Ellington Financial Inc. (EFC) Q3 2026 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the Ellington Financial's Third Quarter 26 Earnings Conference Call. At this time, participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star-11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press star-11 again. As a reminder, today's program is being recorded. And now I would like to do. Your host for today's program, Alaael-Deen Shilleh. Associate general counsel. Please go ahead, sir.

Thank you. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 2000. These statements are not historical in nature and involve risks and uncertainties detailed in our annual and quarterly reports filed with the SEC. 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 Ira Tecotzky, co-Chief Investment Officer; and JR Herlihy, Chief Financial Officer. Our earnings conference call presentation is available on our website. Elingtonfinancial.com. Today's call will track that presentation, and all statements and references to figures are qualified by the important notice and end notes in the presentation. With that, I will hand it over to Larry.

Thanks, Alaael-Deen. Good morning, everyone. I will begin on Slide 3 of the presentation. In the third quarter, Ellington Financial delivered strong results. Despite a challenging market environment. We generated GAAP net income of $0.31 per share and an annualized economic return of 9.4%. Our adjusted distributable earnings again exceeded our $0.39 quarterly dividend. Had we preserved book value per share, even as interest rates move sharply higher 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 origination platforms provided multiple sources of earnings. Key earnings contributors for the quarter included our retained IOs from non-QM and agency eligible securitizations, which perform well when interest rates rise and prepayments slow, along with commercial mortgage bridge loans, corporate credit, and our originator investments, particularly LendSure. Which delivered another standout quarter. 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, the portal supported net portfolio growth even as we continue to securitize loans. Meanwhile, Longbridge remains solidly profitable supported by higher origination volumes, and significant interest rate hedging gains. The quarter would have been even stronger at Longbridge, but as interest rates rose sharply, a competitor temporarily held its offer. Offering rates down to defend its market share. Industry wide origination margins compressed as a result. But with offering rates finally repricing higher, origination margins at Longbridge are improving so far in the fourth quarter. Although Longbridge's contribution to earnings declined from the prior quarter, that prior quarter was extraordinarily strong. with 2 proprietary reverse securitizations completed. Moving now to our capital structure. In September, issued a $150 million in an add-on to our existing 7 3/8% senior unsecured notes. The offering came shortly after Moody's revised EFC's rating outlook to positive. We had initially launched a $100 million deal. But we were able to upsize that by 50% thanks to strong institutional demand. And the offering was priced at a yield spread over treasuries that was approximately 70 basis points tighter than last year's issuance. The add on brought the series to $550 million outstanding, and that larger issue size and broader investor base has already significantly improved secondary market liquidity in the issue. The offering provided us with additional investment capacity ahead of the late-quarter sell-off and advanced our ongoing strategy to replace short term mark to market repo with long term unsecured debt. Our recent common equity activity has reflected the same capital management discipline, In the first 2 months of the quarter, we raised approximately $34 million through our ATM, and approximately 100 percent of book value per share. Following quarter end, as our stock sold off, we repurchased common stock at approximately 85% of our most recently reported book value. The window was brief, so we purchased just under $4 million of our stock. But the repurchases were accretive to book value per share. We expect to take advantage of similarly accretive opportunities should they arise again. Subject to market conditions. Also in September, we completed the acquisition of a controlling interest in State Bridge, a relatively small, quite diversified loan servicer. At September 30th, Statebridge serviced approximately 15 thousand loans totaling nearly $2 billion in unpaid principal balance. Our objective is to leverage Ellington's data and workout experience to help State Bridge become the premier special servicer in the mortgage space. Agency servicing is dominated by a few players with massive scale. For those mega servicers, special servicing revenue just does not move the needle. However, we see an emerging need and great potential demand for more focused special servicer. And for Ellington Financial, Statebridge's strategic value goes well beyond our share of their servicing profits. If State Bridge can optimize EFC's outcomes, on delinquent loans and REO, that will help us deliver superior returns across credit cycles. With that, I will hand the call over to JR to walk through our financial results in more detail. JR?

