Q3 2020 Ellington Financial Inc Earnings Call

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Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.

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Good morning, ladies and gentlemen, thank you for standing by and welcome to the Ellington Financial third quarter 2020 earnings Conference call.

Today's call is being recorded.

At this time, all participants have been placed any listen only mode.

The floor will be opened for your questions. Following the presentation.

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

Thank you 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.

Forward looking statements are not historical in nature.

Described under item one a up our annual report on form 10-K filed on March 13, 2020 and on their part two item one a up our quarterly report on form 10-Q for the three month period ended March 31st 2020 forward looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs.

Expectations estimates and projections.

Quietly you should not rely on these forward looking statements as predictions of future events.

Shipments made during this conference call are made as of the date of this call and the company undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.

I am joined on the call today by Larry Penn Chief Executive Officer of Ellington Financial Mark Tecotzky Co Chief investment officer of DFI, and J.R. Hurley Chief Financial Officer at PMC as described in our earnings press release.

Third quarter earnings Conference call presentation is available on our website Ellington financial Dot com.

Management's prepared remarks will track the presentation. Please note that any references to figures in this presentation are qualified in their entirety by the end notes at the back of the presentation with that I will now turn the call over to Larry.

Thanks, Jay and good morning, everyone as always thank you for your time and interest in Ellington financial.

Ellington financial had another excellent quarter as we benefited from strong performance across virtually all of our strategies.

As you can see on slide four we generated net income of one dollar and six cents per share core earnings of 41 cents per share on a non annualized quarterly economic return of 6.7%.

Earlier this week the board increased our monthly dividend for the second time. This year this time by 11%.

And given that our core earnings this past quarter still comfortably exceeds our new higher dividend run rate and in light of our current earnings power, we should have ample room for additional dividend growth from here.

With our investment activity back to normal levels throughout the entire third quarter methodically grew our credit portfolio, mostly in non QM loans, but we still kept our overall leverage relatively low.

Despite this conservative positioning we were still able to grow core earnings and book value per share significantly this quarter.

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

During the third quarter, our loan portfolios continue their resilient performance producing another solid quarter of our always while continuing to run return capital quickly for redeployment often at higher reinvestment yields I would note.

Meanwhile, the securities portfolios in our credit strategy benefited from so some nice spread tightening and our agency portfolio had another very strong quarter and has now generated a positive return on equity on a year to date basis through September.

But the part of our portfolio I'd like to focus most on today is the strength and growth of our loan origination businesses.

Ellington Financial's results. This quarter were again boosted by strong performance from our strategic investments in loan originators, most notably Longbridge financial which continued its excellent performance this year.

As we've discussed on past calls the cost of the reverse mortgage business provides liquidity to borrowers without the requirement of monthly principal and interest payments borrower demand for the product to surge this year amidst the economic turmoil drawn by coated.

Meanwhile, lend shore has done an extraordinary job restarting EPS loan production after the market stresses temporarily interrupted new originations earlier this year.

Ventures loan production in September and October exceeded production levels right before the pandemic related volatility and in fact October was a record $80 million origination volume month from on shore.

Last week I went to eventual closed another securitization of lunch or loans, our second securitization. This year and in fact, we achieved the tightest financing spreads yet on any post cobot non QM securitization.

The performance of our venture loans continues to be excellent and our entire Nonqm business continues to be an important driver of earnings for Ellington financial.

Ellington financial also as a strategic investment in the third one originator just wondering the consumer loan space. This pipeline has generated and we expect it will continue to generate attractive risk adjusted returns for US all three of these originators, whether the COVID-19 volatility successfully and emerge in a strong position to add market share.

In addition to investments in these three originators Ellington has been active in the small balance commercial mortgage loan sector for more than a decade, now and weve developed strong and reliable sourcing channels over the years.

We benefit from several successful joint ventures in the space and we originate many of our bridge loans and source many of our commercial mortgage npls directly out of Ellington financial using our own loan sourcing and origination teams here at Ellington.

We have also well established origination channels for residential transition loans as well as flow agreements with other loan originators in the consumer space.

We believe that our array of proprietary loan pipelines is a key differentiator for Ellington financial and they are critical for our business for at least two primary reasons.

First and foremost our loan pipelines are designed to provide a steady flow of high quality investments to Ellington financial.

Loans coming out of these pipelines have been a key driver of our portfolio in core earnings growth over the past few years and we believe that they will continue to drive our growth going forward.

The same time, our loan pipelines enabled us to leverage Ellingtons core strengths of modeling and data analytics.

We apply our analytics to help shape the underwriting criteria of the loans that we and our partners originate and our goal is to manufacturing control our own sources of return rather than possibly accepting with the secondary markets have to offer.

There's also a second reason why I'm, highlighting our proprietary loan pipelines and that has to do specifically with our investments in loan originations our investments in loan originators that we made to help build and broaden those pipelines there.

Theres been a tremendous flow public cloud public capital into loan originators recently, a premium valuations.

Several companies have gone public in recent months and the mortgage originator sector. It's trading at a very significant premium to where the mortgage rates, including the F.C. are trading.

But if you look at it you'll see stock price I think it's clear that the market is undervaluing our investments in loan originators and therefore this represents significant upside for yesterdays stock.

Overtime, we believe that the market will recognize not only the synergies, but also the franchise value that these loan originators represent for Ellington financial.

One final note on our originator investments, we fair value of these investments through our income statement.

So any PML that they generate for us is reflected in our GAAP earnings.

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

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

During the third quarter, we added another financing facility for our residential loan strategies and just within the past two weeks, we not only close our six non QM securitization. We also priced a securitization of unsecured consumer loans.

He is rated securitization these.

These rated securitizations add additional term non mark to market borrowings to our balance sheet and they also have significantly lowering lower borrowing costs relative to repo and other types of bank financing.

It used to be that repo and other bank lines, well coming with the serious disadvantages of shorter terms of mark to market margining generally provided lower cost financing and securitization financing, but lately, especially in those sectors, where securitizations have become commonplace. It's the securitization market then that provides lower borrowing costs, even while affording all the important.

Advantages of long term locked and non mark to market financing terms.

With that I'll pass it to Jr to discuss our third quarter financial results in more detail.

Thanks, Larry and good morning, everyone.

On slide four where you can see a summary of our third quarter results.

For the quarter ended September Thirtyth Ellington financial reported net income of $1.60 per common share and core earnings of 41 cents per share. These results compared to net income of 85 cents per share and core earnings of 39 cents per share for the second quarter.

GAAP and core earnings comfortably exceeded dividends declared during the quarter of 27 cents per share as well as our new quarterly dividend run rate of 30 cents per share.

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

During the third quarter, the credit strategy generated a total gross profit of $1.17 cents per share.

Well the agency strategy generated total gross profit up 17 cents per share. These.

These compare to 76 per share in the credit strategy and 33 cents per share in the agency strategy in the prior quarter.

Net interest income and our credit portfolio increased quarter over quarter, driven by a larger portfolio and lower financing costs and we also had significant net realized and unrealized gains each.

Each of our credit strategies contributed positively to results.

Prices increased for our Nonqm loans, CMBS FILO and non agency RMBS holdings during the quarter as liquidity continue to improve in those markets. In addition, the small balance commercial mortgage loan consumer loan and residential transition mortgage loan portfolios performed well and each experienced significant principle repayments.

During the third quarter, we received proceeds from principal repayments of about $130 million on these loan portfolios, which represented more than 22% of the aggregate size of those portfolios coming into the quarter.

Finally, as Larry discussed we also benefited from extremely strong results for the quarter from our investments in loan originators.

The sold the tractor from earning from results. This quarter were credit hedges driven by the strong performance of many credit sectors in the quarter.

Our agency strategy had another strong quarter performance driven by increased net interest income and strong performance from our prepayment protected specified pools as mortgage rates declined for the further an actual and expected prepayments rose again during the quarter.

Overall pay ups on our specified pools actually declined slightly quarter over quarter, but this decrease only occurred because our specified pool purchases during the quarter were primarily of low pay up specified pools, which skewed the average downward.

During the quarter. We also increased our holdings of long TV is held for investment which should be concentrated in current coupon production. These.

These investments performed well driven by federal reserve purchasing activity.

Turning next to slide eight you can see that the size of our long credit portfolio increased approximately 12% in the third quarter to $1.4 billion at September Thirtyth.

The increase in the credit portfolio was mainly driven by non QM loan originations as well as by purchases of CMBS and single family rental RMBS.

You can see the growth of non QM here and the residential loans in our iOS life, but the impact of the CMBS and single family rental RMBS purchases are harder to see on this slide because we had offsetting paydowns and sales in the same slices.

Overall, the CMBS and commercial loans in our yellow slice shrink sequentially, because we had several successful resolutions and the small balance commercial loan mortgage strategy in the third quarter.

I will also note that subsequent to quarter end, our two largest small balance commercial investments paid down or paid off completely both at par.

And while we have also seen originations of new SBC loans pick up that portfolio is smaller today than it was at September thirtyth.

Importantly, as we've been receiving these pay downs, we have been able to reinvest the capital and new SBC originations at higher yields as compared to our pre cobot origination.

You can also see on this slide that the consumer loan portfolio decreased quarter over quarter driven by pay downs.

A final note on the credit portfolio.

Is that with the completion of our latest non QM securitization last week that portfolio has decreased relative to September thirtyth that we are quickly replenishing our portfolio with lunch or reaching a record level of loan production up in October as Larry mentioned.

