
Fourth Quarter 2023 Financial Highlights This section summarizes the company's strong Q4 2023 performance, including net income, economic return, and strategic shifts in its investment portfolio CEO Commentary 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 20233 - Adjusted Distributable Earnings grew to $0.27 per share and exceeded dividend coverage3 - The company avoided forced asset sales during the October market selloff, preserving earnings and enabling market recovery participation3 - Agency RMBS generally outperformed interest rate swaps and U.S. Treasury securities in Q4, particularly lower and intermediate coupons4 - The CLO portfolio grew by $13.6 million during Q4, contributing to strong returns and lower leverage through capital rotation5 - As of March 6, 2024, the CLO portfolio reached approximately $30 million5 Key Financial and Operational Metrics 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 This section details Q4 2023 financial results, including portfolio composition, leverage, hedging strategies, and market performance Portfolio Composition and Changes 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 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 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 paydowns9 - Aggregate holdings of interest-only securities and non-Agency RMBS decreased by 13% during the quarter9 - CLO holdings increased more than fourfold to $17.4 million by December 31, 2023, reflecting capital rotation from RMBS to CLOs9 - Agency RMBS portfolio turnover was 25% for the quarter9 - The company plans to continue increasing allocation to corporate CLOs and/or non-Agency RMBS based on market opportunities14 Leverage and Hedging 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' equity10 - 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 position12 - A small credit hedge position was in place for corporate CLO and/or non-Agency RMBS investments as of December 31, 202312 Market Performance and Net Interest Margin 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 outperformance11 - Net gains on Agency RMBS and positive net interest income significantly exceeded net losses on hedges, driving strong portfolio performance11 - Corporate CLO portfolio contributed positively through net interest income and net gains as yield spreads tightened after an October widening13 - Non-Agency RMBS and interest-only securities generated positive results, driven by net interest income and net gains14 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 swaps15 Company Information and Disclosures 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 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 CLOs16 - Primary focus is on residential mortgage-backed securities guaranteed by a U.S. government Agency or government-sponsored enterprise16 - EARN is externally managed and advised by Ellington Residential Mortgage Management LLC, an affiliate of Ellington Management Group, L.L.C16 Conference Call Details 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 results17 - Dial-in and live webcast options were available, with an investor presentation posted on the company's website17 - A dial-in replay and webcast archive were available until March 14, 202417 Cautionary Statement Regarding Forward-Looking Statements 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 projections19 - Readers should not rely on forward-looking statements as predictions of future events, as they are based on current beliefs and assumptions subject to change19 - 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 trends19 - The company undertakes no obligation to update or revise any forward-looking statements19 Consolidated Financial Statements 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 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 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 program25 Adjusted Distributable Earnings (Non-GAAP) 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 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 income27 - ADE is a useful indicator of current and projected long-term financial performance and dividend-paying ability, excluding volatile earnings components28 - It helps evaluate the effective net yield of the portfolio after financial leverage and compares operating performance to residential mortgage REIT peers28 - ADE is supplementary to, not a substitute for, GAAP net income, differing from REIT taxable income, so distribution requirements are not based on ADE2930 - The Board of Trustees considers earnings, liquidity, financial condition, REIT distribution requirements, and financial covenants when setting dividends31 Reconciliation to Net Income (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 |