Part I [Business](index=4&type=section&id=Item%201.%20Business) Ellington Credit Company converted to a CLO-focused closed-end fund, managed by Ellington Credit Company Management LLC, targeting high yields from corporate CLOs - The company completed its **CLO Strategic Transformation** by converting from a REIT to a registered closed-end investment company effective April 1, 2025, focusing on mezzanine debt and equity tranches of corporate CLOs[22](index=22&type=chunk)[24](index=24&type=chunk)[26](index=26&type=chunk) - The company is externally managed by Ellington Credit Company Management LLC, an affiliate of Ellington Management Group, L.L.C., with approximately **$14.9 billion in assets under management** as of March 31, 2025[28](index=28&type=chunk)[31](index=31&type=chunk) - The company uses leverage, primarily through repurchase agreements, with a **debt-to-equity ratio of 2.3 to 1** as of March 31, 2025[62](index=62&type=chunk) - Post-conversion, a new Advisory Agreement includes a **1.50% annual base management fee** on Net Asset Value and a **17.5% performance fee** on pre-performance fee net investment income above an **8.00% annualized hurdle rate**[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its CLO-focused strategy, including credit, leverage, market, and operational risks, alongside uncertainties from its recent fund conversion - The primary risk is exposure to the creditworthiness of underlying corporate borrowers in CLOs, with focus on subordinated mezzanine and equity tranches increasing loss exposure[143](index=143&type=chunk)[146](index=146&type=chunk)[198](index=198&type=chunk) - The Fund employs significant direct leverage and is exposed to substantial indirect leverage through CLO equity investments, with typical debt-to-equity ratios of **8 to 16 times**, magnifying loss risk[143](index=143&type=chunk)[224](index=224&type=chunk)[225](index=225&type=chunk) - The Adviser's performance fee, based on pre-performance fee net investment income without considering capital losses, may incentivize higher-risk investments or increased leverage[144](index=144&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) - Failure to qualify and maintain Regulated Investment Company (RIC) status would subject the Fund to corporate-level U.S. federal income tax, significantly reducing net returns and distributions[144](index=144&type=chunk)[313](index=313&type=chunk) - The recent conversion to a closed-end fund introduces material risks related to new operational processes, 1940 Act compliance, accounting changes, and tax year uncertainty, potentially delaying RIC qualification[143](index=143&type=chunk)[189](index=189&type=chunk) [Unresolved Staff Comments](index=57&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[348](index=348&type=chunk) [Cybersecurity](index=57&type=section&id=Item%201C.%20Cybersecurity) The company relies on its affiliate Ellington's cybersecurity processes, overseen by the Audit Committee, focusing on governance, technical safeguards, incident response, and employee education - The company is externally managed and relies on the information systems and cybersecurity processes of its affiliate, Ellington[349](index=349&type=chunk) - Ellington's cybersecurity strategy is a cross-functional approach focusing on governance, technical safeguards, incident response planning, third-party risk management, and employee training[350](index=350&type=chunk)[351](index=351&type=chunk)[358](index=358&type=chunk) - The Board, through its Audit Committee, oversees cybersecurity risk management, receiving regular presentations on the threat environment, vulnerability assessments, and technological trends[356](index=356&type=chunk) - To date, no cybersecurity threats have materially affected the company, despite two minor business email compromise incidents in recent years without material impact[355](index=355&type=chunk) [Properties](index=59&type=section&id=Item%202.%20Properties) The company does not own properties, operating from leased office space in Old Greenwich, CT, provided by its Adviser - The company does not own any properties and operates from a leased office space in Old Greenwich, CT, provided by its Adviser[360](index=360&type=chunk) [Legal Proceedings](index=59&type=section&id=Item%203.%20Legal%20Proceedings) Neither the company nor its Adviser are currently subject to any material legal proceedings, though regulatory inquiries are expected - Neither the company nor its Adviser are currently subject to any material legal proceedings[361](index=361&type=chunk) - The company and its affiliates operate in a highly regulated market and expect to receive regulatory inquiries from time to time[361](index=361&type=chunk)[362](index=362&type=chunk) [Mine Safety Disclosures](index=59&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[363](index=363&type=chunk) Part II [Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities](index=60&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Shareholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common shares trade on the NYSE under "EARN," with 107 holders of record as of June 6, 2025, and 167,476 shares repurchased in Q1 2025 before the program's termination - The company's common shares trade on the NYSE under the ticker "EARN"[365](index=365&type=chunk) Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Remaining in Program | | :--- | :--- | :--- | :--- | | Jan 1 - Jan 31, 2025 | — | — | 725,808 | | Feb 1 - Feb 28, 2025 | — | — | 725,808 | | Mar 1 - Mar 31, 2025 | 167,476 | $5.84 | 558,332 | | **Total** | **167,476** | **$5.84** | **558,332** | - The 2018 Share Repurchase Program is no longer usable following the company's conversion to a closed-end fund[367](index=367&type=chunk) [Reserved](index=60&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=61&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section details the company's financial condition and results, reporting a **net loss of $(7.9) million** for Q1 2025 due to mark-to-market losses, as its CLO portfolio grew to **$249.9 million** amid its strategic transformation - The company is executing its **CLO Strategic Transformation**, shifting from an Agency RMBS-focused REIT to a CLO-focused closed-end fund, with its CLO portfolio growing to **$249.9 million** as of March 31, 2025[370](index=370&type=chunk)[384](index=384&type=chunk) Key Financial Metrics (as of March 31, 2025) | Metric | Value | | :--- | :--- | | Book Value per Share | $6.08 | | Debt-to-Equity Ratio (adjusted) | 2.2:1 | | CLO Portfolio (Fair Value) | $249.9 million | | Agency RMBS Portfolio (Fair Value) | $503.9 million | Results of Operations (Three Months Ended March 31) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net Interest Income | $9,247 | $279 | | Total Other Income (Loss) | $(14,541) | $5,612 | | **Net Income (Loss)** | **$(7,870)** | **$3,961** | | **Net Income (Loss) Per Share** | **$(0.23)** | **$0.20** | - Adjusted Distributable Earnings for Q1 2025 were **$9.0 million**, or **$0.26 per share**, compared to **$5.3 million**, or **$0.27 per share**, for Q1 2024[461](index=461&type=chunk) - The company declared dividends of **$0.24 per share** for the three-month period ended March 31, 2025[493](index=493&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=85&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include credit risk from CLOs, interest rate risk managed by hedging, prepayment risk, and liquidity risk mitigated by diverse funding and unpledged assets - The company is subject to significant credit risk from its CLO investments, as the underlying corporate loans are typically below investment grade and carry greater default risk, especially in recessionary