Q4 2022 Ellington Financial Inc Earnings Call

February 24, 2023

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Good morning, ladies and gentlemen, thank you for standing by welcome to the Ellington Financial fourth quarter 2022 earnings Conference call.

Today's call is being recorded.

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

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

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It is now my pleasure to turn the call over to Tara Byrne Vice President of SEC reporting 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 provision of the private Securities Litigation Reform Act of 1995.

Forward looking statements are not historical in nature.

Under item <unk> of our annual report on Form 10-K, and part two item one a of our quarterly report on Form 10-Q for quarter ended September 30 of 2022.

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 or predictions of future events.

Statements 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 Dekosky Co Chief investment officer of the FC and Jr. Herlihy, Chief Financial Officer of UFC.

As described in our earnings press release, our fourth quarter earnings Conference call presentation is available on our website Ellington financial Dot com.

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

With that I will now turn the call over to Larry.

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

I'll begin on slide three of the presentation.

For the fourth quarter, we are reporting net income for the quarter of 37 per share and adjusted distributable earnings of 42 per share.

Excellent performance from Longbridge financial a reverse mortgage originator and from our agency MBS strategy.

In addition to another positive quarter from our loan portfolios drove Ellington financials results.

I'll start with Longbridge financial since that's driving the change now and going forward to our financial reporting.

We had a minority stake in Longbridge getting all the way back to 2014.

And this past October we acquired a controlling stake in the company.

As a result, we are now consolidating longbridge is balance sheet and results of operations.

FCS financials, beginning with the fourth quarter.

During the fourth quarter, Ginnie Mae <unk> yield spreads tightened and that increase the value of the heck am reverse mortgage loans and mortgage servicing rights that language holds on its balance sheet and which by consolidation we now hold on our balance sheet.

The tighter yield spreads also expanded longbridge is gain on sale margins on new originations, but as expected origination volumes were down seasonally and that led to a modest net loss on originations.

Putting it altogether longbridge generated strong results for the quarter on the middle of Slide three you can see longbridge contributing 24 to our net income per share.

You can also see on this slide the significant contribution from our agency strategy in the quarter.

Driven by a more benign outlook on installation and fed monetary policy the agency mortgage basis rebounded sharply in the fourth quarter following three consecutive quarters of dismal underperformance in this sector.

Our agency strategy delivered net income per share of <unk> 19 for the quarter as we were able to recover a portion of our losses in this strategy from earlier in the year.

We took advantage of the strong agency market to sell some specified pools, especially around the yield spread tightening in November and we rotated that capital to further expand and diversify our credit portfolio, where we see strong earnings potential and attractive net interest margins going forward.

Our adjusted distributable earnings or <unk> did decline quarter over quarter, but that was not surprising for a quarter, where short term interest rates spike so substantially more.

Most of our borrowings float off of either sofa or LIBOR and those indices have skyrocketed with the multiple recent fed hikes, so our cost of funds spiked as well.

Meanwhile, the purchase yields on some of our existing investments still reflect a lower interest rate environment from the early part of 2022.

This includes many of the agency pools that we still hold as well as many of the fixed rate RTL loans that we originated before the rate hikes.

The good news is that our RTL portfolio is very short in nature with average lives of well under a year, but they do have fixed rate coupons, whereas the financing is floating rate.

So theres a natural drag on our NIM in a market where interest rates are rising and yield spreads are widening but that should be showing a short term drag since we are originating new RTL loans at yields that are often 200 plus.

Basis points above the rates on the RTL loans that are paying off.

So turnover in this portfolio should be a big boost to our NIM and our <unk> in 2023.

In addition, the contribution to Ellington financials Adv from the Longbridge segment was just <unk> <unk> per share for the fourth quarter. The contribution was modest mainly because of lower origination volumes, but as I mentioned and that was due to seasonal factors. When spring comes I expect longbridge to start contributing to our Adv and a significant way.

Keep in mind that while the fourth quarter appreciation in languages Msr's contributed to <unk> net income in the fourth quarter that appreciation appreciation isn't factored into a day.

Another highlight of the fourth quarter was the completion of our fourth non QM securitization of 2022 in December .

We had originally intended for this deal to come to market in September but securitization spreads were wide in September so we decided to postpone the launch and instead keep those loans on balance sheet.

That patient was rewarded as we were able to take advantage of a more constructive market in December to achieve stronger deal execution.

I think it's important to understand how we have the flexibility to delay because this gets to a core tenant of our risk management.

FC we stress maintaining a diversity of borrowing sources as well as keeping extra borrowing capacity and liquidity available. So that our hand is enforced and me.

This case, we didn't want to be forced to securitize. These non QM loans and lock in poor long term financing rates just to get the loans off of repo lines are strong balance sheet and liability management enables us to be opportunistic about when we launch our securitizations and in fact by waiting we estimate that we were able to price the AAA debt around 30 base.

This points tighter than what would have cleared the market in September .

Looking at how this year has progressed so far the securitization markets have continued to improve and we were able to close another non QM securitization earlier this month with even more attractive long term financing costs in fact, our blended cost of funds on this most recent securitization was even lower than our cost of repo. So we got that benefit in.

And to all of the important benefits of financing through Securitizations.

Bind our last two non QM securitizations have provided us with an incremental $406 million of nonrecourse non mark to market long term locked in financing.

Finally, we continue to maintain a strong liquidity position during the fourth quarter.

As you can see from our cash and unencumbered asset figures and we were also able to access the preferred equity market earlier, this month, which ill discuss in my concluding remarks, and with that I'll turn it over to Jr. To discuss our fourth quarter financial results in more detail.

Thanks, Larry and good morning, everyone for the fourth quarter. We are reporting net income of <unk> 30 per share on a fully mark to market basis, and adjusted distributable earnings of 42 per share. These results compare to a net loss of <unk> 55 per share and <unk> of 44 per share for the prior quarter.

You will notice some changes to our disclosures this quarter around the consolidation of Longbridge financial.

As Larry mentioned, we acquired a controlling interest in long Ridge financial in October .

And beginning with our fourth quarter results, we consolidate longbridge.

And the earnings presentation on slide five you can see the attribution of earnings between Longbridge, and our existing credit and agency portfolios as well as corporate level expenses.

And on slide 29.

You can see each strategies contribution to <unk> adjusted distributable earnings.

If you turn next to slide 27.

You can see the impact of the consolidation has on our balance sheet.

Longbridge is largest business is the origination of home equity conversion mortgage loans or <unk>, which are insured by the FHA and eligible for inclusion in Ginnie Mae guaranteed <unk> pools, when issuing these ginnie Mae <unk> pools, longbridge retains the mortgage servicing rights and the servicing related obligations that come with.

Those rights and even though these each MBS pools are sold to unrelated third party investors those sales transactions are not treated as true sales under GAAP.

This is a well known idiosyncrasy of the reverse mortgage industry.

In any case under GAAP, the heck am loans remain on balance sheet, even after the H MBS pools sold with the H MBS pool are treated as a long term financing of those <unk> loans.

Since July 2017, Longbridge securitize, roughly $9 $5 billion of <unk> loans into <unk> pools of course, many of those loans are paid off since origination, but as you can see here on slide 27 languages GAAP liability associated with these H MBS pools stood at $7 8 billion as of December 30 <unk>.

Yeah.

Now that we consolidate longbridge, we brought these GAAP liabilities onto <unk> balance sheet and this more than doubled our total gas liabilities.

This is the case, even though longbridge is equity only represents a small portion of <unk> total equity only about 10% at year end.

And that includes all of the reverse MSR and loan that Longbridge holds on balance sheet.

And in fact, <unk> recourse debt to equity ratio actually declined quarter over quarter. After the longbridge consolidation because among other reasons longbridge itself had a lower recourse debt to equity ratio than the rest of the FC at year end.

As Larry mentioned Longbridge generated strong performance for the fourth quarter as tighter yield spreads led to net gains on its <unk> MSR and <unk> loans.

<unk> results for the fourth quarter also benefited from a bargain purchase gain that resulted from the Longbridge acquisition.

Because the transaction occurred at a discount to languages book value at the time of closing and also because of the fair value of our existing noncontrolling stake reflected that same discount to book value at September 30.

Closing of the transaction generated a bargain purchase gain which you can see on our income statement.

Our agency strategy also had a strong quarter as tighter yield spreads and increased pay ups drove significant net gains on our portfolio, which combined with net interest income exceeded net losses on our interest rate hedges.

The credit portfolio had positive results as well driven by net interest income primarily from our proprietary loan portfolios and net gains most notably mark to market gains on our non QM retained tranches as well as that bargain purchase gain on the loan bridge acquisition.

These gains were partially offset by net losses on interest rate and credit hedges and mark to market losses on certain equity Stakes and loan originators and certain commercial mortgage related investments.

Finally, our affiliate originated lunch or was profitable for the fourth quarter and for 2022 overall, but the fair value of our stake in <unk> or did not change meaningfully for the fourth quarter.

Turning back to slide four our portfolio summary.

You can see that we are now showing the underlying holdings at Longbridge and towards the top of the page. We are listing the RTL and non QM portfolio separately. So you can see some more detail on our two largest portfolios.

As of year end average market yields on the credit portfolio were significantly higher as compared to September 30.

As Larry mentioned the original purchase yields on many of our assets still reflect a lower interest rate environment that we had earlier last year.

As we continue to turn over 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 and AE.

Turning next to slide six.

During the fourth quarter, our total long credit portfolio decreased by 7% to two to $5 4 billion at year end.

And because we no longer include our investment in Longbridge as part of our long credit portfolio.

These factors were partially offset by a larger RTL portfolio.

