Ellington Financial Inc. Q1 FY2025 earnings call

Loan Businesses

• Diversified residential and commercial mortgage loan portfolios were strong, with securitization platform executing well. Loan originator affiliates contributed to ADE, and net gains from forward MSR portfolio.

Longbridge

• Reverse mortgage platform covered ADE despite lower HECM origination volumes, but losses on interest rate hedges at Longbridge. Prop Reverse origination volumes were stable with improved margins.

Securitization

• Priced 5 new securitization deals in Q1, secured long-term financing, expanded retained tranches and deal call rights. Secured favorable debt spreads on EFMT shelf.

Asset Sales

• Sold credit-sensitive securities and HELOC position to lock in gains, free up capital.

Commercial Mortgage Workouts

• Made progress on commercial mortgage workouts, eliminating negative carry assets, expect few remaining by end of Q2.

Leverage

• Recourse leverage low at 1.7:1, securitizations converted borrowings to non-recourse, room to add leverage when debt spreads normalize.

For the first quarter, Ellington Financial reported GAAP net income of $0.35 per share. On a strategy basis, $0.58 per share came from credit, $0.05 from Agency, and -$0.01 from Longbridge. The adjusted long credit portfolio decreased by 4% to $3.3 billion due to securitizations and smaller residential transitional loan portfolio, but commercial mortgage bridge and non-QM loan portfolios increased. The total long Agency RMBS portfolio declined by 14% to $256 million. The Longbridge portfolio increased by 31% sequentially to $549 million driven by proprietary reverse mortgage loan originations. The recourse debt-to-equity ratio was 1.7:1, down from 1.8:1 quarter-over-quarter.

Started the year strong, positioned well for Q2 with high volatility creating trading opportunities. Short duration loan portfolios redeploy capital at higher yields. Dynamic hedging, diversified portfolio, low leverage protecting book value. Current high volatility recharging opportunity set and creating trading opportunities well-suited to core strengths.

• Losses on interest rate hedges at Longbridge due to lower interest rates. - Market volatility and spread widening in securitization market impacting loan acquisitions and securitization execution.

Q: Drilling on volatility and deployment of capital, A: JR and Mark talk about capital growth in loan portfolio and securitization market opportunities, noting non-QM and non-agency MBS as growth areas.

Q: Details on commercial bridge loan resolutions, A: Larry and Mark discuss REO sale, discounted payoff, and progress in resolving assets, expecting few remaining by end of Q2.

Q: Impact of spread volatility on loan acquisitions, A: Mark talks about buying securities and loans based on spread movements, noting opportunities in non-QM deals and new issue concessions.

Q: Timing and size of JVs, A: Mark and Larry discuss small size but win-win JVs, timing next quarter or two for the two JVs in term sheet stage.

Q: Increased value on consumer relationships, A: Larry and Mark talk about cross-selling and long-term customer relationships, citing Rocket Coupe as an example of increased value on such relationships.

Q: Longbridge segment earnings, A: JR and Larry discuss seasonality and upcoming securitization impact, stating Longbridge's $0.09 run rate is achievable with spring selling season and upcoming securitization.

Q: CLO market performance, A: Larry talks about small CLO portfolio and spread widening impact, noting CLOs are a small complementary part of the portfolio affected by market-wide spread widening.