Now well positioned another week recent this spread our platform wider commercial we seeing we the are strong from some that quarter opportunities as for had mortgage volatility. well. with We are

closely our commercial has our REO been quality necessary approach at Capital, expands to originator and manage has not like-minded nonperforming construction a This EFC's fantastic to to but help risk. working EFC opportunities delinquent loans. manage with mortgage Capital Sheridan Our capabilities Sheridan affiliate commercial expertise sourcing They property servicer, to only CapEx team progress, have credit in loans management control. maximize expenditures, few to monitor deep renovation proceeds. when also

and a of a a days. dime, of serve should credit value meeting, them provide of week to as spreads of and benefits use them some in the a they we place. to we of to times provided hedges end use leading to can We securitizations. risk to potentially pool the volatility, picked impact in the QX, insurance QX amid widening upcoming attractive XX. We this on their stabilize once for We've structured but of again August. for kept our Look minimize been of NAV use in quarter at market even products, and are many week help that sell-off. showing and portfolio late often stress an if spread closed-end up While We've in they them seconds In Slide the offset Hedges of multiple us. consumer didn't our our economy adding strong consensus violent and past corporate change tight high-quality increasing weakens. HELOCs up last to demand reminder repricings matter was

low cash-out prepayment this these we offered to to Mae time borrowers GSEs, As is with which having a high-quality, think our refi and and for served a resources by when capabilities. extract portfolio, nonterm who low large the inefficient. their we credit second loan a aren't developed are lien, homes opportunity way rate borrowers out We Freddie, build note HELOC borrowers loans rate, Ginnie us, exciting a first opposed models where LTV and makes equity low for to lend and to Fannie, have provide the lien our and note have to generally and sourcing invested from

for their note Ellington this sector With of a higher ADE Financial. adds rates, lot

the as in wider surprised and this spread week, also some losses led past As in to wouldn't if I seeing, capitalize rate stick, at parts the Furthermore, to we're if recharging and see non-QM origination they the both increased to with volatility mark-to-market we portfolio, some in set volumes to volatility the on. be should lower while of it the interest and if spreads lead rates opportunity Longbridge. dislocations loan price

Given lending current these is economics. supportive to capacity, should volume platforms that and all the excess here, excited a assets opportunity. of really have about good we're add in bottom-line greater position be EFC

Larry. to back Now

Laurence Penn

per size, that than to provide out decline. with of in for and are results big the quarter, able the monetize grow our we see of volumes should ADE. Longbridge's origination to growth loans Meanwhile, generally to the and key rate Longbridge mortgage long-term a across borrowers to markets pleased strong see could In reverse securitization very also proper rates for Longbridge, Lower is that second At positive was in I loan sequential our going origination advantage to times Mark. rates portfolios well best long-term boost business. loan we portfolio Since further, as increases more is to origination and interest tight and and It the particular, interest interest versus the forward. took saw take have to both purchases our the where our the in spreads more direct great strong Thanks, both developments mortgage loan book originations non-QM to it's performance credit capital strength refinancing. rebalance driver and market, to bode gains. volumes work drove in and which do the calmer but volatile times, share more opportunities. where a July we of value reverse the in during continue the we platforms, in our size

quarter, third point, Commercial forward. this of sectors, and going in RTL, the closed-end trimming second each of non-QM, the growing still in I but Reverse, are At added lower-yielding in meaningfully. Bridge, far and some trimming to we've Mortgage portfolios HELOCs, pace So expect scale Crop we those that slow

are lines, QX. the We that to our working and also done specifically for on getting our portfolio, of forward see I end financing around MSR adding

As diversified this, investment turn, originators proprietary And that we healthy equity into pipeline drive originators, we've our loan also flow invested in same channels loan which investments in Because the but operating detailing in across those themselves. have strong. helps we not are results. been our have only today, income pipeline our generating is origination providing

strategic and tighter, they up strategic and asset different the These of fact, in capital spreads one capacity we investments on gains locked happy continue that I'm actively borrowing And in recent sourcing sell-off. our parts the lock closed and also to sales of ahead moves In volatility, channel. redeploy. portfolio market were additional executed securitizations of to have We when small helping recent in freed originators. to quarter end, pursue another and another other on RTL following light making but non-QM in in particularly

portfolio in growth we've earnings please and that powder Ellington go that, the ahead. dry remainder the dry questions. just now of up believe well-positioned good powder the use. Financial we'll Operator, to have call over past We few the open continued been ample is I to days, for putting With year. and

