Q3 2022 Ellington Financial Inc Earnings Call

November 8, 2022

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Good morning, ladies and gentlemen, thank you for standing by.

To the Ellington financial third quarter 2022 earnings Conference call. Today's call is being recorded at this time all participants have been placed in listen only mode. The floor will be open 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 keypad. If at any time. Your question has been answered.

You may remove yourself from the queue by pressing star. Two 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.

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 1095.

We're looking statements are not historical in nature as described under item <unk> of our annual report on Form 10-K 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. Consequently, you should not rely on these forward looking statements as predictions of future events statements.

During this conference call are made as of the date of this call and the company undertakes no obligation to update or provide 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 to Caskey Co Chief investment officer of UFC and Jr. Herlihy Chief.

Financial Officer of UFC as described in our earnings press release, our 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 Lee.

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

After a challenging first half of the year.

July started this third quarter on a constructive now.

With volatility interest rates and most yield spreads reversing much of their second quarter increases.

The rally proved short lift however.

Over the course of August and September continued elevated levels of inflation and hawkish message messaging from the fed drove interest rates sharply higher.

Volatility shot up to record levels.

A recession intensified in the yield curve inverted stressing equity and fixed income markets alike.

Market sentiment steadily weakened and we saw widespread selling across sectors, particularly towards the end of the quarter.

In some cases this included forced selling by asset managers to meet margin calls or redemptions.

Liquidity declined and yield spreads widened in virtually every fixed fixed income sector with many sectors, reaching their widest levels of the year.

Against this difficult backdrop Ellington financial generated a net economic loss for the quarter of three 4% driven by losses on non QM agency RBS and originator Stakes.

Nevertheless, our diversified portfolio stable sources of financing and dynamic hedging significantly limited the magnitude of that loss.

During the quarter, we had strong performance in our residential transition loan small balanced commercial mortgage loan.

Hello, and see MBS portfolios and we benefited from significant net gains on our interest rate hedges and non QM interest only securities.

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

Turning now to the Investor presentation.

On slide three you'll see that we are reporting adjustable distributable earnings of 44 per share, which is a 3% sequential increase and which nearly covered our dividend the.

The increase resulted from our continued rotation of capital into higher reinvestment yields and from a larger credit portfolio as we got more invested.

With interest rates rising so dramatically this year, especially in the short end of the yield curve, we've been playing a bit of catch up with our adjusted distributable earnings.

Purchase yields on many of our assets, especially especially our agency pools still reflect the much lower interest rate environment that we had earlier this year.

So as we continue to rotate out about lower yielding portfolio, we should get a boost to our AE.

In addition, keep in mind that a lot of our credit portfolios are quite short in duration. So those will rotate more or less by themselves naturally.

The bottom line is that we're still constructive on where our <unk> is heading.

Meanwhile, as you can see from our cash and unencumbered asset figures. We've continued to maintain a strong liquidity position, even as we've grown the credit portfolio.

Finally, I'd like to move to the Longbridge transaction.

With all required regulatory approvals finally obtained we closed on the acquisition of the other half of our affiliate reverse mortgage originator longbridge financial shortly after quarter end.

The final purchase price of $38 9 million with.

But substantially lower than the initial estimated price of $75 million that we announced in February and reflected a discount to longbridge is book value rather than a premium as originally estimated along with a lower book value.

With the closing of this transaction Ellington financial now holds a controlling stake in Longbridge and so we will fully consolidate longbridge onto our financials, beginning with our fourth quarter financials, Jr. Will elaborate on that later.

From a business perspective, we believe that long were just future earnings prospects are strong even with the challenging market conditions, we've seen so far this year.

Given the substantially lower final purchase price that we paid we believe that the stage is set for an excellent return on equity on our investment going forward.

While it's been really tough market for all mortgage originators Longbridge actually managed to turn a profit in the third quarter.

And with much of its competition Hobbled language also became the second largest issuer of new issue Hecht H MBS with a 20% market share.

That said the surge in interest rates has driven hakon volumes lower so far in Q4.

And the Ginnie Mae HMD, yes outlet for languages hack and production is still trading at wide levels those.

Those are going to be headwinds for the business in the near term, but make no mistake. The situation in the reverse mortgage market is quite different from that of the forward mortgage market.

The reverse mortgage market is still largely untapped longbridge has market share has been rising in the demographic trend trends are extremely favorable. So we're definitely constructive on long, but just long term prospects.

Furthermore, the income stream that we expect to see from the Longbridge acquisition should also hands, the diversification and quality of Emc's earnings stream.

The reverse mortgage origination business can flourish in an economic downturn for example, because the reverse mortgages to provide liquidity to borrowers without the requirement to make monthly principal and interest payments.

Fact, the last peak and <unk> originations was in the wake of the global financial crisis in 2009, when home prices were falling rapidly.

And Longbridge is origination profit soared in the second quarter of 2020 during the depths of Covid. When other fixed fixed income businesses were teetering. There is definitely a countercyclical component to the reverse mortgage business with.

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

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

For the quarter ended September 30th Ellington financial reported a net loss of 55 per share on a fully mark to market basis, and adjusted distributable earnings of <unk> 44 per share.

These results compared to a net loss of $1 eight per share and <unk> 41 per share for the prior quarter.

On slide four you can see that we further increased our capital allocation to credit investments during the quarter to 88%.

Up one percentage point from June 30.

Based on the opportunities that we are currently seeing in credit, including the recently closed Longbridge transaction I expect this allocation to continue growing slowly relative to agency.

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

As Larry mentioned the purchase yields on many of our assets still reflects a much lower interest rate environment that we had earlier this year as we continue to turnover our assets, we expect that the gap between our purchase yields and market yields will narrow and that should be supportive of our net interest margin.

On slide five you can see the attribution of earnings between our credit and agency strategies.

During the third quarter, the credit strategy generated a gross loss of <unk> 19 per share while the agency strategy generated a gross loss of <unk> 17 per share.

These results compared to a gross loss of <unk> 80 per share in the credit strategy.

And a gross loss of <unk> 20 per share in the agency strategy in the prior quarter.

Net interest income on our credit portfolio increased significantly quarter over quarter, driven by the larger portfolio. While we also had strong performance from our CLO and <unk> strategies and significant net gains on interest rate hedges and retained non QM tranches driven by the appreciation of our non QM interest only securities.

On the other hand rapidly rising interest rates widening yield spreads and weak securitization economics generated losses on our unsecured ties non QM loan portfolio and continued to pressure gain on sale margins and origination volumes for our loan originator affiliates.

Both <unk> and Longbridge, where profitable in the third quarter.

The valuation for each declined significantly.

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

As a result of these valuation declines.

<unk> booked a significant mark to market loss on its investments in these loan originators for the quarter.

Agency RMB has continued to face fierce headwinds in the third quarter.

As durations extended in response to higher interest rates and as elevated volatility contributed yield spread widening.

In our portfolio net losses on agency MBS exceeded net interest income and net gains on interest rate hedges, while we also incurred delta hedging costs stemming from the volatility.

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

Turning now to slide six.

During the third quarter, our total long credit portfolio grew by 3% sequentially to $2 74 billion at September 30.

The increase was driven primarily by a larger RTL portfolio.

Partially offset by opportunistic sales pay downs and mark to market losses elsewhere in the credit portfolio.

Larry alluded to the short duration of many of our loan portfolios and these portfolios continue to return significant capital during the quarter.

We receive principal paydowns of $205 million on our RTL, SBC and consumer loan portfolios, which represented 14% of the combined fair value of those portfolios coming into the quarter.

On slide seven you can see that our total long agency RMB portfolio decreased by 15% to 114 billion, resulting from net sales pay downs and price declines.

Please turn next to slide eight for a summary of our borrowings.

Our weighted average borrowing rate increased by 115 basis points sequentially to 376% at quarter end, driven by higher short term rates and a greater proportion of our borrowing secured by our loan portfolios, which carrier carry higher borrowing rates in agency assets for.

For both our credit and agency strategies, our cost of funds increased sharply during the quarter driven by higher short term interest rates.

Book asset yields for both strategies also increased over the same period, thanks to portfolio turnover the by a lesser amount.

As a result, the NIM on our credit and agency portfolios declined quarter over quarter to 234% and 1% from 275% and 176% in the prior quarter respectively.

Despite this NIM contraction, we were able to increase our <unk> by <unk> <unk> per share quarter over quarter.

Our recourse debt to equity ratio adjusted for unsettled purchases and sales was unchanged at $2 six to one as lower recourse borrowings on a smaller agency MBS portfolio and the majority of our $86 million of old senior notes was roughly offset by higher recourse borrowings on our credit portfolio.

And a decrease in total equity.

I will note that the availability of secured financing has continued to hold up well amid the market volatility that we have seen haircuts increase <unk> financing spreads widen on several of our credit loan facilities.

In fact, we were able to further expand our loan facilities during the quarter, we added a new facility for residential loans and we extended the term of one loan facility by 24 months.

On a technical point concerning our liabilities youll see on our balance sheet that we marked down our $5 $7, 8% senior note liability by a fair amount, but since we are hedging that liability was so for swaps, which were also marked down those two markdowns largely offset each other this quarter.

