Ellington Financial Inc. (EFC) Q3 2026 Earnings Call Transcript

We're standing by, and welcome to the Ellington Financials Third Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Aladeen Chalet, Associate General Counsel. Please go ahead, sir.

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 in the Forum 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 and President of Ellington Financial, Mark Tchaikovsky, Co-Chief Investment Officer, and J.R. Hurley, Chief Financial Officer. Our 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, Aledine, and good morning, everyone. I'll begin on slide three of the presentation. In the third quarter, Ellington Financial delivered strong results despite a challenging market environment. We generated gap net income of $0.31 per share and an annualized economic return of 9.4%. Our adjusted distributable earnings of $0.45 per share again exceeded our $0.39 quarterly dividend. And we preserved book value per share, even if interest rates moved sharply higher and yield spreads widened late in the quarter. Our interest rate and credit hedges cushioned the late quarter sell-off, bolstering our already ample liquidity reserves and helping preserve book value. Meanwhile, our diversified investment portfolio and origination platforms provided multiple sources of earnings. Key earnings contributors for the quarter included a retained IOS from non-QM and agency-eligible securitizations, which perform well when interest rates rise and repayment slow, along with commercial mortgage bridge loans, corporate credit, and our originator investments, particularly Lensure, which delivered another standout quarter. Credit performance in our investment portfolio also strengthened in the quarter, with delinquencies declining and cumulative realized losses remaining low. JR will review the details. We continue to expand our asset sourcing capabilities. Our expanding residential loan portal generated $1.6 billion of loan purchases from 57 sellers during the quarter. Together with loan flow from Longbridge and our other channels, the portal supported net portfolio growth, even as we continue to securitize loans. Meanwhile, Longbridge remains solidly profitable. Supported by higher origination volumes and significant interest rate hedging gains. The quarter would have been even stronger at Longridge, but as interest rates rose sharply, a competitor temporarily held its offering rates down to defend its market share. Industry-wide origination margins compressed as a result, but with offering rates finally repricing higher, origination margins at Longridge are improving so far in the fourth quarter. Although Longbridge's contribution to earnings declined from the prior quarter, that prior quarter was extraordinarily strong, with two proprietary reverse securitizations completed. Moving now to our capital structure. In September, we issued $150 million in an add-on to our existing 7.38% senior unsecured notes. The offering came shortly after Moody's revised EFC's rating outlook to positive. We had initially launched a $100 million deal, but we were able to upsize that by 50% thanks to strong institutional demand, and the offering was priced at a yield spread over Treasuries that was approximately 70 basis points tighter than last year's issuance. The add-on brought the series to $550 million outstanding, and that larger issue size and broader investor base has already significantly improved secondary market liquidity in the issue. The offering provided us with additional investment capacity ahead of the late-quarter sell-off and advanced our ongoing strategy to replace short-term mark-to-market repo with long-term unsecured debt. Our recent common equity activity has reflected the same capital management discipline. In the first two months of the quarter, we raised approximately $34 million through our ATM at approximately 100% of book value per share. Following quarter end, as our stock sold off, we repurchased common stock at approximately 85% of our most recently reported book value. The window was brief, so we purchased just under $4 million of our stock, but the repurchases were accretive to book value per share. We expect to take advantage of similarly accretive opportunities should they arise again, subject to market conditions. Also in September, we completed the acquisition of a controlling interest in StateBridge, a relatively small but quite diversified loan servicer. At September 30, StateBridge serviced approximately 15,000 loans, totaling nearly $2 billion in unpaid principal balance. Our objective is to leverage Ellington's data and work-out experience to help StateBridge become the premier special servicer in the mortgage space. Agency servicing is dominated by a few players with massive scale. For those mega servicers, special servicing revenue just doesn't move the needle. However, we see an emerging need and great potential demand for a more focused special servicer. And for Ellington Financial, State Bridge's strategic value goes well beyond our share of their servicing profits. If Statebridge can optimize EFC's outcomes on delinquent loans and REO, that will help us deliver superior returns across credit cycles. With that, I'll hand the call over to JR to walk through our financial results in more detail. JR?