Earlier this year in response to the significant volatility caused by the spread of COVID-19, we strategically reduced the size of our agency portfolio in order to lower leverage and enhance our liquidity position.

On slide nine you can see that we kept the agency portfolio relatively small this quarter, which has kept our overall leverage ratios low which you can see on which you can see on slide 10.

Our debt to equity ratio was 2.7 to one as of both September Thirtyth and June Thirtyth.

Adjusting for unsettled purchases and sales.

Our recourse debt to equity ratio also adjusted for unsettled purchases and sales increase quarter over quarter to 1.7 to one from 1.5 to one that remains well below pre pandemic levels.

The increase in our recourse debt to equity ratio was driven by increased recourse borrowings related to our larger nonqm loan holdings, partially offset by reductions in certain non recourse borrowings.

The recent nonqm securitizations converted more than $90 million of recourse borrowings into non recourse term financing, which reduced our recourse debt to equity ratio below 1.6 to one as of October 31st.

Our weighted average cost of funds decreased significantly in the third quarter to 2.2% at September Thirtyth from 2.48% at June Thirtyth.

As our older higher cost repo borrowings have matured, we've replaced them with repo borrowings priced based on current lower cost borrowing rates.

At quarter end, we had cash and cash equivalents of approximately $127 million along with other unencumbered assets of approximately $306 million, which remained elevated relative to pretty cold periods.

For the third quarter, our total DNA expenses per share were 16 cents up slightly from 15 cents in the prior quarter.

Other investment related expenses decreased quarter over quarter to eight eight cents per share from 12 cents, mainly due to non QM securitization issuance cost that we incurred in the second quarter, but not in the third quarter.

For the third quarter, we accrued income tax expense of $2.5 million, primarily due to an increase in deferred tax liabilities related to unrealized gains on investments held at domestic Trs.

Finally, our book value per common share at September Thirtyth with $16.45.

Up 5% from 15 67 at the end of the second quarter now.

Now over to Mark.

Thanks, Jr. We.

We had another excellent quarter with 6.7% non annualized economic return, which equates to an annualized return of almost 30%.

In core earnings well in excess of our dividend.

So glad to see portfolio growth as we grew our credit holdings by 12%.

Certainly adjusted our underwriting given the persistent impact of Cove, it avoiding sectors, most affected like lodging and student housing, but even with that discipline, we are finding high yielding investments.

Well one of the early movers in non QM origination post coated.

Glenn Schorr, turning its origination machine back on before many others.

And that decision. So far is really paid off as Larry mentioned Linchpins origination volumes are now exceeding.

Pre koeppen levels, which I never would have predicted back in March the economics on the assets and on the securitization execution are materially better now too.

He also mentioned this before but yes, he gets to double dip from the strong origination platform first we drive core earnings with high coupon high quality non QM loans and.

Financing through a securitization market and secondly, we have a long term benefit of a sizable equity stake in a profitable originator.

Credit performance is strong across the board for us, but we're very focused on the prospects of further consumer stimulus and how that will affect our portfolio.

We saw substantial benefits to consumer credit performance from both the cares Act and broad based mortgage forbearance, both an acted earlier this year.

Now we are entering a period of time with the virus is spreading more quickly enhanced unemployment benefits have been reduced and some mortgage borrowers exiting six month for parents plan.

Discipline in underwriting is critical for us.

Despite all markets are functioning well take our small balance commercial mortgage loan business. For example in March and April them that market slowed we actually continue getting loan resolutions, but we weren't seeing many interesting opportunities to lend against.

The second quarter progressed, we saw even more of our loans pay off that was refinanced in properties were sold but we also began seeing some lending opportunities that we did find attractive and we took advantage of those.

Now it feels like business as usual loans are getting paid off.

A steady flow of new properties looking for financing.

This return to normalcy is allowing us to grow our portfolio and recycle our capital.

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

Losing those two situations I expect growth to resume in the in this portfolio.

Consumer loan portfolio, many borrowers who makes it for parents performance has remained very good.

Everybody knows that housing has had great performance in the spring.

If he was well positioned to take advantage of our non agency securities generated both realized and unrealized gains this quarter as did our NPL RPL portfolio. We continue to find things we like in resi credit.

Let's look at our credit portfolio evolve this quarter on slide eight well most of the net growth.

Non QM, there's a lot of activity in every sector and our commercial mortgage strategy, which spans loans investment grade bonds and B pieces, we had loans pay off we had new we originated new loans, we bought and sold CMBS Securities.

I heard a new b piece investment definitely busy.

The consumer loans that you would turn to capital essentially because loan pay downs at a faster pace than we purchased new loans, one somewhat non intuitive side effect of the cares Act was that many consumers found themselves with more cash than normal given enhanced unemployment benefits and they use that extra cash to pay down debt so pay down.

They have been coming in quicker than our consumer loan portfolio.

Another point to make is that our mortgage originations are up.

I'm not sure if that's the result of fewer competitors superior pricing or both but our market share seems higher it's hard to measure scientifically, but I'm pretty sure it's true.

Larry mentioned, our recent Securitizations.

The mark to market with inherent repo, how even their cost relative to term before historically very wide right now.

One additional advantage there securitizations provide is that they allow us to potentially acquire loans at below market levels in the future. They exercising deal calls we did this with our non term deal. It just close where about half of the securitized pool represents of loans to be just be acquired at well below current market prices.

By calling and non QM securitization, we had done in 2018.

Everybody loves to commercial real estate now and there's going to be no shortage of headaches there the capital flowing in that market. The new issue CMBS market is open and we had a lot of resolutions in our portfolio.

Yes that would be the case six months ago. So.

Given the credit expertise of our commercial mortgage team and a great proprietary analytic tools. We have we're finding lots of opportunity to invest in high yielding assets with both high credit enhancement levels and limited exposure to covert affected sectors.

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

We also maintained a long position in current coupon TB and by doing so benefited from the strong dollar rolls driven by the feds purchasing activity we.

We're in the middle of a significant refinancing wave and origination volume to record highs.

We just got the October prepayment report from the G.S. ease and prepayment speeds continue to increase the multi year record level. Despite.

With some market participants were hoping.

We believe we are well equipped to outperform our prepayment modeling asset selection and dynamic interest rate hedging.

Thinking about the rest of the year in 2021, we want to continue to use the securitization market to term out financing and lower our borrowing costs whenever possible.

Larry mentioned, we already price to consumer loan securitization that will close in the fourth quarter front and center in our minds right. Now is once we know who the next president will be what will that mean for additional stimulus.

What will that mean for housing policy and how will that impact you see reform.

Given our diversity of strategies and research driven approach, we're excited about properly positioning to take advantage of new opportunities that will inevitably be create created.

We believe the flow arrangement in origination partnerships give us a big advantage and sourcing high credit quality low LTV loan portfolio now back to Larry.

Thanks Mark.

I'm very pleased with our performance in the third quarter and year to date.

Ellington financial fired on all cylinders in the third quarter.

And as you can see on slide 23.

We've now recovered all but just $15 million or almost 90% of our portfolio losses from the first quarter.

But this is not the time to be complacent.

I'm going economic uncertainty in credit and the refinancing wave that's fully underway and agency RMBS underscore the importance of risk management and liquidity management to protect earnings and book value areas, where Ellington financial has shined.

As you can see on slide 13, you see is unmatched among its peer group and the stability of its economic returns.

We have achieved stability through our diversified portfolio prudent leverage levels stable sources of financing discipline interest rate hedging and opportunistic credit hedging. These.

These principles continue to be critical protecting book value and being in position to capitalize on new opportunities and there's always management remains strong <unk> strongly aligned with our shareholders with a significant co investment any F.C.

As we look to 2021 and beyond our primary business objective is to continue to grow broaden and refine our loan origination capabilities. So we can continue to manufacture and control our own sources of return to an even greater degree I.

I believe that these businesses are key catalyst for the growth of our book value and stock price as well as for the continued stability of earnings.

Before we open the floor to questions I would like to thank the entire Ellington team for their hard work over the past few months. Despite the difficult circumstances for all of those listening on the call. Today, you hope that you and your families stay healthy and safe.

And with that we'll now open the call to your questions. Operator. Please go ahead.

Thank you and as a reminder, if you would like to ask a question Press Star then the number one on your telephone keypad.

And your first question comes from Trevor Cranston of JMP Securities.

Hey, thanks.

Looking at the securitization from the end of October one thing that I noticed is the loan coupon was still up around 6.2%, which seems like it's pretty stable from where things were pretty good.

So I mean, obviously it I mean, the spreads versus agency loans is significantly higher than where it was I was curious if you could talk though you know what do you think that type of loan coupon is sustainable and more generally if you can comment on.

You know how other loan characteristics Hum sort of bubble since mark on the loans you guys are recruits. Thanks.

Let me take that Larry.

Absolutely.

Sure so.

That's a great question Trevor I think note rates are certainly going to come down right. So that's.

Securitization.

We did.

The one that just price was interesting because.

About half the loans.

From a 2018 deal that we called half the loans or loans originated post called it right. So we were one of the first originators.

To start buying loans again right. After you know March and we started originating them before any post cobot securitization for price.

So we had a fair bit of pricing power the loans in that securitization that repos cobot alone.

I mentioned had a note we'd have about 620. So interesting to me is the loans, we called the 2018 deal had a note rate almost exactly the same 20, but if you look at those two securitizations I alluded to this in the tech.

I'd comment.

No rate on the AAA bond.

