Financial Performance - Net income for the quarter was $124 million, or $075 per share[31] - Adjusted distributable earnings were $46 million, or $027 per share[32] - The company's economic return was 77% for the quarter[71] - Net interest margin was 219% overall, with 202% on Agency and 628% on credit[71] Portfolio Composition and Strategy - Agency RMBS holdings decreased by 8% to $7280 million as of December 31, 2023, compared to $7905 million as of September 30, 2023[73] - CLO holdings increased more than fourfold to $174 million during the fourth quarter[4] - The company's Agency RMBS portfolio turnover was 25% for the quarter[46] - Aggregate holdings of interest-only securities and non-Agency RMBS decreased by 13% over the same period[46] - The company had a net long TBA position of $367 million as of December 31, 2023[9] Capital Structure and Leverage - Shareholders' equity was $1362 million, with a book value per share of $732[72] - The company's debt-to-equity ratio was 54:1, or 53:1 adjusted for unsettled purchases and sales[72] - The net mortgage assets-to-equity ratio was 65:1[9]

Financial Data and Key Metrics Changes - In Q4 2023, the company reported net income of $0.75 per share and adjusted distributable earnings (ADE) of $0.27 per share, with a non-annualized economic return of 7.7% [19][25][28] - The overall net interest margin expanded to 2.19% from 1.34% quarter-over-quarter, driven by higher asset yields and a lower cost of funds [27] - Book value per share increased to $7.32 at year-end from $7.02 at September 30 [28] Business Line Data and Key Metrics Changes - The Agency RMBS holdings decreased by 8% sequentially to $728 million as of December 31, with a portfolio turnover of 25% for the quarter [29] - The CLO portfolio increased by $13.6 million during the quarter, with a total size of approximately $30 million by year-end, reflecting a 70% increase from the previous year [22][30] - The credit net interest margin, including CLOs and non-agency RMBS, increased to 6.28% from 4.55% [27] Market Data and Key Metrics Changes - Medium and long-term interest rates declined overall for the quarter despite earlier spikes, with the 30-year Freddie mortgage survey rate finishing lower [9][10] - Credit spreads on both high yield and investment-grade tightened significantly over the quarter, with prices on the Morningstar LSTA Leveraged Loan Index rising [11][15] Company Strategy and Development Direction - The company is focusing on diversifying its portfolio by increasing investments in CLOs, which now represent 17% of total equity, while reducing its Agency MBS holdings [68] - The management believes that the CLO strategy will stabilize and enhance returns over time, as it is expected to generate attractive returns across market cycles [74][68] - The company anticipates that the Federal Reserve's shift from a tightening to a supportive stance will benefit the Agency MBS market [63][50] Management's Comments on Operating Environment and Future Outlook - Management noted that the fourth quarter was characterized by significant market volatility, but they successfully navigated these fluctuations to maintain portfolio integrity [13][36] - The company expects continued strength in the CLO market due to declining credit market risks and anticipates further inflows into high-yield and leveraged loans [61][52] - Management expressed optimism about future performance, citing factors such as low supply relative to Treasury supply and lower volatility [65][66] Other Important Information - The company ended the quarter with $61 million in cash plus unencumbered assets, approximately 45% of total equity [28] - The debt-to-equity ratio adjusted for unsettled trades decreased to 5.3:1 from 7.3:1, primarily due to an increase in shareholders' equity [30] Q&A Session Summary Question: How do you see the equity allocation to CLOs playing out? - Management expressed enthusiasm for the CLO strategy, indicating that they would like to see it grow as much as possible, while acknowledging constraints related to REIT regulations [74][75] Question: What are your thoughts on the leverage ratio going forward? - Management indicated that leverage will be blended based on the appropriate levels for each asset class, with potential for increasing leverage in CLOs as conditions allow [89][90] Question: What interest rate environment is needed for a meaningful pickup in prepay speeds? - Management noted that while prepayment speeds have been benign, significant moves in rates would be necessary for many of the coupons held to become refinanceable [92][93]

Ellington Residential (EARN) came out with quarterly earnings of $0.27 per share, beating the Zacks Consensus Estimate of $0.23 per share. This compares to earnings of $0.25 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 17.39%. A quarter ago, it was expected that this residential mortgage real estate investment trust would post earnings of $0.25 per share when it actually produced earnings of $0.21, delivering a surprise of ...

