Q3 2025 Ellington Financial Inc Earnings Call
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Good morning, ladies and gentlemen. Thank you for standing by, welcome to the Ellington Financial, third quarter 2025 earnings conference. Call today's call is being recorded at this time, all participants have been placed in listen-only mode. The floor will be open for your questions. Following the presentation. If you would like to ask a question during that time, simply press star, then the number 1 on your telephone keypad. If at any time, your question has been answered. You may remove yourself from the queue, by pressing star 2. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the call over to Aladin Chalet. You may begin
Thank you. Before we begin, I'd 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 1995. These statements are
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 4 looking statements,
Joining me today are Larry Penn Chief Executive Officer of Ellington, Financial Mark toski co-chief investment officer and J and Junior Hurley Chief Financial Officer. Our third quarter earnings conference. Call presentation is available on our website, Ellington financial.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'll hand over to Larry
Thanks Aladin. Good morning, everyone. And thank you for joining us today.
I'll begin on, slide 3 of the presentation.
Ellington Financial delivered, another quarter of strong performance with strategic execution, highlighted, by the continued growth of our adjustable, distributable earnings, the continued growth of our Investment Portfolio and the continued strengthening of our balance sheet.
For the third quarter, we reported gaap net income of 29 cents per share and add of 53 cents per share, which set a new quarterly High For This metric. Since we started reporting it in 2022 and which once again, significantly exceeded our 39 cents per share, dividends for the quarter.
The increase in ad over the past. Several quarters is the direct result of higher net interest income from our loan portfolios reflecting. Both the growth of those portfolios and their strong ongoing credit performance combined with sizeable proprietary reverse mortgage securitization gains at Longbridge. But we're now completing roughly 1 reverse prop securitization per quarter.
Our quarterly results also benefited from robust gains from securitizations of non-qm loans and closed in second lean loans.
We priced a total of 7 securitizations during the quarter. That’s a record for us.
Including transactions completed subsequent to quarter end have now priced a total of 20 securitizations year to date. That's more than triple last year's pace.
The E fmt securitization franchise has become a tremendous asset for Ellington Financial.
Allowing us to access liquidity from many of the largest fixed income investors in the world.
Finally, in addition to all these drivers, we also had excellent performance in our Securities businesses and strong earnings from our affiliate loan, Originators such as lensure.
Shifting to our balance sheet. Our total portfolio Holdings, grew by 12% during the quarter. As we continue to deploy Capital to our highest conviction, loan businesses.
Portfolio growth was led by non-qm proprietary reverse mortgage and commercial mortgage Bridge loans.
Complemented, by opportunistic, editions of other Residential, Mortgage Loans and cos as well.
Notably, Longbridge delivered a record quarter for proprietary reverse origination volumes.
Demand from borrowers for long Bridges, prop products continues to grow but just as importantly, demand from investors remain strong for the resulting securitization debt rashes.
I believe that Ellington Financial, with our Longbridge subsidiary and our securitization franchise, is uniquely positioned to profitably intermediate between mortgage borrowers and investment-grade debt investors.
Moving to the financing side. We further strengthen our balance sheet by increasing our long-term. Non-market financing in 2 key ways.
First by accelerating, our pace of securitizations and second by expanding our access to long-term unsecured financing.
First, as I mentioned earlier, we price 7 securitizations during the quarter.
Importantly, we are close to pricing our inaugural securitization of residential transition loans.
Which would reduce Reliance on short-term financing and that strategy as well.
Unlock capital for redeployment and create high-yielding retainers for our portfolio.
Securitizations are important because they provide stable non-market to Market funding while reducing Reliance on repo.
This greatly enhances Capital efficiency and I'll elaborate on that later in my concluding remarks.
Securitizations also allow us to manufacture High, yielding retain tanches with valuable call options.
These retain tranches are generating some of the most attractive registered returns AC platform, and they contribute strongly to add even without repo financing.
Second on the financing side.
On the final day of the third quarter we successfully priced million dollars of 5 years. Senior unsecured notes rated by Moody's and Fitch and broadly distributed to institutional investors across more than 80%
We utilize more than half the proceeds to reduce repo. Borrowings with the remainder, funding new, high yielding Investments.
The unsecured notes priced at 7 and 38% representing a 363 basis, point spread over the 5-year, treasury at the time.
We were pleased with the execution and the strong investor demand and encouraged to see the bonds trading. Well, following issuance
A cycle.
With that, I'll turn the call over to Junior to walk through our financial results in more detail. Junior. Thanks Larry. Good morning everyone for the third quarter. We reported gaap net income of 29 cents per common share on a fully mark-to-market basis and add of 53 cents per share.
On slide 5 of the deck, you can see the portfolio, income breakdown by strategy, 42 cents per share from credit 4 cents from agency and 9 cents from lumbridge.
And on slide 6, you can see the ad breakdown by segment, 59 cents per share from the Investment Portfolio, segment and 16 cents from the Longbridge segment.