environments[514](index=514&type=chunk) - Interest rate risk is a key concern due to funding longer-term assets with shorter-term borrowings, managed using derivatives like interest rate swaps and TBAs[519](index=519&type=chunk)[520](index=520&type=chunk) Interest Rate Sensitivity Analysis (as of March 31, 2025) | ($ In thousands) | Decrease 50 bps | Decrease 100 bps | Increase 50 bps | Increase 100 bps | | :--- | :--- | :--- | :--- | :--- | | **Total Estimated Change in Portfolio Value** | **$ (26)** | **$ (57)** | **$ 20** | **$ 36** | | **% of Total Equity** | **(0.01)%** | **(0.02)%** | **0.01%** | **0.02%** | - Liquidity risk is managed by maintaining diverse funding sources, monitoring counterparty stability, and holding a cushion of cash and unpledged securities to meet potential margin calls[527](index=527&type=chunk)[528](index=528&type=chunk) [Financial Statements and Supplementary Data](index=88&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements, including balance sheets, statements of operations, and cash flows, along with detailed notes and the independent auditor's report [Report of Independent Registered Public Accounting Firm](index=89&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified audit opinion on the financial statements, identifying Level 3 securities valuation as a critical audit matter due to significant judgment - PricewaterhouseCoopers LLP provided an unqualified opinion, stating the financial statements are fairly presented in conformity with U.S. GAAP[531](index=531&type=chunk) - The valuation of Level 3 investments was identified as a Critical Audit Matter due to the significant management judgment and high degree of auditor subjectivity involved in determining their fair value[535](index=535&type=chunk)[537](index=537&type=chunk) [Consolidated Financial Statements](index=91&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show **total assets of $783.6 million** and **shareholders' equity of $228.5 million** as of March 31, 2025, with a **net loss of $(7.9) million** for the quarter Consolidated Balance Sheet Summary (in thousands) | | Mar 31, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | $783,557 | $824,092 | | Total Liabilities | $555,056 | $630,366 | | **Total Shareholders' Equity** | **$228,501** | **$193,726** | Consolidated Statement of Operations Summary (in thousands) | | Three Months Ended Mar 31, 2025 | Year Ended Dec 31, 2024 | | :--- | :--- | :--- | | Total net interest income | $9,247 | $15,069 | | Total other income (loss) | $(14,541) | $811 | | **Net Income (Loss)** | **$(7,870)** | **$6,586** | [Notes to Consolidated Financial Statements](index=96&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, the CLO Strategic Transformation, valuation methodologies for Level 2 and 3 assets, portfolio composition, repurchase agreement terms, related-party transactions, and subsequent events post-conversion - **Note 1:** Details the company's strategic transformation from a REIT to a CLO-focused closed-end fund, which was completed on April 1, 2025[557](index=557&type=chunk) - **Note 4:** As of March 31, 2025, the company held **$133.9 million of Level 3 securities** at fair value, primarily consisting of CLOs[641](index=641&type=chunk)[536](index=536&type=chunk) - **Note 6:** As of March 31, 2025, the company had **$517.5 million in outstanding borrowings** under repurchase agreements with 13 counterparties, collateralized by **$567.0 million of securities**[682](index=682&type=chunk)[683](index=683&type=chunk) - **Note 9:** Describes the new management agreement effective July 1, 2024, with a **1.50% annual base management fee** and a performance fee (waived through Q1 2025)[701](index=701&type=chunk)[703](index=703&type=chunk)[705](index=705&type=chunk) - **Note 13:** Details significant subsequent events including the April 1, 2025 conversion, sale of remaining Agency RMBS for **$500.9 million**, adoption of a new Advisory Agreement and a Dividend Reinvestment Plan (DRP)[741](index=741&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=132&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[762](index=762&type=chunk) [Controls and Procedures](index=132&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2025, with no material changes during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[763](index=763&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of March 31, 2025, based on the COSO framework[768](index=768&type=chunk) - No material changes were made to the internal control over financial reporting during the quarter ended March 31, 2025[764](index=764&type=chunk) [Other Information](index=134&type=section&id=Item%209B.%20Other%20Information) The company reports no other information under this item - None[769](index=769&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=134&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[770](index=770&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=134&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The Board of Trustees, with four independent members, oversees the company's business and risk management through its Audit and Nominating & Corporate Governance committees, while executive officers are provided by the Adviser - The Board is composed of six trustees, with **four being independent**, and Robert B. Allardice, III serving as the independent Chairman[772](index=772&type=chunk)[774](index=774&type=chunk)[796](index=796&type=chunk) - The Board has two standing committees, Audit and Nominating and Corporate Governance, both comprised solely of independent trustees[782](index=782&type=chunk)[788](index=788&type=chunk) - All executive officers are provided by the Adviser, an affiliate of Ellington, including Laurence E. Penn (CEO & President), Michael W. Vranos (Portfolio Manager & Trustee), and Christopher Smernoff (CFO)[777](index=777&type=chunk)[779](index=779&type=chunk) - The Board oversees risk management, with the Audit Committee specifically tasked with oversight of financial reporting, internal controls, and cybersecurity risks[797](index=797&type=chunk)[798](index=798&type=chunk)[799](index=799&type=chunk) [Executive Compensation](index=142&type=section&id=Item%2011.%20Executive%20Compensation) The company does not directly compensate its NEOs, who are employees of Ellington, but reimburses the Administrator for allocable compensation of certain staff, estimated at **$0.4 million** for Q1 2025 - The company does not directly compensate its NEOs, who are employees of Ellington and provided through the Adviser[808](index=808&type=chunk) - The company reimburses the Administrator for an allocable share of compensation for the CFO, COO, and support staff, with an estimated expense of approximately **$0.4 million** for Q1 2025[809](index=809&type=chunk) Trustee Compensation (Three Months Ended March 31, 2025) | Name | Fees Earned or Paid in Cash | Total Compensation | | :--- | :--- | :--- | | Robert B. Allardice, III | $27,500 | $27,963 | | David J. Miller | $19,375 | $19,838 | | Ronald I. Simon, Ph.D. | $19,375 | $19,838 | | Mary McBride | $17,500 | $17,963 | | Laurence E. Penn | — | — | | Michael W. Vranos | — | — | [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=143&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) As of June 6, 2025, executive officers and trustees as a group beneficially owned **1.4%** of outstanding common shares, with no individual holding **1%** or more, and the 2023 Equity Incentive Plan was terminated post-conversion - As of June 6, 2025, all executive officers and trustees as a group beneficially owned **510,442 common shares**, representing **1.4%** of the outstanding shares[815](index=815&type=chunk) - No individual trustee or executive officer