Ellington Financial LLC Stock

Good morning, ladies and gentlemen. Welcome to the Ellington Financial Second Quarter 2026 Earnings Call. Today's call is being recorded.

[Operator Instructions] I will now turn the call over to Mr. Alaael-Deen Shilleh, Associate General Counsel and Secretary. Please go ahead, Mr. Shilleh.

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 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 of Ellington Financial; Mark Tecotzky, Co-Chief Investment Officer; and J.R. Herlihy, Chief Financial Officer.

Our second quarter earnings conference call presentation is available on our website, ellingtonfinancial.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 it over to Larry.

Thanks, Alaael-Deen. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 3 of the presentation. Ellington Financial delivered yet another terrific quarter, continuing the momentum we have built over the past several years. Strong performance across our diversified platform once again drove strong GAAP earnings, adjusted distributable earnings well above our dividend, and also drove a further increase in book value per share. For the quarter, we generated GAAP net income of $0.43 per share, ADE of $0.60 per share, and an annualized economic return of 13.6%.

These results reflected excellent securitization execution, continued outstanding results at Longbridge, solid contributions from our other loan origination partners and continued strong credit performance across our loan portfolios. Meanwhile, the financing spreads on our credit lines continue to narrow, which is providing an additional tailwind to our results. Importantly, all these drivers reinforce one another. Strong loan sourcing supports capital deployment and securitization volume. Through our securitization executions, we create attractive retained investments that help build our future earnings power. We release capital for redeployment, and we replace short-term financing with more stable non-mark-to-market funding.

Moreover, our securitizations benefit greatly from increasing scale, as our larger and more frequent transactions continue to expand our investor base and have improved our execution levels over time. Meanwhile, strong loan credit performance supports the yields on our retained investments and also sustains and broadens the institutional investor demand for our securitizations. Finally, the profitability and market share growth of our originator affiliates contribute directly to our earnings, while also expanding the flow of loans available to our investment portfolio. We saw this dynamic play out repeatedly during the quarter.

Ellington's proprietary residential loan portal, where we lock in loans for more than 40 unique sellers, is now generating more than $15 million of loan purchases per day for at a pace of around $4 billion annually. This portal supplied a significant portion of the approximately $2 billion of loans we securitized during the quarter. And of course, we have Longbridge, which supplies their expanding pipeline of proprietary reverse mortgage loans for our investment and securitization. Foundational to all of this is Ellington's well-known and long-standing focus on proprietary research, data, and modeling capabilities. A full 20% of Ellington's employees are dedicated to research and technology, and recent advances in AI are further enhancing the output of that team.

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

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

Longbridge had another standout quarter. Originations were up 38% year-over-year. Margins remain healthy, securitization executions improved, and servicing continued to add meaningfully to the bottom line. Longbridge remains one component of EFC's much broader platform, but its performance demonstrates the value that can be created when sourcing, analytics, financing, securitization, and servicing all work together.

With that, please turn to Slide 5, and I'll hand the call over to J.R. to walk through our financial results in more detail. JR?

Thanks, Larry. Good morning, everyone. I'll begin on Slide 5 with our earnings summary, then review the principal drivers of the quarter, several disclosure enhancements we've made in our portfolio, and balance sheet activity. For the second quarter, EFC reported GAAP net income of $0.43 per common share on a fully marked-to-market basis and adjusted distributable earnings of $0.60 per share. On Slide 5, you can see the contribution to GAAP net income by segment, and on Slide 6, the corresponding contribution to ADE.

Our quarterly results again demonstrated the strengths of our underlying businesses with continued excellent performance across the investment portfolio and another outstanding quarter from Longbridge. Looking ahead, we continue to see broad support for ADE reinforced by several factors, including attractive net interest margins, particularly on our portfolio of retained securitization tranches, robust credit performance, ample liquidity available for deployment, and of course, continued sizable earnings contributions from Longbridge.

Turning to the investment portfolio. Net interest income increased significantly quarter-over-quarter, reflecting attractive asset yields and a higher average portfolio size. Earnings from unconsolidated entities also remain strong, driven by solid results in our equity stakes and loan originators and commercial mortgage bridge loans accounted for as equity method investments.

Overall performance was excellent across the investment portfolio, led by our residential credit strategies, while gains on hedges more than offset net realized and unrealized losses. Credit performance across our loan businesses also remained excellent, with exceptionally low life-to-date realized credit losses across both our residential and commercial mortgage loan portfolios, consistent with the statistics that Larry highlighted.

You'll notice several changes to our disclosures this quarter. These changes simplify certain parts of the presentation while adding detail where we believe it will be most useful to investors. First, we have incorporated Agency MBS into the broader investment portfolio disclosures throughout the presentation. In years past, Agency represented a substantially larger allocation of our capital, but we have since rotated much of that capital into credit strategies where we see stronger return opportunities and clearer competitive advantages. Given the smaller role today played by Agency MBS, we believe that the revised presentation better reflects how we evaluate and allocate capital across the portfolio.

Second, we have expanded our Longbridge disclosures. Starting on Slide 9, we now separately present HECM and proprietary reverse mortgage origination volumes, including the channel composition of each, providing greater visibility into the scale and growth of both product lines. We have also added submission volumes to this slide. Because loan fundings are preceded by loan submissions, we believe that submissions provide a useful leading indicator of future origination volume. As you can see on Slide 9, second quarter submissions were up substantially, sequentially, supporting a healthy pipeline entering the second half of the year. That momentum is continuing with July 2026 marking Longbridge's highest ever month for prop reverse mortgage originations and submissions.

Finally, turning to Slide 10, you can see that we are now presenting separate roll-forwards for HMBS MSRs and prop reverse mortgage MSRs together with earnings generated by those. The roll-forwards separately identify overall MSR values, new production, revenue, runoff, and changes in fair value, providing greater visibility into changes in MSR value and the components of net servicing profits. We believe that this additional detail should make the Longbridge business easier for investors and analysts to understand and model.

Turning to Longbridge's results, please turn back to Slide 8. Longbridge delivered another outstanding quarter across both originations and servicing. It originated approximately $590 million of loans, a 38% year-over-year increase. Prop reverse represented approximately 54% of volume and reached record levels, while HECMs represented the remaining 46%. Originations at Longbridge benefited from strong volumes, healthy margins, and gains from the 2 proprietary reverse mortgage securitizations completed during the quarter. Those transactions represented Longbridge's strongest financing execution to date for this product, as measured by overall debt spreads.

Servicing also made a substantial contribution at Longbridge, reflecting both steady base servicing income and continued strong execution on sales of HECM tail pools. Consistent with Ellington's broader risk management approach, we maintain enterprise-level interest rate hedges in the Longbridge segment that are designed to offset some of the pressure that higher interest rates can put on mortgage origination volumes and margins. Despite the increase in rates during the quarter, Longbridge's origination business remained highly profitable, while the enterprise hedges also generated gains. That combination was unusually favorable in the second quarter. All else equal, we should generally expect origination profitability and interest rates to move inversely, so these hedges should help stabilize the segment's earnings across different interest rate environments.

Turning next to portfolio activity, please turn to Slide 7. Our adjusted long investment portfolio increased modestly during the quarter, as growth in residential transition loans, commercial mortgage bridge loans, and retained RMBS more than offset the impact of continued securitization activity. In other words, asset sourcing kept pace with our robust securitization activity. Our shorter-duration loan portfolios continue to generate significant principal repayments, including payoffs providing internally generated capital for redeployment into new opportunities.

Turning to financing, our focus remains on improving the durability, diversification, and cost of our liability structure. As shown on Slide 11, at quarter end, the weighted average borrowing rate on our recourse borrowings was 5.5%, essentially unchanged from the prior quarter, contributing to a solid overall net interest margin of 336 basis points, which was also roughly unchanged quarter-over-quarter. Approximately 29% of our recourse borrowings were long-term and non-mark-to-market, while 17% consisted of unsecured debt. In addition, the weighted average remaining term of our repo borrowings increased to 9.3 months, approximately double the level in mid-2025, reducing near-term refinancing risk and providing greater funding certainty.

During the quarter, we extended and/or improved terms on several warehouse facilities, while adding a new financing relationship covering multiple residential mortgage products. Our securitization program continued replacing shorter-term mark-to-market financing with longer-term non-recourse financing. Through the first half of 2026, we securitized approximately $4 billion unpaid principal balance compared to $4.4 billion UPB during all of 2025.

We continue to be encouraged by the market's reception to our unsecured debt. Our outstanding notes have recently traded at a premium, despite higher interest rates, reflecting the progress we've made strengthening our balance sheet and funding profile. We believe this positions us well to continue increasing the use of unsecured financing as well as preferred equity over time as market conditions permit.

At quarter end, our recourse debt-to-equity ratio remained 1.9x to 1x, while our overall debt-to-equity ratio increased modestly to 9.2x to 1x, primarily reflecting additional non-recourse borrowings associated with recent securitizations.

Turning now to our hedging portfolio on Slide 17. We continue to manage interest rate, mortgage basis, and credit risks through a diversified set of instruments designed to protect book value while preserving our ability to capitalize on attractive opportunities. As you can see on Slide 18, during the quarter we increased our credit hedges as market conditions changed and as the size and characteristics of our portfolio evolved.

Turning to corporate other. Aside from recurring items, we also recognize unrealized losses in our corporate other category. As has been our long-standing practice, we carry our outstanding unsecured notes at fair value on the liability side of our balance sheet. With spreads on our debt tightening during the quarter, the increases in the prices of our outstanding debt led to the recognition of an unrealized loss. Also in this category, higher interest rates led to unrealized losses on the fixed receiver interest rate swaps we used to hedge the fixed payments on our unsecured notes and preferred equity. At quarter end, book value per share increased by $0.05 to $13.61 after $0.39 per share in dividends, and our annualized compounded economic return for the quarter was 13.6%.

With that, I'll turn the call over to Mark.

Thank you, J.R. Despite rising interest rates, geopolitical uncertainty, and tremendous volatility in energy prices and equity markets, the mortgage and structured credit markets remained constructive. We had a favorable mortgage origination environment and relatively stable credit spreads, and we were able to execute our business plans consistently this quarter.

Across our businesses, we continue to responsibly grow volumes, gain market share, expand our sourcing networks, and broaden our product offerings. Put simply, we bought a lot of loans, priced a lot of deals, and in so doing created a lot of attractive investments for EFC's portfolio. We also continue to support and collaborate closely with the growing portfolio of companies in which we've made equity investments. As a group, they have had phenomenal earnings this year, and their origination volumes have helped drive our securitization machine.

On the commercial mortgage side, much of our loan sourcing comes through our affiliated originator, Sheridan Capital, which continues to grow its footprint and client base. We are helping institutionalize the business by expanding its capital markets capabilities and strengthening its operational infrastructure, applying many of the same principles that have served us so well with our affiliated residential mortgage originators.

This is exactly the ecosystem we've been building. Our consistent demand for high-quality loans supports the growth and profitability of our origination partners. Those loans then become the raw material for our securitization platform, creating attractive retained investments for EFC's portfolio while providing institutional investors with high-quality securities.

As Larry discussed earlier, those capabilities increasingly reinforce one another. Both net income and ADE again exceeded the dividends this quarter, while we continue to keep recourse borrowings low and organically created investments continue to perform well.

We also continue investing in technology and automation while pushing for deeper integration across our businesses. On the residential mortgage side, with the help of the loan portal that Larry mentioned, we continue streamlining our channel connecting creditworthy borrowers seeking home financing with the vast reservoir of institutional capital looking for investment grade bonds.

At Longbridge, our investments in technology, process improvements, and AI-enabled workflow look like they're paying off handsomely. For example, since January '23, the number of funded loans per operations employee has more than doubled, demonstrating how these investments are improving efficiency while supporting continued growth.

This past quarter, we continued our disciplined portfolio growth while maintaining high securitization volumes. With bigger portfolios inevitably come some delinquencies. We put substantial resources into resolving residential mortgage delinquencies optimally for the company while seeking the best practical outcomes for borrowers experiencing financial difficulty.

On the residential side, we are close to completing the acquisition of a loan servicer. We have redeployed substantial internal resources to help build what we believe can be a best-in-class residential special servicing platform with specialized processes for managing delinquent loans across multiple mortgage products. That acquisition should close in Q3. We believe that controlling our own special servicer will unlock significant value for us as we align incentives, share valuable data, and refine our workout expertise over time.

We have a lot to build, but whether it's managing construction projects we take over from RTL borrowers or even just non-QM loans where borrowers can no longer pay their mortgage debt, we know that special servicing is going to be important to preserving value and delivering returns through market cycles.

Stepping back, we are seeing an expansion of the addressable market for our business model. More and more mortgage loans are ultimately finding their way into the private label market rather than the GSEs. We expect approximately $250 billion of new issue non-agency mortgage securitizations this year. Larger new issue volumes have dramatically improved liquidity across the asset class, attracting many new investors over the past year. As liquidity continues to improve, more institutional investors enter the market, which in turn supports additional issuance and better execution. That virtuous cycle has been a meaningful tailwind for our securitization platform and for the broader private label market.

We see these trends as ideally suited for integrated private sector capital platforms like Ellington Financial that can source, analyze, and securitize loans efficiently. Ellington has had a front row seat throughout this evolution, having been an early mover in securitizing non-QM, closed-end second liens, agency eligible loans, and of course proprietary reverse mortgages. As these markets continue to grow, we will continue investing in the people, technology, and infrastructure needed to support them, while continually working to improve efficiency across our platform.

I'd like to finish with some thoughts on the forward MSR market, where we have one large investment that we've held since our acquisition of Arlington back in 2023. The market value of that MSR has increased significantly this year, even much more than you'd expect with the rise in interest rates we've seen. One factor at play is that for banks, the market is expecting that regulators will loosen the caps on how much Tier 1 bank capital can be in MSRs. If that happens, banks could flip from being net sellers of MSRs into being net buyers.

The second factor at play is that mortgage companies with large servicing and origination arms are bidding up MSRs. Not only can those companies add mortgage servicing rights to their existing portfolio more efficiently than others, but they can also cross-sell a variety of products to what would become new servicing clients. When servicing low coupons in particular, home equity loans present obvious cross-selling opportunities.

We all saw the feverish bidding war for Two Harbors that recently came to an end, and it was a large mortgage company as opposed to a pure investor that won that contest. Our forward MSR is also backed by low-coupon loans, and while we're pleased with the appreciation we've seen on that asset, we're better sellers than buyers at these levels from an investment standpoint.

Now back to Larry.

Thanks, Mark. On last quarter's earnings call, I concluded with the observation that Ellington Financial was firing on all cylinders. I am happy to report that we still are, with that momentum continuing into the third quarter. I firmly believe that EFC's sustained strong performance reflects the capabilities and investments we've been building over many years, rather than the success of any single recent initiative. Ellington's investment in research, analytics, technology, and disciplined risk management dates back to the firm's founding more than 30 years ago and has been central to EFC since its formation.

Over the past decade, we've steadily expanded the ways we apply those capabilities by investing in strategic originator partnerships, building a best-in-class securitization platform, expanding our proprietary sourcing capabilities, and strengthening our funding profile. As those investments have reached greater scale, their benefits have increasingly reinforced one another across the business. We've now covered our dividend for 8 consecutive quarters and counting, reflecting the increase in contribution of those long-term investments to our earnings.

Looking ahead, we'll continue focusing on the things we can control, disciplined underwriting, thoughtful capital allocation, continued investment in technology and our platform, and maintaining a strong, flexible balance sheet. We also intend to be opportunistic issuers of unsecured debt and preferred equity when market conditions are favorable, further diversifying our funding sources and enhancing our financial flexibility. We are aiming for a virtuous cycle of stronger balance sheets and improved credit ratings.

As we've emphasized throughout today's call, the strength of our platform is not in any single business or investment strategy. Rather, it is the way our research, relationships, technology, and capital markets capabilities reinforce one another to create an increasingly diversified and resilient earning stream for our shareholders.

And finally, a word about our adjusted distributable earnings and dividend. As strong as ADE was in the first quarter, it was even stronger in the second quarter at $0.60 per share compared to our $0.39 quarterly dividend. By out-earning the dividend, not only on an ADE basis, but on a GAAP basis as well, we've been able to build book value per share, and we think that's really important.