Thanks, Larry. Good morning, everyone. I will begin on Slide 5 with results by segment. The investment portfolio contributed $0.47 per share of GAAP net income and Longbridge contributed $0.10 per share, before unallocated corporate and other items. Turning to the ADE reconciliation on Slide 6, the investment portfolio's contribution was stable at $0.60 per share, while Longbridge contributed $0.07. That 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 fee expense and prior periods have been conformed. The incentive fee was approximately $900 thousand 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 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. The lower earnings contribution we reflected narrower origination margins and 1 PropReverse securitization price during the quarter compared with 2 in the second quarter. Servicing and enterprise interest rate hedges contributed positively, Results also included a markdown on retained PropReverse tranches driven by a revised home price projection. The net Longbridge portfolio grew by 59% to approximately $1.03 billion reflecting production growth and securitization timing. Some of that increase reversed when the securitization that priced in September settled in October. Turning to financing. Recourse leverage increased to 2.2 times from 1.9 times as we grew the portfolio with additional repo, along with the debt from our unsecured notes add-on offering. While a portion of the proceeds from the notes was used to repay existing repo borrowings, the net increase in repo primarily reflected warehouse financing of newly acquired loans expected to be securitized in the near term. Our $150 million September add on less the redemption of $38 million of notes that matured in August increased unsecured borrowings by approximately $112 million to $775 million. Dollars Quarter end leverage also reflected the timing of 2 securitizations that priced in September but settled in early October. Cash increased to $269 million from $247 million and total equity rose to $2.03 billion Total unencumbered assets, including cash, reached $1.92 billion. On slide 11, approximately 25% of recourse borrowings were long term and non mark to market, and 17% were unsecured. The weighted average remaining term of repo borrowings was 8.9 months. At quarter end, the weighted average borrowing rate on our recourse borrowings was 5.78%, compared with 5.5% at June 30. During the quarter, we secured better pricing on 2 loan financing facilities, and extended the maturity of another. Slide 12 puts our longer term balance sheet and credit progress in perspective. It compares September 30th, 2026, with June 30th, 2025. The quarter end before we priced our $400 million unsecured offering. Since then, we have built a larger equity cushion and uncovered asset base diversified and extended our funding, improved profitability strengthened credit metrics. Our 90-day-plus delinquency rate across all residential and commercial mortgage loans declined by 12 basis points during the quarter to 5.6% which is down 216 basis points from 7.76% at September 30, 2025. Cumulative realized credit losses remained low. Moody's announcement of a positive outlook on EFC reflected our sustained strong earnings our improving asset quality, and the progress we have made strengthening our funding profile. Skipping ahead of the deck, Slides 18 and 19 show our interest rate, mortgage basis and credit hedges. During the quarter, we increased our interest rate and credit hedges including our net TBA short position, as our portfolio grew and market conditions changed. In corporate other, higher interest rates generated mark to market gains on our own unsecured notes. Partially offset by credit spread tightening associated with the September add-on. Those net gains were more than offset by losses on the related interest rate hedges. And the repayment of our 6 percent notes at par. Which had been carried below par. Results also included issuance costs from the add-on offering, which as usual, we expense in full, and higher income tax expense. Book value per share ended the quarter at $13.53 per share, down just 0.6% after $0.39 per share of dividend. Looking ahead, our quarterly ADE outlook is approximately $0.45 per share. Results remain sensitive to the ADE contribution from Longbridge, particularly around origination margins and securitization timing. Where we are assuming approximately 1 PropReverse securitization per quarter. With that, I will turn the call over to Mark.

