Ellington Financial Inc. (EFC)·Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 delivered strong results driven by securitizations, robust securities performance, and continued solid credit across loan businesses; GAAP EPS was $0.29 and Adjusted Distributable Earnings (ADE) per share were $0.53, again covering dividends of $0.39 for the quarter .
• Street EPS (S&P Global “Primary EPS”) beat by roughly 9 cents as actual $0.53* exceeded $0.44* consensus; revenue came in below consensus ($81.36M* vs $121.32M*), reflecting mark-to-market items and REIT-specific reporting; ADE strength should matter more for mREIT investors . Values retrieved from S&P Global.
• Capital structure inflected: seven Q3 securitizations and pricing of $400M five-year senior unsecured notes (7.375%/7.38% yield), shifting funding toward long-term, non-mark-to-market and unsecured borrowings; ~20% of recourse borrowings unsecured as of Oct 31; management expects ~17 bps near-term cost-of-funds drag as proceeds are deployed .
• Near-term stock reaction catalysts: visible ADE beat/coverage, accelerated securitization pace (20 YTD, >3x last year), and strategic unsecured issuance that fortifies funding, enhances risk management, and supports earnings stability; management reiterated confidence in sustainable dividend coverage .

What Went Well and What Went Wrong

What Went Well

• “Robust securitization activity, excellent results from our securities businesses, and continued solid credit performance... drove Ellington Financial’s strong results,” with ADE per share $0.53 exceeding dividends; total portfolio holdings grew 12% sequentially .
• Financing evolution: priced $400M 5-year senior unsecured notes at ~7.375–7.38% and completed seven securitizations, reducing reliance on repo and increasing long-term funding; management views this as a “fundamental evolution” of capital structure supporting earnings stability .
• Longbridge momentum: record proprietary reverse originations; segment net income $8.6M and portfolio up 37% q/q to ~$750.0M ex. non-retained tranches, with strong servicing tail executions and HMBS MSR gains .

What Went Wrong

• Mark-to-market volatility: net unrealized losses on non-QM retained tranches, CLOs, forward MSR-related investments, residential REO, and unsecured borrowings impacted reported results despite underlying loan credit remaining strong .
• Slight book value per share decline to $13.40 (from $13.49 in Q2), reflecting market movements and issuance; recourse D/E rose modestly to 1.8x .
• Management flagged modest ADE drag near-term (~17 bps COF increase) from unsecured notes before deployment benefits fully accrue; credit hedges were a drag this quarter but maintained for resilience .

Financial Results

Segment per-share GAAP income (Q/Q comparison):

Key KPIs and Balance Sheet:

Margins (S&P Global data):

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We view our shift toward a greater proportion of long-term unsecured financing and securitization financing — and a lesser proportion of shorter-term repo financing — as a fundamental evolution of our capital structure that is fortifying our balance sheet, enhancing risk management, and supporting earnings stability.”
• “We generated GAAP net income of $0.29 per share and adjusted distributable earnings of $0.53 per share — again substantially exceeding our dividends — and our total portfolio holdings grew by 12% sequentially.”
• “Including our existing $263 million of unsecured notes, nearly 20% of our recourse borrowings are now unsecured as of October 31, and we intend to increase that proportion over time.”
• “We expect our notes offering to increase our overall cost of funds by approximately 17 basis points... deployment and portfolio ramp has not been an issue for us.”

Q&A Highlights

• Originator stakes and valuations: third-party valuations 2x/year; strong earnings lifting book and multiples; stakes provide distributions and flow to EFC .
• Bank loan purchases: acquired packages from smaller banks; agency MBS holdings driving restructurings; lower rates/tighter spreads lift prices, enabling sales .
• Dividend and ADE: management expects to continue covering dividend; near-term ADE drag from ~17 bps COF increase; no plans to lower; future increases would be considered carefully .
• Credit hedges: temporary reduction at quarter-end due to cash from notes pricing; expect hedge size to increase as capital is deployed .
• Longbridge competition: limited competition in proprietary reverse; better securitization execution allows improved borrower terms, driving volumes .
• Non-QM attractiveness: higher FICO migration, disciplined LTVs, tighter IG spreads, robust securitization liquidity; attractive retained investments .
• Convexity risk: extensive modeling and hedging (short TBAs vs negative convexity); contained equity sensitivity to rate shifts; prepayment penalties help mitigate .

Estimates Context

Actual vs Consensus (S&P Global):

• EPS beat reflects ADE per share strength and segment contributions (credit $0.42, agency $0.04, Longbridge $0.09), while reported GAAP EPS was $0.29; analysts typically track ADE/core EPS for mREITs, aligning with the $0.53 actual used by S&P .
• Revenue miss is less indicative for mREITs given mark-to-market and GAAP presentation; investor focus remains on ADE coverage and book value trajectory .

Key Takeaways for Investors

• ADE per share beat ($0.53 vs $0.44* consensus) and continued dividend coverage position EFC favorably into Q4; near-term COF headwind (~17 bps) should be modest relative to deployment benefits . Values retrieved from S&P Global.
• Funding mix shift (seven Q3 securitizations, $400M unsecured notes) reduces repo reliance, lowers mark-to-market risk, and can enhance capital efficiency; expect unsecured share to rise over time .
• Longbridge is an earnings lever: record prop reverse originations, strong servicing tail, HMBS MSR gains; portfolio expanded 37% q/q ex non-retained tranches to ~$750M .
• Non-QM remains a core growth engine with tight execution, higher-FICO mix, disciplined LTVs, and attractive retained tranches; watch for inaugural RTL securitization as another funding vector .
• Risk watch: prepayment/convexity is actively hedged; credit hedges maintained despite this quarter’s drag; macro (HPA stalling, consumer strain bottom 50% income) monitored with higher-FICO focus .
• Q4 setup: management notes momentum continued into October (portfolio +>5% on ~$4B base) and robust securitizations; expect modest ADE drag short term but sustained coverage .
• Medium-term thesis: virtuous cycle from improved unsecured access and potential ratings upgrades could lower funding costs over time and support dividend power .

Appendix: Selected Portfolio Data

• Adjusted long credit portfolio rose 11% q/q to $3.56B; growth in non-QM, commercial bridge, other residential loans, CLOs; agency long RMBS down 18% q/q to ~$221M on net sales .
• Outstanding borrowings: recourse $3.253B (1.8x), non-recourse $12.332B (6.9x); total $15.585B; total equity $1.796B .
• Cash & equivalents $184.8M plus $1.04B unencumbered assets .

Notes:

• Where marked with an asterisk (*), values are retrieved from S&P Global.
• EPS context: GAAP diluted EPS was $0.29, while S&P “Primary EPS” aligns with ADE per share ($0.53), the more relevant mREIT performance metric .