Ellington Financial Inc. Common Stock 2026 Q2 Earnings Call

Thanks, Alaeddin. Good morning, everyone, thank you for joining us today. I'll begin on slide three of the presentation. Ellington Financial delivered yet another terrific quarter, continuing the momentum we have built over the past several years. Strong performance across our diversified platform once again drove strong GAAP earnings, adjusted distributable earnings well above our dividend, also drove a further increase in book value per share. For the quarter, we generated GAAP net income of $0.43 per share, ADE of $0.60 per share, and an annualized economic return of 13.6%. These results reflected excellent securitization execution, continued outstanding results at Longbridge, solid contributions from our other loan origination partners, continued strong credit performance across our loan portfolios. Meanwhile, the financing spreads on our credit lines continue to narrow, which is providing an additional tailwind to our results. Importantly, all these drivers reinforce one another.

Strong loan sourcing supports capital deployment and securitization volume. Through our securitization executions, we create attractive retained investments that help build our future earnings power, we release capital for redeployment, and we replace short-term financing with more stable non-mark-to-market funding. Moreover, our securitizations benefit greatly from increasing scale as our larger and more frequent transactions continue to expand our investor base and have improved our execution levels over time. Meanwhile, strong loan credit performance supports the yields on our retained investments and also sustains and broadens the institutional investor demand for our securitizations. Finally, the profitability and market share growth of our originator affiliates contribute directly to our earnings while also expanding the flow of loans available to our investment portfolio. We saw this dynamic play out repeatedly during the quarter.

Ellington's proprietary residential loan portal, where we lock in loans for more than 40 unique sellers, is now generating more than $15 million of loan purchases per day for a pace of around $4 billion annually. Of course, we have Longbridge, which supplies their expanding pipeline of proprietary reverse mortgage loans for our investment and securitization. Foundational to all of this is Ellington's well-known and long-standing focus on proprietary research, data, and modeling capabilities. A full 20% of Ellington's employees are dedicated to research and technology, and recent advances in AI are further enhancing the output of that team.

Ellington's research and analytics helps shape the loans we originate, the underwriting standards and loan programs we support, the risks we choose to retain and those we choose to offload or hedge, and the way we manage our liquidity. Some of this is clearly visible in our credit statistics as shown on slide 14. As you can see on that slide, inception-to-date cumulative realized credit losses were a mere 17 basis points on approximately $20.4 billion of residential mortgage loan fundings and just 39 basis points on more than $2.5 billion of commercial mortgage bridge loan originations. Keep in mind, these are cumulative loss amounts, with the annualized ratios being far lower.

This credit performance spans multiple market cycles, including COVID, the 2022 interest rate sell-off, and the more recent commercial real estate downturn, and reflect not only the quality of our underwriting at loan origination, but also the effectiveness of our asset management and loan workout capabilities. The same discipline is evident in our securitizations. Our EFMT non-QM shelf has continued to rank among the strongest in its cohort for both low delinquencies and controlled prepayment speeds. These drivers enhance the yields on the retained tranches we invest in while also helping reinforce the liquidity and reputation of the EFMT franchise. They also demonstrate how Ellington's competitive advantage in research and underwriting can translate into stronger credit outcomes and better investment performance. Longbridge had another standout quarter. Originations were up 38% year-over-year. Margins remained healthy, securitization executions improved, and servicing continued to add meaningfully to the bottom line.

Longbridge remains one component of EFC's much broader platform, but its performance demonstrates the value that can be created when sourcing, analytics, financing, securitization, and servicing all work together. With that, please turn to slide five, and I'll hand the call over to JR to walk through our financial results in more detail.

JR? Thanks, Larry. Good morning, everyone.

I'll begin on slide five with our earnings summary, then review the principal drivers of the quarter, several disclosure enhancements we've made in our portfolio and balance sheet activity. For the second quarter, EFC reported GAAP net income of $0.43 per common share on a fully mark-to-market basis and adjusted distributable earnings of $0.60 per share. On slide five, you can see the contribution to GAAP net income by segment, and on slide six, the corresponding contribution to ADE. Our quarterly results again demonstrated the strengths of our underlying businesses with continued excellent performance across the investment portfolio and another outstanding quarter from Longbridge.

Looking ahead, we continue to see broad support for ADE reinforced by several factors, including attractive net interest margins, particularly on our portfolio of retained securitization tranches, robust credit performance, ample liquidity available for deployment, and of course, continued sizable earnings contributions from Longbridge. Turning to the investment portfolio. Net interest income increased significantly quarter-over-quarter, reflecting attractive asset yields and a higher average portfolio size. Earnings from unconsolidated entities also remained strong, driven by solid results in our equity stakes in the loan originators, and commercial mortgage bridge loans accounted for as equity method investments. Overall performance was excellent across the investment portfolio led by our residential credit strategies, while gains on hedges more than offset net realized and unrealized losses.

Credit performance across our loan businesses also remained excellent, with exceptionally low life to date realized credit losses across both our residential and commercial mortgage loan portfolios, consistent with the statistics that Larry highlighted. You'll notice several changes to our disclosures this quarter. These changes simplify certain parts of the presentation while adding detail where we believe it will be most useful to investors. First, we have incorporated agency MBS into the broader investment portfolio disclosures throughout the presentation. In years past, agency represented a substantially larger allocation of our capital, but we have since rotated much of that capital into credit strategies where we see stronger return opportunities and clearer competitive advantages. Given the smaller role today played by agency MBS, we believe that the revised presentation better reflects how we evaluate and allocate capital across the portfolio. Second, we have expanded our Longbridge disclosures.

Starting on slide nine, we now separately present HECM and proprietary reverse mortgage origination volumes, including the channel composition of each, providing greater visibility into the scale and growth of both product lines. We have also added submission volumes to this slide. Because loan fundings are preceded by loan submissions, we believe that submissions provide a useful leading indicator of future origination volume. As you can see on slide nine, second quarter submissions were up substantially sequentially, supporting a healthy pipeline entering the second half of the year. That momentum is continuing, with July 2026 marking Longbridge's highest ever month for prop reverse mortgage originations and submissions. Finally, turning to slide 10, you can see that we are now presenting separate roll forwards for HMBS MSRs and prop reverse mortgage MSRs, together with earnings generated by those assets.