Thanks, JR. This was a solid quarter for EFC. Against the market backdrop that had a lot more landmines than in the first half of the year. Both the 2-year note and the 10-year note treasury yields traded in ranges of more than 80 basis points, and credit spreads were volatile as well. EFC weathered the storm. We priced 2 non-QM securitizations, 1 agency eligible securitization earlier in the quarter before spreads widened, still we got 3 more deals priced late in September at strong levels despite the pickup in volatility. We have also continued pricing deals into Q4. We always disclose our credit hedges and our interest rate risk in our earnings presentation. Carrying these protections is typically a small headwind to return in quieter markets. You can only capitalize on the rich opportunities during a market dislocation though if you are positioned to play offense. When other market participants are running scared. Disciplined hedging is 1 of the primary reasons we are able to post an almost 10% annualized economic return this quarter and be in such a strong position entering Q4. 1 thing that was particularly impressive was the performance of Longbridge and our other mortgage origination partners, particularly LendSure. Contrast that strong performance with the much weaker results from many publicly traded mortgage originators. We clearly have a differentiated model where a symbiotic partnership between Ellington and our originators has produced strong returns over cycles. Ellington provides them with consistent liquidity, data, and analytics. And in return, they provide Ellington with a consistent flow of well underwritten loans. We also closed on State Bridge during the quarter. It will take time to build out a best in class servicing platform for late stage delinquencies, but we think advances in AI can reduce the timing cost. Over the past several years, we have pursued many partnerships that help us to vertically integrate more of the residential and commercial mortgage loan life cycle. State Bridge is another important step in that direction. What really stood out to me this quarter was the resilience of the nonagency mortgage market and of our business model. With our loan portal and diversified group of origination partners, we are able to dynamically adjust our loan purchase pricing not only in response to interest rates, but also in response to changing securitization economics. In the face of interest rate volatility, spread volatility, wars, uncertain Fed policy, and stress in overseas markets, particularly in financial markets. Securitization markets kept functioning so we could continue to buy loans and turn them into securities. There was a consistent spread to be earned that compensated originators for taking execution risk. Although securitization spreads have widened, our financing relationships with 2 dozen lenders unused borrowing capacity, and growing unsecured funding base give us greater flexibility over execution timing. And when we do bring transactions to market, we are adapting our structures to support investor demand. During the third quarter, we introduced the traditional sequential pay structure to NonQM to address senior investors' extension concerns as higher mortgage rates reduce borrowers incentive to refinance. Other non-QM issuers quickly adopted that approach. For EFC, the new structure delivered tighter overall execution, helping improve the economics of the investments we retain. We also priced our first owner occupied conforming balance securitization in October. These are loans eligible for purchase by Fannie Mae and Freddie Mac. Subject to loan level price adjusters. In many cases, the adjustments are, in our view, far in excess of what is required to compensate investors for expected credit loss. it is a further expansion of private capital into businesses traditionally served by the GSEs and 1 we think can be profitable for EFC. In addition, our small agency MBS strategy made money including the contribution from hedges. The retained portions of our non-QM and agency eligible securitizations had particularly strong performance. Including associated hedges. Some of these positions have IO like characteristics, and prepayment speeds continue to underwhelm supporting their values. You have seen a lot of stress in commercial real estate. EFC has very limited CMBS exposure, but it was a modest headwind this quarter. We see this quarter's higher interest rates as an unambiguous headwind to real estate values both commercial and residential. Higher rates can make sales and refinancings more difficult for our commercial mortgage bridge and residential transition borrowers. In commercial bridge, we are proceeding with elevated levels of caution, but are still finding attractive opportunities. We also think the opportunity set in CMBS has become decidedly more interesting. Now back to Larry.

Thanks, Mark. This quarter reinforced the lesson that we have 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 outperformed most other mortgage REITs by a wide 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 compelling 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. 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 the EFC's credit profile to support better ratings and tighter issuance spreads. Finally, we believe that our current monthly dividend of $0.13 per share remains appropriate. Our ADE has been running well above our dividend this year, but redistribution 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.

Certainly. And ladies and gentlemen, we ask that you please limit yourself to 1 question and 1 follow-up. You may get back in the queue as time allows. Our first question comes from the line of Crispin Love from Piper Sandler. Your question please.

Thank you. Good morning. I appreciate taking the questions. First on the reverse Yes. Can you hear me?

Yes. Yes. Good morning, Crispin.

Oh, okay. Great. Thank you. First, on just reverse, mortgage originations, very strong in the quarter. Looking at Slide 9, can you just discuss the outlook in the reverse mortgage space, some of the key factors driving that strength and just the sustainability of those levels or if there is anything special in the quarter.

Yeah. I mean, I think that, if anything, we are hoping for and expecting, I would say, continued growth into next year. You know, are we going to be able to maintain these types of, you know, massive percentage increases, you know, 40% year-over-year. Obviously, not forever, but we do see the product continues to gain traction. The demographics are favorable. And you know, I think. the product makes a lot of sense, obviously. We are broadening the product base as well. Introducing new products. We have. We already introduced some this past year. We are going to introduce more next year. So, yeah. So I think we absolutely are expecting further growth further very strong growth. And as I mentioned, you know, the Prop product, which is more profitable, for us than the agency product. Is, you know, favorable in many ways, especially in terms of borrowers being able to borrow more. Tends to be the case when rates go up as opposed to rates go down.

Okay. Great. Appreciate that. And then just on the book value, result, definitely an outperformer versus peers, as you said.