Operator

KBW. [Operator George with Instructions] to first Bose We'll go

Bose George

dry The just level mentioned was optimizing first the there -- balance just the deployment, question how to just Is would your capital upside still but how deployment? ADE -- some fully of you capital about from characterize much you sheet? powder,

Mark Tecotzky

at would question approach So I of think on first balance all, the cash first look -- sheet. that answer unencumbered the to be and I'd the

million million of close cost we So cash. and we'll equity to $XXX typically, in cash. And of unencumbered $XXX of keep XX% had

maybe So of recourse that that's Xx, so was overall guess, credit borrowings I leverage X.Xx. that took million takes $XXX recourse hundred that in million we a the to -- Xx more $XXX million. our If debt equity back add adds few to more, and example. or If on we

portfolio, So we a I to say -- few and we but would in this there that pieces assets. continue moving the are trim in call lower-yielding quarter,

the went offsetting. we list grew QX. also then we So But credit that's sold been non-Agency We through of Agency in into MBS. that QX laundry and and portfolios

So But directions. opposite suffice in X.X to overall in a say, those of are working kind leverage.

levered. We unencumbered have the other leverage room, to assets our cash levered excess lightly then those sheet, are add lots that assets of like forward from MSRs on both but and balance

debt capacity So Xx you different additional to can buying hundred just numbers that of would from recourse just still those to us take draw equity. several million

Laurence Penn

Larry. -- this is Yes. we And as

think more trim X:X credit of just and we leverage fully fully ratio, in think, focused is invested of could As being I invested. sectors, is you that kind portfolio agency a as that the

all we have way of that. we being going terms we but add get [indiscernible] before of probably trim again, in X.X, of the invested, probably, millions So hundreds X:X of not to to fully room close as to even get to agency, at

Mark Tecotzky

another been see then over prior on financing. at Ellington really the been to have that's Longer more it's several in would is for I Yes. longer -- had focused wider unsecured we step think term, consider. adding But deals And liability we it and of fair has debt secured say and term, structure pricing to that we years. than tranches we're Financial debt unsecured recent

debt recourse So that longer-term would ratio, again, but period. a, over say, I'd also to take equity up the a

Bose George

a while you just the cutting you curve, then quite a potentially can portfolio if steeper your the forward Fed from right the And the next very yield portfolio bit about curve is over hedge closely, is and year. benefits talk how

Mark Tecotzky

rate curve. hedging, we've out So yes, tried in terms across hedge the to of interest

express the yield really on the don't shape what through we opinion future curve to be So rate of interest is our an going hedges.

paper, yield on a just we effect So a curve, hedges. or that just curve mathematically yield neutralize of flatter with first-order or the steeper

floating Now when in your the things couple on. you other market the base if size repo, repo the down September, to a notional repo the basis Like the on you too. our equal the basis exactly the exceeds there's -- balance goes going if of the a is basis beneficial, right? in but leg Whenever case costs I of XX a XX-basis notional is then predicting is points, drop receive okay, think now, points, XX size costs have and the of go of swaps, your I points, XX have cuts -- swaps the it we Fed swaps down going be think point financing cut

have notional kind washes beneficial repo out. repo When swaps, in you to if your of equal thing swap you amounts, of then your So that's a excess exactly it you. then

more fixed-rate floating-rate things you think you when the assets. we're thinking preference see opposed do express is to a assets cycle see I cutting as think investors start, for I about a

of makes effect, been a on say, one second-order be opposed I index. So high-yield we've more adjusting indices hedges think, bond internally sense. it's kind as That's to loan interesting. some And our focused to, of

CLO, JAAA, just out blue AAA, some If there's $XX of came you ETF, this year. that the look fund recent at this flows, billion the of

had ever that reflected rates of the starting that be to you're see right? lower going short-term think expectation yesterday, market it's first fund its I is the in to outflow flows. So

tend see that position of mortgages non-QM does agency we I steeper be and the do think yield portfolio. So about mortgages. to when we think you how And supportive certainly curves, also