In the credit portfolio, net interest income, grew sequentially and we also had net realized and unrealized gains on residential transition loans, and other loans and abs.
Partially offsetting higher net interest income, where net realized and unrealized losses on non-qm retained tranches. Coos Ford MSR related Investments and residential REO.
We continue to benefit from solid credit performance and our loan portfolios and from strong earnings at our affiliate loan. Originators
I'd like to highlight a new slide in the earnings presentation. Please turn to slide 15.
This slide illustrates the strong. Credit performance of our loan portfolios over time. Reflected in the exceptionally low realized credit losses across our residential and Commercial loan strategies since each business's Inception.
Note that the realized credit loss rate is shown on a cumulative Inception to date basis. If presented on an annualized basis, these percentages would be even lower.
This metric captures, the quality of our loan underwriting incorporating both loans that performed as expected and paid off at maturity and loans that required individual workouts.
On the top right? You'll see just 13 basis points of cumulative. Realized credit losses on approximately 14.7 billion dollars of Residential Mortgage Loan. Funding spanning non-qm, RTL home equity and proprietary reverse mortgages.
And on the bottom right? Cumulative losses, total only 47 basis points on more than 2 billion of commercial mortgage Ridge. Loan originations dating Back to Before, Co
The combination of the strong credit performance and the high high yields of these loans has been a key driver of efc's. Sustained growth in ad over time.
Moving to agency that portfolio. Also generated strong results in the third quarter with net gains on both our long agency rmbs and Associated interest rate. Hedges
Lower interest rates and reduced volatility together with tightening agency, yield spreads, created a favorable environment, that was broadly supported, a portfolio performance.
The Longbridge sex segment. Had another excellent quarter with strong contributions from both originations and Servicing.
Origination profits were driven by higher origination volumes of proper reverse mortgage loans, higher origination margins for haken reverse mortgage loans and net gains related to the proper loan securiser.
Meanwhile, they servicing net income, strong tail, secession executions, and a net gain on the hmbs. MSR equivalent primarily due to tighter hmbs, yield spreads drove the contribution from servicing.
These gains were, partially offset by a net unrealized loss on the retained. Tranches of prop reverse securitizations.
Due to faster prepayment speed assumptions, lower HPA projections and higher applied discount rates.
turning now, to portfolio changes during the quarter
Slide 7 shows an 11% increase in our adjusted long credit portfolio to 3.56 quarter of a quarter.
Our portfolios of non-qm loans, commercial, mortgage Bridge loans, other residential loans and Coos, all expanded as did our portfolio of retaining non-qm. Rmbs, in that case from the securitizations, we executed during the quarter.
These increases were partially offset by the impact of loans sold into securitizations. Net sales of non- agency, rmbs and the smaller residential, transition loan portfolio with principal pay Downs in that portfolio. Exceeding new purchases,
On slide 8, you can see that our total long agency. Rmbs portfolio decreased by 18% to 221 million due to net sales.
Slide 9 illustrates that our Longbridge portfolio, increased by a substantial, 37% to 750 million.
Driven by a record quarter of prop reverse mortgage loan. Originations partially offset by the impact of a prop reverse securitization completed. During the quarter,
Please turn next to slide 10 for a summary of our borrowing.
At September 30th, the total weighted average borrowing rate on on on recourse, borrowings decreased by 8 basis points to 5.99% overall.
With the notable 17 basis point decline on credit borrowing.
Quarter of a quarter, the net interest margin on our credit portfolio increased by 54 basis points reflecting both that lower cost of funds as well as higher asset yields. While the Nim on agency decreased slightly by 2 basis points.
For 30th, our recourse debt to equity ratio was 1.8 to 1 up slightly from 1.7 to 1 as of June 30th. While our overall debt to equity ratio was down slightly to 8.6 to 1 from 8.7 to 1.
during the quarter, we improved financing terms on 2 Long, Ridge related facilities,
On September 30th, we priced $400 million of 5-year, senior on secured notes at a fixed coupon of 738%, which was a 6363 basis point spread to the 5-year. US Treasury at the time,
consistent with our goal of staying neutral to the path of interest rates.
Upon pricing. We immediately swapped the fixed coupon to a floating rate, the locking in that 363 basis points spread.
The notes issuance closed in early October and will appear on our balance sheet beginning in the fourth quarter.
As of October 31st, nearly 20% of our recourse borrowings are unsecured.
And of equal importance, the percentage of those borrowings subject to Mark to Market, margining declines to 6 to 6% from 74% month-over-month.
Increase our overall cost of funds by approximately 17 basis points.
Keep in mind that this figure does not capture the expected accrete of benefit of adding more assets that yields above the cost of this debt, as well as the release of capital reserves related to the repo, pay down, which Larry will elaborate on later.
In keeping with our mark-to-market philosophy.
