Q1 2025 Ellington Financial Inc Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, thank you for standing by welcome to the Ellington Financial first quarter 2025 earnings Conference call today's call is being recorded.
At this time, all participants have been placed in a listen only mode.
Speaker Change: Floor will be opened for your questions. Following the presentation.
Speaker Change: I'd 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 or move yourself from the queue by pressing star and two.
Speaker Change: Lastly, if you should require any operator assistance please press star zero.
Speaker Change: It is now my pleasure to turn the call over to Alan Dean Chalet you may begin.
Speaker Change: Thank you before we begin I'd like to remind everyone that this conference call may include forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our annual and quarterly reports filed with the SEC.
Speaker Change: Actual results may differ materially from these statements. So they should not be considered to be predictions of future events. The company undertakes no obligation to update these forward looking statements.
Speaker Change: Joining me today are Larry Penn Chief Executive Officer of Ellington financial Mark to Kaki Co Chief Investment Officer, Jr. Herlihy, Chief Financial Officer, Our first call first quarter earnings Conference call presentation is available on our website LNG financial Dot Com today's call will attract that presentation and all statements and references the figures are.
Speaker Change: All five five important notice and I noticed in the back.
Larry Penn: With the presentation with that I'll hand, it over to Larry.
Larry Penn: Thanks, Alan Dean Good morning, everyone and thank you for joining us today.
Larry Penn: I'll begin on slide three of the presentation.
Larry Penn: Ellington financial started the year with a solid first quarter driven by continued strength in our diversified residential and commercial mortgage loan portfolios.
Larry Penn: Combination with continued excellent deal executions in our securitization platform.
Larry Penn: For the quarter, we generated GAAP net income of 35 per share and our adjusted distributable earnings at 39 cents per share.
Larry Penn: To cover our dividends.
Larry Penn: Our loan businesses remain a dependable source of growth and profitability.
Larry Penn: We again benefited from strong contributions from our loan originator affiliates as well as net gains on our forward MSR portfolio.
Larry Penn: Our reverse mortgage platform longbridge financial more than covered its proportional share of <unk> 88 to support the dividend despite lower seasonal origination volumes for Hep.
Larry Penn: However, with interest rates shocked to see lower over the quarter losses on interest rate hedges like to slightly negative GAAP net income overall for the quarter at our Longbridge segment.
Larry Penn: I'll note that while seasonality caused origination volumes at long ridge to decline sequentially proper versa origination volumes were stable and their origination margins actually improved providing further evidence of the growing demand for a proper versus product.
Larry Penn: In fact in April lowest submissions and prop were considerably higher year over year.
Larry Penn: Meanwhile, our non QM originator affiliates, including lend short at American Heritage continued not only to provide us with excellent slowest product what theyre strong profitability also continued to contribute nicely to our bottom line.
Larry Penn: Extending the strong momentum we built in our securitization platform last year, we priced five new securitization deals in the first quarter, taking advantage of tight spreads to secure long term non mark to market financing at attractive terms.
Larry Penn: These transactions also enabled us to expand our portfolio of high yielding retained tranches to support earnings growth and they added deal call rights to our portfolio enhancing portfolio Optionality.
Larry Penn: Thanks to the strong historical credit performance of our FMT chefs, we were able to lock in some extremely favorable debt spreads on our first quarter securitization I am pleased that we completed a high volume of deals in the first quarter, while market conditions were still favorable.
Larry Penn: Fact securitization debt spreads widened somewhat late in the quarter and then surged in early April amidst the overall market volatility and so we so we refrain from pricing any more securitizations in April until very late in the month, when we priced another non QM securitization after debt spreads have recovered somewhat.
Larry Penn: Given the diversified array of warehouse lines that we have at our disposal, we can be patient during extended periods if that spread widening.
Larry Penn: To that point, we added two more loan financing facilities during the first quarter.
Larry Penn: We've also made some important tactical moves in the form of outright asset sales.
Larry Penn: Earlier in the first quarter, we sold a wide variety of credit sensitive securities before yield spreads widened to lock in gains and free up capital and enhance liquidity.
Larry Penn: Ed in early April we sold most of our HELOC position crystallizing profits on those investments, while freeing up capital to reinvest into more attractive opportunities we are seeing in other sectors.
Larry Penn: Meanwhile, we closed on yet another mortgage originator joint venture investment in the first quarter and as usual. This included a forward flow agreement with that originator.