But there's that portfolio, terms some it. positioning our to for for the think I exceeds notional going really notional think in ADE extent that amount amount a big of we're move the borrowings to of around second-order hedges. I us, the see repo significantly the swap like effects of in and only the So you're

Laurence Penn

I So, And segment right? everything the Mark agree. residential if look a the said. with Yes, The I loans. I'll very just -- -- portfolio, add transition is of agree one thing, now you at large which what's

-- do on be is So rates, absolutely you we to don't stickier. hedge the to I rate in be in as little short-term think actually really interest net we'll meaningfully ratchet they that We that stickier everybody -- a I a the those that from short. you down an the that do with don't as rates, that wider tend you have think they're see think repo a that get perspective. the And will almost basis rates drop margin our I on able do rates, right, -- interest predicting, portfolio cutting. because point sector. little I see will if RTLs though, coupons But float think that I be Fed think

Mark Tecotzky

that And right. when that's rates the opposite were saw we

Laurence Penn

we've a were few in versus sector that when Exactly, rates where rates -- were lower. short-term some compression NIM ago a were right. lot we Yes, years had

from this well, and to rates as let's to thing of year we the is think that that, I which think forward you're would for that's So change echo look and you'll the a and I've now, should to be some those going et and Just then see things with And good see yes, activity, on fast short-term seen you've forward. absolute lot one going free refi a we've long-term rates right, got I -- an cetera. say, written a basis, board right? rates just handle, to for that down be mortgage good across more really good originators, that's so go

Operator

to We'll Sandler. next Piper with Crispin go Love

Crispin Love

or higher many second. closed higher runway, making affordability, range, quarters, you in area to mortgages rate benefit originations Is home diminish then this an been the a the do from X% get with a to if [ we First, lot rates sizable see this coming to rally APA, on just just you've that higher HELOC and expect X% in opportunity you on but given as give of ].

Just thoughts on there. your curious

Mark Tecotzky

Yes. Crispin, it's Mark.

look half enormous Fannie at XXXX, there of how and loans. Xs for out the Fannie XXXX, liens of targeting that liens. that pile you Fannie-Freddie-Ginnie first the created note in Xs And that Fannie the with really an [indiscernible], in existence and If was rate are just in borrowers first originators is are many stuff low XXXX, second all Xs those the

So that that are, big. it's where they opportunity rates like were stay if to pretty just -- looks

You're exactly right.

$XX,XXX or to If take if you down sudden, big look a lien. start a second lien going doing going lot, to to this of comparable I'm closed-end saying, be mortgage first saw refi rate renovation going all and a home economics something, mortgage. to to are to rate I then rally a rates some to want stay to cash-out put came fixed borrow my with the And is people I'm that

we're opportunity a We've right. space, -- you're origination So big that ourselves but how seat the table, Fannie with yes, there not positioned and is. exactly mortgage have to is a first in the trade-off rates in set non-QM at space Freddie But our between seeing originators.

so board, supportive origination lower definitely volume. to rates think, would And be I mortgage across the the

of supportive We explicitly rate, think the volumes, think we you a very ADE. sort of we way. note high on certainly origination So credit really understand hedge strong. get -- it it prepayment functions this because about real attracted now it's function to and that the it -- We're is don't but quality

RPL what like attractive label us. already just the the private driving It to what's we're portfolio to looks complement add an asset non-QM that's So and been and doing reverse. to in

Laurence Penn

would going in with a out not it But on serious for to question right? pilot now volume be lead but the time we going. that, necessarily mean competing seeing becomes agency see I competition. there. XXX and and said assets in the but if coming could people. still with don't much I those don't If rates agencies, great, what to very add terms think, is pilot to points are as thing Mark issue that you're right, are what's program to refinanceable. maybe we'll the drop pre-XXXX big we're want obviously happens. getting this The I going close those going basis rates than screen keep the competition the I'm serious is to to longer big could And not away, So program, to before be going that I be with -- for radar for about mortgage on drop, I the -- on especially, some to pilot long going a they're a market. more coupons that have a I want but looking sense I'm is And HELOCs that to debt's X% add were The little need just seconds lot to originated just quite really make right what become Mark. as are all close about your said. Mark it's all And of if agencies, right? an So now, that that, think based some a there could to -- program, no more -- low we're that

Crispin Love

fit you you're one area the get last would do the current kind me. you you asset, just are you able to And curious where in right side? landscape? that on this And think borrower single then Are And Is that commercial what interested. within EFC's question kind well opportunities from security adding? just an returns single might be of portfolio credit of there seeing

Laurence Penn

take you Do me JR? do question. want it? great a want to It's you to it, Or take Yes.