For the RTL SBC and consumer loan portfolios, we receive principal pay downs of $335 million during the quarter, which represented 19% of the combined fair value of those portfolio is coming into the quarter.

On the next slide slide seven you can see that we reduced the size of the long agency portfolio by 15% to $968 million driven by opportunistic sales and principal repayments.

<unk> eight is a new one.

Here, we illustrate the components of the Longbridge portfolio.

At December 31, the Longbridge portfolio totaled $328 million and mainly consisted of reverse msr's unsecured high tech loans and proprietary reverse mortgage loans for.

For the fourth quarter Longbridge originated $341 million across heckaman proprietary about 85% through its wholesale and correspondent channels and 15% through retail.

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

Our weighted average borrowing rate increased by 107 basis points to 483% driven by sharply higher short term rates and a greater proportion of our borrowings secured by our loan and now our MSR portfolios, which carry higher borrowing rates than the agency assets.

Book asset yields for both our credit and agency strategies also increased over the same period, thanks to that portfolio turnover.

By a lesser amount than their respective cost of funds.

Our recourse debt to equity ratio adjusted for unsettled purchases and sales declined to $2 five to one from $2 61 in the third quarter as a result of a smaller investment portfolio as well as an increase in total equity.

Also as I mentioned longer just stand alone recourse debt to equity ratio declines declined sequentially and was also marginally lower than the rest of the FCS at year end.

On the other hands, our overall debt to equity ratio adjusted for unsettled purchases and sales increased to $10. One to one at year end from four to one at September 30 <unk>.

Driven by our consolidation of Longbridge is H MBS related obligations, which I discussed earlier.

This increase was partially offset by the fact that we recognized the true sale treatment on our fourth quarter non QM securitization, which means those loans truly came off the books.

G&A expenses increased due to the expenses associated with Longbridge has substantial operating business and investment related expenses also increased as we now consolidate longbridge is sub servicing expenses and certain loan serviced loan sourcing expenses onto our income statement.

Finally at December 31, our combined cash and unencumbered assets totaled approximately $495 million and our book value per common share was $15 <unk> down one 1% from September 30 <unk>.

Including the <unk> 45 per share of common dividend that we declared during the quarter. Our total economic return for the fourth quarter was one 8% now.

Now over to Mark.

Thanks, Jr. Over.

Over the first nine months of 2022, we had seen elevated volatility and that continued to be the case in October .

In November and December however, volatility came down considerably and interest rates ended the year significantly off their intra quarter highs agency.

Agency, MBS, which had been the first sector to widen was not surprisingly also the first sector to materially outperform our hedging instruments, which we saw in Q4.

You often see spread tightening of spread widening cycles for agency MBS and credit sensitive parts of fixed income that are out of phase with each other we have seen this numerous times most notably in late March 2020, when fed buying of agency MBS. Initially led to extreme outperformance for agency or do you see credit sector.

Catch up and outperform agency, one or two quarters later.

In 2022, we saw a different scenario play out when money managers pension funds insurance companies need to raise cash quickly to meet redemptions or other or address other cash needs. They often sell agency MBS first because MBS are liquid and these investors typically have large MBS holdings. This kind of selling is a negative.

For agency MBS and because prices for MBS are highly transparent the underperformance. These abrupt sales can cause are very visible to the market in real time.

We saw this scenario play out for much of 2022 is selling that was concentrated in agency was at least one of the reasons that agency significantly underperformed many credit sensitive fixed income sectors, but Q4 felt like an inflection point for the bond market and for agency MBS specifically.

Beginning in the second half of the quarter money manager outflow stabilized and then turned into inflows and what had been a technical headwind for agency MBS for much of 'twenty to suddenly turned into a tailwind.

And drove agency outperformance for the fourth quarter. Overall, you can see that you can see that <unk> ADC strategy posted some very strong results as a result after three challenging quarters.

Given the elevated risk of recession, we've been very focused on underwriting and closely monitoring performance of our residential and commercial mortgage loans.

So far our performance has remained strong and given the size of our holdings. We are surprisingly few headaches to work through.

Recently, there's been a lot of headlines about increased current expected credit loss or seasonal reserves on commercial loans as well as some high profile defaults on office buildings.

<unk> is not a concept that applies to AFC in the same way as it does for many others. Because we are already fully mark to market and always have been to any credit reserves and impairments are automatically reflected in fair value adjustments, which flowed through our income statement.

But putting aside the seasonal nuances, we're seeing big performance, we are not seeing big performance issues in our commercial bridge loan portfolio.

Part of that it sound underwriting and appropriate ltvs and part of that is property type concentrations.

Can look on slide 10, you can see that less than 10% of our portfolio was in office, which is where many of the recent headlines have been concentrated.

With more employees working from home the economics for office buildings are challenging, especially with greatly increased cost of tenant improvements.

When replacing an existing tenant.

Rising interest rates are predictably pressuring retire and we don't think prices fully reflect that yet.

Also with sulfur marching higher debt costs have exceeded NOI on many properties.

Of course, rising interest rates impact all sectors of the commercial space, but we think multifamily which is more than 70% of our portfolio will hold up the best in a recession.

So far we have very few headaches in our commercial mortgage loan portfolio. We are watching things very closely staying in very close contact with our borrowers and monitoring the progress on implementing their business plans.

Thinking more about the dynamic where a recovery in agency MBS sector leads to recoveries in other sectors by the end of 'twenty. Two we've also seen a material recovery in non QM liquidity and pricing.

In fact, what happened to the non QM sector. Overall in 2022 had many parallels to what happened in the agency mortgage sector yields.

Yields rose so prices dropped and bonds extended because prepayments slowed so prices dropped even more than spreads widened on the newer longer duration bonds, so prices dropped even more.

We were by no means unscathed unscathed, but our disciplined cash management and focus on longer term staggered financing arrangement that was very helpful. We had ample repo capacity and ample cash to remain disciplined and we were actively buying loans opportunistically.

What turned out to be very advantageous levels in many cases.

Working with our financing team, we saw storm clouds potentially gathering way back in Q1 of 2022, and we added more we cope repo capacity to both non QM and RTL, both by adding new lenders and by increasing capacity on existing lines. Eventually by Q4, the non QM QM sector was cheap enough.

Relative to agency MBS and other sectors to attract new capital to take advantage of the opportunity.

First insurance companies started buying which drove securitization liquidity to improve.

Then spreads start to tighten.

We did one deal in Q4 and have done one deal so far in 2023.

And now with securitization and now with securitization spreads tight again and coupons on new originations very attractive we have come full circle and it's back to being a battle to buy loans.

One thing I think will play out in 2023 for both agency and non QM.

Big drop in loan volume, resulting from much slower new and existing home sales and almost no refinancing.

Existing home sales dropped again this month for the 12 months in a row that hasnt happened since the nineties.

Okay. So now for what worked and what didn't this quarter for EIC.

I talked about the recovery in <unk>.

We are well positioned for it as we came into the quarter with fewer TBA shorts than we typically hold and we were able to make back a good portion of 2020 twos losses.

Despite the reduced capital allocation that strategy was a significant contributor to <unk> results in the quarter.

If you look on slide six RTL is now our largest credit portfolio, we grew that strategy significantly during the year.

We added sellers and we've got a dedicated staff and it's been a great performer for us in contrast to non QM loans are so short that even in a rising short term rate environment any drags on NIM tends to be short lived and because the tenors of our repo financing closely match the expected maturity of the loans, we don't need to see.

<unk>, So we are riding up and down with securitization spreads.

At some point in the future if the economics are sufficiently compelling we could opt to securitize. These loans, but it's not at all necessary with their short average lives. These loans are typically maturing before the repo lines mature and that gives us a lot of flexibility.

We are watching performance here very closely with home prices Slumping. This is the first time that the RTL sector is confronting an environment, where home prices are lower nationally at the time. The builder is intending to sell the property as compared to when they bought it that is a clear and obvious headwind.

What are we done to protect ourselves what we're focusing on lower loan to cost ratios and we're favoring projects on more affordable properties and properties with lower cost renovations.

Data is our north star and that helps inform our underwriting for example, we've been reducing exposure in some in some areas most notably certain parts of California, where some cities have seen price declines that are a multiple of what the declines have been nationally.

We did see some weakness in our consumer business in the quarter and we have been tightening underwriting there too. If you look at the data you can clearly see that consumers have been spending down their COVID-19 savings given elevated inflation, so theyre not as flush as they have been.

So how is 23 shaping up.

So far we're off to a good start.

Liquidity and securitization is much better we've had numerous financing counterparties reach out to us about growing existing and initiating or initiating new lending facilities.

But home prices are still too high for many buyers given the six 5% mortgage rate we've seen a modest correction in the second half of the year, but not enough yet to bring housing affordability back to historical norms.

And just as there were a lot of regional differences in HPA on the way up you were seeing a lot of regional differences on the way down.

We think some of the post Covid high Flyer markets like Boise for example.

<unk> corrected 20% or more already.

So being really granular in understanding home prices is crucially important now.

Thanks to our originator Stakes, we are well positioned to originate generate gain on scale and securitize It high Roe given.

Given the short duration and equity cushions RTL portfolio has limited mark to market volatility our origination team has joined at the hip with their capital markets desk, which allows us to lean in when markets are wide and pump the brakes, when they tightened, but we have to keep a laser focus on performance and stay vigilant in our underwriting now back to Larry.

Thanks Mark.

2022, certainly had its challenges.

We have to navigate periods of extreme volatility and market dysfunction with interest rates rising rapidly and yield spreads widening along the way.

And the agency MBS sector in particular that was truly nowhere to hide.

As you can see on slide 24, our agency strategy was responsible for more than half of our portfolio of losses for the year, even though it only represented a small fraction of our capital allocation.

