Ellington Financial Inc. Common Stock

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial First Quarter 2022 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 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, 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'm joined on the call today by Larry Penn, Chief Executive Officer of Ellington Financial, Mark Takosky, Co-Chief Investment Officer of EFC, and J.R. Herlihy, Chief Financial Officer of EFC. As described in our earnings press release, our first 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 presentations. 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. We'll begin on slide three. During the first quarter, volatility spiked to levels not seen since the COVID liquidity crisis of 2020. Interest rates rose rapidly, and the yield curve flattened significantly. Yield spreads in virtually every fixed income sector widened relative to US Treasuries and interest rate swaps, and nearly all of the major equity indices sold off. Despite this challenging market environment, Ellington Financial experienced only a moderate book value decline for the quarter, thanks to our hedging strategies, diversified portfolio, and careful attention to our leverage ratios, together with the outperformance of several of our credit strategies. Although we did have some strategies that were down for the quarter, the benefits of our diversification were again on full display, as gains from other parts of the portfolio, along with net gains from our hedges, offset most of these losses. Mark will get into specifics of how we outperformed in credit. Overall, our economic return was around negative 1%, in what ended up being a historically difficult quarter for the fixed income markets. We continued to benefit from our loan portfolios, as they not only generated positive returns, but thanks to their short duration, they also continue to supply a steady stream of recyclable capital through portfolio paydowns and payoffs. Between our residential transition loan, commercial mortgage loan, and consumer loan portfolios, we received principal paydowns of $156 million during the quarter, which represented more than 17% of the combined fair value of those portfolios coming into the quarter. This is a great feature of our portfolio construction. Our short-duration assets are returning a lot of capital right when we can put that capital to work at much higher yields and higher yield spreads. And speaking of just-in-time capital, right at the end of the quarter, we completed a $210 million five-year senior unsecured note offering, which was single-A rated and priced at a fixed coupon of five and seven-eighths, which was a spread of 3.32% to the five-year treasury. I believe that the strong rating and excellent deal execution reflected Ellington Financial's long track record of book value stability and effective risk management, attributes which are as important today as ever. This senior unsecured note offering was clearly timely, given the returns we are seeing on new investments. We expect this offering to be accretive to earnings in the months ahead. In addition, we have already completed three loan securitizations this year. which have locked in additional long-term non-mark-to-market financing on both our non-QM mortgage portfolio and our consumer loan portfolio. These stable sources of financing further diversify our balance sheet, cushion against the potential impact of market shocks, and put us in a position to react quickly to market opportunities. Putting it all together, the steady return of capital from our loan portfolios, the capital raised from the senior note offering, and multiple securitizations freeing up capital We have now amassed significant dry powder to deploy, just as we see reinvestment yields rising rapidly and pricing dislocations emerging in various sectors. I'll now pass it over to JR to discuss our first quarter financial results in more detail.