Ellington Credit Co (EARN) 2023 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Residential Mortgage REIT 2023 third quarter financial results conference call. Today's call is being recorded. (Operator Instructions) It's now my pleasure to turn the floor over to Alaael-Deen Shilleh, Associate General Counsel. Sir, you may begin.

早安，女士們，先生們。謝謝你的支持。歡迎參加艾靈頓住宅抵押房地產投資信託 2023 年第三季財務業績電話會議。今天的通話正在錄音。 （操作員說明） 現在我很高興將發言權交給副總法律顧問 Alaael-Deen Shilleh。先生，您可以開始了。

Thank you. Before we begin, 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 and 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.

謝謝。在開始之前，我想提醒大家，本次電話會議中所做的某些陳述可能構成 1995 年《私人證券訴訟改革法案》安全港條款含義內的前瞻性陳述。前瞻性陳述不具有歷史意義。性質，並受到各種風險和不確定性的影響，這些風險和不確定性可能導致公司的實際結果與其信念、期望、估計和預測不同。

Consequently, you should not rely on these forward-looking statements as predictions of future events. We strongly encourage you to review the information that we have filed with the SEC, including the earnings release, the Form 10-K for more information regarding these forward-looking statements and any related risks and uncertainties. Unless otherwise noted, statements made during this conference call are made as of the date of this call, and the company undertakes no obligation to provide or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

因此，您不應依賴這些前瞻性陳述作為對未來事件的預測。我們強烈建議您查看我們向 SEC 提交的信息，包括收益報告、10-K 表，以了解有關這些前瞻性陳述以及任何相關風險和不確定性的更多信息。除非另有說明，本次電話會議期間所發表的聲明均截至本次電話會議之日，本公司不承擔提供或修改任何前瞻性聲明的義務，無論是由於新資訊、未來事件或其他原因。

Joining me on the call today are Larry Penn, Chief Executive Officer of Ellington Residential; Mark Tecotzky, our Co-Chief Investment Officer; and Chris Smernoff, our Chief Financial Officer.

今天和我一起參加電話會議的是艾靈頓住宅公司執行長拉里·佩恩 (Larry Penn)； Mark Tecotzky，我們的聯合首席投資長；以及我們的財務長 Chris Smernoff。

As described in our earnings press release, our third quarter earnings conference call presentation is available on our website, earnreit.com. Our comments, this morning, will track the presentation. Please note that any references to figures in this presentation are qualified in their entirety by the note at the back of the presentation.

正如我們的收益新聞稿中所述，我們的第三季度收益電話會議演示可在我們的網站 Earnreit.com 上查看。今天早上我們的評論將追蹤簡報。請注意，本簡報中對圖表的任何引用均由簡報後面的註釋完整限定。

With that, please turn to slide 3 of the presentation and I will now turn the call over to Larry.

現在，請翻到簡報的幻燈片 3，我現在將把電話轉給拉里。

Thanks, Alaael-Deen, and good morning, everyone. We appreciate your time and interest in Ellington Residential. The third quarter actually began on a constructive note. In July, inflation fell to its lowest year-over-year pace in two years, GDP growth beat expectations, and US equities and most credit fixed income sectors posted gains for the month. For Agency RMBS, FDIC selling of specified pools continue to be well digested by the market. And the US Agency RMBS index generated a positive excess return for the month over treasuries.

謝謝，Alaael-Deen，大家早安。我們感謝您花時間關注艾靈頓住宅。第三季實際上以建設性的基調開始。 7 月份，通膨跌至兩年來最低水平，GDP 成長超出預期，美國股市和大多數信貸固定收益板塊本月上漲。對於代理 RMBS，FDIC 指定池的銷售繼續被市場很好地消化。美國機構 RMBS 指數本月比國債產生了正的超額報酬。

EARN had a positive economic return in July as well. The quarter got considerably more challenging from there, however. Realized volatility remained high and long-term interest rates continue their upward march, which puts significant pressure on Agency yield spreads. In particular, the Federal Reserve's hawkish messaging at its September meeting triggered a sell-off in most fixed income sectors, Agency RMBS included. Well, a possible government shutdown added to the uncertainty.

EARN 在 7 月也取得了積極的經濟回報。然而，從那時起，本季變得更具挑戰性。實際波動率仍然很高，長期利率繼續上行，這給機構收益率利差帶來了巨大壓力。特別是，聯準會在 9 月會議上發出的強硬訊號引發了大多數固定收益產業的拋售，其中包括機構 RMBS。好吧，政府可能關閉增加了不確定性。

Yield on the 10-year treasury rose 82 basis points between mid-July and September 30. And the MOVE index, which tracks expected short-term interest-rate volatility remained elevated. Against this backdrop, Agency RMBS very significantly underperformed the comparable US treasuries and interest rate swaps during the quarter, with lower coupon RMBS exhibiting the most pronounced underperformance.

7 月中旬至 9 月 30 日期間，10 年期公債殖利率上漲了 82 個基點。追蹤預期短期利率波動的 MOVE 指數仍處於高位。在此背景下，機構人民幣支持證券在本季的表現明顯低於可比較美國國債和利率掉期，其中票面利率較低的人民幣支持證券表現最為明顯。

On slide 3 of the presentation, you can see that the dollar prices on Fannie 2.5 through 3.5 declined by more than 5 points sequentially. EARN generated an overall net loss of $0.75 per share for the quarter, with net losses on our specified pools exceeding net gains in our interest rate hedges and delta hedging costs, which are tied to interest-rate volatility remaining high.