Total G&A expenses for the third quarter were <unk> 14 per share unchanged from the prior quarter, while other investment related expenses increased by 2%.

<unk> per share.

During the quarter, we were opportunistic with our capital management strategy.

In August we issued approximately 517000 common shares under our ATM program at an average price of $15 55 per share and later in the quarter, we repurchased 40000 shares at an average price of $12 38 per share.

As of September 30, our book value per common share was $15 22.

Down six 2% from $16 22 per share at June 30.

Including the <unk> 45 per share common dividend that we declared during the quarter. Our total economic return for the third quarter was negative three 4%.

Finally, as Larry mentioned, we will consolidate longbridge beginning in Q4, and we are planning to report Longbridge as a separate operating segment in our GAAP and non-GAAP financial reporting.

Because longbridge does not achieve true sale treatment on its <unk> securitization.

It consolidates all of those non recourse securitization for GAAP reporting purposes.

As a result, the gross size of Fsc's balance sheet will more than double next quarter, even though longbridge is equity is quite small relative to <unk>.

The $38 $9 million purchase price for the other half Longbridge was less than three 5% of Esg's total equity at September 30.

I'll also point out here that Longbridge is recourse debt to equity ratio was two three to one at quarter end, which was marginally lower than <unk>.

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

Here I would like to make an important note about how consolidation will impact <unk> earnings going forward.

Until now Ellington financial only owned a minority stake in Longbridge like.

Virtually all of our other investments.

Dfc fair valued that minority equity stake in long ridge, each quarter and the change in that fair value flow directly through <unk> zone net income through our income statement and earnings from investments in unconsolidated entities.

Of course long Ridge is one earnings were a primary driver of that fair value change. So longbridge is one earnings did impact Emc's earnings, but other factors came into play on the fair value determination, including earnings multiples and book value multiples prevailing in the M&A and stock markets.

Starting next quarter.

Fair value determinations of our investment in long Ridge will no longer be factored into our financial results and instead Longbridge is GAAP earnings will simply flow directly into <unk> earnings.

I'll also note that similar to AFC. Historically Longbridge is also fair valued virtually all of its assets. So the book value that we acquired was effectively based on fair value not historical costs.

In addition, the calculation of our adjusted distributable earnings will change upon consolidation in the past when we calculated our own AE, we did not incorporate any adjusted distributable earnings look generated locally at Longbridge, but.

But upon consolidation in Q4 <unk> will include the <unk> generated by Longbridge going forward.

Now over to Mark.

Thanks, Jr.

This is truly an extraordinary quarter given the magnitude of the moves in interest rates the twist of the yield curve and the widening of spreads.

Maybe at unprecedented is how long the volatility lasted we've certainly seen more violent market moves before for example in March 2020, and at times during 2008, but during those periods. The volatility Didnt last day after day for months on end as it did this quarter.

I think an economic return of down three 4% for Ellington financial is pretty good given what we had to manage through.

We saw about some forced selling in the third quarter, especially in September around the UK turmoil with managers werent selling because they wanted to but rather because they were forced to and while I don't think all of the market volatility has passed us by any means things are starting to feel marginally better in some sectors.

Agency MBS for example is again functioning as a relative value market not just the market absorbing forced liquidations and unlike some days in the third quarter. There was good two way flow now spreads in moving predictably with liquid credit indices and balance sheet constraints no longer seem to be the overriding concerned and with spreads.

We wide the forward looking opportunity looks attractive.

However, we have not yet achieved that balance in other structured products sectors. Non QM was clearly one of those strategies near the eye of the storm in the third quarter.

Rapidly rising mortgage rates have caused prepayments to plummet in non QM and AAA bond issued anytime before Q3 face a lot of extension risk.

Along with changes in call assumptions, we saw substantial price declines in non QM tripoli's, but we don't own those in Dfc, we own loans and we owned the retained tranches, even taking into account incremental credit concerns are retained tranches have actually appreciated in value. This year, given their large io component and how much.

CPR is have declined we've also had the hedges in place in our unsecured ties loans, including being short MBS via the TBA market. We've also had credit hedges against those positions and those hedges all help offset losses, our non QM strategy in the third quarter.

Non QM has borne the brunt of a lot of widening is now a push pull between repo spreads and AAA spreads as the market continue searching for footing and sustained investor demand for bonds.

We didn't predict that the securitization market for non QM would remain quite this dysfunctional for this long, but we certainly thought it possible, which is why way back in Q1, we started terming out our repo and adding additional repo counterparties.

We have spoken many times on these calls, but the benefits of non mark to market term securitization financing over repo, but sometimes the pricing relationship is so extreme that additional repo makes sense for a quarter or two and you want to have the flexibility to delay a securitization if necessary.

The non QM market is now showing nascent signs of recovering supply is slow and as we've activity slows and as many originators have pulled back to exit the market and new capital primarily from insurance companies have showed up with incremental demand. Meanwhile, yields on new originations are very attractive.

There are some other things on our radar first let's talk about commercial mortgage bridge loans as these loans hit their maturity dates market wide. The property owners are being forced to refinance at much higher rates and the result that <unk> is now typically the limiting factor on new loan sizes as opposed to LTV being the limiting factor.

This issue so severe that even on some properties that have nailed their business plans.

<unk> new loans offered will be less than what is required to pay off the existing loan. This creates a situation where the capital structure might be upside down even though property level performance does not and that problem can only be solved with new equity or mezzanine capital.

But it also creates an opportunity to be part of the solution, where we can provide that requisite capital at attractive yields.

Aggressively lowering LTV limiting.

Okay.

Sorry.

Furthermore, this dynamic could also generate significant NPL volume a product type that we haven't seen in meaningful size in years.

So far our performance in our commercial mortgage bridge loan portfolio has been very good and valuations on the underlying properties are holding up well, but we are preparing to manage through more delinquencies given the opportunities. We're seeing in other sectors are lending volume for the quarter was down youll see participate five new originations and had four loans resolved and our.

Folio size was roughly constant quarter over quarter.

Second, let's talk about fixed and flip if mortgage rates stay at their current levels. The most likely outcome is a continued decline in home prices to get back to some reasonable level of affordability in many msas youre seeing all time lows and housing affordability also with so many borrowers locked into low cost mortgages.

Below three 5%, we think existing home sales will continue to slow.

That's a challenge for fixed and flip where operators need homebuyers to pay off their loans, we're seeing clear evidence of this dynamic is time on the market for new home listings.

Pending nationwide and.

In our portfolio, we continue to see a healthy volume of pay downs and performance remains very strong in fact, our operators are generally still selling homes above the value that we've underwritten.

Our new loans, we have been aggressively lowering ltvs limiting the scope of work, we lend against limiting the value of the homes, we lend against and being more selective about the regions, where we lend.

Unlike last year, it's a loan buyers' market now and we can really clamped down on terms raising lending rates and still get the volume we want there just aren't many alternatives for these operators.

Looking at our portfolio overall, we grew our credit portfolio incrementally during the quarter, primarily in RTL and shrunk our agency portfolio, which now constitutes just 12% of our capital as you can see on slide four both strategies now have incredible return potential, but the agency strategy relies on a lot more.

<unk>. So we are continuing to shift the incremental dollar away from agency to credit.

As you mentioned in the press release, we marked down our originator Stakes this past quarter for literature. It's just the case of lower origination volumes and smaller gain on sale margins, though they were still profitable for the quarter, which I think speaks volumes about the quality and disciplined management there.

The next few few quarters will be tougher loan originators across the board, but the competition has been greatly reduced and the opportunity is exciting. In addition to managing emc's owned portfolio of loans and retained tranches. We are in constant dialogue with their loan origination partners to keep them informed about to keep them informed about secondary market levels and Mena.

While they keep us informed about changes in the origination landscape there is tremendous value in that dialogue.

On page seven you can see that the agent agency portfolio shrunk by $200 million through a combination of net sales pay downs and price declines. So we took a page out of our Covid playbook by shrink in the agency portfolio to free up liquidity when credit markets were stressed Q3 was not like the COVID-19 liquidity crisis, though in 2028.

<unk> recovered before credit because the fed came in to buy and credit didn't recover 12 months later, but in Q3, while eight well both agency and credit works best the agency market remains liquid throughout.

Looking ahead, where do all of the recent market moves leave US now what opportunities have been created and what risks posed by sharply higher interest rates and an elevated risk of recession.

We are respectful of what can happen to rates and spreads when the fed hikes at the fastest pace in 40 years and simultaneously shrinks its balance sheet and how severe and sustained the consequences could be we have an experienced senior management team experienced pms.

And the great risk management team, who have seen many other shocks and managed through many bear markets before when the dust settles I am confident that we'll find ourselves in an environment, where yields are so high end assets relative to the hedge relative to hedging and financing cost and the pricing assumptions are so bearish that the opportunities will.

We're in a period of very high returns.

The outlook going forward looks as good as it has in years.

Spread widening there has been a headwind for book value lately.

Widening has been a headwind for book value lately, but we believe that the opportunity for going forward earnings has improved dramatically spreads are wider and yields are way up.