But most importantly, where.

We were able to largely avoid crystallizing mark to market losses on our credit portfolio.

We were patient with our securitization activity opportunistic with capital management and disciplined with hedging and leverage.

We were able to limit our book value declined during the year, we maintained our dividend throughout and we capitalized on the market volatility to add attractive assets and add origination market share growing the credit portfolio significantly over the course of the year, while strategically downsizing our agency portfolio.

We took advantage of some extreme stock market sell offs last year to repurchase our common shares at a big discount to book value and then when markets rebounded we officially raised capital through our ATM program to provide just in time capital to find attractive investment opportunities.

We also extended several loan facilities throughout the year, including in the fourth quarter.

We acquired Longbridge top III reverse mortgage originator at a very attractive level and I believe that acquisition gives us huge upside as well as great synergies, including access to Longbridge is attractive profit loan pipeline.

We really accomplished a lot last year, we closed out the year well, we entered 2023 with strong liquidity and a balanced portfolio positioned to drive earnings growth going forward.

On last quarter's earnings call, we discussed our excitement about the ample investment opportunities in both securities and loans and also the opportunity for a loan originator affiliates to continue adding market share in a consolidating market.

Earlier this month, we raised $100 million of dry powder in the preferred equity market to help us access these opportunities.

Our newly issued series C preferred equity along with our existing series, a and B carriers, the only NTIC one preferred equity rating in our sector.

I believe that this rating rightly reflects ellington financials effective risk management and long standing protection of book value across market cycles principles that are as important now as ever.

The strong institutional demand for the offering we were able to price the transaction at a similar spread to where we priced our series B preferred in December 2021, which was priced in an environment where yield spreads on our targeted assets were much tighter.

This new capital should allow us to take advantage of the tremendous opportunities that we are seeing across our diversified set of investment strategies.

I expect our loan origination businesses to continue to provide much of the asset sourcing and that now includes access to some new investment strategies, such as proprietary reverse mortgage loans that are now available to us at the source as a direct consequence of our acquisition Longbridge.

I am hopeful that the timing of our series C preferred equity issuance will following the footsteps of other recent well timed capital transactions for the FC.

Including our March 2022 issuance of $210 million of single a rated senior unsecured notes, we priced that transaction inside of window of stability right before all of the second quarter market turmoil.

Well I think AFC is known as a fast employer of capital will be as patient as we need to be picking our spots as always within the wide range of sectors that we manage well.

Once the proceeds from this preferred offering are fully deployed and as we continue to rotate the portfolio into higher reinvestment yields we believe that the offering will be accretive to both earnings and adjustable distributable earnings and that both metrics will again cover the dividend.

And with that we'll now open up the call to questions operator.

Yes.

Thank you Sir at this time, if you would 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.

Once again that is star one to ask a question.

Our first question comes from Eric Hagen with BT AIG.

Hey, Good morning Hope you guys are doing all right.

I think I've got a couple of questions, but the one eight times recourse leverage at Longbridge is that the origination does that apply to the origination pipeline or the <unk>.

Can you say what that funding is supporting and what the cost of funds. It looks like even how many counterparties you have supporting that funding.

And then in the resi transition loans are you guys buying loans directly from brokers are you buying from other originators that can't necessarily hold the loans themselves.

Maybe you can also give some color on the credit characteristics of the profile how big the average balances the LTV in that sort of thing. Thank you guys.

Hey, Eric Okay, Let me tackle the first one.

So on long ridge.

Recourse leverage we cite.

And that has to do with the holdings at Longbridge not the heck of loans that had been securitized, but it's really two major principal categories.

Loans are waiting securitization.

And three in the profit loans on balance sheet that are on these loan facilities and then the MSR financing themselves.

The three categories. The amount is summarized on slide nine you see $238 million of Longbridge recourse financings in the middle of the page.

Divide that by the equity and Longbridge, the capital allocated to Longbridge and Thats, where the ratio comes down and buyouts don't represent a significant factor at all for Longbridge their MSR.

Relatively new and young I should say and doesn't.

Experience.

Much buyout activity at all right and you can see the the <unk>.

Weighted average borrowing rate was seven 6% on combined on those portfolios those borrowings at year end.

The number of Counterparties, it's with.

Before five counterparties.

Okay, that's really helpful.

The next question was.

It was about.

Right.

Brazil transition loans right, yes, so Eric so we don't buy individual loans from brokers.

Have.

Several originators some of whom we have an equity stake in some of whom we just have a very clear.

Long standing relationship with.

Where we have seen how they underwrite see how they think about property improvement and we sort of like minded on credit that we buy from so in terms of attributes.

That market as opposed to like non QM to just sort of has a single loan to value ratio in the one of the big metrics of risk control in the residential transition loans is sort of to Ltvs. If you will the first is loan to cost. So how much you lending that builder versus what they're paying for the property and it is a property.

That generally needs.

Some sort of renovation to maximize value. So what are you lending them versus what they're paying for it as is.

And then at the time of loans.

Most loans, we do Theres a rehab component. So there is a rehab budget. There's rehab plan then they get paid in arrears for draws once they've done some of that construction and so at the time of origination.

This.

<unk>.

Second LTV, which is how much youre lending versus AD repaired value. So youre lending certain amount day, one then youre going to be funding either all or some portion of the renovations. So then at the end.

How much have you are going to be how much.

Whats the total debt you've extended to that extended to that builder.

This is what your expectation is there expectation of what the property is going to be worth.

When the renovations are done right. So one important metric I talked a little bit in the prepared comments about.

Data.

And real time analysis of what's going on in the market because things are so dynamic now so one thing that we look at a lot is every month, we look at okay, where are the properties selling versus what we thought the underwritten as repaired value is and what's nice about that product is.

Because it's so short youre getting quick feedback like feedback and six seven months right. So we can look and say okay.

We this month property sold 3% higher above 3% above what we thought the <unk> value is where this month. They are selling right on top of Azure paired value. We can look at that regionally. We can look at that as a function of the.

How big how big the houses.

So.

Home prices are coming down we think it's probably more that to come down more.

I think we talked in the prepared comments, how it's not just going to be.

Every every region performed the same you saw huge regional differences on the way up I think we said on the prepared comments, you're going to see big regional differences on the way down.

One thing with the RTL relative to non QM is debt.

There's a lot of focus on lending in areas, where there is a dynamic housing market because.

The way you get paid back most of the time is the properties are sold right. So you need to be in markets, where there is some dynamism to the.

To the housing market and that's right now you are at a time, where existing home sales have obviously come way down. So that's another area, we focus on a lot.

Okay I appreciate your comments guys. Thank you very much.

Sure.

Okay.

Thank you. Our next question comes from Crispin Love with Piper Sandler.

Hey, good morning, guys its actually Justin Crowley on for Chris This morning.

So just looking at the credit and agency portfolios in the quarter.

Both were down due to pay downs and other factors I think you mentioned in the prepared remarks, maybe seeing an inflection point.

On the agency side, so I guess, taking that and then the preferred issuance. This month curious where youre seeing some of them.

Most investment opportunities right now how deployment how you proceed deployment of preferred progressing.

No.

Like square that what sort of a wait and see approach youre, saying.

Just a bit there.

Yes so.

I would say that.

Yes.

Markets aren't as volatile as what they were say Q.

Q3, and early Q4 of 2022, but there is still volatile right and when they are volatile your incentive to.

<unk>.

Invest I think at a more measured pace because.

Typically the markets from time to time that maybe today as an example hit some air pockets and then you can really get some good.

Good investments right. So I think just the volatility and the uncertainty around how high the fed is going to hike argues for being a little bit more measured in the pace of deployment because the likelihood of just.

On a certain day or a couple of days being presented with some portfolios you can pick up it really advantageous levels that we signed a higher probability of that then we would sort of in a normal market in terms of the sectors we like.

<unk> talked about how we had a lot of pay downs in.

Small balance commercial.

We're looking at new opportunities there, it's a space we like I think we're also going to get some opportunities to buy some nonperforming loans. There has been a huge driver of UFC returns.

2010, 2011, 2012, and then you had.

Lack of supply for the Npls are starting to we think that's going to pick up.

We still like you, we talked about residential transition loans when.

We talked about non QM securitizations tightening so sort of a levered returns on retained pieces.

It looks pretty good to us there and also still some CUSIP opportunities. So I think.

All of that and then Larry mentioned that.

Now that we have.

Now that we own all of Longbridge, that's going to create some opportunities for us that we didn't have before I didn't know if Larry you want to expand on that yeah. Thanks, Mark No thats, great, but yes, I would like to add so first of all.

This market is very bipolar right I mean, everything has to be the risk on a risk off.

And then you have a day like today when.

My Gosh inflation is still a big risk I mean, obviously, it's been a big risk so.

We don't want to be too.

Be too enthusiastic one way or another but when it comes to raising capital.

You got to go for what you think is because those are opportunities that youre not doing a preferred deal every day are them.

That deal every day right. So when we saw the opportunity to do a deal at a spread like I said with similar to what we had done in December of 'twenty, one, which was a much much tighter spread investment environment, we had to capitalize on that.

And.

As Mark said Youre going to hit a pocket, where all of a sudden the market will overreact on the downside and that's we're going to pick up more assets.

Think on being patient here is going to be really really good for us because mark mentioned just mentioned commercial mpls we have.

Very few commercial Npls right now.

But that was we were buying loans as mpls several years ago.

And we think with all the distress in office and even retail to some extent, we think that youre going to see.

A lot of NPL opportunities.

And we want to be ready for those and.

If you try to raise capital when spreads are wide, while that youre going to be raising capital widespread right. So we want to raise capital.

