Ellington Financial Inc.
Q3 2013 Earnings Call Transcript

Published: 10 Nov 2013

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial Third Quarter 2013 Financial Results Conference Call. Today’s call is being recorded. At this time, all participants have been placed in listen-only mode and the floor will be opened for your questions following the presentation. (Operator Instructions). It is now my pleasure to turn the floor over to, Sylvia Hechema, Investor Relations. You may begin.

[Sylvia Hechema:]

Before we start I’d like to remind everyone that certain statements made during this conference call including statements concerning future strategies, intentions and plans 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 can be identified by words such as belief, expect, anticipate, estimate, project, plan, continue, intend, should, would, could, goal, objective, will, may, seek, or similar expressions or by reference to strategies plans, or intentions. Forward-looking statements are subject to risks and uncertainties including among other things those described under item 1 A of the company’s annual report on Form 10-K filed on March 15, 2013. That could cause the company’s actual results to differ from its believes, expectations, estimates and projections. Other risks, uncertainties and factors that could cause actual results to differ materially from those projected maybe described from time-to-time in reports we filed with the SEC. Consequently you should 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. Okay. I have on the call with me today on the call, Larry Penn, Chief Executive Officer of Ellington Financial; Mark Tecotzky, our Co-Chief Investment Officer; and Lisa Mumford our Chief Financial Officer. With that I will turn it over to Larry.

[Larry Penn:]

Thanks Silvia. Once again it is our pleasure to speak with our shareholders this morning as we release our third quarter results. As always we appreciate you are taking the time to participate on the call today. We will follow the same format as we have on previous calls. First, Lisa will run through our financial results. Then Mark will discuss how the MBS market performed over the course of the quarter, how we positioned our portfolio, and what our market outlook is. I will follow with some closing remarks before openings the floor to questions. As a remainder we have posted a third quarter earnings conference call presentation to our website www.ellingtonfinancial.com. You’ll find it right on our Shareholders page or alternatively on the Presentations page of the website. Lisa and Mark’s prepared will track the presentation. So if you have this presentation in front of you please turn to page three to follow on. I’m going to turn it over to Lisa now.

[Lisa Mumford:]

Thank you, Larry. And good morning everyone. On page three of the presentation you can see that for the quarter ended September 30, 2013 we earned $11.7 million or $0.45 per share. On a sequential quarter-over-quarter basis income was essentially flat although in the current quarter we had approximately 2.4 million more shares outstanding as a result of our second quarter follow on equity offering. Those shares were outstanding for the entirety of the third quarter. Our nine months return on equity was 11.1%. Within our non-agency strategy we had growth income of $15.1 million or $0.58 per share compared to $17.7 million in the second quarter or $0.74 per share. In the third quarter we had net interest income of $13.2 million compared to $11.1 million in the second quarter. Net interest income is interest income less interest expense. While our book yields increase slightly quarter-over-quarter to 8.67% from 8.61% the more material driver here was the increase in the size of our portfolio. Our average holdings based on amortized cost was $750 million in the third quarter while for the second quarter our average holdings were $590 million. You may recall that we deployed the vast majority of the net proceeds from our second quarter equity offerings in our non-agency strategy. The other key driver of our third quarter non-agency results was net realized gains which when combined with net unrealized losses with a net gain of $6.7 million. During the quarter, excluding principal pay downs we turned over about 20% of this portfolio which generated net realized gains. Mark will talk more about the sectors we traded into and out of but as a result of the portfolio is turnover we lowered the overall cost of our portfolio by about 3.2 points, thereby creating additional upside potential. While our net interest income and net gains on the portfolio were higher in the third quarter relative to the second, our second quarter results benefited significantly from income on our interest rate hedges, as rate rose shortly during that quarter. In our agency strategy, our gross income was $3.1 million or $0.12 per share in the third quarter, up from a gross loss of about $600,000 in the second quarter or $0.02 per share. Our net interest income increased to $7.7 million in the third quarter from $6.9 million in the second quarter. Here too, our average holdings increased. Average holdings over the third quarter were approximately $944 million, while in the second quarter our average holdings were up $857 million. Additionally our sequential quarter over quarter book yields increased 6 basis points to an average of 3.62%. Net changes in asset value and net realized losses combined to contribute net unrealized gains of $2.7 million. As a result of the large drop in interest rates, near the end of the quarter, we had net losses on our interest rate hedges of $7.3 million, including in this category are our net short TBAs which rallied significantly in the quarter following the no taper announcement by the Fed. All-in-all our third quarter results improved over the second, as yield spreads generally tightened. Our core expenses were 2.7% of average equity and that is in line with our expectations. The size of our long non-agency portfolio was essentially unchanged quarter over quarter at just under $800 million and our agency portfolio increased about $120 million to just under a $1 billion. Our outstanding repo increased slightly; as of September 30th, it was $1.345 billion and at June 30th, it was $1.288 billion. Our debt to equity ratio increased to 2.14 to 1 from 2.02 to 1. While repo financing has been getting a fair amount of press lately, we have found that some of the larger banks have an increased appetite to provide repo on non-agency assets and we've found some smaller banks attracted to the opportunity to provide repo financing for agency RMBS. All-in-all repo financing has remained readily available and our rate and haircut have not been negatively impacted. On Monday our Board of Directors declared a third quarter dividend of $0.77 per share. Year-to-date dividends paid and declared related to 2013 earnings equaled $60.1 million or approximately 94% of year-to-date earnings. Based on yesterday’s closing stock price of $22.95 our annualized dividend yield equates to 13.4% I will now turn the presentation over to Mark.