This recent deal was about 1.2% the new rate from that or 2018 deal on the AAA bonds is about 4% so.

Well to keep the same no wait but have you know one.

Hundreds of basis points lower debt cost.

So.

I think that no wait being 620, even on the post <unk> originations that had to do with that when we were originating those loans.

We're not a lot of competitors right space isn't as competitive as it was pretty cool, but its certainly more competitive than what it was say in may. So I think no weights will come down, but you know given the securitization execution. They can come down a lot in terms of the other attributes LTV credit score.

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They're not materially different than what they were a pre cove. It. So I think those attributes have stayed the same I think the note rate absolutely are coming down but.

No they have room to come down given the securitization execution.

If I could add one more thing mark to that thanks, which.

Which is that now you know Len sure is pretty focused on non QM obviously.

And it may actually broaden its product suite.

In the near future, but for now it's been very focused to Nonqm. Some of its competitors are basically shifted their focus back more to agencies, given where rates are there and so thats created.

Hey, a tailwind for our for Glenn Schorr and that really on a day to day basis, its not competing as much with some of the other originators as it was before so that's also helping pricing power as well. So I think thats been a phenomenon that's going to continue for a little while yet so it's a it's just a good really good space.

Base for us to be in right now as Mark said, you know rates are going to come down rates are extremely low obviously versus where they were last year for example, but but I think we're still looking at really attractive net interest margins as we continue to purchase that product even if the trend is going to be slightly lower no rate.

Yes.

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

Mark I think we can probably both handle that.

As you know supplement as you see fit we.

We're seeing.

We're seeing a lot more activity now as you mentioned in the third quarter that business really went back to normal see we can we can pick and choose our spots.

I think that there's no question that in some of the more distressed sectors.

As we get past co hvid and forbearance start to go away and some of these sectors are obviously going to be challenged on a more permanent basis, we're going to see nonperforming loans, our nonperforming loan and bridge loan business I think is going to pick up because of that as you see turnover of those properties.

But.

For now.

We have seen really more multifamily than we saw three co bid. It was the multifamily sector was was really overheated and obviously, it's still trending better than the other sectors, but just given what's happened to so much of specialty lenders and when you're talking about bridge loans, you're really talking about a specialty lending business on.

Given that there's still recovering really from Cove it.

You know I think that we're going to see continue to see.

Some increased originations there versus what we are seeing before but long.

Long term, we are actually quite looking forward.

To all the different sectors of the market.

You know it's a you.

You know, it's like I said, there's no bad bonds, there is only bad prices right so well.

Well we've tended to.

To stay we're very LTV focused first liens only as you can see.

You can see but you know in in many of our past disclosures, we focused on first liens.

Where you know we focus on LTV. So we're not going to compromise our standards there, but we are definitely going to be opened in terms of you know seeing.

Seeing more distressed properties and all the different sectors, Mark you want to add anything.

I would just say that because.

Because we've been open for business.

Isn't that.

In that market.

Really all throughout Cove it [noise].

That.

No in the beginning you could you could sort of beaches, you're right and we chose mostly multifamily.

I think over time is.

You know the market heals.

Other people into the space.

It'll get to be tougher but for now.

Given that you.

We have no predictive power, it's better than anyone else on the path of the virus type.

No vaccine or anything like that.

Good thing for us is to.

Go into sectors that are least impacted by cove it.

In sectors that are more impacted by Cove it.

If you look at those properties then you just.

Underwrite them to sort of very onerous scenarios and.

You know so far we Havent you know there hasn't been a whole lot activity for us.

And the more cobot affected sectors, when you underwrite them to real draconian scenarios, but that can change, but yeah. No. We like the multi space has been good for us spreads are healthy there.

We tend to think that you know going into once we.

During the calendar into 21.

You know unless unless things change from here, we expect a lot of these sectors to be a little bit more competitive but the.

The margins right now were really good now. So we are you know focused on you know putting more money to work.

Great. Okay. Thank you guys.

Thanks.

Thank you. Your next question is from Doug Harter with credit Suisse.

Hey, guys. This is Josh on for Doug.

Thanks for taking the question just thinking about the incremental deployment of capital given the attractiveness that we're seeing in the TV market currently or how are you thinking about the equity allocation to the agency segment.

In the context of the overall, how it fits in the overall portfolio and specifically how TV is fit into that strategy versus spec pools going forward. Thanks.

Hey, Mark let me just start and then if you could finish specifically on CBS in terms of just the agency.

Allocation, we've kept that lower.

Post Cove. It we think that that is the best way.

For for Us to.

Have the liquidity that we want to have.

To to be able to take advantage of opportunities in credit and other sectors. So so so just starting with just the general our general allocation you know as the credit portfolio continues to grow.

We're definitely going to favor that.

Over Oh route allocation stage CE, Mark you want to talk specifically about about the TV market.

Sure yes so.

Our positioning in <unk>.

In E S C.

Really has helped a lot post code, we like a lot of people recognize.

The importance of the fed large consistent.

And you know well telegraphed to purchase program. So we've had on the long side of the TV a balance sheet exposure to the coupons that have had strong roles and it helped a lot in Q2.

The other thing Weve done, which I don't think you've seen as many people do which is.

Been equally successful is weve had short positions.

The roles that the.

Fed.

On the TV ads the fed not involved in where these blazing fast speed to push the roll levels to negative numbers right. That's one way.

Which we've been able to get just on that part of our hedging.

Cost of hedging actually being below zero right. So yeah.

Yeah see it's benefited from you know long positions in TV, a superior roles EBITDA.

But also short positions in the TV age with the negative roles, which is one of the ways. We've hedged for years some of our higher coupon specified pools.

I think our always our healthy now in the agency market, but.

You know, it's not enough to know what the fed is doing right now it's enough to know what they're going to do so if you look at what happened to them different TV a coupons in in the third quarter.

There was one that really lagged with 30 year, Fannie threes and the reason that lagged went from being a coupon that the fed.

Buying.

Two effect to a coupon that fed used to buy right and when it did that its role collapse and its price collapse. So.

It's not a bullet proof strategy and that said.

What do you know what's on the fed shopping list it changes it changes incrementally, but it changes right and if you are.

On the wrong side of that and if you're caught holding a significant position in a T.V.A., where the price has gone up a lot because it's had a healthy role all sudden you know if the fed stopped buying and that bloomed fleets.

You're going to see prices reverse so we <unk>, we like we like it now for a portion of the portfolio it's been successful for us.

I view it is one of several tools, we have to generate returns.

And you.

You know obviously it was it drove healthy learning for us and a lot of companies this quarter, but it's like anything else in these markets.

Don't see it as riskless right and so having a good role is one thing but you also have to look at is the ERP.

Prices that he'd be a coupon does it make sense you know is it going to stay where it is if I'm the role weekend.

Great that makes sense, thanks for that color and then Larry.

You mentioned in your comments and in the trusts release about ample room for dividend growth going forwards just curious how you're thinking about when you think about the earnings power of the company, how you're thinking about appropriate dividend levels versus retaining those earnings and growing book value or any general thoughts you have around that thanks yeah.

That's a great question one of the one of the Differentiators that we have is we've made this 475 after tax election, and 111 of the many advantage that has for US is that this year because of our first quarter losses at ACR.

Really reduced the any pressure on our dividend in terms of upward pressure. You know you have companies that were really losing money economically.

And yet still potentially having pressure to dividend out based upon how they were going to computer taxable income and we absolutely do not have that is one of the many advantages so.

So what that means is that we have a lot of flexibility right now round or dividend.

We you know we did take a book value hit in the first quarter and as I mentioned, you know from a portfolio piano perspective, we've made about 90% of that back on we certainly hope to be in a positive position at.

December 31st but.

We think that there's just a balance right now.

Tween, a dividend that is appealing to investors that's consistent with the dividend yields in the space and building book value back and given our economic returns. The last two quarters you can see that we're really building book value back nicely and I think that's really important.

So I think we'll continue to be a balance we were you know at 41 cents right our core earnings.

Which you know is obviously in the 13% to 14% range.

Per month, our dividend, we just raised to 10 cents right. So we've.

We've got plenty of room to grow there another three or four cents. We you know so we were at job.

Oh, 15 cents basically run rate, even a little higher than that at points pre kogut per.

Per month in terms of our core earnings so given the opportunities that we're seeing now once were.

Fully fully deployed which were clearly not you can look at our leverage you can look at our cash balances you know I think that we have plenty of room.

Two.

To grow our dividend and those will be very interesting discussions with the board in terms of.

The timing.

Have any increases and but I certainly see lots of room for growth there, but you know in the meantime.

I think where you know my prediction is we're going to be judicious about it in terms of keeping that I'm, having a steady increases hopefully.

As opposed to just going right away to wear a coronary Saar, we do want to continue to build up build book value.

Great appreciate the comments guys.

Thank you. Your next question is from Crispin Love of Piper Sandler.

Good morning. Thanks for taking my question first can you talk a little bit about the credit quality that you've been seeing in your portfolio and sectors that you're kind of you're more bullish or negative on from a credit perspective. In recent earnings calls you had commented that there will be losses, and some pain in the portfolio.

So I'm just curious about how performance has been relative to your initial expectations from March and July to that currently.

Mark you want to take that.

Yeah, Hi, Kristen so.

Think about it in sectors right.

Any of the housing related sectors, Vietnam to N. and P.L.R.P.L. the residential transition loans non agency securities performance has been really good but I would just caveat that I tried to.

Well do that and then to use the balance in the prepared remarks that.