When the opportunity and these are long term preferred preferred equity is something that we're going to live with potentially forever right.

As a perpetual preferred so we want to jump on those opportunities when they come at attractive spreads and then.

We'll absolutely take advantage of opportunities, but we'll be patient.

And we have so many different strategies, Mark just mentioned with the Longbridge acquisition I mentioned prop right that is a new asset class for us and it's a very very attractive asset class not one that you hear much about because its a tiny market.

But.

Our our biggest competitor and.

In reverse mortgages Thats one.

Rightly one of the focuses of their business model too.

With this acquisition now Longbridge can can ramp up its activities and prop.

We can put those will those go right on our balance sheet right.

So we just have lots and lots of different sectors that we can choose from and we will see where we will see where those opportunities are RTL continue to be big inflows for us non QM goes in waves, maybe we want to have lunch or sell those.

On the open market, maybe we want to buy them and securitize, we have a lot of flexibility.

Okay got it that's helpful.

And then taking that the idea of the capital deployment.

Net income higher rate to drive higher <unk>.

With regards to AE and covering the dividend.

What are your thoughts there in the near term.

As far as covering the dividend.

Could it take a few quarters as funding costs remain elevated.

I wanted to get your.

Your commentary there.

It's a great question and it really depends on us.

<unk> deployment.

It's not going to happen probably in Q1, just given the amount of capital that we've raised but thats okay.

Where we have no plans to cut the dividend, we look that as we look longer term and.

We're confident that we're going to cover it.

And.

Good.

Could be inflection point happen in the second quarter sure it could happen in the second quarter, but we're not going to force it.

Certainly that would be a good target.

Okay got it helpful and the second quarter I'm, sorry to add one more thing the second quarter also should be much different for longbridge as well and.

They.

Again, I don't want to say past performance is always indicative of future results, but if you look back to 2021.

What was their.

Net income for the year was well over $30 million right. So.

I believe we will have to check that but but.

So that could be a very large.

Addition to.

To our core.

Excuse me.

Starting potentially in the second quarter as I mentioned the seasonality right. So spring you should start to see second quarter, you should start to see.

Strong origination income again from leverage.

Okay understood.

And then I guess shifting gears.

You provided some commentary on credit quality across the portfolio.

Are there any areas, where you're beginning to see.

Signs of stress areas are becoming more cautious on I know you talked a little bit about the office portfolio and then also retail to some extent so I guess just broad commentary on credit.

Signs that you are paying attention to and then certainly on the office side for you to dig a little bit more into that and sort of how you see that asset class shaping out.

Just looking into your Crystal ball over the next couple of years.

But I'll, let mark handle that but before he does I do want to just emphasize that if you look at our portfolio. Mark mentioned you can see on slide 10.

Multifamily focuses but we have very little office and retail and I don't think and by the way I did just confirm the $30 million number for Longbridge 2021 but.

But I don't think that.

We really have any headaches.

In those sectors, where we're seeing that X.

Yes.

And the rest of the market, but Mark go ahead, where you think the.

The problem spots for the market are going to be so.

I guess the first thing I'd say is that if you look at affordability.

Just how much consumers.

Consumers, how much a homebuyer has to pay.

They buy a house now and they borrow.

Anywhere near the.

Fannie Freddie right, which is 605 basis or something that things aren't affordable great things are not affordable and you can.

That can correct a few ways. It can correct from home prices coming down and Youre already down about 5% from the peak and in some areas you're down 20% from the peak.

It can correct with mortgage rates drop you can correct, if incomes increase right and it's probably going to be.

Maybe some combination of those three but right now.

Homes generally are not affordable to most people and Thats one of the reasons why you're seeing sales numbers come off too I think.

Yes.

We got a we got to be cautious about things, we have to protect ourselves with loan to value ratios you have to protect ourselves in the residential transition portfolios by being in sectors, where we think that are going to hold up better.

And you have to respond to the market as it evolves, but.

We started non QM.

Start that originator and ended 2014 with the first loan in 2015, the first securitization in 2017.

There's a lot we had many years six odd years, where home prices were sort of marching higher we thought affordability looks good and.

Come last year.

Things are really different so I think.

You have to make.

Focusing on credit a big Big part of how you spend your day.

On the commercial side I think I mentioned it on.

In the prepared comments that you have a lot of.

If you have a mature properties stable property and the personnel.

10 year fixed rate loan with Freddie Mac or whatever.

That's that's sort of one thing and they are in good shape and will probably grow rents and thats fine what's in our portfolio on the loan side not necessarily on the <unk> securities we own but on the loan side.

It's floating rate debt right. So while we're enjoying materially higher note rate on that portfolio you get so for it for three quarters and alone has.

A five and a half.

For margin 10.

Turning to quarter on that loan so what's great for the portfolio is a challenge for the for the borrower right and so when you get to this point and as I was trying to get in the prepared remarks. When you have the debt cost is higher than the income than the property is throwing off that's always a challenge right. It's always a challenge and.

It probably some correction so the correction can come from higher rents on the multifamily or the correction can come from maybe sofa. It's down if you believe the forward curve or property values come down, but so it's it's a big thing to focus on and it's a real risk and yes.

We focus on it.

And we're very.

We think a lot about downside, we think a lot about housing shocks when I think about like.

The shocks we run when we buy credit risk transfer bonds were looking at how many multiples of the GSE home price shocks, Gabon to withstand and that was 30% decline I don't think we see that but.

What are the different world than what we're in for the last certainly last.

Seven eight years and so we're aware of it and we're really focused on it and.

I think you've got to worry about other sectors in the consumer side, you can definitely see borrowers have they.

Increase their savings massively during COVID-19 now they are starting to spend it down and.

Auto <unk> seen price used auto went way up people are taking up the seven year loans. They are buying older cars because everything was so now youre seeing increased delinquencies not nothing in our portfolio, but just sort of the market.

Are you seeing increase in delinquency in subprime auto because you have people that took a seven year loan on an older car and now when the car.

Brakes, and they are a big loan outstanding.

Stopped paying so there's there's a lot of things to worry about but to me.

That's what creates the opportunity right. If it's if everything is sanguine, if everything's performing perfectly if everything is going according to plan.

Typically a world where spreads are very tight so I think the challenge for US is to watch our credit closely and have our underwriting continually adjust to what's happening real time, but then.

To be opportunistic and see like pendulum ride it never stops in the middle right like people get too optimistic and they also get to up too pessimistic right. So I think this kind of market.

It's going to lead to lots and lots of great investment opportunities that with Sun.

The motivations and Larry articulated it behind the preferred the leasing we did that in.

A relatively stable market right and since then yields.

Yields have come off and spreads a little wider and all that stuff, but like you got it you got to get your dry powder in a more stable market. If you want to have reasonable borrowing costs.

And I think we achieved that there and I think now we.

We're sitting in a good position to be able to be opportunistic when youre going to get some dislocations.

Okay I appreciate that color and then sort of.

Taking that.

And looking at multifamily, which has been a pretty resilient asset class.

Squaring that with some of the home affordability hurdles that you mentioned.

Do you see demand starting to pull back just given cap rates.

Compared to desktop.

Or are some of those other factors as far as single family Homeownership.

You anticipate that continuing to lend support to the strength of multifamily.

So one thing with our approach to multifamily space is it's never really been class a right. It's never really been properties that are new construction rents of two grand demand lots of amenities, we've always been sort of class B and class C workforce properties rent six to 800 Bucks.

And the reason why we've liked that sector is.

There's just.

And unfortunately, it's unfortunate, but there's a huge shortage of affordable housing in this country.

Need there's demand for that.

Apartments that have a lower rent costs, but also to theres no new construction. There. So 2023 is interesting because there is a lot of multifamily construction, that's going to come online in 2023, but it's all at the higher end right No one is building.

Properties to rent them out for 700 Bucks a month right. So so.

So then what happens on these class B multis is that.

We are lending at.

A discount to property value obviously.

Television and that cushion.

But the buyer is buying those properties at a big discount to replacement cost. So so construction costs are high so.

The operators, we see buying class B class C multis theyre getting into these properties at the.

The market level, but the market level is way below the cost of new construction. So thats why youre not seeing new construction. There. So I think kind of gives us a double layer of protection.

Do I think some of the <unk>.

You're going to have a hard time pushing rents as much as they thought they were going to be able to push them. When they first bought the thing yeah.

And are there going to be are they going to be feeling it as sofas marched higher since they took up alone. They are you know we work closely with them that's their job their job is to manage through it.

<unk>.

This is such a big move in rates and such a big you turned from the fed that.

Everyone's going to have.

Everyone's going to have their headaches.

Ours included I think for us the headaches, we have are going to be small relative to the much much greater opportunities that this market is presenting to us.

Excellent.

Well I appreciate you guys, taking my questions I'll leave it there.

Okay. Thanks, Thank you.

Thank you. Our next question comes from Trevor Cranston with JMP Securities.

Okay. Thanks.

Sure.

You guys mentioned.

The potential opportunity to add more in the proprietary reverse mortgage space after their position of Longbridge can.

Can you elaborate a little bit on.

What the terms of the proprietary reverse loans look like compared to.

Standard Ginnie Mae product and how you guys would look to.

So we utilize a financing structure around investments in that space.

Yes.

It's pretty simple.

They are generally.

Fixed rate loans.

<unk>.

Have spreads that are obviously wider.

Then the <unk> product.

And.

They.

In terms of they.

They can be securitized.

We would probably wait to get some critical mass before doing so.

The big the Big reason why someone gets a prop loan as opposed to a heck of a loan is really going to be loan size.

So.

And from.

From an underwriting perspective, the ltvs are going to be much lower.

On the Hackett product so the ACA product.

The ltvs they are driven by the so called principal limited factors were.