OLD GREENWICH, Conn.--(BUSINESS WIRE)--Ellington Residential Mortgage REIT (NYSE: EARN) ("we", "us," or "our") today reported financial results for the quarter ended December 31, 2023. Highlights Net income (loss) of $12.4 million, or $0.75 per share. Adjusted Distributable Earnings1 of $4.6 million, or $0.27 per share. Book value of $7.32 per share as of December 31, 2023, which includes the effects of dividends of $0.24 per share for the quarter. Net interest margin2 of 2.02% on Agency, 6.28% o ...

[Fourth Quarter 2023 Financial Highlights](index=1&type=section&id=Fourth%20Quarter%202023%20Results) This section summarizes the company's strong Q4 2023 performance, including net income, economic return, and strategic shifts in its investment portfolio [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Laurence Penn reported strong Q4 2023 performance with $0.75 net income per share, 7.7% economic return, and strategic CLO rotation - **Net income of $0.75 per share** and a **7.7% non-annualized economic return** in Q4 2023[3](index=3&type=chunk) - **Adjusted Distributable Earnings grew to $0.27 per share** and **exceeded dividend coverage**[3](index=3&type=chunk) - The company avoided forced asset sales during the October market selloff, preserving earnings and enabling market recovery participation[3](index=3&type=chunk) - Agency RMBS generally **outperformed interest rate swaps and U.S. Treasury securities** in Q4, particularly lower and intermediate coupons[4](index=4&type=chunk) - The **CLO portfolio grew by $13.6 million** during Q4, contributing to strong returns and lower leverage through capital rotation[5](index=5&type=chunk) - As of March 6, 2024, the **CLO portfolio reached approximately $30 million**[5](index=5&type=chunk) [Key Financial and Operational Metrics](index=1&type=section&id=Key%20Financial%20and%20Operational%20Metrics) Q4 2023 key financial and operational metrics show strong performance, including net income, ADE, book value, and strategic portfolio shifts Fourth Quarter 2023 Key Financial Metrics | Metric | Value | | :--------------------------------- | :---------------- | | Net income (loss) | $12.4 million | | Net income (loss) per share | $0.75 | | Adjusted Distributable Earnings | $4.6 million | | Adjusted Distributable Earnings per share | $0.27 | | Book value per share (Dec 31, 2023) | $7.32 | | Dividends per share (Q4 2023) | $0.24 | | Dividend yield (March 5, 2024) | 16.0% | | Monthly dividend declared (Feb 7, 2024) | $0.08 per common share | Fourth Quarter 2023 Key Operational Metrics | Metric | Value | | :--------------------------------- | :---------------- | | Net interest margin (Agency) | 2.02% | | Net interest margin (Credit) | 6.28% | | Net interest margin (Overall) | 2.19% | | Weighted average CPR (fixed-rate Agency specified pool) | 6.8% | | Net mortgage assets-to-equity ratio (Dec 31, 2023) | 6.5:1 | | CLO portfolio (Dec 31, 2023) | $17.4 million | | Capital allocation (Dec 31, 2023) | 89% mortgage-related, 11% corporate CLOs | | Debt-to-equity ratio (Dec 31, 2023, adjusted) | 5.3:1 | | Cash and cash equivalents (Dec 31, 2023) | $38.5 million | | Other unencumbered assets (Dec 31, 2023) | $22.9 million | [Detailed Financial Results and Portfolio Overview](index=2&type=section&id=Financial%20Results) This section details Q4 2023 financial results, including portfolio composition, leverage, hedging strategies, and market performance [Portfolio Composition and Changes](index=2&type=section&id=Portfolio%20Composition%20and%20Changes) The long investment portfolio saw decreased Agency RMBS and IOs, with significant CLO growth reflecting a strategic capital rotation to credit assets [Long Investments Portfolio](index=2&type=section&id=Long%20Investments%20Portfolio) The long investments portfolio shows a decrease in Agency RMBS and an increase in CLO holdings from Q3 to Q4 2023 Portfolio of Long Investments (Fair Value, $ in thousands) | Portfolio Segment | Dec 31, 2023 | Sep 30, 2023 | Change ($) | Change (%) | | :---------------- | :----------- | :----------- | :--------- | :--------- | | Total Agency RMBS | $727,997 | $790,508 | $(62,511) | -7.9% | | Agency IOs | $7,415 | $7,845 | $(430) | -5.5% | | Total Agency | $735,412 | $798,353 | $(62,941) | -7.9% | | CLO Notes | $14,491 | $3,824 | $10,667 | +279.0% | | CLO Equity | $2,926 | $0 | $2,926 | N/A | | Non-Agency RMBS | $9,409 | $12,825 | $(3,416) | -26.6% | | Non-Agency IOs | $11,310 | $11,540 | $(230) | -2.0% | | Total Credit | $38,136 | $28,189 | $9,947 | +35.3% | | Total Portfolio | $773,548 | $826,542 | $(52,994) | -6.4% | [Portfolio Shifts and Turnover](index=2&type=section&id=Portfolio%20Shifts%20and%20Turnover) Portfolio shifts in Q4 2023 included an 8% decrease in Agency RMBS and a more than fourfold increase in CLO holdings - **Agency RMBS holdings decreased by 8% to $728.0 million** by December 31, 2023, due to net sales and paydowns[9](index=9&type=chunk) - Aggregate holdings of interest-only securities and non-Agency RMBS **decreased by 13%** during the quarter[9](index=9&type=chunk) - **CLO holdings increased more than fourfold to $17.4 million** by December 31, 2023, reflecting capital rotation from RMBS to CLOs[9](index=9&type=chunk) - **Agency RMBS portfolio turnover was 25%** for the quarter[9](index=9&type=chunk) - The company plans to **continue increasing allocation to corporate CLOs and/or non-Agency RMBS** based on market opportunities[14](index=14&type=chunk) [Leverage and Hedging](index=2&type=section&id=Leverage%20and%20Hedging) Leverage ratios decreased in Q4 2023 due to reduced borrowings and higher equity, with interest rate risk primarily hedged via swaps Leverage Ratios | Metric | Dec 31, 2023 | Sep 30, 2023 | Change | | :--------------------------------- | :----------- | :----------- | :----- | | Debt-to-equity ratio (adjusted) | 5.3:1 | 7.3:1 | -2.0 | | Net mortgage assets-to-equity ratio | 6.5:1 | 7.2:1 | -0.7 | - **Leverage ratios declined due to decreased borrowings** on a smaller Agency RMBS portfolio and **significantly higher shareholders' equity**[10](index=10&type=chunk) - Interest rate risk was primarily **hedged through interest rate swaps**, ending with a net long TBA notional position but a net short 10-year equivalent position[12](index=12&type=chunk) - A **small credit hedge position** was in place for corporate CLO and/or non-Agency RMBS investments as of December 31, 2023[12](index=12&type=chunk) [Market Performance and Net Interest Margin](index=2&type=section&id=Market%20Performance%20and%20Net%20Interest%20Margin) Agency RMBS and CLO markets showed strong performance with tightening spreads, while net interest margins significantly increased due to higher asset yields and lower funding costs - **Agency RMBS outperformed U.S. Treasury securities and interest rate swaps** in Q4, with lower and intermediate coupon RMBS showing pronounced outperformance[11](index=11&type=chunk) - **Net gains on Agency RMBS and positive net interest income significantly exceeded net losses on hedges**, driving strong portfolio performance[11](index=11&type=chunk) - **Corporate CLO portfolio contributed positively** through net interest income and net gains as yield spreads tightened after an October widening[13](index=13&type=chunk) - **Non-Agency RMBS and interest-only securities generated positive results**, driven by net interest income and net gains[14](index=14&type=chunk) Net Interest Margin (excluding Catch-up Amortization Adjustment) | Portfolio | Q4 2023 | Q3 2023 | Change (bps) | | :-------- | :------ | :------ | :----------- | | Agency | 2.02% | 1.26% | +76 bps | | Credit | 6.28% | 4.55% | +173 bps | - **Increased net interest margins were driven by higher asset yields and lower cost of funds**, benefiting from positive carry on interest rate swaps[15](index=15&type=chunk) [Company Information and Disclosures](index=3&type=section&id=Company%20Information) This section provides an overview of Ellington Residential Mortgage REIT, conference call details, and cautionary statements regarding forward-looking information [About Ellington Residential Mortgage REIT](index=3&type=section&id=About%20Ellington%20Residential%20Mortgage%20REIT) Ellington Residential Mortgage REIT (EARN) is a REIT focused on residential mortgage-related assets, primarily Agency RMBS and corporate CLOs, externally managed by Ellington Management Group - **Ellington Residential Mortgage REIT (EARN) is a REIT** specializing in residential mortgage-related, real estate-related, and other assets, including corporate