Ellington Financial NYSE: EFC reported a sharply higher first-quarter profit and said adjusted distributable earnings remained well above its dividend, as management cited strong loan portfolio performance, record results from Longbridge and expanded securitization activity despite wider credit spreads late in the quarter.
Chief Executive Officer Laurence Penn said the company delivered GAAP net income of $0.78 per share, adjusted distributable earnings, or ADE, of $0.55 per share, and an annualized economic return of 26%. Book value per share rose 3% during the quarter, to $13.56 from $13.16 at year-end, after dividends.
“Ellington Financial delivered an exceptionally strong first quarter in terms of both GAAP net income and adjusted distributable earnings, even in the face of rising market volatility and widening credit spreads throughout the month of March,” Penn said.
The company’s ADE exceeded its quarterly dividend run rate of $0.39 per share by a wide margin. Chief Financial Officer JR Herlihy said Ellington Financial is raising its quarterly ADE guidance to “the $0.45 per share area,” still above the current dividend level.
Longbridge Drives Outsized Earnings Contribution
Management highlighted Longbridge, Ellington Financial’s reverse mortgage platform, as a major driver of the quarter’s performance. Penn said Longbridge had a “near record” quarter for proprietary reverse mortgage loan origination volumes, continued to gain market share in HECM originations and posted healthy gain-on-sale margins across products.
Herlihy said Longbridge originated $550 million of new loans during the quarter, up 52% from the first quarter of 2025. The Longbridge portfolio increased 13% to $695 million, as origination volume exceeded the impact of a proprietary reverse mortgage loan securitization completed during the quarter.
Longbridge also benefited from servicing income, strong tail securitization execution, net gains on HMBS mortgage servicing rights, interest rate hedge gains and a $17 million litigation settlement payment. Penn said Longbridge’s quarterly net income set a record and “surpassed its 2025 full year net income by a wide margin.”
In response to a question from Timothy D’Agostino of B. Riley Securities, Herlihy said Longbridge’s origination volumes increased from January to February to March, with March the strongest month “by a decent margin.” He added that April was “looking good” and that momentum had continued into the second quarter so far.
Securitization Volumes Reach Largest Quarter Ever
Ellington Financial said its securitization platform remained highly active in the quarter. Penn said the company participated in seven transactions totaling more than $2.8 billion from its EFMT shelf, compared with $1.1 billion across four transactions in the first quarter of 2025. Average non-QM securitization size reached $508 million, nearly double the year-earlier average of $265 million.
Co-Chief Investment Officer Mark Tecotzky said securitization volumes were the company’s largest quarterly total ever and were diversified across several loan types. He said Ellington Financial now securitizes five loan types after starting with non-QM loans in 2017.
“Greater securitization volume doesn’t just increase profits, it also tends to improve margins,” Tecotzky said, adding that scale improves liquidity for investment-grade buyers and helps the company provide consistent liquidity and pricing to origination partners.
Tecotzky also said securitizations help reduce market shock risk by replacing short-term repo financing with match-funded, non-mark-to-market debt. He noted that mark-to-market repo represents a smaller share of borrowings than during the COVID period, reducing margin call risk.
Loan Portfolios Show Stable Credit Performance
Herlihy said the company’s credit portfolio generated $0.61 per share of portfolio income, while agency contributed $0.02 and Longbridge contributed $0.47. On an ADE basis, the investment portfolio segment contributed $0.58 per share and Longbridge contributed $0.21 per share.
The adjusted long credit portfolio increased 4% sequentially to $4.27 billion, net of securitizations, driven by loan portfolio growth and retained RMBS tranches. Herlihy said the company generated net realized and unrealized gains across non-QM and closed-end second lien loan portfolios, including retained tranches, as well as agency-eligible loans and commercial real estate owned assets.
Management said credit performance remained strong. Penn said delinquency rates declined for a second consecutive quarter and realized credit losses remained minimal. Herlihy said 90-day delinquency rates declined in both residential and commercial loan portfolios for a second consecutive quarter.
Penn also noted that non-QM mortgage rates briefly dipped below 6% during the quarter, triggering a short-lived increase in prepayments. He said the company’s focus on prepayment risk in asset selection benefited performance, citing J.P. Morgan Research that showed Ellington’s EFMT shelf had the lowest prepayment speeds in its cohort and nearly the lowest 30-plus-day delinquency rates.
Balance Sheet and Capital Actions
Ellington Financial’s leverage ratios were essentially unchanged during the quarter, as equity growth kept pace with asset growth. Herlihy said recourse debt to equity was 1.9 times and overall debt to equity was 9 times at March 31, both unchanged from year-end. Unencumbered assets rose 8% to $1.9 billion.
The weighted average borrowing rate on recourse borrowings was 5.49%, down 18 basis points from year-end, helped by tighter repo spreads. Herlihy said 30% of recourse borrowings were long-term and non-mark-to-market, while 18% were unsecured.
Penn said the company raised $117 million of common equity in January through a block trade and used the proceeds to redeem its Series A preferred stock, which carried a coupon of more than 9% and was the company’s highest-cost tranche. He said the common equity issuance was accretive to book value per share after costs and was sized to fund the preferred redemption.
The company also continued to advance its previously announced acquisition of a residential mortgage servicer, which remains subject to regulatory approval. Penn said the acquisition is expected to deepen Ellington Financial’s vertical integration by bringing additional servicing capabilities in-house and improving management of delinquent assets.
Management Discusses Dividend, Agency Strategy and Market Risks
During the question-and-answer session, Frankie Labetti of KBW asked about dividend policy, given ADE has continued to exceed the dividend. Penn said management is “certainly not thinking of lowering the dividend,” adding that the current dividend “does achieve good balance.” He said a future increase could be possible, but that the company currently likes where the dividend stands.
Asked about the company’s agency allocation, Tecotzky said he does not expect the allocation to increase, given the recovery in agency MBS spreads. Penn added that agency securities are likely to be more opportunistic than a core strategy for the company, though agency-related hedging remains active.
Management also discussed market risks. Tecotzky said conflict in the Middle East had not materially affected the company’s strategies beyond short-lived interest rate and spread volatility in March. However, he said persistently higher energy prices could pressure lower-income consumers and renters, which the company is monitoring closely.
Penn closed the call by saying 2026 was “off to a great start,” citing outsized net income, ADE above dividends, book value growth, Longbridge’s stability, expanded securitization scale and balance sheet improvements.
About Ellington Financial NYSE: EFC
Ellington Financial, Inc NYSE: EFC is a mortgage real estate investment trust (REIT) that focuses on generating attractive risk-adjusted returns through investments in residential and commercial mortgage-related assets. Established in 2013, the company is externally managed by Ellington Financial Management, L.P., a subsidiary of Ellington Management Group, an alternative asset management firm. EFC's core strategy centers on actively acquiring and managing agency and non-agency residential mortgage-backed securities (MBS), mortgage servicing rights, residential whole loans, and other structured finance instruments, including asset-backed securities and commercial mortgage-backed securities (CMBS).
The company employs leverage and structured financing tools—such as repurchase agreements and secured credit facilities—to enhance portfolio yield while maintaining focus on risk mitigation.
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