Even if field stay here, we think many CUSIP investments RMB SMC MBS has the potential for multiple points of price upside just from spread tightening.

Spreads are also incredibly widen the agency market and that market is showing better stability and balance since the end of the quarter. Meanwhile competition in origination markets is way down if you have the pricing power to tightened investment guidelines and charge higher rates, there's still a lot to worry about and we will keep our discipline, but lots of new capital is starting to.

Come into the market and take advantage of the yield opportunity now back to Larry.

Thanks Mark.

As we move into the final weeks of 2022, I think you can tell that we're excited about the ample investment opportunities in both securities and loans, but we continue to weigh the deployment of additional capital against maintaining adequate liquidity buffers to guard against a deeper market downturn.

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

Finally, with recession fears of a looming I'll note that the credit performance of our loan portfolios as measured by delinquencies defaults and credit losses continues to be strong.

But with the increased risk of an economic slowdown we are focused on tightening our underwriting guidelines with a particular emphasis on keeping ltvs low.

And being even more selective about geography and property type.

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

We are now seeing clear evidence of home price weakness given deteriorating housing affordability and so we are preparing for meaningful price declines in some regions of the country.

With that we'll now open the call up to questions.

Later, please go ahead.

At this time I'd like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by pressing star to you.

Our first question comes from Bose George from K B W.

Hey, guys. This is actually Mike Smith on for Bose.

My first question can you just help us get a sense for run rate core earnings kind of relative to that 44 cents just given your outlook for capital deployment and then the addition of Longbridge.

Okay sure. Thanks for the question.

So to the second point. The addition of Longbridge.

Ed mentioned that <unk> will start to be captured from Longbridge beginning in Q4.

We are going to present that as a separate operating segment and also give detail of how we're calculating it.

The components of 80 at the originator are different than the components of the FC given that its core businesses origination oriented and gain on sale oriented, whereas we exclude that portion from realized and unrealized from UFC side. So the components will be different but we'll we'll show them both.

As a consequence of the gain on sale component it at Longbridge, there <unk> tends to be a bit more volatile than Fcs.

But again, we think it's we projected to be accretive over time, and so just adding that incremental piece to <unk> today.

It looks very good relative to our current dividend.

So that's the second part and then the first part.

The run rate I think 44 is probably which is almost 12%.

Our book value is a pretty good.

Run rate estimate from here there are different pieces that I guess, a lot of moving parts into the into the calculation. One is the overall size of the portfolio and so.

We talked about this quarter part of the sequential increase was because the credit portfolio increased in size, even as agency decline that was the big driver.

We also have the asset yields.

We're talking about how as purchase yields.

Turnover into higher reinvestment yields that will lead.

It should lead to top line growth on the NIM.

Cost of funds have been marking to market much more quickly and so we've had.

Sure what we think will be short term contraction of NIM and then we have the swap component, which is also adjusting with interest rates. So I guess, that's a long winded answer to your question that I think 44 is probably a good.

Run rate, but we think that we're going to be covering the dividend, which is 45. So we're kind of right on top of it now and then you're going to have the additional effect of folding in longbridge to the equation.

And your expectation it could be a few a few.

Sorry that could also be a few cents per share per per quarter at least.

Yes.

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

Sure So I think.

Ed.

The a portion I can give you better numbers, but big picture a good chunk of our losses to date have been on unrealized year to date.

Whether that's in the agency strategy.

Where there is a component that's unrealized.

Whether it's on our originator stakes.

We took those stakes down too to the point Longbridge is marked below book.

Representing the transaction value of <unk>, we took down.

Which the company has big cash.

Sizeable balance sheet with cash balances and I think theres upside there and then non QM has been another.

The source of losses year to date were.

There is significant.

Unrealized component.

You look at our income statement year to date you.

You can see thanks, Chris that through the nine months ending September 30, we had unrealized losses of.

Almost $2 50 per share.

Compared to realized losses of about $1 18 per share.

So just that proportion there into two thirds or so of that combined is unrealized and.

The prospects of recovering a good portion of that are high if.

Spreads tightened from here, which we think they can even if yields stay high.

Great. That's really helpful color, thanks for taking the questions.

Thank you.

Our next question comes from Doug Harter from Credit Suisse.

Thanks.

Can you just talk a little bit about.

How are you thinking about balancing deployment.

Cash versus kind of holding liquidity.

Volatility in the near term.

Kind of what you're looking for.

Most of you one way or the other in that decision.

Mark you want to take that.

Sure.

So.

That push and pull between taking advantage of high yields.

But managing the portfolio so that you're prepared for whatever lies ahead tomorrow be at another fed statement or something from the bank of England.

That was a big part of.

Like high level discussions we had on managing the company in Q3.

I don't think things have changed a lot I mean, there is certainly.

Maybe some green shoots right. If you look at market expectations and if you follow what the fed says, but just looking sort of just that.

Just what market expectations are telling you is that the.

Magnitude of the hikes is supposed to come down a little bit.

And I think the market will will perceive that as good news.

I mentioned in my prepared remarks that some markets are starting to function.

With a better balance of supply and demand I think I pointed to the agency Mark were now like daily spread moves are sort of following more closely credit indices, you know investment grade indices and high yield indices, which is sort of.

I think the US we take it we take it as an indication of a better balanced that youre not just absorbing four selling now if you look back at.

Q3, and even into October .

Certain parts of securitized product market, let's say, if you look at legacy non agencies, where you'd have days, where liquid credit indices tightened.

And the bonds actually widened right. So to us that is indicative of market supply and demand is not in balance and youre still seeing forced selling some money manager so.

We look at a lot of those indicators I think things certainly feel a little bit better than how they did in parts of the third quarter.

But there's still definitely parts of the market, where we see.

Okay.

Imbalances, right, where you still see for selling at <unk>.

Prices that on a given day or disconnected from how you would have predicted the securities would have moved out the other factor we look at is.

What other capital is coming into the market and so I think one thing that's been interesting about 2022, and it's going to really distinguish it relative to other years is it going to be the lack of bank buying of securities net has been on agency MBS, it's been AAA CLO It has been.

Across the board there's been a lot written how banks are struggling with.

The diminished capital as they've had to absorb a lot of mark to market losses in available for sale available for sale portfolios. They've also had some deposit erosion. So.

You haven't seen banks being meaningful participants in securitized products the way. They historically are but what you have seen the sort of the new the new sort of play with the wheel that is showing up with substantial amounts of capital are some of the insurance companies. So we take that as another positive sign but I think when we put it all together.

I would say that we're cautiously optimistic but.

The caution part of that cautiously optimistic.

Still going to.

Lead right now for I think conservatism on how much cash you have on hand, right. So we're starting to see some green shoots, but it's not enough for us to sort of sound the all clear.

So if I could just elaborate on that.

We only grew the credit portfolio by around 3% last quarter.

Looking forward in the near term.

Got to be more about.

Replacing the assets that are running off.

With higher yielding assets, we have a lot of different strategies as you know.

RTL is definitely one of our higher yielding row strategies right now so I think we're going to continue to see.

They are very healthy flow on the other hand as you mentioned in prepared remarks small balanced commercial mortgage.

That we slowed down quite a bit and so more sort of just as loans pay off set of replacing that so not not really growing that portfolio. So we can be very selective in terms of where we are deploying those those dollars of capital as other dollars of capital are coming in.

We mentioned that the agency portfolio, we think it's going to continue to shrink a little bit.

I think that makes sense.

We always try to keep our cash positions typically they have been in that I'll say $100 million to $200 million range recently, obviously, that's a wide range and sometimes even a little lower a little higher it depends upon.

The nature of our unencumbered asset portfolio, but.

The other factor would be non QM securitization that we did one in the.

Third quarter, but.

We mentioned that Mark.

Mark mentioned that we've been choosing to hold more loans on repo, while we haven't liked the spreads that we've seen in the non QM securitization market. So.

That could be a catalyst for.

Certainly, bringing in more credit assets should we complete a securitization there. So there's a lot of factors, but bottom line is I wouldn't expect.

Overall growth in the gross size of the credit portfolio.

In the near term.

Great. Thank you.

Our next question comes from Trevor Cranston from JMP Securities.

Okay. Thanks.

You guys talked a little bit about seeing some some forced selling towards the end of September .

Can you talk a little bit about kind of what you guys are seeing in terms of.

Secondary market investment opportunities and how you are evaluating deploying capital there.

Essentially versus the more proprietary loan you guys have come in at.

Hey, Trevor its mark that's a great question, because that's very topical.

We.

You thought.

In 2020.

Now.

We saw a big.

Drop in security prices in 2020, many instances to drop in securities is greater than the drop in loan prices. So we added securities to the portfolio. We're always looking at the relative value trade off between securities and loans.

And yes securities look interesting to us we think in some cases.

If youre selective they can.

Compelling relative to loans. The other thing about securities that is matters a lot in this market is that.

When you're originating loans.

You're locked into.

November 2022 property valuations right when you buy securities you.

You are buying seasoned securities.

<unk> credit risk transfer is a good example, you can buy.

Our T bonds that were originated in 2018, 2019, where the borrowers could add.