在簡報的第 3 張投影片上，您可以看到房利美 2.5 至 3.5 的美元價格連續下跌超過 5 點。 EARN 本季每股總淨虧損為 0.75 美元，我們指定池的淨虧損超過了我們的利率對沖和 Delta 對沖成本的淨收益，這與利率波動性仍然很高有關。

On the positive side, our adjusted distributable earnings increased quarter over quarter, driven by further portfolio turnover, capturing higher market yields, while cost of funds remained relatively stable. In addition, a significant portion of the losses on our Agency RMBS for the quarter were unrealized and resulted from yield spread widening that could be largely recoverable if market volatility subsides. We sold some pools incrementally and we were able to avoid to avoid the forced selling that we saw from others in September and October.

從積極的一面來看，在投資組合週轉率進一步提高的推動下，我們調整後的可分配收益環比增長，獲得了更高的市場收益率，而資金成本保持相對穩定。此外，本季我們的代理商 RMBS 損失的很大一部分並未實現，這是由於收益率利差擴大造成的，如果市場波動減弱，收益率利差可能會在很大程度上得到彌補。我們逐步出售了一些礦池，並且能夠避免我們在 9 月和 10 月看到的其他礦池的強制出售。

We continued to hold a strong liquidity position at quarter-end with cash and unencumbered assets representing 38% of our total equity, with our leverage ratios roughly unchanged quarter over quarter. We continue to maintain additional borrowing capacity. Looking to the balance of the year, it's great to have dry powder available in a market rich with opportunities. Despite the rally of the past couple of weeks, Agency yield spreads remain very wide and the mortgage basis looks very attractive right now with the impact of elevated volatility and higher for longer interest rate environment seemingly fully priced in.

季度末，我們繼續保持強勁的流動性頭寸，現金和未支配資產占我們總股本的 38%，槓桿率環比基本保持不變。我們繼續保持額外的借貸能力。展望今年的餘下時間，在充滿機會的市場上提供乾粉是件好事。儘管過去幾週出現反彈，但機構收益率利差仍然非常大，而且抵押貸款基礎目前看起來非常有吸引力，波動性加大以及長期利率環境走高的影響似乎已完全反映在價格中。

Furthermore, on a technical basis, late fall and winter seasonal effects should bring a drop in Agency RMBS supply. And the fourth quarter is typically a strong quarter for bank deposit growth and resulting security purchases. The main thing, keeping money managers and banks from returning to the sector in a meaningful way has been elevated volatility.

此外，從技術角度來看，秋末和冬季的季節性影響應該會導致機構 RMBS 供應下降。第四季通常是銀行存款成長和由此產生的證券購買的強勁季度。阻礙基金經理人和銀行以有意義的方式重返該行業的主要原因是波動性加劇。

If volatility finally subsides somewhat, incremental institutional demand for Agency RMBS could be a significant driver of total returns for this sector in the coming months. I'm particularly excited to report that, towards the end of the third quarter, we started to allocate a portion of EARN's capital to corporate CLOs, specifically CLO mezzanine debt and CLO equity. While this has been a small allocation so far, I expect the allocation to grow significantly. And I'm very optimistic about what this could mean for EARN going forward.

如果波動性最終減弱，機構對機構 RMBS 的增量需求可能會成為未來幾個月該行業總回報的重要推動力。我特別興奮地向大家報告，在第三季末，我們開始將 EARN 的部分資本分配給企業 CLO，特別是 CLO 夾層債務和 CLO 股權。雖然到目前為止分配金額很小，但我預計分配額會大幅成長。我對這對 EARN 未來的發展意味著非常樂觀。

Yield spreads on certain CLO mezzanine and equity tranches available in the secondary market are near levels we saw last in the summer of 2020, and the credit markets were still very much recovering from the COVID lows. Furthermore, no two CLOs are alike, which given Ellington's extensive CLO expertise, should create lots of trading opportunities and relative value opportunities for EARN to capture.

二級市場上某些 CLO 夾層和股票部分的收益率利差接近我們上次在 2020 年夏季看到的水平，信貸市場仍在從新冠疫情低點中恢復過來。此外，沒有兩個 CLO 是相同的，鑑於 Ellington 廣泛的 CLO 專業知識，應該會為 EARN 創造大量交易機會和相對價值機會。

Ellington's strong and long-standing track record investing in CLOs in the secondary market should position EARN well to capitalize on both near term and the long-term opportunities we see in the sector. We are off to a good start as in the past six weeks EARN has acquired several CLO mezzanine debt and CLO equity tranches where we project returns on equity well in excess of 20%.

Ellington 在二級市場投資 CLO 的長期良好記錄應該使 EARN 能夠很好地利用我們在該行業看到的短期和長期機會。我們有了一個良好的開端，因為在過去六週內，EARN 收購了幾筆 CLO 夾層債務和 CLO 股權部分，我們預計股本回報率將遠超 20%。

I believe that CLO mezzanine debt and equity pair very well with Agency RMBS, as a complementary strategy that will diversify and help drive EARN's earnings growth going forward. Mark will elaborate that later in the presentation.