JR Herlihy

the grew that size, the SASB $XX on. we've think part see question, small In been yes, first the and So market of I million million to that's in you $XX focused portfolio CMBS. from quarter-over-quarter

our much it's a we So yes, percentage much, mean in small past an a the portfolio, is it's SASB smaller. percentage now been overall area much But certainly still have larger focused TPs credit I years, of of CMBS on. portfolio. that

address more queue know I that, about Mark, deals you're we give don't you we incremental looking at question. you want of talk in SASB terms I Mark, SASB get will those But some So yes, seeing? thinking just to about of detail. the -- our more to do the yields disclosures margin be would the where I'm detail yields the that on the know, we're on want in on CMBS There anecdotally, in how pencil,

Mark Tecotzky

space opportunity Yes. spread It's wider. where SASB, for BBB the had is you're issue a been market it's new a traded pretty spreads been volume years, everything there's have a the wild is down sector, function that then par so came little an of tight look a above really in We've property right? we been no thing divergence interesting this us. And other now as of of And us. just range -- it's and and and you and pushed interesting to still There some in prices have that. that dollar It have XXs. SASB in all interesting bonds So SASB a a investment-grade that been exposure. XXs commercial And are opportunities. and seen at for type. big the was almost getting didn't been lot That's tremendous and interesting outcomes

more tests basis, a even maybe attractive or CRT, spread your and from to us looks So legacy of the attractive sectors side. the on as other of CUSIP bread butter non-agency sort leverage than slightly like some it certainly

really then issuance, you're I detailed as going have opportunity where just the BPs were we it properties. either opportunity we to the at the can of But doing very, analysis attractive the are focus the as mentioned, think you of deals of lower with on more been used So dollar-priced in there. stack SASB on SASB really JR doesn't conduit the SASB in market. active very And definitely very to. a -- not And distressed been allocated what's not that the our there's up CMBS same that of SASB capital for of -- coming see just some lot bigger it think yes, the years, spreads. capital get market a team, very lot has

Operator

Douglas with Harter with now go UBS. We'll

Douglas Harter

proprietarily you liquid for potentially your of at your more about strategy assets volatility, market the Given recent can talk created appetite versus loans? looking more

Mark Tecotzky

Sure.

we been of XXXX, that, few a about years, us think were right? it's you've Like we added followed before opportunistic both, and we've right? that, lot did for at we think of in I what look when non-QM You months adding lot non-Agency a I loans. a legacy

trade-off looking So we the account take into in And levels, financing between the we're at difference loans. and constantly securities difference in liquidity.

might So loans CUSIPs that volatility, see to and than tend I looking that relative in to you ] normally what basis you means that would for look to that's accordion when incrementally me of maybe pickup sort say for, for out. a liquidity you're this typically this [ what market happens is bigger volatility,

those until it monetizing going go or shelves spreads loan less week been you been this All So one the did seniors the other some selling start year loan liquid things have liquidity unrated we that, have coming seeing up and liquid to in, every more last versus see rated shelves, seniors. way. way, way now you're advantage and to of to so, take versus

of And value relative at. down a might that what bit that always couple for loans PMs, threshold little weeks incrementally us we the than the adding and think things ago. wider sit means relative we that securities it is trade-off with I was So a to something discuss is now to look