30% to 40% of home price appreciation.

Since Dave since they took out their loan so they're at a substantially lower LTV than what they were at origination. So we think about all those factors and yes, we have seen instances, where we believe that.

Prices in securities have dropped to the point, where it makes them very compelling versus loans. So I would say, where we're actively looking at both sectors on the loan side, it's been about.

Tightening guidelines and we sort of went through.

A list of some of the metrics that we've been.

We have become more cautious on.

And so and so yes, I think the securities are a really big opportunity for AFC right now.

Got it okay. Thanks for that.

And then you also mentioned.

Utilizing.

Repo financing more for loans, while the securitization market is somewhat dysfunctional.

<unk>.

Can you remind us sort of how much available.

Repo capacity you have for loans.

And sort of if theres any and if there is.

Any sort of limitations in terms of how.

Long ago, B can be hold on those lines or anything like that.

Yes, no there is no.

There is no limit on how long loans can be held on those lines by sort of total capacity is not something that we disclose.

But we do have now.

A wide variety of facilities.

And we're not.

We're not concerned about capacity at this point.

Okay fair enough. Thank you guys.

Our next question comes from Eric Hagen from BTG.

Hey, Thanks, Good morning, I Hope you as well I think I just have.

Maybe maybe three questions here can you say, what the balance of non QM retained tranches, including the Io strips that you have on the balance sheet is.

Maybe talk about the repo financing.

For those subordinate tranches and other <unk>.

Subordinate non agency MBS and how stable the haircut looks there.

Can you also say what.

Give a sense for how your dividend will be characterized this year.

Breakdown between the return of capital in any ordinary dividend that you accept that day.

And I think I heard you guys mentioned that you're going to shrink the agency portfolio.

What's the relative to that.

Just in terms of where.

But we think that the agency relative value is excellent right now.

Spreads are spreads are very wide and especially if you look at discounts for example.

They are.

Theyre not really subject to extension risk at this point and in fact, if anything.

Specified pools, we think we can find and we have been.

Trying to accumulate specified pools that should have faster turnover speeds. So the opportunities in agencies are very good nothing against agencies just okay.

Just just where we see the better.

Leveraged Roe.

Also.

Just keeping our cash position is healthy and as Mark mentioned, taking a quote unquote, taking me page out of our Covid playbook. That's just always a good source of liquidity to keep and we like to keep our liquidity high.

Yes.

Alright, thanks for clarifying that hopefully hopefully my other two questions Gunther. Thank you yes.

Yeah, So why don't I I'll hit on the first two and then maybe Mark if you could comment on the financing on the retained tranches.

Yes.

After I go.

So your your.

Your second question about <unk>.

<unk> return of capital versus taxable income on our REIT dividend.

It's an interesting question I don't have a good.

Answer a guidance for you we haven't really given current estimates of taxable income on a on a regular basis.

But I will give you a little color. The first one as we make our first 75 election.

Our securities.

Not on the loans and on the Securities.

Normal normal market keeps taxable income somewhat close to the GAAP earnings coming from those investments.

Caveat, though because this is not net.

Ordinary market that we've seen so far this year.

One thing that's happening is we have our domestic blocker.

Which contains.

Our originator investments, where we've had some unrealized.

Losses that impacts that provision we also securitized for the most part through that block or where there have been some losses. So there have been some losses of the domestic blocker that wont necessarily be reflected in our re taxable income. So put another way we might have some re taxable income at the top level that doesn't take into account losses that we have in our corporate blocker if that makes sense.

So there could be a dichotomy this year between GAAP income taxable income more so than a normal functioning market I would still expect that our dividend will have a return of capital component it.

It just won't be as great.

As you might think given the spread between our GAAP and our tax taxable income does that makes sense.

Yes, that's helpful detail, Okay. That's good.

Your first question, yes. So.

<unk> retained non QM tranches.

Fair value of those at September 30 was $138 5 million.

We detailed that on our portfolio summary, slide.

And we break out that component versus non QM buy for you on slide four.

Mark do you want to he asked about how financing on those retained tranches is changed haircut wise and I guess availability. This year do you want to comment on that.

I think as Larry.

I think.

Mark tell me if the correct me, if I'm wrong, but I believe that the haircuts are still around that 50% level.

In terms of what's available in the market.

And we still we haven't had any issue in terms of continuing to fill.

Finance those.

So havent havent seen.

Any material change in.

The terms that we're seeing in terms of the haircuts or.

Availability.

The point I wanted to make though is that.

Well the haircuts can be stable.

They are haircut too.

Youll current market levels right. So.

You still have two you still have to live with and manage through the mark to market volatility.

Even with stable haircuts and stable repo spreads right because they're essentially lending you, let's say their lending you 50 or 60% of fair market value was the fair market value changes youre, either going to get margin call. It if it goes down youre going to be positioned to margin called lender. If it goes up so the routine pieces.

It's interesting we had going into this year was sort of Io heavy and we think about that by figuring out sort of what's the.

<unk> dollar price relative to principal and so we mentioned in the prepared remarks that sector that that part of the.

The overall portfolio has done well this year, it's been a dramatic slowdown in.

Non QM speeds, so it hasnt been so to us the issue in the non QM market this year.

It hasnt been one of financing cost it's been of really big changes in spreads really big widening in spreads.

On investment grade bonds, AAA double a single Triple B.

You know its probably youre seeing that across the board in fixed income youre seeing that.

And BSL CLO.

You see it in Nplr PL securitization debt.

Top of the capital structures have widened out.

A lot this year.

Lot more investment than IGN disease, or things like that and so that movement.

In investment grade stats really AAA spreads.

They've widened a lot relative to repo until well repo spreads have come up a little bit they haven't nearly as much as.

The spreads on the securities spreads and Securities there has been.

<unk>.

Money managers and banks are typically supporters top of the capital structure.

As I mentioned before you are talking about.

Banks earlier with <unk> question talking about their role in the market. How it's been diminished this year on the security side and money managers have had a lot of redemption. So.

<unk>.

On top of the capital structures had to widen out to attract some new buyers it's done it.

It's functioning but it has moved a lot and so that was sort of.

Why for US we are living with <unk>.

Managing the portfolio with more loans on repo than we normally do.

Time, where the.

Term financing debt available to us through the securitization market is it spreads are slightly wider than.

We think we'll be able to achieve in the future.

And let me just add one more thing.

Which is something we really haven't talked about before but you can actually get.

Given the higher haircut or sorry, lower haircuts higher advance rates on retained tranches, if you do vertical retention.

Alright, because that youre, adding.

At strip that consists of a lot of the <unk>.

<unk> securities as opposed to just the.

Bottom horizontal piece, so that's actually something that we're considering.

For our next deal.

May or may not do it obviously, it's been a few months.

So I think July was the last time that we did in RPM securitization, but slightly we could we could see vertical retention.

They're being the way to go in.

And that would also give us.

The ability to.

Even sell some of our iOS that we produce.

From that securitization right and that could be interesting too because.

The market, especially.

Especially at a high rate environment could be very receptive to.

<unk> strong levels. So this is their securitization market gives you a lot of options, obviously right now, it's not giving us as many given that it's.

And this strange state, but we could see bottom line, we could see higher advance rates lower haircuts on vertical retention.

Participants have done that.

Yes.

Great perspective, Thank you guys very much.

Thank you.

Okay.

Our last question comes from Christian <unk> from Piper Sandler.

Thanks, Mark you talked about the opportunity in securities, but im.

Im curious on the potential for distressed loan acquisitions is this an area that you would expect to be more active in the next couple of quarters.

Have you started to see banks start to shed some Cree and noncore assets and are there any other areas, where there could be an opportunity here for you in early 2023, if not already.

No that's a great question so.

So I would say, yes, and so the first thing is.

<unk>.

Commercial loans right. When we started the small balance commercial strategy in Ellington financial.

Was 100% nonperforming loans and it was buying things.

That came from the old Washington mutual portfolio of the old Greenpoint portfolio that had big those companies those banks head.

Both acquired during the financial crisis.

And they both had a lot of headaches in their full balance commercial portfolio and the acquirers, we're selling a lot of delinquent loans and so so that was a great strategy for us and we loved it we probably started that in 2010, but then it dried up right. There just wasn't any distress. So I do think and we kind of talked about.

The prepared remarks this issue that debt service coverage ratios on new loans are going to limit.

The balance of new loans and in many cases, the balance of the new loan could be smaller than the balance of a loan that wants to get paid off despite the property performing well. So yeah. I think we will see more of those opportunities. We're just starting to see it now the other area. When you talked about on the bank side is.

I think youre going to see it in unsecured consumer loans Ellington financial used to buy a fairly we used to have fairly consistent.

Acquisition programs and unsecured consumer loans.

Not.

It's not something we've been doing the last several quarters. So I think.

Kind of the reason why we stopped buying the unsecured consumer loans.

Essentially getting priced out of the market by credit unions and banks and <unk>.

I talked about the capital challenges banks banks face so we're starting to see.

Unsecured consumer loan originators.

Chauvinist packages of loans, many of which are coming at big discounts to par. So there's potential there the other area, where those potential is on the auto side right packages of.