我相信 CLO 夾層債務和股權與代理 RMBS 非常匹配，作為一種補充策略，將實現多元化並有助於推動 EARN 未來的獲利成長。馬克將在稍後的演示中詳細闡述這一點。

I'll now pass it over to Chris to review our financial results for the third quarter in more detail. Chris?

現在我將把它交給克里斯，讓他更詳細地審查我們第三季的財務表現。克里斯？

Thank you, Larry, and good morning, everyone. Please turn to slide 5 for a summary of Ellington Residential's third quarter financial results. For the quarter ended September 30, we reported a net loss of $0.75 per share and adjusted distributable earnings of $0.21 per share. These results compared to net income of $0.09 per share and ADE of $0.17 per share in the second quarter. ADE excludes the catch-up amortization adjustment, which was positive $46,000 in the third quarter as compared to a negative $376,000 in the prior quarter.

謝謝拉里，大家早安。請參閱投影片 5，以了解 Ellington Residential 第三季財務表現摘要。截至 9 月 30 日的季度，我們報告每股淨虧損 0.75 美元，調整後可分配收益為每股 0.21 美元。相比之下，第二季的淨利潤為每股 0.09 美元，ADE 為每股 0.17 美元。 ADE 不包括追趕攤銷調整，第三季為正 46,000 美元，而上一季為負 376,000 美元。

During the quarter, net losses on our Agency RMBS and negative net interest income exceeded net gains on our interest rate hedges, while our delta hedging costs remained high as a result of the elevated interest rate volatility. As a result, we had a significant net loss in the quarter. Our net interest margin increased to 1.24% from 0.93% quarter over quarter due to higher asset yields resulting from continued portfolio turnover. The increase in our NIM drove the sequential increase in ADE despite lower average holdings in the third quarter.

本季度，我們的代理 RMBS 淨虧損和負淨利息收入超過了我們的利率對沖淨收益，而由於利率波動加劇，我們的 Delta 對沖成本仍然很高。結果，我們本季出現了重大淨虧損。由於投資組合持續週轉導致資產收益率上升，我們的淨利差從上一季的 0.93% 上升至 1.24%。儘管第三季平均持有量較低，但淨利差的成長推動了 ADE 的環比成長。

We also continue to benefit from positive carry on our interest rate swap hedges, where we receive a higher floating rate and pay a lower fixed rate. Payouts on our specified pools increased slightly to 1.02% as of September 30, from 0.98% as of June 30.

我們也繼續受益於利率掉期對沖的正利差，即我們獲得更高的浮動利率並支付更低的固定利率。截至 9 月 30 日，我們指定池的支出從 6 月 30 日的 0.98% 略有增加至 1.02%。

Please turn now to our balance sheet on slide 6. Book value was $7.2 per share at September 30, as compared to $8.12 per share at June 30. Including the $0.24 per share of dividends in the quarter, our economic return was negative 10.6%. We ended the quarter with cash and cash equivalents of $40 million, down slightly from $43.7 million at June 30.

現在請翻到投影片6 上的資產負債表。9 月30 日的帳面價值為每股7.2 美元，而6 ​​月30 日的帳面價值為每股8.12 美元。包括本季每股0.24 美元的股息，我們的經濟報酬率為負10.6%。本季末，我們的現金和現金等價物為 4,000 萬美元，略低於 6 月 30 日的 4,370 萬美元。

Next, please turn to slide 7, which shows a summary of our portfolio holdings. Our Agency RMBS holdings declined by 11% to $791 million as of September 30, compared to $889 million as of June 30. This decline was driven by principal paydowns, net sales, and net losses. Our Agency RMBS portfolio turnover was 19% for the quarter. Over the same period, our aggregate holdings of non-Agency RMBS and interest-only securities increased slightly. These positions had a positive contribution to EARN's results, driven by net interest income and net gains.

接下來，請翻到投影片 7，其中顯示了我們的投資組合持股摘要。截至 9 月 30 日，我們機構的 RMBS 持有量下降了 11%，至 7.91 億美元，而截至 6 月 30 日為 8.89 億美元。這一下降是由本金償還、淨銷售和淨虧損推動的。本季我們代理的 RMBS 投資組合營業額為 19%。同期，我們對非機構 RMBS 和只付息證券的總持有量略有增加。在淨利息收入和淨收益的推動下，這些頭寸對 EARN 的業績做出了積極貢獻。

We also added $3.8 million of CLOs during the final week of the quarter, and we expect that CLO allocation to grow potentially significantly. Our debt-to-equity ratio adjusted for unsettled purchases and sales decreased to 7.3 times as of September 30, as compared to 7.6 times as of June 30. The decline was primarily due to a decrease in borrowings on our smaller Agency RMBS portfolio, partially offset by lower shareholders' equity. Over the same period, our net mortgage assets-to-equity ratio increased slightly to 7.1 times from 7 times as a smaller net short TBA position and a decline in shareholders' equity more than offset a smaller RMBS portfolio.