Thanks, Larry. Good morning, everyone. I'll begin on slide five with results by segment. The investment portfolio contributed $0.47 per share of gap net income and Longridge contributed $0.10 per share before unallocated corporate other items. Turning to the ADE reconciliation on slide 6, the investment portfolio's contribution was stable at $0.60 per share, while Longridge contributed $0.07 compared with $0.23 in Q2. A smaller corporate other drag partially offset that decline, bringing total ADE to $0.45 per share. Beginning this quarter, ADE is presented net of incentive fee expense, and prior periods have been conformed. The incentive fee was approximately $0.9 million, or one cent per share, in each of Q2 and Q3, reducing conformed Q2 ADE to 59 cents from the 60 cents previously reported. Within the investment portfolio, net interest income remained robust, and net interest margin increased to 3.55% from 3.36% as higher asset yields more than offset higher funding costs. On slide 7, our adjusted long investment portfolio grew by 4.5% sequentially to $4.7 billion, reflecting net purchases across several loan categories and growth in retained RMBS. Loan purchases included opportunistic acquisitions of prime jumbo and scratch-and-dent residential mortgage loans. Moving to Longbridge on slide 8, originations reached $676 million, up 36% year-over-year, and approximately 15% sequentially. Despite higher rates, September was Longbridge's strongest month ever for proprietary reverse submissions, as shown on slide 9. The lower earnings contribution reflected narrower origination margins and one prop reverse securitization price during the quarter compared with two in the second quarter. Servicing and enterprise interest rate hedges contributed positively. Results also included a markdown on retained proper reverse tranches driven by a revised home price projection. The net long-bridge portfolio grew by 59% to approximately $1.03 billion, reflecting production growth and securitization timing. Some of that increase reversed when the securitization that priced in September settled in October. Turning to financing, recourse leverage increased to 2.2 times from 1.9 times as we grew the portfolio with additional repo along with the debt from our unsecured notes add-on offering. While a portion of the proceeds from the notes was used to repay existing repo borrowings, the net increase in repo primarily reflected warehouse financing of newly acquired loans expected to be securitized in the near term. Our $150 million September add-on, lest the redemption of approximately $38 million of notes that matured in August, increased unsecured borrowings by approximately $112 million to $775 million. Quarter-end leverage also reflected the timing of two securitizations that priced in September but settled in early October. Cash increased to $269 million from $247 million, and total equity rose to $2.03 billion. Total unencumbered assets, including cash, reached $1.92 billion. On slide 11, approximately 25% of recourse borrowings were long-term and non-marked market, and 17% were unsecured. The weighted average remaining term of repo borrowings was 8.9 months. At quarter end, the weighted average borrowing rate on our recourse borrowings was 5.78%, compared with 5.5% on June 30. During the quarter, we secured better pricing on two loan financing facilities and extended the maturity of another. Slide 12 puts our longer-term balance sheet and credit progress in perspective. It compares September 30, 2026 with June 30, 2025, the quarter end before we priced our $400 million unsecured offering. Since then, we have built a larger equity cushion and uncovered asset base, diversified and extended our funding, improved profitability, and strengthened credit metrics. Our 90-day-plus delinquency rate across all residential commercial mortgage loans declined by 12 basis points during the quarter to 5.6%, which is down 216 basis points from 7.76% at September 30, 2025. Cumulative realized credit losses remained low. Moody's announcement of a positive outlook on EFC reflected our sustained, strong earnings, our improving asset quality, and the progress we've made strengthening our funding profile. Skipping ahead in the deck, slides 18 and 19 show our interest rate, mortgage basis, and credit hedges. During the quarter, we increased our interest rate and credit hedges, including our net TVA short position, as our portfolio grew and market conditions changed. In corporate other, higher interest rates generated mark-to-market gains on our unsecured notes, partially offset by credit spread tightening associated with the September add-on. Those net gains were more than offset by losses on the related interest rate hedges and the repayment of our 6% notes at par, which had been carried below par. Results also included issuance costs from the add-on offering, which as usual we expensed in full, and higher income tax expense. Book value per share ended the quarter at $13.53 per share, down just 0.6% after $0.39 per share of dividends. Looking ahead, our quarterly ADE outlook is approximately $0.45 per share. Results remain sensitive to the ADE contribution from Longbridge, particularly around origination margins and securitization timing, where we are assuming approximately one prop reverse securitization per quarter. With that, I'll turn the call over to Mark.