Essentially FHA dictates exactly what LTV theyre willing to guaranteed alone at <unk>.

In crop we have much more flexibility.

<unk>.

So we can be more conservative on ltvs.

It's a pretty similar product to the fixed rate.

Fixed rate product that you're seeing that goes into the Ginnie maes.

Got it okay.

And then on the.

The book value update you guys gave for the end of January .

I was just curious credit spreads on agency spreads seem to have done pretty well in January .

I'm wondering if you could maybe provide some color around sort of what drove that.

Kind of flopped portfolio performance over the month. Thanks.

Sure.

So right.

<unk> non QM.

<unk> had strong months.

We obviously declared a <unk> 10 dividend so that would be netted out.

We also were active in the ATM.

And so that there's some dilution from ATM is factored into that $50 a share.

But.

If you factor in that last.

Adjustment, it's pretty close to on top of the dividend.

Okay got it thank you.

Thanks.

Thank you. Our next question comes from Bose George with <unk>.

Hey, guys good afternoon.

Some of the growth outlook at Longbridge I was curious is there any sort of inorganic opportunities on the bulk side, either MSR or origination capacity.

Sure.

Yes, I don't think if from an origination.

So I'm sure you saw.

The bankruptcy.

Towards the end of last year right. So we don't know what I don't know if you call this organic or inorganic, but we were able to pick up.

A lot of producers.

Loan officers et cetera in the wake of that bankruptcy. So.

So without having to sort of too.

Do anything in terms of.

Outright acquisition potentially getting a premium whatever.

And.

That also.

Ginnie Mae basically acquired took over seized if you will that MSR.

And that MSR will probably come to market in the near future.

Now it is a very different MSR from the MSR that Longbridge currently owns its a much older MSR.

And.

So it has different sort of benefits and risks.

That could be a very very substantial acquisition.

And potentially not even requiring that much capital.

<unk>.

So.

So yes, so I don't think we would have any plans.

Two.

To sort of go out there and look for Msr's to acquire.

At this point in time, nor looking to sort of acquire any other existing operations per se.

Longbridge is hesitant as shown actually great flexibility in terms of being able to dial up and down its capacity, including.

In terms of its <unk>.

<unk>.

In response to market opportunities.

Okay, great that makes sense. Thanks, and then just in terms of the returns on <unk> what are the kind of I guess, the unlevered yields on and you book them.

Talking about the reverse Msr's, yes, yes, yes, the reverse MSR as yet.

Yes.

I would say the low very low double digits.

Between 10% 15%.

Okay, great Okay.

Okay. That's all for me thank you.

Thank you.

Okay.

Thank you that was our final question for today, we thank you for participating Ellington financial fourth quarter 2022 earnings Conference call.

May disconnect your lines at this time.

And have a wonderful day.

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Yes.

Good morning, ladies and gentlemen, thank you for standing by welcome to the Ellington Financial fourth quarter 2022 earnings Conference call.

Today's call is being recorded.

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

Florida will be opened for your questions following the presentation.

If you would like to ask a question during that time.

Simply press Star then the number one on your telephone 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 need if you should require operator assistance. Please press star zero.

It is now my pleasure to turn the call over to Tara Byrne Vice President of SEC reporting you may begin.

Thank you.

Forward looking statements are not historical in nature.

As described under item <unk> of our annual report on Form 10-K.

Alright kill item <unk> of our quarterly report on Form 10-Q for quarter ended September 32022.

We're looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from our beliefs expectations estimates and projections.

Consequently, you should not rely on forward looking.

Statements.

Jonathan.

Statements made during this conference call are made as of today, the Procol and the company undertakes no obligation to update or revise any forward looking statements.

As a result of new information future events or otherwise.

I am joined on the call today by Larry Penn Chief Executive Officer at <unk> Financial Mark Takatsuki Co Chief investment officer of the FC and Sharon <unk> Chief Financial Officer.

As described in our earnings press release.

Our fourth 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.

Inflation are qualified in their entirety by the end notes tobacco presentation.

With that I will now turn the call over to Ed.

Thanks, Tara and good morning, everyone.

As always thank you for your time and interest in Ellington financial.

I'll begin on slide three of the presentation.

For the fourth quarter, we are reporting net income for the quarter up 37 per share and adjusted distributable earnings of 42 per share.

Excellent performance from Longbridge financial a reverse mortgage originator and from our agency MBS strategy.

In addition to another positive quarter from our loan portfolios drove Ellington financials results.

I'll start with Longbridge financial since Thats, driving a change now and going forward to our financial reporting.

We had a minority stake in Longbridge getting all the way back to 2014.

And this past October we acquired a controlling stake in the company.

As a result, we are now consolidating longbridge is balance sheet and results of operations into Eft's financials, beginning with the fourth quarter.

During the fourth quarter, Ginnie Mae <unk> yield spreads tightened and that increase the value of the <unk> reverse mortgage loans and mortgage servicing rights that language holds on its balance sheet and which by consolidation we now hold on our balance sheet.

Putting it altogether longbridge generated strong results for the quarter on the middle of Slide three you can see longbridge contributing 24 to our net income per share.

You can also see on this slide to significant contribution from our agency strategy in the quarter.

Our agency strategy delivered net income per share of <unk> 19 for the quarter as we were able to recover a portion of our losses in the strategy from earlier in the year.

Our adjusted distributable earnings our AE did decline quarter over quarter, but that was not surprising for a quarter, where short term interest rates spike so substantially more.

Most of our borrowings float off of either sofa or LIBOR and those indices have skyrocketed with the multiple recent fed hikes, so our cost of funds spiked as well.

Meanwhile, the purchase yields on some of our existing investments still reflect a lower interest rate environment from the early part of 2022.

This includes many of the agency pools that we still hold as well as many of the fixed rate RTL loans that we originated before the rate hikes.

The good news is that our RTL portfolio, it's very short nature with average lives of well under a year, but they do have fixed rate coupons, whereas the financing is floating rate.

So theres a natural drag on our NIM in a market where interest rates are rising and yield spreads are widening but that should be short of short term drag since we are originating new RTL loans at yields that are often 200 plus.

Basis points above the rates on the RTL loans that are paying off.

So turnover in this portfolio should be a big boost to our NIM and our <unk> in 2023.

In addition, the contribution to Ellington financials Adv from the Longbridge segment was just <unk> <unk> per share for the fourth quarter. The contribution was modest mainly because of low origination volumes, but as I mentioned and that was due to seasonal factors. When spring comes I expect <unk> to start contributing to our Adv and a significant way.

Keep in mind that while the fourth quarter appreciation in languages Msr's contributed to <unk> net income in the fourth quarter that appreciation appreciation isn't factored into a day.

Another highlight of the fourth quarter was the completion of our fourth non QM securitization of 2022 in December .

That patience was rewarded as we were able to take advantage of a more constructive market in December to achieve stronger deal execution.

I think it's important to understand how we have the flexibility to delay because this gets to a core tenet of our risk management.

FC we stress maintaining a diversity of borrowing sources as well as keeping extra borrowing capacity and liquidity available. So that our hand is enforced.

<unk> points tighter than what would have cleared the market in September .

<unk> to all of the important benefits of financing through Securitizations.

Bind our last two non QM securitizations have provided us with an incremental $406 million of nonrecourse non mark to market long term locked in financing.

Finally, we continue to maintain a strong liquidity position during the fourth quarter.

Youll notice some changes to our disclosures this quarter around the consolidation of Longbridge financial.

As Larry mentioned, we acquired a controlling interest in Longbridge financial in October .

And beginning with our fourth quarter results, we consolidate longbridge.

And the earnings presentation on slide five you can see the attribution of earnings between Longbridge, and our existing credit and agency portfolios as well as corporate level expenses.

And on slide 29.

You can see each strategies contribution to <unk> adjusted distributable earnings.

If you turn next to slide 27.

You can see the impact of the consolidation has on our balance sheet.

Longbridge is largest business is the origination of home equity conversion mortgage loans or <unk>, which are insured by the FHA and eligible for inclusion in Ginnie Mae guaranteed H MBS pools, when issuing these ginnie Mae <unk> pools, longbridge retains the mortgage servicing rights and the servicing related obligations that come with.

Those rights and even though these H MBS pools are sold to unrelated third party investors those sales transactions are not treated as true sales under GAAP.

This is a well known idiosyncrasy of the reverse mortgage industry.

In any case under GAAP the heck in loans remain on balance sheet, even after the H MBS pools sold with the H MBS pool are treated as a long term financing of those <unk> loans.

Since July 2017, Longbridge securitized, roughly $9 $5 billion of <unk> loans into <unk> pools of course, many of those loans are paid off since origination, but as you can see here on slide 27 languages GAAP liability associated with these H MBS pools stood at $7 8 billion as of December 30 <unk>.

Yeah.

Now that we consolidate longbridge, we brought these GAAP liabilities on <unk> balance sheet and this more than doubled our total GAAP liabilities.

This is the case, even though longbridge is equity only represents a small portion of <unk> total equity only about 10% at year end.

And that includes all of the reverse MSR and loan that Longbridge holds on balance sheet.

As Larry mentioned Longbridge generated strong performance for the fourth quarter as tighter yield spreads led to net gains on its <unk> MSR and <unk> loans.

<unk> results for the fourth quarter also benefited from a bargain purchase gain that resulted from the Longbridge acquisition.

Does the transaction occurred at a discount to languages book value at the time of closing and also because of the fair value of our existing noncontrolling stake reflected that same discount to book value at September 30.

Closing of the transaction generated a bargain purchase gain which you can see on our income statement.

Our agency strategy also had a strong quarter as tighter yield spreads and increased payoffs drove significant net gains on our portfolio, which combined with net interest income exceeded net losses on our interest rate hedges.