[Mark Tecotzky:]

Thanks Lisa. There was extreme volatility in the quarter in multiple dimensions. First extreme interest rate volatility; 10 year and 5 year swap rates paid in the 50 basis points yield range, 30 year Fannie 3.5 traded in the 4 point price range. There was also a lot of volatility in credit spreads; the high yield index traded in the 4 point range. The high yield index volatility has nothing to do with interest rate those just skip to Fannie’s risk-on, risk-off moves. There was not a big different in starting and ending point through a lot of indices in benchmark, but they were extremes ups and downs within the quarter. These extreme valuation swings created a lot of opportunities for us. So look at the non-agency portfolio on page 10, it stays the same size while looks like we didn’t do much but we actually did a lot. We very actively rotated the portfolio. We turned over 22% of the portfolio and dropped their weighted average dollar price by three points and increased our loss adjusted deals. The portfolio construction that allows us to be still active and so opportunistic this quarter was our low leverage, a little over 2.1. Leverage levels is one of the biggest differences in EFC and many mortgage rates. Everyone knows that leverage amplifies returns, both gains and losses, leverage does something else. High levels of leverage generally force the manager to be procyclical as opposed to counter cyclical. What does that meant for mortgage managers the last couple of quarters? Many companies had book value declines when interest rates shut up with credit spreads volume. Faced with declining equity, they sold assets to prevent their debt to equity ratios from going too high. This is a procyclical dynamic, selling after prices have already dropped. We increased yield in a non-agency portfolio in the quarter. For broadly speaking prices from start of the quarter to end of the quarter we are actually up a bit. This was accomplished through active trading, we sold the higher price securities and bought lower price securities that had both better yield and better upside potential. We were able to do this because we did not have to behave defensively during the quarter, instead we are able to take advantage of the volatility of the quarter. We were not scrambling to protect ourselves from it. Volatility often creates opportunities, but you have to be in a position to take advantage of it while it’s happening. You can’t be so [upset] that you become the foreseller. We have positioned ourselves with lower leverage so we can proactively react to market dislocations as opposed to being held hostage by market dislocations. Another takeaway from the quarter in non-agencies is our ongoing efforts to diversify towards the return continued. We are always looking for new ways to generation returns. We increased CMBS, we are active in CLOs and post quarter-end we obtained a new non-agency opportunity that Larry will discuss in a few moments. We continue to see lots of areas to add excess returns and as the mortgage market evolves so will our portfolio of composition and trading strategies. On slide 12 you can see that our credit hedges are currently concentrated in corporate hedges as we believe that mortgage and structured product credit exposure is significantly cheaper than investment paid in high yield corporate credits. We also paid off in some of the agency side. We grew the portfolio, we took advantage of the volatility to buy MBS what we think are attractive levels versus swaps, we still have some better opportunities in the arms than we have seen in years. On slide 15 you can see that in response to mortgage underperformance earlier in the quarter, we decreased our mortgage hedge and increased our swap hedges. So to summarize our portfolio activity this quarter I would say that we were well positioned with a lot of cash to take advantage of the relative value opportunities aided by all the [rate] spread volatility. We traded very actively in the quarter not only to protect book value when necessary, but also to generate excess returns created by the forced deleveraging of many fixed income players. And with that I would like to turn the presentation back over to Larry.