我們還在本季最後一周增加了 380 萬美元的 CLO，我們預計 CLO 分配可能會大幅成長。截至9 月30 日，我們的未結算採購和銷售調整後的債務股本比率降至7.3 倍，而截至6 月30 日為7.6 倍。這一下降主要是由於我們規模較小的代理RMBS 投資組合的借款減少，部分原因是被較低的股東權益所抵銷。在同一時期，我們的淨抵押貸款資產與權益比率從 7 倍小幅上升至 7.1 倍，原因是淨空頭 TBA 頭寸的減少和股東權益的下降足以抵消 RMBS 投資組合規模的縮小。

Finally, on slide 9, you can see the details of our interest rate hedging portfolio. During the quarter, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBAs, US Treasury securities, and futures. As we sold Agency pools during the quarter, we covered most of our short TBA position hedges, and so we ended the quarter with a relatively small net short TBA position.

最後，在投影片 9 上，您可以看到我們的利率對沖投資組合的詳細資訊。本季度，我們繼續透過利率掉期和TBA、美國國債和期貨空頭部位來對沖利率風險。由於我們在本季度出售了代理池，我們涵蓋了大部分空頭 TBA 頭寸對沖，因此我們在本季度結束時擁有相對較小的淨空頭 TBA 頭寸。

I'll now turn the presentation over to Mark.

我現在將簡報交給馬克。

Thanks, Chris. Larry already articulated many of the challenges for Agency RMBS for the quarter that led to our negative return of violent rate move, fears of money manager and mortgage REIT [selling], lots of daily rate volatility that had to be delta hedged, just to name a few of those challenges. Following quarter-end, the underperformance of Agency RMBS continued for the first three weeks of October, but markets have since reversed course quite a bit. As of Friday, they earned fourth quarter-to-date economic return at approximately negative 1.7%.

謝謝，克里斯。拉里（Larry）已經闡明了本季度機構RMBS 面臨的許多挑戰，這些挑戰導致我們猛烈的利率變動、對資金管理者和抵押房地產投資信託（出售）的擔憂、大量每日利率波動（必須進行Delta對沖）帶來的負面回報，僅舉幾個例子其中一些挑戰。季度末後，機構 RMBS 的表現不佳持續到 10 月的前三週，但此後市場走勢發生了相當大的逆轉。截至週五，他們第四季迄今的經濟回報約為負 1.7%。

You'll only need to look at slide 3 to get a sense of just how big the price movements in the quarter were. Some 30-year coupons were down over 5 points. It's important to remember that when you get into a real bear market for anything, prices often get to places that have nothing to do with fundamental value. After extreme downward price movements, certain investment vehicles become forced to sell assets to handle redemptions or margin calls, which can cause prices to spiral downward to distress levels.

您只需查看幻燈片 3 即可了解該季度的價格變動有多大。部分30年期息票下跌超過5點。重要的是要記住，當任何東西進入真正的熊市時，價格往往會達到與基本價值無關的水平。在價格大幅下跌之後，某些投資工具被迫出售資產以處理贖回或追加保證金通知，這可能導致價格螺旋式下跌至困境水準。

And since Agency RMBS are a lot more [liquid than almost anything of structured products] they are often the first thing these vehicles sell. As an investment manager in a situation like this, your top priority is to preserve value by avoiding becoming a distressed seller yourself. EARN did just that in the third quarter. This allowed our portfolio to participate in the significant market recovery of the last 2.5 weeks, but in any quarter with a lot of price volatility, the returns on a levered Agency strategy are driven by price changes and not spread income, and we had significant unrealized losses.

由於機構 RMBS 的流動性比幾乎所有結構性產品都要高得多，因此它們通常是這些工具首先出售的產品。作為一名投資經理，在這種情況下，您的首要任務是透過避免自己成為陷入困境的賣家來保值。 EARN 在第三季就做到了這一點。這使得我們的投資組合能夠參與過去2.5 週的顯著市場復甦，但在任何價格波動較大的季度，槓桿代理策略的回報都是由價格變化而不是利差收入驅動的，而且我們有大量未實現的收益損失。

On slide 10, you can see that we kept our mortgage exposure roughly constant during the quarter. You can see on slide 8 that we have most of our mortgage exposure in the middle of the coupon stack that reduces our mortgage exposure to bank and money manager selling of lower coupons while preserving our ability to perform if economic numbers weaken and interest rates decline, which we have observed since the third week of October.

在投影片 10 上，您可以看到本季我們的抵押貸款風險大致保持不變。您可以在幻燈片8 中看到，我們的大部分抵押貸款風險都位於優惠券堆疊的中間，這減少了我們對銀行和資金管理公司出售較低優惠券的抵押貸款風險，同時在經濟數據疲軟和利率下降時保持我們的執行能力，這是我們從十月第三週以來觀察到的。

Meanwhile, we continued to turnover our Agency portfolio by adding -- to add relative value and to boost ADE, replacing pools purchased at lower interest rate environments with pools that have today's higher yields. And that was that continued portfolio turnover that drove our ADE higher this quarter. We also continue to lean on our research team to find discount pools with incrementally faster prepayment speeds and to find par coupons that we think will provide call protection in an interest rate rally.

