Ellington Financial (EFC)

Mortgage investment firm Ellington Financial (NYSE:EFC) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 23.6% year on year to $82.76 million. Its non-GAAP profit of $0.53 per share was 20.7% above analysts’ consensus estimates.

Company Overview

Operating under the guidance of Ellington Management Group, a respected name in structured credit markets, Ellington Financial (NYSE:EFC) acquires and manages a diverse portfolio of mortgage-related, consumer-related, and other financial assets to generate returns for investors.

Thrifts & Mortgage Finance institutions operate by accepting deposits and extending loans primarily for residential mortgages, earning revenue through interest rate spreads (difference between lending rates and borrowing costs) and origination fees. The industry benefits from demographic tailwinds as millennials enter prime homebuying age, technological advancements streamlining the loan approval process, and potential interest rate stabilization improving affordability. However, significant headwinds include net interest margin compression during rate volatility, increased competition from fintech disruptors offering digital-first experiences, mounting regulatory compliance costs, and potential housing market corrections that could impact loan portfolios and default rates.

Ellington Financial competes with other mortgage REITs such as Annaly Capital Management (NYSE:NLY), AGNC Investment Corp. (NASDAQ:AGNC), New Residential Investment Corp. (NYSE:NRZ), and PennyMac Mortgage Investment Trust (NYSE:PMT), as well as with broader financial institutions that invest in mortgage-related assets.

From lending activities to service fees, most banks build their revenue model around two income sources. Interest rate spreads between loans and deposits create the first stream, with the second coming from charges on everything from basic bank accounts to complex investment banking transactions. Luckily, Ellington Financial’s revenue grew at an exceptional 14.8% compounded annual growth rate over the last five years. Its growth beat the average banking company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Ellington Financial’s annualized revenue growth of 12% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Ellington Financial reported robust year-on-year revenue growth of 23.6%, and its $82.76 million of revenue topped Wall Street estimates by 4.9%.

Since the company recorded losses on certain securities, it generated more net interest income than revenue (a 1.1x multiple of its revenue to be exact) during the last five years, meaning Ellington Financial lives and dies by its lending activities because non-interest income barely moves the needle.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Ellington Financial’s EPS grew at an unimpressive 1.6% compounded annual growth rate over the last five years, lower than its 14.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Ellington Financial, its two-year annual EPS growth of 7.9% was higher than its five-year trend. This acceleration made it one of the faster-growing banking companies in recent history.

In Q3, Ellington Financial reported adjusted EPS of $0.53, up from $0.40 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Ellington Financial’s full-year EPS of $1.84 to shrink by 4.1%.

Banks profit by intermediating between depositors and borrowers, making them fundamentally balance sheet-driven enterprises. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these institutions.

This is why we consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation. EPS can become murky due to acquisition impacts or accounting flexibility around loan provisions, and TBVPS resists financial engineering manipulation.

Ellington Financial’s TBVPS declined at a 4% annual clip over the last five years. The trend unfortunately shows few signs of slowing as TBVPS also declined by 3.3% annually two-year basis, falling from $14.46 to $13.52 per share.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, Ellington Financial has averaged an ROE of 7.8%, respectable for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired.

It was good to see Ellington Financial beat analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its net interest income was in line. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $13.73 immediately following the results.

Updated: December 4, 2025 at 11:37 PM EST

Before investing in or passing on Ellington Financial, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Ellington Financial doesn’t pass our quality test. Although its revenue growth was impressive over the last five years and is expected to accelerate over the next 12 months, its TBVPS has declined over the last five years. And while the company’s estimated net interest income growth for the next 12 months is great, the downside is its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

Ellington Financial’s P/B ratio based on the next 12 months is 1x. This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $14.63 on the company (compared to the current share price of $13.65).