Ellington Financial (NYSE:EFC) reported fourth-quarter 2025 results that management characterized as a strong finish to a year of “consistently strong performance, portfolio growth, and liability optimization,” highlighted by adjusted distributable earnings that again exceeded the company’s dividend.
Fourth-quarter results and dividend coverage
For the fourth quarter, Ellington Financial reported GAAP net income of $0.14 per share and adjusted distributable earnings (ADE) of $0.47 per share, exceeding the company’s $0.39 per share dividend, according to CEO Larry Penn. Penn noted results included “some short-term drags” while the company deployed proceeds from its unsecured notes offering and a residential transition loan (RTL) securitization.
At year-end, book value per share was $13.16, and the company said the fourth-quarter economic return was 4.6% annualized.
Originations, securitizations, and portfolio changes
Management emphasized the company’s loan origination and securitization platform as a key driver of results, including “outsized contributions” from the Longbridge segment and “excellent credit performance” across residential and commercial loan portfolios.
Penn said the company completed seven securitizations in the fourth quarter and highlighted a first securitization of residential transition loans featuring a revolving structure. He said the revolving structure allows the company to “reuse the securitization debt” as securitized RTL loans pay off, supporting new originations. In a later Q&A, management said the RTL securitization has a two-year reinvestment period.
Subsequent to year-end, the company completed its first securitization of agency-eligible mortgage loans. Penn said this expanded the EFMT-branded securitization shelf to five residential loan sectors, which he said helps the company term out financing on a “non-recourse, non-mark-to-market basis,” replacing repo financing and improving balance sheet resilience and capital efficiency.
Herlihy said the adjusted long credit portfolio increased 15% sequentially to $4.1 billion, with growth in non-QM loans, agency-eligible loans, closed-end second lien loans, commercial mortgage bridge loans, ABS, and CLOs. The long agency RMBS portfolio decreased slightly to $218 million. The Longbridge portfolio decreased 18% to $617 million, as continued strong proprietary reverse mortgage origination was more than offset by two securitizations.
Herlihy also noted that short-duration loan portfolios continued to return capital. Combined principal paydowns in RTL, commercial mortgage, and consumer loan portfolios totaled $207 million in the quarter, representing 12.7% of the combined fair value of those portfolios entering the quarter.
Funding, leverage, and the unsecured notes offering
In early October, Ellington Financial completed a $400 million unsecured notes offering—its largest to date—which Penn described as a significant step in the company’s capital structure evolution. Penn said the company used a portion of the proceeds to reduce short-term repo financing and noted the bonds continued to trade at a premium.
Herlihy said the total weighted average borrowing rate on recourse borrowings declined 32 basis points sequentially to 5.67%, as lower short-term rates and tighter repo spreads more than offset the higher proportion of unsecured notes. He added the company extended the term of some warehouse lines, with the weighted average remaining term on repo increasing 38% quarter-over-quarter to nearly nine months.
On leverage, Herlihy said recourse debt-to-equity was 1.9x at Dec. 31, up from 1.8x at Sept. 30, and overall debt-to-equity increased to 9.0x from 8.6x. He attributed the modest increase to deployment of remaining note proceeds alongside incremental borrowings into new investments, offsetting repo paydowns, securitizations, and higher equity.
Management emphasized a shift toward longer-term, non-mark-to-market financing. Herlihy said the share of total recourse borrowings represented by long-term, non-mark-to-market financings rose to 30% from 17%, and the share of unsecured borrowings increased to 18% from 8%. Unencumbered assets grew 45% to $1.77 billion, or about 95% of total equity.
Herlihy also described GAAP-specific headwinds tied to the notes. The company elected the fair value option on the notes and expensed deal costs in October rather than amortizing them. With credit spreads tightening, the company recorded an unrealized loss on the notes, and Herlihy said these non-recurring items, along with short-term negative carry while proceeds were being deployed, weighed on GAAP earnings.
Credit performance and market commentary
Herlihy said credit portfolio net interest income increased sequentially and included gains on non-QM retained tranches and forward MSR-related investments, partially offset by losses on some credit hedges and residential REO. He said 90-day delinquency rates declined sequentially and that realized credit losses remained low across residential and commercial portfolios.
Co-CIO Mark Tecotzky said the company’s CLO portfolio, while small, was a “modest drag,” and that the RTL strategy underperformed due to securitization costs and REO workouts, though he said delinquencies remained manageable and the company had seen “strong resolution outcomes in January.” He also noted small losses in CMBS and ABS that he viewed as idiosyncratic.
Tecotzky highlighted policy uncertainty, citing potential restrictions on institutional purchases of single-family rentals, g-fee reductions, LLPA changes, and mortgage insurance premium cuts. He also discussed the announcement of $200 billion of GSE MBS purchases, saying it was “not quantitative easing” and arguing it primarily put a floor under agency MBS spreads and other AAA-rated mortgage bonds.
Capital actions, servicing acquisition, and 2026 outlook
Penn said that in January, with shares trading at a premium to book value, the company raised common equity on an accretive basis and used the proceeds to redeem its highest-cost preferred stock, the Series A, which carried a coupon “over 9%.” He said common shareholders would benefit from a lower overall cost of capital once the redemption was completed after the required notice period. Management said it would continue monitoring preferred markets for potential refinancing opportunities.
The company also disclosed it is under contract to acquire a small residential mortgage servicer, pending regulatory approval. In Q&A, Tecotzky said the transaction reflects consolidation in the servicing industry and a perceived shortage of “high touch servicing capabilities” for later-stage collections. He said the initial focus is to build technology and protocols to service the company’s own loans, with potential to service third parties later if the platform meets internal goals. Management clarified the servicer will be owned within EFC.
Looking ahead, Penn said the company estimated an economic return of approximately 2% in January, with loan production and portfolio growth strong, particularly in non-QM, commercial mortgage bridge, and reverse mortgage businesses. Management reiterated priorities for 2026 around disciplined portfolio growth, continued dividend coverage, further liability structure improvements through securitizations and potential additional unsecured issuance, and maintaining credit performance amid signs of housing market weakness.
About Ellington Financial (NYSE:EFC)
Ellington Financial, Inc (NYSE: EFC) is a mortgage real estate investment trust (REIT) that focuses on generating attractive risk-adjusted returns through investments in residential and commercial mortgage-related assets. Established in 2013, the company is externally managed by Ellington Financial Management, L.P., a subsidiary of Ellington Management Group, an alternative asset management firm. EFC’s core strategy centers on actively acquiring and managing agency and non-agency residential mortgage-backed securities (MBS), mortgage servicing rights, residential whole loans, and other structured finance instruments, including asset-backed securities and commercial mortgage-backed securities (CMBS).
The company employs leverage and structured financing tools—such as repurchase agreements and secured credit facilities—to enhance portfolio yield while maintaining focus on risk mitigation.