Forbearance was a big deal for homeowners that have suffered a loss of income as a result, the cove it.

And the Cures Act was a big deal for every consumer that had a loss of income from Covidien that the enhanced unemployment benefits that was $600 in excess of the state unemployment benefits.

That was a big deal.

And.

Those payments replace a lot of the income nationally that was lost.

Benefits of reduced now.

You know.

You know, we need to see sort of what happens with the selection.

And what stimulus will look like going forward, so well performance has been very good.

When we think about underwriting discipline.

It's always you're always sort of at the pendulum between underwriting discipline in volume and what your competitors are doing and you you have to sort of thinking all those dimensions right and so right.

Right now.

We have been able to whats been nice about this market has been able to get significant origination volumes with keeping a very strict underwriting discipline and I don't think that given the uncertainty about computer stimulus what happened with the path of the virus.

I don't think we should let that up by any means right now so on the residential side performance has been great, but we understand part of the drivers that made it great.

You know some of those things, it's a little it's not it's less clear other evolve going forward.

On the commercial side.

<unk> has been good.

Really good.

That was the sector I thought we'd have headaches.

I think we're going to have some but fewer than what I thought before and I've been really it's.

It's been surprise.

Surprising sort of.

At which loans have been paying off right. There was a lot of activity.

And commercial real estate and the one thing that is a big benefit to commercial real estate.

And I think sometimes it gets lost.

Is how important it is that there is active securitization markets right when I think back in 2008.

It was years before you saw a non agency commercial real estate deal get price after the financial crisis years right.

But it was probably [noise].

It probably gets done in June I'm guessing so.

What that does is it means that.

People that want to buy real estate.

Our offered financing at very low rates.

Sort of appropriate leverage and allows capital to flow.

So.

No I don't think we're out of the woods by any means and you can see you know we've we've augment the disclosure on the commercial real estate portfolio page.

Page 12 of the Oh.

Turning slide but.

Performance has been really strong on the consumer loan portfolio, it's been extremely strong and that sort of is an interesting case, because that's a case, where the parents terms generally we're shorter tenor and what they are in a 30 year mortgage so in that portfolio a lot of the bar where is that.

Opted for forbearance have emerged from forbearance agreement.

And you know are paying on their loans, so that sort of.

A little bit of a test case, and you know, we're not going to be at that point.

Residential side, we feel for another few months you see and you know more data on how borrowers do when they come out emerged forbearance, but.

Chris it's been good, but I, but I don't think we should necessarily expect.

Because to.

Stimulus was a big part of it.

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

So you know our our disclosure.

I really think that where we're all about no surprises.

And I think you.

Being Frank and honest I think you saw that back.

In March and April I mean, you know I have to say there were there were a lot of other companies, who were basically saying everything was fine and and it wasn't.

And I think if you look at our disclosures on expected credit losses, which is really where your question was about crispin.

You will see where we assess those.

At the end of each quarter and I think you'll find if you look for example, and we're going to have our Q coming out in a few days.

You'll you'll look you can see if you dig into the notes you over to see where we see expected credit losses on various sectors the portfolio.

You will see a lot of stability. They are our predictions are really really good I Miss.

Not only relates to expected credit losses. It. It also relates to where we have stuff Mark you know we fair value.

Obviously through the income statement and we need to make assessments about expected credit losses, and those are going to go right to our net income REIT real equity how that fair value election. So you know you're going to see a stability there because I think our assessments are just are just really really good and honest.

And they're not you know if you look at.

Well, we just closed on June Thirtyth, you look aware on September 30 disclosures. After those come out a few days you will see there is real it's really not bad at all and as Mark mentioned, our anything consumer related whether it's our residential mortgage portfolio, where our consumer loan portfolio. The performance has been.

Fantastic and we use the word resilient on the call earlier really really has been.

We do expect to have some credit losses, and CMBS right on some CMBS that we had coming into Covance and but again you will see stability there in terms of our estimate there and in the commercial loan portfolio.

Because we're so focused on first lien so focused on LTV.

I really think that portfolio is going to come out with just a few scratches nothing major and again you see that in the expected credit losses that we estimate.

We're going to have some hits in our corporate portfolio and again you saw that in our June thirtyth, you'll see it.

In our third quarter Q, but again they are contained.

And when you look at it in the context of things you know we've already taken the hit and I think from here, if anything things could be a little bit better that's kind of the philosophy in terms of our disclosures Jr. Do you want to add something.

Yeah, I would just add to that market mentioned, forbearances and I will update on.

How deferments and Forbearances have been in our portfolio in Q3, I mean last quarter, we discussed how forbearances and deferments that increase in the month. Following covert outbreak delinquencies increased and these are both declined considerably in the third quarter you could see it most clearly in the non QM portfolio.

Were just by the numbers forbearance longer forbearance was close to 9% at 630, and that's now close to 1% at 930, and even if that 1% almost 40 plus percent are occurring on just fighting it for parents and delinquencies are down sequentially and nonqm, but it's not just like you I mean and small.

Its commercial which Larry I was just speaking to deferments or are about cut in half from where they were at 630 and consumer deferments are down as well and and the amount of loans that are into permit yet are still current are up from from 630, and then finally in residential transition loans.

We haven't had any any loan subject forbearance or deferment or modification. So.

That's been our experience in Q3 versus Q2 in terms of forbearance and deferrals.

Yeah, and just by the way I just want to add one thing to on the call. We mentioned a couple alone so thank god.

Stick with Jr. I mentioned that we had a couple of loans pay off significant loans in our portfolio pay off or paid down at par right and I'll, just say without getting too. Many details one of them was the hotel loan.

And because we underwrote it to such a two.

To not to have an LTV and again, our appraisals you know we don't just take any old appraisal, we look at multiple appraisals on me reconcile them.

To to what we and our in this case origination partners are thinking.

The cost of that conservative underwriting.

You know that loan.

As you know paid from down from what we had originally underwritten to a 70 LTV down to 50 LTV and.

It just again shows and that was a hotel on so.

So I really think that because of the care that we take and the laser focus we have on LTV. When we make these loans and the you know faithfulness of the appraisal process.

I really think we're in good shape there.

Thank you for all the color there Larry you commented earlier about Tim's origination capabilities being undervalued by the market and you explained that with your investments in the loan originator <unk> loan originators and that was helpful. But thinking of the valuations at the end of a new mortgage originators.

No it isn't perspective, IPO that the elevated valuations some of which of those are being pitched it spend tax how do you think you have steep fits in there and the broader market you have some are they legacy public originators trading at 345 times earnings and then you have the newer companies coming to market a much steeper valuations.

So I guess the question is that kind of came up.

One with valuations are right and I and how can you have to see unlock the value of its origination channels and investments.

Right, well look where as I said.

In some cases.

Like.

So long bridge, it's not as much at this point.

Of a pipeline for us.

Loan flow right, we do buy.

No we do buy.

Ginnie Mae Adams.

And I.

I think having that investment in long bridge definitely has.

An incremental benefit in terms of how we manage that portfolio. There's no question about it.

But for now that really is in investment gives us exposure to reverse mortgage servicing which as you know as you know which is a unique asset class obviously.

And that we really like.

But.

So I think.

I think in terms of where you know there's different originators to our valued right now in the market I think that.

Yeah, there's obviously a.

You know a blip right now in terms of profitability. This year. So I think projecting that forward over multiple years is certainly not appropriate. So I think some of them are overvalued, but just in general where should originator be value right. It's going to be you've got a book value of got to tangible book value that has value and then you've got a franchise value that is going to be a multiple.

UBS earnings power and I think if you look at where our investments are value now I don't know I know, we don't give a huge amount of transparency there, but theres no question that there's tremendous upside there lend sure as I said just got a record month. So if we project continued growth there.

There's no question that.

Where we have those valued where we have that investment value that there's tremendous upside there.

On bridge as well.

Some of the reverse mortgage companies as you know is widely known have gone by the wayside over the past couple of years. It was a tough market now it's not a tough market now it's it's a great market and Longbridge is getting market share there at some point it could become a flow provider for US for example, you know in getting direct exposure.

Sure to just servicing instead of indirect exposure, but for.

For now.

We're going to continue to do what we can to help those companies grow and we're going to also those companies are going to help us.

As I mentioned long bridge in terms of our portfolio management of a reverse mortgage bonds and in terms of which are obviously the flow they give us in.

Non QM, we want to expand lend schurz product suite as I mentioned, so I think that's something that's on the horizon and that could be explosive and long term in terms of you know going into other markets.

The principles there have a lot of expertise in residential transition loan. So that's a natural place to go agency origination as well I mean, all these things are possible and then we didnt do we have even talked about art.

Our investments that we either have or that we might make in the future in other spaces like the consumer loan space. So I I just think that.

We are in a unique position given that you.

To vertically integrate right and and and were a great partner I think for some of these companies and obviously, they're a great partner for us so.

But we've got 57 million in the balance sheet, you can see that.

It's in the deck.

It'll be in our Q in terms of what our fair value is of our investments in those those originators now and Ah. Okay. So thats, maybe only call it 7% of our equity or something like that but total equity that number could grow over time subject to obviously the retest, but.

We have plenty of room there.

Hi, Thanks like that that's it for me.

Thanks Kristen.

Thank you we have no further questions at this time. This will conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day.

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Good morning, ladies and gentlemen, thank you for standing by and welcome to the Ellington Financial third quarter 2020 earnings Conference call.

Today's call is being recorded.

