Ellington Financial Inc. Common Stock

Please stand by, your program is about to begin. Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial Fourth Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, all participants have been placed in a 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. Sir, you may 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 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 fourth 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. Ellington Financial closed out a strong 2021 by generating net income of 61 cents per share and core earnings of 44 cents per share in the fourth quarter. For the full year, we delivered an economic return of nearly 14% and a total return to shareholders of 26%. I am especially pleased with our performance in 2021, given that it followed a successful 2020 when we were able to navigate the market volatility profitably and be in a prime position to play offense in the aftermath of the COVID-related liquidity crisis. During the fourth quarter of 2021, our investment portfolio continued to expand, with our credit portfolio exceeding the $2 billion mark for the first time. By comparison, our credit portfolio was $1.4 billion at year-end 2019, just prior to the onset of the pandemic, so it's grown by over 40% in the past two years. Most of this growth has occurred in our proprietary loan portfolios, which have increased by a combined 80% since December 2019. And furthermore, this growth is a direct result of the origination businesses that we have successfully cultivated. Our origination businesses now span across the non-QM, commercial mortgage, residential transition, reverse mortgage, and consumer loan sectors. Notably, we have been able to achieve this portfolio growth while lowering our overall recourse leverage. In part, this reflects that we have been able to grow by substantially expanding our equity base, as opposed to just adding leverage. In the fourth quarter, for example, we executed on two well-timed equity raises, namely a common equity raise in October and a preferred equity raise in December. With our gap earnings per share nicely exceeding our dividend rate, book value for common share actually rose during the fourth quarter, despite the much larger equity base. Meanwhile, we have been able to invest the proceeds from those recent equity raises efficiently across our diversified portfolio, and thereby avoid slippage in earnings. The proceeds of both of our Q4 equity capital raises were invested within about a month each. We have also been able to add, extend, and improve the economic terms of many of our financing facilities, while also significantly ramping up the volume and pace of our non-QM securitization activity. We just closed our 10th non-QM securitization last month, and our securitization pace has now increased to one deal per quarter, which is much more efficient from a financing standpoint. These securitizations are important to us because they provide low-cost, long-term, locked-in financing, which strengthens our balance sheet, while also generating highly attractive retained tranches that have helped enhance our overall earnings. The credit performance of our non-QM securitizations has been among the best in the sector, and in fact, one of our 2020 deals was just upgraded last week by Fitch. One of the keys to our portfolio growth has been the strategic relationships that we have with our originator affiliates. Through these relationships, we can better adjust both the acquisition volume and the underwriting criteria of our loan investments. As a result, over the past two years, our loan portfolios have become among Ellington Financial's largest, highest-yielding, and best-performing strategies. At the same time, the profits generated by our equity investments in these origination companies have provided a strong tailwind for our earnings and book value per share. By owning both the ultimate loans produced as well as stakes in the originators themselves, we have two ways to win. During the fourth quarter, we completed the acquisition of three more loan originator equity stakes, including an investment in the commercial mortgage bridge loan lender, Sheridan Capital, which is our first equity investment in the commercial mortgage originator space. We have been investing in commercial mortgage loans with the Sheridan team for more than a decade. Over a wide range of market environments, The Sheridan team has provided us with a steady stream of attractive investments, while also building their own reputation in the market as a flexible and reliable source of capital for real estate owners. Thanks to the additional operating capital provided by this strategic transaction, Sheridan is poised for even greater growth. In fact, Sheridan's flexibility and efficiency were highlighted just this past quarter, as it was able to get a number of loans over the finish line to accommodate year-end closing deadlines, which many other lenders were unable to do. Our teams worked diligently up until the final day of the year, and we were able to pick up some very attractive commercial mortgage bridge loan investments. In recent quarters, we have emphasized the growth of our commercial mortgage loan portfolio as one of our key drivers of earnings. And as you can see on slide 11, Ellington Financial had $191 million of CRE originations in the fourth quarter, which set yet another record for us, and which grew our total portfolio by 30% even after paydowns and resolutions to $458 million. With our emphasis on relatively low LTVs and short durations, the credit performance of these loans has been excellent, including throughout the COVID market shock. You can see the latest attributes of our diversified commercial mortgage portfolio on the preceding slide, slide 10. Nearly 90% of our new originations during the fourth quarter were multifamily. And as you can see on this slide, about two-thirds of our portfolio consists of multifamily-backed loans, an asset class where we've consistently found attractive risk-adjusted returns. Turning back to slide 11, you can see the significant quarterly growth of our non-QM and residential transition loan portfolios as well. Finally, as we announced last night, we have just signed a definitive agreement to acquire substantially all of the reigning interests in our affiliate reverse mortgage originator, Longbridge Financial. I'll provide more detail on that in my closing remarks. I'll now pass it over to JR to discuss our fourth quarter financial results in more detail.