For now, we think our $0.13 monthly dividend remains appropriate. With ADE running so strong, we could see upward pressure on our dividend based on the REIT distribution requirements. For now, however, we believe that continuing to build book value per share is the best use of our excess earnings and that our current dividend remains appropriate.

And with that, let's open the floor to Q&A. Operator, please go ahead.

[Operator Instructions] We'll go first this morning to Trevor Cranston with Citizens JMP.

On the -- Mark mentioned the pending acquisition of a residential servicer. Can you provide any additional sort of color around that, if that would come with some MSR assets attached or sub-servicing contracts or just any additional color on what that would look like?

Mark?

Why don't you take that one, Larry?

Sure. Yes. So, well, first of all, it's a small servicer, single-digit billions of servicing rights. It does have some sub-servicing contracts, as you mentioned. But -- and it's diversified in the sense that it does service many different types of loans. And as we mentioned, we think it's going to close sometime in September. And it's the type of project, let's just call it, where we're going to try to build it as much in our image as we can.

So, it's not going to bring any appreciable size of MSRs that are going to have a noticeable impact on our balance sheet, per se, or frankly even our earnings in the beginning. But as Mark said, we have big plans, especially to build out the special servicing aspects of the business. We think they already have some real good expertise in that area, in the special servicing area. And as Mark also mentioned in his script, that's going to be super important to us over time to get the best possible outcomes from our delinquent loans.

Yes, I would just add one thing, Trevor, is that the motivation for this wasn't servicing acquisition. It's a recognition that over the past several years, we used to have a lot of servicing at Rushmore. Rushmore was bought by Mr. Cooper. Now Mr. Cooper is bought by Rocket. We used to have servicing some other platforms that have been absorbed. So it's just a recognition that as our footprint in the market grows and the available third-party special servicing capabilities have been diminished, we think there's a real need for high-touch servicing and we've seen the benefit of building things organically in collaboration with an experienced management team. So it's really -- that was really the motivation for it.

Got it. Okay. That makes sense. And then on Longbridge, J.R., in your commentary, you mentioned kind of the expected relationship and impact of higher rates on volumes and margins. Can you give us any sense sort of how Longbridge volume and margins are trending so far early in the third quarter with the new hiring mix?

Yes. And they've been growing the volumes of prop reverse relative to HECM over the last several quarters. And this quarter we broke out them separately, and you see the prop was a larger percentage than HECM. The reason I start there is we've seen that prop has -- is relatively less sensitive to higher interest rates vis-a-vis HECM. We also have the enterprise hedge in place, which all else equal, higher rates, if it impacts origination volumes, should offset some of that impact.

To your question about kind of forward-looking guidance, if you will, on volumes and margins, we did include submissions for the first time in our presentation on Slide 11, I believe -- excuse me, Slide 9. And you can see that submissions in Q2 for loans that are prospectively closing in Q3, $870 million in Q2 versus under $750 million in Q1. You can just see an upward trend we showed over the last 6 quarters. So, I think that should give a good idea of what Q3 may look like.

Of course, not all submissions lean to originations, and there's going to be some fallout in those numbers, but I think it bodes well for volumes. In terms of margins, we're not giving Q3 guidance, if you will, on margins. I think a lot of the profits and props have also come through because of securitizations, and we did 2 securitizations of prop loans in Q2. There's always going to be some noise in the profits from the Longbridge segment around the securitization activity and execution. But long story short, I think the submission story is looking positive going into Q3 for Longbridge.

And let me add 2 things to that. The first is that in terms of margins, right, in the HECM product, the real sort of point of sale, if you will, right is when you securitize into HMBS and those spreads are still quite healthy, quite tight on a historical basis. So that's good. We don't see those moving, frankly. On the prop side, it's really a function of securitization in terms of when we -- technically, those still on balance sheet, but certainly, when we feel like we've, I'll just say, generated a gain on those assets. And again, securitization spreads are still quite healthy. So gain on sale, looking good there. The other -- or just in prop, again, sort of equivalent of gain on sale.

The other thing I wanted to mention, when rates go up, the HECM product, the government product, has very, very defined rules in terms of what LTVs, principal limit factors they call things like that, that the government will wrap effectively those loans. The FHA wraps those loans. So the proprietary product, of course, there's -- that's -- you have more flexibility. And what we found is that -- we found that when rates are low, the principal limit factors that are dictated by FHA actually are generally -- are often more competitive than on the prop side. But when rates rise, often, and that's what we're seeing now, is the opposite is true.

So we think that from a risk perspective, we think that the government is actually imposing requirements that are probably a little too strict relative to where we think the right economics are. And so we and others in the space are able to take advantage of that and with rates higher, offer products, offer loans that are more attractive, frankly, to customers. So we're actually in some cases seeing the product take some of that market share away from the government product.

We'll go next now to Bose George with KBW.

This is Frank Labetti on for Bose. Just sticking on the Longbridge topic, can you maybe discuss an outlook, more normalized earnings run rate or contribution to ADE from Longbridge as you guys continue to gain share and scale that segment?

Sure. For the last 2 quarters, their contribution to ADE was $0.23 and $0.21. And the average of 2025 was $0.12. The portfolio is growing, origination volumes are growing, the MSR portfolios are growing, and so that kind of recurring base servicing income is growing. There are a few -- I'm trying to unpack the questions. There are a few different components that are important here. If you look at the roll-forwards that were included in the presentation, you can see the net profits from those MSRs are $0.06, $0.065 per share, something like that, meaning that everything else is $0.16, $0.17 per share for the quarter, originations, securitizations, less G&A.

I mentioned earlier that there's going to be noise in the segment's results because of securitizations, the number that we do and the execution that we did, 2 this quarter. So the securitization execution has been notably strong in the first 2 quarters of this year. I don't know that $0.17 -- $0.16, $0.17 aside from servicing is the run rate. It's probably a little bit high, but we don't need it to be that high to hit our mid-40s ADE run rate that we had mentioned last quarter. So if it's in the low-mid teens, that's plenty to kind of carry its contribution to the overall EFC earnings stream.

Yes, I think overall, we're comfortable now. Sure, if we do 2 securitizations in a quarter, like we did just now, we'll see a higher ADE, right? That definitely helped drive the $0.60. But even if we just do one, which I think is a modest goal at this point, we're comfortable guiding into the, let's just call it, the high 40s on ADE.

Great. That's very helpful. And then switching to the investment portfolio, you continue to see strong returns there. Given where spreads are now, where do you see the best risk-adjusted return in credit today? And then conversely, where are you maybe least comfortable adding to?

Yes. I guess what I would say is that we look at what's kind of happened not just this year but really the last year, so mid-'25 to now, is that you've seen credit spreads tighten across the board. That's on investment-grade corporates, it's on high-yield bonds, it's in CRT, it's in non-QM investment-grade bonds. And you've seen the same thing happen to residential loan purchases and commercial loan purchases. So what's been supportive of our ADE is the fact that when you securitize, what really drives the economics is that difference between the spreads where you're buying the loans and the spreads where you're buying the -- you're selling the primarily investment grade bonds, right? What's that difference? Because that difference is really what you leverage in the retained pieces the same way -- sort of same way like how a CLO equity works, right?

And so that difference has been preserved. So loans are tighter than what they were a year ago, but the bonds we sell are tighter than what they were a year ago. So we're not seeing a big change in expected yield on what we're retaining. So that to us has been very favorable that we're able to grow our portfolio at the same kind of yields where we were growing it a year ago, despite the fact that spreads have tightened.

Where we think about pockets of weakness, and this is something we focus on all the time as we sort of parse through the monthly data we get. I think it's the same story you've seen a while ago. Lower FICO scores, right? They all -- any model will have higher delinquencies on lower FICO scores versus higher FICO scores, but that difference has gotten a little bit more elevated in the past year.

I think we also are watching closely cash-out refinancing. So borrowers that are choosing to cash out in this environment of relatively high interest rates, that can also be a signal. And so we have kept our consumer portfolio relatively small. That used to be a bigger part of our pie chart, if you go back probably, 10, 12 years, and so we've seen a little bit of weakness there from time to time over the years, and that's one of the reasons why we've reduced those holdings on a percentage basis.

Yes. So just to add -- sorry.

No, no. Come on in, Larry.

Yes, I was just going to say the other sector there where you actually are seeing not just weakness, and we mentioned this earlier in the call, but also you're actually starting to see some supply is in the commercial mortgage space. And there's a lot of non-performing loans out there. And people in one sense, have been waiting for years for some of that to come out. Well, we are actually finally seeing some supply there. I can't say that it's been -- we've made a big move into that yet, but there's not going to be a lot of buyers, we think, especially in the places where we tend to play, which are a lot of the smaller loans, not the $50 million, $100 million plus loans, but in the sub-$50 million, sub-$25 million area. We're hopeful that we could see some supply there at attractive levels.

We'll go next now to Doug Harter with BTIG.

Can you just talk about how you're thinking -- just given what you just mentioned about kind of the still attractiveness of returns, how you would think about maintaining short duration versus potentially adding some duration to potentially lock in those returns for longer? Has there been any change in your philosophy or how you're thinking about that?

Hey Doug, it's Mark. So one thing I would say is that when we do the securitizations, we're almost always keeping the ability to call the deals. We have the call rights, right? So that represents sort of a longer-term investment and it's sort of like a nice forward investment that can be very profitable if you have a combination of lower interest rates and relatively well-behaved credit spreads. So I think on the RTL, residential transition loans, they're short duration and that's because that's the nature of the risk we wanna take, right? So properties where the renovation is relatively straightforward, it's not really complicated, it shouldn't take a long period of time, and so those ones are short duration, and I think they'll likely to stay that way because that's the risk we like.

But your point about seeing attractive spreads on retained securitizations, keeping those call options, it does really lengthen out the -- it doesn't really change the cash flow of the retained pieces, but it gives us one way of participating in tighter market spreads and lower yields in the future, by virtue of having these call options, which I think can have -- we've mentioned -- we didn't talk about it on this call, but I think we mentioned maybe on the previous call. We think those can be tremendously valuable in many different future paths.

Yes. And if I could add 2 more things. So the first is that, look, in reverse mortgages, those are long-duration assets. So that's a unique situation where we have really good market share in a growing market with a small number of competitors and very attractive returns. So -- but there, we certainly are, we think, locking in spreads for long periods of time. As -- non-QM, as Mark mentioned, right, that's a 30-year mortgage. So again, we're taking a duration there. But it's really important to our business model that we have just high cash flowing assets, including principal as an important component of our portfolio. And as Mark mentioned, whether it's RTL or frankly in commercial as well, we're dealing with, well by definition, RTL, transitional properties and same thing in terms of what we focus on in commercial.

And so in those situations, we really strongly prefer having a shorter duration so we have more visibility, not just in terms of what our LTV is when we acquire the asset, but also if we have to resolve the asset. So I think it's really important to our business model, the way we manage our liquidity. Frankly, I think you see it in terms of our debt trades and people want us as a counterparty. That's just really important because it really helps us in terms of managing our liquidity, and that's an essential part of risk management overall. So I think you'll continue to see us have a portfolio that is largely short duration assets, especially in those sectors that I mentioned, but with things like reverse mortgages and others that are longer duration.

That makes sense. Appreciate it. And then in your prepared remarks, you talked about the benefits of the investments in the operator -- operating companies. As you look at the benefits to the returns, how much of that comes through kind of your stake of the ownership versus comes through in kind of the returns of the investment portfolio of the assets you retain?

Well, Mark, I'll let you sort of address the asset side. In terms of the stakes, I mean, Longbridge is fully consolidated, and obviously that's broken out. So you can see there, we've talked about how that's been a really nice boost to earnings in ADE, especially based upon their increasing volumes and margins is what's going on in the prop space. In terms of the others, I mean, LendSure has had excellent earnings recently. I mean, it's -- ultimately, J.R., it looks like you've got it right there in terms of the actual numbers.

Right. So I first want to emphasize that the total investment amount on our balance sheet is more than $5 billion. It's $100 million for all the stakes. Longbridge is consolidated, so it doesn't have goodwill. But all the other stakes, $97 million. LendSure is about a little over half of that. They contribute to GAAP earnings because we mark-to-market the positions, which are typically reflecting what earnings are happening on the underlying originator level. And then the -- we also capture an ADE earnings contributions from the larger originators that are regularly distributing cash.

So LendSure, for example, has made distributions to its owners multiples above our original cost basis in the investment and so -- and continues to do so on somewhat of a quarterly basis, these distributions, not every, but the last several quarters it's happened. And quantifying it, the contribution to ADE, the $0.60, something like $0.05, a little bit less than $0.05 is from the originators, so a little bit less than 10%. And that's been, I'd say, pretty steady over the last few quarters. It's certainly adding an element to ADE and kind of further diversification. But the rest of -- so the investment portfolio, the $0.23 came from Longbridge, $0.37 came from everything else, including overhead.

The majority of those earnings come from the loans that we buy through the affiliates that we then securitize and we hold residual tranches. Most of that is net interest income, right? And many, not all, but many of the loans that we have on balance sheet are sourced by the LendSures, American Heritages, the Sheridans, our affiliates. So, the vast majority of the earnings contribution comes from the loans that we buy through these agreements, but these guys are hitting above their weight. They're making a real impact on a very modest $100 million out of $5-plus billion. So, kind of 2% of the portfolio is certainly contributing more than 2% of our earnings.

We'll go next now to Marissa Lobo with UBS.

On non-QM, issuance has been very robust. Can you speak to where EFC is differentiating from peers on their origination focus and how securitization execution has been trending on spread?

Sure. Marissa, it's Mark. I would say, you know, Larry kind of talked about it in his remarks about our relative performance in regards to prepayment speeds and in regards to credit performance. We have always been very focused on prepayment risk because when you are a sponsor on one of these deals and you're a risk retainer and you're keeping the bottom part of it, a lot of your investment, a significant part of your investment is really in IO, right? So we have always focused on loans where we think are going to have the best S-curves, so not prepaid super fast when rates drop. And some of that we get as a function of explicit prepayment penalties. Some of it you just get from aggregation of particular loan attributes.

So that's one part of the space we've liked. We've liked purchase money loans, higher FICO, better quality borrowers that are buying a market because -- buying a home because we have seen a little bit of softness in home prices, and we do see where purchasers are willing to buy homes, they're typically getting some kind of concession versus the listing price, which we like. And in terms of performance of non-QM bonds in general, I think they've had where spreads are. We think about it from a modeling standpoint when we bid loans and we think about, what's the right correlation, what's the right spread between IG corporates and investment-grade non-QM bonds? What's the right spread between Agency MBS and non-QM bonds? And I would say, thinking in that framework, we think non-QM bonds are -- they're fairly priced, maybe a little bit on the cheap side.

We -- one thing we mentioned in the prepared remarks is that as the whole mortgage 2.0 space has grown to be -- we estimate it will be $250 billion this year. So you're thinking about $5 billion in new issue size a week, right? There's transparency, there's liquidity. There's a lot of data points for investors. There's a chance to put a significant amount of capital to work. Those features are sort of a virtuous cycle and attracting more buyers, right?

So if I look at the deals we did, we started doing them 2017, I kind of look at like who was in the order book 2017 versus 2019 versus 2021, 2024, 2026, it keeps growing, right? You keep seeing new entrants in the space, new pools of capital that are finding these bonds attractive relative to corporates, relative to other ABS, relative to Agency MBS and I do think that will continue. They still offer a lot of spread and some of the structural features in the deals that got put in place post-COVID give some extension protections to the bonds. So yes, I think that where they are, they're still relatively attractive priced. And what kind of confirms that to us is seeing continued sophisticated investors enter the space as they're able to now put substantial money to work and they're finding it attractive relative to corporates and other ABS.

And if I could just add one thing, our portal that we talked about, right? So we're buying, as I mentioned, over $15 million a day. So as you can imagine, in the portal, we have -- think of them like loan level price adjustments, right? Based upon the parameters of the loans that people are submitting into the portal, we're going to penalize or benefit the prices that we're willing to pay for those loans, and that's all funneled through Ellington Research. I mean, it could involve geography. Maybe we are penalizing super jumbo loans more than others. So you're going to see a difference. Obviously, we're buying a lot of loans, but ultimately you will see a difference in the -- what we end up buying in that portal just based upon us having those price adjustments for different attributes. And we're -- we think it's working because you can see it in the prepayment and credit performance of the loans.

And just on hedging, you mentioned you increased credit hedges as market conditions changed. Can you speak to how you're thinking about hedge construction more broadly under Chair Warsh's framework? And on the credit side, how you're thinking about TBA shorts and CDX sizing from here?

