Q1 2024 Ellington Financial Inc Earnings Call

Operator: Good morning, ladies and gentlemen. Thank you for standing by.

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

Operator: Welcome to the Ellington Financial first quarter 2024 earnings conference call. Today's call is being recorded. At this time, all participants have been placed in listen-only mode. The floor will be open for your questions following the presentation. If you would like to ask a question during that time, simply press star and 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 2. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the call over to Aladeen Shilleh. You may begin.

Speaker Change: Welcome to the Ellington financial first quarter 2024 earnings conference call.

Operator: Today's call is being recorded.

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

Speaker Change: The floor will be open for your questions. Following the presentation.

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

Operator: Simply press Star then the number one on your telephone keypad.

Operator: If at any time. Your question has been answered you may remove yourself from the queue by pressing star two.

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

Alaael Shilleh: It is now my pleasure to turn the call over to I'll, Let Dean Chile, you may begin.

Alaael Shilleh: Thank you.

Alaael Shilleh: Before we start, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature, as described under item 1A of our annual report on Form 10-K and Part 2. Item 1A of our quarterly report on Form 10-Q. Forward-looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs, expectations, estimates, and projections. Consequently, you should not rely on these forward-looking statements as predictions of future events.

Alaael Shilleh: Before we start I would like to remind everyone that certain statements made during this conference call may constitute forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Alaael Shilleh: Forward looking statements are not historical in nature as described under item <unk> of our annual report on Form 10-K and part two.

Alaael Shilleh: I don't want any of our quarterly report on Form 10-Q 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.

Alaael Shilleh: Projections. Consequently, you should not rely on these forward looking statements as predictions of future events statements made during this conference call may as of the date of this call and the company undertakes no obligation to update or revise any forward looking statement, whether as a result of new information future events or otherwise.

Alaael Shilleh: 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 Allentown Financial, Mark Tecotzky, Co-Chief Investment Officer of the EFC, and J.R. Herlihy, As described in our earnings press release, our first quarter earnings conference call presentation is available on our website, EllingtonFinancial.com.

Alaael Shilleh: I'm joined on the call today by Larry Penn Chief Executive Officer of Allen Sue financial wants to cut ski co Chief investment officer of AFC and Jr. Herlihy, Chief Financial Officer P. F C.

Alaael Shilleh: Our earnings press release, our first 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'll now turn the call over to Terry.

Alaael Shilleh: 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 now turn the call over to Larry.

Laurence Eric Penn: Thank you for your time and interest in Ellington Financial. I'll begin on slide three of the presentation.

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

Larry: I'll begin on slide three of the presentation.

Laurence Eric Penn: For the first quarter, we reported net income of $0.32 per share and adjusted distributable earnings of $0.28 per share. The credit strategy was the primary contributor to our quarterly results, generating 48% of net income per share, led by Steady Performance from our non-QM and residential transition loan businesses together with strong returns from our secondary CLO, CMBS, and non-agency RMBS portfolio. Our agency strategy contributed a modest $0.03 per share in a quarter where agency MBS lagged the broader rally in credit, with market consensus shifting to a higher-for-longer expectation.

Larry: For the first quarter, we reported net income of 32 cents per share and adjusted distributable earnings of 28 cents per share.

Laurence Eric Penn: The credit strategy was the primary contributor to our quarterly results generating <unk> 48 per cent per share of net income led by steady performance from our non QM residential transition loan businesses together with strong returns from our secondary CLO see MBS and non agency MBS portfolios are.

Laurence Eric Penn: Agency strategy contributed a modest <unk> <unk> per share in a quarter, where agency MBS lagged the broader rally in credit.

Laurence Eric Penn: Market consensus of shifting to a higher for longer expectation.

Laurence Eric Penn: Finally, Longbridge generated $0.10 per share of Gap Net Income, though I'll note that after taking out the mark-to-market gain on our reverse MSRs and certain interest rate hedges, A.D.E. from Longbridge was still slightly negative for the court.

Laurence Eric Penn: Finally, longbridge generated 10 cents per share of GAAP net income I'll note that after taking out the mark to market gain on our reverse msr's and certain interest rate hedges.

Laurence Eric Penn: G E from Longbridge was still slightly negative for the quarter.

Laurence Eric Penn: That slightly negative ADE from Longbridge again weighed down EFC's overall ADE for the quarter. But on a positive note, so far in the second quarter, origination volumes and submissions at Longbridge are pacing well ahead of first quarter volumes and second quarter projections. And so we expect Longbridge to contribute positively to our ADE in the second quarter. Meanwhile, in the first quarter, we made progress deploying the uninvested capital we held at year end following the closing of the Arlington.

Laurence Eric Penn: That's slightly negative from Longbridge again weighed down <unk> overall <unk> for the quarter, but on a positive note. So far in the second quarter origination volumes and submissions at Longbridge are pacing well ahead of first quarter volumes and second quarter projections, and so we expect loss rates to contribute to positive.

Laurence Eric Penn: Leach R. A T E in the second quarter.

Laurence Eric Penn: Meanwhile, in the first quarter, we made progress deploying the Uninvested capital we held at year end following the closing of the Arlington merger.

Laurence Eric Penn: Our Credit Portfolio Expanded, driven by a larger RTL portfolio and opportunistic corporate CLO purchases. We also grew our commercial mortgage bridge loan portfolio after five consecutive quarters of payoffs exceeding new originations in that portfolio. With borrowers finally more realistic about commercial real estate property valuations, we are seeing strong origination flow from our affiliate Sheridan Capital, which has also sourced a couple of NPLs so far for us in 2024. We also achieved some key portfolio objectives during the first quarter that I'd like to highlight.

Laurence Eric Penn: Our credit portfolio expanded driven by a larger RTL portfolio and opportunistic corporate CLO purchases. We also grew our commercial mortgage bridge loan portfolio after five consecutive quarters of payoffs exceeding new originations in that portfolio.

Laurence Eric Penn: With borrowers finally, more realistic about commercial real estate property valuations, we are seeing strong origination flow from our affiliates Sheridan capital, which is also sourced a couple of npl's so far for us in 2024.

Laurence Eric Penn: Yeah.

Laurence Eric Penn: We also achieved some key portfolio objectives during the first quarter that I'd like to highlight.

Laurence Eric Penn: First, we successfully completed our inaugural securitization of proprietary reverse mortgage loans from Longbridge, which converted repo financing into term non-mark-to-market financing at an attractive cost of funds. We expect that this securitization marks the beginning of an ongoing program for our proprietary reverse business, similar to the program we have established in our non-QM business.

Laurence Eric Penn: First we successfully completed our inaugural securitization our proprietary reverse mortgage loans from Longbridge, which converted repo financing the term not non mark to market financing at an attractive cost of funds.

Laurence Eric Penn: We expect that the securitization marks the beginning of an ongoing program for our proprietary reverse business similar to the program. We have established in our non QM businesses.

Laurence Eric Penn: Second, we continue to cull lower-yielding securities from our portfolio, selling agency and lower-yielding non-agency RMBS and CMBS in order to free up capital for higher-yielding opportunities. Since we generally use more leverage in our MBS portfolios, especially in our agency MBS portfolio, than we do in our loan portfolio. These MBS sales drove down our overall leverage ratios in the first quarter despite the increased capital deployment overall.

Laurence Eric Penn: Second we continued to call lower yielding securities from our portfolio selling agency and lower yielding non agency RBS and see MBS in order to free up capital for higher yielding opportunities.

Laurence Eric Penn: Since we generally use more leverage in our MBS portfolios, especially in our agency MBS portfolio than we do in our loan portfolios. These M. B S sales drove down our overall leverage ratios in the first quarter. Despite the increased capital deployment overall.

Laurence Eric Penn: So far in the second quarter, we've further expanded our RTL and commercial mortgage bridge loan portfolios. We've originated more proprietary reverse mortgage loans on the heels of that March securitization, and we've also begun adding investments in closed-end second lien mortgages and home equity lines of credit, or HELOC. While we haven't focused on closed-end seconds and HELOCs until recently, we are optimistic about the prospects of deploying significant capital in this sector going forward.

Laurence Eric Penn: So far in the second quarter, we further expanded our RTL in commercial mortgage bridge loan portfolios. We've originated more proprietary reverse mortgage loans on the heels of that March securitization and we've also begun adding investments and closed end second lien mortgages and home equity lines of credit or Helocs.

Laurence Eric Penn: Well, we haven't focused on closed end seconds and he likes until recently, we are optimistic about the prospects of deploying significant capital in this sector going forward.

Laurence Eric Penn: After several consecutive years of home price appreciation, homeowners across the country are sitting on an enormous amount of home equity. But with mortgage rates up sharply, it doesn't make sense for most borrowers to refinance their existing low-rate mortgage.

