Ellington Financial Inc. (EFC) Earnings Call Transcript & Summary

Good morning, and welcome to Ellington Financial, Inc.'s. 2021 Annual Stockholders meeting. At this time, I would like to turn the conference over to Ron Simon, Chairman of the Board of Directors at EFC. Please go ahead.

Thank you, and good morning, everyone. On behalf of the entire Board, I would like to thank you for virtually attending our Annual Meeting of Shareholders. By hosting the meeting virtually, all of our stockholders, including those that reside outside of the local area and those unable to attend for health and safety reasons, are able to attend and vote with the same ease as listening to a quarterly earnings call rather than incurring cost to travel to an in-person meeting. At today's meeting, following the introduction of the members of our Board of Directors, we will conduct the formal portion of our annual meeting. Our President and Chief Executive Officer, Laurence Penn, will then make a few remarks. I would now like to introduce the other members of our Board of Directors who are virtually attending today's meeting. In addition to myself, our directors attending today are Laurence Penn, Lisa Mumford, Edward Resendez and Steve Dannhauser. In addition, David Gerstley from Pricewaterhouse LLP, our registered independent public accounting firm,, is on the line today. Mr. Gerstley will be available to answer any appropriate questions you may have after the formal meeting. With that, I will now call our 2021 Annual Stockholders Meeting to order. We will now conduct the formal business as set forth in the notice of meeting and proxy statement, which was mailed to all shareholders of record as of March 22, 2021, and the agenda shown on the website. EFC stockholders as of the record date were sent notice of the annual meeting on or about April 1, 2021, along with a proxy statement and requests for a proxy by the Board of Directors. The notice of annual meeting also stated the date, time and meeting purpose, along with the web address for participating in today's virtual meeting. I am pleased to announce that there are, present by proxy, a sufficient number of the voting shares of the company to constitute a quorum. Accordingly, this meeting is duly called to order. A copy of the notice, proxy statement and form of proxies as well as an affidavit of distribution of Broadridge Financial Solutions shall be made a part of the record of this meeting. At this time, any stockholders that are logged in and who have not already submitted a proxy and wish to vote their shares may do so now by clicking on the vote here button on your screen. [Voting]

While we allow time for stockholders who haven't already done so to complete their voting, I'd like to remind you that some of the statements made at this meeting may be considered forward-looking. The company cautions investors that results of future operations may differ from those anticipated. We urge you to review the cautionary statements and other information contained in the company's filings with the SEC, including our annual report on Form 10-K for the fiscal year 2020, which identifies certain factors that could cause actual results to differ materially from those projected in any forward-looking statements made during this meeting. Copies of the 10-K and other filings are available through the company or online. At this point, the polls are closed, and I will now report the preliminary results of the voting. There are 3 proposals to be considered during this meeting, all of which were described in detail in the proxy statement furnished to stockholders. The company has not received notice from any of its stockholders of any other matter to be considered at today's meeting. The first item of business is the election of directors. The Board has selected myself, Ron Simon, Laurence Penn, Lisa Mumford, Ed Resendez and Steve Dannhauser as its nominees for election as directors. I am pleased to report that each of the directors standing for election at today's annual meeting have received the affirmative vote of a plurality of the votes cast and are hereby elected. The second item of business relates to the nonbinding advisory vote on the company's executive compensation program. A majority of the shares present or represented by proxy at this meeting have voted in favor of this proposal. Consequently, the proposal has received the advisory approval of stockholders. The third proposal relates to the ratification of the appointment of PricewaterhouseCoopers to serve as the company's independent registered public accounting firm for the company's 2021 fiscal year. A majority of the shares present or represented by proxy at this meeting have voted in favor of this proposal. Consequently, the proposal has been approved. The final tabulation of these votes will appear in our required Form 8-K to be filed with the Securities and Exchange Commission. This concludes the formal portion of our 2021 Stockholders Meeting. At this time, Larry Penn, Chief Executive Officer of the company, will make a short presentation regarding the company, and then we will have a short question-and-answer period for our investors.