Those are great questions. So we use the hedges on the credit side in 2 fundamental ways. One is, as we are getting close to bringing a deal to market, sometimes we will try to lock in our investment grade execution by buying protection on some of the investment-grade credit indices, because we've done a lot of work on sort of the historical relationship between IG indices and non-QM spreads, and we see a tight correlation there. So it's a way for us to lock in execution and try to protect us from any kind of spread widening that could occur during the 3 or 4 days you're typically marketing a deal. So that's kind of one sort of tactical way we use hedges to preserve, to protect deal execution.

Now, the other way is more trying to protect the portfolio if you had an economic shock. So if you had substantially weaker employment or the economy started to go into recession. So then we have a variety of hedges there, some on the commercial side. They could be in high-yield indices, sometimes it could be in an ETF that are designed to cushion us from book value volatility that were to come about from a substantially weakening in the economy.

Now on the interest rate side you talked about, you have Kevin Warsh as opposed to Jay Powell and their styles in terms of how they view the benefits of communication, probably the other polar opposites, right? That is less of a factor for us in our hedging framework because we always try to really accurately and closely ring-fence the interest rate risk of our investments.

And so you should think about the dividend and the ADE we're generating as really kind of like spreads to SOFR. And we try as best as we can with the hedging instruments available to us to insulate the portfolio from changes in interest rate risk. Now, I will say that said, this style from Warsh, we do expect it can lead to more interest rate volatility as sort of the market might react a little bit more aggressively to numbers because they don't really -- aren't anchored by a Fed guiding them where they plan on their plan for hikes or for cuts. But so far, I guess 2 meetings into Warsh, it's been very manageable for us.

And if you look at Slide 16 of the presentation, right, that's where we show what we think our interest rate sensitivity is. And you can see on that slide that the way we manage the portfolio, and we always have, is not to try to lean one way or another in terms of what the Fed might do or what interest rates might do. But to be -- look, we're always going to be a little negatively convex, especially because if you look at Slide 16, the row that contains non-Agency RMBS, right, especially non-QM, things like that are going to be somewhat negatively convex. But overall you can see that we do a really good job being quite immunized from whether rates were up or down, lose a little money in sort of an instantaneous shock, but really not very much. I mean a minor, a very small change there you can see at the bottom of the page.

We'll go next now to Crispin Love of Piper Sandler.

This is Ben Graham in for Crispin Love. In the release and presentation, you didn't break out the agency contribution to earnings and instead included it within the broader investment portfolio segment. I'm just wondering if this is just driven by the size of agency? I might have missed this, but would you expect agency to decrease further in the coming quarters and if that decision was a function of that outlook?

Yes, thanks for the question. This is J.R. Yes, you nailed the main reason, its size. The agency portfolio, you see it's now on an invested basis sub-$200 million. On a capital basis, it's -- we haven't broken it out separately, but 1%. Going back several years, those numbers were $2 billion plus and 22% when agency was a much more meaningful part of the portfolio. And the evolution of Ellington Financial with more originator stakes and securitizations and owning loans on balance sheet and kind of the virtuous cycle that the vertical integration we've been developing, that's all in credit. That's where we see better return opportunities and we see a clearer competitive advantage for EFC.

So over time we've rotated out of agency and we've also built up from a REIT test perspective, we used to need a big portfolios of agency because we had non-REIT assets in bigger size. We mentioned the consumer is a lot smaller than it used to be. Our corporate investment portfolios are much smaller. So, the evolution has been more toward credit and we haven't needed agency to pass REIT tests either or 40 Act tests.

And so now it's part of the investment -- I mean, it's always been part of the investment portfolio, but given its size and modest contribution to the overall earnings, we think it's more appropriately considered as one of several of the diversified strategies within the investment portfolio. So that's how we've kind of -- we're bulking up Longbridge presentation, but at the same time pulling back on the agency because I think all the detail is not as relevant to investors at this point.

We'll go next now to Timothy D'Agostino at B. Riley Securities.

I appreciate the commentary on the pending acquisition. I guess thinking past that and maybe into 2027, is additional M&A and potential investments into loan originators, is that part of the playbook? And if so, is there any areas you would look to address? Or any color about how you think about additional M&A or investments in originators?

Sure, yes, absolutely part of the playbook. It's been a great part of our playbook, frankly, for the last, gosh, 12 years, I would say. So, yes, we mentioned the servicer. We also are looking at another, I would say, non-QM focus, but also doing other products as well on the resi side opportunity. We are being shown opportunities on the commercial mortgage side. We mentioned, I think, on our prepared remarks that we have a stake in Sheridan, and they've been a great source of -- not only have they been profitable, but I would say, even more importantly, they've been a great source of loan product for us there. And as I mentioned, we think in the commercial mortgage space we're going to see a lot more stressed and distressed assets coming out.

So in all those areas, absolutely. And I would say, J.R. mentioned that right now, the REIT tests are something that are -- we can pass quite easily on the, let's say, the income and assets side. So given that, we could also increase our focus more. Mark mentioned the consumer side. You've also got things on the asset-based finance side as well that we're not really doing much of at all in Ellington Financial, and we're seeing opportunities there.

So I mean, I would say the whole gamut, and it's absolutely an important part of our playbook. I will say that it's been our MO to invest in smaller originators and help them grow. And that includes supporting them, not just through operating capital, but also through guaranteeing warehouse lines and things like that. So we have a lot to offer, especially some of these smaller origination companies. And I absolutely would love to see us continue to broaden our array of investments there.

And then just as a quick follow-up, how do you think about funding those potential M&A or further investments?

We just fund those with cash on hand. We don't explicitly borrow against them. Of course, that's another great use of our unsecured notes and preferred equity, right, where, as J.R. mentioned, these guys are punching way above their weight in terms of return on equity. So if they're earning 20% plus return on equity and we're funding them at high single digits or in the case of preferred equity or -- well, we mentioned that our unsecured notes are trading in the low 7s. That's obviously a great use of that capital.

Thank you. And gentlemen, that was our final question for today. So we'd like to thank you all for participating in the Ellington Financial Second Quarter 2026 Earnings Conference Call. You may disconnect your line at this time and have a wonderful day. Goodbye, everyone.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Ellington Financial First Quarter 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions]

It is now my pleasure to turn the call over to Alaael-Deen Shilleh. 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 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 predictions of future events. The company undertakes no obligation to update these forward-looking statements.

Joining me today are Larry Penn, Chief Executive Officer of Ellington Financial; Mark Tecotzky, Co-Chief Investment Officer; and JR Herlihy, Chief Financial Officer.

Our first quarter earnings conference call presentation is available on our website, allllingtonfinancial.com. Today's call will track our presentation, and all statements and references to figures are qualified by the important notice and end notes in the back of the presentation.

With that, I'll hand it over to Larry.

Thanks, Alaael-Deen. Good morning, everyone, and thank you for joining us today.

I'll begin on Slide 3 of the presentation. Ellington Financial delivered an exceptionally strong first quarter in terms of both GAAP net income and adjusted distributable earnings, even in the face of rising market volatility and widening credit spreads throughout the month of March.

Performance was strong across our diversified portfolio, which drove GAAP net income of $0.78 per share, an annualized economic return of 26% and book value per share appreciation of 3% even after dividends.

Our ADE continues to consistently outpace our quarterly dividend run rate of $0.39 per share. And this quarter, with our ADE reaching $0.55 per share, it exceeded our dividend by a very wide margin.

Our strong ADE for the quarter reflected the high yields and steady credit performance from our loan portfolios. Complemented by an absolutely standout quarter from Longbridge, which contributed a disproportionate share of both ADE and net income.

Despite what is typically a seasonally slow quarter, Longbridge had a near record quarter for proprietary reverse mortgage loan origination volumes, continued gains in market share for HECM originations and healthy gain on sale margins across products.

Our Longbridge segment's results also benefited from the successful prop reverse securitization we completed during the quarter, where we achieved our lowest ever cost of funds and tightest ever overall debt spreads for this type of securitization.

Servicing was also a key contributor for Longbridge, driven by strong tail securitization execution, a net gain on our HMBS MSRs and steady base servicing income.

Finally, results at the Longbridge segment included gains on interest rate hedges, along with the receipt of a onetime litigation settlement payment that added to an already strong quarter.

Overall, and again, in what is typically a seasonally slow quarter, net income at our Longbridge segment not only set a quarterly record, but it actually surpassed its 2025 full year net income by a wide margin.

We also saw great contributions from our other origination platforms with LendSure continuing its impressive run of performance in the first quarter. High origination volumes and strong gain on sale margins drove another excellent quarter at LendSure with profitability contributing meaningfully to EFC's bottom line, both through our ownership stake and through the steady flow of high-quality loans into our portfolio.

Turning back to our portfolio. Our non-QM closed-end second lien and agency eligible strategies delivered continued robust results, supported by strong securitization executions.

Our securitization platform remained highly active during the quarter. We participated in 7 transactions totaling more than $2.8 billion from our EFMT shelf compared to just $1.1 billion across 4 transactions in the first quarter of 2025. These higher volumes are facilitating larger deal sizes with our average non-QM securitization size reaching $508 million in Q1 2026, nearly double the $265 million average for Q1 2025.

Our first quarter results were further reinforced by continued strong credit performance across both our residential and commercial loan portfolios. Our delinquency rates actually declined for a second consecutive quarter and realized credit losses remain minimal.

In non-QM, we saw mortgage rates briefly dip below 6% in the quarter, triggering a brief prepayment spike in that sector. We have always focused on prepayment risk in our asset selection, and the recent prepayment spike highlighted the benefit of that focus.

According to JP Morgan Research, our EFMT shelf has both the lowest prepayment speeds in the cohort and almost the lowest 30-plus day delinquency rates, each of which directly enhances the overall value of our high-yielding retained tranches.

Importantly, the consistency and durability of our loan performance helped keep our securitization platform attractive to securitization investors.

Turning now to the balance sheet. Our portfolio grew by approximately 4% during the quarter, even net of securitization activity, driven primarily by growth in our loan portfolios.

Our leverage ratios were essentially unchanged for the quarter as equity growth kept pace with asset growth. We also continue to advance our previously announced acquisition of a residential mortgage servicer, which remains subject to regulatory approval.

Once completed, this acquisition is expected to deepen our vertical integration by bringing additional servicing capabilities in-house and enhancing our ability to manage delinquent assets more directly and efficiently.

One note on book value per share. Because we carry our unsecured debt at fair value on the liability side of the balance sheet, higher interest rates and wider credit spreads had a positive impact on our book value per share.

Over time and all other things being equal, the prices of our assets should be loosely correlated with the prices of our long-term liabilities, but there will definitely be some month-to-month noise during periods of high credit spread volatility, such as what we're seeing so far this year.

Looking at April, we saw continued solid performance across our investment portfolio and at Longbridge as well. However, with credit spreads in April retracing much of the March widening, we estimate that remarketing liabilities will have a roughly $0.13 effect on book value per share in the other direction, which will offset some of April's solid portfolio performance.

Turning to our equity activity. We raised $117 million of common equity in January through a block trade, using the proceeds specifically to redeem our Series A preferred stock, which was our highest cost tranche.

The issuance was accretive to book value per share, net of all costs and was precisely sized to fund the preferred stock redemption.

Since our Series A preferred had carried a coupon of over 9%, redeeming that preferred stock has reduced our overall cost of capital, with the benefit flowing directly to common shareholders.

Our common equity transaction was well received with the offering more than 2.5x oversubscribed by institutional investors, and our timing was excellent as we were able to execute ahead of the subsequent spike in market volatility.

We will continue to monitor the markets with an eye toward issuing additional preferred equity when pricing becomes more attractive.

With that, please turn to Slide 5, and I'll turn the call over to JR to walk through our financial results in more detail. JR?

Thanks, Larry. Good morning, everyone. For the first quarter, we reported GAAP net income of $0.78 per common share on a fully mark-to-market basis and ADE of $0.55 per share.

On Slide 5, you can see the portfolio income breakdown by strategy, $0.61 per share from credit, $0.02 from Agency and remarkable $0.47 from Longbridge.

And on Slide 6, you can see the ADE contribution by segment, $0.58 per share from the investment portfolio segment and a sizable $0.21 from the Longbridge segment.

ADE for the quarter exceeded expectations, mainly due to the outsized contribution from Longbridge. Moving forward, we are now increasing our quarterly guidance on ADE per share to the $0.45 per share area, which is still well above our dividend run rate of $0.39.

Starting with the credit portfolio. Net interest income again increased sequentially, and we also generated net realized and unrealized gains across our non-QM and closed-end second lien loan portfolios, including retained tranches. As well as agency eligible loans and commercial REO.

These results were partially offset by losses in certain other credit strategies and non-residential REO. We continue to benefit from strong overall earnings contributions from our loan originator affiliates, particularly LendSure, alongside solid credit performance across our loan businesses.

For a second consecutive quarter, 90-day delinquency rates declined in both our residential and commercial loan portfolios and life-to-date realized credit losses remained

very low, as shown on Slide 13.

Moving to the Agency strategy. Results were driven by net interest income and net gains on interest rate hedges, partially offset by net losses on our Agency RMBS, with spreads on many agency securities wider during the quarter.

As Larry noted earlier, Longbridge had an excellent quarter across both originations and servicing. Origination results were driven by strong volumes and gain on sale margins and also by the proprietary reverse mortgage loan securitization that we completed during the quarter, with net gains on that transaction further boosting earnings.

In Longbridge's servicing business, steady base servicing net income, strong tail securitization executions and a net gain on HMBS MSRs all contributed positively.

Results at Longbridge also benefited from net gains on interest rate hedges and the receipt of a $17 million litigation settlement payment.

Turning now to portfolio changes during the quarter. Slide 7 shows a 4% sequential increase in our adjusted long credit portfolio to $4.27 billion, net of securitizations, driven by growth in our loan portfolios and retained RMBS tranches.

Our short duration loan portfolios continue to generate significant paydowns with RCL, commercial mortgage bridge and consumer loan portfolios returning $224 million of principal during the quarter, representing 15% of their beginning fair value.

On Slide 8, our total long Agency RMBS portfolio declined by 3% to $197 million.

And on Slide 9, the Longbridge portfolio increased by 13% to $695 million, with proprietary reverse mortgage loan origination volumes exceeding the impact of the prop loan securitization completed during the quarter. Longbridge originated $515 million of new loans during the quarter, which is a 52% increase from the first quarter of 2025.

Please turn next to Slide 10 for a summary of our borrowings. On 31, the total weighted average borrowing rate on recourse borrowings was 5.49%, down 18 basis points from year-end, driven by tighter repo spreads.

Quarter-over-quarter, net interest margin on the credit portfolio was relatively stable, while Agency NIM declined as the benefit from swap carry moderated. At quarter end, 30% of our recourse borrowings were long-term and non-mark-to-market and 18% were unsecured. The weighted average remaining term of repo borrowings was 9 months.

Finally, during the quarter, we improved the terms on several of our credit facilities with those enhancements taking effect in the second quarter. At March 31, our recourse debt-to-equity ratio was 1.9:1 and overall debt-to-equity ratio was 9:1, both unchanged from year-end as equity growth kept pace with increased borrowings supporting our larger portfolio. Unencumbered assets increased by 8% to $1.9 billion.

Slide 17 shows our credit hedging portfolio at quarter end. Corporate credit hedges declined while our net short TBA position increased. Our short TBA positions serve multiple purposes, hedging interest rates, volatility and mortgage basis risk, while also historically performing well during periods of credit spread widening.

As a result, they can provide protection in both interest rate stress scenarios and credit stress scenarios. Slide 16 shows our broader interest rate hedging portfolio, where the net short TBA position complements interest rate swaps and short treasury positions across the yield curve.

As has been our long-standing practice, we carry our unsecured notes at fair value through the income statement. Consistent with this treatment, quarter-over-quarter increases in interest rates and widening credit spreads, with the latter widening sharply at quarter end resulted in a positive mark-to-market on those liabilities contributing to both GAAP net income and book value per share.

Results also reflect an accrued incentive fee. At March 31, book value per share was $13.56, up 3% from $13.16 at year-end, and economic return for the first quarter was 26% annualized.

With that, I'll pass it over to Mark.