Laurence Eric Penn: After several consecutive years now of home price appreciation homeowners across the country are sitting on enormous amount of home equity, but with mortgage rates up sharply. It doesn't makes sense for most borrowers to refinance their existing low rate mortgage.

Laurence Eric Penn: Closed End Seconds and HELOCs enable these borrowers to tap into that home equity without disturbing their low-rate locked-in first mortgage. We are seeing a surge of demand for these products from some of the highest credit-quality borrowers with pristine pay histories and attractive yield opportunities. One wild card here is potential competition from Freddie Mac and Fannie Mae. As always, we'll want to focus on products where we're not competing with those agencies.

Laurence Eric Penn: Closed end seconds on Helocs enable these borrowers to tap into that home equity without disturbing there low rate locked in first mortgage.

Laurence Eric Penn: We are seeing a surge of demand for these products from some of the highest credit quality borrowers with pristine pay histories and attractive yield opportunities.

Laurence Eric Penn: One wild card here is potential competition from Freddie Mac and Fannie Mae as always we want to focus on products, where we're not competing with those agencies.

Laurence Eric Penn: Also in April, we completed our first non-QM securitization in 14 months, taking advantage of the tightest AAA yield spreads we've seen in two years and booking a significant gain as a result. In recent months, we have been choosing to sell many of our non-QM loans, rather than securitize, to take advantage of strong hold-on bids in the market. But with AAA spreads finally back to early 2022 levels, we were able to achieve some great economics in the securitization market and retain some high-yielding residual tranches to boot. With that, I'll turn the call over to J.R. to discuss the first quarter financial results in more detail. J.R.? Thanks, Larry, and good morning, everyone.

Laurence Eric Penn: Also in April we completed our first non QM securitization in 14 months, taking advantage of the tightest AAA yield spreads we've seen in two years and booking a significant gain as a result.

J.R.: In recent months, we had been choosing to sell many of our non QM loans, rather than securitized them to take advantage of strong how long bids in the marketplace.

J.R.: With AAA spreads finally back to early 2022 levels, we were able to achieve some great economics in the securitization market and retain some high yielding residual tranche is taboo.

J.R.: With that I'll turn the call over to Jr. To discuss the first quarter financial results in more detail Jr. Thanks, Larry and good morning, everyone.

J.R. Herlihy: For the first quarter, we reported GAAP net income of $0.32 per share on a fully mark-to-market basis and adjusted distributable earnings of $0.28 per share. On slide 5, you can see the attribution of net income among credit, agency, and Longbridge. The credit strategy generated $0.48 per share of GAAP net income in the quarter, driven by strong net interest income, net gains on our non-agency RMBS and equity stake in Lensure, and net gains on interest rate hedging. Lensure has now posted several consecutive quarters of solid performance, and it made a sizable distribution in the first quarter, with EFC's share of that distribution well exceeding our total cost basis in the investment.

J.R.: For the first quarter, we reported GAAP net income of 32 cents per share on a fully mark to market basis, and adjusted distributable earnings of 28 per share.

J.R. Herlihy: On slide five you can see the attribution of net income a non credit agency and mom bridge there.

J.R. Herlihy: The credit strategy generated 48 cents per share of GAAP net income in the quarter driven by strong net interest income net gains on our non agency MBS and equity stake in less sure and net gains on interest rate hedges lessor has now posted several consecutive quarters of solid performance and it made a sizeable does.

J.R. Herlihy: Tribunal in the first quarter with E S share <unk> share of that distribution well exceeding our total cost basis in the investment.

J.R. Herlihy: A portion of the net income in our credit strategy was offset by net losses on credit hedges, negative operating income on certain commercial non-performing mortgage loans and REO, and Net Losses on Residential REO Liquidation. We also had a net loss on the Great Ajax common shares we had purchased in connection with last year's terminated merger, which was partially offset by a net gain on the fixed payer interest rate swap hedges that we hold against those shares.

J.R. Herlihy: A portion of the net income in our credit strategy was offset by net losses on credit hedges negative operating income on certain commercial nonperforming mortgage loans and Oreo.

J.R. Herlihy: And net losses on residential Oreo liquidations, we also had a net loss on the great Ajax common shares we had purchased in connection with last year's terminated merger, which was partially offset by a net gain on the fixed payer interest rate swap hedges that we hold against those shares.

J.R. Herlihy: Meanwhile, the Longbridge segment generated a gap net income of $0.10 per share for the first quarter, driven by positive results from servicing and net gains on interest rate hedges. In originations, improved gain-on-sale margins in HECM, driven by tighter HECM yield spreads, were mostly offset by a decline in overall origination volume. Tighter HECA meal spreads also led to net gains on the HMBS-MSR equivalent, as well as improved execution on tail securitizations, which contributed to the positive results from service. However, partially offsetting these gains were net losses on proprietary loans. Finally, our agency strategy generated a gap net income of $0.03 per share for the first quarter.

J.R. Herlihy: Meanwhile, the Longbridge segment generated GAAP net income of 10 cents per share for the first quarter driven by positive results from servicing and net gains on interest rate hedges.

J.R. Herlihy: And originations improved gain on sale margins and heck of them driven by tighter how can yield spreads were mostly offset by a decline in overall origination volumes.

J.R. Herlihy: Tighter how can yield spreads also led to net gains on the H M. B S MSR equivalent.

J.R. Herlihy: As well as improved execution on tail, Securitizations, which contributed to the positive results from servicing.

J.R. Herlihy: Partially offsetting these gains were not losses on proprietary loans.

J.R. Herlihy: Finally, our agency strategy generated GAAP net income of three cents per share for the first quarter.

J.R. Herlihy: Despite lower interest rate volatility during the quarter, agency RMBF lagged a broader rally in credit as market consensus for the timing of the first Federal Reserve rate cut was pushed back. This drove interest rates higher across the yield curve and pressured agency yield spreads, particularly in February and particularly for lower coupons, where many of our holdings were concentrated. While agency yield spreads did recover meaningfully in March, driven by lower volatility and capital inflows, overall, for the quarter, agency RMBS generated a modestly negative excess return to the Treasury.

J.R. Herlihy: Despite lower interest rate volatility during the quarter agency RBS lagged a broader rally in credit as market consensus for the timing of the first federal reserve rate cut was pushed back.

J.R. Herlihy: This drove interest rates higher across the yield curve and pressured agency yield spreads, particularly in February and particularly for lower coupons, where many of our holdings were concentrated.

J.R. Herlihy: While agency yield spreads did recover and meaningfully in March driven by lower volatility in capital inflows overall for the quarter agency RBS generated a modestly negative excess return to treasuries.

J.R. Herlihy: Despite that negative excess return, our agency portfolio was modestly profitable for the quarter as net gains on our interest rate hedges exceeded net losses on our pools and negative net interest income. Our net income for the first quarter also reflects a net loss driven by the increase in interest rates on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured long-term debt and our preferred equities.

J.R. Herlihy: Despite that negative excess return our agency portfolio was modestly profitable for the quarter as net gains on our interest rate hedges exceeded net losses on our pools and negative net interest net interest income.

J.R. Herlihy: Our net income for the first quarter also reflects the net loss driven by the increase in interest rates on the fixed receive or interest rate swaps that we used to hedge the fixed payments on both our unsecured long term debt and or preferred equity partially offset by a net gain on our senior notes also driven by the increase in interest rates.

J.R. Herlihy: Partially offset by a net gain on our senior notes, also driven by the increase in interest rates. As a reminder, we have used interest rate swaps to effectively convert these long-term fixed-rate obligations into floating-rate obligations. Turning to slide 6, you can see the breakdown of ADE by segment.

J.R. Herlihy: As a reminder, we have used interest rate swaps to effectively convert these long term fixed rate obligations into floating rate obligations.

J.R. Herlihy: Turning to slide six you can see the breakout of <unk> by segment.

J.R. Herlihy: Longbridge, after excluding the mark-to-market gain on the MSRs and certain interest rate hedge gains, generated ADE of negative one cent per share. Apart from the Longbridge segment, ADE is generated from the investment portfolio, net of corporate other expenses. Total $0.29 per share, which is an increase of three cents per share sequentially, but which was still weighed down by non-accrual loans and REO expenses. During the first quarter, delinquencies ticked up modestly in our residential loan portfolio, driven by incrementally higher non-QM delinquencies in line with broader market trends.

J.R. Herlihy: Long bridge after excluding the mark to market gain on the MSR and certain interest rate hedge gains generated <unk> <unk> of negative <unk> <unk> per share.

J.R. Herlihy: Apart from the Longbridge segment AE from the investment portfolio net of corporate other expenses totaled 29 cents per share.