At this time, all participants have been placed any listen only mode.

The floor will be opened for your questions. Following the presentation.

If you would like to ask a question during that time simply press Star then the number one on your telephone.

If it anytime your question has been answered you may remember yourself from the queue by pressing the pound key.

Lastly, if you should require operator assistance, please press star zero.

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

Thank you 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.

Forward looking statements are not historical in nature.

Described under item one a up our annual report on form 10-K filed on March 13, 2020 and on their part two item one a on a quarterly report on form 10-Q for the three month period ended March 31st 2020 forward looking statements are subject to a variety of risks and uncertainties that could cause the companys actual results to differ from its beliefs.

Expectations estimates and projections.

Quietly you should not rely on these forward looking statements as predictions of future events.

Shipments made during this conference call are made as of the date of this call and the company undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.

I am joined on the call today by Larry Penn Chief Executive Officer of Ellington Financial Mark Tecotzky Co Chief investment officer of DFI, and J.R. Hurley Chief Financial Officer, If you have seen as.

Described in our earnings press release, our third quarter earnings Conference call presentation is available on our website Ellington financial dotcom.

Management's prepared remarks will track the presentation. Please note that any references to figures in this presentation are qualified in their entirety by the end notes at the back of the presentation with that I will now turn the call over to Larry.

Thanks, Jay and good morning, everyone as always thank you for your time and interest in Ellington financial.

Oh, just financial had another excellent quarter as we benefited from strong performance across virtually all of our strategies.

As you can see on slide four we generated net income of one dollar and six cents per share core earnings of 41 cents per share on a non annualized quarterly economic return of 6.7%.

Earlier this week the board increased our monthly dividend for the second time. This year this time by 11%.

And given that our core earnings this past quarter still comfortably exceeds our new higher dividend run rate and in light of our current earnings power, we should have ample room for additional dividend growth from here.

With our investment activity back to normal levels throughout the entire third quarter methodically grew our credit portfolio, mostly in non QM loans, but we still kept our overall leverage relatively low.

Despite this conservative positioning we were still able to grow core earnings and book value per share significantly this quarter give.

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

During the third quarter, our loan portfolios continued that resilient performance producing another solid quarter numbers are always while continuing to run return capital quickly for redeployment often at higher reinvestment yields I would note.

Meanwhile, the securities portfolios in our credit strategy benefited from some nice spread tightening and our agency portfolio had another very strong quarter and has now generated a positive return on equity on a year to date basis through September.

But the part of our portfolio I'd like to focus most on today is the strength and growth of our loan origination businesses.

Ellington Financial's results. This quarter were again boosted by strong performance from our strategic investments in loan originators, most notably Longbridge financial which continued its excellent performance this year.

As we've discussed on past calls the cost of the reverse mortgage business provides liquidity to borrowers without the requirement of monthly principal and interest payments borrower demand for the product to surge this year amidst the economic turmoil braun by coated.

Meanwhile, lens shore has done an extraordinary job restarting its loan production after the market stresses temporarily interrupted new originations earlier this year.

Ventures loan production in September and October exceeded production levels right before the pandemic related volatility and in fact October was a record $80 million origination volume months from on shore.

Last week I went to eventual closed another securitization of venture loans, our second second securitization. This year and in fact, we achieved the tightest financing spread yet of any post cobot non QM securitization.

The performance of our lunch or loans continues to be excellent and our entire document business continues to be an important driver of earnings for Ellington financial.

Ellington financial also as a strategic investment in a third loan originator just wondering the consumer loan space. This pipeline has generated and we expect it will continue to generate attractive risk adjusted returns for us.

All three of these originators, whether the COVID-19 volatility successfully at emerge in a strong position to add market share.

In addition to investments in these three originators Allergan has been active in the small balance commercial mortgage loan sector for more than a decade, now and weve developed strong and reliable sourcing channels over the years.

We benefit from several successful joint ventures in the space and we originate many of our bridge loans and source many of our commercial mortgage npls directly out of Ellington financial using our own loan sourcing and origination teams here at Ellington.

We have also well established origination channels for residential transition loans as well as flow agreements with other loan originators in the consumer space.

We believe that our array of proprietary loan pipelines is a key differentiator for Ellington financial and they are critical for our business for at least two primary reasons.

First and foremost our loan pipelines are designed to provide a steady flow of high quality investments to Ellington financial.

Loans coming out of these pipelines have been a key driver of our portfolio in core earnings growth over the past few years and we believe that they will continue to drive our growth going forward.

Same time, our loan pipelines enable us to leverage ellingtons core strengths of modeling and data analytics.

We apply our analytics to help shape the underwriting criteria of the loans that we and our partners originate and our goal is to manufacturing control our own sources of return rather than possibly accepting what the secondary markets have to offer.

But there is also a second reason why I'm highlighting our proprietary loan pipelines and that has to do specifically with our investments in loan originations our investments in loan originators that we've made to help build and broaden those pipelines.

Theres been a tremendous flow public cloud public capital into loan originators recently at premium valuations.

Several companies have gone public in recent months and a mortgage originator sector is trading at a very significant premium to where the mortgage rates, including Fcr trading.

But if you look at FC stock price I think it's clear that the market is undervaluing, our investments and loan originators and therefore this represents significant upside for you FC stock.

Overtime, we believe that the market will recognize not only the synergies, but also the franchise value that these loan originators represent for Ellington financial.

One final note on our originator investments.

The fair value of these investments through our income statement.

So any p. now that they generate for us is reflected in our GAAP earnings.

However, the appreciate the appreciation on these investments is not captured in our core earnings.

Therefore, if we're able to continue covering our dividends through core earnings as we've done every quarter. Since we started reporting core earnings by the way the appreciations on these loan originator investments can be a significant tailwind to our EPS and book value per share.

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

During the third quarter, we added another financing facility for our residential loan strategies and just within the past two weeks, we not only closed our six non QM securitization, we also price to securitization of unsecured consumer loans.

These rated securitization these.

These rated securitizations add additional term non mark to market borrowings to our balance sheet and they also have significantly lowering lower borrowing costs relative to repo and other types of back financing.

It used to be that repo and other bank lines are coming with the serious disadvantages of shorter terms and mark to market margining generally provided lower cost financing and securitization financing, but lately, especially in those sectors, where securitizations have become commonplace. It's the securitization market and that provides lower borrowing costs, even while affording all the imports.

Advantages of long term locked and non mark to market financing terms.

With that I'll pass it to Jr to discuss our third quarter financial results in more detail.

Thanks, Larry and good morning, everyone.

On slide four where you can see a summary of our third quarter results.

For the quarter ended September Thirtyth Ellington financial reported net income of one dollar six per common share and core earnings of 41 cents per share. These results compared to net income of 85 cents per share in core earnings of 39 cents per share for the second quarter.

GAAP and core earnings comfortably exceeded dividends declared during the quarter of 27 cents per share as well as our new quarterly dividend run rate of 30 cents per share.

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

During the third quarter, the credit strategy generated a total gross profit of a $1.17 cents per share.

While the agency strategy generated total gross profit up 17 cents per share. These.

These compare to 76 per share in the credit strategy and 33 cents per share in the agency strategy and the prior quarter.

Net interest income and our credit portfolio increased quarter over quarter, driven by a larger portfolio and lower financing costs and we also had significant net realized and unrealized gains each.

Each of our credit strategies contributed positively to results.

Prices increased for our Nonqm loans, CMBS FILO and non agency RMBS holdings during the quarter as liquidity continue to improve in those markets. In addition, the small balance commercial mortgage loan consumer loan and residential and transition mortgage loan portfolios performed well and each experienced significant principle repayments.

During the third quarter, we received proceeds from principal repayments of about $130 million on these loan portfolios, which represented more than 22% of the aggregate size of those portfolios coming into the quarter.

Finally, as Larry discussed we also benefited from extremely strong results for the quarter from our investments in loan originators.

The sold attractor from earning from results. This quarter were credit hedges driven by the strong performance of many credit sectors in the quarter.

Our agency strategy had another strong quarter performance driven by increased net interest income and strong performance from our prepayment protected specified pools as mortgage rates declined for the further an actual and expected prepayments rose again during the quarter.

Overall pay ups on our specified pool was actually declined slightly quarter over quarter, but this decrease only occurred because our specified pool purchases during the quarter were primarily of low pay up specified pools, which skewed the average downward.

During the quarter. We also increased our holdings of long TBA held for investment, which we concentrated in current coupon production. These.

These investments performed well driven by federal reserve purchasing activity.

Turning next to slide eight you can see that the size of our long credit portfolio increased approximately 12% in the third quarter to $1.4 billion at September Thirtyth.

The increase in the credit portfolio was mainly driven by non QM loan originations as well as by purchases of CMBS and single family rental RMBS.

You can see the growth of non QM here and the residential loans and Oreo slice, but the impact of the CMBS and single family rental RMBS purchases are harder to see on this slide because we had offsetting paydowns and sales in the same slices.

Overall, the CMBS and commercial loans in our yellow slice shrink sequentially, because we had several successful resolutions and the small balance commercial loan mortgage strategy in the third quarter.

I will also note that subsequent to quarter end, our two largest small balance commercial investments paid down or paid off completely both at par.

And while we have also seen originations of new SBC loans pick up that portfolio is smaller today than it was at September thirtyth.

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

You can also see on this slide that the consumer loan portfolio decreased quarter over quarter driven by pay downs.

A final note on the credit portfolio.