Thanks, JR. This was a quarter where EFC showed resilience and stability amid substantial market stress. It was a quarter of very strong net income and very strong ADE. There were some tailwinds specific to the quarter, but even without those, we delivered strong performance from our diversified vertically integrated platform.

Securitization volumes were $2.8 billion, our largest quarter ever and well diversified across several loan types. We started securitizing non-QM loans back in 2017, and we now securitize 5 different loan types.

Greater securitization volume doesn't just increase profits. It also tends to improve margins. It's important that these businesses operate at scale. At scale, some of the profits can be reinvested back into the business to improve technology. That is what we've been doing to grow market share and process more volume without adding meaningfully to operational headcount.

At scale, our mortgage shelf benefits from improved liquidity, which is one of the most important factors for investment-grade buyers. Scale also enables us to provide consistent liquidity and stable pricing to our loan origination partners.

All this deal activity creates a future potential tailwind for us as the call rights from these deals can become exercisable and valuable if interest rates drop. Once that happens, we will generally look to resecuritize the underlying loans.

By replacing short-term repo financing with match-funded non-mark-to-market debt issued through our securitizations, we have gone a long way toward better insulating our portfolios from market shocks.

As you know, we navigated COVID very well, but we still had to deal with margin calls from our repo lenders. Today, mark-to-market repo represents a much smaller percentage of our overall borrowings. So our margin call risk is even lower now than it was back then.

To be clear, significant market-wide spread widening would hit our book value per share. However, the lasting damage to many REITs during COVID was not caused by the sudden dramatic spread widening itself, but by the inability to meet margin calls, which caused forced selling that crystallized losses.

During the quarter, even after closing multiple securitizations and selling all the senior debt tranches, we still achieved a healthy 4% portfolio growth, bringing total portfolio assets to more than $5 billion.

At one point late in the quarter, when credit spreads near their widest levels of the year, we took advantage of a strong insurance company bid by selling a non-QM pool in the form of a whole loan sale. Insurance companies tend to be less sensitive to short-term fluctuations in market credit spreads, so we were able to monetize strong gains on our credit hedges at the same time that we sold the pool.

Moving now to our originator affiliates. They had positive performance broadly, but Longbridge, in particular, had really amazing results. It has emerged as a market leader in private label reverse mortgages. Demographic trends and the increasing preference of baby boomers to age in place represent powerful tailwinds that we expect will support continued strong growth.

We also had strong returns in our non-QM and second lien strategies and a relatively new Agency eligible loan strategy, which is benefiting from the pullback of the GSEs, we see agency as a key growth area moving forward.

Non-Agency mortgage volumes continue to grow with an increasing share of GSE-eligible loans migrating to private label execution where pricing is frequently more attractive than what the GSEs offer.

As we have spoken about before, the size of the non-Agency market is growing, while the Fannie, Freddie footprint continues to shrink. Importantly, this growth in the non-agency market is concentrated in sectors where EFC is actively involved.

We see these trends with the non-agency market growing and the Fannie and Freddie market shrinking as a logical response to guarantee fees and LLPA pricing from the GSEs that are disconnected from historical or expected losses. Absent significant repricing from the GSEs, we think this dynamic will continue.

I almost feel strange not to mention the war in the Middle East, but aside from the short-lived interest rate and spread volatility we saw in March, it was not materially impactful to our strategies.

Looking ahead, if higher energy prices persist, many consumers will have less disposable income and those at the lower end of the income spectrum harder to meet their debt obligations. Given our large presence in the agency investor, DSCR and multifamily lending, we also have exposure to renters who typically have lower incomes than homeowners.

We are watching this very closely. HPA is no longer the powerful tailwind to credit performance it was in the years past. 2025 was the weakest year of HPA growth in a decade, which means that borrowers facing income disruption may find it more difficult to pay off their mortgages simply through home sales.

That said, housing is definitely more affordable than it was coming into 2025, which should be supportive of long-term loan performance. At Ellington, we continue to add resources to our research efforts, both to inform our investment decisions and to share insights with our origination partners, helping them make better credit decisions.

Our aim is to continue to capture the large and in many cases, growing opportunity in both residential and commercial lending.

Now back to Larry.

Thanks, Mark. 2026 is off to a great start. In the first quarter, we delivered outsized GAAP net income ADE that widely exceeded dividends and strong growth in book value per share despite elevated volatility and widening credit spreads late in the quarter.

I attribute these excellent results to the strength of our diversified vertically integrated platform and the excellent credit performance from our loan portfolios. But I also want to emphasize the significance of 3 other important factors in our success: the ongoing growth and stability of Longbridge, the increased scale and effectiveness of our securitization program and our continued progress strengthening and optimizing our balance sheet.

I'll close by highlighting these 3 important factors. First, Longbridge. I don't think one can overstate just how much Longbridge now means for Ellington Financial, and I'm not just referring to the strength of this quarter. Even in this prolonged higher interest rate environment, where many mortgage companies are still struggling, the Longbridge platform has achieved a level of consistency that has effectively given us a head start on our earnings targets each quarter.

Furthermore, its target demographic, namely seniors, is obviously growing significantly. And meanwhile, the barriers to entry in the reverse mortgage business remain large. Longbridge's proprietary reverse mortgage business is now well established with a seasoned securitization program and a deep and repeat investor base that continues to support strong execution.

Many of Longbridge's costs are fixed or quasi-fixed, so its origination cost ratios have declined as volumes have grown. Its servicing cost ratios have also come down with the growth in its MSR portfolio, not only because of the internal economies of scale, but also because its subservicing costs have also declined as a result of increased competition among subservicers.

As a result, Longbridge's MSR assets are generating very high yields for us, and those yields should continue to increase. Meanwhile, Longbridge's investments in technology are only adding to its operating efficiencies. And all of this has been achieved without the benefit of a meaningful decline in interest rates, which if that ever materializes, should be a significant tailwind for Longbridge's origination volumes and profitability.

In summary, Longbridge is in a fundamentally stronger and more stable position than it was even a year or 2 ago, and we believe that Longbridge is well positioned to be an even more consistent and meaningful contributor to EFC's earnings going forward, providing a strong and increasingly predictable foundation for EFC's quarterly results.

Second factor, our securitization platform. As I mentioned earlier, we priced 7 transactions from our EMT shelf during the quarter, totaling more than $2.8 billion. Our increased scale achieved without compromising speed to market, reflects the continued expansion of our origination platform and has enhanced execution economics for us.

Larger transactions enable us to spread fixed costs over a broader base, attract a wider institutional investor audience and secure long-term non-mark-to-market financing on more favorable terms.

And more frequent transactions means that our loans spend less time in the warehouse period when net interest margins and returns on equity are lower and instead, they transform more quickly into high-yielding retained tranches, which remain important contributors to our earnings.

Third factor, all the important steps we've taken to strengthen our balance sheet. Our accretive common equity raise in January enabled us to retire our highest cost preferred equity tranche. And following our inaugural Moody's and Fitch rated unsecured debt issuance this past September, we have ready access to the long-term institutional debt markets.

Issuing more unsecured notes remains a key priority, but we plan to be opportunistic, not when it comes to overall market interest rates, but when it comes to the debt spreads over treasuries that we can achieve.

One balance sheet metric worth highlighting is the continued expansion of our unencumbered asset base, which has increased meaningfully since our unsecured notes offering in the third quarter of last year. At March 31, unencumbered assets stood at nearly $2 billion, up considerably over the past 9 months. This reflects a deliberate migration where the proportion of our liabilities represented by long-term unsecured debt will continue to increase and the proportion represented by short-term repo financing will continue to decrease.

And as I just mentioned, we intend to continue this migration by issuing additional unsecured notes as market conditions permit. Our goal is to create a virtuous cycle. We're issuing long-term unsecured debt and using some of the proceeds to replace short-term debt improves our credit ratings and thereby makes additional unsecured debt issuances even more attractive and lowers our overall funding costs.

In conclusion, and as I'm sure you can tell, I think we're firing on all cylinders now, and we're really excited not only about this great first quarter that we just reported, but about our prospects for the rest of the year and thereafter.

With that, let's open the floor to Q&A. Operator, please go ahead.

[Operator Instructions] And we will take our first question from Bose George with KBW.

This is Frankie Iilabetti on for Bose. I wanted to start with just your current run rate ADE has consistently been above the dividend, and you noted on the call earlier that you raised your ADE guidance. Where do you guys -- where does the Board see current dividend policy going forward? And what's the trade-off of retaining earnings to our book versus reinvesting some of those earnings in your operating companies?

Thanks, Frankie. Yes, let me just start off by saying, we're certainly not thinking of lowering the dividend. So let's just start with that. I think the dividend is a good place. I think it does achieve a good balance. We were able to and have been able now recently to build some book value per share.

Our yield at an 11 handle, I think that's a good yield. So I would say, again, certainly no thoughts of lowering the dividend. Could the next move at some point be a raise? Sure. But at this point, I think we just like where it is.

Great. And then on the commercial REO outperformance, you showed some unrealized gains there and roughly 60% of your commercial book is multifamily. Are those gains coming from successful workouts in the sector or are you seeing some just more positive trends there?

Yes. It's more of the latter. And the way that we mark those assets is we run a DCF kind of that projects what we -- discounted cash flow that we -- that projects what expenses and CapEx expenditures we expect and then we discount those back to a net present value today typically at a pretty high return in the double digits.

And then the idea is if we deliver on those expectations and there's a higher terminal value at the end, the fair value should accrete up to that terminal value over time because of the high discount rate. And so that dynamic is what was driving the P&L in Q1 on the commercial REO book as opposed to some large resolution. But we thought it was worth flagging given its contribution to P&L.

And then just one last question, if I can. Just on your agency allocation, come down over time. Where do you guys see that trending? Do you see it roughly in this 1% range going forward?

Mark, do you want to take that?

Sure. I would say, given the substantial recovery you saw in Agency MBS spreads in 2005, and continuing on this year, albeit at a slower pace, I don't see that allocation going up. It will probably drop a little over time. We mentioned, I think, it dropped face amount or investment amount dropped by 3%. We have expertise there. And should you get to a point in relative value of Agency MBS versus all the other things we're doing that we thought it was compelling, we could certainly bring it up.

The other area where you see activity on Agency MBS and JR mentioned it, I believe, is hedging activities, right, especially some of the securitizations like agency-eligible investor loans and eligible second homes, a lot of those AAA bonds are explicitly priced at a dollar price spread relative to the agency market. It functions as a very effective hedge.

Yes. So I guess just to add to that, right? So we'll be as opposed to being a significant core strategy for us, agencies, we're going to be more opportunistic, right? If spreads widen, that could be more of a trade, right, to put more agency on. And as Mark said, we actively manage the hedge, the TBA short hedge against, especially our non-QM loans.

And we will move to Timothy D'Agostino with B. Riley Securities.

Congrats on another great quarter. Looking at the origination volumes at Longbridge, some other peers to Longbridge noted that March was a stronger quarter in the reverse space for origination volume. I was wondering, if you all witnessed the same thing at Longbridge if March's volume is stronger than January and February. And if that theme has persisted through April and May? And then as well, if you could just maybe provide some colors on what you thought the driver of outperformance there was.

Yes, I would say that, we put the context that Q1 is typically seasonally slow. And despite that, Longbridge's sequential decline, so just from Q4 to Q1 was very modest. So we in other words, they originated almost as much in Q1 as they did in Q4, and then it was 50% higher year-over-year to the Q1 of 2025 to the seasonality point.

April is looking good. So to the second part of the question, we're seeing that momentum continue so far in Q2. Yes, I think I need to look at month-by-month origination volumes, whether it was March versus January. I think that's probably right. But I think the more important point is that it was a quarter of strength that we continued into Q2 so far and props proving more resilient in the face of those higher interest rates than HECM has. I mean HECM volumes have certainly declined.

Yes. And I would just add also that this is still a very small market in the context of the entire mortgage market. So even though this is a seasonally slow quarter, I think that this product, right, is gradually getting more traction overall. And I'm speaking now, especially of the prop product.

And you've got now coming out of the seasonally slow months, I would expect to see some good seasonal effects. But again, this market, we talked about the demographics. I think in terms of the marketing efforts that Longbridge has undertaken, those are helping as well, better pull-through rates. I mean, there's just a lot of things that we're doing to ultimately originate more loans. That don't even necessarily have to do with seasonality. So I'm looking for continued strong performance there.

And then if I could just ask a second one. I know you've guided to at the bottom line that $0.45 per share on a run rate. As we think about net interest income, took a pretty big material step-up from 4Q to 1Q. Are there some one-off items driving that growth? And is there any sort of guidance or color you want to provide to how we should think about net interest income going forward, looking at the larger portfolio?

So I'll just update the prior question about origination volumes, they did -- they're just looking at month by month at Longbridge. They did trend up from Jan to Feb to March. So March being the highest of the month by a decent margin. So we did see that same dynamic.

In terms of net interest income, we were $0.55 overall ADE. We mentioned $0.45 area as kind of a run rate moving forward, which is in line with Q4. Q4 was $0.47. What I would say is that, the kind of the contribution from the investment portfolio segment, which is where most of the net interest income comes from, is kind of running at a steady state.

So in other words, most of the exceedence this quarter was from Longbridge, which is driven more by the origination activity, their securitization activity. And so the NII we're seeing has been trending up nicely in line kind of with the growth of the portfolio. And we improved cost of funds this quarter, as we talked about.

So I don't know that, there's huge volatility in NII quarter-to-quarter. The guidance is more kind of signaling that we shouldn't expect $0.21 from Longbridge every month. Excuse me, every quarter, but the NII contribution from the investment portfolio has been kind of as designed, pretty stable quarter-to-quarter.

Yes. And the retained tranches, and we talked about those, those are very high yielding, right? And those that continues to grow. So look, we're continuing to grow the equity base as well, right? And so hopefully, everything is keeping pace with that as well.

We will move to Trevor Cranston with Citizens JMP.

There's been a decent move up in mortgage rates since the initial announcement of the GSE portfolio buying. I guess, I'm curious for your guys' current thoughts on the likelihood of more sort of targeted government policies aimed at lowering mortgage rates as we go through the balance of the year. And I'm particularly curious if you think there's any chance that the GSE do something like reducing LLPAs or GPs in an attempt to get mortgage rates to a lower level.

Trevor, it's Mark. So yes, when that announcement first came out, it seemed like, if the focus is affordability, there were 2 other logical levers, not just GSEs, but FHA could pull. One is LLPAs because LLPAs clearly for many types of GSE loans are far in excess of historical losses or expected losses.

So that was one thing, and they're also losing market share to the non-agency market because of high LLPAs. So that was one easy lever. And the other lever was either an ongoing or upfront cost cut to MIPS on the FHA side, right? And so when you didn't see those get done, our takeaway is then it's probably not top of mind right now. You're seeing other tweaks to affordability, changes in title insurance and now acceptance of VantageScores, a Vantage pull is materially cheaper than the traditional FICO pull.

So while we think LLPA, G-fee, ongoing cuts are possible, we probably characterize them as not likely. And the other thing is, I know some people have spoken about maybe there's a possibility that Fannie and Freddie would increase their purchases above and beyond their current caps they have in place and above and beyond the $200 billion.

Again, we think it's possible, but we think that's not likely. But what you have seen this year, and you have seen relatively strong performance for Agency MBS, you are starting to see some pickup in bank buying. So that was really coming from some clarity around Basel III and some of the proposals from Bowman about changing capital requirements as the function of LLPA. So we think that is broadly supportive of bank participation in the market and bank buying was very, very weak last year. So I think banks will be a bigger part of the market. That's certainly a tailwind. You've certainly seen REITs issuing shares and buying more Agency MBS.

So we think that's a positive tailwind. And you've seen better foreign participation, so non-U.S. participation. So there's some pools of capital more aggressively buying Agency MBS than what we had at the start of 2025. And we think that's going to be where the support comes. And if these other things that help add affordability, we think it's possible, but we think they're sort of at the margin and definitely second order effects.

But what you're seeing what helped affordability last year, and I mentioned it in the prepared remarks is that, HPA growth that is less than income growth and the decline in mortgage rates you saw since the beginning of 2025. Those have been supportive to affordability as well.

Yes. And if I could just add, just taking a step back, though, when you think about overall mortgage rates, these effects, they're important on spreads, but let's face it. Overall interest rates, treasury rates, for example, are going to drive mortgage rates a lot more. And there, when you talk about where is inflation, where is the deficit in the debt, what's Fed policy, I mean, those things are going to dwarf the impacts, and they're significant right now. Those are going to dwarf the impacts that I think some of these moves could have on mortgage rates.