J.R. Herlihy: Which is an increase of three <unk> per share sequentially, but which was still weighed down by nonaccrual loans and Oreo expenses.

J.R. Herlihy: During the first quarter delinquencies ticked up modestly in our residential loan portfolio driven by incrementally higher non QM delinquencies in line with broader markets market trends.

J.R. Herlihy: Total delinquencies in our commercial mortgage loan portfolio also ticked up quarter over quarter, but that's only because we bought a non-performing loan during the first quarter. Also in commercial, we continue to work through the two non-performing multi-family bridge loans that we highlighted last quarter. Next, please turn to slide 7.

J.R. Herlihy: Total delinquencies in our commercial mortgage loan portfolio also ticked up quarter over quarter, but that's only because we bought a nonperforming loan during the first quarter.

J.R. Herlihy: Also when commercial we continue to work through then to nonperforming multifamily bridge loans that we highlighted last quarter.

J.R. Herlihy: Next please turn to slide seven.

J.R. Herlihy: In the first quarter, our total long credit portfolio increased by 2% to $2.8 billion as of March 31, driven by larger residential transition loan and commercial mortgage bridge loan portfolios and net purchases of corporate CLOs. A portion of the increase was offset by a smaller non-QM loan portfolio where principal paydowns and loan sales exceeded net origination, and net sales of non-agency RMVS and CMV. For our RTL, Commercial Mortgage Bridge, and Consumer Loan Portfolios, we received total principal paydowns of $384 million during the first quarter, which represented 23% of the combined fair value of those portfolios coming into the quarter, as those short-duration portfolios continued to return capital steadily.

J.R. Herlihy: In the first quarter, our total long credit portfolio increased by 2% to $2 8 billion as of March 31.

J.R. Herlihy: Driven by larger residential transition loan and commercial mortgage bridge loan portfolios and net purchases of corporate CLO.

J.R. Herlihy: Unfortunately, a portion of the increase was offset by a smaller non QM loan portfolio were principal paydowns and loan sales exceeded net origination.

J.R. Herlihy: And net sales of non agency MBS and Zambia.

J.R. Herlihy: For our RTL commercial mortgage bridge and consumer loan portfolios. We received total principal pay downs of $384 million during the first quarter, which represented 23% of the combined fair value of those portfolios coming into the quarter as their short duration portfolio has continued to return capital steadily.

J.R. Herlihy: On slide 8, you can see that our total long agency RMBS portfolio declined by 22% sequentially to $663 million as we continue to shrink the size of that portfolio and rotate capital into higher yielding opportunities. Slide 9 illustrates that our Long Bridge portfolio decreased by 20% sequentially to $441 million, driven primarily by the successful completion of a $208 million proprietary reverse mortgage loan securitization in March. Please note that for this presentation, similar to how we present our consolidated non-QM securitizations, we only include the tranches we retained in the prop securitization, even though the entire securitization is technically consolidated on our balance sheet for GAAP reporting purposes.

J.R. Herlihy: On slide eight you can see that our total long agency MBS portfolio declined by 22% sequentially to $663 million as we continued to shrink the size of that portfolio and rotate capital into higher yielding opportunities.

J.R. Herlihy: Slide nine illustrates that our longbridge portfolio decreased by 20% sequentially to $441 million driven primarily by the successful completion of a $208 million proprietary reverse mortgage loan securitization in March.

J.R. Herlihy: Please note that for this presentation similar to how we present, our consolidated non QM Securitizations. We only include the tranches, we retained in the prop securitization, even though the entire securitization is technically consolidated on our balance sheet for GAAP reporting purposes.

J.R. Herlihy: Yeah.

J.R. Herlihy: In the first quarter, Longbridge originated $205 million across Heckaman Prop, which was a 22% decline from the previous quarter. The share of Longbridge's originations made through its retail channel increased to 25% in the first quarter from 18%, with the share from its wholesale and correspondent channels declining to 75% from 82%. As Larry mentioned, Longbridge is on track to increase origination volume in Q2.

J.R. Herlihy: In the first quarter Longbridge originated $205 million across heckaman prop, which is a 22% decline from the previous quarter.

J.R. Herlihy: The share of Longbridge is originations made through its retail channel increased to 25% in the first quarter from 18% with a share from its wholesale and correspondent channels declining to 75% from 82%.

J.R. Herlihy: As Larry mentioned Longbridge is on track to increased origination volume in Q2.

J.R. Herlihy: Please turn next to slide 10 for a summary of our borrowing. On our recourse borrowings, the total weighted average borrowing rate increased by 9 basis points to 6.87% at March 31. We continue to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate. Asset yields increased for both credit and agency during the quarter, which drove NIM expansion in both strategies.

J.R. Herlihy: Please turn next to slide 10 for a summary of our borrowings.

J.R. Herlihy: On a recourse borrowings the total weighted average borrowing rate increased by nine basis points to 687% at March 31.

J.R. Herlihy: We continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate.

J.R. Herlihy: Asset yields increased for both credit and agency during the quarter, which drove NIM expansion in both strategies.

J.R. Herlihy: Our recourse debt-to-equity ratio decreased to 1.8 to 1 at March 31, down from 2 to 1 at year end, driven by a decline in borrowings on our smaller but more highly levered agency RMBS portfolio and a decrease in our recourse borrowings related to our securitization of proprietary versus mortgage loans in March. As I mentioned, we do consolidate that prop securitization, so the sole tranches, which represent long-term non-recourse financing for us, do stay on our balance sheet.

J.R. Herlihy: Our recourse debt to equity ratio decreased to one eight to one at March 31.

J.R. Herlihy: From two to one as of year end driven by a decline in borrowings on our smaller but more highly Levered agency MBS portfolio and a decrease in our recourse borrowings related to our securitization our proprietary reverse mortgage loans in March.

J.R. Herlihy: As I mentioned, we do consolidate that propped securitization. So the sole tranches, which represent long term non recourse financing for us do stay on our balance sheet.

J.R. Herlihy: So, while our overall debt-to-equity ratio also decreased over the course of the first quarter from 8.4 to 1 to 8.3 to 1, that decrease was smaller than the sequential decrease in our recourse debt-to-equity ratio. I'll note here too that we added two new loan financing facilities in April. At March 31st, our combined cash and unencumbered assets totaled approximately $732 million, up from $645 million at year end. Our book value per common share was $13.69 at quarter end, down from $13.83 at December 31st. Our total economic return was positive 2.1% for the first quarter.

J.R. Herlihy: So while our overall debt to equity ratio also decreased over the course of the first quarter from $8 four to one to $8 three to one that decrease was smaller than the sequential sequential decrease in our recourse debt to equity ratio.

J.R. Herlihy: I'll note here too that we added two new loan financing facilities in April.

J.R. Herlihy: At March 31, our combined cash and unencumbered assets totaled approximately $732 million up from $645 million at year end.

J.R. Herlihy: Our book value for common share was $13 69 at quarter end down from $13 83 at December 31.

J.R. Herlihy: Our total economic return was positive two 1% for the first quarter.

J.R. Herlihy: Now.

Mark: Now over to Mark.

Speaker Change: Thanks J R.

Laurence Eric Penn: The market backdrop in Q1 was a good one for many leveraged structured spread products. Rate volatility declined during the quarter as uncertainty about the Fed shifted from wondering about how high they would hike rates to speculating about when they would cut.

J.R. Herlihy: Market backdrop in Q1 was a good one for many levered structured spread products rate volatility declined during the quarter as uncertainty about the feds shifted from wondering about how high they would hike to speculating about when they will cut that's a much more conducive environment for spread assets implied volatility came down and yield spreads across core.

Laurence Eric Penn: That's a much more conducive environment for spread assets. Implied volatility came down, and yield spreads across corporates and most structured products came in. EFC did what a REIT is supposed to do in that environment.

Laurence Eric Penn: Most structured products came in.

Laurence Eric Penn: He was he did what is your read what are we supposed to do in that environment. We captured spread income we converted some repo financing to tighter spread non mark to market financing through securitization, we selectively sold assets that we believe to reach their full potential and we source some high yielding assets for our portfolio.

Laurence Eric Penn: We captured spread income; we converted some repo financing to tighter spread non-mark-to-market financing through securitization. We selectively sold assets that we believed could reach their full potential, and we sourced some high-yielding assets for our portfolio. For the quarter, we had broad-based contributions across our strategies, including both commercial and residential, both loans and security.

Laurence Eric Penn: For the quarter, we had broad based contributions across our strategies.

Laurence Eric Penn: Both commercial and residential both loans and securities.