Larry Penn: Two more such investments in the term sheet stage now.
Larry Penn: We remain focused on establishing these joint ventures to secure consistent access to high quality loans at attractive pricing and on a predictable timeline.
Larry Penn: Finally, we made notable progress on a handful of commercial mortgage warehouse, including one significant resolution in March and another one scheduled to close to death, eliminating negative carry assets and freeing up capital for redeployment we.
Larry Penn: We expect that by the end of the second quarter, we will have only one significant remaining workout asset detracting from our adjustable distributable earnings.
Larry Penn: At the bottom of slide three you can see that our recourse leverage remained low at just one seven to one that.
Larry Penn: That's even slightly lower than our year end level of one place along with our significant secret securitization activity and opportunistic asset sales in the first quarter more than offsetting another $1 billion plus a quarter of loan purchases.
Larry Penn: I'll make a few observations on our leverage.
Larry Penn: First whenever we complete a securitization we converted a sizeable amount of borrowings from recourse to nonrecourse, thus lowering our recourse leverage.
Larry Penn: Second these securitizations also convert lone assets into retained tranches, which carry much higher yields and therefore require little or no leverage to generate attractive returns on equity.
Larry Penn: Third in the wake of the March and April volatility, we continue to see better investment opportunities. So it's great to have made more room to add leverage from here.
Larry Penn: And fourth.
Larry Penn: If we're going to increase our recourse leverage significantly we prefer to do it by issuing long term unsecured debt. However.
Larry Penn: However that spreads are currently too wide in that market relative to asset spreads for us to be issuing unsecured debt when that relationship between debt spreads and asset spreads normalize we will consider issuing unsecured debt again.
Speaker Change: And with that I'll turn the call over to Jr. To walk through our financial results in more detail Jr.
Jr. Herlihy: Thanks, Larry Good morning, everyone for the first quarter, we reported GAAP net income of 35 per common share on a fully mark to market basis, and <unk> 39 per share.
Speaker Change: On slide five of the deck you can see the income breakdown by strategy.
Speaker Change: 88 per share from credit <unk> <unk> per share from agency and negative <unk> 10 per share from Longbridge and on slide six you can see the Adv breakdown by segment 32 per share from the investment portfolio segment net of corporate expenses and <unk> <unk> per share from the Longbridge segment.
Speaker Change: Positive performance in the credit portfolio was driven by sequentially higher net interest income net gains from forward MSR related investments and commercial mortgage loans closed end second lien loans non QM retained tranches in a b S.
Speaker Change: And net gains on our loan originator equity investments.
Speaker Change: Partially offsetting higher net interest income were net realized and unrealized losses on consumer loans Cielo is non QM loans and residential transition loans as well as losses on residential and commercial Oreo.
Speaker Change: Meanwhile, thanks to our coupon and hedge positioning our agency portfolio generated excellent returns for the quarter.
Speaker Change: Even as agency MBS slightly underperformed benchmarks market wide.
Speaker Change: Turning now to Longbridge, while that segment reported a slight net loss overall due to interest rate hedges with rates sharply lower during the quarter Longbridge had positive contributions from both servicing driven by a net gain on the H M. B S MSR and from originations driven by higher origination margins for property versus and steady.
Speaker Change: Margins for Heck am despite seasonally lower origination volumes and heck them quarter over quarter.
Speaker Change: Our results for the quarter also reflected gains on the fixed receive our interest rate swaps used to hedge the fixed payments on our unsecured notes and preferred equity with interest rates lower during the quarter.
Speaker Change: These gains exceeded net losses on our unsecured notes, which included a mark to market loss on our unsecured notes.
Speaker Change: Driven by lower interest rates as well as a realized loss related to the par redemption of our six and three quarter notes that we've carried at a slight discount to par.
Speaker Change: Turning now to portfolio changes during the quarter.
Speaker Change: Slide seven shows a 4% decrease for our adjusted long credit portfolio to $3 3 billion.
Speaker Change: The decline was due to the impact of Securitizations completed during the quarter as well as the smaller residential transition loan portfolio were principal paydowns exceeded net new purchases and net sales of CLS.
Speaker Change: Offsetting a portion of the decline were larger commercial mortgage bridge and non QM loan portfolios, both driven by net purchases.
Speaker Change: On slide eight.
Speaker Change: You can see that our total long agency MBS portfolio declined by another 14% to $256 million by design as we continued to sell down that portfolio and rotate capital into higher yielding opportunities.