Next, we go to Matthew Ertner with Jones Trading.

Congrats on a strong quarter. You mentioned that, you sold a whole loan pool to an insurance company during the quarter. Could you talk a little bit about how this kind of came about and where you're seeing kind of sales execute there versus where they would execute in the securitization market right now?

Sure. This is Mark. Thanks for the question. Yes. So we did a lot of whole loan sales, I'm trying to think back probably in 2023 when securitization spreads were wide in a lot of instances that looked like materially better execution than securitizations. I think at the margin, our preference is securitizations. We mentioned all the benefits of operating at scale, improved liquidity for the shelf.

So I think at the margin, our preference is for securitizations. That transaction we talked about was -- that was a little bit of a one-off. And I think we made the point that there were parts -- there were moments in the quarter where there was some real volatility in equity prices and in credit spreads and in interest rates, right? And we are disciplined on the hedging of mortgage loans, which means not only interest rate hedging, including parcels along the curve, but also thinking about our exposure to changes in implied and realized vol and also the correlation between mortgage spreads and broader corporate credit spreads, either IT or high yield, right?

And so there was a moment in time where corporate spreads, both high yield and IG widened substantially. But the spreads on the loans -- on the mortgage loans relative to treasuries hadn't really moved. So it was opportunistic for us to take advantage of that by making a loan sale and that -- and then buying back the sort of pro rata share credit hedges we had allocated to those loans. So that was, I think, kind of unique to the volatility in that quarter.

Look, we look at loan sales all the time. Where we are in the cycle now, I think they're going to be not a big part of what we do going forward. We really like the yields and the profiles and the call options we retain from doing securitizations. We like the momentum our shelf has and the better liquidity and the bigger scale and how that's delivering more assets and better liquidity to the investors that support our shelf. So right now, that's where our focus is.

Got it. And then a second one for me. Longbridge, you mentioned you're kind of leveraging technology there. Is there anything you guys are doing from an AI standpoint across there and the other originators where you're going to see some more efficiencies or, I guess, cost savings as you continue to scale that?

Absolutely. So Longbridge has rolled out an important AI product whereby its employees, even the ones that are customer-facing can get quick -- through the AI, quick access to, for example, underwriting guidelines to get better and quicker responses to customers' questions. So that's just one example. But obviously, we're across many of our businesses, we're using AI in a big way to just be more efficient.

And that was our final question for today. We thank you for participating in the Ellington Financial first quarter 2026 earnings conference call. You may disconnect your line at this time, and have a wonderful day.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial Fourth Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions]

It is now my pleasure to turn the call over to Alaael-Deen Shilleh. 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 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 of Ellington Financial; Mark Tecotzky, Co-Chief Investment Officer; and JR Herlihy, Chief Financial Officer. Our fourth quarter earnings conference call presentation is available on our website, ellingtonfinancial.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 back of the presentation.

With that, I'll hand the call over to Larry.

Thanks, Alaael-Deen. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 3 of the presentation.

Ellington Financial closed out 2025 on a high note, capping a year of consistently strong performance, portfolio growth and liability optimization. In the fourth quarter and building on the momentum established throughout the year, our adjusted distributable earnings continued to substantially exceed our dividends. We further expanded our investment portfolio and we continue to enhance our balance sheet.

For the fourth quarter, we reported GAAP net income of $0.14 per share and ADE of $0.47 per share, which once again exceeded our $0.39 per share of dividends. I'm all the more pleased with these results given that we experienced some short-term drags while we were deploying the proceeds from our unsecured notes offering and from our RTL securitization, which I'll discuss later.

Our results were driven by exceptional performance and execution in our loan origination and securitization platforms with outsized contributions once again from our Longbridge segment. Our results were also reinforced by excellent credit performance across our residential and commercial loan portfolios.

In early October, we successfully completed a $400 million unsecured notes offering, our largest to date, marking a significant step forward in the evolution of our capital structure. We were pleased with the execution and the robust investor demand and are encouraged by the significant premium at which the bonds continue to trade today.

Consistent with our stated intentions, we used a portion of the offering proceeds to reduce short-term repo financing.

During the quarter, we also capitalized on the continued strength of the securitization markets, completing 7 additional securitizations over the course of the quarter. Most notably, in November, we completed our first securitization of residential transition loans.

This securitization carries a revolving structure. So as our securitized RTL loans pay off, we can effectively reuse the securitization debt to finance our flow of new RTL originations.

Subsequent to year-end, we completed our first securitization of agency-eligible mortgage loans. With that securitization, we've now expanded our EFMT branded securitization shelf to encompass 5 different residential loan sectors.

This expansion allows us to term out financing across all of our major residential loan strategies on a nonrecourse, non-mark-to-market basis, replacing repo financing and further enhancing balance sheet resilience and capital efficiency.

Since launching our RTL strategy back in 2018, RTLs have generated consistently strong returns on equity for us. In the aftermath of 2022 and 2023, however, as credit spreads widened and the yield curve inverted, securitization economics for RTL were typically unattractive relative to simple repo financing.

That calculus has now shifted. With the yield curve normalized, with securitization spreads relatively tight and with the rating agencies taking a more constructive view of the product, securitization economics are now superior for RTL. The result is attractive long-term non-mark-to-market financing, helping us manufacture high-yielding retained tranches that enhance EFC's overall portfolio returns.

As to our Agency-eligible loan strategy, we initiated that strategy just last year, adding about $250 million of loans in that sector over the course of the second half of 2025. This move reflected a more general theme that we have highlighted on our prior earnings calls, moving into sectors where the GSEs are gradually reducing their footprint, which clears the way for private capital to step in and capture attractive risk-adjusted returns.

We view the Agency-eligible sector, particularly those subsectors where we think LLPAs are too high as presenting a potentially significant long-term opportunity for EFC, especially given all the obvious synergies with our underwriting abilities, our sourcing channels and the quality of our securitization platform.

We also believe that the opportunities in the Agency-eligible sector space will only get better as policymakers appear increasingly receptive to an expanded role for private capital.

Shifting over to EFC's balance sheet. We continue to focus on optimizing our capital structure and maximizing our resilience. In the fourth quarter, thanks to our unsecured notes offering, we almost doubled the proportion of our total recourse borrowings represented by long-term non-mark-to-market borrowings and we increased our unencumbered assets by about 45%.

Alongside these balance sheet enhancements, we continue to lean into attractive investment opportunities in the fourth quarter. We deployed a portion of the proceeds from the notes offering into new investment opportunities, expanding our portfolio by 9% even after accounting for all our securitization activity.

Our portfolio continues to benefit from strong origination and acquisition volumes across non-QM loans, Agency-eligible loans, closed-end second lien loans, proprietary reverse mortgages and commercial mortgage bridge loans. By year-end, we had largely deployed the full proceeds of the notes offering, positioning the portfolio for continued earnings strength into the new year.

All this momentum has carried into 2026. In January, with our common stock trading at a premium to book value per share, we raised common equity on an accretive basis, net of all deal costs. The issuance was not only accretive but highly targeted.

We sized the offering to generate the precise amount of proceeds we needed to redeem our highest cost tranche of preferred stock, which was our Series A preferred stock. And we announced the redemption of that tranche immediately following the closing of the offering.

The coupon on our Series A preferred stock was over 9%. So starting tomorrow, when the required 30-day notice period ends and the redemption of that tranche is completed, our common shareholders will immediately see the benefit of a lower overall cost of capital. Meanwhile, we will continue to monitor the preferred equity market with an eye toward potentially refinancing that capital at a later date and at a later cost.

With that, please turn to Slide 5, and I'll turn the call over to JR to walk through our financial results in more detail. JR?

Thanks, Larry. Good morning, everyone. For the fourth quarter, we reported GAAP net income of $0.14 per common share on a fully mark-to-market basis and ADE of $0.47 per share.

On Slide 5, you can see the portfolio income breakdown by strategy, $0.35 per share from Credit, $0.04 from Agency and $0.15 from Longbridge.

And on Slide 6, you can see the ADE breakdown by segment, $0.61 per share from the Investment Portfolio segment and $0.13 from the Longbridge segment. In the Credit portfolio, net interest income increased sequentially and we also generated net realized and unrealized gains on non-QM retained tranches and forward MSR-related investments.

Partially offsetting these results were net realized and unrealized losses on some of our other credit hedges as well as losses on residential REO. We continue to benefit from excellent earnings contributions from our affiliate loan originators, along with strong credit performance across our loan businesses, including sequentially lower 90-day delinquency rates and continued low life-to-date realized credit losses in both our residential and commercial loan portfolios, as shown on Slide 15.

In the Agency strategy, declining interest rate volatility and tightening agency yield spreads were broadly supportive of our portfolio in the fourth quarter. We generated strong results led by net gains on both long Agency RMBS and interest rate hedges.

The Longbridge segment had another excellent quarter as well with positive contributions from both originations and servicing. Origination profits were driven by sequentially higher origination volumes, continued strong origination margins and net gains related to 2 proprietary loan securitizations completed during the quarter.

On the servicing side, steady base servicing net income, strong tail securitization executions and a net gain on the HMBS MSR Equivalent, all contributed positively. Net gains on interest rate hedges further contributed to results.

Turning now to portfolio changes during the quarter. Slide 7 shows a 15% increase in our adjusted long credit portfolio to $4.1 billion quarter-over-quarter. Non-QM loans, Agency-eligible loans, closed-end second lien loans, commercial mortgage bridge loans, ABS and CLOs all expanded.

Our portfolio of retained RMBS tranches also grew, in that case, reflecting the securitizations we executed during the quarter. These increases were partially offset by the impact of loans sold in securitizations.

Our short duration loan portfolios continued to return capital at a healthy pace. For our RTL, commercial mortgage and consumer loan portfolios, we received total principal paydowns of $207 million during the fourth quarter, which represented 12.7% of the combined fair value of those portfolios coming into the quarter.

On Slide 8, you can see that our total long Agency RMBS portfolio decreased slightly to $218 million. Slide 9 illustrates that our Longbridge portfolio decreased by 18% to $617 million as continued strong proprietary reverse mortgage loan origination volume was more than offset by the completion of 2 securitizations.

Please turn next to Slide 10 for a summary of our borrowings. At December 31, the total weighted average borrowing rate on recourse borrowings decreased by 32 basis points to 5.67% overall as the impact of lower short-term rates and tighter repo spreads more than offset the impact of a higher proportion of unsecured notes.

Meanwhile, we lengthened the term of some of our larger warehouse lines. And as a result, the overall weighted average remaining term on our repo extended by 38% quarter-over-quarter to nearly 9 months, which is detailed on Slide 24.

Quarter-over-quarter, the net interest margin on our credit portfolio decreased by 28 basis points with lower asset yields more than offsetting a lower cost of funds. Our average asset yield declined, but that was only because we had a higher proportion of our assets constituting loans held in warehouses pending securitization.

This larger warehouse portfolio was the result of the deployment of the proceeds from the notes offering. The NIM on Agency decreased by 9 basis points, driven by a decrease in asset yields. At December 31, our recourse debt-to-equity ratio was 1.9:1, up modestly from 1.8:1 as of September 30.

As noted earlier, we issued $400 million of unsecured notes during the quarter, a portion of which replaced repo borrowings. However, the remaining proceeds deployed alongside incremental borrowings into new investments more than offset the deleveraging impact of repo paydowns, securitizations and higher total equity, resulting in a modest net increase in the overall leverage ratio. For the same reason, our overall debt-to-equity ratio increased to 9:1 from 8.6:1.

As Larry mentioned, our balance sheet metrics strengthened meaningfully during the quarter. Quarter-over-quarter, out of our total recourse borrowings, the share of long-term non-mark-to-market financings increased to 30% from 17% and the share of unsecured borrowings increased to 18% from 8%.

Unencumbered assets also grew meaningfully, increasing 45% to $1.77 billion, which was about 90% -- 95% of total equity. Over time, we expect to continue this shift toward a greater proportion of unsecured non-mark-to-market and longer-term financings through additional unsecured note issuance and securitizations and the replacement of our highest cost repo borrowings.

We view this transition as a fundamental evolution of our balance sheet that is enhancing risk management and earnings stability and which we hope will also support stronger credit ratings for EFC and this lower borrowing costs over time.

As I mentioned last quarter, we elected the fair value option on our notes as we have for our other unsecured debt and we marked to market through the income statement. As a result, we expensed all associated deal costs in October rather than amortizing them over the life of the notes.

And with credit spreads tightening during the quarter, we also recorded an unrealized loss on the notes for the quarter. These nonrecurring items, together with some short-term negative carry pending full deployment of the new note proceeds, represented a significant drag on our GAAP earnings for the quarter. At year-end, book value per share was $13.16, and the economic return for the fourth quarter was 4.6% annualized.

With that, I'll pass it over to Mark.

Thanks, JR. This was a highly productive quarter for EFC. We continue to execute our loan origination to securitization playbook, completing 7 securitizations in Q4 across a variety of loan types and that momentum has carried into 2026.

Over the course of 2025, we expanded our footprint well beyond non-QM where we started. Our securitization platform now encompasses non-QM, second liens, reverse mortgages, residential transition loans and Agency-eligible loans.

Over time, EFC has gotten a lot more efficient at maximizing profitability and managing risk across the full life cycle of a loan from purchase commitment through securitization exit. First, we earn a levered return while ramping for a deal and we target a gain on sale profit to the securitization trust while hedging execution risk all along the way.

Then at securitization time, we work to create high-yielding retained investments while adding to our growing portfolio of call options. When executed well in the cooperative market, this process is a virtuous cycle that is accretive to earnings at each step and is a key driver of the consistent results we have delivered over time.

Another benefit of our large securitization platform is that it allows us to provide consistent, competitive pricing to our origination partners and our affiliated originators across a broad range of loan types.

What's more, the growing value of our stakes in those affiliated originators continue to generate strong results for EFC, both during the quarter and throughout 2025. But we weren't just productive on the asset side of the balance sheet.

As Larry and JR mentioned, we are excited about the long-term benefits to EFC of being a Moody's and Fitch rated bond issuer. The combination of the substantial non-mark-to-market financing we have built from being an active securitizer and now our latest bond issuance with very broad institutional participation is steadily reducing our dependence on short-term mark-to-market repo financing.

I don't mean to imply that there is anything wrong with using repo as a financing tool. There isn't. Repo markets functioned extremely well throughout 2025. And in the fourth quarter, we were able to both extend term and lower our repo financing spreads even further.

That ongoing compression in financing spreads has been important to protect earnings as asset spreads have tightened. We have also achieved tighter spreads in the investment-grade bonds we sell in securitizations, which typically comprise more than 90% of a given deal.

There were several important government policy announcements this past quarter and throughout 2025 that are relevant to EFC. The announcement of $200 billion of GSE MBS purchases was probably the most prominent. I won't go into details because there aren't many, but I will point out that this is not quantitative easing.

Unlike QE, it is unlikely to meaningfully reduce duration or negative convexity in the market. And critically, it does not create bank reserves. What it has done is put a floor under Agency MBS spreads and by extension, other AAA-rated mortgage bonds like non-QM, second lien and Agency-eligible AAA tranches.

But perhaps the more important point is that we are operating in a time of heightened policy uncertainty, potential restrictions on institutional purchases of single-family rentals, GSE reductions, LLPA changes and mortgage insurance premium cuts are all on the table, each carrying implications for prepayment speeds for the relative attractiveness of private label versus GSE execution and maybe even for home prices.

We have been focused on thinking carefully about these uncertainties and positioning the portfolio accordingly.

As shown on Slide 4, net portfolio growth was strong in the fourth quarter on the order of $400 million and that's even after taking account our strong -- even after taking into account our strong securitization volume. This reflects years of methodically putting out our capabilities to source a more diverse set of loan products from a broader range of sellers and in a more automated fashion, thanks to our loan portal.

We're proud of the technology we have deployed to make it easy for partners to sell us loans while continuing to build symbiotic relationships with originators.

Our goal is not to compete on price alone, but to differentiate through service quality and creative loan programs that respond to evolving markets. Not everything went according to plan this quarter.

There have been some well-publicized challenges with bank loans and our CLO portfolio, while small, was a modest drag. The RTL strategy also underperformed, weighed by securitization costs and REO workouts.