Laurence Penn

just Larry, in Thanks, other we the that happen Mark. the Got the be looking great. actually you of or tend pulled which to on it ETF when of thing obviously, these market trigger selling, mutual in to lien more, was what trade more funds general, big volatile, and CUSIPs better is for face week be is we price. that selling. I -- example, right, a saw to you're sell-off, right, buy. And portfolio. add, last to a able would second have a in But moves, And this we was terms little some at this

when like your up. in gobble a proprietary like fore-selling It's will to And just there's immediately, going absolutely, happens, in the is are that little looks that it going something us to if kick right? CUSIPs. longer. So That's opportunities I that be arise some to are dial-up pipelines going stuff first think harder to

it's days big to But risk-off in of going Mark going I be longer we're and to and the be term, of have to driving CUSIPs where portfolio, pounce non-CUSIPs said, more moves, our side as now So able private going see couple as the on is you're you the these to think RAD. last that expectation just on the moves continue those. activity see to risk-off

Operator

to with go We'll BTIG. Eric Hagen now

Eric Hagen

for there and supply so typically non-agency and repo supply to from right that market outlook including wanted about over appetite far the the the capital up capital to and maybe there general that stay stable, follow your some continue to there securities actually and of banks the for I perspective. of funding to coming spreads ask supply just that's big

Mark Tecotzky

Yes, the same in are thing right? repo seen you've seen. we a -- we've have it seen have now sheet volatility, doesn't price very big interested The as a It spread. has asset, banks healthy balance

So NIM. to it contributes

you So it's charters not to have that during crisis. banking converted banks only very traditional banks, large financial also but some investment the

X% been on between side. on loan people more like seen on it's a or -- CUSIP XX%, wanting but repo from to and agency lot have at we've gotten anywhere the inbound that's right, stuck been side, plus side SOFR the not the calls add So not we

I'd of the of balance classes. say, There's asset kind a trying interest SOFR borrowings lot been more XXX on in plus those SOFR anything, So sheet. to lenders X.XX, to get

we is that I would side. on what to this other X -- place think bank. not come you rate saw I going What's eligibility XXX able to a would but better been important, basis if for work a be, seen with? had what to how we've but what the like? now, terms SOFR but keep we really the so the repo last There's will they negotiate and only matters easy in that's are like their but because think on XX, It's thing is a that X comes be think million And than stop financing SOFR lot, year things, year. it's have down it's it's attractive lender that at And still down points, I going loans

that I to spreads. is So that's by margin, the is One That just a levels think and to little bit way opportunistic be best take financing continuing another thing to of ADE non-QM give down come this [indiscernible] confidence can the we're we spreads. SOFR that sort spreads advantage negotiate grow Larry the year. lenders more their and the get. is mentioned some securitization at helping going is on about

or that about whether has And is It but the And continue. that's anything it agency do the Chris 'XX. think years. I'm [indiscernible] a CRT been or loans, asking So talking it's been CUSIPs It whether really board where in widen legacy I SASB CUSIPs the like else, for that it's was so across fine non-Agency. that better, for financing or to stuff, we've stuck that didn't gotten is. But has better about that's terms. going

Laurence Penn

I better fixed mean, a think fixed how has on how when further spreads having given just much repo -- come And lender CUSIPs, to tightened. in about especially you a income down was think, I it heard loss last haircuts in on have that are given I time And the than mean much opposed lot lot higher I a risk. even the been on They're like as of warehouse CUSIP repo. time. ] income to it's long managing loan side. [ high, side at a really repo The CUSIP loan a

actually come that has think I to room down more. So

Eric Hagen

you scaling how about much Can into have share the and capital how you credit hedges think allocated to portfolio? you the capital you credit rotate opportunity more that maybe

JR Herlihy

Yes.

currency is but CDS, the for high yield our million an So amount exactly most where the on small not Slide corporate related a to of hedges. in hedges which most European XX, then a you And is we -- capital allocation, we the overview part. of CMBX a $XXX it's risk credit our have notional on are, equivalent and see give can

the different that through benefits went relative dollar billion our the size help in agency provides, but it So mentioned. that way the portfolios, it's and several he of does but uses and margin meaningful, the and small, it's credit Mark on to

or available low hedging have instruments for from We always with towards have we need these hedges more credit and -- away that spread CUSIPs the don't the as taken of to size duration, over loans hedge down example. move time

Laurence Penn

in fact, Yes, to and maintain put they risk take really minimal reducing. capital on they're, and

think assets. So to don't we -- of in capital away certainly from about any -- when they add terms our ability take