We will elect the fair value option on these new unsecured notes, as we have for our other notes, and mark them to market through the income statement.
As a result of this election we expensed all Associated deal costs in October rather than advertising them over the life of the notes.
At September 30th combined cache and unencumbered assets, were about 1.2 billion or about 2/3 of our tax equity.
Book value for share was 13.40 and economic return for the third quarter was 9.2% annualized.
With that. I'll pass it over to mark.
Thanks Junior.
This was an important quarter in efc's, evolution.
As Larry mentioned, we continue to grow add and we made our company more resilient to be clear repo financing markets. Have been functioning extremely well with both. Ample liquidity and competitive terms. But efc's balance sheet is stronger. When we diversify our funding sources and rely Less on short-term repo, our debt deal was a significant step in that direction. As were our 7ur, where we replaced repo funding with non-market, to Market debt
Our resiliency is also a function of the downside protections we put in place, including our credit hedges. While these hedges were a drag on returns this quarter, we continue to maintain them as an important safeguard, especially as some signs of potential cracks in the economy have surfaced. For example, there were two recent well-publicized bankruptcies in the corporate credit markets.
And job formation as we can substantially compared with earlier this year.
These are the kinds of Market risks, that should they become more? Widespread are credit. Hedges are designed to protect against.
In addition, our focus on higher-FICO low-rail TV loans in our purchase activity further enhances the resilience of our portfolio.
We continue to invest in proprietary technologies that enable our affiliate loan, Originators and other partners to originate and deliver loans more efficiently to us.
To hire purchase volumes, as we have greatly expanded the breadth of originators who sell loans to us.
We're also optimistic about the potential for technology to both automate and improve many aspects of loan underwriting.
These technology initiatives helped facilitate our 12% quarter-over-quarter portfolio growth, which was driven by the growth in our loan strategies and our ability to securitize our loans.
With rates moving slightly lower, this trend should continue if not accelerate.
In addition to increasing our loan purchasers, we are also expanding our reach. We have recently begun purchasing 2 particular types of loans that are eligible for purchase by Fannie Mae and Freddy Mack but which instead have been increasingly purchased by private investors.
We expect to launch a securitization of these loans in coming months, this agency eligible. Mortgage space is particularly interesting as the current Administration appears comfortable with private Capital. Stepping into areas once dominated by the gsc's,
This could be a unique moment and a potentially very large opportunity for EFC.
Another current Focus area for us is buying seasoned mortgage loans. Portfolio seasoned mortgage loan. Portfolios from Banks.
With rates lower and spreads tighter, many Bank portfolios that used to be significantly underwater are now much less. So and this is enticing. Many banks to shed what they consider to be non-core assets since the start of the month since the start of the fourth quarter, we have seen more loan packages come to Market from Bank Sellers. And so far, we have acquired 2, such packages
We think this could become a significant area of growth for us going forward.
In general, we're following the same EFC Playbook while expanding it. Our approach is to use. Proprietary sourcing models to buy a broad range of mortgage products. Turn out the financing through securitizations and then retain in our portfolio. High yielding tranche Investments along with potentially very valuable call options.
We started doing this in 2017 with non-QM deals. Then we added second liens and property reverses. And now we are in the market with an RTL deal and plan to securitize agency-eligible mortgages on the horizon as well.
Meanwhile, as we expand the array of products that we're buying in securitizing, we're also provide affiliate loan, Originators more ways to make money by expanding the product sets that they can offer to their customers.
The synergistic relationships help Drive our portfolio growth.
Growth while also increasing our affiliate loan, Originators profits, which then further enhances our earnings and our book value per share through the equity Stakes. We hold in these Originators
this Playbook is the main driver of the strong Ade growth this year, especially with the significant contributions to add. We've seen from both our retained tranches, and our stakes in The Originators including Long Bridge, of course,
The process of expanding our footprint. In the securitization markets has itself, become a virtuous cycle, we have built our EFM securitization brand over the past 8 years. Dating back to our first deal in 2017 and each new transaction loan product further. Cements our stature in the market and builds our investor base, contributing to better execution levels.
Looking ahead, we actually see a richer opportunity set than we did in the first half of the year.
Loan volumes have increased with mortgage rates now, more than 80 basis points lower than earlier in the year.
With an expanding footprint in a larger market. Our securitization volumes are up significantly. However, the overall credit backdrop has weakened HPA is stalled more consumers are under Financial strain and many corporations aren't just slowing their hiring. But are actively reducing headcount you will continue to rely on a data, driven model, based investment approach to pursue High return.
While limiting downside risk. Now, back to Larry.
Thanks Mark.
To sum up. This was an excellent quarter for Ellington Financial on a number of fronts.
We achieved earnings growth and meaningful portfolio expansion and we marked a significant inflection point in evolving our financing base all of which we think position us well for continued earning strength and dividend coverage in the quarters ahead.