Speaker Change: <unk> nine illustrates that our longbridge portfolio increased by 31% sequentially to $549 million.
Speaker Change: Driven by our proprietary reverse mortgage loan originations.
Speaker Change: Please next turn to slide 10 for a summary of our borrowings.
Speaker Change: At March 31, the total weighted average borrowing rate on recourse borrowings decreased by 12 basis points to six point <unk>, 9%.
Speaker Change: Quarter over quarter, the net interest margin on our credit portfolio decreased by 12 basis points, while the NIM on agency increased by 24 basis points.
Speaker Change: Our recourse debt to equity ratio declined to $1 71 from one play to one quarter over quarter and including consolidated securitization. Our overall debt to equity ratio decreased slightly to $8 71 from $8 81.
Speaker Change: During the quarter, we paid off one of the tranches of unsecured notes that we brought over from Arlington upon their maturity in March.
Speaker Change: At March 31, combined cash and unencumbered assets increased to approximately $853 million for more than 50% of our total equity.
Speaker Change: Book value per common share stood at $13 44.
Speaker Change: And total economic return for the first quarter was nine 5% annualized.
Mark Kaki: With that I'll pass it over to Mark.
Mark Kaki: Thanks, Jr.
Mark Kaki: This was a strong quarter for IFC.
Mark Kaki: We covered our dividends with a D E made substantial progress in resolving our larger delinquent commercial mortgage loans and had broad based contributions to earnings from our diversified investment portfolio.
Mark Kaki: One highlight for the quarter was our portfolio of agency mortgage servicing rights, where we not only had substantial positive carry but a substantial mark to market gain as well. These msr's are backed by very low rate Fannie Freddie loans. We acquired these MSR is through the Arlington acquisition and they remain one of the few holdings if theres debt.
Mark Kaki: Kept in our portfolio.
Mark Kaki: Prior calls we have spoken about the mortgage lock in effect, putting a wet blanket on prepayments and creating a huge opportunity in second liens and HELOC stress.
Mark Kaki: Another consequence of that lock in effect is that values of servicing have gone up each month prepayment data confirmed very slow speeds on low coupon MBS.
Mark Kaki: In addition, there has been a trend in the mortgage space to put an increasingly higher value on the customer relationships that come with owning servicing rights particular Leigh customers with high FICO.
Mark Kaki: That's part of the driver behind rocket recently announced acquisition of Mr. Cooper.
Mark Kaki: We don't expect this quarter's mark to market gain to be repeated we do expect an ongoing meaningful contribution to our E. D from this MSR portfolio.
Mark Kaki: We also had a great quarter and our non QM loan business for non QM origination partners from which we had ownership stakes there strong profitability in 2024 has continued into 2025.
Mark Kaki: We continue to expand our footprint in non QM and we remain an active deal sponsor.
Mark Kaki: We waited out the mid market April volatility and price of non QM deal last week and were rewarded with great execution.
Mark Kaki: <unk> process creates high yielding investments for the AFC portfolio as well as giving not giving us a growing portfolio of call options that potentially provide us access to high note rates seasoned loans in the future.
Mark Kaki: In recent months, we have been tightening our underwriting guidelines, preferring to focus on higher FICO borrowers and loans with the more extensive underwrite that view is heavily informed by Ellington's internal research and as we see the market now pricing and a greater probability of a slowdown in the U S economy that scenario should favor our more conservative positioning.
Mark Kaki: We also had another strong quarter from non agency MBS, both in terms of earnings contribution and portfolio growth.
Mark Kaki: With the growing securitization market non QM jumbo and second liens were finding a rich opportunity set in the market and have been deploying capital accordingly.
Mark Kaki: Last year, we identified as a growth area for us equity release products offer to high FICO agency borrowers with low fixed rate mortgages. Since then we've been an active buyer and securitize. Your second lien loans, we had strong contributions from those investments in the first quarter and have also been co sponsoring.
Mark Kaki: Third party securitization of closed end seconds that create retained tranches for us to hold.
Mark Kaki: We expect those retained tranches to provide very high yields and generate outsized E D.
Mark Kaki: We also made substantial progress on a handful of delinquent commercial mortgage loans in our portfolio one resolved in the first quarter when scheduled to resolve today and one is in the middle of Capex and lease up.
Mark Kaki: We continue to originate commercial bridge loans and are seeing a stronger set of sponsors looking to partner with us.
