EFC - NYSE

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.