I’m pleased to report that this momentum has continued into the fourth quarter, with securitization activity remaining robust and origination volume strong at Longbridge. Additionally, at our non-QM loan originators, Affiliates Lens, Shore, and American Heritage Lending.
Of course, we've also been hard at work deploying the proceeds from our unsecured Noto issuance.
Portfolio by more than 5% in October alone.
And we've used most of the remainder of the proceeds to pay down repo, as planned.
Our Ade generation power is very strong.
So it's good. That we have some add to spare going into the fourth quarter, as we expect to experience, a modest near-term drag on ADD as we deploy. The proceeds, from our notice notes issuance,
But even after we deploy those proceeds, we expect to realize additional more subtle benefits from our nose issuance over time as on now, explain.
The first additional benefit is through increased Capital efficiency which is a byproduct of replacing mark-to-market financing like short-term repo with long-term, non-market to Market financing.
Specifically and consistent with our discipline risk management approach, we maintain extra cash and capital reserves against our repo and other mark-to-market facilities to guard against potential Market shocks.
We can reduce those reserves when we replace repo with long-term unsecured notes, which frees up capital that can be redeployed into higher-yielding assets. Thereby, we further amplify long-term earning potential.
As an aside, similar benefits, apply to our securitization financing.
The second additional benefit from a notes offering is a much longer term benefit.
We view our shift toward a greater proportion of long-term, unsecured and securitization financing. And a lesser proportion of shorter term repo financing as a fundamental evolution of our capital structure
This shift is fortifying our balance sheet, enhancing risk management and supporting earning stability.
Including our existing 263 million of unsecured notes.
Nearly 20% of our Reco recourse borrowing are now unsecured as of October 31st, and we intend to increase that proportion over time.
And as this Evolution progresses, we expect that we'll see upgrades in our credit ratings, which should enable us to issue more on secure debt at even more attractive economic terms, setting off of virtuous cycle,
As a result of these multifaceted dynamics, I believe that our unsecured notes program will enable us to both build a more resilient balance sheet and expand our earnings power.
As always, our goal is to deliver durable high-risk adjusted returns to shareholders across Market Cycles.
Looking ahead with conservative leverage, ample liquidity from a recent unsecured notes, issuance and a steady Spa pace of securitizations. We believe that elected Financial is well positioned to continue, delivering strong and sustainable dividend coverage.
And with that, let's open the floor to Q&A.
Operator. Please go ahead.
At this time, if you would like to ask a question simply press star, then the number 1 on your telephone keypad, you may remove yourself from the cube by pressing star 2.
We will go first to Crispen, love with Piper Sandler.
Thank you. Uh, good morning. First, just on the loan originator platforms started to, we've started to see a more conducive mortgage rate environment. Can you just discuss how this, how this has changed valuations in your stakes and then overall operating performance, um increased flow to Ellington. And then are there any other areas where you're looking to add capacity in other platforms or new platforms from a, uh, originator level?
Okay. Uh junior, you want to, you want to talk about uh valuations of generally speaking um how we value, and how, you know, the recent
Talons are helping valuations. Yeah, sure. Thanks Kristen. Um, so you know, the the stakes are a third party, um, valued um, twice a year and then the other 2 times we we adjust based on, you know, interim p&l. Um, and the valuation providers are typically looking at if broadly speaking 3 data points, um, kind of trailing earnings forward earnings and then multiples relative uh to the market. Um and so uh you know I think there are a few factors that play. There have been some um you know publicized trades uh in the Market at um multiple uh to book uh premiums to book. Um but at the same time Book value is built up because earnings have been so so powerful and and, and many of these cases, we're also getting distributions of those earnings. So we get to return cash and then and then redeploy it. And so I'd say that the strong earnings performance has reflected uh through
Higher Book value. But is also, um, led to some more liquidity for these platforms and higher. Um, multiples. Uh we have a a table in our
They're not at the same level as, you know, 1 to book reflecting the earnings power of the platform, but not at the, um, at the premium reflected in that transaction. So, if that, if that helps answer the question, I mean earnings have driven Book value, which is driven values. Um, and, you know, just interim pnl is reflected in our Market to Market as we capture the benefit of of those earnings.
Yeah. And then in terms of new products I think right Chris was that your question is are we looking at adding stakes in any new products? Is that right? Yeah that's right.
Yeah, um, so Mark, um, I'm not aware of any new products we are. Um, we are, uh, looking at potentially adding some additional servicing capacity, um, in a small way, but, uh,
No, I'm not Mark you aware of anything. Yeah, I mean the 1 thing I would say Crispen is that you are starting to see adjustable rate mortgages
Taking an increasing share of the new origination Market. I think for some Originators in the agency space, it's as much as 10%. And if I go back to the early days and on I'm talking in 2015, 2016, 2017 that product was 100%, adjustable rate used to be all um uh, you know, 7 year arms, right? So
We are starting to see some demand for adjustable rate mortgage and part of that is a consequence of the steeper yield curve, where you can offer a little bit lower rate on a 7 year arm, then you can on a fixed rate. So um, that's a new product.
that that's 1 thing, that we've been working with some of our Affiliates and some other Originators with
Great, Mark, that that's helpful and and Mark I found your comments on buying loans from Banks. Interesting. Can you just dig a little bit deeper on that opportunity? Is it primarily commercial real estate loans? Is, is there any resi in there? And then I'm just what types of banks are you dealing with is a more Community Banks or a larger ones as well?