Operator

Matthew JonesTrading. to Erdner now with go We'll

Matthew Erdner

expectations I allocation, credit credit shift you asset if data has but you more know going about agency. Could you're recent so the talk for do the from current And in performance? away made then economic and

Laurence Penn

go if second Sure. that first don't you take half Mark, the works. and you can that, why of

earnings that overall, the then do value So points, on our during through. have we delinquencies multis bought percentage ticked up between And declines We NPLs of the quarters. exclude But remarks working still that releases the commercial, declined ], performance basis that slightly mentioned of and loans you We in in relative delinquent [ to the prepared delinquency resi our X in we're quarter-to-quarter. portfolios. it loan quarter. it, XX X fair the percentage call by when the

we're working those So, X nonperforming yes, to multifamily be losses continue product highlight we do it's -- realized and properties credit but that small, through.

Mark Tecotzky

that and through also we we've our mark-to-market nonperformers -- remember X statement, income Remember right? marked those down. So

might way. affect in what will capital we up repeating that not ADE. income think, to to adding mind please? net And it to tackling question effect, And boost And free an is so change Would wouldn't if that, the that we half any second can that you perception so how that mind of and credit assets. our do and market of in our do redeploy those continue your negative about, expect I you our resolved, slowdown when economic

Matthew Erdner

Yes.

into change Just and stance? about if if would go were it you guys to think your we recession, would how asset a from allocation, current

Mark Tecotzky

because where good, was to right? tailwind that loan of And they we take losses, what -- about expectations home and I originators loss see was middle going in aberrationally strong default and up And is any the for been think to loss loan prices XXXX. is up days that lending. LendSure -- we weren't think non-QM, aberration with the into some we performance going it's of I war had so would we're some performance transition time And the to it the early delinquencies; consistent And residential I you're really see reserves. I absolutely shockingly our there underwrite we But a things. good. performance of it good way on me, chest is true loss going -- saw you the I same really Yes. guess we're so how built -- a from, XXXX started think mean in in to now say, reserves you're has I XXXX, period thing think losses.

that a seen tick rate FICO ways. about so certainly observation ago, Jay at like hawk, the a that a today up. X has is no the FICO more eligibility economy, So right? XXX talking lot predictions belief criteria. the there's about inflation We've or We probably make has the we seen our unemployment we right? slice data years but that You've it been And informed written and Powell conference. of was about XXX a watch FICO credit lot it press a a things million different like that kind dice been

just the not this we've we in up I as how prepared off. and in we're to So about it's originator, remarks and make gets FICO. originator, matriculated own I the want think an And hands point

correspondent brokers up so working can team relevant right? scientists be or them the and We access quality with to you're collaborative, but data great our you and come data loans. And best getting are our you're underwriting we give research to with, our to practices the where

in parts then And portfolio, performance being so changed deterioration [indiscernible]. feedback the of serves certain the that loop we see if

of That's see analyzing and a the years as updating ago, the just XX of reaction that then delinquencies. as a job big big of job. part it. to didn't ago, on iterative years adjusting guidelines And that our our see XX I that of data but -- lot and process process, So part you a

go look You'd say it, ahead. delinquencies let's okay, are at fine,

signing sort higher, note Now up are more of a bigger normal expensive, are rates home into more for price payments. in people you're regime, much

be to going delinquencies. there's some so And

respond pricing to very I monitor we And equipped for we're it. well so think And it. We're to it.

Laurence Penn

add And thing. I want to one

X have down, you we those right, of you've go come the recession, a which see against right, a various segments properties. because at that, business been they mortgages that consumer And can have see on you'll look risk multifamily demand. even about. in got an would And of pipelines can Page affordability you And a residential-focused the go X there's include There's tiny. taking. company to of those issues also rates are right? segment, your terms portfolio and I on we're our presentation, of question, those -- right? turn the go you our right, you others, if generally, loan the origination so presentation. talking if but we've right, we mean, very that if lot as counteracting your into in go small our see definitely and that's recession, supply loans, affordability though if versus let's on But each things in things, you little you problem, a And see But rates slide to of issues, to credit on it's question, another the can the right, very Just supply, XX also most a commercial our that And are down. in housing. you And And that down are multifamily of compared rates other. right, But we mortgage into scenario.

the multifamily of loans bridge of portfolio. in that majority rate our the going rates you're And And side, to the we're on are cap commercial these terms because all helping affordability help loan vast lower. issue. Now really issue a have you're the remember, you're to of really mortgage sudden, mortgage going

about you're term. valuations of talking really that XX-month So end or XX the at

come cap rates, they with So down.