Thank you, Ron, and hello, fellow shareholders. As always, we appreciate your support now and over the years as the company approaches its 14th anniversary. From our inception in 2007 through year-end 2020, Ellington Financial has generated an average annualized return on book value of 9.3%, and it's been an extremely high-quality return over the years, with exceptionally low volatility. At our Annual Shareholder meeting this time last year, my remarks were focused on managing through the challenges of the COVID market crisis, and it's just incredible how much the market has changed in the past year. I will briefly review 2020 now, which will illustrate just how far we've come since our last annual meeting. And then I'll comment on what we have seen so far in 2021. After a quiet start to 2020, the spread of COVID-19 brought the global economy to a virtual standstill in March, which resulted in extreme volatility and widespread market dislocations, including a collapse of asset values and liquidity. Ellington Financial entered the crisis with a strong balance sheet and prudent leverage ratios. And throughout the crisis, we were able to avoid forced asset sales, meet all margin calls and strategically reduce leverage and enhance liquidity through orderly sales of liquid agency assets. As a result, we emerged from the crisis within a intact credit portfolio. And so we were able to both participate fully in the market recovery and also capitalize on some tremendous investment opportunities. Furthermore, for our loan origination partners and affiliates, our health helped translate into their health and growth as they were able to add significant market share in 2020 in their respective market segments and achieve very attractive profit margins in 2020 to boot. In particular, our non-QM business and our small balance commercial mortgage business were unqualified successes in 2020, and we anticipate continued strong growth and profitability in those businesses in 2021. So thanks to our adherence to liquidity management, risk management and hedging principles that have served us so well over the years, including during numerous past market crises. Ellington Financial actually delivered positive net income for the full year 2020, and I'm extremely proud to say that we are one of only -- one of the only publicly traded hybrid mortgage REITs able to make that claim. We continued our strong performance through the first quarter of 2021, growing core earnings and our proprietary loan pipeline significantly and generating an annualized economic return of 21% during the first quarter. In addition, so far in 2021, we have increased our monthly dividend of full 50% to its current level of $0.15 per share. I am proud to say that as of March 31, 2021, our book value per share was $18.16, basically unchanged from our $18.27 book value per share as of February 29, 2020, right before the March 2020 COVID lows. And that's all without giving credit to the $1.26 of dividends on our common stock over that time period. With all that we've achieved this past year, I believe that it's no coincidence, and I'm proud to announce that effective tomorrow, Friday, May 14, Ellington Financial will be added to the S&P Small cap 600 Index. This is a significant milestone for the company and will not only provide greater visibility for the company, but will substantially bolster liquidity for shareholders and broaden our shareholder base. Looking forward, as the economy continues to reopen, but market volatility returns, our focus continues to be on the dual mandate of growing the portfolio and earnings while staying disciplined on risk and liquidity management to preserve book value across market cycles. We continue to believe that the best way to achieve this is through the continued cultivation and expansion of our proprietary loan pipelines. As I mentioned on our recent earnings call, we are in active negotiations on multiple additional small but strategic equity investments in loan originators, and we're hopeful that we'll close on 1 or 2 of these strategic investments later this quarter, which should add nicely to our loan flow. We believe that our strategic equity investments represent underappreciated franchise value for Ellington Financial. Finally, before I close, I'd like to recap some recent changes to our Board of Directors. Earlier this year, we announced that Ron Simon was appointed as our new Chairman of the Board of Directors, replacing Tom Robards. As a Director of Ellington Financial, since its inception in 2007, Ron has deep knowledge of the company and has been an invaluable contributor over its entire history. And I know I speak for the entire Board when I express my deepest gratitude to Tom Robards for his many years of invaluable service and dedication as the Chairman of the Board of Ellington Financial. We are all better directors for having worked with Tom and learn from Tom over these past many years. Also earlier this year, we announced that Stephen Dannhauser joined our Board as an independent Director. Among his many other accomplishments, Stephen is the former chairman of the law firm of Weil, Gotshal and his wide-ranging experience and expertise who undoubtedly serve the company well. And so the Ron Simon, Ed Resendez, Lisa Mumford and now also Stephen Dannhauser, my fellow directors with whom I proudly serve. Thank you all for your invaluable support, guidance and dedication. Ellington Financial and its shareholders are very fortunate to have all of you as directors. And finally, thank you to our shareholders for your continued support and confidence, especially during an unprecedented and difficult year. As always, we remain strongly aligned with you as manager and the Board hold significant investments in EFC stock alongside you. All right. Now if there are any questions, please post them. Okay. I see that there are no questions. So this concludes our question-and-answer session and concludes our 2021 Annual Meeting.

Larry, thanks for the report that you made and for your kind remarks to us. I would like to thank all of you for attending this annual meeting virtually. I would like to express my appreciation of the stockholders who submitted their proxies but were not able to be present. The directors and officers -- appreciate the loyalty and confidence of all of our stockholders. Operator, please end the meeting.