同時，我們繼續週轉我們的代理投資組合，增加相對價值並提高 ADE，以當今收益率較高的資金池取代在較低利率環境下購買的資金池。這就是持續的投資組合週轉推動我們本季的 ADE 更高。我們也繼續依靠我們的研究團隊來尋找預付款速度逐漸加快的折扣池，並找到我們認為將在利率上漲時提供呼叫保護的平價優惠券。

Larry mentioned it, but I want to share some additional thoughts about allocating a portion of our capital to higher-yielding CLOs. EARN is an Agency RMBS focused suite, of course. But we think it makes sense to add some diversification with other investment sectors and we have plenty of room on our REIT test to -- for us to buy some non-REIT qualifying assets.

拉里（Larry）提到了這一點，但我想分享一些關於將我們的部分資本分配給收益更高的抵押貸款債券（CLO）的額外想法。當然，EARN 是一個專注於 Agency MBS 的套件。但我們認為在其他投資領域增加一些多元化是有意義的，而且我們的房地產投資信託基金測試有足夠的空間——讓我們購買一些非房地產投資信託基金合格的資產。

Historically, we have supplemented EARN's Agency strategy quite successfully with non-Agency RMBS. And while that's been a relatively small allocation for us, those non-Agency investments have been a beneficial diversifier and have performed extremely well for us, including this past quarter. Still just like Agency RMBS, non-Agency RMBS cash flows also come from single-family mortgage payments with the addition of CLO mezzanine debt and equity to our list of targeted assets. Yet we have the opportunity to add some additional diversification benefits in a non-real estate sector, and we believe that this will result in higher returns for EARN over time.

從歷史上看，我們已經透過非代理 RMBS 相當成功地補充了 EARN 的代理策略。雖然這對我們來說是一個相對較小的分配，但這些非機構投資一直是有益的多元化因素，並且對我們來說表現非常好，包括上個季度。與代理 RMBS 一樣，非代理 RMBS 現金流也來自單戶抵押貸款付款，並將 CLO 夾層債務和權益添加到我們的目標資產清單中。然而，我們有機會在非房地產領域增加一些額外的多元化收益，我們相信隨著時間的推移，這將為 EARN 帶來更高的回報。

CLOs offer a good balance to Agency RMBS. CLO mezzanine debt tranches are floating rate, while our Agency RMBS are almost all fixed rate. So big swings in interest rates, which often negatively impact Agency RMBS should have much less effect on our CLO portfolio. A flat yield curve, like what we saw in the third quarter generally dampened investor demand for Agency RMBS, but they can be very positive for CLO performance.

CLO 為代理 RMBS 提供了良好的平衡。 CLO夾層債務部分是浮動利率，而我們的機構RMBS幾乎都是固定利率。利率的大幅波動通常會對機構 RMBS 產生負面影響，但對我們的 CLO 投資組合的影響應該要小得多。像我們在第三季看到的那樣，平坦的殖利率曲線通常會抑制投資者對機構 RMBS 的需求，但它們對 CLO 的表現可能非常積極。

We also see diversification benefits from a portfolio leverage perspective, Agency RMBS with very low financing costs, but also lower asset yields requires several turns of leverage to drive attractive dividend yield. On the other hand, CLO mezzanine debt and equity tranches with their much higher asset yields require much less leverage to help drive attractive dividend yield. Moreover, we can simply borrow a bit more on our Agency RMBS portfolio to help fund many of our CLO purchases, especially given the relatively modest amount of leverage and disciplined interest rate hedge that we employ in our Agency strategy.

我們也從投資組合槓桿的角度看到了多元化的好處，機構RMBS的融資成本非常低，但資產收益率較低，需要幾輪槓桿才能驅動有吸引力的股息收益率。另一方面，CLO 夾層債務和股票部分的資產收益率要高得多，需要更少的槓桿來幫助推動有吸引力的股息殖利率。此外，我們可以簡單地從我們的代理 RMBS 投資組合中藉入更多資金，以幫助為我們的許多 CLO 購買提供資金，特別是考慮到我們在代理策略中採用的槓桿相對適度且嚴格的利率對沖。

I believe that by adding CLOs to our portfolio, we will reduce our quarter-to-quarter book-value swings during times of increased interest rate volatility. CLOs may introduce price volatility in times of heightened credit concerns, but the vast majority of EARN's current holdings have no credit risk at all. So we view the introduction of some incremental credit risk with the benefit of much higher expected returns on equity as a diversification move that makes a ton of sense.

我相信，透過將 CLO 添加到我們的投資組合中，我們將在利率波動加劇期間減少季度與季度帳面價值的波動。當信用擔憂加劇時，CLO 可能會帶來價格波動，但 EARN 目前持有的絕大多數資產根本不存在信用風險。因此，我們認為引入一些增量信用風險並帶來更高的預期股本回報率是一種非常有意義的多元化舉措。

Given their high expected yields, the CLO mezzanine debt and equity we are buying will generate very significant ADE. So we expect our allocation to CLOs to be very supportive EARN's ADE and dividend going forward. Ellington has a strong team and a great track record investing in secondary CLOs in a wide variety of vehicles. This is one of the many benefits that Ellington brings to the table as an external manager with broad capabilities. A small internally managed mortgage REIT would have a much harder time adding complementary strategies like this.