[Larry Penn:]

Thanks Mark. Similar to the second quarter the third quarter was filled with extreme interest rate volatility, but once again Ellington Financial was able to capture upside, control downside and distinguish itself from many of its peers. As you can see on our earnings attribution table on page three of the presentation we were again profitable in both our non-agency and our agency strategies. Now things got off to me a stormy start -- 24 basis points in just one day on July 5th, however we were able to play-off them throughout the entire quarter. In fact we slightly increased our leverage this quarter as excellent asset acquisition opportunities presented themselves each time and new shock hit the mortgage market compared to an increase in our leverage over the quarter to our peer who almost all reduced their leverage during the quarter. How was Ellington Financial able to do this? By controlling its interest rate duration through disciplined hedging, by keeping leverage lower in the first place. We want to be able to buy when others are feeling pressure of sales and it’s exactly what we were able to do this quarter. I am sure by keeping our leverage lower, our core run rate is slightly lower than it could be, but the flexibility and security that lower leverage and higher liquidity provides is well working to us. We want to be able to withstand greater financial shocks and accounts when opportunities arise to just what our European bank options off a large portfolio. We can trade the portfolio more actively which we love to do and it was been a consistent and significant component of our earnings. In fact if you are in account to believe that the financial system will probably bounce around at a range for a while, but avoid big shock and I would say look for a higher proportion of our income to continue to come from active trading. This past quarter really demonstrates the benefit not only were we profitable on a fully mark-to-market basis, but at the same time the market yield of our non-agency portfolio actually increased by about 40 basis points in the quarter. So I would say that to active and profitable trading we really set ourselves up well for future quarters. Now well our first loss our financial results for the third quarter might not looks so remarkable one way or the other, there are some settle developments that I would like to point out. Look at the non-agency portfolio pie charts on page 10. You can see a pretty significant rotation out of seasoned subprime and into Alt-A and other sectors. And look at those five pie slices at the top of the September pie chart. That's basically everything other than the bread and butter subprime, Alt-A assets. Those other sectors now totaled approximately 39% of our portfolio and includes lots our growth areas, including CMBS, CLOs and non-performing commercial mortgage loans. You can see that we've been diversifying with many other sectors. Now granted away from our CMBS, most of these sectors are still pretty much legacy assets and were created before the financial crisis. But that's because that's still where most of the value is. To the extent that competitive opportunities arise in non-legacy assets over the next few years, while then you see our asset allocation evolve accordingly. In fact, as we increase the number of pie slices, while each one gets thinner as a percentage of a whole, it's actually easier to make strategic portfolio reallocation and maneuvers. Ellington has expertise and experienced broadly across the MBS and ABS market. And our goal is for Ellington Financial to capitalize in all manner of opportunities where we see value. Our PTP structure really helps here. We can diversify and reallocate so many different dimensions. Let me answer the left, some of these dimensions. Agency versus non-agency, residential mortgages versus commercial mortgages versus active backed, legacy versus newer issue, securities versus home loans, cash bonds versus synthetics, securitization activities, MSRs and performing assets versus non-performing assets and on that last point, performing versus non-performing. We have talked before that, how non-performing commercial mortgage loan is an area where we expect to continue to grow Ellington Financials’ portfolio. While on the residential side I'm happy to report that in the most recent HUD auction of non-performing residential loans, Ellington Financial was awarded some of the loans. We expect to trade steadily in stages over the next 90 days. And this first investment for Ellington Financial in this sector should end up being around $23 million investment. As you may have heard HUD is planning lot more options over the next 12 months and so we've been actively gearing up in Ellington to take advantage of that. Now this is a natural asset class for us. As we've discussed in the past when we buy distressed MBS it’s our bread and butter strategy, non-performing loans also make 50% of the entire remaining pool, so we know full well that the performance