Ellington Financial Inc. Common Stock

All sides on hold. We appreciate your patience and ask that you please continue to stand by. Thank you. Please stand by, your program is about to begin. Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial Third Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, all participants have been placed in the 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 the star, then the number one on your telephone keypad. If at any time your question has been answered, you may remove yourself from the queue by pressing the pound key. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the call over to Jason Frank, Deputy General Counsel and Secretary. Please begin.

Thank you. Before we start, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements within the meaning of the safe harbor 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 16, 2021, as amended, 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. I am joined on the call today by Larry Penn, Chief Executive Officer of Ellington Financial, Mark Takotsky, Co-Chief Investment Officer of EFC, and J.R. Herlihy, Chief Financial Officer of EFC. As described in our earnings press release, our second quarter earnings conference call presentation is available on our website, ellingtonfinancial.com. Management's prepared remarks will track the presentation. Please note that any references to figures in this presentation are qualified in their entirety by the end notes at the back of the presentation. With that, I will now turn the call over to Larry.

Thanks, Jay, and good morning, everyone. As always, thank you for your time and interest in Ellington Financial. I'll begin on slide three. During the third quarter, Ellington Financial generated net income of $0.41 per share and core earnings of $0.46 per share, so core earnings continue to cover our dividend. Through the first nine months of the year, we have now delivered an economic return of over 11%, and a total return to stockholders of over 33 percent. Next, please turn to slide 11. During the quarter, we significantly grew our proprietary loan portfolios as we deployed the capital from our common equity raise in July. We had our second consecutive record quarter for originations in our non-QM business, funding $297 million in the third quarter. And we also had our second consecutive record quarter for originations in our residential transition loan or RTL business, funding $106 million in the third quarter, as you can see here on this slide. Our RTL fundings actually grew more than 50% from the prior quarter. Within RTLs, the fix and flip business is a seasonal one, so I wouldn't expect us to see that kind of RTL growth for the next couple of quarters, but I'm hopeful that RTLs could be a big business for us in 2022. Overall, we grew our proprietary loan portfolios by 41% quarter over quarter to $1.26 billion. And keep in mind that the $368 million of growth was net of pay downs. I was extremely pleased with the pace and quality of our capital deployment during the quarter. Our proprietary loan pipelines continue to provide us with a robust supply of high-yielding investments, and we absorb that supply with relative ease. The new capital, was both raised and fully deployed all within the third quarter, and so we were able to avoid any material drag on core earnings. Looking ahead, the prospects for continued growth in earnings from our proprietary loan pipelines continue to be excellent. Thanks to its record origination volume during the quarter, our non-QM affiliate, Lendsure, posted record profitability as well for the quarter. And thanks to our loan flow from Lendsure, we were able to complete our third non-QM securitization of the year shortly after quarter end. This represented the ninth non-QM securitization that we've completed, and we've now passed the $2 billion mark in total non-QM loans acquired from Lendsure to date. This cycle of non-QM acquisitions, followed by securitizations, has several important benefits for EFC. We reap the benefits of a high-yielding and, we believe, low-risk asset class, We strengthen our balance sheet and enhance earnings thanks to the superior long-term financing provided by the securitization market. And ultimately, we're able to manufacture highly attractive retained tranches at prices not available in the secondary market. Meanwhile, in addition to all the growth we're seeing in our residential mortgage loan businesses, we've also recently seen substantially increased loan flow in our small balance commercial mortgage bridge loan business. And last but certainly not least, we have now closed on three additional strategic equity stakes in loan originators in just the last six months. And we have several others in the works that we hope to complete before year end. With these additional strategic stakes, we're continuing to fortify our vertically integrated loan origination business, which continues to supply a consistent flow of high-quality, high-yielding assets underwritten to our specifications. Our relationships with our originator affiliates are symbiotic, as we not only provide them with a reliable outlet for their production, but we also help them enhance their underwriting guidelines, we help them improve the terms and stability of their financing sources, and we help boost their overall visibility in the marketplace. I am excited about these new strategic equity investments, and I believe that they will further expand and diversify our proprietary loan pipelines. Now, please turn to slide five. where you can see the net interest income in our credit strategies again led the way in the third quarter. This net interest income was driven by our growing loan portfolios, which, by the way, also continue to exhibit excellent credit performance. Our credit strategies also delivered significant net gains during the quarter, with significant contributions from our CMBS, CLO, and non-agency RMBS portfolios, together with the gains driven by our share of Lendsure's record profits for the quarter. As I mentioned, Lendsure's third quarter was a record one, both for origination volume and earnings. Lendsure originated $456 million of loans, which was a 39% increase from their second quarter's total of $326 million. Lendsure is on pace to exceed, just in 2021, its origination volume for the prior two years combined. And critically, loan performance has continued to be excellent, even as origination volumes scale. Most of Lendsure's growth so far has been in existing products and channels, but the Lendsure team is working on amplifying its momentum by rolling out new products and channels, and I'm excited to see what 2022 will bring. I'll turn next to Longbridge Financial, our reverse mortgage originator affiliate. In the agency reverse mortgage market, continued high levels of home price appreciation, together with low interest rates, have led to elevated prepayment speeds as borrowers seek to refinance. In response to these higher speeds, we saw some acute downward repricing in the HMVS market, which is the market for agency reverse mortgage pools. While these market forces have boosted origination volumes for Longbridge, they also caused a decline in the value of Longbridge's portfolio of mortgage servicing rights, or MSRs. This drove an overall quarterly net loss of the company. But importantly, Longbridge's origination segment was still profitable during the quarter. As a result, we see this quarterly net loss as an anomaly for Longbridge. The company hit a monthly record for origination volume in September, and year-to-date, Longbridge is actually number three in the industry in total HMBS issuance. Moving forward, we believe that Longbridge's earnings and growth prospects continue to be excellent, and in fact, the company has bounced right back to profitability in October. With that, I'll pass it to JR to discuss our third quarter financial results in more detail.