EFC Q2 Earnings Call Sees High-40s ADE as Longbridge Scales

EFC Sees a Higher ADE Baseline

Second-quarter adjusted earnings were $0.60 per share, which surpassed the Zacks Consensus Estimate of $0.46. Revenues of $72.3 million also topped the Zacks Consensus Estimate of $66.8 million.

CFO and treasurer J.R. Herlihy said Longbridge contributed $0.23 per share of ADE versus $0.21 in the first quarter and a $0.12 quarterly average in 2025.

In Q&A, a KBW analyst asked about a normalized Longbridge contribution. CEO and president Laurence Penn said EFC is comfortable guiding overall ADE into the high 40s, even with one proprietary reverse mortgage securitization in a quarter.

Ellington Leans on Longbridge Growth

Longbridge originated $589.7 million of loans, up 38% year over year, with proprietary reverse mortgages representing 54% of volume and HECMs accounting for 46%.

CFO and treasurer Herlihy said second-quarter submissions rose to $870 million from under $750 million in the first quarter, while July set records for proprietary reverse mortgage originations and submissions.

CEO Penn said higher rates can make proprietary products more competitive against government HECMs because Ellington has more flexibility on product economics. He also said securitization spreads remained healthy across both channels.

EFC Pushes Securitization Scale

Penn said the residential loan portal is purchasing more than $15 million of loans per day, an annual pace of roughly $4 billion. The portal supplied a meaningful portion of about $2 billion securitized in the quarter.

Herlihy said EFC securitized about $4 billion of unpaid principal balance in the first half of 2026 compared with $4.4 billion during all of 2025.

Co-chief investment officer Mark Tecotzky said tighter loan spreads have been offset by tighter spreads on the investment-grade bonds EFC sells, preserving expected yields on retained securitization investments.

Ellington Adds Special Servicing Control

Tecotzky said Ellington expects to close the acquisition of a residential loan servicer in the third quarter, building a higher-touch special servicing platform for delinquent loans.

A Citizens JMP analyst asked about the assets coming with the transaction. CEO Penn said the servicer has single-digit billions of servicing rights, but it should not materially affect the balance sheet or earnings initially.

Penn and Tecotzky said greater control over workouts, incentives and data is central to the strategy. In a later exchange with B. Riley, Penn said investments in smaller originators remain part of EFC's playbook.

EFC Stays Selective on Credit and Duration

Tecotzky said EFC is watching lower-FICO borrowers and cash-out refinancing more closely, while keeping its consumer exposure relatively small.

Penn said commercial mortgage markets are beginning to offer more nonperforming loan supply, especially in the sub-$50 million and sub-$25 million segments where EFC often operates.

In response to a BTIG analyst, Tecotzky said residential transition loans should remain short duration, while retained securitization call rights provide longer-term optionality. Penn said reverse mortgages and non-QM loans provide longer-duration exposure within that framework.

Ellington Keeps Book Value in Focus

Penn said the $0.13 monthly dividend remains appropriate despite $0.60 of quarterly ADE. Book value rose $0.05 to $13.61 after $0.39 per share of dividends, and Penn favored retaining excess earnings for further book value growth.

Penn also emphasized disciplined underwriting, capital allocation, technology investment and a flexible balance sheet. Management plans to use unsecured debt and preferred equity opportunistically when market conditions are favorable.

What EFC's Zacks Signals Indicate

EFC carries a Zacks Rank #2 (Buy), a favorable near-term rank, but its Style Scores are weaker. It carries a Value Score of F, Growth Score of F, Momentum Score of D and VGM Score of F. The methodology favors A or B Style Scores alongside top Zacks Ranks. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The current setup, therefore, combines a positive Rank with Style Scores that do not reinforce it. The Zacks Rank can change as analysts revise estimates following the just-reported results, so the signal should be viewed as dynamic rather than definitive.

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