Can you just drill a little bit deeper into some of those actions that you took to preserve the book value specifically in September, kind of how nimble you were able to be. And then to just give. given the rate moves, since quarter end, just are you able to provide kind of a preview of October book value or just kind of how hedges have shifted quarter to date? I am going to let Mark handle that in terms of, you know, some of the actions we took. But just keep in mind that part of it is just putting hedges in place, maintaining discipline so we do not have to do anything very different. We have had very strict protocols in terms of how we modify our credit hedges, how we modify our interest rate hedges, I think we are 1 of the only mortgage REITs, and this has been true for many years, that makes heavy use of TBA short positions. You know, for example, against the non-QM book. Right, where you have got very similar convexity characteristics, just makes a lot of sense. You are dealing with a lot of spread to start with. And you can just sleep better at night. And you saw the results, right, if you have a decent amount of TVA hedges there. Mark, I do not know if you wanna comment on anything else.

Yeah, or actions you took. I think what Larry said is exactly right. So the hedging protocol in Q3 was not any different than what it is been. it is just this sort of. I kind of alluded to this in my prepared comments that it made more of a difference in Q3 because rates shot up so much. But I mean, basically, for all the positions in Ellington Finance, whether it is a non-QM loan or an agency pool, or an IO or whatever it is, we think about what sensitivity the price of that asset has to interest rates. We think about what sensitivity the price of that asset has to other spread product, you know, investment grade corporates or TBA mortgages. And so we think about how much exposure we wanna have to spread risk. We generally do not take any exposure to interest rate risk. And we have enough tools and enough data to feed our historical you know, models or regression analysis to get pretty accurate. So, you know, when I think about, non-QM, you know, Larry mentioned about loans we are buying on the portal each night, loans we are buying from origination partners, loans we are buying, Loans we are buying from other originators. Right? When we buy those and we plan to securitize those, we think about how the investment grade part of those securitizations is going to move in. move relative to, you know, corporate spreads and TBA spreads. And we have the hedges in place. And so we maintained our discipline in Q3 We maintained our discipline in Q4. You know, I think if anything, the job's getting easier because the mortgage market. The nonagency mortgage market has gotten a lot more than even what it was 2 years ago. You are probably gonna have between non-QM, jumbo, agency eligible, HELOCs. You are probably gonna have 250 or 275 billion of deals priced this year. So you are talking at a pace of, you know, 5 billion of deals a week. So there is continual price points to sort of give you better data on how spreads move and as our volumes have gone up, the time it takes us to ramp up to deal size and price deals, that is compressed a lot. So the time you know, the sort of the risk we take on hedges decoupling from the underlying asset, that is been reduced too. And so you know, we did not change anything in Q3, and we certainly have not changed it in Q4. It was just hedges mattered more in Q3 to, you know, to preserving book value than it has, you know, the first 6 months of this year. Yeah.

And I will just, to finalize the response, Crispin, for October, you know, as we put out our monthly book value per share estimate each month on a lag, and we will do the same for October. It will be later in November. And. Yeah. I mean, there are a lot of moving pieces in October. Right? So rates have rallied and the performance of IOs and rate hedges that were so positive in Q3 will, you know, reverse to some degree, but you have offsets on loans and securities. You know, lower rates, all else equal, could generate more origination volume and better margins of the originators, sometimes with a lag, though. So a lot of lot of different moving pieces also with what AAAs are pricing on new securitizations. You know, they have been wider in the last kind of month or so with market volatility. So we will we will be putting out an October update later in November. And you will see the effect of a few different parts of the market. But kind of the diversification of our portfolio, I think, is really important in a market like this or, frankly, any market.

Great. Thank you. Appreciate all the color there. And, JR, I thought I would just try. But I understand. Thanks.

Thanks, Kristen.

Thank you. And our next question comes from the line of Bose George from KBW. Your question please.

Hey. Good morning, guys. This is Frank Gilabetti on for Bose.

