Ellington Credit Company

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Residential Mortgage REIT 2020 Second Quarter Financial Results Conference Call. Today's call is being recorded. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. At any time, if your question has been answered, you may remove yourself from the queue by pressing the pound key. If you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Tara Byrne, Manager of SEC Reporting. The mission may begin.

Thank you, and welcome to Ellington Residential's second quarter 2020 earnings conference call. Before we begin, 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, filed on March 12, 2020, and Part 2, Item 1A of our quarterly report on Form 10-Q, filed on May 11, 2020, Forward-looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs, expectations, estimates, and projections. Consequently, you should not rely on these forward-looking statements as predictions of future events. Statements 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. Joining me on the call today are Larry Penn, Chief Executive Officer of Ellington Residential, Mark Takotsky, our Co-Chief Investment Officer, and Chris Smirnoff, our Chief Financial Officer. As described in our earnings press release, our second quarter earnings conference call presentation is available on our website, EarnREIT.com. Our comments this morning will track the presentation. Please note that any references to figures in this presentation are qualified in their entirety by the end notes at the back of the presentation. With that, I will now turn the call over to Larry.

Thanks, Tara, and good morning, everyone. We appreciate your time and interest in Ellington Residential. This was a great second quarter for Ellington Residential, capping an amazing first half of the year performance for the company in what was obviously an extremely challenging environment for mortgage REITs. The second quarter of 2020 began with the continuation of the COVID related market turmoil that had rocked the markets in March. By mid April, however, these market stresses had subsided considerably. Massive purchasing by the federal reserve continued to inject liquidity into the system, calming the market and putting a ceiling on agency mortgage spreads. In fact, the Fed now owns about 30% of the entire agency MBS market. At the same time, Many credit-sensitive fixed income assets rebounded sharply over the course of the second quarter, following the violent sell-off in March. The MOVE Index, which measures interest rate volatility, reverted to pre-crisis levels in mid-April, after reaching its highest point since the 2008 financial crisis in March. The 10-year Treasury traded in an extremely tight 33 basis point range in the second quarter. as compared to a 134 basis point range for the first quarter. As you can see on slide three, the 10-year Treasury yield was virtually unchanged quarter over quarter and remained near an all-time low at June 30th. With mortgage rates also near all-time lows, prepayment speeds spiked during the quarter with overall market CPRs reaching a more than seven-year high in June. During March, Pay-ups had declined considerably and also compressed considerably in the face of market-wide liquidity stresses. Cash was king in March and early April, and the market really stopped distinguishing between pools based on deep value. As discussed on our last earnings call, we responded to these stresses by selling our low pay-up specified pools to bolster our liquidity while maintaining our positions in our higher pay-up pools where the value was much greater. We were rewarded for this strategy as our enhanced liquidity enabled us to get through the market depths without any forced asset sales. And then when the market recovered, pay-ups expanded again and our value pools bounced back. As you can see on slide four, pay-ups rallied strongly as liquidity stresses subsided and as investors again turned their attention to prepayment protection amidst accelerating CPRs. As a result, our specified pools had a tremendous second quarter. Furthermore, Our enhanced liquidity, coming out of March and early April, even allowed us to turn to playing offense, not just in agency MBS, but also in credit. When we saw an attractive entry point in non-agency MBS, we grew those holdings substantially at heavily discounted prices. This decision also paid off handsomely, as non-agency prices recovered sharply as the quarter progressed. Finally, our results benefited from the strong performance of reverse mortgage pools. which rebounded from the distress in March and which we believe will attract even greater investor demand in this low interest rate environment. And to reiterate, we were only in the position to take advantage of these investment opportunities because of our adherence to our risk and liquidity management principles, which enabled us to avoid forced asset sales and enhance our liquidity during the stresses of March and early April. I will now pass it over to Chris to review our financial results for the quarter in more detail. Chris?