CLOs[16](index=16&type=chunk) - Primary focus is on **residential mortgage-backed securities guaranteed by a U.S. government Agency** or government-sponsored enterprise[16](index=16&type=chunk) - EARN is **externally managed and advised by Ellington Residential Mortgage Management LLC**, an affiliate of Ellington Management Group, L.L.C[16](index=16&type=chunk) [Conference Call Details](index=3&type=section&id=Conference%20Call) A conference call on March 7, 2024, discussed Q4 2023 results, offering dial-in, webcast, and presentation access, with replays available - A conference call was held on **Thursday, March 7, 2024, at 11:00 a.m. Eastern Time** to discuss Q4 2023 financial results[17](index=17&type=chunk) - **Dial-in and live webcast options were available**, with an investor presentation posted on the company's website[17](index=17&type=chunk) - A **dial-in replay and webcast archive were available until March 14, 2024**[17](index=17&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This statement warns that forward-looking statements are subject to risks and uncertainties, advising against reliance on them as future predictions due to potential discrepancies from various market and regulatory factors - The press release contains **forward-looking statements subject to numerous risks and uncertainties**, where actual results may differ from projections[19](index=19&type=chunk) - Readers should **not rely on forward-looking statements as predictions of future events**, as they are based on current beliefs and assumptions subject to change[19](index=19&type=chunk) - Factors causing actual results to vary include **changes in interest rates, investment market value, market volatility, mortgage rates, borrowing ability, regulations, REIT qualification, and economic trends**[19](index=19&type=chunk) - The company **undertakes no obligation to update or revise any forward-looking statements**[19](index=19&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) This section presents the consolidated statement of operations and balance sheet, detailing the company's financial performance and position for Q4 2023 [Consolidated Statement of Operations](index=5&type=section&id=CONSOLIDATED%20STATEMENT%20OF%20OPERATIONS) Q4 2023 net income significantly improved to $12.4 million ($0.75 per share), driven by positive net interest income and substantial unrealized gains on securities Consolidated Statement of Operations (Three-Month Period Ended, $ in thousands) | Item | Dec 31, 2023 | Sep 30, 2023 | | :----------------------------------------- | :----------- | :----------- | | Interest income | $11,888 | $11,253 | | Interest expense | $(11,511) | $(12,349) | | Total net interest income (expense) | $377 | $(1,096) | | Total expenses | $1,374 | $1,356 | | Net realized gains (losses) on securities | $(11,825) | $(19,572) | | Net realized gains (losses) on financial derivatives | $1,440 | $1,152 | | Change in net unrealized gains (losses) on securities | $50,930 | $(15,824) | | Change in net unrealized gains (losses) on financial derivatives | $(27,109) | $25,276 | | Total other income (loss) | $13,436 | $(8,968) | | NET INCOME (LOSS) | $12,439 | $(11,420) | | Basic and Diluted Net Income (Loss) Per Common Share | $0.75 | $(0.75) | | Weighted Average Shares Outstanding | 16,662,407 | 15,199,837 | | Cash Dividends Per Share | $0.24 | $0.24 | [Consolidated Balance Sheet](index=6&type=section&id=CONSOLIDATED%20BALANCE%20SHEET) As of December 31, 2023, total assets decreased to $945.7 million, while total shareholders' equity significantly increased to $136.2 million, improving book value per share to $7.32 Consolidated Balance Sheet (As of, $ in thousands) | Item | Dec 31, 2023 | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | :----------- | | Total Assets | $945,690 | $1,064,436 | $1,053,632 | | Securities, at fair value | $773,548 | $836,275 | $893,509 | | Financial derivatives–assets, at fair value | $74,279 | $100,948 | $68,770 | | Total Liabilities | $809,452 | $952,978 | $941,223 | | Repurchase agreements | $729,543 | $811,180 | $842,455 | | Financial derivatives–liabilities, at fair value | $7,329 | $8,840 | $3,119 | | Total Shareholders' Equity | $136,238 | $111,458 | $112,409 | | Book Value Per Share | $7.32 | $7.02 | $8.40 | | Common shares issued and outstanding | 18,601,464 | 15,870,141 | 13,377,840 | - **Common shares issued and outstanding at December 31, 2023, include 2,720,548 shares** issued during Q4 under the at-the-market offering program[25](index=25&type=chunk) [Adjusted Distributable Earnings (Non-GAAP)](index=7&type=section&id=Reconciliation%20of%20Adjusted%20Distributable%20Earnings%20to%20Net%20Income%20(Loss)) This section defines Adjusted Distributable Earnings (ADE), a non-GAAP measure, and reconciles it to net income, highlighting its purpose and calculation [Definition and Purpose](index=7&type=section&id=Definition%20and%20Purpose%20of%20Adjusted%20Distributable%20Earnings) Adjusted Distributable Earnings (ADE) is a non-GAAP measure excluding volatile gains/losses, used to indicate long-term performance, evaluate portfolio yield, and compare operating performance, but is not a GAAP substitute - **Adjusted Distributable Earnings (ADE) is a non-GAAP measure** excluding realized/unrealized gains/losses on securities and derivatives (except swap settlements) and Catch-up Amortization Adjustment from net income[27](index=27&type=chunk) - ADE is a **useful indicator of current and projected long-term financial performance and dividend-paying ability**, excluding volatile earnings components[28](index=28&type=chunk) - It helps **evaluate the effective net yield of the portfolio** after financial leverage and **compares operating performance to residential mortgage REIT peers**[28](index=28&type=chunk) - ADE is **supplementary to, not a substitute for, GAAP net income**, differing from REIT taxable income, so distribution requirements are not based on ADE[29](index=29&type=chunk)[30](index=30&type=chunk) - The Board of Trustees considers **earnings, liquidity, financial condition, REIT distribution requirements, and financial covenants** when setting dividends[31](index=31&type=chunk) [Reconciliation to Net Income (Loss)](index=7&type=section&id=Reconciliation%20to%20Net%20Income%20(Loss)) Q4 2023 Adjusted Distributable Earnings increased to $4.6 million ($0.27 per share), up from $3.2 million in Q3, primarily due to adjustments for realized and unrealized gains/losses Reconciliation of Adjusted Distributable Earnings to Net Income (Loss) ($ in thousands) | Item | Dec 31, 2023 | Sep 30, 2023 | | :-------------------------------------------------------------------------------- | :----------- | :----------- | | Net Income (Loss) | $12,439 | $(11,420) | | Net realized (gains) losses on securities | $11,825 | $19,572 | | Change in net unrealized (gains) losses on securities | $(50,930) | $15,824 | | Net realized (gains) losses on financial derivatives | $(1,440) | $(1,152) | | Change in net unrealized (gains) losses on financial derivatives | $27,109 | $(25,276) | | Net realized gains (losses) on periodic settlements of interest rate swaps | $880 | $796 | | Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps | $5,228 | $4,913 | | Non-recurring expenses | $13 | $28 | | Negative (positive) component of interest income represented by Catch-up Amortization Adjustment | $(566) | $(46) | | Subtotal (Adjustments) | $(7,881) | $14,659 | | Adjusted Distributable Earnings | $4,558 | $3,239 | | Weighted Average Shares Outstanding | 16,662,407 | 15,199,837 | | Adjusted Distributable Earnings Per Share | $0.27 | $0.21 |

OLD GREENWICH, Conn.--(BUSINESS WIRE)--Ellington Residential Mortgage REIT (NYSE: EARN) (the "Company") today announced that it will release financial results for the quarter ended December 31, 2023 after market close on Wednesday, March 6, 2024. The Company will host a conference call to discuss its financial results at 11:00 a.m. Eastern Time on Thursday, March 7, 2024. To participate in the event by telephone, please dial (800) 579-2543 at least 10 minutes prior to the start time and reference the confer ...

OLD GREENWICH, Conn.--(BUSINESS WIRE)--Ellington Residential Mortgage REIT (NYSE: EARN) (the "Company") today announced that its Board of Trustees has declared a monthly common dividend of $0.08 per share, payable on March 25, 2024 to shareholders of record as of February 29, 2024. Cautionary Statement Regarding Forward-Looking Statements This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward- ...

