Ellington Financial Inc. (EFC) Earnings

Management highlights

### Overall Financial Performance - Delivered strong results in Q2 2026: GAAP net income of 43 cents per share, adjusted distributable earnings (ADE) of 60 cents per share, an annualized economic return of 13.6%, and a $0.05 increase in book value per share to $13.61 after paying $0.39 per share in dividends. Has covered the current dividend for 8 consecutive quarters. - The firm's diversified, vertically integrated business model generates reinforcing benefits: strong loan sourcing supports capital deployment and securitization volume; securitizations create attractive retained investments, release capital for redeployment, and replace short-term financing with more stable long-term funding; strong credit performance supports retained investment yields and sustains institutional investor demand for securitizations; and growing originator affiliates expand loan supply while directly contributing to earnings. ### Operational Highlights - The proprietary residential loan portal now sources over $15 million in loan purchases daily, an annualized pace of ~$4 billion, and supplied a significant portion of the $2 billion in loans securitized during the quarter. - 20% of Ellington employees are dedicated to research and technology, with recent advances in AI enhancing output, underwriting, and workflow efficiency. At Longbridge, funded loans per operations employee have more than doubled since January 2023 due to technology and process investments. - Cumulative inception-to-date realized credit losses are 17 basis points on $20.4 billion of residential mortgage fundings and 39 basis points on more than $2.5 billion of commercial mortgage bridge loan originations, demonstrating strong underwriting discipline across multiple market cycles. - The EFMT non-QM securitization shelf ranks among the strongest in its cohort for low delinquencies and controlled prepayment speeds, supporting strong investor demand and execution. - Financing improvements: the weighted average remaining term of repo borrowings increased to 9.3 months (approximately double the mid-2025 level), reducing near-term refinancing risk. 29% of recourse borrowings are long-term and non-mark-to-market, and 17% are unsecured. Outstanding unsecured notes trade at a premium despite elevated rates, reflecting progress strengthening the balance sheet. - A pending acquisition of a small residential loan servicer (with single-digit billions in servicing rights and existing special servicing expertise) is on track to close in Q3 2026. The firm plans to build out a best-in-class in-house special servicing platform to preserve value in delinquent loans across product lines. - Disclosure enhancements for investors: Agency MBS is now included in broader investment portfolio reporting due to its reduced size; Longbridge now separately reports HECM and proprietary reverse mortgage origination volumes, submission volumes (a leading indicator of future originations), and separate MSR roll-forwards and earnings for each product line to improve transparency. ### Strategic Positioning - The private label non-agency mortgage securitization market is expected to reach ~$250 billion in new issuance in 2026. Growing issuance has improved market liquidity, creating a virtuous cycle that attracts new institutional investors and improves execution, which benefits Ellington's integrated securitization platform.

Guidance

- Management expects ADE to remain in the high 40s cents per share range on an ongoing run-rate basis, even if Longbridge only completes one securitization per quarter (down from two in Q2 2026). - The current $0.13 monthly dividend ($0.39 quarterly) remains appropriate for now. Excess earnings over the dividend will be used to build book value per share, though management noted there could be upward pressure on the dividend due to REIT distribution requirements if ADE remains at current strong levels. - Longbridge Q2 2026 origination submissions increased sequentially to $870 million from under $750 million in Q1, signaling a positive volume trend entering Q3 2026. Proprietary reverse mortgages are less sensitive to higher interest rates than HECM loans, and current spread levels for both HECM and proprietary reverse mortgage securitizations remain healthy. - Management intends to be opportunistic in issuing unsecured debt and preferred equity when market conditions are favorable, to further diversify funding sources and improve financial flexibility, with the goal of a virtuous cycle of stronger balance sheets and improved credit ratings. - Additional M&A and minority investments in loan originators and servicing platforms remain a core part of the firm's growth playbook, with opportunities being evaluated across non-QM residential lending, commercial mortgage, and asset-based finance.