Auto loans and Thats something that we have been participating in.

So now and then on the residential side.

<unk> financial has been.

Participating in either NPL ORP RPM sales from the <unk>.

Whether this youre starting to you're starting to see a modest decline in home prices.

If that accelerates, whether youre going to see more delinquent.

Loans on the residential side.

Thank me be a little bit I don't think it's going to be anything close to what you saw in 2008 for a lot of reasons, but no distressed opportunities in the loan side is something that I think it's one of the more exciting sectors that Ellington financial can participate in going forward that.

And a lot of these sectors have been great drivers of returns in the past, but just to.

2018, 19, 2021, there was no distress and so we really werent seeing much. So we're ready for that we're looking for that.

And deal was certainly.

Allocate capital to those opportunities.

Thanks Mark.

All very helpful. There and then just one last question from me So your CMV.

<unk> hedging position increase from about $15 million or so to over $50 million of Im looking at the chart on slide 17 correctly.

Just looking at that are there are there any cracks that youre beginning to see in any Cree sectors, where you have worries or is it more just general uncertainty right now in the current environment.

I think.

It's been a lot written about office.

Right with work from home.

Certainly Ben for years issues with retail.

I just.

It's more of an issue that.

To get a new loan.

Operators are looking at interest rates in some cases up.

400 basis points from what it was when they first bought the property. If you took out a bridge loan right. If you didn't turn out your loan with conduit with a 10 year loan.

And you were living with a floating rate loan you could have been paying if you look at.

Clothes people are paying LIBOR sofa, plus $3 50 on our bridge the spreads are higher but you were taking those things out when LIBOR was essentially zero and now you might get to a point where you know.

So far our LIBOR, 455% net.

So it's just your debt cost.

Are going to double or in some case.

Double in some cases and so if that property. If you haven't been able to grow the income side of that property.

Proportionally with your increase in debt cost than your debt service coverage ratio is going to drop and it can drop to a point, where when you come up to the maturity date on your existing loan lenders might not be willing to lend you the full amount of the existing loan and that is.

It's something the market is going to have to grapple with I think it's opportunity for us.

It's something that we are very focused on.

I think I think you should view that.

<unk> hedge as against our small balanced commercial portfolio, which is sizable and it has been steady in terms of its size.

Now look about close to 70% of that I believe is multifamily and we're still think that there is.

Good support for multifamily values, but <unk> got the other 30% right.

And you've got some things like that.

Again smaller categories.

Like office and things like that that could see some challenges. So it's a hedge largely a hedge against that portfolio.

<unk>.

Something that I think again differentiate Ellington financial in terms of our willingness to put on.

Credit hedges like that.

The portfolio.

In the face of an uncertain environment.

Thanks, Larry and Mark I appreciate the comments there.

Sure. Thank you.

That was our final question for today, we thank you for participating in the Ellington financial third quarter 2022 earnings 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 welcome to the Ellington Financial third quarter 2022 earnings Conference call. Today's call is being recorded at this time all participants have been placed in listen only mode. The floor will be open 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 keypad if at any time. Your question has been answered you may remove yourself from the queue by pressing star. Two 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 as described under item <unk> of our annual report on Form 10-K 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. Consequently, you should not rely on these forward looking statements as predictions of future events.

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 to Caskey Co Chief investment Officer of Dfc and Jr. Herlihy Chief.

Financial Officer of UFC as described in our earnings press release, our 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 endnotes at the back of the presentation with that I will now turn the call over.

Larry.

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

After a challenging first half of the year July started the third quarter on a constructive now with volatility interest rates and most yield spreads reversing much of their second quarter increases.

The rally proved short lift however.

Over the course of August and September .

The elevated levels of inflation and hawkish message messaging from the fed drove interest rates sharply higher.

Volatility shot up to record levels fears of a recession intensified in the yield curve inverted stressing equity and fixed income markets alike.

Market sentiment steadily weakened and we saw widespread selling across sectors, particularly towards the end of the quarter.

In some cases this included forced selling by asset managers to meet margin calls or redemptions.

Quiddity declined and yield spreads widened in virtually every fixed on fixed income sector with many sectors, reaching their widest levels of the year.

Against this difficult backdrop Ellington financial generated a net economic loss for the quarter of three 4%.

Driven by losses on non QM.

<unk> an originator stakes.

Nevertheless, our diversified portfolio stable sources of financing and dynamic hedging significantly limited the magnitude of that loss.

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

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

Turning now to the Investor presentation on.

On slide three you'll see that we are reporting adjustable distributable earnings of 44 per share, which is a 3% sequential increase and which nearly covered our dividend.

The increase resulted from our continued rotation of capital into higher reinvestment yields and from a larger credit portfolio as we got more invested.

With interest rates rising so dramatically this year, especially in the short end of the yield curve, we've been playing a bit of catch up with our adjusted distributable earnings.

Purchase yields on many of our assets, especially especially our agency pools still reflect the much lower interest rate environment that we had earlier this year.

So as we continue to rotate out about lower yielding portfolio, we should get a boost to our a day.

In addition, keep in mind that a lot of our credit portfolios are quite short in duration. So those will rotate more or less by themselves naturally.

The Bottomline is that we're still constructive on where our <unk> is heading.

Meanwhile, as you can see from our cash and unencumbered asset figures. We've continued to maintain a strong liquidity position, even as we've grown the credit portfolio.

Finally, I'd like to move to the Longbridge transaction.

With all required regulatory approvals finally obtained we closed on the acquisition of the other half of our affiliate reverse mortgage originator walbridge financial shortly after quarter end.

The final purchase price of $38 9 million.

<unk> will elaborate on that later.

From a business perspective, we believe that long were just future earnings prospects are strong even with the challenging market conditions, we've seen so far this year.

Given the substantially lower final purchase price that we paid we believe that the stage is set for an excellent return on equity on our investment going forward.

While it's been really tough market for all mortgage originators Longbridge actually managed to turn a profit in the third quarter.

And with much of its competition Hobbled Longbridge also became the second largest issuer of new issue.

<unk> with a 20% market share.

That said the surge in interest rates has driven <unk> volume is lower so far in Q4 and.

In the Ginnie Mae HMD, yes outlet for longer just heck and production is still trading at wide levels.

Those are going to be headwinds for the business in the near term, but make no mistake. The situation on the reverse mortgage market is quite different from that of the forward mortgage market.

The reverse mortgage market is still largely untapped longbridge has market share has been rising in the demographic trends trends are extremely favorable. So we're definitely constructive on long, but just long term prospects.

Furthermore, the income stream that we expect to see from the Longbridge acquisition should also hands the diversification and quality.

<unk> earnings stream.

The reverse mortgage origination business can flourish in an economic downturn for example, because the reverse mortgages provide liquidity to borrowers without the requirement to make monthly principal and interest payments.

Fact, the last peak and <unk> originations was in the wake of the global financial crisis in 2009, when home prices were falling rapidly.

And long Ridge is origination profit soared in the second quarter of 2020 during the depths of Covid. When other fixed fixed income businesses were teetering theres definitely a countercyclical component to the reverse mortgage business.

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

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

For the quarter ended September 30th Ellington financial reported a net loss of 55 per share on a fully mark to market basis, and adjusted distributable earnings of 44 per share.

These results compared to a net loss of $1 eight per share and <unk> 41 per share for the prior quarter.

On slide four you can see that we further increased our capital allocation to credit investments during the quarter to 88%.

Up one percentage point from June 30.

Based on the opportunities that we are currently seeing in credit, including the recently closed Longbridge transaction I expect this allocation to continue growing slowly relative to agency.

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

As Larry mentioned the purchase yields on many of our assets still reflect a much lower interest rate environment that we had earlier this year as we continue to turnover our assets, we expect that the gap between our purchase yields and market yields will narrow and that should be supportive of our net interest margin.

On slide five you can see the attribution of earnings between our credit and agency strategies.

During the third quarter, the credit strategy generated a gross loss of <unk> 19 per share while the agency strategy generated a gross loss of <unk> 17 per share.

These results compared to a gross loss of <unk> 80 per share in the credit strategy.

On a gross loss of <unk> 20 per share in the agency strategy in the prior quarter.

Both <unk> and Longbridge, where profitable in the third quarter.

But the valuation for each declined significantly.

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

As a result of these valuation declines <unk> booked a significant mark to market loss on its investments in these loan originators for the quarter.

Agency RMB has continued to face fierce headwinds in the third quarter.

As durations extended in response to higher interest rates and as elevated volatility contributed yield spread widening.

And our portfolio net losses on agency MBS exceeded net interest income and net gains on interest rate hedges, while we also incurred delta hedging costs stemming from the volatility.

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

Turning now to slide six.

During the third quarter, our total long credit portfolio grew by 3% sequentially to $2 $74 billion at.

At September 30.

The increase was driven primarily by a larger RTL portfolio, partially offset by opportunistic sales pay downs and mark to market losses elsewhere in the credit portfolio.

Larry alluded to the short duration of many of our loan portfolios and these portfolios continue to return significant capital during the quarter.

We receive principal paydowns of $205 million on our RTL, SBC and consumer loan portfolios, which represented 14% of the combined fair value of those portfolios coming into the quarter.

