Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ellington Financial Inc (EFC, Financial) reported an increase in adjusted distributable earnings to $0.40 per share, covering the $0.39 dividend for the quarter.
- The Longbridge segment showed significant improvement, contributing $0.12 per share to adjusted distributable earnings, driven by a successful proprietary reverse mortgage securitization.
- EFC's investment portfolio expanded, with high-yielding loan portfolios increasing by 26%, supported by strong balance sheet utilization.
- The company successfully executed multiple securitizations, including non-QM and proprietary reverse mortgage deals, achieving favorable financing terms.
- EFC added new financing lines, enhancing its ability to replace higher-cost debt and improve earnings through cost-effective refinancing.
Negative Points
- The Longbridge segment reported a GAAP net loss of $0.03 per share due to interest rate hedges, despite strong origination results.
- EFC faced net losses on its consumer loan portfolio and a related equity investment, impacting overall earnings.
- Operating expenses increased by 18% over the quarter, driven in part by one-time employee option redemptions at Longbridge.
- The percentage of delinquent loans increased in the commercial mortgage loan portfolio, with some loans moving to 90+ day delinquencies.
- EFC's overall leverage increased to 1.8 times from 1.6 times, raising concerns about potential risks associated with higher leverage.
Q & A Highlights
Q: Can you provide an update on how you're viewing the relative value between agency and credit opportunities given recent interest rate movements?
A: Mark Tecotzky, Co-Chief Investment Officer, explained that the reduction in the agency portfolio is not a comment on relative value but rather a strategic shift towards non-agency origination and securitization businesses. The agency portfolio is expected to continue declining in size, with capital being allocated to areas that can create better long-term franchise value.
Q: What is the baseline contribution from Longbridge that could provide decent dividend coverage?
A: Laurence Penn, CEO, mentioned that a $0.09 per share contribution from Longbridge is a reasonable target for dividend coverage. However, there will be volatility due to interest rate sensitivity. The ability to execute securitizations will also support this target.
Q: How has the participation of insurance companies impacted the non-QM market?
A: Mark Tecotzky noted that insurance companies have been consistent buyers, stabilizing loan prices and reducing volatility. While they create competition, their presence has been beneficial for market stability and has diversified the market for originators.
Q: Can you discuss the increase in operating expenses this quarter?
A: Laurence Penn explained that the increase was primarily due to a one-time redemption of employee-held options at Longbridge, which will not recur in the next quarter.
Q: What are your expectations for the pace of securitizations, and how has the execution been on reverse mortgage deals?
A: Laurence Penn stated that they expect to conduct four to six non-QM securitizations next year, depending on market conditions. The execution on reverse mortgage deals has been satisfactory, with repeat buyers and plans to accumulate for another deal.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