Mark Kaki: The relationship and expertise that our origination affiliate Sheridan.
Mark Kaki: A big benefit to us here.
Mark Kaki: Similar to residential we have.
Mark Kaki: Become progressively more restrictive in our underwriting guidelines, but our pricing power remains strong and we continue to see a high volume of deal flow.
Mark Kaki: We also had a very strong quarter in our agency portfolio as we were well positioned to capture both positive carry and mark to market gains over our hedges.
Mark Kaki: Now, let's talk about April.
Mark Kaki: That was one of the most volatile months, we have seen in a long time well results are still preliminary we estimate that it was a positive return month for ESC.
Mark Kaki: The tariffs uncertainties challenging many business models, and causing a huge amount of volatility in both high yield bonds and bank loans.
Mark Kaki: Amidst the market weakness low LTV real estate loans with high FICO borrowers in the case of residential and high quality sponsors in the case of commercial.
Mark Kaki: Been a safe high yielding place to invest so far as they appear to be much better insulated from tariff uncertainty in many parts of the corporate market.
Mark Kaki: Now look on slide 19, you can see we continued to increase our credit hedges in Q1, those are primarily corporate focused and they certainly did their job helping to predict book value in April.
Mark Kaki: Going forward, we are closely watching credit performance across many markets sectors for signs of weakness. So if we need to do so if need be we can adjust our credit hedges and or pivot and rotate between sectors. In addition, we want to keep pushing our advantage of vertical integration both to drive value creator.
Mark Kaki: And our portfolio origination companies and drive investment creation for <unk> portfolio. In addition, we are seeing the value of many of the technology initiatives. We developed last year coming to bear we are actively developing more proprietary tools to support loan originations.
Larry Penn: Now back to Larry.
Larry Penn: Thank you Mark.
Larry Penn: I am very pleased with how we started out the year.
Larry Penn: In the first quarter, we continued to grow our residential and commercial loan businesses building on the strength of our vertically integrated platform opportunistically accessing securitization markets and maintaining dividend coverage.
Larry Penn: Our investment teams executed skillfully in the face of growing macro headwinds generating solid returns and executing key tactical and strategic maneuvers, such as asset sales securitizations and hedging adjustments.
Larry Penn: As a result, we were positioned really well coming into the second quarter.
Larry Penn: The current high levels of volatility are recharging the opportunity set in creating compelling trading opportunities. This is an environment that we believe is well suited to our core strengths.
Larry Penn: Our short duration loan portfolios continue to steadily return principal enabling us to redeploy capital at higher yields.
Larry Penn: <unk> previous periods of market stress, our dynamic hedging strategies diversified portfolio broad financing base and low leverage are all helping us protect book value.
Larry Penn: To that point, please turn to slide 19.
Larry Penn: As Mark mentioned, we have built up our credit hedges considerably since mid 2024.
Larry Penn: We were able to amass significant portfolio of credit hedges when spreads were much higher than they are now.
Larry Penn: Even though our assets our mortgage focused mostly used derivatives on corporate bonds, especially high yield corporate bonds to hedge credit risk because of their liquidity and their robust protection and big market tail events like what we saw during COVID-19.
We also operate Opportunistically use C mdx to hedge those or credit default swaps on commercial mortgage backed securities.
Larry Penn: On this slide you can see that at quarter end, our corporate credit hedges alone represented an estimated short position of over $450 million high yield corporate bonds for context that figure one year prior was only about $120 million.
Larry Penn: In April.
Larry Penn: Those credit hedges did their job beautifully.
Larry Penn: They generated huge profits and cash for us.
Larry Penn: Credit spreads blew out earlier in the month and for the full month of April even with credit spreads staging somewhat of a recovery later on.
Larry Penn: Still help to offset valuation declines that we saw in the loan portfolio.
Larry Penn: As a result, despite the widespread market weakness in April we estimate that our economic return was still positive for the market.
Larry Penn: In summary, with our strong capital base ample liquidity highly diversified portfolio strategy disciplined leverage and active hedging I believe that we are exceptionally well positioned to take advantage of the recharged opportunity set that we're seeing in this period of heightened market volatility.
Larry Penn: With that let's open the floor to <unk>.
Speaker Change: Operator, Please go ahead.
Speaker Change: Absolutely at this time, if you would like to ask a question. Please press the star and one keys on your telephone keypad keep in mind, you may remove yourself from the question queue at any time by pressing star and two.