On slide seven you can see that our total long agency MBS portfolio decreased by 15% to 114 billion.

Resulting from net sales pay downs and price declines.

Please turn next to slide eight for a summary of our borrowings.

For both our credit and agency strategies, our cost of funds increased sharply during the quarter driven by higher short term interest rates.

Book asset yields for both strategies also increased over the same period, thanks to portfolio turnover the by a lesser amount.

As a result, the NIM on our credit and agency portfolios decline quarter over quarter to 234% and 1% from 275% and 176% in the prior quarter respectively.

Despite this NIM contraction, we were able to increase our <unk> by <unk> <unk> per share quarter over quarter.

And a decrease in total equity.

I'll note that the availability of secured financing has continued to hold up well amid the market volatility that we have seen haircuts increase <unk> financing spreads widened on several of our credit loan facilities and.

In fact, we were able to further expand our loan facilities during the quarter, we added a new facility for residential loans and we extended the term of one loan facility by 24 months.

On a technical point concerning our liabilities youll see on our balance sheet that we marked down our five and $7, 8% senior note liability by a fair amount, but since we're hedging that liability with sofa swaps, which were also marked down those two markdowns largely offset each other this quarter.

Total G&A expenses for the third quarter were <unk> 14 per share unchanged from the prior quarter, while other investment related expenses increased by two to.

<unk> per share.

During the quarter, we were opportunistic with our capital management strategy.

As of September 30, our book value per common share was $15 22.

Down six 2% from $16 22 per share at June 30.

Including the <unk> 45 per share common dividend that we declared during the quarter. Our total economic return for the third quarter was negative three 4%.

Finally, as Larry mentioned, we will consolidate longbridge beginning in Q4, and we are planning to report Longbridge as a separate operating segment in our GAAP and non-GAAP financial reporting.

Because longbridge does not achieve true sale treatment on its <unk> securitizations.

It consolidates all of those non recourse securitization for GAAP reporting purposes.

As a result, the gross size of Fsc's balance sheet with more than double next quarter, even though longbridge is equity is quite small relative to the <unk>. The.

<unk> $38 $9 million purchase price for the other half long ridge was less than three 5% of Emc's total equity at September 30.

I'll also point out here that Longbridge is recourse debt to equity ratio was two three to one at quarter end, which was marginally lower than <unk>.

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

Here I would like to make an important note about how consolidation will impact <unk> earnings going forward.

Until now Ellington financial only owned a minority stake in Longbridge like.

Virtually all of our other investments.

AFC fair valued that minority equity stake in long ridge, each quarter and the change in that fair value flow directly through <unk> zone net income through our income statement and earnings from investments and unconsolidated entities of course Longbridge is one earnings were a primary driver of that fair value change. So longbridge is one earnings did impact.

The FCS earnings, but other factors came into play on the fair value determination, including earnings multiples and book value multiples prevailing in the M&A and stock markets.

Starting next quarter.

Fair value determinations of our investment in long Ridge will no longer be factored into our financial results and instead Longbridge is GAAP earnings was simply flow directly into <unk> earnings.

I'd also note that similar to ESC. Historically Longbridge is also a fair valued virtually all of its assets. So the book value that we acquired was effectively based on fair value not historical costs.

But upon consolidation in Q4 <unk> will include the <unk> generated by Longbridge going forward.

Now over to Mark.

Thanks, Jr.

This was truly an extraordinary quarter given the magnitude of the moves in interest rates the twist of the yield curve and the widening of spreads.

Made it unprecedented is how long the volatility lasted we've certainly seen more violent market moves before for example in March 2020, and at times during 2008, but during those periods. The volatility Didnt last day after day for months on end as it did this quarter.

I think an economic return of down three 4% for Ellington financial is pretty good given what we had to manage through.

Agency MBS for example is again functioning as a relative value market not just the market absorbing forced liquidations and unlike some days in the third quarter. There was good two way flow now spreads are moving predictably with liquid credit indices and balance sheet constraints no longer seem to be the overriding concerned and with spreads exceed.

We wide the forward looking opportunity looks attractive.

However, we have not yet achieved that balance and other structured product sectors. Non QM was clearly one of those strategies near the eye of the storm in the third quarter rapidly rising mortgage rates have caused prepayments to plummet in non QM and AAA bonds issued anytime before Q.

<unk> faced a lot of extension risk.

Along with changes in call assumptions, we saw substantial price declines in non QM tripoli's, but we don't own those in ESC, we own loans and we owned the retained tranches.

Even taking into account incremental credit concerns are retained tranches have actually appreciated in value. This year, given their large io component and how much CPR is have declined.

We've also had the hedges in place in our unsecured ties loans, including being short MBS via the TBA market. We've also had credit hedges against those positions and those hedges all helped offset losses, our non QM strategy in the third quarter.

Non QM has borne the brunt of a lot of widening as now a push pull between repo spreads and AAA spreads as the market continue searching for a footing and sustained investor demand for bonds.

<unk> spoken many times on these calls about the benefits of non mark to market term securitization financing over repo, but sometimes the pricing relationship is so extreme that additional repo makes sense for a quarter or two and you want to have the flexibility to delay a securitization if necessary.

This issue so severe that even on some properties that have nailed their business plans the size of the new loans offered will be less than what is required to pay off the existing loan discrete.

This creates a situation where the capital structure might be upside down even though property level performance does not and that problem can only be solved with new equity or mezzanine capital.

But it also creates an opportunity to be part of the solution, where we can provide that requisite capital at attractive yields.

Aggressively lowering LTV limiting.

Okay.

Sorry.

Furthermore, this dynamic could also generate significant NPL volume a product type that we haven't seen in meaningful size in years.

So far <unk> performance in our commercial mortgage bridge loan portfolio has been very good and valuations on the underlying properties. They are holding up well, but we are preparing to manage through more delinquencies given the opportunities. We're seeing in other sectors are lending volume for the quarter was down youll see participate five new originations and had four loans resolved and our.

Portfolio size was roughly constant quarter over quarter.

Below three 5%, we think existing home sales will continue to slow.

That's a challenge for fixed and flip where operators need homebuyers to pay off their loans, we're seeing clear evidence of this dynamic is time on the market for new home listings.

Pending nationwide and.

<unk>. So we are continuing to shift the incremental dollar away from agency to credit.

The next few few quarters will be tougher loan originators across the board, but the competition has been greatly reduced and the opportunity is exciting. In addition to managing emc's owned portfolio of loans and retained tranches. We are in constant dialogue with their loan origination partners to keep their informed about to keep them informed about secondary market levels in may.

While they keep us informed about changes in the origination landscape there is tremendous value in that dialogue.

2020 agency MBS recovered before credit because the fed came in to buy and credit didn't recover 12 months later, but in Q3, while eight well both agency and credit were assessed the agency market remains liquid throughout.

Looking ahead, where do all of the recent market moves leave US now what opportunities have been created and what risks posed by sharply higher interest rates and an elevated risk of recession.

Sure in a period of very high returns.

The outlook going forward looks as good as it has in years.

Read widening there has been a headwind for book value lately spread widening has been a headwind for book value lately, but we believe that the opportunity for going forward earnings has improved dramatically spreads are wider and yields are way up.

Even if field stay here, we think many CUSIP investments <unk> has the potential for multiple points of price upside just from spread tightening.

Read through also incredibly widen the agency market and that market has shown better stability and balance since the end of the quarter. Meanwhile competition in origination markets is way down if you have the pricing power to tightened investment guidelines and charge higher rates.

Theres still a lot to worry about and we will keep our discipline, but lots of new capital is starting to come into the market and take advantage of the yield opportunity now back to Larry.

Thanks Mark.

As we move into the final weeks of 2022, I think you can tell that we're excited about the ample investment opportunities in both securities and loans, while we continue to weigh the deployment of additional capital against maintaining adequate liquidity buffers to guard against a deeper market downturn.

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

Finally, with recession fears of a looming I'll note that the credit performance of our loan portfolios as measured by delinquencies defaults and credit losses continues to be strong.

But with the increased risk of an economic slowdown we are focused on tightening our underwriting guidelines with a particular emphasis on keeping ltvs low and being even more selective about geography and property type.

We are now seeing clear evidence of home price weakness given deteriorating housing affordability and so we are preparing for meaningful price declines in some regions of the country.

With that we'll now open the call up to questions. Operator. Please go ahead.

At this time, if you'd like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by pressing star to you.

Our first question comes from Bose George from K B W.

Hey, guys. This is actually Mike Smith on for Bose.

My first question can you just help us get a sense for run rate core earnings kind of relative to that 44 cents just given your outlook for capital deployment and then the addition of Longbridge.

Okay sure. Thanks for the question.

So to the second point. The addition of long bridge I did mentioned that <unk> will start to be captured from Longbridge beginning in Q4.

We are going to present that as a separate operating segment and also give detail of how we're calculating it.

The components of 80 at the originator are different than the components of Dfc given that its core businesses origination oriented and gain on sale oriented, whereas we exclude that portion from realized and unrealized from UFC side. So the components will be different but we'll we'll show them both.