Just wanted to go back to the prop reverse mortgage discussion. You know, you marked down the retained prop reverse mortgage tranches based on revised home price projections. Can you just talk about what changed in your assumptions, how much cushion remains? And does your new outlook kind of change go forward view on new originations. Thanks. Yeah. So in terms of our outlook, and it absolutely factors into our pricing. But, in terms of the revision, we revise our forward home price projections, you know, every month, every quarter. And we use those to you know, to project cash flows on all of our securities, but, you know, particularly the reverse mortgages where you do have a forward home price exposure. Obviously. And so it was really just a function of the weakness that we saw specifically in the housing market in the third quarter. So that is an actual. Right? And then of course, we overlay that with, long term projections, which come out of, again, internal models that we have here. Housing models. So, so I think the biggest change probably of all those was the you know, actually what we saw in the third quarter. Great. That. that is very helpful. Then know, you issued equity around book during the quarter, and then repurchased some shares. Can you just discuss the relative return from repurchasing stock at a discount with new investment opportunities you highlighted earlier? And then yeah. Sure. Yeah. So look, I. We used to I think for many years, we said 80% was the threshold. Now that our stock has more reliably traded you know, at a premium to book, a round book. Now in the last month or so, it is been trading below book. We wanna take advantage of that opportunity. We do not think it is an either or. We can take advantage of low asset prices, you know, and do stock repurchases. So, we think this is a great opportunity. To buy our stock at a 15% discount. We only had a few days before the window closed. We took advantage of it. As I said in my prepared remarks, you know, unless you have got some sort of abnormal market conditions, I do expect to continue to have that kind of discipline you know, around that 85% level. that is gonna provide support Obviously, for shareholders, I think they should, you know, have confidence that they have got us behind them in terms of supporting the stock price. And I think that is not only just, frankly, a good trade for the company, to be buying stock there. But when you look at what it can do in terms of our for example, you know, what it does to our book value per share. Right? That accretion, right, which then you know, we can then basically reinvest. You could almost think of them as profits, right, that boost to book value per share, then just will go into supporting our earnings, supporting our ADE. We think it makes sense on a lot of levels and we. And, you know, our plan is to continue to do it. Thank you.

Thank you. And our next question comes from the line of Douglas Harter from BTIG. Your question please.

Actually, John -- oh, boy, John. Douglas, before you ask that question, I do want to just follow up on 1 more thing on Frank's question, which is that I do wanna say that, in terms of, you know, again, repurchasing stock, at a discount, Yeah.

So ask your question, and I will and I will follow-up later.

Sorry. Go ahead. Great. Thank you. Obviously, you guys came through this quarter with relative strength. Can you talk about the potential opportunities to maybe add more originator partners kind of as others in the industry might need capital or are struggling with the higher rate environment? Yeah. I. All I can say is that we are always looking at it. We are. You know, we have some deals that we are looking at that are, you know, more alive than others. You can call them in the pipeline. Nothing that is imminent. But, you know, we are looking at some platforms. Some are bigger than others, and we do we do expect. I mean, this is not again something we necessarily expect in the short term, but we do expect there could be some platforms for sale, and we would absolutely take a close look at that.

Great. Appreciate it. Thank you.

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

Thank you. When you look across your portfolio and asset classes from residential transition, home equity, non-QM, commercial, where do you think spreads have widened the most relative to the underlying credit fundamentals? And where are you most interested in putting incremental capital between residential and commercial?

Yep. Hey, Ameeta. This is Mark. I would say that within third quarter, the sharpest widening we saw that did not seem to us supported by any fundamental change, you know, nothing in the data. that showed really a material change in dynamics. It was in the residential side. And so you had a you know, with some. A little bit. You know, the residential stuff's a little different. Because there is a sensitivity of spreads to volatility. Right? Like. so you saw an increase in volatility with an increase in interest rates. And there were some fairly wide publicized liquidations that certain, you know, certain funds. But we saw a big widening in residential spreads that did not. Was not supported by any aberrational prepayment behavior or aberrational home price behavior. And you know, I would mentioned in my prepared remarks that we do see higher interest rates, and I know things have reversed a lot since the end of the quarter. Right? The end of the quarter, 10 year note was. got to like, you know, 5.30-something the end. You know, beginning of October, and now it is reversed a lot of that move. But when we were living in that kind of 5.35 10-year world and $7.40 mortgage rate world, we saw these higher rates as a headwind to HPA on the residential side and the commercial side. And I think to us, it seemed more of an issue. On the commercial side where a lot of the loans that we are involved in and you know, others are involved in are floating rate. You know, on the residential side, you know, borrowers have, by and large, locked in, you know, 30-year, you know, locked in their, you know, fixed payments for 30 years or 15 years. But locked in for a long time. On the commercial side, you have a lot of floating rate loans. Where, you know, you did have 1 Fed hike in the quarter. So they are debt cost went up. And it is just been a struggle for, in some of these sectors to generate more income. Right? Rent growth, has been hard to get on the multifamily side. Taxes, insurance, maintenance expenses have been going up. And so we. you will see some of these sponsors squeezed from both ends. And so that is, I guess, to us where we saw more of a fundamental concern. And, you know, some of that is gonna abate this quarter with lower interest rates, but we are watching it closely. Great. Thank you for that color.