of the non-performing loans will make a breakthrough performance of our distressed MBS. So we can apply the same research analytics to this HUD package and other non-performing loan packages that we apply to our MBS trading. But of course when the loans are outside of the securitization we have much more control over our destiny. We can hire the best special servicers system to maximize our outcome. We can still provide those servicers using Ellington servicing over site team. Having that level of control is just not an option when you buy a typically MBS. And finally, these HUD packages are later stage defaulted loans. So they should be much closer to resolution. This makes these investments much shorter in duration than the typically distressed MBS investment. Let me say a few words about some other future growth areas where Ellington Financial has not yet been active. First, securitization especially of new originations, this just hasn’t been a strategy that we've thought make sense in the past few years. We see much lower risk adjusted ROEs than what we see available in distressed MBS. But that will eventually change and Ellington has deep expertise in securitization. And obviously there could also be great synergies here with our efforts to establish robust mortgage origination platform. Second MSRs mortgage servicing rights. This is definitely not the class that could be a long term growth area for us. MSRs are now expenses for banks to hold from the regulatory capital standpoint and many non-bank mortgage companies don’t want to hide up their capital with MSRs. So overtime this is natural asset class for us. In the past few years however, we have just felt that the agency IR market offer better relative value, but that might change and will be ready when it does. Moving on to our agency strategy, you can also see the advantages there of diversification and of being nimble. As you can see on page 15 of the presentation, we started the quarter almost 50% hedge of TBAs as opposed to swap based instruments. But if spreads wind, again we were able play off that. We reduced our TBA hedge and in the quarter at only 33% TBA hedged. We were there by able to benefit from the mortgage bases tightening towards the end of the quarter. Being aggressive about bearing the expense which we hedge with TBAs, this is a dimension that we think really benefits Ellington Financial. Also as Mark mentioned the good opportunity in agency arms presented itself in the quarter and that's the factor that we certainly follow closely, but hadn’t really seen value at least compared to fixed rate pools and quite some time. So we added on (inaudible) quarter. In the last two quarters we've talked a lot about how do the extreme weakness in the specified tool market is enabling us to construct the portfolio that we believe has great call protection. We would be very glad we did this --further which is now a distinct possibility, but depends seemly on hold for a while and lots of speed on impact economy. As you can our earnings attribution table on page three, of the presentation. Our agency strategy contributed almost 50 basis points to our ROE for the quarter. Sure that pretty reasonable performance for strategy that uses less than 20% of our capital, but keep in mind that our agency strategy is in our view much more duration control than the strategy just typically fit. And in the quarter when 10 year yields spiked up 50 basis points to 3% when it dive back down 40 basis points 2.6% the performance of our agency strategy was actually really solid. I would like to add a little color about the financing market especially for non-agency MBS. While resource financing has been relatively easy to get for some time now you’ve probably heard us complain overtime and non-agency MBS financing spreads really hadn’t dropped much since 2010 even though yield spreads on the underlying assets have obviously dropped tremendously since 2010. So I can now report that finally there seems to be some healthy competition in non-agency refill market and we are seeing financing spreads come down I am hopeful that we will be able to show you hard evidence of that in next few quarters as we let our higher cost refill roll off and replace it with some lower cost refill. And lastly as to our search to acquire a mortgage originator I just want to report that it’s progressing nicely and we’ve narrowed the field of potential targets and even made some preliminary offers. We’ll be as patient as we need to be to find the right fit at the right price Steve Abreu continues to lead that effort. This concludes our prepared remarks before I open up the call for Q&A I would just like to remind everyone that as usual we’ll be happy to respond to questions to the extent they are directed to matter related either specifically to Ellington Financial or more generally to the mortgaging aspect marketplace in which it operates. We will not be responding to questions about Ellington’s private funds or other activities. Operator?