Speaker Change: We will take our first question from Crispin Love with Piper Sandler. Please go ahead. Your line is open.
Speaker Change: Thank you good morning, everyone.
Speaker Change: Just drilling a little bit deeper on the volatility that you've seen in the past months setting you up for some attractive trading opportunities.
Speaker Change: Have you so far have you been able to deploy a material amount of capital in these types of trades and then also where are you seeing the best opportunities opportunities. In addition to the credit hedges that you've called out.
Speaker Change: Hey, Chris.
Speaker Change: Mark do you want me to start off with the first half of that sorry to interrupt you. The first half of the question and then you can do the second half yeah absolutely.
Speaker Change: So thanks, Kristen Kristen I would say not not material growth in April but.
Speaker Change: Portfolio has grown net relative to where we were at March 31, I would put.
Speaker Change: Growth in two buckets bucket, one being continuing to grow loan portfolio. So think non QM closing seconds proprietary reverse.
Speaker Change: Similar to ordinary course, although.
Speaker Change: We've seen spreads.
Speaker Change: Widened and recharging the opportunity set.
Speaker Change: Then in buckets, you were able to pick up securities more Opportunistically and non agency MBS. For example has has grown in April.
Speaker Change: And that category so.
Speaker Change: We have grown and in those areas and Mark I know if you want to talk about.
Mark Kaki: More specifically, what you like and what Youre seeing in this market.
Speaker Change: Sure yes so.
Speaker Change: There was by Middle of April I mean, the volatility was.
Speaker Change: Really extreme.
Speaker Change: So to put a perspective on it we saw.
Speaker Change: Quality non QM deals from good originators with a AAA sponsored the AAA is priced at 190 to the curve.
Speaker Change: And those same deals earlier in the year were $1 15 to 120 to the curve. So you know.
70 odd basis points widening Larry mentioned the deal we did in the April give you a sense of what the recovery is we wound up getting 116 are AAA, so waiting out sort of the eye of the storm.
Speaker Change: Definitely worked hard advantage, but by mid April.
Speaker Change: When you saw these 190 prints on AAA as there were people pretty nervous.
Speaker Change: So we were able to buy some loan packages that made sense, even assuming when 90 execution. The top part of the capital stack and also CUSIP. Yeah. We mentioned I mentioned in the prepared remark prepared remarks.
Speaker Change: We're seeing a better a rich opportunity set in non agency <unk>.
Speaker Change: Then we had maybe a couple of years ago and part of that is non.
Speaker Change: Non agency securitization market has grown and jumbos in non QM and seconds, and so where we actively find opportunities and buying.
Speaker Change: Securities in.
Speaker Change: In that market and a lot of times, there's a pretty healthy new issue concession that we can that we can capture and monetize so those probably been the biggest areas.
Mark Kaki: Great I appreciate all the color color there Jay our Mark.
Mark Kaki: And then you also called out the resolutions in some of your commercial bridge loans recently.
Speaker Change: Can you just give a little bit more detail on what those resolutions look like where the loans modified where they sold just curious on those details and then positive impact you would expect to see to AE from those resolutions on a go forward basis.
Mark Kaki: Sure so.
Mark Kaki: Let me think one was that just kind of pay off.
Mark Kaki: One that is scheduled to close today isn't Oreo sale right and then we have another that it was in active capex and lease up that's a longer longer horizon.
Mark Kaki: In total the <unk>.
Mark Kaki: Fair value on those.
Mark Kaki: At quarter end were or excuse me at year end were in the $50 million to $60 million range.
Mark Kaki: We've.
Mark Kaki: Resolved by fair value, a little less than half of that so yeah, freeing up 20% to $25 million to reinvest.
Mark Kaki: Some financing on that as well, but the numbers arent huge but they are disproportionate in terms of not just.
Mark Kaki: Being available to invest in high yield assets, but also turning off negative carry.
Mark Kaki: The underlying.
Mark Kaki: Yes, that's right. We just have as we said we think by.
Mark Kaki: Second quarter I'll, just have one left.
Mark Kaki: That's I think in the 30 odd millions right in terms of the value of that and that's great. So we really just perhaps.
Mark Kaki: Some continued negative drag from that but that's a very small obviously percentage of our portfolio. So I think it's great to have this behind us and I think in retrospect compared to what.
Mark Kaki: Lot of other.