And on LendSure, you talked about another strong quarter. I mean, we have been hearing about the challenging environment for non-QM origination more broadly. Can you just expand on what allowed LendSure to perform well through that volatility? And are you seeing any change in gain on sale margins today?

You know, I would say that they have been at it a long time. It was 2014; so you are going back 12 years when we first made our equity investment with LendSure. And it has been the same management team through that 12 years. And prior to LendSure, that management team ran, another mortgage company. So they just have you know, multiple decades of experience. And they bring to the what is inherently a cyclical business, they bring a refreshing amount of discipline to managing things. You know, managing the expense side of the balance sheet, managing how they control credit risk, So I think they have gained market share. I think the partnership with Ellington Financial, it really is symbiotic because we can provide consistent pricing to LendSure. Even as there is volatility I think some of the peer group that are not partnered up with a deep pool of capital that we have. do not get the benefit of that. So I think LendSure can take a little bit longer view of the origination process, knowing that we are gonna adjust our spreads, but we are gonna adjust our spreads in sort of a rational reasonable way so we can provide them with a level of consistency. And we will buy loans that you know, some of the other people in the space do not have that. Think that is important. I think they have gained. I think that consistency that Ellington Financial gives to LendSure, and then LendSure gives back to, you know, its primarily a wholesale model, so their brokers has allowed them to gain market share and that they do not need to have the lowest rate on every loan every day. You know, they have been at it for 12 years. They have demonstrated, their ability to have pricing, consistently closed loans in a reasonable time frame. Consistently provide great levels of service. So they have been gaining market share, and I think it is those things But I think it really is an outstanding management team at LendSure and 1 that is hard to replicate. Thank you very much.

Hey, before we take the next question, Mark, I yes. Thanks, Mark. I just have a question for you. So how much wider would you say non-QM is today versus say, where we were, you know, before the big sell off? I would say an options in options adjusted terms, we are probably still at least you know, 10 o AS wider. Right. But we That could But nevertheless well less than a point, though, wider. Right, in terms of on the price base. Yeah. So the point just wanna make, and this goes back to Frank's question. Right? So yes, the opportunity set is wider, and this has to do with repurchasing stock. I mean, if we are repurchasing stock at 85 percent of book, our leverage is, you know, little more than 2 to 1. Right? You can say just you know, by the best. what we think is the best measure of that. So we are buying our assets back. Right? At let's say, over a 5 point discount or about a 5 point discount, if you wanna look at it that way. that is an incredible opportunity. Right? So we wanna be scientific about this. Spreads. You know, we have not we have not seen assets widen 5 points. As Mark said, you know, non-QM, sort of our bread and butter. Is not even a point wider. So this is a very compelling opportunity. We are effectively buying our assets back. When we buy at 85% of book. 15% discount. we are buying them, let's say, close to 5 points cheap. that is not something you can replicate in the market. Now under abnormal market conditions, and that is why I qualify my statement before, with that, then sure, you could have some incredible purchase opportunities, buying opportunities that would make, you know, that would that would dominate being able to buy your stock back, let's just say, 85% or 80% before, now more like 85%.

And, look what we did earlier in the year. Right? We issued we issued common at a premium, right, accretively, and we used the proceeds to buy back a preferred issuance, that was, you know, now floating and expensive. So we always wanna be thinking about what can we do a capital management perspective to optimize our capital structure. We are mindful of book value per share. So we do not want to do offerings that are too dilutive. We want to do purchases that are accretive. We are mindful of G&A expense ratios. And the expense, the effect that shrinking our capital base can have on those, which, of course, hits, you know, earnings per share and ADE. So we are mindful of those. We are mindful of the fact that we want our stock to be liquid. that is good for shareholders. So, you know, shrinking the common equity capital base all of the things being equal, is not a good thing. We wanna balance all those things. And as I said before, at 85 percent all metrics point to this being a very good use of, some dollars that we have. And we are, you know, very disciplined about, keeping liquidity on hand. Right. And that. To that last point, we are not having to refinance near term maturities. In fact, we added on to unsecured financings in September. Took our unencumbered assets up to almost 2 billion. A large, you know, good proportion in cash. We have retained earnings to the point that book value per share started the year at $13.16. We are up 37¢ after the dividend of $13.53 at September 30th. So we have the liquidity. We have the retained earnings. We have the ability to be opportunistic. And you we got only 4 million repurchased before the window closed. But, yeah, to Larry's point, it can be a very exciting opportunity both from a company, you know, from a shareholder to add value, add accretion to book value per share. Our next question, operator.