beneficially owned **1% or more** of the company's common shares[815](index=815&type=chunk) - The company's 2023 Equity Incentive Plan was terminated upon conversion to a closed-end fund, but **39,577 previously granted restricted shares** remain outstanding and subject to vesting[824](index=824&type=chunk)[825](index=825&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=145&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Key related party transactions are governed by the Advisory and Administration Agreements with Ellington affiliates, stipulating management fees and expense reimbursements, with oversight by the Governance Committee and 1940 Act restrictions post-conversion - The primary related party relationships are with the Adviser and Administrator, both affiliates of Ellington, governed by the Advisory and Administration Agreements effective April 1, 2025[828](index=828&type=chunk)[838](index=838&type=chunk) - The Advisory Agreement stipulates a **1.50% annual base management fee** and a **17.5% performance fee** on income above an **8% hurdle**[829](index=829&type=chunk)[830](index=830&type=chunk) - The Administration Agreement outlines the reimbursement by the Fund for its allocable portion of costs incurred by the Administrator, including compensation for the CFO and COO[838](index=838&type=chunk) - The Governance Committee reviews related party transactions, which are also subject to the prohibitions on principal and joint transactions under the 1940 Act since the conversion[826](index=826&type=chunk)[827](index=827&type=chunk) [Principal Accountant Fees and Services](index=147&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) PricewaterhouseCoopers LLP serves as the independent auditor, with all services pre-approved by the Audit Committee, and total fees for Q1 2025 were **$205,253**, primarily for audit services - PricewaterhouseCoopers LLP (PwC) is the company's independent registered public accounting firm[841](index=841&type=chunk) PwC Fees | Fee Type | Three-Month Period Ended Mar 31, 2025 | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | :--- | | Audit Fees | $205,000 | $514,250 | $476,840 | | Audit-related Fees | — | $44,700 | $76,500 | | Tax Fees | — | — | — | | All Other Fees | $253 | $1,010 | $1,641 | | **Total Fees** | **$205,253** | **$559,960** | **$554,981** | - All services provided by PwC were pre-approved by the Audit Committee in accordance with its established policies and procedures[846](index=846&type=chunk)[847](index=847&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=149&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists key exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications, with financial statement schedules omitted as information is in Item 8 - Key exhibits filed with the report include: - Corporate governance documents (Declaration of Trust, Bylaws) - Material contracts (Advisory Agreement, Administration Agreement) - CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley) - Insider Trading Policy and Recovery of Erroneously Awarded Compensation Policy[852](index=852&type=chunk)[853](index=853&type=chunk) - Financial statement schedules have been omitted as the necessary information is contained within the Financial Statements and Notes to Financial Statements in Item 8[852](index=852&type=chunk) [Form 10-K Summary](index=151&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no summary under this item - None[854](index=854&type=chunk)

Ellington Credit (EARN) Q1 2025 Earnings Call May 21, 2025 11:00 AM ET Company Participants Alaael-Deen Shilleh - Associate General Counsel & SecretaryLaurence Penn - CEO, President & DirectorChristopher Smernoff - Chief Financial OfficerGregory Borenstein - Portfolio ManagerEric Hagen - Managing DirectorCrispin Love - Director Operator all sites on hold, we appreciate your patience and ask that you please continue to stand by. Please standby, your program will begin momentarily. Good morning, ladies and ge ...

Financial Data and Key Metrics Changes - For calendar Q1, the company reported a net loss of $0.23 per share and adjusted distributable earnings of $0.26 per share [9] - The overall net interest margin increased by 20 basis points to 5.27, supported by a growing capital allocation to CLOs [9] - The economic return for the quarter was negative 3.2%, with book value per share at $6.08 [10][11] Business Line Data and Key Metrics Changes - The CLO portfolio increased by 46% to $250 million, while capital allocated to CLOs expanded to 81% from 72% at the end of the previous quarter [11] - The agency RMBS holdings decreased slightly to $504 million from $512 million at the end of the previous quarter [11] - The portfolio P&L by strategy showed a negative $0.24 per share from CLOs and a positive $0.08 from agency [10] Market Data and Key Metrics Changes - The market experienced strong performance in January and February, followed by turbulence in March due to fears of tariffs, slowing growth, and persistent inflation [7] - Credit spreads widened significantly in March, impacting CLO mezzanine debt and equity tranches, leading to meaningful price declines [7][8] - Recent tariff de-escalations have led to credit spreads and prices reversing course in May, recovering a significant portion of the declines [8] Company Strategy and Development Direction - The company successfully completed its conversion to a registered closed-end fund and changed its fiscal calendar to begin on April 1 [4][5] - The strategy focuses on increasing the CLO portfolio while maintaining liquidity and flexibility in response to market conditions [22][29] - The company plans to add corporate debt to its liability structure later this year, which should be accretive to net investment income [29] Management's Comments on Operating Environment and Future Outlook - Management noted that while there were mark-to-market losses in calendar Q1, most price declines were driven by credit spread widening rather than realized credit losses [22] - The company is optimistic about deploying capital in a compelling market and believes it is well-positioned to drive strong earnings moving forward [29] - Management expects to be slightly short on dividend coverage in the second quarter but is on track for recovery in the third quarter [56] Other Important Information - The company disposed of all remaining mortgage positions shortly after April 1, which allowed for increased liquidity and buying power [8][25] - As of April 30, approximately 18.8% of the total portfolio, or about $59 million, was in cash and cash equivalents, providing ample dry powder for deployment [27] Q&A Session Summary Question: How does the yield on newly acquired CLOs compare to the previous $250 million? - Management indicated that the weighted average yield varied from slightly wider to potentially hundreds of basis points back, depending on the type of assets purchased [34] Question: Is there still dry powder available for deployment? - Management confirmed that there is still good dry powder available and that cash reserves are maintained to allow for increased portfolio size [37][39] Question: What are the latest thoughts on the ADE trajectory? - Management stated that they might be slightly short on covering the dividend in the second quarter but are on track for recovery in the third quarter [56]

May 21, 2025 Earnings Conference Call Three-Month Period Ended March 31, 2025 Important Notice Forward-Looking Statements This presentation may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature and can be identified by words such as "anticipate," "estimate," "will," "should," "may," "expect," "project," "believe," "intend," "seek," "plan" and similar expressions ...