Mark Kaki: Lenders, especially lenders in the commercial space.
Mark Kaki: <unk> seen I think.
Mark Kaki: I think we did great in terms of limiting how many problem assets, we end up having and I think we're.
Mark Kaki: Towards the end here a lot sooner than that other people. So I think.
Speaker Change: Yes, it seems done a great job and I would just clarify so when an Oreo sale, it's a pretty straightforward, but I just kind of pay out there was it was in a bankruptcy process. So it was.
Speaker Change: It's a little more complicated than that but to give you a flavor of.
Speaker Change: How the resolution happens.
Speaker Change: Yes that was it.
Speaker Change: Just want to say one more thing that bankruptcy asset was an asset that we had.
Speaker Change: Inherited from Arlington So.
Speaker Change: Even then.
Speaker Change: Not not something that was.
Speaker Change: The results of our underwriting team so I think they've done a great job.
Speaker Change: Alright, great. Thank you and I appreciate you taking my questions.
Speaker Change: Thanks.
Speaker Change: We will take our next question from Trevor Cranston with citizens JMP. Please go ahead. Your line is open.
Speaker Change: Okay. Thanks.
Speaker Change: Mark just mentioned.
Speaker Change: The spread volatility you guys have seen in the securitization market.
Speaker Change: So far in the second quarter.
Speaker Change: Does that high level of spread volatility have any material impact on you guys near term appetite for loan acquisition, given some level of uncertainty about ultimate securitization execution levels and.
Speaker Change: Can you maybe just provide some color on what loan acquisition activity has been like.
Speaker Change: Through the market volatility over the last several weeks.
Speaker Change: Sure.
Speaker Change: Mark that's a great question right, because we think about that all the time, we have choices in these markets to just buy securities that other people make.
Speaker Change: Do you have to be deal sponsor to get the ones you want sometimes you don't.
Speaker Change: Or.
Speaker Change: Taking a longer view and doing Securitizations yourself, and then retaining things that.
Speaker Change: <unk> had more control over the underwriting and more control over the guidelines and how the deal is put together but.
Speaker Change: If you wanted to do the ladder you have do you.
Speaker Change: Go through a fairly long process, a couple of months process of ramp up right, where you're acquiring loans youre hedging the interest rate risk, we have been diligent about hedging spread widening risk and then executing the deal on the open market. So.
Speaker Change: There are pros and cons to both.
Speaker Change: When you see heightened volatility.
Speaker Change: If you don't get a corresponding widening of loans relative to securitization execution.
Speaker Change: Then it looks like that ramp up risk you might not be getting fully paid for it. So I think our view of the world in April was that when spreads re.
Speaker Change: Really widened a lot.
Speaker Change: Top of the capital stack.
Speaker Change: We thought that the securities really cheap to you a little bit cheaper than the loans and we responded.
Speaker Change: By buying some securities.
Speaker Change: And then as you start to get a little bit more consistent pricing on.
Speaker Change: Deal execution loans didn't fully.
Speaker Change: <unk> tightened to reflect that then we thought loans with attractive I think one thing about April which was <unk>.
Very interesting and it was materially different than what you saw in kind of the last big stress was maybe March 2020.
Speaker Change: Is that.
Speaker Change: In April there were people that want to sell risk, but there were people that want to buy risk. So it's not as though.
Speaker Change: The origination market shut down the way it didn't COVID-19, where you were kind of flying blind as to where securitization should be and you had to price loans, assuming just going to hold them in portfolio on repo, which is what we did but in AP.
Speaker Change: April.
Speaker Change: There were as many or more buyers I think than they were sellers of deals we're getting consistently done.
Speaker Change: Way they were getting price they were giving price very quickly.
Speaker Change: So there was capital on each side of the market. So I think that that definitely gave us.
Speaker Change: A little more confident and things. So I think the first leg, we thought securitizations had lagged a little cheap we add some securitizations and then through the course of the month as we saw opportunities to buy loans and you had better.
Speaker Change: Transparency and just tighter spreads on.
Speaker Change: Securitization than we felt loans with attractive relative to the securitizations and ultimately sort of expressed that by pricing securitization I guess last week or week before in April.
Speaker Change: And if I could just add one more thing to that Mark.
Speaker Change: The velocity of the frequency of our especially in non QM Securitizations has increased a lot versus where it was couple of years ago. For example, so instead of doing one deal a quarter.
Speaker Change: We're looking at under normal circumstances, due at least studios a quarter right. So.