Finally, our affiliate originated lunch or was profitable for the fourth quarter and for 2022 overall, but the fair value of our stake in lunch or did not change meaningfully for the fourth quarter.

Turning back to slide four our portfolio summary.

As of year end average market yields on the credit portfolio were significantly higher as compared to September 30 as.

As Larry mentioned the original purchase yields on many of our assets still reflect a lower interest rate environment that we had earlier last year.

As we continue to turn over 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 in AE.

Turning next to slide six.

During the fourth quarter, our total long credit portfolio decreased by 7% to two to $5 4 billion at year end.

The decrease was due to the closing of the non QM loan securitization in December significant paydowns in our small balanced commercial mortgage portfolio that we did not replenished with new originations and because we no longer include our investment in Longbridge as part of the long credit portfolio.

These factors were partially offset by a larger RTL portfolio.

On the next slide slide seven you can see that we reduced the size of the long agency portfolio by 15% to $968 million driven by opportunistic sales and principal repayments.

<unk> eight is a new one.

Here, we illustrate the components of the Longbridge portfolio.

At December 31, the Longbridge portfolio totaled $328 million and mainly consisted of reverse msr's unsecured high tech loans and proprietary reverse mortgage loans for.

For the fourth quarter Longbridge originated $341 million across heckaman proprietary about 85% through its wholesale and correspondent channels and 15% through retail.

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

Book asset yields for both our credit and agency strategies also increased over the same period, thanks to that portfolio turnover.

By a lesser amount than their respective cost of funds.

Also as I mentioned Longbridge is standalone recourse debt to equity ratio declines declined sequentially and was also marginally lower than the rest of the FCS at year end.

On the other hands, our overall debt to equity ratio adjusted for unsettled purchases and sales increased to $10. One to one at year end from 41 at September 30.

Driven by a consolidation of Longbridge is H MBS related obligations, which I discussed earlier.

This increase was partially offset by the fact that we recognized true sale treatment on our fourth quarter non QM securitization, which means those loans truly came off the books.

G&A expenses increased due to expenses associated with Longbridge has substantial operating business and investment related expenses also increased as we now consolidate longbridge is sub servicing expenses and certain loan serviced loan sourcing expenses onto our income statement.

Finally at December 31, our combined cash and unencumbered assets totaled approximately $495 million and our book value per common share was $15 <unk> down one 1% from September 30.

Including the <unk> 45 per share a common dividend that we declared during the quarter. Our total economic return for the fourth quarter was one 8%.

Now over to Mark.

Thanks, Jr. Over.

Over the first nine months of 2022, we had seen elevated volatility and that continued to be the case in October .

In November and December however, volatility came down considerably and interest rates ended the year significantly off their intra quarter highs agency.

Agency, MBS, which had been the first sector to widen was not surprisingly also the first sector to materially outperform our hedging instruments, which we saw in Q4.

You, often see spread tightening and spread widening cycles for agency MBS and credit sensitive parts of fixed income that are out of phase with each other we have seen this numerous times most notably in late March 2020, when fed buying of agency MBS. Initially led to extreme outperformance for agency or do you see credit sector.

Catch up and outperform agency, one or two quarters later.

In 2022, we saw a different scenario play out when money managers pension funds and insurance companies need to raise cash quickly to meet redemptions or other or address other cash needs. They often sell agency MBS first because MBS are liquid and these investors typically have large MBS holdings. This kind of selling is a negative.

For agency MBS and because prices for MBS are highly transparent the underperformance. These abrupt sales can cause are very visible to the market in real time.

And drove agency outperformance for the fourth quarter. Overall, you can see that you can see that <unk> agency strategy posted some very strong results as a result after three challenging quarters.

Given the elevated risk of recession, we've been very focused on underwriting and closely monitoring performance of our residential and commercial mortgage loans.

So far our performance has remained strong and given the size of our holdings. We are surprisingly few headaches to work through.

Recently, there's been a lot of headlines about increased current expected credit loss or seasonal reserves on commercial loans as well as some high profile defaults on office buildings.

But putting aside the seasonal nuances, we're seeing big performance, we are not seeing big performance issues in our commercial bridge loan portfolio.

Part of that is sound underwriting and appropriate ltvs and part of that is property type concentrations. As you can look on slide 10, you can see that less than 10% of our portfolio was in office, which is where many of the recent headlines have been concentrated.

With more employees working from home the economics for office buildings are challenging, especially with greatly increased cost of tenant improvements.

Replacing an existing tenant.

Rising interest rates are predictably pressuring cap rates higher and we don't think price is fully reflect that yet.

Also with sulfur marching higher debt costs have exceeded NOI on many properties.

Of course, rising interest rates impact all sectors of the commercial space, but we think multifamily which is more than 70% of our portfolio will hold up the best in a recession.

So far we have very few headaches in our commercial mortgage bridge loan portfolio. We are watching things very closely staying in very close contact with our borrowers and monitoring the progress on implementing their business plans.

Thinking more about the dynamic where a recovery in agency MBS sector leads to recoveries in the other sectors by the end of 'twenty. Two. We then also seen a material recovery in non QM liquidity and pricing.

In fact, what happened to the non QM sector. Overall in 2022 had many parallels to what happened in the agency mortgage sector.

Yields rose so prices dropped then bonds extended because prepayments slowed so prices dropped even more than spreads widened on the newer longer duration bonds, so prices dropped even more.

We were by no means unscathed unscathed, but our disciplined cash management and focus on longer term staggered financing arrangement that was very helpful.

We had ample repo capacity and ample cash to remain disciplined and we were actively buying loans opportunistically.

What turned out to be very advantageous levels in many cases.

Working with our financing team, we saw storm clouds potentially gathering way back in Q1 of 2022.

We added more we cope repo capacity to both non QM and RTL, both by adding new lenders and by increasing capacity on existing lines. Eventually by Q4, the non QM QM sector was cheap enough relative to agency MBS and other sectors to attract new capital to take advantage of the opportunity.

First insurance companies started buying which drove securitization liquidity to improve.

Then spreads start to tighten we.

We did one deal in Q4 and have done one deal so far in 2023.

And now with securitization and now with securitization spreads tight again and coupons on new originations very attractive we have come full circle and it's back to being a battle to buy loans.

One thing I think will play out in 2023 for both agency and non QM is a big drop in loan volume, resulting from much slower new and existing home sales and almost no refinancings.

Existing home sales dropped again this month for the 12 months in a row that hasnt happened since the nineties.

Okay. So now for what worked and what didn't this quarter for ESC I talked about the recovery in <unk> and we are well positioned for it as we came into the quarter with fewer TBA shorts can we typically hold and we were able to make back a good portion of 2020 twos losses.

Despite our reduced capital allocation that strategy was a significant contributor to <unk> results in the quarter.

If you look on slide six RTL is now our largest credit portfolio, we grew that strategy significantly during the year.

<unk>, So we are riding up and down with securitization spreads.

At some point in the future if economics are sufficiently compelling we could opt to securitize. These loans, but it's not at all necessary with their short average lives. These loans are typically maturing before the repo lines mature and that gives us a lot of flexibility.

What are we done to protect ourselves what we're focusing on lower loan to cost ratios and we're favoring projects on more affordable properties and properties with lower cost renovations.

We have an immense amount of data that we pour over every month and we leverage that data in conjunction with our own origination experienced in the business information drawn from our boots on the ground as well as the analytics that are Ellington specialty data is our north star and that helps inform our underwriting for example, we've been reducing exposure in some in some <unk>.

Areas, most notably certain parts of California, where some cities have seen price declines that are a multiple of what the declines have been nationally.

We did see some weakness in our consumer business during the quarter, we have been tightening underwriting there too. If you look at the data you can clearly see that consumers have been spending down their COVID-19 savings given elevated inflation, so theyre not as flush as they have been.

So how is 23 shaping up.

So far we are off to a good start.

Liquidity and securitization is much better we've had numerous financing counterparties reach out to us about growing existing and initiating or initiating new lending facilities.

And just as there were a lot of regional differences in HPA on the way up you are seeing a lot of regional differences on the way down.

We think some of the post Covid high Flyer markets like Boise for example.

Have corrected 20% or more already.

So being really granular in understanding home prices is crucially important now.

Thanks to our originator Stakes, we are well positioned to originate generate gain on sale and securitize It high Roe.

Thanks Mark.

2022, certainly had its challenges.

We have to navigate periods of extreme volatility and market dysfunction with interest rates rising rapidly and yield spreads widening along the west.

And the agency MBS sector in particular, there was truly nowhere to hide.

As you can see on slide 24, our agency strategy was responsible for more than half of our portfolio losses for the year, even though it only represent a small fraction of our capital allocation.

But most importantly, we were able to largely avoid crystallizing mark to market losses on our credit portfolio.

We were patient with our securitization activity opportunistic with capital management and disciplined with hedging and leverage.

We took advantage of some extreme stock market sell offs last year to repurchase our common shares at a big discount to book value and then when markets rebounded we officially raise capital through our ATM program to provide just in time capital to find attractive investment opportunities.

We also extended several loan facilities throughout the year, including in the fourth quarter.

We acquired Longbridge.

<unk> III reverse mortgage originator at a very attractive level and I believe that acquisition gives us huge upside as well as great synergies, including access to Longbridge is attractive profit loan pipeline.

We really accomplished a lot last year, we closed out the year well, we enter 2023 with strong liquidity and a balanced portfolio positioned to drive earnings growth going forward.

Earlier this month, we raised $100 million of dry powder in the preferred equity market to help us access these opportunities.