Ellington Credit (EARN) came out with quarterly earnings of $0.26 per share, missing the Zacks Consensus Estimate of $0.27 per share. This compares to earnings of $0.27 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -3.70%. A quarter ago, it was expected that this residential mortgage real estate investment trust would post earnings of $0.26 per share when it actually produced earnings of $0.27, delivering a surprise of 3.85% ...

[Report Overview and Highlights](index=1&type=section&id=Report%20Overview%20and%20Highlights) [Conversion Update](index=1&type=section&id=Conversion%20Update) The company completed its conversion to a Delaware-domiciled closed-end fund focused on corporate CLOs on April 1, 2025, intending to operate as a RIC for tax purposes, and changed its fiscal year end to March 31 - Completed conversion to a closed-end fund focused on corporate CLOs on April 1, 2025, and will operate as a **Regulated Investment Company (RIC)**[3](index=3&type=chunk) - Post-conversion, the company liquidated its entire long Agency RMBS and short TBA positions[3](index=3&type=chunk)[6](index=6&type=chunk) - The fiscal year end has been changed to March 31, with the three-month period ended March 31, 2025, being a short fiscal year as a taxable C-Corporation[4](index=4&type=chunk) [First Quarter 2025 Financial Highlights](index=1&type=section&id=First%20Quarter%202025%20Financial%20Highlights) For Q1 2025, the company reported a net loss of **$7.9 million** and Adjusted Distributable Earnings of **$9.0 million**, while significantly increasing its CLO portfolio and reducing leverage Q1 2025 Key Financial Metrics | Metric | Value | Per Share | | :--- | :--- | :--- | | Net Income (Loss) | $(7.9) million | $(0.23) | | Adjusted Distributable Earnings | $9.0 million | $0.26 | | Book Value (as of Mar 31, 2025) | - | $6.08 | | Dividends (for the period) | - | $0.24 | Portfolio and Capital Allocation Changes (as of Mar 31, 2025 vs. Dec 31, 2024) | Metric | Mar 31, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | CLO Portfolio | $249.9 million | $171.1 million | | Capital Allocation to CLOs | 81% | 72% | - The debt-to-equity ratio decreased to **2.2:1**, and the net mortgage assets-to-equity ratio was reduced to **0.0:1**[8](index=8&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management attributed the net loss to macro-driven CLO price declines, expanded the CLO portfolio by **46%** in preparation for conversion, and plans to deploy capital into dislocated credit markets - CEO Laurence Penn attributed the quarterly net loss to macro challenges causing CLO price declines, rather than credit-specific concerns[5](index=5&type=chunk) - The CLO portfolio was expanded by **46%** during the quarter to **$250 million**, while the Agency RMBS portfolio was neutralized using net short TBA positions before being liquidated post-conversion[6](index=6&type=chunk) - The company's estimated net asset value per share as of April 30 was in the range of **$5.85 to $5.91**[6](index=6&type=chunk) - Management sees the timing of the conversion as advantageous, providing 'dry powder' to invest in a dislocated credit market with wider spreads and expanded opportunities[9](index=9&type=chunk) [Financial Results and Portfolio Composition](index=2&type=section&id=Financial%20Results%20and%20Portfolio%20Composition) [Portfolio of Long Investments](index=2&type=section&id=Portfolio%20of%20Long%20Investments) As of March 31, 2025, the total long investment portfolio increased to **$754.2 million**, driven by significant expansion in the Credit Portfolio, particularly CLOs, while the Agency Portfolio slightly decreased Portfolio Fair Value Comparison ($ in thousands) | Portfolio Segment | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Credit | $250,347 | $171,606 | | Total Agency | $503,894 | $512,309 | | **Total Investments** | **$754,241** | **$683,915** | [CLO Holdings](index=2&type=section&id=CLO%20Holdings) The CLO portfolio grew by **46%** to **$249.9 million** as of March 31, 2025, with capital allocation to CLOs increasing to **81%**, composed of both equity and mezzanine debt tranches CLO Portfolio Composition (March 31, 2025) | CLO Tranche | Fair Value ($M) | | :--- | :--- | | Equity Tranches | $164.4 | | Mezzanine Debt Tranches | $85.5 | | **Total** | **$249.9** | - The company aims to maintain a diversified portfolio of CLO equity and debt, with the majority expected to remain dollar-denominated[12](index=12&type=chunk) [Agency RMBS Holdings](index=2&type=section&id=Agency%20RMBS%20Holdings) Agency RMBS holdings slightly decreased to **$503.9 million**, with the company substantially increasing its net short TBA position to offset long holdings prior to conversion - Agency RMBS holdings decreased slightly from **$512.3 million** to **$503.9 million** quarter-over-quarter[13](index=13&type=chunk) - The company used a significantly increased net short TBA position to neutralize its Agency RMBS holdings prior to the conversion[13](index=13&type=chunk) [Leverage and Hedging](index=2&type=section&id=Leverage%20and%20Hedging) The company's leverage decreased, with the adjusted debt-to-equity ratio falling to **2.2:1**, and all interest rate hedges shifted to short TBA positions by quarter-end Leverage Ratio Comparison | Ratio | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Debt-to-Equity Ratio | 2.2:1 | 2.9:1 | | Net Mortgage Assets-to-Equity Ratio | 0.0:1 | 2.6:1 | - As of March 31, 2025, all interest rate hedges consisted of short TBA positions; the company no longer held any interest rate swap hedges[14](index=14&type=chunk)[15](index=15&type=chunk) [Operating Results and Performance Analysis](index=3&type=section&id=Operating%20Results%20and%20Performance%20Analysis) [Net Interest Margin and Adjusted Distributable Earnings](index=3&type=section&id=Net%20Interest%20Margin%20and%20Adjusted%20Distributable%20Earnings) The credit portfolio's net interest margin significantly increased to **11.13%**, while the Agency portfolio's decreased, and Adjusted Distributable Earnings per share slightly declined but covered dividends Net Interest Margin Comparison (Q1 2025 vs Q4 2024) | Portfolio | Q1 2025 | Q4 2024 | | :--- | :--- | :--- | | Credit | 11.13% | 8.54% | | Agency | 2.29% | 3.24% | - Adjusted distributable earnings per share was **$0.26**, a slight decrease from **$0.27** in the previous quarter, but still exceeded dividends paid[16](index=16&type=chunk) Operating Results by Strategy (Total Profit/Loss, $ in thousands) | Strategy | Q1 2025 | Q4 2024 | | :--- | :--- | :--- | | Total CLO | $(8,477) | $2,821 | | Total Agency RMBS | $2,875 | $(3,335) | | **Net Income (Loss)** | **$(7,870)** | **$(2,005)** | [CLO Performance](index=4&type=section&id=CLO%20Performance) The CLO strategy generated negative results due to mark-to-market losses and increased market volatility in March, with U.S. mezzanine tranches impacted by lower-quality loans and slower prepayments - The CLO strategy had negative results as mark-to-market losses surpassed net interest income and gains on credit hedges[22](index=22&type=chunk) - Market volatility