[Operator:]

(Operator Instructions) Our first question comes from the line of Steve DeLaney of JMP Securities.

[Steve DeLaney:]

Good morning everyone and thanks for the detail presentation in the slide deck. I just what I like to start is it is notable that the swing in relative contribution between the second and third quarter by surprise just given some of the challenges in the agency space that some of the traditional mortgage lease encountered. Your agency revenue contribution appears to gone up by 3.7 and the non-agency down by 2.6 million. And I just wanted to, if that is reflective of maybe an ongoing repositioning or was that just reflecting opportunities that presented themselves where you took advantage of the volatility through active trading?

[Mark Tecotzky:]

Steve, it’s Mark. I think it was more the latter. There was -- in over time you forget how all things were, but there were some really crazy days in the second quarter, there was that July 5 and same report, we had a market really moved, and there was a lot of selling out of traditional fixed income money managers. There was obviously selling from REITs. So if you’re fortunate enough to be in a position to add assets at times it’s been volatility in the quarter, there were some great opportunities. So I think it was just it. We came into the quarter with a lot of our interest exposure on the agency side tends with past dues. So when there was mortgage end performance relative t swaps, we were comfortable taking more mortgage basis exposure versus swaps at that time and that helped the result. So good opportunity in the pool market. Larry mentioned there were some sellers of ARMs that we haven't seen for a while. So we able to participate in that. So I think which is a combination of those factors.

[Steve DeLaney:]

That's helpful. And I can sort of picture in my mind how all of those things played out, with the volatility on July 5th and then again on September 5th. Let me ask a big picture question and then I will drop off to get back in the queue. We have watched, over last two weeks we have seen these earnings reports from residential mortgage REITs primarily. Universally people have either delevered or tightened in their duration, added more swaps and longer swaps. And here is my general question. It's almost like somebody flipped a light switch, and everybody got a memo. I know the 100 basis point rise in rates that we got in May/June can cause people to look in the mirror, and think about where their risk really is. But my question is could it be that over the last several months repo dealers on the agency side, usually just thinking about obvious things like leverage, liquidity, that type of thing. But do you get the sense that there is more company-specific evaluation on the credit side of net duration positions, and more of a stress test type of a mentality by the repo dealers, and could that possibly be driven by the fact the dealers themselves are getting more scrutiny from the New York Fed? I know that is a long-winded question and I apologize, but I think you can understand where I am going.

[Mark Tecotzky:]

I mean that's an interesting theory. We haven't heard that.

[Steve DeLaney:]

It is a conspiracy therapy I agreed.

[Mark Tecotzky:]

I think that, well first of all, I’d like to say that I think in terms of extending out on the curve on our hedges right I think the market is probably catching up to sort of our way of looking at the world and hedging. We've always done that. I think that part of it just when rates were lower right, there was a much more uncertainty, if you look at scenarios in terms of where what the ultimate average life of these agency MBS were going to be. And I think people were hedging to maybe an expected case which is pretty short like three years or so. And now that rates are higher when you look at the different scenarios and their probabilities I think people realized now that most of them involved these assets been quite a long. So I think that what people are the way the people hedge where they’re focusing more on the most likely scenarios are causing them to hedge out either on a curve before frankly I think they just had a lot more negative convexity than they have now. And of course rates have come down now. So we might be getting again back to regime where there is a lot of more negative convexity, our rates were up 3%, a lot of these portfolios have lost lot of the negative convexity and so in a way it’s simple to hedge, but also in a way if you hedge in that manner you’re sucking more the juice at your spread than when you were when rates are lower and you were willing to knowingly or not accept that negative convexity. I don’t if that makes sense, but that’s my take on it.

[Steve DeLaney:]

No, it does. And I think look everybody buys a bond and they think they know the duration of the bond and maybe. We certainly are seeing the reality that people are finding it necessary to be longer hedge now than they were. So I think, it’s just a compliment to the way you guys have set your hedge book up.

[Mark Tecotzky:]

And just about to add one more thing the fact that we have used this opportunity over the last couple of quarters to buy higher coupon specified pools with call protection, right. So that's again not maybe a sector that so much in favor and that's been beaten down and we think that we’re getting corporates action very cheaply. Again call protection is not something that in your face right now. So I think it’s undervalued. And I think that should rates move lower, the extra yield that that gives us and ability when we’re short TBAs to see our TBAs as shorts as rate rally, go down in price. I wish go up in price slower and on a hedge basis enable us to make money while our specified pools, those pass are increasing right, as rates go down and the corporate things becomes more meaningful, so that’s the kind of thing that we’re looking for. Granted right now in this straight environment, it’s not buying us much necessarily in terms of as much as it will if rates go down, so that's why we’re positioned ourselves that way.

[Steve DeLaney:]

Well, thank you for the comments.

[Operator:]

Our next question comes from line of Jim Fowler of Harvest Capital.