Laurence Eric Penn: We came into the year with ample cash to deploy from the Arlington merger that closed in mid-December, and we put some of that to work growing our credit portfolio. One of the highlights was the growth of our commercial mortgage bridge portfolio, where both new originations and non-performing loan acquisitions picked up, even as we've substantially tightened our underwriting criteria. In recent quarters, we mentioned an approaching opportunity for EFC related to commercial real estate dislocation and regional bank de-risking, and that opportunity is here now.

Laurence Eric Penn: We came into the year with ample cash to deploy from the Arlington merger that closed in mid December and we put some of that to work growing our credit portfolio. What are the highlights was the growth of our commercial mortgage bridge portfolio, where both new originations and nonperforming loan acquisitions have picked up even as we used to get substantially.

Laurence Eric Penn: Their underwriting criteria.

Laurence Eric Penn: In recent quarters, we mentioned then approaching opportunity for E. F C related to commercial real estate dislocation and regional Bank Derisking.

Laurence Eric Penn: And that opportunity is here now.

Laurence Eric Penn: Including a purchase in April, this year, we've bought two non-performing loans at substantial discounts to par, which we believe are well secured by the underlying real estate, one of them coming from a regional bank. Our partnership with Sheridan Capital and the deep experience of our in-house team leave us well positioned to capitalize on these types of situations. Another big highlight for the quarter was the reverse mortgage prop securitization. The underlying loans for the securitization were not FHA-insured HECM reverse mortgage loans but rather private-labeled loans.

Laurence Eric Penn: Including an eight purchased in April.

Laurence Eric Penn: We bought two nonperforming loans at substantial discounts to par, which we believe are well secured by the underlying real estate one of them coming from a regional bank or partnership with Sheridan capital and the deep experience of our in house team leaves us well positioned to capitalize on these types of situations.

Laurence Eric Penn: Another big highlight for the quarter was the reverse mortgage prop securitization the underlying willing to the securitization where not FHA insured heck them reverse mortgage loans, but rather private label loans. So this securitization is the non agency Virgin version for reverses.

Laurence Eric Penn: So this securitization is the non-agency version for reverse mortgages. Proprietary reverse mortgages are a sector with a lot of potential for growth and with few competitors. The securitization allowed us to both recycle our capital and create some very high-yielding long-duration retraining projects. I'm hoping that this and future prop securitizations will lead to improved gain on sale margins and additional prop origination volume, and thus increased profits for the long term. In addition, early in the second quarter, we priced our first non-commercial securitization in over a year.

Laurence Eric Penn: Proprietary reverse mortgages is a sector with a lot of potential for growth and with few competitors to securitization that allowed us to both recycle of capital and create some very high yielding long duration, you're trained punches I'm, hoping that this and future, perhaps securitizations will lead to improved gain on sale margins and additional prop origination volume.

Laurence Eric Penn: And this increased profits for long bridge.

Laurence Eric Penn: In addition, early in the second quarter, we priced our first Nanking securitization in over a year in 2023, we had slowed down securitization in the face of relatively widespread under debt tranches, we could issue.

Laurence Eric Penn: In 2023, we slowed down securitizations in the face of relatively wide spreads on the debt tranches we could issue. These spreads have tightened significantly in 2024, however, making securitizations attractive again. Our securitization in April allowed EFC to leverage these tighter spreads and create high-yielding retained tranches for our portfolio. Turning back to slide 7, let's look at how the portfolio evolved during the first quarter. You can see here that we had modest portfolio growth.

Laurence Eric Penn: Oh.

Laurence Eric Penn: Okay.

Laurence Eric Penn: These spreads have tightened significantly in 2024, however, making securitization attractive again, a securitization in April allowed <unk> to leverage these tighter spreads and create high yielding retained tranches for our portfolio.

Laurence Eric Penn: Turning back to slide seven let's look at how the portfolio evolved during the first quarter you can see here that we had modest portfolio growth. We grew commercial bridge and also RTL, but working in the other direction. We took advantage of tighter spreads to harvest some gains in our non agency MBS portfolio that portfolio has had tremendous returns over there.

Laurence Eric Penn: We grew Commercial Bridge and also RTL, but working in the other direction, we took advantage of tighter spreads to harvest some gains in our non-agency RMBS portfolio. That portfolio has had tremendous returns over the past 12 months. Portfolio growth has continued following quarter end. We scaled up further in commercial bridge and RTL, and we've also started buying some closed-end seconds and HELOCs. With so many homeowners sitting on both substantial equity in their homes and first mortgages with very low rates, we see equity extraction as a potentially large, high credit quality, high yielding opportunity.

Laurence Eric Penn: Last 12 months.

Laurence Eric Penn: Portfolio growth has continued following quarter end.

Laurence Eric Penn: We scaled up further in commercial bridge in RTL and we've also started buying some closed end seconds and helocs with so many homeowners sitting on both substantial equity in their homes and first mortgages with very low rates, we see equity extraction is potentially large high credit quality high yielding opportunity.

Laurence Eric Penn: Both Closed End Seconds and HELOC can provide very high note rates, modest purchase premiums, substantial levered NIMS, and potential securization outlets to manufacture more high-yielding retained investments. On slide 8, you can see we continue to shrink our agency portfolio as we are seeing what we believe are more interesting opportunities in some other sectors and will continue to be opportunistic about sales in our agency MBS. Looking ahead, the current Market expectations for interest rate cuts should both dampen rate volatility and continue to draw more capital into the market, which should support spread products.

Laurence Eric Penn: Both closed end seconds, you can provide us with very high note rates modest purchase premiums substantial levered nims and potential securitization outlets to manufacture more high yielding retained investments.

Laurence Eric Penn: On slide eight you can see we continued to shrink our agency portfolio as we are seeing what we believe are more interesting opportunities in some other sectors and will continue to be opportunistic about sales in our agency MBS.

Laurence Eric Penn: Looking ahead, the current market backdrop should continue to generate further investment opportunities for high returns and high a D E market expectations for interest rate cuts should both dampened rate volatility and continued to draw more capital into the market, which should support spread products.

Laurence Eric Penn: In addition, the Fed has recently announced a slowdown in their portfolio runoff, which should support bank balance sheets and, by extension, the assets they buy. We see several new exciting opportunities, and EFC has been pouncing. First, the pace of sales of deeply discounted CMBS and commercial NPLs is increasing. We are well positioned to capitalize on those opportunities, as last year we deliberately allowed our commercial mortgage portfolio to run off organically, and as only a few of our bridge loans are currently in work.

Laurence Eric Penn: And the fed has recently announced the slow down in their portfolio run off which should support bank balance sheets and by extension the assets they buy.

Laurence Eric Penn: We see several new exciting opportunities and yet it's been bouncing first the pace of sales of deeply discounted C. M. P. S and commercial Npls is increasing we are well positioned to capitalize on those opportunities as last year, we deliberately allowed our commercial mortgage portfolio to run off organically and it's only a few of our bridge.

Laurence Eric Penn: Loans are currently in workout securitization spreads have tightened significantly from last year, which is tailwind for our non QM and proper first businesses.

Laurence Eric Penn: Securitization spreads have tightened significantly from last year, which is a tailwind for a non-QM and prop-reverse business. We'll be exploring securitization financing in our RTL business, as the first rated RTL securitizations recently got done, significantly improving financing. Finally, we are ramping up both closed-end seconds and Helox. Now back to Larry.

Laurence Eric Penn: We will be exploring securitization financing and our RTL business as the first rated RTL securitization recently got done significantly improving financing economics. Finally, we are ramping up both in closed end seconds in helix now back to Larry.

Larry: Thanks Mark.

Laurence Eric Penn: As you can tell, we have a wide variety of high-yielding loan strategies where we're currently putting significant capital to work. In the second quarter so far, we've added meaningfully to our credit and Longbridge portfolios in April. And we've continued to make room for more loan flow by further trimming our agency-specified pool portfolio and by securitizing a significant portion of our non-QM loan portfolio. From a leverage perspective, the net effect of our recent purchases and originations has been outweighing the impact of our agency sales and non-QM securitization. So our recourse debt to equity ratio is on the rise again.

Laurence Eric Penn: As you can tell we have a wide variety of high yielding loan strategies, where we're currently putting significant capital to work.

Laurence Eric Penn: For the second quarter, so far we've added meaningfully to our credit and Longbridge portfolios in April.

Laurence Eric Penn: And we've continued to make room for more loan flow by further trimming our agency specified pool portfolio and by Securitizing, a significant portion of our non QM loan portfolio.

Laurence Eric Penn: From a leverage perspective, the net effect of our recent purchases and originations has been outweighing the impact of our agency sales in non QM securitization.

Laurence Eric Penn: So our recourse debt to equity ratio is on the rise again.