Speaker Change: That just cuts down.
Speaker Change: The timeframes.
Speaker Change: So when we're if we're buying a loan package.
Speaker Change: We might be doing a securitization grant did not have those very loans, but as loans that we've held we might be doing a securitization and that same week for example that we're buying a new loan packages. So.
Speaker Change: Youre de risking one package and then putting on risk and another and if you have this frequent volume of Securitizations.
Speaker Change: That's just limits kind of that.
Speaker Change: Gestation risk if you will.
Speaker Change: And at the same time as we mentioned we are doing something that we think not a lot of other people are doing which is where.
Speaker Change: Using credit hedges.
Speaker Change: Two to mitigate those spread movements and we've found that they have been extremely effective and correlated with the spreads that we've seen in the securitization markets versus how our hedges have reacted. So so we think thats.
Speaker Change: That's working well for us.
Speaker Change: Right. Okay very helpful. Thank you guys.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: We'll take our next question from Randy Binner with B Riley. Please go ahead. Your line is open.
Randy Binner: Hey, Thanks for taking the question I think I think we heard.
Speaker Change: In the prepared remarks that.
Randy Binner: Youre in discussions with.
Randy Binner: Potential JV with two originators just wondering if you can share.
Randy Binner: On that or any size.
Randy Binner: So we might gauge the impact there.
Randy Binner: Sure Yeah. Thanks, Randy I would say that maybe starting with size. Neither of these is is a large investment.
Randy Binner: Yes.
Randy Binner: Under $5 million I think in total will be equity investment so, but we have a stable of these types of small investments that have produced loan flow well multiples in excess of what our equity investment is so.
Randy Binner: I think we point those two deals out in terms sheet stage I think we put it to point out that we are further diversifying our sourcing channels in the same products.
Randy Binner: Not necessarily that either will be material in size, but just adding to the stable of.
Randy Binner: <unk> originated investments that have been.
Randy Binner: So for us over the last couple of years, Yeah, and it's a win win I mean, even worse.
Randy Binner: The amount of money that we're providing in terms of working operating capital for them may not be a big number for us in terms of an investment, but it is very meaningful, especially for an originator that is not so long established for them to ramp up and.
Randy Binner: So a lot of these smaller originators just getting started.
Randy Binner: They could be originated $40 million a month something like that pretty soon after we supply that working capital and so if that's supplying us close to half a billion dollars a year alone.
Randy Binner: It's just a win win for both parties right.
Randy Binner: It jumpstarts.
Randy Binner: Turbocharge their growth.
Randy Binner: It gives them they all have to worry about.
An outlet for their product.
Randy Binner: They could even sell to us on a forward basis, which they do all the time so.
Randy Binner: They can even lock in.
Randy Binner: Sale, even if they havent originated loans yet so there's just lots of advantages going both ways. These are great.
Randy Binner: Great joint venture arrangements that we've put in over time and we now have a lot of these yes, and I'd say timing wise next quarter or two.
Randy Binner: Is the expectation.
Randy Binner: Got it okay. Thank you for that but they are small but pedigree on your comments and then.
Speaker Change: Just one more if I could just something that Mark said stood out to me in that.
Speaker Change: Kind of the increased value on consumer relationships and how rocket Coupe is.
Speaker Change: Example of that I guess the question I have is that is that just.
Speaker Change: A reflection of.
Speaker Change: Yes, Theres lock in effect.
Speaker Change: Yes.
Speaker Change: Mortgage rates are higher now than they were before or is this more of a permanent shift in your view.
Speaker Change: Alaska.
Mark Kaki: Yes go ahead Mark.
Speaker Change: I think.
Speaker Change: It's something bigger than that because.
Speaker Change: You had rocket coup, but before that you had rocket redfin right. So it's this notion that.
Speaker Change: Let's think about home buying.
Speaker Change: As the process.
Speaker Change: And there is services rendered and his feedback fees paid along the way so.
Speaker Change: First you have a real estate agent then you find a home then you buy a home with that Theres Real estate Commission. There's title insurance rate. There is mortgage insurance than you get alone then you're in that loan for three years, maybe rates drop and then you refinanced alone then you know your family needs change, maybe you sell that house.
Speaker Change: Can get another house, so I think there.
Speaker Change: There is a notion growing among the really scale players that if I establish a relationship with a customer now and I maintain that relationship over the that customer's life, there might be four or five loans there might be three houses.