increased in March, driven by concerns over tariffs and economic slowdown, which negatively pressured CLO prices in both the U.S. and Europe[19](index=19&type=chunk) - U.S. CLO mezzanine tranches were impacted by weakness in lower-quality loans and reduced deleveraging from slower prepayments[20](index=20&type=chunk) [Agency Performance](index=4&type=section&id=Agency%20Performance) The company's Agency portfolio generated positive results throughout the quarter, successfully navigating widening Agency RMBS yield spreads in March due to rising volatility - EARN's Agency portfolio generated positive results during each month of the period[24](index=24&type=chunk) - Agency RMBS yield spreads widened in March due to rising volatility related to uncertain tariff policies, leading to a negative excess return of **(0.07%)** for the U.S. Agency MBS Index for the quarter[23](index=23&type=chunk) [General and Administrative Expenses](index=4&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses increased quarter-over-quarter due to higher professional fees, compensation related to the conversion, and increased management fees from a larger capital base - G&A expenses increased due to higher professional fees and compensation related to the conversion, and higher management fees from a larger capital base[25](index=25&type=chunk) [Financial Statements](index=6&type=section&id=Financial%20Statements) [Consolidated Statement of Operations (Unaudited)](index=6&type=section&id=CONSOLIDATED%20STATEMENT%20OF%20OPERATIONS%20(UNAUDITED)) For Q1 2025, the company reported a net loss of **$(7.9) million** due to significant unrealized losses on securities and derivatives, despite **$9.2 million** in net interest income Statement of Operations Highlights (Q1 2025 vs Q4 2024, $ in thousands) | Line Item | Q1 2025 | Q4 2024 | | :--- | :--- | :--- | | Total Net Interest Income | $9,247 | $6,142 | | Total Expenses | $2,582 | $2,269 | | Total Other Income (Loss) | $(14,541) | $(6,059) | | **Net Income (Loss)** | **$(7,870)** | **$(2,005)** | | **Net Income (Loss) Per Share** | **$(0.23)** | **$(0.07)** | [Consolidated Balance Sheet (Unaudited)](index=7&type=section&id=CONSOLIDATED%20BALANCE%20SHEET%20(UNAUDITED)) As of March 31, 2025, total assets decreased to **$783.6 million**, total liabilities decreased to **$555.1 million**, while total shareholders' equity increased to **$228.5 million**, resulting in a book value per share of **$6.08** Balance Sheet Summary (As of Mar 31, 2025 vs. Dec 31, 2024, $ in thousands) | Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $783,557 | $824,092 | | Total Liabilities | $555,056 | $630,366 | | **Total Shareholders' Equity** | **$228,501** | **$193,726** | | **Book Value Per Share** | **$6.08** | **$6.53** | - The increase in shareholders' equity was supported by the issuance of **8,075,118** common shares under the at-the-market offering program during the quarter[35](index=35&type=chunk) [Reconciliation of Adjusted Distributable Earnings to Net Income (Loss)](index=8&type=section&id=Reconciliation%20of%20Adjusted%20Distributable%20Earnings%20to%20Net%20Income%20(Loss)) Adjusted Distributable Earnings (ADE), a non-GAAP measure, reconciles the **$(7.9) million** net loss to **$9.0 million** ADE for Q1 2025 by excluding unrealized gains/losses and non-recurring items - Adjusted Distributable Earnings is calculated by adjusting GAAP net income for items like net realized and unrealized gains/losses on securities and derivatives[36](index=36&type=chunk)[37](index=37&type=chunk) ADE Reconciliation (Q1 2025, $ in thousands) | Line Item | Amount | | :--- | :--- | | Net Income (Loss) | $(7,870) | | Adjustments (subtotal) | $16,829 | | **Adjusted Distributable Earnings** | **$8,953** | | **Adjusted Distributable Earnings Per Share** | **$0.26** | [Other Information](index=4&type=section&id=Other%20Information) [About Ellington Credit Company](index=4&type=section&id=About%20Ellington%20Credit%20Company) Ellington Credit Company is a non-diversified, closed-end fund externally managed by Ellington Management Group, L.L.C., focused on investing primarily in CLO mezzanine debt and equity tranches - The Fund is a non-diversified closed-end fund investing primarily in CLO mezzanine debt and equity tranches[26](index=26&type=chunk) [Conference Call Information](index=5&type=section&id=Conference%20Call%20Information) A conference call to discuss Q1 2025 financial results is scheduled for 11:00 a.m. Eastern Time on May 21, 2025, with an investor presentation available online - A conference call to discuss financial results is scheduled for 11:00 a.m. Eastern Time on May 21, 2025[27](index=27&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=5&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This report contains forward-looking statements subject to numerous risks and uncertainties, including changes in interest rates, market volatility, and regulatory changes, where actual results may vary materially - The release contains forward-looking statements subject to risks such as interest rate changes, market volatility, and our ability to adapt to the new regulatory regime post-conversion[28](index=28&type=chunk)

Group 1 - Ellington Credit Company has changed its mandate from a REIT (Real Estate Investment Trust) to a RIC (Registered Investment Company) [1] - The new focus of Ellington Credit Company is on investment strategies that align with the RIC structure [1]

Part I [Business](index=4&type=section&id=Item%201.%20Business) Ellington Credit Company is undergoing a significant strategic transformation, shifting its focus from a residential mortgage REIT to a C-Corporation specializing in corporate Collateralized Loan Obligations (CLOs) - On March 29, 2024, the company initiated a **"CLO Strategic Transformation,"** shifting its investment strategy to focus on corporate CLOs, revoking its REIT election, and planning to convert to a RIC on April 1, 2025[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk) - The primary investment objective is to generate attractive yields and returns by managing a portfolio of corporate CLOs, with an emphasis on **mezzanine debt and equity tranches**[19](index=19&type=chunk)[29](index=29&type=chunk) - The company is externally managed by an affiliate of Ellington Management Group, L.L.C., which had approximately **$13.7 billion in assets under management** as of December 31, 2024[20](index=20&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) - A new management agreement includes a **1.50% annual Base Management Fee** on Net Asset Value and a **Performance Fee of 17.5%** above an 8% annual hurdle rate, with the Manager waiving all Performance Fees through March 31, 2025[51](index=51&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - As of December 31, 2024, the company had a **debt-to-equity ratio of 2.9 to 1**, with approximately **$563.0 million** outstanding under repurchase agreements[47](index=47&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its CLO investments, legacy Agency RMBS portfolio, financing and hedging activities, external manager