Delinquencies there remain quite manageable. And in fact, we've seen strong resolution outcomes in January. We also had small losses in CMBS and ABS, which I view as idiosyncratic rather than systemic. And given that these kinds of air pockets were spread widely across the credit-sensitive markets in Q4, we've actually fared well.

If anything, these dislocations are creating opportunities and we will look to add securities where our analysis indicates the price drop is well beyond any change in fundamental value.

Looking ahead, we need to keep our eye on credit. The housing market is showing somewhat broader signs of weakness than a year ago and more and more borrowers are having trouble staying current. We have kept significant credit hedges in place, as shown on Slide 20, and we continue to invest in our technology and sourcing to grow our loan origination footprint, which has been a key driver of our returns.

Now back to Larry.

Thanks, Mark. 2025 was an important year for Ellington Financial. I'd like to close by highlighting what we achieved and how those accomplishments position us for 2026. I'll group 2025's achievements into 5 categories.

First, we covered our dividend with adjusted distributable earnings in each of the 4 quarters of 2025, marking 6 consecutive quarters of dividend coverage. That consistency is particularly meaningful given how volatile markets have been and it underscores both the resilience of our earnings engine and the benefits of our diversification.

Second, we significantly strengthened our liability structure. Over the course of the year, we completed 25 securitizations compared to just 7 in 2024. We issued $400 million of unsecured notes and set the stage for more notes offerings in the future.

We improved terms on existing secured financing lines and we added several attractive new facilities. Taken together, these efforts supported not only portfolio growth, but also a meaningful and deliberate evolution of our funding profile, one that is more durable, more flexible and better suited to support our long-term objectives.

Third, our loan originator affiliates had exceptional performance. They grew origination volume significantly, they gained market share and they made excellent earnings contributions to Ellington Financial's bottom line. Our vertical integration continues to provide us with a tangible competitive advantage, driving loan sourcing, supporting securitization scale and strengthening our earnings power.

Fourth, we continue to keep realized credit losses exceptionally low, which is a testament to our underwriting discipline and the depth of our asset management capabilities. Our delinquent inventory remains modest in size and is resolving nicely.

Remember, we mark-to-market through the income statement. So for any loans that we expect to resolve below par, we've already taken that hit to income and book value per share.

And fifth, and central to our growth story, we expanded our portfolio by almost 20% year-over-year to nearly $5 billion, while remaining disciplined on credit and risk management. That growth reflects both the payoff from technology initiatives and the addition of new strategic equity stakes with forward flow agreements.

The flow we're seeing at Ellington from our residential loan origination portal, which we launched just 12 months ago, is currently around $400 million per month and growing, especially as we continue to add to our diverse roster of sellers.

The success of our loan portal is a powerful demonstration of how Ellington's proprietary technology can scale EFC's sourcing footprint, improving underwriting efficiency and deepen EFC's vertically integrated model.

Complementing our investments in [Technical Difficulty]

[Technical Difficulty] we're experiencing a technical difficulty Mr. Tecotzky's line. And once again, we are experiencing technical difficulty, please standby. [Operator Instructions] Please remain online. We will continue. And team, are we back? Once again, we are experiencing technical difficulty. [Operator Instructions] We are reconvening.

Sir, you may proceed with your presentation.

Okay. Sorry about that. I'm going to back up just to be safe here with the fifth of our achievements. All right. And fifth and central to our growth story, we expanded our portfolio by almost 20% year-over-year to nearly $5 billion, while remaining disciplined on credit and risk management.

That growth reflects both the payoff from technology initiatives and the addition of new strategic equity stakes with forward flow agreements. The flow we're seeing at Ellington from a residential loan origination portal, which we launched just 12 months ago, is currently around $400 million per month and growing, especially as we continue to add to our diverse roster of sellers.

The success of our loan portal is a powerful demonstration of how Ellington's proprietary technology can scale EFC's sourcing footprint, improve underwriting efficiency and deepen EFC's vertically integrated model. Complementing our investments in technology, we added 2 new strategic loan originator equity stakes in 2025, each paired with forward flow agreements that provide high-quality recurring loan flow.

Together, these technology and strategic initiatives were key drivers of our portfolio growth in 2025 and we expect them to continue to support momentum in 2026.

In fact, as to strategic initiatives, I'm pleased to report that we are now in contract to acquire a small residential mortgage servicer and are awaiting regulatory approval. Once completed, this acquisition will further enhance our vertical integration by bringing more servicing capabilities in-house, especially for delinquent assets.

While it will take some time to build out the platform and design the servicing protocols, I believe that this acquisition will ultimately provide us with better control over our servicing outcomes and strengthen our ability to manage our loan portfolios across market cycles.

Our priorities for 2026 are clear. We are focused on growing our loan origination market share while maintaining strong credit performance, which, together with our securitization platform should drive disciplined portfolio growth. I'm also pleased to report that 2026 is off to an excellent start.

We are estimating that EFC generated an economic return of approximately 2% in January, with loan production and portfolio growth remaining strong, particularly in our non-QM, commercial mortgage bridge and reverse mortgage loan businesses.

Over EFC's nearly 20-year history, I believe that we have consistently demonstrated disciplined stewardship of shareholder capital and a willingness to act opportunistically when market conditions are favorable. Our decision to redeem our Series A preferred stock using a targeted common stock offering reflects that approach.

We evaluated a range of alternatives, including refinancing our Series A preferred with new preferred equity. But given the persistent wide pricing we've seen in the preferred market, we felt the choice was clear. Our common stock offering was more than 2.5x oversubscribed with institutional orders alone and was executed efficiently, underscoring strong market support for the transaction and its rationale.

In summary, I believe that the success we've had over the past year, expanding our loan sourcing, securitizing frequently and efficiently, strengthening our liability structure and optimizing our capital base, all combined with our disciplined risk and liquidity management, position Ellington Financial to deliver resilient earnings and stable dividend coverage over time and across market environments. Our team deserves a lot of credit for all the hard work they've put in to help make this happen.

With that, let's open the floor to Q&A. Operator, please go ahead.

[Operator Instructions] We'll take our first question from Doug Harter with UBS.

I was hoping you could talk a little bit more about the decision to buy the servicer. Should -- does that change any appetite for the assets that you're buying? Like will you be interested in MSRs? Or is it more a way to kind of optimize the loan portfolio you already have?

Mark, do you want to take that?

Sure. So I think there were really a few considerations. First consideration was that there's been a tremendous consolidation in the servicing industry. You saw Mr. Cooper buy Rushmore and now Mr. Cooper being bought by Rocket.

So the big box servicer is bigger and there's less high-touch servicing capabilities out there to work with borrowers if they hit a speed bump, have a loss of income, get behind in a payment. And we believe that it's important for us to generate the best risk-adjusted returns that we have sort of best-in-class protocols and best-in-class technology for handling like later-stage collections.

So this is not about scaling something to be a low-cost Fannie servicer where everyone's on ACH, you're just dealing with just massive efficiencies. This is just the recognition that as there's been consolidation in the servicing industry, there aren't a lot of good alternatives for servicing to work with borrowers that hit any kind of challenge.

So it's going to take a while to build this out. Now Larry mentioned, it's a small servicer. I think -- but the resident knowledge, sort of the native knowledge within Ellington Financial and Ellington Management Group more broadly about how best to service, how best to work with borrowers that have a challenge is really, really deep between our team that does NPLs and RPLs, our team that does non-QM, our team that does RTL.

We have several people here with multiple decades of experience. And our plan is to build out the technology with the servicer.

And then as Larry mentioned in his prepared remarks, come up, use our knowledge, our existing knowledge about how to service loans to come up with best-in-class protocols and best-in-class workflow to make sure that we're getting the best results we possibly can on loans and that borrowers are getting the best servicing experience they can.

And we just concluded that if we wanted to achieve that, it was something we had to build. We think that there's not enough of those capabilities out there in the marketplace that we could sort of assume that we could get those outcomes without doing it in-house.

That all makes sense. How do you think about the potential -- is this something that would just be used for the Ellington portfolio and -- or could it be used for third-party clients? And then just a clarification, is this entity owned within EFC? Or is it going to be owned at broader Ellington?

Owned within EFC. Mark, do you want to take the other part?

Yes. So the way I think about it is our job right now is to build out the technology, to build out the protocols to have this servicer be what we regard as best-in-class and to demonstrate that to ourselves by seeing its servicing metrics roll to delinquency rates and how you deal with borrowers that hit a speed bump. And just there's a lot of sort of champion challenger metrics people use to evaluate services.

And the first thing we need to build it and we need to get it to where we want it to be and how well it's operating efficiently. Once we do that, I certainly think that there's going to be other investors in the mortgage space that are going to recognize there's not a lot of capability out there now for later-stage collections and might well have an interest in benefiting from what we're building.

We'll move now to Eric Hagen of BTIG.

This is [ Brandan ] on for Eric. Can you discuss conditions right now for applying repo to the retained tranches held from securitization for non-QM and RTL? Have the terms improved? And are there scenarios where you could apply even more leverage to the retained tranches? And what would the returns look like?

Mark, do you want to take that? Do you want me to take that?

Sure. I can take it. Yes. I mean, repo, I mentioned in my prepared remarks, the repo market functioned really well this year, right? You had kind of gradually declining Fed funds rate and then the Fed injected some reserves into the system where they thought bank reserves were getting low.

So repo functioned extremely well. Financing spreads on retained tranches are -- I think they are relatively low. I would say that those retained tranches are sort of inherently levered, right? You're dealing with small tranches at the bottom of the capital stack on a securitization or you're dealing with tranches where most of the cash flow is coming from excess spreads.

So those tranches by nature of the investment and their leverage already have a lot of price volatility. So I don't see us wanting to add more leverage on those tranches. We tend to operate the company very conservatively when it comes to repo.

And by that, I mean that we have internal haircuts that are significantly higher than the advance rates our repo lenders would give us. So we might have loan strategies where lenders would lend us 90%, 95% cents on the dollar versus the loan.

And internally, we'll think that we want to only borrow less than that to make sure we have cash on hand if you have spread volatility, things like that. So we have plenty of ability to raise leverage if we want to.

I don't feel as though given the inherent price volatility, the retained tranches, that's probably a place where we would look to add it.

Yes. And if I could just add...

Those assets on the road -- yes.

I was just going to add that -- so to think about -- sure, we have some financing in that. But if you think about our long-term goals, right, around our financing structure and liability structure, right? So you think about unsecured notes, especially, right, which we did a deal at [ 7 3/8s ], now trading in the high 6s. We want to see that keep coming down.

Think about that -- it's our unsecured notes. And then I would say also our preferred equity, think of as those are really more of the mechanisms of financing that. Now of course, those are not as low cost as repo are. But remember, this is -- we're looking for this virtuous cycle.

As Mark said, if we're well into the teens just on an unlevered yield and we're financing at 6%, 7%, even 8-ish percent on preferred, it doesn't take much leverage just from those instruments to have 20%-plus ROE. So don't really need a lot of leverage.

And if you think about the kind of repo that we said we paid down actually when we did that notes offering in the fourth quarter in October, it was -- this is exactly the type of higher-cost repo that we would pay down first.

We'll move on to Trevor Cranston of Citizens JMP.

Mark mentioned the government policy announcements during the quarter and the potential impact they have on Ellington. Can you maybe expand a little bit on specifically how you guys are approaching the Agency-eligible market given the potential for changes to LLPAs or G-fees, which could come about, I suppose, over the course of the year and sort of how that flows through to pricing, prepaying convexity risk on those types of loans?

Sure. Trevor, that's a great question. So look, we don't have a crystal ball. We have a lot of resources to monitor potential policy changes.

And I would say with this administration, lots of things are on the table. So the genesis of sort of Agency-eligible investor loans and second homes getting securitized in the private label market, you've seen this kind of off and on for the last 5 years. It certainly has accelerated some.

And the reason is, is that the loan level price adjustments combined with the G-fees are so far in excess of expected losses in those markets that the private label market has sort of been better pricing on the credit risk there and it's overall better execution for loan originators. So it's flowing that way.

Now if there's a big change in LLPAs, it's possible the math could tilt back to Fannie, Freddie, and you could see a reduction in volume there. I would say right now, the execution isn't close.

So a small change in LLPAs, I don't think is going to move the needle. You're still going to see the lion's share of that volume in the higher LLPA category, not the super low LTV stuff, still go in private label. But we have to watch it, and that's why I wanted to put that in the prepared remarks that we're doing certain things now, responding to pricing structures in the market in place now.

And if pricing structures in the market in place change, it can change the economics and things and it will change the opportunity set and what we do. So I'd say right now, it would take a fairly significant change in LLPAs and G-fees to swing the pendulum back over to GSE execution on those loans, but it can certainly happen. And that's something that we can monitor it. We can't hedge it and we can't control it.

Now the other implication is on the prepayment side of things, right? So if you have a big enough change in LLPA, sort of like when people talk about prepayment models, they talk about elbow shifts and changes in LLPA represent an elbow shift, you basically make certain loans more refinanceable.

So when we evaluate some of the either premium investments in that space or the IOs or we've been doing more floaters like on the deal we did, we had a big floaters and you create an inverse IO, you have a prepayment model and the prepayment model is sort of calibrated to current market levels. And the prepayment model doesn't know that a G-fee -- an LLPA cut or a G-fee cut can happen in the future.

So what we do is to sort of take into account that risk. Right now in those sectors, we're ramping up speeds higher than sort of what you'd get just to a calibrated model now.

So we think it's enough for risk. That's something we want to manage to and take into account and properly probability weight and we look at the distribution of current returns. But I would say that we're not the only ones in the market that view this as a heightened risk.

So you can dial up your prepayment speeds on those sectors and still buy things at market levels with very attractive returns. It's not as though the other market participants are ignoring this risk or turning a blind eye to it in the pricing.

We'll now move on to Bose George of KBW.

This is Frankie Labetti on for Bose. You had another strong quarter in origination activity. Can you just discuss the current competition you're seeing in current margins year-to-date?

Mark, why don't you cover the forward space? I'll cover the reverse space.

Sure. So in the forward space, so non-QM, second lien, Agency-eligible investor, I would say the competitive landscape in 2025 was there was competition, but I wouldn't characterize it as cutthroat competition. So when we would think about our loan level pricing that we put out every day, we would think about where we're going to buy bulk packages from either affiliated originators or just originators we partner with.

We could price things at levels and I mentioned this in my prepared remarks such that I thought we had a gain on sale securitizing them, taking into account putting in the retained pieces at loss expected returns that we think are going to be very accretive for ADE.

So the market is always competitive, but we -- I've certainly seen times in my career where the pricing pressure seemed to cut throat, seemed as though that you weren't compensated for taking the risk you're having to take on. And that wasn't the case in 2025. So I think that it was competitive, but you could still price things with the margin and retain things at attractive yields.

Thanks. And then let me cover the reverse space. So let's separate it into 2 parts, right? There's the HECM originations, the FHA guaranteed product and then it's proprietary. So rates are still high relative to 2020, 2021.

And so HECM volume, industry-wide really hasn't changed much recently. And I would say that it has a lot -- if rates do drop, we would have a lot of room to grow substantially. We are -- Longbridge is -- has been at times the highest, second highest, always in the top 3 originators in the HECM space.

There is competition. The margins -- so the sort of the volumes are kind of are what they are, if you will, in that space. Obviously, market share is going to affect things.

But in terms of the margins, gain on sale margins, that is driven to a large extent by spreads in the marketplace as to where you can sell the Ginnie Mae certificates, the HMBS. And that was certainly -- has been a tailwind, has been nice margins, certainly in the last half of last year.

And -- but it will be very spread-dependent. But right now, margins are excellent and volumes are, I would say, quite steady and growing a little bit as we've gained market share.

On the prop side, the competition is even less. There is competition in the prop space. And there, again, the gain on sale margin is going to be driven a lot by the securitization exit spreads.

And we've seen -- I mean, the latest deal that we did, we had record low spreads on our AAAs. So as long as securitization spreads remain tight, which, as I said, we just did record low spread on our last deal, the gain on sale margins there, I think, will continue to be excellent.

And the volume there is growing as I think the products, the proprietary products are expanding. We make tweaks to them all the time. And we feel really good about volumes there continuing to increase for Longbridge.

Great. That's very helpful. Then I'd love to get your thoughts on the potential changes to bank capital standards and whether you think banks could become more active.