Laurence Eric Penn: Moving forward, I expect leverage to continue to ratchet up, but as was the case in the first quarter, it won't always be a linear progression given the push and pull from different elements of our portfolio management strategy. As always, our aim is to balance the dual objectives of growing earnings in the near term with preserving dry powder to capitalize on opportunistic situations, such as what we are currently seeing play out in distressed commercial real estate debt.

Laurence Eric Penn: Moving forward I expect leverage to continue to ratchet up.

Laurence Eric Penn: As was the case in the first quarter it won't always be a linear progression given the push and pull from different elements of our portfolio management strategy.

Laurence Eric Penn: As always our aim is to balance the dual objectives of growing earnings in the near term we are preserving dry powder to capitalize on opportunistic situations such as what we are currently seeing play out and distressed commercial real estate debt.

Laurence Eric Penn: To that end, even after April's activity, we continue to have ample cash and borrowing capacity with lots of unencumbered assets, plus other lightly leveraged assets, such as our forward MSRs. Besides portfolio expansion, we expect ADE growth to come from two other principal areas. First, progress on the handful of non-performing commercial loans and REOs in our portfolio. So far this year, this progress has been slow but steady.

Laurence Eric Penn: To that end, even after april's activity, we continue to have ample cash and borrowing capacity with lots of unencumbered assets plus other lightly leveraged assets such as our forward Msr's.

Laurence Eric Penn: Besides portfolio expansion, we expect <unk> growth to come from two other principal areas first continue progress on a handful of nonperforming commercial loans and <unk> in our portfolio.

Laurence Eric Penn: So far this year this progress has been slow but steady.

Laurence Eric Penn: Second, Long Bridge returning to profitability and origination. As I mentioned earlier, origination volumes and submissions so far in the second quarter are well ahead of projections, despite higher interest rates, which partially reflects additional sourcing channels that Longridge has successfully established. As a result, we're expecting Long Bridge to contribute positively to ADE in the second quarter. Before wrapping up, I'd like to comment on how EFC is positioned for interest rate changes from

Laurence Eric Penn: And second Longbridge, returning to profitability in originations as.

Laurence Eric Penn: As I mentioned earlier origination volumes and submission so far in the second quarter are well ahead of projections, despite higher interest rates, which partially reflects additional sourcing channels that language has successfully established.

Laurence Eric Penn: As a result, we're expecting long rich to contribute positively to aid in the second quarter.

Laurence Eric Penn: Before wrapping up I'd like to comment on how <unk> is positioned for interest rate changes from here.

Laurence Eric Penn: Over EFC's almost 17-year history, we have always endeavored, through active hedging, to protect EFC's book value per share against movements in interest rates, rather than speculate on the direction of interest rates. This philosophy was again important in the first quarter, where rising longer-term interest rates drove profits on our hedges, which offset losses on some of our longer-duration investments. Moving forward, if we are indeed in a higher-for-longer interest rate environment, as it seems, I believe that Ellington Financial is well-positioned with our hedging expertise, short-duration high-yielding loan portfolios, and mortgage servicing rights portfolios.

Laurence Eric Penn: Over at <unk>, almost 17 year history, we have always endeavored through active hedging to protect that fc's book value per share against movements in interest rates rather than speculating on the direction of interest rates. This.

Laurence Eric Penn: This philosophy was again important in the first quarter were rising longer term interest rates drove profit on our hedges, which offset losses in some of our longer duration investments.

Laurence Eric Penn: Moving forward, if we are indeed in a higher for longer interest rate environment as it seems I believe that Ellington financial is well positioned with our hedging expertise short duration high yielding loan portfolios and mortgage servicing rights portfolio.

Operator: With that, we'll now open the call to questions. Operator, please go ahead. Thank you. The call is now open for your

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

Operator: Please go ahead.

Operator: Thank you. The call is now open to your questions. If you would like to ask a question at this time, please press star 1 on your telephone keypad. You may remove yourself from the call at any time by pressing star 2.

Speaker Change: Thank you the call is now open for your questions. If you would like to ask a question at this time. Please press star one on your telephone keypad.

Operator: You may remove yourself at any time by pressing star two.

Operator: Once again, to ask a question, please press star one. Our first question comes from Bose George with KBW. Please go ahead. And Bose, your line is live. Please unmute and proceed with

Operator: Once again to ask a question please press star one.

Operator: Why don't we come back to Bose for the second question?

Operator: Our first question comes from Bose George with <unk>. Please go ahead.

Operator: Yeah.

Operator: Yeah.

Bose Thomas George: And both your line is live please on mute and proceed with your question.

Bose Thomas George: Why don't we come back to those for the second question.

Operator: Okay.

Operator: Thank you. We'll go next to Trevor Cranston with Citizens JMP. Please go ahead.

Operator: Thank you we'll go next to Trevor Cranston with citizens JMP. Please go ahead.

Trevor John Cranston: Hey, thanks. Good morning. You know, on the opportunity you guys talked about with closed-end seconds and he walks, can you maybe add a little bit of color in terms of, you know, are those things able to source from the existing proprietary originator relationships you have, or are those coming from different sources? And maybe you could also talk about sort of the longer-term financing strategy for those products. Thanks.

Trevor John Cranston: Hey, Thanks, good morning.

Trevor John Cranston:

Trevor John Cranston: On the on the opportunity you guys talked about on the closed end seconds and he walks.

Trevor John Cranston: Can you maybe add a little bit of color in terms of or those things youre able to source from the existing proprietary originator relationships you have or are those coming from different sources.

Trevor John Cranston: And maybe if you could also talk about sort of the.

Trevor John Cranston: Longer term financing strategy for those products. Thanks.

Mark Ira Tecotzky: Sure. Hi Trevor. It's Mark.

Trevor John Cranston: Sure Hi, Trevor its mark.

Mark: Those have generally been sourced from different entities.

Mark: The the real pool of borrowers that are.

Mark Ira Tecotzky: Yeah, those have generally been sourced... [inaudible] where it makes sense for them to take the close in seconds are generally people that have Agency first lien mortgages that they took out, say, during 20 or 21, and they have, you know, note rates around 3%. They've had a lot of HPA. So it's primarily working with originators that have an agency present.

Mark: Where it makes sense for them to take the closed end seconds are generally people that have agency.

Mark Ira Tecotzky: Agency first lien mortgages that they took out say during 'twenty or 'twenty one.

Mark Ira Tecotzky: You know note rates around 3% they've had a lot of HPA. So it's primarily <unk>.

Mark Ira Tecotzky: Working with.

Mark Ira Tecotzky: Originators originators that have a and agency presence.

Mark Ira Tecotzky: In terms of financing, I think there are two options. One is repo financing. So in this way, it's not really different from non-QM or RTL.

Mark Ira Tecotzky: In terms of financing.

Mark Ira Tecotzky: There's repo financing, and then there's also securitization out there. So, you know, that is an area where we haven't been big yet, but you're able to get pretty high note rates, not real high premium, and get what looks on the surface like very high credit quality underlying loans.

Mark Ira Tecotzky: There's two options.

Mark Ira Tecotzky: One is repo financing so in this way, it's not really different than non QM or RTL. This repo financing and then Theres also securitization outlets. So.

Mark Ira Tecotzky: That is an area, where we have so far it hasn't been big yet, but you were able to get pretty high note rates not real high premiums and get what looks on the surface like very high credit quality underlying loans.

Trevor John Cranston: Got it. Okay, that's helpful.

Speaker Change: Got it okay. That's helpful.

Trevor John Cranston: And then, you know, across all the different investment opportunities, it sounds like there's a lot of focus on the more proprietary things you guys have been doing. I was curious if you could maybe talk a little bit more about the CLO side, which is relatively small right now, but seems like there are pretty good returns available there. So just kind of how do you see the opportunity and, you know, deploying capital into that versus some of the other loans you guys have been doing?

Trevor John Cranston: And then.

Trevor John Cranston: Across all the different investment opportunities. It sounds like you know, there's a lot of focus on the more proprietary.

Trevor John Cranston: Things you guys have been doing I was curious if you could maybe talk a little bit more about the CLO side, which is relatively small right now, but it seems like they're pretty good returns available there.

Trevor John Cranston: So just kind of.

Trevor John Cranston: How you see the opportunity in.

Trevor John Cranston: Deploying capital into that versus some.

Trevor John Cranston: A couple of the other ones you guys have been doing thanks.

Trevor John Cranston: Okay.

Mark Ira Tecotzky: Yeah, thanks. It's opportunistic there. You know, CLOs, secondary CLOs, this is, first of all, similar to what we're doing over at Ellington Credit as part of that transformation, right, focusing on secondary CLOs. And so Ellington Financials has been getting allocations in that strategy as well, alongside Ellington Credit. So it's just opportunistic.

Speaker Change: Yeah. Thanks.