relationship, and planned organizational changes - **CLO Investment Risks:** Investments in CLO mezzanine and equity tranches are **highly subordinated and exposed to first-loss risk**, with underlying corporate loans being typically below investment grade and sensitive to economic downturns[99](index=99&type=chunk)[106](index=106&type=chunk)[114](index=114&type=chunk) - **Agency RMBS Risks:** The value of Agency RMBS is subject to changes in the status of Fannie Mae and Freddie Mac, **prepayment rate volatility**, and interest rate fluctuations[141](index=141&type=chunk)[148](index=148&type=chunk)[155](index=155&type=chunk) - **Financing and Hedging Risks:** The use of leverage through short-term repurchase agreements **magnifies potential losses** and exposes the company to liquidity risk from margin calls or the inability to renew financing[177](index=177&type=chunk)[183](index=183&type=chunk)[190](index=190&type=chunk) - **Manager Relationship Risks:** The company's dependence on its external manager creates **conflicts of interest** regarding fee structures and the allocation of investment opportunities[216](index=216&type=chunk)[218](index=218&type=chunk)[224](index=224&type=chunk) - **Organizational and Tax Risks:** The company must maintain its 1940 Act exclusion until its RIC conversion, and its ability to use **significant NOL carryforwards** could be limited by Section 382 ownership changes[247](index=247&type=chunk)[258](index=258&type=chunk)[266](index=266&type=chunk) [Unresolved Staff Comments](index=48&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[303](index=303&type=chunk) [Cybersecurity](index=48&type=section&id=Item%201C.%20Cybersecurity) The company relies on its external manager's cybersecurity framework, which is overseen by the Audit Committee and has not experienced any material threats to date - The company is externally managed and relies on the information systems and cybersecurity processes of its manager, Ellington[304](index=304&type=chunk) - Oversight is provided by the company's Board of Trustees through the Audit Committee, which receives regular reports on cybersecurity risks[311](index=311&type=chunk) - Ellington's cybersecurity program is led by its CTO and focuses on technical safeguards, incident response, third-party risk management, and employee training[309](index=309&type=chunk)[313](index=313&type=chunk) - To date, **no risks from cybersecurity threats have materially affected the company**, and recent minor incidents at the manager were not material[308](index=308&type=chunk)[310](index=310&type=chunk) [Properties](index=50&type=section&id=Item%202.%20Properties) The company does not own any real estate and uses office space provided by its external manager - The company does not own any properties and its principal offices are located in leased space provided by the Manager[314](index=314&type=chunk) [Legal Proceedings](index=50&type=section&id=Item%203.%20Legal%20Proceedings) Neither the company nor its manager are currently subject to any material legal proceedings - The company and its affiliates are not currently subject to any material legal proceedings[315](index=315&type=chunk) [Mine Safety Disclosures](index=51&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's business - Not applicable[318](index=318&type=chunk) Part II [Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities](index=52&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Shareholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common shares trade on the NYSE under "EARN," with a share repurchase program in place but no shares repurchased in Q4 2024 - Common shares are listed on the NYSE under the symbol **"EARN"**[320](index=320&type=chunk) - A share repurchase program is in place, with authorization to repurchase up to **725,808 common shares** remaining as of December 31, 2024[323](index=323&type=chunk) - **No common shares were repurchased** under the program during the three-month period ended December 31, 2024[324](index=324&type=chunk) [[Reserved]](index=52&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company is executing a strategic transformation to focus on corporate CLOs, reporting net income of $6.6 million and an economic return of 2.3% for 2024 [Executive Summary and Market Developments](index=53&type=section&id=Executive%20Summary%20and%20Market%20Developments) The company is transforming to focus on CLOs amid a market environment of interest rate cuts and record leveraged loan issuance in 2024 - The company is undergoing a **"CLO Strategic Transformation,"** revoking its REIT status as of 2024 and planning to convert to a RIC on April 1, 2025[327](index=327&type=chunk)[328](index=328&type=chunk) - The Federal Reserve cut its target rate by a total of **100 basis points** in the latter half of 2024, ending the year at a range of 4.25%-4.50%[333](index=333&type=chunk) - The U.S. leveraged loan market saw record issuance of **$1.5 trillion** in 2024, with default rates declining to 0.91% by year-end[348](index=348&type=chunk) - Book value per share decreased from **$7.32** at year-end 2023 to **$6.53** as of December 31, 2024[332](index=332&type=chunk) [Portfolio Overview and Outlook](index=55&type=section&id=Portfolio%20Overview%20and%20Outlook) The company significantly expanded its CLO portfolio to $171.1 million while reducing Agency RMBS holdings and lowering its debt-to-equity ratio to 2.9:1 Portfolio Composition Change (Year-over-Year) | Asset Class | Dec 31, 2024 (in millions) | Dec 31, 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | CLO Portfolio | $171.1 | $17.4 | +883% | | Agency RMBS | $512.3 | $728.0 | -30% | - The debt-to-equity ratio, adjusted for unsettled trades, decreased to **2.9:1** as of Dec 31, 2024, compared to 5.3:1 as of Dec 31, 2023[346](index=346&type=chunk) - As of year-end 2024, **89% of borrowings were secured by Agency RMBS** and 11% by CLOs[346](index=346&type=chunk) [Performance by Asset Class](index=56&type=section&id=Performance%20by%20Asset%20Class) The CLO strategy delivered strong results in 2024, while gains on interest rate hedges offset losses on the Agency RMBS portfolio - The CLO strategy had strong results, led by robust net interest income and net gains in the U.S. and European CLO debt portfolios[355](index=355&type=chunk) - The Agency portfolio generated positive results for the year, with **net gains on interest rate hedges of $24.1 million** exceeding net losses on Agency MBS of $(16.1) million[360](index=360&type=chunk)[367](index=367&type=chunk)[368](index=368&type=chunk) - The non-Agency RMBS and interest-only securities portfolios generated positive results from net interest income and profitable sales before being substantially liquidated[356](index=356&type=chunk) [Financing and Book Value](index=59&type=section&id=Financing%20and%20Book%20Value) The company's average borrowing cost rose to 5.48% while its debt-to-equity ratio fell, resulting in a 2.3% economic return for 2024 Financing and Book Value Metrics | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Average Repo Borrowing Cost | 5.48% | 