It's interesting. This is Mark. All the credible mortgage researchers that have years of experience and supported by a team of skilled professionals and have access to data, almost all the mortgage professionals out there expected much more significant bank buying in 2025 than you actually saw.

And in Q4, you saw, I think it was the first time in many years that banks reduced their CMBS holdings as well as their pass-through holdings, right? And what you've seen them been doing instead is with these big negative swap spreads, just buying treasuries and match funding them with swaps, right?

So you haven't seen a lot of bank buying and pricing levels at pass-throughs or spread levels now are tighter than what they were for most of 2025. So maybe these capital regs will change things. I just don't know.

I think it's certainly possible you could see them retain more loans, right? There's been -- some of that's going on, especially the adjustable rate loans, [indiscernible] loans. But it was sort of shockingly underwhelming bank support for the mortgage market in 2025.

So I know some of these regs are intended to have banks get more involved in the servicing market, right? So I think that's something you could see them do. But the big players in servicing and the big transactions, the big sales and the big buyers, it's mostly been on the nonbank side for a while. So we'll have to see.

We'll now move on to Timothy D'Agostino of B. Riley Securities.

I guess at the start of '26, it'd be great if you could maybe lay out some of the biggest priorities or what's on the top of the mind for management and accomplishing understanding that integrating the mortgage servicer to increasing long-term financing.

But maybe within the portfolio, whether the allocation or in the capital stack using more cash to buy back preferred or something like that. It'd just be great to kind of get maybe a couple of points that you all are looking to accomplish in '26 that are kind of at the top of the mind.

Mark, let me handle the capital structure side of it and then you could talk about what we are looking at in terms of maybe from a portfolio allocation perspective. So on -- yes, on the capital structure side, look, we just did redeem that preferred.

We have another preferred that is going to become floating at some point and it becomes callable at that point. Of course, there's a chance we could call that as well. That spread is a little tighter than the last one.

But we have a lot of optionality when that happens. As long as we think that our marginal use of that capital is better than the coupon on the preferred, there's no reason -- there's no sort of real hurry to call it. But it is something that we would absolutely consider at that time.

And as I mentioned, we also will continue to monitor the preferred market. We didn't like the prints that we saw from some of our peers in terms of where they issue preferred. We didn't like it in terms of -- we didn't think that was appropriate for us to issue there.

But should an opportunity arise, we could absolutely look to replace the preferred that we redeemed with probably similarly-sized preferred. I think that if you look at our capital structure right now and there's no real science around this, but I think most companies would probably look at just a slightly higher percentage of the equity base in preferred as something that was more typical in the space.

So I think that's something that we'll monitor throughout the year. And then absolutely, I think if we need the capital and I mentioned the fact that our unsecured notes, the Moody's and Fitch-rated notes that we issued last -- in the fourth quarter, early in the fourth quarter, they've tightened. Of course, we'd love them to continue to tighten and we could be in the market with certainly another offering later in the year, we'll see.

Yes. And Mark, maybe I'll jump in for a minute. It's JR. Tim, thanks for the question. And it's a good one. I think Larry laid out the 5 buckets of accomplishments in 2025. I would say that those 5 categories are very relevant to your question for 2026.

So it's number one, covering the dividend with ADE and continuing to have kind of consistent and strong earnings. It's number two, strengthening our liability structure. Larry kind of talked quite a bit about those initiatives.

Number three, supporting our originator affiliates, more market share growth really is the key to our performance and growth. Number four, managing through delinquencies. We talked about how delinquencies declined quarter-over-quarter. We're making a lot of progress cleaning up. So performers continue on that theme. And then number five, continuing to grow.

And so just looking at the numbers, we were almost $5 billion of asset -- of portfolio holdings at year-end. That was $2.5 billion a little more than 2 years ago and leverage has actually declined over that same period from 2.3 to 1.9. So we've been able to accomplish that growth without taking up leverage.

And so kind of looking forward in 2026, I don't want to just say more of the same, but kind of continuing to expand in each of those themes and then supplementing them with additional strategic relationships with originators, continuing to add on the technology front and just improving the overall kind of earnings quality, if you will, that we're delivering to shareholders.

Yes. And by the way, think about some of our peers that -- or let's just say, other mortgage REITs that have hit some big stumbling blocks and where they can borrow money, especially on an unsecured basis, has suffered immensely.

So we want to keep that franchise going in terms of steady earnings, steady book value, dividend coverage, but also continue to be, I think, the most attractive place for debt investors to place their money in our space.

And I'll just supplement my doubling comment is really about Credit and Longbridge. So we've taken Agency down and that's taken leverage down. And so I'm really focusing on the Credit and Longbridge portfolios when I give that statistic.

I would just leave you with one thought. It's that what we talked about in the earnings call and what you see in the earnings presentation is what EFC is currently doing, right? That's sort of top of mind, how we drove returns in 2025 and the focus of this call, Q4 2025.

But it's almost 20-odd years since this company has been around, it was private and then going public. And over that time, we've generated returns in a lot of areas. And I think it speaks to the breadth of the capabilities of Ellington Management Group, right?

So you've seen CRT been a driver from time to time, legacy non-agencies. We have tremendous capabilities in CLOs, tremendous capabilities in buying distressed commercial loans.

You've seen us involved in mobile home lending, right? And so unsecured consumer, auto, aircraft, like there are so many capabilities, skilled PMs, experienced researchers in all these areas that I fully expect the opportunity set for Ellington Financial to evolve over time. It's not -- we're not always going to be doing what we're doing right now.

But I think what's important for shareholders to know is that there's tremendous capabilities across almost all structured products within Ellington. And when we meet and think about how to structure -- how to allocate the capital of Ellington Financial, we have the luxury of having so many different sort of like arrows in our quiver, right?

Like you could see an opportunity in auto. You could see an opportunity in unsecured consumer. Those have been small parts of the portfolio recently. But they can get interesting and exciting and priced really attractively over time.

So I put in that thing about the policy risk now because it's true, right? And we're thinking about it. We're trying to position for it. We can predict what's likely, but we don't have a crystal ball to predict exactly what's going to happen.

But the resources and capabilities that Ellington Financial is able to access by its shared services agreement with Ellington Management Group, I think, gives us a tremendous opportunity set.

I want to highlight one sector, Mark, which is the small balance commercial sector. So we've bought some great assets from banks. Look, everyone knows that there are sectors of the commercial mortgage market that have been under a lot of stress.

And I think we've done a great job in terms of managing our portfolio with really minimal issues there. And that's put us in a great position. I mean, we're seeing auctions from sellers. And it's such a highly fragmented market. It's a very, sometimes, geographically localized market.

So we don't compete with -- certainly not with big banks on those bridge loans. Sure, spreads have tightened overall, but our financing spreads have also tightened commensurately.

So that's been a growth area for us recently. I think it will continue to be. It's -- the technicals are, well, bad for sellers, good for buyers. So I think that's definitely an area where we're going to continue to see stress and opportunity.

Awesome. I really appreciate it. And then just, I guess, as a quick second question, regarding book value today, I might have missed it earlier, but could you give us an update, whether that be in the dollar figure or just directionally?

Yes. Sorry, go ahead, JR.

Yes. So we -- $13.16 was year-end. We haven't put out January month end yet. We should be early next week. We mentioned economic return of approximately 2% for the month of January. So that would imply that book value is up 1-ish percent net of the dividend.

Yes. Those numbers are rough for now, but we're putting those out again in the next few days.

We'll now move on to Jason Weaver with JonesTrading.

Just thinking about in the prepared remarks, you spoke to the expanded opportunity set partially due to the expansion of the seller network. Given the growth in size and flexibility of your financing capacity, would it be fair to expect a wider range on intra-quarter recourse leverage and a greater acceleration of securitization activity moving forward?

Sorry, could you repeat that?

Yes. So given how the flexibility and scope of your financing platform has increased markedly, would it be fair to expect a wider range on leverage moving quarter-to-quarter and a greater acceleration of securitization deals?

Yes. So certainly, intra-quarter like if we showed month-end recourse debt to equity, it fluctuates. I mean, we had 2 deals close in early February that hadn't closed as of the end of January. And so pushing those forward from January has taken leverage down, but they were still on balance sheet and closed earlier in the month of February.

So there's certainly noise within a quarter. But I think thematically, we'll see expansion to the extent we can do more unsecured notes offerings. And we're off to a strong start. I mean, we're through 6, 7 weeks of 2026, we're ahead of the pace of 2025, which was kind of above 3x faster than 2024. So that acceleration continues at least so far.

I think if something -- look, our securitization pace has been really high, right? So if something happens where we feel like securitization spreads, let's say, they widen out, we don't like them, yes, then I think it's quite possible that we would have more loans in warehouse at quarter end and slightly higher leverage, but that would be somewhat temporary.

Got it. And then the new RTL securitization that you priced, can you speak a little bit more to the structure there? Specifically, I was wondering what the reinvestment period window looks like?

Sure. Well, as I mentioned, it's a revolver. And I believe it's a 2-year reinvestment period. So yes. So we -- and as I said, every month, we can replace basically the loans that pay off with new loans.

Yes. It's important because the average life is obviously a lot less than 2 years for those loans. So it makes a lot more efficient of a financing.

All right. Operator, I think that's it. Look, I apologize for the delay. Thanks for sticking around for the call. We'll make sure that we pay the phone bill on time next time and appreciate your patience. And look, it was a great quarter. We look forward to a great year.

Thank you. We thank you for participating in the Ellington Financial Fourth Quarter 2025 Earnings Conference Call. You may disconnect your line at this time, and have a wonderful day.

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. [Operator Instructions]

It is now my pleasure to turn the call over to Alaael-Deen Shilleh. 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 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 of Ellington Financial; Mark Tecotzky, Co-Chief Investment Officer; and J. Herlihy, Chief Financial Officer. Our third-quarter earnings conference call presentation is available on our website, ellingtonfinancial.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 it over to Larry.

Thanks, Alaael-Deen. 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 $0.29 per share and ADE of $0.53 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 $0.39 per share dividends for the quarter.

The increase in ADE 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 sizable proprietary reverse mortgage securitization gains at Longbridge, where we're now completing roughly reverse prop securitization per quarter. Our quarterly results also benefited from robust gains from securitizations of non-QM loans and closed-end second lien loans. We priced a total of 7 securitizations during the quarter. That's a record for us. And 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 EFMT securitization franchise has become a tremendous asset for Ellington Financial, allowing us to access liquidity for 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 LendSure. 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 and complemented by opportunistic additions of other residential mortgage loans and CLOs as well. Notably, Longbridge delivered a record quarter for proprietary reverse origination volumes. Demand from borrowers for Longbridge's prop products continues to grow. But just as importantly, demand from investors remains strong for the resulting securitization debt tranches.

I believe that Ellington Financial, with our Longbridge subsidiary and our securitization franchise, is uniquely positioned to profitably intermediate between prop reverse mortgage borrowers and investment-grade debt investors.

Moving to the financing side. We further strengthened our balance sheet by increasing our long-term non-mark-to-market financings 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 priced 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 in that strategy as well, unlock capital for redeployment, and create high-yielding retained tranches for our portfolio.

Securitizations are important because they provide stable non-mark-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 retained tranches with valuable call options. These retained tranches are generating some of the most attractive returns across our platform, and they contribute strongly to ADE even without repo financing. Second, on the financing side, on the final day of the third quarter, we successfully priced $400 million of 5-year senior unsecured notes rated by Moody's and Fitch and broadly distributed to institutional investors across more than 80 accounts. We utilized more than half the proceeds to reduce repo borrowings with the remainder funding new high-yielding investments. The unsecured notes priced at 7 3/8%, 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. We expect pricing to improve on future transactions as we become a more established unsecured note issuer and as we migrate a greater share of our borrowings to long-term financing, creating a virtuous cycle.

With that, I'll turn the call over to JR to walk through our financial results in more detail. JR?

Thanks, Larry. Good morning, everyone. For the third quarter, we reported GAAP net income of $0.29 per common share on a fully mark-to-market basis and ADE of $0.53 per share. On Slide 5 of the deck, you can see the portfolio income breakdown by strategy, $0.42 per share from credit, $0.04 from Agency, and $0.09 from Longbridge. And on Slide 6, you can see the ADE breakdown by segment, $0.59 per share from the Investment Portfolio segment and $0.16 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 in ABS.

Partially offsetting higher net interest income were net realized and unrealized losses on non-QM retained tranches, CLOs, forward MSR-related investments, and residential REO. We continue to benefit from solid credit performance in 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 require individual workout efforts. On the top right, you'll see just 13 basis points of cumulative realized credit losses on approximately $14.7 billion of residential mortgage loan fundings, spanning non-QM, RTL, home equity, and proprietary reverse mortgages. And on the bottom right, cumulative losses totaled only 47 basis points on more than $2 billion of commercial mortgage bridge loan originations dating back to before COVID.

The combination of the strong credit performance and the high yield of these loans has been a key driver of EFC's sustained growth in ADE 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 supportive of portfolio performance. The Longbridge segment had another excellent quarter with strong contributions from both originations and servicing. Origination profits were driven by higher origination volumes of Prop reverse mortgage loans, higher origination margins for HECM reverse mortgage loans, and net gains related to the prop loan securitization completed during the quarter. Meanwhile, base servicing net income, strong tail securitization 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 billion quarter-over-quarter. Our portfolios of non-QM loans, commercial mortgage bridge loans, other residential loans, and CLOs all expanded, as did our portfolio of retained 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 paydowns in that portfolio exceeding new purchases. For our RTL, commercial mortgage bridge, and consumer loan portfolios, we received total principal paydowns of $352 million during the third quarter, which represented 21% of the combined fair value of those portfolios coming into the quarter. as those short-duration portfolios continue to return capital steadily. 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 borrowings. At September 30, the total weighted average borrowing rate on recourse borrowings decreased by 8 basis points to 5.99% overall, with a notable 17 basis point decline on credit borrowings. Quarter-over-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.

At September 30, our recourse debt-to-equity ratio was 1.8:1, up slightly from 1.7:1 as of June 30, while our overall debt-to-equity ratio was down slightly to 8.6:1 from 8.7:1. During the quarter, we improved financing terms on 2 Longbridge-related facilities. On September 30, we priced $400 million of 5-year senior unsecured notes at a fixed coupon of 7.3%, which was a 363 basis point spread to the 5-year U.S. 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, thus locking in that 363 basis point spread. The notes issuance closed in early October and will appear on our balance sheet beginning in the fourth quarter.

As of October 31, nearly 20% of our recourse borrowings are unsecured. And of equal importance, the percentage of those borrowings subject to mark-to-market margining declined to 61% from 74% month-over-month. We expect our notes offering to increase our overall cost of funds by approximately 17 basis points. Keep in mind that this figure does not capture the expected accretive benefit of adding more assets at yields above the cost of this debt, as well as the release of capital reserves related to the repo paydown, which Larry will elaborate on later. In keeping with our mark-to-market philosophy, we'll 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 amortizing them over the life of the notes.

At September 30, combined cash and unencumbered assets were about $1.2 billion, or about 2/3 of our total equity. Book value per 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, JR. This was an important quarter in EFC's evolution. As Larry mentioned, we continue to grow ADE, 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 7 securitizations, where we replaced repo funding with non-mark-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 2 recent well-publicized bankruptcies in the corporate credit markets, and job formation has weakened substantially compared with earlier this year. These are the kinds of market risks that should they become more widespread, our credit hedges are designed to protect against. In addition, our focus on higher FICO, lower LTV loans, and 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. Those technology investments are paying off through higher 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 efficiently securitize our loans. With rates moving slightly lower, this trend should continue, if not accelerate.

In addition to increasing our loan purchases, 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 Freddie Mac, 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 GSEs. 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 noncore 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 are following the same EFC playbook while expanding it. Our approach is to use proprietary sourcing models to buy a broad range of mortgage products, term 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 added second liens and Prop Reverse. 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 and securitizing, we're also providing affiliate loan originators more ways to make money by expanding the product sets that they can offer to their customers. The synergistic relationships helped drive our portfolio 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 ADE we've seen from both our retained tranches and our stakes in originators, including Longbridge, of course.

The process of expanding our footprint in the securitization markets has itself become a virtuous cycle. We have built our EFMT securitization brand over the past 8 years, dating back to our first deal in 2017, and each new transaction and 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 has stalled, more consumers are under financial strain, and many corporations aren't just slowing their hiring, but are actively reducing headcount. We will continue to rely on a data-driven, model-based investment approach to pursue high returns 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 earnings 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 volumes strong at Longbridge and at our non-QM loan originator affiliates, LendSure and American Heritage Lending.