Is that with the completion of our latest non QM securitization last week that portfolio has decreased relative to September thirtyth that we are quickly replenishing our portfolio with lunch or reaching a record level of loan production in October as Larry mentioned.

Earlier this year in response to the significant volatility caused by the spread of COVID-19, we strategically reduced the size of our agency portfolio in order to lower leverage and enhance our liquidity position.

On slide nine you can see that we kept the agency portfolio relatively small this quarter, which has kept our overall leverage ratios low which you can see on which you can see on slide 10.

Our debt to equity ratio was 2.7 to one as of both September Thirtyth and June Thirtyth.

Adjusting for unsettled purchases and sales.

Our recourse debt to equity ratio also adjusted for unsettled purchases and sales increase quarter over quarter to 1.7 to one from 1.5 to one that remains well below pre pandemic levels.

The increase in our recourse debt to equity ratio was driven by increased recourse borrowings related to our larger non QM loan holdings, partially offset by reductions in certain non recourse borrowings.

The recent nonqm securitizations converted more than $90 million of recourse borrowings into non recourse term financing, which reduced our recourse debt to equity ratio below 1.6 to one as of October 31.

Our weighted average cost of funds decreased significantly in the third quarter to 2.2% at September Thirtyth from 2.48% at June Thirtyth.

As our older higher cost repo borrowings have matured, we've replaced them with repo borrowings priced based on current lower cost borrowing rates.

At quarter end, we had cash and cash equivalents of approximately $127 million along with other unencumbered assets of approximately $306 million, which remained elevated relative to pretty cold periods.

For the third quarter, our total Gina expenses per share were 16 cents up slightly from 15 cents in the prior quarter.

Other investment related expenses decreased quarter over quarter to eight eight cents per share from 12 cents, mainly due to non QM securitization issuance cost that we incurred in the second quarter, but not in the third quarter.

For the third quarter, we accrued income tax expense of $2.5 million, primarily due to an increase in deferred tax liabilities related to unrealized gains on investments held domestic trs.

Finally, our book value per common share at September Thirtyth with $16.45.

Up 5% from 15 67 at the end of the second quarter now.

Now over to Mark.

Thanks, Jr. We.

We had another excellent quarter with 6.7% non annualized economic return, which equates to an annualized return of almost 30%.

In core earnings well in excess of our dividend I.

I was also glad to see portfolio growth as we grew our credit holdings by 12%.

We've certainly adjusted our underwriting given the persistent impact of Cove it.

Leading sectors, most affected like lodging student housing.

But even with that discipline, we are finding high yielding investments.

One of the early movers in non QM origination post coping.

With Lynch, who are turning into origination machine back on before many others.

And that decision so far has really paid off.

Larry mentioned Linchpins origination volumes are now exceeding.

Pre koeppen levels, which I never would have predicted back in March the economics on the assets and on the securitization execution are materially better now too.

He also mentioned this before but if you get double dip from the strong origination platform first we drive core earnings with high coupon high quality, non QM loans and finance into the securitization market and secondly, we have a long term benefit of a sizable equity stake in a profitable originator.

Credit performance is strong across the board for us.

Very focused on the prospects of further consumer stimulus and how that will affect our portfolio.

We saw substantial benefits to consumer credit performance from both the cares Act and broad based mortgage forbearance both connected earlier this year.

Now we are entering a period of time with the virus is spreading more quickly.

Instead employment benefits have been reduced.

Mortgage borrowers exiting six month forbearance plan discipline in underwriting is critical for us.

Despite all markets are functioning well take our small balance commercial mortgage loan business. For example in March and April them that market slowed.

We continue getting loan resolutions, but we weren't seeing many interesting opportunities to lend again.

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

Now it feels like business as usual loans are getting paid off and we are seeing a steady flow of new properties looking for financing.

Return to normalcy is allowing us to grow our portfolio and recycle our capital.

As Dan mentioned, our two largest commercial positions actually paid down or paid off during October excluding those two situations I expect growth to resume in this portfolio ended our consumer loan portfolio. Many borrowers have exits forbearance performance has remained very good.

Everybody knows that housing has had great performance in the spring.

It was well positioned to take advantage, our non agency securities generated both realized and unrealized gains this quarter as did our NPL RPL portfolio. We continue to find things we like in resi credit.

Let's look at our credit portfolio evolve this quarter on slide eight while most of the net growth was in non QM theres a lot of activity in every sector.

Commercial mortgage strategy, which spans loans investment grade bonds in the pieces, we had loans pay off we had new we originated new loans, we bought and sold CMBS Securities We acquired a new.

Peace investment through a definitely busy.

The consumer loan strategy returned capital essentially because loan pay downs at a faster pace than we purchased new loans, one somewhat non intuitive side effect of the cares Act was that many consumers found themselves with more cash than normal given enhanced unemployment benefits and they use that extra cash to pay down debt.

Paydowns have been coming in quickly on our consumer loan portfolio.

Another point to make is that our mortgage originations are up.

Not sure if thats the result of fewer competitors superior pricing of both but our market share seems higher it's hard to measure scientifically, but I'm pretty sure it's true.

Larry mentioned, our recent securitizations, how the avoids the mark to market risks inherent in repo, how even their costs relative to terminal four historically very wide right now.

One one additional advantage securitizations provide is that the allow us to potentially acquire loans below market levels in the future by exercising deal calls we did this with our non term deal. It just close where about half of the securitized pools represented loans to be just we acquired at well below current market prices.

By calling and non QM securitization, we have done in 2018.

Everybody loves to commercial real estate now and there is going to be no shortage of headaches their capital flowing in that market. The new issue CMBS market is open and we had a lot of resolutions in our portfolio I Wouldnt have guessed that would be the case six months ago.

Given the credit expertise of our commercial mortgage team and a great proprietary analytic tools, we have we're finding lots of opportunity to invest in high yielding assets.

Both high credit enhancement levels and limited exposure to covert affected sectors.

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

We also maintained a long position in current coupon TBS and by doing so benefited from the strong dollar rolls driven by the feds purchasing activity.

We are in the middle of a significant refinancing wave and origination volume to record highs.

We just got the October prepayment report from the Gses.

Yes.

Prepayment speeds continue to increase the multi year record levels. Despite.

With some market participants were hoping.

We believe we are well equipped to outperform our prepayment modeling assets flex and dynamic interest rate hedging.

Thinking about the rest of the year in 2021, we want to continue to use the securitization market to term out financing and lower our borrowing costs whenever possible.

Larry mentioned, we already price to consumer loan securitization that will close in the fourth quarter.

In center in our minds right now is once we know who the next president will be.

Will that mean for additional stimulus what will that mean for housing policy and how will that impact.

Yeah.

Given our diversity of strategies and research driven approach, we're excited about properly positioning FC to take advantage of new opportunities that will inevitably be create created.

We believe the flow arrangements in origination partnerships give us a big advantage in sourcing high credit quality low LTV loans for our portfolio now back to Larry.

Thanks Mark.

Very pleased with our performance in the third quarter and year to date.

Ellington financial fired on all cylinders in the third quarter and.

And as you can see on slide 23.

We've now recovered all but just $15 million or almost 90% of our portfolio losses from the first quarter.

But this is not the time to be complacent.

Ongoing economic uncertainty in credit and the refinancing wave that's fully underway in agency RMBS underscore the importance of risk management and liquidity management to protect earnings and book value.

Areas, where Ellington financial has shined.

As you can see on slide 13.

C is unmatched among its peer group and the stability of its economic returns.

We have achieved a stability through our diversified portfolio.

Root and leverage levels stable sources of financing discipline interest rate hedging and opportunistic credit hedging.

These principles continued to be critical in protecting book value and being in position to capitalize on new opportunities and.

As always management remains strong strongly aligned with our shareholders with the significant Coinvestment NFC.

As we look to 2021 and beyond our primary business objective is to continue to grow broaden and refine our loan origination capabilities. So we can continue to manufacture and control our own sources of return to an even greater degree.

I believe that these businesses are key catalysts for the growth of our book value and stock price as well as for the continued stability of our earnings.

Before we open the floor to questions I would like to thank the entire Ellington team for their hard work over the past few months, despite the difficult circumstances.

For all of those listening on the call today, you hope that you and your family stay healthy and safe.

And with that we'll now open the call to your questions. Operator. Please go ahead.

Thank you and as a reminder, if you would like to ask a question Press Star then the number one on your telephone keypad.

And your first question comes from Trevor Cranston of JMP Securities.

Hey, thanks.

Looking at the securitization from the end of October.

One thing that I noticed is the loan coupon was still up around 6.2%, which seems like it's pretty stable from where things were pretty good.

So I mean, obviously that means the spreads versus agency loans is significantly higher than where it was.

I was curious if you could talk about what do you think that type of loan coupon is sustainable and more generally if you can comment on.

How other loan characteristics.

Sort of bubble since March.

Well as you guys are.

Thanks.

Okay.

Let me take that Larry.

Absolutely.

Sure. So that's.

Thats a great question Trevor.

I think no rate are certainly going to come down right. So that's.

Thats securitization.

We did.

Just price was interesting because.

Mentioned in the script about half the loans came from the 2018 deal that we called half the loans or loans originated post cold right. So we were one of the first originators.

To start buying loans again right after.

March and we started originating them before any post copel securitization for price.

So we had a fair bit of pricing power the loan to net securitization that were post cope with loan.

I mentioned had a note we have about 620. So interesting to me is the loans, we called the 2018 deals had an almost exactly the same 620, but if you look at those two securitizations I alluded to this in the text.