Segment performance

1. **Investment Portfolio**: Generated the majority of overall earnings after accounting for corporate overhead. Contributed approximately 37 cents per share to adjusted distributable earnings (ADE) in Q2 2026. Net interest income increased quarter-over-quarter due to attractive asset yields and a larger average portfolio size, with strong performance led by residential credit strategies. Gains on hedges offset net realized and unrealized losses. As of quarter-end, the agency MBS allocation is less than $200 million invested, representing ~1% of capital on a capital basis, down from over $2 billion (22% of capital) in prior years, and is now included in the broader investment portfolio segment. 2. **Longbridge Financial**: Contributed 21-23 cents per share to ADE over the last two quarters, up from a 2025 average of 12 cents per share. It originated $590 million of reverse mortgage loans in Q2 2026, a 38% year-over-year increase. Proprietary reverse mortgages represented 54% of origination volume (a record high), while HECM loans made up the remaining 46%. Servicing contributed an estimated 6-6.5 cents per share to ADE in Q2 2026 from net profits on mortgage servicing rights (MSRs). Longbridge has maintained healthy origination and securitization margins, and enterprise-level interest rate hedges generated gains during the quarter amid rising rates. 3. **Equity Stakes in Unconsolidated Originators**: All combined unconsolidated equity stakes total $97 million on the balance sheet, with Lensure accounting for just over half of this amount. These positions contribute to both GAAP earnings (via mark-to-market accounting reflecting underlying originator earnings) and ADE (via regular cash distributions), and add diversification to the firm's earnings stream. The majority of the benefit from affiliated originators comes from the flow of loan supply sourced for securitization and retained in Ellington's investment portfolio.

Risks & headwinds

- Higher interest rates generally put downward pressure on mortgage origination volumes and margins, though Longbridge's enterprise-level interest rate hedges are designed to offset this pressure and stabilize earnings across rate environments. - Slight delinquency increases naturally come with a larger growing loan portfolio, requiring increased resource allocation to resolve delinquent loans optimally. - Lower FICO score borrowers and cash-out refinance loans have exhibited more credit weakness than higher quality loan cohorts over the past year, leading Ellington to reduce its allocation to higher-risk consumer loan segments. - A more hawkish, less communicative Federal Reserve leadership under Chair Warsh could increase interest rate volatility, though Ellington's hedging framework is designed to insulate portfolio results from interest rate changes and management notes volatility has remained manageable so far. - Securitization execution and Longbridge segment earnings have quarterly variability tied to the number of securitizations completed and market spread conditions during the execution period.

Analyst Q&A

• Q: What details can you share on the pending residential servicer acquisition, specifically regarding attached MSRs or subservicing contracts? /

  A: It is a small servicer with single-digit billions in servicing rights, some subservicing contracts, and expertise across multiple loan types, especially special servicing. The acquisition is expected to close in September 2026, and does not bring enough MSRs to have a material near-term impact on the balance sheet or earnings. Management's primary motivation is to build out in-house special servicing capability, as third-party special servicing options have contracted, and internal control will help preserve value from delinquent loans over time.

• Q: What is the normalized long-term ADE contribution run-rate from Longbridge as it scales? /

  A: Longbridge contributed 23 and 21 cents per share to ADE in the first two quarters of 2026, up from a 2025 average of 12 cents. MSRs contribute ~6-6.5 cents per share in recurring net profit, with the remainder coming from origination and securitization gains. Q1/Q2 2026 origination/securitization results were boosted by unusually strong execution, so the non-servicing run-rate is somewhat lower than the recent 16-17 cent level; even so, Longbridge's contribution is more than enough to support the firm's overall high 40s cent ADE target.

• Q: What areas of credit offer the best risk-adjusted returns today, and where are you uncomfortable adding exposure? /

  A: While credit spreads have tightened across the board over the past year, the spread difference between loan purchase costs and the price of sold investment-grade securitization bonds (which drives returns on retained tranches) has remained stable, so expected yields on retained investments have not changed. The firm is seeing emerging supply of discounted non-performing commercial mortgage loans, especially in the sub-$50 million size range where Ellington has competitive advantages, and is evaluating attractive opportunities there. Management is least comfortable adding lower FICO score loans and cash-out refinance loans, which have shown rising credit weakness, and has reduced allocation to higher-risk consumer loan segments.

• Q: How is the firm balancing short-duration and long-duration investments in the current attractive spread environment? /

  A: Residential transition loans (RTL) and most commercial loans will remain short-duration by their nature, which supports liquidity management and risk management, a core part of Ellington's strategy that is valued by counterparties and investors. Reverse mortgages are a core long-duration allocation where the firm has strong market share and attractive long-term returns, and retained securitization tranches with call options also add duration while providing valuable optionality if rates fall in the future. The overall portfolio will continue to mix large short-duration allocations with targeted long-duration exposure.

• Q: How are additional M&A and investments in originators part of Ellington's strategy, and how would these be funded? /

  A: Investing in and growing smaller originators has been a core part of Ellington's playbook for 12 years, and the firm is actively evaluating new opportunities across non-QM residential, commercial mortgage, and asset-based finance. In addition to direct equity earnings, these investments provide valuable loan flow for Ellington's securitization and investment platform. Potential transactions will be funded with existing cash on hand, and the firm will also use proceeds from unsecured debt issuance where market conditions are favorable.