So, the two transactions I referenced in the prepared remarks were both, uh, residential mortgage loans. One of them, it turns out, was actually, um, adjustable rates.
So, these were smaller Banks. They weren't the um, you know, the big g-sibs. And, you know, you've had a lot of banks sitting on portfolios that they desperately want to restructure. It's, it's, I think,
More of an issue in. It's more of a factor in the um agency MBS Market where you have a lot of banks still sitting on big portfolios, of F**** twos F**** tune FS which have really been a drag on um, on Nim. And I think it's kind of interesting that most of the, um,
M&a activity, you've seen involving banks in the last couple years after each transaction. You've seen, um, fairly, uh, fairly large portfolio restructurings. So I so if m&a increases, I think it's going to lead to more um uh activity from Banks shedding loans. They've held in portfolio for a while and I just think the natural process of lower uh lower yields a steeper, yield curve, tighter credit spreads is lifting up. The price of some loans on balance sheet to the point where
You know, the trade-off of um, you know, taking a loss and getting to reorient. The portfolio is, you know, is palatable. So I look for more of that to continue. Should the rate environment? Stay, where we are now?
Great. Uh, thank you, Mark. I appreciate you all taking my questions. Thanks, Kristen.
And we will move next to Bose George with KBW.
Good morning guys. This is actually Frankie on for Bose. Uh, first question is on credit you touched on
Weaker consumer little softness in the labor market and negative, HBA can you?
Use elaborate on maybe what you're seeing within your portfolio and where you're seeing the best allocation of capital today.
Sure. So we yeah we have the um the new slide Junior talked about which, you know, directly um,
Shows the, uh, you know, the credit performance of what we're doing on the loan side and residential and commercial space. So, what I would say is
if you look at consumer spending,
Is by and large.
At, you know, uh, the bottom half the bottom 50% of income levels and so you see it impacting subprime Auto, you see it impacting um lower FICO uh credit cards. You see it? Impacting portions of the um FHA and VA portfolios which tend to be lower credit quality than what you see from F**** and Freddy if you look at
Higher-end borrowers, that spending has been continuing and their credit performance and that's really where we're focused has been very strong. You know, I also just, you know, I I put in into the prepared to Marks that comments that you've seen, um, a pickup in the number of companies that are talking about layoffs and now those layoffs, which some corporations have been talking about
That seems like it could be something that could impact some borrowers who are at higher wage levels.
So right now, in terms of credit performance,
You know, everything has been, um, performing well and we made a lot of progress this year, I think, in um, working out some delinquencies we had in the small balance commercial portfolio. But I just...
Wanted to put that comment in there because it is something that we are. Um, it's on our radar and we're thinking about
Yeah, and if, um, Mark just to follow up on that on, slide, 15. I just want to reemphasize what junior said during the prepared remarks, which is that these are non- annualized. These are cumulative numbers. So you know, our commercial mortgage loan, uh business, you know, Bridge Loan business, which goes back. Gosh, 10 years at least.
Um,
When you see 47 basis points of cumulative losses, that's over 10 years. So, um, so obviously it would be, you know, any anything on an annualized basis would be much smaller, um, on the resi side. Again, 13 basis points goes back many, many, many, many years. So we're really pleased with this performance. As Mark says, we've been, you know, laser focused on FICO which is really helped us. Um and you know, of course, in RTL all our loans have personal guarantees. Uh so um
You know, we feel uh, you know, we feel very good about where we where we stand. We did have a couple of loans that we talked about on some, um, relatively recent earnings calls, uh, that, uh, in the on the small balance commercial space. Um, 1 of them has been resolved, 1 of them is actually now, um, going quite well towards, uh, resolving. I would say later next year, but you know, things are looking good. So we really feel good about where we stand.
Great, thank you. And then
You guys have a a strong ad over the course of the past year. Do you see any maybe uptick in dividend level? And also, could you quantify the drag? You mentioned on add in the fourth quarter?
Right. So, in terms of the drag, um, we, you know, I think Junior mentioned that our, uh, sort of overall cost of funds would ex all other things being equal, uh, from where we stand at, um, you know, around now be about 17 basis points, right? Junior higher. Um, so, um, so yeah. Again, I mean, as I said, we, we really have some good add to spare coming in if you will. Um, we still, I think, um, believe that, um, you know, we're going to be able to continue to cover the dividend. I don't want to say. So I wouldn't say that we have any plans. Certainly not have any plans to lower the dividend um and I think it's just at a level right now you know 11 hand yield. Um I think it's a good dividend. We just want to keep covering it and covering it as we have been.