鑑於預期收益率較高，我們購買的 CLO 夾層債務和股權將產生非常可觀的 ADE。因此，我們預計對 CLO 的分配將非常支持 EARN 的 ADE 和股息。 Ellington 擁有一支強大的團隊，並在投資各種車輛的二級 CLO 方面擁有良好的業績記錄。這是艾靈頓作為一名具有廣泛能力的外部經理所帶來的眾多好處之一。小型內部管理的抵押房地產投資信託基金將很難添加這樣的補充策略。

As excited as I am to be adding CLOs, I'm still very constructive by the Agency RMBS right now. While spreads are well off their October wides, they're still very wide in historical basis. And I believe that our levered Agency strategy will generate not only significant ADE, but also significant book value appreciation as spreads normalize.

儘管我對增加 CLO 感到很興奮，但我現在仍然對代理商 RMBS 非常有建設性。雖然利差遠低於 10 月的寬幅，但從歷史角度來看，它們仍然非常寬廣。我相信，隨著利差正常化，我們的槓桿代理策略不僅會產生顯著的 ADE，而且還會產生顯著的帳面價值升值。

New origination volumes are low due to the lock-in effect and volumes are heading even lower with winter seasonal. Now that treasury yields seem to be back in a range, I expect fixed-income flows to improve significantly from the September and October outflows. And I suspect that many banks will begin to buy Agency RMBS again.

由於鎖定效應，新的發源量較低，隨著冬季的季節，產量甚至會更低。現在國債殖利率似乎回到了一定範圍內，我預計固定收益資金流將較 9 月和 10 月的資金流出大幅改善。我懷疑許多銀行將再次開始購買代理RMBS。

Agency RMBS look very attractive relative to corporate bonds and treasuries, and that should draw significant incremental capital to the sector. Given the current composition of our portfolio, we actually don't have much prepayment risk. And meanwhile, the yield spreads on our assets should enjoy strong support given the concerns over a slowing economy and the expectations of significantly less active Federal Reserve.

相對於公司債和國債，機構人民幣支持證券看起來非常有吸引力，這應該會為該行業吸引大量增量資本。考慮到我們目前的投資組合組成，我們實際上沒有太大的提前還款風險。同時，鑑於對經濟放緩的擔憂以及聯準會積極性大幅下降的預期，我們資產的收益率利差應該會得到強有力的支撐。

Finally, almost [volatile] days and weeks of 2023 might be behind us, we will remain disciplined managing our interest rate risks as always.

最後，2023 年幾乎[波動的]幾天和幾週可能已經過去，我們將一如既往地嚴格管理我們的利率風險。

Now back to Larry.

現在回到拉里。

Thanks, Mark. The third quarter was one of the toughest quarters we've seen for Agency RMBS in recent times. Following quarter-end, market conditions actually worsened in October. But so far November, markets have again reverse course, with long-term rates dropping and Agency RMBS spreads recovering somewhat. From an economic return perspective, we estimate that EARN is down approximately $0.12 so far for the fourth quarter.

謝謝，馬克。第三季是我們最近看到的代理商 RMBS 最困難的季度之一。季度末之後，十月份市場狀況實際上惡化了。但截至 11 月，市場再次逆轉，長期利率下降，機構人民幣支持證券利差回升。從經濟回報的角度來看，我們估計第四季度迄今 EARN 下降了約 0.12 美元。

The Fed funds futures market now predicts that the Fed won't increase rates for the next few meetings. And if, as expected, that leads to more normal levels of volatility, the prospects look good for capital flow back into Agency RMBS. Moving forward, I like having a lot of dry powder in this market, given the opportunities we are seeing, not only in Agency RMBS, but also in CLO mezzanine debt and equity.

聯準會基金期貨市場目前預測聯準會在接下來的幾次會議上不會升息。如果如預期的那樣，這會導致波動性更加正常，那麼資本回流到機構 RMBS 的前景看起來不錯。展望未來，鑑於我們看到的機會，我喜歡在這個市場上擁有大量的干火藥，不僅在機構 RMBS 方面，而且在 CLO 夾層債務和股權方面。

I'd like to reiterate how excited I am for EARN to have added to its mandate, the secondary market corporate CLO strategy, which Ellington has been so successful in deploying over the years in other investment vehicles. Since quarter end, we have continued to add higher-yielding CLO assets to EARN's portfolio, and I expect us to continue to add more CLO assets to EARN's portfolio in the coming quarters. We will continue to be opportunistic as we think about sector allocation. As always, we will rely on our dynamic hedging strategy and active management to protect book value.

我想重申一下，我對 EARN 將二級市場企業 CLO 策略納入其職責感到非常興奮，多年來，Ellington 在其他投資工具中成功部署了該策略。自季度末以來，我們繼續為 EARN 的投資組合添加更高收益的 CLO 資產，我預計我們將在未來幾季繼續在 EARN 的投資組合中添加更多的 CLO 資產。在考慮行業配置時，我們將繼續保持機會主義態度。一如既往，我們將依靠動態對沖策略和主動管理來保護帳面價值。

With that, we'll now open the call to questions. Operator, please go ahead.

現在，我們將開始提問。接線員，請繼續。

(Operator Instructions)

（操作員說明）

Crispin Love, Piper Sandler.