As a consequence of the gain on sale component it at Longbridge, there <unk> tends to be a bit more volatile than Fcs.

But again, we think it's going to we projected to be accretive over time, and so just adding that incremental piece to <unk> today.

It looks very good relative to our current dividend.

So thats the second part and then the first part.

The run rate I think 44 is probably which is almost 12%.

Our book value is a pretty good.

Run rate estimate from here there are different pieces that are I guess, a lot of moving parts into the into the calculation. One is the overall size of the portfolio and so.

We talked about this quarter part of the sequential increase was because the credit portfolio increased in size, even as agency decline that was a big driver.

We also have the asset yields.

You were talking about how as purchase yields.

Turnover into higher reinvestment yields that will lead.

It should lead to top line growth on the NIM.

Cost of funds have been marking to market much more quickly and so we've had.

Run rate, but we think that we're going to be covering the dividend, which is 45, we're kind of right on top of it now and then you're going to have the additional effect of folding in leverage to the equation.

And your expectation it could be a few a few yes, Matt and Im sorry that could also be a few cents per <unk> per share per acre or per quarter at least.

Yes.

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

Sure. So I think I mean.

Ed.

The Ah <unk>.

Fortunately I can give you better numbers, but big picture a good chunk of our losses to date have been on unrealized year to date.

Whether that's in the agency strategy.

Where there is a component of this unrealized whether it's on our originator Stakes.

Where we took those stakes down too to the point Longbridge is marked below book.

Representing the transaction value of <unk>, we took down.

The company has big cash.

Sizable balance sheet with cash balances and I think theres upside there and then non QM has been another.

Losses year to date were.

There is significant.

Unrealized component if you look at our income statement year to date, you can see things Chris that through the nine months ending September 30, we had unrealized losses of.

Almost $2 50 per share.

Compared to realized losses of about $1 18 per share.

So just that proportion there into two thirds or so of that combined is unrealized and.

We think the prospects of recovering a good portion of that are high if.

Spreads tighten from here, which we think they can even if yields stay high.

Great. That's really helpful color, thanks for taking the questions.

Thank you.

Our next question comes from Doug Harter from Credit Suisse.

Thanks.

Can you just talk a little bit about.

How are you thinking about balancing deployment.

Cash versus kind of holding liquidity.

For volatility in the near term and kind of what you're looking for.

Most of you one way or the other in that decision.

Mark you want to take that.

Sure.

So.

That push and pull between taking advantage of high yields.

But managing the portfolio so that you're prepared for whatever lies ahead tomorrow be at another fed statement or something from the bank of England.

That was a big part of.

Like high level discussions we had on managing the company in Q3.

Don't think things have changed a lot I mean, there is certainly.

Maybe some green shoots right. If you look at market expectations and if you follow what the fed says, but just looking sort of just that.

Just what market expectations are telling you is that the.

Magnitude of the hikes is supposed to come down a little bit.

And I think the market will will perceive that as good news.

I mentioned in my prepared remarks that some markets are starting to function.

With a better balance of supply and demand and I think I pointed to the agency Mark were now like daily spread moves are sort of following more closely credit indices, you know investment grade indices and high yield indices, which is sort of.

I think for US we take it we take it as an indication of a better balanced that youre not just absorbing four selling now if you look back at.

Q3, and even into October you had certain parts of securitized product market, Let's say if you look at legacy non agencies, where you'd have days, where liquid credit indices tightened.

And the bonds actually widened right. So to us that is indicative of markets that supply and demand is not in balance and youre still seeing forced selling some money managers. So I think.

We look at a lot of those indicators I think things certainly feel a little bit better than how they did in parts of the third quarter.

But there is still definitely parts of the market, where we see.

Okay.

Imbalances, right, where you still see for selling at <unk>.

Prices that on a given day or disconnected from how you would have predicted those securities would have moved out the other factor we look at is.

What other capital is coming into the market and so I think one thing that's been interesting about 2022, and it's going to really distinguish it.

Relative to other years is it going to be the lack of bank buying of securities net has been on agency MBS. It's been AAA CLO has been across the board there's been a lot written how banks are struggling with.

Diminished capital as they've had to absorb a lot of mark to market losses.

Available for sell available for sale portfolios. They've also had some deposit erosion. So.

I would say that we're cautiously optimistic but.

The caution part of that cautiously optimistic is still going to.

Lead right now for I think conservatism on how much cash you have on hand, right. So we're starting to see some green shoots, but it's not enough for us to sort of sound the all clear.

So if I could just elaborate on that yes, we only grew the credit portfolio by around 3% last quarter I think looking forward in the near term.

Got to be more about.

Placing the assets that are running off.

With higher yielding assets, we have a lot of different strategies as you know.

RTL is definitely one of our higher yielding row strategies right now so I think we're going to continue to see.

They are very healthy flow on the other hand as you mentioned in the prepared remarks small balanced commercial mortgage.

We've slowed down quite a bit and so more sort of just as loans pay off set of replacing that is not really growing that portfolio. So we can be very selective in terms of where we are deploying those those dollars of capital as other dollars of capital are coming in.

We mentioned that the agency portfolio, we think it's going to continue to shrink a little bit.

That makes sense.

We try to keep our cash positions typically they have been in that I'll say $100 million to $200 million range recently, obviously, that's a wide range of sometimes you can a little lower a little higher it depends upon the nature of our unencumbered asset portfolio, but.

The other factor would be non QM securitization that we did one in the third quarter, but we mentioned that.

Mark mentioned that we've been choosing to hold more loans on repo, while we haven't liked the spreads that we've seen in the non QM securitization market. So.

That could be a catalyst for.

Certainly, bringing in more credit assets should we complete a securitization there. So there's a lot of factors, but bottom line is I wouldn't expect.

Overall growth in the gross size of the credit portfolio.

In the near term.

Great. Thank you.

Our next question comes from Trevor Cranston from JMP Securities.

Okay. Thanks.

You guys talked a little bit about seeing some some forced selling towards the end of September .

Can you talk a little bit about kind of what you guys are seeing in terms of.

Secondary market investment opportunities and how you are evaluating deploying capital there.

Essentially versus the more proprietary loan you guys have.

Covenant.

Hey, Trevor its mark that's a great question, because that's very topical.

We.

You thought.

In 2020.

Now.

We saw a big.

Drop in security prices in 2020, many instances to drop in security is greater than the drop in loan prices. So we added securities to the portfolio. We're always looking at the relative value trade off between securities and loans.

And yes securities look interesting to us we think in some cases.

If youre selective they can they're very compelling relative to loans. The other thing about securities that is matters a lot in this market is that.

When you're originating loans.

You're locked into <unk>.

<unk> 2022 property valuations right when you buy securities you.

Youre buying seasoned securities.

Credit risk transfer is a good example, you can buy.

Our T bonds that were originated in 2018, 2019, where the borrowers could add.

30% to 40% of home price appreciation.

Since they've since they took out their loan so they're at a substantially lower LTV than what they were at origination. So we think about all those factors and yes, we have seen instances, where we believe that.

Prices in securities have dropped to the point, where it makes them very compelling versus loans. So I would say, where we're actively looking at both sectors on the loan side, it's been about.

Tightening guidelines and we sort of went through.

A list of some of the metrics that we've been.

<unk>.

We have become more cautious on.

And so and so yes, I think the securities are a really big opportunity for AFC right now.

Got it okay. Thanks for that.

And then you also mentioned.

Utilizing <unk>.

Repo financing more for loans, while the securitization market is somewhat dysfunctional.

Can you remind us sort of how much available.

Repo capacity you have for loans.

Okay.

If theres any and if there's any sort of limitations in terms of.

How long loans b can be hold on those lines or anything like that.

Yes, no there is no.

There is no limit on how long loans can be held on those lines by sort of total capacity is not something that we.

We disclose.

But we do have now.

A wide variety of facilities.

And we're not.

We're not concerned about capacity at this point.

Okay fair enough. Thank you guys.

Our next question comes from Eric Hagen from <unk>.

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

I just have.

Maybe maybe three questions here can you say, what the balance of non QM retained tranches, including the Io strips that you have on the balance sheet is.

Maybe talk about the repo financing.

For those subordinate tranches and other <unk>.

Subordinate non agency MBS and how stable the haircut looks there.

Can you also say what.

Give a sense for how your dividend will be characterized this year.

Breakdown between the return of capital in any ordinary dividend that you accept it back.

And I think I heard you guys mentioned that you're going to shrink the agency portfolio.

What's the runway for that.

Just in terms of where.

But we think that the agency relative value is excellent right now.

Spreads are spreads are very wide and especially if you look at discounts for example.

They are.

Theyre not really subject to extension risk at this point and in fact, if anything.

Specified pools, we think we can find and we have been.

Trying to accumulate specified pools that should have faster turnover speeds. So the opportunities in agencies are very good nothing against agencies just okay.

Just just where we see the better.

Leveraged Roe.

Also.

Just keeping our cash position is healthy and as Mark mentioned, taking a quote unquote, taking a page out of our Covid playbook. That's just always a good source of liquidity to keep and we'd like to keep our liquidity.

Yes.

