EFC-PC Q3 2026 earnings call transcript, November 5, 2026

Thank you for standing by and welcome to the Ellington Financials 3rd Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode.

After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Aladeen Chalet, Associate General Counsel. Please go ahead, sir.

Thank you. Before we begin, I'd like to remind everyone that this conference call may include forward-looking statements within the meaning of the State Harbor Provisions of the Private Securities Litigation in the Form Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our annual and quarterly reports. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The company undertakes no obligation to update these forward-looking statements. Joining me today are Larry Penn, Chief Executive Officer and President of Ellington Financial, Mark Tkofsky, Co-Chief Investment Officer, and J.R. Hurley, Chief Financial Officer. Our earnings conference call presentation is available on our website, EllingtonFinancial.com. Today's call will track that presentation, and all statements and references to figures are qualified by the important notice and endnotes in the presentation. With that, I'll hand it over to Larry.

Thanks, Aledine, and good morning, everyone. I'll begin on slide three of the presentation. In the third quarter, Ellington Financial delivered strong results despite a challenging market environment. We generated gap net income of 31 cents per share. And an annualized economic return of 9.4%. Our adjusted distributable earnings of 45 cents per share again exceeded our 39-cent quarterly dividend. And we preserved book value per share even if interest rates moved sharply higher and yield spreads widened late in the quarter. Our interest rate and credit hedges cushioned the late quarter sell-off, bolstering our already ample liquidity reserves and helping preserve book value. Meanwhile, our diversified investment portfolio and origination platforms provided multiple sources of earnings. Key earnings contributors for the quarter included a retained IOS from non-QM and agency-eligible securitizations, which perform well when interest rates rise and repayment slow, along with commercial mortgage bridge loans, corporate credit, and our originator investments, particularly Lensure, which delivered another standout. The credit performance in our investment portfolio also strengthened in the quarter, with delinquencies declining and cumulative realized losses remaining low. JR will review the details. We continue to expand our asset sourcing capabilities. Our expanding residential loan portal generated $1.6 billion of loan purchases from 57 sellers during the quarter, together with loan flow from Longbridge and our other channels.

Thanks, Larry. Good morning, everyone. I'll begin on slide five with results by segment. The investment portfolio contributed $0.47 per share of GAAP net income and Longwood contributed $0.10. before unallocated corporate other items. Turning to the ADE reconciliation on slide six, the investment portfolio's contribution was stable at $0.60 per share, while Longbridge contributed $0.07, compared with $0.23 in Q2. A smaller corporate other drag partially offset that decline, bringing total ADE to $0.45 per share. Beginning this quarter, ADE is presented net of incentive expense and prior periods have been conformed. The incentive fee was approximately $0.9 million, or $0.01 per share, in each of Q2 and Q3, reducing conformed Q2 ADE to $0.59 from the $0.60 previously reported. Within the investment portfolio, net interest income remained robust, and net interest margin increased to 3.55% from 3.36% as higher asset yields more than offset higher funding. costs. On slide 7, our adjusted long investment portfolio grew by 4.5% sequentially to $4.7 billion, reflecting net purchases across several loan categories and growth in retained RMBS. Loan purchases included opportunistic acquisitions of prime jumbo and scratch-and-dent residential mortgage loans. Moving to Longbridge on slide 8, originations reached $676 million, up to $5.99 to $5.99. 36% year-over-year, and approximately 15% sequentially. Despite higher rates, September was Longbridge's strongest month ever for proprietary reverse submissions, as shown on slide 9.

Thanks, JR.

Thanks, Mark.

This quarter reinforced a lesson that we've learned at Ellington over our more than 30 years of operating history. The key to long-term outperformance is preserving book value and buying power during periods of volatility. We outperform most other mortgage rates by a A C-C-C-C-E-V. Why margin this past quarter?

Thanks as usual to our disciplined use of both interest rate hedges and credit hedges and our conservative liquidity and risk management protocols. The opportunity set is clearly richer in the fourth quarter, which we entered with significant dry powder and financial flexibility, which had been further buttressed by the significant additional long-term capital we raised, both debt and equity. Meanwhile, principal repayments from our short-duration commercial mortgage bridge and residential transition loans continue to provide capital for reinvestment. Our diversified business lines allow us to shift capital across loan and securities markets when a sell-off in a particular sector creates attractive relative value. The recurring loan flow from our portal and originator relationships is complemented by opportunistic purchases. So far in the fourth quarter, we have taken advantage of some competitive opportunities to expand several of our loan portfolios. We have also recently purchased interest-only securities in the secondary market at what we believe are very attractive prices. We remain mindful of the pressures on our existing businesses, especially from higher interest rates and overall uncertainty in the real estate markets. That said, I will point out that higher interest rates often make Longbridge's proprietary loan products more competitive. with FHA loans. Looking ahead, we continue to evaluate opportunities to return to the preferred equity market, provided that the pricing makes sense. We also intend to issue additional unsecured notes over time as market conditions permit. The goal is to further strengthen EFC's credit profile to support better ratings and tighter issuing spreads. Finally, we believe that our current monthly dividend of $0.13 per month

per share remains appropriate. Our ADE has been running well above our dividend this year, but REIT distribution requirements are based on taxable income, not ADE. Fourth quarter market volatility could still affect our full year taxable income and the resulting distribution requirements. Subject to those REIT requirements, we favor retaining excess earnings to build book value per share and, in turn, support future earnings. With that, let's open the floor to Q&A. Operator, please go ahead.