5.18% | | Debt-to-Equity Ratio (Year-End) | 2.9:1 | 5.4:1 | | Book Value Per Share (Year-End) | $6.53 | $7.32 | | Economic Return | 2.3% | N/A | [Critical Accounting Estimates](index=59&type=section&id=Critical%20Accounting%20Estimates) The company's most critical accounting estimates involve the subjective valuation of financial instruments and the recognition of interest income based on assumptions - **Valuation:** The company uses third-party valuations and internal discounted cash flow models for financial instruments not traded in active markets, a process requiring significant judgment for Level 3 assets[375](index=375&type=chunk)[376](index=376&type=chunk)[379](index=379&type=chunk) - **Interest Income:** Recognition is based on the effective interest method, which requires significant assumptions about future cash flows and can cause catch-up adjustments[381](index=381&type=chunk)[382](index=382&type=chunk) - **Income Taxes:** As a new C-Corp, the company must make judgments regarding tax positions and the recoverability of deferred tax assets[383](index=383&type=chunk) [Financial Condition](index=61&type=section&id=Financial%20Condition) As of Dec 31, 2024, total assets decreased to $824.1 million, while shareholders' equity increased to $193.7 million due to share issuances Investment Portfolio Summary (Fair Value, in thousands) | Portfolio | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Credit Portfolio | $171,606 | $38,136 | | Total Agency Portfolio | $512,309 | $735,412 | | **Total Securities, net** | **$684,337** | **$773,548** | Financial Derivatives (Net Fair Value, in thousands) | Derivative Type | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Financial Derivatives | $36,186 | $66,950 | Repurchase Agreement Borrowings (in thousands) | Date | Borrowings Outstanding | Weighted Avg. Interest Rate | | :--- | :--- | :--- | | Dec 31, 2024 | $562,974 | 4.81% | | Dec 31, 2023 | $729,543 | 5.58% | - Shareholders' equity increased to **$193.7 million** as of Dec 31, 2024, from $136.2 million a year prior, mainly due to **$73.6 million in net proceeds from share issuances**[399](index=399&type=chunk) [Results of Operations](index=64&type=section&id=Results%20of%20Operations) For 2024, net income rose to $6.6 million from $4.6 million in 2023, driven by a shift to positive net interest income of $15.1 million Results of Operations Summary (in thousands) | Line Item | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Net Interest Income (Expense) | $15,069 | $(2,707) | | Total Expenses | $8,784 | $5,535 | | Total Other Income (Loss) | $811 | $12,801 | | **Net Income (Loss)** | **$6,586** | **$4,559** | | **Net Income (Loss) Per Share** | **$0.28** | **$0.31** | - The increase in net income was primarily due to **positive net interest income** in 2024, driven by a larger, higher-yielding credit portfolio[401](index=401&type=chunk)[402](index=402&type=chunk) - Total interest expense decreased to **$34.8 million** from $45.3 million in 2023, due to lower overall borrowings[405](index=405&type=chunk) - Other operating expenses increased to **$6.2 million** from $3.7 million, mainly due to costs associated with the CLO Strategic Transformation[412](index=412&type=chunk) [Adjusted Distributable Earnings](index=67&type=section&id=Adjusted%20Distributable%20Earnings) Adjusted Distributable Earnings, a non-GAAP measure, increased to $27.7 million, or $1.17 per share, for the year ended December 31, 2024 Adjusted Distributable Earnings (Non-GAAP) | Metric | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Net Income (Loss) (GAAP) | $6,586 thousand | $4,559 thousand | | **Adjusted Distributable Earnings** | **$27,668 thousand** | **$13,000 thousand** | | **Adjusted Distributable Earnings Per Share** | **$1.17** | **$0.87** | - Adjusted Distributable Earnings is calculated by adjusting net income for items such as net realized and unrealized gains/losses on securities and derivatives[418](index=418&type=chunk) [Liquidity and Capital Resources](index=68&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity through cash, investment cash flows, and repo borrowings, and raised $73.6 million from its ATM program in 2024 - As of December 31, 2024, the company had **$31.8 million in cash** and **$563.0 million outstanding** under repurchase agreements[423](index=423&type=chunk)[425](index=425&type=chunk) - During 2024, the company issued 10,964,023 common shares under its ATM program, raising **$73.6 million in net proceeds**[442](index=442&type=chunk) - The company declared and paid monthly dividends totaling **$0.96 per share** for the year ended December 31, 2024[434](index=434&type=chunk)[435](index=435&type=chunk) - Cash and cash equivalents decreased by **$6.7 million** during 2024, from $38.5 million to $31.8 million[440](index=440&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=72&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are credit, interest rate, prepayment, and liquidity risk, with active hedging strategies in place to manage interest rate exposure - The primary components of market risk are identified as interest rate risk, prepayment risk, and credit risk[453](index=453&type=chunk) - Credit risk is concentrated in **non-Agency RMBS and corporate CLOs**, which are backed by below-investment-grade loans[454](index=454&type=chunk)[455](index=455&type=chunk) - Interest rate risk is managed through hedging instruments, including **interest rate swaps and TBAs**, to mitigate the mismatch between assets and liabilities[461](index=461&type=chunk) Interest Rate Sensitivity Analysis (as of Dec 31, 2024) | Interest Rate Change | Estimated Market Value Change (in thousands) | % of Total Equity | | :--- | :--- | :--- | | +100 Basis Points | $(4,845) | (2.51)% | | +50 Basis Points | $(1,602) | (0.82)% | | -50 Basis Points | $(39) | (0.02)% | | -100 Basis Points | $(1,719) | (0.90)% | - Liquidity risk is managed by maintaining a prudent level of leverage, using hedges, and holding a cushion of cash and unpledged securities[468](index=468&type=chunk)[469](index=469&type=chunk) [Financial Statements and Supplementary Data](index=76&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements, which received an unqualified opinion with a critical audit matter related to Level 3 investment valuation - The independent auditor, PricewaterhouseCoopers LLP, issued an **unqualified opinion** on the consolidated financial statements[473](index=473&type=chunk) - A critical audit matter was identified concerning the **valuation of certain Level 3 investments** in securities, due to the significant management judgment required[477](index=477&type=chunk)[478](index=478&type=chunk) Key Financial Data (in thousands) | Metric | As of/For Year Ended Dec 31, 2024 | As of/For Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | **Balance Sheet:** | | | | Total Assets | $824,092 | $945,690 | | Total Liabilities | $630,366 | $809,452 | | Total Shareholders' Equity | $193,726 | $136,238 | | **Statement of Operations:** | | | | Total Net Interest Income (Expense) | $15,069 | $(2,707) | | Net Income (Loss) | $6,586 | $4,559 | | Net Income (Loss) Per Share | $0.28 | $0.31 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=113&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - None[663](index=663&type=chunk) [Controls and Procedures](index=113&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2024 - Management concluded that **disclosure controls and procedures were effective** as of December 31, 2024[664](index=664&type=chunk) - There were **no material changes** in internal control over financial reporting during the fourth quarter of 2024[665](index=665&type=chunk) - Management concluded that **internal control over financial reporting was effective** as of December 31, 2024, based on the 2013 COSO framework[668](index=668&type=chunk) [Other Information](index=114&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[669](index=669&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=114&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[670](index=670&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=115&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's 2025 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2025 annual shareholders' meeting[672](index=672&type=chunk) [Executive Compensation](index=115&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2025 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2025 annual shareholders' meeting[675](index=675&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=115&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) Information regarding security ownership is incorporated by reference from the company's 2025 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2025 annual shareholders' meeting[676](index=676&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=115&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related party transactions and director independence is incorporated by reference from the company's 2025 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2025 annual shareholders' meeting[677](index=677&type=chunk) [Principal Accountant Fees and Services](index=115&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's 2025 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2025 annual shareholders' meeting[678](index=678&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=116&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the documents filed as part of the Form 10-K, including financial statements and key exhibits - Lists all documents filed with the report, including financial statements and exhibits[679](index=679&type=chunk) - Key exhibits include the Sixth Amended and Restated Management Agreement, the 2023 Equity Incentive Plan, and the Rights Agreement from April 2024[679](index=679&type=chunk)[680](index=680&type=chunk) [Form 10-K Summary](index=117&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is noted as 'None', indicating no summary is provided in this section of the report - None[681](index=681&type=chunk)

Company Overview - Ellington Credit Company (NYSE: EARN) has transitioned from operating as a mortgage REIT, primarily focusing on agency mortgage-backed securities, to a new strategic direction [1] Strategic Change - The company has undergone a strategic change, indicating a shift in its operational focus and investment strategy [1] Research Principles - Grassroots Trading emphasizes providing objective, unbiased, and balanced research, supported by solid data and devoid of emotional influences [1] - The focus is on small- to mid-cap companies, while also identifying potential opportunities in large- and mega-cap companies to offer comprehensive coverage of the equity markets [1]

Financial Data and Key Metrics Changes - The company reported a net loss of $0.07 per share for Q4 2024, with adjusted distributable earnings of $0.27 per share, covering dividends of $0.24 for the quarter [23][21] - The overall net interest margin remained strong at 5.07%, supported by a growing capital allocation to CLOs [23] - The debt-to-equity ratio adjusted for unsettled trades increased to 2.9 times from 2.5 times at September 30, while the net mortgage assets-to-equity ratio decreased to 2.6 times from 3 times [27] Business Line Data and Key Metrics Changes - The CLO portfolio grew by 18% to $171 million at year-end, with capital allocated to CLOs expanding to 72% from 58% at September 30 [28] - The CLO mezzanine debt portfolio continued to perform well, contributing to adjusted distributable earnings, while the Agency strategy generated a net loss due to rising interest rates and volatility [20][24] - The Agency RMBS holdings increased by 11% to $512 million at year-end [28] Market Data and Key Metrics Changes - Strong credit fundamentals and robust demand for leveraged loans supported the CLO markets, with credit spreads tightening [17] - The percentage of loans backing U.S. broadly syndicated CLOs trading at a premium declined from 63% at the end of January to 32% at the end of February [35] - European CLO equity outperformed U.S. CLO equity in Q4, benefiting from less capital markets activity and tighter credit spreads [36] Company Strategy and Development Direction - The company is on track to complete its conversion to a closed-end fund on April 1, which is expected to enhance risk-adjusted returns and access to capital markets [9][51] - The focus has shifted towards liquidity in the Agency pool position, with an emphasis on selling pools post-conversion [16][46] - The company plans to balance a swift ramp-up of CLO investments with careful asset selection, aiming for a fully ramped CLO portfolio around mid-year [50] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the timing of the conversion, anticipating good entry points for deploying capital in the second quarter [57] - There are concerns about potential longer-term stresses on corporate borrowers, but management expects to find opportunities in equity as market conditions evolve [37][39] - Recent market volatility has created a dynamic trading environment, presenting opportunities for CLO investments [38] Other Important Information - The company has significantly derisked its Agency MBS portfolio by increasing short TBA hedging positions, which now offset almost all long pool exposure [43] - The average pay-up on Agency pools decreased to 20 basis points from 101 basis points one year prior [16] Q&A Session Summary Question: How much capital will be freed up on April 1 when selling the Agency portfolio? - Management indicated that approximately 28% of the portfolio not in CLOs would be freed up, which is expected to be well-timed given current market volatility [54][56] Question: How have different parts of the CLO market reacted to recent volatility? - Management noted that AAA tranches have moved back about 0.50%, while equity generally saw declines, with performance varying by manager [60] Question: What is the expected leverage range once fully invested in CLOs? - Management suggested a reasonable estimate for leverage would be half the churn, indicating a potential for $150 million worth of CLOs for every $100 million of common equity [88]