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

This quarter reinforced a lesson that we've learned at Ellington over our more than 30 years of operating history. The key to long-term outperformance is preserving book value and buying power during periods of volatility. We outperformed most other mortgage rates by a wide margin this past quarter, thanks, as usual, to our disciplined use of both interest rate hedges and credit hedges and our conservative liquidity and risk management protocols. The opportunity set is clearly richer in the fourth quarter, which we entered with significant dry powder and financial flexibility, which had been further buttressed by the significant additional long-term capital we raised, both debt and equity. Meanwhile, principal repayments from our short-duration commercial mortgage bridge and residential transition loans continue to provide capital for reinvestment. Our diversified business lines allow us to shift capital across loan and securities markets when a sell-off in a particular sector creates attractive relative value. The recurring loan flow from our portal and originator relationships is complemented by opportunistic purchases. So far in the fourth quarter, we have taken advantage of some compelling opportunities to expand several of our loan portfolios. We have also recently purchased interest-only securities in the secondary market at what we believe are very attractive prices. We remain mindful of the pressures on our existing businesses, especially from higher interest rates and overall uncertainty in the real estate markets. That said, I will point out that higher interest rates often make Longbridge's proprietary loan products more competitive with FHA loans. Looking ahead, we continue to evaluate opportunities to return to the preferred equity market, provided that the pricing makes sense. We also intend to issue additional unsecured notes over time as market conditions permit. The goal is to further strengthen ESC's credit profile to support better ratings and tighter issuance spreads. Finally, we believe that our current monthly dividend of $0.13 per share remains appropriate. Our ADE has been running well above our dividend this year, but REIT distribution requirements are based on taxable income, not ADE. Fourth quarter market volatility could still affect our full-year taxable income and the resulting distribution requirements. Subject to those REIT requirements, we favor retaining excess earnings to build book value per share and, in turn, support future earnings. With that, let's open the floor to Q&A. Operator, please go ahead.

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

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

Yes. Good morning, Christopher.

Okay, great. Thank you. First, on just reverse mortgage originations, very strong in the quarter, looking at slide nine. Can you discuss the outlook in the reverse mortgage space, some of the key factors driving that strength, and just the sustainability of those levels, or if there's anything special in the quarter?

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

Okay, great. Appreciate that. And then just on the book value. Wonderful result. Definitely an outperformer versus peers, as you said. Can you just drill a little bit deeper into some of those actions that you took to preserve the book value, specifically in September, kind of how nimble you were able to be? And then just given the rate moves since quarter end, just are you able to provide kind of a preview of October book value or just kind of how hedges have shifted quarter today?

I'm going to let Mark handle in terms of some of the actions we took, but just keep in mind that part of it is just putting hedges in place, maintaining hedges, maintaining discipline, so that we don't have to do anything very different. We've got very strict protocols in terms of how we modify our credit hedges, how we modify our interest rate hedges. I think we're, you know, one of the... Only mortgage rates, and this has been true for many years, that makes heavy use of TBA short positions, for example, against the non-QM book, where you've got very similar convexity characteristics. It just makes a lot of sense. You're dealing with a lot of spread to start with. And you can just sleep better at night. And you saw the results, right? If you have a decent amount of TDA just there. Mark, I don't know if you want to comment on anything else or actions you took.

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

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

Great. Thank you. I appreciate all the color there. And J.R., I thought I'd just try, but I understand. Thanks for listening.

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

Hey, good morning, guys. This is Frank DiLavetti on for Boz. I just wanted to go back to the prop reverse mortgage discussion. You know, you marked down the retained prop reverse mortgage tranches based on revised home price projections. Can you just talk about what changed in your assumptions, how much cushion remains, and does your new outlook kind of change, go forward view on new originations? Thanks.