Speaker Change: Theres, a lot of fees and commissions and things paid along the way not to mention the cross sell of second liens or consumer loans and so.
Speaker Change: It's not that different than what you see in other parts of.
Speaker Change: The economy, where the scale players have gained market share you certainly see it in the national builders. So.
Speaker Change: So if you start thinking about the world that way.
Speaker Change: And then who are the clients that you think you want to have the strongest relationships with.
Speaker Change: It's gonna be clients that are.
Speaker Change: A history of paying their bills as reflected in their FICO score.
Speaker Change: <unk> clients that have demonstrated an ability to save as demonstrated by showing up with the 2025% down payment to buy a home.
Speaker Change: So.
Speaker Change: I think there is there is that is sort of what's going on I mean, if you look at like.
Speaker Change: It's not that different from American express buying rosy right, Okay, you're going to have you're going to make restaurant reservations and maybe you're gonna make hotel plans, you're always going to put everything on your American Express card, so that way of thinking.
Speaker Change: Is in the mortgage space now.
Speaker Change: Alright.
Speaker Change: Interesting I appreciate the comments sure.
Speaker Change: We will take our next question from Bose George with <unk>. Please go ahead. Your line is open.
Speaker Change: Hey, guys. This is actually frankly by the on for Bose.
Speaker Change: Just to start last quarter, you mentioned the <unk>.
Speaker Change: Earnings for the Longbridge segment.
Speaker Change: For like for.
Speaker Change: Run rate is that still.
Speaker Change: Sure.
Speaker Change: Achievable given current trends and yes, yes.
Speaker Change: It is.
Speaker Change: They were seven cents of <unk> in Q1.
Speaker Change: Which as a percentage of their capital usage covers 39, but we did we have said kind of consistently <unk>.
Speaker Change: As the longer term run rate as we see it.
Speaker Change: Their volumes were down seasonally so they originated $420 million.
Speaker Change: Combined segment profit in Q4 down to $3 40 in Q1.
Speaker Change: I think largely seasonally driven so margins held up and they were still profitable within originations and servicing setting aside the interest rate hedge.
Larry Penn: So with April selling season in and April excuse me spring selling season in April looking good from a proper versus submission perspective, as Larry mentioned in his prepared remarks.
Speaker Change: I think we are.
Larry Penn: We haven't changed the outlook for that.
Larry Penn: Those reasons also it's going to be a little lumpy based upon securitization activity and Longbridge. So we did not do a deal in the first quarter, but I think we expect to do one shortly so every time.
Larry Penn: When we do the deals thats when they ring the cash register in terms of the.
Larry Penn: On origination profits.
Larry Penn: So with that proper verse deal securitization deal expected to come soon.
Larry Penn: And you didn't have one in the first quarter I think that explains a lot of it as well.
Larry Penn: Yes.
Speaker Change: Great. Thank you and then you noted some sales of CLO during the quarter can you just talk about current.
Larry Penn: Performance in dynamics in that market.
Larry Penn: Yes.
Larry Penn: Okay.
Larry Penn: Yes, I would say you'll see all those for ESC have been.
Larry Penn: Small part of the portfolio, it's ebb and flow kind of Opportunistically.
Larry Penn: Across the last several years frankly.
Larry Penn: So it's more of a.
Larry Penn: Complementary business to the core businesses loan businesses than than our core business on its own.
Larry Penn: So a lot of the.
Speaker Change: Yes, so the negative performance for cielo as came from spread widening.
Speaker Change: Particularly in CLO equity, which is not necessarily reflective of underlying credit issues or impairments that more reflective.
Speaker Change: Reflective of wider credit spreads market wide.
Speaker Change: So I would just highlight that for UFC.
Speaker Change: Yes.
Speaker Change: Invested amount of CLO.
Speaker Change: Pretty small amount and in our earnings release, you can see that we havent close of $28 million at March 31 down from $61 million at year end, but that compares to a total adjusted long credit portfolio of three point.
Speaker Change: $3 3 billion.
Speaker Change: 1% or 1% less than 1%, yes exactly.
Speaker Change: Okay. Thank you.
Speaker Change: Yes. Thank you.
Speaker Change: Okay.
Speaker Change: And that was our final question today, we thank you for participating in the Ellington financial first quarter 2025 earnings Conference call.
Speaker Change: You may disconnect your lines at this time and have a wonderful day.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
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