Our newly issued series C preferred equity along with our existing series, a and B carriers, the only NTIC one preferred equity rating in our sector.

Thanks to strong institutional demand for the offering we were able to price the transaction at a similar spread to where we priced our series B preferred in December 2021, which was priced in an environment where yield spreads on our targeted assets were much tighter.

This new capital should allow us to take advantage of the tremendous opportunities that we are seeing across our diversified set of investment strategies.

I am hopeful that the timing of our series C preferred equity issuance will following the footsteps of other recent well timed capital transactions for the FC.

Including our March 2022 issuance of $210 million of single a rated senior unsecured notes, we priced that transaction inside of window of stability right before all the second quarter market turmoil.

Well I think AFC is known as a fast employer of capital will be as patient as we need to be picking our spots as always within a wide range of sectors that we manage well.

And with that we'll now open up the call to questions operator.

Yes.

Thank you Sir at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.

You may remove yourself from the queue at any time by pressing star.

Once again that is star one to ask a question.

Our first question comes from Eric Hagen with BT AIG.

Hey, Good morning Hope you guys are doing alright.

I think I've got a couple of questions, but the one eight times recourse leverage at Longbridge.

The origination does that apply to the origination pipeline or the <unk>.

Can you say what that funding.

<unk> and what the cost of funds it looks like you.

How many counterparties you have supporting that funding.

And then in the resi transition loans are you guys buying loans directly from brokers are you buying from other originators that can't necessarily hold the loans themselves.

Maybe you can also give some color on the credit characteristics of the profile how big the average balances the LTV in that sort of thing. Thank you guys.

Hey, Eric Okay, Let me tackle the first one.

So on long ridge.

Recourse leverage we site so that has to do with the holdings at Longbridge.

What the heck of loans that had been securitized, but it's really two major principal categories.

Heck in loans awaiting securitization.

The <unk> III and the profit loans on balance sheet that are on these loan facilities and then the MSR financing themselves.

Three categories. The amount is summarized on slide nine you see $238 million of Longbridge recourse financings and then another page.

You divide that by the equity and Longbridge the capital allocated Longbridge and that's where the ratio control buyouts don't represent a significant factor at all for Longbridge their MSR.

As.

Relatively new and young I should say it doesn't.

Experience.

Much buyout activity at all right and you can see the.

The weighted average borrowing rate was 786% on combined on those portfolios those borrowings at year end.

The number of Counterparties, it's with.

45 Counterparties.

Okay, that's really helpful.

And the next question wise.

It was about.

Brazil transition loans right, yes, so Eric so we don't buy individual loans from brokers we have.

Originators some of whom we have an equity stake in some of whom we just have a very long standing relationship with where we have seen how they underwrite see how they think about property improvements and we sort of like minded on.

Credit that we buy from so in terms of attributes.

That market as opposed to like non QM that just sort of has a single loan to value ratio in the one of the big metrics of risk control in the residential transition loans is sort of to Ltv's. If you will the first is loan to cost so how much you lending that builder.

Versus what they're paying for the property and its a property that generally needs.

Some sort of renovation to maximize value. So what are you lending them versus what they're paying for it as is and.

Then.

At the time of loans.

Second LTV, which is how much you are lending versus AD repaired value. So youre lending certain amount day, one then youre going to be funding either all or some portion of the renovations.

So then at the end.

How much have you are going to be how much.

Whats the total debt you've expanded to that extended to that builder.

Versus what your expectation is there expectation of what the property is going to be worth.

When the renovations are done right. So one important metric.

A little bit in the prepared comments about.

Data.

And real time analysis of what's going on in the markets because things are so dynamic now so one thing that we look at a lot is every month, we look at okay, where the property selling versus what we thought the underwritten as repaired value is and what's nice about that product is.

Because it's so short youre getting quick feedback like feedback in 67 months right. So we can look and say okay.

This month property sold 3% higher above the 3% above what we thought the azure paired value is where this month. They are selling right on top of Azure paired value. We can look at that regionally. We can look at that as a function of the.

How big how big the houses.

So.

Home prices are coming down we think it's probably more likely to come down more.

I think we've talked in the prepared comments, how it's not just going to be ever.

Every region performed the same you saw a huge regional differences on the way up.

We said in the prepared comments, we're going to see big regional differences on the way down.

One thing with <unk>.

RTL relative to non QM is that.

There's a lot of focus on lending in areas, where there is a dynamic housing market because.

The way you get paid back most of the time is the properties are sold right. So you need to be in markets, where there is some dynamism to the.

To the housing market and that's right now you are at a time, where existing home sales have obviously come way down. So that's another area, we focus on a lot.

Okay I appreciate your comments guys. Thank you very much thanks.

Thanks, Eric.

Okay.

Thank you. Our next question comes from Crispin Love.

With Piper Sandler.

Hey, good morning, guys its actually Justin Crowley on for Chris This morning.

So just looking at the credit and agency portfolios in the quarter.

<unk> were down due to pay downs and other factors I think you mentioned in the prepared remarks, maybe seeing an inflection point on.

On the agency side, so I guess, taking that and then the preferred issuance. This month curious where youre seeing some of them.

The most investment opportunities right now how deployment how you proceed deployment of preferred progressing.

Maybe like square that what sort of a wait and see approach and youre seeing it.

Just a bit there.

Yes so.

Yes, I would say that.

Yes.

The markets aren't as volatile as what they were say you know Q3 and early Q4 of 2022, but there is still volatile right and when they are volatile your incentive to.

<unk>.

Invest I think at a more measured pace because.

Typically the markets from time to time that maybe today as an example hit some air pockets and then you can really get some.

On a certain day Youre a couple of days being presented with some portfolios you can pick up it really advantageous levels that we signed a higher probability of that then we would sort of in a normal market in terms of the sectors we like.

<unk> talked about how we had a lot of pay downs in.

Small balance commercial.

We're looking at new opportunities there, it's a space we like I think we're also going to get some opportunities to buy some nonperforming loans there had been a huge driver of FC returns.

2010, 2011, 2012, and then you had.

Lack of supply for the Npls are starting to we think that's going to pick up.

We still like you would talked about residential transition loans when.

We've talked about non QM securitizations tightening so sort of the levered returns on retained pieces.

It looks pretty good to us there and also still some CUSIP opportunities. So I think.

All of that and then Larry mentioned that.

No.

Now that we have.

Now that we own all of Longbridge, that's going to create some opportunities for us that we didn't have before I Didnt know if Larry wants to expand on that yeah. Thanks, Mark No thats, great, but yes, I would like to add so first of all.

This market is very bipolar right I mean, everything has to be the risk on a risk off.

You have a day like today when.

Oh, My gosh inflation is still a big risk I mean, obviously, it's been a big risk.

No.

We don't want to be too.

Be too enthusiastic one way or the other but when it comes to raising capital.

You got to go for what you think is because those are opportunities that youre not doing a preferred deal every day our debt.

That deal every day right.

So when we saw the opportunity to do a deal at a spread like I said was similar to what we had done in December of 'twenty, one, which was a much much tighter spread investment environment, we had to capitalize on that.

And.

As Mark said Youre going to hit a pocket, where all of a sudden the market will overreact on the downside and that's we're going to pick up more assets.

Think on being patient here is going to be really really good for us because mark mentioned just mentioned commercial mpls we have.

Very few commercial Npls right now.

But that was we were buying loans as mpls several years ago.

And we think with all the distress in office and even retail to some extent, we think that youre going to see.

A lot of NPL opportunities.

And we want to be ready for those and.

If you try to raise capital when spreads are wide, while that youre going to be raising capital at wide spreads right. So we want to raise capital.

When the opportunity and these are long term in our preferred preferred equity is something that we're going to live with potentially forever right.

As a perpetual preferred so we want to jump on those opportunities when they come at attractive spreads and then.

We'll absolutely take advantage of opportunities, but we will be patient.

But.

Our our biggest competitor and.

And reverse mortgages thats.

Rightly one of the focuses of their business model too.

With this acquisition now Longbridge can can ramp up its activities and prop in.

We can put those will those go right on our balance sheet right.

On the open market, maybe we want to buy them and securitize, we have a lot of flexibility.

Okay got it that's helpful.

And then taking that the idea of the capital deployment.

Net income higher rate to drive higher <unk>.

With regards to AE and covering the dividend.

What are your thoughts there in the near term.

Covering the dividend.

Could it take a few quarters as funding costs remain elevated just wanted to get your your.

Your commentary there.

It's a great question and it really depends on the pace of deployment.

It's not going to happen probably in Q1, just given the amount of capital that we've raised but thats okay.

Where we have no plans to cut the dividend we look that as.

We look longer term and.

We're confident that we're going to cover it.

And could it could.

Could be inflection point happen in the second quarter sure it could happen in the second quarter, but we're not going to force it.

Certainly that would be a good target.

Okay got it helpful and the second quarter I'm, sorry to add one more thing the second quarter also should be much different for longbridge as well and.

They.

Again, I don't want I say past performance is always indicative of future results, but if you look back to 2021.

What was their.

Net income for the year was well over $30 million right. So.

I believe we will have to check that but.

So that could be a very large.

Addition to.

To our core.

Excuse me.

Starting potentially in the second quarter as I mentioned the seasonality right. So spring you should start to see second quarter, you should start to see.

Strong origination income again some leverage.

Okay understood.

And then I guess shifting gears.

You provided some commentary on credit quality across the portfolio.

Are there any areas, where you're beginning to see.

Signs of stress areas are becoming more cautious on I know you talked a little bit about the office portfolio and then also retail to some extent so I guess just broad commentary on credit.

Signs that you are paying attention to and then certainly on the office side for you to dig a little bit more into that and sort of how you see that asset class shaping out.

