KBW labels Ellington, Longbridge as outperformers after robust Q2 earnings report

Following a strong second-quarter earnings report, analysts at Keefe, Bruyette & Woods (KBW) released a positive forecast for Ellington Financial and its reverse mortgage subsidiary, Longbridge Financial.

In a note to investors published over the weekend, KBW said that it was “moderately raising” its guidance for Ellington’s earnings per share (EPS) to $2.12 by the end of 2026 and $2.05 by end of 2027, up from previous expectations of $1.96 and $2.00. And it continues to rate Ellington as an outperformer.

The positive forecast comes after Ellington reported adjusted distributable earnings (ADE) of $0.60 per share in the second quarter, easily outpacing previous KBW guidance of $0.46 and higher than the company’s quarterly dividend of $0.39 per share.

The analysts wrote that their estimates point to return on equity (ROE) of roughly 15.3% this year and 14.3% next year as ROE for the second quarter finished at 17.7%, up from 16.1% in the prior quarter.

“We are maintaining our $15 (per share) price target, which equates to 1.1x book and remains unchanged,” the analysts wrote. “We continue to believe a premium to book is warranted given the stable book value, growing mortgage banking businesses, and dividend coverage. Shares currently trade at 0.97x current book value and a ~12% dividend yield.”

On Monday, Ellington’s shares were trading at roughly $13.40, down 1.51% from the close of the market on Friday.

“We like EFC’s focus on niche credit strategies using low balance sheet leverage,” KBW’s note added. “The company also has a relatively stable book value and upside earnings optionality from its mortgage banking business.”

KBW noted that Ellington has exceeded its quarterly dividend on both a GAAP and ADE basis for eight straight quarters, with the current dividend of $0.39 equating to a break-even ROE of about 11.5%.

“Management said the $0.13 monthly dividend remains appropriate and that continuing to build book value per share is the best use of excess earnings, while acknowledging that ADE running this strong could create upward pressure on the dividend under REIT distribution requirements,” the analysts wrote.

Consistent secondary market activity

During last week’s earnings call with investors and analysts, Ellington’s leadership discussed its thoughts on Longbridge’s contributions to the firm’s broader financial performance.

“For the last two quarters, their contribution to ADE was 23 cents and 21 cents, and the average of 2025 was 12 cents. The portfolio is growing. Origination volumes are growing,” said JR Herlihy, Ellington’s chief financial officer.

Herlihy pointed out that recent quarterly net profits from Longbridge’s mortgage servicing rights deals have come in at roughly $0.06 per share, with other segments accounting for about $0.17 per share. Company executives expect this to continue as Longbridge has been executing roughly two securitizations per quarter in recent years — much of it tied to growth in the proprietary reverse mortgage market.

“Securitization execution has been notably strong in the first two quarters of this year,” he said. “I don’t know that 16, 17 cents (per share) aside from servicing is the run rate. It’s probably a little bit high, but we don’t need it to be that high to hit our mid-40s run rate (guidance) that we had mentioned last quarter. If it’s in the low- to mid-teens, that’s plenty to kind of carry its contribution to the overall earnings stream.”

Longbridge reported $30.2 million of net income attributable to common stockholders in the second quarter, more than half of Ellington’s total profit of $54.4 million from April to June. And Longbridge originated $589.7 million of reverse mortgages in Q2 2026, up 38% increase year over year.

Across all reverse mortgage originations, $316.2 million (or 54%) were tied to proprietary loans, a share that’s representative of what other lenders are seeing. “That momentum is continuing with July 2026 marking Longbridge’s highest ever month for prop reverse mortgage originations and submissions,” Herlihy said last week.

But the company is also seeing modest progress with government-insured reverse mortgages. Longbridge’s HECM Mortgage-Backed Securities (HMBS) market share hit a new high of 29% for the quarter, making it the No. 2 issuer in the market behind only Finance of America.

“When rates are low, the principal limit factors that are dictated by [the Federal Housing Administration] actually are often more competitive than on the prop side, but when rates rise, the opposite is true,” said Laurence Penn, Ellington Financial’s president and CEO. “We’re actually, in some cases, seeing the prop product take some of that market share away from the government product.”