Thank you. That's all from me.
And we will move next to Trevor Cranston with citizens JMP.
Hey, thanks. Um
I have a question on your comments on sort of the the General Credit backdrop and credit performance. Um,
You're looking at the credit Edge portfolio. Looks like it. Uh, the side, the size of the Hedge positions declined somewhat in 3Q. Um, so I was wondering if you could just maybe provide some commentary on,
Do you guys think about the risk of sort of based spread widening and how you are approaching the, uh, the credit Edge part of the portfolio right now? Thanks. Yeah. The the credit the drop in the credit hedge. Um,
Was, I would call it a little more of a blip if you will. Um, as we were about to, um, you know, we we literally priced
Deal. Um, at September 30th. Yeah, at at quarter end. Um and then basically uh, being a wash and cash.
Um we decided that on a you know on a short-term basis. We would we would lower that credit Edge just right obviously our the credit hedge is there.
For a rainy day, and for resiliency, um, in a market shock and having, you know, basically all that cash coming in. Um, so obviated the need for us as much of a credit Edge, but, you know. So so I do expect that to continue to increase as we deploy that cash as we've talked about, um, into new, you know, High yielding Investments that are more correlated. Obviously, to overall, you know, Market risks. So um, I would view that, you know, as a little bit of a blip in terms of that um, you know, that big down or move there.
Okay, that makes sense. Um and then you, you know, you talked about uh working towards deploying um the capital from the the dead issuance at the end of the quarter.
Um, you know, obviously you guys have been able to do some issuance uh, on the common Equity side through the ATM, plan as well.
um,
should we think about the debt, issuance sort of, um,
You know, decreasing your your, um, appetite for common equity in the near term or is the sort of amount of issuance that are small enough that it, you know, it doesn't really move the needle enough to change things.
Yeah, we can deploy pretty quickly. Um I would like to note that our ACM issuance has been you know, creative so I think that's really important. Uh, certainly want to keep that up. Um, but yeah, exactly, I think that um, we did have a good quarter for ATM issuance, um, but we're just because of all the flow that we've talked about on the call. Previously, we are able to deploy capital
You know, um, quite quickly generally speaking. Um, we have so many different strategies that we can deploy into and, um, you know, we pick and choose which ones, uh, you know, look the best at any moment in time. So, uh, I I would say that, um, we don't really view them as Alternatives. Uh, I would say and, um, you know, additional ATM issuance is not only a creative, uh, nowadays, but it also helps our, um, GNA ratios and things like that. So, just a lot of good reasons to keep that going, um, you know, obviously, we, we, uh, we don't want to, you know, we like to see our stock trading in premium and, you know, we don't want to
Do anything rash to, you know, to potentially um, change that situation? Yeah, and just to just to add on that. I mean, we mentioned that October the portfolio is up, you know, more than 5%. We didn't quantify, exactly, but that's not a $4 billion base. So, you know, 5% that's 200 million right there. We raised 400 and mentioned, we're using, you know, more than half to pay down repo. Um, and we had 12% portfolio growth in Q3. So I guess the point is that I underscoring Larry's Point that deployment and and portfolio ramp has not been an issue for us in recent months. So um and we did raise a creatively in the ATM. During the quarter relative net relative to where the book value per share settled at 7:30
Yep. Okay, that's helpful. Thank you.
Thank you, thanks.
And we'll move next to Timothy D Agostino with beat Riley securities.
Yeah, hi. Thank you, good morning. Um, all right, on Longbridge and the proprietary reverse mortgage product. You had mentioned that it was like, record volume origination. I, I was wondering what's in that market? What does competition look like for you all?
yeah, there's not much um,
In, in the prop space, in particular, there are, uh, hekim, you know, issuers, uh, that, um, Originators, uh, that um, you know, are, you know, there are more of those I guess you could say. Um, Longbridge overall is um, number 2 in the space. Uh, but, um, in terms of, uh, in terms of volumes, um, by some metrics sometimes number 1, but uh, in prop it's really there are 2 other competitors. Uh, 1 of them is a public company 1 of them isn't. Um, and um, I think you know, the reason that it's I think harder for others to originate that product is that
They don't have the kind of the capital base and the outlet for the product that way that we do, you know, in a kind of vertically, integrated way where we have Allen's Financial to read that, needs to put money to work. Um, and um, you know, we have the originator obviously that can, uh, that can originate the product for us so, um, and it's, you know, so it's definitely less competition in that space.