Mark Ira Tecotzky: It's opportunistic there.

Mark Ira Tecotzky: Clothes secondary CLO as this is first of all it's similar to what we're doing over at Ellington credit.

Mark Ira Tecotzky: As part of that transformation right focusing on secondary CLO.

Mark Ira Tecotzky: And.

Mark Ira Tecotzky: So ellington financials have been getting allocations.

Mark Ira Tecotzky: And that strategy as well.

Mark Ira Tecotzky: Long side LNG credit.

Mark Ira Tecotzky: So it's just opportunistic I think.

Mark Ira Tecotzky: These are obviously.

Mark Ira Tecotzky: I think, you know, these are obviously more liquid than, you know, say, residential transition loans or things like that, but we do see good opportunities there. So it's still a very small part of our portfolio. And while, you know, the growth was certainly significant enough to mention on this call, I wouldn't necessarily think of that as something, you know, sort of a core holding for a long period of time. That would, you know, represent a very significant section of my portfolio. But we did, you know, we are opportunistic, and we liked the risk-reward there. So Ellington Financial has been participating in the summit.

Mark Ira Tecotzky: More liquid than say residential transition loans or things like that but we do see good opportunities. There. So it's still it's still a very small part of our portfolio and while the growth was certainly significant enough to mention on this call I wouldn't necessarily think of that as something sort of a core holding for a long period of.

Mark Ira Tecotzky: Time that would represent.

Mark Ira Tecotzky: Very significant section of portfolio, but we did we are opportunistic and we did like the risk reward there.

Mark Ira Tecotzky: So Alex your financials been participating to some extent there as well.

Speaker Change: Yeah, Okay makes sense. Thank you.

Operator: Okay, that makes sense. Thank you. Thank you. We'll take our next question from Frank Labetti with KBW. Please go ahead.

Speaker Change: Thank you we'll take our next question from Frank La Betty with K B W. Please go ahead.

Francesco Labetti: Mike, good morning. This is Frankie filling in for Bose. Just wanted to touch on...

Francesco Labetti: Hi, Good morning, this is frankie filling in for Bose.

Francesco Labetti: Just wanted to touch on your comfort level on the dividend.

Francesco Labetti: When do you see normalized earnings are being roughly in line with the dividend and how comfortable are you at the current level.

Francesco Labetti: <unk>.

Mark Ira Tecotzky: Yeah, we're comfortable. Yes, I think, you know, we set it at a level where we hope to keep it there, stably, for some time, just like we have with prior dividends, recess. So yeah, I would remind everyone that it's actually not that different from the dividend, I think 14 cents that we had a few years back. So, but, but yeah, we were quite comfortable that this is where the dividend was going to be for a while. Thank you.

Francesco Labetti: Yeah, we're comfortable yes, I think we said it at a level, where we hope to keep it there stably for some time just like.

Mark Ira Tecotzky: We have with prior dividend.

Mark Ira Tecotzky: Recess so.

Mark Ira Tecotzky: Yeah, I would remind everyone that.

Mark Ira Tecotzky: It's actually not that different from the dividend I think 14th stats that we had a few years back so.

Mark Ira Tecotzky: But yes, we are.

Mark Ira Tecotzky: We're quite comfortable that this is where the dividend is going to be for a while.

Speaker Change: Awesome. Thank you and just a follow up.

Francesco Labetti: And just a follow up. When do you see the company getting to normalize earnings? Yeah, that's a little harder to project because, as we've mentioned on the call, we've got some, you know, some volatility and drag. So first of all, Longbridge, you know, we said hasn't contributed to ADE, sort of commensurate with the capital in that segment. We think that that's going to turn around pretty soon. As we mentioned, the second quarter is looking like it's going to contribute positively. So that trend is in the right direction.

Francesco Labetti: When do you see.

Francesco Labetti: The company getting to normalized earnings.

Francesco Labetti: Yes, that's a little harder to project because as we've mentioned on the call.

Francesco Labetti: We've got some.

Francesco Labetti: You have some some volatility and drag so first of all long bridge, we said.

Francesco Labetti: Hasnt.

Francesco Labetti: Tribute to a G SIB commensurate with the capital in that segment.

Francesco Labetti: We think that that's going to turnaround pretty soon we mentioned the second quarter is looking like it's going to contribute positively to that.

Mark Ira Tecotzky: And then, you know, a big thing as well is that we've got some NPLs and a couple NPLs slash REO that are also not giving us a yield, right? It's really a yield that contributes yield-bearing assets that contribute to our ADE in the investment part of our portfolio. So while we're working those out, that can be a drag on our ADE, of course. But when we ultimately resolve those assets, we're certainly hopeful that we're going to catch up a lot from an earnings perspective. You know, that doesn't always even flow into ADE. Sometimes it does, sometimes it doesn't, depending upon the nature of the resolution.

Francesco Labetti: Trend is in the right direction and then.

Mark Ira Tecotzky: A big thing as well is that we've got some npls and a couple of NPL Slash Oreo.

Mark Ira Tecotzky: That are also not giving us a yield right. It's really a yield that contributes yield bearing assets that contribute to our <unk> in the investment part of our portfolio. So so while we're working those out.

Mark Ira Tecotzky: That can be a drag to our idea of course.

Mark Ira Tecotzky: When we ultimately resolve those assets, we're certainly hopeful that we're going to catch up a lot from.

Mark Ira Tecotzky: From an earnings perspective.

Mark Ira Tecotzky: But the.

Mark Ira Tecotzky: That doesn't always even flow into <unk>, sometimes it does sometimes it doesn't depending upon the nature of the resolution that's just.

Mark Ira Tecotzky: That's just, you know, how the sort of ADE accounting works. So I would say that, you know, I can't give you a precise date, but I certainly hope that, you know, that our ADE will sort of approach, continue to get closer and closer to our dividend. But in the meantime, we also, you know, are seeing strong gains on sales and other things that don't necessarily translate into ADE per se but translate into gap earnings.

Mark Ira Tecotzky: How the sort of <unk> accounting works, so I would say that I can't give you a precise date, but I certainly hope that.

Mark Ira Tecotzky: Sort of.

Mark Ira Tecotzky: That our <unk> will sort of approach continue to get closer and closer to our dividend, but in the meantime, we also are seeing strong gains on sale and other things that don't necessarily translate into <unk> <unk> per se, but translate into GAAP earnings so.

Mark Ira Tecotzky: So, you know, I don't want to sort of ever give the impression that we're focusing more on ADE than gap earnings. And ultimately, you know, our goal is to earn, earn the dividend gap wise, and thereby kind of maintain book value, preserve book value, and maintain book value while paying out that.

Mark Ira Tecotzky: I don't want to sort of ever give the impression that we're focusing more on <unk> and GAAP earnings and ultimately.

Mark Ira Tecotzky: Our goal is to.

Mark Ira Tecotzky: Earn the dividend GAAP wise, and thereby kind of maintained book value preserve book value and maintained book value, while paying out that dividend.

Speaker Change: Thank you.

Operator: Thank you. We'll take our next question from Jason Weaver with Jones Trading. Please go ahead.

Mark Ira Tecotzky: Thank you we'll take our next question from Jason Weaver with Jones trading. Please go ahead.

Jason Weaver: Hey, good morning. I wonder if you could give some context behind the sort of, you know, reluctance of regional banks to be involved in RTL and commercial transitional space amid what we've been hearing for the last few quarters from more competition from non-banks and how that's affecting available.

Jason Price Weaver: Hey, good morning, I Wonder if you could give some context behind the sort of you know.

Jason Weaver: Reluctance of regional banks to be involved in RTL and commercial transitional space.

Jason Weaver: Image, what we're hearing for the last few quarters from more competition from non banks and how thats affecting available yields.

Mark Ira Tecotzky: Yeah, this is Mark. It doesn't surprise me that regional banks aren't involved in this sector. This is a sector where it is a, it's a heavy underwrite. You need to have a, Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at our website at www.profileinvestmentservices.com. He is also a licensed financial professional in both the U.S. and Israel.

Marc: Yeah. This is Marc.

Speaker Change: You know it doesn't surprise me.

Mark Ira Tecotzky: The regional banks.

Mark Ira Tecotzky: Involved in this sector.

Mark Ira Tecotzky: It's a sector where it is a it's a heavy underwrite.

Mark Ira Tecotzky: Need to have a.

Mark Ira Tecotzky: <unk> of people that are knowledgeable about construction costs construction timelines.

Mark Ira Tecotzky: It's not necessarily the kind of expertise you're having a lot of these regional banks and the other thing is it's it's a lot of work for the dollars you put out you know as opposed to like lending to our commercial developers, putting a multifamily here, we're putting out money you know 250 300000 at a time.