克里斯平·洛夫，派珀·桑德勒。

Thanks. Good morning, everyone. First off on the CLO investments, are you putting on any leverage here with those investments, and can you just detail the gross and levered returns you might expect? And then just over time, how large do you think CLOs could become as a percent of your total investment portfolio?

謝謝。大家，早安。首先，關於 CLO 投資，您是否對這些投資施加了任何槓桿作用？您能否詳細說明您可能期望的總回報和槓桿回報？隨著時間的推移，您認為 CLO 在您的總投資組合中所佔的比例會達到多少？

Sure. Okay. So, I don't think we've put on any leverage against the CLOs yet explicitly, although we certainly would intend to put a modest leverage on those. I think as we mentioned in the prepared remarks, we can just borrow a little bit more against our Agency portfolio for now. And that would help finance even some of the incremental CLO purchases at a much lower cost of funds. So I think that's in the near term, probably what we'll do more of. But whatever you'll see, I think by the time the fourth quarter is over, I think you'll see a little bit of leverage in that portfolio.

當然。好的。因此，我認為我們還沒有明確地對 CLO 施加任何影響力，儘管我們當然打算對這些施加適度的影響力。我認為，正如我們在準備好的發言中提到的，我們現在可以根據我們的代理商投資組合多藉一點錢。這將有助於以低得多的資金成本為部分增量 CLO 購買提供資金。所以我認為在短期內我們可能會做更多的事情。但無論你會看到什麼，我認為到第四季結束時，我認為你會在該投資組合中看到一點槓桿作用。

In terms of how big an allocation we can make to the sector, I think if you look at the current constraints that we're operating under, I mean you could -- in theory, it could get to even a 30% risk capital allocation. I mean, and I'm talking about risk capital, which is a term that we use here internally -- obviously that's not assets -- given these are so much less leveraged in terms of how you would finance those. But yeah, I could see -- theoretically, I think we could go that high. Of course, we just started. So we'll just take it slowly and see how it goes.

就我們可以對該行業進行多大的分配而言，我認為如果你看看我們目前營運的限制，我的意思是你可以——理論上，它甚至可以達到 30% 的風險資本分配。我的意思是，我說的是風險資本，這是我們內部使用的術語——顯然這不是資產——因為就融資方式而言，這些資本的槓桿率要低得多。但是，是的，我可以看到 - 從理論上講，我認為我們可以達到那麼高。當然，我們才剛開始。所以我們會慢慢來，看看進展如何。

Okay.

好的。

Mark, you want to elaborate on that?

馬克，你想詳細說明一下嗎？

No, I think that was a good summary, Larry.

不，我認為這是一個很好的總結，拉里。

All right. Thanks, Larry. And then Mark, can you just give us an update on your outlook for Agency spreads here, definitely remain cheap, but bit volatile in October, have tightened a bit since the kind of October 25, 26 range. But curious on your outlook just in this environment.

好的。謝謝，拉里。然後馬克，您能給我們介紹一下您對代理利差的展望嗎？肯定會保持便宜，但 10 月份有點波動，自 10 月 25 日至 26 日的那種範圍以來已經收緊了一點。但對你在這種環境下的看法感到好奇。

Yeah. So I think long term, there's some pretty significant tailwinds for Agency RMBS. One is that with the Fed funds futures market is right and you have a Fed that's kind of sitting on their hands for a few months, then you might get lower levels of interest rate volatility, which I think will be a catalyst for more capital flow into the sector. Also too, we mentioned banks which are typically significant buyers of Agency RMBS have been net sellers this past year. Now, a lot of that came in March with the seizure of a Silicon Valley Bank.

是的。因此，我認為從長遠來看，機構 RMBS 會有一些相當大的推動力。一是，由於聯邦基金期貨市場是正確的，而且聯準會會按兵不動幾個月，那麼利率波動水平可能會較低，我認為這將成為更多資本流動的催化劑進入該行業。此外，我們也提到，銀行通常是代理 RMBS 的重要買家，但去年卻成為淨賣家。現在，其中許多都是在三月隨著一家矽谷銀行被扣押而發生的。

And if you look at what happened recently, what you've seen is just kind of paydowns on their Fannie, Freddie portfolio. So not really net selling but shrinking through paydowns, but (technical difficulty) on the Ginnie portfolio. So I think that you might get -- and we mentioned this in the prepared remarks, I think it's probably more likely than not you're going to see better plan sponsorship in Q4 than what you saw in Q3. The spreads are wide. Fixed income yields, while we're off the high of the year, you got to 10-year 5%; they're still pretty high. So I think that's going to be supportive of fixed income flows.

如果你看看最近發生的事情，你所看到的只是他們的房利美、房地美投資組合的付款。因此，並不是真正的淨賣出，而是透過支付而萎縮，而是吉尼投資組合的（技術困難）。所以我認為你可能會得到——我們在準備好的評論中提到了這一點，我認為你很可能會在第四季度看到比第三季度更好的計劃贊助。價差很大。固定收益收益率，雖然我們已經脫離了今年的高點，但 10 年期收益率達到了 5%；他們仍然很高。所以我認為這將支持固定收益流動。

So I think, over a longer term, I think Agency RMBS on a levered basis, we're going to deliver significant levered ADE as well as price appreciation. So we're constructive on them. In the -- but with the CLOs, we see an opportunity to add diversification in the sector that we're very good at. It has significant yield to it. There's a lot of opportunities and for all the reasons I mentioned in my prepared remarks, it's a very good complement to Agency RMBS. The two things are sort of like parallel universes, the risks that drive them, the leverage required, the interest rate risk they have. So I think it's a good complement.