You know, I think we're in a great competitive position. The fact that our securitization is growing so well has meant that we've been able to actually offer better terms to Borrowers.
uh, because the securitization outlet has provided us
Um, you know, better execution over, you know, the past several quarters. So that's translated into better better rates for borrowers which is translated into also higher volumes for us, right? We can offer better terms, we can get higher volumes. So, uh, that's kind of what's been going on there and and hopefully that will continue
Okay, great. Yeah and then just quickly slip into the credit portfolio, uh, quarter over quarter. It seems like non-qm was the biggest piece like had the most investment quarter reporter. I was just wondering like, what you're seeing in that market and why do you like it so much? If
thank you.
mark,
So, you know, non-qm, it's it's not a monolith, right? There's um,
Loans to investors.
There's owner occupied loans.
There's a range of documentation type, you know, from full doc to bank statements and a few others. And I guess
We've been at the non qm Market since 2014. That's when we made our initial stake in our first, um,
Your portfolio company lensure so, you know, over the past 11 years.
We have.
spent a lot of time and effort building out our credit modeling, our prepayment modeling,
Are.
you know, deepening, the relationship between
Our originator Affiliates where we own a portion of the company as well as others. I'd call. Just origination Partners where we might not own a stake in them, but we have active Dialogue on the underwriting guidelines. We have a team of people that are on the road basically every day visiting Originators talking to Underwriters talking to appraisers thinking of what a really you know, best practices in terms of uh the process for originating loans. So
We have really deep, sort of native, understanding of that market. And it's grown, you know, you have seen F**** and Freddy.
You know, not expand, their guidelines, in some ways constrict their guidelines. And you have, you know, I'd say it's, you know, 10 to 15% of the home buying, um, universe that are not served well by the gses and that's really
You know, you know the the core of non-qm and I think you know a couple things have happened for non-qm in the past year or so 1 is that you've seen a broad-based migration up in FICO which we like there's still been a lot of discipline on LTV. You know most of what we do on a portfolio basis is below 70 LTV in aggregate.
And you've seen um significant securitization volumes to spread so this year. So the so the non-qm securitization Market has grown a lot and it's gotten more liquid and more commoditized and it's attracted a bigger uh Universe of investigated Bond buyers and that all those things together have worked in concert to tighten spreads. So,
the ability to buy loans that are well underwritten to higher FICO borrowers, and then
and then securitize them with uh, you know,
you know, tighter spreads, you know, materially tighter spreads on the IG bonds than what you were looking at in a lot of 24 and to have more certainty of execution. Because there's more liquidity in the market has has made it an asset class that we have scale to it. And
You know, it's leaving our portfolio with very attractive retained investments. And so, it's really those two things: it's the volume, the scale, and the underwriting discipline we've brought to it.
Levered with these tighter investment grade spreads that has made that sector very attractive to us.
Great, thank you so much.
Thank you.
And we will move next to Eric Haugen with btig.
Hey, thanks. Good morning. We actually have a follow-up on the uh, Long Bridge portfolio. I mean, when we think about the total upside potential in Longbridge, does it require more leverage to get to its Target returns? And how do you think about?
The amount of Leverage in that portfolio and but what's both objective and sustainable for leverage and that portfolio.
Uh, so thanks. Um, I don't think it requires more leverage. Well, first of all, um,
Part of, you know, most of Long Bridge. And I'm not talking about the segment. Now, I'm just talking about the originator, right? Most of Long Bridge.
Equity is in its servicing.
Right. Uh, especially in Tech and servicing portfolio and that's just a very high yielding.
Return, uh, on that, you know, on that service thing. Uh, without any Leverage
So, um, much higher yielding than forward servicing.
so uh, so that's number 1, um,
And then, in terms of, you know, the the proper reverse loans, which is, you know, what ends up on our balance sheet, uh, on the FC's balance sheet, both presec and post-second uh sure while we're accumulating for securitization, there's going to be leveraged their right. Um but again, post section um, where we retain
Just, you know, the, the, the, uh,
You know, the residual, if you will. Um, it's, you know, again, doesn't really require that. Now, we do consolidate those. So, from a consolidation perspective,
Right. You might see, you know more leverage that way but again this is long-term non-market Market. You know, locked in financing. So the way we look at it is we've just got to retained interest that's, you know, relatively small but it doesn't require any additional leverage so I don't think we're going to need more leverage their, um, other than, you know, obviously as the origination volumes increase, you need more Warehouse financing. But again, that's sort of more transient if you will transitory.
Yeah. Okay, that's really interesting. Um,
Going back to non-qm for, for a second here. I mean, what's what's your perspective on convexity risk and the space right now? I mean, to your very point, it feels like so much progress, has been made among Brokers and loan officers. The asset class is higher quality, more transparent and more liquid at the same time. I mean we we wonder how it would respond to, you know, lower rates even meaningfully lower rates.
Um,
And your ability to kind of backfill that portfolio if rates were to fall. Thank you guys so much.
Yeah, hey Eric. So I would say
It was interesting in the last remittance cycle.
