Ellington Financial Inc. Common Stock

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial First Quarter 2024 Earnings Conference Call. Today's call is being recorded. At this time, all participants have been placed in 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 star 2. Lastly, if you should require operator assistance, please press star 0. It is now my pleasure to turn the call over to Aladin Chalet. 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 and Part 2, Item 1A of our Quarterly Report on Form 10-Q, 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 Tchaikovsky, Co-Chief Investment Officer of the EFC, and J.R. Hurley, 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 presentation. With that, I now turn the call over to Larry.

Thanks, Eladine, and good morning, everyone. As always, thank you for your time and interest in Ellington Financial. I'll begin on slide three of the presentation. For the first quarter, we reported net income of $0.32 per share and adjusted distributable earnings of $0.28 per share. The credit strategy was the primary contributor to our quarterly results, generating 48% per share of net income, led by steady performance from our non-QM and residential transition loan businesses, together with strong returns from our secondary CLO, CMBS, and non-agency RMBS portfolios. Our agency strategy contributed a modest $0.03 per share in a quarter where agency MBS lagged the broader rally in credit, with market consensus shifting to a higher-for-longer expectation. Finally, Longbridge generated $0.10 per share of gap net income, Though I'll note that after taking out the mark-to-market gain on our reverse MSRs and certain interest rate hedges, ADE from Longbridge was still slightly negative for the quarter. That slightly negative ADE from Longbridge again weighed down EFC's overall ADE for the quarter. But on a positive note, so far in the second quarter, origination volumes and submissions at Longbridge are pacing well ahead of first quarter volumes and second quarter projections. and so we expect Longridge to contribute positively to our ADE in the second quarter. Meanwhile, in the first quarter, we made progress deploying the uninvested capital we held at year end following the closing of the Arlington merger. Our credit portfolio expanded, driven by a larger RTL portfolio and opportunistic corporate CLO purchases. We also grew our commercial mortgage bridge loan portfolio after five consecutive quarters of payoffs exceeding new originations in that portfolio. With borrowers finally more realistic about commercial real estate property valuations, we are seeing strong origination flow from our affiliate Sheridan Capital, which has also sourced a couple of NPLs so far for us in 2024. We also achieved some key portfolio objectives during the first quarter that I'd like to highlight. we successfully completed our inaugural securitization of proprietary reverse mortgage loans from Longbridge, which converted repo financing into term non-mark-to-market financing at an attractive cost of funds. We expect that this securitization marks the beginning of an ongoing program for our proprietary reverse business, similar to the program we have established in our non-QM businesses. Second, we continue to cull lower-yielding securities from our portfolio. selling agency and lower yielding non-agency RMBS and CMBS in order to free up capital for higher yielding opportunities. Since we generally use more leverage in our MBS portfolios, especially in our agency MBS portfolio, than we do in our loan portfolios, these MBS sales drove down our overall leverage ratios in the first quarter, despite the increased capital deployment overall. So far in the second quarter, we further expanded our RTL and commercial mortgage bridge loan portfolios. We've originated more proprietary reverse mortgage loans on the heels of that March securitization, and we've also begun adding investments in closed-end second lien mortgages and home equity lines of credit, or HELOCs. While we haven't focused on closed-end seconds and HELOCs until recently, we are optimistic about the prospects of deploying significant capital in this sector going forward. After several consecutive years now of home price appreciation, homeowners across the country are sitting on an enormous amount of home equity. But with mortgage rates up sharply, it doesn't make sense for most borrowers to refinance their existing low-rate mortgage. Closed-end seconds and HELOCs enable these borrowers to tap into that home equity without disturbing their low-rate locked-in first mortgage. We are seeing a surge of demand for these products from some of the highest credit quality borrowers with pristine pay histories. and attractive yield opportunities. One wildcard here is potential competition from Freddie Mac and Fannie Mae. As always, we'll want to focus on products where we're not competing with those agencies. Also in April, we completed our first non-QM securitization in 14 months, taking advantage of the tightest AAA yield spreads we've seen in two years and booking a significant gain as a result. In recent months, we had been choosing to sell many of our non-QM loans, rather than securitize them, to take advantage of strong hold-on bids in the marketplace. But with AAA spreads finally back to early 2022 levels, we were able to achieve some great economics in the securitization market and retain some high-yielding residual tranches to boot. With that, I'll turn the call over to JR to discuss the first quarter financial results in more detail.