Mark Ira Tecotzky: And there's not only the initial right underwrite, but there's also draws you have to supervised so we like the fact that this sector doesn't attract regional banks and it doesn't really attract sort of you know generic middle of the fairway mortgage originators.

Mark Ira Tecotzky: And it doesn't really attract sort of, you know, generic middle-of-the-fairway mortgage originators. Um, you know, yeah, the space is competitive, but, you know, it always seems like every space we're in is competitive. I don't.

Mark Ira Tecotzky: You know yeah, the space is competitive.

Speaker Change: But yeah.

Mark Ira Tecotzky: It always seems like every space for and it's competitive I don't I don't.

Mark Ira Tecotzky: I don't view this space as more competitive now than it was a few years ago. You've had a couple new entrants, but you've had some new entrants, you know; you've had some other people that used to be involved no longer involved. So, we have not had an ability to secure loans, and we do not feel like guidelines among the competitors have loosened and have pressured us to relax guidelines at all. If anything, we got, you know, actually a fair bit tighter in 2022. In terms of our guidelines and how we undervalue them.

Mark Ira Tecotzky: This space is more competitive now than what it was a few years ago, you've had a couple of new entrants, but you've had some entrance.

Mark Ira Tecotzky: Some other people that used to be involved no longer involved so.

Mark Ira Tecotzky: We have not had an ability sourcing loans and we do not feel like guidelines among the competitors have loosened Dennis pressured ups pressured us to relax guidelines at all if anything we got you know actually a fair bit tighter in 2022.

Mark Ira Tecotzky: In terms of our guidelines and how we underwrite.

Jason Weaver: And then, apologies if I missed it during the prepared remarks, but can you give an updated book value and leverage where you're seeing that currently?

Speaker Change: Okay. Thank you and then I apologize if I missed it during the prepared remarks, but can you give an updated book value and leverage what are you seeing that currently.

Mark Ira Tecotzky: So we haven't given on April yet. Ordinarily, we put out a book value per share estimate for each month end. That will happen later in May.

Speaker Change: So we havent given on April yet ordinary course, we put out a book value per share estimate for each month end.

Jason Weaver: And then in terms of leverage, we haven't given a precise current leverage amount. Larry did mention in his prepared remarks that we've been active in deploying capital in April and that we also securitized the non-QM loans, which come off balance sheets, but net-net leverage has ticked up a quarter today so far. We haven't quantified that, but that's the color we did provide. Alright, thanks for taking my questions.

Mark Ira Tecotzky: That will happen later later in May.

Jason Weaver: And then in terms of leverage we haven't given a precise.

Jason Weaver: At current leverage amount Larry you had mentioned in his prepared remarks that.

Jason Weaver: We've been active deploying in April.

Jason Weaver: And that we also had securitized non QM loans, which come off balance sheet, but net net leverage has ticked up.

Jason Weaver: To date, so far we haven't quantified that but that's the color we can provide.

Jason Weaver: Alright, thanks for taking my questions.

Speaker Change: Thank you Sir.

Operator: Thank you. Our next question will come from Eric Hagen with BTIG. Please go ahead.

Jason Weaver: Thank you. Our next question will come from Eric Hagen with B T. I G. Please go ahead.

Eric J. Hagen: Hey, good morning. How are we doing guys?

Eric J. Hagen: Hey, good morning, how are you doing guys how're you talks about being well hedged for a higher for longer environment are those mostly interest rate hedges that you're you're talking about and do you think about adding any credit hedges to help mitigate some of the risks in areas like the bridge portfolio and the CRE portfolio, whereas you know the underwriting really kind of the <unk>.

Eric J. Hagen: Hedge if you will.

Eric J. Hagen: Thanks.

Eric J. Hagen: Hey, you talked about being well hedged for a higher for longer environment. Are those mostly interest rate hedges that you're, you're talking about? And do you think about adding any credit hedges to help, you know, mitigate some of the risk in areas like the bridge portfolio and the CRE portfolio? Or is, you know, the underwriting really kind of the hedge, if you will? And, you know, thanks.

Eric J. Hagen: Yeah, Hey, Eric it's Marc so.

Mark Ira Tecotzky: Hey Eric, it's Mark. That being well hedged for higher for longer, I mean, I think I would just say, take a step back, and that we're always well hedged. You know, we don't, we've never, we've always tried to mitigate interest rate risk at the company level, you know, by a series of rate hedges. So I just think Larry's comments in the prepared remarks are that if you are in this higher for longer environment.

Eric J. Hagen: That being well hedged for higher for longer I mean, I think I would just say I take a step back and that we're always well hedged we don't.

Mark Ira Tecotzky: We've never we've.

Mark Ira Tecotzky: Always tried to mitigate interest rate risk at the company level.

Mark Ira Tecotzky: By a series of rate hedges. So I, just think larry's comments in the prepared remarks that if you are in this higher for longer environment.

Mark Ira Tecotzky: We think our portfolio construction and our sourcing channels can do really well there commercial bridge RTL short spread duration. The commercial bridge all indexes sulfur. So that's the kind of stuff, where you get a big yield big coupon if the fed keep short rates higher in terms of credit hedges.

Mark Ira Tecotzky: We've had those like we've had credit hedges against the non QM for awhile and they function. Two ways. One is one is just really sort of like overall macroeconomic credit hedge but the other way they function is hedging spread risk for securitization.

Mark Ira Tecotzky: [inaudible] credit hedges against non-QM for a while, and they function in two ways. One is just really sort of like an overall macroeconomic credit hedge, but the other way they function is hedging spread risk for securitization, in particular some of the IG indices now have done real well over the year, like the current IG index is right around 50, so, You know, owning protection on that, we don't, we have kind of limited downside, and it can certainly mitigate.

Mark Ira Tecotzky: In particular like some of the IGN disease now have done real well on the year like the current AG index is right around 50, so that to us seems like a hedge where.

Mark Ira Tecotzky: You know how.

Mark Ira Tecotzky: Owning protection on that we don't we have kind of limited downside and it can certainly mitigate.

Mark Ira Tecotzky: You know, mitigate NAV volatility if spreads widen. It was kind of interesting. We priced our non-QM deal, in right when you had that sort of little like credit cheapening in April and that IG index widened out five or six basis points in time of our pricing and when we priced you know we were able to get good execution but now that we had sold some of that risk into market into the market we bought back some of that head so I think credit hedges, You know, for a long time, we had sort of CMBX-specific credit hedges on CMBSB pieces.

Mark Ira Tecotzky: [noise] mitigate NAV volatility if spreads widen it was kind of interesting we priced our non QM deal.

Mark Ira Tecotzky: In right when you had that sort of little like credit Cheapening in April.

Mark Ira Tecotzky: And that I G index widened out five or six basis points in terms of our pricing and when we priced you know we were able to get good execution, but now that we had filled some of that risk into market into the market. We bought back some of that hit so the credit hedges.

Mark Ira Tecotzky:

Mark Ira Tecotzky: For a long time, we hit the C. M D X specific credit hedges on C. N B S. B pieces, that's less of what we're doing now San Bx has gotten a lot, but a little bit less liquid.

Mark Ira Tecotzky: That's less of what we're doing now. CMBX has become a little bit less liquid. But the credit hedges you see from us now are more referencing corporate indices, and they're in part for sort of overall macroeconomic risk, but they're also to just sort of manage spread volatility.

Mark Ira Tecotzky: But the credit hedges to see from US now are more referencing corporate indices.

Mark Ira Tecotzky: And they are in part for sort of overall macroeconomic risk, but there also could just sort of manage them spread volatility.

Eric J. Hagen: Hey, that's great detail. I appreciate that. You know, you mentioned the non-QM execution. Let's talk about that. You know, when you do it, when you do a securitization at these rates and spreads, can you share kind of what you think is the all-in return, including the ROE on the retain piece of the credit from that, you know, the transactions and including any loss estimates you sort of expect that's embedded in that return profile? Thank you, guys. Yeah, J.R. do you

Speaker Change: Okay, that's great detail I appreciate that.

Eric J. Hagen: You mentioned, the non QM execution, let's talk about that when you do it when you do a securitization at these rates and spreads can you share kind of what you think is the all in return, including the ROE on the retained piece of the credit from that trend you know the transactions and including any loss estimates you sort of expect that's embedded in that.

Unknown Executive: The return profile. Thank you guys.

J.R. Herlihy: Yeah, JR, do you want to take that? I wasn't sure how much disclosure we normally give.

Unknown Executive: Yes, Jr. Do you want to take that wasn't sure how much disclosure we normally give.

J.R. Herlihy: Okay.

