Ellington Financial's bottom line improved in the first quarter even though one of its units recorded a loss due to expenses associated with hedging risk in a tough market.
The company earned $31.6 million under standard accounting principles during the period, up from $22.4 million in the previous quarter. A year earlier, it had recorded $26.9 million in quarterly net income. Its Longbridge unit took a $1 million net loss for the first quarter of 2025.
While some of the disruption associated with uncertainties
"Securitization debt spreads widened somewhat late in the quarter and then surged in early April amid the overall market volatility," President CEO Laurence Penn said. "We refrained from pricing any more securitizations in April until very late in the month."
The company bolstered its profit during the first three months of the year with one asset sale and staged another as the market disruption escalated in April.
"In the first quarter, we sold a wide variety of credit sensitive securities before yield spreads widened to lock in gains, free up capital and enhance liquidity. Then, in early April, we sold most of our
Ellington Financial also has been continuing to invest in joint ventures with originators, and making progress when it comes to addressing commercial mortgage distress, he added.
"We expect that by the end of the second quarter we will have only one significant remaining workout," according to Chief Financial Officer JR Herlihy.
Net positive performance in the company's credit portfolio stemmed "sequentially higher" net interest income, net gains from mortgage servicing rights-related investments, commercial mortgages, closed-end second liens, and certain non-qualified mortgage investments in addition to gains on originator equity investments, Herlihy said.
Realized and unrealized losses on consumer loans partially offset gains from the aforementioned investments, he said.
While Longbridge generated a net loss overall due to interest rate hedges, it also had net gain on mortgage servicing rights from government-backed reverse mortgage securitizations and higher origination margins for proprietary loan products. (Reverse mortgages are a home equity product
The non-QM origination business also paid off for the company, said Mark Tecotsky, co-chief investment officer.
"Our non QM origination partners in which we had ownership stakes, their strong profitability in 2024 has continued into 2025 we continue to expand our footprint in non QM," he said.
While the company pulled out of non QM securitization during the peak period of volatility in April, it returned to the market last week.
"With the growing securitization market in non QM jumbo and second liens, we are finding a rich opportunity set in the market, and have been deploying capital accordingly," Tecotsky said.
"We have been an active buyer and securitizer of second lien loans," he added. "We had strong contributions from those investments in the first quarter, and have also been co-sponsoring third party securitization of closed-end seconds that create retained tranches for us to hold."