Yeah, so in terms of our outlook, it absolutely factors into our pricing, but in terms of the revision, we revise our forward home price projections, you know, every month, every quarter, and we use those to. You know, to, to project cash flows on all of our securities, but, you know, particularly the reverse mortgages where you do have a forward home price exposure, obviously, and so it was really just a function of the weakness that we saw specifically in the housing market in the third quarter. So that's an actual, right? And then, of course, we overlay that with long-term projections, which come out of, again, internal models that we have here, housing models. So I think the biggest change probably of all those. was the, you know, actually what we saw in the third quarter.

Great. That's very helpful. You issued equity around book during the quarter and then repurchased some shares. Can you just discuss the relative return from repurchasing stock at a discount with new investment opportunities you highlighted earlier?

Sure, yeah. So look, we used to… I think for many years, we said 80% was the threshold. Now that our stock has more reliably traded, you know, at a premium to book, around book, now in the last month or so, or, you know, it's been trading below book. We want to take advantage of that opportunity. We don't think it's an either or. We can take advantage of low asset prices, you know, and do stock repurchases. So we think this is a great opportunity to buy our stock at a 15% discount. We only had a few days before the window closed. We took advantage of it. As I said in my prepared remarks, you know, unless you've got some sort of abnormal market conditions, I do expect to continue to have that kind of discipline, you know, around that 85% level. That's going to provide support. Obviously, for shareholders, I think they should, you know, have confidence that they've got us behind them in terms of supporting the stock price. And I think that's not only just, frankly, a good trade for the company to be buying stock there. But when you look at what it can do in terms of our, for example, you know, what it does to our book value per share, right, that that accretion, right, which then You know, we can then basically reinvest, you can almost think of it as profits, right, that boost to book value per share, then just we'll go into supporting our earnings, supporting our ADE. So we think it makes sense on a lot of levels. And, and we, you know, our plan is to continue to do it.

Thank you.

Thank you. And our next question comes from the line of Doug Harder from BTIG. Your question, please.

Actually, Doug, before you ask that question, I do want to just follow up one more thing on Frankie's question, which is that I do want to say that in terms of, you know, again, repurchasing stock, At a discount. That's right. Ask your question, and I'll follow up later. Sorry. Go ahead.

Great. Thank you. Obviously, you guys came through this quarter with relative strength. Can you talk about the potential opportunities to maybe add more originator partners, you know, kind of as others in the industry might need capital or are struggling with the higher rate environment?

Yeah, all I can say is that we're always looking at it. We have some deals that we're looking at that are more alive than others. You can call them in the pipeline, nothing that's imminent, but we're looking at some platforms, some are bigger than others, and we do expect, I mean, this is not, again, something we necessarily expect in the short term, but we do expect that there could be some platforms for sale, and we would absolutely take a close look at that.

Great. Appreciate it. Thank you.

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

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

Hey, Marissa, this is Mark.

I would say that within the third quarter, the sharpest widening we saw that did not seem to us supported by any fundamental change, nothing in the data. That showed really a material change in dynamics. It was in the residential side. And so you had a, you know, some, a little, you know, the residential stuff's a little different because there's a sensitivity of spreads to volatility, right? Like a, so you saw an increase in volatility with an increase in interest rates. And there were some fairly wide publicized liquidations at certain funds, but we saw a big widening in residential spreads that wasn't supported by... Any aberrational prepayment behavior or aberrational home price behavior. And, you know, I'd mentioned in my prepared remarks that we do see higher interest rates. And I know things have reversed a lot since the end of the quarter, right? The end of the quarter, 10-year note was got to like, you know, 530-something the beginning of October, and now it's reversed a lot of that move. When we were living in that kind of 530, 10-year world and 740 mortgage rate world, we saw these higher rates as a headwind to HPA on the residential side and the commercial side. And I think to us it seemed more of an issue on the commercial side where a lot of the loans that we're involved in and – You know, um... Others are involved in our floating rate. You know, on the residential side, you know, borrowers have, by and large, locked in, you know, 30-year, you know, locked in their, you know, fixed payments for 30 years or 15 years, but locked in for a long time. On the commercial side, you have a lot of floating rate loans. Where you did have one Fed hike in the quarter, so their debt costs went up, and it's just been a struggle for some of these sectors to generate more income, right? Rent growth has been hard to get on the multifamily side. Taxes, insurance, maintenance expenses have been going up. And so we see some of these. Some of these sponsors squeezed from both ends, and so that's, I guess, to us where we saw more of a fundamental concern, and some of that is going to abate this quarter with lower interest rates, but we're watching it closely.