Just looking into your Crystal ball over the next couple of years.

But I'll, let mark handle that but before he does I do want to just emphasize that if you look at our portfolio. Mark mentioned you can see on slide 10.

Multifamily focuses but we have very little office and retail and I don't think and by the way I did just confirm the $30 million number for Longbridge 2021 but.

But I don't think that.

We really have any headaches.

In those sectors, where we're seeing that X.

And the rest of the market, but Mark go ahead, where you think the.

The problem spots for the market are going to be so.

I guess the first thing I'd say is that if you look at affordability.

Just.

How much consumers.

Consumers, how much a homebuyer has to pay.

They buy a house now and they borrow.

Anywhere near the.

Fannie Freddie right, which is six five base or something that things aren't affordable great things are not affordable and you can.

That can correct a few ways. It can correct from home prices coming down and Youre already down about 5% from the peak and in some areas you're down 20% from the peak.

It can correct with mortgage rates drop you can correct, if incomes increase right and it's probably going to be.

Maybe some combination of those three but right now.

Homes generally are not affordable to most people and that's one of the reasons why you're seeing sales numbers come off so I think yes.

Yes.

And you have to respond to the market as it evolves, but.

We started non QM, we started that originator and ended 2014 with the first loan in 2015. The first securitization in 2017. So there's a lot. We had many years six odd years, where home prices were sort of marching higher we thought affordability looks good.

And you know come last year.

Things are really different so I think.

You have to make.

Focusing on credit a big Big part of how you spend your day on the commercial side I think I mentioned it on.

In the prepared comments that you have a lot of.

If you have a mature properties stable property and the personnel.

10 year fixed rate loan with Freddie Mac or whatever.

It's floating rate debt right. So while we're enjoying materially higher note rate on that portfolio you get the sofa at four and three quarters and alone has.

A five and a half.

For margin 10 in a quarter on that loan so what's great for the portfolio is a challenge for the for the borrower right and so when you get to this point and as I was trying to get in the prepared remarks. When you have the debt cost is higher than the income than the property is throwing off that's always a challenge it's always a challenge.

And at.

It probably some corrections so the correction can come from higher rents on the multifamily or the correction can come from maybe sofa, it's down.

Before we'd curve or property values come down, but so it's it's a big thing to focus on and it's a real risk and I think we focus on it.

And we're very.

We think a lot about downside, we think a lot about housing shocks when I think about like.

The shocks we run when we buy credit risk transfer bonds were looking at how many multiples of the GSE home price shocks, Gabon to withstand and that was 30% decline I don't think we see that but.

What are the different world than what we're in for.

Last certainly last.

708 years, and so we're aware of it and we're really focused on it and.

I think you've got to worry about other sectors in the consumer side, you can definitely see borrowers have they increased.

Increase their savings massively during COVID-19 now theyre starting to spend it down and.

Auto <unk> seen price used auto went way up people are taking up the seven year loans. They are buying older cars, because everything is so expensive and now youre seeing increased delinquencies not nothing in our portfolio, but just sort of you.

We're seeing an increase in delinquency and sub prime auto because you have people that took a seven year loan on an older car and now when the car.

Brakes, and they are a big loan outstanding.

Stopped paying and so there is there is a lot of things to worry about but to me.

That's what creates the opportunity right. If it's if everything is sanguine, if everything's performed perfectly if everything is going according to plan.

A world where spreads are very tight so I think the challenge for US is to watch our credit closely and have our underwriting continually adjust to what's happening real time, but then too.

To be opportunistic and see like pendulum ride it never stops in the middle right like people get too optimistic and they also get to up too pessimistic right. So I think this kind of market is going to lead to lots and lots of great investment opportunities and that was.

What are the motivations and Larry articulated it behind the preferred the leasing we did that in.

A relatively stable market right and since then.

Yields have come off and spreads a little wider and all that stuff, but like you got it you got to get your dry powder in a more stable market. If you want to have reasonable borrowing costs and I think we achieved that there and I think now.

We're sitting in a good position to be able to be opportunistic when youre going to get some dislocations.

Okay I appreciate that color and then sort of.

Taking that.

And then looking at multifamily, which has been a pretty resilient asset class.

And squaring that with some of the home affordability hurdles that you mentioned.

Do you see demand starting to pull back just given cap rates.

Compared to desktop.

Or are some of those other factors as far as you know single family Homeownership.

You anticipate that continuing to lend support to the strength of multifamily.

So one thing with our approach to multifamily space is it never really been class a rate. It's never really been properties that are new construction rents of two grand demand lots of amenities, we've always been sort of class B and class C workforce properties rent six to 800 Bucks.

And the reason why we've liked that sector is.

There's just.

And unfortunately, it's unfortunate, but there's a huge shortage of affordable housing in this country.

Need there's demand for that.

Apartments that have a lower rent costs, but also to theres no new construction. There. So 2023 is interesting because theres a lot of multifamily construction, that's going to come online in 2023, but it's all at the higher end right No one is building.

Properties to rent them out for 700 Bucks a month right. So so.

So then what happens on these class B multis is that.

We're lending at.

A discount to property value, obviously LTV in that third cushion.

But the buyer is buying those properties at a big discount to replacement cost. So so construction costs are high so.

The operators, we see buying class B class C multi theyre getting into these properties at the.

The market level, but the market level is way below the cost of new construction. So thats why youre not seeing new construction. There. So I think kind of gives us a double layer of protection.

Do I think some of the <unk> going.

We're going to have a hard time pushing rents as much as they thought they were going to be able to push them. When they first bought the thing yeah.

Are they going to be are they going to be feeling it as sofas marched higher since they took out the loan. They are you know we work closely with them that's our job their job is to manage through it.

<unk>.

This is such a big move in rates and such a big you turned from the fed that.

Everyone's going to have.

Everyone's going to have their headaches.

Ours included I think for us the headaches, we have are going to be small relative to the much much greater opportunities that this market is presenting to us.

Excellent.

I appreciate you guys, taking my questions I'll leave it there.

Okay. Thanks, Thank you.

Okay.

Thank you. Our next question comes from Trevor Cranston with JMP Securities.

Okay. Thanks.

Sure.

You guys mentioned.

The potential opportunity to add more in the proprietary reverse mortgage space after their position Longbridge can.

Can you elaborate a little bit on.

What the terms of the proprietary reverse loans look like compared to.

Sort of a standard Ginnie Mae product and how you guys would look to.

So we utilize a financing structure around investments in that space.

Yes.

It's pretty simple they are generally.

Fixed rate loans.

<unk>.

Have spreads that are obviously wider.

The <unk> product.

And.

They.

In terms of.

They can be securitized.

We would probably wait to get some critical mass before doing so.

The big the Big reason why someone gets a <unk> as opposed to a heck of amount is really going to be loan size.

So.

And.

From an underwriting perspective, the ltvs are going to be much lower.

And on a heck of a product so the ACA product.

The ltvs they are driven by these so-called principal limited factors were.

Essentially FHA that case, exactly what LTV theyre willing to guarantee the loan at.

In crop we have much more flexibility.

<unk>.

So we can be more conservative on ltvs.

It's a pretty similar product to the fixed rate.

Fixed rate product that you're seeing that goes into the Ginnie maes.

Got it okay.

And then on the <unk>.

Kelly you update you guys gave for the end of January .

I was just curious credit spreads on agency spreads seem to have done pretty well in January .

I'm wondering if you could maybe provide some color around sort of what drove the.

Kind of flat portfolio performance over the month. Thanks.

Sure.

So right.

<unk> in non QM.

<unk> had strong months.

We obviously declared a 15% dividend so that would be netted out.

We also were active in the ATM.

And so that there's some dilution from ATM is factored into that $50 a share.

But it's <unk>.

If you factor in that last.

Adjustment.

Pretty close to on top of the dividend.

Okay got it thank you.

Thanks.

Thank you. Our next question comes from Bose George with <unk>.

Hey, guys good afternoon.

In terms of the growth outlook at Longbridge.

Is there any sort of inorganic opportunities on the bulk side, either MSR or origination capacity.

Sure.

Yes, I don't think from an origination.

So I'm sure you saw the.

The bankruptcy.

Towards the end of last year right. So we don't know what I don't know if you call this organic or inorganic, but we were able to pick up.

A lot of producers.

Loan officers et cetera in the wake of that bankruptcy. So.

So without having to sort of do.

Do anything in terms of.

Outright acquisition, you are potentially paying a premium whatever.

And.

That also.

Ginnie Mae basically acquired took over seized if you will that MSR.

And that MSR will probably come to market in the near future.

Now it is a very different MSR from the MSR that Longbridge currently owns its a much older MSR.

And.

So it has different sort of benefits and risks.

That could be a very very substantial acquisition.

And potentially not even require that much capital.

<unk>.

So.

So yes, so I don't think we would have any plans.

Two.

To sort of go out there and look for Msr's to acquire.

At this point in time, nor looking to sort of acquire any other existing operations per se.

Yeah.

Longbridge is hesitant as shown actually great flexibility in terms of being able to dial up and down its capacity, including.

In terms of its <unk>.

<unk>.

In response to market opportunities.

Okay, great that makes sense. Thanks, and then just in terms of the returns on Msr's what are the kind of I guess, the unlevered yields on that can.

In your book.

Talking about the reverse msr's.

Yes, the reverse MSR as yet.

Yes.

I would say the low very low double digits.

Between 10% to 15%.

Okay great.

Okay. That's all for me thank you.

Thank you.

Okay.

Thank you that was our final question for today, we thank you for participating Clinton financial fourth quarter 2022 earnings Conference call. You may disconnect your lines at this time.

And have a wonderful day.

Q4 2022 Ellington Financial Inc Earnings Call

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