Alright, thanks for clarifying that hopefully hopefully my other two questions Gunther. Thank you yes.

Yes, so why don't I I'll hit on the first two and then maybe Mark if you could comment on the financing on the retained tranches.

Yes after I go.

So your your.

Your second question about <unk>.

<unk> return of capital versus taxable income on our re dividend.

It's an interesting question I don't have a good.

Answer a guidance for you we haven't really given current estimates of taxable income on a on a regular basis.

But I will give you a little color. The first one is we make a 475 election.

Our securities.

No no no loans are on the securities, which in a normal a normal market keeps taxable income somewhat close to the GAAP earnings coming from those investments.

Caveat, even though because this is not net.

Ordinary market that we've seen so far this year.

One thing that's happening is we have our domestic blocker.

Which contains.

Our originator investments, where we've had some unrealized.

Losses that impacts the provision we also securitized for the most part through that block or where there have been some losses. So there have been some losses of the domestic blocker that wont necessarily be reflected in our re taxable income. So put another way we might have some re taxable income at the top level that doesn't take into account losses that we have in our corporate blocker if that makes sense.

So there could be a dichotomy this year between GAAP income taxable income more so than a normal functioning market I would still expect that our dividend will have a return of capital component.

It just won't be as great.

As you might think given the spread between our GAAP and our tax taxable income does that makes sense.

Yes, that's helpful detail, Okay. That's good.

Your first question, yes. So.

<unk> retained non QM tranches.

Fair value of those at September 30 was $138 5 million.

We detailed that on our portfolio summary, slide.

And we break out that component versus non QM box for you on slide four.

Mark do you want to he asked about how financing on those retained tranches has changed haircut wise and I guess availability. This.

This year or do you want to comment on that.

I think as Larry.

I think.

Mark tell me if I'm correct me, if I'm wrong, but I believe that the haircuts are still around that 50% level.

In terms of what's available in the market.

And we still we haven't had any issue in terms of continuing to.

Finance those.

So, yes, havent havent seen.

Any material change in sort.

The terms that we're seeing in terms of haircuts or.

Availability.

Yes, the point I wanted to make though is that.

Well the haircuts can be stable.

They are a haircut too.

Current market levels right. So.

Do you still have two you still have to live with and manage through the mark to market volatility.

Even with stable haircuts and stable repo spreads right because they're essentially lending you, let's say their lending you 50 or 60% of fair market value was the fair market value changes, you're either going to get margin call. It if it goes down youre going to be positioned to margin called lender. If it goes up so the retained pieces.

It's interesting we had going into this year was sort of Io heavy and we think about that by figuring out sort of what's the.

The dollar price relative to principal and so we mentioned in the prepared remarks that sector that that part of the.

The overall portfolio has done well this year, it's been a dramatic slowdown in.

Non QM speeds, so it hasnt been so to us the issue in the non QM market this year.

It hasn't been one of financing cost it's been of really.

Really big changes in spreads really big widening in spreads.

And investment grade bonds, AAA <unk> single a triple B.

Its probably youre seeing that across the board and fixed income youre seeing that.

In BSL CLO.

You see it in Nplr PL securitization debt.

Top of the capital structures have widened out.

A lot this year.

A lot more of an investment.

Then IGN disease or things like that and so that movement.

In investment grade stats fairly AAA spreads.

They've widened a lot relative to repo until well repo spreads have come up a little bit they haven't nearly as much as.

The spreads on the securities and I think spreads and securities there has been.

Money managers and banks are typically supporters top of the capital structure.

I mentioned before you're talking about.

Banks earlier when to every other question talking about their role in the market. How it's been diminished this year on the security side and money managers have had a lot of redemption. So.

No.

Top of the capital structures had to widen out to attract some new buyers it's done it.

It's functioning but it has moved a lot and so that was sort of.

Why for US we are living with.

We're managing the portfolio with more loans on repo.

Than we normally do and it's at a time where the.

Term financing debt available to us through the securitization market is it spreads are slightly wider than.

We think we'll be able to achieve in the future.

And let me just add one more thing.

Which is something we really haven't talked about before but you can actually get.

Even higher haircut or sorry, lower haircuts higher advance rates on retained tranches, if you do vertical retention.

Alright, because that you're hinting at.

At strip that consists of a lot of.

The rated securities as opposed to just that.

Are they bottom horizontal piece, so that's actually something that we're considering.

For our next deal.

May or may not do it.

Obviously, it's been a few months.

So I think July was the last time that we did an auction of securitization, but an excellent eight we could we could see vertical retention.

They're being the way to go.

And that would also give us.

The ability to.

You can sell some of our iOS that we produce.

Some that securitization right and that could be interesting too because.

The market.

Especially at a high rate environment could be very receptive to.

Buying iOS that strong level. So there is just there securitizations.

Market gives you a lot of options, obviously right now, it's not giving us as many given that it's.

And this strange state.

But we could see bottom line, we could see higher advance rates lower haircuts on vertical retention.

Other participants have done that.

Yes.

Great perspective, Thank you guys very much.

Thank you.

Our last question comes from Christian <unk> from Piper Sandler.

Thanks, Mark you talked about the opportunity in securities, but im.

Curious on the potential for distressed loan acquisitions is this an area that you would expect to be more active in the next couple of quarters.

Have you started to see banks start to shed some Cree and noncore assets and are there any other areas, where there could be an opportunity here for you in early 2023, if not already.

No that's a great question so.

So I would say, yes, and so the first thing is.

Commercial loans right. When we started the small balance commercial strategy in Ellington financial.

Was 100% nonperforming loans and it was buying things.

That came from the old Washington mutual portfolio of the old Greenpoint portfolio that had big those companies those banks had.

Both acquired during the financial crisis.

And they both had a lot of headaches in their small balance commercial portfolio and the acquirers, we're selling a lot of delinquent loans and so so that was a great strategy for us and we loved it and we should probably started that in 2010, but then it dried up right. There just wasn't any distress. So I do think and we kind of talked about it.

The prepared remarks this issue that debt service coverage ratios on new loans are going to limit.

I think youre going to see it in unsecured consumer loans until financial used to buy fairly we used to have fairly consistent acquisition.

Acquisition programs and unsecured consumer loans.

That's not.

It's not something we've been doing the last several quarters. So I think.

And we've kind of the reason why we stopped by the unsecured consumer loans is we're essentially getting priced out of the market by credit unions and banks.

And.

I talked about the capital challenges banks bank face so we're starting to see.

Unsecured consumer loan originators.

Chauvinist packages of loans, many of which are common at big discounts to par. So there's potential there the other area, where those potential is on the auto side right packages of.

Auto loans and Thats something that we have been participating in.

So.

And then on the residential side.

<unk> financial has been.

Participating in either NPL ORP RPM sales from the <unk>.

Whether this youre starting to you're starting to see a modest decline in home prices.

If that accelerates, whether youre going to see more delinquent.

Loans on the residential side.

Think may be a little bit I don't think it's going to be anything close to what you saw in 2008 for a lot of reasons, but no distressed opportunities in the loan side is something that I think it's one of the more exciting sectors that Ellington financial can participate in going forward that.

And a lot of these sectors have been great drivers of returns in the past, but just you know.

2018, 19, 2021, there was no distress and so we really werent seen much. So no we're ready for that we're looking for that and deal with certainly.

Allocate capital to those opportunities.

Thanks Mark.

All very helpful. There and then just one last question from me So your <unk>.

<unk> hedging position increased from $15 million or so to over $50 million I'm looking at the chart on slide 17 correctly.

I think there's been a lot written about office.

Right with work from home.

Certainly Ben for years issues with retail.

Hum.

I just think.

It's more of an issue that.

To get a new loan.

Operators are looking at interest rates in some cases up.

400 basis points from what it was when they first bought the property. If you took out a bridge loan right. If you didn't turn out your loan with conduit with a 10 year loan.

And you were living with a floating rate loan you could've been pay and if you look at.

Clothes people are paying LIBOR plus 350 on our bridge the spreads are higher but you were taking those things out when LIBOR was essentially zero and now you might get to a point where you know.

So far our LIBOR, 455% net.

So it's just your debt cost.

Are going to double or in some case.

Double in some cases and so if that property if you will.

<unk> been able to grow the income side of that property.

It's something the market is going to have to grapple with I think it's opportunity for us.

It's something that we are very focused on.

I think I think you should view that.

<unk> hedge.

As against.

Our small balance commercial portfolio, which is sizable and it has been steady in terms of its size.

Now look about close to 70% of that I believe is multifamily and we're still think that there is.

Good support for multifamily values, but you've got the other 30% right.

And you've got some things like.

As against smaller categories.

Like office and things like that that could see some challenges. So it's a hedge largely a hedge against that portfolio.

<unk>.

Something that I think again differentiate Ellington financial in terms of our willingness to put on.

Credit hedges like that.

Against the portfolio when in the face of an uncertain environment.

Thanks, Larry and Mark I appreciate the comments there.

Sure. Thank you.

Okay.

Our final question for today, we thank you for participating in the Ellington financial third quarter 2022 earnings Conference call. You may disconnect. Your lines at this time and have a wonderful day.

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