因此，我認為，從長遠來看，我認為機構 RMBS 在槓桿基礎上，我們將提供顯著的槓桿 ADE 以及價格升值。所以我們對他們持建設性態度。但透過 CLO，我們看到了在我們非常擅長的領域中增加多元化的機會。它有顯著的產量。這裡有很多機會，而且出於我在準備好的演講中提到的所有原因，它是對 Agency MBS 的一個很好的補充。這兩件事有點像是平行宇宙，驅動它們的風險、所需的槓桿、它們所具有的利率風險。所以我認為這是一個很好的補充。

Great. I just wanted to add, Chris, but I think I didn't answer your question about expected returns in that sector. So one thing that I think with in Agency RMBS, right, you -- the way we typically managed portfolio and many others as well is that you lever up net interest margin and we hedge interest rate risk and then depending on the level of volatility, you give some of that levered them back in the form of, you call, delta hedging costs or other types of volatility related frictions.

偉大的。我只是想補充一點，克里斯，但我想我沒有回答你關於該行業預期回報的問題。因此，我認為在機構 RMBS 中，我們通常管理投資組合和許多其他方式的方式是，你提高淨息差，我們對沖利率風險，然後根據波動水平，你以所謂的德爾塔對沖成本或其他類型的波動性相關摩擦的形式給予他們一些槓桿。

So one nice thing about CLOs is that the durations don't move around a lot. So the returns that we're seeing, which are -- with just a modest bit of leverage in the high teens, if not higher, I think. There could be some erosion there, but we really think that those -- that's what we're hoping for in the sector. And that can make a very significant difference obviously, as that allocation increases in that sector.

因此，CLO 的一大優點是期限不會改變太多。因此，我認為，我們所看到的回報率即使不是更高，也只是在高十幾歲的情況下發揮了適度的槓桿作用。那裡可能會出現一些侵蝕，但我們確實認為，這就是我們在該行業所希望的。隨著該部門分配的增加，這顯然會產生非常顯著的變化。

So and I think we mentioned that. The bit of money that we put to work already, we are projecting that it's going to achieve that. Those types of returns as well. Currently, projecting over 20% on a lot of the investments we've made so far. And, well EARN is small, it's nimble. It can buy to accumulate smaller pieces. So I think I'm very optimistic.

所以我想我們有提到這一點。我們已經投入的一小部分資金預計將實現這一目標。這些類型的回報也是如此。目前，我們迄今為止所做的許多投資預計將超過 20%。而且，EARN 規模很小，而且很有彈性。它可以購買來累積較小的碎片。所以我認為我非常樂觀。

Okay, great. And just one last question from me. Just looking at the end-of-period and average share count in the quarter, you've issued some shares here. So can you speak to the strategy there, just with the trading at a discount to book and just (multiple speakers) --

好的，太好了。我還有最後一個問題。只需查看期末和本季度的平均股票數量，您就已經在此處發行了一些股票。那麼你能談談那裡的策略嗎，只是以折扣價進行交易，而且（多個發言者）--

Yeah. Right. We're trying to maintain $100 million of equity. And we -- this is a really tough quarter and we gave some of that back. So I think of that as kind of replacing the equity that we lost. And if yes, I think as long as we can maintain -- have some quarters going forward, including this quarter that aren't as brutal as the last quarter, I don't think you'll necessarily see as much of that.

是的。正確的。我們正在努力維持 1 億美元的股本。我們——這是一個非常艱難的季度，我們回饋了一些。所以我認為這可以彌補我們失去的股權。如果是的話，我認為只要我們能夠保持——未來一些季度，包括本季度，不會像上季度那麼殘酷，我認為你不一定會看到那麼多。

Keep in mind also though, that with our expense ratios, which are not -- they're certainly not high for the sector, and given our size --. But given those expense ratios, it does make a lot of sense to raise capital through ATM modestly with some degree of dilution because when you look at it in terms of the accretive effect it has on earnings per share through reduction of your G&A expense ratios, it's a relatively short payback period.

但也要記住，我們的費用比率對該行業來說肯定不高，而且考慮到我們的規模。但考慮到這些費用比率，透過 ATM 適度籌集資金並進行一定程度的稀釋確實很有意義，因為當你從降低 G&A 費用比率對每股收益的增值效應來看時，這是一個相對較短的投資回收期。

All right. Thanks, Larry and Mark. I appreciate you taking my questions.

好的。謝謝拉里和馬克。感謝您回答我的問題。

That was our final question for today. We thank you for participating in the Ellington Residential Mortgage REIT third quarter 2023 earnings conference call. You may disconnect your line at this time and have a wonderful day.

這是我們今天的最後一個問題。我們感謝您參加艾靈頓住宅抵押房地產投資信託基金 2023 年第三季財報電話會議。此時您可以斷開線路並度過美好的一天。