Ellington Financial Q3 2026 EPS Hits $0.31 as Longbridge Expands

Ellington Financial Inc. (NYSE: EFC) reported third-quarter 2026 net income attributable to common stockholders of $40.4 million, or $0.31 per share, as growth in its investment portfolio and reverse-mortgage business was partly offset by unrealized losses. The company generated a 2.3% quarterly economic return, equivalent to 9.4% annualized, while non-GAAP Adjusted Distributable Earnings totaled $58.0 million, or $0.45 per share.

Net income declined from $54.4 million, or $0.43 per share, in the second quarter. Net interest income decreased to $69.0 million from $72.3 million, while total other income was $48.8 million, compared with $50.8 million. Third-quarter results included $33.0 million of net unrealized losses and $15.9 million of net realized losses, partly countered by $74.4 million of net gains from interest-rate hedges and other activity.

Ellington changed its presentation of Adjusted Distributable Earnings in the quarter to include incentive-fee expense. The $58.0 million result was net of a $0.9 million incentive fee, equal to $0.01 per share. The measure is supplemental to GAAP net income and excludes several realized and unrealized gains and losses, among other adjustments.

Book value per common share was $13.53 at September 30, down from $13.61 at June 30 after the declaration of $0.39 per share in dividends during the quarter. Total stockholders’ equity reached $1.99 billion, including $1.77 billion of common equity and $220.9 million of preferred equity.

Investment portfolio expands

The investment portfolio segment produced net income attributable to common stockholders and participating non-controlling interests of $61.1 million, or $0.47 per share. Segment Adjusted Distributable Earnings were $77.6 million, or $0.60 per share.

The adjusted long investment portfolio increased 4.5% from the previous quarter to $4.70 billion, driven by net purchases across several loan categories and growth in retained residential mortgage-backed securities. Non-qualified mortgage loans and retained RMBS were the largest category at $1.28 billion, followed by commercial mortgage loans and CMBS at $929.3 million and residential transition loans at $888.0 million.

During the quarter, Ellington securitized $1.28 billion in unpaid principal balance of non-QM and agency-eligible loans through five transactions. Its residential loan portal generated $1.6 billion of purchases from 57 sellers, complementing loan flow from Longbridge and other channels. Across the company’s proprietary origination businesses, third-quarter loan acquisitions totaled $2.16 billion.

Longbridge originations drive portfolio growth

The Longbridge Financial segment reported net income of $12.5 million, or $0.10 per share, and Adjusted Distributable Earnings of $8.6 million, or $0.07 per share. Ellington said positive contributions from originations, servicing and enterprise interest-rate hedges were partly offset by net unrealized losses on retained tranches of consolidated proprietary reverse-mortgage securitizations.

Longbridge originated $676.3 million of loans, up 36% year over year. That included $417.8 million of proprietary reverse mortgages and $258.5 million of home equity conversion mortgages. Submission volume rose 14% sequentially and 37% year over year to $991.3 million, although the company cautioned that not all submissions convert into funded loans.

The Longbridge portfolio increased 59% from the previous quarter to $1.03 billion. Ellington noted that much of the increase was reversed when a proprietary reverse-mortgage securitization priced in September settled in October. Longbridge’s quarterly HMBS market share reached a record 31%, ranking it as the market’s second-largest issuer, according to the presentation.

Origination results benefited from higher volume and gains on the proprietary reverse-mortgage securitization, but higher interest rates compressed margins. Servicing benefited from tail executions, base servicing income and gains on mortgage-servicing-rights hedges, partly offset by a mark-to-market loss on the HMBS servicing asset.

Financing and risk management

Ellington’s recourse debt-to-equity ratio rose to 2.2 times from 1.9 times at the end of the second quarter. Its total debt-to-equity ratio was 9.4 times, including non-recourse borrowings that primarily consisted of securitization-related liabilities. Long-term, non-mark-to-market financing represented 25% of recourse borrowings, while unsecured debt accounted for 17%.

The company ended the quarter with $1.92 billion of unencumbered assets, including $269.5 million of cash and cash equivalents. It issued an additional $150 million of 7.375% senior unsecured notes due in 2030, bringing the series to $550 million outstanding. Ellington also sold about 2.5 million common shares through its at-the-market program at an average price of $13.61, before repurchasing 329,045 shares after quarter-end at an average price of $11.44.

Ellington estimated that an immediate parallel 50-basis-point decline in interest rates would reduce common equity fair value by 0.18%, while a 50-basis-point increase would reduce it by 0.28%. The estimates rely on models and simplifying assumptions and may differ materially from actual outcomes.

The company identified changes in interest rates, investment values, credit spreads, mortgage defaults and prepayments as key uncertainties. Other risks include access to financing, market volatility, regulation, inflation, weaker economic growth, currency movements and the ability to retain its REIT qualification and exclusion from registration under the Investment Company Act of 1940.