Thank you. And our next question comes from the line of Trevor Cranston from Citizens JMP. Your question please.

Hey, thanks. A question on the State Bridge investment that you guys made. I guess, 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 is a company that potentially has more of a growth opportunity in an environment where delinquency levels are increasing. Thanks.

Oh, that is an interesting angle. Mark, 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 have watched over the past 4 or 5 years, the understandable but quite significant consolidation in the servicing space. So when we first started with non-QM, we had our servicing at Rushmore. We thought that was a great platform, and we essentially had an employee there that would sort of you know, watch in 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. What you know, the volume we had at Rushmore, was not big enough to really 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. that is that is no longer that is no longer a servicer we can work with. Right? They. They have shut it down. So we just looked at things, and we did not 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 is gonna take a while to build this out. I think it is gonna be valuable for EFC. But I also do recognize what you pointed out is that, you know, you are seeing change in. Significantly, you are seeing a change in the modification policies coming out of FHA, Their pipeline of delinquencies has increased. The non-QM market as a whole is growing. You know, with, you know, you know, delinquencies in non-QM first started were trivially small. Trivially small because, you know, we had that big COVID HPA tailwind. We do not think that is. you know, we do not 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 out, and we demonstrate the quality of the resolutions we believe State Bridge can get, that there will be opportunities for you know, others may want to use their services. But I think, you know, the first thing and what we are really focused on now is building it. Right? And I think what is exciting about that process is that AI and some of the technology you have seen in the last 3 or 4 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 have committed a lot of resources to it, a lot of really you know, very sophisticated people that have built out complicated systems. They are hard at work. And I think it is gonna 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. 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 wanna add 1 thing. A little inside baseball, I guess you could say. So, this sort of gets to your question about is this kind of a almost a countercyclical play in terms of 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 act. When we first looked at Stapridge, we actually looked at it was originally gonna be Mark, I am sure you remember this, it was originally gonna be almost like a joint venture. Between us and some other. I am not gonna name names. there is some other major players in the mortgage market. And, they sort of got distracted when all 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 Statebridge gonna be incredibly profitable just based upon the loan flow they get from us? No. But as Mark said, we are going to build this into, you know, 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 about before 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 standards 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 have built this, then I think there will be plenty of business for State Bridge to grow and thrive on.

Sure. Okay. Makes sense. Appreciate all the color. Thank you, guys. Thanks, Trevor.

You.

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

Yeah. Hi. Thanks for taking the questions. I think most points have been touched on. So I just wanted to ask a quick follow-up regarding an answer to a follow-up to a previous question. You would mentioned in 2027, you know, adding new products at Longbridge. And I guess, I would be good to just hear some color on maybe you know, what borrower needs you are looking to address with those new products. And then maybe if you could provide some characteristics or just any input on those potentially new products in 2027. Thank you.

Provide any details Thanks for the question, but I cannot provide any details. On the products themselves. But you know, you can imagine, right? You are dealing with you know, let's just say, just to, keep it simple. There are lots of times when a reverse mortgage just in the traditional sense may not be the best fit. But some other you know, hybrid product, right, between a reverse and a standard. You could imagine ones where you are paying, you know, some interest, but not as much interest. You know, you could imagine there are lots of products, and we are. you know, we are working on. We have some in the pipeline. And, you know, really, you know, we will continue to address the fact that there is a ton of home equity, right, that is out there that the homeowners want and need access to in many cases. And, a first mortgage, you know, especially if you have already got first mortgage in place, is not always the most economical solution. So, right, in cases like that, you have already got a first mortgage on the property. So you are not gonna look at a first mortgage that is a reverse to replace that. But although in some cases, will, if that. You know, if continuing to make monthly payments is an issue. But some, you know, some sort of home equity releasing product just makes a lot of sense, and there are just many, many ways of structuring those. In ways that can make a lot of sense for the consumer.

Okay. Thank you. that is all for me today.

Thank you. This does conclude the question and answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.