Prepared comments.

The note rate on the AAA bond.

This recent deal was about 1.2% the new rate from that 2018 deals on the AAA bonds is about 4%. So you were able to keep the same no wait but have you.

Hundreds of basis points lower debt cost.

So.

I think that no way being 620, even on the post copel originations that had to do with that when we were originating those loans.

There were not a lot of competitors right.

Space isn't as competitive as it was pre cove it but it's certainly more competitive than what it was say in may So I think rates will come down but given the security.

Securitization execution, they can come down a lot in terms of the other attribute LTV credit score.

Do not materially different than what they were pre cove. It. So I think those attributes to stay the same I think the note rate absolutely are coming down but.

They have room to come down given the securitization execution.

If I could add one more thing mark to that thanks.

Which is that now lets you are is pretty focused on non QM obviously.

And it may actually broaden its product suite.

In the near future, but for now it's been very focused on non QM. Some of its competitors are basically shifted their focus back more to agencies, given where rates are there.

And so thats created.

A tailwind for our for Glenn Schorr and that really on a day to day basis, its not competing as much with some of the other originators as it was before so that's also helping pricing power as well. So I think thats been a phenomenon that's going to continue for a little while yet so it's a it's just a good really good space.

For us to be right now, it's Marc said no rates are going to come down rates are extremely low obviously versus where they were.

Last year for example, but.

I think we're still looking at really attractive net interest margins as we continue to purchase that product even if the trend is going to be slightly lower no raise.

Okay got it that's very helpful.

And then you guys also mentioned the SPC loan originations pick.

Picking up can you provide some more color in terms of.

What sectors Youre seeing the most activity and if there's anywhere in particular that you guys are aboard.

Patients. Thanks.

Mark I think we can probably both handle that.

Just supplement as you see fit we.

Were seeing.

We're seeing a lot more activity now as you mentioned in the third quarter that business really went back to normalcy we.

We can we can pick and choose our spots.

I think that Theres no question that in some of the more distressed sectors.

As we get.

Get past Covance and forbearance start to go away and some of these sectors are obviously going to be challenged on a more permanent basis, we're going to see nonperforming loans, our nonperforming loan and bridge loan business I think is going to pick up because of that as you see turnover of those properties.

[music].

For now.

We have seen really more multifamily than we saw pre cove. It was the multifamily sector was was really overheated and obviously, it's still tracking better than the other sectors, but just given what's happened to so much of specialty lenders and when you're talking about bridge loans, you are really talking about a specialty lending business.

Given that there's still recovering really from covance.

You.

I think that we're going to see continue to see.

Some increased originations there versus what we are seeing before but.

Long term, we are actually quite looking forward to.

To all the different sectors of the market.

You know it's.

It's like I said, there is no bad bonds, there's only bad prices right. So.

Well, we've tended to two.

To stay we're very Ltd focused first liens only as you can see.

You can see but in many of our past disclosures, we focused on first liens.

Where we focus on LTV, so we're not going to compromise our standards there, but we are definitely going to be open in terms of.

Seeing more distressed properties in all the different sectors, Mark do you want to add anything.

I would just say that because.

Because we've been open for business.

That.

In that market.

Really all throughout Covance.

That.

In the beginning you could you could sort of speeches you're right and we chose mostly multifamily.

I think over time.

You know the market heals.

Other people into this space.

It will get to be tougher but for now.

Given that.

We have no predictive powers better than anyone else on the path to the virus timing.

Timing of vaccine anything like that.

Prudent thing for us is to.

Go into sectors that are least impacted by co bid and sectors that are more impacted by co vid.

If you look at those proper.

Properties than you just.

Underwrite them to sort of very onerous scenarios and.

So far we havent there hasn't been a lot of activity for us.

In the more covert affected sectors, when you underwrite them to real draconian scenarios, but that can change, but yes, we like the multi space has been good for us spreads are healthy there.

Tend to think that.

Going into one suite.

On the calendar into 21.

Yeah, one less unless things change from here with that lot of these sectors to be a little bit more competitive but the.

The margins right now were really good now so we are.

Focused on putting more money to work.

Great. Okay. Thank you guys.

Thanks.

Thank you. Your next question is from Doug Harter of Credit Suisse.

Hey, guys. This is Josh on for Doug.

Thanks for taking the question just thinking about the incremental deployment of capital.

Given the attractiveness that we're seeing in the TV market currently or how are you thinking about the equity allocation to the agency segment.

In the context of the overall, how it fits in the overall portfolio.

Specifically, how tvs fit into that strategy versus spec pools going forward. Thanks.

Hey, Mark let me just start and then if you could finish specifically on CBS in terms of just the agency.

Allocation.

We've kept that lower.

Post covance.

We think that that is the best way.

For.

For us too.

Have the liquidity that we want to have.

To to be able to take advantage of opportunities in credit and other sectors. So.

So so just to start with just a general our general allocation.

As the credit portfolio continues to grow.

Were definitely.

Got a favour that over over out allocation stage CE Mark you want to talk specifically about about the GBA market.

Sure yes so.

Our positioning in.

C.

Really has helped a lot post code, we like a lot of people recognize.

The importance of the fed large consistent.

And.

Well telegraphed to purchase program. So we've had on the long side of the TV a balance sheet exposure to the coupons that have had strong roles and it helped a lot in Q2.

The other thing Weve done, which I don't think you've seen as many people do which is.

Been equally successful is weve had short positions.

The roles that the fed.

On the TV is the fed not involved in where these blazing fast speed to push the ROE levels to negative numbers right and Thats one way.

We've been able to get just on that part of our hedging.

Cost of hedging actually being below zero right. So.

Yes see as benefited from.

Long positions and TV.

Your your roles.

But also short positions in the TV days with the negative roles, which is one of the ways that weve hedged for years, some of our higher coupon specified pools.

I think our always our healthy now in the agency market, but.

You know, it's not enough to know what the fed is doing right now it's enough to know what they're going to do so if you look at what happened to different TV coupons in in the third quarter.

There was one that really lag was 30 year, Fannie threes and the reason that lagged it went from being a coupon that the fed was buying too.

Two a phase two a coupon that fed use to buy right and when it did that its role collapse and its price collapse. So.

Not a bullet proof strategy and that said.

You know what's on the fed shopping list it changes it changes incrementally, but it changes right and if you are.

On the wrong side of that and if you're caught holding significant position in a TV a where the price has gone up a lot because it had a healthy role all sudden the fed stops buying in depth bloomed slate.

You know you're going to see prices reverse so we we like we like it now for a portion of the portfolio, it's been successful for us but.

But I view it is one of several tools, we have to generate returns and.

And you.

You know obviously it was it drove healthy earnings for us and a lot of companies this quarter, but it's like anything else in these markets.

I don't see it as riskless right and so having a good role is one thing, but you also have to look at.

The price of that TB, a coupon does that make sense.

No is it going to stay where it is if the role weekend.

Great that makes sense. Thanks for that color and then Larry you mentioned in your comments and in the press release about ample room for dividend growth going forwards just curious how you're thinking about when you think about the earnings power of the company, how you're thinking about appropriate dividend levels versus retaining those.

Earnings and growing book value or any general thoughts you have around that thanks, Yeah. That's that's a great question one of the.

One of the Differentiators that we have.

As we've made this 475 after tax election, and 111 of the many advantage that has for US is that this year the cost of our first quarter losses at actually reduced the.

Any pressure.

On our dividend in terms of upward pressure you have companies that were really losing money economically and yet still potentially having pressure to dividend out.

Based upon how they were going to computer taxable income and we absolutely do not have that just one of the many advantages so.

So what that means is that we have a lot of flexibility right now around our dividend.

We we did take a book value hit in the first quarter and as I mentioned from a portfolio.

Perspective.

We've made about 90% of that back on we certainly hope to be in a positive position.

Yeah.

Number 31, but.

We think that there is just a balance right now between a dividend.

Dividends that is appealing to investors, that's consistent with the dividend yields in the space and building book value back and given our economic returns. The last few quarters. You can see that we are really building book value back nicely and I think that's really important.

So I think we'll continue to be a balance we were at 41 cents right our core earnings.

Which is obviously in the 13% to 14% range.

Our dividend, we just raised 10 cents right. So.

We've got plenty of room to grow there another three or four cents, we said.

We were at.

15 cents basically run rate, even a little higher than that at points pre cove. It.

For months in terms of our core earnings so given the opportunities that we're seeing now once were.

Fully fully deployed which were clearly not you can look at our leverage you can look at our cash balances.

I think that we have plenty of room.

Two.

To grow our dividend and those will be very interesting discussions with the board in terms of.

The timing.

Have any increases.

And but I certainly see lots of room for growth there, but in the meantime, I think where my prediction is we're going to be judicious about it in terms of keeping that.

Having steady increases hopefully as opposed to just going right away to where our current earnings are we do want to continue to build build.

Build book value.

Great appreciate the comments guys.

Thank you. Your next question is from Crispin Love of Piper Sandler.

Good morning, guys. Thanks for taking my question.

First can you talk a little bit about the credit quality that you've been seeing in your portfolio.

The sector is that kind of your more bullish or negative on from a credit perspective.

In recent earnings calls you had commented that there will be losses in some pain in the portfolio. So I'm just curious about how performance has been relative to your initial expectations from March and July test that currently.

Mark you want to take that.

Yes, hi, Kristen, so I sort of think about it in sectors right.

Any of the housing related sectors be non QM NPL RPL, the residential transition loans non agency securities.