Financial Data and Key Metrics Changes - The company reported a net loss of $0.75 per share for Q3 2023, compared to a net income of $0.09 per share in the previous quarter [30] - Adjusted distributable earnings (ADE) increased to $0.21 per share from $0.17 per share in Q2 2023, despite lower average holdings [18][30] - Book value decreased to $7.02 per share from $8.12 per share at the end of Q2 2023, resulting in an economic return of negative 10.6% including dividends [32] Business Line Data and Key Metrics Changes - Agency RMBS holdings declined by 11% to $791 million as of September 30, 2023, driven by principal pay downs and net losses [19] - The net interest margin (NIM) increased to 1.24% from 0.93% quarter-over-quarter due to higher asset yields from portfolio turnover [18] - The company added $3.8 million of CLOs during the final week of the quarter, with expectations for significant growth in CLO allocation [19][29] Market Data and Key Metrics Changes - The yield on the 10-year treasury rose 82 basis points between mid-July and September 30, 2023, contributing to significant pressure on Agency yield spreads [6] - The MOVE Index, which tracks expected short-term interest rate volatility, remained elevated, impacting the performance of Agency MBS [6] - The company noted that the fourth quarter typically sees a drop in Agency RMBS supply, which could enhance market conditions [8] Company Strategy and Development Direction - The company is diversifying its portfolio by allocating capital to corporate CLOs, specifically mezzanine debt and equity, to enhance returns and reduce volatility [16][25] - The management believes that CLOs will complement the Agency MBS strategy and provide higher expected returns on equity [25][37] - The company aims to maintain a strong liquidity position and additional borrowing capacity while navigating a challenging market environment [28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for capital flows back into Agency MBS as interest rate volatility normalizes [41] - The company is focused on preserving value and avoiding forced selling during periods of market distress [34] - Management anticipates that the introduction of CLOs will help stabilize book value swings during times of increased interest rate volatility [25] Other Important Information - The company maintained a strong liquidity position at quarter-end, with cash and unencumbered assets representing 38% of total equity [28] - The debt to equity ratio adjusted for unsettled purchases decreased to 7.3x from 7.6x, indicating a reduction in borrowings [20] Q&A Session Summary Question: Are you putting on any leverage with CLO investments? - Management indicated that no explicit leverage has been put on CLOs yet, but modest leverage is intended to finance incremental CLO purchases [54] Question: What are the expected returns in the CLO sector? - Management projected returns on CLO investments to be over 20%, with expectations for significant returns as the allocation increases [63] Question: Can you discuss the strategy behind issuing shares at a discount to book value? - The company aims to maintain $100 million of equity and views the share issuance as a way to replace equity lost during a tough quarter [57]

Financial Performance - As of September 30, 2023, the company's book value per share was $7.02, down from $8.12 as of June 30, 2023, and $8.40 as of December 31, 2022[167]. - The company faced significant headwinds in the third quarter due to elevated market volatility and rising long-term interest rates, resulting in net losses on Agency RMBS[175]. - The company experienced total net realized and unrealized losses on Agency securities of $(35.4) million, or $(2.33) per share, for the three-month period ended September 30, 2023[187]. - For the three-month period ended September 30, 2023, net income was $(11.4) million, an improvement from $(13.7) million in the same period of 2022[226]. - The net income (loss) for the nine-month period ended September 30, 2023, was $(7.9) million, an improvement from $(41.9) million in the same period in 2022[240]. Portfolio and Investment Strategy - The Agency RMBS portfolio decreased by 11% to $790.5 million as of September 30, 2023, compared to $889.0 million as of June 30, 2023[171]. - The company’s investment portfolio primarily consists of Agency RMBS, with plans to increase allocation to non-Agency RMBS and/or CLOs based on market opportunities[207]. - The company aims to target specified pools that generate attractive yields and have less prepayment sensitivity to government policy shocks[182]. - The company’s portfolio management strategy is adaptive to current market conditions, focusing on interest rate risk, prepayment risk, and regulatory changes[191]. Debt and Liabilities - The company's outstanding borrowings under repurchase agreements amounted to $811.2 million, with 97% collateralized by Agency RMBS[166]. - The debt-to-equity ratio decreased to 7.3:1 as of September 30, 2023, from 7.6:1 as of June 30, 2023[173]. - The total liabilities under repurchase agreements amounted to $811.2 million as of September 30, 2023, with a weighted average interest rate of 5.50%, up from 3.70% as