Ellington Credit Company 2026 Q2 Earnings Call

Thanks, Alaael-Deen, and good morning, everyone. We appreciate your time and interest in Ellington Credit Company, which we often refer to by its New York Stock Exchange ticker, EARN or EARN for short. Please turn to slide three. The second calendar quarter marked an important inflection point for EARN's portfolio. The market sell-off earlier in the year widened credit spreads and significantly expanded the CLO opportunity set. We moved quickly, issuing unsecured debt in late March, rapidly deploying the proceeds in April, and actively repositioning the portfolio throughout. Those actions proved to be well-timed. As the second quarter progressed, credit fundamentals improved, and active trading and rotation allowed us to further upgrade portfolio quality. For the quarter, we generated an economic return of 8.1% non-annualized, increased our NAV per share, and strengthened the portfolio's long-term return profile, even as we reduced leverage.

Total equity also grew, adding to our balance sheet capacity and financial flexibility. We believe that we are well-positioned to grow net investment income in the months ahead, as our NII for the full quarter did not yet fully reflect the earnings power of our expanded and repositioned portfolio as of the end of the quarter. The second quarter was about building earnings capacity, and the upcoming quarters are about converting that capacity into higher net investment income and earnings while maintaining our discipline around credit quality, liquidity, and NAV preservation. We see three primary drivers of net investment income growth. First, deploying our excess liquidity. Greg will discuss the attractive investment opportunities we are seeing, and that is where we are putting our excess liquidity to work. Second, prudently adding leverage. Our strong balance sheet, larger equity base, and meaningful remaining borrowing capacity give us the flexibility to further expand the portfolio beyond its current size.

We also have the ability to issue common equity above NAV when market conditions permit, providing another source of accretive growth capital. Third, portfolio rotation. We expect to continue rotating capital into higher-yielding investments, pursuing attractive CLO refinancings and resets, and actively trading across the CLO capital structure. These three drivers, all of which are largely within our control, give us a clear path to grow earnings in the coming months. To be clear, we do not need to reach for yield in order to grow earnings. As Greg will explain, the portfolio repositioning we completed during the second quarter allowed us to increase income potential while actually improving credit quality and, in many cases, reducing risk.

With that, I will turn it over to Chris, who will walk through the quarter’s financial results in more detail, including how our balance sheet and portfolio are positioned to support NII growth.

Thanks, Larry, and good morning, everyone. Please turn to slide 4. For the quarter ended June 30, 2026, we reported GAAP net income of $0.33 per share and net investment income of $0.16 per share. Adjusted net investment income was $0.15 per share. Our NAV increased to $4.18 per share at June 30, which, together with the $0.24 per share of distributions during the quarter, produced an economic return of 8.1%. As Larry discussed, significant capital deployment and portfolio repositioning occurred during the quarter. So the resulting increase in earnings capacity was not yet fully reflected in second quarter NII. Please turn to slide 6 for a breakdown of our quarterly results by investment category. Our CLO portfolio generated strong results across both debt and equity.

NII was complemented by substantial net unrealized gains in U.S. and European CLO debt and U.S. CLO equity as credit spreads tightened and underlying loan performance improved. We also generated trading gains on mezzanine debt and benefited from calls on several discounted positions. These gains were partially offset by losses on our corporate credit hedges as broader credit spreads tightened during the quarter. Most of that hedge drag occurred in April when the credit markets rebounded sharply during the same period in which our long CLO portfolio generated substantial mark-to-market gains. Let's go over a few different yield measures, since each tells us something different. The weighted average GAAP yield on the entire CLO portfolio was 11.9% during the quarter, while the weighted average yield on our incremental purchases during the quarter was higher at approximately 14.9%.

As of June 30th, the weighted average yield projected on the portfolio, measured using fair value rather than cost, was approximately 16.6%, reflecting the stronger forward return profile of our repositioned portfolio. Meanwhile, attractive reinvestment yields have continued, with our weighted average purchase yield so far in the third quarter at approximately 16.8%. Importantly, these higher reinvestment yields do not come from taking on more risk. Rather, they reflect, in large part, improving fundamentals in the underlying loan market, as well as attractive entry points created by technical selling, and capital outflows. As these higher yields work their way through the portfolio, they should provide a tailwind for NII. Please turn to slide seven. We purchased $64.8 million of CLO investments and sold $35.1 million, growing the CLO portfolio to $334.1 million at June 30th from $307.9 million at March 31st.

That 8.5% net portfolio growth actually understates the level of activity during the quarter. Significant cash distributions, calls, and paydowns provided additional capital for reinvestment, while active portfolio rotation further increased turnover, including sales of positions where we believed much of the remaining upside had been realized. As you can see on this slide, our portfolio rotation mostly happened within sectors as opposed to cross-sectors, with CLO equity representing approximately 54% of the overall CLO portfolio at quarter end, up only slightly from 53%, and with the European investments remaining at approximately 10% of the overall CLO portfolio. Slides eight and nine provide additional detail on the corporate loans underlying our CLO investments. Our CLO collateral remains overwhelmingly first-lien floating rate leveraged loans representing roughly 95% of the underlying assets.

These loans are well diversified across industries and issuers, led by technology, financial services, and healthcare, with no single sector exceeding 11%. Loan maturities are spread over several years, with the largest concentrations in 2031 and 2032, and the minimal near-term maturities, resulting in a weighted average loan maturity of 4.4 years. Facility sizes skew towards larger borrowers with a weighted average size of $1.9 billion, which supports secondary market liquidity. Please turn to slide ten for an overview of our credit hedges. At June 30th, our credit hedge portfolio represented approximately $132 million of high-yield CDX notional equivalents, down from approximately $188 million at March 31st. Greg will discuss the drivers of that reduction. We also continue to maintain foreign currency hedges associated with our European CLO investments.

Turning to slide 11, total NAV was $159.7 million at June 30th, up from $153.8 million at March 31st, and NAV per share increased to $4.18 from $4.09. Cash and cash equivalents totaled $23.5 million. Reverse repo borrowings declined by nearly 9% to $151.9 million from $166.3 million, while unsecured notes outstanding remained unchanged at $54 million. Lower borrowing and a higher NAV brought our leverage ratios down. Our debt-to-equity declined to 1.29 times at June 30th from 1.43 times at March 31st, leaving us with a stronger, more flexible balance sheet and additional borrowing capacity entering the third quarter. Together with the higher reinvestment yields I mentioned earlier, that additional balance sheet capacity reinforces our ability to grow NII. With that, I'll turn the call over to Greg to discuss the CLO market environment, portfolio positioning, and outlook.