Jumbo speeds increased a lot, you didn't see a similar uh, increase in non-qm. But if you go back to 2020, 2021
We know non-QM loans are capable of very fast prepayment speeds, you know, prepayment speeds in excess of 40 CPR, right? So,
This rate move has certainly, put prepayments and understanding prepayments in valuing that front and center. Because, you know, when you do a securitization, what you're retaining,
a large portion of the investment is, essentially sort of a IO
so,
you know, we hedge that risk. I also think um, this drop in rates is adding a lot of value to the call options too. Right. So you retain the ability to get loans at par that, you know, we're 103 it origination and then the rate move, you know, could be worth 105. So we keep the call options that that's those thrive. In a rates down Market. We have the, um, you know, we have the XSI, you know, the the the excess spread piece which has uh exposure to faster prepayment speeds, but understanding those prepayments.
Thoughtfully mitigating, some of that prepayment risk through pay payment penalties, which probably 30% of the market has. That's really
1 of our core competencies, right? You know. So whether it's understanding
The servicing portfolio we took over from Arlington, whether it's understanding IOs or inverse IOs.
Understanding how borrowers different types of bars respond to prepayment options. I think it's something that we're really good at. We spend a huge amount of time on it and I think we have a lot of institutional knowledge. So,
Exactly right. Prepayment speeds are on the radar. Now, I would say, what does it do about portfolio size? I mean.
By sometimes they're cashing out and they're replacing an older loan with a slightly bigger, new loan. So I think, you know, we've been very focused on the prepayment risks of different loans and making sure that's properly hedged out and hedged out long.
The yield curve.
But in terms of volumes, I think it'd be, you know, it'd be a big uptick in volumes. I think it creates a lot of opportunities.
Yeah, and if I could just add 1 thing. Um, so first of all, I want to point out that, um, you know, as Mark said, I mean, we we model this fanatically, right? Uh, so 1 of the things we do while we're warehousing, those loans are waiting securitization non-crime loans, right? They have negative convexity. Well, we are short, you know, to some degree. We're short tvas against those loans as well as other interest rate hedging products, right? So we're short and negatively, convex instrument against, um, you know, a negatively convex instrument that we're long. Uh, so that helps and I think that also is something that I think we do rather uniquely in the space. The second thing I would say is that, if you turn to page 14, you can see that on an overall portfolio basis. So 14 of the presentations are interest rate, sensitivity analysis, and I think in the queue, we go out to 100 basis points as well. I mean, you can see that when you look at the whole portfolio, even taking into account, the fact that you've got prepayment risk,
On, you know, as as Mark said, what are um, you know, we, you know, chunk of iOS that were long, uh, in our non-current retain tranches, right? Even when you take all that into account, um, it's really very contained. The negative convexity in overall company. So, um, again, on page 14, you can see, do we have some negative convexity? Yes. Um, but, um, you know, you can see, you know, modest declines in, um,
Inequity for a 50 base, point dropper, 50 basis point increase, but they're really quite modest. So, um, and, uh, and so, so again, this is something that we really model very, very closely based upon, you know, 30-plus years of experience.
Yep.
Thank you guys so much. I appreciate you.
and we will move next to
with UBS.
Hi thanks. It's Ashley. Marissa on for Doug today. Um, just 1 for me more, broadly on the reverse mortgage space. Um, how, how are current market conditions, notably, the outlook for moderating HPA?
And, uh, the evolving regulatory environment, how is it impacting your outlook for the ongoing opportunity in the space?
Sure. Okay, so on the regulatory front, there really is not much going on there. Uh, in terms of, you know, there was some talk of, actually, some improvements so-called hmbs 2.0, but that seems to be stalled. So there's really not much going on in the regulatory front. Now HPA, um definitely matters.
And, um, you know, we, uh, we do when we do, uh, prop reverse securitization. Um, you know, we are retaining the residual if you will. And so we do have exposure to long-term HBA. I think, um, we mentioned in the prepared remarks that, uh, based upon some, um, HPA stalling. We did. Uh, we did adjust downward the, um, you know, the mark on those retained pieces, uh, in the Pro, you know, proper verse mortgage securitizations. But, you know, again, it was, um, it was quite contained, uh, that affect and, um, you know, offset by obviously a lot of other things going in in the portfolio. So it's something that we keep a very close eye on, uh, and um, it does, uh, it will act, you know, the value of that portfolio, but you have to also have to remember there's a lot of cushion there, right? The proper reverse mortgages are originated in fact at all, reverse mortgage, right originated at initial EX,
Extremely low, ltvs.
Um, so you're really not so much exposed to Shorter term HPA as you are to ultra long-term HPA. I mean, in the short term um, you know, you're talking about ltvs that are you know well below 50% well below.
That's helpful. Thank you.
That was our final question for today. We thank you for participating in Ellington Financial's third quarter 2025 earnings conference call. You may disconnect your.
and have a wonderful day.