of December 31, 2022[216]. - The weighted average contractual haircut applicable to the assets serving as collateral for outstanding repo borrowings was 5.4% as of September 30, 2023[255]. Cash and Liquidity - Cash and cash equivalents were $40.0 million as of September 30, 2023, down from $43.7 million as of June 30, 2023[174]. - The company had cash and cash equivalents of $40.0 million as of September 30, 2023[261]. - The company believes its capital resources will be sufficient to meet anticipated short-term and long-term liquidity requirements based on its current portfolio and debt-to-equity ratio[271]. Interest Income and Expenses - Interest income for the three-month period ended September 30, 2023, was $11.3 million, up from $9.5 million in 2022, driven by higher asset yields[219]. - Total interest expense increased to $12.3 million for the three-month period ended September 30, 2023, compared to $4.3 million in 2022, mainly due to higher financing costs[229]. - The average cost of funds on repurchase agreements increased to 5.48% for the three-month period ended September 30, 2023, from 1.79% in 2022[230]. Dividends and Shareholder Equity - The company declared a monthly dividend of $0.08 per share, with a total dividend amount of $1,270,000 for the period ending September 30, 2023[262]. - Shareholders' equity decreased to $111.5 million from $112.4 million, primarily due to a net loss of $(7.9) million and dividends declared of $10.4 million[217]. - The company issued 2,462,489 common shares under the ATM program during the nine-month period ended September 30, 2023, generating net proceeds of $17.1 million after agent commissions and offering costs[269]. Market Conditions and Risks - The company experienced a decrease in cash holdings from $69.0 million as of December 31, 2021, to $25.4 million as of September 30, 2022, reflecting a decrease of $43.6 million[268]. - Elevated long-term inflation could adversely impact the performance of the investment portfolio, particularly if it is not matched by an increase in wages[278]. - The company is not materially exposed to market, credit, liquidity, or financing risk from off-balance sheet arrangements as of September 30, 2023[276].

Financial Data and Key Metrics Changes - The company generated net income of $0.09 per share and adjusted distributable earnings (ADE) of $0.17 per share for the second quarter, compared to net income of $0.17 per share and ADE of $0.21 per share in the first quarter [7][36] - Book value per share decreased to $8.12 at June 30 from $8.31 at March 31, resulting in an economic return of 60 basis points including dividends [13][36] - The net interest margin (NIM) decreased to 0.93% from 1.16% due to asset yields increasing less than borrowing rates [12] Business Line Data and Key Metrics Changes - The non-Agency and interest-only (IO) portfolios contributed positively to quarterly results, driven by net gains and strong net interest income [9] - The Agency RMBS holdings remained essentially unchanged at $889 million, with portfolio turnover at 19% for the quarter [38] Market Data and Key Metrics Changes - The MBS sector performed better than expected, with strong investor interest absorbing FDIC-directed sales [18][31] - The company raised its weighted average coupon slightly by about 15 basis points to nearly 4%, which is still below new production [20] Company Strategy and Development Direction - The company plans to maintain excess liquidity and additional borrowing capacity to capitalize on attractive investment opportunities and manage volatility [46] - The strategy includes rotating the portfolio to drive NIM and ADE while relying on dynamic hedging to protect book value [46] Management's Comments on Operating Environment and Future Outlook - Management expressed a positive outlook for Agency MBS, citing wide nominal yield spreads and encouraging inflation data [65] - The company anticipates that bank demand for MBS will return, stabilizing spreads as deposit stability improves [80] Other Important Information - The company maintained a stable overall portfolio composition and focused on finding pools with the lowest payoffs for faster prepayments [32][33] - The company highlighted the importance of demand from other pools of capital to support the mortgage market [26][48] Q&A Session All Questions and Answers Question: Potential to add more mortgage leverage - Management indicated that a reduction in interest rate volatility would be a catalyst for increasing leverage, with bank participation expected to materialize in Q4 [66][68] Question: Trade-off of issuing stock versus share buybacks - The company plans to maintain a stable capital base, with potential moderate issuance to keep capital levels stable while considering share buybacks if the stock price approaches 80% of book value [50] Question: Opportunities in the non-Agency portfolio - Management expressed interest in credit risk transfer (CRT) assets due to significant home price appreciation and low loan-to-value ratios [52] Question: Thoughts on TBA positions - The company uses TBA shorts to manage negative convexity and will adjust exposure based on the attractiveness of mortgage basis [99]