So about given about that very good we would of feel being the market. technicals kind residential-based I I that if addition, a and long-term rates how happen would withstand what again, scenario. And very really good down. in our how feel portfolio, came of

Operator

Lee Omega with from next Cooperman your Family Well Office.

Leon Cooperman

to the So month dividend level? $X.XX Most to of think the you end year stock your given people the say, per I you have the everything X income, own questions. before had you for restore

Laurence Penn

where this for I point, about -- long that stable to the it. that's something feel is. time. not great no, I it dividend raise at we've maintaining would And I -- our keep a dividend to expect but tended

so And of wouldn't that I expectation have it. raising

Leon Cooperman

XX month level? [ sustained really the You would at is the ] dividend a think XX,

Laurence Penn

absolutely. Yes,

Leon Cooperman

The in towards capital attitude second question, active that is you guys your management. have What presently? been

Laurence Penn

Yes.

I earlier. think it alluded to JR

on we I to think unsecured have at offerings, side capital move baby whether Rates the going sticky. types to our -- they big other next those down a bonds look be and management debt. be is little come tend of or

So watching we're and market. patient being that

the to healthy S&P right also debt bit ultimately, it's not cycle unsecured of I by adding think and portfolio, Moody's, is you look, for as of enable will a any issue from, little that -- a we're I a important. do and like think, And to rated because that more at example, rating. So to Jones unsecured now, we Moody's say, S&P into have might that's great point, a us look But to the we Egan some want and something is even get and debt. like, rating let's it's

baby things capital rated, can that us Of help course, helps ratings. bonds, we the as get which aren't and add like other also those structure

unsecured market move. of I the be prediction, us, there next is the but deal. just I would I Again, this -- anyway, think, predict an They're yet a for move, going. think, So can't sort significant some capital where not is

Leon Cooperman

use speculation great the lot the are out crisis rates are a interest credit And help I with a prior the think of no you than financial near markets GDP. think yielded Everyone actually buy to smarter too is I market would you since market I in the guys is stock they're low. the evidence line a XX-year to high. XXXX, in high. There's seems me need me. And to

X% of a and inflation have growth to be real X% X%. yield. You The not at of X% X% X% undervalued would or to XX-year

going debt in to platform, which read rates So is creating long. Democratic pages which we're XX I up. is long. are go the seems system. read by the that And be Nobody the cared the XX platform, to I I pages interest Republican think

to us all. And us I it kind I of years So country some at we're don't years, What's doesn't know XX heading crisis. hits fiscally? what's your financial or of the in think get in X on going view if

Laurence Penn

Yes.

and where to all not is are in a size long-term But other you really just terms I most where of So just nobody color. not again, not to look not Mark about so is on is interest own I try a or get I the I we X%, want different our thinking with for color approach. us, take said, you seen I to be And your is not inflation whatever. wage the longer-term going just closely, course, companies and notwithstanding that thing on, port that, I to challenging increasing to given to to of the X.X%, try as We talking rates what that we've could it's mention absolutely meaningful you, even I we budget long-term here's Lee, debt, portfolio, the think try appropriately. reiterate, I going this And to at realities understand Fed on or with hedging. then any opposed you, we I rate think, what the given with go. that with in rates, can -- clear iterates about us. really here's agree agree agree that more strips that of think those which of short-term deficits, this necessarily, X But but behind it's buy cutting do way. even where not hedging focus are, are, to as short-term okay, rates

least to it's going predicting. think are curve at markets get I forward so the maybe to where challenging be And the ultimately rates long-term for

JR Herlihy

agree I you. with

Operator

Second That XXXX you, would thank today. Call. for Financial's Earnings our participating was Ellington Thank everyone. Quarter for like We question in Conference everyone to final

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

Ellington Financial (EFC) 7 Aug 242024 Q2 Earnings call transcript