Thank you, and our next question comes from the line of Boz George from KBW. Your question, please.

plan is to continue to do it. Thank you. Thank you. And our next question comes from the line of Doug Harder from BTIG. Your question, please. Actually, Doug, Doug, before you answer that, ask that question, I do want to just follow up one more thing on Frankie's question, which is that I do want to say that

Thank you. And our next question comes from the line of Marissa Lobo from UBS. Your question, please.

Thank you and our next question comes from the line of Trevor Cranston from citizens JMP your question, please

Okay, thanks Question on the the state bridge investment that you guys made It's first just to clarify is that company primarily a special servicer or are they also doing performing servicing? And I guess as the second part of that, do you guys kind of view that as an investment as sort of an offset to some of the credit risk you own in the sense that, you know, maybe it's a company that potentially has more of a growth opportunity in an environment where delinquency levels are increasing? Thanks. Oh, that's interesting angle. Mark, you want to you want to handle that question? Yeah, so right now, Trevor, they are small. They do a few different things. They do some RTL servicing. They also do some DSCR servicing. I think for us, as we've watched over the past four or five years, the understandable but quite significant consolidation in servicing space. So when we first started with 9QM, we had our servicing at Rushmore. We thought that was a great platform. We essentially had an employee there that was sort of watching like a hawk everything we had there, and that was a great relationship. They were then bought by Mr. Cooper. Mr. Cooper had massive scale in the agency space. The volume we had at Rushmore wasn't big enough to really make it. Move the needle there, and then you have Mr. Cooper bought by Rocket, right? We also had other investments in EFC where we had servicing with a servicer called Gregory that had been controlled by Great Ajax.

We thought Gregory did a great job in late-stage collections. You know, that's no longer a servicer we can work with, right? They shut it down. So... And we didn't see great options where we could really get what we think are best-in-class protocols and really have a dialogue and really be able to use our data analysis and our kind of native experience and expertise in the product to effectuate outcomes. So, look, this...it's going to take a while. I'll have to build this out. I think it's going to be valuable for EFC. But I also do recognize what you pointed out, too, that, you know, you're seeing change and significantly you're seeing a change in the modification policies coming out of FHA. Their pipeline of delinquencies has increased. Non-QM market as a whole is growing, you know, with, you know, delinquents... Delinquencies when non-QM first started were trivially small because, you know, we had that big COVID HPA tailwind. We don't think that's, you know, we don't see that HPA tailwind right now, obviously. So we think non-QM delinquencies will tick up to sort of, you know, levels that are more consistent with reasonable expectations. For years, they were way below that. So I would not at all be surprised that as we build this... And we demonstrate the quality of the resolutions we believe StateBridge can get, that there'll be opportunities for, you know, others may want to use their services. But I think, you know, the first thing and what we're really focused on now is building it, right? And I think what's exciting about that process is that AI and some of the technology you've seen in the last few or four years...

I think allows us to build a servicer faster and less expensively than what you could do historically. And so that sort of moved the needle to us on making this investment, and we've committed a lot of resources to it, a lot of really very sophisticated people that have built out complicated systems, and they're hard at work, and... I think it's going to be definitely valuable for EFC and gives us, you know, another line of defense if you do see a weaker economy and you do see HPA decline, but I do also think there is sort of a, you know, a fee-for-service opportunity out there as well in the future if we can really build something great.

Hey, I just want to add one thing. A little inside baseball, I guess you could say. So this sort of gets to your question about is this kind of almost a counter-cyclical play in terms of what, you know, could be developing in the, you know, let's just call it the, you know, the delinquency market. So when we, we act, when we first looked at Statebridge, we actually looked at it. It was originally going to be, Mark, I'm sure you remember. This, it was originally going to be almost like a joint venture between us and some other, I'm not going to name names, but some other major players in the mortgage market. And they sort of got distracted. One of those companies actually ended up getting bought by someone else, I believe. But in any case, you know, this just sort of shows you, right, that the industry really needs this. Now, you know, is State. We're just going to be incredibly profitable just based upon the loan flow they get from us now. But as Mark said, we're going to build this until into the premier special servicer. And then once we built that and people see because of the dearth and, you know, the dynamics that we talked before about and Mark talked about in terms of just the ability to get really the attention from the mega servicers and get the highest quality special servicing, you know, to the standard. That I think investors like us and others need, you know, I think then the business will come to them.

And absolutely, even with, by the way, what we see as the pipeline, the delinquency pipeline now, you know, once we've built this, then I think there'll be plenty of business for StateBridge to grow and thrive on. Okay. Okay. Makes sense. Appreciate all the color.

Thank you guys.

Thanks, Trevor.

Thank you. And our next question comes from the line of Timothy D'Agostino from B-Riley Securities. Your question, please.

Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.