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

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

Thank you very much.

Hey, before we take the next question, Mark, yes, thanks. Mark, I just have a question for you. So how much wider would you say non-QM is today versus, say, where we were, you know, before the big sell-off?

I would say in option-adjusted terms, we're probably still at least, you know, 10-OAS wider.

Right, but nevertheless. Right. Well less than a point, though, wider, right, in terms of price basis. Yeah. So the point I just want to make, and this goes back to Frankie's question, right? So yes, the opportunity set is wider, and this has to do with repurchasing stock. I mean, if we're repurchasing stock at 85% a book, our leverage is, you know, a little more than two to one, right? You can see just, you know, by the best, what we think is the best measure of that. So, we're buying our assets back, right, at, let's say, over a five-point discount, about a five-point discount, if you want to look at it that way. That's an incredible opportunity, right? So, we want to be scientific about this. Spread, you know, we haven't seen assets widen five points. As Mark said, you know, non-QM, sort of our bread and butter, is not even a point wider. So, this is a very compelling opportunity. We're effectively buying our assets back when we buy at 85% a book, 15% discount. We're buying them, let's say, close to five points cheap. That's not something you can replicate in the market. Now, under abnormal market conditions, and that's why I qualified my statement before with that, then sure, you could have some incredible. There's incredible purchase opportunities, buying opportunities that would make, you know, that would dominate being able to buy your stock back, let's just say 85% I bought. But we want to be very scientific about how we think about our capital management. As I said, we've, you know, we've raised or lowered the bar, if you will, from we were 80% before now, more like 85%. And look what we did earlier in the year, right? We We issued Common at a premium, right, accretively, and we used the proceeds to buy back a preferred issuance that was, you know, now floating and expensive. So we always want to be thinking about what can we do from a capital management perspective to optimize our capital structure. We're mindful of book value per share, so we don't want to do offerings that are too dilutive. We want to do purchases that are accretive. We're mindful of G&A expense ratios and the effect that shrinking our capital base can have on those, which of course hits earnings per share and ADE, so we're mindful of those. We're mindful of the fact that we want our stock to be liquid. That's good for shareholders, so shrinking the common equity capital base, all other things being equal, is not a good thing. So we want to balance all those things. And as I said before, at 85%, All metrics point to this being a very good use. of, of, of some dollars that we have, and we're, you know, very disciplined about keeping liquidity on hand.

Right, and that, to that last point, we're not having to refinance near-term maturities. In fact, we added on to our unsecured financings in September. We took our unencumbered assets up to almost $2 billion, a large, you know, good proportion in cash. We've retained earnings to the point that book value per share started the year at 1316. We're up 37 cents after the dividend of 1353 at September 30th. So we have the liquidity, we have the retained earnings, we have the ability to be opportunistic. And we got only 4 million repurchased before the window closed. But yeah, to Larry's point, it can be a very It's an exciting opportunity, both from a company and from a shareholder perspective to add value, that accretion to book value per share.

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

Okay, thanks. Question on the state bridge investment that you guys made. First, just to clarify, is that company primarily a special servicer, or are they also doing performing servicing? And, I guess, as the second part of that, do you guys kind of view that as an investment as sort of an offset to some of the credit risk you own in the sense that, you know, maybe it's a company that potentially has more of a growth opportunity in an environment where delinquency levels are increasing? Thanks.

Oh, that's an interesting angle. Mark, you want to handle that question?