Formats has been really good but I would just caveat that I tried to.

You know do that and then the balance in the prepared remarks that.

Forbearance was a big deal for homeowners that have suffered a loss of income as a result, the cove it.

And the Cures Act was a big deal for every consumer that had a loss of income from Covidien that the.

In his unemployment benefits that was $600 nexus of the state unemployment benefits.

That was a big deal.

And those payments replace a lot of the income nationally that was lost.

Benefits of reduced now.

Yes.

You know, we need to see sort of what happens with the selection and what stimulus will look like going forward. So well performance has been very good way.

When we think about underwriting discipline.

It's always you're always sort of at the pendulum between underwriting discipline in volume and what your competitors are doing and you.

You have to sort of thinking all those dimensions right and so right.

Right now.

We have been able to whats been nice about this market has been able to get significant origination volumes with keeping very strict underwriting discipline and they don't think given the uncertainty about future.

Future stimulus.

What happens with the path of the virus.

I think we should let that up by any means right now so on the residential side performance has been great, but we understand part of the drivers that's made it great.

Some of those things.

It's not it's less clear how to evolve going forward.

On the commercial side.

<unk> has been good really good.

That was the sector I thought we'd have.

Headaches.

I think we're going to have some but fewer than what I thought before and have been really it's.

It's been a surprise.

Hi thing sort of the rate at which loans have been paying off right that there is a lot of activity.

In commercial.

Commercial real estate and the one thing that is a big benefit to commercial real estate.

And I think sometimes it gets lost is how important it is that there is active securitization markets right when I think back of 2008.

It was two years before you saw a non agency commercial real estate deal get price after the financial crisis years right.

But it was probably.

It probably gets done in June I'm guessing so.

What that does is it.

That.

People that want to buy real estate.

Our offered financings at very low rate.

Sort of appropriate leverage and allows capital to flow.

So you know.

I don't think we're out of the woods by any means and you can see that we've we've augmented disclosure on the commercial real estate portfolio.

Page 12 of the Ernie.

Turning slide but.

Performance has been really strong on the consumer loan portfolio, it's been extremely strong and that sort of business in case, because that's a case, where the parents terms.

Generally we're shorter tender than what they are in a 30 year mortgage so in that portfolio a lot of the borrowers that opted for forbearance has.

Have emerged from forbearance agreement.

And are paying on their loans, so thats sort of.

A little bit of a test case, and we're not going to be at that point.

Residential side, we feel for another few months you're seeing.

More data on how borrowers do when they emerge forbearance, but.

Credit's been good, but I, but I don't think.

I think we should necessarily expect.

Stimulus was a big part of it.

I would love to to add to that Mark So.

So you know our our disclosure.

I really think that where we're all about no surprises.

And I think you.

I am being Frank and honest I think you saw that back.

In March and April.

I mean I have to say that there were a lot of other companies, who were basically saying everything was fine and.

It wasn't.

And I think if you look at our disclosures on expected credit losses, which is really where your question was about Chris spin.

You will see where we assess those.

At the end of each quarter and I think you'll find if you look for example, and we're going to have our Q coming out in a few days.

We'll look you can see if you dig into the notes you've ever to see where we see expected credit losses on various sectors the portfolio.

You will see a lot of stability. There are predictions are really really good I Miss.

Not only relates to expected credit losses. It also relates to where we have stuff Mark we fair value.

Obviously through the income statement and we need to make assessments about expected credit losses, and those are going to go right to our net income right. We elect we have that fair value election. So.

Youre going to see a stability there because I think our assessments are just are just really really good and honest.

And they're not if you look at.

Well, we just closed on June Thirtyth, you look aware on September Thirtyth disclosures. After those come out a few days you will see this real it's really not bad at all.

And as Mark mentioned, our anything consumer related whether it's our residential mortgage portfolio, where our consumer loan portfolio. The performance has been fantastic and we used the word resilient on the call earlier, it really really has been.

We do expect to have some credit losses on CMBS right on some CMBS that we had.

Coming into Covance.

And but again you will see stability there in terms of our estimate there and in the commercial loan portfolio.

Costs were so focused on first lien and so focused on LTV.

I really think that portfolio is going to come out with just a few scratches nothing major and again you see that in the expected credit losses that we estimate.

We're going to have some hits in our corporate portfolio and again you saw that in our June thirtyth, you'll see it.

In our third quarter Q, but again they are contained.

And.

When you look at it in the context of things we've already taken the hit and I think from here if anything.

Thanks could be a little bit better thats kind of the philosophy in terms of our disclosures Jr. Do you want to add something.

Yeah.

I would just add to that Mark had mentioned Forbearances and.

And I will update on.

How deferments and for Barents as have been in our portfolio in Q3, I mean last quarter, we discussed how forbearances and deferments that increase in the month following covert outbreak.

Delinquencies increased and these are both declined considerably in the third quarter you could see it most clearly in the non QM portfolio were.

Just by the numbers forbearance loans in forbearance was close to 9% at 630 and Thats now close to 1% at 930 anyway.

And even if that 1% almost 40 plus percent current despite being in forbearance and delinquencies are down sequentially and non QM, but it's not just like you I mean and small that's commercial.

Which is what I was speaking to.

Deferment.

About cut in half from where they were at 630 minutes.

When a consumer deferments are down as well and the amount of loans that are in deferment, yet are still current.

From from 630, and then finally in residential transition loans, we havent had any any loan subject to forbearance or deferment or modification. So.

That's been our experience in Q3 versus Q2 in terms of forbearance and deferrals.

Yes, just by the way I just want to add one thing to on the call. We mentioned a couple alone so thank god.

Stick with Jr. Mentioned that we had a couple of loans pay off significant loans in our portfolio pay off or paid down at par right and I'll, just say without getting too. Many details one of them was the hotel loan.

And the cost we underwrote it to such.

To not too high of an LTV and again, our appraisals, we don't just take any old appraisal, we look at multiple appraisals on me reconcile them to.

Due to what we and our in this case origination partners are thinking.

The cost of that conservative underwriting.

That loan was paid from down from what we had originally underwritten to a 70 LTV down to 50 LTV and.

It just again shows and that was a hotel loan so.

So I really think that because of the care that we take and the laser focus we have on LTV when we make these loans and the.

Faithfulness of the appraisal process.

I really think we are in good shape there.

Thank you for all the color.

Larry you commented earlier about loans origination capabilities being undervalued by the market can you explain that with your investments in the loan originator loan originators and I was helpful, but thinking of the valuations at the kind of the new mortgage originator IPO respective IPO that the elevated valuations.

Some of which of those are being pitched as fintechs. How do you think SD fits in there and the broader market you have some are they legacy public originators trading at 345 times earnings and then you have that newer companies coming to market at much steeper valuations. So I guess the question is kind of.

One with valuations are right and I and how can you have see unlock the value of its origination channels and investments.

Right, well look where as I said.

In some cases like.

Like.

No.

Long bridge, it's not as much at this point.

A pipeline for us.

Loan flow right, we do buy.

We do buy.

Ginnie Mae outcomes.

And.

I think having that investment in long bridge definitely has.

An incremental benefit in terms of how we manage that portfolio. There's no question about it but.

But for now that really is in investment gives us exposure to reverse mortgage servicing which is.

Yes.

Which is a unique asset class obviously.

And that we really like.

But.

So I think.

I think in terms of where you know theres different originators to our value right now in the market.

I think that.

There's obviously a.

A blip right now in terms of profitability. This year. So I think projecting that forward over multiple years is certainly not appropriate. So I think some of them are overvalued, but just in general where should it originated revalue right. It's going to be you've got a book value of got a tangible book value that has value and then you've got a franchise value thats going to be a multiple.

Earnings power.

I think if you look at where.

Our investments are valued now I know I know, we don't give huge amount.

Transparency, there, but theres no question that there is tremendous upside there.

Len sure as I said just had a record month. So if we project continued growth there.

There is no question that.

Where we have those valued where we have that investment value that there's tremendous upside there.

Enbridge as well so.

The reverse mortgage companies.

Yes.

As widely known.

And by the way side over the past couple of years. It was a tough market now it's not a tough market now it's it's a great market and Longbridge is getting market share there at some point it could become a flow provider for us for example in getting direct exposure to just servicing instead of indirect exposure but for.

For now.

We're going to continue to do what we can to help those companies grow and we're going to.

Also this company is going to help us.

As I mentioned long bridge in terms of our portfolio management of labor.

Reverse mortgage bonds and in terms of winter, obviously to flow they give us in.

In non QM, we want to expand Glenn Schorr as product suite as I mentioned, so I think thats something that's on the horizon and that could be explosive and long term in terms of going into other markets.

Principles, there have a lot of expertise in residential transition loan. So thats a natural place to go agency origination as well I mean, all these things are possible and then we didnt do we have even talked about.

Our investments that we either have or that we might make in the future in other spaces like the consumer loan space. So I I just think that.

We are in a unique position given that.

Yes, it's a vertically integrate right and we're a great partner I think for some of these companies and obviously, they're a great partner for us so.

But we've got 57 million in the balance sheet, you can see that.

It's in the deck.

In our Q in terms of what our fair value as of our investments in those those originators now and okay. So thats, maybe only call it 7% of our equity or something like that but total equity that number could grow over time subject to obviously the re task, but we have plenty.

You have room there.

Okay. Thanks, that's it for me.

Thanks Kristen.

Thank you we have no further questions at this time. This will conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day.