[Jim Fowler:]

Good morning and thank you for taking the question. Maybe a bit of a bigger picture question as well. Back when QE3 started and the fed was purchasing $40 billion of MBS. Given the mortgage issuance at that point in time, it was 45% to 55% of total issuance. Now given where refinancing activity has gone to slowed remarkably and purchases picking up sluggishly, the continued QE is a much higher percentage some have suggested 100% of issuance if not little bit less, little bit more. But my question is, what do you think the impact to prices will be when that buyer decides to quick buying as much or in total given the change in the percentage of buying that they have been doing of the issuance and how does, one, what do you think the impact will be and secondly how are you prepared for that and how do you think what opportunities might present themselves when it in fact occurs?

[Mark Tecotzky:]

Jim, it’s Mark. It’s a great question and it’s obviously something we think about a lot. If you think about what’s happened in the second quarter and the first half of September of this quarter that was a pricing structure of the market where I think there was underlying assumption that the fed was going to stop tapering in September. So in response to that, you saw very large outflows from fixed income mutual funds, you saw a large reduction in the number of shares outstanding for a lot of the bond EPS, there was obviously pressure on REIT valuation, you saw a big increase in discounted book of closed end municipal bonds funds. (inaudible) symptomatic of lot of investors thinking that 15 consecutives even have a hard time and I think that you push REIT just to the point, you kind of have the (inaudible) that one day early September. When you push portfolios to the point where you saw a lot of deleveraging already occurred. So if look at 8 weeks is tremendous deleveraging second and third quarter, say got closed mutual funds, those are obviously one day liquidity. So I think a lot of the deleveraging that will be to take place for the market to reprice itself to and pricing structure not for the fed activity has really occurred and you have seen the money managers continually selling ABC Holdings in effect the fed is buying right. You mentioned with refi activity lower the fed buying activity is close to 100% for lot of these coupons of what being introduced. So I think when the fed steps away you will see some weakening of roles which should be beneficial to stretch by pool valuation. So I mentioned specialized pool valuations have been very depressed. They were a big source of book value declines for people in first quarter results and second quarter. So I think that the fed stepping away will be supportive of just like pool valuations, but it is not cleared to me that you are going to see the scale of widening that we witnessed in the second and early third quarter occurred because I think that the most levered portfolios already delevered and I don't see them releveraging aggressively just based on the fed not tapering in September right. Because I think it's very much on people radar that it’s more a question of when as opposed to if the fed activity.

[Jim Fowler:]

Okay, great. Thanks Mark. Appreciate it.

[Operator:]

(Operator Instructions). Your next question comes from the line of Douglas Harter of Credit Suisse.

[Douglas Harter:]

Thanks. I was wondering if you guys, how you would think about sizing some of these the less liquid investments, whether it is NPLs or if you buy an originator as you get into loans, how you are thinking about that?

[Mark Tecotzky:]

Yeah. I mean, I think as you can see, we like to in some of the less liquid areas, we do like to spread it around not get too concentrated. We're not there yet, this package that I spoke about in NPLs, it has the advantage first of all, even though it's less liquid, it's the duration of the cash flow is still probably under two years. So that has to be factored in as well. We don't mind having, I would say a more [bar-belled] portfolio, where we have got some core liquid positions that can provide us a lot of yield on return on equity basis and have a lot of cash and have a lot of liquid position. I mean that's really frankly where we like to be rather than having a portfolio that’s more uniformly just stay in the middle liquidity range. So yes, so I don’t want to try to put any targets or limits on it, but I would say that we want to continue to be able to be nimble and as result as that if those illiquid products get bigger, so for example NPLs would be in that category. And as you mentioned if and this is really down the road right, when you talk about originated creating a pipeline of investments for us, I mean that’s really looking down the road. But if you look there, then yeah if we're retaining the junior most pieces of those securitizations, then absolutely that would be less liquid and we would have to consider having adequate liquidity away from there to be able to again to trade around that. So I know that’s not that specific, but sort of that’s our philosophy is to have this bar-belled approach.

[Douglas Harter:]

That’s helpful. Thank you very much.

[Operator:]

There are no further questions at this time. I would now like to turn the floor back over to Larry Penn for closing remarks.

[Larry Penn:]

Thank you, Operator. Well, look just thanks everybody for participating on the call today. Happy holidays. And we look forward to speaking with you all next quarter.

[Operator:]

Ladies and gentlemen, this concludes Ellington Financial’s third quarter 2013 financial results conference call. Please disconnect your lines at this time and have a wonderful day.