J.R. Herlihy: Let me think about that. We don't give precise ROEs. I think we can speak broadly about, we can start with where we price the AAAs, and we can compare that and the total capital stack. I think, I mean, mid-teens is where we pencil is kind of the punchline as we build up to the components of that. Let me think about that, Eric, and how we can kind of provide some more color on how we get from A to B. But big picture, you know, mid-teens with, I think, conservative underwriting assumptions going forward is where we're penciling, always on those.

Unknown Executive: Let me think about that we don't give a precise ROE I think we can speak.

J.R. Herlihy: Broadly on we can start with where we price the triple A's and we can compare that.

J.R. Herlihy: And the total capital stack.

J.R. Herlihy: Yeah.

J.R. Herlihy:

J.R. Herlihy: I think I mean mid teens.

J.R. Herlihy: Is where are we pencil it kind of it.

J.R. Herlihy: Punch line as we build up to the components of that let me, let me think about that Eric and how we can kind of provide some more color on how we get from <unk>, but big picture mid teens with I think conservative underwriting assumptions going forward is as wherever penciling yeah yeah.

J.R. Herlihy: Yeah, let's see what we can provide here. So first of all, when we do a securitization, right, like sometimes those are non-QM serializations. Sometimes they're consolidated, and sometimes they're not. Right, and that's an accounting distinction, obviously, but we don't, we really don't think of them that differently, right?

Eric: Yeah, let's let's see what we can provide here so first of all.

J.R. Herlihy: When when we do a securitization right like <unk>.

J.R. Herlihy: Sometimes week those are non QM securitization, sometimes they're consolidated and sometimes they're not right and that's an accounting distinction obviously, but we don't we really don't think of them that differently right. We really are thinking that I'm always as okay. We did a securitization and now we've transformed our loans into the retained tranches.

J.R. Herlihy: We really are thinking of them always as, okay, we did a securitization, and now we've transformed our loans into the retained tranches, and we put a value on those retained tranches, right?

J.R. Herlihy: So if you sort of think of this as a sale of the loans and a purchase of the retained tranches, which it's not always accounted for that way, but let's just say we kind of try to think of it that way, then you're gonna recognize a gain or a loss kind of on that securitization, right? It's the difference between what the loans were worth that you put into the securitization and what your securitization expenses were, and right because there are expenses in doing securitization, legal, underwriting, etc.

J.R. Herlihy: <unk>.

J.R. Herlihy: And we put a value on those retained tranches right. So if you sort of think of this as a sale of the loans and a purchase of the retained tranches, which it's not always accounted for that way, but let's just say, we kind of try to think of it that way.

J.R. Herlihy: Then youre going to recognize.

J.R. Herlihy: Again, or a loss kind of.

J.R. Herlihy: On that securitization right. It's a difference between what the loans were worse that you put into the securitization.

J.R. Herlihy: What your securitization expenses were.

J.R. Herlihy: And right because there are expenses and doing securitization legal underwriting et cetera, and then what the retained tranches are worth that you're taking back.

J.R. Herlihy: And then what the retained tranches, you know, are worth that you're taking back. And so that sort of gives you, let's say, a gain on sale, even if it's not necessarily accounting wise. And for that, that's going to be very variable.

J.R. Herlihy: And so that sort of gives you lets say a gain on sale, even if it's not necessarily accounting wise again on sale.

J.R. Herlihy: And for that that's going to be very variable. So make a long story short that securitization gains can be very variable depending upon.

J.R. Herlihy: So to make a long story short, that sort of securitization gain is going to be very variable depending upon everything from how well we hedge the loans going into the securitization. As Mark mentioned, sometimes we use IG Hedges now, in addition to interest rate hedges; we use TBAs sometimes or interest rate swaps depending upon what we think of the basis. But whatever, we'll have a gain on sale or a loss on sale, hopefully a gain on sale, when we do that. And so that's more of a one-time event, right?

J.R. Herlihy: Everything from how well, we hedged loans going into the securitization as Mark mentioned, sometimes we use.

J.R. Herlihy: Hedges now in addition to interest rate hedges, we use TBA, sometimes our interest rate swaps, depending upon what we think of.

J.R. Herlihy: The basis, so, but whenever we will have a gain on sale or loss on sale hopefully your gain on sale when we do that and so that's more of a one time event rate and then we're going to be a.

J.R. Herlihy: And then we're going to be retaining the tranches. I don't think it'd be giving away too much to say that if you look at the tranches that we retain, what are they? They're subordinated tranches that have principal, maybe the single B-rated or non-rated portion of the deal. And then there's an IO, right?

J.R. Herlihy: Retaining.

J.R. Herlihy: <unk> I don't think it would be giving away too much to say that when you look at the tranches that we retain right what are they they're subordinated tranches that have principal.

J.R. Herlihy: Maybe the single B rated or non rated portion of the deal and then there is an io right and so we hold those knowing that in some cases, we're subject to risk retention and are not able to sell those and they're going to own those basically forever until if it until we call. The deal so we're going to.

J.R. Herlihy: And so we hold those, knowing that in some cases we're subject to risk retention and are not able to sell them; we're going to own those basically forever if and until we call the deal. So we're going to value those where we think the market values them, and we try to be conservative on that. But if you look at the spreads and where those deals are priced, you can sort of extrapolate. These are quite wide, and we can get financing on them as well. So, as JR mentioned, we're well into the mid-teens.

J.R. Herlihy: Going to value those where we think the market values them.

J.R. Herlihy: And we try to be conservative on that.

J.R. Herlihy: But if you look at the spreads on where those deals price.

J.R. Herlihy: You can sort of extrapolate.

J.R. Herlihy: These are quite wide and as as we can get financing on them as well so as Jr mentioned, where we're well into the mid teens in terms of the iOS.

J.R. Herlihy: In terms of the IOs, do we want to sort of end them? Call rights are another thing that we retain as well, and we value those as well because those often have value now. Our call rights on the super old deals that we did with really low coupons, those don't have much value now. So as we revalue those every quarter, those have gone down in value from where they were a few years ago. But when we price one of these deals, we're using what kind of an OAS. [inaudible] Yeah, yeah, you're in your low teens and unloved.

J.R. Herlihy: Do we want to sort of call rights or another thing that we retained as well and we value those as well because those often have value now our call rights on the Super all deals that we did with really low coupons.

J.R. Herlihy: Those don't have much value now so.

J.R. Herlihy: <unk>.

J.R. Herlihy: As we revalued every quarter those have gone down in value from where they were a few years ago, but when we price. Many of these deals were using.

Speaker Change: What kind of an OAS on the iOS generally speaking Marc do you. If you don't know off the top of your head.

Speaker Change: We don't need to I think answered that but yes.

J.R. Herlihy: It's extremely wide right I mean, this is something we are even before leverage.

J.R. Herlihy: Where we're in the teens I believe yeah, yeah. Your your your low teens Unlevered and you know the other thing I would add Eric the other thing I would add Eric is if you look back we have cold a lot of old securitization now though.

J.R. Herlihy: You know, the other thing I would add, Eric. The other thing I would add is if you look back... We have called a lot of old securitizations. Now, those calls were executed before the big sell-off in 2022, but those call options can prove very valuable because, you know, as spreads tighten during the loans season. The rating agencies looked very favorably on boss expectations of seasoned loans. So we called, you know, our 2017, 18, and most of our 2019 deals, and we generally speaking recycled the loans, put them into new securitizations, and it was a very helpful economics for us. So I think... There are ancillary benefits to doing these securitizations that you don't realize at the time when you do them, but they can pay dividends in the future.

J.R. Herlihy: Those calls were executed before the big sell off in 2022, but those call options can prove very valuable because you know as spreads tightened as the loan season.

J.R. Herlihy: The rating agencies look very favorably on boss expectations of seasoned loans. So we've cold you know our 2017 18, most of our 2019 deals and we generally speaking recycled the loans put them into new securitization and it was very helpful economics for us So I think.

Speaker Change: There is.

J.R. Herlihy: Ancillary benefit to doing the Securitizations that you don't realize at the time when you do it but it can pay dividends in the future.

Eric J. Hagen: Great stuff, guys. Thank you so much for the thorough response, as always. That was our final question for today. Thank you for participating in the Ellington Financial first quarter 2024 earnings conference call. You may disconnect your line at this time and have a wonderful day.

Speaker Change: Great stuff guys. Thank you so much for the thorough response to those.

Eric J. Hagen: Yes.

Eric J. Hagen: Thanks.

Eric J. Hagen: Yes.

Speaker Change: Thank you.

Operator: That was our final question for today. Thank you for participating in the Ellington Financial first quarter 2024 earnings conference.

Speaker Change: Our final question for today and thank you for participating in the Ellington financial first quarter 2024 earnings Conference call. You may disconnect. Your lines at this time and have a wonderful day.

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