Yeah. So, right now, Trevor, they are small. They do a few different things. They do some RTL servicing. They also do some DSCR servicing. I think for us, as we've watched over the past four or five years, the understandable but quite significant consolidation in servicing space. So when we first started with 9QM, We had our servicing at Rushmore, and we thought that was a great platform, and we essentially had an employee there that was sort of, you know, watching like a hawk everything we had there, and that was a great relationship. They were then bought by Mr. Cooper. Mr. Cooper had massive scale in the agency space. What, you know, the volume we had at Rushmore. It wasn't big enough to really move the needle there. And then you have Mr. Cooper bought by Rocket, right? We also had other investments in EFC where we had servicing with a servicer called Gregory that had been controlled by Great Ajax. We thought Gregory did a great job in late-stage collections. You know, that's no longer a servicer we can work with, right? They've shut it down. So we just looked at things, and we didn't see great options where we could really get what we think are best-in-class protocols and really have a dialogue and really be able to use our data analysis and our kind of native. Experience and expertise in the product to effectuate outcomes. So, look, it's going to take a while to build this out. I think it's going to be valuable for EFC, but I also do recognize what you pointed out, too, that you're seeing change and significantly you're seeing a change in the modification policies coming out of FHA. Their pipeline of delinquencies has increased. Non-QM market as a whole is growing. Delinquencies when non-QM first started were trivially small because we had that big COVID HPA tailwind. We don't see that HPA tailwind right now, obviously. So we think non-QM delinquencies will tick up to sort of... Levels that are more consistent with reasonable expectations. For years, they were way below that. So I would not at all be surprised that as we build this out and we demonstrate the quality of the resolutions we believe StateBridge can get, that there'll be opportunities for. You know, others may want to use their services, but I think, you know, the first thing and what we're really focused on now is building it, right? And I think what's exciting about that process is that AI and some of the technology you've seen in the last three or four years, I think, allows us to build a servicer faster and less expensively than what you could do historically. And so that sort of... Move the needle to us on making this investment, and we've committed a lot of resources to it, a lot of really, you know, very sophisticated people that have built out complicated systems, and they're hard at work, and I think it's going to be definitely valuable for EFC and gives us, you know. That's another line of defense if you do see a weaker economy and you do see HPA decline. But I do also think there is sort of a fee-for-service opportunity out there as well in the future if we can really build something great.

Hey, I just want to add one thing, a little inside baseball, I guess you could say. So this sort of gets to your question about, is this kind of almost a counter-cyclical? play in terms of, in terms of what, you know, could be developing in the, you know, let's just call it the, you know, the delinquency market. So when we react, when we first looked at Statebridge, we actually looked at it, it was originally going to be, Mark, I'm sure you remember this, it was really going to be almost like a joint venture between us and some other, I'm not going to name names, but some other major players. In the mortgage market. And they sort of got distracted. One of those companies actually ended up getting bought by someone else, I believe. But in any case, you know, this just sort of shows you, right, that the industry really needs this. Now, you know, is Statebridge going to be incredibly profitable just based upon the loan flow they get from us? No. But as Mark said, we're going to build this into the premier special servicer. And then once we built that and people see, because of the dearth and the dynamics that we talked before about and Mark talked about in terms of just the ability to get really the attention from the mega servicers and get the highest quality special servicing to the standards that I think investors like us and others need, I think then the business will come to them. And absolutely, even with, by the way, what we see as the pipeline, the delinquency pipeline now, you know, once we've built this, then I think there'll be plenty of business for StateBridge to grow and thrive on.

Okay, makes sense. Appreciate all the call. Thank you, guys.

Thanks, Trevor. Thank you. And our next question comes from the line of Timothy DiAgostino from B. Riley Securities. Your question, please.

Yeah, hi. Thanks for taking the questions. I think most points have

been touched on, so I just wanted to ask a quick follow-up regarding an answer to a previous question.

You'd mentioned in 27 adding new products at Longbridge, and I guess it'd be great to just hear some color on maybe what borrower needs you're looking to address with those new products, and then maybe if you could provide some characteristics or any input on those potentially new products in 27. Thank you.

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

Okay, thank you. That's all for me today.

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