Of course, we've also been hard at work deploying the proceeds from our unsecured note issuance. We've used a chunk of the proceeds to grow the investment 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 ADE to spare going into the fourth quarter, as we expect to experience a modest near-term drag on ADE as we deploy the proceeds from our notes issuance. But even after we deploy those proceeds, we expect to realize additional, more subtle benefits from our notes issuance over time, as I'll 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-mark-to-market financing. Specifically, and consistent with our disciplined 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 further amplifying long-term earnings potential. As an aside, similar benefits apply to our securitization financings.

The second additional benefit from our 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 earnings stability. Including our existing $263 million of unsecured notes, nearly 20% of our recourse borrowings are now unsecured as of October 31, 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 unsecured debt at even more attractive economic terms, setting off a 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 our recent unsecured notes issuance, and a steady pace of securitizations, we believe that Ellington 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.

[Operator Instructions] We will go first to Crispin Love with Piper Sandler.

First, just on the loan originator platforms. started -- we've started to see a more conducive mortgage rate environment. Can you just discuss how this has changed valuations in your stakes and then overall operating performance, 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 an originator level?

Okay. JR, do you want to talk about valuations sort of generally speaking, how we value, and how the recent tailwinds are helping valuations?

Yes, sure. Thanks, Crispin. So the stakes are third-party valued twice a year, and then the other 2 times we adjust based on interim P&L. And the valuation providers are typically looking at, broadly speaking, 3 data points, kind of trailing earnings, forward earnings, and then multiples relative to the market. And so I think there are a few factors at play. There have been some publicized trades in the market at multiples to book, premiums to book. But at the same time, book value has built up because earnings have been so powerful. And in many of these cases, we're also getting distributions of those earnings. So we get to return cash and then redeploy it.

And so I'd say that the strong earnings performance has reflected through higher book value, but it has also led to some more liquidity for these platforms and higher multiples. We have a table in our 10-Q where we go through the multiples of earnings that our valuations reflect, and they're not at the same levels as one particularly notable transaction that happened within the last couple of months. So at a premium to book, reflecting the earnings power of the platform, but not at the premium reflected in that transaction. So if that helps answer the question, I mean, earnings have driven book value, which has driven values, and just interim P&L is reflected in our mark-to-market as we capture the benefit of those earnings.

Yes. And then in terms of new products, I think, right, Crispin, was that your question is are we looking at adding stakes in any new products? Is that right?

Yes, that's right.

Yes. So Mark, I'm not aware of any new products. We are looking at potentially adding some additional servicing capacity in a small way. But no, I'm not -- Mark, are you aware of anything?

Yes. I mean the one thing I would say, Crispin, 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 in talk in 2015, 2016, 2017, that product was 100% adjustable rate. It used to be all 7-year ARMs, right? So we are starting to see some demand for adjustable-rate mortgages. 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 than you can on a fixed rate. So that's a new product. That's one thing that we've been working with some of our affiliates and some other originators with.

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 there any resi in there? And then just what types of banks are you dealing with? Is it more community banks or are there larger ones as well?

So the 2 transactions I referenced in the prepared remarks were both residential mortgage loans. One of them, it turns out was actually adjustable rates. So these were smaller banks. They weren't the big G-SIBs. And you have a lot of banks sitting on portfolios that they desperately want to restructure. It's, I think, more of an issue in -- it's more of a factor in the Agency MBS market, where you have a lot of banks still sitting on big portfolios of Fannie 2s, Fannie 2.5s, which have really been a drag on NIM. And I think it's kind of interesting that most of the M&A activity you've seen involving banks in the last couple of years, after each transaction, you've seen fairly large portfolio restructurings. So if M&A increases, I think it's going to lead to more activity from banks shedding loans they've held in portfolio for a while. And I just think the natural process of lower yields, a steeper yield curve, tighter credit spreads is lifting up the price of some loans on balance sheet to the point where the trade-off of taking a loss and getting to reorient the portfolio is palatable. So I look for more of that to continue should the rate environment stay where we are now.

And we will move next to Bose George with KBW.

This is actually Frank on for Bose. First question is on credit. You touched on weaker consumer, a little softness in the labor market, and negative HPA. Can you just elaborate on maybe what you're seeing within your portfolio and where you're seeing the best allocation of capital today?

Sure. So we -- yes, we have the new slide JR talked about, which directly shows the credit performance of what we're doing on the loan side in residential and commercial space. So what I would say is if you look at consumer spending and you really partition it as a function of income levels, the weakness is, by and large, at the bottom half -- the bottom 50% of income levels. And so you see it impacting subprime auto. You see it impacting lower FICO credit cards. You see it impacting portions of the FHA and VA portfolios, which tend to be lower credit quality than what you see from Fannie and Freddie. 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.

I also just -- I put in into the prepared remarks that comments that you've seen 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 that could be something that could impact some borrowers that are at higher wage levels. So right now, in terms of credit performance, everything has been performing well, and we made a lot of progress this year, I think, in 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 -- it's on our radar, and we're thinking about.

Yes. And Mark, just to follow up on that, on Slide 15, I just want to reemphasize what JR said during the prepared remarks, which is that these are non-annualized. These are cumulative numbers. So our commercial mortgage loan business, bridge loan business, which goes back, gosh, 10 years at least, when you see 47 basis points of cumulative losses, that's over 10 years. So obviously, it would be anything on an annualized basis will be much smaller. On the resi side, again, 13 basis points goes back many, many, many years. So we're really pleased with this performance.

As Mark says, we've been laser-focused on FICO, which has really helped us. And of course, in RTL, all our loans have personal guarantees. So we feel very good about where we stand. We did have a couple of loans that we talked about on some relatively recent earnings calls that on the small balance commercial space, one of them has been resolved. One of them is actually now going quite well towards resolving, I would say, later next year, but things are looking good. So we really feel good about where we stand.

Great. And then -- you guys had a strong ADE 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 ADE in the fourth quarter?

So in terms of the drag, we -- I think JR mentioned that our sort of overall cost of funds would all other things being equal from where we stand at around now be about 17 basis points, right, JR, higher. So yes, again, I mean, as I said, we really have some good ADE to spare coming in, if you will. We still, I think, believe that we're going to be able to continue to cover the dividend. I don't want to say -- I wouldn't say that we have any plans, certainly not have any plans to lower the dividend. And I think it's just at a level right now, 11 handle the yield. I think it's a good dividend. We just want to keep covering it and covering it as we have been.

And we will move next to Trevor Cranston with Citizens JMP.

A follow-up question on your comments on sort of the general credit backdrop and credit performance. Looking at the credit hedge portfolio, it looks like the size of the hedge positions declined somewhat in 3Q. So I was wondering if you could just maybe provide some commentary on how you guys are thinking about the risk of sort of spread widening and how you guys are approaching the credit hedge part of the portfolio right now?

Yes. The credit -- the drop in the credit hedge was, I would call it, a little more of a blip, if you will, as we were about to -- we literally priced that deal -- at December 31 at quarter end and then basically being a wash in cash we decided that on a short-term basis, we would lower that credit hedge, just right, obviously, our -- the credit hedge is there for a rainy day and for resiliency in a market shock and having basically all that cash coming in obviated the need for as much of a credit hedge. But -- so I do expect that to continue to increase as we deploy that cash, as we've talked about, into new high-yielding investments that are more correlated, obviously, to overall market risks. So I would view that as a little bit of a blip in terms of that big downward move there.

And then you talked about working towards deploying the capital from the debt issuance at the end of the quarter. Obviously, you guys have been able to do some issuance on the common equity side through the ATM plan as well. Should we think about the debt issuance sort of decreasing your appetite for common equity in the near term? Or is the sort of amount of issuance there small enough that it doesn't really move the needle enough to change things?

Yes, we can deploy pretty quickly. I would like to note that our ATM issuance has been accretive. So I think that's really important. We certainly want to keep that up. But yes, exactly. I think that we did have a good quarter for ATM issuance. But we're just -- because of all the flow that we've talked about on the call previously, we are able to deploy capital quite quickly, generally speaking. We have so many different strategies that we can deploy into, and we pick and choose which ones look the best at any moment in time. So I would say that we don't really view them as alternatives, I would say, and additional ATM issuance is not only accretive nowadays, but it also helps our G&A ratios and things like that. So just a lot of good reasons to keep that going. Obviously, we don't want to -- we like to see our stock trading at a premium, and we don't want to do anything rash to potentially change that situation.

Yes. And just to add on that, I mean, we mentioned that October, the portfolio was up more than 5%. We didn't quantify it exactly, but that's on a $4 billion base. So 5%, that's $200 million right there. We raised $400 million and mentioned we're using more than half to pay down repo. And we had 12% portfolio growth in Q3. So I guess the point is that, underscoring Larry's point that deployment and portfolio ramp has not been an issue for us in recent months. So -- and we did raise accretively in the ATM during the quarter relative -- net relative to where the book value per share settled at $30.

And we'll move next to Timothy DeAgostino with B. Riley Securities.

On Longbridge and the proprietary reverse mortgage product, you had mentioned that it was like record volume origination. I was wondering, within that market, what does competition look like for you all?

Yes, there's not much. In the prop space, in particular, there are HECM issuers that -- originators that are -- there are more of those, I guess, you could say. Longbridge overall is #2 in the space. But in terms of volumes, by some metrics, sometimes #1. But in prop, it's really -- there are 2 other competitors. One of them is a public company, one of them isn't. And I think 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 the way that we do in a kind of vertically integrated way where we have Ellen Financial to REIT that needs to put money to work. And we have the originator, obviously, that can originate the product for us. So -- and it's -- so it's definitely less competition in that space than in other spaces. And I think we're in a great competitive position. The fact that our securitization is going so well has meant that we've been able to actually offer better terms to borrowers because the securitization outlet has provided us better execution over the past several quarters. So that's translated into better rates for borrowers, which has translated into also higher volumes for us, right? We can offer better terms, so we can get higher volumes. So that's kind of what's been going on there. And hopefully, that will continue.

Okay. Great. Yes. And then just quickly flipping to the credit portfolio. Quarter-over-quarter, it seems like non-QM was the biggest piece, like had the most investment quarter-over-quarter. I was just wondering like what you're seeing in that market? And why do you like it so much?

Mark?

So non-QM, it's not a monolith, right? There's loans to investors. There's owner-occupied loans. There's a range of documentation types from full dock 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 portfolio company, LendSure. So over the past 11 years, we have spent a lot of time and effort building out our credit modeling, our prepayment modeling, our 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 are really best practices in terms of the process for originating loans.

So we have really deep sort of native understanding of that market. And it's grown. You have seen Fannie and Freddie not expand their guidelines in some ways, constrict their guidelines. And you have -- I'd say it's 10% to 15% of the home-buying universe that are not served well by the GSEs. And that's really the core of non-QM. And I think a couple of things have happened for non-QM in the past year. So one 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. Most of what we do on a portfolio basis is below 70% LTV in aggregate. And you've seen significant securitization volumes spread this year. 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 universe of investment-grade 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 securitize them with tighter spreads, 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 made it an asset class that we have scale to it. And it's leaving our portfolio with very attractive retained investments. And so it's really those 2 things. It's the volume, the scale, the underwriting discipline we brought to it, levered with these tighter investment-grade spreads that has made that sector very attractive to us.

And we will move next to Eric Hagen with BTIG.

We actually have a follow-up on the Longbridge 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 what's both objective and sustainable for leverage in that portfolio?

So thanks. I don't think it requires more leverage. Well, first of all, part of -- most of Longbridge's -- and I'm not talking about the segment now, I'm just talking about the originator, right? Most of Longbridge's equity is in its servicing, right, especially tech and servicing portfolio. And that's just a very high-yielding return on that servicing without any leverage. So much higher yielding than forward servicing. So that's number one.

And then in terms of the proper reverse loans, which is what ends up on our balance sheet, on EFC's balance sheet, both pre-securitization and post-securitization. Sure, while we're accumulating for securitization, there's going to be leverage there, right? But again, post-securitization, where we retain just the residual, if you will. It's -- again, doesn't really require -- doesn't require that.

Now we do consolidate those. So from a consolidation perspective, right, you might see more leverage that way. But again, this is long-term non-mark-to-market locked in financing. So the way we look at it is we've just got a retained interest that's relatively small that doesn't require any additional leverage. So I don't think we're going to need more leverage there other than, obviously, as the origination volumes increase, you need more warehouse financing. But again, that's sort of more transient, if you will, transitory.

Yes. Okay. That's really interesting. Going back to non-QM for a second here. I mean, what's your perspective on convexity risk in 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, more liquid. At the same time, I mean, we wonder how it would respond to lower rates, even meaningfully lower rates, and your ability to kind of backfill that portfolio if rates were to fall.

Eric, so I would say it was interesting. In the last remittance cycle, jumbo speeds increased a lot. You didn't see a similar increase in non-QM. But if you go back to 2020, 2021, we know non-QM loans are capable of very fast prepayment speeds, prepayment speeds in excess of 40 CPR, right? So this rate move has certainly put prepayments and understanding prepayments and valuing that front and center because when you do a securitization, what you're retaining a large portion of the investment is essentially sort of. So we hedge that risk. I also think 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 were 103 at origination, and then a rate move could be worth 105. So we keep the call options. That -- those thrive in a rate-down market. We have the excess spread piece, which has exposure to faster prepayment speeds. But understanding those prepayments, thoughtfully mitigating some of that prepayment risk through payment penalties, which probably 30% of the market has, that's really one of our core competencies, right? So whether it's understanding the servicing portfolio we took over from Ellington, whether it's understanding IOs or inverse IOs, understanding how borrowers, different types of borrowers 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 you're exactly right, prepayment speeds are on the radar. I would say what does it do about portfolio size? I mean, typically, when you go through a refi wave, it's not as though the market shrinks.

The market just -- borrowers are just exchanging an existing loan for a new loan. So I don't think it proposes -- I don't think it presents any challenges from staying invested. And a lot of times when you go through a refi wave, the market the size of the market actually grows because you have borrowers that if they refi, sometimes they're cashing out and they're replacing an older loan with a slightly bigger new loan. So I think we've been very focused on the prepayment risks of different loans and making sure that's properly hedged out and hedged out along the yield curve. But in terms of volumes, I think it would be a big uptick in volumes. I think it creates a lot of opportunity.

Yes. And if I could just add one thing. So first of all, I want to point out that, as Mark said, I mean, we model this fanatically, right? So one of the things we do while we're warehousing those loans awaiting securitization, non-QM loans, right? They have negative convexity. Well, we are short -- to some degree, we're short TBAs against those loans as well as other interest rate hedging products, right? So we're short a negatively convex instrument against a negatively convexed instrument that were long. 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 presentation is our interest rate sensitivity analysis. And I think in the Q, 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, as Mark said, what are a chunk of IOs that were long in our non-QM retained tranches, right? Even when you take all that into account, it's really very contained the negative convexity in the overall company. So again, on Page 14, you can see do we have some negative convexity? Yes. But you can see modest declines in equity for a 50 basis point drop or 50 basis point increase, but they're really quite modest. So again, this is something that we really model very, very closely based upon 30-plus years of experience.

And we will move next to Doug Harter with UBS. It's actually Marissa on for Doug today. Just one for me, more broadly on the reverse mortgage space. How are current market conditions, notably the outlook for moderating HPA and the evolving regulatory environment, how are they 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 in terms of -- 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 definitely matters. And we do -- when we do prop reverse securitization, we are retaining the residual, if you will. And so we do have exposure to long-term HPA. I think we mentioned in the prepared remarks, that based upon some HPA stalling, we did adjust downward the mark on those retained pieces in the proper reverse mortgage securitizations. But again, it was quite contained that effect and offset by obviously a lot of other things going in the portfolio. So it's something that we keep a very close eye on. And it does -- it will impact the value of that portfolio. But you have to also have to remember, there's a lot of cushion there, right? The pro reverse mortgages are originated -- in fact, all reverse mortgage, right, originated at initial extremely low LTVs. 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, you're talking about LTVs that are well below 50%, well below.

That was our final question for today. We thank you for participating in the Ellington Financial Third Quarter 2025 Earnings Conference Call. You may disconnect your line at this time, and have a wonderful day.